Strange intersections: The state of 21st century financial crime – Thomson Reuters

Modern Financial Crime and Sustainable Development Goals (SDGs)

Introduction

Modern financial crime is increasingly shaped by collaborations among traditional banking institutions, FinTech firms, and transnational criminal networks. These actors employ hybrid methods such as underground banking, mirror-trade commodity flows, and cryptocurrencies to move and disguise illicit funds. Addressing these evolving challenges is critical to achieving several Sustainable Development Goals (SDGs), including SDG 16 (Peace, Justice, and Strong Institutions) and SDG 8 (Decent Work and Economic Growth).

Key Insights

1. Old Laundering Patterns with Modern Wrappers
   • Criminal actors cooperate to move value through mirror-trade commodity flows and cryptocurrencies, blending legal transactions with illicit proceeds.
2. FinTech Expands Laundering Options
   • Peer-to-peer applications, reloadable cards, kiosks, and virtual assets facilitate numerous small conversion transactions that fragment funds and obscure the flow of illicit money.
3. Fraud Scales Cheaply in an AI Era
   • As cash usage declines, scams and extortion—sometimes involving forced labor—become lower-risk and easier to industrialize, emphasizing the urgent need for improved verification and policy adaptation.

The Cartel-Business Partnership and SDG Implications

Cartels, underground banking networks, and legitimate businesses often collaborate—sometimes unknowingly—to launder money by moving value through mirror-trade commodity flows and cryptocurrencies. This fusion of legal trade and illicit profits threatens economic integrity and undermines SDG 16 by fostering corruption and weak institutions.

Near-cash FinTech methods, including peer-to-peer apps, reloadable cards, kiosks, and virtual assets, expand laundering opportunities by enabling many small conversion transactions that fragment illicit funds. The decline in cash use has facilitated the rise of fraud, scams, and extortion, occasionally executed through forced-labor scam operations, which contravenes SDG 8 by perpetuating exploitative labor practices.

Illicit cash flows also extend to digital assets such as Bitcoin, with regulatory bodies like the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issuing alerts on these risks. These digital assets often serve as intermediaries in underground banking and mirror-trade schemes.

Revival of Traditional Methods in a Digital Era

The emergence of digital, on-demand, and borderless transactions introduces new opportunities and challenges. Cryptocurrencies and blockchain tokenization have become integral to illicit trade, facilitating underground shipping, sanctions evasion, and dark web money laundering. These activities represent a significant threat to SDG 16 by undermining peace and justice.

Traditional systems such as Hawala or Fei Chien are mirrored in modern crypto transactions, where decentralized ledgers replace reliance on individual intermediaries. Commodities have become a preferred medium for settling mirror trades, often linked to drug production inputs and other illicit goods.

FinTech firms function as modern Money Service Businesses (MSBs), regulated similarly but serving diverse market segments. They facilitate the exchange of government fiat currency for cryptocurrencies, enabling money laundering through fragmentation of funds into smaller amounts via near-cash options.

Fraud, AI, and the Expansion of Illicit Activities

In the digital transaction landscape, fraud has become pervasive and low-risk, fueled by advances in artificial intelligence (AI) and communication technologies. The decline in cash usage reduces physical intimidation risks but increases the scale and ease of scams and extortion, including forced labor operations, which violate SDG 8 and SDG 16.

Slave labor operations in regions such as Southeast Asia have emerged, where forced workers operate large-scale scam and fraud schemes. The proceeds are often laundered through commodities, kiosks, peer-to-peer apps, and cryptocurrency transactions, complicating detection and enforcement.

Future Outlook and Policy Recommendations

• Rapid Innovation: The continuous emergence of new financial tools and AI-driven technologies expands both legitimate business opportunities and avenues for financial crime.
• Human Element: Despite digital advances, the human touch remains vital, as demand for physical tokens and memorabilia persists.
• Regulatory and Institutional Response: Financial institutions, government agencies, and FinTech firms must develop informed best practices and adaptive policies to stay ahead of criminals and secure legitimate markets, thereby supporting SDG 16.

Conclusion

Modern financial crime’s evolution demands a coordinated response that integrates technological innovation with robust regulatory frameworks. Emphasizing the Sustainable Development Goals, particularly SDG 16 and SDG 8, is essential to fostering peaceful, just, and inclusive societies while promoting decent work and economic growth. Proactive measures will be critical to mitigating risks and ensuring the integrity of global financial systems.

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 16: Peace, Justice and Strong Institutions
   • The article discusses financial crime, money laundering, fraud, and the need for verification and policy adaptation, which are directly related to promoting peaceful and inclusive societies, providing access to justice, and building effective, accountable institutions.
2. SDG 8: Decent Work and Economic Growth
   • The article highlights forced labor scam operations and the impact of fraud on legitimate businesses, which relate to promoting sustained, inclusive economic growth, full and productive employment, and decent work for all.
3. SDG 9: Industry, Innovation and Infrastructure
   • The role of FinTech, AI, and digital innovations in both enabling financial crime and creating new economic opportunities connects to fostering innovation and building resilient infrastructure.
4. SDG 10: Reduced Inequalities
   • The article implies issues around illicit financial flows that exacerbate inequalities by enabling criminal networks and undermining economic fairness.

2. Specific Targets Under Those SDGs Identified

1. SDG 16 Targets
   • Target 16.4: Significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets, and combat all forms of organized crime.
   • Target 16.5: Substantially reduce corruption and bribery in all their forms.
   • Target 16.6: Develop effective, accountable, and transparent institutions at all levels.
2. SDG 8 Targets
   • Target 8.7: Take immediate and effective measures to eradicate forced labor, end modern slavery and human trafficking, and secure the prohibition and elimination of the worst forms of child labor.
   • Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation.
3. SDG 9 Targets
   • Target 9.5: Enhance scientific research, upgrade technological capabilities of industrial sectors, including financial technologies.
4. SDG 10 Targets
   • Target 10.5: Improve the regulation and monitoring of global financial markets and institutions.

3. Indicators Mentioned or Implied to Measure Progress

1. Indicators for SDG 16
   • Indicator 16.4.1: Total value of inward and outward illicit financial flows (in current US dollars).
   • Indicator 16.5.1: Proportion of persons who had at least one contact with a public official and who paid a bribe to a public official, or were asked for a bribe.
   • Indicator 16.6.2: Proportion of the population satisfied with their last experience of public services.
2. Indicators for SDG 8
   • Indicator 8.7.1: Proportion and number of children aged 5–17 years engaged in child labor, by sex and age.
   • Indicator 8.3.1: Proportion of informal employment in non-agriculture employment, by sex.
3. Indicators for SDG 9
   • Indicator 9.5.1: Research and development expenditure as a proportion of GDP.
   • Indicator 9.5.2: Number of researchers per million inhabitants.
4. Indicators for SDG 10
   • Indicator 10.5.1: Financial Soundness Indicators (such as capital adequacy, asset quality, earnings and profitability, liquidity).

4. Table of SDGs, Targets, and Indicators

Source: thomsonreuters.com