This paper examines the potential misuse of external commercial borrowings (ECBs) as channels for trade-based money laundering (TBML), using India as a case study. While ECBs are an essential source of foreign capital, especially in developing economies, their intersection with TBML risks remains largely unexplored in academic and regulatory discourse.
The study uses a policy and data-based analytical approach. It reviews Reserve Bank of India (RBI) circulars, Foreign Exchange Management Act (FEMA) regulations and international anti-money laundering (AML) guidelines to identify areas where current safeguards may be inadequate. A simple four-layer forensic risk framework is then applied to RBI’s published ECB data to highlight combinations of lender type, sector and loan maturity that tend to show higher exposure to TBML-related risks. In this context, forensic refers to a structured, evidence-based method of risk detection rather than an investigative audit.
The analysis reveals that ECBs involving related-party lenders or funds routed through opaque jurisdictions are more likely to conceal trade-linked laundering activity. These patterns are most observed in sectors such as finance, petroleum and metals. Although the current FEMA and RBI frameworks are strong on debt control and end-use restrictions, they remain weak in linking capital flows with trade-level data.
The paper proposes a four-layer forensic risk assessment framework that combines regulatory data with red-flag typologies. The framework provides a model for other emerging economies to strike a balance between external finance and AML safeguards.
This paper is one of the first to examine ECBs from a money laundering risk perspective, combining policy review with data-driven risk scoring. It provides a practical approach for regulators in emerging economies to strike a balance between the need for foreign capital and enhanced AML oversight.
