Written by: Elaina Devenny
Edited by: Anisha Ratnam
Marwan Ahmed - Unsplash
Introduction
Before delving into the analysis of the question, it is important to outline what money laundering is and why it is a global issue today. Money laundering is essentially ‘disguising financial assets so they can be used without detection of the illegal activity that produced them’[1]. This plays a role in enabling crimes such as drug trafficking, as if left undetected they can cover the tracks of the source of funds. Furthermore, money laundering inevitably corrupts economic stability from within markets, in businesses generating national security issues. The Asia-Pacific especially faces this problem since it contains two of the top five global financial hubs- Singapore and Hong Kong [2]. This makes the Asia-Pacific region a danger zone for money laundering challenges. This article will explore these key challenges that economies like Hong Kong and Singapore face and how they can seek solutions to these challenges.
AML Laws
Prior to explaining the challenges of implementing anti-money laundering laws (AML) laws it is important to explain what the laws entail. AML laws are created by the Financial Action Task Force (FATF) which is ‘an international policy-making and standard-setting body dedicated to combating money laundering and terrorist financing’[3]. The FATF ensures financial systems are not exploited by money laundering crimes, and in doing so it helps countries maintain financial security and stability. It does this through creating systematic measures such as a ‘black list’ and ‘grey list’[4]. By categorising different countries in different lists that showcase whether they are endangered by crimes such as money laundering, FATF can implement different degrees of monitoring to help countries come up with resolutions. This is only one of the many ways FATF creates its AML global standards to ensure high levels of transparency and security in economies around the world. AML laws are implemented locally in various ways such as by the anti-money laundering authority (AMLA), anti-money laundering office (AMLO), and more. These laws fit individual economies uniquely, but they all achieve a common goal in preventing financial crime and regulating financial security.
Challenges with the implementation of AML laws
However, there are many challenges in following through with the AML laws due to complex political and social factors. Many nations have weak authority, consequently leading to poor enforcement of AML standards. For example, Cambodia in the Asia-Pacific faces serious problems in its government, ranking 158 out of 180 countries on the corruption perceptions index, which is the “leading global indicator of public sector corruption”[5]. Countries such as Cambodia which have high-levels of corruption among government officials ultimately weakens the enforcement of AML laws and its regulation in the long run. Another problem with regulation is that it is extremely difficult to monitor crime networks across regions, an example of this is the 'golden triangle’. This is the region bordering Thailand, Laos, and Myanmar, and with the region’s mountainous terrain along with a lack of alignment across different law enforcements, this allows cross-border crimes such as illegal financial activities to go undetected [6]. Furthermore, Cambodia is known for its casino industries, especially in places like Sihanoukville, which have been engaging in “large-scale money laundering” since the early 2010s as there are almost no restrictions [7]. This indicates that even though on the surface AML standards exist, the political nuances within different areas and regions make it difficult for the laws to have a practical and effective impact.
Another example is Singapore, one of the major financial hubs in the Asia-Pacific region. One of the most famous cases of money laundering is the $2bn dirty-money case that ‘rocked Singapore’, where the criminals laundered money through real estate and exploited Singapore’s financial system [8]. The criminals had invested in 152 properties as a method of money laundering as it is often difficult to investigate the primary source of funds in a real estate market. Furthermore, with Singapore being a global financial hotspot, there are high volumes of transactions daily, and as Kelvin Law says to the BBC: “the criminals can exploit this feature and disguise their money laundering activities among legitimate ones” [8]. The implementation of AML standards is extremely difficult in this case due to the nature of banking and transaction systems in Singapore. Moreover, another concern for Singapore to appear economically appealing to foreign investors is that they would not want to plant in extremely strict AML rules, but this also means criminals can more easily exploit the loose system making it extremely difficult to balance the image Singapore wants to build as a liberal economy.
Forward-looking solution
However, there could be ways to address the challenge of effectively implementing AML standards for countries in the Asia-Pacific region. Firstly, for countries like Cambodia where there is cross-regional financial crime, there needs to be regional cooperation and communication on how to better implement AML laws to close the gaps that authorities struggle to reach. This can be done through bodies like the Asia/Pacific Group (APG) which is an associate member of the FATF to provide closer monitoring of the effectiveness of regional enforcement of AML standards [9]. Furthermore, with the growth of technology, it can be helped to regulate financial transactions more effectively. Exemplified in Hong Kong’s ‘AI sandbox’ which provides institutions with a testing environment to test the effectiveness and safety of AI algorithms for cyber and fraud risk management, demonstrating the capabilities AI has to assist in this concern [10]. Furthermore, for countries like Singapore where real estate markets can be easily used as a money laundering system, it is clear that increased monitoring is needed and analysis into the primary source of funds in real estate and thus improved transparency in the market. Otherwise, it creates a complex web of financial crime that becomes extremely difficult to trace back to the source. Lastly, to answer the more difficult concern of how to create an environment where implementing AML policies doesn’t discourage foreign investors and business transactions in a financial hub like Singapore, regulatory bodies like FATF need to create new policies that potentially focus on tailoring different requirements upon different industries by looking at the level of financial risk involved in that specific industry, which can help countries like Singapore without implementing strict rules for all businesses. These are some examples of solutions for the challenges of implementing AML laws in the Asia-Pacific region, showing there is room for improvement and growth.
Conclusion
To conclude, AML laws are important in protecting economies in the Asia-Pacific from financial crimes like money laundering. So, although there are challenges that have been identified with implementing these laws, it is also evident that it is possible and necessary to look at how we can deal with these challenges through cooperation and more innovative solutions to fight money laundering crimes in the Asia-Pacific region.
REFERENCES
[1] ‘What is money laundering?’, Financial Crimes Enforcement Network, What is money laundering? | FinCEN.gov ,(Date accessed: 22/11/2024)
[2] Bajpai P, ‘The World’s Leading Financial Cities’, Investopedia, The World's Leading Financial Cities, (Date accessed: 22/11/2024)
[3] ‘Financial Action Task Force’, U.S DEPARTMENT OF THE TREASURY, https://home.treasury.gov/policy-issues/terrorism-and-illicit-finance/financial-action-task-force, (Date accessed: 22/11/2024)
[4] ‘Black and grey lists’, FATF, "Black and grey" lists, (Date accessed 22/11/2024)
[5] ‘OUR WORK IN CAMBODIA’, TRANSPARENCY INTERNATIONAL, Cambodia - Transparency.org , (Date accessed: 22/11/2024)
[6] ‘Golden Triangle’, Mountain Gurus, Golden Triangle | Mountain Gurus, (Date accessed: 22/11/2024)
[7] Podkul C, ‘Southeast Asian Casinos Emerge as Major Enablers of Global Cybercrime’, PROPUBLICA, Southeast Asian Casinos Emerge as Major Enablers of Global Cybercrime — ProPublica, (Date accessed: 22/11/2024)
[8] Ng K, ‘The $2bn dirty-money case that rocked Singapore’, BBC NEWS, The $2bn dirty-money case that rocked Singapore - BBC News, (Date accessed: 22/11/2024)
[9] ‘APG’S ASSOCIATE MEMBERSHIP IN THE FATF’, APG, Relationship to the FATF, (Date accessed: 22/11/2024)
[10] ‘HK sets up generative AI sandbox to encourage ‘responsible’ use among banks’, Global government FINTECH, Hong Kong sets up generative AI sandbox to encourage ‘responsible’ use among banks, (Date accessed: 22/11/2024)
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