From Red Flags to Risk Mitigation: BITE Investigative Analytics in Anti-Money Laundering Efforts

Overview

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Financial institutions across the globe have an obligation to exercise due diligence and maintain effective anti-money laundering compliance programs. In addition to identifying red flag indicators for money laundering activities, such as suspicious patterns of money movement, structuring payments to avoid reporting requirements, or utilizing shell companies to disguise the true origin or destination of funds, financial institutions are also obligated to know their customers. 

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BITE and BITE Investigative Analytics can play a significant role in anti-money laundering and compliance strategies by illuminating money laundering patterns, including trade-based schemes, and quickly identifying parties to transactions designated or watchlisted by the US, EU, or other governments. In addition, BITE, through its proprietary BITE List, provides a comprehensive list of entities not currently designated, but identified as conducting trade transactions with denied parties. 

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Money Laundering

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U.S. Title 18 USC 1956, Laundering of Monetary Instruments, criminalizes efforts to launder proceeds of specified unlawful activity and states “Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States-”

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The statute also includes specified unlawful activity for money laundering to include smuggling or export control violations involving items controlled for export from the United States. 

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Money laundering can often involve unlawful international trade of goods and the international movement of money in furtherance of those crimes.  Trade-based money laundering (TBML) is described by the Financial Action Task Force (FATF) as “the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illegal origin or finance their activities.” TBML exploits international trade transactions to launder proceeds of crime using various schemes such as double invoicing, manipulating and/or falsifying documents associated with imports or exports, or the utilization of shell companies to move the proceeds of their illegal activity in an attempt to create legitimate funds. 

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The Bank Secrecy Act (Title 31 USC 5311), originally signed into law in 1970, and amended as part of the USA Patriot Act in 2001, requires financial institutions to have written compliance programs to prevent money laundering. As part of the USA Patriot Act, banks are federally mandated to have customer identification programs (CIP) in place to screen account holders. In the United States, 31 CFR §1020.220, calls for customer identification programs, and banks are required to have “an anti-money laundering compliance program under the regulations implementing 31 U.S.C. 5318(h), 12 U.S.C. 1818(s), or 12 U.S.C. 1786(q)(1) must implement a written Customer Identification Program (CIP) appropriate for the bank's size” 

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How BITE Can Assist Anti-Money Laundering 

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BITE can enhance financial compliance efforts in a number of ways. BITE  has a vast collection of watchlists within the platform that can assist with Customer programs by allowing a user to search over 300 global lists of designated entities. In addition to thoroughly searching global watchlists, to include entities associated with terrorism, the returns on the queries are within seconds, providing compliance professionals with a streamlined, efficient process. 

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The previously referenced BITE List is a proprietary collection of businesses that BITE  has identified as conducting trade transactions with designated entities. BITE owns close to one billion global trade records, allowing the platform’s AI tools to run against trillions of data points to identify potentially illicit trade behavior. Once BITE subject matter experts segregate these transactions within trade data, the companies trading with the denied parties are placed on the  BITE List.    With the ability to quickly research parties to suspicious transactions, the BITE List provides financial compliance professionals with an added level of risk mitigation and protection against their customers unwittingly contributing to the supply chain of a watchlisted party or companies engaged in forced labor or child labor. 

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BITE Data analytics reports, which are trade data-driven reports based on BITE data global trade records, can play a significant role in anti-money laundering and compliance strategies by illuminating money laundering patterns, including trade-based schemes, and quickly identifying parties to transactions that may be designated or watchlisted by the US, EU or other government organizations.

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BITE USE CASE: Russian Acquisition of US goods

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As an example, BITE Data Analytics recently identified trade transactions that involved US-produced components imported into Russia from consignees identified as entities sanctioned by the United States government.  BITE filtered these transactions based on a list of “Common High Priority Items” published by the European Union which identify “...several prohibited dual-use goods and advanced technology items used in Russian military systems found on the battlefield in Ukraine or critical to the development, production or use of those Russian military systems.” 

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Between May and August of 2023, BITE pinpointed 341 trade transactions that identified US-produced goods shipped to Russian consignees sanctioned by the United States from third-party countries such as China, Switzerland, the United Arab Emirates, Poland, Hong Kong, Kyrgyzstan, and Latvia. There were more than 90 US companies identified in the data, and product descriptions included microelectronics, circuits, diodes, semiconductors, computing machine devices, and capacitors. The total value of these shipments was $1.1 million.  Additional information on these transactions can be provided upon request.

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Conclusion

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Although these transactions lead to illegal transfers, many of the shippers, manufacturers and exporters are unwitting. US companies and financial institutions can enhance their compliance efforts and exercise greater risk mitigation by utilizing the BITE platform to ensure that international trade transactions, and their corresponding payments, are not in violation of any US laws or sanctions. 

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