Money laundering is a pervasive issue that casts its shadow across various sectors, including remittance and money service businesses. Given the increasing globalisation of finance, understanding the mechanisms of money laundering is essential for safeguarding the integrity of financial systems. Below, we delve into the common typologies of money laundering within this sector and discuss mitigation controls that can significantly reduce associated risks.
Structuring (Smurfing)
Description:
Smurfing involves breaking down large sums of illicit money into smaller amounts to avoid drawing attention. These smaller transactions are then sent via remittance services, making them difficult to track.
Mitigation Controls:
Automated detection systems that flag multiple small transactions can be useful. Additionally, employee training can aid in identifying these types of activities manually.
Cycling
Description:
Here, funds are repeatedly sent in and out of various accounts to obscure their origins. This makes it hard to trace the money back to its original source.
Mitigation Controls:
Monitor accounts for rapid, repeated movements of money, and use algorithms to flag unusual patterns.
Cross-Border Schemes
Description:
This involves sending funds internationally to jurisdictions with weak AML controls, thereby facilitating the integration of dirty money into other economies.
Mitigation Controls:
Implement stricter verification processes for international remittances and keep tabs on high-risk jurisdictions.
Layering Through Multiple Agents
Description:
Criminals use multiple remittance agents to complicate the money trail, making it harder to trace the funds back to their origin.
Mitigation Controls:
Information sharing among different branches and AI-based network analysis can make it easier to track layered transactions.
Use of Fake IDs and Accounts
Description:
Criminals employ fake or stolen identities to send or receive funds, hindering authorities from determining who is behind the transactions.
Mitigation Controls:
A robust KYC procedure, along with biometric identification and multi-factor authentication, can add layers of security.
Invoicing Fraud
Description:
False invoices for goods or services are generated to justify large remittances, often accompanied by over- or under-invoicing.
Mitigation Controls:
Requiring additional documentation like contracts can help. Automated controls to flag inconsistencies are also effective.
Employment of Intermediaries or Brokers
Description:
Middlemen are used to add complexity to transactions, putting more distance between the money launderer and the illicit funds.
Mitigation Controls:
Transactions involving intermediaries should be closely monitored, and the relationships between all parties fully disclosed.
Trade-Based Money Laundering
Description:
This involves using remittance to pay for over- or under-invoiced goods, often in collaboration with invoicing fraud, to move money across borders.
Mitigation Controls:
Collaborate with customs and trade authorities and flag transactions that involve invoicing discrepancies.
Remittance in Phases
Description:
Funds are sent slowly over a period, often disguised as regular transactions like salary or maintenance payments, to avoid suspicion.
Mitigation Controls:
Monitor for consistent transactions that are just below reporting thresholds and use behavioural analysis tools.
Commingling Legitimate and Illegitimate Funds
Description:
Illegally obtained money is mixed with legitimate earnings before being sent through remittance channels, complicating traceability.
Mitigation Controls:
Data analytics can help distinguish between legitimate and suspicious transactions. Detailed information about the source of funds should also be required.
Use of Money Mules
Description:
Third-party accounts, often opened with stolen identities, are used to move money, further obscuring its origin.
Mitigation Controls:
Develop algorithms to identify 'mule-like' behaviour and work closely with law enforcement agencies.
Use of Cash
Description:
The cash-based nature of many remittance transactions can be exploited to introduce illicit funds into the formal financial system.
Mitigation Controls:
Implement cash transaction limits and conduct random audits to deter suspicious activities.
De-banked Businesses
Description:
These are remittance dealers who have lost their banking relationships and may therefore have less oversight.
Mitigation Controls:
Transactions involving de-banked businesses should be scrutinised carefully, and information about such entities should be shared within the industry.
Offsetting Arrangements
Description:
Informal debit and credit arrangements between businesses are used to avoid official scrutiny.
Mitigation Controls:
Monitor for offsetting transactions and require additional documentation for justification.
Cuckoo Smurfing
Description:
Multiple individuals perform transactions on behalf of a central entity, making it difficult to trace the money back to its original source.
Mitigation Controls:
Use advanced analytics to spot this pattern and cooperate with international partners for a broader view.
Money laundering mitigation is a dynamic challenge requiring ongoing attention and a multi-faceted approach. By coupling technology with procedural improvements and international cooperation, remittance and money service businesses can create a more secure and transparent financial environment. Stay vigilant, stay informed, and let's work together to combat financial crime.
