UAE authorities received several hundred reports of trade-based money laundering (TBML) in 2022 and 2023, with forged trade documents and phantom shipments widely used to conceal the movement of illicit funds.

The country’s financial intelligence unit last week published a strategic report on the methods used by fraudsters to transfer money and illicit goods around the world, based on 610 credible reports of TBML it received in 2023 and 2023.

The report finds that document manipulation is a key tool used in TBML cases, accounting for 41% of cases, with bills of lading and invoices frequently targeted by criminals.

Though not exhaustive, the report lists some common techniques used to falsify documents, including alteration of shipment dates, ports of loading or container numbers, as well as duplicate invoices with buyer and seller names changed.

The majority (61%) of reports featured phantom shipments, meaning that despite existing – if altered – documentation and real payment, no goods were ever sent. Most often these invoices were paid via wire transfer, but around 5% of total cases utilised letters of credit.

Phantom shipments are also occasionally used for further fraud in which forged shipping documents, invoices or contract agreements are used to access trade finance facilities. The report explains that these instances will eventually result in financial losses for the issuing financial institutions, as the shipments never actually take place.

The financial intelligence unit’s report finds invoice manipulation, either by under or over-charging for goods or by submitting the same invoice multiple times, was identified less frequently, making up 11% of cases.

In these cases, the buyer and seller are acting in collusion, though trade brokers or other external entities may also be involved, making it harder to trace.

Commodities most frequently involved in the suspected TBML cases are foodstuffs, particularly rice, nuts, seeds, fruit and peas, making up 14% of fraudulent goods, followed by building and construction materials (10%) and auto spare parts and accessories (9%).

The report also draws attention to precious metals and stones, which account for 7% of goods involved and can also serve as alternative currencies to purchase restricted goods.

TBML is an extensive but understudied type of fraud, partially due to its complexity. As anti-money laundering regulation has tightened over the last decade, criminal groups have moved away from using cash and towards more complex methods, and TBML has emerged as one of the primary tools.

In 2018, the International Chamber of Commerce described it as the “least understood financial crime method” and estimated that there could be hundreds of billions of US dollars laundered annually.

The UAE has historically been poor at cataloguing and dealing with this crime, and was added to the Financial Action Task Force’s greylist of high-risk jurisdictions in 2022 for this reason. It has, however, made significant progress in recent years and was removed from the greylist in February this year.

Despite this, TBML remains a high risk in the country according to its central bank.