Over- or under-shipment involves the intentional misrepresentation of the quantity or value of goods shipped in international trade transactions. This practice is often used in trade-based money laundering schemes to move illicit funds across borders, evade taxes, or facilitate other forms of financial fraud.
Key Points:
- Purpose: The primary objectives of over- or under-shipment are to launder money, evade taxes, or manipulate financial records to disguise the movement of illicit funds.
- Mechanism:
- Over-Shipment: Shipping more goods than stated on the invoice or shipping lower-value goods but declaring them as higher-value items.
- Under-Shipment: Shipping fewer goods than stated on the invoice or declaring higher-value goods as lower-value items.
- Uses of Over- or Under-Shipment:
- Money Laundering: Moving illicit funds by creating a false value for goods shipped, making the transaction appear legitimate.
- Tax Evasion: Reducing taxable income by under-reporting the value of goods exported or inflating expenses through over-shipment.
- Fraudulent Subsidies: Claiming government subsidies or incentives based on falsified shipment quantities.
- Detection and Prevention:
- Document Verification: Cross-checking shipping documents, invoices, and purchase orders to ensure accuracy and consistency.
- Inspection and Audits: Conducting physical inspections of goods and regular audits of trade transactions to detect discrepancies.
- Customs Monitoring: Implementing robust customs procedures to verify the actual quantity and value of goods shipped.
- Trade Monitoring Systems: Using automated systems to monitor trade transactions and flag potential over- or under-shipment activities.
- Indicators of Over- or Under-Shipment:
- Discrepancies in Documents: Significant differences between the declared value/quantity of goods and the actual shipment.
- Unusual Trade Patterns: Abnormal trade patterns, such as consistent over- or under-shipment with certain trading partners.
- High-Risk Jurisdictions: Transactions involving countries known for lax regulatory oversight or high corruption levels.
- Examples of Over- or Under-Shipment:
- A company exports 1,000 units of a product but invoices the buyer for only 500 units, effectively moving additional value without detection (under-shipment).
- An exporter declares low-quality goods as high-value items to justify a higher invoice amount and transfer extra funds (over-shipment).
- A business consistently overstates the quantity of goods shipped to claim larger export subsidies.
- Regulatory Framework:
- Financial Action Task Force (FATF): Provides guidelines for combating trade-based money laundering, including practices like over- or under-shipment.
- Customs and Trade Authorities: National and international authorities monitor trade transactions for compliance with trade regulations and AML standards.
- Tax Authorities: Monitor and investigate potential tax evasion schemes involving over- or under-shipment.
- Challenges in Addressing Over- or Under-Shipment:
- Complex Schemes: Sophisticated over- or under-shipment schemes can be difficult to detect, especially when they involve multiple jurisdictions and layers of transactions.
- Lack of Transparency: Limited access to accurate trade data and the use of shell companies can obscure the true nature of transactions.
- Resource Intensive: Effective detection and investigation require substantial resources, including skilled personnel and advanced monitoring systems.
