One of the Most Difficult-to-Detect Methods of Money Laundering

In its simplest definition, trade-based money laundering is the process of disguising the proceeds of crime and moving value (i.e., movement of money) using trade transactions to legitimize their illicit origins.

The Challenge with Trade-Based Money Laundering

Around 30% of global money laundering is TBML (trade-based money laundering). Worse? TBML is one of the most difficult-to-detect methods of money laundering. Why? TBML is difficult for financial institutions to detect because these companies rarely see the invoices involved in these illegal transactions. In other words, any algorithm to detect TBML must be working exclusively with transaction amounts – no invoices necessary.

A Simple Trade-Based Money Laundering Techniques

TBML involves exploiting the international trade system to transfer value and obscure the true origins of illicit wealth. TBML schemes vary in complexity but typically involve misrepresentation of imports or exports' price, quantity, or quality.

Let's take a fictive company called Walsh, LLC, which is created by criminals to conduct trade in electronics. This business appropriately registers to operate as a single-member limited liability company. Walsh LLC registers to purchase and sell electronics for export only. When registering the import/export business, the criminal can create a business model with very little overhead and even less regulatory oversight.

Meanwhile, a criminal organization in Russia sends millions of scam e-mails daily to individuals in the United States. The e-mail scams pretend to be organizing charity working with the United Nations and other reputable organizations seeking donations for the war in Ukraine. Meanwhile, the criminal organization's counterparts in the United States establish shell corporations, complete with bank accounts in numerous financial institutions, to mirror the names and business models of the various scam e-mail companies.

Once deposited, the victim's funds are transferred to the primary money launderer, Walsh LLC, who immediately utilizes the illicit money deposited to purchase computers, phones, and other electronics at wholesale prices from various places for export to Russia. Walsh LLC commingles legitimate sales and exports to Russia with the electronics purchased with the illicit funds. Once sold throughout Europe, the now “clean” money is integrated back into the financial system, completing the trade-based money laundering cycle.

Image: fictive company names.

By nature, this trade-based money laundering scheme is simplistic. However, for a financial institution, it’s hard to detect as they only see the transaction amounts. Thus, trade-based money laundering is often undetectable by traditional AML (anti-money laundering) systems and algorithms.

One possible solution is BenfordAnalytics: our Tableau-based proprietary algorithm works exclusively with transaction amounts – no invoices are necessary. Based on our research, BenfordAnalytics outperforms any other algorithm at detecting TBML (trade-based money laundering), including Machine Learning.

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