We all hear and use the term money laundry, but where did that term originate from and when? It is said that, money laundry originated from Mafia ownership of Laundromats (self service laundry) in the United States. Mafia were earning a lot of money from extortion, prostitution, gambling and bootleg liquor, they needed to show a legitimate source for their money. Laundromats were used to cover these illicit earnings, because they are cash businesses and this was an undoubted advantage to people like Al Capone who purchased them. On the other hand, other say that the term originated because it perfectly describes what takes place – illegal, or dirty, money is put through a cycle of transactions, or washed, so that it comes out the other end as legal, or clean, money.
There is no specific date of when money laundry began. However, the conviction of Al Capone in 1931 may have been the trigger that set the money laundry business in motion. Money laundering seems to have started after Meyer Lansky got affected by the conviction of Capone for something as obvious as tax evasion. He was determined that the same fate would not befall him and that’s when he discovered the benefits of numbered Swiss Bank Accounts. The use of the Swiss facilities gave Lansky the means to incorporate one of the first real laundering techniques, the use of the ‘loan-back’ concept, which meant that illegal money could now be disguised by ‘loans’ provided by compliant foreign banks, which could be declared to the ‘revenue’ if necessary, and a tax-deduction obtained into the bargain.
Money laundering’ as an expression is fairly recent. The word was first used in newspapers reporting the Watergate scandal in the United States in 1973. The first appearance of money laundering in a judicial or legal context was in 1982, in America in the caseA US v $4,255,625.39. The term is now widely accepted and used throughout the world.
The simplest yet most comprehensive definition of Money Laundering is the criminal practice of filtering ill-gotten gains or “dirty” money through a maze or series of transactions, so the funds are “cleaned” to look like proceeds from legal activities. Money laundering does not have to involve cash at every stage of the laundering process. In practice, criminals are trying to disguise the origins of money obtained through illegal activities so it looks like it was obtained from legal sources. Otherwise, they can’t use the money because it would connect them to the criminal activity, and law-enforcement officials would seize it. Money laundering is a serious charge; in 2001 U.S. prosecutors obtained almost 900 money-laundering convictions with an average prison sentence of six years. The rise of global financial markets makes money laundering easier than ever, countries with bank-secrecy laws are directly connected to countries with bank-reporting laws, making it possible to anonymously deposit “dirty” money in one country and then have it transferred to any other country for use. However, organized crime will always continue to innovate new ways to carry out their illegal transactions. Anti Money Laundry (AML) on the other hand is the fight against money laundry. It is used in financialA andA legalA industries to describe the legal controls that requireA financial institutionsA and other regulated entities to prevent or reportA money launderingA activities. The guidelines of AML came into prominence globally after theA September 11, 2001 attacksA and the subsequent enactment of theA USA PATRIOT Act.
As we have previously mentioned Money Laundering is not a single act, but is a 3 steps procedure. These steps can occur either simultaneously or one by one, and they are:- Taken from Money Laundering in the EU https://people.exeter.ac.uk Placement: The 1st stage in the washing cycle is merely the process of placing unlawful cash proceeds into traditional financial institutions. The process of placement can be carried out through many processes including: Currency SmugglingA – This is the physical illegal movement of currency and monetary instruments out of a country. Structuring Deposits (Smurfing) – Breaking up large amounts of money into smaller, less-suspicious amounts Bank ComplicityA – This is when a financial institution, such as banks, is owned or controlled by unscrupulous individuals suspected of conniving with drug dealers and other organized crime groups. Currency ExchangesA – In a number of transitional economies the liberalization of foreign exchange markets provides room for currency movements and as such laundering schemes can benefit from such policies. Securities BrokersA – Brokers can facilitate the process of money laundering through structuring large deposits of cash in a way that disguises the original source of the funds. Blending of Funds- Enables the funds from illicit activities to be obscured in legal transactions.
Layering: The process of separating the proceeds of criminal activity from their origin through the use of layers of complex financial transactions, such as converting cash into traveler’s checks, money orders, wire transfers, letters of credit, stocks, bonds, or purchasing valuable assets, such as art or jewelry. Integration: The process of using an apparently legitimate transaction to disguise the illicit proceeds, allowing the laundered funds to be disbursed back to the criminal. Different types of financial transactions, such as sham loans or false import/export invoices, can be used.
Banks have a major role in fighting against money laundering as they are at forefront of these activities. Several measures have been taken to ensure that all banks cooperate with their government in their anti-money laundering efforts. In the USA for instance, TheA Bank Secrecy Act 1970 (BSA)A basically eliminates all anonymous banking in the United States. It gives the Treasury Department the ability to force banks to keep records that make it easier to spot a laundering operation. This includes reporting all single transactions above $10,000 and multiple transactions totaling more than $10,000 to or from a single account in one day. A banker who consistently violates this rule can serve up to 10 years in prison. Similar measures include theA 1986 Money Laundering Control ActA which makes money laundering a crime in itself instead of just an element of another crime, and the1994 Money Laundering Suppression ActA which orders banks to establish their own money-laundering task forces to weed out suspicious activity in their institutions.
Know your customer (KYC) is the due diligence and bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them. Gathering as much relevant information as you can about your client in the present can prevent any incidents that might happen in the future. Also, banks must ensure that appropriate bank personnel are trained in all aspects of the regulatory requirements of the AML and anti-money laundering policies and procedures.
The Financial Action Task Force (FATF), which has 33 member states and international organizations on its roster list as of 2005, has developed into the most prominent international organization for fighting against money laundering. The FATF issued the “40 Recommendations” for banks (there are actually 49 now) that have become the anti-money-laundering standard. These recommendations include: Identify and do background checks on depositors. Report all suspicious activity. (For example, if a background check revealed that depositor “A” works in a steel factory, and he typically deposits $2,000 every two weeks, a series of 10 $9,000 deposits over the course of two weeks should raise a red flag.) Build an internal taskforce to identify laundering clues. By following these recommendations, banks and financial institutions can set-up guidelines to protect themselves from any money laundering threat. While increased worldwide efforts are making a small dent in the money-laundering industry, the problem is huge, and the money launderers are winning overall. Countries with bank-secrecy rules, which arguably have legitimate benefits to the honest depositor, make it extremely hard to track money once it’s transferred overseas. Still, the FATF’s continues to work hard to aid and cooperate with banks in the effort against money laundering. However, only increased global awareness and cooperation can curb the success of the money-laundering industry.
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