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Learn anti-money laundering strategies to better avoid financial fraud

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Introduction to the case

Money laundering concealed proceeds from smuggled shark fins

An international criminal organization smuggled shark fins from Mexico to Hong Kong via the United States. The scheme involved drug trafficking, money laundering, and illegal wildlife harvesting, according to an unsealed indictment from the U.S. Department of Justice (DOJ).

*All amounts expressed in U.S. dollars unless otherwise stated.

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Details of the fraud

  • Shark finning—the practice of removing shark fins at sea while the remainder of the living shark is discarded and left to die in the ocean—is banned in many countries, including Canada, the United States, and European Union nations. The harmful practice is driven by the demand for shark fin soup, a delicacy in some Asian countries.
  • The conspirators created two seafood companies, one in California and another in Florida, to smuggle shark fins from Mexico to Hong Kong. In Florida, a licenced dealer can legally possess, sell, and ship shark fins under certain circumstances.
  • The seafood company in California directed the trade made through the Florida shell company and ultimately paid for the purchase of shark fins.
  • From 2016 to 2017, the conspirators exported 5,670 kilograms of dried shark fins from the U.S. to Hong Kong.

  • The seafood business in California was also engaged in trafficking marijuana, disguising the contraband as seafood shipments.
  • The indictment alleges the drug trafficking scheme spanned at least 10 years from 2010.

  • The conspirators allegedly directed deposits and wire transfers of the illegal proceeds through dozens of bank accounts held by money mules at different locations to obfuscate the money trail.
  • The indictment alleges that millions of dollars of illegal proceeds were ultimately paid out to third-party bank accounts as supposedly clean cash for the purchase of precious metals, jewels, and other high-value items.

The wildlife trafficking, drug trafficking, and money laundering schemes allegedly spanned multiple jurisdictions, including several U.S. states, Mexico, and Canada.

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How did the fraudsters commit the crime?

Use of front companies

  • The seafood businesses in California and Florida received seafood import and export licences from the U.S. Fish and Wildlife Service (USFWS), which were used to make the shark finning business appear legitimate under Florida law.
  • The fraudsters created fake invoices and paperwork to make it appear that the Florida company was invoicing customers and operating a legitimate shark fin business, while the California company was, in fact, paying for all the shark fins purchased from Mexico.
  • The seafood business in California was also used to hide proceeds from drug trafficking. The drug transactions were disguised as seafood sales by falsified invoices and paperwork.

Use of money mules

  • The indictment alleges that proceeds from illegal activities were then laundered through deposits or wire transfers to the seafood business in California, overseas co-conspirators, money mules, and, ultimately, to third-party business accounts.
  • The money mules received about 6% of the money laundered in commissions for their services.
  • To circumvent reporting thresholds implemented by financial institutions, the criminals made deposits or wire transfers in separate transactions below reporting thresholds from different locations. 

Purchase of high-value goods

  • Funds in the third-party business accounts were turned into legal tender through the purchase and sale of high-value commodities.

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What was the outcome?

In or around 2015, a multi-agency investigation was initiated under the direction of the Organized Crime Drug Enforcement Task Forces (OCDETF).

Undercover agents executed 22 federal search warrants and arrested 12 conspirators, both the masterminds behind the scheme and the colluding money mules. They recovered more than six tons of shark fins, $3.9 million held in multiple bank accounts, $3 million in gold, silver, and other precious metals, and $1 million in diamonds.

In July 2020, the conspirators were charged with mail and wire fraud conspiracy, conspiracy to possess with intent to distribute controlled substances, and money laundering conspiracy. The charges carry penalties of up to life in federal prison without the possibility of parole.

The investigation is ongoing and the U.S. attorney’s office has indicated the possibility of more arrests.

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How could this have been prevented?

Financial institutions and other entities with reporting obligations to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) are required to establish robust anti-money laundering (AML) controls.

Key considerations for developing an effective AML program include:

Assessing your exposure to money laundering risks

  • Consider the type of illicit activities to which your business may be susceptible. Conduct due diligence and background checks on transaction parties to ensure your partners are duly registered and regulated as may be appropriate. Be alert to red flags such as prior convictions and recurring litigation.

Monitoring transactions

  • Monitor transactions with clients at a consolidated or aggregate level to identify suspicious transactions, especially if they operate from multiple accounts or locations.
  • Introduce additional checks on transactions in your monitoring system to identify those flowing through front businesses and mule accounts.

Assessing suspicious transactions

  • Assess suspicious transactions at a holistic level. Rather than focusing on individual transactions, evaluate patterns for reasonableness and legitimacy.
  • Be alert to the possibility that you or your customers may be used as a front or a money mule for money laundering purposes. Watch out for indicators such as unusual transaction patterns.

How can BDO help

BDO’s forensic and risk advisory team can help financial institutions and other reporting entities design and establish a tailor-made anti-money laundering (AML) control framework that incorporates risk-based “Know Your Customer” (KYC) standards, ongoing monitoring, and suspect transaction screening and identification. Our professionals are experienced in the identification, assessment, and mitigation of risks with respect to fraud, money laundering, and financial crimes.

Our professional team can also assist financial and law enforcement institutions with transaction lookbacks, investigations, and fund tracing of potential money laundering activities.

*All amounts expressed in U.S. dollars unless otherwise stated.

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