Trade-Based Money Laundering

Chapter 7Commercial TBML

TBML is generally considered to be a money-laundering methodology that is used to wash the proceeds of criminal activities such as narcotics trafficking, weapons smuggling, the trafficking of persons, and intellectual property rights violations. As we have discussed, TBML is also used in evading taxes and customs duties. TBML schemes are also sometimes used to circumvent restrictions on capital flows. Informal value transfer systems—a subset of TBML—such as hawala and fei-chien are also used.

Unfortunately, commercial enterprises also misuse trade in other suspect ways. International businesses and brokers engage in fraud and deceptive trade practices to obfuscate the money trail and transfer value for profit. Sometimes this takes the form of lowering taxes or claiming government trading incentives. The commercial misuse of trade goes hand-in-hand with the criminal misuse of trade. We cannot succeed in stopping criminals while we turn a blind eye to multinationals using misinvoicing and abusive transfer pricing as they choose. While commercial TBML is not the focus of this book, the reader should be aware of some common techniques such as trade diversion, misinvoicing, and transfer pricing. While some of the schemes may be generally accepted and legal per se, they often have the look and feel of their sister TBML scams.

Trade Diversion

In international economics and finance, there are various types and definitions of trade diversions. For the purpose ...