An estimated 2-5% of global GDP is estimated to be ‘laundered’ money. That is up to USD 2 trillion that is illegally processed and ends up in the hands of the corrupt and the criminal. From the laundromats used by the Italian Mafia in the 1920s to the cryptocurrency and online crime that happens in the 2020s, money laundering is a huge issue which authorities are always working to combat. Here’s what you need to know about Anti-Money Laundering, how it works, and how to make sure your business complies with regulations and stays away from criminal activity.
The process of money laundering
Money laundering is the process of taking ‘dirty’ illegitimately earned funds, processing them through financial institutions to pass them off as legitimate. Often these are run through cash-based businesses such as the laundromats which gave ‘laundering’ its name. These small businesses can pass as legitimate unless they are heavily scrutinized. Criminals can deposit funds into a bank through these cash-based business accounts and then make another transaction, purchase, or withdrawal.
There are 3 stages to the money laundering process. Placement, Layering, and integration. Placement is where the funds are initially brought into the financial system through a seemingly legitimate source. Then is layering which is a sequence of transactions, going from an account to account until Integration, meaning the money trail has been lost through all the transactions and purchases or withdrawal can be made and pass as legitimate.
The Fight against Money Laundering
The fight against money laundering has to start with financial institutions. With trillions of dollars going through these companies, they are on the front line and have to be proactive in preventing criminals from’ cleaning’ their dirty money. In their arsenal are the Anti-Money Laundering (AML) policies, procedures, laws, and regulations set out to prevent these criminal activities. According to information provided on National Law Review anti-money laundering consulting you can familiarize yourself with a great overview of the laws and regulations that must be complied with by banks and other institutions. Any institutions that offer credit services or deposit accounts need to follow these regulations so they themselves are not subject to criminal activity.
Banks and financial institutions have to employ professional units to monitor and detect any financial activity that is suspicious and to make sure that the institution complies with AML regulations. By having designated professionals that oversee all transactions and procedures relating to money laundering, they can make it tougher than ever to process money illegally.
Know Your Customer (KYC)
How does a bank or institution know if your money is clean or dirty? You may be familiar with ‘holding periods’ at banks, where deposits are not available for a period of around 5 working days. This can sometimes be frustrating, however, it is necessary for financial institutions to carry out their due diligence and make sure they comply with regulations. This includes identity checks, financial background checks, and in cases of larger transactions ($10,000 or more) a compliance report.
If an account or transaction is flagged as suspicious it would normally be forward to financial law enforcement officials or agencies. Police and financial agencies can gain access to the financial records of the account to investigate for any money laundering or other illegal activity.
In cases where funds are seized from the criminals, money can be returned to the victims of the crimes.
Of course, monetary transactions are not limited to your nation, and with more transactions than ever, international bodies need to regulate and guide nations on combating money laundering. In 1987 the Financial Action Task Force (FATF) was created by the G7 countries to protect the international financial system from criminal misuse. Since its inception, it has published numerous recommendations that have helped craft AML regulations around the world. The FATF also applies pressure on nations to comply with international standards and is key to the crackdown on tax havens and offshore accounts. The International Monetary Fund (IMF), The World Bank, and The United Nations Office on Drugs and Crime (UNODC) are also key institutions in the fight against international money laundering. Helping countries and nations guard against criminal activity and offering support in terms of expertise, software, and analysis to advance AML standards internationally.
If you are running, managing, or working for a business, it is important to make sure you do your due diligence and don’t get your company caught up in investigations or suspicious activity. With all the regulations in place, you don’t want to fall on the wrong side of bad business practices. Monitoring your business expenses, choosing the right accounting system, and opening an account with the right institution are all big decisions and should be made carefully and thoroughly. These steps should be considered seriously when managing the finances of your business. By following regulations, working with financial experts, and having a good relationship with your financial institutions can help you avoid any AML problem in your business. Where you are a small business owner or working for a big company it’s important to comply with AML regulations and do your part to help combat money laundering.
What To Remember
Money laundering is one of the biggest illicit businesses in the world. Authorities and organizations are putting in huge efforts and resources to limit this criminal activity, but it can’t work without the cooperation of honest and legitimate businesses and companies. If you don’t do your due diligence or comply with regulations, you could end up assisting the criminals to launder their money and profit more from crime or corruption, or even worse, be the subject of hefty fines or even jail time. It’s not uncommon for drug cartels, terrorist organizations, or white-collar crime to launder and embezzle huge sums of money and take advantage of banks and businesses to launder their illegitimate money. Anyone working in finance should do their utmost to adhere to anti-money laundering laws and regulations and work together in the fight against money laundering criminals.