Exposing Trade-Based Money Laundering: Common Typologies

Trade-based money laundering is the practice of moving laundered funds through trade transactions in an attempt to make them appear legitimate. It involves the transfer of funds or value through trade transactions, often as a part of international trade. Because trade transactions occur frequently and rapidly, detecting trade-based money laundering can be difficult to detect.

In this infographic, we have discussed various typologies utilised to conduct trade-based money laundering, helping detection efforts. These methods typologies include the following:

Misrepresenting Goods or Services

In this method, launderers falsely describe the goods or services being traded to make sure that the movement of value appears legitimate. For example, a good may be described as high-quality and therefore expensive, while it is a low-quality, inexpensive product. Trade in this good is used to then transfer value through trade transactions.

Over, Under, or Multiple Invoicing

In this typology, invoices are used to conduct money laundering, and both the buyer and seller or importer and exporter are involved in the financial crime. Invoices are misused in the following ways:

Over Invoicing: Goods or services are misrepresented as being of high price and invoiced as such in order to transfer value.
Under Invoicing: Goods or services are misrepresented as being of lower value than they are.
Multiple Invoicing: In this method, existing documents on invoices are reused to make multiple payments for the same goods or services. These documents are often used across multiple financial institutions to avoid detection.

Over, Under, and Phantom Shipment of Goods and Services

In this technique, the quantity of goods and services delivered are falsely represented. At times, no shipment of goods occurs, which is called phantom shipments.

Carouseling and Obfuscation

In this technique, the same goods are traded between the same parties many times. Separate invoices are issued each time the goods are traded. Invoices issued contain false information.

Using Third-Party Intermediaries for Payments

Financial criminals utilise the services of unknown third-party intermediaries to facilitate payment of goods or services which are a part of legitimate supply chains. These third-party intermediaries are usually organisations involved in integrating illegal funds into the formal economy.

Exposing Trade-Based Money Laundering: Concluding Remarks

Understanding the typologies as discussed in the above infographic helps Relevant Persons in UK in the timely detection of trade-based money laundering. Timely detection facilitates the prompt filing of a Suspicious Activity Report (SAR) with UK’S Financial Intelligence Unit (UKFIU).