Ø What is money laundering?
Money Laundering is the process by which criminals attempt to conceal the illegal origin and ownership of the proceeds of their unlawful activities. By mean of money laundering, criminals attempt to transform the proceeds from their crimes into funds of an apparently legal origin.
Criminal use a wide variety of money laundering techniques to make illegally obtained fund appear clean. Instead of depositing a large sum of money all at once at a bank, a money launderer will deposit small sums over time to avoids drawing attention. Money earned illegally may be taken to country where money laundering law are not as strictly enforced.
Ø How money laundering works
Criminals need a way to deposit the money in legitimate financial institutions, they can only do so if it appears to come from a legal source.
It involves three steps which are as follows:
· PLACEMENT- In this stage, the cash is generated from criminal activities is converted into monetary instruments such money orders, traveler’s checks or even the cash is deposited into the accounts of the financial institutions and even banks. This is the very initial stage where the cash is getting place into the legal financial system.
· LAYERING – In this stage, the funds are transferred or moved into other accounts or other financial institutions to further separate the money from its criminal origin. Layering is significantly intricate element of the money laundering process. Its process is to create multiple financial transactions to conceal the original source and ownership of the illegal funds.
· INTEGRATION – It is the last and final stage wherein the funds are reintroduced into the economy and used to purchase legitimate assets (luxury assets) or to fund other criminal activities which come under legitimate business (financial investments, commercial and industrial investments), ultimately this is done to show that the money used by these assets is indeed from a legal source.
Ø Money Laundering Variants
There are different method of money laundering lets talk about few of them –
One common form of money laundering, called STRUCTURING (also called smurfing) - the criminals break up large amount of cash into multiple small deposits, and spreading them over many different accounts to avoid detection or any kind of suspicion.
BULK CASH SMUGGLING- This involves physically smuggling banknotes to another jurisdiction and depositing them in a financial institution, such as an offshore bank, with greater bank secrecy or less severe money laundering enforcement.
SHELL COMPANIES AND TRUSTS- Trusts and shell companies disguise the true owners of money. Trusts and corporate vehicles need to disclose their true owner or beneficial owner in many jurisdictions. Shell companies do not have any active business operations but have a legal personality. These company’s accounts are used to store dirty money.
BANK CAPTURE- In this case, money launderers or criminals purchase a controlling interest in a bank, most often in a jurisdiction with extremely weak money-laundering control. The criminal then move money through the bank without any scrutiny.
CASINOS- In this method, money is spent on gambling, preferable on high odds games. Criminals may bet on ever possible outcome of some events, and the bettor will have one or more winning bets that can be shown as the source of money. The losing bet will remain hidden.
Ø How to prevent Money Laundering
Money Laundering can be prevented by –
1. Having a strong compliance and risk assessment team with an AML officers.
2. Investing in high end AML risk assessment software with AI technology that can monitor a large number of transactions in real-time.
3. Having a risk-based towards transaction monitoring e.g., CDD and EDD
4. Screening customer profiles against PEP, HIO list to make informed decision.
5. Inculcating brisk and informed KYC processes while onboarding customer.
It is requisite to support government authorities and reporting authorities in mitigating financial crimes. At the same time, it is important for software solution to be highly creative in which money laundering take place. Many software solutions are designed in a way that are capable of sensing unusual activities and generating alters in real time, regardless of the number of transactions happening at the moment. Various new upgrade like AI and machine learning are being incorporated in such solutions for the ease of financial institutions in mitigating criminal risks.
DISCLAIMER- These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the author and are not individual legal advice.
It is understood that each case is fact specific and that the appropriate solution in any case will vary. Finally, the owner will not be accountable for any loses injuries or damage from the exposures or usage of this information.
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