Reported by Michael Joseph

(Excerpt shared below. To read full report, go to: https://www.sdcexec.com/software-technology/ai-ar/article/22945695/napier-ai-why-tariffs-are-fueling-financial-crime)

Volatile tariff policies are creating new criminal opportunities across global supply chains. The same invoice manipulation and transshipment schemes criminals use to launder money now also help them evade customs duties. Procurement and compliance teams often lack the coordination necessary to share red flags and cross-validate supplier information, the net result being that criminals exploit these information gaps. Companies that fail to bridge this divide will be exploited by criminal networks.

The price on the invoice doesn’t match reality. The shipping route makes no economic sense. The supplier was incorporated last month but claims decades of experience.

These red flags surface daily across procurement desks, yet most go unnoticed. Why? Because procurement teams focus on operational concerns like quality and delivery while lacking training to recognize the financial crime patterns hidden within routine transactions. This disconnect has created a massive blind spot that criminal organizations exploit with increasing frequency.

Trade-based money laundering is widely recognized as a significant channel for illicit financial flows, with some estimates suggesting it may account for up to 80% of such activity globally, though precise figures remain debated and are not universally accepted. Yet while various estimates put trade-based money laundering(TBML) activity in the hundreds of billions or even trillions of dollars annually, a comprehensive mapping of known court cases worldwide from 2011 to 2021 identified just $60 billion in money laundering. This massive gap between estimated activity and detected cases reveals the true scope of the problem: the vast majority of trade-based money laundering operates in the dark.

The procurement blind spot

Understanding why trade-based money laundering thrives requires understanding how procurement teams evaluate suppliers. These teams focus on production capability, quality standards, and delivery timelines. They conduct factory audits, review certifications, and negotiate contracts. All of this due diligence validates the legitimacy of the business relationship.

Criminals exploit this focus. They create suppliers that pass every traditional procurement check while actively facilitating financial crimes. The factory exists and produces real goods. The quality meets specifications. The delivery schedule is reliable. But the pricing is manipulated, the ownership structure is opaque, and the payment instructions route through shell companies in multiple jurisdictions.

It is estimated that less than 5% of shipments globally undergo compliance intervention, allowing for trade-based money laundering to hide in plain sight. Even when shipments are inspected, customs authorities focus on prohibited goods, not suspicious pricing or payment structures.

This creates a statistical reality that criminals understand better than most compliance teams. With over 20 millioncontainers entering the United States annually and customs inspecting around 5% of sea containers, combined with less than 5% of global shipments undergoing any compliance intervention, the detection risk is minimal. The potential financial gains from these illicit schemes are substantial.