By Peter Skinner, Dan Boyle, Sophie Roytblat, and Naomi Hardin
Introduction
Trade-based money laundering (TBML) uses the transportation of goods to launder money (i.e., to conceal where the money originated from and is going). Since a significant amount of trade moves in international commerce, TBML schemes are also useful to transfer funds from one jurisdiction to another, from one currency to another and from the illicit financial system (typically cash-based and unreported) into the legitimate financial system (based on electronic transfers and subject to reporting requirements), all without detection by government authorities.
Although it is difficult to estimate the precise scale of global TBML schemes, it is safe to say they are vast. In August 2023, the US Department of Homeland Security’s Office of Inspector General observed that in 2021, the value of goods exported globally was approximately US$22.3 trillion, and the United States alone imported goods valued at US$2.8 trillion. The Office of Inspector General concluded that ‘[t]his volume of trade provides criminal organizations ample opportunity to launder an estimated $1.6 trillion across the world every year’.
It is likewise difficult to determine whether the volume of money laundered through TBML schemes is increasing or decreasing. This is not surprising given the illicit nature of the schemes; however, it is reasonable to assume that it is increasing. The Bank Secrecy Act (BSA) imposed responsibility for surveillance of financial transactions for money laundering risk on the private sector. Financial institutions have responded by spending billions annually on sophisticated monitoring systems to comply with their expansive reporting obligations. As those systems have matured in the 50 years of the BSA’s existence, no comparable system has been put in place for trade – and it is safe to assume that significant money laundering activity has moved into that void.
Going forward, there is expected to be an increased US-based regulatory and prosecutorial focus on TBML schemes. Anti-money laundering enforcement has been an area of federal and local focus for years. Under the new administration in Washington, DC, it is clear TBML schemes will continue to be an enforcement priority.
The White House and the Department of Justice (DOJ) have both issued policy statements making clear that they are focused on cartels and transnational criminal organisations. For example, on 5 February 2025, Attorney General (AG) Pam Bondi issued a memo calling for the revision of enforcement strategies to pursue the total elimination of cartels and transnational criminal organisations. As part of this revision, AG Bondi, in another memo issued the same day, directed the Foreign Corrupt Practices Act units in the DOJ’s Fraud Section to focus on foreign bribery that facilitates the criminal operations of cartels and transnational criminal organisations (TCO) and ‘to shift focus away from investigations and cases that do not involve such a connection’.
While prosecutors sort out what investigations are outside the DOJ’s enforcement priorities, it is clear that money laundering by cartels and TCOs remains fair game. As an obvious ‘safe’ area for investigations going forward, even more scrutiny is expected on money laundering schemes and on TBML schemes in particular.
This article explains what TBML schemes are and how those schemes are investigated and prosecuted. It also identifies recent TBML enforcement trends and examples. Finally, the article outlines guidance for addressing the risk TBML schemes pose to legitimate business operations.
Background on trade-based money laundering
Definition
As the Financial Action Task Force explains:
There are three 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. The first is through the use of the financial system; the second involves the physical movement of money (e.g. through the use of cash couriers); and the third is through the physical movement of goods through the trade system.
TBML is the last of these money laundering methodologies, using the movement of goods through trade to launder money.
TBML is defined as ‘the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins’. It can also be used to the transfer legitimate funds to support terrorism and other sanctioned activities.
The transfer of value typically comes through the use of the funds to buy and sell goods that are shipped in commerce. Basic schemes include ‘misrepresenting the price and quantity of goods and services (over and under invoicing), and invoicing the same goods or services more than once (double invoicing)’. More complex schemes, such as the Black Market Peso Exchange (BMPE), involve the use of professional money launderers who often combine money laundering methods by using proceeds that have already been integrated into the financial system to purchase goods that are then shipped in global commerce to transfer the value of those proceeds from one jurisdiction to another and from one currency to another.
Examples of TBML schemes
False reporting on import and export documents
Over- and under-invoicing of goods shipped through international commerce is one of the most common forms of TBML. The scheme requires collusion between the exporter and the importer to transfer value between one and the other. The key element is the misrepresentation of the price of the goods being shipped.
In an under-invoicing scheme, the exporter falsely under-reports the market value of the goods being shipped on invoices and shipping documentation. For example, the exporter ships US$1 million-worth of electronics but reports the value of the goods as US$500,000. The importer then sells the goods at market value, pays the exporter US$500,000 and takes for itself the difference between the under-reported price on the documentation and the actual US$1 million sale price (in this example, US$500,000). That money is now present in the importer’s jurisdiction, part of the legitimate financial system, and can be used for further laundering purposes. Both the exporter and the importer, which are often ultimately controlled by the same entity, support the scheme with falsified books and records.
The value moves the other way in an over-invoicing scheme; the exporter over-reports the value of the goods being shipped. For example, the exporter ships US$500,000-worth of electronics but reports the value of the goods as US$1 million on invoices and shipping documentation. The importer then sells the goods for US$500,000 but pays the exporter US$1 million, transferring US$500,000 in additional value to the exporter’s jurisdiction. Again, both the exporter and the importer collude on the falsification of documents to support the scheme.
In addition to transferring value between different jurisdictions, which is the key component of a scheme from a money laundering perspective, inflating and deflating the value of goods also carries significant tax implications. An exporter that overvalues goods can increase the VAT rebate it receives. An importer that undervalues goods can decrease customs duties that may be owed.
Over- and under-shipment
Colluding exporters and importers can also falsify the number of items being shipped, in addition to or instead of falsifying the price. In some instances, there may be ‘phantom shipments’ in which the importer and exporter collude to process shipping and customs documents but do not actually transport goods in commerce. In these extreme examples, the falsified customs documents are typically used to satisfy ‘know your customer’ questions by financial institutions or to fraudulently induce financial institutions to provide trade financing.
Falsely described goods and services
Another permutation of a TBML scheme is when the money launderer falsely describes goods being shipped internationally. For example, the importer and exporter falsely claim to be shipping higher or lower value items than what are actually shipped to transfer value in one direction or another, as with over- and under-invoicing schemes.
BMPE and supply chain infiltration
The BMPE is a TBML scheme that was developed by Latin American narcotics traffickers to filter cash narcotics proceeds through legitimate businesses to conceal the origins of the cash, insert it into the legitimate banking system and transfer the value of the proceeds from the United States to Latin America.
Under the BMPE, drug traffickers in Latin America ship drugs to the United States, where they are sold for US dollars. The Latin American drug traffickers then sell the dollars for pesos to money exchangers, or peso brokers, for less than the dollars are worth on the legitimate currency exchange markets. The peso brokers sell the dollars to Latin American businesspeople for pesos and then arrange to have the resulting ‘narco dollars’ delivered to US businesspeople as payment for goods. The goods are then shipped to the Latin American businesspeople, who sell the goods to generate pesos, which are used to purchase more dollars from the peso brokers, and the process is repeated.
In the BMPE, the cash narco dollars located in the United States are typically introduced into the legitimate financial system in one of two ways:
- Method one: if the US business from which the goods are purchased is complicit in the scheme and willing to accept cash as payment for the goods, bulk cash deliveries are made to that business, and the business then deposits the money in its own bank account. The origin of the cash is typically falsified in the business’s records to make it appear that it was provided directly from the Latin American business that is buying the goods to be shipped from the United States.
- Method two: a peso broker arranges to have the cash deposited with financial institutions, often through coordinated deposits of less than US$10,000 that are designed to evade currency transaction reporting requirements – a process also known as ‘smurfing’. Wire transfers are then made from these accounts to pay the US business for the goods to be shipped to Latin America.
Prosecution and regulation of TBML schemes
Criminal statutes
Federal prosecutions for TBML are most often based on alleged violations of the general-purpose money laundering statutes: US Code (USC), Title 18, Sections 1956 and 1957 (Section 1956 and Section 1957, respectively). These are the principal criminal money laundering laws of the United States and can result in serious penalties for companies or individuals who knowingly engage in financial transactions involving the proceeds of unlawful activity, which may include TBML schemes. These statutes reach parties that are directly involved in the underlying criminal activity, as well as parties that simply transact in criminal proceeds with the required mental state. Through the aiding and abetting statute, these laws also reach those who assist others in committing such a violation.
To prove a violation of Section 1956, the government must generally prove four elements:
- the defendant conducted a financial transaction;
- the transaction involved the proceeds of ‘specified unlawful activity’ (as defined by the same statute);
- the defendant knew that the property involved in the financial transaction represented the proceeds of some form of unlawful activity; and
- the defendant acted with any of four enumerated intents.
As is particularly relevant for TBML purposes, persons or companies can, in some instances, violate Section 1956 even if their transactions do not actually include tainted proceeds; under Section 1956(a)(2)(A), parties can violate the law by conducting cross-border transactions in untainted funds when done ‘with the intent to promote the carrying on of specified unlawful activity’. For example, a domestic company that sends funds abroad, knowing that those funds will purchase goods that are part of a TBML scheme, may face prosecution regardless of the origin of the funds.
Section 1957, often referred to as the ‘spending statute’, criminalises knowingly transacting in criminal proceeds, even where a party had no intent to further any money laundering scheme. A prosecution under Section 1957 requires the following:
- the defendant had knowledge that the transaction involved the proceeds of specified unlawful activity;
- the transaction involved a financial institution; and
- the property is worth at least US$10,000.
While Sections 1956 and 1957 are the most common statutes used by the DOJ to prosecute TBML, the DOJ also works in conjunction with the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury (the Treasury) to enforce the BSA. In addition to a range of civil penalties and forfeiture authority, the BSA provides for criminal penalties for certain financial institutions that fail to have effective anti-money laundering (AML) programmes or fail to make required reports of suspicious financial activity.
The DOJ can also prosecute individuals or companies operating an ‘unlicensed money transmitting business’, which may include those that simply lack a required state’s licence and those that ‘otherwise involv[e] the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity’.
Civil statutes
In addition to these criminal penalties, the little-used but powerful tool of civil money laundering enforcement actions can be used to combat TBML schemes. Section 1956(b) provides for a civil penalty for violations of the money laundering statutes, in amounts up to the value of the laundering transactions. Somewhat surprisingly, however, the DOJ rarely seeks to impose civil penalties under this provision.
Most commonly, the DOJ relies on civil forfeiture to combat TBML, in one of two forms: judicial or administrative. It can seek civil judicial forfeiture under USC Title 18, Section 981 for property ‘involved in’ a violation of Section 1956 or 1957 or other specified unlawful activity traceable to the property.
Although a civil forfeiture action similarly requires proof of specified unlawful activity and a nexus between that activity and the property at issue, the government faces a lower burden of proof in the forfeiture context; the government may seize property with probable cause that the property was involved in specified unlawful activity and must ultimately prove that the property is subject to forfeiture by a preponderance of evidence. Moreover, because civil forfeiture cases are in rem actions, the government need not prove that any specific defendant committed a crime.
Federal authorities also rely on administrative forfeiture for TBML violations. While the statutory authority changes on an agency-by-agency basis, in general, agencies with appropriate authority can seize property during an investigation (either pursuant to a finding of probable cause or subject to an exception to the warrant requirement) and if – after providing notice to all known potential claimants under USC Title 18, Section 983(a)(1)(A) – no one claims the property, then it is administratively forfeited to the government. Such forfeitures occur across the government on a daily basis, either because the property seized has minimal value or because the entity it was seized from has no interest in claiming the property in court.
Agencies
The DOJ is the lead federal agency for the prosecution of money laundering schemes, including TBMLs. It cooperates with law enforcement agencies such as the Federal Bureau of Investigation, the Drug Enforcement Agency, the Treasury’s Office of Foreign Assets Control, the Department of Homeland Security, Customs and Border Protection and the Internal Revenue Service to detect, investigate and enforce TBML-related laws and regulations against not only those bad actors central to TBML.
State and local authorities, while traditionally less focused on TBML prosecutions than federal authorities, are becoming increasingly focused on money laundering prosecutions. For example, New York’s Department of Financial Services, with jurisdiction over New York-chartered financial institutions, has demonstrated a greater emphasis on investigating and prosecuting institutions found to have insufficient money laundering controls, including those that fail to detect TBML schemes.
Trade-based terrorist financing
Use of legitimate funds to facilitate terrorist financing
TBML is not limited to criminals laundering the proceeds of crime; it has also become a key mechanism for funnelling legitimate funds to designated terrorist organisations.
It is a crime to provide money to persons or organisations the US president has designated as foreign terrorist organisations (FTOs). Once so-designated, US persons and entities are prohibited from transacting with FTOs, and it becomes a federal crime to provide material support to FTOs. The term ‘material support’ encompasses diverse forms of assistance, including financial services, trade goods and training. To avoid detection and prosecution, those seeking to provide financial support to FTOs have turned to TBML schemes to transfer value to FTOs.
As with TBML generally, the use of TBML by terror groups is often seen in fraudulent invoicing, manipulation of shipping documents or misrepresentation of goods to hide their true origin or destination. Recent enforcement actions by the DOJ provide insight into how TBML interacts with efforts to combat terrorist financing.
In March 2025, the DOJ filed a civil forfeiture action against approximately US$47 million of alleged proceeds from the sale of nearly 1 million barrels of sanctioned Iranian petroleum products. As charged, these funds were intended to benefit the Iranian Revolutionary Guards Corps (IRGC), a designated FTO. In its complaint, the DOJ detailed how the IRGC used front companies and false invoices to create the appearance that the petroleum products were of Malaysian origin and hid the true nature of these products from port operators and customs officials.
As another example of the recent focus on terrorist financing, on 1 April 2025, FinCEN issued an alert regarding fundraising by the Islamic State of Iraq and Syria (ISIS), a drug trafficking organisation (DTO) and specially designated global terrorist (SDGT), and its affiliate ISIS-K, detailing how the terror groups have adapted to use fundraising methods, including TBML, to raise funds for their operations. FinCEN’s alert noted that ISIS and its affiliates rely heavily on ‘registered and unlicensed [money service businesses], especially hawalas’ and that these hawalas ‘arrange for transfer and receipt of funds or equivalent value and settle through trade, cash, and net settlement over a long period of time’.
Much like with money laundering violations, the DOJ also relies on civil forfeiture authority to seize TBML proceeds that may support a DTO or SDGT. The government can seize and forfeit all assets that are ‘derived from, involved in, or used or intended to be used to commit any Federal crime of terrorism (as defined in section 2332b(g)(5)) against the United States, citizens or residents of the United States, or their property’. This authority is notably broader than forfeiture for money laundering in general, reaching ‘[a]ll assets, foreign or domestic’ of the person or entity supporting a DTO or SDGT, rather than only those ‘involved in’ the specific TBML scheme.
Impact of cartel designations
In February 2025, the Secretary of State designated several TCOs and narcotics cartels as DTOs, thereby expanding – beyond the traditional money laundering statutes – the scope of statutes that can be used to combat those organisations’ use of TBML schemes.
As evidence of this, on 31 March 2025, the Treasury sanctioned six individuals and seven entities for their involvement in a money laundering network that supports the Sinaloa Cartel, a recently designated DTO and SDGT. The Treasury specifically noted that the sanctions imposed against the Sinaloa Cartel’s financiers were based on their roles in financing a DTO and that the methods used by these launderers included BMPEs.
Concurrent with these sanctions, FinCEN issued an alert on the same day, noting numerous money laundering schemes used by the newly designated TCOs, including the increasing use of cartel funds ‘to purchase goods, such as clothing, electronics, or produce, in the United States or other countries that will be resold in Mexico or elsewhere as part of a trade-based money laundering scheme to further launder the funds’.
Recent criminal and regulatory actions and trends
Recent enforcement actions confirm the government’s broader commitment to disrupting global financial crime by targeting complex trade schemes that exploit international commerce to mask illegal activity.
For instance, in recent years, the DOJ has pursued investigations involving the misuse of legitimate trade systems, particularly the export of motor vehicles, to funnel illicit funds across borders. In July 2023, four US residents were charged with laundering funds from various fraud schemes during the covid-19 pandemic – including romance scams, pandemic relief unemployment insurance fraud and business email compromise – by purchasing cars they subsequently shipped to Nigeria. After receiving the illicit proceeds, the defendants and their co-conspirators conducted hundreds of transactions with the funds, including by obtaining cashier’s checks and money orders, and used those financial instruments to purchase used cars that were shipped overseas to Nigeria.
In May 2023, a defendant pleaded guilty to a single-count indictment alleging conspiracy to commit money laundering, as part of an international TBML scheme. The defendant’s primary role was to receive funds from victims of scammers who had been lured into various online frauds. Some victims believed that they were sending money to support an online romantic partner who falsely stated they needed to pay taxes and fees to release an inheritance, while others believed they were sending money to ship gold bars in which they had an interest to the United States. Once the defendant received the fraudulently obtained monies, he kept a fee for himself and then transferred the funds via TBML or other means to Ghana through the purchase of motor vehicles.
Another significant area of development has been the role of Chinese trade networks in laundering drug proceeds, particularly from fentanyl and methamphetamine sales in the United States. In one of the most significant TBML cases in recent years, the DOJ, in collaboration with the Drug Enforcement Administration and Homeland Security Investigations, unmasked a sophisticated financial network that laundered millions in drug trafficking proceeds through trade transactions involving China and Mexico. At the heart of what is known as ‘Operation Fortune Runner’ was a collaboration between Mexican drug cartels and Chinese underground money brokers who facilitated the movement of funds using both informal value transfer systems and legitimate trade routes. The June 2024 indictment alleges that over US$50 million in drug money flowed between the Sinaloa Cartel and Chinese underground money exchanges. The underground money exchanges allowed the cartel to use the high demand rate of US dollars among Chinese citizens who use black market channels to transfer cash out of China, where the annual transfer is restricted to US$50,000.
According to the indictment, couriers collected cash received from the sale of fentanyl, mainly in southern California. Someone seeking to make a large transfer in China would contact a broker in California. The broker would then arrange for drug proceeds to be delivered to the Chinese national’s representative in the United States. At the broker’s direction, the Chinese national would transfer money to a manufacturer in China that produced consumer goods (e.g., electronics and clothing) or chemicals used to make synthetic drugs. The consumer goods would be shipped to Mexico, where they were sold and the money turned over to a cartel representative, returning the value of the drug dollars purchased by the Chinese national to the cartel in pesos. The chemicals would be used to produce drugs, such as fentanyl, in Mexico for sale in the United States, thereby perpetuating the drug distribution and money laundering cycle.
In late 2024 and 2025, two defendants were sentenced for their part in a scheme to launder hundreds of thousands of dollars internationally. The defendants, who resided in Chicago, travelled throughout the United States collecting drug proceeds. They then laundered those proceeds through concealed financial transactions – using bank accounts in the United States, China and Mexico – and used those accounts to purchase electronics in bulk from stores in the United States and to ship those goods to co-conspirators in China. One defendant admitted that the ‘trade-based money laundering scheme . . . avoided the need for international wire transfers of funds which could raise flags at financial institutions’.
Recommendations
TBML risk is widespread and not always apparent from the face of a transaction. The best protection for businesses operating in cross-border transactions is adopting and maintaining a robust compliance programme designed to detect, investigate and weigh red flags of TBML and related suspicious activities to ensure compliance with applicable laws and regulations. A commitment to due diligence is crucial to assess and mitigate risks associated with international trade transactions and to identify red flags that suggest a transaction may implicate TBML.
Some of the best practices to avoid the risks of involvement in TBML or other illicit activities include the following:
- Businesses, particularly those involved in cross-border trade, must verify the legal existence, identity and credibility of business counterparties, including the buyer, seller and any intermediaries involved. At a minimum, this involves the collection of corporate information, including company details, financial statements, legal documentation and public records. Any review should include screening counterparties for sanctions-related risks, which mitigates both TBML and associated sanctions and terrorist financing risks.
- Even for a verified business counterparty, businesses must review the terms and conditions of each transaction, including the contract, purchase orders, invoices, shipping documents and payment terms. This includes verifying the accuracy and consistency of the information provided. Attention should be focused not only to the existence of proper documentation, but to the business justification and sensibility of transactions. Even if properly documented, a transaction that simply lacks economic logic is a significant red flag, and proceeding in the face of that information can expose a business to substantial risks. These checks often require understanding the industry and market for the trade transaction by, for example, analysing market conditions and the competitive landscape. Money launderers often target new market participants or businesses outside their core market, hoping that counterparties unfamiliar with market nuances will miss red flags for TBML.
- Financial institutions’ BSA compliance programmes should incorporate an analysis of TBML risk, in particular any industry-specific risks, and any country-specific risks based on where business counterparties may operate. A business with a deficient AML programme that finds itself unwittingly involved in a TBML scheme is likely to face harsher sanctions than one with a BSA-compliant AML programme.
In the TBML context, dealers in precious metals, pawnbrokers and asset-based lenders should pay particular attention to compliance risks. These institutions are key targets for criminals involved in TBML and are subject to heightened reporting and record-keeping requirements under the BSA. - The recent designation of certain drug cartels and TCOs as DTOs and SDGTs significantly heightens the risks for institutions doing business in regions where these organisations operate because conducting business with these entities, even without the knowledge needed to impose money laundering liability, raises the risk of aiding and abetting liability under the terrorism statutes.
This article was first published on Global Investigations Review in May 2025; for further in-depth analysis, please visit GIR Americas Investigations Review 2025.