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. The Financial Action Task Force (FATF), an intergovernmental standard-setting body on anti-money laundering and combating the financing of terrorism (AML/CFT), has defined TBML as the process of disguising proceeds of crime and moving value through trade transactions to legitimize their illicit origin. This process varies in complexity, but typically involves the misrepresentation of the price, quantity, or quality of imports or exports. When used by terrorist groups to finance their activities, move money, or otherwise disguise the source and beneficiaries of their funds, TBML schemes are sometimes referred to as TBML/FT. 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). In June 2015, the U.S. Department of the Treasury issued two reports related to money laundering: a National Money Laundering Risk Assessment and a National Terrorist Financing Risk Assessment . The National Money Laundering Risk Assessment identified TBML as among the most challenging and pernicious forms of money laundering to investigate. Citing information from U.S. Immigration and Customs Enforcement (ICE), Treasury described TBML schemes as capable of laundering billions of dollars annually. A February 2010 advisory on TBML, issued by the Treasury Department's Financial Crimes Enforcement Network (FinCEN), stated that more than 17,000 Suspicious Activity Reports (SARs) described potential TBML activity between January 2004 and May 2009, which involved transactions totaling in the aggregate more than $276 billion. In addition to TBML, criminal organizations and terrorist financiers use the international financial system itself and the physical movement of cash through couriers to disguise their activities. In particular, criminal organizations and terrorist financiers take advantage of the size and complexity of the international trade and finance system to obscure individual transactions through (1) the complexities involved with multiple foreign exchange transactions and diverse trade financing arrangements; (2) the co-mingling of legitimate and illicit funds; and (3) the limited resources that most customs agencies have available to detect suspicious trade transactions. In addition, money launderers have exploited vulnerabilities in the use of letters of credit and other financial arrangements that are necessary for facilitating cross-border trade to launder funds. According to FATF, TBML techniques "vary in complexity and are frequently used in combination with other money laundering techniques to further obscure the money trail." In most cases, TBML activities comprise efforts to misrepresent the price, quality, or quantity of goods as they transit across borders or through supply chains. The basic TBML techniques include the following: Over - and u nder-invoicing of g oods and s ervices . According to the FATF, money laundering through over- and under-invoicing goods and services is one of the most commonly used methods for laundering funds across borders. By invoicing a good or service below market value, an exporter can shift funds to the importer because the payment to the exporter is less than the value that the importer receives when the goods are sold at market value. Similarly, by invoicing a good or service at a price higher than market value, the exporter transfers value from the importer because the payment to the exporter is greater than the value the importer receives when the goods or services are sold at market value. These types of transactions generally require collusion by both parties and can have significant tax implications. Also, complex products and products that travel through supply chains are more apt to be used in these types of over- and under-invoicing activities because they complicate the ability of customs officials to determine the true market value of such goods and services. Multiple invoicing of g oods and s ervices . By providing multiple invoices for the same transaction, a money launderer or terrorist financier can justify multiple payments for the same goods or services. In addition, by using a number of financial institutions to make these multiple payments, a money launderer or terrorist financier can increase the level of complexity of the transaction and complicate efforts at detection. If the transaction is detected, a launderer can offer a number of plausible explanations that compound efforts by officials to detect the activities. Over- and u nder-shipments of g oods and s ervices . In addition to manipulating the prices of goods and services, a money launderer can misstate the quantity of goods and services that are exported or imported. In the extreme, exporters and importers can collude in not shipping any goods at all but proceed with processing the necessary shipping and customs documents. Banks and other financial institutions may be unaware that these "phantom" transactions are occurring. Falsely d escribed g oods and s ervices . Money launderers also can misstate the quality or the type of a good or service that is being traded. Such a misstatement creates a discrepancy between the value of a good that is stated on the shipment or customs forms and what is actually shipped. 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). BMPE emerged as a major money-laundering method when Colombian drug traffickers used sophisticated trade-based schemes to disguise as much as $4 billion in annual narcotics profits in the 1980s. For further illustration, see Text Box below. 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. Considering the volume of global trade and the value of such transactions, however, TBML's effects can result in substantial consequences for international commerce and government revenue. The National Money Laundering Risk Assessment concludes that TBML can have a more destructive impact on legitimate commerce than other money laundering schemes. According to ICE HSI [Homeland Security Investigations], transnational criminal organizations may dump imported goods purchased with illicit proceeds at a discount into a market just to expedite the money laundering process. The below-market pricing is a cost of doing business for the money launderer, but it puts legitimate businesses at a competitive disadvantage. This activity can create a barrier to entrepreneurship, crowding out legitimate economic activity. TBML also robs governments of tax revenue due to the sale of underpriced goods, and reduced duties collected on undervalued imports and fraudulent cargo manifests. The global trends that facilitated a quadrupling of global trade over the past quarter century, measured at $16.4 trillion in 2015, are also being used by drug smugglers and other criminal organizations to hide the gains of illegal or illicit activities. In particular, advances in communications and lower transportation costs, combined with the digital revolution, global value chains, and greater urbanization, have produced more interconnected economies and societies that link together national economies and create vast new market opportunities. Reportedly, organized crime has followed these trends and expanded its activities into new markets. According to a research report by the Organization for Economic Cooperation and Development (OECD), these global markets offer criminal organizations new markets to reduce their overall risks by diversifying into profitable activities with low probability of being detected. According to the OECD's report, "Illicit trade needs to be presented within the context of global market trends.... Criminal groups adopted new types of activity and trade to overcome the challenge of connecting production to distant consumers. These new synergies created economies of scale and other efficiencies common to legitimate trade, and the opportunity to diversify into new illicit markets." The OECD further concluded that such illegal trade and the attendant financial flows not only present a challenge for law enforcement but also potentially could have wide-ranging economic and development consequences, particularly as illegal transfers of money and capital out of developing countries may result in reductions of domestic expenditure and investment. The potential is vast for criminal organizations and terrorist groups to exploit the international trade system with relatively low risk of detection. According to FATF, key characteristics of the international trade system have made it both attractive and vulnerable to illicit exploitation. According to FATF, vulnerabilities include the following: "The enormous volume of trade flows, which obscures individual transactions and provides abundant opportunity for criminal organizations to transfer value across borders; The complexity associated with (often multiple) foreign exchange transactions and recourse to diverse financing arrangements; The additional complexity that can arise from the practice of comingling illicit funds with the cash flows of legitimate business; The limited recourse to verification procedures or programs to exchange customs data between countries; and The limited resources that most customs agencies have available to detect illegal trade transactions." According to FinCEN, TBML activity is growing in both volume and global reach. In an analysis of SARs between January 2004 and May 2009, TBML activity was most frequently identified in transactions involving Mexico and China. Panama was ranked third, potentially due to TBML activity linked to the Panama Colon Free Trade Zone, whereas the Dominican Republic and Venezuela were identified as "countries with the most rapid growth in potential TBML activity." According to the U.S. Department of State's 2016 annual report on money laundering and financial crimes, TBML concerns have surfaced in countries or jurisdictions including Afghanistan, Australia, Belize, Brazil, Cambodia, Canada, China, Colombia, Greece, Guatemala, Hong Kong, India, Iran, Iraq, Japan, Kenya, Lebanon, Mexico, Pakistan, Panama, Paraguay, the Philippines, Singapore, Saint Maarten, Switzerland, Taiwan, the United Arab Emirates (UAE), Uruguay, Venezuela, and the West Bank and Gaza.