Circular Transactions

Through repeated circular (or 'carousel') transfers across multiple accounts and jurisdictions, criminals deliberately obscure the illicit source of funds by breaking audit trails and hiding beneficial ownership, thereby accomplishing a classic layering objective.

In addition to leveraging jurisdictional mismatches, this technique exploits vulnerabilities inherent in trade finance, shipping, and related financial products. Criminals repeatedly re-invoice or fabricate shipments, manipulate letters of credit, and cycle funds through trade instruments or gambling services. The opaque processes and documentation requirements of these products provide distinct opportunities to conduct circular transactions without legitimate economic activity.

Criminals exploit multi-jurisdictional complexity and mismatched AML enforcement frameworks to obscure the provenance of funds. By repeatedly transferring capital across borders—often in secrecy or offshore jurisdictions—they frustrate authorities' ability to trace transactions and identify beneficial owners. This reliance on cross-border fragmentation is the core vulnerability enabling the circular flow of illicit proceeds.

• Provides official trade manifests, customs export/import filings, shipping routes, and declared cargo details.
• Validates the actual physical movement of goods across borders, helping detect phantom shipments or duplicated routes indicative of circular trade schemes.

• Contains details of invoices, contractual agreements, amounts, and involved parties.
• Enables detection of suspicious re-invoicing practices or repeated usage of identical invoices across multiple transactions, indicating potential carousel schemes.

• Provides comprehensive records of financial transactions across accounts and channels, including timestamps, amounts, currencies, counterparties, and unique transaction identifiers.
• This data is critical for detecting cyclical transaction patterns where funds are returned to their original source, lacking legitimate economic purpose.

• Contains information about a business's operations, including revenue, operating expenses, and employee counts.
• Helps identify discrepancies when large transaction volumes are not consistent with the entity's actual operational capacity, suggesting circular movement of funds.

• Maintains shipping logs, customs declarations, bills of lading, and other trade-related records.
• Permits validation of declared goods, repeated shipments, and potential phantom transactions used to disguise circular flows.

• Contains verified customer identities, beneficial ownership information, and account relationships.
• Enables detection of rapid ownership changes, frequent entity acquisitions, or expansions lacking operational legitimacy that facilitate circular flows.

• Tracks cross-border transactions, routes, intermediary banks, and jurisdictions used.
• Aids in spotting convoluted routing paths across multiple jurisdictions often used in layering and circular transactions.

• Provides official or aggregated details of organizations, including registration, shareholders, directors, and beneficial owners.
• Facilitates the identification of shell companies and hidden relationships among entities involved in circular transactions.

Apply heightened scrutiny to customers and entities exhibiting frequent multi-jurisdictional transfers, unusually complex ownership structures, or patterns of high-volume trade with minimal supporting documentation. Validate beneficial ownership layers, confirm the presence of legitimate operations, and scrutinize repetitive inbound and outbound flows. Require more frequent updates to source-of-funds documentation and supporting documents for trade activity.

Implement specialized monitoring rules and analytics to detect cyclical funds or asset transfers that ultimately return to the same origin. Focus on repeated sequences of cross-border transactions lacking clear economic rationale, frequent re-routing across multiple entities, and repetitive amounts spaced closely in time. Investigate patterns indicating the layering of illicit proceeds within artificially complex fund flows.

Cross-verify trade partners and shipping details through public registries, business records, or maritime/shipping databases to confirm the actual movement of goods. Investigate repeated changes in corporate addresses or beneficial owners that coincide with cyclical flows. Use external data and media checks to detect signs of phantom or fictitious trade activity intended to conceal the origin of funds.

Regularly reassess customer profiles and transaction behaviors for indications of circular movement of funds or goods. If repetitive patterns emerge—such as capital spiraling through related accounts or re-registered entities—initiate an enhanced review of underlying documentation, beneficial owners, and trade details. Update risk ratings and, where necessary, escalate to further internal or external investigation.

Inspect and verify trade documentation, invoices, and shipping records for recurring shipments of the same goods involving the same parties. Check invoice consistency against actual shipping data or customs records to reveal phantom or duplicated transactions used to cycle funds. Pay particular attention to repeated re-invoicing under different legal entities or jurisdictions without legitimate business justification.

• Illicit funds cycle in and out of gambling platforms, labeled as bets, stakes, or winnings, generating a convoluted transaction history.
• By repeatedly transferring money among multiple gambling accounts, criminals camouflage the proceeds' true source under presumed gaming activity.

• By rapidly cycling illicit proceeds among multiple bank accounts—often held across various jurisdictions—criminals create a convoluted audit trail that obscures the original source of funds.
• The repeated transfers serve to layer and reroute capital, frustrating detection by financial institutions.

• Fraudulent or duplicated letters of credit enable repeated transfers under the guise of international trade, even if no real shipment occurs.
• Criminals exploit the appearance of legitimate trade finance to cycle funds between shell companies, obscuring illicit capital flows.

• By forging or repeatedly utilizing documents like bills of lading, perpetrators stage bogus import/export deals that shuffle funds among connected entities.
• These repetitive trade steps build layers of complexity around the money trail, making it difficult to pinpoint the original source.

• Criminals exploit the repeated import and export of high-value stones, especially diamonds, to create circular flows by artificially re-invoicing or re-shipping goods.
• The substantial value and cross-border nature of gemstone trades help in layering illicit proceeds, thereby hiding the true funding source.

• Criminals repeatedly re-invoice the same goods or services among affiliated entities, generating fictitious revenue streams to justify circular transfers of funds.
• These manipulated invoices create a paper trail of transactions with no legitimate economic activity, disguising the true origin of proceeds.

• Criminals arrange ‘phantom shipments’ or reship the same goods multiple times, creating artificial trade flows.
• Convoluted shipping documentation across various ports and jurisdictions hides the cyclical movement of funds linked to these supposed transactions.

• Perpetrators repeatedly re-invoice or create phantom trade transactions, funneling funds back and forth among related entities.
• By improperly using letters of credit or other trade instruments, they generate circular flows that mask the origin of illicit proceeds.

• Funds are cycled between gambling accounts, with transactions labeled as winnings, stakes, or credits.
• By moving illicit proceeds repeatedly in and out of the gambling environment, criminals create an impression of legitimate gaming activity, masking their actual source.

• Criminals orchestrate multiple wire transfers among domestic and international accounts to create complex fund movements.
• Rapid transfers across affiliated accounts blur the transaction trail, making it challenging to discern the ultimate source or true beneficiary.

• Use of nested and multiple correspondent accounts allows rapid cross-border fund transfers, complicating AML controls.
• Transfers via different intermediaries help form circular transaction chains, obscuring ultimate beneficiaries and the real source of funds.

• Criminals establish and manage multiple corporate entities or trusts, cycling funds among these structures to disguise the true origin of money.
• Repeated inter-company transfers obscure beneficial ownership, making the financial trail appear legitimate while hampering investigations.

Import-export companies, whether knowingly or unwittingly, facilitate round-tripping by:

• Issuing repeated invoices or shipping documents for the same goods (such as diamonds), thereby creating artificial circular flows.
• Producing transaction records that lack genuine economic activity, which complicates financial institutions' monitoring of beneficial ownership.

Professional money launderers knowingly orchestrate circular transactions by:

• Setting up multiple accounts or entities across different jurisdictions, repeatedly transferring illicit proceeds to frustrate tracking efforts.
• Employing phantom trade deals or complex re-invoicing to conceal the true origin and ownership of funds, impeding financial institutions' ability to detect suspicious flows.

Shell or front companies, whether knowingly or unwittingly, enable cyclical transactions by:

• Providing corporate accounts through which illicit funds are transferred repeatedly, often without genuine business operations.
• Obscuring beneficial ownership and transaction rationale, making it difficult for financial institutions to trace the original source of funds.

Gambling operators, knowingly or unwittingly, are exploited for cyclical fund transfers by:

• Allowing repeated deposits and withdrawals labeled as bets, winnings, or credits.
• Masking illicit funds as legitimate gaming transactions, making it tougher for financial institutions to identify suspicious patterns.