Money Laundering: An infinite game of cat and mouse?

History shows that money laundering has long been in existence, although it has not always had a label. The earliest identified record dates back to China in 2000 BC. Chinese merchants would launder their profits by moving them outside of the country by making use of movable assets to hide profits from the Chinese government. Another early example comes from the high seas. Pirates in the seventeenth century were very adept at laundering their loot, and they had good reason to do so as most had a bounty on their head’s courtesy of the British Government. The game of cat and mouse had begun.

Having amassed a fortune of approximately US$30 billion Pablo Escobar is widely recognised as being the wealthiest criminal in history. He and other drug traffickers were the reason why money laundering became recognised as a criminal offence, as governments did not like the power and influence that come from the huge profits generated. All of a sudden Escobar and others had the ability to corrupt and control government officials now known as a Politically Exposed Persons (PEP), or Prominent Influential Persons (PIP). The US Government reacted to this and implemented legislation to deprive drug traffickers like Escobar, of their illicit gains. Soon after, there were similar reactions on the world stage. In 1989, the Financial Action Task Force (FATF) was established and in 1990 it released the first version of its 40 recommendations, which set the international standard for Anti-Money Laundering (AML) measures. One year later, the First EU Money Laundering Directive came into effect. This Europe-wide legislation established a due diligence framework for financial institutions across the continent. The cat had pounced and in doing so, gave money laundering a label it previously did not have.

Bitcoin was introduced in 2009, and since then it is estimated criminals have laundered over UD$2.5 billion using the digital currency. Unsurprisingly, unregulated exchanges with no Know Your Customer (KYC) procedures would attract criminals. The new provisions within the Fifth EU Money Laundering Directive aim to assist in addressing this risk. A relatively new target for money launderers is online gaming. According to Jean-Loup Richet, a research associate at the ESSEC Business School, role-playing games like World of Warcraft and Fortnite are targeted because they are not regulated and there are no clear obligations for game operators to follow. This makes it difficult for game operators to identify criminal activity which remains advantageous to a money launderer. The cat will need to think how it is going to pounce here, as it is being outwitted, for now.