Counterfeit Goods in AML/CFT

Counterfeit Goods in AML/CFT - At a Glance

Counterfeit goods or fake goods in AML/CFT are illegal and unauthorised sales of products whose proceeds are used in money laundering and other financial crime.
Key red flags include inconsistencies in trade documentation, undervaluation, and unusual payment patterns.
RapidAML helps detect risks associated with counterfeit goods through advanced transaction monitoring and a risk-based approach.

Counterfeit Goods Explained: An Overlooked Predicate Offence in AML/CFT

Counterfeit goods are goods made and sold illegally without authorisation by using registered trademarks, logos, and brand names to appear legitimate.

Counterfeit goods are a predicate offence to money laundering under the AML/CFT framework because they are used for cross-border financial crime, such as trade-based money laundering, mis-invoicing, and illicit fund transfers.

The FATF and customs authorities require financial institutions to adopt a risk-based approach to focus more on high-risk, implement enhanced due diligence, and conduct transaction monitoring to detect suspicious activity linked to counterfeit goods.

Money Laundering Typologies Linked to Counterfeit Goods

Some of the money laundering typologies linked to counterfeit goods are as follows:

Some of the common laundering methods used to legitimise proceeds from counterfeit goods include TBML, where criminals manipulate trade transactions via over/under invoicing and using falsified documents, often to avoid detection.
Cash-intensive businesses such as retail stores, restaurants, and salons often mix illegal funds with legitimate business earnings.
Shell companies are also used to hide the true origin and owners of funds, making the illegal funds appear legitimate.
Criminals often use international supply chains to obscure the origin of funds, exploit free trade zones, which enable them to repack and re-export goods due to weaker oversight, and complex ownership structures often pose a high risk of money laundering, making it difficult for authorities to trace the true origin of funds.

Key AML Red Flags Associated with Counterfeit Goods

The key AML red flags related to counterfeit goods include:

The transactional red flags include over/under valuation of goods, falsifying trade documents, frequent cross-border transfers, or using third parties and intermediaries.
The behaviour indicators include reluctance in providing the documents, using cash-intensive business or free-trade zones, and rapid changes in business activity without clear economic reasons.
Discrepancies in trade documents often indicate a red flag when invoices and shipping documents don’t match the actual goods value, which is used to move the illicit funds.
Undervaluation or overvaluation of goods means declaring the goods at a higher or lower price than the market price, often to transfer illegal funds across borders.
Unusual payment patterns that are inconsistent with normal business activity or known income indicate that proceeds from counterfeit goods or black-market goods are being laundered.
A red flag when customer risk profiles (dealing with high-risk clients, those with suspicious history), geographic exposure (transactions involving countries with weaker laws), and product-risk indicators (using high-risk products such as luxury goods) are involved.

Regulatory Expectations and Enforcement Trends on Counterfeit Goods

Financial institutions must identify the following red flags and indicators associated with sanctions-related travel prohibitions:

Financial institutions musvt apply a risk-based approach, perform due diligence, monitor suspicious activity, and report it to regulators by filing SAR/STRs under AML/CFT obligations.
The regulators provide guidance to detect money laundering risk related to counterfeit goods, and regulators focus on targeting weak controls, suspicious trade, and high-risk sectors.
Regulators expect financial institutions to implement a risk-based approach, enhanced due diligence for high-risk sectors, and share the required and relevant information with authorities.

How RapidAML Identifies Financial Crime Risks Linked to Counterfeit Goods

RapidAML Software helps in identifying financial crime risks associated with counterfeit goods through its advanced Transaction Monitoring, which detects unusual and suspicious patterns related to trade-based laundering, such as mismatched invoices, irregular payment flows, and falsified shipments.

Its Customer Risk Assessment helps in assessing risk based on customer profiles.

RapidAML also interlinks transaction monitoring, customer onboarding, and customer risk assessment, enabling easy detection of suspicious activity, evaluating risk based on customer profile, and detecting potential risk of money laundering.

Counterfeit Goods – AML/CFT FAQs

1. How are Counterfeit Goods classified as a predicate offence for money laundering?

Counterfeit goods are classified as a predicate offence for money laundering, as they generate illicit funds from criminal activities like trademark infringement, fraud, and other related crimes.

2. How can financial institutions detect Counterfeit Goods-related TBML?

Financial institutions can detect counterfeit goods related to TBML through advanced transaction monitoring, applying due diligence, screening, and analysing trade documentation against payment flows.

3. What role does technology play in monitoring Counterfeit Goods risks?

Technologies like RapidAML help in early detection of counterfeit goods risk through transaction monitoring, screening, and risk assessment to identify TBML and suspicious patterns.

4. How do regulators expect firms to manage Counterfeit Goods exposure?

Regulators expect firms to manage counterfeit goods exposure by implementing a risk-based approach, monitoring transactions, applying due diligence, and reporting any suspicious activity by filing SARs/STRs.