Television series like Breaking Bad and Ozark reflect the public’s fascination with money laundering and its criminals. Yet, in reality, laundering is far more sophisticated, dangerous, and far-reaching than the fictional exploits of Walter White or Marty Byrde. Remarkably, unregulated gambling and financial crime are increasingly interconnected, providing criminals with new avenues to launder illicit funds globally.
The scale of money laundering is immense. Between ZAR 14.3 and 35.69 trillion (2–5% of global GDP) is dirty money. This estimate comes from the United Nations Office on Drugs and Crime (UNODC).
By funding terrorism and criminal activities, money laundering makes the world less safe. It disguises profits generated through human trafficking, drug and arms smuggling, and corruption. However, stamping out laundering has proved challenging. Authorities have battled it for centuries. To combat laundering effectively, financial institutions must remain vigilant. They need to follow Anti-Money Laundering (AML) protocols.
Here’s a look at typical laundering techniques, their origins, and emerging threats. These factors make AML efforts more critical than ever.
Unregulated gambling and financial crime – typical methods
Let’s start with the term ‘money laundering,’ which brings to mind washing machines cleaning ‘dirty’ money. The term reflects practices used by early 20th-century gangsters. They disguised illegal earnings by mixing them into cash-only businesses like laundromats.
Over the years, major events like the war on drugs and post-9/11 counter-terrorism efforts increased scrutiny on laundering practices.
Common laundering techniques fall into three distinct stages:
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Placement
This is when dirty money enters the system. It’s done by using “smurfs” to deposit small amounts across various accounts. Funds can also be blended with legitimate business revenue or placed with corrupt insiders.
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Layering
This creates distance between illicit funds and their origins. Methods include cross-border transfers, currency exchanges, gambling, and purchasing luxury goods, art, or antiques.
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Integration
Laundered money re-enters the economy as clean funds. This may involve loans through shell companies or cashing out layered investments. Weakly regulated jurisdictions with poor AML enforcement also facilitate integration.
A new phase for financial crime
Traditional methods for placing, layering, and integrating dirty money are evolving. This is due to regulatory clampdowns from the Financial Action Task Force (FATF) and new technologies. Criminals are developing advanced techniques to bypass AML checks.
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Digital finance loopholes
Digital onboarding removes the need to visit bank branches or complete physical documents when opening accounts. Deepfakes and generative AI enable identity theft or forgery, creating new challenges for financial institutions.
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Unregulated websites
Launderers conduct transactions without revealing locations. They use proxies and anonymous browsers for added anonymity. Illegal e-commerce platforms, unregistered gambling sites, and even legal gaming services help transfer illicit gains into legitimate accounts.
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Digital muling
Digital muling has become more complex. Criminals now use scams on social media and recruitment sites to enlist money mules. These mules transfer dirty money across borders. During COVID-19, financially vulnerable individuals were prime targets for such schemes.
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Social media schemes
Similar to digital muling, criminals recruit unsuspecting people to move illegal funds. They use fake social media identities or programs to achieve this. Terrorists are also exploiting crowdfunding platforms to fund their operations.
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Cryptocurrency and digital assets
Cryptocurrencies create new avenues for laundering. Examples include ransomware payments and seamless cross-border transfers. Regions with lax AML controls for digital assets are especially vulnerable. These regions provide launderers with safe havens.
Stopping financial criminals in their tracks
Legitimate financial flows keep the global economy running. These flows can only be ensured when every part of the system plays its role. Financial institutions must limit launderers’ damage through strong compliance measures. They must also constantly adapt to new criminal tactics.
Each financial institution must uphold FATF’s recommendations and comply with local rules. This allows them to promptly flag suspicious activities. Countering money laundering also requires partnerships between public entities and private companies. These collaborations must span across nations.
All stakeholders must work together to regulate emerging threats. Digital assets and dubious platforms pose significant risks. Effective regulation will safeguard global commerce while curbing financial crime.
Bradley Elliott | CEO | RelyComply | mail me |
