How to Technologically Enhance Money Laundering – to make it harder to trace illicit cash.

Technology enhanced money laundering

We’ve noticed that despite our target audience being the financial compliance industry, when we post with a heading to attract criminal attention, it gets read more!

So welcome to this post. In it we will discuss the steps that criminals take to use technology to hide their assets.

Firstly, a basic understanding of Placement, Layering and Integration are needed, you can find that here if you do not understand these three steps.

In the main, technology aids steps two and three. It helps criminals to layer their asset with repeated levels of trade of one sort or another. It then helps them to ‘cash out’ in the integration stage.

We do not make a distinction between a money launderer (professional) or a criminal (commits the predicate offence) other than simply. Similarly, with something like 150 definitions of an organised criminal or their enterprise, this post sets out to use the terms colloquially, inasmuch as any one of the three can act in any capacity so it’s fair to call them all criminals.

Europol define organised crime, not on a personal level as to state the activity of a single individual, but as to the commodities, groups and hubs that make up an OCG (Organised Criminal Gang). In the UK, the definition (loosely termed) relates to activity of a group rather than an individual or specific crime type. It more relates to criminals acting as groups at level two and above (above ‘street’ level crime and cross regional/international).

Money laundering is characterised as a secondary offence to the predicate offence that generated the illicit funds. It is a dynamic and flexible process with launderers actively adapting to fluctuating situational conditions. It is these dynamics that make it difficult to define, describe and prosecute. The levels of convictions are pitifully low globally and this is one area FATF are starting to push with the move to ‘Outcome’ based mutual evaluations at the national level.

As in our post describing the links between Nations that are high on the Corruption index and Bitcoin pricing, the links between laundering and regions that have lax controls and high levels of corruption are sought out by organised criminal groups to layer their transactions to conceal the real origin of the revenue. A research paper into Money Laundering has described it as the third largest industry globally, only oil and agriculture generate more revenue, this indicates just how professional the ‘sector’ is and the sometimes insurmountable odds the industry, regulators and prosecutors face.

Indeed it is these odds, and a nascent belief that the financial sector is inextricably and on occasion corruptly linked to OCGs that is forcing the political agenda to get tougher with sanctions and fines for firms that transgress and get caught. Certainly there are more huge fines than there are ‘bellies against the charge desk’ as I used to say in a former career.

I am going to deliberately steer away from the more obvious routes to launder money. This site covers the more obvious routes in other posts (search for money laundering in our search box and posts will come up). Instead I hope to show you more nuanced methods that a ‘professional’ launderer would use and hopefully point to ways for firms to identify those efforts.

It is obvious that the nearer the point to the actual criminal predicate offence, the more risk there is to laundering cash. The further the cash is layered, actually or digitally, the harder it is for an investigator to track the asset backwards. This is especially true of asset that moves across borders. It is also evident that the regulated sector, spends most of its time trying to detect this first placement into the system. Defeat the placement stage and the professional launderer has the odds stacked in his favour.

The key to laundering is therefore, the successful first step. To conceal it the launderer needs a Trojan horse. Digital transactions and cryptography along with ‘straw-men’ hide the identity of the original criminal. Again, in nations that have a large populous of poor communities, people are prepared to have their identity used as a placement vehicle; this influences the regional choices of OCGs. There are also cases showing more ‘middle class’ white collar workers prepared to lend their identities to support business transactions involving laundering transactions further into the layering process – this includes allowing legitimate business be used to clean money. It is these reasons that money laundering causes capital flight from an economy, investors fearful of the instability and risk attached to the market.

The Trojan Horse

Photocopier

A simple use of technology, a photocopier. Used in high value sales around the globe to prove the outlet checked the identity of the person purchasing- especially when paying in cash. It is a simple task to obscure the image of a passport, make it too dark or otherwise unidentifiable to help the launderer evade any future scrutiny. Purchasing gold, jewels and other high value goods.

Intelligent Deposit Machines

These machines were used to great effect in Australia where a gang used them to launder tens of millions of AUD. Enabling placement and movement of cash through the machines even when the banks were closed. The gang used a network of the machines at lower than threshold amounts to avoid suspicion.

e-commerce and mobile payments

OCGs setting up online storefronts that trade in transactions and not goods to help the launder layer his transactions in what appear genuine stores. No goods are actually moved. This problem is set to get worse as more fintechs operate in this space with a ‘less than conservative approach’ to regulations. One that shall remain unnamed even switched off its transaction monitoring for several months because it was alerting too much (!!)

Virtual World

An International internet payment provider was suspected of laundering on an industrial scale. Implicated were digital currency exchanges, precious metal dealers and more. The OCG had effectively infiltrated the entire system to move large sums in apparent legitimate trade.

Online Betting

An OCG used online betting and internet payment system to launder the proceeds of narcotic dealings. The gang used the two services to receive transactions and then move the funds offshore. In an investigation, it was found that two of the enterprises had the same registered physical address (our intelligence system would flag this as the transaction processed – even across institutional business lines). The gang transferred revenue acting as a remittance service and this disguised the origin of the transaction when the bank conducted the transactions. The gang also used the accounts to simply store funds, making passwords widely known so multiple members could draw on the accounts.

Sales Registers and CCTV

A nightclub had CCTV all over its premise except in the VIP lounge for ‘privacy reasons’. That lounge was then used to till up huge sums of cash transactions as ‘revellers’ purchased $800 champagne in huge quantities. Not so elaborate but an easy way to place cash into the legitimate system through bogus purchases of high value goods/services.

An old colleague of mine filmed a car wash over aperiod of several months to prove vehicles were indeed never washed there, helping to secure the conviction for the predicate offence and ML.

Elaborate ways to facilitate the first stage of money laundering are constantly evolving. As we have stated this is the most risky part of laundering. Not only because it’s the first and easy to trace back to the predicate offence, but also because policy focuses compliance agent attention on this first stage through transaction monitoring and identity checks.

Placement of the cash is the most risky stage of laundering

It is also likely the algorithms being adopted through machine learning technology are focusing on this ‘thick edge’ of transactions. At the front of the process. The more involved and professional launderer will adopt moving and flexible processes to move the money many times over, using no set pattern and through many jurisdictions, transaction types and institutes. This way, unless the whole financial sector had one Ai system, the individual systems in each firm will fail to spot the patterns of transactions/behaviour.

Other technologies are also being used by OCGs. From encrypted communications to virtual services and products and the darknet facilitating on a huge scale the market-place for many OCGs and their gang members.

It is safe to say that criminal gangs have business processes very similar to legitimate businesses. They use highly skilled financiers and skilled business people to move money and assets around as we have discussed previously in our post about cyber crime and money laundering.

This post only details a few examples of ‘how’ criminals use technology. It explains ‘why’ they use it. There is a much bigger study currently ongoing to identify the methods regulators, policy-makers and the industry can use to identify how to combat the professional OCG by understanding their methods. Unfortunately, my experience in these matters tends to lean me towards the opinion that this will be mostly wasted effort. The reason I say this is because;

  1. OCGs will know the models adopted before they are launched – they will almost certainly have informed people on the inside.
  2. The policy-setters will take far too long through bureaucratic channels to put something live.
  3. OCGs will adapt and change and this requires not a look to the past but an accurate prediction of the future to enable swift machine learning from new sets of learning data.

Here at CYW we are developing a networked system that will, for the first time, link the institutes intelligence together. With over 300 metrics to monitor from outside the sector, we will merge data and intelligence to pass it at the speed of transactions to enhance red flags and reduce false positives.

This is essentially providing public level enforcement typologies to the private sector to provide more effective and efficient means to stop transactions and put the onus on the criminal to prove it is innocent. It is our view this is the only way the industry can proceed to force change, cause reductions in criminal use of the financial system and increase the amount of seizures being made. stand alone transaction modelling, even with machine learning functionality, will be hampered by the lack of full data as money moves outside their dataset and comes back in again through different entitites/routes. The firm would have no way of tracking it outside of their own institute.

If you think this post is worthy of a like or a share we would really appreciate you taking the time to do so. We need more readers to influence the agenda.

Thank you.

60 Best Money Laundering Research Papers, Books and web links.

60 BEST ANTI-MONEY LAUNDERING AND COUNTER TERRORISM FINANCING RESOURCES GLOBALLY

Research into money laundering goes deeper than reading ACAMS or Linkedin. Here we have provided links to the 60 Best Money Laundering Research Papers, books and web articles.

In the coming weeks we will be blogging about these articles and what they mean to the industry. Stay tuned and register with the site (bottom of the page) if you want to get our posts via your inbox (sent once a month only – no spam!)

We would really appreciate you sharing this resource if you find it useful – it took a long time to research!! Thank you. Simply use one of the sharing links or copy the web address and post about it.

NB: Scroll left and right for small screen views

Title & LinkAuthor & Link to BibliographyDescription
(scroll to left to read)
Money launderingM Levi, P Reuter – Crime and Justice, 2006 – journals.uchicago.eduTechniques for hiding proceeds of crime include transporting cash out of the country, purchasing businesses through which funds can be channeled, buying easily transportable valuables, transfer pricing, and using “underground banks.” Since the mid-1980s …
 Dirty money: The evolution of money laundering counter-measuresWC Gilmore – 1999 – ncjrs.govThe first chapter provides an overview of the problem, as it notes that estimates of money from criminal activities range from 300 to 500 billion US dollars annually, money that is available for laundering. Such quantities of money, often linked with organized crime …
How big is global money laundering?J Walker – Journal of Money Laundering Control, 1999 – emerald.comKnown incidents of money laundering involving large amounts of money generated from crime are of tremendous public interest and are consequently given wide publicity. A wide range of national and international agencies have attempted to quantify organised crime …
 Macroeconomic implications of money launderingPJ Quirk – Washington, Fondo Monetario Internacional, WP, 1996 – elibrary.imf.orgThis paper reviews the main analytical, empirical, and policy issues related to the macroeconomic implications of money laundering. The paper discusses, first, how money laundering can be measured, given that it is unobservable, and reports cross-section …
 Chasing dirty money: The fight against money launderingP Reuter – 2005 – books.google.comOriginally developed to reduce drug trafficking, efforts to combat money foundering have broadened over the years to address other crimes and, most recently, terrorism. In this study,[the authors] look at the scale and characteristics of money laundering, describe and …
 Money laundering: a new international law enforcement modelG Stessens – 2000 – books.google.comThis book gives a broad analysis of the legal issues raised by the international fight against money laundering. It offers an extensive comparative research of the criminal and preventive law aspects from an international perspective. Stessens portrays money laundering as a …
Money laundering: muddying the macroeconomyPJ Quirk – Finance and Development, 1997 – search.proquest.comIMF staff went to a small island country to assess economic developments. As they walked around the capital, they noticed a surprisingly large number of small banks (more than 100 in a country of less than 100,000 people). A year later, it was revealed that many of these …
Money laundering and its regulationM Levi – The Annals of the American Academy of Political …, 2002 – journals.sagepub.comThis article examines definitions of” money laundering” and the conceptual and actual role its regulation plays in dealing with drug markets. If laundering is prevented, incentives to become major criminals are diminished. It identifies and critiques three aspects of harm …
Money laundering: the economics of regulationD Masciandaro – European Journal of Law and Economics, 1999 – SpringerEconomic research has not yet systematically undertaken the analysis of the existing interactions between criminal economy and financial markets. The present work belongs to a research field increasingly interested in such issues and focuses on the economic analysis of money laundering …
Money laundering: some factsF Schneider, U Windischbauer – European Journal of Law and Economics, 2008 – SpringerThis paper tackles the quite difficult topic of money laundering. After defining money laundering, and after explaining the three stages (steps), placement, layering and integration, the paper tries a quantification and estimation of the volume and development of …
Money laundering and the international financial systemV Tanzi – 1996 – ideas.repec.orgThe IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues …
Measuring Global Money Laundering:” The Walker Gravity Model”J Walker, B Unger – Review of Law & Economics, 2009 – degruyter.comMeasuring global money laundering, the proceeds of transnational crime that are pumped through the financial system worldwide, is still in its infancy. Methods such as case studies, proxy variables, or models for measuring the shadow economy all tend to under-or …
Money laundering—a global obstacleB Buchanan – Research in International Business and Finance, 2004 – ElsevierOne of the biggest obstacles to maintaining an effective operating international financial system is money laundering. A global phenomenon and international challenge, money laundering is a financial crime that often involves a complex series of transactions and …
An inquiry into money laundering tools in the Bitcoin ecosystemM Möser, R Böhme, D Breuker – 2013 APWG eCrime …, 2013 – ieeexplore.ieee.orgWe provide a first systematic account of opportunities and limitations of anti-money laundering (AML) in Bitcoin, a decentralized cryptographic currency proliferating on the Internet. Our starting point is the observation that Bitcoin attracts criminal activity as many …
 Black finance: the economics of money launderingD Masciandaro, E Takats, B Unger – 2007 – books.google.com” The recent dramatic wave of terrorist attacks has further focussed worldwide attention on the money laundering phenomena. The objective of this book is to offer the first systematic analysis of the economics of money laundering and its connection with terrorism finance …
 Critical reflections on transnational organized crime, money laundering and corruptionME Beare – 2003 – books.google.comTransnational crime, organized crime, money laundering and corruption are four concepts that have gained and continue to gain an international and domestic profile. Is the information given to the public concerning these concepts distorted by the vested interests of …
 The amounts and the effects of money launderingB Unger, M Siegel, J Ferwerda, W de Kruijf… – Report for the Ministry of …, 2006 – ftm.nl0.4. The amount of money laundered is sizeable 0.5. Where is the criminal money being laundered and placed? 0.6. The Netherlands are a transit country of crime and criminal money 0.7. What are the effects of money laundering? 0.8. The long term dangers of money  …
The consequences of money laundering and financial crimeJ McDowell, G Novis – Economic Perspectives, 2001 – ncjrs.govMoney laundering is seen as critical to the effective operation of transnational and organized crime. However, money laundering effects a country’s economy, government, and social well-being. This article briefly reviewed both the economic and social costs of money laundering …
 Money laundering: A guide for criminal investigatorsJ Madinger – 2011 – books.google.comMany changes have occurred in the twenty-five years that have passed since the enactment of the Money Laundering Control Act of 1986. The law has been amended, new underlying crimes have been added, and court decisions have modified its scope. The Act remains an …
 The hawala alternative remittance system and its role in money launderingPM Jost, HS Sandhu – 2000 – peacepalacelibrary.nlThe components of hawala that distinguish it from other remittance systems are trust and the extensive use of connections such as family relationships or regional affiliations. Unlike traditional banking or even the’chop’system, hawala makes minimal (often no) use of any …
The fight against money launderingH Geiger, O Wuensch – Journal of Money Laundering Control, 2007 – emerald.comPurpose–To provide an economic view on the costs and benefits of anti‐money laundering (AML) efforts. Design/methodology/approach–Based on a international, comparative study conducted in Switzerland, Singapore and Germany, the authors outline the impact of AML …
Bitcoin and money laundering: mining for an effective solutionD Bryans – Ind. LJ, 2014 – HeinOnlineTechnology forges ahead at a rapid pace, whether we like it or not. Criminals recognize this inevitability and use technological improvements to advance their craft,’committing crimes from half a world away in real time. Meticulous criminals also use technological …
Corruption and money laundering: a symbiotic relationshipD Chaikin, J Sharman – 2009 – Springer
 Financial havens, banking secrecy and money-launderingJA Blum, M Levi, RT Naylor, P Williams – 1998 – amnet.co.ilThe major money laundering cases coming to light in recent years share a common feature: criminal organizations are making wide use of the opportunities offered by financial havens and offshore centres to launder criminal assets, thereby creating roadblocks to criminal …
A typological study on money launderingP He – Journal of Money Laundering Control, 2010 – emerald.comPurpose–The purpose of this paper is to make objective descriptions on various money‐laundering techniques and to put forward countermeasures in order to combat money laundering more effectively and efficiently. Design/methodology/approach–This paper …
 Reference guide to anti-money laundering and combating the financing of terrorismPA Schott – 2006 – elibrary.worldbank.orgThis second edition of the Reference Guide is a comprehensive source of practical information on how countries can fight money laundering and terrorist financing. Aimed at helping countries understand the new international standards, it discusses the problems …
 Money laundering policyPC Van Duyne – Fears and Facts, 2003 – petrusvanduyne.nlIt is difficult to argue about the nature of smells. Some of them do not even have names. But one kind of smell has certainly been nominated and changed in our appreciation: the ‘moral smell’of money. Today the adage ‘money does not smell’does not apply any more. Now we …
Responding to Money LaunderingE Savona – 2005 – books.google.comResponding to Money Laundering has its origin in the International Conference on Preventing and Controlling Money Laundering and the Use of Proceeds of Crime: A Global Approach organised by ISPAC, the International Scientific and Advisory Board of the United …
 Dirty money: the evolution of international measures to counter money laundering and the financing of terrorismWC Gilmore – 2004 – books.google.comThis is the third edition of this publication which explores key issues in the fast evolving field of money laundering and terrorist financing, and which has been restructured so as to fully reflect the high international priority given to tackling the financing of terrorism since …
Money laundering and globalizationP Alldridge – Journal of law and society, 2008 – Wiley Online LibraryThe article traces the various imperatives generated by the combination of the money laundering panic of the late 1990s with the advent of globalization. If there is to be an attempt legally to regulate laundering, it (laundering) must be a relatively serious offence …
Money launderingN Morris-Cotterill – Foreign Policy, 2001 – JSTORFrom Moscow to Buenos Aires, money laundering scandals sap economies and destabilize governments. Policymakers blame crime cartels, tax havens, and new techniques like cyberlaundering. But dirty money long predates such influences. Without unified rules …
The economics of crime and money laundering: does anti-money laundering policy reduce crime?J Ferwerda – Review of Law & Economics, 2009 – degruyter.comAnti-money laundering policy has become a major issue in the Western world, especially in the United States after 9-11. Basically, all countries in the world are more or less forced to cooperate in the global fight against money laundering. In this paper, the criminalization of …
 Dirty dealing: the untold truth about global money laundering, international crime and terrorismP Lilley – 2003 – books.google.comPraise and ReviewsEntertaining, well written and well presented.JOHN MULQUEEN, The Irish TimesPaints an alarming picture of the power and scale of todays crooked and corrupt financial world. Lilley has done his homework.THE IODS DIRECTOR MAGAZINESChoice of …
System and method for analyzing and dispositioning money laundering suspicious activity alertsBJ Kloostra, C Dalvi, BN Behm – US Patent App. 12/258,784, 2009 – Google PatentsA system and method for analyzing, dispositioning, recording, reviewing, and managing potentially suspicious financial transactions. In some cases, the system models the steps taken by a subject matter expert to reach a conclusion so that a novice can follow similar …
A theory of “Crying Wolf”: The economics of money laundering enforcementE Takáts – The Journal of Law, Economics, & Organization, 2011 – academic.oup.comThe article shows how excessive reporting, called “crying wolf”, can dilute the information value of reports and how more reports can mean less information. Excessive reporting is investigated by undertaking the first formal analysis of money laundering enforcement …
Power and discourse in policy diffusion: Anti-money laundering in developing statesJC Sharman – International Studies Quarterly, 2008 – academic.oup.comTwenty years ago not a single country had a policy against money laundering; currently, over 170 have very similar anti-money laundering (AML) policies in place. Why have so many countries with so little in common adopted the same policy so rapidly? This extensive …
 Global financial crime: terrorism, money laundering and offshore centresD Masciandaro – 2017 – books.google.comThe scope for financial crime has widened with the expansion and increased integration of financial markets. Money laundering, terrorism financing and tax crime have all changed in both nature and dimension. As new technologies reduce the importance of physical …
AI fights money launderingJ Kingdon – IEEE Intelligent Systems, 2004 – ieeexplore.ieee.orgThe bank had approached Searchspace, formed by re- searchers from the Intelligent Systems Lab at University College London in 1993. It applies adaptive and learning- systems approaches to a range of business and finance tasks. However, until then, we had principally developed …
 Transnational criminal organizations, cybercrime, and money laundering: a handbook for law enforcement officers, auditors, and financial investigatorsJR Richards – 1998 – books.google.comWRITTEN BY A LAW ENFORCEMENT PROFESSIONAL FOR OTHER LAW ENFORCEMENT PERSONNEL IN THE TRENCHES This book examines the workings of organized criminals and criminal groups that transcend national boundaries. Discussions …
Trade-based money laundering and terrorist financingJS Zdanowicz – Review of law & economics, 2009 – degruyter.comMoney laundering can be defined, generally, as the process of concealing the existence, illegal source, or application of income derived from a criminal activity, and the subsequent disguising of the source of that income to make it appear legitimate. Deception is the heart of …
The tenuous relationship between the fight against money laundering and the disruption of criminal financeMF Cuéllar – J. Crim. L. & Criminology, 2002 – HeinOnlineThis article examines the fight against money laundering as a case study of the separation between an enforcement system’s objectives and performance. To launder money is to hide its illegal origin. The fight against money laundering is supposed to disrupt laundering in its …
 Detecting money laundering and terrorist financing via data miningJS Zdanowicz – Communications of the ACM, 2004 – dl.acm.orgThe use of international trade to move money, undetected, from one country to another is one of the oldest techniques used to circumvent government scrutiny. Either overvaluing imports or undervaluing exports can achieve this transfer. If an imported prod- uct is overvalued, the foreign …
Money laundering regulation: the micro economicsD Masciandaro – Journal of Money Laundering Control, 1998 – emerald.comThe analysis of the interactions between the criminal economy and the financial markets has not yet been systematically studied by the economists. This study belongs to a current research interested in this area, ie the economic analysis of money laundering. The work is …
Money laundering: The crime of the’90sGR Strafer – Am. Crim. L. Rev., 1989 – HeinOnlineIn the Money Laundering Control Act of 1986,’codified at sections 1956 and 1957 of Title 18 of the United States Code, Congress for the first time attempted to define and prohibit a category of activity known colloquially as” money laundering.” During an election year frenzy …
Applying data mining in investigating money laundering crimesZ Zhang, JJ Salerno, PS Yu – Proceedings of the ninth ACM SIGKDD …, 2003 – dl.acm.orgIn this paper, we study the problem of applying data mining to facilitate the investigation of money laundering crimes (MLCs). We have identified a new paradigm of problems—that of automatic community generation based on uni-party data, the data in which there is no direct …
Turnover of organized crime and money laundering: some preliminary empirical findingsF Schneider – Public choice, 2010 – SpringerAfter a short literature review, the paper quantifies the turnover of organized crime with the help of a MIMIC estimation procedure for the years 1995 to 2006 for 20 highly developed OECD countries. The volume of turnover from organized crime was US-270billionintheyear1995forthese20OECDc …
Money laundering: an international challengeLA Barbot – Tul. J. Int’l & Comp. L., 1995 – HeinOnlineIn the words of South American drug barons,” dirty money is best passed through clean hands.” 1 Money laundering is often defined as” the process by which one conceals the existence, illegal source or illegal application of income, and then disguises that income to …
Money laundering and its regulationA Chong, F Lopez‐De‐Silanes – Economics & Politics, 2015 – Wiley Online LibraryThe recent wave of terrorist attacks has increased the attention to money laundering activities, and the role played by the regulatory frameworks controlling feeder activities. We investigate empirically the determinants of money laundering and its regulation in close to …
 Money laundering: a concise guide for all businessD Hopton – 2009 – books.google.comWorldwide, anti-money laundering regulations and legislation have become one of the weapons of choice of governments that are fighting global terrorism and criminality. In this updated edition of Money Laundering, Doug Hopton explains how The Money Laundering  …
Virtual money laundering: the case of Bitcoin and the Linden dollarR Stokes – Information & Communications Technology Law, 2012 – Taylor & FrancisThis paper presents an analysis of the money laundering risks of two virtual currencies, the Linden dollar, the in-world currency of the interactive online environment Second Life, and Bitcoin, an experimental virtual currency that allows for the transfer of value through peer-to …
 Anti-Money Laundering: international law and practiceWH Muller, CH Kalin, JG Goldsworth – 2007 – books.google.comAnti-Money Laundering is the definitive reference on money laundering and practice. First an outline will be given of the general approach taken by supra-national organisations like the United Nations and the European Council. Next the approach taken by international …
 Crime, illicit markets, and money launderingP Williams – Managing global issues: Lessons learned, 2001 – carnegieendowment.orgPhil Williams organized crime is perhaps best understood as the continuation of commerce by illegal means, with transnational criminal organizations as the illicit counterparts of multinational corporations. During the 1990s, transnational organized crime—and the …
 Criminal finance: The political economy of money laundering in a comparative legal contextK Hinterseer – 2002 – books.google.comLike it or not, money launderers are major players in the world’s economy. Their strategies constrain national economic policies and undermine financial institutions. With the advent of secure transfer technologies, and with the help of modern financial theories of derivatives …
A comparative guide to anti-money launderingM Pieth, G Aiolfi – 2004 – academia.eduMoney laundering is the process by which criminals attempt to conceal the source and ownership of the proceeds of their illicit activities; if successful, the criminal maintains control and access to these funds when and where he chooses. The efforts to combat this …
 Money launderingFAT Force – Policy Brief July 1999, 1999 – bahamasb2b.comThe goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to …
Money Laundering: The Scope of the Problem and Attempts to Combat ItS Sultzer – Tenn. L. Rev., 1995 – HeinOnlineMoney laundering is the process of taking the proceeds of criminalactivity and making it appear legal. Money laundering has been called the” lifeblood” of crime because, without cleansing the profits of crime, the criminal enterprise cannot flourish. While drug money  …
Money laundering law: Forfeiture, confiscation, civil recovery, criminal laundering and taxation of the proceeds of crimeP Alldridge – 2003 – Bloomsbury Publishing
Money laundering and financial means of organized crime: some preliminary empirical findingsF Schneider – Paolo Baffi Centre Research Paper, 2008 – papers.ssrn.comAfter giving a short literature review, the paper tries a quantification of the volume of money laundering activities, with the help of a DYMIMIC estimation procedure for the years 1995 to 2006 for 20 highly developed OECD countries. The volume of laundered money was 273 …
Money‐Laundering: Estimates in FogPC Van Duyne – Journal of Financial Crime, 1994 – emerald.comThe paper examines certain problems in determining the extent of money‐laundering. The author first discusses the methodological problems inherent in assessing its volume. He then discusses two methods to estimate the extent of money‐laundering. One method is …

AML-Resources U to Z

AML Resources U to Z

A to EF to JK to OP to TU to Z

Bring yourself up to date with this useful list of AML resources and help documents. We design training packages for your staff, the below is just a small section of our knowledge base. It is important to consider your requirement for bespoke training aligned to your risk.

See our training page to book some training

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  • United Nations Convention Against Corruption
  • United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances
  • United Nations Convention for the Suppression of the Financing of Terrorism
  • United Nations Convention Against Transnational Organised Crime and the Protocols.

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  • SEC Rules on Whistle-blowing
  • Wolfsberg Private Banking Principles. – The Principles were initially formulated in 2000 (and revised in 2002) to take into account certain perceived risks associated with private banking. Such risks continue to warrant appropriate levels of attention, no less today than ten years ago. Regulators continue to expect strong anti-money laundering standards, robust controls, enhanced client due diligence and suitable AML policies and procedures. The Wolfsberg Principles detail the groups considerations. –
  • Wolfsberg Guidance on Sanction Screening

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A to EF to JK to OP to TU to Z

AML-Resources K to O

AML Resources K to O

A to EF to JK to OP to TU to Z

Bring yourself up to date with this useful list of AML resources and help documents. We design training packages for your staff, the below is just a small section of our knowledge base. It is important to consider your requirement for bespoke training aligned to your risk.

See our training page to book some training

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  • New Zealand – Audit of AML/CTF programs and risk assessments

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  • OECD – Standard for Automatic Exchange of Financial Account Information in Tax Matters
  • Organised Crime – United Nations Convention Against Transnational Organised Crime and the Protocols.-

A to EF to JK to OP to TU to Z

AML-Resources F to J

AML Resources F to J

A to EF to JK to OP to TU to Z

Bring yourself up to date with this useful list of AML resources and help documents. We design training packages for your staff, the below is just a small section of our knowledge base. It is important to consider your requirement for bespoke training aligned to your risk.

See our training page to book some training

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I

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A to EF to JK to OP to TU to Z

AML-Resources P to T

AML Resources P to T

A to EF to JK to OP to TU to Z

Bring yourself up to date with this useful list of AML resources and help documents. We design training packages for your staff, the below is just a small section of our knowledge base. It is important to consider your requirement for bespoke training aligned to your risk.

See our training page to book some training

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  • PEPs. FATF guidance on PEPs –
  • POLICY – An Anti-Money Laundering and Terrorist Financing Policy is the document that guides all AML activity and helps your organization guide staff. It is a critical document that should detail a lead from the top of the organization. Below we provide three institutional policies for you to peruse contrast and compare (the first is a Real Estate policy, the second/third are banking policies) . We make no comment on the quality. We provide this service for you to reassure you, your policy will meet the required regulatory rigour.
  • AML/CTF Policies and Procedures template – Seek our advice before using this. –

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  • Real Estate Policy Template. NB: Seek advice this is a guide only.
  • Risk Assesment and AML/CTF program audits – New Zealand
  • Risk Assessment – BSA/AML Example – for a bank. We do not warrant the quality of this document. –

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  • Securities Exchange Commission Rules on Whistle-blowing
  • Guidance on Sanction Screening from Wolfsberg –

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  • Standard for Automatic Exchange of Financial Account Information in Tax Matters OECD
  • Template for AML program for a small firm – US centric NB- We do not warrant the quality of this document. You must seek our advice.
  • Template for AML/CTF Policies and Procedures – Seek our advice before using this. –
  • Template for Real Estate AML/CTF Policy. NB: Seek our advice this is a guide only.
  • Terrorism. United Nations Convention for the Suppression of the Financing of Terrorism –
  • Transparency International Exporting Corruption Report
  • Company Trusts. FATF guidance on Company formation agents and Trusts – A risk based approach to their work and the risk they face in the climate to remove hidden Beneficial Ownership. For a summary and the full report go here, or download the full report.

A to EF to JK to OP to TU to Z

What to do when you uncover Money Laundering

Gold is an easy asset to use to launder value. It’s high value, easy to transport and can be moulded into any shape you desire. For the super rich criminal, it is a go to element of value to store criminal assets.

None of that is shocking. What is shocking, is when a big four audit and accountancy firm gets involved in a very, very blatant money laundering scandal. Like EY did.

In this post we will examine what happened, explore the person involved and ask questions or pose suggestions to cause Compliance Operators to think about what they would do in the position of the central player, Amjad Rihan, a person who stood up against the odds to try and secure ethical business practice.

Amjad Rihan was respected. He was good at his job and had shown talent in a short tenure with EY. He was promoted to a partner position in the EY Dubai operation, paying $50,000 into the firm to secure it.

In 2013 he was required to conduct an ‘Assurance Audit’ of a jeweller and gold dealer called ‘Kaloti Jewellery International’. The purpose of such an audit is to provide an independent written view on the quality and propriety of the audit client’s business practices. An assurance audit is not a financial audit but shares some of the characteristics of one. The word “assurance” is used because the auditor’s written views are intended to assure a reader of the auditor’s assurance report that the audit client’s business practices, in the auditor’s independent view, are as stated in the report.

Clearly, any professional putting a signature on a report such as this is asserting credibility to the business under audit. They are effectively lending the auditor’s respectability to the business under audit – to assign weight to their honesty and ethical business practices through the respectability of the auditor.

Charged with that Amjad set about his task. He had a small team working with him and they quickly uncovered what was effectively gold smuggling out of Morocco. The method used was simple. Coat the gold in a thin veneer of silver to convince Customs at the border it was silver being transported and not gold. This was to avoid the regulations and bar on exporting gold from Morocco. All the paperwork exporting the metal was identified as Silver leaving Morocco but imported into UAE as Gold. In addition to this irregularity Kaloti had taken part in cash transactions in 2012 to the value of $5.2 billion.

With one cash transaction for an eye watering $750 million – in cash!

Gold is recognised as a ‘conflict mineral’ internationally, meaning scrutiny on its trade should be more thorough. This is because of the points made above, ease of transport of high value, maliable and convertable easily. It is known to be used for terrorist financing and in the exchange of criminal assets.

There was no doubt, questions as to the standard of business were raised due to these suspicions. In fact during the trial EY accepted the suspicions around laundering of money and gold were present. I would go further.

It’s not just suspicious to be trading in cash for gold. It isn’t just suspicious that gold, deliberately disguised as silver was exported from Morocco.

This is money laundering. Period.

Yet when Amjad tried to raise this within EY, no one wanted to know. Various attempts to get him to re-write his findings were made, in a fudge to curry the favour of Kaloti, and more importantly the circule of influence around the company that went to the top of Dubai society. The route to the top was through an organisation called the DMCC. The Dubai Metals and Commodities Centre – a ‘sort of’ regulator in the Kingdom. They were part of the government machinery and tried, consistently, to have the cash trading and gold smuggling issues removed from the EY report.

Clearly EY were in a difficult position – but not one that could not have been thought through in a pre-considered way. It is not unfeasible when operating in a country that has no reason to trade in gold other than for its attractive nature as to its ability to be laundered, and as a safe haven as a store of value in troubled economic times. It’s also required, in good practice, to properly complete EDD when you look at the bare facts in this case.

  • Gold – mineral of conflict
  • High value
  • Wealthy business
  • International Trade
  • Gold trading in a country that doesn’t produce it

Gold trading in a country that has no gold mines is a known and publicised red flag for money laundering and terrorist financing. Compliance staff at EY will have (or should have) known this before the company even set offices up in the Kingdom. And this for me is the morally bankrupt nature of what EY did. They sent an auditor in, even if they operated without suspicion at that stage, with a high potential he would uncover ‘discrepancies’ with no apparent plan as to how they would handle those discrepancies.

For me, this is the problem with firms seeking to ‘do business’ without a proper process to manage ethical, moral and legal issues. It is a step too far to put an honest man, who had paid several thousand into the business to attain partner status, under undue pressure to conflict his ethical and honest nature – just to secure business. The risk he faced was insurmountable. He could ‘fudge’ the report and produce a ‘bill of good health’ for Kaloti. Essentially being bribed to do so. At risk if he didn’t was his investment into the firm and his whole present and future career.

Mr Rihan choose the ethical and honest route.

Mr Rihan is now global news. His image is across the media and his story well documented. How this impacts his future remains to be seen, ‘not a company man’, ‘can’t be trusted’ and other potential slurs could (probably will) follow him as he tries to secure employment elsewhere. And those slurs have followed him already.

I am sure the sole searching within EY will go deep. But will it remedy the past ills of the company? I doubt it. Money is the ultimate motivator, and if as an intelligent business, they couldn’t foresee potential conflicts when the contract to audit Kaloti was signed then, to be frank, would you trust a single audit they conduct in the future?

Due diligence springs to mind.

This is the central issue for EY. The more negative press you get relating to the ethical issues at the heart of this saga, the less people are likely to trust your future ‘audits’.

Of course, I am sure the marketing department and PR people will be working overtime to remove this stain on EY’s history but the sad fact of corporate life nowadays is repeated scandal after repeated scandal. Corporate level entities just do not seem to grasp the damage to reputation when they fail to do due diligence before they enter a contract and plan for an exit if they uncover clear criminal behaviour.

It seems the plan is to send in a partner, who is financially bought in and has risk at his door, in an unwritten strategy to have him shoulder the burden for any negative outcome. Reporting lines to senior people is managed to reduce the written trail and remove them from the risk. The business is set up to distinctly try and reduce risk throughout the group as they have entities separated by registration in separate jurisdictions.

Yet the judge in the trial, his Hon Justice Kerr, faced with four elements of the EY corporate set up as defendants, saw through this and rightly held the case had English jurisdiction – a line of defence EY’s lawyers tried to pursue, claiming Mr Rihan wasn’t entitled to English jurisdiction.

In the end Mr Rihan was awarded $11 million. That is a lot of money. But rightly awarded to compensate Mr Rihan for standing up for ethical and honest business and for being constructively dismissed from EY. His future now secure again (pending an appeal, which is likely).

What lessons can be learned?

For those in corporate business several lessons can be taken from this.

  • Ensure you do due diligence when clear risks are present in a contract and have a plan to manage them. With an exit strategy.
  • Provide support to your employees who will be under intolerable pressure and it is you that has created it.
  • Start from worst case scenario. While you save one business contract you put thousands of others at risk if you fudge ethics and integrity.
  • Protect your reputation not the contract.
  • Protect your people not the contract.
  • Consider the future not the present.

For those in roles that are compliance related:

  • Document everything, timed and dated.
  • Save all records off the organisation’s system.
  • Have someone have your back – and tie them to it by copying communications to them.
  • Question the plan and exit strategy before you start.
  • Confirm and test the due diligence.
  • Collate everything and ensure senior managers are copied in. They can’t ‘un-know, what you know’.

In a world that wrestles with ethics on a daily basis, the choices aren’t always linear. For this reason it is important when you come across unethical or criminal behaviour you report it, in written form, through the right internal channel. If you’re met with a closed system of either outright negation or denial, do not go back for another go.

Continue your role and do it in the best way possible but record everything. This can be uncomfortable and even make you feel treachourous, but if and when the issues you know come out you need a way to explain what you did, when you did it and why. It also provides you with a body of evidence if you believe the course of action is to report what you have found externally.

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