Money Laundering | Financial Action Task Force On Money Laundering | Money Laundering

Money laundering

Money laundering is generally regarded as the practice of engaging in financial transactions to conceal the identity, source, and/or destination of illegally gained money by which the proceeds of crime are converted into assets which appear to have a legitimate origin. In the United Kingdom the statutory definition is wider[1]. It is common to refer to money legally obtained as ³clean´, and money illegally obtained as ³dirty´. Money laundering occurs over a period of three steps, which include the physical distribution of the cash (³placement´), the second step involves carrying out complex financial transactions in order to camouflage the illegal source (³layering´), and the final step which entails acquiring wealth generated from the transactions of the illicit funds (³integration´). In the past, the term money laundering was applied only to financial transactions related to organized crime. Today its definition is often expanded by government and international regulators such as the U.S. Office of the Comptroller of the Currency to mean any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting. In the UK, it does not even need to involve money, but any economic good. Courts involve money laundering committed by private individuals, drug dealers, businesses, corrupt officials, members of criminal organizations such as the Mafia, and even states. As financial crime has become more complex, and "Financial Intelligence" (FININT) has become more recognized in combating international crime and terrorism, money laundering has become more prominent in political, economic, and legal debate. Money laundering is ipso facto illegal; the acts generating the money almost always are themselves criminal in some way (for if not, the money would not need to be laundered).

[citation needed] In the United states for example.Contents y y y y y y y y y 1 Examples o 1. but if the transactions are regular and roughly the same the suspicion is easily discounted. with any other suspicious financial activity identified as "suspicious activity reports" (SARs).3 Structuring 2 Legislation o 2.2 Laundered or not? 3 Fighting money laundering o 3.1 Using information technology 4 Anti-money laundering (AML) software o 4.2 Captive business o 1. cash transactions and deposits of more than $10.[citation needed][2] .3 India o 2.5 United States  2.1 Bureaux de change o 2. (October 2010) Cashing up A business taking large amounts of small change each week (e.1 Bangladesh o 2. Please improve it by verifying the claims made and adding references.1 Cashing up o 1.4 United Kingdom  2. This is the basis of all money laundering.5.1 NASA case  2.4.5. a track record of depositing clean money before slipping through dirty money. If its deposits vary greatly for no obvious reason this can draw suspicion.) as "significant cash transactions" to the Financial Crimes Enforcement Network FinCEN. Statements consisting only of original research may be removed.g.000 must be reported by the cashier (the bank etc. More details may be available on the talk page. a convenience store) needs to deposit that money in a bank.2 Canada o 2.1 9/11 and the international response to the underground economy 5 FATF: Financial Action Task Force against Money Laundering 6 Amounts 7 See also 8 References 9 External links Examples This article may contain original research.

she does not know their bank details. Service businesses have the advantage of the anonymity of resources²but the disadvantage that they must deal in cash. For example: deposits of less than $10.[citation needed] Structuring (see also Structuring) In Structuring. and have a business that reasonably would accept cash as a matter of course. Dealing directly with the public in cash gives a plausible reason for not having a record of customers. Money laundering happens through below financial product: y y y y y y y y y y y y y y Cash deposits Deposit accounts Client accounts Bank safety deposit boxes Wire transfers Correspondent bank accounts Omnibus accounts Bank bills Credit cards Back to back loans Letters of credit Bank accounts for legal entities Incorporating a bank Private Banking Services . shell companies should deal directly with the public. It is of course also possible to invent customers. and funnel the small change into it and pay taxes on it. but the receipt for the computer.[citation needed] For example. money is put into the licit economy in such a way as to avoid legal record keeping and reporting requirements. But all bank employees are trained to be constantly on the lookout for transactions that seem to be trying to get around reporting requirements. To avoid suspicion. even if inflated. A record of a haircut must ostensibly be accepted as prima facie evidence. purely for the purpose of accepting money from them. (also known as "smurfing"). exists²that for the haircut probably does not. a hairstylist is paid in cash. whereas the hairstylist does not have to produce the cut hair. perform some service (not provide physical goods).In other jurisdictions suspicion-based requirements may be placed on financial services employees and firms to report suspicious activity to the authorities. and even if she knows her customers' names. A business that sells computers has to account for the computers.[citation needed] Captive business Another method is to start a business whose cash inflow cannot be monitored.000 (anything over that amount would require a report to be filed with the IRS) are made into multiple bank accounts that are then withdrawn after a sufficient amount of time has passed to avoid suspicion.

[citation needed] Canada The National Initiative to Combat Money Laundering. this issue has been dealt with by the Prevention of Money Laundering Act. the RCMP. concealment of location or assistance in the above act of the properties acquired or earned directly of indirectly through legal or illegal means.Legislation Many jurisdictions adopt a list of specific predicate crimes for money laundering prosecutions as a "self launderer".[citation needed] . with the involvement of the Solicitor General of Canada. Bangladesh In Bangladesh. (b) Illegal transfer. VII of 2002). "Money Laundering means (a) Properties acquired or earned directly or indirectly through illegal means." In this Act. must be maintained for ten years after the transactions finished. (b) to furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed and t records of the identity of all its clients.[citation needed] India The Prevention of Money-Laundering Act. whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other. such person or entity shall be guilty of offense of money-laundering. Canada Customs and Revenue Agency. Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above. financial institutions and intermediaries (a) to maintain records detailing the nature and value of transactions which may be prescribed. and. 2002 came into effect on 1 July 2005.[citation needed] Section 12 (1) prescribes the obligations on banks. ³Properties means movable or immovable properties of any nature and description´. 2002 (Act No. conversion. and where such series of transactions take place within a month.[citation needed] The provisions of the Act are frequently reviewed and various amendments have been passed from time to time. began operation in 1998. In terms of section 2 (tha).[citation needed] Section 4 of the Act prescribes punishment for money-laundering with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees and for the offences mentioned [elsewhere] the punishment shall be up to ten years. Justice Canada. Citizenship and Immigration. Section 3 of the Act makes the offense of money-laundering cover those persons or entities who directly or indirectly attempt to indulge or knowingly assist or knowingly are party or are actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property.

by criminal conduct. The definition also covers activities which would fall within the traditional definition of money laundering as a process by which proceeds of crime are concealed or disguised so that they may be made to appear to be of legitimate origin[11]. certain professions. Crime and Security Act 2001[4] Proceeds of Crime Act 2002[5] Serious Organised Crime and Police Act 2005[6] The Proceeds of Crime Act 2002 contains the primary UK anti-money laundering legislation[7]. investment. evades a liability (such as a taxation liability) .e.as he is deemed thereby to obtain a sum of money equal in value to the liability evaded[9]. The principal money laundering offences carry a maximum penalty of 14 years imprisonment[12]. An offender's possession of the proceeds of his own crime falls within the UK definition of money laundering[10]. Secondary regulation is provided by the Money Laundering Regulations 2003[13] and 2007[14] One consequence of the Act is that solicitors. Money laundering is widely defined in the UK[9]. In consequence any person who commits an acquisitive crime (i. UK money laundering offences are not limited to the proceeds of serious crimes. nor are there any monetary limits.The recent activity in money laundering in India is through political parties corporate companies and share market. are now required to report their suspicions to the authorities (since these entail . accountants. including provisions requiring businesses within the 'regulated sector' (banking. A money laundering offence under UK legislation need not involve money.) to report to the authorities suspicions of money laundering by customers or others[8].[citation needed] United Kingdom Money laundering and terrorist funding legislation in the UK is governed by four Acts of primary legislation:y y y y Terrorism Act 2000[3] Anti-terrorism. one from which he obtains some benefit in the form of money or an asset of any description) in the UK will inevitably also commit a money laundering offence under UK legislation. and insolvency practitioners who suspect (as a consequence of information received in the course of their work) that their clients (or others) have engaged in tax evasion or other criminal conduct from which a benefit has been obtained. This applies also to a person who. Unlike certain other jurisdictions (notably the USA and much of Europe). since the money laundering legislation covers assets of any description. money transmission. etc. nor is there any necessity for there to be a money laundering design or purpose to an action for it to amount to a money laundering offence.referred to by lawyers as "obtaining a pecuniary advantage" . In effect any handling or involvement with any proceeds of any crime (or monies or assets representing the proceeds of crime) can be a money laundering offence.

'tipping-off'.834 reports submitted in the previous year[20]). Checks can be carried out by HMRC on all Money Service Businesses. for the reporter to inform the subject of his report that a report has been made[15]. In most circumstances it would be an offence.897 reports from the banking sector in the year ended 30 September 2010[21]). or another (traceable) payment method. The offence of failing to report a suspicion of money laundering by another person carries a maximum penalty of 5 years imprisonment[12]. it is perfectly reasonable for a lot of the . Although 5. and the top 20 reporting organisations accounted for three-quarters of all reports[22]. However there is no obligation on banking institutions to routinely report monetary deposits or transfers above a specified value. Bureaux de change and money transmitters.108 different organisations submitted suspicious activity reports to the authorities in the year ended 30 September 2010 just four organisations submitted approximately half of all reports.[19] There are more than 200. Professional guidance (which is submitted to and approved by the UK Treasury) is provided by industry groups including the Joint Money Laundering Steering Group[16] and the Law Society[17]. It is assumed that above that amount most people pay with a check. in the UK fall within the 'regulated sector' and are required to comply with the Money Laundering Regulations 2007[14]. such as Western Union outlets.582 reports in the year ended 30 September 2010 .suspicions of money laundering). "reasonably accepting cash" means the business must regularly perform services that on average are less than $500 each. Most of these reports are submitted by banks and similar financial institutions (there were 186.an increase from the 228. These provisions do not however require disclosure to the authorities of information received by certain professionals in privileged circumstances or where the information is subject to legal professional privilege. Instead reports have to be made of all suspicious deposits or transfers. law. In the hairstyler example.000 reports of suspected money laundering submitted annually to the authorities in the UK (there were 240. a credit card. The reporting obligations include reporting suspicions relating to gains from conduct carried out in other countries which would be criminal if it took place in the UK[18]. Bureaux de change All UK Bureaux de change are registered with Her Majesty's Revenue and Customs which issues a trading licence for each location. United States In U. The company should actually function on a legitimate level. such as bullfighting in Spain. Exceptions were later added to exempt certain activities which were legal in the location where they took place.S. irrespective of their value.

they were.. and enough traceable transactions to mask the illegitimate ones. and Papa Primo's of Arizona. But it is unreasonable for all of the business to work without parts and just on cash. Each embezzlement count was associated with a corresponding money laundering count which resulted in dozens of convictions for money laundering. or both.01 or more.. "willful blindness"... specifying that financial institutions take specific actions to "know your customer" (KYC).[citation needed] Anti-money laundering (AML/CFT)[clarification needed] laws typically have other offences such as "tipping off (warning)". The Money Laundering Control Act of 1986 further defined money laundering as a federal crime.[citation needed] The Bank Secrecy Act of 1970 requires banks to report cash transactions of $10. In a New York Times story. and for most transactions to be settled in cash. Federal law provides: "Whoever . said "We didn't get any pizzas.. terrorist financing frequently involves the reverse flow: apparently clean funds converted to "dirty" purposes. Papa Primo's of Texas. referring to the fact that some of the alleged mischarging to the NASA contract also involved costs associated with two of Ralph Montijo's pizza companies. "conscious facilitation of a money launderer". with the owner of Omniplan. Papa Primo's of Texas.[citation needed] . A hawala may launder drug proceeds and help fund a terrorist. being convicted of 179 felonies in his multi-million dollar embezzlement scheme. Five of his companies were also convicted of felonies.S. Papa Primo's of Arizona. "assisting a terrorist financier with moving terrorist financing". a financial transaction which in fact involves the proceeds of specified unlawful activity . knowing[ly] .. These companies.. conducts or attempts to conduct . The U.000. It became the largest count indictment and conviction in NASA history.000 or twice the value of the property involved in the transaction.[citation needed] While money laundering typically involves the flow of "dirty money" (criminal proceeds) into a clean bank account or negotiable instrument.A PATRIOT Act of 2001 expanded the scope of prior laws to more types of financial institutions. but we got the bills". Ralph Montijo. who led the Omniplan investigation.. or imprisonment for not more than twenty years.[citation needed] In the United States. Omnipoint Production Services and Mercury Trust.. Omniplan. netting the incoming and outgoing funds with only occasional small net settlement transactions. NASA Office of Inspector General Senior Special Agent Joseph Gutheinz. whichever is greater. and added a focus on terrorist financing.business to involve mostly labour (dyes and machine oil and so forth being relatively small concerns). So the legitimate business will generate a legitimate (if low) level of parts use.. "not reporting suspicious activity". shall be sentenced to a fine of not more than $500. with the intent to promote the carrying on of specified unlawful activity . Space Industries Leasing and Space Industries Properties were liquidated.[citation needed] NASA case From 1992 to 1996 a nine-agency Federal Task Force investigation led by NASA's Office of Inspector General investigated Omniplan Corporation of Houston and California. together with two unincorporated companies.

it cannot be proven merely by showing that the funds were concealed in a secret compartment of a Volkswagen Beetle. not because the transaction was itself illegal (which is a separate offence). The Court further ruled "that federal prosecutors have gone too far in their use of money laundering charges to combat drug traffickers and organized crime. 2008. the Court reversed Acuna.C. laundered money in most jurisdictions (an exception being the United Kingdom where mere possession of the proceeds of any crime is itself capable of being a money laundering offence[10]).[citation needed] Fighting money laundering Main article: Know your customer . defining proceeds explicitly to include both profits and gross receipts. § 1956(a)(2)(B)(i) apply only to profits of an illegal gambling ring and cannot be used when the only evidence of a possible crime is when a courier headed to the Texas-Mexico border with $81.S. and prosecutors must show that profits were used to promote the illegal activity. narrowing the application of the federal money-laundering statute." That is. the secrecy must be part of a larger design to disguise the source or nature of the money. instead. prosecutors must show that the purpose of transporting funds in a money laundering case was to conceal their ownership. the prosecution had not made its prima facie case. Justice Antonin Scalia wrote that the law referred to the "proceeds of some form of unlawful activity. 18 U. and §1956(a)(1)(A)(i) and §1956(h). instead. of itself. Sec.S.[citation needed] The Supreme Court of the United States on June 2." Congress clarified the meaning of the statute in the Fraud Enforcement and Recovery Act of 2009. paying off gambling winners and compensating employees who collect the bets don't qualify as money laundering.C. rendered two judgments in favour of defendants. not criminal receipts.[citation needed] In a unanimous opinion written by Justice Clarence Thomas. The laundering offence comes from the attempt to conceal its source. those are expenses.Laundered or not? Money obtained by an illegal action is not. § 1956. that money laundering charges under the Money Laundering Control Act of 198. in a divided decision. Mexico's Humberto Cuellar's conviction and ruled that "hiding $81. prosecutors must also prove the driver was traveling to Mexico for the purpose of hiding the true source of the funds.000 in cash proceeds of a cannabis transaction. the Court reversed the convictions of Efrain Santos of Indiana and Benedicto Diaz for money laundering based on cash from an illegal lottery."[citation needed] Later. source or control. In the plurality opinion. 18 U.[citation needed] Congress enacted the 1986 statute after the President's Commission on Organized Crime stressed the problem of "washing" criminal proceeds through overseas bank accounts and legitimate businesses. applies only to transactions involving criminal profits. the word ³proceeds´ in the federal money-laundering statute.000 in cash under the floorboard of a car and driving toward Mexico is not enough to prove the driver was guilty of money laundering. It imposes a 20-year maximum prison term.

Anti-laundering systems filter customer data. Other elements of AML technology include portals to share knowledge and e-learning for training and awareness. These CTRs prove invaluable for investigators. unusual transactions. Knowing one's customers. including false identities. business. statistical and profiling engines. Many Companies provide software and databases to help perform these processes. transaction risks that can be reviewed intelligently. product. so too does the technology used to fight it. analyses them. entity. but more often the common theft of credit cards or bank details. in the U. classify it according to level of suspicion and inspect it for anomalies. the Bank Secrecy Act required financial institutions to file Currency Transaction Reports for cash transactions of more than $10. Unusual activity on an account may trigger a call from the card issuer to make sure it has not been misused. FinCEN receives Suspicious Activity Reports from financial institutions. and time sequence matching. but as money laundering techniques become more sophisticated. This software is not used exclusively to track money laundering. Also. financial intermediaries will often be able to identify unusual or suspicious behavior.[clarification needed] Using information technology Information technology can never be a replacement for a well-trained investigator. as well as automatic risk scoring of the customer taking account of country.S. but money launderers began to structure their transactions to avoid the reporting requirements. But for institutions with millions of customers and thousands of customer-contact employees. there are specific KYC solutions that offer case-based account documentation acceptance and rectification.S. Bank and corporate security directors can also play an important role in fighting money laundering. passed laws against structuring transactions to avoid the reporting requirements. changing behaviour. Before anti-money laundering programs became commonplace. and most structuring would trigger a Suspicious Activity Report by the financial institution.S. traditional ways of knowing their customers must be supplemented by technology. rule-based systems. As a result. Financial Crimes Enforcement Network FinCEN is an organization created by the United States Department of the Treasury. The various software packages are capable of name analysis. One of its strategic goals is to improve information-sharing through eGovernment. Anti-money laundering (AML) software Anti-money laundering (AML) software is a type of computer program used by financial institutions to analyze customer data and detect suspicious transactions. and shares their data with U. or other indicators of laundering. neural networks. Such anomalies would include any sudden and substantial increase in funds or a large withdrawal. peer group analysis. In . It offers training and advice to organizations of foreign governments to help improve the efficacy of their own anti-money laundering programs. law enforcement agencies and Financial Intelligence Units FIUs of other countries. the U.000.The first defense against money laundering is the requirement on financial intermediaries to know their customers²often termed KYC know your customer requirements. link analysis.

2001. designed to counteract funding to terrorist organisations.000 or greater must be reported. Glyn Ford. were added on 30 June 2003. although critics[who?] argue that it has become less and less important for the White House. For example. Important aspects of AML software:y y y y y y y y y Suspicious Activity Detection Know Your Customer (KYC) Management Caution / Watch List Management & Checking Of Customers / Prospects Customer Risk Categorization Link Tracing Large Cash Transaction Reporting Regulatory Reporting KPI / KRI Dashboards for Chief Compliance Officers Online AML and List Check for Remittance Transactions 9/11 and the international response to the underground economy After September 11. was a central securities depository and clearing house. in response to the 9/11. several judicial investigations were opened and the European Commission was interpelled by Members of the European Parliament (MEPs) Harlem Désir. all transactions of $10.both the United States and Canada.[by whom?] . a person who wants to avoid detection will sometimes deposit a large sum as multiple smaller sums within a brief period of time. whose original 40 principles form the basis of most international responses to money laundering.[23] The scandal prompted André Lussi. owned by Osama bin Laden. it generates a report. known as "structuring. Clearstream International. would have profited from these transfer facilities. It was accused of being a major operator of the underground economy via a system of unpublished accounts. with another added 22 October 2004. Once the software has mined data and flagged suspect transactions. including Luxembourg. effectively. money laundering became a major concern of the United States' war on terror. is now seen as a requirement of an internationally active bank or other financial service entity. to form what are now known as the [26] (AML/CFT). A further 8 principles. a "bank of banks" which practiced financial clearing and centralized debit and credit operations for hundreds of banks. That practice." will also lead to flagged transactions. to resign on 31 December 2001. or at least a move towards them. based in Luxembourg. Smaller transactions that meet certain criteria may be also be flagged as suspicious. Bahrain International Bank. Compliance with these principles.[24] The international response to the underground economy has been coordinated by the [25] "FATF" (also known by its French acronym of "GAFI"). The software flags names that have been blacklisted and transactions involving countries that are thought to be hostile to the host nation. Clearstream's CEO. and Francis Wurtz. who asked the Commission to investigate the accusations and to ensure that the 10 June 1990 directive (91/308 CE) on control of financial establishment was applied in all member states.

FATF works in collaboration with a number of international bodies and organizations. its membership consists of 31 countries and territories and two regional organizations. We are faced with the problem that there has been little work to develop an objective academic analysis of the true extent of laundering. some form of reliable accuracy.[28] . In 1997 the FATF. stated by the IMF. becoming.FATF: Financial Action Task Force against Money Laundering Formed in 1989 by the G7 countries. frankly admitted "the vast majority of FATF members lack sufficient data to support any credible estimate. These entities have observer status with FATF. In addition. through such repetition. it is difficult to challenge the 'alarmist' position of the authorities whereby such estimates have been put forward. financial and law enforcement experts to achieve national legislation and regulatory AML and CFT reforms. Currently."[27] Although admissions of that nature are no longer maintained. an arm of the OECD set up to combat money laundering. which does not entitle them to vote. FATF is a policy-making body. FATF expanded its mission to include combating the financing of terrorism. Some academic commentators have expressed real concerns about the reliability and basis of figures used by governmental and multinational organizations.. p. the Financial Action Task Force on Money Laundering (FATF) is an intergovernmental body whose purpose is to develop and promote an international response to combat money laundering. Without this. quoted and repeated. Amounts Many regulatory and governmental authorities quote estimates each year for the amount of money laundered. through mere repetition. but permits full participation in plenary sessions and working groups. A frequently cited figure is 2-5% of the worldwide global economy. In October 2001. which means that we do not have a framework within which the appropriateness of legislative measures can be evaluated. which brings together legal. But some academics note that such figures are usually simply "best guesses". reproduced to the point at which they gain. seemingly established truths. there is still a dearth of data on the actual amounts of money laundered worldwide. either worldwide or within their national economy. It can be argued . It is always hard to find out real figures about illegal acts..56). 2005. that global estimates are little more than informed guesses: "large numbers are frequently thrown around without serious support" (Reuter and Truman.

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