AML Typologies in Action Case Studies from Asia-Pacific and Globally

Anti-money laundering (AML) typologies are important tools to help in the ongoing battle against financial crime. Financial institutions and law enforcement agencies can detect, disrupt, and deter these illegal activities better by identifying the patterns and behaviours commonly associated with money laundering and other financial crimes.

This article explores real-world financial crime scenarios across the Asia-Pacific region and around the world, where different AML typologies have been successfully identified and countered. It also highlights lessons that have been learned from the use of typologies in AML and CTF activities.

Financial Crime Typologies: The 1MDB Scandal (Malaysia)

The 1Malaysia Development Berhad (1MDB) scandal was a multi-billion dollar bribery, corruption, and money laundering conspiracy involving Malaysian government officials and international financiers. In what has been dubbed ”one of the world’s greatest financial scandals”, money stolen from the 1MDB sovereign wealth fund was laundered through a complex network of shell companies, real estate purchases, and investments in a Hollywood film production company.

Strategies applied and lessons learned: The 1MDB financial crime case underscores the importance of independent auditing and international cooperation and information sharing to combat multinational financial crime. It also highlighted the need for enhanced due diligence on politically exposed persons (PEPs) and complex corporate structures.

Typologies in the Insurance Industry: Phantom Insurance Policies(China)

A common AML typology used extensively in China previously involved the purchase of ‘phantom’ insurance policies. In this scenario, criminals and their associates bought policies using illicit funds and then quickly surrendered them. They then received a refund on the policies, which effectively laundered the money and allowed the perpetrators to circumvent Chinese capital controls at the same time. The China Banking and Insurance Regulatory Commission (CBIRC) launched a crackdown on this practice in 2019 and issued guidance on how to strengthen AML measures in the insurance industry in response.

Strategies applied and lessons learned: Insurance companies need to remain up to date with complex money laundering schemes and put effective transaction monitoring systems in place to detect unusual patterns, such as frequent policy cancellations or refunds.

Terrorist Financing Typologies: Online Crowdfunding and Social Media Campaigns (International)

Terrorist groups are increasingly turning to online crowdfunding platforms and social media campaigns to raise funds. They disguise their fundraising as charitable causes or humanitarian aid projects and make it hard to distinguish if they’re legitimate or illegal. They commonly operate via popular messaging or social media platforms, where members solicit donations. The funds are then transferred via individuals to terrorist organisations through various channels, including money transfer services and cryptocurrency.

Strategies applied and lessons learned: This typology highlights the importance of increased scrutiny of online platforms by both governments and the private sector. Terrorist financing is often a cross-border issue that needs international cooperation to track and disrupt the flow of funds. It’s also crucial to raise public awareness about the risks of online terrorist financing via crowdfunding and social media to prevent people from contributing unwittingly.

Shell Companies & Trusts: The Panama Papers (International)

The Panama Papers are an unprecedented leak of information from one of the world’s biggest law firms, Mossack Fonseca. This leak exposed the widespread use of shell companies and trusts by high-profile individuals and corporations around the world to conceal assets and evade taxes using offshore tax havens. While using offshore structures isn’t illegal in itself, the leak revealed how entities can facilitate money laundering and other financial crimes using anonymous company structures.

Strategies applied and lessons learned: The Panama Papers underscored the need for greater transparency in beneficial ownership information, as well as stronger international cooperation to counter the misuse of offshore entities.

Structuring and Smurfing: The 501 Gang (Philippines)

The 501 Gang, a criminal syndicate operating in the Philippines, was notorious for using structuring and smurfing to launder millions of dollars in illicit funds. They would deposit small amounts of cash into multiple bank accounts to avoid detection – often using individuals (called smurfs) – and then consolidate the funds into overseas accounts. The Philippine Anti-Money Laundering Council (AMLC) investigated and prosecuted members of the gang for their money laundering activities.

Strategies applied and lessons learned: This typology highlights the need for financial institutions to be vigilant about monitoring transactions for unusual patterns. They also need to implement effective transaction monitoring systems to detect structuring and smurfing activities. This includes training staff to identify red flags, implement KYC controls, and monitor transactions carefully.

Trade-Based Laundering: Black Market Peso Exchange (Colombia & Mexico)

Drug cartels use the Black Market Peso Exchange to launder the illicit proceeds of their crimes. They sell narcotics in the United States and obtain large amounts of US dollars in cash, which peso brokers then buy at a discounted rate. The brokers then use the US dollars to buy Colombian goods at inflated prices, which are exported to the US and sold at market prices. The brokers receive payment in US dollars, which effectively converts their illicit cash from drug sales into legitimate business proceeds. 

Strategies applied and lessons learned: The Black Market Peso Exchange demonstrates that businesses must prioritise due diligence on customers and transactions and flag suspicious patterns like unusual pricing or complex payments. Governments must maintain international cooperation and implement stringent regulations and oversight of high-risk sectors.

Cash-Intensive Businesses (CIBs): Casinos and Pawn Shops (Macau)

Macau is the world's largest gambling hub and it is a hotbed of financial crime through its casinos and pawn shops. Criminals often use these businesses to convert illicit cash into chips or other assets, making it difficult to trace the origins of their funds.

Strategies applied and lessons learned: Many countries around the world have implemented stringent AML controls on casinos and pawn shops, including customer due diligence, transaction monitoring, and suspicious activity reporting. The Macau Monetary Authority (AMCM) implemented The New Instruction in 2016, which outlined reporting and recordkeeping, customer due diligence (CDD), and know your customer (KYC) obligations.

Real Estate Laundering: Sydney Sting (Australia)

Australian Federal Police arrested nine people and seized millions of dollars of property, cryptocurrency, and luxury items in 2023. Twenty properties across the city were included in the swoop, including two homes in the eastern suburbs worth a combined $19 million, and a $47 million block of land. It is alleged the syndicate acted as an unregulated multi-national bank, using cash reserves in countries around the world and facilitating transactions for criminal clients.

Strategies applied and lessons learned: This typology is a reminder that real estate businesses and law enforcement bodies need to stay vigilant, as criminals continuously evolve their methods. Collaboration between businesses, law enforcement bodies, financial institutions, and international partners is also essential for dismantling complex money laundering networks.

Emerging AML Typologies

The case studies above illustrate well-known and executed AML typologies. However, some emerging AML typologies are increasingly being used.

Wildlife trafficking: The illegal trade of wildlife has become a major money laundering concern. Poachers and traffickers rely on the high demand for exotic pets and traditional medicines to generate billions of dollars of illicit funds each year. These illicit funds are then laundered through various channels to make it difficult to trace their origins.

Child and human trafficking: This crime involves the recruitment, transportation, and exploitation of children or adults using force, fraud, or coercion. Human traffickers often launder their profits through legitimate businesses, such as hospitality enterprises or massage parlours. These networks are often complex and involve multiple actors across borders, so they are hard to detect and investigate.

Proliferation of weapons: The illegal arms trade generates vast sums of money and fuels conflict, violence, and instability around the world. Weapons traffickers use complex financial schemes to hide the sources of their funds, including smuggling cash, trade-based money laundering, and the use of virtual currencies. The cross-border nature of this trade and the involvement of organised crime networks requires a coordinated global response.

AML in the art market: The high-value and often private nature of the art market makes it particularly susceptible to money laundering. Artworks can be bought using illicit funds, then resold or used as collateral for loans, which integrates the dirty money into the legitimate financial system. The lack of transparency, the use of anonymous in-betweeners, and the subjective valuation of art are big challenges for regulators and law enforcement agencies.

Countering Emerging Typologies

To combat these emerging AML typologies effectively, a multi-pronged approach is needed between business, government, and law enforcement agencies. Businesses need to implement robust due diligence procedures, particularly in high-risk sectors. Governments should strengthen and maintain international cooperation, information sharing, and regulatory frameworks. And law enforcement agencies must invest in training, intelligence gathering, and cross-border collaboration.

Public awareness campaigns and educational initiatives can also play an important role in raising awareness about these issues and encouraging the reporting of suspicious activities. By working together, law enforcement agencies, businesses, and governments can create a more robust and effective AML regime that protects society from the consequences of these emerging financial crimes.

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