Anti-money Laundering Efforts Research Articles

The Impact of Cryptocurrency on Money Laundering Practices

The coming of cryptocurrencies has, amazingly, changed the face of the financial space. It has opened up opportunities and challenges in the field of money laundering. The deep impact of cryptocurrencies on the practice of money laundering becomes a detailed study. Since digital currencies are embedded with inherent characteristics, such as anonymity, decentralization, and the ease of performing cross-border transfers, criminals have now found new ways to conceal their illicit financial activities. The paper critically reviews how cryptocurrencies are used in money laundering schemes, evaluates the effectiveness of current legal provisions and anti-money laundering measures, and reviews case studies that exemplify real-world applications and challenges to regulatory bodies. Moreover, it offers recommendations on the use of new technologies, like blockchain analytics, toward better detection and prevention of money laundering through cryptocurrency. The paper thus provides a range of useful insights, associated with recommendations for the strengthening of the global regulatory framework in dealing with the increased threat of cryptocurrency money laundering, through a synthesis of the literature review, case analysis, and expert interviews. The paper contributes to this debate by providing insight into the challenges that regulatory authorities face and making recommendations to improve anti-money laundering efforts in the cryptocurrency space. This is done through an in-depth review of recent cases and legislation in this area. The findings were that, though cryptocurrencies pose a great challenge, innovative technology solutions coupled with international cooperation can play a vital role in mitigating the risks associated with cryptocurrency-based money laundering.

Money laundering prevention: the challenge of insurance termination for outlaw biker gangs’ club houses

PurposeThe purpose of this paper is to discuss the legal barriers to termination of an insurance arrangement where there is suspicion of money laundering when paying insurance premiums.Design/methodology/approachTrials in court between insurance firm and outlaw biker gangs regarding insurance of their clubhouses.FindingsProtection of insured seems more important than prevention of money laundering.Research limitations/implicationsThis is a case study that cannot be generalized.Practical implicationsAnti money laundering is difficult when competing with other considerations.Social implicationsAccusations of money laundering is not sufficient to terminate an insurance contract. Rather, solid evidence is needed.Originality/valueThis is a real case of failing anti-money laundering efforts.

Bitcoin Address Clustering Based on Change Address Improvement

Change address identification is one of the difficulties in bitcoin address clustering as an emerging social computing problem. Most of the current-related research only applies to certain specific types of transactions and faces the problems of low recognition rate and high false positive rate. We innovatively propose a clustering method based on multiconditional recognition of one-time change addresses and conduct experiments with on-chain bitcoin transaction data. The results show that the proposed method identifies at least 12.3% more one-time change addresses than other heuristics. On top of the multi-input heuristic clustering method, the proposed method also improves the address clustering performance by 5.7%, achieves optimal recognition results compared with similar methods, and significantly reduces the false positive rate of recognition results. This work provides the technical basis for antimoney laundering efforts based on entity identification. Code and data could be accessed from https://github.com/ECNU-Cross-Innovation-Lab/BitcoinAddressClustering.

Anti-money laundering and customer due diligence: empirical evidence from South Africa

PurposeThe purpose of this study is to examine the South African banks’ customer due diligence (CDD) practices in the fintech era to mitigate money laundering (ML) risks and ensure financial stability. Financial technologies have brought substantial transformations to the financial services sector. However, such technologies have exposed the sector to emerging risks that threaten the integrity and stability of the financial system globally. Before any bank–customer relationship is established, proper customer background checks must be conducted. These background checks enable financial institutions to validate information provided and ensure customers are properly risk profiled. Failure to risk profile customers could result in financial institutions being used as conduits for ML. Undoubtedly, CDD procedures are pivotal to overall anti-money laundering efforts and curbing financing terrorism in a regulatory framework.Design/methodology/approachA qualitative research approach was adopted to address the research questions of the study. Given the confidentiality associated with the financial services sector, data triangulation was used in blending mainly secondary and primary data sources. Secondary data sources used in the study were published reports available in the public domain that were corroborated with subject matter experts’ interviews.FindingsBased on the findings of this study, it is concluded that in South Africa, technological solutions have been incorporated into CDD functions, which is now risk-based (enhanced due diligence). Also, legally, South Africa has incorporated the biometrics, integration with Department of Home Affairs and Companies and Intellectual Property Commission databases, customer consent to third-party sources with the Financial Intelligence Centre Act and the Protection of Personal Information Act.Originality/valueThe shift towards digital banking in South Africa results in increased data and dynamic risk profiling. This study advocates a policy shift requiring a risk-based approach to mitigating emerging ML risks (in particular digital laundering), especially in the wake of South Africa’s recent greylisting by the Financial Action Task Force.

Improving Cryptocurrency Crime Detection: CoinJoin Community Detection Approach

The potential of Bitcoin for money laundering and terrorist financing represents a significant challenge in law enforcement. In recent years, the use of privacy-improving CoinJoin transactions has grown significantly and helped criminal actors obfuscate Bitcoin money flows. In this study, we use unsupervised machine learning to analyze the complete Bitcoin user graph in order to identify suspicious actors potentially involved in illegal activities. In contrast to the existing studies, we introduce a novel set of features that we use to identify potential criminal activity more accurately. Furthermore, we apply our clustering algorithm to a CoinJoin-adjusted variant of the Bitcoin user graph, which enables us to analyze the network at a more detailed, user-centric level while still offering opportunities to address advanced privacy-enhancing techniques at a later stage. By comparing the results with our ground truth data set, we find that our improved clustering method is able to capture significantly more illicit activity within the most suspicious clusters. Finally, we find that users associated with illegal activities commonly have significant short paths to CoinJoin wallets and show tendencies toward outlier behavior. Our results have potential contributions to anti-money laundering efforts and combating the financing of terrorism and other illegal activities.

The Impact of AI on Regulatory Compliance and Anti-Money Laundering Efforts in Payment Processing

The paper elaborates on how AI is changing the face of regulatory compliance and anti-money laundering initiatives in the industry for processing payments. This can be done with artificial intelligence tools—natural language processing and machine learning algorithms—applied in areas such as document analysis, anomaly detection, and transaction monitoring. The paper points to increased detection rates, reduced false positives, and improved regulatory reporting associated with the use of AI within the KYC process and customer due diligence procedures more generally. It identifies how AI can transform the financial crime prevention landscape while also acknowledging such challenges as explainability, bias mitigation, and ethical concerns. Finally, some potential future paths in this area, like blockchain integration, federated learning, and the creation of more sophisticated explainable AI models for compliance systems, are discussed.

Reporting Obligations for Attorneys in Money Laundering Cases: Attorney-Client Privilege Under Pressure?

AbstractWith the publication of the Panama Papers in 2016, law firms and attorneys came under the spotlight of international anti-money laundering efforts. It became clear that attorneys, protected by the attorney-client privilege, play a significant role in concealing the origin of illicit funds and the constructing of offshore company-schemes. The public outcry prompted legislators to hold these facilitators accountable and to prevent money-laundering activities by imposing reporting obligation on them, whenever there is the suspicion of a client being involved in illicit activities. Unsurprisingly, attorney and professional associations voiced considerable opposition to these legislative efforts claiming an erosion of the attorney client privilege and nothing less than an attack on the rule of law. This article examines the attorney-client privilege from a historical, empirical, and constitutional perspective. A brief analysis of the legal frameworks in Germany and Switzerland exemplifies how reporting obligations affect legal practice and what challenges exist for attorneys. Both countries are considered global hubs for money laundering activities. The legal concepts of holding attorneys accountable in the neighboring countries differ in some respects. In conclusion, it shows that the legal professions successfully managed to widely avoid a ‘responsibilization’.

Global overview of modern financing typologies to mitigate financial risks in developed countries

In this study, we reviewed the laws and legal regulations that mandate banks and financial services organizations to implement anti-money laundering efforts which are responsible to detect and mitigate the risks of money laundering and modern financing. We examined the topics of money laundering and modern financing in greater depth to understand the risk factors related to each financial crime. Understanding the aspects of each financial crime is necessary to comprehend predicate offense typologies. We continued with a review and synthesis of the literature on money laundering and modern financing typologies. We concluded the review with an analysis of Gary Becker’s economic theory of criminal behavior and the neoclassical approach to criminal behavior. As suggested by the key concepts reviewed in this literature review, predicate offenses are evolving as prevailing conditions of society change. A major global challenge in recent times is the Covid-19 pandemic crisis which has increased financial risks worldwide (Klimczak et al., 2021). Understanding the different types of predicate offenses and typologies portrays a holistic process of how criminals launder money or finance modern acts. A review of the existing literature demonstrated intensive research on the topic of financial crime but there is a gap in the current legislative and financial risk management framework. The legislative and financial risk management framework detects economic uncertainties and risk factors requiring a reevaluation of financial risk measurement methodologies to mitigate the risk consequences of money laundering and modern financing activities. A best practice to provide a sound framework to manage financial risks is for U.S. banking and financial service company compliance managers to identify predicate offense typologies. American society could benefit from the results of the study (Klimczak et al., 2021). The banking and financial industries ought to be prepared for the future and continue to adapt to new emerging threats, varying consumer classification, and changing environment. It is essential for compliance leaders to implement public education initiatives and help their customers recognize their role in combating money laundering and modern financing activities. Overall, the study has contributed to positive social change by identifying predicate offense typologies that can help U.S. banking and financial services company compliance managers reduce the risks of money laundering and modern financing activities (Klimczak et al., 2021).

MIMICKING SISYPHUS? AN EVALUATION OF THE KNOW YOUR CUSTOMER POLICY

Until recently South Africa had reason to consider its anti-money laundering efforts to be comparable with those of the international community. Not only does the country have a comprehensive anti-money laundering regime in place, but its Know Your Customer (KYC) policy compares favourably with policies in place elsewhere. That was the position until recently when a report by the International Monetary Fund criticised South Africa for the apparent failure to successfully prosecute money laundering offenders. This contribution investigates the reasons for the failure. Since banks are compelled to report transactions that involve dirty money to the authorities in terms of the KYC policy, the nature of dirty money is evaluated against the relevant provisions of the Financial Intelligence Centre Act of 2001. It is suggested that much of the blame for the failure to identify and prosecute money launderers can be attributed to the nature of dirty money and the lack of guidance in how to identify it.

The Impact of 9/11 on Money Laundering

This article examines money laundering and terrorist financing from both a conceptual framework as well as the regulations that attempt to combat its use. A historical perspective of money laundering provides context on its origins, evolution, and anti-money laundering efforts. After a review of the money laundering process, anti-money laundering efforts in the United States are examined through the end of the twentieth century as well as the rise of international terrorism. The impact of September 11, 2001 on anti-money laundering efforts is then examined along with identifying links between human and drug trafficking with terrorist financing. The article concludes with emerging technologies that may have a significant impact on both money laundering and anti-money laundering efforts as they apply to the threat of terrorism.

Women and Dirty Money: How Women are Affected by, Involved, and Counter Money Laundering

Money laundering is a growing threat to global and Indonesian national development. Similar independent research has been minimal and has resulted in gender facets of development in general without determining to what extent women are undermined by, involved, as well as counter money laundering. This research discusses on how women can engage in the fight against money laundering, how money laundering specifically undermine women and what about the involvement of women in money laundering offense. The objective of this research is to promote women empowerment and integrate gender perspectives in improving anti-money laundering actions. The principal approach of this research is analytical descriptive using document and content analysis to observe the gendered aspect of money laundering. In this way, the findings may contribute to strengthening women’s engagement in anti-money laundering efforts. The result of this study shows that the involvement of women in anti-money laundering can strengthen prevention attempts, foster trust, and improve community outreach. This role is due to the money laundering specific consequence for women such as the decrease of public revenue available for gender equality services and programs. In addition, since women are less likely to tolerate tax evasion and money laundering, the more women in law enforcement, especially in decision-making roles and consideration to gender-sensitive responses make policing in anti-money laundering more effective.

International cooperation in the investigation of economic crimes related to cryptocurrency circulation

The cross-border nature of transactions with virtual currencies and the use of anonymity technologies exacerbates the difficulties in investigating economic crimes. The purpose of the article was to study the effects of international cooperation in the investigation of economic crimes related to the circulation of cryptocurrency. The research methodology is based on the method of content analysis of reports, recommendations and standards of the FATF (Financial Action Task Force) for 2012-2020, as a leading international organization for the prevention and development of policies for the regulation of economic crimes related to the circulation of cryptocurrencies. The results demonstrate the following effects of international cooperation in the investigation of economic crimes related to cryptocurrency: 1) the need to use a risk-oriented approach of the international community at the global level, coordination of government efforts to prevent economic crimes; 2) formation of a network of organizations that provides an effective balance between existing threats and opportunities for cryptocurrency circulation; 3) the development of free, decentralized management networks at the global level, which is an innovative and effective way to combat criminal activity, compared to traditional centralized forms of coercion in an era of rapid and unpredictable technological change. The considered experience of the absence of regulatory acts of cryptocurrency circulation and taxation of virtual assets on the principle of traditional assets indicates the absence of concern about illegal activities and possible economic crimes in this area. At the same time, decentralized and quasi-autonomous virtual assets could potentially threaten years of global anti-money laundering efforts. There is a “race” in the international community for leadership in combating economic crime. However, such efforts to establish legitimate jurisdictions that meet the requirements of the AML (Anti-Money Laundering) provide few measures in practice to counter and limit the opportunities for money laundering in other jurisdictions.

Estonia's success and Chile's failure

This Article is a critical analysis of the lack of cryptocurrency regulations in Chile and offers gains Chile may have by implementing Estonia’s pro-cryptocurrency approach. Additionally, the absence of regulations in Chile is examined through the comparative lens of Chile and Estonia’s global ranking in anti-money laundering. Part A begins with a brief introduction to blockchain and financial technology. Parts B and C will discuss Estonia’s and Chile’s existing crypto attitudes. Part D will include recent histories of anti-money laundering efforts of both Estonia and Chile. Part E will assess other factors that may also be impacting Estonia’s decrease and Chile’s increase in economic crimes — like money laundering. Finally, Part F will discuss whether a “one size fits all” approach works, and, particularly, if Estonia’s success could transfer to a high-risk country like Chile through the adoption of pro-cryptocurrency legislation.

Role of financial intelligence unit (FIU) in anti-money laundering quest

Purpose The purpose of this paper is to examine the effectiveness of the Financial Intelligence Unit (FIU) of Bangladesh and India in efforts of combating money laundering by these countries through a comparative assessment of several aspects of both FIUs. Design/methodology/approach The two FIUs are compared by using a “multiple case design” method of assessment. The framework for assessment was developed following the earlier models developed by scholars and recommendations of international institutions working on money laundering. Publicly available information from the respective websites of FIUs and annual reports has been used to complete the study. Findings The study has found that FIUs of both countries have improved significantly in fulfilling their mandates. There are several commonalities and differences between the two agencies. Despite showing improvement in several respects, both countries need to address certain basic deficiencies of the existing framework to make the agencies more effective. Originality/value It is supposed that this study will assist both countries to transform their existing FIUs to robust agencies in anti-money laundering efforts by taking care of the weaknesses identified here. It is hoped that the present study will encourage similar studies regarding the problematic areas of FIUs of Bangladesh and India as identified and in respect of FIUs of other countries.

Money laundering through exchange offices

PurposeThe purpose of this paper is to illustrate how money launderers circumvent compliance measures by using exchange offices to launder incriminated funds.Design/methodology/approachThe three-step process entailed carrying out unofficial interviews with money launderers, which gave first insight into the issue, followed by expert interviews that were reviewed by means of a qualitative study. The findings of the qualitative study were processed during the subsequent quantitative research.FindingsAlthough exchange offices are a known threat to anti-money laundering efforts, they continue to be highly applicable. As exchange offices are responsible for their own compliance measures, compliance officers employed by other institutions do not encounter money laundering through exchange offices regularly.Research limitations/implicationsThe findings of the study are limited to the experiences of the interviewed experts, which, naturally, are highly subjective. Further, they are geographically limited, as certain areas were not represented in the study.Practical implicationsDuring the literature review, a research gap was identified. The present study attempts to partially fill the same. The illustrated findings aimed at facilitating an improvement of anti-money laundering measures. The insights into the minds of money launderers provide valuable information for legislators, compliance officers and authorities.Originality/valuePresently, the majority of the literature focuses on the issue of money laundering from a compliance perspective. However, accurately understanding how money launderers circumvent the existing prevention measures requires an exploration of their approaches. To effectively inhibit money laundering, it is necessary to gain a holistic overview of the issue, which entails the observation of both perspectives.

Quo Vadis legal profession participation in anti-money laundering

PurposeThis paper aims to explore the obstacles that the ethical guidelines of legal professionals pose in the implementation of an effective anti-money laundering regime, established in the law on anti-money laundering in Indonesia. Some compliance schemes have been developed to integrate the participation of gatekeepers in anti-money laundering efforts, but the solution to mitigate the challenges must be implemented through the participation of the legal profession.Design/methodology/approachThe study uses a qualitative research methodology, including a triangulation of interviews with relevant experts, literature review and analysis of regulations. A deductive approach is employed to analyse the data.FindingsThe legal profession’s ethical regulations and laws were considered to be the cause for the Indonesian Government’s inability to implement the anti-money laundering regime. The findings show two practical solutions that could be implemented: A government policy for the amendment of the anti-money laundering law and organizational policy to increase support for the anti-money laundering regime; and active participation of legal professionals in an effective anti-money laundering regime in Indonesia.Originality/valueThis study provides insight into the participation of the legal profession in anti-money laundering efforts.

Bitcoin, crypto-coins, and global anti-money laundering governance

Crypto-coins (CCs) like Bitcoin are digitally encrypted tokens traded in peer-to-peer networks whose money laundering potential has attracted the attention of regulators, firms and the wider public worldwide. This article assesses the effectiveness of the global anti-money laundering regime in balancing both the challenges and opportunities presented by these novel ‘altcoins’. Two main arguments are advanced. First, the implications that crypto-coins presently pose for global anti-money laundering efforts stem less from the threats of their illicit uses as digital currencies and more from the opportunities presented by their underlying blockchain technologies. Second, despite several shortcomings, the risk-based approach pursued by the Financial Action Task Force (FATF) strikes an effective balance between the existing threats and opportunities that crypto-coins currently present. Rather than a conclusive evaluation however this article stresses the need for continual monitoring and investigation of the wider ethical implications raised by CCs for global efforts to combat money laundering in an era of rapid technological change.

Blindingly obvious and frequently exploitable

PurposeThe purpose of this paper is to provide an understanding of the openness and specific techniques through which illicit funds generated by criminals are moved, transferred and laundered in the financial arrangement retained using high-value portable commodities in the UK and internationally.Design/methodology/approachThis paper presents exploratory findings from research conducted between 2011 and 2013 in the UK. The research undertaken sought to identify the process, steps and vulnerabilities behind money laundering via high-value portable commodities and highlight the explicit facilitators enabling this method of money laundering to take place.FindingsDespite significant research into money laundering typologies, the use of high-value portable commodities has remained largely untouched regardless of the increased implementation of anti-money laundering policies and procedures seeking to halt the depositing of illicit cash into the global financial system. This paper demonstrates how high-value portable commodities are extremely vulnerable to money laundering despite the large-scale anti-money laundering efforts focused on combating money laundering across a broad range of sectors.Research limitations/implicationsThis paper is of value to government policymakers, regulators and financial institutions considering future preventative measures. It is also of value to financial investigators and law enforcement agencies intent on investigating money laundering. While the paper relies on data from the UK, the overall findings are such that wherever high-value portable commodities are present, so too does the opportunity for money laundering through the financial arrangement retained by high-value portable commodities.Originality/valueThis paper presents new research on the direct link between high-value portable commodities and money laundering in the UK despite significant research having previously taken place to identify and develop money laundering typologies.

Follow the Money. Introduction to the Special Issue ‘Financial Aspects of Organized Crime’

Organized crime emerged suddenly on the political and law enforcement agenda in manyEuropean countries in the 1980s and 1990s. The increasing focus on financial aspects oforganized crime followed suit, but at a much slower pace. Anti-money laundering efforts wereactively promoted by some governments and organizations such as the Financial Action TaskForce (FATF),butwerealsoopposedbyotherparties,as somemeasures imposea highburdenoncertaineconomicsectors(seeforareview,e.g.,LeviandReuter2006;Levi2013;Kilchling2014; Halliday et al. 2014). These sustained anti-money laundering efforts gained newmomentum through the shocking terrorist attacks in New York (2001), Madrid (2004), andLondon (2005), and several recent incidents in European countries and abroad. Consequently,the discussion has been widened from organized crime (with a strong emphasis on drugtrafficking) to terrorism and terrorist funding, although these phenomena and the financialaspects of these phenomena may be quite different in several respects.The discussion on money laundering has a strong policy focus and is dominated byuntested assumptions about offenders and offender behavior, and the impact of criminalnetworks and criminal activities on society. Can organized crime activities and terrorism belumped together or should they be treated separately? What influence does money have onthese phenomena and is this differentfor different aspects such as investing money in criminalactivities, moving and laundering proceeds of crime, and investing money in legal economy?Whatis the impact ofmoney launderingonthe integrity of thefinancialsystem andonsocietyas a whole? Is it really a big threat and in what respect? Can money laundering be curbedthrough specific crime prevention strategies and investigation strategies (‘follow the money’)?And how should these new strategies be integrated in the law enforcement system?Empirical research into financial aspects of organized crime is very important to test theassumptions that are part of public debate, but are often taken for granted, not explicated, andput to the empirical test. Despite the importance of this task, academic researchers — with afew notable exceptions — have not paida lotof attention to these salientquestions. Therefore,

Money for Crime and Money from Crime: Financing Crime and Laundering Crime Proceeds

This article summarises briefly what is known internationally about how ‘organised crimes’ are financed and how this differs from the financing of licit businesses. It shows how illicit financing might and does operate, noting that a key issue is the social capital of offenders and their access to illicit finance which ironically, may be easier if controls make it harder to launder money. It then reviews international evidence on how proceeds of crime are laundered, concluding with an examination of the implications of these observations for the study of organised crime and the effects of anti-money laundering efforts. In money laundering cases internationally, the most commonly prosecuted cases are not complicated. This is not evidence that there are no complicated cases, since the proportion of crime proceeds and crime financing that have been subjected to serious investigation is modest. There is a core contradiction between general economic policy pushed hard multilaterally for liberalisation of financial flows and a crime control policy intent on hampering them. No-one could rationally think that AML controls in general or financial investigation in particular will ‘solve’ organised crime completely or eliminate high-level offending: for there even to be a chance to achieve that, there would need to be a step change in transparency and effective action against high-level corruption along all possible supply chains. However more action (not just legislation) on these could facilitate interventions against the more harmful individuals, networks and crime enablers. The less complex financial activities of local drug-dealing gangs can be intervened against, without needing international cooperation or familiarity with sophisticated money laundering typologies.