Value Instruments Taxonomy Design

1. Introduction & Purpose

In the realm of money laundering and terrorist financing analysis, value instruments refer to any assets or vehicles—physical, digital, tangible, or intangible—that can be used to store, transfer, or disguise value. This includes conventional items, like cash or securities, as well as less obvious instruments, such as domain names or in-game currencies. By mapping these instruments to known laundering techniques, investigators and compliance teams can better understand how illicit actors move or hide funds and which controls might disrupt them.

2. Core Categories & Definitions

A common approach is to define broad categories that each capture one type of instrument. For example:

1. Fiat (Physical/Digital) & Paper-Based Payment Instruments
   • E.g.: Cash, checks, money orders, digital fiat currencies, bearer negotiable instruments
2. Card-Based & Stored-Value Payment Instruments
3. Bank & Deposit Accounts
4. Trade & Commercial Instruments
5. Securities & Investment Vehicles
6. Commodities & High-Value Tangible Assets
7. Intangible/Non-Physical Property
8. Crypto & Other Digital Tokens
9. Insurance & Other Financial Contracts

Although these categories have definitions, they are not strict or mutually exclusive. Overlaps are accepted as part of the design principle, acknowledging that real-world instruments often blur boundaries.

Below is a table summarizing each group along with a few examples to illustrate what typically falls under each category.

3. Design Compromises & Bottom-Up Approach

This taxonomy reflects a bottom-up approach, meaning it was built by:

1. Listing actual instruments encountered in real laundering typologies,
2. Grouping them according to common usage and regulatory treatments,
3. Accepting that some instruments could appear in more than one place if we tried to be strict.

However, to keep each instrument in exactly one place, we choose the best-fit group. This approach is purposefully flexible:

• We recognize that jurisdictional differences can classify certain items (e.g., carbon credits) as securities in one region but intangible property in another.
• We allow categories to overlap conceptually while assigning each item to only one group for simpler searching and filtering.

4. Overlap & Non-Exclusive Definitions

Despite the single‐dimension placement, the definition boundaries aren’t absolute. For instance:

• Gold Certificates – Some institutions treat them like “commodities” because they directly represent gold. Others treat them more like “securities” (since they represent a claim on an underlying asset).
• Digital Fiat Currency – Might fit neatly with “Fiat & Paper‐Based Instruments,” or it might be considered a “CBDC” in certain jurisdictions if central banks back it in a specific manner.
• Bearer Shares – They are physically transferable but still represent equity; hence they often land in “Securities & Investment Vehicles.”

This lack of strict hierarchy is useful because it accommodates real‐world complexity. Financial crime analysts often just need a “primary classification” to locate items, then rely on additional metadata or tags (e.g., “Is it intangible?” “Is it regulated as a security?”) to refine the search.

5. Mapping Instruments to Techniques

A core reason for creating such a taxonomy is to see which instruments criminals might exploit in various laundering schemes. For example:

• Digital Fiat Currency or Digital Wallets can be transferred simply by handing over private keys, effectively enabling peer-to-peer transfers outside typical bank rails.
• Art & Collectibles can be used in complex trade-based laundering due to subjective valuations.
• In-game currencies can be turned into real cash if the platform allows player-to-player trading.

By labeling each instrument with a single primary category but letting the definitions remain flexible, analysts can quickly see:

1. Which category does a technique most often exploit?
2. Which detection or compliance controls might apply? (e.g., enhanced KYC for digital wallets, specialized trade monitoring for art).

6. Justifying Non-Traditional Items as Value Instruments

In many jurisdictions, something like a digital gaming account or an online wallet might not be formally recognized as a “traditional instrument.” However, criminals can still use these mediums to store or transfer value.

For example:

• Gifting a private key for a cryptocurrency wallet
• Handing over a high-level online gaming account with store credit or valuable in-game items
• Sharing a domain name that has significant brand value in the black market

Hence, we label them as value instruments because from a money laundering perspective, they can serve the same function: an asset that can be bought, sold, bartered, or used to hide illicit funds.

7. Jurisdictional Differences & Variable Treatments

Laws differ across countries, so the same item may be:

• Treated as a security in one region,
• Treated as a commodity in another,
• Or remain unregulated in yet another place.

Carbon credits are a classic example:

• In Country A, they might be licensed exactly like a security.
• In Country B, they might be purely considered intangible property rights.
• In Country C, they might have a special “environmental commodity” classification.

Because of these variations, a single, rigid classification cannot accommodate every legal environment. Our approach acknowledges that local regulation can shift an item’s category.

8. Examples of Different Interpretations

• Gold Certificates:
  • One institution might put them in “Commodities” because they’re effectively paper gold.
  • Another might see them as “Securities & Investment Vehicles,” particularly if they trade on an exchange.
  • A third might store them under “Intangible Property” if the local legal system treats them as claims on gold but not strictly a commodity or security.
• Bearer Negotiable Instruments:
  • Often placed with physical payment instruments because they circulate “hand‐to‐hand.”
  • But one could theoretically group them with “Securities,” especially if they represent short‐term debt from a reputable issuer.

These differences highlight why no single universal classification can capture all local nuances. However, for the purpose of an AML/CFT knowledge graph, the real objective is to ensure each item has one consistent home so users can find it, while recognizing that local legal frameworks may differ.

9. Conclusion: Practical Flexibility Over Strict Hierarchies

In designing a single‐dimension taxonomy:

1. We accept conceptual overlap but demand each item appear once to avoid duplication.
2. We maintain flexible definitions that are not mutually exclusive and do not form a strict hierarchy.
3. We acknowledge that instruments can be used in creative ways to store or transfer value—some not traditionally seen as “financial instruments.”
4. We remain mindful of regional variations and potential reclassifications (like carbon credits as securities).

This bottom-up design ensures the taxonomy mirrors real-world usage—where criminals exploit everything from domain names to online gaming credits—while giving analysts a practical tool to quickly locate each instrument and link it to laundering techniques. It’s precisely because value can hide in unexpected places that a broad, flexible classification system is essential for effective AML/CFT intelligence.