What is the best step a financial institution can take to reduce its exposure to trade-based money laundering, specifically trade price manipulation?

• A. Nothing, it is nearly impossible to detect and prevent.
• B. Require all foreign trade transactions to occur with your institution.
• C. Require customers to provide copies of customs documents related to each foreign transaction.
• D. Inquire and require customer management to attest to the legality of all foreign transactions.

Answer: (C)

Requiring customers to provide copies of customs documents related to each foreign transaction is an effective step in reducing exposure to trade-based money laundering, particularly in relation to trade price manipulation. By obtaining these documents, financial institutions can verify the legitimacy of the transactions and ensure that the values stated in the invoices correspond with the values declared for customs. This can help identify discrepancies that could indicate potential money laundering activities.

For instance, if a company consistently undervalues its shipments to evade import taxes or overvalues them to justify large payments, the customs documentation provides a means to cross-check these claims. It enhances transparency and allows for due diligence that can reveal patterns inconsistent with legitimate trade practices.

While requiring foreign trade transactions to occur with the institution may increase control over the transactions, it does not inherently safeguard against the manipulation of trade prices. Likewise, inquiring about customer management’s attestation to the legality of foreign transactions, while well-intended, is largely reliant on the honesty of the customer and does not typically provide the concrete evidence necessary to detect manipulation schemes effectively. Thus, the collection of customs documentation stands out as a proactive and tangible measure in combating trade-based money laundering.