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Trade-Based Money Laundering and Terrorist Financing

Author

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  • Zdanowicz John S.

    (Florida International University)

Abstract

Money laundering can be defined, generally, as the process of concealing the existence, illegal source, or application of income derived from a criminal activity, and the subsequent disguising of the source of that income to make it appear legitimate. Deception is the heart of money laundering. The use of international trade to move money, undetected, from one country to another is one of the oldest techniques used to circumvent government scrutiny. International trade as a means of laundering money is also a technique generally ignored by most government law enforcement agencies. This article details how false international trade invoicing is used to move money across borders, undetected. This research details how the statistical analysis of the U.S. trade database can assist in measuring illegal money flows. It also details some statistical techniques that may be used to detect and monitor these abnormal transactions.

Suggested Citation

  • Zdanowicz John S., 2009. "Trade-Based Money Laundering and Terrorist Financing," Review of Law & Economics, De Gruyter, vol. 5(2), pages 855-878, December.
    • Handle: RePEc:bpj:rlecon:v:5:y:2009:i:2:n:3
    DOI: 10.2202/1555-5879.1419
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    References listed on IDEAS

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    1. Simon J. Pak & Stelios H. Zanakis & John S. Zdanowicz, 2003. "Detecting Abnormal Pricing in International Trade: The Greece-USA Case," Interfaces, INFORMS, vol. 33(2), pages 54-64, April.
    2. De Wulf, Luc, 1981. "Statistical analysis of under- and overinvoicing of imports," Journal of Development Economics, Elsevier, vol. 8(3), pages 303-323, June.
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    Citations

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    Cited by:

    1. Schneider, Friedrich, 2010. "The (Hidden) Financial Flows of Terrorist and Organized Crime Organizations: A Literature Review and Some Preliminary Empirical Results," IZA Discussion Papers 4860, Institute of Labor Economics (IZA).
    2. Slim, Sadri, 2015. "Un modelo Mundell-Fleming con economía ilegal y lavado de dinero [Modeling illegal economy and money laundering: a Mundell-Fleming framework]," MPRA Paper 64675, University Library of Munich, Germany.
    3. Carton, Christine & Slim, Sadri, 2018. "Trade misinvoicing in OECD countries: what can we learn from bilateral trade intensity indices?," MPRA Paper 85703, University Library of Munich, Germany.
    4. Friedrich Schneider, 2013. "The Financial Flows of Transnational Crime and Tax Fraud in OECD Countries," Public Finance Review, , vol. 41(5), pages 677-707, September.
    5. Mfundo Mandla Masuku & Victor H. Mlambo & Bhekani J. Ngwenya, 2021. "The Critical Analyses of Propaganda of the Terrorism Deed," Technium Social Sciences Journal, Technium Science, vol. 25(1), pages 619-629, November.
    6. Mohammed Ahmad Naheem, 2016. "Money laundering: A primer for banking staff," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 13(2), pages 135-156, May.
    7. Alex Cobham & Petr Janský & Alex Prats, 2014. "Estimating Illicit Flows of Capital via Trade Mispricing: A Forensic Analysis of Data on Switzerland - Working Paper 350," Working Papers 350, Center for Global Development.
    8. Emma Galli & Ilde Rizzo & Carla Scaglioni, 2020. "Is transparency spatially determined? An empirical test for Italian municipalities," Applied Economics, Taylor & Francis Journals, vol. 52(58), pages 6372-6385, December.
    9. Schneider, Friedrich, 2017. "Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism?," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162914, Deutsche Bundesbank.
    10. Wiseman Travis & Walker Paul, 2017. "US Interstate Underground Trade Flow: A Gravity Model Approach," Review of Law & Economics, De Gruyter, vol. 13(2), pages 1-25, July.
    11. Premti, Arjan & Jafarinejad, Mohammad & Balani, Henry, 2021. "The impact of the Fourth Anti-Money Laundering Directive on the valuation of EU banks," Research in International Business and Finance, Elsevier, vol. 57(C).
    12. Friedrich Schneider, 2011. "The Financial Flows of the Transnational Crime: Some Preliminary Empirical Results," Economics of Security Working Paper Series 53, DIW Berlin, German Institute for Economic Research.
    13. repec:thr:techub:10025:y:2021:i:1:p:619-629 is not listed on IDEAS
    14. Gullo, Valentina & Montalbano, Pierluigi, 2022. "Financial transparency and anomalous portfolio investment flows: A gravity analysis," Journal of International Money and Finance, Elsevier, vol. 128(C).
    15. Valentina Gullo & Pierluigi Montalbano, 2018. "Where does “dirty” money go? A gravity analysis," Working Papers 5/18, Sapienza University of Rome, DISS.
    16. Bebonchu Atems & John K Mullen, 2016. "Outward FDI from the USA and host country financial transparency," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(8), pages 1122-1143, November.
    17. Mohammed Ahmad Naheem, 2017. "Trade based money laundering: A primer for banking staff," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 14(2), pages 95-117, May.
    18. Friedrich Schneider & Raul Caruso, 2011. "The (Hidden) Financial Flows of Terrorist and Transnational Crime Organizations: A Literature Review and Some Preliminary Empirical Results," Economics of Security Working Paper Series 52, DIW Berlin, German Institute for Economic Research.

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