AUD 689

(AUDIT ASSURANCE AND SERVICES)

GROUP ASSIGNMENT: MONEY LAUNDERING

PREPARED FOR:
DR WAN ZURINA NIK ABDUL MAJID

PREPARED BY:

NAME STUDENT ID

NURUL NADIA BINTI MUHAMAD 2018226198

NURUL ZAHIRAH BINTI AZEMI 2018802044

SITI NUR AYUNIE BINTI ZAWAWI 2018659888

SITI SALIHAH BINTI AHMAD NAZLI 2018660028

CLASS: AC2208C

DATE OF SUBMISSION: 5th JULY 2022

Table of Contents
1.0 INTRODUCTION ................................................................................................................. 1
2.0 LITERATURE REVIEW ...................................................................................................... 2
3.0 ISSUES IN MONEY LAUNDERING ..................................................................................... 5
3.1 INVOLVING AND BEING TARGETED TO MONEY MULES.......................................... 5
3.2 THE ENVIRONMENT FOR MONEY LAUNDERING IN TRINIDAD AND TOBAGO ...... 6
3.3 VARIOUS ISSUES IN THE CURRENT WAY TO CONCEPTUALIZING MONEY
LAUNDERING ....................................................................................................................... 7
4.0 SUGGESTIONS TO OVERCOME THE ISSUES................................................................... 8
4.1 DETECTION OF MONEY LAUNDERING ....................................................................... 8
4.2 IMPLEMENTING A NEW ANTI-MONEY-LAUNDERING FRAMEWORK ....................11
5.0 CONCLUSION ....................................................................................................................12
6.0 REFERENCE ......................................................................................................................13
1.0 INTRODUCTION

One of the biggest threats to the economy and society is money laundering, which has been a
global problem for decades. Government, regulatory, and financial organizations are all working
together to tackle it, but billions of dollars in headlines made by the authorities continue to
dominate the news. High-speed internet connections have made it possible for financial institutions
to provide better customer's experience through multi-channel interactions, which has resulted in
a rapid increase in volume of transactions and opened up new opportunities for fraudsters to
launder money.

Cash used to finance money laundering comes from illegal and fraudulent operations, which is
considered as a global concern. Criminal organizations employ money mules to work in the money
laundering chain, where they are placed between the actual criminal and the illicit payments,
enabling the real criminal to remain anonymous and untraceable.

In the first, money laundering was explained. We'll talk about the problems with money laundering
in the second portion after that. The final portion goes on to discuss how to defeat money
laundering and explains the new strategy for doing so. The conclusion and some policy suggestions
are presented in the final section.

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2.0 LITERATURE REVIEW

Understanding money laundering and the macro-economy

The relationship between economic growth and money laundering has been examined in several
international research. For instance, Argentiero et al. (2008) provided two main findings for the
case study of Italy. First, money laundering costs almost 12% of the entire GDP. Second, money
laundering has a more erratic negative association with GDP than total GDP. Stancu and Rece
(2009) examined data acquired from the USA, Russia, Romania, and eleven other European
countries using a linear regression model. Their findings confirmed the possibility that money
laundering can result in instant financial gains. These findings refuted the widely held belief that
money laundering and economic growth are mutually exclusive.

The amount of assets that have been laundered in the Colombian economy was estimated by Villa
et al. in 2016. They made use of yearly data from 1985 to 2013. Their results confirmed that the
amount of assets that were laundered increased from roughly 8% of gross domestic product in the
middle of the 1980s to a peak of 14% by 2002, then declined to 8% in 2013. Bett and Muturi
(2016) assessed the relationship between economic crime and economic growth using the dynamic
ordinary least squares method. The years 2000 through 2014's annualized statistics were used. It
was shown that as organized crime amasses financial resources, a decelerating growth pattern can
be observed. The stagnation hypothesis is thought to be supported by the illegal economy.

Problem of Money Mules

Money mules have been around for a long time, criminal groups have begun recruiting younger
generations at between 18 to 23 years old. Keep in mind that money mules are related to a type of
money laundering. Money mules can be known as the people who receive and transfer money from
scam victims but appear as a legally gained proceeds. Additionally, our nation is currently working
to rebuild its banking sector after the pandemic's destruction.

Even if they are not directly involved in the acts that generate the money, money mules are
accomplices since they launder the proceeds of those crimes. While some of them are aware that
their actions benefit criminal gangs, others are completely clueless that they are doing so. Everyone
who receives money from an unauthorized source and is urged to send it back so that they can

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subsequently launder the proceeds of such activities may be helping fraud by behaving as a money
mule. We can get in touch with the criminals that use online fraud, payment fraud, and cybercrime
to make money.

To avoid becoming a mule, young people or everyone should be on the lookout for warning signs
from strangers, especially if they are suspiciously giving rapid cash without providing an adequate
justification or evidence of the source of the funds. Those who are having financial difficulties or
young people looking for extra money should beware of becoming a money mule because the
illegal money will come and go through your own bank account, but responsibility will stay with
you.

Detection of money laundering

To identify (a) exchanges of $10,000 or more, (b) cash moved to and from abroad, and (c)
suspicious activities such as tax evasion or financial fraud, all exchanges information from a few
internal financial frameworks, such as retail banking, purchaser banking, abundance the
executives, institutional banking, and so forth, moves through the standard-based AML framework
in financial institutions. While rule-based frameworks are a cornerstone of banks and excel at
differentiating exchanges based on pre-characterized criteria (categories "a" and "b"), they struggle
to identify the emerging misrepresentation designs (category "c") If the exchange complies with
the standard, a warning or caution is issued, managed, and addressed to management. The
justification behind rule definition is edge aggregates for different kinds of trades considering the
managerial requirements, and the ideas given by FATF.

Maintaining standards that are current and relevant at all times, weighing different norms, the age
of a significant number of false positive alerts up to 98 percent, and the sensitivity to handle a high
volume of various types of composed information, semi-facilitated information, or unstructured
information are the major challenges with rule-based frameworks. More alerts imply more tasks
by the consistency of off. The decision of shutting a trade is questionable is crucial decision,
accepting it goes wrong the bank could end up itemizing a fair client to regulatory for extra
assessment which could result into a criminal assessment by trained professionals and not
distinctive terrible clients could result into continuing with the tax avoidance practices by using
the monetary systems and more cash bad behavior.

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Considering the obstacles of rule-based systems, experts have started using the AI advancements
to thus recognize the questionable trade plans using a variety of course of action classes, for
instance, AML typologies, interface examination, social illustrating, risk scoring, irregularity
disclosure, and geographic limit.

New approach to combating money laundering

Money laundering is in fact recognised by various international anti-money-laundering (AML)

authorities as a form of "serious and organized crime" It contends that efforts to combat money
laundering place an undue emphasis (Levi and Soudijn, 2020).

Policymakers and law enforcement agencies face substantial obstacles in their efforts to combat
money laundering. Although the phenomena of money laundering is frequently recognized as a
form of "severe and organized crime," it has historically been regarded as a difficult three-stage
process comprising the "placement, layering, and integration" of illegal gains. This article seeks to
revisit the idea of money laundering within the context of organized crime and examine its
theoretical foundations.

As a result, by providing a deeper understanding of money laundering's evolving patterns, its

actors, and the environments in which they operate, the study suggests a new approach for
combating it.

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3.0 ISSUES IN MONEY LAUNDERING

3.1 INVOLVING AND BEING TARGETED TO MONEY MULES

Criminals pose as employers to trick into money laundering. They seemingly targeted students,
individuals without a job, and those facing financial difficulty. Those people will believe in money
mules by the job vacancy on online advertisements such as job search websites, social media, and
even email to find a career. To make this successful, money mules’ adverts can copy a genuine
company’s website and have a similar web address in order to make the scam seem as genuine as
possible. The position that is frequently offered is a financial manager or payments clerk, and the
only condition you will need is to have a bank account that involves transferring money.

He/she who accepts the job offer will engage in money laundering which is against the laws. There
are legitimate companies that provide work-from-home opportunities, users or unemployed may
not be able to distinguish between legitimate and fraudulent offers, which is why money mule
solicitations are sometimes presented as work-from-home opportunities. There will be interactions
and transactions that could be done online after accepting an offer that promises significant earning
potential for little effort. They are employed to accept some stolen money into their accounts,
transfer that money—typically overseas—to another location, and then earn a commission on that
transaction. Without the mules realizing that money transmitting is stolen, the actual truth is they
are doing it illegally known as money laundering.

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3.2 THE ENVIRONMENT FOR MONEY LAUNDERING IN TRINIDAD AND TOBAGO

Money laundering and corruption have been closely correlated. Trinidad and Tobago was ranked
as the 77th least corrupt country out of 180 countries in the 2017 Corruption Perception Index
(CPI). It was stated with CPI score of 41/100 in 2017. This was up a little from 35 points in 2016.
With CPI of 41 points, it still shows that the country is being relatively corrupt. The CPI score for
Trinidad and Tobago is below the average score of 43 that is considered acceptable internationally
(TTTI, 2018). A strong propensity for corruption has negative effects and puts the country at risk
of money laundering. Money laundering facilitates the easier concealment of unlawful proceeds
in the presence of fraudulent individuals and institutions. Trinidad and Tobago is a desirable
location to launder illicit funds because of the lack of effective financial crime investigation and
punishment. There have been no judgments or criminal convictions for the money laundering case.
As a result, the country has gotten poor compliance ratings from CFATF. The cases that are now
in court involve offenses like fraud, unlawful gambling, drug trafficking, robbery, conspiracy to
commit fraud, and falsifying financial records.
According to the FIUTT (2017), money laundering investigations and prosecutions were not very
effective. According to the CFATF Mutual Evaluation, "the absence of ML arrests along with the
risks associated with the jurisdiction along with the lack of focus given to investigation suggests
that the ML offense is not appropriately investigated" (CFATF, 2016, 6). Rapid convictions for
financial crimes can be used as a preventative approach to lessen the likelihood that money
laundering will take place in Trinidad and Tobago. Despite several charges being made against
people, no one has been fully prosecuted for the illegal conduct of money laundering. As a result,
the CFATF stated that the Trinidad and Tobago court system does not prioritize the crime of money
laundering.
Similar to many other countries, there is a noticeable difference in the punishments for white collar
and blue collar crimes. White collar crime includes the practice of money laundering and securities
fraud. White collar criminals receive more tolerance from Trinidad and Tobago's legal system.
According to Kerrigan and Sookoo (2013), "failure to press criminal charges, delayed inquiry, and
official protection of the elite" are examples of Trinidad and Tobago's different approaches to
dealing with white collar crime. Even though white collar crime has more victims who are affected
than "violent street crimes," this violent street crime will get more severe punishment in the form
of fines imposed and prison sentences.

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3.3 VARIOUS ISSUES IN THE CURRENT WAY TO CONCEPTUALIZING MONEY
LAUNDERING

It argues that efforts to combat money laundering concentrate too much on outdated perspectives
about how it works and strict legal frameworks that haven't evolved to reflect new patterns of
money laundering and organized crime. It has historically been based on a three-stage concept of
placement, layering, and integration, which serves as the foundation for governments' knowledge
of the money-laundering process.

Illicit money is often first introduced into the financial system before being used for money
laundering. This placement may involve the straightforward deposit of money into a bank account
or the transfer of money from one asset to another form of property owned by a bank. The second
stage, layering, includes unlawful payments in modest amounts being transferred through several
bank accounts or blended with lawfully obtained money or other assets to conceal their criminal
origins. By employing forged documents, anonymous shell firms, and various business structures,
the sources of the illegal funds are further buried. Illegal payments are subsequently transformed
into allegedly lawful returns, such as corporate stocks, real estate, or lavish boats or vehicles, for
future reinvestment.

Although cash is still widely used and in high demand, especially in developing countries, cash
transactions remain more expensive and inconvenient for many than electronic payments. Many
money-laundering schemes, such as trade-based ones, avoid using cash and instead entail
manipulating trade invoice values. The traditional three-stage model, however, is unable to
adequately describe the wide variety and number of ways that launderers use today as a result of
technological advancements and globalization.

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4.0 SUGGESTIONS TO OVERCOME THE ISSUES

4.1 DETECTION OF MONEY LAUNDERING

There are three methods for detection of money laundering that consist of machine learning, deep
learning and explainable Artificial Intelligence (AI).

1. MACHINE LEARNING

This paper describes most recent data mining and machine learning methods that applied in the
AML domain.

● Machine learning for money laundering methods

A writing survey of money laundering and its connected region was led by, determined to
recognize the holes and coordinating consideration towards tending to them. The key discoveries
are sorted into six classifications as (i) AML system and adequacy, (ii) effect of money laundering
on economy, (iii) money laundering environment and inspiration, (iv) size of cash laundered, (v)
roads for tax evasion, and (vi) location strategies for tax evasion. Most investigations of location
money laundering have centers around exchange in bank, land and exchange-based organizations.
The machine learning estimations used for perceiving the tax avoidance plans, perceive an odd
approach to acting, recognize cash washing social events, and perceiving tax avoidance get-
togethers.

● Data mining techniques in financial fraud detection

The financial fraud is gathered into four classes as bank deception, security blackmail, insurance,
and products coercion, and other significant money related fakes. The data mining strategies are
requested into six classes: (i) gathering, (ii) backslide, (iii) gauge, (iv) oddity area, (v) discernment,
and (vi)clustering. The key disclosures are data mining strategies are by and large applied in the
area of security fakes, followed by corporate and Visa coercion, and perceived a need of applying
these systems from tax avoidance, contract deception and securities blackmail. Simply a solitary
strategy 'network assessment's is found for perceiving money laundering. Anyway, for the most
part Logistic Models, Neural Network, Bayesian Neural Network, and Decision Trees are seen as
used for areas of overall frauds.

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 ● Statistical methods for detection of money laundering

The factual strategies, information mining and AI methods utilized for location of tax evasion and
retail banking fakes. The key difficulties are information volume and intricacy, class unevenness,
regular advancing examples, class crossover and class mislabeling. The strategy is grouped in two
classes which are managed picking up containing profiling, order and connection examination;
and solo getting the hang of containing bunching, low-aspect portrayal and scoring, and oddity
location.

2. DEEP LEARNING

Deep learning techniques have been utilized for predictions in many different sectors and have
been shown to produce extremely accurate results. This section summarizes the material that has
been written about the application of DL techniques to the study of money laundering.

● Scalable graph convolutional neural network

Legal examination utilized an adaptable chart convolutional brain network for monetary
information which is huge, thick and dynamic in nature. The result of the examination in visual
structure is introduced as one of the powerful choice backings for the AML experts who are
engaged with a survey of a huge number of cautions raised by rule-based AML frameworks. The
strategy was created and assessed utilizing the engineered chart (1M hubs and 9 M edges) produced
utilizing the AMLSim information test system device.

● Multi-channel convolutional neural network

The framework performs different levels of assessment, component ID, relationship extraction,
and association examination on different data sources like news, tweets and virtual diversion. Each
typical language dealing with modules uses a specific data source to play out the assessment and
bring the proposition. Two sorts of data are seen as financial data that integrates KYC, Customer,
Account, Transactions and open data that consolidates money related reports, financial reports,
coercion, open informational indexes and online amusement contents.

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 ● AutoEncoder

AutoEncoder is a kind of mind network that can be used to get to know a pressed depiction of
rough data. An autoencoder is made from an encoder and a decoder sub-models. The encoder
packs the data and the decoder tries to repeat the commitment from the compacted structure gave
by the encoder. Ensuing to set up, the encoder model is saved and the decoder is discarded. The
encoder can then be used as a data arranging strategy to perform memory extraction for rough data
that can be used to set up another AI model. It is also used as a classifier to detect anomalies
considering the regular transactions.
● Graph Convolutional Neural (GCN) network

Graph Convolutional Neural (GCN) is to predict unlawful trades in the bitcoin trade chart. The
proposed system has GCN close by multi-layer perceptrons, which has given better outcomes than
only GCN as used in the main investigation paper. The components got from GCN and the inactive
depiction of an immediate layer helps the show of the model. The proposed approach is surveyed
using elliptic data, a transparently open dataset that has a spot with real Bitcoins trades, which is
tended to as a planned graph association of trades that are centers, the organized edges between
the trades address the portion now from source to objective.

● Multilayer perceptron

SVM, Linear Regression (LR), and Multi-Layer Perceptrons are used in a multi-classification
strategy for identifying dubious methods of acting and organizing the undesirable behavior related
to tax avoidance. We create two models. Model 1 was set up using SVM, LR, and MLP (with
ReLU activation ability) systems, and it gave commitments in the form of financial trades and
profile data, producing a dataset of questionable trades as a result. Model 2 was set up using similar
techniques, and it gave the data dataset in the form of phony trades and questionable trades,
concluding that the questionable trades were close to the bad behavior class.

3. EXPLAINABLE AI

Explainable AI has transformed into a fundamental for building the trust, and to drive gathering
of AI structures in high stake spaces, for instance, finance bad behavior, credit possibilities, clinical
benefits which requires resolute quality, prosperity and sensibility. For distinguishing the tax

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avoidance plans, questionable trades, idiosyncrasies; or for completing the scientific endeavors
using joint assessment or graph mining, numerous AI procedures are found in the composition,
with reasonable precision.

4.2 IMPLEMENTING A NEW ANTI-MONEY-LAUNDERING FRAMEWORK

By implementing a new anti-money-laundering framework can help to recognise and properly
target potential money launderers. It is also essential to understand who is involved in money
laundering before assigning criminal culpability. Money launderers may decide to launder
proceeds alone if they do not need assistance from others, although this choice will mostly be
based on a number of factors:

● the type of crime in which they are involved;

● their reason for laundering funds;
● the amount of cash to be laundered;
● and their ability to launder funds without the funds or themselves being discovered by
authorities

Authorities have adopted a limited strategy to combat money-laundering because too much
emphasis has been placed on theories regarding completely lawful methods of money laundering.
Understanding the individuals and venues involved in money laundering is perhaps as important
as understanding how the crime is characterized under criminal law.

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5.0 CONCLUSION

Money laundering is an organized activity in which well-connected people work together for the
sake of power or control and have the desire to hide illicit payments from law enforcement.

After reviewing the literature, it is clear that a number of machine learning techniques are
suggested by researchers for the detection of suspicious transactions. There is, however, scarcely
any proof that the same has been used in the sector. The most likely explanations include the fact
that most studies rely on samples of very old real data or on synthetic data, the absence of training
data (alerts, suspicious transactions), the absence of actual money laundering transaction data, the
absence of current real-data containing potential recent fraud patterns, and the nature of the data
as being highly sensitive and confidential.

The framework for money laundering has to be updated, with less emphasis on basic characteristics
of its process. A better approach is one that includes the actors and locations involved in the
money-laundering process and can deal with evolving trends. Understanding the "who" and
"where" of money laundering should help to deepen understanding in order to more effectively
tackle the issue it poses.

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6.0 REFERENCE

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