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Thomson Reuters
Risk

Money Laundering in Plain Sight—Counterfeit Goods

Luxury hand bags. Designer perfumes. The latest athletic wear. No, this isn’t an Amazon shopping list. These are the items that are frequently counterfeited and illegally sold to consumers, with profits often funding criminal enterprises.

While buying one of these items may seem harmless, there is a bigger and more layered story at play, according to experts like Michael Schidlow, head of Financial Crime Compliance and Emerging Risk Audit Development at HSBC Bank. That cheap luxury item was likely made by a victim of human trafficking, a problem that is nearing epic portions globally.

Imports of counterfeit and pirated goods are worth nearly half a trillion dollars a year as reported by the United Nations Office of Drugs and Crime (UNODC). However, it is also reported that as much as 70 percent of those illicit proceeds would have also been laundered, partly if not wholly through financial institutions of varying size.

Schidlow believes these issues matter and that financial institutions have a key role to play in transaction monitoring and detection. In his role at HSBC Bank, Schidlow directs the financial crime compliance training program for the global internal audit function. He studies emerging trends in counterfeit goods and human trafficking every day.

Front Businesses and Money Laundering

When asked about how financial institutions play a role in combating financial crimes Schidlow states:

Financial institutions are intensifying scrutiny on clients through Know Your Customer (KYC), transaction monitoring including through the use of advanced analytics, various forms of suspicious activity reporting, and private/public data-sharing collaborations with law enforcement. At the same time, criminals continue to make efforts to further conceal unlawful proceeds being placed into the stream of commerce. A logical conclusion can therefore be inferred, which is that significant percentages of that illicit flow are being channelled through, and for the benefit of front businesses.

These front businesses may not be entirely illicit entities, rather they may have originally been established with legitimate purposes in mind and then become co-opted by illicit actors through coercion, extortion or collusion. To that end, it is equally possible that some portion of their assets are in fact from above-board transactions. It is the co-mingling of so-called dirty and clean income that presents a ready opportunity for illicit actors to leverage the production, distribution and sale of counterfeit goods.

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