Hello everyone,

Consider a business inside the bounds a law, say a real-estate business (as opposed to a drug trafficking operation) makes $10M in annual revenue. About $6M of it comes in the form of bank-transfers, checks etc., which can be perfectly accounted for. Rest $4M comes in the form of cash which is not accounted for anywhere and is not part of the firm’s income statement. Based on its official accounts, the firm makes an earning before tax of $1M. The business ends up paying corporate tax for the $1M, and evades paying tax for the $4M worth profit. Now suppose the business wants to re-invest the $4M in its entirety into another real-estate project, it cannot be done so in the form of cash. So it uses a professional money laundering service which promises 90 cents on the dollar, and the business ends up getting $3.6M for its investment plan. It is not uncommon to see seemingly lawful businesses take part in unlawful activities such as tax evasion and money laundering, making the entire operation unlawful.

Now consider a mexican drug cartel that trafficks narcotics to the US. All of the cartel’s revenues is illicit in nature, and in the form of cash, generated in the US. For them to be able to use it, it must be laundered and therefore, cartels outsource it to professional money laundering services or have an in-house laundering operation given how central it is to their business. Here an illegal business earns illicit proceeds, which is washed and can be used for legitimate purposes (investments in real-estate, financial markets, open up/invest in private-equity firms etc.,). Mexican cartels have operations not just in the Americas but also in Europe (a typical transnational criminal business), and therefore cash revenue generated in multiple continents needs washing.

Now consider the infamous ISIS, in the 2010s trying to expand its control over Iraq and Syria. It gets some of its revenues from exploitation of local resources: Money seized from banks and the government, oil & natural resources, unlawful taxes on people. Another source is frm criminal activities lik extortion and kidnapping for ransom from wealthy individuals. These revenues are generally in the form of cash, and some possibly in bank-accounts. In order to be able to use these proceeds effectively (for war equipment, expanding territories, or parking it as investments), they would want to convert these into dollars, therefore certain money services are necessary in order to do that. Another main source of revenue are crowdfunding campaigns where wealthy individuals and organizations contribute their possibly hard-earned legal money to ISIS’ cause. They can also use Non-Profit Organizations through fraud humanitarian campaigns use them as a passage to fund terror. ISIS is seen to not just use these, but also use crypto-currencies and digital assets to send/park/receive funds to avoid getting traced, along with exploitation of Hawala networks (a legitimate parallel financial system) to transfer money. It is important to understand that at times the origin of the money is perfectly licit but they are used for illegal activity. In order to keep such an operation going, a number of money services, parallel financial systems like Hawala, using the usual financial system in countries where controls are low are all observed.

The first involves a legitimate business involving itself in unlawful financial conduct. The second is a criminal enterprise which wants to convert, preserve and deploy the proceeds of its illegal activities. The third is a terrorist organization raising, using and moving funds to finance its operations and other activities. Legal and illegal businesses commit financial crimes and other illicit financial activities to continue their operations and to sustain their enterprises. The signatures/markers of these financial crimes are illicit financial flows. In the broader literature, Illicit Financial Flows is defined as international/cross-border financial flows that are illegal or harmful because of their its origins, transfer methods or for the purposes it is used [1]. But simply increasing its scope and including all domestic and intertnational illicit financial flows would ensure a wide range of financial crimes like money laundering, tax evasion, fraud, corruption, terrorist financing, embezzlement are captured in its purview.

The field of financial intelligence sits at the center of all this. THe US Department of Treasury defines it in the following manner [2]:

Financial intelligence is the gathering of information about the financial affairs of entities of interest to understand their nature and capabilities, and predict their intentions. Generally, the term applies in the context of law enforcement and related activity.

The US Department of Treasury discusses of two ways Financial Intelligence can impact policy:

Economic Sanctions: Financial Intelligence helps governments identify individuals, organizations, businesses and financial networks that pose threats to national security and foreign policy objectives. This can help in enforcing economic and financial sanctions.
Stopping Terrorism & Financial Crimes: In here, FI can help authorities identify individuals and organizations involved suspicious financial activities, trace illicit funds, detect financial networks that facilitate criminal activities.

Actionable intelligence is gathered on sanction violations and on financial crimes.

1. What will ‘The Money Trail’ be about?

‘The Money Trail’ will be a fortnightly financial intelligence journal.

I have been interested in Financial Intelligence for some time now, after I got a taste of it working on certain cases of suspicious financial activity. I find this field highly technical and multi-faceted in nature. First are the case studies: Real cases of financial crimes and illicit activity committed by different entities. Second is the laws and the legal system that exist which are enforced to control it. Third is the actual financial intelligence work, which entails computational research, methods and processes setup by law enforcement agencies and financial institutions to identify and report illicity financial activity. Finally the work done by law enforcement agencies, international organizations like International Monetary Fund (IMF), United Nations Office of Drugs & Crime (UNODC) which study financial crimes at scale, study their nature and impact, all of which provides a general direction to the law enforcement agencies and financial institutions.

The journal is not designed just to give the latest financial crimes & intelligence news, it is a very small part of it. It is going to be a research-oriented journal which will contain deep-dives, reviews, experiments related to certain topics from the above.

2. A peek into ‘The Money Trail’

Until now, I have tried to keep the discussion generic without specific details. I would like to give the reader a taste of what ‘The Money Trail’ will look like. To do that, I will simple examples of the above listed four aspects of the field.

2.1 Wide Range of Money-Laundering Services

The US’ Financial Crimes Enforcement Network (FinCEN) [8] defines money laundering as:

Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. Through money laundering, the criminal transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.

Mexico is home to a number of powerful drug cartels, which traffick huge amounts of different narcotic substances to rest of the Americas, and Europe and other continents too. Most of the cartel’s earnings is in the form of cash (say the dollar ($) in the case of USA). Cartels need to wash this illicit/dirty money to be able to meaningfully use these earnings (to re-invest in cartel operations, enterprise expansion, investment in assets in different countries and other spends). Over the decades, cartels have had several means to wash/launder this illicit money. There have been multiple instances where the cartel has outsourced laundering of money. In 2012, it came to light that the HSBC Bank’s US and Mexico subsidiaries were involved in large-scale money laundering operations between 2001 and 2010 [3]. The method is simple: Money is earned in the form of cash by selling narcotic substances in the USA. The cash is smuggled from the USA to Mexico, and HSBC-Mexico allows large cash deposits into certain bank-accounts. This way, the money is in the system. This money is then transfered to HSBC-US which is then available for cartels for further use. The cartels have also used an interesting professional money laundering service (PML) infamously known as the Black Market Peso Exchange [4] for quite some time. This is a system based on the broader concept of Trade-Based Money Laundering (TBML) [5]. At the end of it, the cartels will have Columbian Pesos to readily use for their spends. In recent times, cartels have been using another PML, known as Chinese Money Laundering Networks (CMLNs) [6] which is a sophisticated system certain Chinese nationals inside the USA have created, resulting in usable dollars for their clients. In a very recent operation against the drug cartels in the north-east, close to $10.6M worth Hawala transactions were revealed to have been used for money/value transfer along with seizure of ~1500 bank-accounts and ~$2M worth assets [7].

2.2 Record Penalty on Bank of America

Last month (Oct-2026), a record penalty of $750M was imposed on the Bank of America by the Office of the Comptroller of the Currency (OCC [9]) for not having a competent Anti-Money Laundering program. BoA is assumed to have allowed close to $5 Billion worth suspicious spends to flow through its system, BoA is assumed to have allowed close to $5 Billion worth suspicious spends to flow through its system, along with $1B worth activity implicating national-security risk, transactions involving the Chinese Money Laundering Networks (CMLNs) and transactions related to potential Trade-Based Money Laundering [10]. It was found that BoA has had serious deficiencies in its AML program, was very lax in flagging supicious transactions and aiding it to a certain extent. Along with that, another penalty of ~$11M was imposed on BoA by the Office of Foreign Assets Control (OFAC [11]) for multiple apparent sanction violations.

The legal landscape on financial crimes in any nation is quite vast. There are a variety of laws, acts and codes that aim to tackle a specific problem in finanical crimes. The most discussed is the Bank Secrecy Act (BSA [12]) when it comes to Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT). This list by FinCEN [13] is a good list of Anti-Money Laundering (AML) laws in the US. Personally, I am more interested in the enforcement than the law itself. I plan to delve deeper into how the relevant law enforcement agencies (like FinCEN, OCC, OFAC in the US) detect and study suspicious behavior inside institutions.

2.3 AML programs & Computational Research

Every institution, especially financial institutions are obligated by law to maintain competent Anti-financial crimes programs. This includes having models, processes and systems to identify suspicious transactions and report to law enforcement in timely manner. On one side, there are standard KYC procedures, accounting practices, disclosure principles that are to be followed to be compliant. Along with that, firms are required to build teams and expertise to identify and deal with suspicious transactions and suspicious customers. This is a space of active research. There are simple rule-based approaches to traditional machine-learning based approaches to modern deep-learning approaches to identify anomalous/suspicious transactions [14, 15]. Nations are building systems/software that can be directly used by financial institutions. India’s Mulehunter.ai [16] is a good example of that. It is not an approach, but an end-to-end system that Indian financial institutions can install to identify and action on mule accounts.

2.4 Scale of money laundering in the world

It is actually an interesting problem to estimate the scale and size of financial-crimes in general, or money-laundering in particular. Law enforcement agencies along with international organizations like the IMF, United Nations Office on Drugs & Crime have tried to estimate this at a global level. One of the earliest and frequently stated estimate is the 1998 IMF range [17], which states that money worth 2%-5% of the global GDP is laundered each year. The UNODC estimate [18] about $1.6 Trillion was laundered in 2009, which is around 2.7% of the global GDP that year. The reports provide details of different segments. For example, money laundering today has become a service which different criminal businesses make use of. It could be drug trafficking, human trafficking, wildlife trafficking and other organized crimes, some being operated at a transnational scale and these reports give estimates based on these segments, details on how concentrated the activity is based on geographical location and so on.

These reports are very important because they provide a direction on where, what kind of activities are possbly happening, which can help in coming up with an action plan.

The above 4 sections are supposed to give the reader a sneak-peek into the kind of topics and content that will be present in the fortnightly edition. It will have deep-dives, literature reviews, case studies and so on.

3. Conclusion

With that, we come to the end of this introductory article of ‘The Money Trail’. Feel free to follow if you find this interesting.

Thank you for reading, see you in the next one.

Cheers!
Adwaith

The Money Trail - A Fortnightly Financial Intelligence Journal