Trade-Based Money Laundering (TBML) is a method of laundering money that involves manipulating trade transactions to disguise the origins of illicit funds. It exploits the international trade system to move and legitimize the proceeds of crime through the over- or under-invoicing of goods and services, multiple invoicing, and other trade-related mechanisms.
Key Points:
- Purpose: TBML aims to integrate illicit funds into the legitimate economy by using trade transactions as a cover. This method allows criminals to move large amounts of money across borders under the guise of legitimate trade activities.
- Methods of TBML:
- Over-Invoicing: Inflating the price of goods or services in an invoice to transfer excess value abroad, effectively laundering money.
- Under-Invoicing: Understating the price of goods or services to shift value to another country, where the difference can be claimed as legitimate profit.
- Multiple Invoicing: Issuing multiple invoices for the same shipment of goods to justify multiple payments, thereby moving illicit funds.
- Over- or Under-Shipment: Misrepresenting the quantity of goods shipped to transfer value between trading partners.
- Falsifying Goods or Services: Declaring fake or misrepresented goods and services in trade documents to justify financial transactions.
- Challenges in Detection:
- Complexity of Trade Transactions: The complexity and volume of international trade make it difficult for authorities to monitor and detect irregularities.
- Lack of Transparency: TBML schemes often involve multiple jurisdictions, making it challenging to obtain and verify accurate trade data.
- Use of Legitimate Channels: TBML exploits legitimate trade channels and businesses, making suspicious activities harder to detect.
- Regulatory Measures:
- Enhanced Due Diligence (EDD): Financial institutions and customs authorities must apply EDD to high-risk trade transactions and relationships.
- Trade Monitoring Systems: Implementing advanced trade monitoring systems to detect anomalies in trade data and invoice discrepancies.
- International Cooperation: Enhancing cooperation between customs authorities, financial institutions, and international organizations to share information and best practices.
- Trade Transparency Units (TTUs): Establishing specialized units within customs and regulatory agencies to focus on TBML detection and enforcement.
- Examples of TBML:
- A company in Country A exports goods to a company in Country B at an inflated price. The company in Country B pays the inflated amount, and the excess funds are laundered as legitimate business income.
- A business owner imports goods at a significantly undervalued price, then sells them at market value. The difference between the invoice price and the sale price is laundered money.
- Multiple payments are made for a single shipment of goods based on multiple fraudulent invoices, effectively moving illicit funds across borders.
- Consequences: TBML poses significant risks to the global financial system by undermining trade integrity and enabling the movement of illicit funds. Effective detection and prevention of TBML are crucial for maintaining the legitimacy of international trade and financial systems.
