Trade Based Money Laundering: Mechanisms, Red Flags, and Typologies
What TBML actually is
Trade based money laundering moves value through the settlement of trade transactions rather than through the wires themselves. The defining feature is that the goods, the documents, or the declared prices are manipulated so that value transfers between parties who are often related or colluding. Candidates must be able to distinguish TBML from simple sanctions evasion and from fraud: TBML concerns the movement and integration of illicit value, and it can occur even when the underlying goods are real.
Core typologies to know
- Over- and under-invoicing: declaring a price above or below fair market value so the difference becomes a value transfer (over-invoicing exports moves value out; over-invoicing imports moves value in).
- Multiple invoicing: several invoices for one shipment, each settled through a different bank.
- Short- and over-shipping: quantity declared differs from quantity shipped, so payment does not match goods.
- Falsely described goods: misclassification or misdescription (e.g., declaring high-value goods as low-tariff items).
- Carousel / round-tripping: goods or value circulate through intermediaries, often returning to origin.
- Phantom shipments: documents and payments exist, goods do not.
Traps in questions
Examiners like to blur over-invoicing and under-invoicing direction, and to imply that a red flag is proof. A red flag is an indicator requiring escalation, not a finding of guilt. Another trap: assuming a transaction is clean because it has full documentary credit support - documentary compliance checks documents against terms, not against reality.
Rule of thumb
Ask: does the price, quantity, or description make commercial sense for these parties, this route, and this good? If the payment flow and the goods flow cannot be reconciled, treat it as a TBML indicator and escalate.
Worked example: A trading company in a free zone exports textiles to a related buyer at three times the market price, with payment routed through an unrelated third-party shell in another jurisdiction. Two indicators stack: price anomaly plus a payment path inconsistent with the trade route.