Detecting Money Laundering Through Trade Flow Analysis: An Empirical Case Study on Money Laundering in the Belgium Cocaine Trade

Abstract

Europe has seen an increase in cocaine seizures in recent years. As the criminal landscape in South America has seen noticeable changes, there has been a shift in how cocaine enters Europe. Belgium has become the primary gateway for cocaine trafficking to Europe. With increased cocaine imports, organized criminal gangs have more money to be laundered. This thesis analyzes Belgium's trade data to investigate whether increased cocaine trafficking impacts a country's international trade flow. We propose a method of detecting money laundering by analyzing trade flows of goods related to money laundering. This is done by introducing the synthetic difference-in-differences method in a case study. We analyze trade flows from 2000 to 2019 between Belgium, tax havens, and cocainetrafficking countries. The thesis finds that as Belgium experiences an increase in cocaine seizures, there is a significant increase in the import of diamonds, arts, and antiquities from cocainetrafficking countries. However, there is no conclusive evidence of increased money laundering activities between Belgium and tax havens. The method cannot conclude the causes of increased imports. However, it can be a tool to narrow down different countries and products to identify trade flows that raise suspicion regarding money laundering activities. Further work should analyze the trade flows identified by the proposed method to detect money laundering.