Trade-Based Money Laundering (TBML) in Commodity Trading

Lavrentios Lavrentiadis

Commodity trading—especially involving oil, gold, metals, and agricultural products—is a high-risk sector for TBML due to the complex global supply chains and the ease of disguising illicit financial flows. Below are some examples of TBML methods in commodity trading:

1. Over-Invoicing of Gold Exports

🔹 Example: A criminal organization in Dubai exports gold to a related company in India at an inflated price.
🔹 How it works:

  • The buyer in India pays a highly inflated amount to the exporter.
  • The excess amount represents illicit funds being moved from India to Dubai under the guise of legitimate trade.
  • The money is now “clean” and can be reinvested in the formal economy.

🔹 Real Case:

  • In 2013, India's Customs and Financial Intelligence Unit uncovered a large gold smuggling and TBML network in Dubai and India, where shell companies over-invoiced gold imports to move illicit funds.

2. Oil-for-Cash Laundering Schemes

🔹 Example: A sanctioned country (e.g., Venezuela) sells oil to a trading firm in a third country (e.g., Turkey or China) at a discount. The firm resells it at market price and moves excess profits into offshore accounts.
🔹 How it works:

  • A company under-invoices an oil shipment, making it appear cheaper than it is.
  • The buyer pays a lower declared amount, but a hidden premium is paid through offshore accounts.
  • The seller launders illicit funds through multiple transactions using shell companies.

🔹 Real Case:

  • In 2019, U.S. authorities uncovered a TBML network where Venezuelan oil was being sold via shell companies in Turkey and UAE, allowing sanctioned individuals to bypass international restrictions.

3. Fake Coffee Exports from Latin America

🔹 Example: A company in Colombia exports coffee beans to the U.S., but the shipment contains either lower-quality coffee or no coffee at all (phantom shipment).
🔹 How it works:

  • The U.S. company pays a large sum for the shipment.
  • No coffee (or much less than declared) is actually delivered.
  • The transaction is used to move illicit drug money disguised as legitimate trade.

🔹 Real Case:

  • In 2017, Mexican cartels laundered drug money through phantom avocado and coffee exports to the U.S., with payments routed through shell companies in Panama.

4. Metals and Minerals in China-Africa Trade

🔹 Example: A Chinese company buys copper from a mining firm in the Democratic Republic of Congo (DRC). The payment is overstated to justify illicit fund transfers.
🔹 How it works:

  • The DRC-based mining company falsifies export documents to show a higher quantity or higher quality of copper.
  • The excess payment allows illicit money to be moved from China into Africa.
  • The money is later used to finance illegal activities, including corruption and conflict minerals.

🔹 Real Case:

  • A 2018 Global Witness report exposed TBML in China-DRC copper trade, where funds from over-invoiced mining exports were used to finance corrupt officials.

5. Agriculture Fraud & Laundering in Russia-EU Trade

🔹 Example: A Russian grain trader ships wheat to an intermediary in Cyprus, which then resells it to buyers in Germany at a much higher price.
🔹 How it works:

  • The Cyprus intermediary pays the Russian firm a lower declared amount to underreport revenue.
  • The intermediary then sells at a real market price, earning a hidden profit.
  • The hidden funds are laundered through European banks, often using shell companies.

🔹 Real Case:

  • In 2020, Europol investigated Russian agriculture and food exports to the EU, uncovering money laundering via trade under-invoicing.

Key Takeaways

✔ Commodity trading is attractive for TBML because large transactions, fluctuating prices, and global supply chains allow criminals to hide illicit funds.
✔ Gold, oil, coffee, metals, and agricultural products are common commodities used in TBML.
✔ Regulatory bodies like FATF, FinCEN, and Europol actively monitor suspicious commodity transactions.
✔ Shell companies, offshore accounts, and under/over-invoicing are the main techniques used.