CSS Solved Criminology Past Papers | What is Trade–Based Money Laundering (TBML) Discuss with examples.
The following question of Criminology is attempted on the same pattern, taught by Sir to his students, scoring the highest marks in compulsory subjects for years. This solved past paper question is uploaded to help aspirants understand how to crack a topic or question, how to write relevantly, what coherence is, and how to include and connect ideas, opinions, and suggestions to score the maximum.
The examiner has directly asked about Trade-Based Money Laundering. Meanwhile, to score well students have to provide practical examples from the real world. Later on, they have to connect it with Pakistan’s approach to tackling TBML.
2- Understanding Trade-Based Money Laundering
3- How Trade-Based Money Laundering Works
4- Examples of Trade-Based Money laundering from the real world
5- How Pakistan took measures to stop Trade-Based Money Laundering
6- Applying Strain Theory: How removing the excess strain of earning more through illegal ways can produce responsible citizens
The whole world operates on the system of the open market system. People can buy goods and transfer money easily. The improvement in technology has made life easy for people. However, there always comes another side to the coin. Those who were involved in illegal activities used this system of trade for illegal activities. It is Trade-Based Money Laundering that is done by criminals to finance illegal activities. It is a method to perform illegal transactions and selling of goods for the purpose of funding criminal activities. Moreover, people generally attach fewer prices to expensive goods to save themselves from taxes. They manipulate documents of the transactions to deceive the government and financial institutes. Meanwhile, all the big smugglers use this way to pass their containers across the border without heavy tax duties. However, with anti-money laundering regulations, it is possible to control TBML.
“Trade-Based Money Laundering is a growing risk, as seemingly legitimate transactions are exploited by criminal groups to launder funds and finance terrorist activity.”Sebstain Hetzler
Understanding Trade-Based Money Laundering
The core concept of TBML is to transfer heavy amounts to other countries by using legal ways. However, those ways look legal but they are done for illegal activities. It is easy for everyone to import and export goods. Meanwhile, government charges tax on those goods according to the value of the product. Manipulating the actual price of the product can help people save tax money. Similarly, those people who want to transfer a large amount to another country without paying taxes at banks simply convert that money into goods and transfer those goods to another country.
How Trade-Based Money Laundering Works
“Buying goods for 2 million showing their price low to 1 million and paying tax on 1 million only is the framework of TBML”
Examples of Trade-Based Money Laundering from the real world
There are many real examples of TBML and it is a very common practice.
- Hiding the actual price of the goods and showing less amount to save tax
In this way, importer and exporter both misrepresent information. They never show the actual value of the good and hide it from financial institutions. It helps them to save tax and later on, they can charge a heavy amount of profit from the customers.
- Multiple Invoicing of Goods and Services:
This method involves the re-use of existing documents to justify multiple payments for the same shipments of goods or delivery of services. Similarly, they generate multiple bills for a single shipment by obscuring payments with multiple financial institutions. It makes it difficult for any one institution to identify it.
“Money laundering is giving oxygen to organized crime”WordPress
How Pakistan took measures to stop Trade-Based Money Laundering
The state bank of Pakistan has issued various guidelines to combat Trade-Based Money Laundering in Pakistan.
- Only Authorized dealers shall define clear policies and procedures for price verification and defining the level of acceptable prices.
- Dealers shall require the exporter to submit a copy of the underlying sale contract along with an advance payment voucher.
- The large variance between the price on the voucher and the actual market price will be considered a red flag.
Applying Strain Theory: How removing the excess strain of earning more through illegal ways can produce responsible citizens
The point to note is that even having the opportunity of earning through legal ways people choose illegal ways to earn. The thing that is in the mind of people is to earn more profit through illegal ways. However, they can earn the same amount by doing business in legit ways. It is the strain in them that provokes them towards using shorts cut to earn more money. They can be socialized to neutralize the strain of earning more money and becoming responsible citizens who pay taxes to support the economy of the country.
“It’s bad form to mention money laundering. Instead, you talk about asset management structures and tax beneficial schemes”John Sweeney
In a nutshell, Trade-Based Money Laundering is a way to earn illegally using all legal ways. Through this method, people save their amounts from taxes and make huge profits. It is very commonly done at a large level. Most of the time people, hide the actual price of the product and shows less price. They also show less quantity to make imports and exports at low costs. However, Pakistan has taken measures to counter TBML. The state bank of Pakistan has given authority to specific people to monitor all the activities. They check the actual agreement done between the importer and exporter and also ask for the advance payment voucher. Meanwhile, it is a strain on people to earn more. From the bottom-up approach and educating them about the benefits of earning good money and how it is beneficial for the sake of the country. Moreover, it is a wrong concept among people that they can earn more only through illegal ways. People can earn very well through all the legal ways.
“We must make better use of technology, to make us more effective and efficient in weeding out criminal activity. Big data analytics and machine learning, for example, are reducing false positives that require manual review. This contributes to enhanced productivity and the standardization of compliance efforts”
FATF Executive Secretary David Lewis
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