Money Laundering

What is money laundering?

Money laundering is the process by which the proceeds of crime or illicit activity are concealed, by “laundering” or cleaning of the “dirty money”. Proceeds from illegal activity may include gambling, crime, fraud, terrorist activity, bribes or money obtained due to the influence of important positions.

Money is “laundered” through any one or several of the following processes:

– routing illegal money through a complex set of financial services or banking transactions,
– using a firm or institution for harvesting illegal funds,
– splitting up cash in small amounts to purchase bearer bonds that do not require ownership information,
– smuggling bulk cash and parking it in offshore accounts,
– using over or under valuations of invoices in trades,
– forming fictitious trust and shell companies, that have fictitious owners and addresses,
– round-tripping of bullion, or cash,
– purchasing controlling interest in a bank or high-risk business, for moving transactions without scrutiny,
– buying chips in casinos, and encashing unused chips or winnings as cheques,
– purchasing life insurance policies with unidentified third parties,
– purchasing high-value assets like luxury cars, jewellery and real estate, and/or selling them.

What are the risks associated with money laundering?

Money laundering occurs in many different forms. However, all forms of money laundering pose tremendous risks to the business organizations they involve with.

Risks associated depend upon the customer/entity type, industry or sector, products or services, location of business and customers, customer behaviour, touchpoints of customer entry, delivery channels and payment processes, source and destination of customers’ funds come, size and pattern of business transactions, and complicated ownership structures.

Risk assessment depends upon the above factors, as each business carries its own associated risks.

Who does money laundering affect?

Unchecked money laundering can lead to the collapse of a financial institution or business, as the entity finds itself involved in fraudulent transactions, loan defaults, non-payments and other corrupt business practices. The brand image takes a beating, ultimately affecting both, the customer and the investor confidence.

Other equally serious risks included being penalised by industry bodies and statutory/regulatory authorities. This may take the form of huge fines or even imprisonment.

So money laundering affects every individual or entity who is unwittingly or knowingly a part of the money laundering process. It affects every stakeholder, including the financial system, the industry and the markets.

A list of global organisations that aim to combat money laundering

Financial Action Task Force on Money Laundering (FATF)
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International Money Laundering Information Network 
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Australian Transaction Reports and Analysis Centre (AUSTRAC)
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European Union (EU) Anti-Money Laundering and Financing of Terrorism Directives
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The U.K. Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations
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The Canadian Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)
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Hong Kong Anti-Money Laundering and Counter-Financing of Terrorism Act
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Singapore Anti-Money Laundering/ Countering the Financing of Terrorism Notices under the MAS Act

What are the global impacts of money laundering?

The global effect is staggering in social, economic and security terms. As gains from illegal activities are easily steered through the financial system, the threats of uncontrolled drug trafficking and financial crimes are increasing. Terrorist organisations are also using engaging in money laundering to fund terror and rioting.