Love for cryptocurrency makes Asia-Pacific a money-laundering hotbed: report

Shell companies and a growing cryptocurrency market have become new hotspots for money laundering across the Asia-Pacific region, but new technologies such as artificial intelligence (AI) have emerged as effective tools to counter crime, according to ForresterResearch.

The diverse regulatory frameworks and their application in Asia-Pacific countries have led to a proliferation of shell companies, allowing criminals to exploit legal loopholes and hide illicit funds, the US-based researcher said in a report. .

Meanwhile, growing interest in cryptocurrencies in Asia (which now accounts for 70 percent of global bitcoin trading volume) as well as the absence of a coherent regulatory framework, have also created opportunities for criminals to "exploit perceived anonymity." and ease of exchange. -border transactions offered by cryptocurrencies.”

"Money launderers employ techniques such as smurfing, pooling, offshore trading, and stock hopping to obfuscate transaction history and conceal 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 authorities.

The report also says that trade-based money laundering is “especially prevalent” in Asia due to the region's status as a hub for global trade; The region's complex network of suppliers, intermediaries and financial institutions involved in cross-border trade provides criminals with 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 sources and providers," 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 as of early 2022 there were more than 340 licensed and unlicensed land-based casinos active in Southeast Asia, and the majority of these venues have moved online. The global online gambling market is projected to grow to more than US$205 billion by 2030, with Asia-Pacific accounting for the majority of the market growth at a projected 37 percent, according to the report.

The Chinese government estimated that in 2020, at least 5 million people participated in online gambling, resulting in an estimated capital outflow of $157 billion from the country.

To counter increasingly complicated acts of money laundering, banks and institutions across the region have been adopting 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 the client selection process, while Moody's has begun adopting generative AI to summarize critical risk information and generate shareable insights with the clients.

There is also increasing collaboration between financial institutions and regulators to address money laundering issues, especially in the area 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 in data sharing, with a key example being the Monetary Authority of Singapore. [MAS’s] collaboration with six major banks in the country.”

Meanwhile, regulators are also implementing stricter rules to combat money laundering, especially when it comes to cryptocurrencies. For example, in late 2023, the MAS banned the use of locally issued credit cards to purchase virtual assets in the country, and in April this year revised the requirements for digital payment token service providers.