Anti money laundering using a two-phase system

Author:Tamer Hossam Moustafa, Mohamed Zaki Abd El-Megied, Tarek Salah Sobh, Khaled Mohamed Shafea
Position:Military Technical Collage, Cairo, Egypt; Azhar University, Cairo, Egypt; Military Technical College, Cairo, Egypt; Military Technical College, Cairo, Egypt
Pages:304-329
SUMMARY

Purpose - This paper aims to compete and detect suspicious transactions that can lead to detecting money laundering cases. Design/methodology/approach - This paper presents a plan-based framework for anti-money laundering systems (PBAMLS). Such a framework is novel and consists of two phases, in addition to several supporting modules.... (see full summary)

 
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Anti money laundering using
a two-phase system
Tamer Hossam Moustafa
Military Technical Collage, Cairo, Egypt
Mohamed Zaki Abd El-Megied
Azhar University, Cairo, Egypt, and
Tarek Salah Sobh and Khaled Mohamed Shafea
Military Technical College, Cairo, Egypt
Abstract
Purpose – This paper aims to compete and detect suspicious transactions that can lead to detecting
money laundering cases.
Design/methodology/approach This paper presents a plan-based framework for anti-money
laundering systems (PBAMLS). Such a framework is novel and consists of two phases, in addition to
several supporting modules. The rst phase, the monitoring phase, utilizes an automata approach as a
formalism to detect probable money laundering. The detection process is based on a money laundering
deterministic nite automaton that has been obtained from the corresponding regular expressions
which specify different money laundering processes. The second phase is STRIPS-based planning
phase that aims at strengthening the belief in the probable problems discovered in the rst (monitoring)
phase. In addition, PBAMLS contains several supporting modules for data collection and mediation,
link analysis and risk scoring. To assess the applicability of PBAMLS, it has been tested using different
cases studies.
Findings – This framework provides a clear shift of anti-money laundering systems (AML) from
depending heuristic and human expertise to making use of a rigorous formalism to accomplish concrete
decisions. It minimizes the possibilities of false positive alarms and increases the certainty in
decision-making.
Practical implications – This framework enhances the detection of money laundering cases. It also
minimizes the number of false-positive alarms that waste the investigators’ efforts and time; it decreases
the efforts presented by the investigators.
Originality/value This work proposes PBAMLS as a novel plan-based framework for AML
systems.
Keywords Anti-money laundering system, Data mediation,
Money laundering monitoring and detecting, Planning system, STRIPS
Paper type Research paper
1. Introduction
The legislative framework for AML dates back to 1970 with the US enactment of the
Bank Secrecy Act (BSA), which required nancial institutions to detect Cash
Transactions and write Reports [Currency Transaction Reporting (CTR)] for
transactions greater than US$10,000, and report suspicious activities. In 1986, the US
Money Laundering Control Act criminalized the act of money laundering and prohibited
structuring to avoid CTR lings (Lilley, 2000;McDonell, 1998). Then, in 1989, the Group
of Seven Industrial Democracies (G-7) formed the Financial Action Task Force (FATF)
The current issue and full text archive of this journal is available on Emerald Insight at:
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JMLC
18,3
304
Journalof Money Laundering
Control
Vol.18 No. 3, 2015
pp.304-329
©Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2014-0015
as an intergovernmental body to develop international standards for anti-money
laundering (AML) regulation to combat money laundering and terrorism funding.
Between 1991 and 2005, three separate European money-laundering directives were
issued to add additional AML regulation based on the FATF model. With the enactment
of the US Patriot Act in 2001, the purview of money laundering regulation was
signicantly expanded to encompass terrorist nancing. In the years since 2001, a
number of countries have used the US Patriot Act as a model for their own AML
regulation, particularly in the Middle East and Africa, which previously did not have
much in the way of AML regulation (Mcnelley, 2011).
Money laundering process involves three independent steps that can occur
simultaneously (Background Intelligence Brief Money Laundering, 2005;Molander
et al., 1998), as shown in Figure 1:
(1) Placement: It is the rst stage in the money laundering process, and it is a process
for transferring the proceeds from illegal activities into the nancial institutions
or converting cash into instruments.
(2) Layering: It is a process in which a launderer may conduct a series of nancial
transactions to distance the proceeds from illegal source.
(3) Integration: It is the nal stage in the laundering process; illicit funds are
integrated with monies from legitimate commercial activities as they enter the
mainstream economy. The integration of illicit monies into a legitimate economy
is very difcult to detect unless an audit trail had been established during the
previous stages.
Currently, several AML systems are available; however, they suffer from high
false-positive alarms, lack of integration with other nancial institutions and
dependency on the analysts’ experience. In this paper, we present a plan-based
framework for anti-money laundering systems (PBAMLS). It includes two phases:
Figure 1.
Money laundering
process
305
Anti money
laundering

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