The Concept of Money Laundering - Essay Example

?Write about the MONEY LAUNDERING and answer the following question: Concept forms effect role of banks in it role of the governments should it be introduced in educational courses? / can be stopped?? Introduction Money laundering (ML) is a method of hiding the origins and ownership of money earned though criminal activities. Thus, it involves “turning dirty money into clean money”, “washing drug money”, and “disguising criminal money”. The concept of money laundering has evolved over the years and hence money legitimately earned but not disclosed through above means for avoidance purposes involves money laundering. Furthermore, the ML does not have to involve physical exchange of money or currency. Modern concept therefore considers a transaction or formation of relationship to be a case of money laundering if it involves any form of property or benefit, tangible or intangible earned through criminal activity which includes tax evasion. ML does not necessarily require movement of criminal proceeds for being laundered. Thus, financial institutions especially banks can easily get involved in money laundering process when money earned in a legitimate activity and deposited into a bank account in another country by a person becomes a laundered money assumed as done with the connivance of the bank if he fails to declared the earnings in his tax return in the country in which it has been earned and the bank also fails to report it as s suspicious activity (Hopton 2009). The USA Office of the Comptroller of the Currency (OCC) has defined money laundering as “the criminal practice of filtering ill-gotten gains” or “dirty” currency through a sequence of dealings, so the currency is “cleaned” to appear as if earned by lawful conduct (McClean 2007). Criminals resort to money laundering to legitimise substantial portion of their ill-gotten wealth as otherwise they cannot put it to use. Moreover, they do not need the entire money for their ongoing criminal ventures. They are motivated to launder their tainted money in order to have respectful postitions in society by investing the money so earned in respectable avenues. The proceeds of crime were once said to channel through launderettes in the USA to enable the actual notes to be offered as lawful commercial income, thus earning the expression “Money Laundering” (McClean 2007). Money Laundering process It involves three stages as per the tradition. First, placement of funds of criminal origin in to the financial system through direct or indirect means. Second, resorting to layering by which receipt of criminal proceeds are blurred through creation of layers of financial transactions with the object of hiding the audit trail and providing anonymity. Third, after successful layering, integration process pumps the laundered money into the mainstream economy so as to make them appear as funds received during the course of business. These stages are subtle in that they more often overlap or take place simultaneously (Hopton 2009). The Financial Action Task Force (FATF) FATF is autonomous body representing various governments and entrusted with introduction of measures to ensure against ML and providing funds for terrorism using the global financial system. The recommendations of FATF are required to be implemented to counter money laundering and considered as the standard for anti-money laundering (AML) and counter-terrorist financing (CTF) (FATF 2010). Financial Industry Regulatory Authority (FINRA) FINRA is the autonomous regulatory body of the USA governing activities of securities firms in the United Sates. Anti-money laundering compliance program of FINRA requires each member to develop anti-money laundering program so designed as to monitor the member’s compliance with the requirements of the Bank Secrecy Act (31 USC) (FINRA n.d.). Suspicious Activity Report (SAR) Suspicious Activity Reporting is the requirement to be complied with by all financial institutions such as banks, credit unions, brokers or dealers in securities and futures, casinos, insurance companies, mutual funds, money service businesses such as money transmitters and others as per the Bank Secrecy Act (BSA). Banks and others are required file such reports when they come across questionable transactions. According to the provisions of the BSA, the institutions must send SAR to FinCEN about any deposit or withdrawal exceeding $ 10,000 and such SARs have the potential to unearth money-laundering activities. One such activity led to the resignation New York ex-Governor Eliot Spitzer recently. FinCEN has reported in The SAR Activity Review that over 4.7 million SARs have been filed with FinCEN between 1996 and 2007 (BankInfoSecurity n.d.) Thus, Suspicious Activity Report (SAR) is a disclosure requirement by certain professionals and institutions to report suspicious financial transactions, under money laundering legislation This comes from the member states’ international obligation under G7 Summit in 1989. The Bank Secrecy Act 1970 (BSA) states that every financial institution should apply due diligence on customers or KYC (Know Your Client) diligently. This means not only getting proper ID of the client but also monitoring the the account for unusual transactions. The laws state that international regime employees, international politicians and those with large personal bank accounts must be followed up by a much higher degree of due diligence. The regulators have the responsibility to ensure that the financial institutions comply with the provisions of BSA. As such, the Federal Reserve and the Office of the Comptroller of the Currency repeatedly scrutinize all the banks and have imposed fines on them for sloppy compliance and even made referral for trial by criminal courts. Riggs Bank in Washington D.C. was closed for not controlling funds laundered by international politicians (Lester and Roth 2007), (Gilmore 2004). Effect of money Laundering Financial Action Task force on Money Laundering (FATF) has recognized four areas of concern towards the activity of money laundering. Failure to prevent money laundering encourages criminals to take advantage of the profits from their illegal act. This failure in turn allows crime syndicates to finance other illegal acts that include terrorism. The easy access of the monetary organisms and processes to any launderer creates a menace for any financial institution. The influence and prosperity of any criminal through money laundering can eventually threaten a state economy and any elected system of government. Un-soiled currency has more value than soiled currency. Un-soiled currency that is not from criminal sources can be used to invest on consumption that stimulates the economy and for reinvestment in lawful companies. Soiled currency is normally placed back into criminal enterprises or has to be cleaned to be of any use to criminals and it risks running foul of the law, with the exception of stolen cash or artworks that are for eccentric collectors (Alldridge 2003). ML fuels more crime and corruption and gives the ‘multiplier effect’ in economics. Dirty money made clean usually finances even more crime and produces even more dirty money and the effect increases exponentially and ultimately the power of money corrupts and threatens the very existence of democracy as seen in numerous Asian and African countries (Reuter and Truman 2004). Bribery and corruption by governments and public officials cause reduced public services and destroy the reputation of countries and the proceeds of this are normally laundered in western countries. With respect to terrorism, the notable feature is that it takes money from both legal and criminal sources and changes it into a criminal application. While the amounts are not usually large, and perhaps only in the hundreds of thousands of dollars, the damage and devastation caused is huge (Sham 2004). Educational course in anti-money laundering Association of Certified Anti-Money Laundering Specialists (ACAMS), the Miami based institute is a subsidiary of Alert Global Media and is conducting courses on anti-money laundering leading to certification. ACAMS has globally spread with more than 10,000 members as of 2009. The organization not only provides training in AML but also provides consultation to educational organizations in their AML courses. Besides this, law schools of the country have their respective modules for AML courses. Apart from these meant for professionals, there seem to be no courses in the courses meant for general public and school and college graduate students which if introduced in future will help develop public awareness of money laundering and contain the menace since money laundering is resorted to for terrorist financing in which every citizen must be concerned about for his own safety (Anoymous n.d.). Conclusion With the effective AMLs in place such as PATRIOT Act apart from the above said laws and international cooperation, money laundering can be curbed to a great extent. References Alldridge, P. Money Laundring Law : Forefeiture, Confiscation, Civil Recovery, Criminal Laundering and Taxation of the Proceeds of Crime. Hart Publishing , 2003. Anoymous. The Anti-Money Laundering Association for the Career-Minded Professional. n.d. http://www.acams.org/aboutACAMS.aspx (accessed December 29, 2012). BankInfoSecurity. Expert's Guide to Suspicious Activity Reports (SARS): Tips to Avoid Regulatory Pitfalls & Penalties. n.d. http://www.bankinfosecurity.in/webinars/experts-guide-to-suspicious-activity-reports-sars-tips-to-avoid-w-86 (accessed December 29, 2012). FATF. Money Laundering Using New Payment Methods. Paris: FATF Secretariat, 2010, 2. FINRA. Anti-Money Llaundering . n.d. http://www.finra.org/Industry/Issues/AML/ (accessed December 29, 2012). Gilmore, W.C. Dirty Money : the evolution of international measures to counter money laundering and the financing of terrorism. Council of Europe Publishing, 2004. Hopton, Doug. Money Laundering:. Burlington: Ashgate Publishing Company, 2009. Lester, J, and J Roth. Criminal Prosecution of Banks Under the Bank Secrecy Act. United States Attorney's Bulletin, 2007. McClean. "2007." Transnational Organized Crime, 2007. Reuter, P, and E.M. Truman. Chasing Dirty Money : the fight against money laundering. NW, Washington DC: Institute for International Economics, 2004. Sham, H. Legal Globalization. 2004. http://www.cabinetoffice.gov.uk/upload/assets/www.cabinetoffice.gov.uk/strategy/crime.pdf (accessed December 29, 2012). Read More