Financial Action Task Force 

Groupe d'action financière 

 

 

BEST PRACTICES PAPER ON 

TRADE BASED MONEY LAUNDERING 

20 June 2008 
© FATF/OECD 2008 

All rights reserved. No reproduction, copy, transmission or translation of this 

publication may be made without written permission. 

Applications for permission to reproduce all or part of this publication should be made to: 

FATF Secretariat, OECD, 2 rue André Pascal 75775 Paris Cedex 16, France 
BEST PRACTICES PAPER ON TRADE BASED MONEY LAUNDERING 

Money laundering and terrorist financing through the trade system 

Introduction 

1. The Financial Action Task Force (FATF) has recognised misuse of the trade system as one of the 

main methods by which criminal organisations and terrorist financiers move money for the purpose of 

disguising its origins and integrating it into the formal economy. As the anti-money laundering (AML) and 

counter-terrorist financing (CFT) standards that have been applied to other money laundering techniques 

have become increasingly effective, such abuse of the trade system is expected to become increasingly 

attractive. However, currently, many customs agencies, law enforcement agencies, financial intelligence 

units (FIU), tax authorities and banking supervisors (i.e. competent authorities) appear less capable of 

identifying and combating trade-based money laundering than they are in dealing with other forms of 

money laundering and terrorist financing. 

2. The objective of this best practices paper is to improve the ability of competent authorities to 

collect and effectively utilise trade data, both domestically and internationally, for the purpose of detecting 

in a risk-based manner and investigating money laundering (ML) and terrorist financing (TF) through the 

trade system. The FATF will continue to explore vulnerabilities in the trade system, including those related 

to trade finance, with a view to identifying other measures that could be considered in combating illicit use 

of the trade system. 

Statement of the problem 

3. The FATF typologies studies indicate that criminal organisations and terrorist groups are 

exploiting vulnerabilities in the international trade system to move value for illegal purposes. A number of 

specific money laundering cases were identified which involved the proceeds from various types of 

predicate offences to include, but not limited to, illicit trafficking in narcotic drugs, illicit trafficking in 

stolen or other goods, corruption and bribery, fraud, counterfeiting/piracy of products and smuggling. The 

most basic schemes involve fraudulent trade practices such as: over- and under-invoicing of goods and 

services, multiple invoicing of goods and services, over- and under-shipments of goods and services, and 

falsely describing goods and services. More complicated schemes integrate these fraudulent practices into 

a complex web of transactions and movements of goods.1

 Inherent vulnerabilities in the international trade 

system, including the enormous volume of trade flows, which obscures individual transactions, provide 

abundant opportunity for criminal organisations and terrorist groups to transfer value across borders. 

Definitions 

4. For the purposes of this best practices paper, the following definitions apply. 

5. The term trade-based money laundering and terrorist financing (TBML/FT) refers to the process 

of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to 

legitimise their illegal origins or finance their activities. Examples of how TBML/FT may be carried out 

 

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 Some examples may include moving value through the financial system (e.g. using cheques or wire 

transfers), the use of front companies, the physical movement of banknotes (e.g. using cash couriers), and 

concealing bulk cash in cargo. 

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include, but are not limited to: misrepresentation of the price, quantity or quality of imports or exports; and 

money laundering through fictitious trade activities and/or through front companies. 

6. The term trade data refers to whatever information a jurisdiction collects, by paper or 

electronically, on its import-export forms or supporting documentation.2

 For example, such information 

usually includes a description of the goods being imported or exported, their quantity, value, weight, 

customs or tariff code number, the mode of transportation by which the goods are being imported or 

exported, and/or the name and address of the exporter (consignor), importer (consignee), and shipping 

company. In some cases, financial or banking data is also collected. 

7. The term trade authorities refers to the authorities who are responsible for collecting, analysing 

and/or storing trade data. 

8. The term investigative authorities refers to the competent authorities who are responsible for 

investigating money laundering, terrorist financing and/or the underlying predicate offence (e.g. customs 

fraud, smuggling, narcotics trafficking).3

 

9. The term trade finance refers to the financial component of an international trade transaction (i.e.

managing the payment for goods and related services being imported or exported). Trade finance activities 

may involve, among other things, managing payments for open account trading, or issuing letters of credit, 

standby letters of credit and guarantees. 

10. The term trader refers to anyone who facilitates the exchange of goods and related services 

across national borders, international boundaries or territories. This would also include a corporation or 

other business unit organised and operated principally for the purpose of importing or exporting goods and 

services (e.g. import/export companies). 

Capacity building and awareness raising 

11. A review of the current practices of various jurisdictions shows that there is need for a stronger 

focus on training programs for competent authorities to enhance their ability to identify TBML/FT 

techniques. Consequently, a basic principle guiding the establishment of these best practices is that, in 

order to raise awareness and build expertise to combat TBML/FT, countries could agree to incorporate 

TBML/FT into existing training programs on AML/CFT. Such programs could include training to relevant 

law enforcement agencies concerning the existence and relevance of financial and trade data to assist in the 

identification of TBML/FT. Considering the challenges that may face low capacity countries in providing 

the training consistent with this guidance, technical assistance providers could consider incorporating 

TBML/FT into existing technical assistance activities. 

12. Consistent with this basic principle, countries are encouraged to provide training on TBML/FT 

techniques to the staff of trade authorities, investigative authorities, customs agencies, tax authorities, the 

financial intelligence unit, prosecutorial authorities, banking supervisors and any other authorities that the 

country identifies as being relevant to the fight against TBML/FT (e.g. specialised units such as Trade 

Transparency Units). This training may be incorporated into existing training programmes on AML/CFT 

or, where no such programmes are in place, on a stand-alone basis. Countries can leverage existing 

expertise by developing TBML/FT training programmes in collaboration with authorities that already have 

 

2

 The collection, use and sharing of trade data is subject to international agreements agreed between two or 

more countries. 

3. In some cases, customs autorities will not have the responsibility or authority to conduct such 

investigations. 

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related experience (e.g. cases involving customs fraud, VAT fraud-related money laundering, black market 

peso exchanges, tax and excise offences may also involve a TBML/FT component). The participation of 

foreign experts and counterparts in such training is also useful, given the global nature of TBML/FT. 

13. It is best practice in this area to tailor training programmes to meet the specific requirements and 

needs of different authorities. For example, financial and trade data analysis is a useful tool for identifying 

trade anomalies, which may lead to the investigation and prosecution of TBML/FT cases. Consequently, 

training programmes for analytical and investigative authorities could include a focus on the existence and 

relevance of financial and trade data to crime targeting, and techniques for conducting such analysis. Such 

techniques may include: 

a) Comparing domestic and foreign import/export data to detect discrepancies in the Harmonized 

Tariff Schedule, country of origin, manufacturer, importer/exporter, ultimate consignee, broker, 

unit price, commodity activity by time period, and port of import/export. 

b) Analysing financial information collected by the FIU to identify patterns of activity involving the 

importation/exportation of currency, deposits of currency in financial institutions, reports of 

suspicious financial activities, and the identity of parties to these transactions. 

c) Examining cargo movements through the comparison of import/export documentation between 

two counties to verify that the data reported to one country’s authorities matches the data 

reported to the other country’s authorities. 

d) Examining domestic import data with an automated technique, such as Unit Price Analysis, to 

compare the average unit price for a particular commodity and identify traders who are importing 

commodities at a substantially higher or lower price than the world market. 

e) Comparing information such as the origin, description and value of the goods, particulars of the 

consignee and consignor, and the route of shipment with intelligence information in existing 

databases to detect any irregularities, targets or risk indicators. 

f) Using statistical analysis methods, such as linear regression models, on trade data concerning 

individual, non-aggregated imports and exports. 

g) Comparing export information with tax declarations to detect discrepancies. 

h) Paying particular attention to trade transactions that display known red flag indicators of 

TBML/FT activity. 

i) Cross-comparing known typologies of risk (such as those identified in the FATF Typologies 

Report on Trade-based Money Laundering4

) with trade data, information on cross-border 

monetary transfers associated with the payment of goods, intelligence, tax and wealth 

information. 

j) Taking appropriate follow-up action when anomalies and discrepancies in trade and financial 

transactions are identified. Depending on the circumstances, appropriate follow-up action could 

involve asking the trader for further explanation and supporting documents; auditing traders who 

have presented discrepancies to check the volume of their business, regularity of their operations, 

 

4. FATF Typologies Report on Trade-based Money Laundering dated 23 June 2006. 

3 
the kind of goods exported, and connections with organised crime or any other illicit activity; 

and/or making the completed analysis available to the investigative authorities. 

14. Providing services to their customers who are engaging in trade transactions, financial 

institutions also play an important role in the detection of TBML/FT. Consequently, it is best practice to 

include in training programmes for banking supervisors a focus on the importance of evaluating the 

adequacy of a bank’s policies, procedures and processes for handling trade finance activities. Specific 

aspects to cover include: 

a) Assessing the adequacy of a bank’s systems for managing the risks associated with trade finance 

activities, including whether the bank effectively identifies and monitors its trade finance 

portfolio for suspicious or unusual activities, particularly those that pose a higher risk for money 

laundering. 

b) Determining whether a bank’s system for monitoring trade finance activities for suspicious 

activities, and for reporting suspicious activities, is adequate, given the bank’s size, complexity, 

location, and types of customer relationships. 

c) Sample testing trade finance accounts with a view to verifying whether the bank is meeting its 

customer due diligence, record keeping, monitoring and reporting obligations. 

d) Providing AML training to financial institutions’ global trade services departments and 

personnel.5

 

15. Countries are also encouraged to conduct outreach and awareness raising to the private sector 

concerning TBML/FT issues. The issues covered by such outreach could include an explanation of how 

trade finance activities may be vulnerable to abuse by terrorist and other criminals, a description of the 

national measures which have been implemented to counter such activity, information concerning 

TBML/FT typologies (i.e. methods, trends and techniques), red flag indicators and sanitised case studies. 

Financial institutions could be required to cover these same issues in their internal training programs, 

policies and controls. Feedback from the private sector on their experience in handling trade finance and 

implementing measures to combat TBML/FT could also be incorporated into training programmes, as 

appropriate. 

16. To ensure that a sufficiently wide audience benefits from awareness raising and training on 

TBML/FT, countries are encouraged to consider using a combination of delivery methods, such as: 

offering or participating in conferences, seminars, workshops and other events, including those organised 

by the private sector; making presentations; holding inter-agency meetings; developing internet-based 

learning tools (e-learning); publishing guidance; posting information on the websites of competent 

authorities; including relevant information in the annual reports or other publications of competent 

authorities; or sending relevant materials to contacts directly. In the case of financial institutions, such 

materials could be sent to individual institutions directly or through their supervisor. 

Typologies and red flag indicators 

17. Another basic principle guiding the establishment of these best practices is that countries could 

agree to make case studies and red flag indicators identified in the typologies report6

 available to 

competent authorities and financial institutions.

 

5

 . Currently, many financial institutions focus their AML training at the customer level and not at their 

personnel working in their trade services departments. 

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18. Consistent with this basic principle, countries are encouraged to disseminate TBML/FT 

typologies, red flag indicators and sanitised case studies (particularly those identified in the FATF 

Typologies Report on Trade-based Money Laundering) to financial institutions and all competent 

authorities which the country has identified as being relevant to the fight against TBML/FT. Training 

programmes for both competent authorities and financial institutions could also include such information. 

Additionally, financial institutions could be encouraged to include these materials in their internal guidance 

and training manuals, and to keep their employees informed of developments in the area of TBML/FT. 

19. Since TBML/FT has received relatively little attention from policy makers to date, it is important 

to continue increasing the pool of knowledge in this area. Consequently, countries are encouraged to 

conduct further study of TBML/FT at the national and regional level. Mechanisms for further study 

include: periodic joint meetings of relevant domestic authorities (e.g. trade and investigative authorities, 

customs agencies and the FIU) to discuss and share new and emerging TBML/FT trends and patterns; joint 

investigations or collaboration with foreign authorities; and knowledge sharing through the co-ordination 

of and participation in the work of relevant international and regional organisations such as the FATF, 

FATF-style Regional Bodies, Egmont Group, Interpol, Europol, World Trade Organisation (WTO) and the 

World Customs Organisation (WCO). Consultation with the private sector is also encouraged. For 

instance, some financial institutions may be able to contribute trade-specific red flag indicators which have 

been developed in-house for their own trade finance specialists. 

Domestic mechanisms to link the work of relevant authorities 

20. A review of the current practices of various jurisdictions shows that most countries would benefit 

from more effective information sharing among competent authorities at the domestic level, which leads to 

the following basic principle. In order to ensure that the expertise of competent authorities includes a focus 

on combating TBML/FT, jurisdictions could develop a domestic mechanism to link the work of authorities 

responsible for collecting, analysing and storing trade data with authorities responsible for investigating 

money laundering and terrorist financing. 

21. In keeping with this basic principle, it is best practice for countries to first identify where trade 

data and relevant financial information are being stored. For instance, the responsibility of collecting and 

storing trade data may be shared by more than one agency (e.g. a customs agency, a department of 

statistics, a trade ministry, et cetera). Likewise, relevant financial information, including information 

relating to trade finance, may be held by trade authorities, the FIU, and/or the tax authorities. The next step 

is to ensure that there are clear and effective gateways, mechanisms or channels that allow the investigative 

authorities access, directly or indirectly, on a timely basis to trade data and relevant financial information, 

consistent with domestic privacy and data protection laws. 

22. The following are examples of gateways, mechanisms or channels that can be used to facilitate 

information sharing among trade and investigative authorities that can be used in accordance with the 

national legal framework: memoranda of understanding, information sharing agreements, the use of liaison 

officers and the establishment of multi-agency task forces. Another possibility is to establish a specialised 

unit that is designated responsibility for monitoring imports and exports, analysing trade data and 

identifying anomalies with a view to detecting TBML/FT and other illicit activity, and supporting related 

investigations and prosecutions. The Trade Transparency Unit (TTU) concept, as established by some 

countries, is one such model.7

 It is best practice in this area to identify and address practical obstacles to 

 

6

 . FATF Typologies Report on Trade-based Money Laundering dated 23 June 2006. 

7

 TTU staff have experience in conducting financial, money laundering and trade fraud investigations, and 

also have access to a wide range of information, including customs information on cargo movements, trade 

data and financial information collected by the FIU. The location of a TTU would be dependent on where it 

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information sharing. For instance, where relevant information is held by authorities that are not yet an 

integral part of the traditional AML/CFT framework, information sharing gateways, mechanisms or 

channels may need to be established, preferably in conjunction with awareness raising and training in 

TBML/FT issues. Technical impediments, such as incompatible computer systems, could be addressed 

through the development of a single consolidated software platform for sharing information among trade 

and investigative authorities. Legal barriers might be addressed by having the competent authorities enter 

into a memorandum of understanding which covers information exchange. A lack of capacity to respond to 

information requests concerning TBML/FT could be managed by allocating additional resources or 

providing more training. In all cases, however, information exchange could only be conducted in an 

authorised manner and consistent with a country’s domestic privacy and data protection laws. 

23. Countries are encouraged to ensure that the FIU is notified about detections of possible 

TBML/FT, either through a system whereby the FIU is notified about suspicious trade transactions or by 

making the information available to the FIU in some other way. In such cases, the FIU could be authorised 

to obtain from other competent authorities (including the trade authorities, customs agency and 

investigative authorities) and reporting entities (e.g. financial institutions) where appropriate, additional 

information needed to properly undertake its functions. The systematic receipt of electronic funds transfers 

by FIUs may have value in assisting in the identification of TBML/FT. 

Data protection and privacy 

24. It is a basic principle that the collection and exchange of trade data shall only be conducted in an 

authorised manner and consistent with a country’s domestic privacy and data protection laws. 

25. Consistent with this basic principle, countries are encouraged to clearly specify the circumstances 

under which trade data may be disseminated and the legal basis for doing so. This includes clearly 

elaborating any available exemptions to domestic privacy and data protection laws. For instance, in some 

cases, trade data may be released if certain conditions are placed on the use of the information (e.g. the 

information will be used only for the purpose of fulfilling the receiving agency’s functions, or for the 

purpose of investigating money laundering or terrorist financing) or if the receiving agency gives an 

undertaking not to use the information or further disclose it except for authorised purposes. 

26. Where domestic privacy and data protection laws inhibit the dissemination of data at the 

domestic level, countries are encouraged to assess the underlying reasons for a specific protection 

provisions, and balance it against the potential benefits from future use of the data. For instance, pilot 

programmes could be undertaken to study the possible effects of such dissemination (e.g. by concluding 

limited memoranda of understanding between competent authorities). 

27. It is best practice in this area to collect and maintain trade data and other relevant information in a 

national electronic secure database which can only be accessed by the appropriate authorities for the 

purpose of discharging their official duties. Ideally, specialised analytical and data mining software could 

be available to facilitate the analysis of trade data. Countries are also encouraged to use software rules that 

are designed to redact sensitive or identifying information from trade data, so that it can be used for trend 

analysis or information exchanges with other authorities. Sanitising trade data in this way has proven to be 

an effective way of sharing trade data with foreign authorities, without violating domestic privacy and data 

protection laws.8

 

 

would have the most value and be most efficient. Not unlike an FIU, different countries could house their 

respective TTU in different government departments. 

8

 This practice is in use by TTUs to comply with partnering nations’ domestic and privacy protection laws. 

6 
International co-operation 

28. Another basic principle that guides the establishment of these best practices is that, in order to 

facilitate international co-operation in combating TBML/FT, countries could establish clear and effective 

gateways, subject to appropriate controls and safeguards and existing legal frameworks, to facilitate the 

prompt and effective exchange of trade data and other relevant information, on a case-by-case basis or as 

otherwise appropriate, among authorised counterparts. 

29. In line with this basic principle, countries are encouraged to provide the widest possible range of 

mutual legal assistance in TBML/FT investigations and prosecutions. This includes being able to share 

trade data and relevant financial information with other countries through the framework of mutual legal 

assistance in a timely, constructive and effective manner. Countries could also be able to co-operate in 

joint TBML/FT investigations. 

30. It is best practice in this area for countries to be able to share trade data directly with their foreign 

counterparts (i.e. administrative assistance). Clear and effective gateways, mechanisms or channels that 

will facilitate such information exchange could be established. For example, the TTUs of some countries 

share a single database which allows them to manage and match trade data. This mechanism is further 

enhanced by having foreign liaison officers working within the TTU. Another, more common mechanism 

is a memorandum of understanding. Regional or international information exchange platforms may also be 

used to facilitate the exchange of trade data (e.g. the Customs Information System in the European Union 

or the Egmont Group Secure Network of FIUs). Where the sharing of specific trade information with 

foreign counterparts is prohibited, countries are encouraged to share sanitised trade data. Countries may 

also wish to explore other data exchange models based on different levels of statistical aggregation. 

Legitimate trading activities 

31. It is a basic principle that the above measures could be implemented with a view to ensuring that 

legitimate trading activities are not unreasonably hindered or obstructed. 

32. Consistent with this basic principle, countries are encouraged to keep the following 

considerations in mind when implementing measures to combat TBML/FT: competitive neutrality, 

competition and economic efficiencies, the desirability of ensuring that regulatory considerations are 

addressed in a way that does not impose unnecessary financial and administrative burdens on reporting 

entities, and the risk that commercially sensitive information could be misused (i.e. for purposes other than 

combating TBML/FT). 

33. A review of the current practices of various jurisdictions shows that the following measures can 

be implemented without hindering legitimate trading activities: 

(a) Applying an intelligence, risk-based and target-based approach which makes consistent use of 

TBML/FT red flag indicators. 

(b) Using data capture mechanisms such as Electronic Data Interchange (EDI), which is a set of 

standards for standardising the structure of information to be electronically exchanged between 

authorities, from one computer system to another, without human intervention and subject to 

appropriate data protection safeguards. 

(c) Authorising traders that meet certain criteria to benefit from facilitations for customs controls or 

simplifications for customs rules (e.g. Member states of the European Union recognise 

Authorised Economic Operator (AEO) status which is granted to traders that meet the following 

criteria: an appropriate record of customs compliance, satisfactory management systems that 

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allow appropriate customs controls, adequate security and safety standards, and proven 

solvency). 

(d) Utilising the trade data that is gathered automatically from customs declaration forms thereby 

avoiding any extra burden for the traders who are involved in legitimate trade. 

(e) Conducting non-intrusive inspections of goods being imported and exported using scanners. 

(f) Having authorising domestic authorities (e.g. customs, FIU) share information either upon 

specific request or spontaneously. 

(g) Providing information to foreign authorities and placing conditions on the use of such 

information. 

(h) Establishing a Trade Transparency Unit to facilitate the sharing and analysis of import/export 

data. Because the system does not rely on real-time trade information to target data (the system 

uses historic data to identify anomalies that are indicative of TBML/FT), legitimate trading 

activities are not unreasonably hindered.