Money Laundering - Explained
What is Money Laundering?
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Table of ContentsWhat is Money Laundering?Why Launder Money? Electronic money launderingPreventing money laundering
What is Money Laundering?
Money laundering refers to the conversion of black money or money generated from criminal activities into something that looks legal. As the money is procured from unethical or criminal operations, it tends to be dirty. And the process of money laundering aims to provide a clean appearance to such money or funds. In simpler terms, money laundering is considered to be a crime.
- There are lots of money laundering methods used by criminals in order to make dirty mean look clean.
- It has become easier for criminals to make easy transfers and withdrawals without any authentication or verification in lieu of e-banking and cryptocurrencies.
- Several fed authorities have made it a priority to minimize money laundering, and their main concern is to control fundings made by and for terrorist groups.
Back To: Legal Disputes: Civil and Criminal Law
Why Launder Money?
Money laundering tends to be significant for criminal firms or persons who tend to make effective use of money procured from unlaw sources. It could be risky to deal with huge amounts of illegitimate cash. Criminals require a medium for transferring their money in legal banks and financial institutions. And they can only make this happen by ensuring that such income or money is a result of legit operations. If banks find any kind of dubious activity or are suspicious about huge transactions involving cash, they should consider them as a sign of money laundering and report them. Money laundering consists of three steps including placement, layering and integration. Placement helps a person in placing the illegal money in the legal financial institution. Layering helps in hiding the original source of money with the help of several transactions and bookkeeping activities. The last stage of integration enables the usage of laundered amount of money to be withdrawn from the concerned bank account, and used for any purpose by the criminals. The process of money laundering involves several methods varying from easy to complicated. Generally, a business operating on cash activities is used and owned by a criminal business entity for money laundering purposes. For instance, a person or a business entity owning a food chain may inflate cash receipts on a daily basis for channelizing the illegit cash through the food chain to its respective bank account. And then, the owner can withdraw the funds whenever required. Such kinds of organizations are also known as fronts. Smurfing, also referred to as structuring, is yet another popular type of money laundering where the criminal segregates huge amounts of cash into small chunks of tiny deposits. Sometimes, they may use several accounts instead of one to avoid the chances of being caught. One can also use money laundering through currency exchange, mules, and wire transfers. Cash smugglers conceal huge cash transactions across boundaries and deposit their money in international banks where the laws for money laundering are not that rigid. Money laundering can also take place by making investments in commodities including gold and gems which are mobile in nature. Also, criminals invest in and sell real estate, and indulge in gambling, counterfeiting, and further make use of shell organizations which don't exist in reality.
Electronic money laundering
The advent of internet technology has further made it a task to identify money laundering activities. With more e-banking transactions, unknown e-transfers, and peer-to-peer transactions via cell phones, it has become difficult to identify unethical and unlawful money transfers. Also, proxy servers and unidentified software makes it difficult to catch the last or third phase of money laundering, integration. One can easily make the transfer or withdrawal of money in a suspicious manner without leaving any sign of the IP address. Online auctions, online gambling platforms, and e-gaming websites support money laundering activities where illegal money gets converted into gaming currency, and then further into clean money that can be utilized for any activity. The most exclusive method of money laundering is cryptocurrency like bitcoin. Though they are not completely unidentifiable, they are being used more in blackmail agendas, for trading drugs, and many other criminal-based activities.They are increasing in size because of being relatively anonymous with more newer currency forms. Anti-money-laundering laws sometimes dont succeed in tracing such forms of criminal activities.It is so because majority of these laws revolve around identifying or tracing dirty money as it goes through conventional financial institutions.
Preventing money laundering
Government authorities from different nations have been instilling efforts to fight money laundering for many years. They are working on developing rules and regulations that ask financial institutions to have the required software for identifying fraudulent activities. As per a survey from PwC conducted in 2018, money laundering activities comprise of around $1 trillion to $2 trillion on an annual basis that is nearly equivalent to 2% to 5% of the worldwide gross domestic product. In the year 1989, G7 countries created a worldwide committee known as the Financial Action Task Force so as to reduce money laundering activities throughout the world. In the initial phase of 2000s, the agenda was extended to fighting the activities that supported terrorism. In the year 1970, the US enforced the Banking Security Act that involved reporting of cash-based transactions beyond $10,000 to the Department of the Treasury. Besides, any activity that seemed to be suspicious was supposed to be reported to a suspicious activity report. The Financial Crimes Enforcement Network FinCEN share such information and insights with regional crime inspectors, worldwide agencies or international financial intelligence bodies. Though such rules helped in tracing criminal transactions, money laundering was considered to be a legal activity in the US until the year 1986 through the enforcement of the Money Laundering Control Act. After 9/11 terrorist event, the US Patriot Act increased the extent of money laundering efforts by permitting investigative techniques which were created for controlling drug and crime trafficking. The Association of Certified anti-money laundering specialists provides with an executive position known as a Certified Anti-Money Laundering Specialists (CAMS). People who have this certification can start working as brokerage compliance managers financial intelligence unit managers, financial crimes investigative inspectors, surveillance experts, etc.