Three friends, Brian, Josef and Richard, purchased the Western European non-resident company ‘Red Ltd’ through an intermediary.

They registered the business purpose of Red Ltd to be the importation of carpets from another Western European country. To facilitate trading, they requested that the intermediary - which happened to be a firm of lawyers - set up a bank account for them in Red Ltd’s name. This was done without question, and in accordance with further instructions only key staff at the legal firm were named as signatories. That was exactly what the associates had been seeking to achieve, because they did not want to be formally linked to the company.

Within days of the account being opened, Brian rang the bank to negotiate setting up a letter of credit. He claimed to need the facility for the purchase of twenty rolls of carpet that would ultimately be supplied to a large catalogue firm. Brian intimated that this was just a trial purchase to see how business went and, if successful, the next deal would probably be ten times larger. However, Brian seemed to actually know nothing about letters of credit, and the bank had to explain the procedure step by step. The bank officials thought that Brian’s lack of knowledge was odd, since he was a businessman who had claimed to operate in this market for several years; the officials recorded their concerns in a file note.

Brian told the bank that the letter of credit was to be for USD40,000. He asked the bank to contact him once that sum had been transferred to the exporting country, where Josef and Richard were organising the goods. Brian said that Josef and Richard would issue a certificate to the bank when they had inspected the merchandise prior to shipping.

The bank would also receive a shipping document. Then the bank would have to release payment within three weeks of the date of shipment as shown on the shipping document. The beneficiary’s account - in the name of Black Ltd - was at a bank in the exporting country.

The letter of credit was put in place one week later on receipt of deposit funds from a foreign Bureau de Change. Ten days later, the certificate and shipment documents arrived.

It concerned the bank somewhat that Red Ltd’s address as stated on the shipment document, was in fact the address of an Industrial Unit in another country. Furthermore, the value of the carpets was shown as only USD5,500 and not the USD40,000 promised. Despite these small discrepancies, ten days later the bank authorised the transfer of the money.

Shortly afterwards, Brian contacted the bank to confirm that all went well, and that he was in the early stages of organising a further importation of carpets. This time the letter of credit would be for around USD625,000. The bank noted the possibility on file and awaited further instructions.

Ten months later, when Customs officials paid a routine visit to the institution, the bank presented the matter formally to Customs as a disclosure, reflecting their continuing suspicions about Red Ltd. The bank’s information was very useful indeed - Brian, Josef a n d Richard had all been arrested eight months earlier on board a small yacht attempting to smuggle one hundred kilos of cannabis resin into the country. Paperwork found during house searches indicated that they were doing a small run to finance a larger heroin importation. It was likely that they had already imported a small amount of heroin concealed in carpets as part of the Red Ltd trading, and if not for their arrest Red Ltd would have been used for both importation and laundering purposes.

Indicators :
Lack of knowledge by individual atypical to trade practitioners
Attempts to avoid identifying final beneficiaries of accounts