This document summarizes models and trends related to money laundering. It discusses various models that can be used to measure and predict money laundering, including currency demand approaches, pricing approaches, MIMIC models, and applying Newton's law of gravitation. It also outlines typologies of money laundering including those related to securities, trade, counterfeit goods, sports clubs, child pornography, and government contracting. Specific estimates and predictive modeling techniques are discussed.

1. International Tax & Financial Services
Graduate Programs
19 years online - serving international financial
service professionals and government regulators
Prof. William H. Byrnes, IV
Assoc. Dean, Graduate & Distance Programs
Law & Economics Workshop

2. Two Topics
 Models
 Typologies & Trends

3. Part I: Survey of Models
 Currency Demand Approach
 Pricing Approach
 Multiple Indicators Multiple Solutions (MIMIC)
 Measurement of Crimes Model
 Newton’s Law of Gravity applied to ML

4. Research Part II: Predictive Model
 Neural Networkings
 Concept Mapping
 Evolutionary Programming (Generic
Algorithms)

5. Typologies & Trends Part I
 Securities
 Trade Based
 Counterfeit Trade
 Sports Clubs (and Equestrian)

6. Typologies & Trends Part II
 Child Pornography & Human Trafficking
 Government Contracting / Bribery / PEPs
 Internet Based Market Systems
– Amazon, E-Bay, Second-Life & World of Warcraft

7. Crime Specific Estimates
PROCEEDS OF CRIME ×
PERCENTAGE LAUNDERED
= MONEY LAUNDERED
NUMBER OF CRIMES ×
MONEY LAUNDERED PER RECORDED CRIME
= MONEY LAUNDERED

8. Measuring a Black Hole

9. MIMIC Model to Measure ML
y = aML + e (1)
ML= b’x + c (2)
Where y = effects and x = causes
ML= unobservable variable
CAUSES (X)
Crime / Bank
Secrecy
Effects (Y)
Demand for $
Growth Rates
Unobservable
Money Laundering
(ML)

10. Newton’s Law of Gravitation
Attractive Force Fij = G* Mi*Mj/(Dij) 2
Fij = the attractive force between objects i and j
Mi = mass of object i
Mj = Mass of object j
Dij = Distance between object i and object j
G = Gravitational constant

11. Tinbergen’s Formula
Fij = Rj * Mi*Mj / Dij θ
Rj has replaced the constant G from
Newton’s gravity formula.
Rj represents sets of alternatives for importers.
M represents economic mass (GDP)

12. Walker Model: Subjective Calibrations
per country & bi-lateral
Fij/Mi = Attractiveness j /Distance ij2
BS Bank Secrecy GA Govt Attitude CF Conflict CR Corrupt
Fij/Mi = (GNP/capita)j * (3BSj+GAj+SWIFTj-3CFj –CRj +15)/ Distance ij2
Rich Developed
Countries
$
Pakistan
(drugs)
Netherlands

13. Unger’s Calibrating Revisions
Attractiveness = (GDP/capita)*(3BS+GA+SWIFT+FD-3CF-CR-EG+10)
Distance
DIST = language+3*colonial background+3*trade+physical distance
BS = Bank Secrecy
GA= Govt Attitude
CF = Risk of Conflict
CR Corruption
EG – Egmont
FD = financial deposits for market size

14. Modified Walker (Unger)
P = proportion of money from X to Y

15. Walker Model: Results
bi-lateral
E14.5  NL + E4  E18.5 (5% NL GDP)
Antilles, Spain,
Turkey,
Colombia
Netherlands
USA, Russia,
Italy,
Germany, UK,
France

16. Topic 1: II – Predictive Modeling
•Neural Networks
•Concept Mapping
•Evolutionary Programming = Genetic Algorithms
http://amlsample.googlepages.com/Securities_and_Trade_ML.html

17. Topic II: I - Typologies
•Securities
•Trade Based
•Counterfeit Trade
•Sports Clubs (and Equestrian)

18. Topic II: I - Securities
If incidence of Opaqueness relative to Transparency; with
higher Liquidity is an indicator for Launderer, then
Securities
•GEM, AIM, B®IC
•Hedge Funds
•Audit firms, banks, law firms = $100B in tax losses = $T
alleged w/o business purpose and w/o risk, IMAGINE
what launders can do…

19. Topic II: I – Trade Based
Transfer Pricing
L.A. goods hP a USA
Dump (harm market price
& higher risk detection)
Smurf purchases to avoid
CTRs
Switzerland  USA $31B
Russia  USA $9B

20. Topic II: I – Counterfeit Trade
• 2% - 7% of World Trade $200B - $650B
• CF currency
• CF goods perceived by BRIC as less harmful than drugs
This weakness in perception can allow substantial $
flows from other crimes
(B movie industry)

21. Topic II: I - Equestrian
Equestrian > Hollywood
Economic Impact = $25B / $100B indirect
# of Americans Involved = 7.1 Million
# of Full-Time Jobs = 1.4 Million
# of Horses = 6.9 Million
Total Taxes Paid = $1.9 Billion

22. Topic 2: II - Trends
• Child Pornography & Human Trafficking
• Government Contracting / Bribery / PEPs
• Internet Based Market Systems
• Amazon & E-Bay
• Second-Life (Direct) & World of Warcraft (3rd Party)