Mind mapping the topic of anti-money laundering

Mind mapping the topic of anti-money laundering (AML)

Joseph Kim-keung Ho

Independent Trainer

Hong Kong, China

Abstract: The topic of anti-money laundering (AML) is a main one in Accounting and Finance. This article makes use of the mind mapping-based literature review (MMBLR) approach to render an image on the knowledge structure of anti-money laundering. The finding of the review exercise is that its knowledge structure comprises four main themes, i.e., (a) Descriptions of basic concepts and information (b) Major underlying theories and thinking, (c) Main research topics and issues, and (d) Major trends and issues related to practices. There is also a set of key concepts identified from the AML literature review. The article offers some academic and pedagogical values on the topics of AML, literature review and the mind mapping-based literature review (MMBLR) approach.

Key words: Anti-money laundering (AML), literature review, mind map, the mind mapping-based literature review (MMBLR) approach

Introduction

Anti-money laundering (AML) is a main topic in Accounting and Finance. It is of academic and pedagogical interest to the writer who has been a lecturer on Accounting and Finance for some tertiary education centres in Hong Kong. In this article, the writer presents his literature review findings on AML using the mind mapping-based literature review (MMBLR) approach. This approach was proposed by this writer in 2016 and has been employed to review the literature on a number of topics, such as supply chain management, strategic management accounting and customer relationship management (Ho, 2016). The MMBLR approach itself is not particularly novel since mind mapping has been employed in literature review since its inception. The overall aims of this exercise are to:

1.      Render an image of the knowledge structure of anti-money laundering  (AML) via the application of the MMBLR approach;

2.      Illustrate how the MMBLR approach can be applied in literature review on an academic topic, such as AML.

The findings from this literature review exercise offer academic and pedagogical values to those who are interested in the topics of AML, literature review and the MMBLR approach. Other than that, this exercise facilitates this writer’s intellectual learning on these three topics. The next section makes a brief introduction on the MMBLR approach. After that, an account of how it is applied to study AML is presented.

On mind mapping-based literature review

The mind mapping-based literature review (MMBLR) approach was developed by this writer in 2016 (Ho, 2016). It makes use of mind mapping as a complementary literature review exercise (see the Literature on mind mapping Facebook page and the Literature on literature review Facebook page). The approach is made up of two steps. Step 1 is a thematic analysis on the literature of the topic chosen for study. Step 2 makes use of the findings from step 1 to produce a complementary mind map. The MMBLR approach is a relatively straightforward and brief exercise. The approach is not particularly original since the idea of using mind maps in literature review has been well recognized in the mind mapping literature. The MMBLR approach is also an interpretive exercise in the sense that different reviewers with different research interest and intellectual background inevitably will select different ideas, facts and findings in their thematic analysis (i.e., step 1 of the MMBLR approach). Also, to conduct the approach, the reviewer needs to perform a literature search beforehand. Apparently, what a reviewer gathers from a literature search depends on what library facility, including e-library, is available to the reviewer. The next section presents the findings from the MMBLR approach step 1; afterward, a companion mind map is provided based on the MMBLR approach step 1 findings.

Mind mapping-based literature review on anti-money laundering (AML): step 1 findings

Step 1 of the MMBLR approach is a thematic analysis on the literature of the topic under investigation (Ho, 2016). In our case, this is the AML topic. The writer gathers some academic articles from some universities’ e-libraries as well as via the Google Scholar. With the academic articles collected, the writer conducted a literature review on them to assemble a set of ideas, viewpoints, concepts and findings (called points here). The points from the AML literature are then grouped into four themes here. The key words in the quotations are bolded in order to highlight the key concepts involved.

Theme 1: Descriptions of basic concepts and information

Point 1.1.              “Money laundering is a term that is often misunderstood. Defined in Sections 330-331 of the Proceeds of Crime Act (2002) it covers wide-ranging circumstances. These circumstances are attempts to clean illegal funds, handling the benefit of acquisitive crimes such as theft, fraud and tax evasion” (Brooks, 2012);

Point 1.2.              “Besides legislation, various bodies have issued guidelines to their members regarding the prevention of money laundering. These include the Hong Kong Bar Association…, the Law Society of Hong Kong…, the Securities and Futures Commission… and the Office of the Commissioner for Insurance…. Additionally, the Hong Kong Monetary Authority also issued a guideline… on money laundering that applies to all banking and deposit taking activities in Hong Kong” (Kwok, 2008);

Point 1.3.              “Dirty money is laundered for two main purposes. First, the laundering is for reducing the likelihood of prosecution in respect of the commission of the predicate offence. Second, it is the aim to make the proceeds of crime appear as coming from legitimate sources, hence it is not subject to confiscation” (Kwok, 2008);

Point 1.4.              “Money launderers use certain techniques to convert dirty money into clean money, which include conversion of cash into other assets that could easily be transferred, establishment of business in any other country, changing the currency of cash, altering the amount of different security holdings, circulation of money between different banks and using shell companies” (Kemal, 2014);

Point 1.5.              “Money Laundering is a type of dirty money and the broad purpose of money laundering crime is to convert dirty money into clean money for hiding wealth, avoiding prosecution and taxes, increasing profits and becoming legitimate” (Kemal, 2014);

Point 1.6.              “The FATF [Financial Action Task Force] is a global inter-governmental body which develops and promotes national and international policies to combat money laundering and terrorist financing … Created in 1989, It creates legislative and regulatory reforms in money laundering and terrorist financing” (Van der Zahn et al., 2007);

Point 1.7.              “While domestic regulatory systems play a substantial part in countering money laundering activities, the role of external regulators also impact on a country’s anti-money laundering policies. Four important organisations that have had a bearing on the anti-money laundering approaches of Australia or Ukraine are FATF, Asia/Pacific Group on Money Laundering (APG), MONEYVAL and International Narcotics and Law Enforcement Affairs (INCSR)” (Van der Zahn et al., 2007);

Theme 2: Major underlying theories and thinking

Point 2.1.              “Anti-money laundering regulation connotes laws specifically aimed at finance tainted by crime. This includes the criminalization of attempts to dispose or conceal (launder) the provenance of resources derived from, or otherwise linked to, criminal activity. It equally contemplates vast contemporary sets of rules that govern financial transactions – mandatory financial reporting regimes, record keeping requirements, prohibitions on anonymous bank accounts” (Gallant, 2010);

Point 2.2.              “Money laundering regulation emerged in the later part of the twentieth century as a strategy for dealing with the global trade in illegal drugs. It is based on the idea that criminal activity with significant financial underpinnings can better be tempered by the specific targeting of those underpinnings” (Gallant, 2014);

Point 2.3.              “The RBA [risk-based approach] recognizes that money laundering is different across delivery channels, products, jurisdictions and clientele and consequently allows the regulated entities to differentiate between its clientele to match risks in particular situations thereby enabling senior management to utilize its own approach to the firm’s compliance procedures including its systems and controls” (Yeoh, 2014);

Point 2.4.              “There is a relationship between corruption and money laundering in a way that corruption hinders the efficient working of anti-money laundering system” (Kemal, 2014);

Point 2.5.              “…criminals are not forced to launder all the criminal proceeds on a gross basis. They can choose amongst several alternatives: . Criminals can keep the money in anonymous form:….  . Criminals could avoid money laundering altogether by keeping the dirty money in the criminal world…..  . Criminals may use one of the oldest and most efficient payment mechanisms: bilateral or multilateral netting, with or without counterparty substitution” (Geiger and Wuensch, 2007);

Point 2.6.              “According to the official view, the money laundering prevention measures work along the following principle….: first, by depriving the criminals of their illicit assets, the expected revenue of a predicate criminal venture declines. Second, by imposing the necessity of laundering the assets, the transaction costs increase. Finally, the money laundering prevention efforts increase the probability of being detected and convicted” (Geiger and Wuensch, 2007);

Point 2.7.              “In Hong Kong, the gist of the prohibition against money laundering is based on the general prohibition against dealing with the proceeds of crime (the “dealing” offence)” (Kwok, 2008);

Point 2.8.              “Money laundering is reduced by proper record keeping, link analysis, peer group analysis, employee training and many other methods” (Kemal, 2014);

Point 2.9.              “The Financial Action Task Force (FATF) views money laundering as the processing of criminal proceeds to disguise their illegal origins thereby enabling criminals to enjoy these profits without jeopardizing their source” (Yeoh, 2014);

Point 2.10.         “The world of money laundering prevention, AML [anti-money laundering] regulation and rules can be depicted along three dimensions. (1) Criminal vs clean… (2) Sectors of the economy.… (3) Country-specific differences” (Geiger and Wuensch, 2007);

Point 2.11.         “To effectively prohibit money laundering, the legislative provision therefore has to be drafted in broad and wide terms to cover all present, as well as possible future, methods and techniques of money laundering” (Kwok, 2008);

Theme 3: Main research topics and issues

Point 3.1.              “Although ARSs [alternative remittance systems] have long been operating in different parts of the globe, the increased interest around them is quite recent” (Trautsolt and Johnsøn, 2012);

Point 3.2.              “Nardo …. analyzed legal and illegal money market and considers them of equal size, volume and relative importance and found that they are interconnected, and there is a small portion between them called semi-legal market” (Kemal, 2014);

Point 3.3.              “The concept of ARS [alternative remittance systems] is contested. ARSs are called, inter alia, informal remittance systems, informal value transfer systems, parallel banking, underground banking, and informal funds transfer (IFT) systems ….. These terms generally refer to financial services …outside the conventional, regulated financial institutional systems…” (Trautsolt and Johnsøn, 2012);

Point 3.4.              “There have also been arguments in favour of a “balloon effect”, a term that has been coined to describe the fact that whenever authorities hinder some laundering mechanisms, criminals respond in other forms” (Souto, 2013);

Point 3.5.              “Trade-based money laundering (TBML) has been identified as one of the newest and possibly most complex forms of money laundering to affect the banking, anti-money laundering (AML) compliance and regulatory sectors…  The rapid expansion of the global trade sector… along with increased technology has provided an ideal environment for money launderers to transport illegally gained money, either in cash or through goods, across the world” (Naheem, 2015);

Point 3.6.              “…the most anticipated consequence of regulation would be some reduction in profitable criminal activity. Attempts to determine the effects of the enterprise on the activity of money laundering or on the underlying crimes tend to be fraught with difficulties” (Gallant, 2014);

Point 3.7.              “Although the name TBML [Trade-based money laundering] includes the term “money laundering”, which implies cash transactions of some kind, in reality it focuses almost exclusively on the falsified use of documents and shipping information to transfer goods and services …, hence the term trade-based” (Naheem, 2015);

Point 3.8.              “In contrast to other regulatory areas such as capital adequacy or risk management, benefits and costs of AML [anti-money laundering] ventures are not considered” (Geiger and Wuensch, 2007);

Point 3.9.              “The threefold classification of money laundering into the placement, layering and integration phases … has been criticized for its simplicity, as it is entirely probable that instead of starting with a stash of cash, the process could well commence from within the banking system … as in the BCCI and other cases” (Yeoh, 2014);

Point 3.10.         “While public actors focus mainly on the detection and repression of money laundering, private actors – as gatekeepers of the international financial systems – devote their time and efforts to preventing and detecting suspicious transactions. In earlier contributions, we have called this combination of public and private energy the “AML complex”…” (Verhage, 2009);

Theme 4: Major trends and issues related to practices

Point 4.1.              “Compliance related tasks are supported by a number of tools, such as monitoring software, compliance procedures, or specific training for compliance officers that should enable them to recognise potential money laundering cases. These tools are provided by an entrepreneurial market built around the institutions that are required to fulfil these AML obligations, supplying services and instruments that may make the AML task less burdensome” (Verhage, 2009);

Point 4.2.              “The increasing use of new payment methods, such as transactions and movements of funds, resulted in an increase in the detection of cases of money laundering committed using telematic media … These new technologies are appealing to money launderers mainly because of the anonymity … provided, high marketability and usefulness of funds and global access to ATM network … To these factors one should add the problems of persecution …, which requires new investigation methods that can maintain the delicate balance between security and fundamental rights” (Souto, 2013);

Point 4.3.              “With the advancement in financial services and instruments provided by banks and other financial institutions which include insurance, credit cards, automated teller machine, etc., techniques that launderers use to launder money have also improved and diversified” (Kemal, 2014);

Point 4.4.              “ .. “black money” enters the UAE [United Arab Emirates] as a result of two main organised criminal activities: (1) illicit drugs; and (2) arms smuggling” (Belaisha and Brooks, 2014);

Point 4.5.              “…. lawyers will have to report any suspicious transactions. Among the suspicious transactions are large and frequent currency exchange, use of multiple deposit accounts and activity inconsistent with customer profile” (Shanmugam and Thanasegaran, 2008);

Point 4.6.              “….the proliferation of money laundering globally over the last ten years is partly due to the liberalisation of markets around the world and the deregulation of exchange controls. In combination, both have opened up many more channels for laundering dirty money and created more opportunities to hide its origins” (Shanmugam and Thanasegaran, 2008);

Point 4.7.              “…as anti-money laundering efforts in the formal sector increase the risk of detection logic dictates that more money will flow through the informal sector where the chances of inception are lower. Moreover, because the boundaries between the formal and informal value transfer systems are permeable it puts law enforcers at a disadvantage when money trails in informal systems are not easily investigated” (Trautsolt and Johnsøn, 2012);

Point 4.8.              “…the police needed to do more regarding the “policing” of money laundering. This was particularly the case when provided with overwhelming information from the banks that suspicious activity had occurred regarding an event” (Belaisha and Brooks, 2014);

Point 4.9.              “A comprehensive framework was put forth to identify the initiatives and strategies with which countries across the globe should comply, irrespective of the stage of development. Despite these efforts, the incidence of money laundering activities has gained momentum recently, more so in developing countries, resulting in mounting pressures to combat money laundering in these countries” (Vaithilingam and Nair, 2009);

Point 4.10.         “Anti-money laundering policies are ineffective in developing world because they are not implemented by the will of the nation but because of foreign pressures and, secondly, too many members create a mess in a way that meetings are not arranged timely, and all the issues and strategies are not discussed and evaluated properly” (Kemal, 2014);

Point 4.11.         “As the main goal of the launderer is to be ahead of enforcement agencies, particular processes of money laundering would not linger long, and this results in many difficulties for enforcement agencies, such as the Serious Organised Crime Agency, the destination of the UK banks’ Suspicious Activity Reports” (Yeoh, 2014);

Point 4.12.         “By treating actually legitimate clients and transactions as “doubtful” they are moved from the legitimate world to the grey one, with many consequences: . Many services and provisions of the legitimate world are not available any more to all economic subjects or only available at prohibitively high costs.  . The illegitimate world will be happy to offer these services, but to their conditions.  . This will firstly lead to an extension of the criminal world, and secondly to the secluding criminalisation of persons originally acting in the legitimate world….” (Geiger and Wuensch, 2007);

Point 4.13.         “In the aftermath of September 11, 2001, commonly referred to as 9/11, there have been tremendous efforts globally by individual governments to curtail money laundering activities. …the USA has been recently exerting subtle pressures on anti-money laundering (AML) initiatives” (Shanmugam and Thanasegaran, 2008);

Point 4.14.         “International attempts to address money laundering are often frustrated by the dynamism of the crime; different jurisdictions; corrupt police and judicial systems and organised crime …. and competing definitions” (Belaisha and Brooks, 2014);

Point 4.15.         “Malaysia has adopted “due diligence” or “banker negligence” laws that make individual bankers responsible if their institutions launder money. Failure to report any suspicious transaction to BNM [Malaysian Central Bank (Bank Negara Malaysia] is considered an offence under the AMLA [Malaysia’s Anti Money Laundering Act 2001]” (Shanmugam and Thanasegaran, 2008);

Point 4.16.         “Money laundering is a global phenomenon and a major obstacle in maintaining effective operating domestic and international financial systems … It, therefore, poses a significant problem to central banks as it damages the effective operations of national economies and promotes poor economic policies” (Van der Zahn et al., 2007);

Point 4.17.         “Primarily seen by FATF as a crime committed by organised crime and/or terrorism cells/organisations, money laundering became a politically sensitive issue. This is illustrated in the remit of FATF laid down in its 2008-2012 revised mandates to work to ensure that its 40 recommendations on money laundering and nine recommendations on terrorist financing are recognised around the world. Consequently, if a country has not reached a set standard and delivers ineffective compliance on anti-money laundering regulations, the FATF publicly shames such regimes, which are categorised as “high-risk jurisdictions” (Brooks, 2012);

Point 4.18.         “The creation of the trust has made it possible for money launderers to hide their identity by setting up a fund, so that it is shown that the trust company is seemingly the one performing the operations … Money launders can also utilize an NGO, association, foundation or non-profit organization to channel criminal assets by leveraging its tax-exempt, non-profit …, donations anonymity and greater laxity in controls due to charitable reasons” (Souto, 2013);

Point 4.19.         “The international financial institutions call for regulation and supervision of ARSs [alternative remittance systems] due to their susceptibility to money laundering, terrorist financing, and other criminal activities” (Trautsolt and Johnsøn, 2012);

Point 4.20.         “The problem of money laundering in the UAE [United Arab Emirates] is seen as more of an external rather than internal issue. The factor, presently, contributing to this is the political instability of the region. While the UAE has remained calm and settled, other neighbouring nations have experienced unrest and turmoil. In this context, those with legal and/or illegal funds seek a route to transfer money to a stable, and yet close-by, country that is easy to reach and travel to without the need for a visa” (Belaisha and Brooks, 2014);

Point 4.21.         “The UK’s AML legal framework is said to be rigorous in its application to the whole regulated sector covering independent legal professionals involved in financial and real property transactions, high value dealers and casinos, estate agents, trusts or company service providers, external accountant and tax advisers, auditors, insolvency practitioners and credit and financial institutions” (Yeoh, 2014);

Point 4.22.         “To be able to fulfil this AML obligation, Belgian banks are obliged by law to appoint “compliance officers”: bank employees who are expected to implement AML legislation and develop an integrity policy for the bank and its employees. These compliance officers have a position that can be compared to internal auditors: they are supposed to monitor their colleagues, clients and management with regard to the extent to which integrity-related issues are followed up throughout the bank” (Verhage, 2009);

Point 4.23.         “United Nations (UN) plays an important and active role to strengthen International cooperation and synchronization of laws and policies practiced globally for fighting money laundering and taking possession of criminal proceeds. Pakistan has signed and ratified four conventions given by UN to fight money laundering and for better implementing the FATF recommendations” (Kemal, 2014);

Point 4.24.         “The paucity of money laundering cases being successfully prosecuted when rules are routinely flouted by financial institutions suggests that the pertinent financial rules and regulations are largely treated by a lip service and box-ticking mentality towards compliance procedures. Regulators in turn are not effectively enforcing them because of undue attention on processes and the lack of adequate expertise” (Yeoh, 2014);

Point 4.25.         “When discussing with banks and other financial services providers about AML, they mainly emphasize on the implementation costs, which place a significant burden on the industry, especially on smaller market participants” (Geiger and Wuensch, 2007);

Each of the four themes has a set of associated points (i.e., idea, viewpoints, concepts and findings). Together they provide an organized way to comprehend the knowledge structure of the anti-money laundering (AML) topic. The bolded key words in the quotation reveal, based on the writer’s intellectual judgement, the key concepts examined in the AML literature. The referencing indicated on the points identified informs the readers where to find the academic articles to learn more about the details on these points. The process of conducting the thematic analysis is an exploratory as well as synthetic learning endeavour on the topic’s literature. Once the structure of the themes, sub-themes[1] and their associated points are finalized, the reviewer is in a position to move forward to step 2 of the MMBLR approach. The MMBLR approach step 2 finding, i.e., a companion mind map on AML, is presented in the next section.

Mind mapping-based literature review on AML: step 2 (mind mapping) output

By adopting the findings from the MMBLR approach step 1 on anti-money laundering (AML), the writer constructs a companion mind map shown as Figure 1.

Referring to the mind map on AML, the topic label is shown right at the centre of the map as a large blob. Four main branches are attached to it, corresponding to the four themes identified in the thematic analysis. The links and ending nodes with key phrases represent the points from the thematic analysis. The key phrases have also been bolded in the quotations provided in the thematic analysis. As a whole, the mind map renders an image of the knowledge structure on AML based on the thematic analysis findings. Constructing the mind map is part of the learning process on literature review. The mind mapping process is speedy and entertaining. The resultant mind map also serves as a useful presentation and teaching material. This mind mapping experience confirms the writer’s previous experience using on the MMBLR approach (Ho, 2016). Readers are also referred to the Literature on literature review Facebook page and the Literature on mind mapping Facebook page for additional information on these two topics.

Concluding remarks

The MMBLR approach to study AML provided here is mainly for its practice illustration as its procedures have been refined via a number of its employment on an array of topics (Ho, 2016). No major additional MMBLR steps nor notions have been introduced in this article. In this respect, the exercise reported here primarily offers some pedagogical value as well as some systematic and stimulated learning on anti-money laundering (AML) in Accounting and Finance. Nevertheless, the thematic findings and the image of the knowledge structure on AML in the form of a mind map should also be of academic value to those who research on this topic.

Bibliography

1.      Belaisha, B.B.  and G. Brooks. 2014. “Money laundering in Dubai: strategies and future directions” Journal of Money Laundering Control 17(3), Emerald: 343-354.

2.      Brooks, G. 2012. “Online gambling and money laundering; “views from the inside” Journal of Money Laundering Control 15(3), Emerald: 304-315.

3.      Gallant, M.M. 2010. “Promise and perils: the making of global money laundering, terrorist finance norms” Journal of Money Laundering Control 13(3), Emerald: 175-183.

4.      Gallant, M.M. 2014. “Money laundering consequences” Journal of Money Laundering Control 17(3), Emerald: 296-305.

5.      Geiger, H. and O. Wuensch. 2007. “The fight against money laundering: An economic analysis of a cost-benefit paradoxon” Journal of Money Laundering Control 10(1), Emerald: 91-105.

6.      Ho, J.K.K. 2016. Mind mapping for literature review – a ebook, Joseph KK Ho publication folder October 7 (url address: http://josephkkho.blogspot.hk/2016/10/mind-mapping-for-literature-review-ebook.html).

7.      Kemal, M.U. 2014. “Anti-money laundering regulations and its effectiveness” Journal of Money Laundering Control 17(4), Emerald: 416-427.

8.      Kwok, D.Y.K. 2008. “An overview of the anti-money laundering laws of Hong Kong” Journal of Money Laundering Control 11(4), Emerald: 345-357.

9.      Literature on literature review Facebook page, maintained by Joseph, K.K. Ho (url address: https://www.facebook.com/literature.literaturereview/).

10. Literature on mind mapping Facebook page, maintained by Joseph, K.K. Ho (url address: https://www.facebook.com/literature.mind.mapping/).

11. Literature on money laundering Facebook page, maintained by Joseph, K.K. Ho (url address: https://www.facebook.com/literature.money.laundering/).

12. Naheem, M.A. 2015. “Trade based money laundering: towards a working definition for the banking sector” Journal of Money Laundering Control 18(4), Emerald: 513-524.

13. Shanmugam, B. and H. Thanasegaran. 2008. “Combating money laundering in Malaysia” Journal of Money Laundering Control 11(4), Emerald: 331-344.

14. Souto, M.A. 2013. “Money laundering, new technologies, FATF and Spanish penal reform” Journal of Money Laundering Control 16(3), Emerald: 266-284.

15. Trautsolt, J. and J. Johnsøn. 2012. “International anti-money laundering regulation of alternative remittance systems” Journal of Money Laundering Control 15(4), Emerald: 407-420.

16. Vaithilingam, S. and M. Nair. 2009. “Mapping global money laundering trends: Lessons from the pace setters” Research in International Business and Finance 23, Elsevier: 18-30.

17. Van der Zahn, M., M.I. Makarenko, G. Tower, A.N. Kostyuk, D. Barako, Y. Chervoniaschaya, A.M. Brown and H. Kostyuk. 2007. “The anti-money laundering activities of the central banks of Australia and Ukraine” Journal of Money Laundering Control 10(1), Emerald: 116-133.

18. Verhage, A. 2009. “Supply and demand: anti-money laundering by the compliance industry” Journal of Money Laundering Control 12(4), Emerald: 371-391.

19. Yeoh, P. 2014. “Enhancing effectiveness of anti-money laundering laws through whistleblowing” Journal of Money Laundering Control 17(3), Emerald: 327-342.

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[1] There is no sub-theme generated in this analysis on AML.