Short answer: trade-based money laundering (TBML) is the use of international trade to move value and disguise criminal proceeds, usually by falsifying the price, quantity, quality or description of goods in trade documents. It is one of the hardest laundering methods to detect because trade data is fragmented, paper-heavy and spread across many parties.
Why trade is attractive to launderers
Trade flows are huge and complex, goods have no single "true" price, documents are handled by many parties, and customs and banks each see only part of the picture. A payment for goods looks normal on its face. The FATF and the Egmont Group have published reports on the topic, most recently Trade-Based Money Laundering: Trends and Developments (2020).
Main techniques
| Technique | How it moves value |
|---|---|
| Over-invoicing | The exporter invoices more than the goods are worth. The importer pays the excess, moving value to the exporter. |
| Under-invoicing | The invoice is lower than the real value. The importer receives goods worth more than it pays, moving value to the importer. |
| Multiple invoicing | The same shipment is invoiced several times, justifying several payments. |
| Over- or under-shipment | More or fewer goods are shipped than the documents state. |
| Falsely described goods | The quality or type of goods is misdescribed so that the price looks reasonable. |
| Phantom shipments | No goods move at all; only the paperwork and payment exist. |
A worked example
A company in country A exports goods worth USD 10,000 but invoices USD 50,000 to a related company in country B. Country B pays USD 50,000. The exporter has received USD 40,000 more than the goods are worth, and the importer has moved that value abroad under cover of a normal trade payment.
The black market peso exchange
In the black market peso exchange, drug proceeds in the US are sold to a broker for pesos. The broker uses the dollars to buy goods in the US for importers in Latin America, who pay the broker in local currency. Value moves without cash crossing the border. The scheme relies on trade and third-party payments.
Red flags
- Price significantly above or below market value for the goods.
- Documents inconsistent with each other (quantity, weight, route, dates).
- Payments from or to third parties not named in the contract.
- Trading with a related party or newly formed company with no trading history.
- Transactions routed through a free trade zone or high-risk jurisdiction without clear reason.
- Goods that do not fit the customer's business.
- Frequent amendments to letters of credit, or unusual shipping routes.
- Dual-use or sanctioned goods and destinations: see sanctions evasion red flags.
Controls
- Know the customer's trade: normal goods, partners, routes and volumes.
- Trade finance reviews at transaction level: check price reasonableness, documents and parties.
- Use of trade data and price databases to compare unit prices.
- Sanctions and dual-use screening of goods, vessels, ports and parties.
- Training for trade finance staff, who are often the first to see anomalies.
- Co-operation with authorities and customs data where available, and reporting of suspicion through the normal suspicious activity report process.
Exam angles
- Know the main techniques and which direction value moves in over- and under-invoicing.
- TBML is layering using legitimate trade.
- Third-party payments, free trade zones and mismatched documents are classic red flags.
- Trade finance is higher risk than open-account trade for documentary controls, but open account trade is much larger by volume and harder to see.