The fight against money laundering
October O6, 2011As the importance of money escalated, people have thought of endless ways of making more money with less effort. The evils of money not only affect the moral fiber of the society but also transpire into other tribulations such as supporting anti-social elements and funding terrorism. Newspapers are full of scams and the amount of money involved is astronomical. Although there is a system in place to avoid such illegal ways, scamsters succeed in finding a loophole in the system.
The term “money laundering” refers to the use of the financial system to hide the source of funds gained from unlawful activity. Criminals try to turn their untaxed, unaccounted money, earned through activities such as drug trafficking, bribery, extortion, fraud, theft or other criminal activity, appear legitimate. The common term for such money is black money.
“The vast majority of illegal dealings are done in cash. Criminals need ways to dispense off the cash and have it reappear as part of their wealth with as little chance as possible of it being tracked back to the source. Criminals have to use the financial system and banks in particular to do this.”
PROCESS OF MONEY LAUNDERING
Money Laundering is done in three stages, namely Placement, Layering and Integration. The process of Placement involves physical depositing of the cash. Layering describes the process of transactions, within and between banks and across borders, which seek to confuse the trail back to the original cash. Integration is the process by which the money is brought back into use in regular transactions, often through purchase of assets which makes it appear legitimate.
Money Laundering also leads to other evils. There is a subtle but very important difference between terrorism financing and money laundering activities. Unlike money laundering which is always preceded by some unlawful activity, terrorism may be financed from the proceeds of legal activities (humanitarian organizations, donations or different legal associations. Lawful, genuine money, often in legitimate donations to charitable institutions, is misdirected by account holders to their unlawful individuals in what appear to be legitimate activities.
TERRORISM FUNDING
Reputation of any institution could be easily damaged with the suggestion that it has been used as a source to provide funds which have been used to finance a terrorist act. Even if the institution is above suspicion, any association of the company name to death and violence can be damaging. So the institution needs as much help as possible to identify and exclude known as well as potential culprits from their business. Government organizations and responsible non-governmental organizations are taking measures to combat this issue through anti-money laundering campaigns.
ANTI-MONEY LAUNDERING CAMPAIGN
Anti-Money Laundering is the term used by banks and other financial institutions to describe the variety of measures they take to combat this illegal activity. Anti-money laundering campaigns are designed to make the system transparent and to nip the issue of money laundering in the bud. These processes control and help banks and financial institutions protect themselves and their reputation from the criminals. Companies can apply regulatory obligations and restrictions to screen the process of money transfer. Legal formalities and company policies can also help provide some filtering in this process.
In all major jurisdictions around the world, criminal legislation and regulation make it mandatory for banks and financial institutions to have arrangements to combat Money Laundering, with harsh criminal penalties for non-compliance. Anti-Money Laundering processes, controls and helps banks and financial institutions protect themselves and their reputation from the criminals. It prevents criminals from using individual banks and the financial system in general as the channel for exploiting their illegal gains.
PREVENTION OF MONEY LAUNDERING
1) KNOW YOUR CUSTOMER
There are two aspects in which a financial institution can protect itself from both risks – strong Know Your Customer processes and strong transaction inspection processes. Companies can implement strong “Know Your Customer” verification whenever a new customer is accepted to ensure stringent identity check of the customers. Know Your Customer describes the means by which the identity, background and other aspects of potential customers can be assessed and verified, so that known and suspected terrorists can be condemned.
2) LEGISLATION AND REGULATION
Key elements of an Anti Money Laundering Programme required by law include that companies must set optimal “Standards and Policies,” approved by senior management, which clearly set out the company policy on crime prevention and business requirements, and robust training programmes for the same for all the staff. Firms are required to obtain evidence of identity of a customer during registration and to keep a record of that evidence for as long as there is a relationship with the customer.
Companies can also automate processes to monitor activities on customer accounts to identify suspicious activity and to check incoming and outgoing payments for unauthorised transactions and to enable reports to be made to relevant authorities. Moreover, if a business is looking for new clients in emerging markets, where legislation and regulation may not yet be as diligent as in developed financial markets, vigorous screening processes is vital.
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