Third-Party Payment on an Over-Invoiced Import
M/s Nova Textiles imports polyester fabric. In six months it presents 12 import bills totalling USD 480,000 from a Hong Kong supplier. The previous year's invoices from the same supplier showed USD 1.80 per metre; the new invoices show USD 7.20 per metre. Bills of lading show the goods were shipped from Vietnam, not Hong Kong. The payment instruction asks the bank to remit to a Singapore account in the name of 'Nova Trading Pte Ltd', not the invoice supplier. The importer says the supplier has assigned receivables and that 'all documents are technically compliant'. The bank has no live market-price feed but has the prior invoices and the customer's earlier import data. The relationship manager wants to process the next USD 60,000 payment because the documents match on their face. The bank's trade finance officer is uneasy.
1. What trade-based money laundering red flags are present?
Read the worked answer
The combination is classic TBML: a price anomaly of four times the previous unit price, a shipping route inconsistent with the stated supplier, payment to a third party in a different jurisdiction, and reliance on 'technically compliant' documents rather than economic logic. Over-invoicing can move value abroad; the third-party payment may be to a shell or related party. The customer's explanation of assignment is not sufficient without the underlying assignment contract, notice to the original supplier and verification of the beneficiary. The relationship manager's 'documents match' approach ignores the bank's obligation to understand the transaction, not just check forms. The prior invoices are a useful internal benchmark; the absence of a live price feed does not remove the duty to inquire. The bank should treat the relationship as high risk and escalate before the next payment.
2. What should the bank do before processing the USD 60,000 payment?
Read the worked answer
Before payment, the bank should obtain the contract, purchase order, commercial invoice, bill of lading, certificate of origin and customs bill of entry; reconcile quantity, unit price and freight; ask for the assignment agreement and evidence that Nova Trading Pte Ltd is the legitimate beneficiary; screen the supplier and beneficiary against sanctions and adverse media; verify the Singapore entity's ownership and beneficial owners; compare the price with independent sources or at least the customer's own historic data; and document the explanation for the route change. The decision should be escalated to the MLRO and head of trade finance, with senior management approval for high risk. If the customer cannot explain the price and payment route, the bank should refuse the payment and file an STR; it should not process first and investigate later. Consider whether the relationship should be exited after reporting.