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TBML top of emerging financial crime risks in Asia-Pacific says LexisNexis

By Mark Ford on June 17, 2022

Trade-based money laundering (TBML) has ranked top of the list of emerging financial crime risks in the latest LexisNexis True Cost of Compliance Study – Asia-Pacific Edition.

Crimes involving digital payments and cryptocurrency, third parties – including TBML, money mules, professionals lending perceived legitimacy and supply chain corruption – and trafficking proceeds of crime have all increased, the survey of 253 banks, investment, asset management and insurance firms’ decision makers found.

Emerging financial crime risks

In the survey of firms in China, Australia, India, Malaysia and Japan, 74 per cent of respondents said that that their firm’s exposure to TBML has increased over the past 18-24 months.

Other emerging financial crime risks on the increase include cryptocurrency-related crime, reported by 71 per cent of respondents, third-party legal and finance professionals legitimising illegal activity (70 per cent), digital payment-based financial crimes (67 per cent), supply chain corruption (65 per cent) and money mules (65 per cent).

Lack of L/C understanding

TBML relies on lack understanding by financial institutions about letter of credit (L/C) documents or how inspection reports are produced according to the survey.

Trade-based financial crime also leverages limited visibility into full transactions through accounts and supply chains the survey found.

Falsifying trade documents to disguise illicit proceeds can include establishment of multiple accounts by an entity – for example, a sole trader account, a business account, a personal account can make it difficult to discern illicit from legal transactions

Compliance costs

The study projects the total cost of financial crime compliance in the five countries surveyed will near the US$50.1 billion mark in 2022. Financial institutions represented more than 80 per cent of the total cost of compliance in the region at US$40.8 billion.

The analysis indicated that China and Japan accounted for 79.2 per cent of all regional compliance costs at 43.5 per cent and 35.7 per cent respectively, with the higher costs attributed in part to labour and technology, complying with tighter anti-money laundering (AML) regulations, increased geopolitical risks and evolving criminal threats.

Other key findings

The top trigger for increased compliance costs was increased geopolitical risk, named by 73 per cent of respondents, with AML regulation (68 per cent) and evolving criminal threats (63 per cent) cited as the second and third greatest triggers according to the survey.

It also found that digital payments have become a common platform for money laundering, enabling criminals to create fictitious transactions that appear legitimate.

More information about the LexisNexis True Cost of Compliance Study – Asia-Pacific Edition can be found here, from where the survey can also be downloaded.