HK Customs & Trade-based Money Laundering

I had a privilege to learn about the approach of the Hong Kong Customs & Excise Department to countering TBML risks. In this week’s newsletter, I would like to share a structured view on how it has become one of the most sophisticated financial crime agencies in Hong Kong. The agency now combines:

• full AML investigative powers (unlike many customs agencies globally);

• regulatory authority over Money Service Operators (MSOs) and Dealers in Precious Stones and Metals (DPSMs);

• access to trade declarations, import/export manifests & logistics data; and

• active participation in the JFIU and intelligence task forces.

As the result, HK Customs now plays a dual role as financial investigator and sectoral regulator, giving it visibility across trade flows, money flows, and commodity movements.

But first things first.

TBML is Now a Priority Risk

What is Trade-based Money Laundering (TBML) and why is it important?

TBML is a complex and sophisticated method used by criminals to launder illicit proceeds through international trade. Data largely varies with some pointing to over USD 60 billion in proceeds globally over the past decade or so. However, no matter the figure, the trend is clear:

TBML is escalating globally, both in scale and sophistication.

Some of the most common factors contributing to the rise of TBML include:

• International trade volume

• Complex multi-jurisdiction supply chains

• Asymmetric access to information (banks vs customs authorities)

• Weak verification of shipping documents

• Cross-border laundering networks using trade to disguise value transfer

• Most common TBML techniques: mis-invoicing, mispricing, phantom freight, multiple invoicing, misdescription of goods

Understandably, Hong Kong is a high-risk jurisdiction due to its role as a global logistics hub and trading platform, making TBML a major priority.

HK Customs’ Dual Role in AML

Hong Kong Customs serves as both financial investigator and regulatory body.

Under Hong Kong’s Anti-money Laundering Ordinance (AMLO), the agency is empowered to:

• investigate money laundering inside and beyond the border,

• trace criminal proceeds across bank accounts and trade activity,

• seize assets and disrupt financial flows,

• jointly operate the JFIU with Hong Kong Police,

• participate in multiple FIU-led task forces with banks and VASPs.

Unlike traditional customs agencies, Hong Kong Customs’ mandate extends deep into financial investigations, not just border enforcement.

And at the same time, HK Customs regulates:

• Money Service Operators (MSOs)

• Dealers in Precious Metals and Stones (DPMS)

These are sectors with:

• high TBML exposure

• high cross-border payment activity

• weak governance in some cases

• increasing overlap with virtual asset flows

Their supervisory intelligence feeds back into AML investigations.

TBML Detection

Customs leverages a combination of trade data + financial intelligence + entity profiling to identify anomalies. Core analytical methods include:

• Macro trade analysis:
  Cross-jurisdiction comparisons of trade flows, commodity codes, values, volumes, and frequency.

• Entity-level anomaly detection:
  Sudden spikes in trading activity, new trading partners, shifts in export/import patterns.

• Cross-referencing trade data with STRs:
  Verifying whether remittances are supported by legitimate shipments.

• Document verification:
  Bills of lading, purchase orders, logistics records, checking if shipments actually occurred.

• Collaboration with foreign customs authorities:
  Especially important for verifying goods descriptions and authenticity.

The most common TBML techniques include: mispricing, misdescription, multiple invoicing , phantom shipments and circular U-turn flows. Each one is as old as the world itself.

What Can We Do About It?

It really depends on where you are in the food chain, and how proactive you’d like to be in the fight against TBML. In an ideal world, financial institutions would:

• Identify the specific TBML method suspected (e.g., misinvoicing, phantom freight).

• Provide transactional context (commodity type, price anomalies, country flows).

• Avoid generic “suspicious movement” language.

• Escalate TBML-relevant STRs early.

The worst possible outcome is to simply exit the relationship. Why?

It is unlikely that TBML can be understood at an individual-account level. Money laundering organizations will simply move to another bank. Therefore, financial institutions must assess the network of related accounts and counterparties.

After all, TBML is a network crime. It takes a network to address it.

Bottom Line

Each firm’s risk management framework should incorporate the following components:

Risk Assessment

• Refresh TBML risk indicators in your financial crime compliance risk framework.

• Incorporate known typologies

• Strengthen red-flags for trade/fund mismatch, unusual pricing, circular flows.

Controls

• Enhance TBML detection logic in transaction monitoring.

• Ensure TBML keywords / patterns are embedded in STR workflows.

• Verify your ability to identify mispricing using external data sources.

Escalation

• Mandate clear typology naming in STR narratives.

• Build direct outreach pathways to Hong Kong Customs for document validation.

Training

• Deliver specific TBML training referencing known cases.

• Increase understanding of known scam techniques and commodity fraud.

Partnership

• Engage proactively with Customs on high-risk trade clients.

• Join Customs intelligence-sharing forums when available.

Thanks for reading,

Alexey