Hassan Zebdeh, Financial Crime Advisor at Eastnets
Trade-based financial crime (TBFC) is the biggest fraud most people never heard of, quietly siphoning away trillions under the radar.
TBFC is when criminals use techniques like double invoicing, non-shipment of paid-for goods, or over-invoicing to funnel illicit funds into legitimate financial systems. For example, one side might order a shipment of laptops. The seller might invoice twice the value of the laptops. They arrive, the inflated cost is paid, and the money enters the economy looking like a legitimate business deal.
Between 2008 and 2017, the global value gap between imports and exports reached a staggering $8.7 trillion[1], surpassing even the most recent U.S. federal budget[2]. And this threat isn’t fading.
A sizeable portion of TBFC involves trade-based money laundering (TBML), which accounts for around 30% of all money laundering activities. Despite its scale, TBML remains vastly underreported and is notoriously difficult to combat.
To shift the balance in favour of financial institutions, the industry requires more than just human expertise. This is where the convergence of automation, AI, and advanced monitoring technologies could step in, creating an AI-enabled software robot – a TBML Terminator – that is more powerful than even the most skilled human. This Terminator never sleeps, never misses a detail, and is capable of processing vast amounts of complex data with unparalleled speed and precision.
Advanced monitoring: the eyes
At the core of this idea are advanced monitoring technologies – the eyes with an unwavering gaze. These technologies continuously watch over trade finance activities to ensure compliance and detect suspicious behaviour in real time.
Vessel tracking is a critical part of this monitoring process, given that most global trade moves by sea[3]. This makes maritime shipping particularly vulnerable to exploitation by those seeking to mask illicit activities. By continuously monitoring the movements and ownership of ships involved in trade finance deals, this digital sentinel could provide real-time alerts if a vessel enters a high-risk or sanctioned area.
Another vital monitoring function would be document digitisation, which involves converting physical paper documents into digital formats. Everything from bills of lading to commercial invoices must be meticulously captured to pass this information on to the other technologies that might form a TBML Terminator.
Automation: the hands
Once the eyes have captured and converted the necessary information, the hands take over. Automation could step in to handle the vast amounts of data generated, organising and managing it with precision.
Automation plays a crucial role in grouping and linking the various components of a trade finance deal and consolidating data from transaction messages, such as letters of credit, payment instructions, and contract amendments, alongside documents like commercial invoices, bills of lading, and vessel tracking updates. By seamlessly integrating these elements, all relevant data is accurately linked and ready for analysis.
A key part of this work involves sanctions screening, where the hands quickly check all entities against constantly updating sanctions lists. These lists can change several times a day, making manual screening almost impossible to keep up with. Automation could prevent prohibited individuals or organisations slipping through the cracks, safeguarding financial institutions against regulatory breaches and fines.
Artificial Intelligence: the brain
While automation handles the heavy lifting, AI would act as the intelligence driving the TBML Terminator’s advanced analysis and decision-making. AI’s capabilities extend far beyond traditional rule-based methods, enabling financial institutions to detect and respond to TBML techniques precisely and efficiently.
For example, AI models also play a crucial role in identifying TBML techniques, such as overpricing, double invoicing, and the misuse of dual-use goods. By cross-verifying product descriptions with market values, a task that generative AI excels at, financial institutions can quickly identify discrepancies that may indicate illicit activities.
Creating a cohesive system
The true power of this TBML Terminator would lie in the seamless integration of these technologies into a unified platform that offers a comprehensive view of each trade finance deal.
This seamless communication between different components would provide financial institutions with a 360-degree view which is crucial for quick, informed decision-making.
Shifting the balance
In the ongoing fight against this type of crime, the notion of a TBML Terminator stands as the key ally. Together, the technologies form a powerful, unified force, reducing manual burden, enhancing detection accuracy and ensuring that financial institutions stay ahead of ever-evolving regulations.
As the complexity of global trade continues to grow, so too does the necessity for this vigilant defender. It’s time to consider adopting a TBML Terminator approach.
[1] https://gfintegrity.org/report/trade-related-illicit-financial-flows-in-135-developing-countries-2008-2017/
[2] https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/
[3] https://unctad.org/topic/transport-and-trade-logistics/review-of-maritime-transport
