Financial Crime Research Articles

Harmonising cryptocurrency regulation in Europe: opportunities for preventing illicit transactions

This study focuses on the analysis of cryptocurrency regulatory developments in Europe. The aim is to review national crypto-legislation in Europe and the EU's latest initiative to create designated regulatory instruments for the crypto-economy. This study assessed whether the European Union's Regulation on Markets in Crypto-Assets (MiCA) would have the intended effect. Drawing on the results of a survey of crypto experts from five European countries, this study evaluated the effectiveness of current regulation across Europe and how it can be improved to reduce financial crimes. The findings show that a unified national legal framework for regulating transactions with crypto assets does not exist in European countries. Current crypto regulations are dictated by anti-money laundering recommendations. This study provides suggestions for improving MiCA regulation. The article offers recommendations for an international regulatory standard for crypto assets and insights for increasing efficiency in regulating DeFi, NFTs, and smart contracts.

Speed at the expense of safety? Economic crime security concerns in the implementation of the G20 Roadmap for Enhancing Cross-border Payments

This paper argues that, in its current form, the G20 Roadmap for Enhancing Cross-border Payments raises substantial risks for fraud and financial crime, and is highly likely to reduce the effectiveness of the financial sanctions regime. Furthermore, it holds that there is a fundamental disconnect between those G20 policy makers responsible for payment system reform and those authorities responsible for fraud prevention and tackling financial crime. This disconnect is leading to imbalanced policy-making that risks embedding fraud and financial crime vulnerabilities within cross-border payment systems. This paper argues that G20 policy makers need to ensure that payments reform does not create new economic crime vulnerabilities or undermine existing defences against fraud and financial crime. This should involve: (1) greater coordination and a sense of shared responsibility between payments and economic crime-related policy makers, internationally and at the domestic level; (2) the establishment of a policy principle of ‘economic crime security by design’ in payments reform policy; and (3) the deployment of a risk-based approach in faster cross-border payments that would enable customers to opt into safer corridors for payments, allowing for appropriate analysis, screening and the recall of payments where appropriate from a risk perspective.

Transaction Monitoring Netherlands: Fighting financial crime through data collaboration and advanced analytics

This paper discusses the experience of Transactie Monitoring Nederland (TMNL) — a collaboration between ABN AMRO, ING, Rabobank, Triodos Bank and De Volksbank, established in July 2020 to enhance financial security and compliance within the Dutch financial sector. The paper explores TMNL’s impact, the key lessons learned from its implementation and operation, best practices and its potential future role in safeguarding the integrity of the financial sector. As the paper explains, there is a growing consensus that more can be done to strengthen the framework for fighting financial crime through public–private partnerships and increased data/information sharing. To this end, TMNL works to identify potentially unusual transaction patterns that are not visible to individual banks in isolation, underscoring the significance of collaboration and information sharing among financial institutions (and with other key players in the prevention ecosystem), and developing a united front against financial crime. The paper calls for the integration of artificial intelligence and machine learning in identifying complex patterns and anomalies in transaction data and emphasises the need for this to happen in a secure, sustained and viable fashion. It also underscores the ongoing need for regulatory adaptability, arguing that as financial crimes evolve, regulatory frameworks must be dynamic to address emerging challenges effectively. In conclusion, the paper provides valuable insights into the successful implementation of collaborative compliance efforts and the continuous adaptations required to combat financial crime.

Leveraging the Legal Entity Identifier to mitigate the risk of financial crime and enhance fraud prevention in cross-border payments

While today’s global digital economy promises a new era of commerce, its sheer complexity also presents opportunities for malicious actors to perpetrate money laundering, terrorism financing, and other forms of financial crime. Despite the escalating compliance costs faced by financial institutions needing to meet increasingly rigorous anti-money laundering (AML), counter-terrorist financing (CTF) and sanction screening obligations, the lack of harmonisation within cross-border data flows inhibits the identification of suspicious actors and exposure of criminal networks. This contributes to a cross-border payments ecosystem that can be broadly characterised by limited trust, high costs, low speed and insufficient transparency. This is leading to increasing industry recognition of the need to promote unified, data-driven approaches to combating financial crime globally. In view of this growing consensus, the Legal Entity Identifier (LEI) is emerging as a key enabler. This paper examines the drivers of this consensus by: (1) detailing findings from key industry organisations, such as the Bank for International Settlements (BIS) and Financial Action Task Force (FATF), outlining the need to increase data quality and standardisation of the data identifiers used within cross-border payment messages to counter complex global criminal enterprises; (2) outlining regulatory and industry momentum to leverage the unique benefits of the LEI within cross-border payment messages, to include an analysis of the implications and opportunities of ongoing initiatives to enhance payment market infrastructures; and (3) demonstrating how, by addressing inconsistencies in how legal entities are identified, connecting a greater range of datasets, and capturing entity relationships and ownership structures, the LEI mitigates AML–CFT risks, enhances fraud prevention, and supports more efficient sanction screening in cross-border payments. This is supported by examples of real-world industry initiatives.

Compliance redefined: Using GenAI to navigate a complex regulatory landscape with reduced risks and costs

In recent times, generative artificial intelligence (GenAI) has emerged as the next frontier in artificial intelligence (AI) capabilities. With its ability to create original content from training data sets, it is expected to significantly influence the way we work. A number of banks have already started experimenting with GenAI on use cases ranging from content creation and personalised customer marketing to fraud and financial crime detection. Yet as rapidly as technologies such as GenAI have arisen, so have the regulatory demands faced by the financial services sector, which have become more complex and voluminous in the face of increasing types of risks. Financial institutions are seeking ways to achieve efficiency gains from their reporting processes to combat such risks and the rising costs of reporting. This paper proposes that GenAI is a potential answer to financial institutions’ quandary. The recommendations proposed support the notion that GenAI is able to help financial institutions reap cost savings and resolve some of the common challenges of regulatory reporting, such as data quality. Furthermore, GenAI could also transform regulatory reporting as we know it, through its visualisation capabilities and real-time monitoring. The paper concludes with a view of industry initiatives on GenAI and regulatory reporting and considerations for moving the landscape forward.

Reviewing the role of AI in fraud detection and prevention in financial services

This review explores the pivotal role of Artificial Intelligence (AI) in revolutionizing fraud detection and prevention within the realm of financial services. As financial crimes become increasingly sophisticated, traditional methods of detection fall short, necessitating the integration of advanced technologies. AI emerges as a transformative force, employing machine learning algorithms, predictive analytics, and anomaly detection to fortify the defenses against fraudulent activities. The review provides an in-depth examination of the historical context, tracing the evolution of fraud detection from manual methods to the contemporary AI-driven approaches. It delves into the diverse AI models utilized in fraud prevention, including supervised and unsupervised learning, deep learning, and natural language processing. The nuanced analysis encompasses the effectiveness of AI in identifying intricate patterns indicative of fraudulent behavior, demonstrating its superiority in discerning anomalies within vast and dynamic datasets. Moreover, the review elucidates the real-world implications of AI in fraud detection, spotlighting instances where the technology has successfully thwarted fraudulent schemes. The ethical considerations inherent in AI-driven fraud prevention are also scrutinized, emphasizing the importance of responsible and transparent practices to mitigate biases and ensure fairness in decision-making processes. As the financial landscape navigates an era of digital transformation, the review sheds light on the future trends and innovations in AI-driven fraud detection. Anticipated developments include the integration of Explainable AI (XAI), federated learning, and continuous adaptation to emerging threats. The discussion extends to the collaborative efforts between financial institutions, regulatory bodies, and technology providers to create a robust ecosystem capable of staying ahead of evolving fraudulent tactics. In conclusion, this review encapsulates the dynamic landscape of AI in fraud detection and prevention within financial services. The analysis underscores the transformative impact of AI, not only in bolstering security measures but also in fostering a proactive and adaptive approach to counter the ever-evolving nature of financial fraud. The synthesis of historical perspectives, current applications, and future trajectories provides a comprehensive understanding of how AI is reshaping the paradigm of fraud detection in the financial domain.

Macroeconomic Policy, Institutional Quality and Inclusive growth in Nigeria

The inability of macroeconomic policy in influencing macroeconomic indicators in Nigeria has been attributed to weak institutional quality which has consequences for the achievement of inclusive growth. Thus, this study investigates the link between macroeconomic policy, inclusive growth, and institutional quality in Nigeria. The period of this study spanned 1996 to 2021. The study utilised fully modified ordinary least square and the results showed that macroeconomic policy variables and institutional quality contributed significantly in enhancing inclusive growth in Nigeria. More so, it was observed that the interactive terms between macroeconomic policy variables and institutional quality enhanced inclusive growth Therefore, the study concludes that macroeconomic policy and institutional quality are important drivers of inclusive growth in Nigeria. This study recommends that institutional quality should be improved using appropriate anti-corruption policies through institutions like the Economic and Financial Crime Commission (EFCC) and the Independent Corrupt Practices and Other Related Offences Commission (ICPC).

The role of international auditing standards in the system of countering money laundering

Relevance. Countering money laundering is a critical global issue that requires coordinated international efforts. The United Nations and other organisations have developed programs to combat this problem, and International Auditing Standards play a significant role in these efforts. One of the goals of these standards is to prevent the legitimisation of criminal incomes. Purpose. The purpose of the study is to show the role of international auditing standards in the system of countering the laundering of illegally obtained funds. Methodology. The study employs the method of analysis and the historical method to examine various sources and draw conclusions on the role of international auditing standards in combating money laundering. Results. The study identifies and describes the basic principles of international auditing standards and their effectiveness in preventing the legitimisation of criminal income. It highlights how these standards are implemented across different countries and their impact on reducing money laundering activities. The analysis shows that adherence to these standards improves transparency and accountability in financial transactions, making it harder for illegal funds to be integrated into the legitimate economy. Conclusions. The findings underscore the importance of international auditing standards in the global fight against money laundering. These standards serve as a critical tool for enhancing the integrity of financial systems worldwide. The study's insights can aid policymakers and educators in understanding and teaching the significance of auditing standards in combating financial crimes. Additionally, the research provides practical recommendations for improving the implementation and enforcement of these standards to better address the evolving challenges of money laundering. Keywords: money laundering; international relations; crime prevention; auditing

LEGAL FRAMEWORK FOR PROTECTING BANKING TRANSACTIONS IN THE METAVERSE AGAINST DEEPFAKE TECHNOLOGY

Backgorund: In the virtual world of the metaverse, various activities such as banking transactions and blockchain, despite their positive impacts, are not immune to the risks of financial cybercrime, including the use of artificial intelligence deepfake technology. This technology can create seemingly authentic audiovisual content from individuals or customers, leading to data theft, money laundering, and other financial crimes. This research aims to analyze the legal framework governing banking transactions in the metaverse and blockchain, as well as the legal regulations addressing the protection against financial cybercrimes involving deepfake technology. Methods: This research employs the doctrinal legal research method. The approach utilized includes the legislative approach (statute approach), conceptual approach, and comparative approach. It also utilizes primary data sources such as laws and secondary data sources like books, journals, and internet resources related to banking transactions in the metaverse and deepfake technology. Results: The analysis results indicate that the Information and Electronic Transactions Law (UU ITE) and the Financial Services Authority (OJK) regulations in Indonesia do not specifically address banking transactions in the metaverse and blockchain. Additionally, the Personal Data Protection Law and regulations related to crimes involving deepfake artificial intelligence technology are also not specifically accommodated; they currently only have general coverage. This creates a legal vacuum in Indonesia regarding these issues. Conclusion: There are differences in regulations in each country that govern banking transactions in the metaverse and crypto, as well as regulations on cyber financial crimes. Therefore, the government needs to review existing regulations and reconstruct them to govern banking transactions in the metaverse and blockchain. It is also essential to create specific regulations for the protection of personal data and regulations specifically addressing artificial intelligence.

Determinants of Forensic Accounting Techniques’ Choice on Fraudulent Practices’ Investigation in Nigeria: Moderating Effects of Cashless Policy

The issue of economic and financial crimes among other fraudulent practices in the past decades in Nigeria, has been in the front burner of scholars in regard to the potency of forensic accounting to tackle this menace. The choice of the techniques adopted for investigation purposes is argued to determine the success or otherwise of this. Thus, this study examined the determinants of forensic accounting techniques’ choice of practitioners in addition to the influence of cashless policy as a moderating factor. Research survey design was adopted for data collection through structured questionnaire on practitioners. Purposive sampling technique was used to determine the population and the sample size, which were 110 respondents. Data were analysed with the aid of descriptive and inferential statistics. Logistic regression results showed that size of fraud, organizational policies, and legal factors, have a positive but statistically insignificant effect, while educational attributes, industry attributes, professional fees, type of fraud, criminal evidence availability, and audit quality, showed a negative and insignificant effect on the forensic accounting techniques choice for fraudulent practices investigation. The results also depicted that the moderating variable (cashless policy) demonstrated a negative and insignificant effect on the relationship of the main variable, but with mixed results with individual components. This study, therefore, recommends that forensic accountants require a more in-depth knowledge of the respective technique and the type of the fraudulent practices, for effective and efficient forensic accounting investigation assignments.

Legal guidelines for identifying online illegal fund-raising crimes in China

Purpose This paper aims to elucidate the responsiveness of China’s judicial system in addressing the challenges of identifying online illegal fund-raising crimes that have emerged in recent years. This study systematically evaluates the efficacy and potential pitfalls of legal guidelines contained in judicial interpretations, such as holistic determination, sampling verification and presumption of the nature of funds. In addition, the research endeavors to propose pertinent recommendations for refining the existing judicial rules. Design/methodology/approach This research mainly uses a doctrinal methodology, focusing on the principal judicial interpretations formulated by the Supreme People’s Court and other central judicial entities in China. The scope encompasses the realm of online illegal fund-raising crimes as well as other cybercrimes. The analytical framework involves a comprehensive examination of these authoritative judicial documents, coupled with a theoretical and critical analysis of relevant academic materials. Findings This research underscores that while judicial interpretations serve as an effective legal strategy to confront the challenges posed by online illegal fund-raising crimes, their implementation introduces a nuanced landscape. These legal guidelines, often emanating from diverse judicial departments and tackling specific issues, carry the inherent risk of giving rise to new complexities and fostering inconsistency. Judicial authorities shall exercise prudence in both the formulation and application of these guidelines, ensuring their harmonization with existing legal norms and fundamental legal principles. Originality/value This research constitutes a critical and comprehensive examination of judicial interpretations in China pertaining to online illegal fund-raising crimes. It offers valuable insights into the country’s judicial interpretation system and its legal responses to financial crimes. The paper serves as a valuable resource for academics, law enforcement professionals, policymakers, legislators and researchers.

Fighting Financial Crime with AI

Abstract Senior Manager Alex Robertson-Mair, and Data Architect Adrian Wong of FS Lighthouse, KPMG, explain an innovative solution to fighting money laundering with AI technologies.

FORENSIC ACCOUNTING AND FRAUD DETECTION: A REVIEW OF TECHNIQUES IN THE DIGITAL AGE

This Review provides a succinct overview of the comprehensive review on Forensic Accounting and Fraud Detection, emphasizing the evolution of techniques in the digital age. As financial crimes become more sophisticated, the role of forensic accounting in uncovering and preventing fraudulent activities has gained paramount importance. This review delves into the contemporary landscape of forensic accounting, focusing on the integration of cutting-edge technologies and digital methodologies. The digital age has ushered in a paradigm shift in forensic accounting, necessitating a thorough examination of techniques that harness the power of technology to detect and combat fraud. The Review touches upon the multifaceted aspects of this review, encompassing both traditional and advanced forensic accounting methodologies. It underlines the significance of forensic accountants staying abreast of technological advancements to effectively navigate the intricate terrain of financial fraud in the modern era. The Review encapsulates the primary themes explored in the review, including the application of data analytics, artificial intelligence, blockchain, and machine learning in forensic accounting practices. It highlights the dynamic nature of financial crimes, requiring forensic accountants to adopt agile and innovative approaches to keep pace with fraudulent activities conducted through digital channels. Furthermore, the Review underscores the broader implications of this review for the field of forensic accounting, emphasizing how the synthesis of traditional investigative techniques with digital tools enhances the profession's efficacy in fraud detection and prevention. The Review aims to pique the interest of readers by offering a glimpse into the evolving landscape of forensic accounting, positioning it as a critical component in the fight against financial fraud in the digital age.
 Keywords: Forensic, Accounting, Fraud Detection, Techniques, Digital Age.

The Impact of the Fight Against Corruption on Nigeria's Economy: A Case Study of the Economic and Financial Crime Commission

Corruption in Nigeria has long hindered economic development and raised concerns about resource misallocation, reduced foreign direct investment, and eroded public confidence in institutions. Established in 2003, the Economic and Financial Crimes Commission (EFCC) was tasked with combating economic and financial offenses, including corruption. This study aimed to assess the impact of anti-corruption efforts, particularly the role of the Economic and Financial Crimes Commission (EFCC), on Nigeria's economy. A survey research design was employed, with data collected through 109 structured questionnaires administered to personnel from various units of the EFCC at the Enugu state branch. Out of the questionnaires distributed, 100 were properly filled out and returned for analysis. Respondents were selected using a simple random sampling technique. The collected data were processed using the Statistical Package for Social Sciences (SPSS) 20.0. Descriptive statistical tools, such as simple percentages presented in tables and charts, were used to analyze and interpret the questionnaire data. The study revealed several key findings. Firstly, it emphasized the importance of the fight against corruption in Nigeria. Secondly, it highlighted the positive impact of anti-corruption efforts on the country's economy. Thirdly, it found that the EFCC has been making progress in combating corruption. Lastly, it confirmed that corruption hinders Nigeria's economic development. In conclusion, this study casts a glaring spotlight on the corrosive impact of corruption on Nigeria's economy, translating to staggering losses exceeding $100 billion in GDP. Consequently, the research emphasized the necessity of intensifying anti-corruption efforts. It proposed recommendations to address this issue, including the strengthening of anti-corruption agencies, the improvement of legal frameworks, and the promotion of economic growth as crucial steps towards achieving sustainable

Connecting the Corrupt: Data Sources to Study Networks of Serious Financial Crime in the United Kingdom

Connecting the Corrupt: Data Sources to Study Networks of Serious Financial Crime in the United Kingdom

The Development of Financial Statement Fraud Research: A Bibliometric Analysis

This research aims to present and explain the development of research related to financial statement fraud by reviewing bibliometric analysis taken from the Scopus database for the period 1979 – 2023. The method used is a bibliometric analysis approach using VOSviewer and Microsoft Excel to analyze data frequency. The results of this research show that the research topic of financial statement fraud will be most researched in 2023 with 60 articles, the journal that publishes the most topics related to financial statement fraud is the Journal of Financial Crime. The country that publishes the most on the topic of financial statement fraud is the United States. Variables that often appear related to the topic of financial statement fraud are corporate governance, earnings management, crime, and the fraud triangle. Brazel, Hermanson, and Jones are the authors who write most frequently or extensively about financial statement fraud.

TOWARDS ACHIEVING THE PURPOSES OF THE UNITED NATIONS CONVENTION AGAINST CORRUPTION (UNCAC) FOR THE IMPROVEMENT OF HUMAN RIGHTS PROTECTION IN NIGERIA: ESSENTIALITY AND NECESSITY OF EFFECTIVE DOMESTIC ENFORCEMENT INSTITUTIONS

Corruption violates human rights and manifests in many forms including embezzlement, bribery, and money laundering. It is a crime which includes economic and financial crimes. It exists in every country of the world including Nigeria. The United Nations Convention against Corruption (UNCAC) 2003 was the direct legal response to prevent and combat the menace. The bulk of enforcement of the UNCAC is the duty of the State Parties via the domestic system but Nigeria has yet to domesticate same. This paper makes a case for the essentiality and necessity of effective domestic enforcement institutions in Nigeria towards achieving the purpose of the UNCAC.

Innovation’s, and civil servants’ behavioral models’ influence on the formation of customs authorities’ and financial intelligence units' cooperation and document exchange institutional conditions

The article examines the influence of innovation on the development of institutional conditions for cooperation and document exchange between customs authorities and financial intelligence units, considering the civil servants' behavior patterns as innovative approaches implementers. Cooperation between customs authorities and financial intelligence units provides a critical foundation for ensuring the integrity of international trade and financial systems. In a time of rapid technological advancement, innovation plays a key role in shaping the dynamics of this collaboration. Individual and organizational factors in the behavioral models' formation in the field of relevant cooperation and ways to increase the efficiency of interdepartmental cooperation are substantiated. Particular attention is paid to the procedure for the exchange of documents between customs authorities and financial intelligence units, considering commodity and financial flows in the global economy, and the inconsistency of national and international law in the international trade field certain provisions. The opportunities and challenges of such cooperation, incentives, and the ability to exchange information between customs authorities and financial intelligence units are identified. The need to introduce innovative tools and information exchange mechanisms specifically designed to identify suspicious signals in trade and financial transactions that may indicate crimes in international trade or sanctions evasion is argued. Instead of viewing innovation as a potential threat, customs authorities should actively engage with innovative enterprises to create mechanisms that consider technological advances. Such collaboration can lead to the development of systems and processes that not only ensure compliance with regulatory requirements, but also facilitate more convenient and efficient cross-border trade. The development of digital ecosystems opens promising opportunities for cooperation between customs and financial intelligence units. Such systems not only improve the efficiency of risk assessment, but also ensure financial crimes timely detection. This innovative approach creates a dynamic system that adapts to the changing nature of threats in global trade and finance. Keywords: innovations, behavior patterns of civil servants, customs authorities, financial intelligence units, cooperation, document exchange.

The relationship between indicators of financial digitization and levels of access to financial inclusion

The research aims to shed light on the most important modern concepts about financial digitalization and their indicators and attempt to untangle some overlapping concepts and definitions within a studied problem and address digital contributions because they raise the level of access to higher limits of comprehensiveness and have helped in assisting with quarterly observations of a sample of Arab countries that included (Iraq, Egypt, Bahrain, Jordan, the Emirates, Libya, Saudi Arabia, Kuwait, Morocco, and Tunisia), the stepwise model was used after achieving stationary and drawing time periods for the explanatory and dependent variables It is the model of owning an account in a financial institution, the model of owning a credit card, and the last one is the wages received by a mobile phone. It then became clear that the first and second models were the most significant and that the third was completely insignificant, and that the digital payments received for those in the labor force are the most influential, but inversely, followed by It receive digital payments based on the income of the exponentially rich directly, the research reached a set of conclusions and proposals, perhaps the most important of which was the discrepancy in the moral and significant impact between the indicators explaining changes in the levels of access to financial inclusion and not concentrating them in one indicator and focusing on the financial and legal infrastructure for digitization and its future trends, as it is expected that indicators of fraud and abuse will rise. And the levels of financial crimes with the increase in digital transactions.

Beneficial owner in the context of FATF activities

The article deals with the understanding of the beneficial owner in the context of FATF documents. The FATF is an international organization that fights a wide range of financial crimes, in particular money laundering and terrorist financing. Particular attention is paid to the definition and disclosure of beneficial owners, who are key figures in financial transactions. According to FATF documents, a “beneficial owner” is understood as an individual who ultimately owns a legal entity, exercises control over its activities or on behalf of which all operational activities of a legal entity are carried out. In the fight against money laundering and terrorist financing, revealing the identity of beneficial owners is an important step. It is emphasized that the use of the category of beneficial owner in FAFT documents, and, accordingly, in activities related to counteracting the legalization of funds obtained by criminal means, makes it possible to establish the exact origin and direction of financial flows that can be used for criminal activity.
 The FATF develops standards and practical recommendations for the disclosure and identification of beneficial owners, which are then implemented by its member countries. It is concluded that the disclosure of information about the beneficial owner not only contributes to the fight against criminal activity, but also contributes to the transparency, trust and efficiency of the financial system as a whole. It is positively assessed that disclosure of information helps investors, banks and other market participants to make informed decisions in financial transactions. It is noted that the disclosure of information about the beneficial owner counteracts the use of tax evasion schemes, the use of services of nominal owners, the legalization of illegal income, etc.
 Disclosure of beneficial owner information is an important element in combating money laundering, terrorist financing and ensuring transparency and efficiency of the financial system. This helps to prevent the legalization of illegal income and protect the financial system from criminal acts.