Alternate shipping routes, Free Trade Zones (FTZs), and through-ports are presenting themselves as increasing risk areas due to East-West trade conflicts and the global tightening of financial crimes oversight and controls in developed regions.
Risks may include, tax evasion, product re-pricing in order to transfer value, false invoicing, bribery, graft, counterfeiting and forgery, theft, customs matters (custody, seal breaking, entry of goods by means of false statements), accounts payable and receivable abuses, and diversion... and almost always include money laundering schemes.
In addition to direct money laundering risks that any globally connected company may face, their dealings (direct or indirect) with offshore shell companies, transfer parties, carriers and third-parties result in heightened risk for transactions that may not have legitimate purposes.
The Fourth European Union Directive on Anti-Money Laundering highlights for all member countries a series of statements that are designed for all companies operating within the EU to ensure compliance with. Specifically, The EU Directive states that “members states should at least provide for enhanced customer due diligence measures to be applied by the obliged entities when dealing with natural persons or legal entities established in high-risk third countries…” For companies that operate in multiple jurisdictions, there is an expectation that the company is aware of the heightened risks and has established controls in place to ensure they are not dealing with known or suspected money laundering, terrorist financing or tax avoiding schemes and enterprises.
Specific risk related to alternate shipping routes and FTZs may present in the form of trade-based money laundering that takes place when third-parties, joint venture partners, supply chain gateways and supplier due diligence is lacking. Trade-Based Money Laundering and tax evasion is risk-identified most effectively during transaction monitoring and oversight of funds sources, payments and supply chain for parts, components and assembled products.
It looked like a one-off case in late 2016 when The European Anti-Fraud Office determined that certain organic coated steel products that originated in China had been shipped through Vietnam to avoid anti-dumping duties. The fraud unit advised nine European countries on how to recover around €8.2 million (US$9.31 million) in anti-dumping and other import duties that it said had been “evaded,” according to a spokeswoman. But the idea of shipping through a third country to avoid tariffs has flourished in recent months due to the trade war between the United States and China... To do this, they are actively checking whether they can legally re-label products made in China as made in-Vietnam goods under different product headings or even by just sending them to Vietnam for a simple transfer to the United States...