EP:12 - Trade-Based Money Laundering (TBML): Techniques and Prevention Strategies

        Trade-Based Money Laundering (TBML) is one of the most sophisticated methods of financial crime, allowing criminals to move illicit funds across borders under the disguise of legitimate trade transactions. TBML exploits global trade networks, complex supply chains, and fraudulent invoicing techniques to launder billions of dollars annually (FATF 112).

Unlike traditional methods of money laundering, which rely on cash smuggling or financial institutions, TBML integrates illicit funds into the global trade system, making detection difficult. Criminal organizations, including drug cartels, terrorist financiers, and tax evaders, use TBML to move funds undetected.

Thailand, as a major trade hub in Southeast Asia, faces significant risks from TBML, particularly through false invoicing, misclassification of goods, and trade diversion schemes. This paper examines how TBML works, the key laundering techniques, major case studies, and Thailand’s regulatory response to trade-based financial crime.

How Trade-Based Money Laundering Works

1. The Role of International Trade in Financial Crime

Global trade is complex, high-volume, and difficult to monitor, making it an ideal target for money launderers. TBML allows criminals to:

• Move illicit funds disguised as trade transactions.
• Use fake invoicing to justify suspicious financial flows.
• Manipulate trade pricing to transfer value undetected (World Bank 145).

Unlike traditional money laundering, TBML relies on legitimate-looking business transactions, making it difficult for banks, customs agencies, and regulators to detect suspicious activity.

2. Key Techniques Used in TBML

TBML involves a range of techniques designed to obscure the true origin and movement of funds. The most common methods include:

a) Over-Invoicing and Under-Invoicing

• Criminals inflate or deflate invoice values to move money across borders.
• Over-invoicing allows more money to be transferred than the actual value of goods.
• Under-invoicing enables criminals to evade taxes and duties (OECD 98).

b) Phantom Shipments and Misclassification of Goods

• Criminals create fake trade transactions where no goods are actually shipped.
• In some cases, low-value goods are misclassified as high-value goods to justify money transfers (Interpol 78).

c) Black Market Peso Exchange (BMPE)

• A method commonly used by Latin American drug cartels to launder U.S. drug proceeds through trade.
• U.S. dollars earned from drug sales are exchanged for pesos through fake trade transactions (FATF 134).

d) Trade Diversion and Multiple Invoicing

• The same shipment is invoiced multiple times, creating artificial financial transactions.
• Launderers use offshore shell companies to add complexity (IMF 88).

Case Studies: Trade-Based Money Laundering in Action

1. The Bank of China and TBML in Mexico (2021)

• Chinese money laundering syndicates helped Mexican drug cartels launder drug proceeds through fake trade invoices.
• The scheme involved textile and electronics exports, where drug money was disguised as legitimate business transactions.
• Over $5 billion in illicit funds was moved through trade finance fraud (Interpol 101).

2. The ‘Ndrangheta Mafia and TBML in Europe (2019)

• The Italian ‘Ndrangheta laundered cocaine trafficking proceeds through trade in agricultural products.
• Criminals used wine and olive oil exports to justify suspicious financial transactions.
• Authorities seized over €200 million in assets linked to fraudulent trade deals (OECD 116).

3. Thailand’s Role in Trade-Based Laundering (2022)

• Thai customs and financial regulators uncovered a TBML network moving millions through fake jewelry exports.
• Criminals used shell companies and false invoices to transfer funds between Thailand and Hong Kong.
• The scheme was linked to organized crime networks in China and Singapore (AMLO 58).

Thailand’s Response to Trade-Based Money Laundering

1. AMLO’s Crackdown on TBML Networks

Thailand’s Anti-Money Laundering Office (AMLO) has strengthened:

• Financial intelligence cooperation with trade regulators and customs agencies.
• Enhanced monitoring of high-risk sectors, including jewelry, electronics, and automotive trade.
• Increased AML reporting obligations for trade finance transactions (AMLO 72).
  
  
  

2. Thailand’s Compliance with FATF and ASEAN AML Guidelines

• Thailand follows FATF’s Trade-Based Money Laundering Guidelines, which include:
• Real-time monitoring of suspicious trade transactions.
• Stricter due diligence on cross-border financial flows.
• Enhanced risk assessments for high-value trade transactions (FATF 85).
• ASEAN nations have launched a regional task force to track TBML operations, improving cross-border AML cooperation (Interpol 94).

3. Strengthening Customs and Financial Institution Collaboration

• Thai customs authorities are implementing AI-driven trade surveillance to detect anomalies in invoicing and shipments.
• Banks are required to flag trade transactions involving high-risk jurisdictions.
• Enhanced KYC and due diligence procedures for import/export financing (Bank of Thailand 49).

Best Practices for Financial Institutions to Prevent TBML

1. Strengthening AML Transaction Monitoring

• Financial institutions should implement real-time transaction monitoring for trade-based payments.
• Suspicious trade transactions, such as abnormal invoicing or sudden increases in trade volume, should trigger alerts (OECD 104).

2. Enhancing KYC and Due Diligence in Trade Finance

• Banks must verify the legitimacy of trade transactions and counterparties.
• Financial institutions should cross-check trade invoices with shipping records, customs declarations, and logistics data (IMF 91).

3. Leveraging AI and Blockchain for Trade Surveillance

• AI-driven transaction monitoring can identify TBML patterns more efficiently.
• Blockchain technology can enhance transparency in global trade transactions (World Bank 122).

4. Increasing Public-Private Partnerships to Combat TBML

• Governments should work with financial institutions, logistics providers, and law enforcement agencies to detect and prevent TBML.
• Increased data sharing and intelligence cooperation will improve TBML enforcement (FATF 112).

Conclusion
Trade-Based Money Laundering (TBML) remains one of the most sophisticated and challenging financial crimes to detect and prevent. By exploiting international trade networks, falsifying invoices, and misrepresenting goods, criminals can move billions in illicit funds without triggering traditional AML controls.

Thailand, as a major regional trade hub, has enhanced AML regulations to prevent TBML, but further efforts are needed. Stronger AI-based trade monitoring, greater inter-agency cooperation, and improved public-private partnerships are critical to disrupting TBML operations.

As financial crime networks become more advanced, governments, financial institutions, and law enforcement must work together to close loopholes in global trade finance and ensure stronger AML protections against TBML.

 Works Cited

AMLO. Thailand’s Enforcement Measures Against Trade-Based Money Laundering. 2023.
Bank of Thailand. AML Risk Assessment for Trade Finance Transactions. 2023.
FATF. Global Trade-Based Money Laundering Techniques and Prevention Strategies. 2023.
IMF. The Role of Financial Institutions in Trade-Based Money Laundering. 2023.
Interpol. International Criminal Networks and Trade-Based Laundering Risks. 2023.
OECD. Financial Crime and Trade Manipulation in Global Markets. 2023.
World Bank. Advanced Technologies for Detecting Trade-Based Financial Crime. 2023.