The Asia Pacific (APAC) region faces significant challenges in combating money laundering due to its diverse economies, high levels of cross-border trade, and varying levels of regulatory enforcement across countries. Money laundering trends in the APAC region are constantly changing.
But stronger regulatory measures, technological advances and increased public-private and international cooperation offer promising opportunities to address these challenges more effectively, says a new report from Forrester Research.
Reports, title “Key Trends Impacting Anti-Money Laundering in Asia Pacific in 2024” delves into the key trends, technology adoption, and regulatory requirements impacting the Asia Pacific anti-money laundering (AML) market.
The report highlights the rise of crypto- and trade-based money laundering, the rise of shell companies as money laundering hotspots, and the accelerating adoption of cutting-edge technology to strengthen AML measures.
Shell Companies: Money Laundering Hotspots in Asia Pacific
In its report, Forrester said Asia-Pacific has emerged as a hub for money laundering, with criminals exploiting regulatory loopholes and different regulatory frameworks across the region to hide their illicit funds.
Shell companies are legal entities that exist primarily on paper, have no significant operations or physical presence, and are often used to manage financial transactions without conducting substantial business activities. While these entities offer benefits such as asset protection, tax optimization, and privacy, they also tend to be misused for money laundering, tax evasion, and other illegal activities.
Moody’s Analytics 2023 Survey Revealed There is a wealth of corporate structures that enable sanctions evasion, money laundering, fraud and other financial crimes. The company identified more than 21 million risk activities across 472 million companies as of November 2023.
In February, one of India’s law enforcement agencies It’s been found A money laundering case in which purported Singaporean shell companies issued fake invoices for software and other services. According to authorities, Indian shell companies paid Singaporean companies with funds from foreign loans, gambling and betting apps. They used Nium India, a subsidiary of Nium Singapore, to transfer the funds. A total of S$1.23 billion in criminal proceeds were frozen in Nium India’s accounts.
Cryptocurrency and trade-based money laundering on the rise
Forrester’s report also highlighted the rise of cryptocurrencies and trade-based money laundering as major money laundering trends in the Asia-Pacific region.
According to the report, the widespread adoption of cryptocurrencies in Asia Pacific, along with inconsistent cryptocurrency regulation in the region, empowers criminals with features such as anonymity, decentralization, and ease of transferring value across borders.
United Nations Office on Drugs and Crime (UNODC) Identify Casinos, junkets and cryptocurrencies are key components of the underground banking and money laundering infrastructure in East and Southeast Asia, facilitating transnational organized crime.
Blockchain analysis company Chainalysis Quote The total amount of cryptocurrency-related money laundering activity in 2023 will reach $22.2 billion, with centralized exchanges such as Binance, Coinbase, and Bitstamp being the primary destinations for funds.
In addition to cryptocurrencies, the Forrester report also noted that trade-based money laundering is particularly prevalent in Asia. The region’s position as a global commercial hub and the complex network of suppliers, intermediaries and financial institutions involved in cross-border trade provide criminals with ample opportunities to manipulate legitimate transactions to appear as illicit, the report said.
Trade-based money laundering uses trade transactions to disguise the origin of illicit funds, typically by misrepresenting the price, quantity or quality of goods or services to move funds across borders and hide the proceeds of crime.
With the rise of trade-based money laundering in Asia, industry players are coming together to tackle the problem. For example, the Asian Development Bank’s Trade and Supply Chain Finance Programme Cooperating We are working with UNODC on the goAML system, software used by financial intelligence units in around 70 countries to collect, analyze and disseminate data to prosecute financial crimes such as money laundering and trade-based money laundering.
APAC businesses turn to AI and behavioral biometrics
According to the Forrester report, to combat increasingly complex money laundering activities, banks and financial institutions in the region are adopting new technologies such as generative artificial intelligence (gen AI), explainable AI and behavioral biometrics.
Though it’s still in its early stages, the report notes that some banks have started using Generation AI to enhance risk management insights and scores. The technology is also being leveraged for core transaction monitoring and risk decision-making processes.
Last year, Google Cloud start An AI-driven AML product. The technology uses machine learning (ML) to help financial industry clients comply with regulations that require them to screen and report potentially suspicious activity. It already has high-profile users including London-based HSBC, Brazil’s Banco Bradesco, and Denmark-based digital bank Lunar.
Other banks are also using behavioral biometrics as an added layer to detect mule accounts before the actual transfer takes place.
Behavioral biometrics refers to fraud detection technologies that identify individuals based on their unique behavioral patterns rather than physical characteristics. Unlike traditional biometrics such as fingerprint or facial recognition, which rely on static physical characteristics, behavioral biometrics analyze dynamic, subtle movements and interactions to establish an individual’s identity, making them highly effective at enhancing security and preventing unauthorized access.
Strengthening public-private collaboration on data sharing
The Forrester report cited collaboration between financial institutions and regulators, particularly through data sharing, as one of the key trends in anti-money laundering in Asia Pacific.
One notable example is the collaboration between the Monetary Authority of Singapore and six of the country’s major banks. Led Until the launch of COSMIC in April 2024. COSMIC is a centralized digital platform designed to enable the sharing of customer information between financial institutions to combat money laundering, terrorist financing and proliferation financing.
Similarly, in Hong Kong, the Fraud and Money Laundering Intelligence Task Force Founded In May 2017, we provided an information-sharing platform for the early detection and prevention of money laundering and serious financial crimes.
Finally, in the UK, the Economic Crime and Corporate Transparency Act, which will come into force in October 2023, Facilitate Improve data sharing between financial institutions, regulators and law enforcement agencies to identify and disrupt money laundering networks.
Financial crime is a major global challenge, and the United Nations Office on Drugs and Crime (UNODC) presume Between $800 billion and $2 trillion are laundered worldwide each year. Regulatory scrutiny is increasing, and costs associated with financial crime compliance are rising. LexisNexis Quote Financial crime compliance costs in Asia Pacific are predicted to approach $45 billion in 2023, highlighting the significant investments required to meet stringent compliance requirements. The survey, commissioned by the data analytics firm, also found that most companies will see their annual compliance costs rise by 11-20% in 2023. Nearly one-fifth of the companies surveyed said their costs have risen by more than 20%.
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