The complex crime of cleaning dirty money

Lee Kok Leong, our special correspondent, interviews Fabrizio Fioroni, regional advisor (Southeast Asia) at the United Nations Office on Drugs and Crime, on the fight against money laundering.

Lee Kok Leong, our special correspondent, interviews Fabrizio Fioroni, regional advisor (Southeast Asia) at the United Nations Office on Drugs and Crime, on the fight against money laundering.

Fabrizio Fioroni

Money laundering is the illicit process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions, thus making such money appears to have been derived from a legitimate source.

According to UNODC, money laundering is a serious threat to most Member States in the Southeast Asian region, due to the existence of cash-based economies and a combination of deficient legal frameworks, weak border controls, poor regulatory mechanisms, and a lack of law enforcement, judicial and regulatory capacities. 

UNODC strengthens anti-money laundering efforts in the region by collaborating with global bodies and regional agencies to address the gaps outlined above.                        

Maritime Fairtrade (MFT): Why is it important to fight money laundering?  

UNODC: Money laundering fuels corruption and organized crime. If we look at the four most active transnational organized crime activities in South East Asia for example, we find: 

  • illicit drugs and precursor chemicals trafficking, 
  • humans trafficking and migrants smuggling, 
  • environmental crimes, particularly illegal wildlife and timber trades, and 
  • trafficking of counterfeit goods and fake medicines. 

All those serious criminal activities have a common objective, which is to generate money. This money goes to the masterminds behind the criminal organizations and is used for sustaining the criminal “enterprises”. 

Large part of this illegal money is laundered using different methods for the benefit of the criminal masterminds, who maintain a distance from the illegal trafficking and who are rarely affected by law enforcement efforts. 

Money laundering is the criminal offence used to disguise the illegal origin of money and only by fighting money laundering, such illegal origins can be identified. Fighting money laundering is an effective way for linking otherwise untouched criminal masterminds to their illegal activities, and dismantle transnational organized crime networks by depriving them of vital elements, such as money and assets.     

MFT: What are the trends in money laundering?

UNODC: The Financial Actions Task Force (FATF) and the FATF-style regional bodies, regularly publish typologies reports which help jurisdictions in understanding what are the current trends in money laundering. The recent typologies report of the Asia/Pacific Group on Money Laundering (APG) published in 2019 suggests that money laundering still occurs via the banking systems by making use of a range of products. 

For example, a trend on using ordinary people’s bank accounts as “money mules” in exchange of some fees for transferring illicit funds can be observed. Being a money mule is a criminal offence because the bank account’s owner participates in the money laundering scheme even if not involved in the criminal offence that originated the money. 

Also, offshore bank accounts and corporate vehicles are still misused by criminals to launder illicit money. At UNODC, we see the misuse of offshore bank accounts and corporate vehicles as a major trend for laundering illegal proceeds from forestry crimes, the related illegal timber trade and associated corruption. 

In other crime areas, recent major seizures of cash also indicate a persistent misuse of cross-border movement of currency in cash as a method to launder illicit proceeds. The UNODC South East Asia Serious Organized Crime Threat Assessment published in 2019 shows that the rapidly expanding network of casinos in this region, many of which are not properly regulated yet, is being used by criminal organizations to launder large volume of illegal proceeds. 

And there is an increasing trend in misusing the opportunities provided by the development of new technologies. There is a growing number of cases of money laundering being facilitated by the misuse of internet and virtual currencies. 

All these methods, together with the classic use of trade-based money laundering, underground banking and remittance networks, professionals and politically exposed persons are seen occurring in different jurisdictions. 

We see that a particular trend might start declining in a jurisdiction while increasing in another one or that a new trend expands at the same time in different countries. Organized crime networks continuously need to launder illegal money and the case studies suggest that any opportunity will be exploited to achieve that objective.          

MFT: What are the challenges of fighting money laundering?

UNODC: There are several challenges when fighting money laundering. This crime is often transnational in nature and many times occurs through a number of complex financial transactions or operations, so it is a difficult and time-consuming fight. Also, many countries do not have adequate resources to overcome this issue. 

The major challenge is the lack or partial implementation of anti-money laundering measures. Most jurisdictions have sound legislations and policies against money laundering in place but a number of them still do not enforce properly all the requirements, making their systems vulnerable to misuse by criminal organizations.

MFT: What are your recommendations to fight money laundering?

UNODC: The FATF is the global setter of the international standards against money laundering. Countries should fully comply with and implement those standards. Fighting money laundering requires several actors to act in coordination and cooperate with each other. 

Those actors are from public and private sectors and in many instances include the civil society. Major coordination and cooperation are needed between these different sectors and UNODC promotes and supports such kind of partnerships to be established or improved.  

MFT: What is terrorism financing?  What is its relationship to money laundering?

UNODC: Terrorists need funds for running their operations, recruiting and financially supporting their members as well as for sustaining their logistics. Terrorism financing is the act of providing or collecting funds/assets with intention or knowledge that they are to be used by terrorists to accomplish their goals.

Like for organized criminal networks, money is vital to terrorists for pursuing their objectives. Therefore, depriving terrorist of the needed funds is an effective way of disrupting their intentions. 

Money laundering (ML) and terrorism financing (TF) are different in their nature and scope, but sometimes they interact. 

The process of terrorism financing can be summarized in three stages: 1) raising, 2) moving, and 3) ultimately using the funds for terrorist purposes. The funds could be either from legal (legitimate income) or illegal sources (proceeds of crime). The end goal of TF is supporting terrorist acts or terrorist entities. 

The process of ML can be summarized in the stages of 1) “placement” of proceeds of crime 2) “layering” and “disguising” these proceeds, and 3) ultimately “integrating” them in the regular economy so they can be freely used by the criminals. Here the funds are always from illegal sources (proceeds of crime), and the end goal is to avoid detection and make the illegally obtained funds appear “clean” and legitimate. 

There can be a major relationship between these two crime types when someone “raises” money from illegal (or legal) sources, then applies money laundering techniques of “placement, layering and integration” to escape detection and “move” the funds in order to ultimately “use” them for supporting terrorist purposes. 

The schemes and channels used for both crime types of ML and TF can therefore overlap and the (financial) investigation techniques used by intelligence and law enforcement agencies to detect, disrupt, prevent and counter such financial flows are also similar. 

MFT: What are the trends you see in terrorism financing?

UNODC: Terrorists have been raising their funds through legitimate (business income, salaries, pensions, etc.) and illegitimate (online scams, fake charities, kidnapping for ransom, robbery and looting etc.) activities. 

We see a continuing trend in using both formal and informal (Hawala, Hundi) remittance systems for cross-border movement of funds. But the formal banking system is also used as well as the physical transportation of cash. 

Then, like for money laundering, there is an increasing trend of terrorists using new technologies such as social media and crowdfunding platforms, mobile money applications, online money transfer systems, and cryptocurrencies for raising and transferring funds for terrorism financing.  

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