External commercial borrowings and trade-based money laundering: a forensic risk analysis with evidence from India

Rishu Singh and Haresh B. Barot

Journal of Money Laundering Control, 2026, vol. 29, issue 1, 53-72

Abstract: PurposeThis 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.Design/methodology/approachThe 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.FindingsThe 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.Practical implicationsThe 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.Originality/valueThis 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.

Keywords: Trade based money laundering (TBML); Forensic risk score; External commercial borrowings (ECB); FEMA; Related party; India; Risk exposure score (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jmlcpp:jmlc-10-2025-0179

DOI: 10.1108/JMLC-10-2025-0179

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