Raids on trade-based money laundering


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CDD software solutions for AML Compliance may start throwing up more red flags for some fashion-related businesses if last week was an indicator. Los Angeles’ Fashion District was the site of AML-related fireworks last week as U.S. federal authorities engineered raids on numerous money-laundering front businesses there.

According to federal officials, over $100 million in cash and bank accounts was seized as a result of these law-enforcement efforts that involved narco-dollar money from Mexico and other international locations. California is a favored location not only because it provides a gateway to the rest of the United States, it also has a large population and a massive economy in its own right, according to California Attorney General Kamala Harris.

Federal officials described the money-laundering operations primarily as “trade-based money laundering” and “black-market peso exchanges,” according to a report by CNN.

According to Harris, the raids were the culmination of a two-year investigation that included a key tip to the involvement of the Sinaloa Cartel because of its use of a fashion-district business to transfer ransom payments for a kidnapped California drug dealer.

In trade-based money laundering evident in this investigation, brokers were found to be arranging trade deals between Mexican businesses that would purchase goods from the Los Angeles businesses (i.e. sending dollars to the U.S. in exchange for the goods), and then the Mexican businesses would sell the goods for pesos and then pay the brokers in pesos, which in turn would be transferred to the drug cartels.

The rise in popularity of trade-based money laundering around the world is due in part to the risk of smuggling currency directly across borders and the difficulties in using financial institutions that are required to have extensive CDD – KYC solutions in place to verify identities and to analyze accounts for risk of money laundering and terrorist financing.