" They worked very hard on my case and got me a very, very favorable outcome "
Money laundering is the process of generating money and financial assets through illegal means. The cash is laundered using criminal activities, which may include smuggling, drug trafficking, and sales of unlicensed weapons. In some countries, financial regulators also consider economic goods generated by fraud as a form of money laundering.
Since money laundering is a serious crime in many countries, criminals often try to disguise money laundering activities so that the illegal funds may appear to come from a legal source. In a way, criminals seek to make their illegal profits look clean.
Money launderers use a variety of methods to prevent attracting undue attention from law enforcement authorities. One of the most widely used practices is corporate fraud, which uses false accounting entries to deceive stakeholders. Also known as white-collar crime, such illegal corporate activities involve insider trading and tax violations.
Besides white-collar criminals, money laundering is rampant among street-level criminals. They sell drugs, run prostitution rings, and extort money from kidnapping to generate profit. Due to the nature of their crimes, it often becomes difficult for hardened criminals to hide the profit; therefore, they frequently transfer the cash to other jurisdictions to avoid scrutiny.
According to the United Nations Office on Drugs and Crime, money laundering constitutes 2% to 5% of the global GDP. Due to the clandestine nature of the crime, there is no precise estimate of the loss. Regardless of the amount of money laundering, it is apparent that there is a lot of illegal money used by criminals and its impact cannot be calculated merely in financial terms.
For instance, illegal funding is the main source of income for terrorist organizations. Since these organizations can’t fund their activities by legal means, they rely on kidnapping, drugs, prostitution, and the sale of weapons to finance their operations. As a result, the money ends up harming civil society and disrupting peace. Unlike regular financing activities, which are easy to trace, terrorist financing is not cyclical and doesn’t end up with the person who generated it.
Money laundering to gain access to weapons of mass destruction is a fairly recent phenomenon. It is more dangerous than fraud and criminal activities. FATF, Financial Action Task Force, suggests that proliferation financing can have a detrimental impact on the world. Therefore, it is important to curb money laundering. Proper regulations will prevent terrorist groups to gain access to weapons of mass destruction and stop them from getting the necessary training to launch them.
People use specific methods to safeguard their illegal means of income. After raising unauthorized funds, they break the large sums of cash into smaller amounts to reintroduce it into the financial system. Depositing small amounts into more than one account at regular intervals keeps such transactions away from the prying eyes of the regulatory authorities.
To distance themselves from the source, the money launderer may also move the fund to another jurisdiction – often called tax heavens. These jurisdictions have privacy laws, which prevent authorities from investigating the source of funds and finding the culprit. Recently, the International Consortium of Investigative Journalists released Panama Papers and Pandora Papers identifying celebrities and Heads of States who use tax havens to move funds without declaring the income in their native countries.
Similarly, it is typical for people to use illegal funds to invest in overseas property or an offshore project. Under normal circumstances, everyone thinks that the person is just taking advantage of an investment scheme, and the local banks seldom object to such transactions. This is a seemingly inconspicuous method that doesn’t raise eyebrows and lets criminals transfer their illegal proceeds.
In other cases, illegal funds are reintroduced in the local economy by purchasing physical objects and luxury items. The laundered money is invested in real estate funds and business assets. Charities and NGOs are also used to transfer illegal funds to unauthorized individuals and financial entities.
While technology has benefited the financial sector, it has also made money laundering much easier. The introduction of online money transfer platforms, P2P networks, anonymous servers, and proxies are all part of the problem. Using these online modes of transfer, anyone can easily transfer funds without leaving any trace or the IP address of the computer.
Gambling websites, gaming sites, and online auctions dealing in virtual currencies are equally vulnerable to the illegal transfer of money. Users on these websites can convert the physical currency into virtual tokens and goods, which can be transferred to another account in a different country. Some of these websites are increasingly used in large-scale money laundering schemes.
The rising popularity of block-chain-backed currency, such as Bitcoin, is another major setback for policymakers. The adaption of such virtual currencies without a global framework can prove disastrous for anti-money laundering efforts.
To regulate illegal money transfer, Group of Seven, G-7, has formed an international task force, FATF. The Financial Action Task Force requires financial institutions to put a solid mechanism in place that can detect and report suspicious activities. Since 1989, FATF has stepped up its efforts to ensure that every country abides by the goals set by the United Nations, international regulators, and law enforcement authorities.
The AML, Anti-money laundering laws, also require financial institutions to identify their customers, keep records, and report suspicious transactions. The KYC, Know Your Customer, guideline evolved from such laws. It requires financial platforms operating on blockchain networks and dealing with cryptocurrencies to identify everyone who opens an account.
While these are early days of combating massive money-laundering schemes but global regulations are turning the screw. New laws, high-level investigations, high-tech monitoring tools, and increasing pressure on financial institutions are producing positive outcomes. The future looks bright …