Macroeconomic Determinants of Trade-Based Money Laundering: Case of South Africa

Money laundering associated with international trade is known as trade-based money laundering (TBML). Estimating, quantifying and identifying macroeconomic determinants of TBML is vital to provide an indication of illegal financial activity. The main objective of the study was to examine the macroeconomic determinants of South Africa’s estimated TBML with trading partners Africa and the European Union, by empirically examining the short-run and long-run dynamics. A quantitative research design was employed using the autoregressive distributed lag (ARDL) approach, covering the period from 2001 to 2025. The results revealed TBML mechanisms in the two corridors, export under-invoicing dominates the Africa corridor, while the EU corridor had net over-invoicing in exports as well as imports. Trade openness and tariffs had a statistically significant positive relationship with TBML, while real exchange rate depreciation, financial development and institutional quality exhibited statistically significant negative relationships with TBML. Inflation exhibited a statistically significant positive relationship with TBML in the SA–Africa corridor, while the positive relationship in the SA–EU corridor was statistically insignificant. In conclusion, TBML macroeconomic determinants vary in magnitude across the two corridors. These findings highlight that TBML is not driven by a single factor but reflects the interaction of macroeconomic factors.