Tag Archives: money laundering

Corruption Sanctions: What Do Governments Need to Know?

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GAB welcomes back Guest Blogger Anton Moiseienko, Associate Professor of Law at the Australian National University. Professor Moiseienko specializes in financial crime and economic sanctions, with particular expertise in global anti-money laundering and counter-terrorist financing (AML/CTF) regulation. He is the author of the 2025 volume Doing Business with Criminals considered an indispensable guide to the global AML/CTF system.

How to harness the promise of corruption sanctions while minimizing their unintended consequences is the issue at the heart of a recent report I wrote for the Basel Institute on Governance, a leading Swiss anti-corruption research center, entitled “Corruption Sanctions: What Governments Need to Know.” In this post, I will offer brief reflections based on its analysis.

The Evolution of Corruption Sanctions

It is useful to start by canvassing the history of corruption sanctions. Targeted sanctions are financial and travel restrictions imposed by governments against individuals or companies outside any judicial process. They emerged in the 1990s as a prominent response to various forms of alleged wrongdoing, including terrorist financing, nuclear proliferation and drug trafficking.

Prior to that, sanctions tended to take the form of comprehensive economic measures against entire countries, such as travel embargoes. By contrast, targeted sanctions enable governments to surgically focus on individuals and companies deemed to be involved in a particular form of malfeasance. Some targeted sanctions programs target affiliates of a rogue government – say Russia, North Korea or Iran – whereas others are “thematic” and therefore address a certain type of wrongdoing regardless of where it takes place in the world.

Corruption sanctions are a form of thematic sanctions. Their evolution began in the U.S. in the early 2000s. In 2004, President George W. Bush signed into law Proclamation 7750 that authorized confidential visa sanctions against corrupt foreign officials and their family members. From 2008 onwards, this sanctions program has been augmented by the sanctions provisions under section 7031(c) of the annual Consolidated Appropriations Acts, which provide for public visa bans. Finally, Congress adopted the Magnitsky Act in 2012 and the Global Magnitsky Act in 2016. Both grant the President the authority to impose financial and travel sanctions against those suspected of corruption and human rights abuse.

Other jurisdictions soon followed suit, including Canada, the UK, and Australia – but, curiously enough, not the EU. The EU legislated to introduce a human rights sanctions regime, but it stopped short of enacting a corruption sanctions program, despite the pledge to do so by the European Commission’s president Ursula von der Leyen. While one might be tempted to criticize the EU’s reticence, the real question is: why should governments consider introducing corruption sanctions, and how can they use them effectively?

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When the Victim Is a Gatekeeper: What Korea’s Cartoon-Money Embezzlement Exposed

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GAB welcomes this Guest Post by Marta Liduma, a corporate lawyer specializing in cross-border payment processing agreements. She is presently an LLB candidate at the University of Groningen and is writing in her personal capacity.

This January, a branch manager at a Saemaul Geumgo community credit cooperative in Gyeongju, South Korea, took about 70 million won (roughly US$50,000) from the branch vault. He covered the gap with play money: cartoon 50,000-won notes printed with ducks and bears, ordered online. The branch had two employees. He handled the vault himself, and he bet that nobody would open the bundles. A colleague eventually grew suspicious and reported him up the chain.

Photographs of the toy notes went around the world, and the coverage settled into the shape of an odd-news item: clumsy thief, silly props, tidy ending. The tidy ending deserves more scrutiny than the theft. For it shows a serious gap in the Republic of Korea’s anticorruption laws, one that other nations may share.

When the cooperative’s internal investigation confirmed what had happened, it dismissed the manager, recovered the money, and stopped there. The South Korean broadcaster SBS reported that the institution did not refer the matter to investigative authorities, and what it told its own federation, if anything, is not public; the police became involved only because the manager turned himself in about two weeks later, and he has since received a summary indictment, meaning the prosecution asked the court to impose a fine on the papers rather than send him to trial. Asked about the case months afterward, a cooperative official said it was closed, the employee’s dismissal and full repayment having settled the matter.

For most theft victims, that position is unobjectionable. Korean law, like the law of most nations, imposes no general duty to report a crime one has suffered, and a shopkeeper who quietly takes restitution from a light-fingered employee wrongs no one. A deposit-taking institution is a different kind of victim, because it is also a gatekeeper: an entity the law charges with guarding a system that extends beyond its own interests. Its losses are never only its own. An insider theft affects the members who own the cooperative, the depositors who trust it, the supervisor whose picture of the sector depends on accurate incident data, and the deterrent effect that evaporates once staff learn that looting the vault can be settled for the price of returning the money. An institution that stays silent to protect its reputation is deciding a question of public interest in its own favor. Reporting duties exist to take that decision away from it, and the serious ones contain no restitution exception.

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The Age of Digital National AML Risk Assessments Has Arrived

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GAB welcomes this post by John Chevis, a former member of the Australian Federal Police, former accountant, and current member of the Intelligent Systems for State and Societal Resilience Hub at the University of New South Wales. As John explains below, he and colleagues at South Wales have developed an AI tool for producing National Anti-Money Laundering Risk Assessments. They are looking for those interested either in using it to conduct an NRA or supporting its further development. John and team can be reached at  j.chevis@unsw.edu.au or johnchevis1@gmail.com

Using Artificial Intelligence to comply with the Financial Action Task Force’s directive to conduct a National Risk Assessment – an exercise to “identify, assess, and understand the money laundering and terrorist financing risks” member states face – would seem obvious.

Financial Intelligence Units collect thousands, in larger countries millions, of reports banks and financial institutions submit about possible money laundering by customers. But a database of what is variously termed Suspicious Transaction or Suspicious Matter or Suspicious Activity Reports is by no means the only source for determining the money laundering risks a nation is exposed to. Other databases with millions of potentially useful records include those on cash transactions, company ownership, land titles, court cases, police investigations, and Politically Exposed Persons. There are also media accounts and social media posts. All grist for an NRA mill.

That’s where AI in the form of Large Language Models comes in. An LLM can sort through massive, unstructured datasets to identify patterns, trends, and anomalies, extracting relationships that human analysts with the most advanced mathematic tools might take years to spot — if ever. When brought to bear on data available to an FIU, the resulting analysis will not only highlight vulnerabilities in the nation’s anti-money laundering regime but provide investigative leads for law enforcement. Precisely the objectives of a National Risk Assessment.

Despite the obvious value of turning an LLM loose on FIU data, our team at the University of New South Wales is, to our knowledge, the first to apply AI to producing an effective digital National Risk Assessment. Funded by the Australian Department of Foreign Affairs and built for the Papua New Guinea financial intelligence unit, it is called “Neon.” Here is how it works. 

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Guest Post: The Forgotten History of Anti-Money Laundering Law: Where Did It Go Wrong?

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Anton Moiseienko, Senior Lecturer and Research Director at the Australian National University Law School, introduces GAB readers to his new book on AML with the following observation —

The contemporary anti-money laundering (AML) regime effectively prevents criminal infiltration of the economy and delivers value for money. Said no one, ever.

Critiques of AML efforts abound among practitioners, policymakers and scholars alike. This near-universal lack of confidence in today’s financial crime rules is the starting point of my new book Doing Business with Criminals: Between Exclusion and Surveillance, which explores the objectives, unintended consequences, and history of the global AML regime.

The sheer degree of discontent with the existing framework begs the question of what went wrong. There has been no shortage of literature seeking to provide an explanation or proffer a solution. Seminal works include Peter Alldridge’s What Went Wrong with Money Laundering Law?(2016) and Nicholas Gilmour and Tristram Hicks’s The War on Dirty Money (2023). A valuable recent contribution is the article ‘How Well Does the Money Laundering Control System Work?’ by Mirko Nazzari and Peter Reuter, published in Crime and Justice and reviewed by Rick Messick on this blog.

These books and articles make varied and useful contributions, as do many other studies. Still, several further avenues need to be pursued to advance the debate on how to address the problem. They include revisiting the history of AML to understand why today’s widely criticised regime has evolved in the way it has – and, crucially, how that history has defined its current objectives.

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Are Money Laundering Laws of Any Value?

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Not really.  That’s the answer Mirko Nazzari and Peter Reuter provide at the conclusion to their comprehensive review of the evidence on the impact of the global AML scheme.

Nazzari, a postdoctoral research fellow in Political Science at the Università degli Studi di Sassari, and Reuter, a Distinguished University Professor in the School of Public Policy and Department of Criminology, University of Maryland, find no evidence antimoney laundering laws have deterred the laundering of the proceeds of crime. For one reason, the U.S. and other wealthy countries, which pushed the poorer nations of the world to follow them in enacting complex, expensive AML controls, have failed to implement critical elements of the control system themselves (inclusion of lawyers and real estate professionals in the U.S. for example). Another reason: banks, especially large, multinational ones, have failed to comply (flouted?) the laws and national regulators done little to see they do.

The one redeeming factor is the help AML regimes provide law enforcement agencies when making cases against those whose crimes generate huge sums of money. The authors summarize findings from the U.S. that show that the suspicious transaction reports banks, casinos, and other institutions must file frequently support investigations of drug traffickers, human smugglers and other criminals who launder large sums, providing additional details of their activities or corroborating evidence.

The 86-page article (here) appears in the journal Crime and Justice but unfortunately behind a paywall. It is likely to be made public shortly given the importance of the article to so many around the globe. In the meantime, the abstract and a few notable highlights are below.

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Why The FATF-Based Anti-Money Laundering System Fails to Catch the Proceeds of Corruption

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Today’s Guest Post is by Robert Barrington, Professor of Anti-Corruption Practice at the Centre for the Study of Corruption, University of Sussex (UK) and formerly the Chair of Transparency International’s International Council.

In recent years, anticorruption campaigners and policymakers have directed increased effort towards improving the global Anti-Money Laundering (AML) system.

Imagine this system were operating perfectly. Would it stop kleptocracy?

Of course not, no more than AML systems stop heroin production. AML laws and regulation are not designed to stop the acts that generate dirty funds; they are designed to stop the proceeds of crime from being disguised (laundered) and thus freely circulating around the world.

The more difficult question involves monies kleptocrats steal: if the global AML system were operating perfectly, would it stop these funds – the proceeds of corruption – from circulating around the world?

Two recent reports in the UK — from the Taskforce on Business Ethics and the Legal Profession and Spotlight on Corruption — answer the question with a resounding NO: when the proceeds of corruption derive from kleptocracy, when crooks have captured the state, the UK’s AML system is not capable of addressing these funds.  To be clear, even if the current global AML system were operating perfectly, the UK would be unable to deal with the proceeds of corruption arising from state capture.

To date the research is confined to the UK context and UK law; it has yet to extend to other jurisdictions. But given what is known about the globalised nature of illicit financial flows, we might conclude that other jurisdictions are no better at this than the UK.

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Why Is There No Zurichgrad? Protectionism in Swiss Real Estate

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Anonymous investments in foreign real estate markets have become a popular way to launder money and evade taxes. Opaque offshore structures now control a substantial share of high-end real estate in many major cities across the world. While the international sharing of financial data has made it harder to hide assets in offshore accounts, overseas property remains an easy target for illicit actors due to a lack of equivalent cross-border reporting. The city that has come to symbolize this problem is London—sometimes derisively referred to as “Londongrad” due to the extent to which Russian oligarchs own many of the city’s luxury homes.

Many might be surprised to learn that Switzerland, despite its longstanding reputation as a haven for illicit financial funds, has no major problem with money laundering in real estate. This is all the more surprising given that the Swiss property market would seem to be an exceptionally attractive target for dirty money in a number of ways. Swiss law affords extensive anonymity to individuals behind the corporate veil and does not require any licensing in the real estate sector. Furthermore, unlike many other countries, Switzerland still does not subject real estate agents, lawyers, or notaries – the key actors in property acquisition – to its anti-money laundering laws, as long as the property transaction in question does not involve a payment of more than the equivalent of about $110,000 in cash. At the same time, real estate prices in Switzerland are high and have risen dramatically in recent decades, especially in the cities and tourist areas. Illicit actors, who already roam financial centers such as Zurich, should thus have an easy time parking their assets in Swiss real estate. So why is there no “Zurichgrad”? Continue reading →

Pictures are Worth More than a Thousand Words: Especially in Financial Crime Cases

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That fount of all wisdom (the internet) attributes the saying that a picture is worth a 1,000 words to Napoleon (here). The self-crowned emperor was many things, but a harried anticorruption investigator or prosecutor trying to explain the links between a criminal’s wrongdoing and a corporation to a judge of less than genius caliber or a jury after the lunch break he was not. Had he ever been in such a situation, he would have realized he vastly understated a picture’s value.

The diagrams below show why. Created by Targeting Natural Resource Corruption, they explain to those responsible for enforcing laws against poaching, illegal logging, and other crimes against the earth’s resources how a corporation obscures the relationship between these crimes and those behind them. For those like me, with no visual imagination or skill whatsoever, they are a godsend. Because they are easily reproducible and not copyrighted. Thanks to Targeting Natural Resources for making them readily available.

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Cleaning up Corruption in Lebanon’s Central Bank

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Riad Salameh, the governor of Lebanon’s Central Bank (the Banque du Liban, or BdL), was once hailed as a “financial wizard” for his stewardship of the Lebanese banking system. But a flurry of recent investigations, led mainly by French and Swiss prosecutors, have implicated Salameh in a variety of corruption schemes. These investigations found, among other things, that Salameh illicitly moved over $300 million of public funds from the BdL into his brother’s company, Forry Associates, between 2002 and 2015 and that Salameh laundered millions in Europe through luxury real-estate purchases. And in March 2022, after Swiss prosecutors asked Lebanese authorities to carry out a separate investigation into embezzlement and money laundering by Salameh and his associates, a Lebanese district court judge charged Salameh and his brother with illegal enrichment and money laundering.

Though Salameh denies all allegations, many Lebanese citizens consider the accusations against him unsurprising. Indeed, if anything is surprising about the case against Salameh, it’s that he is being prosecuted in Lebanese courts. Government elites in Lebanon—including the BdL’s leaders—have long benefited from a culture of impunity. It is encouraging to see Lebanese prosecutors and courts taking steps to hold corrupt actors at the BdL accountable. But cleaning up the BdL, and ensuring that in the future cases like Salameh’s are detected early or prevented altogether, will also require more structural reforms to address the institutional and regulatory problems at the BdL that have enabled such corrupt practices. Three reforms to the BdL are especially important:

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The U.K. Must Legislate to Combat Money Laundering in Its Universities

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Parents from developing countries have long sought to provide their children with a world-class university education in wealthy Western countries, such as the US and the UK. There is nothing inherently wrong with this—indeed, universities ought to take pride in their ability to provide an elite education to talented young people from around the world. There is, however, a dark side. In 2021, media reports revealed that nearly fifty UK universities had accepted upwards of £52 million in direct cash payments for tuition and fees from students hailing from countries known to be “high risk” for money laundering—most notably the West African countries of Ghana and Nigeria. A Carnegie Endowment Report on this topic observed that although “[t]he overwhelming majority of West African students in the United Kingdom pose little or no corruption risk, … many West African [politically exposed persons (PEPs)] appear to be using unexplained wealth to pay for UK school and university fees.” Indeed, many of West Africa’s nouveau riche made their money through illicit channels, and they may view an elite UK education for their children as a way to launder their reputations as well as their wealth. As Matthew Page, the author of the Carnegie Report, explained, any university that accepts tuition and fee payments in cash—especially from PEPs in countries with high corruption risk—is essentially “putting out a welcome mat for the world’s kleptocrats and money launderers.”

Although most UK universities acknowledge that they have basic anti-money laundering (AML) responsibilities under Sections 327 and 329 of the 2002 Proceeds of Crime Act, universities are not clearly covered as “regulated entities” under the UK’s Money Laundering Regulations. And while some universities have responded to recent high-profile scandals and government warnings by adding basic AML provisions to their fee-collection and admissions policies, this is not the sort of problem that is likely to be solved through unilateral action on the part of universities. The incentives to turn a blind eye to the provenance of tuition and fees from international students—which many UK universities have come to rely on as a revenue stream—are simply too strong. (It’s worth noting here that international students typically pay more than three times the fees paid by students from the UK or the European Union, and many UK universities encourage advance cash payments by offering international students discounts of 20-30% if they can pay their fees in advance.) Solving this problem will therefore require the UK to amend its AML legislation to address the particular vulnerabilities in the university sector. Three such reforms would be particularly prudent: Continue reading →