Your compliance team just flagged 40 invoices from the same importer, all showing prices that don't match market rates. Someone asks if this goes in your SAR as structuring. Another analyst wants to know if you need customs data to investigate. A third person points out that the transactions themselves look legitimate, so what exactly makes this suspicious?
These questions arise frequently in AML operations centers, especially at banks and fintechs handling cross-border payments. Trade-based money laundering (TBML) and trade-based terrorist financing (TBTF) don't fit the patterns most analysts learned in training. The transactions look like normal business. The invoice manipulation happens outside your systems. And the regulatory guidance often assumes you have access to shipping manifests and customs declarations that you don't actually see.
Here's what you need to know when these cases land on your desk.
Understanding TBML vs. Regular Trade Fraud
TBML disguises the origins of illegal funds through trade transactions. The goal isn't to steal goods or evade taxes; it's to move money and make it look clean.
Trade fraud, such as customs violations or tax evasion, focuses on the goods themselves. The perpetrator wants the product or wants to avoid duties. TBML uses the trade transaction as a vehicle for funds movement. The goods are secondary.
To distinguish them, ask what the actor is optimizing for. If they're manipulating invoices to move $2 million in value but the actual goods are worth $200,000, they're laundering funds. If they're mislabeling luxury handbags as "leather samples" to pay lower duties, that's customs fraud.
Another indicator: TBML often involves actors with prior records of corruption or financial crimes. They're intermediaries who collect proceeds, transfer them, take a commission, and pass the remainder to beneficiaries. Trade fraudsters are usually the end beneficiaries themselves.
Filing SARs on Unverified Invoice Discrepancies
Yes, file SARs, but focus on what you can verify, not what you suspect about the goods.
You're not customs. You don't have bills of lading or shipping manifests. What you do have: payment patterns, counterparty relationships, pricing anomalies compared to publicly available commodity indexes, and transaction structures that don't match the stated business model.
Your SAR should document observable red flags in the financial activity. Consider a customer making monthly payments to the same overseas supplier, always just under $50,000, with invoice descriptions that shift from "textiles" to "electronics" to "industrial parts" without any corresponding change in the customer's business registration or website. That's suspicious transaction structuring and inconsistent business activity, both valid SAR grounds, even if you never see the physical goods.
Don't invent details about the trade itself. Describe the payment behavior and why it's inconsistent with legitimate trade finance patterns.
Identifying TBTF with Legitimate Fund Sources
TBTF can be tricky because funds might originate from lawful business activity. Your transaction monitoring rules for "proceeds of crime" won't catch it.
Focus on destination and beneficiary behavior instead of source. TBTF involves disguising the movement of value to finance terrorism, regardless of whether the source is legitimate or illegitimate. Look for:
- Payments to jurisdictions with known terrorism financing risks that don't match the customer's historical trade patterns
- Beneficial owners or signatories who appear on watchlist screening as Politically Exposed Persons or have adverse media tied to extremist organizations
- Trade routes that make no commercial sense (shipping low-value goods along high-cost routes, for example)
- Sudden changes in product categories that align with dual-use goods or items subject to export controls
Your transaction monitoring should layer geographic risk scoring with beneficiary screening. A payment to a legitimate business in a high-risk jurisdiction isn't automatically TBTF, but it warrants enhanced due diligence if the customer has no prior trade history in that region.
Using Pricing Databases to Flag Invoice Discrepancies
Pricing databases give you a starting point, not a conclusion. Commodity prices vary by grade, quantity, delivery terms, and market conditions. A 20% variance from the index might be normal. A 300% variance requires explanation.
Use pricing data to prioritize investigations, not to auto-generate alerts. If your monitoring system flags every invoice that deviates from a reference price, you'll drown in false positives. Instead, combine pricing anomalies with other risk factors: new customer relationships, high-risk jurisdictions, frequent changes in product descriptions, or customers whose stated business model doesn't match the transaction volumes.
When you investigate, document your methodology. "Customer invoice shows $800/unit for Product X; market reference price is $200/unit per [source]. Customer unable to provide documentation supporting premium pricing" is a defensible SAR narrative. "Invoice price seems high" is not.
Documentation for Trade Finance Client Due Diligence
At account opening, collect business registration documents, import/export licenses (if applicable), and a description of typical trade routes and counterparties. For ongoing monitoring, request:
- Commercial invoices and purchase orders for transactions that trigger alerts
- Bills of lading or shipping documents (though you won't always get these)
- Explanation of business relationships with frequent counterparties
- Source of funds documentation for large or unusual payments
Don't expect perfection. Legitimate small importers often don't have sophisticated documentation. What you're looking for is consistency. If a customer tells you they import textiles from Vietnam but their payments go to shell companies in Cyprus, that inconsistency matters more than a missing bill of lading.
Customs Data and AML Obligations
No, you don't need customs data to meet your AML obligations. Your AML program must be risk-based and appropriate for your business model. If you're a correspondent bank processing wire transfers, you're not expected to verify shipping manifests. If you're providing trade finance loans secured by inventory, you need more documentation.
What you must do: Design transaction monitoring rules that account for trade-based typologies relevant to your customer base. If 30% of your customers are importers or exporters, your monitoring should include scenarios for invoice manipulation, circular trading (payments between related entities that don't reflect genuine trade), and geographic risks tied to trade routes.
The FFIEC BSA/AML Examination Manual expects financial institutions to understand the money laundering risks specific to their customer segments. For trade finance, that means monitoring for pricing anomalies, phantom shipments (payments without corresponding goods movement), and misuse of letters of credit, even if you never see a customs form.
Further Resources
The Financial Action Task Force publishes trade-based money laundering risk indicators that map specific red flags to detection methods. The Wolfsberg Principles include trade finance due diligence guidance. And the FFIEC BSA/AML Examination Manual outlines supervisory expectations for transaction monitoring in this space.
Your sanctions screening vendor should also provide guidance on dual-use goods and export control classifications. These often overlap with TBTF risks and require separate compliance workflows beyond AML.
