Trade-based money laundering, or TBML, is a new frontier in financial crime. It is likely the most complicated and intricate method of money laundering. Investigating money laundering in trade activities has become one of the most daunting, labor-intensive, time-consuming and expensive activities across the globe.
According to Global Financial Integrity (GFI) estimates, a staggering $950 billion has been moved illegally out of economically under-developed countries since 2011. Further, it estimates that four-fifths of TBML is directly linked to drug trafficking, illegal arms dealing, terrorist financing and corruption activities globally.
A simple example of TBML would be a shell company for drug trafficking exporting pencils (actual worth of $500,000) for $3 million (on paper) and converting illicit gains of $2.5 million into legitimate cash.
In large economies with high inflation in food and essential commodities, TBML is difficult to track and hard to investigate. Launderers can invoice for exporting essential commodities at an inflated price when receiving the actual value from the importer. This inflated value can be adjusted against the illicit gains obtained through various illegal activities and the illegitimate funds can be converted to legal currency.
In this document, we will discuss the standard red flags for TBML, the regulatory landscape, especially in Asian trading hubs and large economies, for tackling TBML. Also, we will discuss the benefits of Blockchain and its implementation for trade finance activities, with the illustration of a letter of credit workflow.