Financial contracts whose value is derived from the performance of underlying assets, rates, or indices. Commonly utilized for hedging, speculating, and leveraging investment positions, including options, futures, and swaps.
Main/
Derivatives
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Code
IN0021
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Name
Derivatives
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Version
1.0
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Category
Securities & Investment Vehicles
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Created
2025-02-04
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Modified
2025-04-02
Related Techniques
- Criminals engage in 'paper gold' derivatives (e.g., futures, swaps, or options) to obscure their fiat sources.
- Complex trades across multiple jurisdictions hinder investigators' efforts to track illicit origins.
- Profits from these derivative positions can then be introduced into the financial system as seemingly legitimate investment returns.
- Offenders use currency forwards, options, or swaps to present an appearance of legitimate hedging strategies.
- In reality, they embed atypical currency flows into these contracts, effectively layering illicit proceeds by rolling positions across multiple markets.
- Through recurring derivative trades, criminals blur the transactional chain, making it difficult for financial institutions to identify irregular cash flows tied to foreign exchange operations.
- Spoofing or layering orders in derivatives can deceive market participants about true supply and demand, influencing underlying asset prices.
- Criminals place offsetting trades through multiple accounts, creating artificial market momentum that boosts the value of positions purchased beforehand.
- Once prices have shifted favorably, criminals cash out profits, portraying illicit funds as legitimate gains realized from derivatives trades.
- Derivative contracts (e.g., futures or options) are exploited for spoofing, layering, or wash trading processes to manipulate market signals.
- Criminals place large orders and quickly cancel or offset them, distorting perceived demand or supply, which can artificially move prices.
- This complexity conceals the true source of funds by dispersing illicit money across multiple trades and accounts under the guise of legitimate, high-volume trading.
- Offsetting derivative contracts (e.g., futures, swaps) allow criminals to rapidly conduct mirrored trades across accounts or jurisdictions under common control.
- Complex structured products can hide beneficial ownership and make it appear as hedging or routine risk management, when in fact the transactions are circular and designed only to move illicit funds.
- The notional value and flexibility of derivatives further facilitate large-scale layering, avoiding obvious red flags such as oversized cash deposits or wire transfers.
- Offsetting trades are executed by opening mirrored derivative positions (e.g., futures or options) in multiple accounts controlled by the same beneficial owners.
- The minimal net economic effect of these trades blurs the true purpose of moving illicit funds, as rapid entry and exit points conceal actual fund flows from auditors and compliance systems.