03 Sep Trade Based Money Laundering Explained How to Spot and Prevent TBML Risks
Trade Based Money Laundering (TBML) is one of the most difficult forms of financial crime to detect. It hides illegal money flows within the complex world of international trade by manipulating invoices, over- or under-pricing goods, falsifying shipping documents, and using shell companies to move funds undetected.
Unlike traditional money laundering methods that rely on banking channels, TBML uses cross-border trade as its disguise. This makes it attractive to organised crime groups, tax evaders, and terrorist financiers. It’s estimated that hundreds of billions of pounds are laundered through trade each year, much of it slipping through unnoticed by customs and financial authorities.
How Trade Based Money Laundering Works in Practice
In a typical TBML scenario, two related companies in different countries might agree to overprice goods on purpose. The exporter sends an invoice for £2 million for items actually worth £200,000. The buyer pays the inflated amount, thus “cleaning” £1.8 million of dirty money.
Alternatively, a company might ship goods but never expect payment at all. These “phantom shipments” allow criminals to justify the movement of large sums of money across borders, backed by documents that look legitimate.
Common techniques used in TBML schemes include:
- Over-invoicing and under-invoicing
- Multiple invoicing (the same invoice used several times to justify fund movements)
- Over-shipment or short-shipment
- Falsified documents or incorrect Harmonised System (HS) codes
- Dual invoicing — one for customs, one for payment
Why TBML Is So Difficult to Detect
The biggest problem with trade based money laundering is that it hides in plain sight. Banks and financial institutions might flag large cash deposits or unusual account activity, but when money is moved as part of “legitimate” trade, it becomes harder to trace.
Add to that the lack of standardised international reporting procedures and limited customs oversight in many jurisdictions, and it’s easy to see how TBML has become a favourite method for moving illicit funds.
Even when trade patterns seem suspicious, enforcement is difficult. Customs officials may lack the resources or training to question an over-invoiced shipment. Financial institutions, too, may not be equipped to assess the fair market value of a given good in a specific country.
Trade Based Money Laundering in the Real World
TBML has been linked to some of the world’s largest criminal networks. In 2020, the FATF cited examples involving everything from electronics in Asia to textiles in Latin America and gold smuggling in Africa.
A well-known example is the “Black Market Peso Exchange,” where criminal groups in Colombia laundered drug money by selling U.S. dollars on the black market to importers who needed foreign currency to pay for trade goods. These importers paid pesos in Colombia, and the drug traffickers received clean currency with no bank transfers involved.
Another high-profile case involved gold exports. Criminals would smuggle gold from illegal mines, export it with inflated invoices, and use the process to clean the proceeds of crime while appearing as legitimate traders.
The Role of Financial Institutions in Fighting TBML
Under global AML obligations, banks and trade finance departments must apply customer due diligence, monitor trade transactions, and report suspicious activity. But many organisations still focus too heavily on domestic money laundering, leaving trade-based risks under-assessed.
Financial institutions must look beyond just who the customer is. They need to understand:
- The nature of the goods being traded
- Whether the pricing is consistent with market value
- If the shipment size, route, or documentation raises any red flags
- Whether there are connections between buyer and seller
Some banks are now using AI tools to detect anomalies in pricing and trade routes, but technology alone isn’t enough. Proper training, internal escalation procedures, and cross-departmental awareness are key to identifying TBML risks before they escalate.
Red Flags to Watch Out for in Trade Transactions
There’s no single method to identify trade based money laundering, but there are warning signs that companies and banks should never ignore:
- Goods being imported or exported without a clear economic purpose
- Discrepancies between the description of goods and their value
- Unusual shipment routes that don’t make commercial sense
- Multiple changes to invoices or documents without reason
- Payments sent to third parties not involved in the trade
- The buyer or seller has no previous trading history
If these signs appear, it’s essential to escalate the matter internally, carry out enhanced due diligence, and consider filing a suspicious activity report.
Why TBML Training Is More Relevant Than Ever
One of the best ways to protect against TBML is proper education. Financial professionals, customs agents, and trade finance teams must be trained to spot the signs and know how to act.
At KYC Lookup, we offer fully accredited AML training that covers the key areas professionals need to understand, including:
- The mechanics of trade based money laundering
- Common criminal typologies
- How to identify unusual trading activity
- What steps to take when something doesn’t look right
Our video tutorials simplify complex TBML scenarios and provide real-world examples, making the learning process straightforward and practical. The course is fully online, flexible, and affordable — making it suitable for individuals or whole teams.
How Regulators Are Responding to the TBML Threat
The Financial Action Task Force (FATF) has made TBML a top priority. In its “Best Practices on Trade Based Money Laundering” guidance, the FATF recommends stronger collaboration between financial institutions, customs authorities, and law enforcement agencies.
Similarly, the UK’s FCA and HMRC have urged regulated firms involved in trade finance to strengthen their AML controls. In several enforcement cases, firms have faced penalties for not assessing trade risk properly, even when the underlying transactions appeared legitimate.
By 2026, more countries are expected to align with FATF standards, with tougher penalties for companies that fail to address trade-based risks.
What Businesses Can Do Right Now
Whether you’re a bank, importer, or exporter, here are steps to improve your trade-based AML defences:
- Train staff to understand TBML and how it differs from traditional money laundering
- Review trade transactions regularly for pricing, routes, and counterparties
- Know your customer and extend due diligence to counterparties
- Update internal policies to cover TBML typologies and escalation procedures
- Report suspicions promptly through your MLRO
Firms that ignore TBML do so at their own risk. Beyond regulatory penalties, enabling trade-based crime damages reputations and risks severe financial loss.
What Does it all Mean
Trade Based Money Laundering is no longer a fringe issue — it’s a key threat to the integrity of the financial system. As international trade grows, so too does the opportunity for criminals to exploit it.
Training, awareness, and vigilance are your first line of defence. Whether you work in compliance, trade finance, logistics, or customs, understanding TBML is essential.
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