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Asia-Pacific is a money laundering hotbed: Bad actors exploit shell companies and cryptocurrencies as AI stalks, says report
Shell companies and a growing market for cryptocurrencies have become the new hotbeds of money laundering in the Asia-Pacific region, but new technologies such as artificial intelligence (AI) have emerged as effective tools to counteract money laundering, according to Forrester Research. the crime.
Differing regulatory frameworks and enforcement across Asia-Pacific countries have led to a proliferation of shell companies, allowing criminals to exploit loopholes and hide illicit funds, the US researcher said in a report.
Meanwhile, growing interest in the cryptocurrency in Asia – which now makes up 70% of global bitcoin trading volume – as well as the absence of a coherent regulatory framework, have also created opportunities for criminals to “exploit the anonymity perceived ease of cross-border transactions offered by cryptocurrencies”.
“Money launderers use techniques such as ‘smurfing,’ service mixing, offshore transactions and exchange hopping to obfuscate transaction history and hide the origins of funds,” Forrester analysts said.
Smurfing is the act of dividing a large sum of money into several smaller parts to avoid detection by the authorities.
The report also states that trade-based money laundering is “particularly prevalent” in Asia due to the region’s status as a hub for global trade; The complex regional network of suppliers, intermediaries and financial institutions involved in cross-border trade offers criminals ample opportunities to manipulate invoices, overvalue goods and transfer illicit funds under the guise of legitimate trade.
“Cross-border trade involves multiple entities, so banks need to access more external data to analyze risks, adding the challenge of finding reliable external data providers and sources,” the analysts said.
A report released in January by the United Nations Office on Drugs and Crime (UNODC) identified cryptocurrencies and casinos as the main drivers of money laundering in East and Southeast Asia.
The UNODC estimated that more than 340 licensed and unlicensed land-based casinos were active in Southeast Asia as of early 2022, and most of these locations have moved online. The global online gambling market is expected to grow to more than $205 billion by 2030, with Asia-Pacific accounting for the lion’s share of market growth at an estimated 37%, according to the relationship.
The Chinese government estimated that at least 5 million people took part in online gambling in 2020, resulting in an estimated $157 billion in capital outflow from the country.
A view of Hong Kong showing the Central Ferry Pier on July 18, 2023. Photo: Elson Li
To counter increasingly complicated acts of money laundering, banks and institutions across the region have embraced new technologies, such as generative AI, explainable AI and behavioral biometrics to address new challenges.
In the generative AI space, HSBC has partnered with Google Cloud to apply the technology in its customer screening process, while Moody’s has begun adopting generative AI to summarize critical risk information and generate insights that can be shared with customers.
There is also growing collaboration between financial institutions and regulators to address money laundering issues, particularly in the field of data sharing, the report notes.
“Financial institutions cannot successfully combat increasingly sophisticated money laundering risks alone,” said Liu Meng, senior analyst at Forrester. “There has been an increase in public and private collaboration on data sharing, a key example being the Monetary Authority of Singapore [MAS’s] collaboration with six major banks in the country”.
Meanwhile, regulators are also adopting stricter rules to combat money laundering, especially when it comes to cryptocurrency. For example, in late 2023 the MAS banned the use of locally issued credit cards to purchase virtual goods in the country and, in April this year, revised requirements on digital payment token service providers.