With a new tariff paradigm quickly reshaping the flow of global trade, financial institutions are entering an era of heightened risk. Illicit actors are adapting quickly to tariff differences across countries and products and finding creative ways to move money, evade restrictions, and exploit weak points in the tariff system. In response, regulators said they intend to step up enforcement efforts. In a recent U.S. Department of Justice (DOJ) memorandum, the head of the Criminal Division wrote that trade and customs fraud, including tariff evasion, would be a top-tier enforcement priority. This signals a significant shift from administrative to criminal investigation of trade compliance breaches.
As a result, banks may be implicated, often unwittingly, as channels for tariff evasion schemes. This article highlights how these risks are evolving, what regulators expect, and practical steps to help banks stay ahead of growing risks in trade-based money laundering (TBML).
How Trade-Based Money Laundering Exploits Banks
As tariffs reshape global trade flows, illicit actors adjust quickly. Common TBML schemes to exploit the tariff system include the use of falsified invoices and shell companies, as well as the misuse of correspondent banking. Further, front companies can be established to pose as legitimate importers or exporters. These schemes often rely on banks for:
- Payment processing for misdeclared shipments or sanctioned counterparties
- Trade finance products like letters of credit tied to fraudulent transactions
- Cross-border wire transfers routed through multiple jurisdictions to obscure the country of origin
- Gaps in know your customer (KYC) and customer due diligence (CDD), especially for illicit trade entities and freight intermediaries
Key Red Flags for Financial Institutions
Banks should heighten controls and be alert to indicators such as:
- Clients exposed to high-risk trade corridors, including trade corridors newly impacted by tariffs or sanctions
- Mismatches between trade finance documents and payment instructions
- Unusual use of third-party payment intermediaries or nested correspondent accounts
- Repeated last-minute changes to trade documents or counterparties
- Discrepancies in invoice pricing, commodity description, or countries of origin/destination
Current Regulatory & Enforcement Landscape
Global regulators are expected to intensify enforcement in the wake of new tariff actions. In the U.S., enforcement actions by the Office of Foreign Assets Control (OFAC), the Financial Crime Enforcement Network (FinCEN), and the DOJ will likely increase. In addition, the Financial Action Task Force (FATF)1 continues to emphasize TBML as a priority typology. Banks may face enforcement not only for direct facilitation of illicit transactions but also for inadequate due diligence and reporting.
How Banks Should Respond
To mitigate TBML risk, financial institutions should act across these key areas:
- Enhance due diligence for clients involved in trade finance, especially in high-risk jurisdictions.
- Implement real-time sanctions screening for trade counterparties and shipping documents and prompt monitoring, evaluation, and escalation/disposition protocols.
- Improve internal coordination between trade finance, compliance, and payments/operations teams to help ensure policy and procedural governance.
- Conduct scenario testing and simulations to detect TBML patterns and sanctions evasion tactics by re-tuning transaction monitoring models with enhanced machine learning (ML) capabilities.
- Train frontline teams on how tariff shifts may change financial crime risk exposure and the red flags associated with new and existing clients and activities.
- Conduct targeted reviews of trade finance activity to detect potential sanctions evasion or TBML schemes.
Conclusion
Tariff changes and geopolitical shifts are more than just economic stories; they’re new battlegrounds for preventing financial crime. Banks need to be proactive, not reactive. Staying vigilant, investing in smarter controls, and connecting the dots across teams can help institutions protect themselves and the financial system at large.
We Can Help
At Forvis Mazars, we work with financial institutions to help them stay ahead of these emerging risks. We help financial institutions detect, prevent, and respond to financial crime in this evolving risk environment by focusing on what matters most. We can assist by:
- Conducting enhanced due diligence (EDD) for clients in high-risk sectors, geographies, and trade corridors
- Supporting client and counterparty reviews with deep sanctions screening, beneficial ownership, and trade activity profiling
- Providing surge capacity for alert disposition, especially where sanctions or trade-based red flags are present
- Considering alert-handling workflows and offering tactical and strategic remediation guidance
- Delivering compliance advisory services to help strengthen governance, enhance policies, and align with regulatory expectations
- Assisting with regulatory exam preparation and validation of AML and sanctions program enhancements
For more information or questions about TBML, please reach out to a professional at Forvis Mazars.
- 1 FATF Guidance – https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Trade-Based-Money-Laundering-Trends-and-Developments.pdf.