Trade-based money laundering: do you know the signs?

July 21, 2022

In October 2021, the International Consortium of Investigative Journalists leaked 11.9 million files that contained the names of politicians, businessmen and celebrities suspected of hiding foreign exchange in offshore companies and money laundering. The Pandora Papers revelations highlighted how the anonymity provided by offshore centers can make it easier to hide illegal activity, and can be part of a scheme to conceal illicit funds.

Governments and regulatory bodies worldwide are taking an increasingly tough stance on money laundering, terrorist financing and other financial crimes. Customer due diligence is critical in effectively managing your organization’s risk exposure and protecting it against financial crime. Complex company structures can make knowing your customer and identifying ultimate beneficial owners (UBOs) difficult. Complex trade routes are often used to launder money and conceal fraud.

A report released in December 2020 by the Financial Action Task Force and the Egmont Group of Financial Intelligence Units highlights the risk indicators that denote suspicious activity associated with trade-based money laundering (TBML).

Red Flags

In TBML, legitimate trade and businesses are used as cover to move illegally attained assets around the world. Some of the red flags you should look out for include:

A complex and illogical corporate structure.

Does the entity have an unnecessary number of shell companies within its corporate structure?

Weak anti-money laundering (AML) and combating the financing of terrorism (CFT) compliance.

Is the entity registered in, or does it have an office in, a jurisdiction with weak AML and/or CFT compliance?

Suspicious mailing address.

Is the entity registered to a mass registration address or a PO Box? PO boxes are traditionally used to receive mail when mail cannot be delivered to a residential address. They also provide opportunities for the owner to remain anonymous, which may be a red flag.

Lack of online presence.

Does the entity lack an online presence or does its webpage lack specific information regarding its supposed product or industry?

Appropriate business activity.

Are the entity’s transactions appropriate to its stated line of business? Do they appear to be commercial in nature?

Management fit.

Are the owners or senior managers acting as nominee directors to conceal the true beneficial owners? Do the nominee directors appear to have the relevant experience to manage the company?

Negative news.

Is there any adverse media on the company, subsidiaries, parent company, shareholders or directors?


Transparency is crucial in the fight against money laundering and terrorism financing, especially when it comes to TBML. The use of complex structures to hide fraudulent activity is not a new tactic, and evading detection is a common method used by bad actors. Anonymity can empower criminals; eliminating their ability to remain anonymous closes loopholes and makes it harder for them to conceal their activities.

A UBO is the natural person who benefits from an organization’s activities, even if they are not an official part of the company structure or their presence has been obscured. Countries worldwide take the presence of UBOs seriously and have regulations on the type of information that must be collected on them. In line with the 4th and 5th EU Anti-Money Laundering Directives, customer data should be verified through a “trusted and independent” source. In Singapore, companies are required to hold a register of their beneficial owners. This can be made available when needed for checks.

Due diligence helps organizations know who they are doing business with, identify associated risks, and act accordingly.

Challenges of identifying UBOs

It can be difficult to identify all relevant individuals in a business. It may be a UBO’s intention to deliberately make a company structure complex to avoid detection, and it can be hard to find all data on an organization that spans multiple jurisdictions. Different countries have different legal requirements and organizations can take different legal forms.

To overcome the challenges of identifying UBOs you need comprehensive, up-to-date data that gives you complete oversight of an organization’s structure. Our AI model can mimic the work of a human analyst to produce a confidence score by consistently replicating and modelling an organization’s decision-making. Using this technology, organizations can increase screening consistency while filtering out false positives effectively.

How to detect TBML

To eliminate opportunities for bad actors, criminals and terrorists, it is best practice to identify UBOs and perform due diligence to safeguard your organization from illicit activity. Once you know who you are doing business with you can identify and mitigate risk. Detecting TBML relies on understanding the complex patterns of behavior and complex corporate structures that underlie TBML.

Perpetual monitoring can give you an accurate depiction of an organization’s shareholding structure. It allows you to see changes in near real time, such as a change in ownership percentage or the inclusion of an additional shareholding company. It allows for efficiency savings, as you can tailor alerts according to your risk appetite rather than receiving updates on your whole portfolio at regular intervals.

How Moody’s Analytics can help

Moody’s Analytics can help you with perpetual monitoring and detection of UBOs and TBML. From monitoring ownership to finding and identifying UBOs, and checking adverse media related to shareholders, directors and owners, Moody’s Analytics has a full suite of know your customer (KYC)solutions.

Moody’s Analytics Orbis database has information on more than 425 million companies. You can define your thresholds for beneficial ownership, filter results by jurisdiction, decipher circular and indirect ownership, and quickly assess a group linked to politically exposed persons (PEPs) and sanctions. A searched name is matched with consideration given to variables including linguistic culture, spelling alternatives and word order, resulting in fewer false positives and more relevant screening results. More than 15 years of analyst decisions underpin our AI-enabled model, which can be trained to consistently replicate your organization’s decision-making.

Moody’s Analytics Grid is the world’s largest curated risk-relevant database, comprising sanctions lists, PEPs, watchlists, and more than 50 risk types. Risk intelligence is organized into detailed, entity-resolved profiles so you can see all risk-relevant data on an organization or individuals in structured, easy-to-consume reports. Grid combines comprehensive data and categorization to allow filtering by risk type, risk stage and risk age, based on relevance and your own risk appetite. This results in fewer false positives, more efficiency, and greater speed.

Moody’s Analytics PassFort enables financial services companies to rapidly onboard customers, then manage risk and compliance standards throughout the customer lifecycle. You can dynamically orchestrate customer due diligence, enhanced due diligence, KYC, know your business, and anti-money laundering workflows. These are designed according to your risk policies and the regulations you need to follow.

For more information about Moody’s Analytics KYC solutions, please contact us to schedule a demo.

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