Typologies Research

In the AML/CFT context, the term “typologies” refers to the various techniques used to launder money or finance terrorism. Criminals are very creative in developing methods to launder money and finance terrorism. Money laundering and terrorism financing typologies in any given location are heavily influenced by the economy, financial markets, and anti-money laundering/counter financing of terrorism regimes. Consequently, methods vary from place to place and over time.

Those involved in the fight against money laundering or the financing of terrorism rely on the most current information on typologies. Typologies research is the study of methods, techniques and trends in money laundering and terrorist financing. 

In US law, money laundering is the practice of engaging in financial transactions to conceal the identity, source, or destination of illegally gained money. In UK law the common law(judicial precedence) definition is wider. The act is defined as "taking any action with property of any form which is either wholly or in part the proceeds of a crime that will disguise the fact that that property is the proceeds of a crime or obscure the beneficial ownership of said property".

In the past, the term "money laundering" was applied only to financial transactions related to organized crime.. Today its definition is often expanded by government and international regulators such as the US Office of the Controller of the Currency to mean "any financial transaction which generates an asset or a value as the result of an illegal act", which may involve actions such as tax evasion or false accounting. In the UK, it does not even need to involve money, but any economic good. Courts involve money laundering committed by private individuals, drug dealers, businesses, corrupt officials, members of criminal organizations such as the Mafia, and even States.

As financial crime has become more complex, and "Financial Intelligence" has become more recognized in combating international crime and terrorism, money laundering has become more prominent in political, economic, and legal debate. Money laundering is  illegal; the acts generating the money almost always are themselves criminal in some way (for if not, the money would not need to be laundered).

Financial Action Task Force (FATF) and Work on Typologies Research 

Since its beginning, the Financial Action Task Force (FATF) has undertaken the study of the methods and trends associated with money laundering – or “typologies” - as a key component of its work.

Money Laundering and Terrorist Financing Typologies 2004-2005

In early 2004, the FATF Plenary established a Working Group on Typologies (WGTYP) to provide more focus to this work. With the subsequent creation of project teams to examine a series of defined typologies issues, the WGTYP set up a mechanism that could thus deliver more in-depth research and analysis than had previously been the case. The 2004-2005 typologies report is a reflection of this approach and focuses on the following issues, which have all been researched by separate project groups:

·         Alternative Remittance Systems

·         Money Laundering Vulnerabilities in the Insurance Sector

·         Proceeds from Trafficking in Human Beings and Illegal Migration

·         Money Laundering and Terrorist Financing Trends and Indicators: Initial Perspectives

These four chapters of this document are the reports prepared by the project teams. The work reflects the researchand analysis carried out by a range of experts from FATF, MONEYVAL and other countries. Invaluable contributions to this work were also obtained from international organisations such as the International Monetary Fund, the World Bank, the International Association of Insurance Supervisors, the Egmont Group and many others.

Since the publication of this report, the FATF has published a series of typology reports addressing specific issues.  

The APG's Typologies Framework

The APG undertakes detailed and relevant typologies research to better understand the money laundering and terrorist financing environment in the Asia/Pacific region. Conclusions and findings of the research provide decision-makers, policy experts and law enforcement authorities with up-to-date empirical information to develop strategies to combat these threats.

The APG's typologies framework includes processes for collection and analysis of information and case studies, and for sharing this information within the APG membership, the global AML/CFT network and with the private sector.

The following examples provide a few key money laundering and terrorist financing methods, techniques, schemes and instruments:

Association with corruption (bribery, proceeds of corruption & instances of corruption undermining AML/CFT measures): 

Corruption (bribery of officials) to facilitate money laundering by undermining AML/CFT measures, including possible influence by politically exposed persons (PEPs): eg investigating officials or private sector compliance staff in banks being bribed or influenced to allow money laundering to take place.

Currency exchanges / cash conversion: used to assist with smuggling to another jurisdiction or to exploit low reporting requirements on currency exchange houses to minimise risk of detection - eg purchasing of travellers cheques to transport value to another jurisdiction.

Cash couriers / currency smuggling: concealed movement of currency to avoid transaction / cash reporting measures.

Structuring (smurfing): A method involving numerous transactions (deposits, withdrawals, transfers), often various people, high volumes of small transactions and sometimes numerous accounts to avoid detection threshold reporting obligations.

Use of credit cards, cheques, promisory notes etc: Used as instruments to access funds held in a financial institution, often in another jurisdiction.

Purchase of portable valuable commodities (gems, precious metals etc): A technique to purchase instruments to conceal ownership or move value without detection and avoid financial sector AML/CFT measures – eg movement of diamonds to another jurisdiction.

Purchase of valuable assets (real estate, race horses, vehicles, etc): Criminal proceeds are invested in high-value negotiable goods to take advantage of reduced reporting requirements to obscure the source of proceeds of crime.

Commodity exchanges (barter): Avoiding the use of money or financial instruments in value transactions to avoid financial sector AML/CFT measures - eg a direct exchange of heroin for gold bullion.

Use of Wire transfers: to electronically transfer funds between financial institutions and often to another jurisdiction to avoid detection and confiscation.

Underground banking / alternative remittance services (hawala / hundi etc): Informal mechanisms based on networks of trust used to remit monies. Often work in parallel with the traditional banking sector and may be outlawed (underground) in some jurisdictions. Exploited by money launderers and terrorist financiers to move value without detection and to obscure the identity of those controlling funds.

Trade-based money laundering and terrorist financing: usually involves invoice manipulation and uses trade finance routes and commodities to avoid financial transparency laws and regulations.

Gaming activities (casinos, horse racing, internet gambling etc): Used to obscure the source of funds – eg buying winning tickets from legitimate players; using casino chips as currency for criminal transactions; using online gambling to obscure the source of criminal proceeds.

Abuse of non-profit organizations (NPOs): May be used to raise terrorist funds, obscure the source and nature of funds and to distribute terrorist finances

Investment in capital markets: to obscure the source of proceeds of crime to purchase negotiable instruments, often exploiting relatively low reporting requirements.

Mingling (business investment): A key step in money laundering involves combining proceeds of crime with legitimate business monies to obscure the source of funds.

Use of shell companies/corporations: a technique to obscure the identity of persons controlling funds and exploit relatively low reporting requirements.

Use of offshore banks/businesses, including trust company service providers: to obscure the identity of persons controlling funds and to move monies away from interdiction by domestic authorities.

Use of nominees, trusts, family members or third parties etc: to obscure the identity of persons controlling illicit funds.

Use of foreign bank accounts: to move funds away from interdiction by domestic authorities and obscure the identity of persons controlling illicit funds.

Identity fraud / false identification: used to obscure identification of those involved in many methods of money laundering and terrorist financing.

Use “gatekeepers” professional services (lawyers, accountants, brokers etc): to obscure identity of beneficiaries and the source of illicit funds. May also include corrupt professionals who offer ‘specialist’ money laundering services to criminals.

New Payment technologies: use of emerging payment technologies for money laundering and terrorist financing. Examples include cell phone-based remittance and payment systems.

Virtual assets: exploitation of regulatory gaps in AML/CFT and lack of supervisions of virtual asset service-providers to launder illicit proceeds and fund terrorist activities.