Trade-Based Money Laundering: Signs and Tracing

How Trade-Based Money Laundering Works

Trade-based money laundering moves value through false trade pricing or documentation. The Financial Action Task Force (FATF) and Egmont Group describe the mechanism as “disguising the proceeds of crime and moving value through the use of trade transactions”. The purpose is to give illicit funds a legitimate appearance. Their trade-based money laundering report explains the methods.

The value moves through the gap between what was paid and what was shipped. An inflated payment sends excess value to the exporter. An artificially low price gives the importer goods worth more than the recorded payment. Multiple invoices can justify repeated payments for one shipment.

The following fictional examples use Australian dollars and assume collusion between the trading parties. The figures illustrate the mechanism, not actual findings.

For each suspected method, separate the proven payment from the disputed trade fact. A second payment might settle a second shipment. Missing goods might reflect a cancelled order awaiting a refund. Evidence of deliberate misstatement and criminal proceeds distinguishes laundering from an ordinary commercial dispute.

Trade-Based Money Laundering Red Flags

Trade laundering red flags arise from inconsistencies between a business’s trade activity, its documents and its payments. The FATF/Egmont risk indicators identify these mismatches as grounds for investigation.

• Payment goes to a party other than the supplier named on the invoice. Obtain the instruction explaining that beneficiary and any assignment of the supplier’s receivable.
• Funds pass through a third country with no clear role in the purchase. Compare the beneficiary’s location with the supplier and shipment route.
• The price is far above or below comparable market rates. Compare the same specification and quantity, allowing for freight, insurance and payment terms.
• The goods do not fit the business. A café importer buying electronics needs an explanation supported by orders and sales records.
• Several invoices or payments share one shipment reference. Compare the quantities delivered with the total amount paid.

A documented financing arrangement can explain a third-party recipient. An intermediary bank’s country can also differ from the supplier’s country. Identify the ultimate beneficiary before treating payment routing as evidence of diversion. Examine domestic money laundering red flags separately where the same accounts show cash or local transfer patterns.

What Bank Statements Can and Cannot Show

Bank records establish the payment side of a trade transaction. Statements and accompanying international payment confirmations can show the amount, currency, date and beneficiary. A statement may show only an Australian-dollar debit and a shortened description. Obtain the transfer instruction or confirmation to complete those fields.

The bank record does not establish the identity, quality or quantity of the goods delivered. An invoice describes what the parties claimed to trade. A delivery or inspection record helps establish what arrived. Keep these evidence sources separate in the transaction schedule.

Match the Currency Before Calculating the Gap

Cross-currency matching connects the Australian-dollar debit to the foreign amount settled against the invoice. Use the bank’s actual conversion and fees. A headline exchange rate alone cannot establish a match.

In this fictional example, a bank debits A$150,000 to settle a US$90,000 invoice. A separate A$300 fee appears on the statement. The confirmation connects that debit to the supplier’s invoice reference. Shipment evidence supports comparable goods worth US$60,000 on the same valuation basis.

The apparent price gap of US$30,000 converts to approximately A$50,000 at the evidenced settlement rate of A$1.6667 per US dollar. The separate fee stays outside that calculation. Record each gap in its original currency, then use a stated conversion basis to total gaps in Australian dollars. Avoid counting repeated invoices as separate shipments.

FinTrace saves forensic accountants hours of statement conversion and review, leaving more time to interpret trade discrepancies. Its analysis follows transfers across supplied accounts and matches movements across currencies. Source PDF filenames and pages put the supporting bank evidence directly beside the findings. Use that payment schedule with the trade documents to investigate the price gap. For the subsequent destination of funds, use asset tracing.

Keep Transfer Reporting Separate from Suspicion

International funds transfer instruction (IFTI) reporting is a separate obligation from reporting a suspicious matter. AUSTRAC’s IFTI guidance requires covered senders and receivers of instructions to report within 10 business days. Suspicion is not a prerequisite for that report.

The transitional rules preserve the former section 45 reporting obligation under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). It continues until the applicable international value transfer service reporting transition. The transitional legislation sets that transition and its exceptions.

The tranche 2 reforms cover specified professional designated services. An accountant’s or lawyer’s obligations depend on the service provided and its Australian geographical link, subject to exemptions. AUSTRAC explains those services. An importer paying an overseas invoice does not become the bank’s IFTI reporter merely by being its customer. For a trade laundering suspicion, follow the separate suspicious matter report requirements where they apply.

Records to Obtain Beyond the Bank

Trade documents let you test whether the payment bought the goods described. Obtain records from the people who created or handled them, with authority appropriate to the matter.

ABF’s import declaration guidance confirms that importers or licensed customs brokers lodge declarations. Start with their copies and reference numbers. Where departmental records are needed, Home Affairs provides a non-personal freedom of information request process. Identify the requested documents and state that the request is under the Freedom of Information Act 1982 (Cth).

A freedom of information request does not guarantee access to another business’s commercial records. For civil proceedings, use the relevant court’s disclosure or subpoena process where required. Keep the request tied to identified transactions and shipment references.

Build one row per shipment, with linked invoices and payments. Record legitimate price adjustments before totalling unexplained gaps. The resulting schedule distinguishes paid value, delivered value and the evidence still needed to explain the difference.