Anti-money Laundering Framework Research Articles

Intelligence and Corruption

The Journal of Intelligence, Conflict, and Warfare is pleased to publish the following thought piece from one of our esteemed Speakers from the 2020 West Coast Security Conference. The author, Mr. Dalip, is a lawyer working in the financial crime and corruption sphere. From 2015 to 2018, Mr. Dalip was a chairman at the Steering Group Planning Committee for the Caribbean Financial Action Task Force (CFATF); and from 2014 to 2018, he was a special legal advisor to the Ministry of Attorney General Trinidad and Tobago. The intersection between corruption and intelligence is gaining increased focus. Foreign intelligence services have an anti-corruption role at the strategic level through Intelligence Risk Assessments and at the operational level during post-conflict operations. Intelligence assessments of the effectiveness of non-kinetic tools on target countries also guide implementation and policy changes. The roles of security intelligence and foreign intelligence services are, however, no longer always discrete, particularly in the context of non-state actors. Foreign intelligence services would benefit from the skill sets of security intelligence agencies in detecting corruption related predicate offences, both in performing their core roles and supporting law enforcement operations. This includes the use of financial intelligence as well as other key open source intelligence resulting from anti-money laundering frameworks, the development of which has been driven globally by the Financial Action Task Force. In performing these roles, intelligence agencies must also be mindful of their own vulnerability to corruption.

How Trinidad and Tobago's Anti-Money Laundering Framework Affects Its Commercial Operations

A paper interrogating the direct and indirect effect of Trinidad and Tobago's anti-money laundering regime on its commercial banking operations and the resulting tension between the bank's civil duties and obligations to its customers and the public duty imposed by anti-laundering legislative frameworks to stop money laundering. The paper also considers the strategic deficiencies within Trinbago's anti-laundering regime.

An Intelligent and Secure Framework for Anti-Money Laundering

This paper aims to secure money transactions due to money laundering crimes. It presents a Secure Intelligent Framework for Anti-Money Laundering (SIFAML). This framework is new and includes two main processes. In addition, it supports several modules. The first process is the monitoring process for detecting possible ML. The second process is a STRIPS-based planning process that targets strengthening the belief in the potential problems detected in the monitoring process. In addition, STRIPS is a hierarchical planning technique that makes utilization of the means-ends tactic, by finding the goal in the root of the hierarchical. It searches gradually for the plan services that can diminish the distinction between the current state and the goal. An important feature of SIFAML is the integration of the planner and the OWL-'s reasoner. This means that the reasoner might do the entire planner’s interactions with a particular state. In addition, SIFAML contains several supporting modules for data gathering and mediation, link analysis, and risk scoring. To present the applicability of SIFAML, it has been discussed using different instances. This work provides an analytical study and a comparison between the performance and capabilities of SIFAML and other related works are given and the concluding remarks are discussed. The proposed framework improves the discovery of ML and reduces false-positive alarms. It moves anti-money laundering frameworks to make use of an intelligent formalism by using ontology and STRIPS-based planning. Finally, this work introduces SIFAML as a novel ontology-based and plan-based system for AML frameworks.

Is there a commendable regime for combatting money laundering in international business transactions?

Purpose Money laundering and grand business corruption continue to plague the global economy, accounting for 2%-5% of the global gross domestic product. Illicit funds, produced through grand corruption, are laundered using complex layering schemes that cloak them in legitimacy by concealing their origins. Lamentably, weak anti-money laundering (AML) frameworks promote economic instability, unjust commercial advantages and organized crimes. This study aims to highlight the need for comprehensive anti-corruption and AML frameworks by critiquing the exploitable gaps in the global AML regime created by heterogeneous state-level AML regimes to date. Design/methodology/approach This study welcomes the United Nations Convention against Corruption (UNCAC) and the financial action task force (FATF) recommendations but underscores the limitations of their effectiveness by investigating state-level enforcement mechanisms to determine these instruments’ true impact or lack thereof. The mutual evaluation reports (MERs) and state-level AML regimes in the UK, the USA and Canada are analyzed to illustrate the distinct implementation of international soft law in domestic legislation. Findings This study finds that UNCAC and the FATF recommendations are pivotal steps towards the establishment of a global AML regime for international business, albeit, one that remains imperfect because of the inconsistency of state-level AML frameworks. Consequently, international cooperation is needed to navigate and improve the discrepancies in varied AML legislation. Originality/value The author provides an in-depth and balanced analysis of current state-level AML developments and relies upon the recent 2016-2018 MERs to indicate the successes and flaws of various AML legislation. Therefore, this critique may guide stakeholders to construct robust AML frameworks and contributes to academic research in AML.

A review of money laundering literature: the state of research in key areas

PurposeThe purpose of this study is to review the literature on money laundering and its related areas. The main objective is to identify any gaps in the literature and direct attention towards addressing them.Design/methodology/approachA systematic review of the money laundering literature was conducted with an emphasis on the Pro-Quest, Scopus and Science-Direct databases. Broad research themes were identified after investigating the literature. The theme about the detection of money laundering was then further investigated. The major approaches of such detection are identified, as well as research gaps that could be addressed in future studies.FindingsThe literature on money laundering can be classified into the following six broad areas: anti-money laundering framework and its effectiveness, the effect of money laundering on other fields and the economy, the role of actors and their relative importance, the magnitude of money laundering, new opportunities available for money laundering and detection of money laundering. Most studies about the detection of money laundering have focused on the use of innovative technologies, banking transactions or real estate- and trade-based money laundering. However, the literature on the detection of shell companies being explicitly used to launder funds is relatively scarce.Originality/valueThis paper provides insights into an area related to money laundering where research is relatively scant. Shell companies incorporated in the UK alone were identified to be associated with laundering £80bn of stolen money between 2010 and 2014. The use of these entities to launder billions of dollars as witnessed through the laundromat schemes and several data leaks clearly indicate the need to focus on illicit financial flows through such entities.

State and institutional capacity in combating money laundering and terrorism financing in armed conflict

PurposeThe purpose of this paper is to explore the relationship and implications of institutional autonomy and capacity through the Central Bank of Syria in its ability to implement an effective anti-money laundering (AML) and counter-terrorism financing (CTF) framework during a period of intense armed conflict.Design/methodology/approachDue to the lack of reliable data currently available on Syria, this paper focuses on Syria’s AML/CTF legislation through passed laws and regulations; annual reports on the Central Bank of Syria and the AML and terrorism financing authority; the academic literature on money laundering, terrorist financing and institutional capacity. This paper will address the theoretical framework of Coleman and Skogstad’s characteristics that define the degree of autonomy and capacity of an institution. Though their characteristics are applied toward the Canadian state, for the purpose of this paper, they have been adopted in the absence of their use verbatim in the case of the Central Bank of Syria.FindingsThe Central Bank of Syria has experienced diminishing independence due to conflict-induced stress in Syria’s financial sector. This loss of autonomy is attributed to the prioritization of government-led emergency policies to secure and stabilize Syria's economy. Despite this loss, the Central Bank of Syria has maintained considerable and effective improvements in Syria’s AML/CTF framework, aligning it closer to that of international standards promoted by the Financial Action Task Force (FATF). Institutional gaps, however, still exist. These gaps imply that the Central Bank of Syria still lags in a number of areas that affect its capability in implementing a more effective AML/CTF framework.Research limitations/implicationsThe conflict in Syria is still a very new topic that lacks a considerable amount of reliable data. As such, many research limitations were encountered despite the volume of information reviewed for this paper in both Arabic and English. Nevertheless, this paper provides a clearer understanding of how state capacity is reflected in its institutions through certain policies and approaches taken by a central monetary authority with implications and results in a country rattled by years of intense conflict.Practical implicationsDespite the research limitations and implications, this paper provides a clearer understanding of how state capacity is reflected in its institutions through certain policies and approaches taken by a central monetary authority with implications and results in a country rattled by years of intense conflict. This can be useful for institutional policymakers, as well as academics exploring the relationship between the state and its institutions in times of hardship.Originality/valueThough there is AML/CTF literature on Middle Eastern countries such as Egypt, Jordan and Saudi Arabia, very little is written on Syria. There is also very little written on the broader subject of state and institutional capacity through the lens of an effective AML and CTF framework during a period of intense armed conflict. By looking at an ongoing conflict, this paper explores a subject with as much detail as needed to provide an illustration of the relationship and implications of institutional autonomy and capacity in relation to the state through an effective AML/CTF framework in a country with a struggling financial system.

Money laundering control: the missing link in Trinidad and Tobago

PurposeThis paper aims to examine the socio-economic effect of money laundering in Trinidad and Tobago. It assesses the efficacy of the administration of justice in addressing money laundering and the confiscation of the proceeds of crime. It identifies deficiencies within the existing anti-money laundering system and provides recommendations to ensure a robust anti-money laundering framework in keeping with international standards.Design/methodology/approachThe paper embraces a pluralist approach. It uses qualitative and quantitative methods and uses a case study approach with contextual qualitative analysis. Empirical data are used and causal connections are linked to the analysis.FindingsThe paper highlights a fragmented and inefficient system in addressing money laundering and the confiscation of the proceeds of crime. It concludes that a robust money laundering framework, which meets international standards, requires strong legislative and institutional alignments that promote timeliness, collaboration and efficiency across many agencies.Research limitations/implicationsFindings are limited to Trinidad and Tobago and to the period ending December 2018. Accordingly, these findings lack generalisability.Practical implicationsTrinidad and Tobago needs to revisit its silo approach to anti-money laundering (AML). New policies which embrace harmonisation, collaboration and timeliness in adjudicating upon ML matters are critical.Social implicationsThe negative socio-economic effects of money-laundering are considered in this paper. A disruption of money laundering and the confiscation of the proceeds of crime, benefits society economically and socially.Originality/valueTrinidad and Tobago has been listed as a country with strategic AML deficiencies by the Financial Action Task Force (FATF). This study provides assistance in guiding much needed reform in the anti-money laundering area and has not before been undertaken.

Dirty money in the banking sector

Purpose The purpose of this study is to analyze the Lebanese anti-money laundering (AML) paradigm in light of banking secrecy law. The phenomenon of money laundering that was first associated with the crime of drug trafficking developed a lot since the early 1900s to become a major threat to the world’s economy today. The fight against this ever-growing crime, with multiple sources and origins, has been the centre of attention of the biggest countries in the world. Thus, the need for international AML standards was required, by which countries must abide, to ensure an effective fight against this crime. The issue of banking secrecy regulations was important to study along with the AML framework as the principles of the first totally contradict those of the latter. Design/methodology/approach The scope of this study first entails a qualitative technique. It will start with analysing existing legal provisions on money laundering and studying the AML framework internationally and in accordance with the Lebanese banking system. For that, websites such as GoogleScholar and HeinOnline were used to collect many scholars articles. Additionally, Laws, Regulations and Directives have been examined for the purpose of establishing the legal basis for the fight against money laundering. Moreover, an interview was conducted in 2018 with the Lebanese Financial Prosecutor, which served as data related to the operations of the Special Investigation Commission (SIC) in Lebanon, which is the Lebanese Financial Intelligence Unit. Second, quantitative research has been done. Reports of the Association of Banks in Lebanon, Financial Action Task Force Report and Annual Reports of the SIC of Lebanon have been used to gather information related to the AML/combating the financing of terrorism framework, such as customer due to diligence provisions and know-your-customer requirements and to collect statistics of suspicious reports. Findings The question of “How to balance the confidentiality of the Lebanese banking sector with the interest of the international community in the fight against money laundering?” was interesting to study, as it turned out that the existence of such professional secrecy does not affect the effective implementation of the AML guidelines by banks and other financial institutions. This can only happen when there is a special judicial organ to which banking secrecy is not opposable at any time, and which is the sole organ entrusted with lifting off this professional secrecy and allowing the disclosure of information to the competent authorities. Thus, the Lebanese banking system can ensure total compliance with the AML framework while still adopting banking secrecy regulations. Originality/value The choice of Lebanon was compelling because of the special level of protection its banking secrecy law offers.

Exploring the links between AML, digital currencies and blockchain technology

Purpose This paper aims to explore the implications of the 2014 Financial Action Task Force (FATF) publication and guidelines on virtual currency definitions and the overall impact of blockchain technology on anti-money laundering (AML) compliance and regulation. The report cites three case study examples, which the FATF paper uses and which this paper questions as to their relevance, especially to the formal banking sector. Design/methodology/approach The paper has provided a critical analysis of a FATF publication and guideline document. Additional secondary data has been used on blockchain technology and to analyse the relevance and implications of the case studies used in the FATF document. Findings The main findings are that virtual currency technology has the potential to support AML frameworks within banking when and if they are better understood. However, generic case examples of virtual currency legal cases are not necessarily useful when developing AML risk assessment frameworks within the banking sector. Practical implications The implications from the research affect any financial organisation undertaking AML risk analysis or compliance especially for virtual currencies. It applies to the banking, insurance and auditing professions and is of interest to academics working on virtual and digital currencies. Social implications The social implications are that virtual currency technology can be used to add protection to banking transactions and could also be considered for client identity information such as beneficial ownership. Originality/value The originality of this paper is the topic of blockchain technology being considered in AML frameworks and the critical analysis of the FATF cases.

Follow the Money, If You Can - Possible Solutions for Enhanced FIU Cooperation Under Improved Data Protection Rules

Financial information can play a key role in tackling Money Laundering (ML), Terrorist Financing (TF) and combatting serious crime more generally. Preventing and fighting ML and the financing of terrorism were top priorities of the European Agenda on Security, which might explain the fast developments regarding the regulation of Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF). During the past years, the European Commission (Commission) proposed several legal texts to reform the current AML framework and to facilitate timely law enforcement (LE) access to financial data for the prevention, detection, investigation and prosecution of serious crime. The line between administrative sanctions and criminal law measures seems to become increasingly blurred, as the latest proposals are no longer based on an internal market provision, but on police and judicial cooperation legal bases. Financial Intelligence Units (FIUs) play a crucial role in analysing and exchanging information concerning suspicious transactions, serving as intermediaries between the private sector and Law Enforcement Authorities (LEAs). Because of the international nature of financial crime, cooperation between FIUs is of paramount importance. Yet, due to different organizational settings in the EU Member States, FIUs are not always able to exchange data effectively, which leads to information gaps. One of the reasons why the data exchange between FIUs is impeded are data protection rules that apply differently depending on the organizational structure of the FIUs in the 28 Member States. Whereas some FIUs must adhere to the stricter data protection rules under the General Data Protection Regulation (GDPR), others may exchange data more flexibly within the scope of the data protection Directive for police and criminal justice authorities (LED). Therefore, the counter-argument to granting broader LE-access rights to financial data by LEAs could be to enable a more effective exchange of data between FIUs. This article argues that FIUs should be able to process personal data within the scope of the LED, in order to have more flexibility to receive, analyse and exchange data: On the one hand, the LED provides sufficiently high data protection standards and adequate safeguards for data subjects while allowing FIUs to carry out their tasks effectively under harmonized rules. On the other hand, this would be an argument to strengthening the role of FIUs as neutral intermediaries instead of granting additional access to personal data by LEAs.

Assessing the effectiveness of the EU AML regime: Detecting and investigating cases of trafficking in human beings

The effectiveness of anti-money-laundering (AML) mechanisms within the European Union (EU), in the context of the detection and investigation of trafficking in human beings (THB), is the focal point of this article. The article begins by examining the EU’s emphasis on proactive financial investigations in cases of THB and then moves on to examine EU AML framework. Special attention is paid to the 4th AML Directive (Directive (EU) 2015/849), the Second Transfer of Funds Regulation (Regulation (EU) 2015/847), the Second Payment Services Directive (Directive (EU) 2015/2366) and the Cash Control Regulation (Regulation (EC) 1889/2005). The modus operandi of traffickers operating within the EU when laundering the proceeds of their crimes is then studied, with the view of assessing the effectiveness of the framework. The analysis shows that the EU AML framework fails to capture some common modes of money laundering (ML) in THB cases and in addition, it is less effective when the criminal proceeds are laundered within the EU. The analysis furthermore shows that the EU AML regime is largely dependent on the ML risk assessment of private actors, many who do not comply with their AML obligations and are widely insufficiently monitored within the Member States (MS). The article concludes that the limitations of the EU AML framework and it’s enforcement in the MS have resulted in difficulties both in detecting ML associated with THB and in gathering evidence during THB investigations.

A risk-based approach towards infringement prevention on the internet: adopting the anti-money laundering framework to online platforms

This paper suggests a new approach towards online service provider liability which relies on duty of care. It proposes a concrete compliance framework for online platforms, borrowed from risk regulation, and modeled on anti-money laundering (AML) obligations in the financial sector. First, the prohibition on obliging platforms to monitor content in a general manner under the E-Commerce Directive will be discussed. On the face of it this may clash with a standardized requirement to filter for infringing content. Subsequently, the regulatory choice for such a duty of care standard will be explored. It is argued that the largely self-regulatory proposals currently on the table may be ill fitted to achieve traction and accountability. Finally, a three-tier compliance framework, modeled on the AML system and using a risk-based approach, is proposed. The pitfalls of such a highly automated compliance solution, which enforces complex legal norms, will also be touched on.

Kenya’s deficiencies in its anti-money laundering/counter-terrorist financing framework: An analysis and possible solutions

The theme of this paper is the gaps that are prevalent in the Kenyan anti-money laundering (AML) framework. In order to clearly illustrate these gaps, the paper refers to AML frameworks in other jurisdictions and shows how these have been able to deliver a more robust system that more efficiently detects and prevents money laundering. This comparative approach goes to demonstrate that the governmental institutions in countries that have vibrant AML frameworks have put in a lot of effort and resources to ensure that this is the case. The paper goes on to recommend possible solutions to the gaps that have been outlined. One of the key learning points for the reader is that for governments to ensure that the AML frameworks in their countries are efficient and effective, they must consider learning from other jurisdictions so as to improve what is already in place. Secondly, it is clear that even after having an AML framework in place, continuous improvement of the same is paramount to ensure that the framework remains robust over the passage of time. Thirdly, another learning point is that AML frameworks are increasingly becoming entwined with other legal and governance frameworks such as the prevention of identity theft and whistleblowing. From the paper it is clear that to have a well-established AML framework, it is prudent for governments to consider having in place other frameworks such as whistleblowing and identity theft prevention laws, as well as an enforcement mechanism to ensure the AML structure is well supported.

Practical application of anti-money laundering requirements in Bangladesh

PurposeThis paper aims to provide an insight into anti-money laundering (AML) regulations in light of the global AML framework. Specific analysis is drawn using a case study of Bangladesh – the national financial culture within the country is carefully examined to establish the extent to which it is conducive to adopting such frameworks. Particular focus is placed on customer due diligence requirements, and the unique challenges posed by alternative remittance systems. The paper evaluates the impact of globalisation as well as the correlation between developments based on resources available to the respective state.Design/methodology/approachThe research has primarily been conducted through the usage of relevant websites (reports compiled by national and international agencies) and journal articles in electronic format. References have been made to studies and works carried out by authors on the global AML framework.FindingsThe internal structural development of Bangladesh must be enhanced and the various social and economic issues must be overcome before a practical AML framework can be successfully implemented.Research limitations/implicationsThe lack of published works on AML in Bangladesh is a shortcoming, and more work on this subject is encouraged. The absence of specific AML reports on Bangladesh has resulted in some informed assumptions based on other developing countries.Practical implicationsThe research provides a deep insight into the global AML framework, how it can be applied to developing countries like Bangladesh and the drawbacks of implementing a universal framework domestically.Originality/valueThe study provides an innovative analysis, examining aspects of AML regulation in Bangladesh which have not previously been effectively studied.

Anti-money laundering and sanctions compliance challenges for custody services

US federal and state agencies are bringing more enforcement actions, and obtaining larger penalties than ever, for anti-money laundering (AML) and financial sanctions violations. US AML and sanctions obligations extend to all bank and broker– dealer operations, including custody operations. This paper describes the AML and sanctions frameworks applicable to bank and broker–dealer custody operations, and discusses three key compliance risks for those activities: accounts held for financial intermediaries, foreign financial institutions and microcap securities.

Policing intermediaries in the EU anti-money laundering framework

Policing intermediaries in the EU anti-money laundering framework

Trade based money laundering: towards a working definition for the banking sector

Purpose – This paper aims to explore in depth some of the main criminal elements involved in trade-based money laundering (TBML) and outlines the gaps in banking risk assessment as a result of this. The focus is on new and emerging risks due to criminal manipulation of the anti-money laundering (AML) risk assessment processes. Design/methodology/approach – The paper uses secondary data to provide the current context in which TBML risk assessment is being carried out and how criminals have responded to this; it concludes the empirical section by surmising the emerging risks that AML risk assessment need to consider. The paper then introduces the basic components that future theoretical frameworks looking at banking AML risk assessment would need to consider. This includes a more in-depth understanding of how criminals are bypassing AML risk assessment so that countermeasures can be put in place and AML frameworks strengthened and updated. Findings – The main findings are that sophisticated criminal processes exist that can be used to bypass and divert current banking risk assessment techniques. An overdependence on traditional customer due diligence and transaction monitoring can easily be thwarted, and banks need to develop a stronger AML assessment framework. Research limitations/implications – The research focused primarily on client documentation; however, another area of research would be needed to cover criminal manipulation of trade documents and other components of TBML transactions. Practical implications – The implications from the research affect any financial organization undertaking AML risk analysis or compliance. It applies to the banking, insurance and auditing professions, as well as is of interest to academics working on TBML projects. Social implications – The social implications are that non-criminal clients within banks could be faced with tougher requirements for documentation and ID proof, which could reduce efficiency and, if not handled properly, even alienate further some sectors of society who are already struggling to access the main banking and financial services sectors. Originality/value – The originality of this paper is the inclusion of criminal responses to TBML risk assessment and a review of flaws and gaps in AML risk assessment procedures. Dynamic risk assessment needs to be continuously updated and new emerging market risks appropriately addressed. This paper highlights some of the current and emerging AML risks for the banking and financial services sector.

Political corruption and money laundering: lessons from Nigeria

Purpose – This paper aims to discuss political corruption in Nigeria and to assess the limitation of the immunity clause of the Nigerian constitution. This is particularly important in light of the recent developments to criminalise money-laundering in the country. Design/methodology/approach – This paper evaluates the legal anti-money laundering framework in Nigeria, in particular, the impact of the immunity clause of Nigerian constitution. Findings – Endemic corruption of the political elite leads to the abuse of the constitutional immunity clause, and significantly impairs the activities of the anti-money laundering agencies. Research limitations/implications – This paper draws on the experience of Nigeria, and is specifically looking at one obstacle on the way to fight money laundering and corruption. It is important to conduct further comparative analysis. Originality/value – This paper discusses political, economic and legal developments in Nigeria to show how the immunity clause prevents the successful prosecution of corrupt Nigerian politicians, and discusses measures taken to prevent corruption in the country.

Scoping the regulatory environment for harnessing normative anti-money laundering laws in LDCs

Purpose – The paper aims to explore the regulatory environment in less developed countries (LDCs) to evaluate their preparedness to harness normative anti-money laundering (AML) regimes. The global AML/CFT regimes are evolved at a global level but implemented within sovereign states – different regulatory environments and the possibility of regulatory disparities. The fundamental question this paper seeks to answer is whether the global AML framework can be as carefully designed as to afford a level playing field to all participating countries? Is this a possible prospect and if not what should be the way forward? The paper articulates the regulatory environment in LDCs to evaluate its implications on individual state's ability to harness normative AML regimes. Design/methodology/approach – This paper was partly written by an empirical study based on the author's familiar experience in relation to financial markets regulation and the challenges in LDCs. The paper was also partly written drawing on the aut...

Working Paper 14: Using money laundering investigations to fight corruption in developing countries

Anti-money laundering systems have the potential to curb the use of proceeds of corruption and other crimes by the perpetrators. An effectively implemented anti-money laundering framework limits the channels through which illicit funds can be laundered, making crime riskier and reducing the incentives for corrupt activities.
 However, those who stand to benefit from corruption have strong incentives to block anti-money laundering programmes. In addition, these programmes face significant obstacles to effectiveness in most developing countries. Relevant institutions do not trust each other sufficiently to share information necessary for investigations. Counties lack qualified staff and necessary resources, and slow bureaucratic procedures are unable to keep up with the speed of financial transactions.
 This paper explores these and other domestic obstacles and suggests strategies to overcome them, based on an analysis of the situations in Albania and Tanzania.