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What is Trade Based Money Laundering (TBML)?

Money laundering, as the name suggests, is a process by which 'dirty money' or 'black money' enters the legal and legitimate financial system in such a way that it cannot be distinguished from legal money, thus becoming 'clean' or 'laundered money'. When international trade is used to launder such money, it's called trade based money laundering.

This is usually done by misrepresenting the price, quantity or quality of imports or exports.

How TBML is done - Example of Under-invoicing

Under-invoicing of goods

For example, a company A in the USA sends 1 million screws of $2 each to another company B in Mexico. 

But while preparing the invoice, company A does under-invoicing below the fair market price and mentions the price of each screw as $1. Thus on paper, the price of the trade is declared as 1 million dollars. 

Now, company B in Mexico can sell the screws in the open market at at least $2 each and in the process can make 2 million dollars, which means an extra 1 million dollars. 

Company B now has the option of layering and integrating this money in the legal money system, or give a share of this illegal money to company A or fund criminals and terrorist organisations. 

This is an example of how trade based money laundering works using under-invoicing. There are similar methods like over-invoicing, multiple invoicing, short-shipping etc. There are also complex TBML methods like Black Market Peso Exchange.

Red Flags - Indicators of possible TBML

Some of the red flags of TBML are -

1. Requests that do not seem to make commercial sense, such as selling goods at well below market price
2. Invoice showing other/undefined charges as being greater than a percentage variance (to be determined by the individual bank) of the total transaction value.
3. the involvement of third parties – if the customer is acting for someone else, then the bank needs to know who they are and be satisfied that they are bona fide
4. Illogical transactions – for example, why would a company selling electronic goods from China to the USA suddenly want to ship an expensive car to Colombia?

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Next:    How Trade-Based Money Laundering (TBML) Differs from Other Money Laundering Methods