convergence

Lindholm and Realuyo
(DEA) and the DHS continue to aggressively pursue the detection and disruption of bulk
cash smuggling operations.
Alternative Remittance Systems
Illicit networks including terrorist groups use an informal banking system known as hawala to
move their assets in some regions, owing to the system’s nontransparent and liquid nature. A
remittance is a transfer of money by a foreign worker to his or her home country. An informal
banking system is one in which money is received for the purpose of making it, or an equivalent
value, payable to a third party in another geographic location whether or not in the same form.
Such transfers generally take place outside the conventional banking system through nonbank
money services businesses or other, often unregulated and undocumented, business entities
whose primary activity may not be the transmission of money. Traditionally, expatriates—traders
and immigrant laborers—used informal banking systems to send money home from or to
countries lacking formal and secure banking systems. Informal systems are still used by immigrant
ethnic populations in the United States and elsewhere today. Such systems are based on
trust and the extensive use of connections such as family relationships or regional affiliations.
These systems also often involve transactions to remote areas with no formal banking system or
to countries with weak financial regulations, such as in Somalia, where the Al Barakaat informal
banking system moved funds for al Qaeda. Figure 1 provides an example of how a simple
hawala transaction can occur. 13 It is believed that the perpetrators of the Mumbai attacks of
November 2008 relied on hawala transactions to fund their operations. 14
Trade-Based Money Laundering
Trade-based money laundering is the movement of illicit funds through commercial transactions
and organizations that are or appear to be legitimate. This might involve practices such as
padding or underreporting of the amounts of invoiced goods or services (for example, shipping
more items than documented to allow the recipient to profit from resale); repeating invoices
(for example, delivering one set of items but receiving payment for two sets); falsification of receipts
(for example, the goods shipped are described as a less expensive item when they’re really
something more costly); and sales of commodities above or below market. The transactions
can be simple (two parties colluding to use a commercial transaction to deflate the value of an
exchange to benefit from the difference between the resulting understatement in cost and the
value of the goods on the open market) or complex (involving multiple parties in numerous nations
knowingly or unknowingly involved in the fraudulent aspects of the transactions). They
may also involve trade that is hard to detect or accurately price, such as artwork or unusual
services. The key is that these practices take advantage of commercial opportunities to hide
their intended purpose and to mix illegally obtained funds into the legitimate financial system.
A well-known version of this mode is the “black market peso exchange” (BMPE) popular with
South American transnational organized crime. BMPE is regarded as the “most commonly
used money laundering method among Colombian transnational criminal organizations”
and plays a major role in the movement of funds for Mexican criminal organizations as well. 15
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