If your adversary is using a business entity to conceal assets from you, one thing to look for is trade-based money laundering. A June 2006 report by the Financial Action Task Force explains that trade-based laundering schemes can include: the over or under-invoicing of goods or services; the over or under-shipping of goods; falsely describing goods or services; or multiple invoicing.¹ You can search for assets hidden via trade-based laundering by spotting the red flags. Page 24 of the June 2006 report describes the red flags and some of them are:
a disparity between a shipped commodity’s bill of lading and its invoice.
a disparity between a commodity’s value as recorded on its invoice and fair market value.
the shipping of goods although there is no profit/economic benefit.
a shipment with a nexus to shell companies.
letters of credit related to a shipment that have been amended or extended repeatedly.
the type of shipped commodity is inconsistent with the importer’s/exporter’s ordinary business activities.
shipping to or from a high-risk geographical location (i.e. a jurisdiction especially vulnerable to money laundering).
Pages 9-20 of the June 2006 report also provide 12 case studies showing how trade-based money laundering can be used to conceal one’s assets. The August 24, 2007 plea agreement of Gene Haas might describe another case of trade-based money laundering. Mr. Haas entered this plea agreement after his arrest on June 19, 2006 for suspected tax fraud. Attachment A at the plea agreement says the Enmark Aerospace and Supermill companies had provided Mr. Haas with invoices for fictitious purchases.
According to Attachment A, Mr. Haas paid Enmark & Supermill millions of dollars pursuant to these invoices; and Mr. Haas then took business deductions for “cost of goods sold.” Attachment A also indicates that Enmark and Supermill eventually returned the millions, (less a 2% kick back fee), to Mr. Haas through Mr. Haas’ intermediary, CNC Associates, Inc. Stated differently, it seems that Enmark, Supermill and CNC Associates could have been employed as laundering links in a money laundering circuit. After Mr. Haas’ plea agreement, Mr. Haas was sentenced on November 5, 2007 to two years in prison for violating 18 U.S.C § 371. Mr. Haas additionally paid a $5 million dollar fine and over $70 million dollars in back taxes owed for 2000 and 2001.
¹ See p.4 at “Trade-Based Money Laundering,” Copyright © FATF/OECD. All rights reserved.