Under-Invoiced Ceramics and a Delaware Round-Trip
Meridian Home Goods, a mid-sized U.S. importer, has moved $4.3 million across 14 shipments from a Vietnamese supplier over nine months. The supplier, Tan Phat Trading, was incorporated 14 months ago and shares a registered address with a freight forwarder inside a free trade zone. Customs declarations value ceramic dinnerware at $2.10 per unit; Meridian's own retail listings and two independent price databases put comparable goods at $10.90-$11.80. Payments leave Meridian's account at a regional bank and route through a third-party remitter in Hong Kong rather than to the supplier's stated bank in Vietnam. Meridian's owner is also the sole signer on two Delaware entities that received $610,000 from Tan Phat during the same period. The relationship manager notes Meridian's revenue is $8 million but annual purchase volume is $19 million. You are the BSA officer reviewing the alert. No subpoena has been issued, and the bank has not yet filed a SAR. The relationship manager wants to call the owner today.
1. Identify the typologies at work and rank the three strongest indicators. Explain why each indicator matters rather than merely naming it.
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Two typologies overlap: trade-based money laundering through under-invoicing, and possible round-tripping through U.S. shell entities.
Strongest indicator - the unit-price gap. Declared value is $2.10 against an observed $10.90-$11.80. That means roughly $8.80-$9.70 of value per unit never appears on the invoice. Over 14 shipments the cumulative under-declaration is plausibly in the millions. Under-invoicing is a value-transfer mechanism: the buyer pays less on paper, and the difference is settled outside the customs record, so goods move one way while value moves another with no paper trail.
Second - third-party payment. Funds leave Meridian for a Hong Kong remitter, not the named Vietnamese beneficiary. This severs the link between goods and money and is a classic TBML red flag, because the payment no longer corroborates the trade.
Third - the Delaware entities. The owner controls two shells that received $610,000 from the same supplier. That pattern suggests value returning to the beneficial owner, i.e., round-tripping, rather than a genuine third-party vendor relationship.
The revenue-to-purchase mismatch ($8M revenue, $19M purchases) is a consistency flag: operations cannot fund the trade, so funds arrive from elsewhere. Individually each fact is explainable; together they indicate deliberate value transfer.
2. Decide whether to file a SAR now. What must the narrative contain, what checks come first, and what should happen after filing?
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File. The standard is a reasonable basis to suspect a violation of law or a suspicious transaction - not proof, and not a subpoena. Waiting for law enforcement would run out the 30-day clock, which starts at initial detection.
The narrative should state facts, not conclusions: 14 shipments over nine months; declared $2.10 per unit against benchmark pricing of $10.90-$11.80; payments routed to a Hong Kong remitter instead of the named Vietnamese bank; $610,000 flowing from the supplier to two Delaware entities controlled by Meridian's owner; and the $8M revenue versus $19M purchase-volume mismatch. Avoid asserting guilt.
Before filing, screen Tan Phat, the remitter, and both Delaware entities against OFAC lists; check for PEP exposure; and search internal records for other accounts sharing addresses, signers, or phone numbers. After filing, consider a 314(b) request to peer institutions that may hold the Hong Kong remitter's accounts - permitted specifically to identify and report suspected ML/TF. Do not tip off the customer. If enhanced due diligence is required, frame it as a routine periodic review. Retain supporting documentation for five years and keep the SAR confidential.
3. The relationship manager proposes calling Meridian's owner immediately to ask about the invoices. Evaluate that step and list the documentary evidence you would obtain.
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Do not make that call. Contacting the customer before filing risks tipping off the subject, which is prohibited and can also jeopardize any later investigation. A call also creates a record the customer can later characterize as the bank's own inquiry, muddying the SAR timeline. If information is genuinely needed, obtain it through a neutral periodic-review request after the SAR is filed, or through existing files.
Documentary evidence to pursue: commercial invoices and packing lists for all 14 shipments; bills of lading and air waybills; CBP entry summaries (Form 7501) showing declared values; weight and quantity data to test whether invoiced volumes are physically plausible; proof-of-payment records from Meridian; the remitter's payment instructions and any beneficiary-account documentation; beneficial ownership records for Tan Phat and both Delaware entities; and shipping manifests showing the free trade zone routing.
The purpose of each item is corroboration. Weight and quantity data test whether the declared goods match physical reality. Entry summaries test whether the bank's customer made consistent declarations to Customs. Beneficial ownership records test whether the Delaware entities are genuinely independent or simply an extension of Meridian's owner. Payment instructions test whether the remitter's stated purpose matches the trade documents.