On 23 June 2006 the FATF published its study of trade based money laundering, and its definition is the one the later reports kept. In December 2020 the FATF and the Egmont Group of financial intelligence units reported on trends and developments. In March 2021 they set out risk indicators for banks and other firms. Among the money laundering methods these bodies track, this is the one that runs through invoices, shipments and payments for goods.
What is trade based money laundering, in the FATF's words?
The 2006 study defines it as "the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origin" (p. 3). In practice, it can work by misrepresenting "the price, quantity or quality of imports or exports". The 2020 report kept that definition and puts the aim in one line: the movement of money, with the trade transactions as the means (p. 11). The same aim sets it apart from customs and tax fraud, and the 2006 study files over or under invoicing done mainly for a tax advantage under customs fraud (p. 5).
Treat any single figure for the size of trade based laundering as unsourced. The US$1.6 trillion that some pages attach to it is UNODC's estimate of the money available for laundering from all crime in 2009, published in October 2011. In December 2020 the FATF and Egmont Group reported that jurisdictions had difficulties even in indicatively quantifying their own TBML exposure (p. 16).
How does trade based money laundering work?
Table 1. Trade based money laundering techniques and what gives each away (FATF 2006; FATF and Egmont Group 2020 and 2021).
| Technique | How value moves | What gives it away |
|---|---|---|
| Over invoicing | The invoice price sits above market, so the seller collects more than the goods are worth | A price far above comparable trades |
| Under invoicing | The invoice price sits below market, so the buyer's side resells at the real price and holds the gap | Export prices well under market, on the side customs watches less closely |
| Multiple invoicing | One shipment is billed more than once, sometimes paid through different banks | Several payments behind one shipment or invoice number |
| Over or under shipment | More or fewer goods ship than the invoice states | Quantity discrepancies between the invoice and the bill of lading or customs entry |
| Phantom shipment | Nothing ships, but the documents are processed as if it did | Trade or customs documents that are missing or look counterfeit |
| Falsely described goods and services | Cheap goods are invoiced as dear or different ones; services are hard to value | Vague or generic descriptions of what was traded |
| Third party settlement | A shell or front company with no part in the contract pays for the goods | A payer named neither on the invoice nor in the contract |
The 2006 study's own examples show the mechanics. An exporter ships 1 million widgets worth $2 each but invoices them at $1. The importer wires $1 million, sells the widgets for $2 million and holds the other $1 million on the exporter's instructions (p. 4). Neither side would take that loss unless both were in on it, and both can belong to the same group (p. 5).
Earlier work, the study notes, looked mainly at alternative remittance systems and at the black market peso exchange (p. 3), which the study itself treats as a complex form of TBML.
Hawala brokers and similar providers, in the words of the FATF's 2013 report on them, "settle through trade, cash, and net settlement", so a payment for goods between two trading firms can also carry a broker's debt.
Why is trade based money laundering hard to detect?
The FATF and Egmont Group list the main trade based money laundering AML challenges (p. 16). World trade keeps growing in size and complexity, customs authorities find it hard to check more than a fraction of shipments, schemes cross jurisdictions, and in some cases financial institutions and their customers understand the exposure poorly. The 2006 study cited research that most customs agencies inspect less than 5 percent of cargo (p. 2).
A bank holds one slice: the payment, sometimes the documents, and no customs or maritime records of its own. A cross-border payment can also pass through correspondent banking links, where the bank in the middle sees only the wire. The customer's own bank can test each payment against what it knows of the customer's trade, such as the usual counterparties, countries and amounts. In complead, formerly Sanction Scanner, transaction monitoring keeps those tests as rules a team writes without code and backtests in 30, 60 or 90 day windows of real history before switching them on.
What are the financial crime risks in trade finance?
In trade finance, letters of credit and documentary collections make the customer give the bank more documents than open account trade does, and the private sector often sees them as less exposed to TBML (2020 report, p. 42). In open account trade, goods ship and arrive before payment is due, and the bank's role shrinks to the wire. The report cites the Wolfsberg Group's estimate that about 80 percent of the international trade banks process runs on open account, and says TBML schemes frequently use it because banks have a reduced role (p. 13).
Can a real export hide trade based money laundering?
Yes. In a case the New Zealand Financial Intelligence Unit gave the FATF and Egmont Group (December 2020, Box 2.11, p. 32), New Zealand fruit exporters received about USD 1.5 million over 18 months from bank accounts in Eastern Europe held by shell companies based in high risk jurisdictions. The fruit was real and went to a buyer in Southeast Asia. The payers had no known link to that buyer, and the exporters' staff could not say why the money came from them. The invoices the banks held described ceramic tiles sold to Eastern Europe, signed by a manager the company did not employ.
The banks held the payments and the false tile invoices; the FIU's inquiries tied the money to real fruit exports. The report adds that such third party payments are not systematically reported by DNFBPs, such as the auditors and accountants who come across them.
Which risk indicators point to trade based money laundering?
The FATF and Egmont Group sort their March 2021 trade based money laundering risk indicators into four groups (pp. 3 to 6):
- Structural. Who the trading firm is: shell companies, mass registration addresses, nominee owners, too few staff for the volumes.
- Trade activity. What it trades: goods outside its line of business, such as a car dealer exporting clothing, or margins too thin to make sense.
- Trade documents and commodities. Contracts and invoices that disagree, prices out of line with the market, vague descriptions of the goods.
- Account and transaction activity. Payment changes at the last minute, pay through accounts, and payment by someone other than the consignee.
A single indicator "may not alone warrant suspicion", the document says, while several together could warrant a closer look. A firm can use them as the base for its own rules and for longer lists of red flags. When the suspicion holds, a US bank files a suspicious activity report.
What changed in 2025.
- April 2025: FinCEN's trend analysis of 1,246 fentanyl related reports filed in 2024, about $1.4 billion in all, found TBML or the peso exchange in 2 percent of them but in nearly 42 percent of the money reported (p. 18).
- 28 August 2025: FinCEN's advisory on Chinese money laundering networks asked filers to select, as applicable, SAR field 36(l), "Trade Based Money Laundering/Black Market Peso Exchange".
The decision this entry leaves with you is how much of each trade your bank asks to see. Where it holds only the wire, two questions still apply to every payment: is the payer a party to the contract, and do the goods fit what the customer is known to trade?
Related terms
- Hawala. A broker network that pays out locally and settles between brokers later, sometimes through trade.
- Correspondent banking. One bank holding accounts for another, often abroad, so that payments can cross borders.
- DNFBP. Designated non-financial businesses and professions, such as auditors and accountants, with their own reporting duties.
- Black market peso exchange. A broker system that turns drug dollars into payments for goods.
- Front company. A real business that also hides criminal money behind its trading.
- Money laundering. Making the proceeds of crime look lawful.
How this entry was checked. Sinan Tekin, a Regional Sales Manager at complead, is the writer; the reviewer is Ufuk Gürdaş, Compliance Specialist (last reviewed: 28 October 2026). On 28 October 2026 every figure and quote was traced to the FATF's study of trade based money laundering (June 2006), the FATF and Egmont Group's reports of December 2020 and March 2021, the FATF's 2013 report on hawala and similar providers, UNODC's October 2011 estimate of illicit financial flows, and FinCEN's trend analysis of April 2025 and advisory of August 2025. The definition is the 2006 wording, which the 2020 report kept.
