Money Laundering Typologies and Red Flag Identification: Enhancing Financial Institutions’ Detection Capabilities

Abstract

Money laundering poses a significant threat to the integrity of the financial system. This paper examines the major money laundering typologies and red flags that can help Pakistani financial institutions enhance their anti-money laundering (AML) detection capabilities. A critical evaluation of the literature on money laundering methods and indicators is provided. The key research objectives are to categorize the common money laundering techniques in Pakistan, identify red flag transactional behaviors, and propose an AML compliance framework tailored for local financial institutions. Conceptually, the study utilizes DiMaggio and Powell’s (1983) institutional theory to explain internal and external pressures driving adoption of AML controls. Methodologically, a mixed methods approach combining case study analysis and expert surveys is employed. The paper concludes with recommendations for reforming AML regulations, developing detection tools, and strengthening information exchange to combat money laundering in Pakistan more effectively.

Keywords: Money laundering, Anti-money laundering (AML), Typologies, Transaction monitoring