ADB Pilot is an Uppercut in the Global Fight Against Trade-Based Money Laundering

Methodology: broadening the STR scope

Conducted from January 2022 to June 2023, the pilot focused on introducing new trade-related data elements into suspicious transaction reports (STRs), providing comprehensive training and fostering collaboration between key stakeholders. Participating countries included Bangladesh, Mongolia, Nepal, Pakistan and Sri Lanka—a diverse cross-section of Asian economies with varying trade-activity levels and financial sector development.

Examining gaps within the current STR framework was at the heart of the initiative. Traditionally, STRs have been designed primarily for payment transactions, lacking the detailed information necessary to identify potential TBML activities effectively. To address this, the ADB pilot incorporated additional data fields into the STR framework, including TBML indicators, comprehensive party identification and transaction-specific details (such as goods’ descriptions, pricing, and shipping information).

This enhanced STR framework was implemented through the UNODC’s goAML software, an integrated reporting and analysis system used by more than 70 jurisdictions worldwide. This approach not only streamlined the pilot’s execution but also positioned it for potential global scaling, a crucial factor in addressing the inherently cross-border nature of TBML.

Encouraging results

The results of the pilot have been commendable, with 4 out of the 5 participating countries reporting significant increases in both the quantity and quality of TBML-related STRs. The exception of Sri Lanka, it should be noted, was impacted by its 2022 economic crisis, disrupting normal operations.

Bangladesh, for instance, saw a 148% increase in TBML-related STRs filed by banks during the pilot period. The country identified several high-risk goods susceptible to TBML, including capital machinery, high-tax products, leather goods and IT (information technology) equipment. Trade routes connecting countries such as Singapore, the United States and the United Arab Emirates were flagged for potential TBML exposure.

Mongolia, which deployed the goAML system in late 2022, recorded 28 TBML-related STRs from September 2022 to April 2024, a significant improvement from just three such reports in the previous 2 years. Nepal saw a similarly dramatic increase: Before the pilot, there was no reporting of STRs identified at all because there was no concept for the specific reporting of TBML. Yet between 2021 and 2023, Nepal recorded 14 TBML-related STRs. Evidently, the program has impacted participants more systemically than merely addressing the immediate problem.

Perhaps the most dramatic results came from Pakistan, where the monthly volume of TBML-related STRs increased by an average of 398% after the pilot. The country’s Financial Monitoring Unit (FMU) found that solar panels, textiles, chemicals, rice and industrial equipment were commonly linked to suspicious trade.

Sri Lanka’s experience underscores the importance of considering the local context in such initiatives. Initially, the country saw a decline in TBML-related STRs due to a severe economic crisis and the concurrent transition to the goAML system. However, once all 30 banks in the country gained access to the new TBML data elements in early 2024, Sri Lanka experienced a 156% increase in the annual average of TBML-related STR filings compared to pre-pilot figures.

Wider findings

Beyond the immediate improvements in TBML detection, the pilot has yielded valuable insights into common TBML techniques and red flags. For instance, the pilot helped Mongolia identify discrepancies between contract and invoice data, incomplete documentation and the presence of suspicious intermediaries in complex trade arrangements. Criminals often resorted to “under invoicing” to evade customs duties and taxes while settling remaining balances through accounts maintained abroad.

For many of these regions, the very existence of such strategies was new. There’s no use, though, in pointing out a problem without giving a region the capacity to manage it—STRs brought this capacity.

In this vein, an enhanced STR framework made it possible to analyze goods and trade routes with higher TBML incidences. This aligns with the “know your sector” (KYS) approach recommended by experts, allowing regulators, banks and law-enforcement agencies to focus their limited resources on sectors and routes at higher risk for TBML activities.

Teach a man how to fish

The pilot’s success can be attributed not only to the enhanced data collection but also to its comprehensive training and capacity-building initiatives. More than 700 participants, including bankers, FIU staff, customs officials and law-enforcement agents, received specialized training on TBML. These sessions increased awareness of TBML risks and improved understanding of trade-finance principles and processes.

The training program included webinars on identifying TBML red flags and best practices, TBML master classes conducted by international experts in anti-money laundering and countering the financing of terrorism (AML/CFT) and case-study workshops for regulators and law-enforcement agencies. These sessions provided platforms to identify gaps, address challenges and strategize on overcoming obstacles in TBML detection and investigation.

Crucially, the pilot gathered various stakeholders, including banks, customs agencies and law enforcement. This cross-sector cooperation has been essential for combating TBML effectively, given its complex and often cross-border nature. Workshops and training sessions have provided valuable opportunities for groups with competing priorities to align on country-specific TBML risks and develop strategies for more effective cooperation.

In two words, the success of this ADB pilot was the result of data and collaboration. By leveraging the wealth of information available in trade-finance documents and enhancing reporting mechanisms, financial institutions and regulatory bodies can significantly improve their ability to detect and prevent this form of financial crime.

Looking ahead

The pilot’s findings highlight several key areas for future focus when combating TBML:

• Data quality: Trade-related, actionable data is crucial. While the pilot successfully leveraged information from documentary trade transactions, innovative solutions are needed to cover “open account” trade, which comprises most of the global trade but provides less detailed information.
• Ongoing training: Continuous education in the technical aspects of TBML, criminal activities and processes among public and private sector actors is necessary.
• Clear regulatory guidance: Private sector participants expressed strong desires for clear TBML guidance from regulators—especially provided by national FIUs and including country-specific risks.
• Improved detection of mispricing: The challenge of detecting goods mispricing for money-laundering purposes remains. New technologies could enhance TBML detection in this area and deserve attention.
• Enhanced collaboration: FIUs, customs and law-enforcement agencies need to work together more closely. Joint teams of experts from these agencies should be set up and properly resourced for TBML investigations.
• Public-private partnerships (PPPs): Countries should establish various formal and informal mechanisms for PPPs that target TBML risks.
• Focus on investigations: While actionable STRs are important, their value lies in the concrete investigative and enforcement actions that follow. Studying the impacts of TBML-related STRs on investigations and prosecutions would be valuable in strengthening counter-TBML efforts.

As the global community continues to grapple with the challenges posed by TBML, initiatives like the ADB pilot offer a promising path forward. By combining improved data collection, targeted training and enhanced collaboration, countries can strengthen their defenses against this pernicious form of money laundering, ultimately contributing to more transparent and secure international trade systems.

In an increasingly interconnected global economy, the fight against TBML is not just a matter of financial integrity but also a critical component of ensuring fair and transparent international trade. As the pilot has clearly demonstrated, coordinated action and information sharing are key to effectively combating the complex and evolving threat of trade-based money laundering.

It is clear that criminals involved in TBML fight dirty. But as financial institutions, regulators and law-enforcement agencies around the world take note of these findings, this street fight against financial fraud has just entered an arena—and the referee is looking at the data.

This article was written by Steven Beck, Director of Trade and Supply Chain Division ADB, with the assistance of Catherine Estrada, Senior Investment Officer of ADB. It was originally published in the International Banker.

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