Understanding Trade-Based Money Laundering in Global Supply Chains

Where goods worth trillions of dollars move across borders annually, a lesser-known yet highly damaging threat exists: Trade-Based Money Laundering (TBML).

Trade-Based Money Laundering (TBML) is one of the most complex and least detected forms of illicit finance. According to the FATF, it is widely used to disguise criminal proceeds and move value across borders. With global merchandise trade valued at over USD 19.7 trillion in 2018 (WTO), the scale of opportunity for TBML abuse is immense.

What Is Trade-Based Money Laundering (TBML)?

Trade-Based Money Laundering (TBML) is defined by the FATF as the process of disguising the proceeds of crime and moving value through trade transactions in an attempt to legitimize their illicit origin.

In practice, this means criminals manipulate commercial trade documents such as invoices, bills of lading, or certificates of origin to transfer value without triggering suspicion. These transactions appear legitimate but conceal the laundering of funds obtained through criminal activity. Common tactics include over- or under-invoicing, falsifying product quality or quantity, shipping fictitious goods, and exploiting third-party intermediaries or shell companies.

Because these methods are embedded within standard trade flows, they often escape the detection of compliance officers, customs officials, or even financial institutions. This makes TBML a preferred choice for sophisticated criminal networks.

Common TBML Techniques and Trade Red Flags

Criminal networks use a variety of techniques to obscure illicit value transfers through legitimate trade channels. Key methods identified by global enforcement agencies include:

Over- or Under-Invoicing: One of the most common tactics. Criminals deliberately misstate the value of goods on invoices. For example, a $1 million shipment of electronics may be undervalued at $200,000, allowing $800,000 in illicit value to be transferred covertly.

Multiple Invoicing: Fraudsters generate more than one invoice for the same shipment to secure excess financing or trade credit. This can lead to multiple payments for a single transaction, often through different financial institutions.

Misrepresentation of Goods: Criminals manipulate the description of goods, such as declaring gold as scrap metal, to evade customs duties or obscure the origin and nature of the shipment. This mislabeling undermines legitimate valuation and oversight.

Phantom Shipments: Fraudulent transactions where no physical goods are shipped. Documents are falsified to show movement of goods, and payment is processed for non-existent cargo. This technique is commonly used for laundering proceeds between shell entities.