Money laundering, is a main economic corruption, is the legalization of money acquired illegally. Money laundering is also a way to hide the nature, source, and act of a crime or give a legal image. There are different money laundering techniques, and these techniques grow and evolve with the development of technology. As per the data of the International Monetary Fund (IMF), the money
laundering rate is represented between %2 to 5% of the world’s GDP. This ratio reaches a massive amount of the world’s total money. To minimize the negative impacts and damages of money laundering and assure that criminals can be recognized, global and local regulators declare new orders to prevent money laundering. Money laundering is necessary for criminal associations that wish to use illegally acquired money effectively. Dealing with large amounts of illegal cash is ineffective and destructive. Criminals need a way to deposit the money in legitimate economic institutions, yet they can only do so if it seems to come from legitimate origins.
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The procedure of laundering money generally involves three steps: placement, layering, and integration. In the initial or placement stage of money laundering, the launderer presents his illegal profits into the economic system. This might be done by breaking up large amounts of cash into less prominent smaller sums that are then deposited straight into a bank account, or by buying a series of monetary instruments that are then assembled and deposited into accounts at another location. After the funds have joined the economic system, the second or layering stage takes place. In this stage, the launderer engages in a series of modifications or activities of the funds, to distance them from their origin.
The funds might be channeled via the purchase and sales of investment instruments, or the launderer might wire the funds through a series of accounts at different banks across the world. This use of widely scattered accounts for laundering is particularly predominant in those jurisdictions that do not co-operate in anti-money laundering explorations. In some instances, the launderer might hide the transfers as payments for goods or services, thus giving them a legitimate impression.
Having successfully processed his illegal profits through the first two stages the launderer then transfers them to the third stage integration in which the funds re-enter the legitimate economy. The launderer might select to invest the funds into real estate, luxury assets, or business ventures.
Money Laundering Variants
There are many variants of money laundering is presented. One typical form of money laundering is called smurfing (also known as “structuring”). This is where the criminal breaks up large pieces of cash into numerous small deposits, often extending them over many various accounts, to evade detection. Money laundering can also be attained through the use of currency exchanges, wire transfers, and mules, cash smugglers, who creep immense amounts of cash across borders and deposit them in foreign accounts, where money-laundering enforcement is slightly stern.
Other money-laundering techniques include:
- Investing in entities such as gems and gold that can be transferred easily to other jurisdictions
- Confidentially investing in and selling worthwhile investments such as real estate, cars, and boats
- Gambling money at casinos
- Counterfeiting and Using shell companies (inactive companies or corporations that essentially exist on paper only).
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Electronic Money Laundering
The Internet has put a fresh spin on the old crime. The rise of online banking institutions, anonymous online payment services, and peer-to-peer transfers with mobile phones have made witnessing the illegal transfer of money even more complicated. Moreover, the use of proxy servers and anonymizing software makes the third part of money laundering, integration, almost impossible to catch. The money can be moved or withdrawn with little or no hint of an Internet protocol (IP) address.
Money also can be laundered via online auctions and sales, gambling websites, and virtual gaming sites, where ill-gotten money is transformed into gaming currency, then back into real, functional, and untraceable “clean” money.
The most recent frontier of money laundering concerns cryptocurrencies, such as Bitcoin. While not unknown, they are increasingly being used in blackmail tactics, the drug trade, and other criminal actions due to their relative anonymity compared with more traditional forms of currency.
AML laws have been slow to catch up to these kinds of cybercrimes since most of the laws are still established on catching dirty money as it passes through conventional banking institutions and channels.
Governments around the world have stepped up their actions to fight money laundering in recent decades, with regulations that need financial institutions to put systems in place to catch and report doubtful activity.
Anti-money laundering initiatives grew to global prominence in 1989, when a group of countries and organizations around the world created the Financial Action Task Force (FATF). Its assignment is to develop international standards to control money laundering and facilitate its execution. In October 2001, following the 9/11 terrorist attacks, FATF extended its directive to include fighting terrorist financing.
Another significant organization in the fight against money laundering is the International Monetary Fund (IMF). Like the FATF, the IMF has encouraged its member countries to yield with international standards to prevent terrorist financing.
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Anti-Money Laundering
AML laws and regulations target criminal actions including market manipulation, trade in illegal goods, corruption of public funds, and tax evasion, as well as the techniques used to repress these crimes and the money emanated from them.
Criminals often “launder” money they acquire through illegal acts such as drug trafficking so the funds cannot be easily drafted to them. One common approach is to run the money through a legitimate cash-based business owned by the criminal organization or its partners. The supposedly legitimate business deposits the money, which the lawbreakers can then withdraw.
Money launderers may also creep cash into foreign countries to deposit, deposit cash in smaller increments to avoid awakening suspicion, or exploit illicit cash to buy other cash instruments. Launderers will sometimes finance the money, using dishonest brokers willing to disregard the rules in return for large commissions.
One rule in place is the AML holding period, which needs deposits to stay in an account for a minimum of five trading days. This holding period is planned to help in anti-money laundering and risk control.
Though anti-money laundering laws cover a narrow range of trades and criminal behavior, their senses are far-reaching. For example, AML regulations need banks and other financial institutions that issue a credit or accept customer deposits to observe rules that assure they are not assisting money laundering.
Anti-Money Laundering History
Anti-money laundering initiatives became recognized when a group of countries worldwide created the Financial Action Task Force (FATF) in Paris in July 1989. The Financial Action Task Force (FATF) originally studied and moulded anti-money laundering measures designated international standards for controlling money laundering and encouraging their execution. In October 2001, regardless, in the wake of the September 11 terrorist attacks, the FATF extended its task to include the fight against terrorist financing. Another influential institution in the fight against money laundering is the International Monetary Fund (IMF). Like the FATF, the IMF holds and drives 189 member states to concede with international standards to control terrorist financing.
The European Union also conceded with the first Anti-money laundering Directive in 1990 to control the financial system’s mishandling of money laundering. The European Union AML Directives are continuously being revised to lower the threats associated with money laundering and terrorist financing.
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