Detecting money laundering using filtering techniques: a multiple‐criteria index

Shenggang Yang and Lai Wei

Journal of Economic Policy Reform, 2010, vol. 13, issue 2, 159-178

Abstract: Money laundering is a dynamic activity attempting to circumvent anti‐money laundering (AML) actions. We propose a money‐laundering detection approach encompassing three separate detection measures applied simultaneously, providing a consolidated index to minimize circumvention. The index incorporates three detection measures: (1) deviations in trading volume and frequency; (2) unusual payments to or receipts from an atypical trade partner; and (3) Benford’s Law, based on the number of times a specific digit occurs in a particular position in numbers to detect financial fraud. Finally, we design a numerical test that any reasonable detection approach should satisfy. Our results successfully discover possible fraud planted in the simulated data.

Date: 2010
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DOI: 10.1080/17487871003700796

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