Trade Based Money Laundering (TBML)

Taking a historical look at the Black-Market Peso Exchange (BMPE) in the 1970s where Latin America drug cartels moved the proceed of cocaine sales to Colombia, this is a form of TBML because of the paramount importance of imported products that require hard currency. Over the years, there has been an understanding of TBML to a wide extent, however the issue has been staying abreast with the variants and changes in the political economic, legal and regulatory landscape that has sparked a huge shift in TBML typologies, which still permits the flow of billions of dollars across various jurisdictions.

Today criminals are constantly seeking other avenues besides the use of financial institutions to explore ways dirty money can be converted into legitimate funds, infact the Wolfsberg Group, an association of 13 global banks in its 90-page guidance on Trade Finance & AML does highlight that 90% of world trade is not financed by banking institutions. TBML offers a spectacular way of moving value across borders for transnational organised crime, also for terrorism and the proliferation of financing. TBML provides the opportunity to move a staggering amount of money across borders without anyone realising it as criminals use legitimate trades to move value around to obtain dirty money. Literally any industry involved in any trading activity could be involved, there is nothing tied to the nature of the good or services, rather it is the value.

 The highlighted below is a very good example of “overinvoicing” often used to explain TBML from a money launderers perspective.

"We have Andy & Bob, two different trading entities looking to trade goods with eachother and then you have got "Smith" who is involved in the sale of narcotics/human trafficking and they have got the proceeds of that crime, that needs to be moved back to Andy in a different jurisdiction, so Andy and Bob are going to trade and that’s going to result in the value moving, hence what has happened is Andy would sell Bob some goods, but the amount Andy  charges for those goods is higher than the actual values, so Bob  would then buy those goods, sell them on the open market and then retrieve the value but has made a loss as Andy was overpayed. So what happened effectively is the difference between the amount Bob has payed Andy for those goods and the amount Bob got from selling those goods is the amount of value that has moved from Bob to Andy, so it’s a sneaky thing going on, as that illicit value generated in one country has moved to another"

From the above example, we can see how difficult it is to detect a TBML transaction as it does not resonate with direct trade, additionally if Andy & Bob agree amongst themselves, all the bank will see is the payment settlement, no underlying transactions is obvious as per trade facilitation. 

In an attempt to provide guidance on TBML, there have been several great publications by the Financial Action Task Force, the UK Financial Conduct Authority, Singapore Association of Banks and other national regulators on the techniques and red flags, but at the end of the day, one common theme of any whitepaper or publications is does something feel unusual and does not make economic sense.

If you would like to know more about this subject matter or any other areas within my line of interest, you are most welcome to get in touch with me via email contact@emgfinancialcrimeconsulting.co.uk