GFN Dossier
TypologyTrade-Based Money Laundering
The exploitation of international trade transactions to transfer value across borders, disguise the proceeds of crime, and integrate illicit funds into the legitimate economy through the deliberate misrepresentation of the price, quantity, or quality of imports or exports.
- Primary Crimes
- Money Laundering (Placement / Layering / Integration)Trade Fraud
- Related Crimes
- Drug TraffickingSanctions EvasionTax EvasionCorruptionCustoms FraudTerrorist Financing
- Primary Products
- Trade FinanceCorrespondent BankingCommercial BankingLetters of CreditOpen Account Trade
- Channels
- Wire TransfersLetters of CreditDocumentary CollectionsOpen Account PaymentsFree Trade ZonesCommodity Markets
- Risk Level
- Critical
- Prevalence
- High
- Detection Maturity
- Emerging
- GFN Confidence
- High
- Version
- v1.0.1
- Last Updated
- March 2026
Operational Definition
Trade-based money laundering (TBML) is the process of disguising the proceeds of crime and moving value across borders through the deliberate misrepresentation of the price, quantity, or quality of imports or exports. As defined by the FATF in its 2006 foundational report, TBML exploits the complexity and volume of international trade to transfer value, obscure the origin of illicit funds, and integrate criminal proceeds into the legitimate economy.
Unlike traditional money laundering that operates through the financial system alone, TBML uses actual or fabricated trade transactions as the vehicle for value transfer. The international trade system processes approximately $24 trillion in annual commerce, and TBML is estimated by FATF to account for approximately $1.6 trillion in illicit value transfer annually — making it the single largest channel for cross-border money laundering and one of the most difficult to detect.
Structural Role in Financial Crime Architecture
TBML is unique among laundering typologies because it can simultaneously accomplish placement, layering, and integration within a single trade transaction cycle. A manipulated invoice generates a seemingly legitimate payment through the banking system (placement), the trade documentation creates a paper trail that obscures the illicit origin (layering), and the receiving party extracts the value as apparently legitimate commercial revenue (integration). This multi-stage capability in a single mechanism makes TBML the preferred laundering method for sophisticated criminal organisations, state-sponsored sanctions evaders, and transnational narcotics networks.
Not to be confused with
- Legitimate trade disputes over pricing, quality, or delivery terms that result in value discrepancies
- Transfer pricing between affiliated corporate entities for tax optimisation purposes (which may constitute tax fraud but is not TBML)
- Trade credit insurance claims or letter of credit discrepancies arising from genuine commercial disagreements
Differentiation from Adjacent Risk Categories
TBML vs Traditional Financial Layering
- TBML uses trade transactions as the laundering vehicle — value is transferred through manipulated commercial documentation rather than through complex chains of financial transactions alone.
- Traditional layering relies on moving funds through multiple accounts, jurisdictions, and financial products to obscure the audit trail without any underlying commercial transaction.
TBML vs Customs/Trade Fraud
- TBML manipulates trade documentation to transfer illicit value across borders — the primary objective is money laundering.
- Customs fraud manipulates trade documentation to evade duties, tariffs, or import restrictions — the primary objective is tax avoidance or smuggling. The same techniques (invoice manipulation) may be used for either purpose.
TBML vs Shell Company Concealment
- TBML requires a trade transaction (real or fabricated) as the value transfer mechanism — the trade documentation is the laundering instrument.
- Shell company concealment uses corporate structures to hide beneficial ownership — it may facilitate TBML but does not require a trade transaction.
Core Pattern (Structural Flow)
Stage 1 — Predicate Proceeds & Placement Need
- Illicit proceeds generated from predicate offences (drug trafficking, corruption, tax evasion, fraud, sanctions evasion) require cross-border movement or conversion
- Funds held in cash, informal value transfer systems, or local accounts in the origin jurisdiction
- Organiser identifies trade channels capable of absorbing the required value transfer — assessing commodity type, trade corridor, and counterparty availability
Stage 2 — Trade Transaction Construction
- A trade transaction is arranged between colluding or complicit parties across jurisdictions — buyer, seller, or intermediary may be controlled by the same beneficial owner
- Invoice values are manipulated (over-invoicing, under-invoicing, multiple invoicing) or phantom shipments are documented to create a discrepancy between declared and actual value
- Supporting trade documentation (invoices, bills of lading, packing lists, certificates of origin) fabricated or altered to match the manipulated transaction
Stage 3 — Value Transfer via Trade Payment
- Financial institution processes the trade payment (letter of credit, documentary collection, open account wire, trade loan) based on the manipulated documentation
- The difference between the declared value and the actual value of goods represents the illicit value being transferred across borders
- Payment flows through correspondent banking channels, appearing as legitimate trade settlement
Stage 4 — Goods Movement & Documentation Layering
- Physical goods may or may not actually move — phantom shipments involve no goods at all; in other variants, goods move but at manipulated values
- Trade documents layered through free trade zones, transhipment hubs, or multiple intermediaries to complicate audit trail reconstruction
- Customs declarations, shipping manifests, and financial settlement documents maintained separately, reducing cross-referencing capability
Stage 5 — Integration & Proceeds Extraction
- Receiving party extracts the transferred value — the over-payment, under-payment, or phantom payment — as apparently legitimate trade revenue
- Proceeds commingled with legitimate business income, re-invested, or moved through additional trade cycles
- Audit trail shows completed commercial transactions with matching documentation, obscuring the underlying value transfer
Key structural feature
Invoice value manipulation + cross-border trade channel + document-based legitimacy layer + absence of commercial rationale at market prices.
Behavioral Quant Framing
TBML detection requires moving beyond payment monitoring to price-based and document-based analytics. Key analytical dimensions include:
Invoice-to-market deviation index
Ratio of declared invoice unit price to the prevailing market price for the same commodity (identified by HS code) in the declared trade corridor, measured across a rolling transaction window.
Counterparty commercial substance score
Composite assessment of the trade counterparty's operational reality — registered age, employee count, physical premises, web presence, regulatory filings — relative to declared trade volumes.
Trade corridor rationality index
Assessment of whether the goods, origin, destination, and routing path are consistent with known commercial supply chains for the declared commodity type.
Document consistency ratio
Degree of internal consistency across the trade document set — invoice, bill of lading, packing list, certificate of origin, customs declaration — measured by cross-field matching for quantities, descriptions, and values.
Escalation commonly occurs when transactions exhibit significant price deviation from commodity benchmarks combined with counterparty opacity, document inconsistencies, and trade corridor patterns inconsistent with the customer's established commercial profile.
Common Variants
Variant A
Over- and Under-Invoicing
The most prevalent TBML technique. Over-invoicing inflates the declared price of goods above their fair market value, enabling the importer to transfer excess funds to the exporter. Under-invoicing deflates the declared price, enabling the exporter to receive less than the goods are worth — with the value difference settled outside the banking system or absorbed through a parallel payment. Both require collusion between buyer and seller and exploit the difficulty customs authorities face in determining fair market value for complex or non-standardised goods.
Variant B
Phantom Shipments (Ghost Trade)
No goods move at all. Fictitious invoices, fabricated bills of lading, and forged shipping documentation create the appearance of a completed trade transaction. Financial institutions process payments against documents without independent verification of physical goods movement. Free trade zones and jurisdictions with limited customs inspection capacity are disproportionately exploited for phantom shipment schemes.
Variant C
Multiple Invoicing
A single shipment of goods is invoiced two or more times, with each invoice generating a separate payment through the banking system. The additional payments represent illicit value transfer disguised as trade settlement. Detection requires cross-referencing shipping documents, customs declarations, and payment records across institutions — capability that most banks lack in open-account trade.
Variant D
Black Market Peso Exchange (BMPE) & Broker-Mediated Systems
Professional money brokers act as intermediaries between criminal organisations with foreign currency proceeds and legitimate businesses seeking discounted hard currency. Drug dollars in the US are used to purchase legitimate goods on behalf of importers in Latin America, who pay the broker in local currency — which is then delivered to the trafficker. The illicit funds never cross borders; instead, trade goods serve as the value transfer mechanism. FinCEN identifies the BMPE as one of the most extensive trade-based laundering methodologies in the Western Hemisphere.
Signals (Weak vs Strong)
| Signal | Strength | Detection Category | Context |
|---|---|---|---|
| Significant discrepancy between declared invoice value and fair market value or customs-assessed value of goods | Strong | Price anomaly | Core TBML indicator; particularly significant for commodities with transparent market pricing (metals, agricultural products, energy) |
| Trade payments between counterparties with no verifiable commercial relationship or operating history | Strong | Counterparty anomaly | Especially concerning when counterparties are shell entities in high-risk jurisdictions or free trade zones |
| Repeated transactions with the same counterparty at consistently above- or below-market prices | Strong | Price anomaly | Pattern of systematic price manipulation across multiple transactions indicates coordinated value transfer |
| Trade payments inconsistent with the customer's known business profile, product line, or geographic footprint | Strong | Behavioral anomaly | A textile company suddenly transacting in electronics, or a domestic retailer initiating high-value cross-border commodity trades |
| Goods routed through free trade zones or transhipment hubs with no apparent commercial rationale | Moderate | Document anomaly | FTZs offer reduced customs scrutiny; routing through multiple FTZs adds layers of documentation complexity |
| Shipping documents showing goods descriptions inconsistent with HS codes, weight, or container capacity | Moderate | Document anomaly | Indicates potential misrepresentation of quantity or quality; requires trade-specific document review capability |
| Third-party payments for trade transactions where the payer is unrelated to the buyer, seller, or shipment | Moderate | Network anomaly | Common in BMPE-style schemes; legitimate in some trade corridors but requires enhanced scrutiny |
| Multiple invoices issued against the same shipment reference, bill of lading, or container number | Strong | Document anomaly | Definitive multiple-invoicing indicator; detection requires document cross-referencing capability across transactions |
| Unusually rapid trade payment cycles inconsistent with standard terms for the commodity and corridor | Weak | Behavioral anomaly | May indicate absence of genuine commercial negotiation; relevant when combined with other indicators |
| Circular trade patterns where goods or funds return to or near the point of origin through intermediary jurisdictions | Moderate | Network anomaly | Suggests round-tripping; particularly relevant when involving jurisdictions with weak AML oversight |
Critical note
No single indicator is conclusive for TBML. Price anomaly + counterparty opacity + document inconsistency + profile mismatch = escalation trigger.
Red Flags & False Positives
True Red Flags
- Invoice values significantly above or below fair market price for the declared commodity, with no documented commercial justification
- Trade counterparties that are recently incorporated shell companies with no operational history, staff, or physical premises
- Goods descriptions that are deliberately vague or generic (e.g., "assorted merchandise", "general goods") preventing independent valuation
- Shipments routed through multiple free trade zones with no apparent logistical or commercial rationale
- Third-party payments where the payer has no documented relationship to the buyer, seller, or underlying transaction
- Multiple invoices referencing the same bill of lading, vessel, or container number
Common False Positives
- Legitimate price volatility in commodity markets (oil, metals, agricultural products) causing apparent invoice-to-market deviations
- Transfer pricing between affiliated multinational entities that reflects tax optimisation strategies rather than value laundering
- Legitimate use of trading intermediaries, brokers, and agents common in certain commodity markets (e.g., cotton, coffee, crude oil)
- Trade credit and payment term variations that create timing-based value discrepancies between invoice and settlement
Frequent Analyst Errors
- Flagging trade transactions based solely on payment amount or jurisdiction without examining the underlying trade documentation and pricing logic
- Treating all trade with high-risk jurisdictions or free trade zones as inherently suspicious, generating volume-based alerts without risk differentiation
- Failing to compare invoice values against independent commodity price benchmarks — accepting declared values at face value
- Reviewing trade payments as standard wire transfers without accessing or analysing the supporting trade documents (invoice, bill of lading, packing list)
- Not distinguishing between TBML indicators and legitimate trade friction (quality disputes, partial shipments, amended letters of credit)
Calibration note: TBML analysis requires trade-specific expertise. Unlike most AML typologies where transaction monitoring alone provides a detection baseline, TBML detection requires understanding commodity pricing, trade documentation standards, shipping logistics, and commercial supply chain logic. Institutions without trade-specialist capability in their compliance function face structural blind spots in TBML detection.
Controls Mapping
Onboarding / KYC
- Trade activity profiling during account opening — expected trade corridors, commodity types, counterparty jurisdictions, and annual trade volumes
- Enhanced due diligence for customers in trade-intensive sectors (commodities, electronics, textiles, precious metals) and those operating through free trade zones
- Verification of beneficial ownership for all parties in the trade chain, including intermediaries and freight forwarders
- Assessment of customer's operational capacity to handle declared trade volumes (staff, warehousing, logistics infrastructure)
Decision Impact
Weak trade-specific onboarding allows TBML operators to establish accounts with fabricated trade profiles, enabling sustained invoice manipulation without triggering monitoring thresholds calibrated to the customer's expected activity.
Transaction Monitoring
Scenario considerations:
- Price-based monitoring comparing declared invoice values against commodity price benchmarks, customs valuations, or historical trade data for the same goods
- Trade pattern analysis detecting shifts in commodity type, counterparty jurisdiction, or transaction sizing inconsistent with established customer profile
- Aggregate trade value monitoring across rolling windows to identify unusual spikes in trade volume relative to business capacity
- Cross-referencing of shipping documents (bill of lading, HS codes, weight/volume) against payment amounts and declared goods descriptions
Decision Impact
Transaction monitoring calibrated only to payment amounts and velocity — without price benchmarking or document cross-referencing — will systematically miss TBML activity that appears as normal trade settlement.
Trade Finance Operations
- Dual-use goods screening and restricted commodity checks against declared goods descriptions
- Document consistency verification across invoices, bills of lading, packing lists, certificates of origin, and insurance documents
- Counterparty screening against sanctions lists, adverse media, and known shell company indicators
- Capacity-to-trade assessment — does the declared exporter have the operational infrastructure to source, store, and ship the declared goods?
Decision Impact
Trade finance teams that process documents without verifying internal consistency or comparing declared values against market benchmarks become unwitting conduits for TBML value transfers.
Investigations / Case Handling
Checklist:
- Reconstruct the full trade cycle: order, shipment, documentation, payment, and goods receipt for the flagged transaction(s)
- Compare declared invoice values against independent price references (commodity indices, customs databases, industry benchmarks)
- Verify physical goods movement through shipping records, port data, or third-party logistics confirmations
- Map the counterparty network — identify shared beneficial owners, addresses, directors, or formation agents across trade counterparties
- Assess whether the trade pattern is consistent with genuine commercial activity or whether the documentation exists primarily to justify a funds transfer
Decision Impact
Investigations that treat trade payments as standard wire transfers — without examining the underlying trade documentation and commercial rationale — will close TBML cases as routine commercial activity.
Regulatory Anchoring
Referenced frameworks (non-exhaustive)
- FATF Report: Trade-Based Money Laundering (2006) — Foundational typology report defining TBML mechanisms: over/under-invoicing, phantom shipments, multiple invoicing, and misrepresentation of goods/services
- FATF/Egmont Group: Trade-Based Money Laundering — Trends and Developments (2020) — Updated analysis of evolving TBML methods, including the role of free trade zones, professional money laundering networks, and emerging digital trade channels
- FATF Best Practices Paper on Trade-Based Money Laundering (2008) — Operational guidance on interagency cooperation between financial intelligence units, customs authorities, and tax agencies for TBML detection
- FinCEN Advisory FIN-2010-A001: Advisory on filing SARs related to TBML — Established SAR filing guidance and TBML/BMPE red flags based on analysis of 17,000+ TBML-related SARs (2004–2009)
- FinCEN Advisory FIN-2014-A005: Funnel accounts and TBML — Updated guidance on criminal use of funnel accounts in conjunction with trade-based laundering schemes
- FinCEN Advisory (August 2025): Chinese Money Laundering Networks — Advisory on CMLN exploitation of TBML methodologies to launder Mexican cartel proceeds, including daigou buyer networks and mirror transaction systems
- EU 4th/5th/6th Anti-Money Laundering Directives: Suspicious transaction reporting and cross-border trade monitoring obligations applicable across EU member states
- Wolfsberg Group Trade Finance Principles (2019): Industry standards for due diligence, sanctions screening, and AML risk assessment in trade finance
- APG Typology Report on Trade-Based Money Laundering: Asia-Pacific regional typologies and red flag indicators building on the 2006 FATF framework
- U.S. GAO Report GAO-20-333 (2020): Assessment of U.S. government efforts to combat TBML, identifying coordination gaps between FinCEN, ICE HSI, CBP, and partner agencies
TBML sits at the intersection of financial regulation and customs enforcement — a jurisdictional gap that criminal organisations exploit by design. Financial institutions monitor payments; customs authorities monitor goods. Neither has complete visibility into both sides of a trade transaction, and information sharing between the two remains limited in most jurisdictions despite regulatory encouragement from FATF and national authorities.
Detection Playbook (Operational Checklist)
When trade-based money laundering is suspected:
- Compare declared invoice values against independent commodity price benchmarks, customs valuation databases, or historical pricing for the same HS code and corridor
- Verify the existence and operational capacity of both the exporting and importing entities — registered address, staff, warehousing, logistics capability
- Cross-reference shipping documents (bill of lading number, container number, vessel name) against payment records to identify duplicate invoicing
- Map the counterparty network to identify shared beneficial ownership, common directors, or connected formation agents across trading entities
- Assess whether goods descriptions on invoices are consistent with HS codes, declared weight/volume, and container capacity
- Review routing logic — determine whether goods movement through free trade zones or transhipment points has a legitimate commercial rationale
- Evaluate whether payment terms, currency, and settlement timing are consistent with standard commercial practice for the declared commodity and corridor
- Escalate if multi-dimensional pattern confirmed: price anomaly + counterparty opacity + document inconsistency + profile mismatch
Escalation Threshold
Price deviation from commodity benchmarks + counterparty without commercial substance + document inconsistency across trade document set + trade pattern inconsistent with customer profile.
Risk Interconnections
Trade-Based Money Laundering commonly connects to:
TBML is the connective tissue of transnational financial crime. It provides the cross-border value transfer mechanism that enables drug trafficking organisations, corrupt officials, sanctions evaders, and terrorist financiers to move value across jurisdictions under the cover of legitimate commerce. Shell companies serve as the typical trade counterparties, structuring may be used to place the proceeds, and informal value transfer systems (hawala) often operate in parallel to settle the balances.
Latest Developments
As of March 2026:
- FinCEN issued an advisory in August 2025 on Chinese Money Laundering Networks (CMLNs) exploiting TBML to launder Mexican cartel proceeds — identifying TBML, money mule, and mirror transaction methodologies as the three primary laundering channels. Total suspected CMLN-related suspicious activity reported between 2020 and 2024 was approximately $312 billion across all methodologies, with TBML identified as one of the principal channels.
- FATF plenary in February 2026 (Mexico City, under the Mexican Presidency) addressed strategic priorities for 2026–2028. TBML remains a standing FATF concern, with industry commentators consistently identifying it as a top AML priority area alongside real estate money laundering.
- ICE Homeland Security Investigations (HSI) published Cornerstone Issue 61 (February 2025) providing updated TBML typologies and trade-based financial crime indicators for the private sector, including emerging patterns involving e-commerce platforms and digital trade documentation.
- Growing convergence between TBML and sanctions evasion — shadow fleet shipping networks and AIS spoofing techniques used to move sanctioned commodities (particularly Russian oil and Iranian petroleum) are increasingly linked to TBML invoice manipulation schemes.
- EU Anti-Money Laundering Authority (AMLA), established in Frankfurt in 2024, is developing harmonised supervisory standards for trade finance AML controls across EU member states, with initial guidance expected to address TBML-specific risk indicators.
TBML techniques are fundamentally unchanged since the FATF first documented them in 2006 — over-invoicing, under-invoicing, phantom shipments, and multiple invoicing remain the core methods. What evolves is the scale, the trade corridors, and the sophistication of the supporting infrastructure. The emergence of Chinese money laundering networks as primary TBML operators for Latin American drug cartels represents the most significant operational shift in the past decade.
Operational Impact Assessment
Failure to detect trade-based money laundering leads to:
- Direct regulatory penalty exposure — TBML-related enforcement actions have resulted in some of the largest AML penalties in history, including HSBC's $1.92 billion settlement (2012), Wachovia's $160 million forfeiture (2010), and the Lebanese Canadian Bank seizure ($150 million, 2012)
- Correspondent banking relationship risk — institutions identified as TBML conduits face de-risking by correspondent banks, potentially losing access to USD clearing and international payment networks
- Facilitation of predicate crime at scale — TBML is the primary laundering mechanism for transnational drug trafficking, with FinCEN identifying it as the channel through which Mexican and Colombian cartels move the largest volumes of proceeds
- Sanctions pass-through liability — TBML schemes frequently involve sanctioned jurisdictions, commodities, or individuals, creating potential OFAC violations layered on top of BSA/AML exposure
- Reputational harm from association with large-scale trade-based laundering, particularly when enforcement actions identify the institution as a knowing or negligent facilitator
TBML is the single largest money laundering channel by value globally. Institutions with significant trade finance, correspondent banking, or cross-border payment operations that lack trade-specific AML controls are exposed to the highest-value laundering typology in the financial crime landscape.
Institutional Failure Patterns
Common systemic weaknesses observed across AML programs in relation to this typology:
Payment-only monitoring without trade document analysis
The most fundamental TBML detection gap. Transaction monitoring systems that evaluate trade payments solely as wire transfers — assessing amount, frequency, and counterparty jurisdiction — without examining the underlying invoice values, goods descriptions, or shipping documentation will systematically miss TBML activity that appears as routine commercial settlement.
Absence of commodity price benchmarking capability
Without access to independent commodity price data (trade databases, customs valuation records, industry indices), institutions cannot identify over- or under-invoicing — the most prevalent TBML technique. Compliance teams accepting declared invoice values at face value have no analytical basis for detecting price manipulation.
Separation between trade finance operations and AML compliance
In many institutions, trade finance document checking (letter of credit compliance, UCP 600 adherence) operates independently from AML monitoring. Trade finance teams verify document consistency for commercial purposes; AML teams monitor payments. Neither function systematically evaluates whether declared values are commercially reasonable.
Limited visibility into open-account trade
Approximately 80% of global trade now settles on open account terms (direct wire payment without documentary credit instruments). Institutions processing open-account trade payments have no documentary trigger to examine underlying trade documents, reducing TBML detection to pure payment monitoring — which is insufficient for this typology.
No cross-referencing with customs or shipping data
Financial institutions rarely access customs declaration data, port manifests, or shipping records that would enable independent verification of goods movement. This information asymmetry — where banks see payment flows and customs sees goods flows — is the structural gap that TBML exploits.
Structured Ontology Fields
Explicit ontological classification for detection model alignment and cross-typology interoperability.
Core Actors
Transaction Archetypes
Detection Dimensions
Risk Surfaces
Model Integration Readiness
This typology is suitable for:
Rule-based
Price deviation rules comparing declared invoice values against commodity benchmarks with tolerance bands. Document cross-referencing rules matching bill of lading numbers, HS codes, and container references across transactions to detect multiple invoicing.
Behavioral scoring
Customer-level trade profile deviation scoring comparing current commodity mix, counterparty geography, trade volume, and payment patterns against historical baseline and peer segment norms.
Graph-based detection
Network analysis mapping trade counterparties, shared beneficial owners, common formation agents, and overlapping addresses to identify coordinated TBML structures operating through multiple trade fronts.
AI-assisted classification
NLP-based document analysis extracting goods descriptions, quantities, and values from trade documents for automated comparison against market data. Anomaly detection models identifying non-obvious pricing patterns across trade corridors and commodity types.
GFN Assessment
Trade-Based Money Laundering is the highest-volume laundering channel in the global financial system — estimated at $1.6 trillion or more annually — and the least detected relative to its scale. The fundamental challenge is structural: financial institutions see payment flows but not goods flows; customs authorities see goods but not payments. Until this information gap is closed through systematic data sharing between financial and customs authorities, TBML will remain the preferred mechanism for transnational criminal organisations, sanctions evaders, and state-sponsored laundering operations to move value across borders under the cover of legitimate commerce.