What is trade based money laundering?

Trade based money laundering (TBML) and terrorist financing is a process of moving money made from criminal activities for the purpose of disguising its origins and integrating it back into the formal economy. Compliance measures are in plac to combat the effects of Trade Based Money Laundering.

How does trade based money laundering work?

Trade Based Money Laundering works through the following framework: The first is through the use of the financial system; the second involves the physical movement of money (e.g. through the use of cash couriers); and the third is through the physical movement of goods through the trade system.

What are your solutions for Trade based money laundering?

Our solution to combat Trade Based Money Laundering (TBML) works in terms of detecting risk in the complexity of global trade, reveal hidden relationships between importers and exporters and identify previously unknown money laundering and fraud.

What are the premises on which the solution is based?

Trade Based Money Laundering (TBML) is based on the following premises: Trade document and commodity risk indicators between the name of the exporting entity and the name of the recipient of the payment; differing prices on invoices and underlying contracts; or discrepancies between the quantity, quality, volume, or value of the actual commodities and their descriptions.

How does your solution identify Trade Based Money Laundering?

False reporting on invoices, such as commodity misclassification, commodity over- or under-valuation. Repeated importation and exportation of the same high-value commodity, known as carousel transactions. Commodities being traded that do not match the business involved. The over- or under-valuation of goods on the invoice and other documentation. Over- or under-shipment of goods or services (also, phantom shipments). Shell companies or offshore front companies. Third-party intermediaries facilitating invoice settlement. Illicit cash integration in financial settlement. Misuse of existing trade chain to move funds for terrorists (evasion of sanctions / financing of terrorism)

What are the red flags for Trade based Money Laundering?

Repeated importation and exportation of the same high-value commodity, known as carousel transactions. Commodities being traded that do not match the business involved. Unusual shipping routes or transshipment points.

How do you measure the extent of financial harm caused by TBML?

Database tools such as real-time price analyses can be used to measure trade misinvoicing risks for various goods categories. Also standardized processess are in place for risk assessment.

i-TBML © Trade Based Money Laundering

i-TBML^© Trade Based Money Laundering

Trade-based money laundering (TBML) refers to the process of disguising the proceeds of illegal activities through international trade transactions. It is a complex and sophisticated form of money laundering that involves the exploitation of trade-related financial instruments and trade-related activities to obscure the origin and destination of illicit funds.

TBML Scenarios

Here are some common scenarios that illustrate how trade-based money laundering (TBML) can occur:

Over-Invoicing

It refers to artificially inflating the value of goods or services in a trade transaction to transfer excess amount as illicit funds across borders.

Under-Invoicing

It refers to artificially deflating the value of goods or services in a trade transaction to transfer the difference in value as illicit funds across borders.

Multiple Invoicing

It refers to creating multiple invoices for the same goods or services in a trade transaction, with different values, to transfer the difference in value as illicit funds across borders.

Fictitious Invoicing

In this scenario, a fake invoice is created for goods or services that were never actually traded. The fake invoice is then used to transfer illicit funds across borders.

Trade Misrepresentation

The exporter or importer declares the wrong commodity or commodity classification for the goods being traded. It allows them to avoid paying the appropriate taxes or tariffs and transfer the savings across borders as illicit funds.

Round-Tripping

In this scenario, a company exports goods to a shell company that it owns in another country. The shell company then sells the same goods back to the original company at an inflated price. The difference in price is used to transfer illicit funds across borders.

Our Solution

To combat TBML, Intech builds a potential solution i-TBML:

Risk-based Approach

Financial institutions can implement a risk-based approach to identify and mitigate TBML risks. This approach involves assessing the risks associated with a specific transaction or customer and implementing appropriate controls to mitigate those risks.

Due Diligence

Financial institutions should conduct thorough due diligence on their customers and the parties involved in trade transactions. It includes verifying the identity of the customer and conducting enhanced due diligence on high-risk customers.

Technology Solutions

Technology solutions such as artificial intelligence and machine learning can be used to analyse large volumes of trade data to identify suspicious patterns and anomalies.

Business Benefits

IDBI Intech offers a specialized module to detect trade based money laundering on a real-time basis, which includes following features:

Transactions monitoring scenarios to detect potential TBML patterns
Dynamic workflow mechanism
Root finder module to enhanced due diligence
Real-time customer screening capability
Real-time counterparty & vessel screening and due diligence capability
Provision for uploading EDPMS and IDPMS databases
Regulatory Report generation
Compatibility with various CBS solutions
Best practices to help Financial Institutions mitigate the potential threat of TBML

Frequently Asked Questions (FAQs)

Trade based money laundering (TBML) and terrorist financing is a process of moving money made from criminal activities to disguise its origins and integrate it back into the formal economy. Compliance measures are in place to combat its effects.

TBML works through three frameworks: (1) use of the financial system, (2) physical movement of money (e.g., cash couriers), and (3) movement of goods through trade systems.

Our TBML solution detects risks in global trade, reveals hidden relationships between importers and exporters, and identifies previously unknown money laundering and fraud schemes.

TBML detection is based on: • Trade document and commodity risk indicators • Name mismatches between exporters and payment recipients • Differing prices on invoices and contracts • Discrepancies in quantity, quality, volume, or value of commodities

False reporting on invoices (misclassification, over/under-valuation)
Carousel transactions (repeated import/export of the same commodity)
Trading commodities inconsistent with business profile
Over/under-valuation of goods on documents
Over/under-shipment of goods or phantom shipments
Use of shell or offshore companies
Third-party intermediaries in settlements
Illicit cash integration in trade payments
Misuse of trade chains for sanctions evasion or terrorism financing

Common red flags include carousel transactions, commodities inconsistent with the business involved, and unusual shipping routes or transshipment points.

Database tools such as real-time price analyses help measure trade misinvoicing risks across goods categories. Standardized processes are also in place for comprehensive risk assessment.

Trade Based Money Laundering

i-TBML