Why fight money laundering? Money laundering poisons the economy and society. According to scientific studies, billions of Euros in criminal proceeds are laundered in or through the Netherlands each year. The money originates from things like drugs trafficking, fraud and financial fraud. Money is the driving force for almost all forms of crime. Money laundering encourages criminal behaviour because it allows criminal money to be used in daily life.
The investments made by criminals may even give them a degree of influence over people, businesses and legal sectors. This is why money laundering is such a serious threat to the economy and why it also affects the integrity of the financial sector. By tackling money laundering we are tackling a major source of criminal motivation.
Taken at its simplest, money laundering is a process by which the origins and ownership of money, generated as a result of criminal activity, can be concealed. This process is usually completed several times. The process allows the money to be controlled, without the fear that the transaction will lead back to the originator s of the proceeds.
Criminal organisations utilise this process to enable them to exploit further criminal opportunities in a systematic and large scale manner. The criminalisation of the actual or attempted laundering of proceeds of crime is also quite recent. However, the practice of disguising income derived from illicit activities can be traced back to the 13th Century B.
C, when the oceans and seas were originally used as international trade routes. Rife with pirates, the shipments were often purged and plundered for valuable commodities and assets. Pirates were arguably pioneers in the practice of laundering such articles as they and even the empires they served sought to profit from their treacheries in a way that did not attract any ramification. As the profile of money laundering has heightened, it has become an increasingly expensive, time-consuming process to undertake and ultimately dangerous.
By placing proceeds into a bank account or other negotiable, redeemable or saleable instrument or object, the originator is attracting tax liability and other obligations, which if not fulfilled, can ultimately lead to the illicit origins of the proceeds being discovered. His imprisonment in Alcatraz ultimately brought an end to his Chicago based operations. The Internet has put a new spin on the old crime. The rise of online banking institutions, anonymous online payment services and peer-to-peer P2P transfers with mobile phones have made detecting the illegal transfer of money even more difficult.
Moreover, the use of proxy servers and anonymizing software makes the third component of money laundering, integration, almost impossible to detect—money can be transferred or withdrawn leaving little or no trace of an IP address. Money can also be laundered through online auctions and sales, gambling websites, and virtual gaming sites, where ill-gotten money is converted into gaming currency, then back into real, usable, and untraceable "clean" money.
The newest frontier of money laundering involves cryptocurrencies , such as Bitcoin. While not totally anonymous, they are increasingly being used in blackmail schemes, the drug trade, and other criminal activities due to their relative anonymity compared with more conventional forms of currency. Anti-money-laundering laws AML have been slow to catch up to these types of cybercrimes, since most of the laws are still based on detecting dirty money as it passes through traditional banking institutions.
Governments around the world have stepped up their efforts to combat money laundering in recent decades, with regulations that require financial institutions to put systems in place to detect and report suspicious activity.
The amount of money involved is substantial. In the early s, its purview was expanded to combating the financing of terrorism. While these laws were helpful in tracking criminal activity, money laundering itself wasn't made illegal in the United States until , with the passage of the Money Laundering Control Act.
Individuals who earn CAMS certification may work as brokerage compliance managers, Bank Secrecy Act officers, financial intelligence unit managers, surveillance analysts and financial crimes investigative analysts.
Financial Crimes Enforcement Network. Financial Industry Regulatory Authority. Office of the Comptroller of the Currency. United Nations Office on Drugs and Crime. Financial Action Task Force. Career Advice. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At this stage, the laundered funds may also only transit bank accounts at various locations where this can be done without leaving traces of their source or ultimate destination.
Finally, at the integration phase, launderers might choose to invest laundered funds in still other locations if they were generated in unstable economies or locations offering limited investment opportunities. The integrity of the banking and financial services marketplace depends heavily on the perception that it functions within a framework of high legal, professional and ethical standards.
A reputation for integrity is the one of the most valuable assets of a financial institution. If funds from criminal activity can be easily processed through a particular institution — either because its employees or directors have been bribed or because the institution turns a blind eye to the criminal nature of such funds — the institution could be drawn into active complicity with criminals and become part of the criminal network itself.
Evidence of such complicity will have a damaging effect on the attitudes of other financial intermediaries and of regulatory authorities, as well as ordinary customers. As for the potential negative macroeconomic consequences of unchecked money laundering, one can cite inexplicable changes in money demand, prudential risks to bank soundness, contamination effects on legal financial transactions, and increased volatility of international capital flows and exchange rates due to unanticipated cross-border asset transfers.
Also, as it rewards corruption and crime, successful money laudering damages the integrity of the entire society and undermines democracy and the rule of the law. Launderers are continuously looking for new routes for laundering their funds. Economies with growing or developing financial centres, but inadequate controls are particularly vulnerable as established financial centre countries implement comprehensive anti-money laundering regimes.
Differences between national anti-money laundering systems will be exploited by launderers, who tend to move their networks to countries and financial systems with weak or ineffective countermeasures.
Some might argue that developing economies cannot afford to be too selective about the sources of capital they attract. But postponing action is dangerous. The more it is deferred, the more entrenched organised crime can become. Fighting money laundering and terrorist financing is therefore a part of creating a business friendly environment which is a precondition for lasting economic development. The possible social and political costs of money laundering, if left unchecked or dealt with ineffectively, are serious.
Organised crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments.
The economic and political influence of criminal organisations can weaken the social fabric, collective ethical standards, and ultimately the democratic institutions of society. In countries transitioning to democratic systems, this criminal influence can undermine the transition. Most fundamentally, money laundering is inextricably linked to the underlying criminal activity that generated it. Laundering enables criminal activity to continue.
Money laundering is a threat to the good functioning of a financial system; however, it can also be the Achilles heel of criminal activity.
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