What is Trade-Based Money Laundering?
Trade-based money laundering (TBML) is the use of international trade transactions to disguise illicit funds and move value across borders.
Trade-based money laundering hides dirty money inside what looks like ordinary buying and selling of goods. By misrepresenting the price, quantity, or quality of goods on invoices and shipping documents, criminals can shift value from one country to another without moving cash directly.
Trade-based money laundering is hard to detect because global trade is huge and complex. Banks usually see the payment but not the goods, and the paperwork involves many parties, including exporters, importers, shipping firms, customs authorities, and intermediaries. That complexity makes trade finance one of the higher-risk product areas in any money laundering risk assessment.
How does trade-based money laundering work?
Trade-based money laundering works by making the paperwork tell a different story from the real transaction. Common methods include the following.
- Over-invoicing, where goods are billed above their real value so extra money moves to the exporter
- Under-invoicing, where goods are billed below their real value so extra value moves to the importer
- Multiple invoicing, where the same shipment is billed more than once
- False descriptions of goods, where the type or quality of goods is misstated
- Circular trade flows that move goods and money through related import and export entities
A simple example shows how over-invoicing moves value. An importer controlled by a criminal network pays $1 million for goods actually worth $200,000. The extra $800,000 arrives at the exporter looking like legitimate sales revenue.
What are the red flags of trade-based money laundering?
Trade-based money laundering often leaves clues in pricing and documents. Common red flags include the following.
- Unit prices or quantities that deviate 30% or more from market norms
- Descriptions on invoices that do not match commodity codes
- Goods that do not fit the customer's known business
- High-risk trade corridors or jurisdictions
- Obscure third-party intermediaries in the transaction
- Payments from parties unrelated to the trade
How do financial institutions detect trade-based money laundering?
Financial institutions detect trade-based money laundering by comparing trade documents and payments against what would be expected. Risk scoring for trade finance considers transaction complexity, the use of high-risk corridors, and the involvement of third-party intermediaries. Staff review letters of credit, invoices, and shipping documents for inconsistencies, and pricing checks flag goods sold far above or below market value.
Trade-based money laundering also overlaps with sanctions and proliferation risk. The same document checks that expose inflated invoices can reveal dual-use goods or hidden intermediaries linked to sanctioned parties. Transaction monitoring adds another layer by flagging circular flows and payment patterns that do not match a customer's trading profile.
