Trade-Based Money Laundering (TBML) exploits economic sectors and products, particularly those with deficient due diligence and Know Your Customer (KYC) controls, presenting significant risks to the integrity of global financial systems and trade practices.
A wide range of economic sectors is vulnerable to TBML, which means the products such as high-value, low-volume products, like for example the precious metals, and the low-value, high-volume products, such as used textiles. These can be exploited by the trade money launderers to launder the money.
Further, a handful of common business or trade themes favourable to the misuse by criminals are identified as follows:
- Goods with wide pricing margins
- Goods with extended trade cycles, such as shipping across multiple territories or jurisdictions
- Goods that are difficult for the authorities to examine
Trade-Based Money Laundering
Supply chains functions involving the movement of goods like lower-value goods are more prone to money laundering and terrorist financing risks, because the trade business costs to set-up may be lower than the supply chains moving higher-value products or goods. Further, trade-based money launderers always try to exploit those products and services which may not attract detailed scrutiny by the authorities. Criminals exploit these products for supply in multiple markets across various jurisdictions.
Use of such products which escape the attention of authorities helps money launderers and other criminals in moving their money to another territory or location through a trading business transaction, which appears as a legitimate trade transaction.
Criminals mitigate the risk of alerting authorities to any suspicions of market saturation, by trading common products which would not necessarily be suspicious. Such as they may use lower-value products, such as clothing, and repeatedly ship those products to the same destination. These transactions create a fair business environment for the continued use of trade-based money laundering techniques.
For example, a criminal organization may initiate legitimate transactions through the shipments of cosmetic products, create valid documents for clearance of shipments, and then misuse the documentation for their illicit activities.
The trade transactions appear legitimate, but the product shipped may have no value as a saleable or usable product, and such products may be dumped when they arrive at the destination, such as in the markets of second-hand products.
When criminals such as money launderers or terrorists misuse higher-value products or items, they are likely to do so through the strategy of penetration and then they misuse product supply chain channels. Money launderers and terrorists may leverage those institutions that struggle with a cash flow issues, and such criminals may act as the ‘silent partners’ and use supply chains of weak institutions to transfer the illegal money in the form of trading of goods.
The misuse of precious items, like gold, is performed by the criminals as part of TBML schemes, where they use gold as an alternative form of value within the money laundering process, because the precious items such as gold, are not just a commodity to exploit in moving value, but also are a proxy for cash.
The are various incidents where trade-related money laundering schemes exploited auto parts, second-hand cars, or luxury vehicles. The damaged cars are transported from one jurisdiction to another, with a legitimate market in place, and later the cars are sold onwards, by repairing the vehicle.
The unchecked exploitation of economic sectors and products by criminals, including trade money launderers and terrorists, poses a significant threat to the integrity of global trade and financial systems. They exploit institutions, services, and sectors that lack necessary controls like due diligence and KYC. Particularly vulnerable are sectors dealing with high-value, low-volume products like precious metals, and low-value, high-volume items such as used textiles. These sectors, especially those with goods having broad pricing margins, extended trade cycles, and difficult examination processes, are often manipulated for money laundering.
Furthermore, lower-cost supply chains and business themes that evade detailed scrutiny from authorities, often involving common, multiple-jurisdiction products, are attractive targets. Therefore, adopting stringent measures to curb such misuse is crucial for maintaining a fair, transparent, and secure business environment.