USING ARTIFICIAL INTELLIGENCE TO EXPOSE MONEY LAUNDERING'S MOST ESOTERIC TECHNIQUES

Artificial intelligence-powered platforms can be employed to identify and interdict those money laundering techniques that have, to date, generally escaped detection. It's such an obscure money laundering method that the first time it appeared in a federal criminal case in the early 1990s, a lengthy introduction in the indictment was necessary to detail the scheme for the Court, in a case brought in District Court in New Jersey for activities that originated in the Port of Newark.  When I was first introduced to it, my source was working with Russian organized crime in the New York area, and traditional Mafia elements were also involved. It's called International Product Diversion.

Let's say that you are an American narcotics trafficker, or other type of transnational criminal, who has criminal profits located outside the United States. How do you repatriate these illicit funds, while at the same time, laundering them in the process so that you can invest them without fear of being discovered by law enforcement agencies or bank compliance officers monitoring large transactions? 

Inside information: managers of America's latest companies making food items at times overproduce their products, and since they sometimes are about to expire, making them worthless, they try to unload their goods, to at least recover their costs of production. 

(1) Some items are therefore donated to charities, or nonprofits in the United States, where tax deductions might be available foe the corporate entity.

(2) In an attempt to create new markets abroad, some manufacturers and distributors will sell at greatly reduced costs (stripping off advertising, profits, and other charges generally applied)  to foreign entities, especially those that are nonprofits, churches and charitable organizations. Coming from such legitimate entities, US-based compliance officers rarely question the payments, especially given the prominent Fortune 500 company sellers.

(3) Enterprising money launderers know about this practice, and set up front companies abroad, including bogus charities and nonprofits, and solicit US manufacturing entities for those excess products, which the companies are glad to sell, so they can at least obtain their basic costs.

(4) Here's where it gets interesting; the good are shipped abroad BUT they never arrive at their stated foreign destination, as they are quietly turned around and returned to America, where they do not pay duty as "Returned US Goods," under our Customs laws. Sometimes they never even leave American ports, but are illegally and covertly diverted elsewhere. (Those returned often violate our Customs laws, because the manufacturers can get tax breaks for exporting finished goods made with imported raw materials).

(5) Once in the hands of the bad actors, the goods can be relabeled, with the expiration dates changed, and they are then sold in the commercial market, at prices below the going rate. Whether consumers become ill from eating expired food is not their concern.

(6) Payments to the criminal element, from the buyers of the relabeled goods, coming from reputable supermarket chains, are clean funds which can now be invested without any concerns by the money launderers of being exposed as the proceeds of crime. 

To date, it has been nearly impossible for compliance officers to identify such transactions as being of criminal origin, due to the complexity of the scheme, the international scope of the method, and the fact that one would have to connect several seemingly unrelated events, and create a scenario that constitute a crime. Enter Artificial Intelligence programs, using machine learning, which can pair up these unconnected facts, and find similar prior acts among massive data, finally ending up with a conclusion supported by the facts weaved together into a recognizable scheme by the platform.

While this, and other esoteric money laundering schemes, have historically gone unnoticed by compliance officers, the advent of AI/ML changes the equation; They can now be found and interdicted. The challenge is securing universal adoption of this advanced technology, by the financial services community to stop these exotic money laundering methods cold,