How and why do cyber criminals hide their money’s source? Dr Dionysios Demetis, Senior Lecturer in Management Systems at Hull University, explains.

Ransomware attacks, theft from bank accounts, credit card fraud, selling personal data, mass spamming and blackmailing organisations with the threat of a DDOS - there are innumerable ways in which cyber criminals damage lives and make their illicit activities pay.

The problem is, of course, this money can’t just be deposited into the everyday banking system and then spent like a normal wage. Rather, criminals need to make this hot money look like everyday day cash with an innocuous backstory. They need to break a followable chain between the crime and the money. This process is, of course, called money laundering - concealing money’s origins. As you read on, we’ll explore how dirty money can be turned into clean cash and the processes in place to prevent financial crime happening.

What is money laundering and why is it necessary from a criminal’s perspective and unwelcome from a societal perspective?

Money laundering is typically thought of as a three-stage process: placement (where the ‘dirty’ money enters the financial system), layering (where the money trail becomes complicated) and integration (where money is re-invested into criminal activities or siphoned into the legitimate economy). From a criminal’s perspective, it’s necessary because all crime generates illicit money / assets.

Laundering these assets allows criminals to enjoy the benefits of the formal financial system and move money around with ease. From a societal perspective, it’s considered to be unwelcome because money laundering remains the main avenue through which crime is allowed to remain profitable – and reinvestments in crime lead to further predicate offences (drug & human trafficking, corruption, tax-related crimes, to name a few).

Do we know how much money is laundered internationally each year?

No, not really. There are some figures that are circulating here and there that claim it’s the world’s third largest market with about $2trillion annually but they cannot stand against any serious scrutiny due to the underground nature of the phenomenon, statistical distortion of indices and many other problems. In my book, Technology & Anti-Money Laundering, I have a small section dedicated to that problem and go through the rationale of abandoning such estimations.

Can you give us an overview of ‘suspicion and suspicious activity’? Who, within a bank, is responsible for raising the alarm?

Within banks, ‘alerts’ are raised by either automated transaction monitoring systems that simulate money laundering behaviour and capture them in SQL-style queries with thresholds, risk-scoring techniques, etc., or by staff members who might observe unusual behaviour or patterns of transacting in branches. Transaction monitoring systems work poorly with very low true positive rates (anything from 0.1% to 20% though these are again problematic / plasmatic and often ‘gamed’ statistics from banks that want to appear compliant).

In any event, an alert is evaluated by ML-analysts and then, if suspicion is ‘confirmed’ (by ‘confirmed’ I mean a consideration that is worthy of further escalation and not actual ML), then the bank’s money laundering reporting officer (MLRO) will pass the suspicious activity report (SAR) to the financial intelligence units.

Over decades, all FIUs globally have amassed scores of junk-SARs; a tiny percent of which are actionable and an even tinier percent of which have led to some asset confiscations. The German case where the criminal law enforcement authority raided the FIU is ample evidence that the broader system has lost the plot.

Let’s create scenario: criminals have used social engineering via email and voice to defraud a prospective house buyer. What’s a common step-by-step approach?

There are so many combinations that we couldn’t really exhaust them. The step-by-step approach would typically conform to the placement/layering / integration model. The Financial Action Task Force (FATF) has a published list of all the different ML typologies identified but these change and new techniques develop all the time. I’d say that placement and / or early integration stages are the most vulnerable stages of the process where criminals are more likely to get caught.

Is there a relationship between where cyber criminals choose to base themselves and the existence of comparatively weak local law enforcement?

Yes, based on my interview with Brett Johnson (a.k.a. the original ‘Internet Godfather’) which is freely available online, but also the broader cybersecurity literature, one can find examples of how geopolitical considerations reflect operational decisions of cybercriminals.

For example, if someone is physically based in the US, they will operate through VPNs hosted in Russia due to the tension between the countries. You can generalise from that and observe the possibilities for cybercriminals to take their own operational security decisions and explore which countries do not have an extradition treaty with their home country, or look at ways to consider the weakest cybercrime policing regimes available and operate (remotely) from there.

What is a money mule and are there other ways the public can be unwittingly tempted into helping criminals launder money?

Money mules tend to transfer money that originates from predicate offences (e.g., drug trafficking, human trafficking, etc.) through their bank account in exchange for a commission or cash offers. Then they transfer the money to other accounts so they participate in the placement / layering phases depending on circumstances.

People in need of money, students - anyone, really - can be approached and they may not understand they’re being used in this way. Don’t be fooled by easy money - if it’s too good to be true, then it is. Even worse, once deceived, they will be threatened and continue to be exploited, unless they manage to break that circle and ask for help.

What about AI’s place in AML? AI can spot cancer more accurately than some human doctors and it can *almost* drive a car. Would we be right to think AI might offer a silver bullet in the fight against financial crime?

Actually, I’m hosting a workshop on AI/AML at Cambridge University in September 2021 at the Cambridge International Symposium on Economic Crime so if anyone is interested in that, they can find us there.

I don’t believe there’s a silver bullet and despite the whole AI-excitement, human behaviour cannot be predicted, no matter what sophisticated technology we impose upon it. AI advances in radiology, for example, are using imagery to detect abnormal characteristics and rely on image recognition and machine vision. This is realised more easily than inferring suspicious behaviour. At the core of this problem is the following: suspicious behaviour is a subjective construct. We cannot expect AI to convert something subjective into something objective.

Here’s how I see the scene of AI in anti money laundering (AML): supervised machine learning is problematic as the truly suspicious cases (if there’s such a thing at bank level) are so few when compared to legitimate transactions, that we get a gross imbalance problem in the learning algorithms.

In unsupervised machine learning, we have deeper, legal and ethical problems, such as: how were the data sorted? Can we audit / reverse-engineer the black-box, or are we allowing it to flesh out suspects on its own? This kind of approach might work in fraud, where outliers are way past the normal activity levels but money launderers try to blend their activities and look as close to normal as possible.

In semi-supervised machine learning (e.g., active learning) we have an AI-expert systems type of combination and some interesting graph-theory based labelling approaches; my concern there is that the learning algorithms simply (re)present what the experts have already classified as suspicious, so the enhancements we’re seeing in true positive rates are rather expected and artificial (sic!).

I think natural language processing has interesting potential in tapping into text-based suspicious descriptions (e.g., SAR narratives) and FIU/AI deployments that could link cross-bank intelligence might see interesting applications down the line.

What about crypto currencies? I’ve sold my cryptocurrency of choice and have a huge amount of money in my exchange account. How do UK retail banks feel about accepting that cash into their network?

The cryptocurrency discussion is a complicated one. I run a private Blockchain forum, which is business oriented and where we host several academic and non-academic speakers. My experience so far sees views from polar opposites: the crypto-enthusiasts and the crypto-sceptics - such is the fate of all (relatively new) technologies. of course.

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However, we should also remember that the ideas for distributed ledgers (cryptographically-backed too!) go back many years and the idea that it’s a new technology is a myth (as my good friend Prof Michael Mainelli and current Sheriff of the City of London, writes online). Cryptocurrency-related transactions are a droplet in the ocean of financial transactions in the global financial system. I understand the reaction that it might feel naturally suspicious because everything ‘new’ is looked upon with some caution. However, that reaction is irrational.

Like any instrument, the duality of good / bad is subjected to further differentiation (it is user-dependent and observer-dependent). Also, blocking an avenue of transacting altogether is actually counterproductive to AML as it drives the demand for other ways of transacting, the optimisation of much more privacy-friendly cryptocurrencies than Bitcoin, the cold-storage of cryptocurrencies, etc.

Ultimately, it drives the financial activity to institutional arrangements that cannot perform the same money laundering detection analyses (not that those that we’ve got at the moment work well - they are marred by very high false positive rates). The more interconnections we have between the crypto-world and the formal financial systems, the better we can monitor it. Overall, what Natwest and / or others are doing here is simply a form of de-risking.

Flipping the question on its head: is the AML community exploring blockchain as a means of reducing suspicion around transactions and chains of transactions?

This is a most vibrant and developing ecosystem. Some companies are specialising in blockchain-analysis for cryptocurrencies where the ledger is public (like Bitcoin). They claim some successes around tracing cryptocurrencies and visualising / exploring the money trail that could assist the authorities - but I’m not particularly convinced of their eventual effectiveness in approximating the holy grail of AML (i.e., successful prosecution of cases and asset recovery).

One case that I’ve followed closely (and in which many agencies were involved) ended up being dropped due to its complexity. In it, a handful of Bitcoin wallets that had in excess of £50m inflows - most of which were deemed to be associated with ransomware attacks - ended up being linked to thousands of IP addresses involving 30+ countries. Pursuing such a case would require plenty of resources but more importantly, time! And during that timeframe, the money trail can become progressively more complicated.

Even then and even when telecom disclosures (following legal processes) allow the association between an IP address and a physical address, we might still have an attribution problem, not to mention the digital forensics challenges there. With the changing nature of money, I have long predicted a private cryptocurrency designed for and used by cybercriminals instead of one that is simply appropriated by cybercriminals.

What would you say to somebody considering a job in anti money laundering?

There are plenty of options in banking but it’s not the only option. Different industries (e.g., insurance, real-estate, etc) are subjected to AML regulations. Pro tip? Specialise in AML for casinos and then move to Las Vegas. Email me when you get there so that we can invite you to our local conference and our AML panel for casinos.

What are the career pathways into AML?

The International Compliance Association has a pretty comprehensive list that can be found online.

What’s the best way to launch a career in AML?

Look into part-time analyst / compliance audit assistants, etc. and take it from there. Plenty of IT companies or IT consultancies are working in this space, so you could join one of those.

About the author

Dionysios Demetis has spent most of his life in academia and is currently a senior lecturer at Hull University Business School and a Visiting Professor at Texas A&M University. He is Co-chair to the International Security Conference, which takes place in Las Vegas annually, with regular participation from the FBI and the US Secret Service. Demetis is also a senior editor at the Journal of Information Systems Security.

His books, including Technology and Anti-Money Laundering and Sciences First Mistake can be found online at