Trade-based money laundering (TBML) has been a supervisory focus for years, and the bar for counterparty due diligence in cross-border commodity trade keeps rising. The core reference material is public: the FATF's report Trade-Based Money Laundering: Trends and Developments (December 2020), the FATF–Egmont Group Trade-Based Money Laundering: Risk Indicators (March 2021), and the Wolfsberg Group, ICC and BAFT Trade Finance Principles. Banks that issue and confirm letters of credit build their own controls on this material, and they increasingly expect the same discipline from the trading firms they deal with.
WHAT TBML RISK ASSESSMENT LOOKS FOR
The risk indicators published by the FATF and the Egmont Group cover the parties to a trade, the documents, the goods and the payment flows. Typical red flags include over- or under-invoicing against market prices, goods descriptions that do not match the shipping documents, unexplained third-party payments, complex or opaque ownership structures, and routing through jurisdictions with no clear commercial reason. Intermediaries that arrange trades between producers and end-buyers are expected to understand who ultimately owns and controls their counterparties, not just the entity named on the contract.
LC STRUCTURING AND DOCUMENT REVIEW
| Control area | Basic practice | Stronger practice |
|---|---|---|
| Beneficial ownership | Immediate counterparty only | Ultimate beneficial owners identified and screened |
| Vessel vetting | Name check at fixture | IMO number screening plus review of AIS history and ownership changes |
| Trade document review | LC presentation documents only | Underlying contract, invoice and packing list checked for consistency |
| Pricing check | Not performed | Invoice price compared with a public benchmark |
| Country risk | Static list | Updated after each FATF plenary and sanctions change |
None of these are new legal mandates in themselves; the exact requirements depend on the bank, the jurisdiction and the transaction. They reflect what well-run trade finance compliance programmes already do.
VESSEL VETTING AND SANCTIONS SCREENING
Vessel-based sanctions evasion — ship-to-ship transfers, AIS transponder gaps, flag hopping and frequent ownership changes — has been documented in advisories such as the US government's Global Maritime Sanctions Advisory of May 2020. Firms in the chain are expected to screen vessels by IMO number against the OFAC Specially Designated Nationals and Blocked Persons List and other applicable lists, and to review AIS history for vessels with unexplained gaps. XRT screens vessels against the OFAC SDN List and reviews AIS history as part of transaction due diligence.
PRACTICAL IMPACT ON COUNTERPARTY ONBOARDING
Identifying ultimate beneficial owners lengthens onboarding, particularly for entities incorporated in jurisdictions on the FATF list of jurisdictions under increased monitoring, which changes after each plenary. Buyers should factor this into procurement scheduling and avoid RFQs that require LC issuance immediately after a new counterparty is introduced. Counterparties that have already completed onboarding usually move through later transactions faster.