design and implement an anti-money laundering system using blockchain

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Modern society is characterized by increasing levels of global social mobility and uncertainty relating to levels of risk posed by internal and external security threats. Within this climate security driven by technology is increasingly being used by governments, corporate bodies and individuals to monitor and reduce risk. There has been an acceptance that the criminal justice system is limited in its capacity to control crime which has led to the exploration of other avenues for tackling crime and this has provided a market for private companies to push forward the growth of technological security innovations. Crime is a human experience and is as old as the human race. Crime is geographical. It occurs at a specific place, specific time and for a specific reason. It can affect everyone and anyone at any time (Malathi, & Santhosh, 2019).

Money laundering can be defined as any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources (Money Laundering, 2020). It is difficult to determine the magnitude of money laundering because these illicit financial flows remain hidden (Schott, 2020). A report issued by the United Nations Office on Drugs and Crime (UNODC) quoted that the total of all criminal proceeds amounted to $2.1 trillion in 2009. The study also shows that “Less than 1 percent of global illicit financial flows are currently seized and frozen” (Pietschmann, & Walker, 2022). This is concerning because money laundering not only enables the operation of criminal organizations such as drug and human traffickers but can also significantly distort the economies in which they enter.

The Financial Action Task Force (FATF) is an inter-governmental policy-making body that has helped to promote anti-money laundering efforts since its formation in 1989 (Financial Action Task Force, 2019). It has issued 40 recommendations to fight money laundering and nine special recommendations to combat terrorist financing which have been adopted by 32 countries (Financial Action Task Force, 2019). Unfortunately, implementing these strategies has proved to be difficult for both developed and lesser developed countries. According to a study conducted by PricewaterhouseCoopers in 2019, “over the last few years, in the U.S. alone, nearly a dozen global financial institutions have been assessed fines in the hundreds of millions to billions of dollars for money laundering and/or sanctions violations” (PricewaterhouseCoopers, 2019). It stands to say that if financial institutions are having difficulties implementing frameworks to prevent and detect money laundering, then our enforcement agencies are unable to adequately address the issue as well. The blockchain is seen as the main technological innovation of Bitcoin because it stands as a “trustless” proof mechanism of all the transactions on the network. Users can trust the system of the public ledger stored worldwide on many different decentralized nodes maintained by “miner-accountants,” as opposed to having to establish and maintain trust with the transaction counterparty (another person) or a third-party intermediary (like a bank) (Swan, 2020).

With the increase of communication system and management applications in our day-to-day life and financial sector developing an anti-money laundering system using blockchain will be a helpful software application. This application works on computer devices where public and investigation department can use to get effective service compare to the existing manual record management method. An anti-money laundering system using blockchain will enable the EFCC officials to have accurate statistics to draw analysis from, on information of a case, the year a crime was committed, who investigated it, etc.” This project is titled “Design and Implementation of an anti-money laundering system using blockchain”. Today, Computerization is a major advancement in technology that helped in many fields of organization. It makes information storage, manipulation and retrieval easier and faster thus saving time and manpower.

• Statement of the Problems

Manual crime records in the EFCC office, Enugu State, were maintained on paper, and were created and updated manually (typewriter or hand-written). Manual record keeping has resulted in many setbacks to the expected standard.

The bottleneck encountered includes:

1. Poor information circulation: Due to poor information circulation, many crime cases are not resolved or settled.
2. The process of finding the accused and justifying the case within the investigation department has been tedious, most times innocent citizens are convicted for crime not committed because of lack of prove. Or being wrongly accused.

• Criminal case is been investigated blindly or based on assumption, by facial look and appearance. Example. Situations where citizens will be arrested and torture to confess on being guilty of a crime.

1. Accuracy about cases being treated by this EFCC officials are not guaranteed a bit, because there might be a case of the accused being identical or forms of resemblance.
2. Time wastage: Delay in provision of vital information for decision making.

1.3 Aim and Objectives of the Study

The aim and objective of this study is to design and implement an anti-money laundering system using blockchain, which will assist the Investigation department in their bid to solve crimes with timely and useful information about criminals and/or their mode of operations so as to nip in the bud criminal activities in a given locality.

The aim and objectives are;

1. To develop software that will receive and store anti-money laundering reports.
2. To develop a system that will execute an anti-money laundering system using blockchain.

• To integrate a system that will help in anticrime fight, with the aim of bringing justices to the desk.

1. To make the anti-money laundering records available for publics to facilitate distribution to different EFCC stations.
2. To ensure data security by restricting unauthorized access to the anti-money laundering report database.

1.4 Significance of the Study

The project work will help in a good number of ways to cease the outdated form of executing an anti-money laundering system, it will also advance the knowledge of the public on how to process an anti-money laundering system. It will also help the management to ease the workload of EFCC officials.

There are many other advantages and some of them are listed below;

1. It saves a lot of time.
2. It is very convenient to use.

• Information processing is very fast and delays can be avoided.

1. It is inexpensive to use.
2. It helps the management in reducing costs.

Finally, this study will equally add to the existing body of knowledge on the subject matter. Besides, other researchers and students undergoing research work similar to the present study who may wish to use this work as a reference material or a spring board for their own work will find this work really useful.

1.5 Scope of the Study

This project is designed to support the EFCC department in processing anti-money cases by providing crime related information investigation analysis, capabilities for deleting and apprehension offenders. It encompasses the relevant aspects of information management system such as data handling storage of data and cases, updating of information. In view of the scope, anti-money laundering system using blockchain will be implemented to help in reporting, investigating, sanctioning any crime suspects and also stores anti-money laundering cases in EFCC office, Enugu office.

1.6 Limitations of Study

Some of the constraints that may have in one-way or another affected the outcome of this work include:

1. Lack of adequate fund to finance the project: this was one of the limitations to this work because much money is needed to carry out a detailed research work which is not easily borne by every student.
2. The limited knowledge of ASP.net and Visual Basic programming was great challenge to this project. However, more research was made to complete this project successfully.

1.7 Definition of Terms

Analyst: This is a person or professional who studies the problem encountered by a system and creates means of solving them by introducing a better system.

Anti-Money Laundering (AML): It is a set of policies, procedures, and technologies that prevents money laundering. It is implemented within government systems and large financial institutions to monitor potentially fraudulent activity (Corporate Finance Institute, 2022).

Authentication: it is the process of recognizing a user’s identity.

Blockchain: It is a distributed database or ledger that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format (Investopedia, 2022).

Code: It is a written guideline that helps to determine whether a specific action is ethical or unethical.

Computer: Computer is an electronic device operating the control of instructions stored in its memory that can accept data (input) manipulate the data according to a specified rules (processing) produces result output and stores the result for future use.

Crime: Crime is an illegal acts or ability that can be punishable by law of the land. It can be immortal act against humanity to extremity. Some examples are fraud, rapes, embezzlement and theft.

Data processing: It is defined as the entire process of converting or manipulating data into definite meaningful information (Adigwe, & Okoye, 2019).

Data: It is the facts collected for decision making they are facts that are kept to be processed to get more information.

Database Management System (DBMS): it is software which controls the flow of data and checks and checks on how data are stored.

Database: It is an organized /unique collection of related files. It is a collection of schemas, tables, queries, reports, views and other object.

Design: It is the art or process of designing how something will look, work.

Information: It is a processed data that can be read and understand.

Investigation Officers: They are officers that conduct inquiries to discover who committed crimes and to gather evidence to prosecute and convict suspects. Officers interview suspects and witnesses, examine evidence and conduct research through computer databases and other sources (Career Trend, 2019).

Money laundering: It is the process of illegally concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source (Morris-Cotterill, 2019).

Offence: An act omission which renders that person doing the act or making the omission liable to punishment under the criminal code or under any act or law.

Offense Report Information (ORI): This is a publication that with crime incidents, administrative and criminal report collected over a period of time.

Security: This helps to prevent unauthorized users from illegally accessing certain data within the database, it protects your data/ files.

Software: These are set of logically related instructions given to the computer to perform some specific tasks.

System: It is the collection of hardware and software, data information procedure and people.

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