Trade-based money laundering
TBMLAlso called trade-based laundering
Trade-based money laundering is the use of international trade to disguise criminal money and move value across borders. Criminals over or under invoice goods, ship more or less than declared, misdescribe products or invoice the same shipment several times. The difference between the paper value and the real value carries the illicit funds.
How it works
Banks see trade through letters of credit, documentary collections and open account payments. Trade finance teams compare invoice prices with market values, check shipping routes and vessels, and look for parties with no clear link to the goods. Open account trade is harder to check, because the bank sees only the payment, not the documents behind it.
The FATF and the Egmont Group have published joint reports on trade-based laundering methods and red flags. It is hard to detect because trade documents are complex, prices vary and data is spread across banks, shippers and customs. Supervisors expect banks with trade finance business to assess this risk and train staff on the red flags.
The rules
Require countries and firms to apply a risk-based approach, due diligence and suspicious transaction reporting, which cover trade transactions and trade finance.
Countries, which apply them to regulated firms through national lawDescribes current trade-based laundering methods and the challenges authorities and banks face in detecting them.
Governments, supervisors and private sector firmsLists red flags grouped by business structure, trade activity, trade documents and commodities, and account and transaction activity.
Banks, trade finance providers and other private sector firmsCommon questions
What are common trade-based money laundering red flags?
Typical red flags include invoice prices far from market value, shipments routed through several jurisdictions without a commercial reason, goods that do not fit the customer's business and payments from third parties with no link to the trade.
Why is open account trade a particular risk?
In open account trade the buyer pays the seller directly after the goods arrive. The bank processes a payment but does not handle shipping documents. It therefore has less information to check prices, goods and routes than in documentary trade.
How is trade-based laundering linked to sanctions evasion?
The same techniques that move criminal money also hide the origin or destination of controlled goods. Misdescribed cargo, transhipment through third countries and front companies are used to evade sanctions and export controls as well as to launder funds.
