Typologies – enough said?

 Money Laundering Bulletin, 18 March 2023

Knowing exactly how the launderers operate surely assists in frustrating their designs but then in detailing methods publicly there's a risk of educating other bad actors: at least, that's the logic – does it stand up? Paul Cochrane investigates.

Should all anti-money laundering typologies be made public? AML experts argue it depends on the circumstances, but as criminals are usually ahead of the curve, there probably won't be much new for them to learn other, perhaps, than if the nitty-gritty of a case is revealed.

There is no shortage of money laundering and terrorist financing typologies that highlight the various methods and schemes criminals use to conceal and move illicit funds.

The Financial Action Task Force (FATF) lists some 43 typology reports and trends published between 2006 and 2021. (1) Similar material is issued by FATF-style regional bodies, and regulators, with national risk assessments (NRAs) signed off at the central government level.

Nothing new

Moreover, said Tristram Hicks, a former New Scotland Yard detective superintendent, and an AML and criminal justice expert in the UK, so many ML typologies are already in the public arena, criminals might do well simply to watch popular crime dramas: “Screenplay writers have gotten the importance of money laundering as a pivotal piece of the plot, and they write typologies and broadcast them. I don’t think FATF or other publishers of typologies can add much to them,” said Hicks.

Papers in academic journals, media reports and training courses for anti-money laundering (AML) professionals also detail ML typologies. The Journal of Money Laundering and Control, for instance, has a paper on ‘Twelve methods of money laundering,’ which discusses “how feasible it is for intelligent criminals to circumvent existing AML mechanisms” based on interviews with launderers and AML specialists. (2) And the Journal of Financial Crime writes on Bitcoin money laundering. (3) The Association of Certified Financial Crime Specialists (ACFCS) has an article on how to launder US$1 million “easily, quickly and quietly”. (4)

With academic papers widely available on searchable databases such as Google Scholar, “honestly, if you want to know how to do money laundering the academic literature gives you a pretty good idea, and what law enforcement is looking out for. I don’t think it’s very secret, and I don’t think that criminals study the typologies to know what to do; they adopt the techniques of more experienced people,” added Hicks.

Legislation is certainly read by professional criminals: “After the Proceeds of Crime Act 2002 was published in the UK, the police found a copy of the Act in the bedside drawer of a well-known drug dealer - that is very diligent of that particular criminal!” recalled Hicks.

FATF 'guidance'

FATF’s mutual evaluation reports (MER) on how a jurisdiction is fairing in its efforts to combat money laundering and terrorism financing can also be abused by criminals, noted Ross Delston, an American lawyer, AML expert witness and former US banking regulator: “Every time there’s an announcement by law enforcement that they’ve shut down a money laundering operation in a particular country, that’s a message to launderers everywhere that this jurisdiction is an attractive place. But the counter argument is that criminals already knew that, and there is a list of offshore financial centres of which some are rigorous, and others are outliers. It is easy to find the outliers. In fact, FATF’s MER system will tell a financial criminal where to look,” he said.

“Typologies are not that helpful as they’ve been generalised, redacted and sanitised to be applicable to more than one case,” said Delston.

There is a grey zone though, with judgement calls difficult to make. In general, “there is probably very little straight citizens can tell criminals, especially criminal who specialise in financial crime, about how to launder money. But one never knows what one might be revealing,” said Delston. He recalled that objections have been raised in the past about the hosting of financial crime conferences that discuss weaknesses in the regulatory system and at financial institutions. “They can be fodder for financial criminals, yet issues also need to be discussed,” he said.

Discretion in some cases

Finding the balance between what to reveal or not is a fine one. Delston was hesitant to discuss the typologies revealed during legal cases in which he has appeared as an expert witness. “I’ve seen things shared behind closed doors that were never made public as a typology or red flag, yet I thought they were of great interest. The reluctance is that maybe there’s something helpful to the criminal element, such as revealing the sources and methods,” he said.

“Another concern is that some particular person at a financial institution will be fingered and therefore in jeopardy. There are lots of reasons to not be too specific,” said Delston. “As is the case with suspicious activity reports (SARs), one of the primary goals in AML/CFT reporting of any type, including typologies, is that particular financial institutions and the identities of employees need to have their identity masked. And that would include any clues as to which component of a particular financial institution, which function, which position, and which person played a part in the story that led to the creation of the typology. An overly specific typology could actually put employees of an financial institution in danger if the institution named and jurisdiction isn’t properly hidden. There are some folks out there who would not take kindly to having a spotlight on their criminal activities and would be only too happy to retaliate against the financial institution or its employees.”

Controlled circulation

The lack of detail, however, acts as a break on law enforcement and AML practitioners' ability to fight financial crime. “There really needs to be a research arm of every financial intelligence unit (FIU) that would be charged with putting together longer, more detailed typologies that can be used on a restricted basis,” said Delston. “There are some typologies that are so straightforward that by releasing details to the public criminals and terrorists would have the ability to change their modus operandi in a way that would not raise red flags. Hence, restricting access to certain typologies would be advisable, for example, only to the FIUs themselves – it’s bad enough that criminals are early adopters of technology, including crypto, without giving them a blueprint on how to avoid unwanted attention.”

Determining factors

Ursula M’Crystal, a former South African police officer who has also worked in financial intelligence units in Africa, said how much of a typology should be revealed depends on the jurisdiction and whether the crime combatting apparatus is robust, as well as the levels of corruption. "For high profile law enforcement operations, like an ongoing narcotics project or tracking ISIS financiers, the typologies used by them will usually be kept quite close to the chest. If there are situations where support is needed in relation to financial aspects of these investigations, typology sharing would probably happen through trusted relationships and public-private partnerships,” she said.

M’Crystal said there are times when typologies can and should be shared so that the public sector and law enforcement at large are better informed. She cited the example of the take-down of a catalytic converter theft ring by the US authorities in November 2022. Criminals were stealing the converters, an anti-pollution car part that contains precious metals platinum, palladium and rhodium, which can sell for US$1,000 each on the black market. (5) There was consequential money laundering and publicising the modus operandi (MO) could have an impact on future policy around precious metal trading, she said. “This is a typology that the public needs to know about as it has created problems in many countries, and it also makes us consider that scrapyards are not under the banner of AML requirements in many countries, so if people were selling catalytic converters, those could be treated as scrap metal and not as stolen goods or the proceeds of crime,” said M’Crystal.

Undercover imitation

While legal cases and public policy discussions may require aspects of a criminal’s modus operandi or how law enforcement’s methods to not be revealed, undercover operations may not require such secrecy around typologies.

Former undercover agents Chris Mathers, a Canadian law enforcement veteran (ex-Royal Canadian Mounted Police) and AML expert, and John Cassara, a former US Treasury Special Agent and AML expert, said there was nothing secretive about the money laundering techniques that were used as part of the stings they were involved in.

“We were all doing the same thing as the criminals, there was nothing novel about it. We were pretending to launder money and our goal was to gather evidence. There was just some trade craft that we didn’t want out there,” said Mathers.

Cassara said from a law enforcement perspective, the first priority is safety. “We would never put something out that would jeopardise an undercover agent’s physical safety. Law enforcement continues to use the same methodologies, and the criminals know we do. Undercover investigations have been fairly successful for us, but it is fraught with difficulties, and there are some corrupt agents,” he said.

Known and untraceable

That said, he argued there was far less need to keep typologies under-wraps than the need for more effective law enforcement to go after the money launderers.

Cassara cited the methodology known as the Black-Market Peso Exchange (BMPE). “We’ve known about it since the early 1970s, and how it is used to launder drug money. It is probably the longest running money laundering methodology in the Western hemisphere. We know about it, the criminals know we know, we have taken countermeasures, put out the methodology reports, and had Congressional hearings about it, but we are powerless to stop it,” he said. Chinese criminals are now using the BMPE and similar BMPE financial systems around the world. (6)

Trade-based money laundering (TBML) is another well-known methodology that is widely used.

“TBML is the largest, most pervasive money laundering methodology around the world but also the least known and enforced. We can write books and FATF can issue typology reports on what we need to do, but it is too pervasive,” said Cassara. “When you look at the metrics, law enforcement is doing a bad job in money laundering prosecutions and convictions, and measured by assets seizures and forfeitures.”

To Mathers, the different methods and typologies used “are just branches on one big tree. I haven’t seen anything that has made me go ‘wow’. The criminals are using the same old techniques.” He thinks the focus to stop money laundering and corruption should be on financial institutions knowing their customer (KYC). “All the frauds I deal with on a weekly basis start with someone opening an account at a bank with a false ID, they do a load of transfers, flip it to cryptocurrency, and are gone. It is all about a financial institution knowing their customer and not being corrupted by their clients,” said Mathers.

Notes

1) https://eurasiangroup.org/en/fatf-typology-reports

2) https://www.emerald.com/insight/content/doi/10.1108/JMLC-05-2016-0018/full/html

3) https://www.emerald.com/insight/content/doi/10.1108/JFC-11-2016-0067/full/html

4) https://www.acfcs.org/how-to-launder-1-million-easily-quickly-and-quietly-and-without-catching-the-attention-of-global-authorities-a-view-into-global-aml-vulnerabilities-through-the-eyes-of-the-infilt/

5) https://www.justice.gov/opa/pr/justice-department-announces-takedown-nationwide-catalytic-converter-theft-ring’

6) www.americanthinker.com/articles/2023/03/chinas_role_in_blackmarket_money_laundering_.html