Trade Based Money Laundering and Terrorist Financing: Methodologies for Combating the Growing Economic and Cultural Threat

As stronger anti-money laundering (AML) and combating the financing of terrorism (CFT) controls were enacted post 9-11, trade based money laundering (TBML) has become an increasingly popular means for criminals and terrorist financiers to launder funds. Through invoice manipulation and trade diversion, TBML has the ability to transfer substantial amounts of money by disguising criminal proceeds as legitimate trade transactions. Yet nearly two decades after being identified as the emerging trend in laundering illicit funds by criminal organizations and terrorist financiers, TBML remains simmering on the back burner of priorities for financial institutions, the trade industry, enforcement officials, and regulators. This paper highlights the disastrous effects of TBML, including how the inherent distortion of the trade it relies upon leads to a myriad of concerns that ultimately affect both local economies and the global financial system as a whole. The environmental complexities TBML exploits (such as how questionable individual transactions are often obscured by high volume trade flows) were explored within the paper and vulnerabilities in both the trade and finance sectors were highlighted through the use of open source case studies. Current investigative and regulatory measures for combating TBML, including the review of existing best practices for TBML and the effectiveness of raising TBML awareness through the use of red flag indicators were examined. Ultimately, based upon the analysis within this paper, international and domestic policy recommendations for legislative changes were proposed.