What it means
The core trick is a mismatch between the stated value of goods and their real value. If an exporter invoices a related buyer $1.2 million for parts worth $500,000, the extra $700,000 has been moved abroad with a trade document justifying it.
Under-invoicing works in the opposite direction, allowing value to be shifted towards the importer, while multiple invoicing bills the same shipment several times through different banks. Phantom shipping takes the idea further still, with full documentation raised for goods that never actually move.
Banks find this difficult because they usually see only paperwork, not the goods themselves. A trade finance officer reviewing a letter of credit has an invoice, a bill of lading and an insurance certificate, and nothing in that bundle reveals whether the price is realistic for the commodity involved.
The commercial risk for legitimate businesses is real and often underestimated. A company that unknowingly acts as a counterparty in such a chain can face frozen payments, correspondent bank de-risking, regulatory penalties and reputational damage that outlasts the investigation itself.
Controls therefore focus on price plausibility, counterparty transparency and route logic. Comparing invoice prices against published commodity benchmarks, checking that the shipping route makes geographic sense and questioning why an intermediary in an unrelated country is involved will catch a large share of manipulated deals.
Regulators expect banks and larger corporates to document these checks rather than rely on instinct. Increasingly this means automated price screening against reference data, with anything outside an agreed tolerance escalated for human review before payment is released.
In practice
Real-world examples.
Example
A freight forwarder notices that a regular customer's invoices for scrap metal are running at roughly three times the published commodity index price. It files an internal report, and the bank subsequently declines to process the next letter of credit.
Example
A mid sized electronics importer is asked by a new supplier to pay 40% of the invoice value to a third party account in a country with no connection to either business. The finance director refuses, correctly treating the request as a classic third party payment red flag.
Example
A commodity trading firm's compliance team runs an annual review and finds that one broker has invoiced the same container reference to two different banks. The duplicate billing is halted, the broker relationship is ended, and a suspicious activity report is filed.
Think of it
“TBML is laundering through fake or manipulated trade-abusing international commerce.
Formula
Calculation
Value illicitly transferred = (invoiced unit price - fair market unit price) x quantity shipped. The same arithmetic works in reverse for under-invoicing.
An exporter ships 10,000 industrial pump housings to an overseas buyer. The genuine market price is $50 each, so the shipment is truly worth 10,000 x $50 = $500,000, but the invoice is raised at $120 each, giving a documented value of 10,000 x $120 = $1,200,000.
The illicit transfer is therefore $1,200,000 - $500,000 = $700,000, or ($120 - $50) x 10,000. On a percentage basis the goods have been over-invoiced by $70 / $50 = 1.4, that is 140% above fair value, a gap that any price screening tool set at even a 25% tolerance should have flagged immediately.Case study
Seen in the real world.
This is an illustrative and entirely fictional account. Verity Trade Partners, an invented commodity intermediary, handled agricultural exports for a network of small producers and prided itself on fast paperwork turnaround.
Over eighteen months, one client group routed 42 shipments through Verity at prices averaging 90% above the relevant commodity benchmark, moving an estimated $18 million more than the goods were worth. Nobody at the fictional firm compared invoice prices to market data, because the documents themselves were always complete and consistent.
When a correspondent bank flagged the pattern, Verity lost its trade finance facility for four months and had to rebuild the business around a new pricing tolerance control: any unit price more than 25% away from the published benchmark is now held for review. Volumes fell in the first year, but the firm regained its banking relationships and won two institutional clients that specifically valued the control.
Watch out
Common mistakes.
- Assuming that complete and consistent trade documents prove a transaction is genuine, when the whole method relies on paperwork that looks perfectly ordinary.
- Treating this as a bank problem only, when exporters, importers, freight forwarders and insurers all sit in the chain and all carry exposure.
- Screening only counterparty names against sanctions lists while never checking whether the price per unit is remotely plausible.
Questions
People also ask.
What is the single most useful control for a smaller business?
Comparing invoice unit prices against a published market benchmark and querying anything materially outside a set tolerance.
Why do criminals prefer trade to cash?
Trade volumes are enormous, pricing is genuinely variable for many goods, and a shipment gives a plausible commercial reason for money to cross a border.
Does a business commit an offence if it is used unknowingly?
Liability depends on the jurisdiction and on whether reasonable controls were in place, which is precisely why documented checks matter so much.
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