Soudijn (2021) - Trade-Based Money Laundering
Key Insights
- Soudijn examines trade-based money laundering as one of the most difficult-to-detect channels, exploiting trade complexity through over/under-invoicing and phantom shipments to move value across borders.
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Background
Among laundering channels, trade-based money laundering (TBML) is the one most resistant to detection. Unlike wire transfers, trade moves value inside millions of complex, legitimate transactions — goods, invoices, shipping documents, and trade finance instruments crossing jurisdictions daily. Soudijn's analysis explains why TBML is both so attractive to launderers and so hard for financial institutions to catch.
The Mechanism
TBML exploits the fact that international trade is a natural vehicle for disguising value. The classic techniques are over-invoicing and under-invoicing (declaring prices far from market value), phantom shipments (documents without goods), multiple invoicing of the same cargo, and misdescription of goods. The Black Market Peso Exchange variant converts trade documents directly into cash flows outside the formal banking system.
Deep Dive
Detection difficulty stems from data and scale: customs declarations, bills of lading, and letters of credit live in different systems across different jurisdictions, and trade volumes overwhelm manual review. Soudijn examines red flags — unit prices that deviate sharply from market benchmarks, shipping routes inconsistent with goods, counterparties with implausible trade histories — and the data-analytics response: comparing importer-exporter mirrors (imports at one border against exports at the other), benchmarking unit prices, and screening trade finance applications rather than only cargo movements.
Why It Matters
FATF identifies TBML among the dominant money laundering methods, and trade finance remains a known gap in many compliance programs because transaction monitoring systems are built for payments, not documents. The analysis makes the operational case for extending AML controls to the trade lifecycle.
Key Takeaways
- Price deviation is the leading indicator: benchmark unit prices against market and peer data.
- Mirror the trade: match import and export declarations across borders to surface asymmetries.
- Screen the finance, not just the goods: letters of credit and trade loans are where value actually moves.