Tackling illicit trade through stricter anti-money-laundering rules

As illicit trade is rising, governments and affected industries are looking to combat the trend. One possible way is to pursue money laundering crimes more strictly so that criminals have fewer options to use the proceeds from their activities.

A recent report by the OECD estimates that up to 5.8% of EU imports are counterfeits. Moreover, the recent disruptions of supply chains and global shipping and the rise of e-commerce have provided traders of illicit goods with new opportunities to exploit.

“The economic impact is really, really huge,” OECD economist Morgane Gaudiau told a recent online panel organised by EURACTIV.

The panel discussed both the impact illicit trade could have on the economy and what could be done about it.

Cindy Braddon, head of communications and public policy at TRACIT, a private sector initiative committed to mitigating the effects of illicit trade, called for more cooperation between companies and enforcement authorities.

“The key is for the private sector and governments to work together. Everybody across the supply chain needs to be speaking with each other to make sure we’re monitoring and reporting when we see that there are bad actors before the products get delivered,” she said.

While Lucine Ovumyan of Japan Tobacco International agreed that the collaboration was essential, she said that the cause of illicit trade, at least in the tobacco industry, was excessive taxation, which made counterfeit cigarettes more attractive than legal cigarettes.

However, lowering taxes on tobacco would counteract the public health purpose for which the taxes on tobacco were implemented in the first place.

Trade in counterfeits – Hunting high margins with low risks

Illicit trade in counterfeit goods remains a significant issue in EU trade and is most prevalent in product categories that show a large discrepancy between production costs and consumer prices. This can include watches, fake luxury handbags, and even fake COVID vaccines.

Meanwhile, Member of the European Economic and Social Committee (EESC) Javier Droz suggested focusing on money and, more specifically, money laundering.

“Money laundering is the core of this kind of crimes because, after every illicit trade [transaction], the money needs to be laundered,” he said.

However, Droz argued that effectively prosecuting money laundering crimes was difficult because many in the political elite were profiting from money laundering.

The money-laundering industry with its lawyers, consultants and shell companies is where all profitable crime needs to pass through if the criminals want to enjoy their ill-gotten gains in the real economy, whether they be drug traffickers, tax evaders, or counterfeit smugglers.

“The network is the same,” Droz said.

That money laundering is of concern to a wide variety of crimes is currently evidenced by the difficulty to implement the asset freezes on Russian individuals that the EU sanctioned in response to the Russian attack on Ukraine.

The United Kingdom has become such a popular place for Russians to launder their ill-gotten gains that its capital is now mockingly called ‘Londongrad’.

According to TRACIT’s Braddon, implementing more stringent anti-money laundering rules was a question of political will.

The EU Commission has recently published its proposal for a directive against shell companies that are often used to hide the real owners of certain funds to get ahead of the problem.

It is yet to be approved by the EU Parliament and member state governments. But once implemented, it might make the lives of criminals who try actually to use the money they earned a little more complicated, be they drug traffickers, counterfeit smugglers, or tax evaders.

Commission presents directives against tax competition and shell companies

The EU Commission presented its proposal for a directive to implement the minimum tax in the EU along with a directive that should make it hard to evade taxes through shell companies.

[Edited by Alice Taylor]

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