1. Understand The Types Of Fraud To Help Protect Your Business Page 1
Understand The Types Of Fraud To Help
Protect Your Business
By Prof. Paul Allieu Kamara
Leadership Expert in Combating
Financial Crime
What is fraud?
A fraud is defined as a wrongful or criminal deception intended to result in financial or personal
gain. "He was convicted of fraud" a person or thing intended to deceive others, typically by
unjustifiably claiming or being credited with accomplishments or qualities.
What is Fraud Law?
In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a
legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid
the fraud or recover monetary compensation) or criminal law (e.g., a fraud perpetrator may be
prosecuted and imprisoned by governmental authorities), or it may cause no loss of money,
property, or legal right but still be an element of another civil or criminal wrong.
The purpose of fraud may be monetary gain or other benefits, for example by obtaining a
passport, travel document, or driver's license, or mortgage fraud, where the perpetrator may
attempt to qualify for a mortgage by way of false statements.
Terminology
Fraud can be defined as either a civil wrong or a criminal act. For civil fraud, a government
agency or person or entity harmed by fraud may bring litigation to stop the fraud, seek monetary
damages, or both. For criminal fraud, a person may be prosecuted for the fraud and potentially
face fines, incarceration, or both.
Civil law
In common law jurisdictions, as a civil wrong, fraud is a tort While the precise definitions and
requirements of proof vary among jurisdictions, the requisite elements of fraud as a tort generally
are the intentional misrepresentation or concealment of an important fact upon which the victim

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is meant to rely, and in fact does rely, to the harm of the victim. Proving fraud in a court of law
is often said to be difficult as the intention to defraud is the key element in question. As such,
proving fraud comes with a "greater evidentiary burden than other civil claims". This difficulty is
exacerbated by the fact that some jurisdictions require the victim to prove fraud by clear and
convincing evidence.
The remedies for fraud may include rescission (i.e., reversal) of a fraudulently obtained
agreement or transaction, the recovery of a monetary award to compensate for the harm caused,
punitive damages to punish or deter the misconduct, and possibly others.
In cases of a fraudulently induced contract, fraud may serve as a defense in a civil action for
breach of contract or specific performance of contract. Similarly, fraud may serve as a basis for a
court to invoke its equitable jurisdiction.
Criminal law
In common law jurisdictions, as a criminal offense, fraud takes many different forms, some
general (e.g., theft by false pretense) and some specific to particular categories of victims or
misconduct (e.g., bank fraud, insurance fraud, forgery). The elements of fraud as a crime
similarly vary. The requisite elements of perhaps the most general form of criminal fraud, theft
by false pretense, are the intentional deception of a victim by false representation or pretense
with the intent of persuading the victim to part with property and with the victim parting with
property in reliance on the representation or pretense and with the perpetrator intending to keep
the property from the victim.
Types of fraud
An advertisement for possibly fraudulent "work-at-home scheme"
The falsification, of documents, known as forgery, and counterfeiting are types of fraud
involved in physical duplication or fabrication. The "theft" of one's personal information or
identity, like one finding out another's social security number and then using it as identification,
is a type of fraud. Fraud can be committed through and across many media including mail, wire,
phone, and the Internet (computer crime and Internet fraud).
Given the international nature of the web and ease with which users can hide their location,
obstacles to checking identity and legitimacy online, and the variety of hacker techniques
available to gain access to PII have all contributed to the very rapid growth of Internet fraud.[8]
In some countries, tax fraud is also prosecuted under false billing or tax forgery. There have also
been fraudulent "discoveries", e.g., science, where the appetite is for prestige rather than
immediate monetary gain.
A hoax is a distinct concept that involves deliberate deception without the intention of gain or of
materially damaging or depriving a victim.

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Internal fraud
Internal fraud, also known as "insider fraud", is fraud committed or attempted by someone within
an organization such as an employee.
Commodities fraud
The illegal act of obtaining (or the attempt of obtaining) a certain amount of currency in
accordance with a contract that promises the later exchange of equated assets, which ultimately
never arrive, is a type of fraud, known as commodities fraud. Alternatively, the term can relate
to: the failure of registering in an exchange; the act of deliberately providing falsified
information to clients; the action of executing transactions with the sole purpose of making a
profit for the payee; the theft of client funds. (Better source needed)
Detection
A fraudulent manufacturer's suggested retail price on a speaker
Further information: Data analysis techniques for fraud detection
The detection of fraudulent activities on a large scale is possible with the harvesting of massive
amounts of financial data paired with predictive analytics or forensic analytics, the use of
electronic data to reconstruct or detect financial fraud.
Using computer-based analytic methods in particular allows for surfacing of errors, anomalies,
inefficiencies, irregularities, and biases which often refer to fraudsters gravitating to certain
dollar amounts to get past internal control thresholds. These high-level tests include tests related
to Ben-ford's Law and possibly also those statistics known as descriptive statistics. High-level
tests are always followed by more focused tests to look for small samples of highly irregular
transactions. The familiar methods of correlation and time-series analysis can also be used to
detect fraud and other irregularities.
Cost
Participants of a 2010 survey by the Association of Certified Fraud Examiners estimated that the
typical organization loses five percent of its annual revenue to fraud, with a median loss of
$160,000. Fraud committed by owners and executives were more than nine times as costly as
employee fraud. The industries most commonly affected are banking, manufacturing, and
government.

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By region
Asia
China
In China, according to the Criminal Law of the People's Republic of China, the Crime of Fraud
refers to the "criminal act of deceiving and obtaining public or private property.
According to Article 266 of the Criminal Law:
Those who commit fraud involving a "relatively large amount" of public or private property shall
be sentenced to fixed-term imprisonment of not more than three years, criminal detention, or
injunction control with community correction, and may additionally or solely be fined.
If the amount involved is "large" or there are other serious circumstances, the offender shall be
sentenced to fixed-term imprisonment of not less than three years but not more than ten years
and shall also be fined.
If the amount involved is "particularly large" or there are other particularly serious
circumstances, the offender shall be sentenced to fixed-term imprisonment of over ten years or
life imprisonment and shall also be fined or have their property confiscated.
According to the "Interpretation on Several Issues Concerning the Specific Application of the
Law in Handling Criminal Cases of Fraud" issued by the Supreme People's Court and the
Supreme People's Procuratorate in 2011, for cases of fraud involving public or private property
with a value ranging from 3,000 yuan to 30,000 yuan, from 30,000 yuan to 500,000 yuan, and
over 500,000 yuan, they should be respectively deemed as "relatively large amount," "large
amount," and "particularly large amount" as stipulated in Article 266 of the Criminal Law.
India
In India the criminal laws are enshrined in the Indian Penal Code. It is supplemented by the
Criminal Procedure Code and Indian Evidence Act.
Europe
United Kingdom
In 2016 the estimated value lost through fraud in the UK was £193 billion a year.
In January 2018 the Financial Times reported that the value of UK fraud hit a 15-year high of
£2.11bn in 2017, according to a study. The article said that the accountancy firm BDO examined
reported fraud cases worth more than £50,000 and found that the total number rose to 577 in
2017, compared with 212 in 2003. The study found that the average amount stolen in each
incident rose to £3.66m, up from £1.5m in 2003.
As at November 2017, fraud is the most common criminal offence in the UK according to a
study by Crowe Clark White-hill, Experian and the Centre for Counter Fraud Studies. The study
suggests the UK loses over £190 billion per year to fraud. £190 billion is more than 9% of the

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UK's projected GDP for 2017 ($2,496 (£2,080) billion according to Statistics Times.[citation
needed]) The estimate for fraud in the UK figure is more than the entire GDP of countries such
as Romania, Qatar and Hungary.
According to another review by the UK anti-fraud charity Fraud Advisory Panel (FAP), business
fraud accounted for £144bn, while fraud against individuals was estimated at £9.7bn. The FAP
has been particularly critical of the support available from the police to victims of fraud in the
UK outside of London. Although victims of fraud are generally referred to the UK's national
fraud and cybercrime reporting centre, Action Fraud, the FAP found that there was "little
chance" that these crime reports would be followed up with any kind of substantive law
enforcement action by UK authorities, according to the report.
In July 2016, it was reported that fraudulent activity levels in the UK increased in the 10 years
leading up to 2016 from £52 billion to £193 bn. This figure would be a conservative estimate,
since as the former commissioner of the City of London Police, Adrian Leppard, has said; only 1
in 12 such crimes are actually reported. Donald Toon, director of the NCA's economic crime
command, stated in July 2016: "The annual losses to the UK from fraud are estimated to be more
than £190bn". Figures released in October 2015 from the Crime Survey of England and Wales
found that there had been 5.1 million incidents of fraud in England and Wales in the previous
year, affecting an estimated one in 12 adults and making it the most common form of crime.
Also in July 2016, the Office for National Statistics (ONS) stated "Almost six million fraud and
cybercrimes were committed last year in England and Wales and estimated there were two
million computer misuse offences and 3.8 million fraud offences in the 12 months to the end of
March 2016." Fraud affects one in ten people in the UK. According to the ONS, most fraud
relates to bank account fraud. These figures are separate from the headline estimate that another
6.3 million crimes (distinct from fraud) were perpetrated in the UK against adults in the year to
March 2016.
Fraud was not included in a "Crime Harm Index" published by the Office for National Statistics
in 2016. Michael Levi, professor of criminology at Cardiff University, remarked in August 2016
that it was "deeply regrettable" that fraud was being left out of the first index despite being the
most common crime reported to police in the UK. Levi said "If you've got some categories that
are excluded, they are automatically left out of the police's priorities."[Citation needed] The
Chief of the National Audit Office (NAO), Sir Anyas Morse has also said "For too long, as a
low-value but high-volume crime, online fraud has been overlooked by government, law
enforcement and industry. It is now the most commonly experienced crime in England and
Wales and demands an urgent response."
HM Treasury issued guidance to central government departments in January 2011 concerned
with "Tackling Internal Fraud", concerned that economic pressures and potential staff
redundancies at the time might lead those staff who "might be tempted" to commit fraud to make
more of any opportunity which might arise, noting a possible shift in the balance between "the
reward from fraud" and the risk of detection. An aspect of the guidance was to equip staff to look
out for "fraud indicators": clues or hints that an individual member of staff, team or area of
activity might need "a closer look". :Section 4.16

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In 2022, the television program Scam Interceptors revealed that the majority of fraud in the
United Kingdom was perpetrated from industrial-scale scamming call centres in Asia.
England, Wales, and Northern Ireland
Since 2007, fraud in England and Wales and Northern Ireland has been covered by the Fraud Act
2006. The Act was given Royal Assent on 8 November 2006, and came into effect on 15 January
2007.
The Act gives a statutory definition of the criminal offence of fraud, defining it in three classes—
fraud by false representation, fraud by failing to disclose information, and fraud by abuse of
position. It provides that a person found guilty of fraud is liable to a fine or imprisonment for up
to twelve months on summary conviction (six months in Northern Ireland), or a fine or
imprisonment for up to ten years on conviction on indictment. This Act largely replaces the laws
relating to obtaining property by deception, obtaining a pecuniary advantage and other offences
that were created under the Theft Act 1978.
Serious Fraud Office
Main articles: Serious Fraud Office (United Kingdom) and Cifas
The Serious Fraud Office is an arm of the Government of the United Kingdom, accountable to
the Attorney-General.
The National Fraud Authority (NFA) was, until 2014, a government agency coordinating the
counter-fraud response in the UK.
Cifas is a British fraud prevention service, a not-for-profit membership organization for all
sectors that enables organizations to share and access fraud data using their databases. Cifas is
dedicated to the prevention of fraud, including internal fraud by staff, and the identification of
financial and related crime.
Scotland
In Scots law, fraud is covered under the common law and a number of statutory offences. The
main fraud offences are common law fraud, uttering, embezzlement, and statutory fraud. The
Fraud Act 2006 does not apply in Scotland.
North America
Canada
Section 380(1) of the Criminal Code provides the general definition for fraud in Canada:
380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a
false presence within the meaning of this Act, defrauds the public or any person, whether
ascertained or not, of any property, money or valuable security or any service,

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(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen
years, where the subject-matter of the offence is a testamentary instrument or the value of the
subject-matter of the offence exceeds five thousand dollars; or
(b) is guilty
(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or
(ii) of an offence punishable on summary conviction, where the value of the subject-matter of the
offence does not exceed five thousand dollars.
In addition to the penalties outlined above, the court can also issue a prohibition order under s.
380.2 (preventing a person from "seeking, obtaining or continuing any employment, or becoming
or being a volunteer in any capacity that involves having authority over the real property, money
or valuable security of another person"). It can also make a restitution order under s. 380.3.
The Canadian courts have held that the offence consists of two distinct elements:
A prohibited act of deceit, falsehood or other fraudulent means. In the absence of deceit or
falsehood, the courts will look objectively for a "dishonest act"; and
The deprivation must be caused by the prohibited act, and deprivation must relate to property,
money, valuable security, or any service.
The Supreme Court of Canada has held that deprivation is satisfied on proof of detriment,
prejudice or risk of prejudice; it is not essential that there be actual loss. Deprivation of
confidential information, in the nature of a trade secret or copyrighted material that has
commercial value, has also been held to fall within the scope of the offence.
United States
See also: United States free speech exceptions
Criminal fraud
The proof requirements for criminal fraud charges in the United States are essentially the same
as the requirements for other crimes: guilt must be proved beyond a reasonable doubt.
Throughout the United States fraud charges can be misdemeanors or felonies depending on the
amount of loss involved. High value fraud can also trigger additional penalties. For example, in
California, losses of $500,000 or more will result in an extra two, three, or five years in prison in
addition to the regular penalty for the fraud.
The U.S. government's 2006 fraud review concluded that fraud is a significantly under-reported
crime, and while various agencies and organizations were attempting to tackle the issue, greater
co-operation was needed to achieve a real impact in the public sector.[37] The scale of the
problem pointed to the need for a small but high-powered body to bring together the numerous
counter-fraud initiatives that existed.
Civil fraud
Although elements may vary by jurisdiction and the specific allegations made by a plaintiff who
files a lawsuit that alleged fraud, typical elements of a fraud case in the United States are that:

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Somebody misrepresents a material fact in order to obtain action or forbearance by another
person;
The other person relies upon the misrepresentation; and
The other person suffers injury as a result of the act or forbearance taken in reliance upon the
misrepresentation.
To establish a civil claim of fraud, most jurisdictions in the United States require that each
element of a fraud claim be pleaded with particularity and be proved by a preponderance of the
evidence, meaning that it is more likely than not that the fraud occurred. Some jurisdictions
impose a higher evidentiary standard, such as Washington State's requirement that the elements
of fraud be proved with clear, cogent, and convincing evidence (very probable evidence),[39] or
Pennsylvania's requirement that common law fraud be proved by clear and convincing evidence.
The measure of damages in fraud cases is normally computed using one of two rules:
The "benefit of bargain" rule, which allows for recovery of damages in the amount of the
difference between the value of the property had it been as represented and its actual value;
Out-of-pocket loss, which allows for the recovery of damages in the amount of the difference
between the values of what was given and the value of what was received.
Special damages may be allowed if shown to have been proximately caused by defendant's fraud
and the damage amounts are proved with specificity.
Some jurisdictions may permit a plaintiff in a fraud case to seek punitive or exemplary damages.
Anti-fraud provisioning
Beyond legislation directed at preventing or punishing fraud, some governmental and non-
governmental organizations engage in anti-fraud efforts.
Between 1911 and 1933, 47 states adopted the so-called Blue Sky Laws status. These laws were
enacted and enforced at the state level and regulated the offering and sale of securities to protect
the public from fraud. Though the specific provisions of these laws varied among states, they all
required the registration of all securities offerings and sales, as well as of every U.S. stockbroker
and brokerage firm. However, these Blue Sky laws were generally found to be ineffective.
To increase public trust in the capital markets the President of the United States, Franklin D.
Roosevelt, established the U.S. Securities and Exchange Commission (SEC). The main reason
for the creation of the SEC was to regulate the stock market and prevent corporate abuses
relating to the offering and sale of securities and corporate reporting. The SEC was given the
power to license and regulate stock exchanges, the companies whose securities traded on them,
and the brokers and dealers who conducted the trading.

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Types of fraud. Essentially, fraud is any financial losses to the company caused by the
dishonesty of employees, suppliers, or customers. However, it can take some different forms.
Running a business is difficult enough when everything goes well. When you’re an entrepreneur,
however, the unexpected happens. You must prepare for every possible scenario, including
fraud.
Types Of Fraud
Business fraud is more common than you might think. It is critical that you understand how to
avoid and deal with fraud if it occurs.
According to the Association of Certified Fraud Examiners, small businesses with fewer than
100 employees suffer a median loss of $154,000 due to fraud (ACFE). This figure is higher for
small businesses than for most large corporations. Employees and customers are just two
examples of people who may exploit your small business. Recognize the various types of
business fraud and learn how to protect yourself.
Ponzi Schemes
A Ponzi scheme is a fraudulent investment scam that gives the appearance of paying its investors
profit, for example, at a set percentage each month. In reality, the returns paid to investors come
from their own money or subsequent investors’ money in the scheme. A Ponzi scheme
frequently offers investors a high rate of reward to entice them into the scheme, meaning that the
scam can continue for a long period due to investors’ willingness to invest significant capital
sums on the false assumption that they are receiving high levels of return.
Corporate Fraud
Many types of fraud can be committed in a corporate environment, both at the employee and
boardroom levels. These include market abuse or insider trading, falsification of accounts, use of
confidential information and trade secrets for personal gain, procurement fraud, false expenses
claims, payroll fraud, and extraction fraud via false invoicing.
Mortgage / Property Fraud
Any mortgage obtained by providing false information, whether as to the value of the property or
the value or source of a deposit, means that it will have been obtained fraudulently. The
evolution of technology and the ability to process applications online with little face-to-face

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contact is one of the reasons the number of fraudulent loan applications has increased. Property
fraud can arise in other contexts too.
Money Laundering
Money Laundering is the process by which criminally-obtained money is converted to make it
appear as if it were obtained legitimately. Money laundering in legal terms is any dealings with
the proceeds of crime, so fraud and money laundering will often go hand in hand. We discussed
money laundering in detail earlier in this course.
IP Infringement
Business’ Intellectual Property rights, particularly its name, are perhaps the most important asset
a business owns since they encompass its entire identity. However, the definition of IP is
extremely wide, including much more than the name of the business, extending to its copyright,
designs, patents, and trademarks. IP Infringement occurs where it is suspected that information is
either used under pretense or information has been taken to sell it back to the business.
Phishing
Phishing involves the use of email or pop-up messages that appear to be from an organization,
for example, a bank, asking a customer for information concerning their account, such as
requiring them to confirm, update or validate their details. The email may direct a customer to an
artificial site, which will look like a legitimate site of the organization that the fraudulent
email was supposedly sent from. The fraud takes place on the back of the information supplied.
Final Thoughts
Fraud is defined as any deceptive activity carried out by an individual with the intent of
obtaining something through illegal means. Deception is a key term in fraud, in which the
perpetrator leads their victim to believe an untruth in order to obtain a benefit or value.
The real estate industry, specifically in selling and buying, as well as falsifying documents such
as taxes and medical insurance claims, is the most common place where fraud occurs. Fraud is
not uncommon and is frequently committed by individuals, organizations, and even businesses.

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The Anti-Bribery And Corruption Compliance Officer’s Annual Report
The anti-bribery and corruption compliance officer’s annual report. The independent monitoring
and review procedures and processes adopted by the ABC officer must be standardized, uniform,
relevant, and consistent with the enterprise-wide bribery and corruption risks management
practices. Such monitoring and review procedures enable systemically aggregating the data and
information to identify any patterns, themes, or trends of bribery and corruption that may
indicate the overall weaknesses in the internal control system. ABC officer performs reviews and
investigations and verifies the key information obtained and used as evidence.
The Anti-Bribery And Corruption
The Anti-Bribery And Corruption Compliance Officer’s Annual Report
In addition to periodic bribery and corruption risk assessment conducted by ABC officer, the
ABC officer carries out the independent regulatory compliance reviews, based on a relevant
sample, of material and high-risk activities of the organization, where non-compliance of anti-
bribery and corruption risks may have serious regulatory implications on the organization’s
reputation, strategy, financial stability and standing in the sector.
The ABC officer reviews must, at a minimum, cover the areas like the awareness of anti-bribery
and corruption regulatory requirements, and adequacy of compliance controls, with the actions
required to fulfill the identified internal controls gaps.
The ABC officer decides the areas, processes, and frequency of regular compliance risk reports
to line managers and senior management. Based on anti-bribery and corruption reports, the ABC
officer must report to the anti-bribery committee and the board on the observations and findings
with appropriate analyses of bribery and corruption risks in the organization.
These reports should be in a manner and formats that allow the committee and the board to
clearly understand the regulatory compliance risks to which the organization is exposed and the
adequacy of internal controls to manage the bribery and corruption risks. These reports must
facilitate the board’s performance of its oversight responsibilities for managing the bribery and
corruption-related risks. The board must review and determine the type, content, and frequency
of anti-bribery and corruption reports to receive the necessary data points and information
required to perform the supervisory role.
The anti-bribery and corruption reports, at minimum, must include:
The results of the anti-bribery and corruption compliance risk assessments, including the
monitoring and review of internal controls, and highlighting significant changes in the bribery
and corruption risk profile of the organization;
A summary of bribery and corruption-related incidents identified through the internal
compliance reviews by ABC officer, internal audit department, external regulatory examinations

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and as reported by various functions and departments, and the deficiencies noted in the
management of bribery and corruption risks;
An assessment of the financial and non-financial impacts of bribery and corruption incidents on
the organization, including the penalties imposed by the regulators or any other relevant
enforcement authority;
Bribery and corruption issues identified in any department of the organization and/or any
member of the senior management and the status of associated investigations being taken;
An update on the changing regulatory requirements related to anti-bribery and corruption for the
organization and the plans to manage related compliance risks and issues through appropriate
additional policies or procedures.
Recommendations of corrective actions to address the bribery and corruption incidents, including
the disciplinary actions;
A record of corrective measures taken and an assessment of the adequacy and effectiveness of
internal control measures;
Insights and observations regarding the compliance culture to manage the bribery and corruption
risks that exist in the organization or in any specific department or process of the organization
that may give rise to the risk of regulatory non-compliance.
Final Thoughts
Bribery and corruption are not only against our company values; they are also illegal and can
result in fines and penalties, including imprisonment and reputational damage, for both the
employee and the company.
Bribery is never tolerated at Principal. We will not seek to influence others, either directly or
indirectly, by offering, paying, or receiving bribes or kickbacks, or by using any other method
that is unethical, illegal, or detrimental to our reputation for honesty and integrity. Employees
and company representatives are expected to decline any opportunity that would jeopardize our
ethical principles and reputation. While some laws only apply to bribes paid to government
officials (both domestic and foreign), this policy also applies to non-government business
partners.

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The Stages of Cryptocurrency Laundering: A Comprehensive Overview of the Stages of
Cryptolaundering
Cryptocurrency laundering is a growing concern as more people turn to digital currencies for
their financial transactions. Criminals often use cryptocurrencies like Bitcoin and Ethereum to
launder money, making it difficult for law enforcement to track and trace their activities.
Understanding the different stages of cryptocurrency laundering is essential to combat this
growing problem.
There is no specific or single methodology for money laundering, and, as in many other subject
areas, a theoretical model was built to conceptually cover as many money laundering
methodologies as possible.
In the case of money laundering, this model was derived from money laundering methodologies
that have been uncovered by law enforcement and government authorities. In practice, and
despite the variety of methods employed, the laundering process is accomplished in three basic
stages that this model comprises. These steps can be taken at the same time in the course of a
single transaction, but they can also appear in well-separable forms one by one as well. These
three stages are placement, integration, and layering. The same concepts that apply to money
laundering using cash apply to money laundering using cryptocurrencies.
Cryptocurrency Laundering
The Stages of Cryptocurrency Laundering
The first stage of the cryptocurrency money laundering process is the placement stage. During
this stage, illicit funds are placed into the legitimate financial system. The illicit funds may be
present in two different forms. First of all, the illicit funds can already exist in the form of
cryptocurrencies, for example, if the criminal sells drugs and narcotics online and receives
payment in cryptocurrencies right away.
Secondly, illicit cash can also exist in the form of fiat currency, which is then used to purchase
cryptocurrencies. Either way, the placement stage establishes the circumstance that a criminal
has cryptocurrencies of illegal origin available in a wallet.
The second stage of the cryptocurrency money laundering process is the layering or hiding stage.
In this stage, the criminal facilitates crypto transactions to disguise the illegal origin of the funds.
Money laundering with cryptocurrencies relies, by its nature, on the fact that transactions made
in cryptocurrencies are pseudonymous. It is already at the placement stage when the criminal

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holds the illicit proceeds in the form of cryptocurrencies that they have a certain degree of
anonymity.
However, criminals often use additional means of anonymizing to further disguise the funds’
illegal origin, breaking the links between different transactions. This is also related to the fact
that, theoretically, crypto transactions can be traced back by following the blockchain. Each
block, representing a transaction, contains information about the previous transaction.
There are many ways in which criminals can establish layers between different blockchain
transactions. This can be accomplished both on regular crypto exchanges or by participating in
an Initial Coin Offering, where criminals can use one type of coin to pay for another type. By
doing so, they can further obfuscate the digital currency’s origin.
Cryptocurrency Laundering
Why some exchanges, especially illicit exchanges, provide a good opportunity for criminals to
layer the illicit origin of the crypto funds. Legitimate exchanges follow regulatory requirements
for identification, verification, and sourcing of funds and are compliant with applicable laws and
regulations. Other exchanges are not as compliant, not that they aren’t putting in the effort. It
falls more to their ongoing struggle to meet compliance regulations with sub-par tools. This
vulnerability is where most transactions related to Bitcoin money laundering take place.
When exchanges are regulated, they are required to apply so-called Know Your Customer
policies and protocols. This allows for the matching of transaction data to the corresponding
customer, thereby breaking the anonymity of each transaction. If exchanges are struggling to do
so or are, by their nature, even completely unregulated and illicit exchanges, there is no way to
establish the identity of the owner.
Final Thoughts
The stages of cryptocurrency laundering are placement, layering, and integration. Criminals use
different methods at each stage to conceal the origin of the funds and make it difficult for law
enforcement to track and trace their activities. The emergence of decentralized exchanges has
made it easier for criminals to launder money, but governments and financial institutions are
taking steps to combat this growing problem. Understanding the stages of cryptocurrency
laundering is essential to protect against financial crimes and maintain the integrity of the
financial system.

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Money Laundering: Definition and Process
Money laundering is the process of concealing the origin, ownership, or destination of illegally
obtained funds by passing them through a legitimate financial system. It involves a series of
complex transactions that are designed to obscure the source of the funds and make it appear as
though they were obtained through legal means.
INTERPOL defines money laundering as the process of hiding or falsely portraying the source of
earnings gained illegally to make them appear to have originated from legitimate sources. The
German Criminal Code made it straightforward by describing money laundering as hiding assets
acquired unlawfully.
What is Money Laundering?
Money laundering refers to various actions intended to hide the source of illegal gains and
integrate them into the legal economy. Money laundering is the method of washing dirty money
to make it seem clean. Corrupt establishments and other criminals use money laundering tactics
to cover up the genuine origins of income.
As a result, they may avoid being discovered by law police and easily use their incomes. Most
unlawful businesses need money laundering, but the specifics of how it is done vary greatly.
Small-time criminals employ simpler tactics, whereas large drug trafficking groups and dishonest
public officials employ intricate multijurisdictional layering methods.
Money Laundering
Every year, significant sums of money are generated via illegal activities, including drug, human,
and weapon trafficking, as well as tax and financial fraud. The majority of these earnings are in
cash. “Money mules” are individuals who criminals use as their means of moving illicit assets.
Thirty percent of money mules detained in the UK were younger than 21 years.
According to the UN Office on Drugs and Crime, 2 to 5 percent of the world’s GDP is laundered
annually. It is a widespread epidemic that begins with the acquisition of illicit cash through
unlawful activity carried out through banks and commercial enterprises. Money laundering
ultimately negatively influences the economy of nations, corporations, and banks.
Money laundering typically involves the involvement of financial institutions to make money
seem to have originated from a genuine source. Instead of transferring a sizable sum of money at
once at a bank, a money launderer will shift smaller sums over time to avoid raising suspicion.
Moving money earned illegally to a nation with poorly enforced laws against money laundering
is possible, although doing so typically requires crossing international boundaries.
It is common practice to launder money by establishing a legitimate firm, or “front,” and
inflating daily profits. The company mixes illegal revenue with legal dollars to hide the origin of

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the filthy money. The company mixes legitimate and criminal income by fabricating earnings,
making it impossible to distinguish between them.
Criminals create businesses that often deal with large amounts of money, such as restaurants or
tattoo parlors, and employ them as fronts for selling narcotics and laundering funds from other
illegal activities. The “earnings” can be deposited into legal accounts each day. The front
business may overpay for supplies and services, including rent, to conceal kickbacks.
Why Do They Launder Money?
Drug smuggling operations and other organized criminal enterprises typically experience
financial problems due to the vast amounts of money they collect and are forced to conceal to
avoid being investigated by the law. The beneficiaries of such vast sums of money wish to avoid
having to declare it as income and face enormous tax obligations.
Criminal organizations devise methods of “laundering” the money to hide the fact that it was
gained via unlawful means to cope with the issue of having several million dollars in cash earned
through illicit operations. Money laundering, in essence, tries to conceal money obtained
illegally by integrating it into a recognized financial system, like a bank or company.
Money Laundering Cycle
The money laundering cycle may be divided into three stages; nevertheless, remember that it is
one single process.
The stages of money laundering:
Placement Stage
The placement step is the entry point for “dirty money” or illegal profits into the financial
industry. Generally speaking, this procedure accomplishes two things. First, it frees the criminal
from having to keep and safeguard huge quantities of money, and second, it gets the money into
the legitimate financial system. It is more probable that money launderers will be discovered
during the placement stage because officials could become suspicious if large sums of money
were deposited into the established banking system.
Where to invest the proceeds of crime has several alternatives. For instance, money may be
concealed in a backpack and trafficked into a country. The criminal could also use smurfs to
evade capture and get over-reporting threshold laws. Some other methods could be gambling,
currency exchange, loan payments, etc.
You might be wondering what smurfs are. The Smurfs approach is commonly used in the
placement step for repurposing money. This method uses many people who trade little, less
noticeable sums of unlawful money for highly liquid things like traveler’s checks, bank draughts,

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or money put straight into savings accounts. The launderer then starts the layering stage after
receiving these instruments.
Layering Stage
The most difficult stage, layering, typically entails cross-border money transfers. The major
objective of this step is to remove illegal payments from their source. The audit trail is
concealed, and the link to the original crime is severed because of the deft stacking of financial
transactions.
Money launderers may begin electronically shifting money from one country to another to
escape discovery, then split it into ventures in cutting-edge financial services or international
markets. They may exploit any legal loopholes or discrepancies along with breakdowns in the
judiciary’s or police’s cooperation at each level.
Integration Stage
The final stage of the money laundering process is integration. During the integration phase, the
offender receives the money back from what seem to be reputable sources. After being stacked
via several financial transactions, the criminal gains were first placed as cash and are now fully
integrated into the financial system and are available for use in any way.
This stage’s objective is to connect the money with the offender in a covert manner that appears
to originate from a legitimate source. There are various ways to reconnect the criminal with the
money that has been cleaned up. For instance, purchasing pricey items like real estate, fine art,
jewelry, or vehicles is a common way for money launderers to benefit.
Money Laundering
Final Thoughts
Money laundering is the process of disguising the proceeds of illegal activities as legitimate
funds. This involves a complex series of financial transactions, designed to make it difficult for
authorities to trace the origin of the funds.
Money laundering is typically carried out in three stages: placement, layering, and integration.
During the placement stage, cash or other assets are introduced into the financial system. During
the layering stage, the funds are moved through a series of complex transactions to make it
difficult to trace their origin. Finally, during the integration stage, the funds are reintroduced into
the economy in a legitimate form.
Money laundering is a serious crime that can have significant economic and social consequences.
It can be used to finance terrorism, drug trafficking, and other criminal activities. To combat
money laundering, governments around the world have implemented a range of laws and

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regulations, including mandatory reporting requirements for financial institutions and enhanced
due diligence measures.
Regulatory Landscape in Asia
Regulatory landscape in Asia is a dynamic interplay of cultural values, economic ambitions, and
technological advancements, resulting in a diverse spectrum of policies and practices for
blockchain and cryptocurrency.
From China’s proactive embrace of blockchain technology—while simultaneously imposing
restrictions on cryptocurrencies—to Japan’s recognition of Bitcoin as a legitimate form of
payment, the region presents a spectrum of responses. South Korea’s journey from
contemplating a cryptocurrency ban to implementing protective regulations reveals the region’s
adaptability and responsiveness to public sentiment.
Meanwhile, Singapore stands out with its ‘Sandbox’ approach, balancing innovation with risk
management, a testament to the nation’s reputation as a fintech-friendly hub. These diverse
strategies, shaped by each country’s economic, cultural, and political nuances, underscore Asia’s
pivotal role in shaping the future of digital assets and technologies.
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Regulatory Landscape In Asia
Diving in the Regulatory Landscape in Asia
Firstly, you’ll delve into China’s stance. As one of the powerhouses of the global economy and a
heavyweight in the tech world, China’s actions in any field are pivotal. What’s interesting is that

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while the government has been largely supportive of blockchain technology, it doesn’t extend the
same welcoming hand to cryptocurrencies.
The Chinese government is pretty stringent in its regulation of cryptocurrencies, viewing them as
a potential risk to financial stability. From banning cryptocurrency exchanges and Initial Coin
Offerings (ICOs) to placing restrictions on crypto mining, China’s approach towards
cryptocurrencies has been one of caution and control.
However, while it might seem to you that China is against cryptocurrencies, it is bullish about
the technology underpinning them: blockchain. The country is leading the world in terms of the
number of blockchain projects and patents. It’s also in the process of developing and testing a
Central Bank Digital Currency (CBDC) – the Digital Currency Electronic Payment (DCEP).
Next, you’ll explore Japan – a nation that has integrated technology into every aspect of life, and
cryptocurrency is no exception. Japan stands out because it recognized Bitcoin as a legal form of
payment back in 2017. While this doesn’t mean that Bitcoin is treated as legal tender, it does
allow for transactions and brings it under the purview of regulations designed to thwart money
laundering and other illicit activities.
For a cryptocurrency exchange to operate in Japan, it must register with the Financial Services
Agency (FSA) and comply with a series of stringent regulations. While these measures might
appear heavy-handed, they are intended to provide a more secure environment for you and other
cryptocurrency users and investors.
Then, you’ll shift your focus to South Korea, another Asian nation where cryptocurrencies are
thriving. Here, cryptocurrencies have gained considerable popularity, but this was accompanied
by regulatory turbulence. The South Korean government initially contemplated a ban on
cryptocurrencies, leading to a public outcry. However, the scenario has changed significantly
since then. Rather than imposing a ban, the government has introduced regulations to safeguard
users and prevent illegal activities.

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Regulatory Landscape In Asia
Cryptocurrency exchanges in South Korea are regulated under the Act on Reporting and Using
Specified Financial Transaction Information. Exchanges are required to report their operations to
the Korea Financial Intelligence Unit (KoFIU), implement customer due diligence procedures,
and obtain a certificate of Information Security Management System (ISMS).
Lastly, you’ll venture into Singapore, known for its friendly stance towards fintech and
innovation. Singapore’s ‘Sandbox’ approach to cryptocurrency regulation allows businesses to
test innovative financial products or services in a controlled environment. This approach
provides a balance between facilitating innovation and managing risks.
The Monetary Authority of Singapore (MAS) has established guidelines under the Payment
Services Act (PSA), which includes dealing with digital payment tokens services. This approach
provides clarity and security for businesses, ultimately promoting a healthy market environment.
By the end of this lesson, you’ve gained a comprehensive understanding of the differing
regulatory approaches to block-chain and cryptocurrency across Asia. From China’s sharp
separation of block-chain from cryptocurrency, to Japan and South Korea’s acceptance of digital
currencies, to Singapore’s creative ‘Sandbox’ method, Asia provides a fascinating study in
contrasts that reflect the diversity and complexity of the cryptocurrency world.
These lessons should demonstrate that while block-chain technology and cryptocurrencies may
be global in scope, their regulation is heavily influenced by local economic, political, and
cultural factors. Understanding these regulatory landscapes is not only essential for engaging in
the cryptocurrency market but also offers valuable insights into the evolving dynamics between
technology, economy, and law in the digital age.
Regulatory Landscape In Asia
Final Thoughts
Asia’s approach to the emerging worlds of blockchain and cryptocurrency is a rich tapestry of
innovation, caution, and adaptability. China, while harboring reservations about
cryptocurrencies, is pioneering in the blockchain arena, highlighting the nuanced distinction
between the technology and its most famous application. Meanwhile, Japan’s forward-thinking
acknowledgment of Bitcoin as a payment form and its regulatory framework emphasize its
commitment to technological integration while ensuring user security. South Korea’s initial
trepidation, followed by its regulatory pivot, underscores the powerful role of public sentiment in
shaping policy decisions. Singapore’s ‘Sandbox’ method stands out as a unique strategy to
nurture innovation while curtailing potential risks.

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Together, these countries provide a panoramic view of how regional values and priorities shape
the embrace and regulation of groundbreaking technologies. This mosaic of regulatory
approaches underscores the crucial role of regional context in the global evolution of digital
currency and blockchain technology, reminding us that while technology may know no borders,
its implementation and integration are deeply rooted in local dynamics.
Role Of Anti Money Laundering Team
The role of anti money laundering team. Money Laundering Reporting Team is part of the
Compliance Function’s AML department. The AML team assists the MLRO, acts as a second
line of defense, and collaborates with the first line of defense, including the account opening
team and operations managers.
The Role Of Anti Money Laundering Team
The AML team takes a risk-based approach to handle AML and KYC-related regulatory
obligations, as well as working to ensure that compliance and AML rules are followed. The
AML team must undertake independent compliance supervision daily and must not be involved
directly or indirectly in company operations, receipt, transfer, or payment of monies. On a daily
basis, the AML team undertakes transaction monitoring as one of the crucial tasks it plays in
identifying suspicious transactions or activity.
To fulfill its AML/KYC responsibilities, the AML team should have access to customer or client
accounts, transactions, and other relevant information; use the provided resources to implement
the compliance program; understand the business’s functions, operations, and structure;
understand ML/TF risks and vulnerabilities, and understand AML/CFT/KYC regulatory
requirements and other related regulations.
Role Of Anti Money Laundering Team
Responsibility Of AML Team
The AML team is mainly responsible to:
ensure compliance with applicable AML/CFT and KYC laws, rules, regulations, and
instructions,
support the MLRO in developing an end-to-end compliance program and AML/KYC policies,
procedures, methods, tools, and so on, in the light of regulatory requirements;
ensure that AML/KYC policies and processes are implemented, to ensure that all the clients and
customers are identified, screened, and verified, before opening accounts;
perform AML revies and identify findings and issues, related to compliance for review of
MLRO;

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report to the MLRO promptly on any material regulatory non-compliance (for example, failures
that may attract a significant penalty);
ensure that customer accounts and transactions are regularly monitored, to identify suspicious
activities, and transactions;
support the MLRO in the review of Compliance policies and procedures;
coordinate with departments and operation teams, to implement the Compliance Program;
respond and facilitate regulatory authorities or agencies, in performing inspections or
investigations;
ensure that the employees are provided with AML/KYC training;
timely and accurately report the Suspicious Activity Report (SAR), after appropriate
investigation, to the relevant regulatory authority.
AML team performs periodic and risk-based compliance testing in crucial operations and
activities of the organization, such as related to account opening, cash management, investments,
and risk management. The purpose of periodic compliance testing is to ensure that AML/CFT
and KYC controls are operating effectively, to identify and manage the ML/TF risks and ensure
regulatory compliance.
AML team supports the MLRO in developing the AML training program for the employees. As
part of the Compliance Program, the AML team ensures that an ongoing AML training program
is developed and implemented. AML training includes related regulatory requirements and
references to the internal AML policies, procedures, and processes.
At a minimum, the training program must be provided to all employees whose duties require
knowledge of the BSA requirements. AML team ensures that training is provided periodically to
all the employees, especially those working in the account opening team and related
departments. The AML compliance officers are required to complete an internal AML/CFT
certification program as “knowledge checks” to ensure an understanding of the AML/CFT
regulatory requirements.
Know Your Customer
Compliance for banks begins with verifying the identity of new clients, a process known as
Know Your Customer (KYC). Banks are required to understand the nature of a client’s activity
and verify deposited funds are from a legitimate source, in addition to establishing the
customer’s identity.

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Banks and brokers are also required to screen new customers against lists of criminal suspects,
individuals and companies subject to economic sanctions, and “politically exposed persons”—
foreign public officials, their family members, and close associates.
Money laundering can be broken down into three stages:
Illicit funds are being deposited into the financial system.
Layering refers to transactions designed to conceal the illicit origin of funds.
Laundered funds are used to purchase real estate, financial instruments, or commercial
investments.
The KYC process is designed to thwart such schemes at the first deposit window.
Customer Due Diligence
Customer due diligence is essential to the KYC process, for example, ensuring that the
information provided by a potential customer is accurate and legitimate. However, it is a
continuous process that includes both old and new customers and their transactions.
Customer due diligence necessitates an ongoing assessment of each client’s risk of money
laundering and the application of that risk-based approach to conduct closer due diligence on
those identified as higher non-compliance risks. Customers must be identified as they are added
to sanctions and other AML lists.
Customer due diligence seeks to detect money laundering strategies such as layering and
structuring, also known as “smurfing”—the splitting up of large money laundering transactions
into smaller ones in order to avoid reporting limits and scrutiny.
The AML holding period, which requires deposits to remain in an account for a minimum of five
trading days before they can be transferred elsewhere, is one rule in place to prevent layering.
Financial institutions must develop and implement a written anti-money laundering compliance
policy, which must be approved in writing by a member of senior management and overseen by
a designated AML compliance officer. These programs must include “risk-based procedures for
ongoing customer due diligence” as well as “ongoing monitoring to identify and report
suspicious transactions.”
Final Thoughts
Customer due diligence (CDD) describes the scrutiny that financial institutions (and others) are
required to perform to thwart, identify, and report violations. Anti-money laundering (AML) is
the broad category of laws, rules, and procedures aimed at deterring money laundering. KYC
rules apply customer due diligence to the task of screening and verifying prospective clients.

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TO BE CONTINUE