Understanding Trade-Based Money Laundering in Global Supply Chains

Where goods worth trillions of dollars move across borders annually, a lesser-known yet highly damaging threat exists: Trade-Based Money Laundering (TBML).

Trade-Based Money Laundering (TBML) is one of the most complex and least detected forms of illicit finance. According to the FATF, it is widely used to disguise criminal proceeds and move value across borders. With global merchandise trade valued at over USD 19.7 trillion in 2018 (WTO), the scale of opportunity for TBML abuse is immense.

What Is Trade-Based Money Laundering (TBML)?

Trade-Based Money Laundering (TBML) is defined by the FATF as the process of disguising the proceeds of crime and moving value through trade transactions in an attempt to legitimize their illicit origin.

In practice, this means criminals manipulate commercial trade documents such as invoices, bills of lading, or certificates of origin to transfer value without triggering suspicion. These transactions appear legitimate but conceal the laundering of funds obtained through criminal activity. Common tactics include over- or under-invoicing, falsifying product quality or quantity, shipping fictitious goods, and exploiting third-party intermediaries or shell companies.

Because these methods are embedded within standard trade flows, they often escape the detection of compliance officers, customs officials, or even financial institutions. This makes TBML a preferred choice for sophisticated criminal networks.

Common TBML Techniques and Trade Red Flags

Criminal networks use a variety of techniques to obscure illicit value transfers through legitimate trade channels. Key methods identified by global enforcement agencies include:

Over- or Under-Invoicing: One of the most common tactics. Criminals deliberately misstate the value of goods on invoices. For example, a $1 million shipment of electronics may be undervalued at $200,000, allowing $800,000 in illicit value to be transferred covertly.

Multiple Invoicing: Fraudsters generate more than one invoice for the same shipment to secure excess financing or trade credit. This can lead to multiple payments for a single transaction, often through different financial institutions.

Misrepresentation of Goods: Criminals manipulate the description of goods, such as declaring gold as scrap metal, to evade customs duties or obscure the origin and nature of the shipment. This mislabeling undermines legitimate valuation and oversight.

Phantom Shipments: Fraudulent transactions where no physical goods are shipped. Documents are falsified to show movement of goods, and payment is processed for non-existent cargo. This technique is commonly used for laundering proceeds between shell entities.

Shell Companies and Intermediaries: Layered structures are established using anonymous companies to conceal true ownership and move funds through complex routes. These entities often exist in offshore jurisdictions with limited transparency requirements.

Key Red Flags in Trade Documentation:

• Significant discrepancies between shipping and payment documentation

• Payments made by entities unrelated to the trade contract

• Trade routed through high-risk or non-commercial jurisdictions

• Inconsistent quantities or weights across documents

• Multiple shipments or invoices for the same order

• Excessive use of third-party brokers or intermediaries

• Frequent changes in shipment destinations or rerouting mid-transit

These red flags are often detectable when trade data digitization and cross-border analysis are applied. Unfortunately, many systems lack the workflow automation needed to perform such analysis at scale.

Why Trade-Based Money Laundering Is Hard to Detect in Global Trade

TBML detection remains notoriously difficult, even in countries with advanced AML compliance frameworks. The reasons lie in both the nature of global trade and the limitations of current monitoring systems.

• High Volume and Velocity: Global trade involves millions of containers and trillions of dollars in transactions. Manual reviews of trade documents are not scalable, and many customs agencies rely on risk-based inspections that may not catch subtle anomalies.

• Disconnected Data Systems: Trade-related information is spread across multiple platforms such as ERP systems, customs portals, shipping carriers, and bank compliance tools. These silos prevent a unified view of a transaction from origin to payment.

• Limited Use of Advanced Technology: Many border agencies and financial institutions still rely on legacy systems. They lack the advanced analytics, anomaly detection, and machine learning tools necessary to identify suspicious trade activity in real time.

• Fraud Layering and Complexity: TBML schemes often involve layering of transactions across jurisdictions using multiple shell companies, unrelated third-party payers, and circuitous shipping routes. This makes detection extremely challenging unless all data is consolidated and analyzed collectively.

• Lack of Specialized Training: Trade compliance professionals may be well-versed in logistics or documentation but may not be trained to recognize financial crime patterns. Similarly, financial compliance teams may not fully understand trade dynamics, creating blind spots.

As a result, TBML is often missed entirely or discovered long after the fact during forensic investigations.

How Trademo TradeScreen Helps Detect TBML

Trademo Trade Screen serves as a comprehensive platform that performs over 500 critical checks, including Trade-Based Money Laundering (TBML) detection, Goods Screening, Maritime Checks, Sanctions, and Anti-Money Laundering (AML) Screening, as well as compliance verification with UCP 600, ISBP, and URC guidelines

1. Document Digitization and Data Extraction

TradeScreen begins by digitizing trade documents, no matter the format or source. Whether you're working with multi-page scans, handwritten forms, foreign-language invoices, or standard trade documents like BoLs, LCs, and invoices, the system uses advanced OCR + AI-vision models to extract data fields with over 95% accuracy.

You can upload documents in bulk via API, SFTP, or drag-and-drop, and the platform converts them into structured, searchable formats, ready for compliance checks within seconds.

2. Smart Document Classification

Once digitized, the platform automatically classifies each document by type—identifying commercial invoices, packing lists, shipping documents, and LCs. This ensures that each file is routed through the correct validation and compliance logic.

No more manual tagging or risk of misfiled documents. TradeScreen also detects missing, duplicate, or inconsistent paperwork, a common loophole exploited in TBML schemes.

3. Automated Compliance Checks and Risk Scoring

TradeScreen performs 1,000+ automated compliance checks per transaction, including:

• Documentary Compliance

TradeScreen automatically verifies trade documents against globally recognized standards such as UCP 600, ISBP 821, URC, and URDG rules. This ensures that every document—whether it’s a Letter of Credit (LC), Bill of Lading (BoL), invoice, or packing list meets strict trade finance protocols.

By automating document validation, TradeScreen helps eliminate costly human errors, reduces delays in processing, and ensures smooth coordination between buyers, sellers, and financial institutions.

• TBML Detection (Trade-Based Money Laundering)

TradeScreen uses sophisticated algorithms to identify hidden patterns commonly associated with Trade-Based Money Laundering (TBML). It analyzes:

• Pricing irregularities (over-invoicing or under-invoicing)

• Quantity mismatches

• Unusual routing of shipments

By uncovering these red flags, TradeScreen empowers compliance teams to detect and prevent TBML risks that traditional manual checks often miss, protecting businesses from regulatory violations and financial crime exposure.

• Sanctions & AML Screening

The platform automatically screens all parties involved in a trade transaction—shippers, consignees, banks, vessels, and carriers against over 660+ global sanctions lists and Politically Exposed Persons (PEP) databases.

This real-time screening helps businesses stay compliant with global Anti-Money Laundering (AML) regulations and ensures that no high-risk or blacklisted entities are part of the transaction, reducing the risk of costly sanctions breaches and reputational damage.

• Goods Screening

TradeScreen meticulously analyzes product descriptions and HS Codes to flag:

• Restricted items

• Dual-use goods (civilian and military applications)

• Illicit or embargoed commodities

This feature is essential for ensuring that no unauthorized or controlled goods are inadvertently shipped, helping organizations comply with export control laws, avoid legal penalties, and maintain ethical trade practices.

• Maritime Screening

TradeScreen validates:

• Vessel identities (detecting ship spoofing or sanctioned vessels)

• Carrier legitimacy

• Shipping route compliance

It uses real-time AIS data to flag suspicious maritime activities, such as vessels taking circuitous routes, frequent flag changes, or port calls in sanctioned or high-risk regions.

This ensures that shipments are both legally compliant and logistically secure, helping businesses mitigate maritime sanctions risks and protect their supply chains from exposure to illicit networks.

4. Configuration & Workflow Management

• Custom Risk Thresholds & Scoring Weights

Define which risks matter most whether sanctions, TBML, vessel routes, or goods. The platform lets you assign specific weights to each category, tailoring the overall risk score to your business needs.

• Automated Approval Workflows

Based on your rules, high-risk cases can be flagged for review, while low-risk trades can auto-approve. Maker–checker controls and alerts streamline compliance workflows.

• Risk Insight & Auditing

All checks, scoring decisions, and user actions are logged in audit-ready dashboards—ideal for compliance reporting, regulator reviews, or internal governance.

• Continuous Monitoring & Updates

TradeScreen stays current with new sanctions, PEP lists, and export policy updates, while allowing uploads of internal watchlists.

The Scale and Impact of Trade-Based Money Laundering

Though TBML is difficult to quantify precisely, available metrics underscore its magnitude and systemic risk:

The United Nations Office on Drugs and Crime (UNODC) estimates that global money laundering accounts for 2–5 percent of global GDP, or USD 800 billion to 2.6 trillion annually.

U.S. Immigration and Customs Enforcement (ICE) reports that Trade Transparency Units (TTUs) led to 444 criminal arrests and USD 356 million in seizures related to TBML between FY2019 and FY2021.

Between 2008 and 2017, an estimated USD 9 trillion in customs fraud occurred globally, much of which is believed to be connected to trade-based laundering schemes.

TTUs have now been implemented in 17 countries, enabling bilateral comparisons of trade data to detect inconsistencies.

Industries most vulnerable to TBML include electronics, textiles, automotive parts, precious metals, and perishable goods sectors, where product pricing and quality are more subjective or easy to manipulate.

What Trade Finance and Supply Chain Professionals Can Do to Detect TBML

Professionals in trade finance, logistics, and compliance are uniquely positioned to disrupt TBML if they adopt proactive practices:

Conduct Thorough Due Diligence: Go beyond basic KYC. Analyze customer ownership structures, historical trading patterns, and jurisdictions involved. Ensure counterparties are not shell companies and have a genuine business profile.

Use Advanced Risk Screening Tools: AI-powered platforms can identify abnormal invoice values, detect circular trade routes, and cross-check document consistency. These tools reduce false positives while increasing true positive detections.

Embed Trade Compliance into Operations: Don’t treat compliance as a standalone function. Integrate it into procurement, logistics, and documentation review processes to enable early-stage detection of inconsistencies.

Train All Departments: Educate teams outside compliance including procurement, finance, and logistics — on the basics of TBML, common red flags, and how to escalate concerns.

Collaborate Across Borders: Participate in international forums and industry coalitions. Shared data and case studies can reveal patterns that are hard to spot in isolation.

Taking these actions helps organizations reduce financial, legal, and reputational risks while contributing to the global fight against financial crime.

Conclusion: Strengthening the Integrity of Global Trade

Trade-Based Money Laundering is not a marginal issue — it is a systemic threat to the integrity of global commerce. With trillions of dollars in goods moving annually, even small manipulations in trade transactions can enable the flow of enormous illicit capital. While governments and institutions like FATF have laid the groundwork for enforcement, the next phase depends on technology, collaboration, and industry-wide vigilance. Trade professionals, customs officers, and compliance teams are on the front lines of this effort.

By leveraging tools like Trademo TradeScreen, enhancing internal governance, integrating trade finance automation, and fostering data-sharing across jurisdictions, businesses can build resilient systems that not only detect TBML but deter it entirely, helping to restore trust in global trade.