Water always finds its way: Identifying new forms of money laundering

Abstract

Money laundering regulations have become stricter over time and involve more and more actors. This means that the accountability of laundering regulation will become more important; theoretically, money laundering should have decreased with the implementation of new regulations. However, as this paper shows, it is difficult to estimate even the sign of the trend in the proceeds of crime and of laundering over time with particular reference to the drug trade. There seems to be a substitution from hard to softer drugs, and no substantial decline in the proceeds of crime and likewise no substantial decline in money laundering. Criminals seem to switch from the more controlled banking sector into still less controlled parts of financial markets, and from financial markets to other sectors. These new sectors include electronic payments, trade and real estate. The paper shows how one can empirically approach the latter two by using economic information of unusual prices and other characteristics in order to identify the amount of laundering in these sectors. Combining economic information with criminological data facilitates the development of a new tool for identifying money laundering in some important sectors.

Behavior Monitoring Methods for Trade-Based Money Laundering Integrating Macro and Micro Prudential Regulation: A Case From China

“…Many questions regarding current forms of money laundering have sprung up and today TBML are becoming more and more popular (Unger & den Hertog, 2012;Ferwerda et al, 2013;Delston & Walls, 2009;Liao & Acharya, 2011;Thanasegaran & Shanmugam, 2007). For this reason, regulation is becoming more important (Deng, Joseph, Sudjianto, & Wu, 2012).…”

Gravity models of trade-based money laundering

“…Today financial transactions between the US and the rest of the world are closely monitored: banks have to report suspicious transactions and have to fulfill customer due diligence rules. However, Unger and den Hertog (2012) claim that similar to water which always finds its way, criminals also find new ways to escape anti-money laundering regulation. Zdanowicz (2004b) sees trade as one important 'backdoor' for launderers, who can use fake invoicing of exports and imports and other forms of Trade-Based Money Laundering (TBML) to disguise illicit money flows.…”

How Big Are Illicit Financial Flows?

“…When policies are enacted to tackle the problem of illicit financial flows, the question quickly arises whether such policies are effective. Since 'water always finds its way' (Unger and den Hertog 2012), criminals and the wealthy will react to new policies and try to circumvent them. Just like species in an ecosystem that gets hit by a shock, new ways of survival are sought.…”