The Epidemic of Organised Crime and Failing Anti-Money Laundering
The Asian Crime Century briefing 66
An epidemic of organised crime is a potential global security threat, according to Jurgen Stock, the Secretary General of INTERPOL. Stock commented that “Driven by online anonymity, inspired by new business models and accelerated by Covid, these organised crime groups are now working at a scale that was unimaginable a decade ago.” INTERPOL is re-assessing the threat posed by transnational organised crime groups, which are a growing problem in every region.
Whilst transnational organised crime is a global problem, there are major drivers of crime in Asia that have led to increasing interconnectivity with organised crime groups in other regions. Just as business has increasingly globalised in the past three decades, so is organised crime now doing the same with gangs engaged in multiple diverse criminal business lines. These include online fraud, online illegal gambling, narcotics trafficking, people trafficking, arms trafficking, and money laundering to deal with the proceeds from these criminal enterprises. Jurgen Stock stated that around US$2 trillion to US$3 trillion of illicit proceeds of crime are channelled through the global financial system each year.
Laundering the proceeds of transnational organised crime is a business that is largely unencumbered by enforcement action by the authorities or action by banks and financial institutions. Stock assessed that only 2 to 3% of criminal assets are traced and confiscated by law enforcement agencies, meaning that well over 95% of the proceeds of crime are retained by criminals.
The private sector is spending large amounts on financial crime compliance, but the impact on deterring or preventing the movement of the proceeds of crime is questionable. In 2021, Lexis Nexis assessed that the annual costs of financial crime compliance across all financial institutions amounted to almost US$214 billion. Around US$192 billion of this total was spent in Europe and the USA, illustrating the greater cost of financial crime compliance in Western countries.
In Asia the annualised cost of financial crime compliance was assessed to be only US$12 billion. This is partly due to the large number of banks and financial institutions in Europe and the USA, but is not reflective of the growth of banking business. McKinsey & Company noted in their 2023 Global Banking Annual Review that “Banks grouped along the crescent formed by the Indian Ocean, stretching from Singapore to India, Dubai, and parts of eastern Africa, are home to half of the best-performing banks in the world.” Asia has half of the best performing banks, but only a tiny percentage of bank financial crime compliance costs.
There should be serious questions asked at the most senior levels of banking about why so much is being spent on financial crime compliance for so little impact based on the obvious expansion of transnational organised crime, particularly from Asia. Asia suffers from some of the fastest growing transnational organised crime problems, which are increasingly generating huge amounts of proceeds of crime that are laundered around the world.
The Organised Crime Epidemic
The epidemic of online fraud in Asia has become a global problem, with Jurgen Stock of INTERPOL saying that human trafficking and cyber scam centres have revenue of up to US$3 trillion a year.
In December 2023, INTERPOL stated that there was clear evidence of “human trafficking fuelled fraud” expanding beyond South East Asia. The model for deceiving poor Asians into traveling overseas to take well paid jobs but find themselves enslaved in cyber-fraud centres is becoming a global one. INTERPOL reported in 2023 that 40 Malaysian victims were lured to Peru with the promise of a high-paying job, only to be forced to commit telecommunications fraud. In October, several Ugandan citizens travelled to Dubai for employment, but were then diverted to Thailand and then Myanmar, where they were handed over to an online fraud syndicate and kept under armed guard while being taught to defraud banks. INTERPOL reported that just in Myanmar in 2023 authorities reported rescuing trafficking victims originating from 22 countries.
In September 2023, the United Nations Office on Drugs and Crime (UNODC) reported that the growth of people trafficking for the purpose of forced criminality to commit online scams and financial fraud was centred mostly in Cambodia, Lao People’s Democratic Republic, and Myanmar, but also Malaysia and the Philippines. The UNODC assessed that “trafficking in persons for forced criminality is intertwined with operations of casinos, large scale money laundering, corruption, cyber enabled crimes, and a range of other criminal offences, such as torture, extortion, and others”, which is generating huge profits for organised crime groups. This is transnational organised crime adopting multiple diverse business lines so that if one fails there remains income from others.
The UNODC attributed the COVID-19 pandemic as being a major driver of the growth of online cyber fraud, for multiple related reasons. Criminals operating the growing number of casinos in South East Asia catering to Chinese nationals lost business as Chinese stopped travelling. During the pandemic use of online activities, including digital payments and use of cryptocurrencies, increased significantly, and were targets of investment by organised crime groups. Organised crime groups diversified their activities from casino gambling in South East Asia to online betting, online gambling, cyber fraud, and people trafficking to provide forced labour for their criminal businesses. Gambling and online sports betting have been a major part of the financial growth of these criminal enterprises as they are high return activities that are relatively easy to operate.
The number of people trafficked into forced criminality is impossible to exactly quantify, but assessments are of hundreds of thousands of people. The UNODC estimated that there could be over 100,000 people trafficked just in Cambodia, that there are over 40 nationalities of trafficking victims in scam compounds in South East Asia, and that the numbers indicate “this is one of the largest coordinated trafficking in persons operations in history.”
The connection between cyber fraud groups and China has been highlighted in the past several months by numerous deportations of Chinese nationals who have been forcibly repatriated to China. The large volume of Chinese people repatriated suggests either a huge number involved in fraud operations or, more likely, victims are mixed in with the suspects during the deportations. It is extremely hard for Chinese police officers to accurately differentiate between victims and culprits amongst detainees in Myanmar, so it is likely that the Public Security Bureau (PSB) repatriates all of the Chinese arrested and then processes them in a secure environment once they have returned to China.
For three days from 29 February, almost 1,000 Chinese nationals were transported from Mae Sot in Thailand, near the border with Myanmar, and then flown on chartered flights to Yunnan Province in China. This is the culmination of sustained action by the Chinese authorities that commenced in 2023. State media in Myanmar has reported that 52,820 foreigners were deported between October 2023 and March this year, 96% of whom were Chinese.
Despite the civil war in Myanmar and also the sustained Chinese action by the Chinese authorities, major criminal compounds in Myanmar continue to operate. The Irrawaddy recently reported that ‘KKP Park’, a Chinese investment area in Karen State with casinos, hotels, restaurants, nightclubs, brothels and online scam centers continues to operate.
However, one outcome of the sustained action taken against cyber fraud compounds by ethnic militias in Myanmar, driven by the Chinese authorities, is likely to be a displacement of some organised crime to other locations. The closest and easiest locations for organised crime groups to relocate to are Cambodia and Laos, where Chinese criminals have established networks and support.
There is no shortage of other potential operating hubs for transnational organised crime groups that are now hugely cash rich with the proceeds of their booming online criminal businesses accumulated in the past few years. There are numerous attractively lawless countries in Africa and the Middle East where organised crime groups can establish operational centres.
Traditional criminal activity is also thriving. In December 2023, the UNODC reported that Myanmar is now the world’s largest opium producer. The growth of narcotics trafficking from the country has been driven by the civil war that continues to drive farmers towards illicit opium poppy production, as well as the decline in supply of opium from Afghanistan where the Taliban ban on its production has led to a 95 per cent fall in cultivation.
As well as opium, Myanmar is also reported to have also become a major hub for the production and export of methamphetamines. Myanmar is reported to be the origin of a flood of cheap methamphetamines across Asia. The wholesale costs of a kilogram of methamphetamine from Yangon in 2018 was US$15,000, and in 2022 was reported to be US$9,500.
Fentanyl and its precursor chemicals also have a ready supply from Asia. Fentanyl precursors from China were a major source of the supply until 2019 when the Chinese government listed most of these as controlled substances, commenced investigations of fentanyl manufacturing, imposed regulations on fentanyl advertising and created special teams to investigate the problem. However, this action led to the diversification of fentanyl precursor supply from China to India as well as Mexico. There are now complicated supply chains for fentanyl as well as the precursors used to manufacture the drug, with links to the Sinaloa Cartel in Mexico from Chinese as well as Indian nationals involved in the supply of fentanyl precursors. There is ample evidence on the Internet of companies in China openly selling and shipping precursor chemicals used to manufacture fentanyl and other illegal drugs around the world (see Asian Crime Century briefing 26).
The Money Laundering Boom
Asia is a growth centre for transnational organised crime not only in predicate offences (i.e. underlying criminal offences) but also the international web of money laundering that is facilitated particularly in the region. A major part of this involves Chinese organised crime groups due to their strong involvement in cyber fraud, online gambling and people trafficking.
In Singapore in August 2023, the police arrested 10 foreign nationals (who were all originally mainland Chinese) and seized S$1 billion (US$750 million) worth of luxury properties, cars, gold bars, handbags and jewellery. By January this year, the assets seized in what is the largest ever money laundering case in Singapore have risen to over S$3 billion (US$2.22 billion). The Singapore Police Force reported that those arrested were engaged in laundering the proceeds of their overseas organised crime activities, including scams and online gambling.
This expansion of Chinese money laundering is partly due to the growth of the ‘Belt and Road Initiative’ (BRI), the infrastructure and investment strategy launched in 2013, which has inadvertently also facilitated international organised crime connectivity. The BRI has boosted the long existing trade in counterfeit and illicit products from China and enabled the established Chinese criminal gangs active in those businesses to introduce the additional business line of underground banking and money laundering.
This growing international underground banking system is part of informal payment systems amongst Chinese communities often referred to by the Chinese term ‘fei qian’ or ‘fei chien’, meaning flying money, which relies on a trusted network of transfer agents. The network of Chinese money agents has grown in the past several decades as restrictions on the movement of money out of China has led to a demand from wealthy Chinese for informal methods.
The growth of casinos across the region has also facilitated underground banking as ‘junkets’, groups that bring customers to casinos and give credit, have developed an underground banking network across the region between casino properties. The same junket groups have also expanded into online betting and gambling, which is also used as a means of moving funds across borders. The use of cryptocurrencies in online gambling has been a further boost to this illicit payment system.
Given the fact that there has been an explosion in transnational organised crime in Asia and also a parallel expansion in money laundering as criminal gangs deal with the proceeds of crimes buying diverse assets. It has to be asked why anti-money laundering (AML) and financial crime compliance policies in the banking and financial services sector are not effectively deterring or minimising these activities. The impression from the increasingly extensive AML processes used by banks is that ordinary retail and small business customers have increasing difficulty opening or operating basic banking services, but criminals continue to effectively launder billions of dollars that is the proceeds of crime. Something is not working in this system.
As the Secretary General of INTERPOL has pointed out, there is a major growth in transnational organised crime that has reached the scale of being a global security threat. It has become clear what the major predicate criminal offences in this global criminal growth are, with cyber fraud, online gambling, people trafficking, and narcotics trafficking going through huge growth in the past few years. In tandem dealing with the proceeds of these crimes is also growing quickly, but established anti-money laundering systems are not effectively countering these illicit fund flows.