Secretariat, an organisation comprised of experts who provide advisory services on high-stakes legal, risk and regulatory matters, also publishes resources like the and the Secretariat Economic Crime Index (Seci) to help clients navigate the financial arena and mitigate risks.
It classifies 177 countries into four categories: transparent titans; vigilant players; reactive reformers; and regulatory laggards. Nineteen countries made it to the top group, including Luxembourg. Secretariat specified that these nations must “demonstrate transparency, robust anti-financial crime frameworks and strong enforcement mechanisms, positioning them as leaders in preventing financial crime.” The grand duchy, in fact, came in fourth place in the Secretariat Economic Crime Index, after top-ranked Finland, Denmark and Iceland.
The organisation commented that governance “typically lowers economic crime risks,” but warned that some financial hubs face “unique vulnerabilities due to their vast financial sectors and cross-border activity.” It also stated that “many remain transparent titans through proactive regulation and enforcement.”
Private banking hubs are a natural target
The organisation noted that as major private banking hubs, Luxembourg and Switzerland “not only attract substantial legitimate wealth but also face risks from illicit funds seeking anonymity and asset protection.” Secretariat acknowledged the countries’ “strong legal and regulatory frameworks,” but warned that “offshore banking services and wealth management sectors make them vulnerable to financial crime, particularly in the realm of private banking and investment funds.”
Secretariat commented that new paths to bypass anti-money laundering (AML) measures are emerging primarily due to technological advancements and evolving financial systems.
Virtual assets
The rapid evolution of virtual assets--including cryptocurrencies and decentralised finance (defi)--presents new criminal methodologies for bypassing AML measures. Secretariat observed that criminals are increasingly leveraging sophisticated techniques such as to obscure the origins of illicit funds before blending them into legitimate financial systems.
It noted that defi platforms are also exploited due to vulnerabilities in smart contracts, allowing illicit funds to be layered through complex transactions and complicating tracking efforts. The anonymity and cross-border transfer complexities associated with cryptocurrencies introduce significant risks.
Disruptive AI technology and deepfake frauds
Secretariat reported that AI-driven deepfake technologies enable sophisticated impersonation and fraud, challenging traditional identity verification systems. Fraudsters can impersonate high-value customers or executives to authorise illicit transactions.
The rise in Authorized Push Payment (APP) fraud, facilitated by faster payment systems and AI, involves “convincing victims to authorise transactions under false pretences,” making it appear legitimate and thus bypassing typical AML red flags at the initiation stage.
Exploitation of regulatory arbitrage and weaknesses
The report highlights that certain regions are disproportionately susceptible to financial crimes due to “weaknesses in regulatory frameworks, insufficient enforcement, and pervasive corruption.” This allows illicit financial flows to enter the system more easily. The potential for a temporary gap in international anti-corruption efforts due to shifting geopolitical priorities and enforcement agendas could also create opportunities for bypassing AML controls.
Trade-based money laundering (TBML)
Whilst not entirely new, TBML is highlighted as a risk that could become more difficult to detect and address, particularly where “oversight is weakened or inconsistently applied” due to rising economic protectionism and shifting geopolitical priorities.
Shadow banks
Criminals take advantage of non-traditional financial intermediaries that function outside of the regulated banking system, such as payment processors, hedge funds, and private lenders. The report commented that these organisations can be used to transfer and conceal illegal funds while eluding conventional compliance procedures.
Prepaid card schemes
The anonymity, ease of use and global accessibility of prepaid cards make them an avenue for white-collar fraud and external threats, allowing for money laundering and concealment of illicit proceeds due to the potential absence of stringent KYC/AML controls in some programs.
The report emphasises that these evolving methods necessitate a proactive defence against financial crime, including leveraging regtech, strengthening cybersecurity, enhancing monitoring and fostering cross-border data sharing.
Paperjam’s request for an interview with Secretariat was left unanswered.