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In a world increasingly reliant on digital currencies, affected by geopolitical conflicts and sanctions, and facing modern international cybercriminal syndicates, money laundering has become an even more complex and challenging threat.
Money laundering affects not only economies and direct victims, but the wider population, and with fintech expanding, the blockchain ecosystem diversifying, neobanks emerging, and e-stores thriving, the landscape grows by the day.
So compliance and anti-money laundering programs carried out by law enforcement agencies, governments, and big banks are now a must for a wide range of industries operating online.
New technologies like artificial intelligence and machine learning are being used to monitor fraud and detect suspicious activities, giving businesses a competitive advantage.
But, of course, criminals are also using new tech to launder illicit gains.
Key Takeaways
- New technologies such as AI and machine learning detect suspicious activity — but criminals also use them to launder money.
- Pig butchering scams have reached global ‘epidemic’ status and are linked to human trafficking.
- Blockchain bridges and dropped accounts present new challenges while criminals exploit KYC vulnerabilities.
- Regulation and law enforcement are making progress, but vast sums are still laundered each year all over the world.
Economic Crimes Hiding in Legitimate Business Operations
Released on June 12, the Global Economic Crime Survey 2024 of PWC concluded that economic crime risks are more complex than ever before.
From bribery to corruption, forced labor, ESG responsibilities, and money laundering, companies and their supply chains are struggling to detect economic crimes hidden in their operations.
More than half (55%) of the surveyed C-suite executives, of which 40% work for companies with revenues greater than $1 billion, said that fraud is a widespread concern in their country, yet only a minority use new technologies to identify and combat it.
42% do not have a third-party risk management program or any form of risk scoring as part of their program, and only 33% said that assessing forced labor in their supply chain is a top priority for their company.
More concerningly, close to a fifth of companies do not use data analytics in any way to identify procurement fraud.
Justin Offen, Principal at PwC U.S. explained the role of new technologies in the fight against economic crime in the press release.
“Transaction monitoring solutions utilizing sophisticated algorithms and machine learning techniques can detect suspicious activities and patterns, helping to mitigate the risk of overbilling, kickbacks and collusion.
“Graph analytics can bolster the analysis by visualising complex relationships between suppliers, employees and third parties.”
Global Pig Butchering Epidemic Tied to Human Trafficking
Greg Pinn, Anti-Money Laundering (AML) expert and Director of Name Screening at Babel Street, a threat intelligence company, told Techopedia that regulators continue to focus on well-known money laundering schemes.
These schemes include Russian oligarchs evading sanctions, ownership obfuscation using shell companies and other vehicles, and human smugglers, including coyotes, illegally bringing migrants into the U.S. from Central America.
“However, a new and insidious scam has emerged over the past year: Pig Butchering.”
Pig butchering scams and money laundering are intricately linked. Pig butchering scams steal money from victims, often in the form of cryptocurrency. This stolen money becomes ‘dirty money’ that needs to be cleaned before the criminals can use it freely.
In March 2024, INTERPOL warned that pig-butchering scams are surging. Organized crime groups are using human trafficking victims to carry out ‘pig-butchering’ scams
The Global Anti-Scam Alliance, says that online scammers have stolen more than $1 trillion from victims, while INTERPOL’s Global Rapid Intervention of Payments (I-GRIP) stop-payment mechanism has intercepted more than $500 million in cyber-related criminal funds since 2022.
INTERPOL’s investigation found that there is a global expansion of human trafficking for the purpose of forced criminality in call centers, particularly to carry out ‘pig-butchering’ scams.
INTERPOL Secretary General Jürgen Stock said pig butchering is out of control in a press release.
“We are facing an epidemic in the growth of financial fraud, leading to individuals, often vulnerable people, and companies being defrauded on a massive and global scale.”
Secretary General Jürgen Stock said that with the rise of AI and cryptocurrencies, the situation will only get worse if urgent action is not taken.
Pinn for Babel Street said advancements in technology are complicating things.
“As criminals adapt to the digital age, this new breed of cyber-enabled financial crime poses a significant challenge for regulators and law enforcement.”
Blockchain Bridges, Droppers, and Neural Network Forgeries
As Wall Street embraces crypto through ETFs and more banks go crypto-friendly, traditional centralized finance is merging with decentralized networks, creating opportunities for modernization, financial inclusion, and investment. However, these connections also open the door to money laundering risks.
Furthermore, decentralized finance (Defi) bridges — protocols that enable the transfer of digital assets and data between different blockchains — have been on an exponential rise throughout 2022 and 2023.
Deniss Kudrja?ov, AML Compliance Officer at the neobank Keytom, spoke to Techopedia about the tactics and technologies used by cyber criminals to clean dirty money.
“Recently, combined laundering systems that utilize both centralized and decentralized finance (CeFi and DeFi) have become more prevalent. The introduction of ‘bridges’ in DeFi is what facilitated this trend, allowing the seamless transfer of assets between different blockchain networks.
Kudrja?ov added that money laundering chains are also now incorporating NFT collections. “Typically, these involve obscure collections that gained traction during the NFT hype, where their value could soar to tens or hundreds of thousands of dollars,” Kudrja?ov said.
According to Kudrja?ov, money laundering schemes are also increasing the use of ‘droppers’ — individuals who facilitate the withdrawal of laundered money.
Additionally, new tech, such as the forgery of documents using AI neural networks, worries experts. While neural network technology is also being used to detect fake signatures and documents, criminals use these tools to bypass Know Your Customer (KYC) protocols.
“In certain cases, the market has also seen cryptocurrency exchange platforms that sometimes turned a blind eye to suspicious transactions, suggesting potential collusion with the launderers.”
Sumsub’s Identity Fraud Report found that money muling is one of the fastest growing and most popular fraud schemes in 2023. Europol, Interpol, and Eurojust identified 10,759 money mules and 474 recruiters in 2023.
The Times recently held a fascinating investigation into gold smuggling in Dubai (paywall).
Unlike droppers who specifically open accounts for financial crimes, money mules (often confused with droppers) might be tricked or willingly transfer or move stolen funds.
Ilya Brovin, Chief Growth Officer at Sumsub, a verification platform, told Techopedia that seemingly innocent individuals are recruited to transfer illegally obtained funds.
Brovin also spoke about laundering linked to NGOs.
“Fraudsters take advantage of charities and NGOs by misusing funds and resources for illicit transactions or establishing a false charity to serve as a front for money laundering.”
Law Enforcement and Regulations: A Call for Action
FinCEN’s Year in Review for 2023 highlights advancements made in money laundering. The report found that over 15% of FBI cases were tied to Suspicious Activity Reports (SARs) or Currency Transaction Reports (CTRs).
37% of the FBI Organized Crime Drug Enforcement Task Force investigations were linked to SARs or CTRs and over $1.25 billion in cash, virtual assets, and bulk cash were seized.
But how effective are law enforcement agencies and regulations? Pinn from Babel Street said it’s “a bit of a mixed bag”. “With 4.6 million SAR reports filed during the same time, it’s clear that the private sector and law enforcement are collaborating for success,” Pinn said.
However, Pinn warned that on the other hand, the U.N. Office on Drugs and Crime estimates that the total amount of money laundered each year is 2-5% of the global GDP, or $800 billion to $2 trillion.
“Given that the U.S. GDP is approximately $28.26 trillion, this would equate to being somewhere between $565 billion and $1.43 trillion in laundered funds from the U.S. alone,” Pinn said.
“Money laundering is deeply intertwined with a variety of illegal activities and geopolitical challenges. Two of the most significant areas where money laundering plays a pivotal role are the global narcotics trade and the financing of terrorism and regional destabilization,” Pinn added.
Dark web marketplaces and private virtual currencies, used for illegal activity since their inception, are also playing a major role in modern money laundering.
Companies and organizations can drive positive change by identifying and targeting the most significant money laundering operations armed with high-tech tools.
However, as Pinn from Babel explains, the cat-and-mouse game will not come to an end any time soon.
“The global financial system is no stranger to the constant tug-of-war between privacy and security. It’s a delicate dance and one that criminals are always looking to exploit.”
