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Trade-Related Money Laundering

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Trade-Related Money Laundering

The Financial Action Task Force (FATF) highlights the misuse of trade as a strategy employed by criminal organizations and terrorist financiers to obscure the origins of illicit funds. This practice involves leveraging trade transactions to launder money or finance illegal activities. Trade-based money laundering (TBML) often involves intricate cross-border financial instruments used for exporting and importing goods. The complexity of multiple parties and jurisdictions exacerbates the challenges associated with due diligence and anti-money laundering (AML) procedures.

Given that banks offer a broad spectrum of trade-related services—such as issuing, confirming, advising, negotiating, nominating, accepting, discounting, reimbursing, paying, and occasionally extending credit—TBML frequently intersects with legitimate trade activities across diverse entities and regions. This overlap complicates detection efforts. To effectively combat TBML, organizations must fortify their AML and counter-financing of terrorism (CFT) controls, with a particular focus on trade finance and correspondent banking operations.

Recent advancements in Trade-Based Money Laundering (TBML) risk indicators have extended beyond conventional red flags, such as over- and under-invoicing, short- and over-shipping, misrepresentation of goods, and phantom shipments. These indicators have been identified through data collected by the FATF and the Egmont Group of Financial Intelligence Units (FIUs) as part of a TBML initiative. While the presence of a single risk indicator may indicate unusual activity, it does not, in isolation, substantiate TBML but should prompt further scrutiny and investigation. TBML risk indicators are now categorized into the following broad areas:

Trade Activity Indicators:

  1. Trade activities that deviate from the entity’s declared business lines
  2. Unconventional or overly complex use of financial products
  3. Absence of an online presence
  4. Significant lack of typical business operations

Structural Indicators:

  1. Unusually complex corporate structures
  2. Registration or operational presence in jurisdictions with inadequate Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) regulations
  3. Adverse media coverage involving the entity, its owners, or senior management
  4. Entity names that closely mimic those of well-established corporations

Account and Transaction Activity Indicators:

  1. Late adjustments to payment arrangements
  2. Payments made by entities other than the consignee without a clear economic basis
  3. Cash deposits or transactions consistently just below reporting thresholds
  4. Payments made or received in large, rounded amounts

Trade Document and Commodity Indicators:

  1. Discrepancies in contracts, invoices, or other trade documents
  2. Fees or pricing that diverge from commercial norms
  3. Notable inconsistencies in the declared value of imports
  4. Shipments routed through jurisdictions without clear economic or commercial rationale

Collaborating with TAAC consultants will significantly improve your capacity to detect red flags, identify suspicious transactions, and implement effective measures to address them.

TAAC further supports clients in setting up AML compliance departments and delivering comprehensive employee training. Our consultants are proficient in crafting tailored AML policies, selecting appropriate AML software, and managing reporting requirements. We are committed to ensuring that you comply with all relevant AML regulations and remain protected against money laundering threats.

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