Current Money Laundering Threats and Trends

1. Current money laundering threats and trends
   1. Traditional Money Laundering Typologies
      1. Structured Transactions Deposited to Financial Institutions

It is true to say that the smuggling of prohibited goods will bring a huge amount of money to smugglers. That money, in the end, must be integrated into the economy in order to be used. The transfer of cash through banking system is considered as the most efficient and effective way. The cash can be moved quickly and electronically in a safe environment. However, jurisdictions would like to make the requirements and policy of transferring cash over a certain amount of money. In other words, financial institutions have to make a report of cash transaction for a regulated amount of cash. For smugglers of drug trafficking or some other banned things, cash transferring is safe and quick, however those cash will be investigated by banks and relevant agencies. As a result, in order to avoid the generation of these reports and the detection, criminals would like to structure their banking transactions. In detailed, they will open different accounts and cash amount at different banks. Since banks and financial institutions have applied the requirement of financial report more strictly and the required Suspicious Transaction Reporting has been developed, criminals would like to find the other ways for laundering their dirty money. This Suspicious Transaction Reporting is required in United States. Whenever banking employees suspected the sources of cash or they had reason to make a doubt that the cash could come from illegal actions; or they were informed that criminals wanted to change the cash into legal funds, the suspicious transaction reporting must be submitted. As a result, the required suspicious transaction Reporting can limit and prevent criminals’ illegal activities in Money laundering.

2. Cash Couriers and Bulk Cash Smugglers (BCS)

The money laundering by cash couriers and bulk cash smugglers can be clearly explained by the long statement “the most obvious technique involved employees of the criminal organization smuggling cash from the consumer country of the illegal product to the distributor, or from the criminal to the foreign bank secrecy destination where he or she had arranged for the currency to be invested”. Cash smuggling is divided into two categories including cash courier and bulk cash smuggling. In terms of BCS, criminals would like to smuggle cash with a huge amount. The transportation and delivery of cash can be implemented by some forms such as the involvement of land , sea border or cash concealed in vehicles or cargo containers. Criminals will cross the border illegally through sea or land to bring cash to receivers who also are criminals. Moreover, they can find somewhere in vehicles or cargoes or containers to hide illicit cash. For cash couriers, they are natural people and transport illegal cash with them. More clearly, they will conceal the cash into somewhere of their bodies or hide the illicit cash in their luggages which they bring with them. Among methods of the cash transportation, cash couriers prefer the transportation through commercial airline. It seems that the transportation through commercial airline will be less controlled and be faster. Consequently, the risk is less. For both cash courier and bulk cash smuggling, the money, which has larger denomination, will be used. The reason is that the larger denomination money will reduce the weight and size of the cargoes or luggages or vehicles or containers. The illicit cash transportation will be with a small quantity for the first time, then the quantity of the cash will be increased in next times. The purpose is to avoid risk of avoid the risk of being detected. In order to prevent and solve issues related to cash couriers and bulk cash smugglers, the International standards on combating money laundering and the finance of terrorism and proliferation (FATF) Special Recommendation IX was borned[1]. Following this regulation, countries have to implement “either a declaration or disclosure system for detecting the cross-border transportation of currency and bearer negotiable instruments”. Besides, if border officials suspect the origin of cash or this kind of cash transported for illegal purposes, they will have responsibilities to seize the currency or bearer instruments. Lastly, people who are related to the action of illegal transportation such as providing false disclosures or declarations will be penalized by jurisdictions. The confiscation of currency or instruments related to terrorist financing or money laundering will also be carried out. The FATF is very helpful in issuing a Best Practice guidance paper, which support jurisdictions in recognizing the illicit cash[2]

3. Money Service Businesses and Informal Value Transfer Systems

The money laundering and cash transporting through central banks and commercial banks are very risky. Consequently, criminals, especially terrorists will choose non-banking financial institutions or service businesses since these organizations pay less attention to money laundering and regulations of money laundering. Hence, the risk of dirty money detected is not high. The illegal money circulation will not encounter barriers. Among those organizations, Western Union and Money Gram can recognize the harm of money laundering. Therefore, they have complied with the reporting requirements and well- cooperated with the law. In contrast, smaller ethnic-based money services businesses including grocery store, travel agency, and so on do not identify their responsibilities of anti –money laundering and terrorist activities. As a result, criminals take advantage of organizations’ deficits to launder their cash. Western Union and Money Gram are in charge of different financial activities, for example wire transmission, exchange of foreign currencies, cash checking and sales of money orders …etc. The transaction between Western Union, Money Gram and their customers takes place within United Nations and foreign countries. In the aspect of Informal Value Transfer Systems, it is popular in North Africa, Middle east, the horn of Africa and South Asia. The Informal Value Transfer System can be called “ hawala”. Its mechanism of action is to “allows hawaladars from all parts of the world to transfer funds to and from their clients by setting debts between themselves”.

4. Trade-based Money Laundering

Except for Structured Transactions Deposited to Financial Institutions, Cash Couriers and Bulk Cash Smugglers, and Money Service Businesses and Informal Value Transfer Systems, criminals use the Trade-based Money Laundering for their ethical behaviors. This method is very sophisticated. The quantity and value of cash is transported by falsifying invoices, or writing invoices under or over real invoices of commodities which are imported or exported. In other words, criminals will buy a quantity of commodity and the amount of cash for the commodity is 10 thousands dollar, for example; However, when writing the invoice, they will require their seller to note on the number of 5 thousands dollar. This phenomenon is popular in import and export operations. The purpose is to get tax evasion or to get tax application at low rate. Criminal also use over-invoicing commodities to hide the move of cash through complex and complicated documents. By this money laundering, criminals sometimes can associate with legal trade activity. Colombian drug cartels prefer to use trade based money laundering. It is popular in the way that they buy drug from other countries and resell it in their country. They also sell drug to other countries. The transportation of their drug is carried out through a common method named the Black Market Peso Exchange”. Both Western Union and Gram money of Money Business Service and hawaladas of informal value transfer systems use trade based money laundering to settle the debts which is rised from foreign remittances. In short, criminal will buy commodities from a foreign country and transfer cash to the other country where the commodity will be sold, the proceeds will be sent to intended recipient. The trade based money laundering has nine indicators of red flag such as “vendor payments made in cash by unrelated third parties; vendor payments made via wire transfers from unrelated third parties; vendor payments via checks, bank drafts, or postal money orders from unrelated third parties; false invoicing and customs documents including commodity misclassification or commodity over valuation or under valuation; carousel transaction; commodities traded do not match the business invoiced; unusual shipping routes or transshipment points, packaging inconsistent with commodity or shipping methods; and double invoicing.”

2. Emerging Technologies

Previously internet, social network and technology do not develop as it is now. Therefore, criminals have to choose traditional money laundering typologies above for their illegal actions. In recent some decades, the boom of science and high technology has changed the method of money laundering. The below is three methods of ML in modern time.

1. Prepaid Value Cards

In order to make payment more convenient and quicker, FAFT issued a new method of payment in October of 2006. This method encourages legitimate trade organizations to use because of its convenience. However, the money launders have taken advantage of this advancement for their personal objectives. This issue has made non- banks busier in their service business. The opportunity to earn profit is higher through offering prepaid value cards, electronic purses, mobile payments, internet payment services and digital precious metals. Nevertheless, money-laundering criminals have considered those features as good methods for their money laundering purposes. In comparison to the ATM system which the surveillance camera is used, the new payment methods can help criminals avoid the supervision of financial providers. Hence, the possibility of being identified is lower. The other advantage and convenience of those payment methods is easy to access at any time and in anywhere of the world as long as the place has wifi, phone reception, or internet is connected. Compared to traditional cash transferring, those methods have more convenient [3].

2. Online Payment Systems

The appearance of high technology and the boom of internet have brought many benefits to users. However, it has also created a dark side. Hackers can stole cash from banks and credit card information and information related to financial institutions. Money launders can make illegal funds disappear in dozens of different online accounts (Grow and Brian, (2006). These criminals will make those accounts difficult to be explored. As a result, online payment system, to some extent, can cause a danger to society and the financial system [4]

3. Increased Use of Gatekeepers to Establish Sophisticated Trusts

Along the development of technology and online network, the operation of money laundering is more and more sophisticated. Gatekeepers now have become more dangerous threat to society than the previous time. They are professional accountants, lawyers, and companies that provide service. Their participation in money laundering has contributed to the success of money laundering activity. They can directly launder money or be the third party to serve money-laundering process. According to FATF, Political Exposed Persons is regarded as gatekeepers because they are able to access to the funds and systems in their nations. Consequently, many of these gatekeepers have done tasks for personal aims. Furthermore, they are allowed to adjust the financial legislation or rules for personal purposes [5]. As a result, unmoral gatekeepers are very dangerous for society in general and for financial system of that country in particular.

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[1] https://www.fatf-gafi.org/dataoecd/50/63/34424128.pdf, [2] https://www.fatf-gafi.org/document/19/0,3343,en_32250379_32236920_43775315_1_1_1_1,00.html, [3] Global Money Laundering & Terrorist Financing Threat Assessment(July 2010) https://www.fatf-gafi.org at pp. 34-35 [4] Grow, Brian, “Gold Rush: Online payment systems like E-gold Ltd. are becoming the currency of choice for cybercrooks.” Bloomberg Business Week (Jan. 9, 2006) [5] https://www.fatf-gafi.org/dataoecd/48/10/45724350.pdf at p. 44

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