Trade Based Money Laundering

AML work is often associated with banks, payments and transaction monitoring. That is natural. Much of the anti-money laundering framework has been developed around financial flows and customer relationships within the financial system.

However, value can also be moved through trade. Over- and under-invoicing, false trade documents, export and import arrangements, complex corporate structures and goods flows can be used to conceal or move monetary value.

This is the core of trade based money laundering, often abbreviated to TBML. The risk is that the arrangement does not look like a suspicious bank transfer. It may look like ordinary business activity. Morling Consulting’s money laundering experts help businesses identify such risks and translate them into practical, effective AML controls.

Trade Based Money Laundering Definition

A trade based money laundering definition must start with the use of trade to integrate and conceal value. Instead of money laundering primarily taking place through an unusual payment, the manipulation may sit within the trade flow itself.

This may involve manipulating price, quantity, quality, goods classification or trade documentation. Legitimate companies, invoices and supply chains may be used as part of the arrangement, making deviations even harder to identify.

Typical examples of TBML risks include:

• Over-invoicing, where goods or services are priced artificially high in order to move value to the sender of the goods.
• Under-invoicing, where goods are sold at an artificially low price in order to transfer value to the recipient of the goods.
• Double invoicing, where the same delivery is used for multiple payments.
• False or misleading transport documents.
• Misclassified goods or goods that do not correspond to the description stated in the documentation.

In such a scenario, a bank transaction may appear legitimate in itself. The payment may be supported by an invoice, an agreement and an alleged delivery. The real risk lies in whether the trade flow reflects an actual and commercially reasonable transaction.

Why the Trade Based Money Laundering Definition Is Often Underestimated

Many AML programmes are, in practice, centred on financial businesses. They are designed to identify unusual payment patterns, high-risk customers, sanctions exposure and unusual transactions in financial systems. Financial businesses have the advantage of holding large volumes of structured, analysable data, which is not the case for trade flows.

Identifying unusual payment patterns, high-risk customers, sanctions exposure and unusual transactions is important, but it does not always capture trade risk. A payment may be correctly executed, come from a known company and have an apparently reasonable commercial explanation. At the same time, the invoice, pricing or goods flow may have been manipulated.

TBML is particularly difficult because multiple parties often see only parts of the picture. The bank sees the payment. The freight forwarder sees the transport. The company sees the business relationship. The compliance function may see customer data and transaction patterns, but lack visibility over supply chains, trade documents and commercial terms.

It may therefore be easier to detect an unusual bank transfer than a manipulated trade invoice. The latter often requires an understanding of the sector, pricing levels, counterparties, goods, delivery patterns and commercial logic.

TBML Often Takes Place Through Legitimate Business Activity

A central challenge is that TBML does not necessarily rely on fictitious companies or obviously false transactions. Criminal actors may use real businesses, genuine trade relationships and actual goods flows.

The arrangement may be integrated into ordinary business activity. There may therefore be no single transaction that clearly deviates from everything else. Instead, the risk may lie in the pattern, structure or economic logic behind the trade.

One example is a company exporting goods to an affiliated company in another jurisdiction at artificially low or high prices in order to move value internationally. On the surface, there may be agreements, invoices, transport documents and payments. Without deeper analysis, this may appear to be ordinary trade.

This makes TBML relevant even for businesses that are not financial actors. Companies engaged in international trade, PSPs, fintech companies, trading platforms and businesses exposed to export and import may need to assess how their services or business flows could be used to move value so that they are not exploited in criminal arrangements.

What Compliance Functions Should Look For

Risk indicators for TBML should not be treated as a mechanical checklist. They need to be assessed in relation to the customer’s business, trading patterns, geographical exposure, products and business model.

Examples of circumstances that may justify enhanced analysis include:

• Pricing that deviates from the market, the sector or previous transactions.
• Trade with high-risk jurisdictions or jurisdictions without a clear commercial connection.
• Complex intermediaries with no clear commercial function.
• Goods or services that do not fit the customer’s normal business activity.
• Trade volumes that do not align with the company’s size, history or capacity.
• Unusual changes in trading patterns, counterparties or delivery routes.
• Recurring corrections, credit notes or amended invoices without a clear explanation.

For compliance functions, the practical question is often how such indicators should be reflected in the risk assessment. This requires collaboration between AML, legal, finance, operations and, in some cases, procurement, logistics or business owners.

AML Must Understand Business Flows, Not Only Payment Flows

Transaction monitoring is an important part of AML compliance, but it is not always sufficient to identify TBML. When money laundering takes place through trade, the risk may fall outside the parameters that traditional monitoring systems are best designed to detect.

This does not mean that every business needs to build a full trade finance programme. However, the general risk assessment must take account of whether the business enables international payments, trade, invoicing, goods flows or complex counterparty structures.

International bodies have long identified trade based money laundering as a significant risk area. For businesses operating and serving clients across Europe, the practical conclusion is that risk-based AML work should not be limited to payment flows. It must also cover how value may be moved through commercial structures.

This is particularly relevant for businesses that must apply anti-money laundering rules and come into contact with customers engaged in international trade. It is also relevant for businesses whose own trade flows may create exposure to money laundering risks, sanctions risks or inadequate counterparty controls.

How Organisations Can Strengthen AML Work Against TBML

A more accurate AML programme should be based on how the business actually operates. This means that the risk assessment must be linked to products, customers, geographies, trade flows, counterparties and internal processes.

Practical measures may include:

• Including trade-related risks in the general risk assessment under the anti-money laundering framework.
• Analysing whether the customer due diligence process captures relevant information about the customer’s business model and trading patterns.
• Developing indicators for suspicious trade activity where the business has such exposure.
• Ensuring that the compliance function has access to relevant information from operational parts of the business.
• Conducting gap analyses of existing AML controls against TBML risks.
• Training relevant functions on how money laundering can take place through trade, invoices and corporate structures.

Organisations with international payment and trade flows often need a broader AML perspective than traditional transaction monitoring alone. This is not about creating unnecessarily complex controls, but about identifying where value can actually be moved within the organisation’s own business.

At Morling Consulting, our AML lawyers and compliance experts assist businesses with risk assessments, gap analyses, internal controls and regulatory advice linked to the anti-money laundering framework. We provide particular support to fintech companies and financial actors that need to translate AML requirements into practical, effective processes.