Five-Part Series — Counterfeit Goods: Money Laundering in Plain Sight

Topics: counterfeit, Financial Crime, Financial Fraud & Anti-Money Laundering, Government

public records

In a new five-part blog series, “Counterfeit Goods: Money Laundering in Plain Sight”, we will examine how the production, distribution and sale of counterfeit goods enables bad actors to generate and launder illicit proceeds through front businesses.

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 for $30 on Canal Street in New York City 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% of those illicit proceeds would have also been laundered, partly if not wholly through financial institutions of varying size.

counterfeit

Michael Schidlow

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 (SAR), 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 channeled 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. 

Throughout our five-part blog series, which begins this week, Schidlow examines this cycle of the production, distribution and marketing of these counterfeit goods and unveils the broader implications of this process, describing some of the approaches that financial institutions are utilizing to better mitigate the risk posed by the sale of counterfeit goods.


Check out the entire Counterfeit Goods series here.

Want to stay up-to-date on our thought leadership pieces and other topics such as anti-money laundering and fraud? Sign up for the CLEAR Picture newsletter, a free, bimonthly e-newsletter developed for professionals working on AML, KYC and other high-risk rules and regulations compliance. You can also follow the Risk & Compliance Spotlight page on the Legal Executive Institute‘s blog.