Trade-Based Money Laundering and Maritime Piracy Crime

The international criminal phenomenon of money laundering causes more than USD 300 billion of damage to the licit economy every year. The reasons for such a high number stem from the need of many different criminal organizations to "clean" and reintroduce "dirty" money into the global licit economic system. Furthermore, about the figure mentioned above, the International Monetary Fund (IMF) estimates that annual losses of between 10-15% of the world GDP are calculated from this activity. International AML experts and the various financial supervisory authorities have suggested multiple sources linked to the international trade system behind this number.

A particular branch of the global anti-money laundering discipline has defined this system as Trade-Based Money Laundering (TBML). The TBML consists of substance in the realization of money laundering through different methods "based" on international trade (exchange of goods, import and export). The TBML system is based on the transfer and concealment of goods and money, justifying and certifying their false origin. As has been discovered, the goods are subsequently relocated in other systems, circuits, legal or illegal so-called formal and informal. The TBML operates in all those situations where opportunities exist (or are purposely created) to circumvent the regulations on international trade (for example, the so-called tax havens). The subject matter of the TBML discipline involves a diversity of goods, from money (think of the IVTS - Informal Value Transfer System) to goods in general, it is not excluded that this discipline will also evolve towards so-called dematerialized goods; in general, this category includes any goods that can potentially and generate an unlawful utility and profit.

The scope of the TBML is vast as many commercial sectors covered by the anti-money laundering legislation are based on the ability of the meeting and exchange of goods between supply and demand: For example, the establishment and use of paper companies with the issuance of false - so-called non-existent - invoices or the use of methods such as over-invoicing (under-invoicing and multiple invoicing), the market for art and precious objects, the use of couriers and money remittances; in essence, all those transport, trade and accounting operations are covered, which have as their thing buying and selling and which are demonstrated with false documents (excess in value and quantity).

One of the trade sectors included in the TBML system and of most significant concern to international authorities is the maritime trade sector. This is because the naval trade sector encompasses many disciplines of the global market: from (licit) fishing to the transport of containerized goods to the sale of marine animals (on this subject, the Gafi has issued specific guidance). Money laundering is an activity that generates billions and billions of profits per year. Furthermore, in the discipline addressed by the TBML, as a macro category, the maritime trade sector also includes (albeit indirectly as an accidental phenomenon) the criminal activity of maritime piracy. Therefore, it is necessary to premise that the maritime trade sector. Concerning the import and export Cargo sector, illegal activities have been compromised several times: e.g., the instrumental use of Containers for the fraudulent transport of undeclared foreign money, trafficking in minors, illegal immigration, counterfeit goods, transportation of objects and vehicles originating from crime, etc..    

However, the object of this short article is to identify the economic origins due to the reuse of goods and capital originating from the international crime of maritime piracy. In addition, it will present the mitigation measures proposed by the anti-money laundering legislation to combat this unlawful conduct (maritime piracy).  Maritime trade by the sea relies on the transport of containerized goods and additional naval platforms to transport materials such as hydrocarbons, gas, and 'special' goods.

Maritime piracy exists as long as there is a need to transport goods by sea. Today's pirates do not come from Cilicia or North Africa but many different parts of the world. According to the IMB (International Maritime Bureau), maritime piracy attacks occur most in South America, on the African Continent (the Horn of Africa, Gulf of Guinea, Suez Canal, and the Gulf of Aden) the Indian Ocean. The same authority also recorded that between the years 2006 and 2009, pirates had the highest number of attempts to attack ships at sea for boarding, extortion, and ransom. 

Now, briefly, from a legal point of view, the illicit conduct of maritime piracy was recognized as a crime under international law not long ago; by the UN Convention called UNCLOS signed in Montego Bay in 1959 (known as the Montego Bay Convention), which in art. 101 defines 'maritime piracy' as any unlawful act of violence or seizure or any act of robbery committed for private gain by the crew or passengers of a private ship when directed, either on the high seas or in a place beyond the jurisdiction of any state, against another ship or persons and property carried by them.

To quantify the proceeds of maritime piracy, one need only think of the direct and indirect costs that are generated during a maritime piracy attack; the value of the ship determines this amount and the goods carried. Then at a later stage, one must consider the revenue generated by resale, extortion, and possible ransom payments for revenue that can reach above 20-30 million. Furthermore, according to some international investigations, it is claimed that once the boarding operation has been successful and the contents of the ship have been robbed (sometimes it even happens that the entire ship is seized), the goods are transferred from the coast to central states of the continent (e.g. on the African continent, it has been demonstrated that several goods recovered in Niger came from Somalia in a previous attack by Somali pirates). Then, using licit or illicit channels, the transfer is made to another continent.   

The international financial supervisory authority FATF has over the years issued several indicators to help 'insiders' mitigate the entry of illicit capital from the criminal activity of maritime piracy. These indicators are based on identifying and monitoring illicit funds or economic remittances and, therefore, illegal activities. The indicators presented are subjective and objective; they represent a wake-up call and are essentially based on the reconstruction and traceability of these assets. About the subjective element, one must identify the country of origin of the holder of the transaction/transfer (sometimes coinciding with the countries on the AML/CFT Blacklist and Greylist), paying attention to countries such as Bolivia, Brazil, Venezuela, Panama, Guatemala, countries of the Horn of Africa, Congo, Mozambique, Somalia, Ethiopia, Cameroon, Tunisia, Libya, Egypt, Vietnam, Malaysia, Thailand, Myanmar, India, and China.

On the other hand, on the objective element, the nature and purpose of the transfer/transaction will have to be ascertained, with the attached attestations and documentary evidence. According to some international reports, it is thought that the illicit asset changes its nature before being moved and relocated in the lawful market (e.g., the illicit asset is converted into gold or precious stones, real estate, and securities purchases such as cars, planes or boats). 

The activity of combating and mitigating maritime piracy operates in different sectors and areas that are opposed to each other, encompassing the need to provide greater cooperation that, if made functional, reduces this criminal phenomenon of international scale.

Therefore, there must be ad hoc anti-piracy instruments in the domestic legislation of these states. For example, on the legislative front, the transposition and enactment of specific international and national acts prevent and mitigate the occurrence of this risky event. On the criminal litigation front, they are providing greater repression in terms of punishment and imprisonment for the perpetrators and genuine interest on the part of the judicial and investigative authorities in pursuing the crime. Finally, on the operational front (at sea), provide military and maritime police forces with sufficient means, training, and knowledge in the field of anti-piracy. Important, however, is the establishment, dialogue, and active collaboration in the areas of extrajudicial cooperation, maritime cooperation (enabling maritime control and intervention activities), and the exchange of economic data between respectively competent financial authorities. This last point, economic risk, is given little importance in the international context. Still, according to some researchers, if the economic capacity of these criminal organizations can be blocked, the capacity for the crime to be carried out is blocked or reduced.

Written by Dimitri Barberini 

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