MONEY LAUNDERING DETECTION
ACC626 TERM REPORT
Frank Tian Chi Zheng
July 3, 2013
Money Laundering Detection
Introduction
Money laundering is the process by which sources of crime proceeds are concealed to appear
legitimate in the financial system, and hence transferable and usable for criminal networks. The
laundering of money typically occurs in a sequence of three general stages:
1. Placement – cash generated by illicit activities is introduced to the financial system.
2. Layering – the transaction trail is obfuscated with a series of complex transactions,
making it difficult for authorities to track the origins of the funds.
3. Integration – wealth in real assets is acquired using the laundered funds
For the purpose of this research paper, the predominant focus will be on detection in the
placement and layering stages of the money laundering process. In our discussion of money
laundering, it is also helpful to first define the term anti-money laundering, shortened as AML,
as the set of legal controls that require regulated entities such as financial institutions to deter,
detect and report money laundering activities.
Proceeds from fraud, theft and drug trafficking can benefit criminals if they are laundered and
converted to legitimate funds. Money launderers use laundered funds to expand their criminal
networks as well as their personal wealth and power. Launderers take advantage of the
increasingly complex and interdependent global financial markets and target countries with
weak national AML laws and systems. In particular, jurisdictions with ineffective controls are
preferred for the creation of shell companies where funds can be moved and transferred
without detection.
Per the United Nations Office on Drugs and Crime, 2% to 5% of the global GDP or $800 billion to
$2 trillion translated to US dollars are estimated to be laundered worldwide on an annual basis
as of 2013. Even at the low end of UN’s estimate, money laundering represents a huge
challenge to regulators and the international financial system as a whole. The difficulty of
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finding, freezing and forfeiting laundered illicit funds is compounded by globalization and rapid
development in technology and communication.
Money Laundering Topologies
Although the fundamental stages of placement, layering, and integration are common to all
money laundering schemes, the act of money laundering is accomplished using a number of
different ways. For a comprehensive list of money laundering methods currently employed
worldwide, please refer to Appendix 1.
Emerging Technologies in Monetary Transfer Systems
On May 24, 2013, international headlines were made when US authorities launched the largest
international money laundering prosecution to date. In a case that underscores the tectonic
shift of money laundering to the realm of web and virtual currencies, a virtual currency
exchange based in Costa Rica is being investigated for purposely facilitating the transfer of $6
billion in illicit funds in return for a commission on every “dirty” dollar transferred.
The virtual currency exchange allowed anyone to open an account under unverified personal
information. The exchange charged a 1% transaction fee for each transfer and, for an additional
flat fee of 75 cents, would make the transaction untraceable for the parties involved. Criminals
in countries with lax regulations would convert real dollars to virtual currency, transfer the
virtual dollars to a related party in another country, and finally reconvert the virtual dollars to
real dollars under legitimate pretexts. The scheme processed over 55 million transactions over
the course of its 6 years in operation.
In addition to highlighting the increasingly online nature of money laundering operations, this
case was also one of the first instances where an international cloud warrant was issued to an
ISP to permit an inspection of virtual caches of information. A court-approved wiretap on the
perpetrators was also instrumental in obtaining incriminating evidence.
Technology has revolutionized the money laundering process and in this day and age, it is
significantly easier for money launderers to place illicit funds into the financial system by way of
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peer-to-peer transfer of electronic money through the Internet. In particular, the digital age has
brought about the introduction of online casinos, virtual reality worlds, digital precious metals
and Bitcoin1 – all of which poses significant risks to regulators. For example, Bitcoins can be
transferred between computers or smartphones without any financial institutions acting as an
intermediary. New technologies such as Bitcoin have the potential ability to circumvent existing
regulations and avoid the existing international anti-money laundering framework altogether.
Modern Framework for AML
Traditionally, government regulators have imposed what is known as “know-your-customer
policies” on financial institutions. Under such policies, financial institutions are to report all
known or suspected transactions that are inconsistent with an accountholder’s business
activities. In addition, financial institutions are also required to report all cash transactions that
meet a $10,000 minimum threshold.
However, illicit funds are easily hidden in wire transfers moved by EFT systems. On a daily basis,
more than $2 trillion are moved by Fedwire and CHIPS in the US alone. Identifying illicit fund
transfers will help investigators detect criminal operations and their flow of illegal funding.
Given the globalized nature of financial systems and the pure volume of data that is processed
each day, it is clear that know-your-customer policies and cash reporting requirements are not
enough to prevent access for money launderers seeking to integrate their illicit funds with the
financial system. The traditional methods of money laundering detection have become largely
obsolete as a result of several trends in financial markets in the past decade. They are as
follows:

Industry-wide automation of wire transfer services as more and more users access their
accounts online, resulting in ever-decreasing human interaction

1
Growth of international trade places pressure on banks to automate processes
Bitcoin is a decentralized peer-to-peer electronic cash payment system.
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
As banks of different countries and jurisdictions become more inter-related and interdependent, systematic risk is increased (i.e. risk that the system fails as a whole to
detect money laundering)

Emerging trend of digital cash as new mode of payment as discussed in previous section
Using today’s technologies in data analytics, wire transfers or EFTs can be automatically
screened for transactions that should be examined in further detail. This process entails the
following steps:
1. Data transformation – to convert raw data to data that can be screened by artificial
intelligence and analyzed.
2. Knowledge acquisition – to develop new profiles or patterns that is indicative of
potential money laundering for use in screening of wire transfers
3. Classification - rare transactional patterns are categorized along a continuum as
unusual, suspicious, or illegal
4. Network analysis - analysis performed to identify relationships within a money
laundering network.
5. Knowledge sharing – to share profiles of the money laundering activities quickly and
effectively between financial institutions
With the use of these data mining techniques, investigators can efficiently identify suspicious
transactions that warrant further inspection and potential prosecution.
Given that new technologies such as Bitcoin are creating ways for money launderers to bypass
financial intermediaries, the current challenge lies in how to best integrate payment methods
such as Bitcoin into the current AML framework. The difficulty of monitoring virtual currencies
such as Bitcoin is that it is decentralized and there is not one single juncture where the
transactions must pass. Therefore, to integrate Bitcoin into the existing framework, regulators
need to work to intervene and impose requirements on Bitcoin exchange services. In this way, a
regulatory choke point can be instituted to monitor money laundering transactions that would
have otherwise bypassed the framework altogether.
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As gatekeepers of the financial system, financial institutions rely heavily on IT to ensure the
integrity of its systems. Research shows that there is a need for a control framework in financial
institutions in the context of AML. Although there is a number of intelligence systems designed
to fight money laundering, even the most sophisticated technology requires a level of human
intervention or interaction to make decisive judgment calls. The research considers COSO and
COBIT as potential frameworks to model an AML framework after. COSO framework is highly
abstract and focuses mainly on the task of financial reporting. It does not focus on IT as a
whole, but the processes of organization. COBIT was developed on a few components of the
COSO framework and concerns itself with managing and controlling IT-related systems. Given
the weaknesses of COSO, mapping the relevant COBIT processes to the COSO framework in the
context of financial institutions is practical and will serve to strengthen the existing framework
for preventing money laundering.
Implications for CAs & Senior Executives
No profession has more stakes in preventing money laundering than the CA. Money laundering
involves fraudulent financial transactions and it is the job of the CA to report on financial
transactions. The impact of the AML environment will impact CAs to the extent of their role and
involvement with financial institutions and other entities regulated for AML compliance. CAs
employed as financial auditors must consider the risks of their clients being susceptible to
money laundering. CAs need to avoid being associated with illegal activity per the professional
standards. In certain cases, the risk of money laundering needs to be discussed and considered
at the client acceptance stage. Auditors need to ensure that their clients sufficiently meet the
local AML laws. As an example, the auditor may pull a sample of customers to ensure the
financial institution has performed customer due diligence such as periodic verification of
personal information. Not performing sufficient due diligence and sufficient procedures around
AML compliance can lead to disciplinary action of the CA performing the audit and the firm the
CA is employed at.
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Government concerns over Figure 1 - Money Laundering Incidents As Reported by Police, 2000 to
money laundering have led 2009, Statistics Canada
to a globalized effort to
counter the expansion of
global
money
laundering
networks across multiple
jurisdictions. Per Figure 1,
according
Canada,
to
the
Statistics
number of
money laundering incidents
noted by police grew fivefold from 2004 to 2006 as a
result
of
international
national
and
initiatives
addressing this crime. The resultant increased vigilance over money laundering and terrorist
financing have created new opportunities for CAs to be involved in engagements of the forensic
nature. Forensic accountants can make use of this opportunity to offer their consultant services
for governments and firms battling against money laundering.
In the perspective of entities susceptible of being targeted by money launderers, legislation in
developed countries will require the entities to comply with existing AML framework. For senior
executives of these entities, this means instituting controls and procedures in place to find and
freeze suspected transactions of illicit origins which pass through the entity, and passing the
collected information to the proper authorities (e.g. FINTRAC) for prosecution.
To meet the objective of being AML compliant, firms will have to dedicate resources and
personnel to an AML compliance program. Senior executives will have to decide on the
structure of the compliance program, the designation of a compliance officer, training for
employees, and the extent of regular monitoring of the program. Senior executives will also be
particularly concerned about the type of analytic software they should employ in becoming
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AML compliant (for a discussion of potential software tools to combat money laundering, see
next section). In addition, senior executives will need to ensure employees working for the
entity are not at risk of purposely facilitating money laundering. This entails conducting
employee background checks as well as establishing the proper controls and corporate culture
at the entity.
Software Tools to Combat Money Laundering
There is a number of customizable software available on the market to help firms become AML
compliant and combat money laundering along with other forms of fraud. Some of the most
popular includes SAS® AML and NICE Actimize AML.
SAS® Anti-Money Laundering
SAS® AML is advertised as a complete solution for detecting, investigating, and reporting on
potential illicit activity. Making use of predictive alert analytics, SAS AML identifies actions and
relationships that present the greatest risk to the firm while minimizing false-positive alerts.
(See Figure 2 for screenshot of sample SAS AML alert for large write transfers). The software
also comes complete with customer due diligence which integrates customer risk scores with
actual customer transactional behavior and watch-list filtering capabilities which allows the
entity to import sanctions and watch lists to identify persons and organizations that represent
the greatest regulatory risk.
Figure 2 – Screenshot of Sample SAS AML Alert for Large Wire Transfer
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NICE Actimize Anti-Money Laundering
NICE Actimize AML is a software solution that automates, streamlines and drives down the cost
of AML compliance. The software makes use of known behavioral profiles to uncover hidden
relationships and suspicious activities whether it is cash and cash equivalent transactions, wire
transfers, securities orders and executions, or insurance policies. NICE Actimize AML, like SAS
AML, also features customer due diligence, suspicious activity monitoring, and watch-list
filtering capabilities.
Alternatively, entities can develop in-house software tailored to their specific line of business.
For example, the United States Postal Service (USPS) has developed a large data warehouse
that will allow it to identify money launderers. Money launderers purchase money orders from
post offices throughout the United States in order to transfer dirty cash. Due to lax regulations
around money orders, they have become a favorite method to launder money for drug
traffickers. The system implemented at USPS pulls together money order transaction reports in
a database, and then combines it with data from the banking system compiled by the Federal
Reserve Bank to identify which accounts are receiving large numbers of suspicious money order
deposits. USPS is commended for moving away from manual processes and developing a
tailored system to combat money laundering in the United States.
Risks to Effective Implementation of AML Framework
One of the biggest risks to the effective implementation of AML framework worldwide is the
lack of political will to institute AML regulations and actively pursue offenders. In emerging
economies, political will is often weak when it comes to combating money laundering. Without
a strong AML framework, money launderers will target weak governance of the financial
system in such countries to launder criminal funds with little to no risk of prosecution. Per data
compiled by researchers using discrepancies between records of mutual trading partners, it was
found that the outflow of capital from Africa by money laundering actually exceeds total aid
and loans – making Africa a net creditor of capital to the world. Findings indicate the largest
exporter of illicit capital from Africa is Nigeria, with the majority of the illicit African funds going
to banks and properties in Western countries such as the United States or United Kingdom. It is
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estimated that between 1980 and 2009, $597 billion to $1.4 trillion was laundered out of the
continent. To combat this, emerging economies and developing nations can implement policies
to boost transparency, institute new detection technologies as discussed, and cooperate on a
multilateral level with the destination countries of illicit funds.
Commercial corruption is also an obstacle to effective implementation of AML as corruption
and money laundering are often found together. Reporting entities may be susceptible to
bribes to actively collude in money laundering, refrain from logging suspicious transaction
reports, or tip clients about active government investigations. The link between money
laundering and corruption suggest that policy makers who are concerned with corporate
governance should also be aware of ramifications of corruption. Corruption may possibly
compromise the integrity of the anti-money laundering system in place at an institution.
Regulatory challenges also pose a serious risk to the effective implementation of a global AML
framework. Modern money laundering legislations are established to reduce the incidence of
money laundering, but its enactment and implementation is very costly. However, the benefits
obtained from acting on legislation to prosecute money launderers accrue to the outside
jurisdictions. This discourages countries from aggressively pursuing international money
launderers who operate across multiple jurisdictions since the country seeking to pursue
money launderers incurs all of the costs of prosecution and little to no reward. Hence, the need
arises for international covenants which seek to directly incentivize anti-money laundering
legislation and enforcement.
Another aspect of the regulatory challenge is managing the liaison between domestic and
foreign AML agencies. Overseas bank privacy protection and anti-laundering laws, which
oversea bank branches must adhere to, are cited by the United States government as a source
of obstacle which hinders the domestic regulators' review of these oversea branches. On the
other hand, foreign governments have made complaints about too many U.S agencies'
involvement in anti-laundering efforts overseas. It is recommended that a single U.S agency or
entity serve as liaison for overseas money-laundering cases.
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Conclusion
Money laundering, the process of converting illicit funds to legitimate dollars by criminals, has
always been a concern for regulators. A multitude of methods are available to money
launderers seeking to integrate illicit funds with the global financial system. News of money
laundering using new technologies underscores the shift of money launderers towards
emerging technologies. With the advent of virtual currencies, money launderers are potentially
able to circumvent the AML framework altogether.
As a reflection of the technological trends in the financial system, the AML framework requires
an increased focus on the use of data mining techniques (i.e. data analytics) to find and freeze
suspicious illicit transactions that pass through the entities. Furthermore, research suggests a
control framework be adopted for AML-regulated entities – one which merges COBIT
application controls with the general COSO framework.
The rise of AML in Canada poses both risks and opportunities for CAs. On one hand, AML
compliance can potentially increase audit risk and lead to client acceptance issues. On the other
hand, the increased vigilance over money laundering has given CAs a natural leadership
position to offer additional services in the forensic accounting field. For senior executives, their
main concern is the establishment AML compliance programs at their respective firms. Senior
executives also need to contemplate the choice in AML software.
A number of risks and challenges stand in the way of implementing an effective AML
framework globally. In particular, the government of any country must have the political will to
institute AML legislation and act to prosecute offenders. Regulatory challenges also exist such
as the uneven distribution of the costs of prosecuting money launderers.
Regardless of the country or jurisdiction, multilateral and bilateral treaties are needed to
combat money laundering through establishing international polices, enhancing cooperation,
and facilitating information exchange. In the information era, it is critical to implement a global
AML framework to combat the rising tide of money laundering by criminals.
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Appendix
Appendix 1 – List of Money Laundering Methods Currently Employed Worldwide
Money Laundering
Method
Cash smuggling
Description/Characteristics
Banking institutions
Most frequently used method of money laundering is through banking
institutions. Launderers take advantage of banking secrecy laws to transfer
capital or remit funds into other countries, and eventually hide the source of the
illicit funds through multiple instances of layering.
Insurance
institutions
Through buying, altering and surrendering of insurance policies, money
launderers can disguise the origin and nature of the proceeds obtained. The
insurance industry is comparatively weak compared to the banking industry in
terms of regulations that allow for interference.
Non-financial
institutions such as
realty or lottery
businesses
Money launderers target non-financial institutions as such businesses are not
readily able to combat money laundering.
Underground banks
Underground banks serve as a method for individuals who wish to transfer
money across borders without an official financial intermediary. The
underground banks purposely facilitate such transfers for a portion of the illicit
funds.
International tradebased money
laundering
Faking or overstating transactions in an attempt to legalize proceeds from crime.
Due to the huge quantity and value that changes ownership, international trade
serves as a highly attractive option to legitimize illicit funds.
Shell company or
front company
Shell or front companies are used by criminals as an attempt to explain the
source of illicit funds. These companies often operate out of lax regulatory
environments. Financial institutions may view transactions coming from a shell
company with less scrutiny as opposed to an individual.
Money laundering
through electronic
money and Internet
The development of the web has brought about opportunities for money
launderers to easily transfer funds over long distances. Contact between the
bank and the launderer is removed, adding to the anonymity of the transactions.
AML regulations over virtual currencies are weak and regulators have difficulty
integrating it as part of the AML framework.
Most countries impose a limit on the amount of cash one can carry across its
borders. Smugglers lie about the true amount of the cash they are carrying on
their declaration cards and conceal the cash in an altered device in their luggage.
In the new jurisdiction, smugglers can then take advantage of potentially lax
regulations and deposit the cash in a number of different bank accounts.
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References
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Ashin, P. "Dirty Money, Real Pain." Journal of Finance & Development 49.2 (2012): 38-41. Print.
"Bleeding Money: Africa Is a Net Creditor to the World, Illicit Outflow Actually Exceeds Inflow of
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Brennan, Shannon, and Roxanne Vaillancourt. "Money Laundering in Canada, 2009." Money
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Chaikin, David. "Commercial Corruption and Money Laundering: A Preliminary Analysis."
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Grumet, L. "Money Laundering and the CPA." The CPA Journal 76.8 (2006): 7. Print.
He, Ping. "A Typological Study on Money Laundering." Journal of Money Laundering Control
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<http://www.mendeley.com/research/money-laundering-laws-political-instrumentsocial-cost-arbitrary-money-laundering-enforcement/>.
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Olatunde, J., and S. Ajibolade. "The Role of Financial Intermediaries in Elite Money Laundering
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Pramod, V., and J. Gao. "A Framework for Preventing Money Laundering in Banks." A
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<http://www.sas.com/industry/financial-services/banking/anti-moneylaundering/index.html>.
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Scannell, K. "Cyber Crime: Without a Trace." Financial Times. N.p., n.d. Web. 03 July 2013.
<http://www.ft.com/cms/s/0/c30bd528-c9d5-11e2-af47-00144feab7de.html>.
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Annotated Bibliography
Name: Frank Tian Chi Zheng
Author
ID: 20305329
Title of Article
Date: June 3, 2013
Periodical/Website
Vol./No./Edition
Year
Published
1996
Pages
Year
Published
2002
Pages
Location, database,
website link, link
http://www.gao.gov/prod
ucts/T-GGD-96-84
Added in
Final Paper
Y
Location, database,
website link, link
http://www.gao.gov/asset
s/240/235231.pdf
Added in
Final Paper
Y
United States
Money Laundering: A
Reports &
T-GGD-96-84
1-9
Government
Framework for
Testimonies - US
Accountability Understanding US
Government
Office (GAO)
Efforts Overseas
Accountability Office
Annotation
Federal law enforcement in the U.S estimates that over 100 to 300 billion US currency is laundered every year. It is noted that regulators rely on financial
institutions to report the following:
 transactions above $10,000
 transactions that are inconsistent with an accountholder's business activities
 suspected or known money laundering transactions
Overseas bank privacy protection and anti-laundering laws, which U.S oversea bank branches must adhere to, are cited as a source of obstacle which hinders
U.S regulators' review these branches. On the other hand, foreign governments have made complaints about too many U.S agencies' involvement in antilaundering efforts. It is recommended that a single U.S agency or entity serve as liaison for overseas money-laundering cases.
The U.S works with other countries through multilateral and bilateral treaties to combat money laundering through establishing international polices,
enhancing cooperation, and facilitating information exchange.
Author
Title of Article
Periodical/Website
Vol./No./Edition
United States
Government
Accountability
Office (GAO)
Money Laundering:
Extent of Money
Laundering through
Credit Cards is
Unknown
Reports &
Testimonies - US
Government
Accountability Office
GAO-02-670
1-6
Annotation
An estimate of $500 billion is laundered yearly. The extent of which credit card has facilitated the money laundering process is unknown. Credit cards are likely
not used at the initial stage of money laundering (placement) where money is introduced to the financial system, but used in the second and third stages of
layering and integration, where illicit funds are disguised as legitimate and integrated into the nation's financial system.
GAO makes several scenario examples where money launderers take advantage of lax foreign banking regulations and the foreign credit card issuer's
relationship with U.S banks to access or transfer illicit funds. This issuing bank's application screen process, fraud monitoring system, and policies restricting the
use of cash payments are critical to lowering the risk of money laundering through the use of credit cards.
1
Author
Title of Article
Periodical/Website
Vol./No./Edition
Pramod, V; Li,
J; Gao, P
A Framework for
Preventing Money
Laundering in Banks
Information
Management and
Computer Security
Volume 20, Issue
3
Year
Published
2012
Pages
170183
Location, database,
website link, link
ABI/Inform Global:
http://search.proquest.co
m.proxy.lib.uwaterloo.ca/
docview/1023888243/13E
70D7AA7441126EAE/1?ac
countid=14906
Added in
Final Paper
Y
Annotation
This research paper explores developing a framework for financial institutions to prevent money laundering by combining COBIT (Control for Information
Related Technology) processes to the COSO (Committee of Sponsoring Organization) components. The need for a control framework in financial institutions
stems from the fact that banks act as gatekeepers of the financial system and relies heavily on IT for its function. Although there is a number of intelligence
systems designed to fight money laundering, even the most sophisticated technology requires a level of human intervention/interaction to make decisive
judgment calls.
The researchers stipulate that the COSO framework is highly abstract and focuses mainly on the task of financial reporting. It does not focus on IT as a whole,
but the processes of organization. COBIT was developed on a few components of the COSO framework and concerns itself with managing and controlling ITrelated systems. Hence, the paper suggests mapping the relevant COBIT processes to the COSO framework in the context of financial institutions is practical
and will serve to strengthen the existing framework for preventing money laundering.
Author
Title of Article
Periodical/Website
Vol./No./Edition
Gao, Z; Mao, Y
A Framework for Data
Mining-Based AntiMoney Laundering
Research
Journey of Money
Laundering Control
Volume 10, Issue
2
Year
Published
2007
Pages
170179
Location, database,
website link, link
ABI/Inform Global:
http://dx.doi.org/10.1108/
13685200710746875
Added in
Final Paper
Y
Annotation
This research paper proposes a framework for conducting money laundering investigations with the aid of data mining analytical tools. The proposed
framework is as follows:
 Suspicious data is obtained using data mining techniques
 Rare transactional patterns are categorized along a continuum as unusual, suspicious, or illegal
 When summarizing the reporting of money laundering crimes, an analysis should be performed to identify relationships within a money laundering
network. This analysis involves link analysis, community generation and network destabilization
2
Author
Title of Article
Periodical/Website
Vol./No./Edition
Scannell, K
Without a Trace: Cyber
Crime
Financial Times
(London, U.K)
June 1, 2013
Year
Published
2013
Pages
1-2
Location, database,
website link, link
ABI/Inform Global:
http://search.proquest.co
m.proxy.lib.uwaterloo.ca/
docview/1357297789?acc
ountid=14906
Added in
Final Paper
Y
Annotation
A large-scale web-based money laundering operation was recently uncovered by U.S undercover agents, initiating a case that sheds light on web fraud and
virtual currencies.
The article explains how a virtual currency exchange based in Costa Rica by the name of Liberty Reserve was set up for the purpose of transferring illicit funds
anonymously. It is estimated that Liberty Reserve laundered billions for criminals. To open an account, the user of the currency exchange only needed a name
and address, which was never verified. Liberty Reserve then charged 1% on each transfer. For an additional 75 cents of “privacy fee”, Liberty Reserve would
make the transaction untraceable for the parties involved. Criminals in less regulated countries including Malaysia, Russia and Nigeria would convert real
dollars into virtual currency. Liberty Reserve’s sister exchangers would then enable the users of Liberty Reserve to reconvert their money after the virtual
currency has traded hands.
This case is one of the first instances where a cloud-based warrant was issued which orders an ISP to permit an inspection of virtual caches of information.
Author
Title of Article
Periodical/Website
Vol./No./Edition
He, P
A Typological Study on
Money Laundering
Journal of Money
Laundering Control
Volume 13, Issue
1
Year
Published
2010
Pages
15-32
Location, database,
website link, link
ABI/Inform Global:
http://dx.doi.org/10.1108/
13685201011010182
Added in
Final Paper
Y
Annotation
This paper makes objective descriptions of the various ways money laundering is conducted in the current age. In addition, it provides recent international
cases where these methods were known to have been utilized to hide illicit funds. The methods described in this paper include:
 Cash smuggling
 Money laundering through banking institutions
 Money laundering through insurance institutions
 Money laundering through realty or lottery business
 Money laundering through underground banks
 International trade-based money laundering
 Money laundering through shell company or front company
 Money laundering through offshore corporation or offshore financial center
 Money laundering through professionals such as lawyer or accountant
 Money laundering through electronic money and internet
3
Author
Title of Article
Periodical/Website
Vol./No./Edition
Chaikin, D
Commercial Corruption
and Money Laundering:
A Preliminary Analysis
Journal of Financial
Crime
Volume 15, Issue
3
Year
Published
2008
Pages
269281
Location, database,
website link, link
ABI/Inform Global:
http://dx.doi.org/10.1108/
13590790810882865
Added in
Final Paper
Y
Annotation
This paper analyzes the relationship between commercial corruption and money laundering. Corruption and money laundering are often found together with
the presence of one reinforcing the other.
Reporting entities may be susceptible to bribes to actively collude in money laundering, refrain from logging suspicious transaction reports, or tip clients about
active government investigations.
The link between money laundering and corruption suggest that policy makers who are concerned with corporate governance should also be aware of money
laundering ramifications of corruption. Corruption may possibly compromise the integrity of the anti-money laundering system in place at an institution.
Author
Title of Article
Periodical/Website
Vol./No./Edition
Olatunde, J;
Ajibolade, S
The Role of Financial
Intermediaries in Elite
Money Laundering
Practices
Journal of Money
Laundering Control
Volume 15, Issue
1
Year
Published
2012
Pages
58-84
Location, database,
website link, link
ABI/Inform Global:
http://dx.doi.org/10.1108/
13685201211194736
Added in
Final Paper
Y
Annotation
This paper explores the role of financial intermediaries (e.g. bankers and lawyers) in money laundering practices despite the ethical claims of their profession.
The paper makes use of widely available public information in Nigeria to shed light on the role of these financial intermediaries in money laundering practices.
The evidence shows that financial intermediaries, pursuing their personal and organizational interests, create structures which or enable or support illicit
activities of the economic elite in Nigeria.
Although money laundering laws are established in Nigeria as well as anti-money laundering agencies, they have failed to bring about improvements in ethical
conduct. It is therefore suggested that financial institutions need to institute reforms to promote integrity, accountability and ethical conduct to rebuild trust in
the Nigerian financial system and curb money laundering.
4
Author
Title of Article
Periodical/Website
Vol./No./Edition
Lewisch, P
Money Laundering Laws
as a Political
Instrument: The Social
Cost of Arbitrary Money
Laundering
Enforcement
European Journal of
Law and Economics
Volume 26, Issue
3
Year
Published
2008
Pages
405417
Location, database,
website link, link
ABI/Inform Global:
http://dx.doi.org/10.1007/
s10657-008-9073-7
Added in
Final Paper
Y
Annotation
Modern money laundering legislations are established to reduce the incidence of money laundering, but its enactment and implementation is very costly. This
paper explains that in an international context, the benefits obtained from acting on legislation to prosecute money launderers accrue to outside jurisdictions
(external costs). This discourages countries from aggressively pursuing international money launderers. Hence, the need arises for international covenants
which seek to directly incentivize anti-money laundering legislation and enforcement.
Author
Title of Article
Periodical/Website
Vol./No./Edition
Year
Published
1995
Pages
Location, database,
website link, link
Princeton Education
http://www.princeton.edu
/~ota/disk1/1995/9529/95
29.PDF
Added in
Final Paper
Y
United States
Information
Office of Technology
OTA-ITC-630
1-17,
Congress,
Technologies for
Assessment
51-74
Office of
Control of Money
Technology
Laundering
Assessment
Annotation
Wire transfers of illicit funds are easily hidden in wire transfers moved by EFT systems. Each day, more than 2 trillion dollars are moved by Fedwire and CHIPS.
Identifying illicit fund transfers will help investigators detect criminal operations and their flow of illegal funding. Know-your-customer policies and cash
reporting requirements (i.e. when a certain transaction threshold is met, a report is made to regulators) are not enough to block access for money launderers
seeking to integrate their illicit funds with the financial system. In the future, these regulations will be rendered ineffective because:
 Industry-wide automation of wire transfer services as more and more users access their accounts online, resulting in ever-decreasing human
interaction
 Growth of international trade places pressure on banks to automate processes
 Systemic risk is increased as banks of different countries and jurisdictions become more inter-related and inter-dependent
 Emerging trend of digital cash as new mode of payment
Technologies for detecting money laundering in wire transfers:
 Wire transfer screening – to help investigators and analysts to determine transactions for further investigation
 Knowledge acquisition – to develop new profiles or patterns that is indicative of potential money laundering for use in screening of wire transfers
 Knowledge sharing – to share profiles of the money laundering activities quickly and effectively between financial institutions
 Data transformation – to convert raw data to data that can be screened by artificial intelligence and analyzed
5
Author
Title of Article
Periodical/Website
Vol./No./Edition
Moad, J
Stamping Out the Bad
Guys – U.S Postal
Service Uses Data
Warehouse and Analysis
System to Help Track
Down Money
Launderers
eWeek Reporting
June 18, 2001
Year
Published
2001
Pages
47
Location, database,
website link, link
Canadian Periodicals Index
Quarterly:
http://go.galegroup.com.p
roxy.lib.uwaterloo.ca/ps/i.
do?id=GALE%7CA7562279
3&v=2.1&u=wate34930&it
=r&p=CPI&sw=w
Added in
Final Paper
Y
Annotation
The United States Postal Service (USPS) has developed a large data warehouse that will allow it to identify money launderers. Money launderers purchase
money orders from post offices throughout the United States in order to launder dirty cash. Experts agree that criminals break up large sums of cash into
smaller amounts and covert these into financial instruments. Due to lax regulations around money orders, they have become a favorite method to launder
money for drug traffickers.
The system implemented at USPS pulls together money order transaction reports in a database, and then combines it with data from the banking system
compiled by the Federal Reserve Bank to identify which accounts are receiving large numbers of suspicious money order deposits. USPS is commended for
moving away from manual processes.
Author
Title of Article
Periodical/Website
Vol./No./Edition
International
Business
Times
Bleeding Money: Africa
is a Net Creditor to the
World, Illicit Outflow
Actually Exceeds Inflow
of Aid, Investment
International
Business Times, US
Edition
May 30, 2013
Year
Published
2013
Pages
1-2
Location, database,
website link, link
Canadian Periodicals Index
Quarterly:
http://go.galegroup.com.p
roxy.lib.uwaterloo.ca/ps/i.
do?id=GALE%7CA3318051
21&v=2.1&u=wate34930&
it=r&p=CPI&sw=w
Added in
Final Paper
Y
Annotation
Africa is in fact a net creditor of capital and assets to the rest of the world, despite receiving donor funds and loans. Researchers compiled the findings by
studying where there are discrepancies (for example, between the records of mutual trading partners). The capital flow from the continent a result of money
laundering, weak governance, corruption, and commercial tax evasion. Findings indicate the largest exporter of illicit capital from Africa is Nigeria, with the
majority of the illicit African funds going to banks and properties in Western countries such as the United States or United Kingdom. It is estimated that
between 1980 and 2009, $597 billion to $1.4 trillion was transferred out of the continent. To combat this, Africa can implement policies to boost transparency
and make use of emerging technologies on a multilateral level with the destination countries of illicit funds.
6
Author
Title of Article
Periodical/Website
Vol./No./Edition
Stokes, Robert
Anti-Money Laundering
Regulation and
Emerging Payment
Technologies
Banking & Financial
Services Policy
Report
Volume 32, Issue
5
Year
Published
2013
Pages
1-10
Location, database,
website link, link
EBSCO:
http://web.ebscohost.com
.proxy.lib.uwaterloo.ca/bsi
/detail?vid=3&sid=87fec29
9-f3e3-4377-bcc5df02f91255c0%40session
mgr111&hid=117&bdata=J
nNpdGU9YnNpLWxpdmU
%3d#db=bth&AN=875907
50
Added in
Final Paper
Y
Annotation
Technology has revolutionized the money laundering process and in this day and age, it is significantly easier for money launderers to place dirty money into
the financial system by way of peer-to-peer transfer of electronic moneys through the Internet. In particular, these new technologies have the ability to
circumvent existing regulations and avoid the existing international anti-money laundering framework altogether. This paper explores emerging virtual money
laundering topologies and the risks of each as follows:
 Online casinos
 Virtual worlds (such as Second Life)
 Multiplayer online role-playing games
 Digital precious metals
 Bitcoin
Author
Title of Article
Periodical/Website
Vol./No./Edition
Young, C
Periodic Account
Activity and Automated
Money Laundering
Detection
Journal of Money
Laundering Control
Volume 7, Issue 4
Year
Published
2004
Pages
295297
Location, database,
website link, link
ABI/Inform Global:
http://search.proquest.co
m.proxy.lib.uwaterloo.ca/
docview/235907498?acco
untid=14906
Added in
Final Paper
Y
Annotation
In order to automate the detection of money laundering activities, one has to make certain assumptions about what the normal movements of assets in and
out of accounts looks like. In this paper, the author proposes a method of detection well known in engineering/physics applications. The proposed method is to
convert a time series of asset movements to a function of frequency. By converting the time series of account activity to a function of frequency would yield
features of the transaction history that could be used to distinguish between regular and suspicious account behaviors. Standard digital filtering techniques can
then be applied to detect anomalies.
7
Author
Title of Article
Periodical/Website
Vol./No./Edition
Grumet, L
Money Laundering and
the CPA
The CPA Journal
Volume 76, Issue
8
Year
Published
2006
Pages
7
Location, database,
website link, link
ABI/Inform Global
http://search.proquest.co
m.proxy.lib.uwaterloo.ca/
docview/212289945?acco
untid=14906
Added in
Final Paper
Y
Annotation
No professional has more stake in preventing money laundering than the CPA, since money laundering involves fraudulent financial transactions and it is the
job of the CPA to report on financial transactions. Annually, approximately $600 billion to $1.5 trillion of illicit money is laundered (2% to 5% of the total global
economic output). Not performing due diligence and performing sufficient enquiries can lead to the conviction of the CPA. Increased vigilance regarding money
laundering and terrorist financing have created new opportunities for CPAs to engage in the anti-money laundering field.
Author
Title of Article
Periodical/Website
Vol./No./Edition
Ashin, P
Dirty Money, Real Pain
Finance &
Development
Volume 49, Issue
2
Year
Published
2012
Pages
38-41
Location, database,
website link, link
ABI/Inform Global:
http://search.proquest.co
m.proxy.lib.uwaterloo.ca/
docview/1021381335?acc
ountid=14906
Added in
Final Paper
Y
Annotation
Proceeds from fraud, theft and drug trafficking can on benefit the perpetrators if they are laundered and converted to legitimate funds. Money launderers use
laundered funds to expand their criminal networks as well as personal wealth and power.
Money launderers take advantage of the complexity and interdependence of global financial markets and target countries with weak national anti-money
laundering laws and systems. In particular, jurisdictions with ineffective controls are preferred where funds can be moved and transferred without detection.
Money launderers often create layers of front or shell a company in multiple jurisdictions to hide who is actually behind the ownership and control of the
funds.
In the past 11 years, IMF has engaged in anti-money laundering by conducting surveillance over the member countries’ financial and economic systems. It has
also launched a trust fund to collectively provide approximately $29 million to strengthen global anti-money laundering. Currently, 53 projects are ongoing in
29 countries.
8