Trade-Based Money Laundering (TBML)

Trade-Based Money Laundering (TBML)

What is Trade-Based Money Laundering?

Trade-Based Money Laundering is a money-laundering scheme that emerged and became appealing to financial criminals with the increased Anti – Money Laundering controls. Through Trade-Based Money Laundering, criminals can go ahead with their money-laundering operations by benefiting from the leaks in the regulations of cross-border trade.  Trade-Based Money Laundering TBML is one of the most common money laundering method. AML controls in the trade systems, which involve multiple parties, make Trade-Based Money Laundering much easier for financial criminals. So, Trade-Based Money Laundering makes things difficult for financial organizations to control the actual products and shipping.

What are the methods of Trade-Based Money Laundering?

There are several methods of Trade-Based Money Laundering:

Over – invoicing: The person or the institution that makes the export provides an inflated invoice to the importer. In this method, payment is more than the actual value of the goods that are shipped. The surplus value that emerges from this process is a laundered money transferred from the importer to the exporter.

Under – invoicing: In this method, the exporter provides deflated invoices, in contrast to the over-invoicing method, to the importer. They make the shipping of the goods costlier, and they transfer low priced value of laundered money.

Multiple – invoicing: With this way, the exporter recaps on the operation of invoicing for the same shipping and transfers the greater value of laundered money to the exporter.

Over – or under – shipment: This method includes shipping of more goods than agreed before. So, the greater value is transferred to the importer. It may also involve shipping fewer goods than agreed before and transferring the more significant amount of laundered money to the exporter.

Misrepresentation of quality: By indicating that the goods that will be sent are in higher quality than their actual quality, the greater value of laundered money is transferred to the exporter.

How to Combat with Trade-Based Money Laundering?

In order to combat with Trade Based Money Laundering, regulations for Anti – Money Laundering compliance should be strengthened. Because of the complex structure of the corporate businesses, it is not easy to follow every single step for code of conduct. So, the financial institutions are having trouble while adjusting their Anti – Money Laundering programs for Trade-Based Money Laundering (TBML). There are two ways to combat with Trade-Based Money Laundering that can be mentioned: Transparency of the Supply Chain Process in Global Trade  and International Guidance.

Transparency of Supply Chain Process: To handle Trade-Based Money Laundering, the financial organizations looking for cooperation with corporate organizations. Through information sharing between institutions, it is more likely to identify the illegal infrastructure of TBML.

International Guidance: An international authority can guide financial institutions and advise them to detect and address Trade-Based Money Laundering.

Examples for Trade-Based Money Laundering

Global regulators such as The Monetary of Singapore and The Hong Kong Monetary Authority issue guidelines and red flag checks. These checks state a set of features that Trade-Based Money Laundering may have. Some of the most prominent examples of Trade-Based Money Laundering are as follows:

  • Reluctance of the customers in terms of giving information,
  • Products’ inconsistency with the company’s line of business,
  • Abnormal shipping routes,
  • Unfamiliarity of the potential customers with the usage of the products.