Trade-based money laundering (TBML) involves the exploitation of the international trade system for the purpose of transferring value and obscuring the true origins of illicit wealth. This process varies in complexity, but typically involves the misrepresentation of the price, quantity, or quality of imports or exports. Financial institutions are wittingly or unwittingly implicated in TBML and TBML/FT schemes when they are used to settle, facilitate, or finance international trade transactions (e.g., through processing wire transfers, providing trade finance, and issuing letters of credit and guarantees). Combining several of these common TBML techniques is a classic scheme involving the laundering of drug proceeds from Latin America, called the Black Market Peso Exchange (BMPE). Scope of the Problem

TBML is widely recognized as one of the most common manifestations of international money laundering as well as a known value transfer and reconciliation method used by terrorist organizations. Nevertheless, TBML appears to be less understood among academics and policymakers than traditional forms of money laundering through the international banking system and bulk cash smuggling. Global Hotspots

According to FinCEN, TBML activity is growing in both volume and global reach. Links to Terrorism

Although a number of anecdotal case studies in recent years have revealed instances in which known terrorist groups and other non-state armed groups, including Hezbollah, used TBML, the Treasury Department's June 2015 National Terrorist Financing Risk Assessment concluded that TBML is not a dominant method for terrorist financing. Selected Policy Responses

Several of the primary U.S. government policy responses and tools to address TBML include U.S. participation in the international Financial Action Task Force; a number of Treasury Department regulatory responses; and use of the Department of Homeland Security's Trade Transparency Units, which are discussed below. Participation in the Financial Action Task Force

FATF was organized to develop and promote AML/CFT guidelines. The United States has been a strong supporter of the FATF. U.S. Department of the Treasury Regulatory Actions

Central to the Treasury Department's efforts to combat TBML is FinCEN, which issues advisories and geographic targeting orders and applies special measures to jurisdictions determined to be of primary money laundering concern. U.S. Department of Homeland Security's Trade Transparency Units

Within the U.S. Department of Homeland Security (DHS), Immigration and Customs Enforcement's Homeland Security Investigations (ICE/HSI) established the first Trade Transparency Unit in Washington, DC, in 2004. Using a specialized computer system called the "Data Analysis and Research for Trade Transparency System," TTUs examine trade anomalies and financial irregularities in domestic and foreign trade data to identify instances of TBML, customs fraud, contraband smuggling, and tax evasion that warrant further law enforcement investigation. It has also addressed TBML in more general hearings focused on policy responses to address anti-money laundering and terrorist financing.
Trade-based money laundering (TBML) involves the exploitation of the international trade system for the purpose of transferring value and obscuring the true origins of illicit wealth. TBML schemes vary in complexity but typically involve misrepresentation of the price, quantity, or quality of imports or exports. Financial institutions may wittingly or unwittingly be implicated in TBML schemes when such institutions are used to settle, facilitate, or finance international trade transactions (e.g., through the processing of wire transfers, provision of trade finance, and issuance of letters of credit and guarantees). TBML activity is considered to be growing in both volume and global reach. Although TBML is widely recognized as one of the most common manifestations of international money laundering, TBML appears to be less understood among academics and policymakers than traditional forms of money laundering through the international banking system and bulk cash smuggling. Nevertheless, TBML has emerged as an issue of growing interest in the 114th Congress, especially as Members and committees examine tools to counter terrorist financing.
The U.S. government has historically focused on TBML schemes involving drug proceeds from Latin America, particularly the Black Market Peso Exchange (BMPE). Although a number of anecdotal case studies in recent years have revealed instances in which TBML is used by known terrorist groups and other non-state armed groups, including Hezbollah, the Treasury Department's June 2015 National Terrorist Financing Risk Assessment concluded that TBML is not a dominant method for terrorist financing.
The United States is combating TBML in a number of ways:
The Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issues advisories and geographic targeting orders and applies special measures to jurisdictions determined to be of primary money laundering concern. The United States is also an active participant in the intergovernmental Financial Action Task Force (FATF), created in 1989 to develop and promote guidelines on anti-money laundering and combating the financing of terrorism (AML/CFT). FATF has addressed TBML methods and best practices to combat TBML in periodic reports and mutual evaluations of its members. The U.S. Department of Homeland Security (DHS), through its Immigration and Customs Enforcement's Homeland Security Investigations (ICE/HSI) unit, maintains a Trade Transparency Unit (TTU) in Washington, DC. The TTU has U.S. Department of State funding and Treasury Department support. DHS has since developed a network of counterpart TTUs in almost a dozen countries abroad. The TTUs examine trade anomalies and financial irregularities associated with TBML, customs fraud, contraband smuggling, and tax evasion.
This report discusses the scope of the TBML problem and analyzes selected U.S. government policy responses to address TBML. It includes a listing of hearings in the 114th Congress that addressed TBML.