Enhancing the fight against trade-based money laundering: insights from the ADB pilot programme

Trade-based money laundering (TBML) poses significant challenges for law enforcement and financial institutions due to its complexity and the lengthy investigations it requires. The Financial Action Task Force (FATF) highlights that TBML techniques vary globally, complicating the tracing of illicit financial flows. Between 2008 and 2017, the World Economic Forum estimated economic and tax losses from TBML in developing countries exceeded US$9tn.

Global Financial Integrity reported an alarming US$8.7tn gap in trade value declarations, indicating potential TBML activity. However, reliable statistics on TBML remain scarce, complicating awareness and effective countermeasures. The lack of clear TBML data and inadequate reporting formats hinder detection efforts, as current suspicious transaction reports (STRs) often lack the necessary trade details.

To combat these challenges, the Asian Development Bank (ADB) has launched a pilot programme aimed at improving TBML detection and enhancing collaboration among stakeholders. This programme integrates detailed data elements from trade financing transactions into STRs using the goAML software from the United Nations Office on Drugs and Crime (UNODC), which is used in over 70 jurisdictions, including Bangladesh, Mongolia, Nepal, Pakistan, and Sri Lanka.

The pilot ran for 18 months (January 2022 to June 2023) and showed that adding trade-related data elements to STRs increased their quantity and improved quality in four out of the five participating countries. The pilot emphasised the importance of cooperation among reporting entities, FIUs, central banks, customs, law enforcement agencies, and prosecutors, facilitating cross-border data sharing and collaboration despite legal sensitivities.

Notable results included a 148 per cent increase in TBML-related STRs filed by banks in Bangladesh, where the FIU received 117 new STRs during the pilot. This increase was attributed to both the pilot’s data enhancements and prior training efforts. In Mongolia, the introduction of goAML led to a jump from three TBML-related STRs in two years to 28 during the pilot. Nepal also benefited, recording 14 TBML-related STRs after the introduction of a specific reporting category for TBML, highlighting trade routes with India and China as areas of concern.

In Pakistan, the pilot led to a staggering 398 per cent average monthly increase in TBML-related STRs, rising from 38 to 191 after the pilot activities. This significant growth occurred despite only 10 of the 40 banks in Pakistan participating in the pilot. The Financial Monitoring Unit (FMU) noted improved detail in STRs filed by banks, who used enhanced dropdown options for TBML indicators, reflecting a closer examination of trade documents. The FMU identified key goods linked to suspicious trade, such as solar panels, textiles, and chemicals, and observed that criminals often disguise contraband movements as legitimate trade, utilizing techniques like underinvoicing.

Sri Lanka faced unique challenges during the pilot due to a severe economic crisis that included a sovereign default and a transition to the goAML system. Initially, Sri Lanka experienced a 19 per cent decline in TBML-related STRs, with only 12 out of 30 banks participating. However, post-pilot data indicated a 156 per cent increase in STR filings, with the new TBML-specific data elements enabling the FIU to analyse trade routes and identify patterns of TBML activities more effectively.

Conclusions and Recommendations

Key areas highlighted from the pilot study include the necessity of high-quality trade-related data, comprehensive training on TBML, clear regulatory guidance, attention to the mispricing of goods, collaboration between FIUs and law enforcement, the importance of public-private partnerships (PPPs), and the actionable nature of STRs. The findings underscore the need for concrete investigative actions following STRs to effectively combat TBML.

The pilot’s findings demonstrate the urgent need for coordinated action. Critical next steps include sharing results with FIUs, law enforcement agencies, and governments, as well as advocating for global scaling through the UNODC goAML International User Group and relevant international organisations focused on anti-money laundering and countering the financing of terrorism. By leveraging the insights gained from this pilot, stakeholders can work collaboratively to enhance the effectiveness of TBML detection and prevention efforts worldwide.