Red/Green Clause Letters of Credit

Criminals exploit partial or advance payments under red/green clause letters of credit by inflating or fabricating trade documentation. Distributing these funds across multiple jurisdictions and intermediaries introduces significant transactional complexity, explicitly obscuring the illicit origin of proceeds. This serves as a core layering strategy within trade-based laundering schemes.

Criminals exploit the specialized features of red/green clause letters of credit (partial or advance payment) by inflating invoices and fabricating supporting documentation. This exploitation leverages the product’s inherent mechanism for disbursement before verification of actual shipment, enabling offenders to secure illicit funds under a veneer of legitimate trade. Falsified or overstated cargo volumes justify early payouts, facilitating layering and obscuring the illicit source of proceeds.

By structuring red/green clause letters of credit across multiple jurisdictions with varying AML controls, criminals exploit regulatory gaps and inconsistent oversight. Routing funds or transferring partial payments internationally reduces traceability and increases anonymity, complicating investigations and fostering opportunities for layered laundering strategies.

Aggregates news reports, legal actions, and regulatory findings on entities suspected of trade-based money laundering. This information flags parties previously involved in suspicious letter of credit activities or other high-risk trade finance schemes.

Includes official import/export data, shipping routes, and cargo declarations verified by customs authorities. By comparing declared goods and volumes with L/C documentation, investigators can uncover inconsistencies or inflated invoices indicative of red/green clause abuse.

Aggregates AML/CFT enforcement data, sanctions lists, and risk ratings for various countries. This facilitates the detection of red/green clause beneficiaries or intermediaries located in offshore or high-risk jurisdictions where regulatory oversight is weak.

Offers real-time and historical pricing benchmarks for goods traded on global markets. By comparing declared prices in red/green clause letters of credit (LCs) against market rates, institutions can detect over- or under-invoicing tactics commonly used to launder funds.

Contains data on an entity’s core business lines, production capacity, and typical revenue streams. Comparing these operational details with large or frequent red/green clause LC transactions can uncover inconsistencies or fraudulent usage.

Contains contractual records of letter of credit issuances, amendments, and repayment terms. Analyzing these documents helps identify frequent amendments, unusually large advance payments, or other credit irregularities symptomatic of red/green clause abuse.

Encompasses bills of lading, shipping manifests, and related customs forms. Cross-referencing these records with the stated terms in red/green clause letters of credit (LCs) helps confirm whether actual shipments match declared cargo and values.

Provides verified customer identities, prior trade engagements, and risk profiles. By reviewing a customer’s historical involvement in trade finance and matching it against newly issued red/green clause letters of credit, institutions can detect anomalies such as sudden or unjustified usage of advanced credit facilities.

Captures international fund transfers across multiple institutions. Monitoring these flows is critical for tracing how red/green clause LC proceeds are rapidly dispersed, layered, or redirected to diverse jurisdictions without a clear commercial purpose.

Consolidates official data on company registration, shareholders, and ultimate beneficial owners. This enables the identification of shell or collusive entities behind red/green clause LCs, especially when layered ownership structures conceal illicit activity.

Implement specialized Enhanced Due Diligence (EDD) procedures for customers seeking red/green clause letters of credit. Verify the authenticity of shipping documents, cross-check stated cargo volumes with industry data or inspection reports, and scrutinize beneficial ownership to detect potential collusive or shell participants across multiple jurisdictions.

Configure monitoring scenarios to detect the misuse of red/green clause letters of credit, including large or repeated advance payments, frequent amendments increasing pre-shipment funds, and movements of proceeds across multiple jurisdictions. Investigate any discrepancies in supporting documentation or deviations from typical trade finance flows.

Require that advance payments for red/green clause letters of credit be held in escrow until the authenticity of the shipment and compliance with agreed conditions are independently verified. Only release funds after confirming genuine cargo movements, mitigating the risk of fictitious or overstated goods.

Leverage external data sources, such as vessel tracking platforms, trade registries, or import/export databases, to confirm the legitimacy of shipping routes, counterparty information, and cargo details. This helps uncover forged documentation or inflated claims in red/green clause transactions.

Conduct thorough reviews of all documents supporting red/green clause letters of credit, including bills of lading, invoices, and proof of cargo inspection, to detect inflated or fictitious shipments. Compare declared cargo and volumes against market norms and shipping records, focusing on repeated amendments or discrepancies that may indicate fraudulent activity.

• Once the fraudulent advance payment is issued, criminals disperse these funds across multiple bank accounts in various jurisdictions.
• This layering, often executed through shell entities or collusive beneficiaries, obscures the audit trail and conceals the illicit origin of the proceeds obtained via manipulated letters of credit.

• Criminals misuse red/green clause letters of credit to secure large partial or advance payments by presenting falsified or exaggerated shipping and production documentation.
• These documents trigger bank-issued funds before goods are actually shipped—or in volumes not truly matching the paperwork—thereby masking the real source of illicit proceeds.
• By routing these advanced payments through various intermediaries or shell entities, offenders layer and obscure the funds within legitimate-seeming trade flows.

• Offenders create inflated or fabricated invoices, reflecting overstated cargo volumes or fictitious sales, to justify early disbursement under a red/green clause letter of credit.
• These false accounts receivable records support advanced payment claims, enabling the laundering of illicit proceeds as ‘trade settlements’ for goods that do not match or even exist.

• Criminals exploit red/green clause letters of credit by inflating invoices and staging fictitious shipments, triggering partial or advance payments that can be diverted for illicit purposes.
• The bank’s guarantee of payment—once the (often falsified) shipping or production documentation is presented—allows offenders to layer illicit proceeds under a veneer of legitimate trade finance.
• By routing these advanced funds through multiple intermediaries or shell entities, they obscure the origin and trail of the illicit capital.

• Green clause letters of credit function as a form of pre-shipment finance, covering production costs before goods are actually shipped.
• Criminals inflate anticipated production expenses or fabricate orders, justifying larger upfront disbursements.
• These improperly obtained funds can then be rapidly distributed to conceal or integrate illicit gains, leveraging the legitimate appearance of pre-shipment financing.

• Offenders falsify or overstate cargo volumes on trade documents to support inflated invoice amounts under red/green clause letters of credit.
• These manipulated documents enable fraudulent justifications for early or partial payments, masking the absence or understatement of actual goods shipped.
• Collusive shippers and forged paperwork exacerbate the opacity, hindering AML checks and facilitating layered fund movements.

Trade finance institutions issue or process red/green clause letters of credit and can be exploited by:

• Approving advance or partial payments based on falsified shipping or production documents.
• Indirectly enabling layering when inflated invoices or forged records prompt legitimate-looking disbursements.
• Relying heavily on documentary checks, creating vulnerabilities if supporting paperwork is counterfeit or overstated.

Import-export businesses may be exploited to:

• Submit inflated invoices or fabricated purchase orders to receive higher advance payments under red/green clause letters of credit.
• Conceal the actual nature or quantity of goods, allowing illicit proceeds to blend with legitimate trade flows.
• Present falsified trade documents to financial institutions, complicating efforts to verify authenticity and detect laundering.

Criminals enlist document forgers to:

• Alter or create shipping and production records that overstate cargo volumes or stage fictitious shipments under red/green clause letters of credit.
• Undermine the letter-of-credit process by providing seemingly valid paperwork, making it harder for financial institutions to detect inflated invoices or non-existent goods.

Shell or front companies serve as beneficiaries or intermediaries by:

• Receiving advance payments for fictitious or inflated shipments under red/green clause letters of credit.
• Concealing beneficial ownership, complicating financial institutions' due diligence, and obscuring the origin of illicit funds.
• Enabling multi-layered transactions that mask ultimate recipients and sources of capital.

Shipping and logistics firms, whether collusive or unwitting, can be used to:

• Provide or certify shipment records that overstate cargo size or mask non-shipments.
• Lend a veneer of legitimate transport, hindering financial institutions from detecting fraudulent trade-based activities.
• Route goods or documents across multiple jurisdictions, complicating AML monitoring.