Trade-Based Money Laundering (TBML)
Trade-based money laundering (TBML) is the use of trade transactions to disguise and move criminal proceeds or to shift value across borders, most often by misstating the price, quantity or nature of goods on the documents.
Also called: TBML · trade based money laundering · trade mis-invoicing · over-invoicing · under-invoicing
The basic techniques are simple. Over-invoicing moves value to the exporter: goods worth US$1 million are invoiced at US$1.5 million, and the importer pays the full amount abroad. Under-invoicing moves value the other way. Multiple invoicing bills the same shipment more than once, and phantom shipments invoice goods that never move.
The same methods serve purposes other than laundering. Importers over-invoice to obtain scarce foreign currency or move savings out past capital controls; under-invoicing evades customs duty. They are also how informal value transfer operators settle balances with one another.
Detection is difficult because most trade is paid on open account, where the bank sees a payment instruction and little else. Payment firms handling business-to-business flows are expected to look for prices far from market value, goods inconsistent with the customer's business, payments from unrelated third parties, routing through unconnected jurisdictions, and documents that do not match the shipment. The commercial invoice and bill of lading are the first things to compare.
In practice
A mis-priced invoice is not proof of laundering; transfer pricing and genuine disputes produce odd prices too. The obligation is to notice, ask and, where suspicion remains, report.
Example
A trading company sends US$400,000 to a supplier for 'electronic components' it normally buys for US$90,000, from an account funded by three unrelated third parties. Each fact has a possible explanation. Together they are a classic TBML pattern.
See also
- Money Laundering StagesThe three stages of money laundering — placement, layering and integration — are the standard descriptive model of how criminal proceeds are turned into apparently legitimate funds. It is a teaching device rather than a legal test, and real schemes rarely run through it in a tidy order.
- Informal Value Transfer SystemAn informal value transfer system (IVTS) is any network that moves money for customers outside the conventional banking system, typically by having an operator in one place instruct a counterpart elsewhere to pay out, with the operators settling between themselves later.
- Trade-Payment ComplianceTrade-payment compliance is the review of the parties, ownership, goods, end use, documents, funding and payment route supporting a commercial transfer. It combines financial-crime controls with sanctions, export-control, banking and transaction-authenticity considerations.
- Capital FlightCapital flight is the rapid movement of money out of a country by residents and investors who fear devaluation, inflation, confiscation, default or political instability. It drains foreign exchange reserves and often triggers the controls it was trying to escape.
- Transaction MonitoringTransaction monitoring is the ongoing review of customer activity — automated rules and models plus human investigation — against what the firm expected that customer to do and against known laundering patterns. Activity that does not fit produces an alert for someone to work.
- Suspicious Activity ReportA suspicious activity report is a confidential filing made to FinCEN when a US financial institution knows, suspects, or has reason to suspect that a transaction above a set dollar floor involves illicit funds, has no apparent lawful purpose, or is designed to evade reporting rules. It is filed without telling the customer.