Money Laundering, Terrorist Financing and Financial Crime
Friday, January 27, 2023
HOW I USED AMERICAN HAWALA SUCCESSFULLY, AND HOW EMPLOYING AI CAN SPOT IT
When most compliance officers think about Hawala, the alternative international funds transfer system that accomplishes its goals outside the traditional banking system, they generally envision a small businessman of South Asian origin, toiling in a small retail store somewhere, furtively accepting cash for transmission overseas, and reaching out to his cousin abroad, who will disburse the money paid here by the remitter. It is more or less off the books when it comes to a financial transaction that bank compliance officers, or even law enforcement investigators, can trace, period. How these two cousins settle up later does not relate back to the transactions, and usually the whole thing is total mystery.
As a career money launderer, I participated in what I choose here to call American Hawala. I had a number of clients who were narcotics traffickers; some were also international smugglers, whom you generally refer to as kingpins, others merely wholesalers and retailers of large quantities of narcotics in North America.
Some clients had earned drug profits that they now wanted to move abroad, hopefully without being caught in the act by law enforcement, while bulk cash smuggling. Others feared exposure by compliance if they employed wire transfers, on matter how cleverly they executed them. That's the First Problem.
One the other hand, another group of clients already had criminal profits in offshore financial centers in the Caribbean or Latin America, and needed some of it back here, to make certain covert cash investments, which would integrate their funds into businesses, giving them legitimate, cleaned up status. That's the Second Problem.
By matching up each client's needs, I performed a service to both. The client with offshore funds transferred ownership to the onshore client abroad. Remember our articles on Bearer Shares of a corporation? he simply passed over the share certificate to a corporation then holding that cash in an overseas account. The other client got the cash he needed for a domestic operation. No US banks were involved.
Simple ? Yes; impossible to trace? Until now, yes, but with the advent of platforms using advanced Artificial Intelligence, searches of remote data which previously was out of reach by compliance, as well as criminal investigators, can now be accessed in real-time. The onshore client's deals, even if totally covert, using third parties, leave bread crumbs that machine learning can not only find, but develop. Offshore client's tracks are no longer impossible to find, and tying the together, even if they only have one quick point of contact, can now be accomplished. Will AI take a bite out of financial crime.