Trade-Based Money Laundering: A Guide for Solicitors

Trade-based money laundering is a method criminals use to hide and move the proceeds of crime through international trade transactions.

Each day, billions of trade transactions will take place around the world. Criminals look to use the sheer volume of activity as cover, concealing dirty money inside what may look, from the outside, like normal, everyday commerce.

The primary aim of trade-based money laundering is not the goods being traded. It is the movement of the money itself. The goods, or the appearance of goods (in some cases), are just the mechanism — essentially representing a means to an end. This is what separates trade-based money laundering from other trade-related crimes such as smuggling, in which cases the goods themselves are the focus.

What is Trade-Based Money Laundering?

The Financial Action Task Force (FATF) defines trade-based money laundering as the process of disguising the proceeds of crime and moving value through the use of trade transactions to attempt to “legitimise” their illicit origins.

Put simply, a criminal group takes money stemming from crime and uses manipulated or entirely fictitious trade deals to make it appear that said money is actually a result of legitimate business activity.

The Gov.uk TBML Handbook offers a useful illustration of how this works in practice. If a commodity is worth £1 per unit, a criminal group will look to sell large quantities of said commodity to co-conspirators for an inflated price.

In such circumstances, a single transaction can launder hundreds of thousands, or even millions in illicit gains. Plus, no goods need to even physically change hands for the process to work. When the pattern is repeated on a larger scale, multiple times a week, the scale of the proceeds of crime that can be laundered becomes clear.

How Trade-Based Money Laundering Works

There are generally four common methods of trade-based money laundering: fictitious trading, over and under invoicing, multiple invoicing, and misdescription. Each method operates differently, but ultimately has the same end-goal — to obfuscate the flow of funds and disguise ill-gotten gains as legitimate money.

The four methods of trade-based money laundering work like this:

1. Fictitious Trading: Also known as “ghost shipping” or “phantom shipping”. Fictitious trading involves creating invoices and purchase orders for goods that don’t actually exist. Buying and selling parties work together to produce shipping and customs documentation, but no physical goods are ever moved. The paperwork is fabricated throughout and funds are exchanged for nothing tangible.
2. Over and Under Invoicing: The price stated on an invoice is deliberately misrepresented to transfer funds between two parties.
   1. When over-invoicing, the seller invoices the buyer ABOVE the fair market value of the goods and, therefore, receives more than the goods would be worth in a fair market.
   2. When under-invoicing, the seller invoices BELOW market value, and the buyer resells the goods at their actual value, and keeps the difference.
3. Multiple Invoicing: One shipment of goods is invoiced multiple times. This allows criminals to justify multiple payments for a single transaction by reusing existing documentation across multiple financial institutions.
4. Misdescription: A criminal party misrepresents the type or quality of the goods being traded. For example, shipping a cheap commodity, but invoicing it as an expensive one. Making a false customs declaration is a criminal offence under section 167(1) of the Customs and Excise Management Act 1979.

 

Trade-Based Money Laundering Red Flags

Trade-based money laundering is difficult to detect precisely because it is designed to look like normal commerce. Common red flags include phantom shipments, invoice manipulation, transit accounts, nominee directors, and transactions structured to stay below reporting thresholds. The indicators below explain what each looks like in practice.

The FATF published a set of trade-based money laundering risk indicators in March 2021, produced jointly with the Egmont Group of Financial Intelligence Units. A single indicator does not on its own warrant suspicion, but the presence of several together warrants closer examination.

The indicators fall into three broad areas: the structure and behaviour of the trade entity, the documents it produces, and its account and transaction activity.

Trade Entity Red Flags

Illogical corporate structure. The entity’s structure appears unnecessarily complex — shell companies, registration in a jurisdiction with weak AML compliance, or nominee directors and senior managers with no genuine connection to the business (or knowledge of its transactions).

No credible business footprint. The registered address is a mass registration address. There is likely to be either no meaningful online presence, or the website is inconsistent with the stated line of business. There is no evidence of typical trading activity, no payroll, no operating costs, no tax remittances, etc.

Adverse history. The entity, or its directors, appear in negative news related to fraud, non-compliance, or previous investigations. In Operation A (below), several of the companies involved had a documented history of VAT non-compliance and deregistration before investigators even began tracing the funds.

Inconsistent or implausible trading activity. What the entity is actually doing does not match what it claims to do. Transactions involve multiple unrelated third-party intermediaries without obvious commercial reasoning. A newly formed entity has suddenly begun trading at high volume in a sector that would normally present significant barriers to entry.

Documentation TBML red flags

Invoice and document inconsistencies. The exporting entity’s name does not match the payment recipient. Quantities or values on documents do not correspond with what was actually shipped. Prices bear no relation to market value.

Vague or fabricated paperwork. Descriptions of goods are generic or meaningless. In Operation A, investigators found invoice templates with product descriptions reading “product ABC” and “product XYZ”. Documents are missing, appear altered, or are resubmissions of previously rejected paperwork.

Disproportionately simple contracts. Complex or high-value trade transactions are supported by contracts that are unusually basic in their structure. This is often little more than a template found online.

Accounts and Transaction Signs

Transit account behaviour. The account shows an unexpectedly high volume or value of transactions that appears inconsistent with the stated business. Money comes in and is rapidly transferred out to offshore entities, with a consistently small balance remaining. In Operation A, you’ll learn how bank statements showed cash deposits of at least £50,000 on an almost daily basis over a twelve-month period, with funds transferred almost immediately to the UAE.

Structuring. Cash deposits are made frequently and transferred abroad without clear business reason. Transactions are consistently just below reporting thresholds. This is a deliberate pattern known as structuring or smurfing designed to avoid triggering automatic alerts.

Sudden activity followed by inactivity. Payment arrangements are changed at the last moment, redirecting funds to a previously unknown entity. Transaction volumes spike sharply over a short period, then go quiet. This is consistent with a criminal operation that opens accounts, floods them with deposits, moves the money, and abandons the entity before scrutiny catches up.

Trade-Based Money Laundering: Cases and Examples

Operation A

The following case is drawn from the GOV.UK TBML Handbook, published in October 2025.

The investigation began as a standalone cash seizure conducted by HMRC, initially focused on one individual. Based on information the individual provided to officers about his own involvement and the roles of others, a wider criminal investigation was opened.

The method was straightforward. Cash was collected from across the UK by members of the group acting under instruction, deposited into UK business accounts controlled by the group, and transferred electronically to the United Arab Emirates.

Bank statements obtained through production orders showed deposits of at least £50,000 being made on a near-daily basis over a twelve-month period.

Over a three-month window, £11,015,260.08 was transferred to a UAE-based company controlled by the principal suspect.

A further £14,917,335.41 was later identified as moving through the UK accounts.

None of the eight companies involved had an Economic Operators Registration and Identification number, which is required by any company moving goods into or out of the UK.

Additionally, none had made an import declaration. There was also no evidence of warehousing, transport logistics, or shipping, and the companies operated from serviced office addresses.

Forensic examination of seized devices found invoice templates with product descriptions reading “product ABC” and “product XYZ” rather than actual goods.

Some invoices related to the alleged sale of Red Bull energy drinks from the UAE to the Czech Republic. Investigators confirmed there was little price difference between the two countries, making the trade economically irrational.

Seven individuals were charged under section 328(1) of POCA. In February 2024, the Crown Court sentenced six of the seven to a combined total of 26 years. The principal suspect received 12 years.

Midlands Clothing Network

In November 2015, sixteen members of a Midlands-based money laundering network were jailed for a total of 74 years due to their roles in laundering over £35m through UK banks and money service businesses.

As part of the scheme, a series of bogus clothing and textiles businesses were set up to provide the appearance of legitimate trade.

Falsified invoices were produced and bank and trading accounts were set up in order to process the funds.

When any bank or money service business raised concerns about one of the companies, it was closed down and a new one opened in its place.

An accountant was a member of the network and had advised the leader on how to operate without alerting HMRC or law enforcement. The leader of the network, a former textile trader, received a sentence of eleven years.

 

The Legal Framework: POCA and Trade-Based Money Laundering

The primary legislative framework for money laundering cases in the UK is the Proceeds of Crime Act 2002, commonly referred to as POCA. Though not mentioned specifically in POCA, trade-based money laundering is considered a form of money laundering as part of the act.

As it is not specifically highlighted in POCA, it is the responsibility of the investigating agency and the prosecuting authority to establish that money laundering was conducted using the trade-based money laundering process when it comes to presenting the case to a court.

There are three POCA offences relevant to trade-based money laundering cases:

• Section 327 makes it an offence to conceal, disguise, convert, transfer, or remove criminal property. “Concealing and disguising” includes concealing or disguising its nature, source, location, movement, or ownership.
• Section 328 makes it an offence to enter into, or become concerned in, an arrangement which a person knows or suspects facilitates the acquisition, retention, use, or control of criminal property — either by or on behalf of another party. Section 328 was used to charge the defendants in Operation A.
• Section 329 makes it an offence to acquire, use, or possess criminal property.

A person can be found guilty of offences under all three sections simultaneously.

FAQs

What are the three stages of trade-based money laundering? Trade-based money laundering follows the same three stages as conventional money laundering. The process involves:

• Placement: Introducing proceeds of crime into the financial/trade system.
• Layering: Obscuring the origin of said funds through complex transactions, manipulation, multiple transfers, fictitious shipments, and multiple jurisdictions.
• Integration: The funds re-enter the legitimate economy, appearing to have originated from lawful trade activity.

What goods are most vulnerable to trade-based money laundering? Any goods with high values and variable/subjective pricing are liable for exploitation as part of trade-based money laundering schemes. Common examples include precious metals, electronics, pharmaceuticals, and commodities like oil and agricultural products. The complexity of pricing and often wide valuation margins associated with such goods makes it easier to manipulate invoices without criminality being immediately obvious.

Rob Miller’s Approach to Trade-Based Money Laundering Case

Trade-based money laundering investigations involve analysis into financial activity spread across multiple entities, bank accounts, and in many cases, multiple jurisdictions.

The financial evidence in these cases can be extensive, while being often extremely complex. When solicitors instruct me on money laundering cases such as these, my role is to analyse that evidence, trace the movement of funds, and present findings in a form that is usable in legal proceedings — be that a written expert witness report or communicated at a confiscation hearing or in court.

For criminal defence solicitors, I can review the prosecution’s financial evidence and identify weaknesses or errors in how the transactions have been traced or interpreted.

I produce independent analyses of the financial trails involved in a case, preparing an expert witness report suitable for use in court. Where POCA confiscation proceedings follow a conviction, I can assist with establishing the available amount, quantifying the benefit figure, and identifying assets — including any held via complex corporate structures or transferred to third-parties.

Under Criminal Procedure Rule 19, my duty as an expert witness is to the court, not the instructing party. As a result every report I produce is objective, unbiased, and rooted within my unique area of expertise. I am an ICAEW member, a Practicing Member of the Academy of Experts, as well as a Certified Cryptocurrency Investigator.

If you are instructing on a case involving suspected trade-based money laundering, contact Rob Miller directly on 0161 243 0595 or fill in a contact form and I will be in touch as soon as possible.