Tackling Trade-Based Money Laundering in the Modern Financial Landscape

TBML schemes can also involve misrepresenting the price, quantity, or type of goods or services in trade transactions. In misrepresentation schemes, the parties involved in the trade transaction may under or over invoice goods or services; issue multiple invoices for the same goods or services.

- By Partha Sarathi Nayak, Chief Manager, Faculty Union Learning Academy, Union Bank of India Hyderabad

If we inquire informally among a group of bankers about familiarity with terms like a Letter of Credit (L/C), Bill of entry (BoE), or Buyer's Credit, only a few might possess this knowledge. This introduces us to the intricate world of trade finance-a realm filled with unique terminologies and practices, characterized by its complexity and specialization. It involves numerous parties, including intermediaries, banks, and a vast array of goods, commodities, and services that are part of the countless trade transactions banks process every day. The combination of escalating regulatory demands and the inherent complexity of trade has placed bankers in a challenging position. This article provides a comprehensive analysis of trade-based money laundering (TBML), delving into its mechanisms, implications, and countermeasures.

TBML involves the exploitation of international trade transactions to transfer value and obscure the origins of illicit proceeds. While international trade promotes economic growth around the world, international trade transactions face a range of risks and are vulnerable to abuse by criminal and terrorist organizations. Transnational criminal organizations and terrorist organizations use a variety of money laundering schemes to disguise the origin and destination of their illicit proceeds and integrate their assets in legitimate financial entities.

Black Market Peso Exchange, a wellknown TBML scheme involves merchants who-willingly or not-accept payment in illicitly derived funds, often from third parties to a trade transaction, for exports of goods. Various observers have noted that although TBML is a common form of international money laundering, it is also one of the least understood and most difficult to detect because of its complexity.