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Money laundering: Part of a wider web of criminal activity

Malcolm Wright  Head of AML and Transaction Monitoring

Malcolm Wright  Head of AML and Transaction Monitoring

The threat of complex criminal networks

Since the first money laundering regulations were established in the late 1980’s and early 1990’s the criminal landscape has changed beyond recognition. Boosted by technological advancements and globalisation, organised crime has moved from operating within single or limited crime types into complex polycrime networks, where diverse business models now drive illicit money flows across the globe.

This is further complicated by the emergence of ‘crime-as-a-service’. Fuelled by the ‘dark web’, it has facilitated the pooling of expertise and resources to sell their services alongside others to willing buyers. The result leads to operational outsourcing of elements of the criminal business model, but such pooling also drives research and development into evermore complex mechanisms to generate profits and evade detection.

Whilst it is the work of law enforcement to track and dismantle criminal networks, banks and other regulated companies have a role to play. Criminal financing only works if money can flow between parties, and despite the growth of virtual currencies as the value transfer of choice, banks are still used to the greater extent.

The response to meeting the criminal challenge has been additional regulation on banks; for them to ensure they detect and report suspected criminal behaviour. This requires robust systems and controls; from client on-boarding and due diligence, through to monitoring the ongoing behaviour of client transactions. Failure to establish appropriate controls can lead to significant fines and reputational damage.

But, it is not always a case of looking for the perpetrator or criminal mastermind. Sometimes, the client may actually be the victim.

Money laundering infographic -- World-Check data shows money laundering's connection to other crimes.

A case in point

In October 2016 an international U.S.-Thailand sex trafficking ring saw seventeen traffickers arrested across the United States. Their operation involved hundreds of women trafficked from Thailand to America over a period of seven years. The women were given bank accounts opened with fake IDs, along with a bondage debt to be repaid. Evidence emerged that the illicit profits from the commercial sex operations had been laundered and then used to continue funding the activities.

Investigators uncovered an international network in which facilitators played a variety of roles, including advertising the victims online and through other mediums, organizing the movement and travel of victims, and laundering the illicit profits.

Sophisticated laundering techniques

The illegal profits from sex trafficking and other serious crimes are significant, and sophisticated money laundering techniques are often used to conceal funds and ensure that criminal operations continue undetected.

Cash is still king in the placement stage of money laundering given it is easy to move and difficult to trace back to the criminal. Demonstrating its significance; when India withdrew the 500 and 1000 rupee notes in 2016, advocacy groups reported a 90% drop in human trafficking. Once the money has entered the system though, a network of professional enablers and money laundering professionals can sweep into action utilising an almost endless range of possible options to move the money through the system.

These options have been boosted by an increasingly complex financial system in which to hide. Examples of complexity include the move to same day / near real time payments, the emergence of pre-paid cards, globalisation and trade finance / trade based money laundering, virtual currencies, and the ease for a business to obtain an Electronic Point of Sale (EPoS) terminal to facilitate transaction laundering.

Rigorous screening can help uncover criminal networks

Many U.S. government agencies in particular have implemented programs to fight human trafficking and other serious crimes linked to money laundering, but the importance of the private sector’s role cannot be over-emphasized. Banks and regulated organisations have an important role to play, but they need to invest in the right tools to deliver targeted intelligence if they are to successfully uncover hidden risks in business relationships and human networks.

Thomson Reuters World-Check risk intelligence, for example, provides a comprehensive solution that enables banks and regulated organisations to screen, monitor and analyze hidden risks, so they can really understand who they are doing business with and identify criminals before they have the chance to infiltrate the formal banking sector.

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