Illicit Finance Research Articles

DEEP LEARNING MODEL FOR DETECTING TERROR FINANCING PATTERNS IN FINANCIAL TRANSACTIONS

Terror financing remains a critical threat to global security, with illicit actors continually adapting their methods to evade detection. Traditional financial monitoring systems often struggle to identify the complex and covert patterns associated with terror-related transactions due to their reliance on predefined rules and statistical thresholds. This study introduces advanced deep learning models designed to detect terror financing patterns within vast datasets of financial transactions. We developed and evaluated several neural network architectures, including Convolutional Neural Networks (CNNs) and Long Short-Term Memory networks (LSTMs), to capture both spatial and temporal transaction features. The models were trained and tested on a dataset comprising anonymized financial transactions labeled for suspicious activities related to terror financing. Our deep learning models demonstrated superior performance over conventional machine learning approaches, achieving higher accuracy, precision, and recall in identifying suspicious transactions. Notably, the LSTM-based model excelled in detecting sequential transaction patterns indicative of layering and integration stages commonly used in terror financing. The results underscore the potential of deep learning techniques in enhancing the capabilities of financial institutions and regulatory bodies to combat terror financing. Implementing such models can lead to more proactive and effective monitoring systems that adapt to evolving illicit financing strategies.

Genuine DeFi as Critical Infrastructure: A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance

Genuine DeFi as Critical Infrastructure: A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance

GREY FLOWLESS, OR PREDICTING CAPITAL OUTFLOWS IN CRYPTOCURRENCY

Globalization and irrational capital distribution have fuelled global financial crises. Illicit transactions on a global scale worsen financial challenges, limiting government spending on public services. Amid these challenges, blockchain technology and cryptocurrencies have emerged as potential solutions. Due to anonymity public identification through “keys”, some scholars argue that cryptocurrencies create an opportunity for misuse as an easy tool for money laundering, tax evasion and illegal activities. This study investigates the relationship between illicit finance flows and cryptocurrency markets, utilizing grey systems theory and grey relational analysis. Drawing samples from 41 states with the highest cryptocurrency trade volumes, the research reveals nuanced dynamics within the cryptocurrency market, shedding light on the connections between cryptocurrencies, shadow activities, and capital outflows. The findings contribute valuable insights to the ongoing discourse on the impact of cryptocurrencies on global financial stability. The intricate exploration of these interconnections underscores the need for a comprehensive understanding of the role cryptocurrencies play in shaping the contemporary financial landscape.

AML for a blockchain age

Blockchain technology is not only unlocking important innovations in financial systems, it is also the foundation for powerful new tools used to combat illicit finance. This paper describes some of the ways that this technology not only enhances traditional compliance tools but also goes further, offering investigators unprecedented access to transactional data. The result is that virtual asset service providers, unlike traditional financial institutions, are not limited to static or opaque stores of customer information but can instead conduct more sophisticated analyses that are faster, more reliable and more dynamic than what was previously available. Given this new compliance landscape, this paper sheds light on where the most significant illicit finance threats are in the cryptocurrency ecosystem and, further, how regulators can support the development and adoption of powerful new compliance tools, including those using novel digital identity systems.

Outsourcing authority in global policy: legitimating the anti-money laundering regime through professionalization

Abstract How is authority legitimated when global policy leads to the delegation of implementation and monitoring tasks to private actors? This paper shows that putting private actors at the forefront of compliance gives them significant interpretation autonomy, with knock-on effects for how rule-making authority is legitimated. I show that actors can mobilize to claim expertise based on their practice in, and input to, transnational administration and that professional associations are important arenas for establishing and legitimating these claims. The paper explores these dynamics through an empirical focus on the global anti-money laundering regime. Revolving around the Financial Action Task Force, the regime to tackle illicit finance has been a highly political process with a global reach. Yet it relies heavily on financial institutions to put systems in place that control the flow of money. This puts private compliance officers at the forefront of transnational administration. The paper shows that compliance officers have responded to the demands of this role by professionally organizing. Focusing on the largest professional association, the Association of Certified Anti-Money Laundering Specialists or ACAMS, a US-based association with a global program and membership, the paper explains that professionalization mechanisms have helped demarcate practice boundaries and support the expertise claims of private sector employees. By becoming the experts, these officers can claim pragmatic authority over what global policy rules and standards mean and how they can be implemented.

The bankers’ blacklist: unofficial market enforcement and the global fight against illicit financing

The bankers’ blacklist presents an artful paradox: its insights are greater than the sum of its parts. This is a thought-provoking book, both for champions of the self-described ‘coordinated global response to prevent organized crime, corruption, and terrorism’ and for those who see the modern anti-money laundering movement as a contender for the world's least effective policy experiment. While supportive of the official narrative, Julia Morse challenges some triumphal claims of the fight against illicit financing. The resulting difficulty for readers in placing the author in one camp or another is not in any way a weakness of the work. Instead, it allows Morse to offer a blueprint for brandishing power beyond traditional avenues of foreign policy. The book traces the geopolitical evolution of banks as unofficial enforcers in the ‘war’ on money laundering and reveals a template for power projection by proxy. The author sheds light on how technocratic agencies, yielding ostensibly objective criteria, effectively pull the strings in plain sight.

The new world of meta finance and its yet to be tested efficiencies

Technology has been a long-standing catalyst for change, innovation and the emergence of new business models. As technology evolves and matures, the financial services industry revisits its current processes and capabilities to assess if leveraging more modern technologies can drive additional client and business value. There are some proposed use cases for distributed ledger technology (DLT) that propose disintermediating the entire financial industry. There is no doubt the broader financial industry agrees DLT presents an opportunity to shape the future vision of capital markets and recognises the value inherent in the shared DLT platform that can build security, privacy and auditability into every financial transaction and could potentially eliminate costly reconciliation. However, DLT, like any emerging technology, must be thoroughly vetted through rigorous testing. Moreover, regulators across the globe are promoting responsible innovation and fair competition among markets and market participants. And for innovation to be responsible and competition to be fair, it must comply with regulations. Meta finance aka decentralised finance (‘DeFi’) that runs on decentralised infrastructure, remains immature and volatile, with several economic, technical, ethical and public policy issues still waiting to be addressed. DeFi enthusiasts claim that meta finance is doing to money what email did to postal services, with a promise to provide a secure financial platform that is open to anyone with access to a computer and an internet connection. It has the potential to transform global finance, but activity to date has focused on the community of digital asset owners. DeFi offers efficiencies driven by automation and disintermediation, powered by blockchains and smart contracts with a vision of a more efficient payment system, with instant transactions and lower costs no matter where on the globe one is located. Its efficiencies and safeguards, however, are yet to be tested and the broader community feels safe and secure with the belts and braces traditional finance offers today. DeFi is not devoid of risks relating to high volatility, market manipulation, fraud, illicit finance and lack of governance, which collectively could severely damage market integrity and investor confidence.

Big data surveillance across fields: Algorithmic governance for policing & regulation

While the academic separation of policing and regulation is still largely operative, points of convergence are more significant than ever in the digital age, starting with concomitant debates about algorithms as a new figure of power. From the policing of illegal activities to the regulation of legal ones, the algorithmization of such critical social ordering practices has been the subject of growing attention. These burgeoning discussions are focused on one common element: big data surveillance. In accordance with such similarities and paralleled developments in policing and regulation, the article aims to further bridge the gap between literatures to respond to the calls for studying big data surveillance across institutional domains and social fields. To do so, it is focused on one case study that articulates algorithmic policing and regulation domains, in-between security and economic fields. This is the fight against illicit finance, i.e. ‘the global action against the financial flows that fuel crime and terrorism’. To what extent does big data surveillance make a difference in the main global policy of crime-fighting and financial regulation? Drawing on a fieldwork in a large North American bank, the present article takes stock of the algorithmic overlap between policing and regulation. It argues that the final result is policing and regulation of neither too much nor too little, which gives rise to automated and everyday mass surveillance while remaining as far removed from regulatory and crime-fighting ambitions as it is from dystopian visions of big data and algorithmic drama.

The Most Denounced, the Least Punished: Ruling Elites, Illegalisms, and Anti-Money Laundering

Abstract This article contributes empirically and conceptually to the literature on finance and security in the light of anti-money laundering and to discussions on international crime control and social order. It draws on unique data in Switzerland to question the chain of security through which the main global policy against crime is produced in concreto. What and who is denounced by financial institutions for suspicious activities? What and who is ultimately punished by criminal justice institutions? Is the fight against illicit finance nothing more than a “broken enforcement system,” or a universal punitive instrument, regardless targeted actors? What does it mean for the general social order at the time of financial capitalism? The article revisits Foucault's lost in translation concept of illegalism to shift the questioning of international crime control to the issue of power relationships’ recomposition and social, class differentiation. As a global policy against criminality at large, anti-money laundering represents a critical entry point to question the general economy of illegalisms from an international perspective. The article makes explicit that economic and financial illegalisms are less punished than others, and they are even less so when practiced by ruling elites, even if they are the most denounced at first.

DEMOCRACY UNDER THREAT: THE POLITICS OF CORRUPTION AND PARTY FINANCING SYSTEM IN INDONESIA

After Soeharto's authoritarian regime had ended in 1998, Indonesia has successfully been transformed into one of the world's largest democratic nations. However, Indonesia still faces enormous challenges to eradicating corruption; corruption is still ubiquitous and entrenched in governments and political parties. This study argues that the primary reasons for this apparent paradox are the politics of corruption and the dysfunction of the party finance system underpinning the illicit campaign financing system. This research also claims that the deficiency of the party finance system is not accidental; it is intentionally designed and perpetuated by the elites who prefer the illicit finance system since this system allows them to penetrate the state's assets, creating privileged business opportunities and reserving political advantages. The elites minority overpower political parties and establish politics-business networks to perpetuate their status quo and dominance in politics and economy. The dysfunction of the party financing system has also caused parties to remarkably relied on financial support from conglomerates; this situation engenders politics and 'black' business empires networks and oligarchisation. Further, business and political parties maintain their access to the state's resources by becoming part of electoral democracy, assuming political office or lobbying societal organisations, and taking control over economic actions and election campaigns that undermine Indonesia's democracy system. To substantiate the arguments in this study, the researcher uses the literature study and secondary data sources to support the arguments

Impact of Corona Virus on African Economic Growth

The COVID-19 crisis is affecting the entire world economy and that of Africa. Some key sectors of the African economy are already experiencing a slowdown because of the pandemic. Tourism, air transport, and the oil sector are visibly impacted. The exogenous effects come from direct trade links between affected partner continents such as Asia, Europe and the United States; tourism; the decline in remittances from African Diaspora; Foreign Direct Investment and Official Development Assistance; illicit financing flows and domestic financial market tightening, etc. The endogenous effects occur because of the rapid spread of the virus in many African countries. On one hand, they are linked to morbidity and mortality. On the other hand, they lead to a disruption of economic activities. This may cause, a decrease in domestic demand in tax revenue due to the loss of oil and commodity prices coupled with an increase in public expenditure to safeguard human health and support economic activities. This study aims to evaluate the potential impact of the pandemic on various dimensions of African economies, the impact on the African economy is presented, with a discussion of some of the key measures being taken by African Union to mitigate the negative effects.

Misuse of charitable giving to finance violent extremism; A futuristic actions study amidst COVID-19 pandemic.

The purpose of the study is to explore the shadow economy of violent extremism through charity lenses and factors associated with misuse of charitable giving in a global financial system. It reviews the emergency response situations like COVID-19 when financial needs are urgent with lacked monitoring and control over payment disbursement to vulnerable groups. It highlights several governments’ significant steps to counter the illicit finance flow through ‘public-face’ charity organizations. Descriptive research was used to gather secondary data insights using published reports, articles, news portals, and policy briefs from renowned institutions. The findings depict four factors known as economic and capacity, socio-cultural, politico-legal, and global networks support in misuse of charitable giving to finance violent extremism. This study claims not all charitable giving misused for extremism and violence. However, there is a possibility that extremist groups could take advantage of using humanitarian organizations’ face to finance violent extremism. Two possible recommendations have been made to overcome this issue by adopting digital payment mechanisms and community engagement to design and deliver the COVID-19 response recovery programs.

Who adopts crypto assets in Japan? Evidence from the 2019 financial literacy survey

The adoption of crypto assets has been of great concern to policymakers ever since Facebook announced its proposed cryptocurrency, Libra, in mid-2019. Behind this concern lies the possibility of widespread Libra adoption for day-to-day transactions, bringing with it a set of serious risks related to money laundering, illicit financing, and consumer and investor protection. This study first investigates the variables that distinguish Japanese crypto-asset owners from nonowners, then investigates the variables that distinguish the owners belonging to each group from the rest of the owners. The second investigation focuses on four groups: owners’ level of understanding of crypto assets, the profitability of their investment in crypto assets, their holdings of conventional risky financial assets, and their adoption of noncash payment methods. In addition to the usual demographic variables, financial literacy, financial behavior, conventional risky financial asset holdings, and use of noncash payment methods are also investigated. Both probit models and multinomial logit models are estimated and two results are obtained. First, 35 variables distinguish average Japanese crypto-asset owners from nonowners. Owners are more likely to be male, aged below 30 years, have higher pretax income, work in private or public companies, or be self-employed, and be graduate-school graduates compared with nonowners. Owners tend to have higher financial literacy from two perspectives: a measure of objective financial literacy and the experience of financial education at school, and lower financial literacy from three perspectives: the experience of financial education about money management by parents at home, experience of financial troubles, and knowledge about credit cards, than average nonowners. Regarding financial behavior, owners tend to be overconfident about their financial literacy, impatient, judge based on reputation in selecting financial products, lack self-control, and less risk-averse than nonowners. Owners tend to have experience investing in conventional risky financial assets and to use noncash payment methods. Second, 40–60% of variables that statistically significantly distinguish between the average owners and nonowners also differentiate the owners belonging to three of the four groups (excluded is the group that uses noncash payment methods) from the owners not belonging to the groups. These results suggest that policies for crypto-asset owners, if ever implemented, should not only consider the average owner's characteristics, but also owners’ heterogeneity.

Lifting the veil on beneficial ownership

PurposeThis paper aims to critically explore the challenges facing the UK in implementing registers of beneficial owners, a measure mandated by the EU’s anti-money laundering (AML) directive to enhance beneficial ownership transparency.Design/methodology/approachThis study systematically reviews the literature surrounding beneficial ownership transparency to critically analyse the extent to which challenges facing the UK, impact upon its ability to successfully implement registers of beneficial owners.FindingsThis study demonstrates that a lack of beneficial ownership transparency facilitates money laundering by concealing corrupt wealth and frustrating authorities’ efforts to trace illicit finance. It demonstrates that implementing registers of beneficial owners may be a superficial approach to tackling the multifaceted problem of money laundering. Better intergovernmental cooperation is required to improve beneficial ownership transparency and to ensure measures to curb offshore money laundering are successful.Research limitations/implicationsThis research focuses on one aspect of AML control from the UK’s perspective. Further work is needed to investigate the concerns from the perspective of offshore jurisdictions and how global AML rule affects developing economies.Practical implicationsThe study informs policymakers and other professionals implementing the UK’s registers of beneficial owners to enhance future strategies and better combat offshore money laundering.Originality/valueThis is the only study to explore the challenges facing the UK in implementing registers of beneficial owners, thus providing novel insight into the moral, legal and practical dilemmas to imposing AML control.

Electoral Campaign Financing and Criminal Policy

In a democratic state, power is exercised by elected bodies through free and fair elections. The choice of the political class that will exercise political, economic, etc. power by the sovereign (the people) is one of the most important moments in the way how a state works.The sovereign and the expression of his will by voting for those to be elected to the governing or governing bodies. The first part will address and analyze the election campaign, the day of voting until the moment of the results, is the period when the sovereign exercises his power directly by voting which political class will lead the state.Political classes seeking to govern and govern governing bodies disclose their programs, their policies during the election campaign.Election campaigns in modern and capitalist society require funding as they are associated with costs, expenses. Election campaigns cannot be done without capital, without money. The second part will analyze the power of money in election campaigns is related to the expenses political parties or candidates make to their program, to disseminate their political and governing ideas, so money power is used to influence the sovereign to be informed on election day. who to vote for and who to choose in the governing bodies. The use of money in election campaigns forces a democratic state to set rules on how to finance, spend, etc., so setting rules such as how the power of money will affect election campaigns and their control by the responsible bodies.In a country with a fragile and transitional democracy such as the Albanian state, the control of money power during election campaigns is extremely difficult, however the manner of controlling election campaign financing is clearly defined in legislation. In this paper I will contribute by analyzing the impact of money on the Albanian state policy, first in terms of electoral financing, financing of political parties and individuals in electoral campaigns In this paper I will address and analyze how money affects constitutional principles during election campaigns, how it affects the principles of free and fair elections. The third part will address and analyze how entities participating in electoral campaigns are financed.The use of illegal money during campaigns affects the violation of constitutional principles for free and fair elections.I will address and analyze the criminal policies in the field of illegal financing of electoral campaigns. The Criminal Code of the Republic of Albania in relation to free and fair elections. llegal financing of election campaigns is a current phenomenon of the Albanian society, bringing about the incrimination of Albanian politics.Illegal financing of entities participating in electoral campaigns comes from organized crime or suspects in criminal activities, and this brings about the establishment of those persons who protect the latter's interests and not the interests of the constituents or democratic interests of a state .Intensify the fight against illicit financing of electoral campaigns by creating not only a complete legal framework for preventing illicit financing but also creating practical mechanisms for not only law enforcement but also the practical prevention of uncontrolled funding of electoral subjects.Setting criminal penalties for illegal financing of electoral campaigns and revising the Criminal Code in incriminating all illegal financing actions that violate free and fair elections may be the most important step in the fight against illegal financing of electoral campaigns. Illegal financing of electoral campaigns in Albania calls for free and fair elections and questions the basic principles of the representation of political entities in governing institutions and therefore the interference in law and penal policy is current and immediate.

FARC’s Pursuit of “Taking Power”: Insurgent Social Contracts, the Drug Trade and Appeals to Eudaemonic Legitimation

This paper argues that eudaemonic legitimation is a useful tool in understanding how insurgencies seek to justify their “effectiveness” and “performance” vis-à-vis the state in order to enhance authority and mobilise support for their strategic objectives. By examining primary FARC documents, conference and plenary findings, and select interviews with former and active FARC, ELN and M-19 members, it demonstrates how FARC constructed social contracts and integrated illicit financing into its operations as a strategy to appeal to its eudaemonic legitimation in its areas of proto-state influence, in turn aiming to mobilise support and consolidate a full-spectrum normative system. “Effectiveness” in FARC’s strategic approach through rule-setting allowed the organisation to expand to control significant portions of Colombian territory, which to a degree impacted positively on social mobilisation and challenged the government’s legitimacy by consolidating power structures in areas where there was a lack of government authority. FARC further appealed to social and economic “performance” by using revenue from its fundraising activities through engagement in the coca trade and kidnap for ransom to not only strengthen its military capacity, but also implement social initiatives and provide material goods. In turn, FARC was able to develop zones of security through the creation of social contracts in which stable economic practices were able to solidify, contributing in its effectiveness in providing proto-state authority and allowing for insurgent expansion.

Governing illicit finance in transnational security spaces: the FATF and anti-money laundering

This article analyzes the global anti-money laundering (AML) regime from the perspective of security governance, examining the creation of a transnational security space by the FATF. Security is often mentioned as relevant context for AML measures, and the Financial Action Taskforce (FATF) as its central institution. Yet, most analyses – implicitly or explicitly – present the FATF as an important banking regulator. Arguing that this perspective on the FATF is too limited, the article outlines the changing security context in which AML emerged as an important tool for governance. Unlike traditional ideas of international security, the idea of security governance emphasizes new forms of cooperation to ensure safety and security across multiple levels. Based on International Relations (IR) and criminological research, the article develops a framework with five dimensions of security governance: a comprehensive security concept, multi-purpose rationalization, public-private cooperation, multi-nodal governance, and transnational security spaces as a result. Unlike other efforts of global crime governance, the global AML regime provides a prime example of security governance in all of these dimensions. At the same time, the link to security also explains why the global AML regime expanded in some areas more than in others: AML is still a weak governance instrument for regulating financial crimes such as tax evasion or corruption, but it is a strong one for security-related crimes. While the FATF remains a special case in global governance, the creation of transnational security spaces in AML – caused by FATF activities – is likely to be a model for future security governance in other fields.

Transnational Corruption and the Globalized Individual

We present a new, more transnational, networked perspective on corruption. It is premised on the importance of professional intermediaries who constitute networks facilitating cross-border illicit finance, the blurring of legal and illegal capital flows, and the globalization of the individual via multiple claims of residence and citizenship. This perspective contrasts with notions of corruption as epitomized by direct, unmediated transfers between bribe-givers and bribe-takers, disproportionately a problem of the developing world, and as bounded within national units. We argue that the professionals in major financial centers serve to lower the transaction costs of transnational corruption by senior foreign officials. Wealthy, politically powerful individuals on the margins of the law are increasingly globalized as they secure financial access, physical residence, and citizenship rights in major OECD countries. These trends are evidenced by an analysis of the main components of the relevant transnational networks: banks, shell companies, foreign real estate, and investor citizenship programs, based on extensive interviews with key informants across multiple sites.

Bitcoin: Where Two Worlds Collide

There are over 275 virtual currencies in existence today. One of these currencies is Bitcoin, the largest andmost recognised virtual currency in the world. With its exponential growth over recent years, Bitcoin isbringing a degree of permanence for, and dependability on virtual currencies that can no longer be ignored byregulators. While an increase in international regulatory activity over the past 12 months suggests that somegovernments understand this, Australian regulators appear reluctant to act. In addition to examining Bitcoin’soperational system in detail, this article examines the affect that Bitcoin is having on two key features of thefinancial system: (1) the money laundering and illicit finance supply system; and (2) the payment system. Bycomparing the effectiveness of the response measures enacted by Australian and international regulators inCanada, Singapore, the United States, and the United Kingdom, this article demonstrates that even thoughAustralia’s current payment system policy is capable of addressing the threats posed by virtual currencies, thecurrent money laundering and terrorist financing regulations fail to satisfy Australia’s international obligations,and stifle the legitimate use and development of virtual currencies in Australia.

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.