Process of Legitimizing the Dirty Money - Essay Example

? Money Laundering What is money Laundering? Money laundering is a process of legitimizing the'dirty' money earned through crime, that money when laundered appears 'clean' from a legitimate source. There are various ways of laundering money, some of which are more complex and others less sophisticated. Some countries however, may or may not consider activities such as tax evasion as money laundering whereas other jurisdictions may define money laundering as confusing the sources of money. Money laundering in UK is broadly defined as any sort of involvement in handling of money regarding any sort of crime1. The ways that are used to launder money include using the financial systems or services that cover up the tracks or sources from where the money is being transferred. Whereas, some countries may only consider money laundering when being used in a crime in that administration is being cheated on. The amount of money laundered every year is in billions, posing a policy threat and concerns for the governments. Many governments release the amount of money laundered each year either all around the world or only within their economy. The IMF (International Monetary Fund) in 1996 stated that about 2.3 percent of the global economy consisted laundered money. Therefore, FATF (Financial Action Task Force) is an organization set up to fight money laundering. FATF does not publish the exact figures of money laundered each year because it is impossible to estimate the right amount. Governments and other International bodies have made measurements in order to prevent and combat money laundering2. Financial institutions like IMF and FATF have made efforts to detect these sources and the transactions involving laundered money. International large scale criminal organizations and activities such as drug wars are the main benefactors of money laundering. Issues related to money laundering have existed as long as these international criminal organizations and activities have existed. It has been understood recently that anti-money laundering legislations have been the reason for the drop in both these acts of crime because these acts usually require transmission of funds that have untraceable sources. METHODS The process of money laundering consists of basic three steps are3: 1. Placement 2. Layering 3. Integration PLACEMENT: This is the process of introducing the cash within the financial system through some illicit means. LAYERING: This step consists of covering the tracks or camouflaging the illegal source. INTEGRATION: It is the acquiring the money generated from illegal sources from the transactions carried out by illegal funds. To chase away any kind of further suspicions, money launderers convert form of their dirty money into various types such as: 1. Smurfing is a method of breaking the money into smaller deposits of money or purchasing bearer instruments such as money orders and the depositing them into further smaller amounts. 2. Cash smuggling in bulk and then depositing it into offshore banks with greater chances of hiding money. 3. Depositing cash into the accounts of business that involves greater amounts of cash such as strip clubs, casinos, tanning spas etc. 4. Trading money by using over-value invoices to cover the movement of money. 5. Buying controlling interest in a bank that has less rigorous money- laundering legislations and then moving the money without having the bank scrutinize it. 6. Buying gambling chips from the casinos then cashing it after playing for a while in the form of a check or get a receipt proving it as a gambling win or spending the money in gambling with the higher odds then showing the wins while hiding the losses. 7. Through paying black salaries to the unregistered employees of a company and black cash is used to pay them. 8. Fictional loans 9. Hiding the money at home or other places 10. Tax evasion and also that legalize unreported assets in tax havens. ANTI-MONEY LAUNDERING IN UK Anti-money laundering is a framework within an organization or a financial industry to describe the methods to control and prevent the money laundering. It came into prominence after the formation of FATF (Financial Action Task Force) and after the promotion of a proper anti-money laundering system. This system gained more prominence in 2000 and 2001 after the FATF began identifying countries that were lacking in their anti-money laundering laws, a process that was known as 'name and shame'4. THE PROCEEDS OF CRIME ACT 2002 The Proceeds of Crime Act 2002 states that money laundering and terrorist funding legislations in UK are regulations that are infused to protect the financial system within the UK. If a company or an organization is being protected by these regulations then controls are put in within the financial system to prevent the organization from being used as a means for the money laundering. Unlike some other countries the definition of money laundering goes as wide as if any person who commits a crime or one that produces some sort of a benefit even in the form of cash that also is considered a money-laundering offence. Money-laundering legislations are more strict in UK as compared to other jurisdictions (the US and Europe). The basic money-laundering offence carries a penalty of maximum of 14 years imprisonment. This also implies the acts of evading tax as he is to obtain the equal amount of money by evading. MONEY-LAUNDERING REGULATION 2007 Secondary regulation by the Money laundering Regulation 2003 which were replaced by the Money laundering regulations 2007 state in consequence of the act that any accountant, tax adviser or solicitor who expresses their suspicion in the consequence of information received that any of their client or others engaged in the acts of tax evasion or any criminal activity which helps them produce a benefit in the form of cash or anything, must report their suspicion to the authorities of the organizations combating money-laundering. Organizations and institutions that are a subject to these regulations are financial institutions such as banks, credit institutions, estate agents, money dealers who are entailed to accept cash equivalent to $15,000 and above5. It must be noted that there are no rules and regulations over banking institutions to report monetary deposits or transactions until it reaches above a specified amount. Instead is it important to report all suspicious deposits and transaction to the authorities. It is also important to report suspicious acts conducted in other countries that would be marked as an offence if conducted in UK but not in other countries. However few changes were made in this obligation regarding activities that are legal such as bullfighting in Spain. The penalty for anyone who fails to report money-laundering in an organization is 5 years of imprisonment. It is true that these acts have imposed unnecessary and burdensome obligations on jurisdictions all around the world. More than 200,000 reports that come under UK money-laundering legislations are submitted each year to the authorities. There were 240,582 reports in the year 2010, which was an increase from 228,834 reports the previous year. Most of them were reported by financial institutions. All UK Bureaux de change issues licenses which are registered with HMRC (Her Majesty's Revenue and Customs) to every money transmitter such as Western Union in every location in UK, in which they are required to follow the Money Laundering regulations 2007. All money service businesses are required to carry checks through HMRC. EVERYDAY RESPONSIBILITIES UNDER MONEY LAUNDERING REGULATIONS 1. If a business is regulated by money laundering regulations then there are a certain day-to-day responsibilities that needed to be taken care of. 2. The responsibilities include taking measures such as 'customer due diligence' to make sure that your customers are who they say they are. 3. It is important to put in place internal monitoring systems. The complexity of these controls vary from the size and the nature of one's business including the clients and customers and the types of services and good that they provide. 4. Keeping a check on financial corridors For example in high risk jurisdictions such as India money can go through the UAE before finally being sent back to India. Here UAE is being used as a financial corridor. In the same instance transactions from UK to UAE then back to UK would be treated as different transactions and these transactions would be made difficult for the Money Service Businesses in the UK. Since this is the process that is used to hide the identity therefore, they would be treated differently. 5. It is important to make sure that a business has adequate internal and external monitoring system. These systems are supposed to alert the business authorities when it is being used by criminals for money laundering6. 6. Every business is to nominate an officer who is supposed to make sure that suspicious activities are reported. 7. Training relevant employees in an organization to perform anti-laundering responsibilities. 8. One should state and document anti-money laundering policies and their procedures. 9. In the day-to-day running of business, introducing measures that help track money laundering. VALUE AND COST OF ENFORCING MONEY LAUNDERING REGULATIONS Different financial businesses are raising their voice against the costly money-laundering regulations enforced and their privacy related concerns. They are criticizing such laws and regulations with reference to countering terrorist financing. The Economist magazine has stated that the costs of anti-money laundering efforts taken place in the US and Europe have risen from US$ 700 in 2000 to US$ 5 billion 2003. It is hard to tell which anti-money laundering system is more cost effective and works. Data privacy is the major concern which has been raised by US and EU because these regulations require banks to report their own customers. Therefore a concern has been expressed by the American Civil Liberties Union. By the recommendations of the FATF many countries are obligated to enact and enforce money laundering regulations to help control human and drug trafficking. Countries such as Mexico they believe that anti-money laundering will control their crime rate7. There are mixed views regarding the anti-money laundering regulations. Some jurisdictions believe that these regulations may help bring down crime rates in high risk countries while others believe that these system enforcements are too costly which are costing them more money than tracking money laundering. UK has a very broad definition for money-laundering; therefore it also illegalizes the transactions that are not illegal in other jurisdictions. These are the obligations that have not exactly limited the threat of money-laundering over the world. Bibliography 1. Mary Alice Young "Banking secrecy and offshore financial centers: money laundering and offshore banking" (2013) 2. Doug Hopton "Money laundering: a concise guide for all business" [2009] 3. Donato Masciandaro; Elod Takats; B Unger " black finance: the economics of money laundering" [2007] 4. Pierre-Laurent Chatain; et al "protecting mobile money against financial crime: global policy challenges and solutions" [2011] 5. Susannah Cogman; John R Taylor; David McCluskey "Anti-money laundering compliance for law firms" (2013) 6. Connie M Friesen "US and UK Anti-money Laundering Requirements Compared" (2008) 7. Mark Pieth; gemma Aiolfi "A comparative guide to anti-money laundering: a critical analysis of systems in Singapore, Switzerland, The UK and the USA" [2004] Read More