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Money Laundering (History, Process, Methods, and Impact)

Money Laundering (History, Process, Methods, and Impact)



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  • A Brief History • The term “money laundering “ originate from Mafia ownership of Laundromats in the United States. • Gangsters there were earnings huge sums in cash from extortion, prostitution, gambling, and bootleg liquor.
  • • Robinson states that: “Money laundering is called what it is because that perfectly describes what takes place-illegal, or dirty, money is put through a cycle of transactions, or washed, so that it comes out the other end as legal, or clean, money. In other words, the source of illegally obtained funds is obscured through a succession of transfer and deals in order that those same funds can eventually be made to appear as legitimate income.”
  • What is Money Laundering?  is the process of disguising illegally obtained money  occurs in connection with wide variety of crimes, including illegal arms sales, drug trafficking, robbery, fraud, racketeering and terrorism.  is to convert cash to some other form of asset to conceal the illegal source of origin of cash income.
  • The Money Laundering Process  Placement  Layering  Integration
  • PLACEMENT The initial movement of criminally derived currency or other proceeds of crime, to initially change it’s form or location to places beyond the reach of law enforcement.
  • Process of Placement: 1.Blending of Funds 2. Bank Complicity 3. Asset Purchase
  • Layering The process of separating the proceeds of criminal activity from their origin.. Disguising the origin through the movement of funds trough accounts and financial institutions. The use of layers of complex financial transactions; loans, letters of credit, investments and insurance
  • Process of layering: 1. Cash converted into Monetary Instruments 2. Material assets bought with cash then sold
  • Integration The process of using an apparent legitimate transaction to disguise the illicit proceeds allowing the laundering of funds to be disbursed back to the criminal. Funds often are used for payment for operations, spending on luxury goods or investments in businesses.
  • Process of integration: 1.Property Dealing 2. Front Companies and False Loans 3.Foreign Bank Complicity 4.False Import/Export Invoices
  • Money Laundering schemes may vary greatly in character and complexity. They may involve any number of intermediaries and utilize both traditional and non-traditional payment systems. The scope and nature of a money laundering operation is limited only by the creativity of those involve.
  • In 1996, Harvard-educated economist Franklin Jurado went to prison for cleaning $36 million for Colombian drug lord Jose Santacruz-Londono. People with a whole lot of dirty money typically hire financial experts to handle the laundering process. Its complex by necessity: The whole idea is to make it impossible for authorities to trace the dirty money while it's cleaned.
  • There are lots of money- laundering techniques that authorities know about and probably countless others that have yet to be uncovered. Here are some of the more popular ones:
  • 1. Black Market Colombian Peso Exchange - This system, which the DEA calls the "largest drug money-laundering mechanism in the Western Hemisphere", came to light in the 1990s.
  • 2. Structuring deposits – Also known as smurfing, this method entails breaking up large amounts of money into smaller, less-suspicious amounts.
  • 3. Overseas Banks – Money launderers often send money through various "offshore accounts" in countries that have bank secrecy laws, meaning that for all intents and purposes, these countries allow anonymous banking.
  • 4. Underground/alternative banking - Some countries in Asia have well-established, legal alternative banking systems that allow for undocumented deposits, withdrawals and transfers. These are trust-based systems, Often with ancient roots, that leave no paper trail and operate outside of government control. This includes the hawala system in Pakistan and India and the fie chen system in China.
  • 5. Shell companies These are fake companies that exist for no other reason than to launder money. They take in dirty money as "payment" for supposed goods or services but actually provide no goods or services
  • 6. Investing in legitimate businesses Launderers sometimes place dirty money in otherwise legitimate businesses to clean it. These businesses may be "front companies" that actually do provide a good or service but whose real purpose is to clean the launderer's money
  • •The first, and most obvious, impact is the increase in corruption and crime. • The second impact (valid in any jurisdiction) is on legitimate businesses.
  • How Can We Prevent it?
  • The Financial Action Task Force (FATF) on Money Laundering has identified certain “choke” points in the money laundering process, that the launderer finds difficult to avoid and where he is vulnerable to detection.
  • The choke points identified are: a. Entry of cash into financial system b. Transfers to and from the financial system c. Cross-border flows of cash
  • How Does Fighting Money Laundering Help Fight Crime
  • Money laundering is a threat to the good functioning of a financial system; however, it can also be the Achilles’ heel of criminal activity. Hitting him where he is vulnerable Without a usable profit, the criminal activity will not continue
  • What Individual Governments should Do about Money Laundering
  • Many Governments have already established comprehensive anti- money laundering regimes. These regimes aim to increase awareness of the phenomenon – both within the government and the private business sector – and then to provide the necessary legal or regulatory tools to the authorities charged with combating the problem.
  • What Role the Financial Task Action Force (FATF) Play
  • FATF – is a multidisciplinary body that brings together the policy-making power of legal, financial and law enforcement experts from its members. FATF monitors members’ progress in implementing anti-money laundering measures; reviews and reports on laundering trends, techniques and counter-measures; and promotes the adaption and implementation of FATF anti- money laundering standards globally.
  • The FATF issued the Forty Recommendations in 1990 and completely revised them in 1996 and more recently in 2003.The 40 Recommendations require are a comprehensive blueprint for action against money laundering. They cover the criminal justice system and law enforcement; the financial system and its regulation; and international cooperation