Trade-based money laundering (TBML) relies on lack understanding by financial institutions about letter of credit (L/C) documents or how inspection reports are produced according to the latest LexisNexis True Cost of Compliance Study - Asia-Pacific Edition.

The survey of 253 decision makers in banks, investment, asset management and insurance firms also found that TBML ranked top of the list of emerging financial crime risks.

Vulnerabilities exploited by TBML

As well as a lack of understanding about L/C documents and inspection reports, the survey found that TBML leverages limited visibility into full transactions through accounts and supply chains.

It also found that TBML can rely on falsifying trade documents to disguise illicit proceeds or the establishment of multiple accounts by an entity - for example, a sole trader account, a business account and a personal account can make it difficult to discern illicit from legal transactions.

Compliance costs

The study surveyed respondents in five markets - China, Australia, India, Malaysia and Japan - and projects the total cost of financial crime compliance will near the US$50.1 billion mark in 2022. Financial institutions represented more than 80 per cent of the total cost of compliance in the region at US$40.8 billion.

The analysis indicated that China and Japan accounted for 79.2 per cent of all regional compliance costs at 43.5 per cent and 35.7 per cent respectively, with the higher costs attributed in part to labour and technology, complying with tighter anti-money laundering (AML) regulations, increased geopolitical risks and evolving criminal threats.

Other key findings

The top trigger for increased compliance costs was increased geopolitical risk, named by 73 per cent of respondents, with AML regulation (68 per cent) and evolving criminal threats (63 per cent) cited as the second and third greatest triggers according to the survey.

It also found that digital payments have become a common platform for money laundering, enabling criminals to create fictitious transactions that appear legitimate.

More information about the LexisNexis True Cost of Compliance Study - Asia-Pacific Edition can be found here, from where the survey can also be downloaded.