**Global trade hubs**: The introduction of sweeping new tariffs by the US and retaliatory measures has sharply increased trade-based money laundering risks. Banks face a narrow window to strengthen monitoring systems against sophisticated laundering schemes involving invoice manipulation, rerouted shipping, and complex trade transactions before tariffs take effect in July 2025.
Trade-based money laundering (TBML) is emerging as a critical, yet historically overlooked, risk in the financial crime landscape, especially in light of recent global trade developments. While cyber fraud and cryptocurrency-related scams have commanded significant attention and compliance resources, TBML—where illicit funds are concealed through the manipulation of trade transactions—has remained relatively underprioritised. The Financial Action Task Force (FATF) has reflected this imbalance, issuing over fifteen substantive reports on cyber threats since 2012 but only two focused on TBML, with the most recent in 2023.
This year, the announcement in April 2025 of sweeping new tariffs by the United States, followed by retaliatory measures from major trading partners across Asia and Europe, has sharply heightened the risk of TBML. Banks on both sides of the Atlantic face a narrow 90-day window to review and revise their trade-based risk monitoring systems before the onset of these tariff regimes, which threatens to turbocharge illicit financial flows disguised as legitimate trade.
Many financial institutions are reportedly scrambling, acknowledging that their existing TBML controls, often designed as checklist exercises primarily targeting sanctions compliance or dual-use goods, are ill-equipped to detect sophisticated TBML schemes. Such schemes commonly involve subtle manipulations like invoice mispricing, fabrication of shipping documents, or diversion of goods through unusual transshipment routes.
Historical precedents underline the challenges ahead. During the U.S.–China trade tensions in the Trump administration years, smugglers rerouted Chinese goods via third countries, affixing ‘Made in Malaysia’ or ‘Made in Vietnam’ labels to evade tariffs. Investigations in 2022 by U.S. Customs and Border Protection (CBP) uncovered such practices involving transshipment of cabinetry through Malaysia and Vietnam by Qingdao Haiyan Group and BGI Group, respectively. Notably, these cases were detected only after complaints from importers rather than proactive financial institution surveillance.
In Europe, following sanctions imposed on Russia in 2022–2023, there was a dramatic surge in trade through Central Asia. German exports of cars and vehicle parts to Kyrgyzstan increased by 5,500% in 2023, with similarly significant rises to Kazakhstan, Armenia, and Georgia. Nearly all payment settlements for these trades were made in euros via major European banks, which did not intervene despite the heightened risks.
According to a report from Global Financial Integrity, trade misinvoicing is responsible for up to 80% of illicit financial outflows from developing countries, making it a primary driver of illicit flows worldwide. Under the new tariffs expected to take effect by July 2025, exporters subjected to these duties have strong incentives to understate invoice values or misclassify goods to minimise customs payments. Typical techniques include labelling high-end electronics as low-value “spare parts” or under-declaring container contents. Such under-invoicing generates unaccounted funds abroad that may be diverted into offshore accounts or illicit activities, effectively laundering money under the guise of legitimate commerce.
Conversely, importers face increased risks from trade rerouting, where goods traditionally shipped via direct routes are now moved through multiple jurisdictions— for example, Shanghai to Kuala Lumpur, then Dubai, before reaching New York. These complex routes offer multiple opportunities for money laundering through schemes like multiple invoicing of a single shipment, fictitious freight charges, or the use of shell intermediaries without operational substance to generate false invoices.
Financial institutions are urged to intensify public-private cooperation between banks and customs authorities to enhance detection efforts. Information sharing and joint risk assessments across financial and logistical domains are seen as critical to counteracting these sophisticated laundering methods.
Criminal networks are adapting classic TBML strategies, including over-invoicing exports from high-tariff countries to low-tariff jurisdictions, disguising capital flight as payment for goods. For instance, a company may artificially inflate payments for raw materials from a third country, masking illicit money movements. These techniques, though established, are gaining renewed momentum with increased tariff pressures, driving organised crime groups to focus on tariff arbitrage commodities for laundering.
The evolving landscape demands a shift in banking compliance philosophy—from the AML focus on “effectiveness” of controls to “responsiveness,” meaning agility in adjusting controls to new and specific TBML threats without awaiting explicit regulatory guidance. Global financial institutions, particularly those involved in correspondent banking, must monitor payment flows for unusual regional spikes or the emergence of new transit hubs and refine their methodologies to track complex transactions across multiple jurisdictions.
Banks are encouraged to update customer due diligence processes to detect shifts in supply chains and new trade corridors, alongside stricter scrutiny of trade documentation and pricing. Correspondent banking KYC and customer due diligence questionnaires, including those developed by the Wolfsberg Group, should explicitly incorporate emerging TBML risks.
Internal collaboration within banks between AML, sanctions, and trade finance departments is becoming essential for an effective response to evolving trade-based risks. Compliance efforts must integrate intelligence from geopolitical and trade developments to adequately manage TBML exposures.
The next few months represent a narrow but crucial window for banks to adapt their TBML risk frameworks in response to the forthcoming tariff regimes. Proactive institutions will be positioned to mitigate regulatory and reputational risks amid increased scrutiny of trade-based money laundering in 2025.
The Money Laundering Bulletin is reporting on the significant challenges and strategic imperatives posed by the intersection of global trade disruptions and financial crime risks related to TBML.
Source: Noah Wire Services
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