The Phantom Shipment of Precious Metals
A customer, a trading company specializing in precious metals, requests a letter of credit for a shipment of gold bars from Country C to Country D. The documents presented include a bill of lading, commercial invoice, and packing list. The bill of lading shows a vessel that, according to public tracking data, was not in the stated port on the loading date. The invoice value is USD 5 million, but the customer's account shows a recent deposit of USD 5 million from a shell company in a tax haven. The customer has been a client for six months, with minimal trading activity until now. The compliance team also notes that the shipping company is not registered with any known international shipping association.
1. Identify the indicators of trade-based money laundering in this scenario.
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Indicators include: (1) discrepancy in the bill of lading – vessel not at the port on the loading date, suggesting fabricated shipping documents; (2) large invoice value (USD 5M) for a customer with minimal prior activity, indicating possible over-invoicing or phantom shipment; (3) recent deposit from a shell company in a tax haven, which could be the placement of illicit funds; (4) shipping company not registered with known associations, raising doubts about its legitimacy; (5) the customer's short tenure and sudden high-value transaction. These point to a possible phantom shipment where no goods actually move, and the transaction is used to justify the transfer of funds.
2. What actions should the bank take to address the risks?
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The bank should: (1) immediately suspend the transaction and conduct a thorough investigation; (2) verify the authenticity of the shipping documents with the carrier and port authorities; (3) perform enhanced due diligence on the customer, including source of funds and wealth, and on the shell company; (4) check for sanctions and adverse media; (5) consider filing an STR with the financial intelligence unit; (6) if the transaction is confirmed fraudulent, report to law enforcement and exit the customer relationship. The bank must document all findings and ensure compliance with AML/CFT regulations.