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1. Introduction
Globally, the prevention of both money laundering and terrorism financing continues to dominate the activities of financial institutions’ compliance departments. Despite massive compliance efforts, neither phenomenon has yet been eliminated. This paper investigates recent trends in money laundering and terrorism financing. In particular, it focuses on how criminals circumvent the compliance procedures implemented by financial service providers. The aim is to provide both compliance officers and legislators with new perspectives, which should help them anticipate illicit behavior and, hence, more effectively combat financial crime.
The Financial Action Task Force (FATF), which coordinates global efforts against financial crime, has conducted extensive research on both money laundering and terrorism financing (Alexander, 2001, p. 231). However, most of this research relies upon information obtained from law enforcement and (financial) intelligence agencies but does not refer to the methods used by money launderers or terrorism financers, who have not been caught yet. This paper aims to add to the existing knowledge base by taking both criminals’ and prevention experts’ perspectives into account.
2. Literature review
2.1 Research gap
It is commonly acknowledged in the literature that both money laundering and terrorism financing continue to be huge global problems (Harvey, 2004, p. 339; Van Duyne, 1994, p. 62; Walker, 1999, p. 36). Efforts at fighting these activities have proven to be inadequate (Schneider, 2008, p. 309f.). However, while several studies have explored the scope of both money laundering and terrorism financing, as well as potential prevention mechanisms, relatively little is known about criminals’ concrete methods (Bagella et al., 2009. p. 896; Takáts, 2007, p. 4; Graber, 2009, p. 2; Schneider and Windischbauer, 2008, p. 394; Trechsel, 1997, p. 14). This study, therefore, aims to fill this significant research gap by investigating how exactly criminals launder money and finance terrorism.
2.2 Money laundering
The potential sources of income for money launderers are rather broad and include almost all types of serious crimes. At the same time, money laundering regulations have become more severe and tend to involve an increasing number of actors (Unger and Den Hertog, 2012, p. 287f.). Hence, the existing literature focuses on how money launderers transfer and hide their assets before integrating them into legal economy. Identified mechanisms for doing so include offshore vehicles, casinos,...