Trade-Based Money Laundering: The Hidden Threat Inside Global Trade

History is rich with examples of money launderers exploiting systemic weaknesses to channel dirty money into the formal economy. As authorities have cracked down on traditional methods like cash smuggling, criminals have, over time, shifted to more sophisticated strategies – and one of the most complex and least understood among them is Trade-Based Money Laundering (TBML).

According to James Booth FICA, Global Head of Anti-Money Laundering at Silent Eight, the method of placement, layering, and integration used in cash smuggling is the most simplistic approach to money laundering through financial institutions. It has, however, its limitations since it assumes that all money laundering is based on ‘cash’. As he puts it:

'As the world has evolved and criminals have become much more sophisticated, a much bigger problem involves not cash, but assets. The proceeds of a crime that generates an asset with a ‘dirty value’ , move through a ‘process’ in order to create a perception that it now has a clean value. This allows the criminals to convert goods bought with illicit money into something that can move freely, since the transaction appears legitimate.'

This shift away from currency-based laundering toward asset-based methods like TBML reflects a deeper challenge for law enforcement and financial institutions. TBML hides in plain sight – working its way into the legitimate flow of global trade – using falsified invoices, mismatched shipments, and shell companies to make illicit funds appear clean.

What is Trade-Based Money Laundering?

Trade-Based Money Laundering is a sophisticated method of moving illicit funds into the financial system by manipulating international trade transactions. At its core, TBML takes advantage of the complexity and sheer volume of global trade. About 250 to 300 million containers a year move around the world, but only one to two percent of them get physically checked. That reality presents criminals with opportunities to move money undetected, often by distorting the price, quantity, or quality of goods crossing borders.

Why trade? Unlike traditional laundering routes, trade is harder to track. Financial institutions may process payments, but they rarely verify the physical goods behind the transactions. Customs authorities, meanwhile, focus on tariffs and contraband – not financial crime. This gap between trade and finance is the sweet spot in which TBML thrives. 

Whether it’s over-invoicing electronics, under-shipping raw materials, or faking entire shipments, TBML allows launderers to integrate illegal funds into the economy under the radar. It’s one of the most complex and least understood forms of money laundering – and a growing focus for regulators, investigators, and compliance teams around the world.

How Does TBML Work? 

Trade-Based Money Laundering operates by distorting the details of legitimate trade – such as the price, quantity, or description of goods – to covertly move money across borders. While the transactions appear routine on paper, they’re engineered to shift value illegally.

Here are some of the most common TBML techniques:

1. Over/Under-Invoicing – Criminals inflate or deflate the value of goods on invoices to transfer value. For instance, exporting socks valued at $1 per pair but invoicing them at $100 lets launderers shift $99 of illicit funds under the guise of trade.

2. Multiple Invoicing – A single shipment is invoiced more than once to justify multiple payments for the same goods. This technique is often used to move excess funds across jurisdictions without raising immediate suspicion.

3. Over/Under-Shipment – This involves falsifying the quantity of goods shipped. A container might be declared as holding 10,000 units when it only carries 1,000 - allowing overpayment and value transfer without actually moving goods.

4. Phantom Shipments – Here, documentation is produced for shipments that never occur. The goods exist only on paper, yet the financial flows appear legitimate, often enabled by colluding exporters, importers, and freight handlers.

5. Mislabelled Goods – Criminals intentionally register high-value items as lower-value goods to evade detection and taxes. For example, electronics might be declared as 'plastic components' to reduce scrutiny.

These schemes rely on the complexity of global supply chains and gaps in coordination between financial institutions and customs authorities. Because transactions span multiple parties and jurisdictions, spotting anomalies becomes incredibly difficult – which is exactly what makes TBML so effective.

Examples of TBML in the Real World

TBML schemes are challenging to detect, even for the most seasoned financial crime investigators. Here are two landmark, real-world examples that help reveal just how brazen and sophisticated these schemes can be.

The Lebanese Canadian Bank: A Trade-Based Laundering Hub

Region: Middle East / West Africa / Latin America

In 2011, U.S. authorities exposed a massive trade-based money laundering scheme involving the Lebanese Canadian Bank (LCB), which was accused of facilitating the movement of hundreds of millions of dollars linked to drug trafficking and terrorist financing – specifically for the proscribed militant group Hezbollah.

As noted by The New York Times in its investigative article on the Lebanese Canadian Bank case, the core of the scheme was a complex trade cycle known as the 'Lebanese Hezbollah network.' Drug proceeds from Latin America were smuggled into West Africa, then moved to Lebanon through consumer goods and car exports. These goods were often over- or under-invoiced and shipped under false documentation to camouflage the movement of funds.

The laundered money flowed through LCB accounts, with many tied to exchange houses and import-export businesses. From there, the funds were funneled into Hezbollah-controlled entities or used to purchase more goods, continuing the cycle.

The U.S. Treasury designated LCB as a 'primary money laundering concern' under the Patriot Act, and the bank ultimately paid a $102 million settlement. This case became a landmark example of how trade – particularly when combined with complicit financial institutions – can be weaponised to sustain transnational crime and terrorism.

The Black Market Peso Exchange (BMPE)

Region: Latin America / United States

The Black Market Peso Exchange is one of the oldest and most enduring TBML methods, used extensively by Colombian and Mexican drug cartels to launder drug proceeds earned in the U.S.

Here’s how it works: Cartels sell U.S. dollars (earned from drug sales) to black market brokers, who then find Latin American businesses in need of hard currency to import goods. The broker uses the dirty dollars to purchase those goods from U.S. suppliers, ships them to buyers in Colombia or Mexico, and collects pesos in return.

Because it relies on real trade transactions – and leverages legitimate businesses – this system is extremely difficult to detect. It creates a win-win for both criminals and importers, while quietly injecting dirty money into the legal economy.

Why TBML Investigations Drain Resources

As James Booth FICA aptly notes, 

‘Trade finance investigations are time-consuming due to the complexity of documents, multiple jurisdictions, and the involvement of various counterparties. Many processes remain manual, with limited integration between systems. Subtle risk indicators require detailed analysis, and coordination across teams often adds further delays.’

Banks find trade finance investigations cumbersome due to the manual, document-heavy nature of the process and the need to verify multiple counterparties across different jurisdictions. 

For example, a single letter of credit transaction might involve validating shipping documents from a freight forwarder in China, an exporter in Dubai, and an importer in Australia – each with varying formats, languages, and regulatory risks. This fragmentation, combined with siloed systems, makes timely investigations difficult.

Adding to the complexity, banks face significant pressure from customers who expect fast clearance of trade transactions to avoid delays in importing or exporting goods. This urgency often clashes with the bank’s responsibility to conduct thorough due diligence, especially when investigative teams are working with limited resources and growing case volumes. The result is a constant balancing act between speed, compliance, and customer satisfaction. This creates opportunity for criminals to target these vulnerabilities to launder illicit proceeds.

The Hidden Threat in Plain Sight

By distorting trade data, falsifying invoices, and exploiting systemic gaps, criminal networks move billions across borders with startling ease thanks to Trade-Based Money Laundering.

The risk of trade being exploited to perpetrate financial crime has grown in tandem with the rise in global commerce. Understanding how TBML and sanctions evasion via trade works is the first step toward disrupting it. In the next part of this TBML series, we’ll explore the red flags investigators look for, the barriers to effective enforcement, and the emerging tools that offer new hope in the fight against trade-based money laundering.