Trade-Based Money Laundering (TBML) is the process of disguising illicit funds and moving them across borders through seemingly legitimate trade transactions. By manipulating trade documents and processes, criminal organisations make it difficult for authorities to trace funds back to their illegal origins. TBML is one of the most complex forms of money laundering due to the sheer volume and intricacy of global trade. As criminals continue to develop more sophisticated methods, financial institutions and businesses involved in international trade need to understand these techniques, recognise red flags, and strengthen their compliance with anti-money laundering (AML) regulations.
Common Techniques of Trade-Based Money Laundering
Criminals exploit the complexity of international trade systems to move illicit funds under the radar. The following techniques illustrate the need for enhanced due diligence and a risk-based approach in global trade operations:
Over/Under Invoicing
These are among the most common TBML tactics. Over-invoicing occurs when the value of goods is inflated on the invoice, enabling the exporter to receive more money than the goods are worth. Under-invoicing, on the other hand, undervalues the goods, allowing the importer to transfer excess value to the exporter discreetly. Financial institutions should carefully examine invoices that deviate significantly from market norms or historical transaction patterns, as these may indicate suspicious activity.
Phantom Shipments
This method involves creating fake trade transactions where no goods are actually shipped. Fraudulent invoices and shipping documents are used to make the transaction appear legitimate. To detect this, banks should verify shipment records, such as bills of lading and tracking details, and look for inconsistencies in shipment size, container numbers, or delivery routes that don’t match standard logistics practices.
Multiple Invoicing
In this scheme, the same shipment is invoiced multiple times, allowing the exporter to receive duplicate payments and move illicit funds across borders. Signs of multiple invoicing include identical invoice numbers, repeated transaction amounts, or unexplained payments for the same goods. Regular monitoring and requesting supplementary documentation can help uncover this type of fraud.
False Descriptions of Goods
Criminals may deliberately misrepresent the nature, quality, or quantity of goods to justify unusual payments or avoid scrutiny. For example, low-grade products might be described as premium items, or goods might be misclassified to benefit from lower tariffs. Comparing invoice details with actual market values and the importer’s normal business activity can help identify discrepancies that warrant further investigation.
Illicit Cash Integration
This technique involves using dirty money to purchase goods in one country and resell them in another, effectively “cleaning” the funds through trade. Red flags include large cash transactions for high-value goods, or unusual payment methods that bypass formal banking channels. Institutions should pay close attention to cash-heavy operations, especially when they involve cross-border trade.
Conclusion
Trade-based money laundering remains a powerful tool for criminal networks seeking to obscure the origins of illicit funds. By understanding the common TBML methods and implementing strong monitoring practices, financial institutions and businesses can reduce the risk of being exploited and ensure stronger compliance with AML obligations. Proactive vigilance is essential in safeguarding the integrity of the global financial system.
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