Trade-Based Transaction Manipulation

Trade-Based Transaction Manipulation: Key Learnings in Brief

What is Trade-Based Transaction Manipulation?

Trade-Based Transaction Manipulation (TBTM), also referred to as trade manipulation, fraudulent trade structuring or illicit trade value distortion, is the intentional alteration of goods, values and shipment terms in international trade to illegally transfer value.

Trade-Based Money Laundering is the end goal of a criminal, and Trade-Based Transaction Manipulation is the Method. Every TBTM does not result in TBML, as objectives might differ.

The modifications buried in Trade-Based Transaction Manipulation provide criminals the opportunity to transfer funds across borders as if they are legitimate trade, while obscuring the illicit origins.

Regulated entities, including banks, financial institutions, and DNFBPs, put several controls in place to mitigate the risks of trade-based transaction manipulation and then analyse and assess the impact of such controls on TBML and other financial crimes.

Methods of Trade-Based Market Manipulation

Over or Under-Invoicing: Individuals alter the prices and quantities of products on invoices in order to move value or disguise illegitimate proceeds as part of legitimate trade documents.
Multiple Re-Invoicing: Requests for payment may occur multiple times for the same shipment by using various entities, usually involving fictitious service or administrative costs that obscure the audit trail and the origin of funds.
Phantom Shipping: Fictitious shipping documents and customs paperwork are created for goods that are never shipped, facilitating the movement of value without products.
Blending Illicit Cargo with Legitimate Shipments: Illegal products may be mixed with legal shipments to disguise their nature and evade customs scrutiny.
Manipulation of Trade Finance Instruments: Letters of credit and trade finance instruments, such as bills of lading, can falsely represent the value or destination of goods and mask illicit activities in the trade process.

Warning Indicators of Trade-Based Market Manipulation

Shipping areas or ultimate destinations change suddenly, at the last minute, without justification.
Shipments routed through jurisdictions or free-trade zones with limited oversight and little to no customs or AML protocols.
Amended trade-finance instruments, such as letters of credit, to repeatedly amend terms, amounts or parties to whom payments would be made.
Goods declared at values or quantities that don’t match market norms or shipment records.

Compliance Best Practices to Combat TBTM

Employ Enhanced Due Diligence (EDD) for customers that are identified as high-risk, commodities identified as high-risk, and jurisdictions identified as high-risk while verifying contracts, invoices, and Beneficial Ownership.
Use a TBTM-focused Transaction Monitoring to identify multiple re-invoicing, abnormal pricing, or unexplainable air or land changes in the route or counterparty.
Enhance AML Training & Awareness for trade finance staff on TBTM typologies, red flags, and the escalation protocol.
Carry out an assessment of country risk for every country in trade routes, while allocating greater scrutiny to those corridors with weak oversight.

How RapidAML Detects Trade-Based Transaction Manipulation

RapidAML offers users increased Transactions Monitoring functionalities, allowing them to spot Trade-Based Transaction Manipulation more proactively by comparing trade flow information, invoices and shipping documents for inconsistencies that suggest fraudulent activity as it relates to shipments coming in/out of an organisation.

The automated escalation workflow allows users to prioritise investigations into high-risk transactions, reducing the amount of manual operations needed for monitoring activity.

RapidAML also offers real-time analytics and risk scores, and allows for integration with users’ current trade finance systems to help users access total risk associated with TBTM across jurisdictions involved in the business transaction, as well as identify undisclosed methods to transfer payment, thus enhancing compliance with regulatory obligations and reducing the risk associated with TBTM.

FAQs

1. What is the difference between TBTM and TBML?

Trade-Based Money Laundering the is the end goal of the criminal, and Trade-Based Transaction Manipulation is one of the methods employed to achieve the goal. TBTM = Method employed to carry out TBML TBML = A Money Laundering Typology

2. Which sectors are most vulnerable to be misused through TBTM methods?

Sectors that handle high-value tangible merchandise that can be shipped quickly, e.g. electronics, oil and gas, precious metals, textiles, luxuries, and industries that provide intangible services with subjective price-based pricing models.

3. How can Regulated Entities detect and prevent TBTM?

REs can limit or detect the risk associated with TBTM by adopting Enhanced Due Diligence (EDD) for customers, enhancing the Transaction Monitoring of customer accounts, and offering AML Training for staff and customers on ways that TBTM may occur.

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