MONEY LAUNDERING

MONEY LAUNDERING

STAGES OF MONEY LAUNDERING

1. Placement

This is the first step where the criminal funds are imported into system as they have to be assimilated in society somehow. At this point, the sole objective is to "clean" that money by getting rid of it and reduce its notoriety. Below are some of the primary placement methods used:

Structuring (smurfing): splitting large cash deposits into smaller ones so as to avoid being reported.

Cash-Intensive Businesses funnelling dirty money into businesses that use cash, such as restaurants or casinos, blending it with the turnover of genuine business operations.

Conversion of Illicit Currency: Using various forms, money services businesses and platforms to launder funds (e.g. exchanging fiat currency into another cryptocurrency).

Bank deposits - directly placing money in an account at a bank, particularly where there are relatively fewer or no banking regulations.

2. Layering

Wire Transfers: The automation of funds transfer between account held by banks in finance and across borders.

Opaque Structures: Building systems of shell companies and trusts to obscure the identity of both the ultimate owner, as well as back-and-forth transactions.

Asset purchases: the purchase of high-priced real estate, art objects or luxury items for which an investment can be planned later on.

Bank Account Layering: Employ various bank accounts in different countries to build a labyrinth of multiple transactions.

3. Integration

Invest in a Real Business: funneling dirty money back into legal business cycles so that there is complete overlap between what work/earnings are being done legitimately.

Loans and Financing: Fabrication of loans or financing, often times through shell companies to be paid with illicit funds.

Siphoning Luxury Assets: It is about selling luxury assets that were brought after getting the dirty money in order to make it look like you are legitimately just a rich kid.

TECHNIQUES OF MONEY LAUNDERING

1. Structuring (Smurfing)

The illegal process of splitting large sums of money into smaller, less conspicuous amounts to avoid suspicion and regulation.

Sample Scenario: A smurf (an agent) places small sums of cash under the reporting threshold into separate bank accounts.

2. Bulk Cash Smuggling

Carrying CASH physically across borders to bank & "hide" it in countries with less rules.

Example : smuggling cash in a handbag, carrier bag or vehicle to an overseas territory

3. Trade-Based Money Laundering

Falsifying the Valor of Imported or Exported Goods - providing incorrect information on imported and exported goods to move value across borders.

Example: Decepts the merchandise invoices to transfer illegal funds overseas

4. Shell Companies and Trusts

Establishing intricate webs of shell companies and trusts obscuring ownership and control.

For example, establishing multiple companies across jurisdictions to obfuscate a source of criminal funds.

5. Investment in Real Estate

Buying property with dirty money, and then selling the property to launder (cycle) "clean" funds back into the economy.

For Instance : Purchasing real estate at an inflated value and selling it later on for the purpose of transforming unlawful money into lawful funds.

6. Casinos and Gambling

Use casinos to place small bets with money generated from criminal activity, and then channeling the illegally laundered profits through a cash-out that look like legitimate gambling winnings.

Such as: Washing corrupt money to buy chips, playing a little bit and cashing out the remaining amount.

7. Money Mules

Utilizing third parties to move money in and out of countries or various entities so as not to leave a trace

The physical transfer of money from the company's premises, to an employee asset Example: cash couriers or small depositors if individual bank accounts are used in electronic transfers)

8. Digital and Cryptocurrencies

The money paid via the means of digital coins to make untraceable and anonymous transactions.

Example: Liquidating cash into crypto currencies, transfers across chain airdropped to different wallets, and liquidated back onto fiat.

9. Offshore Accounts

Sending money to jurisdictions with strong bank secrecy laws and weak regulatory controls keeping funds in those jurisdictions, or placing cash directly into a foreign bank account.

For example, sending money to a bank account in an offshore haven but using this as one step separating where the funds stem from and who owns them.

10. Credit Unions and Financial Professionals

Using money service businesses or shell companies to launder dirty funds through financial professionals (accountants, lawyers) or institutions.

Typical Scenario Doing Business with an intermediary being law abiding professionals who set up shell companies or facilitate hiding the origin of money through transactions.

11. Under-Over Priced Invoices

Adjusting the costs of goods or benefits on solicitations to hide the exchanged esteem.

Example: billing for services at an inflated price, with the surplus representing money laundering.

12. Prepaid Debit and Credit Cards

Funding pre-paid cards with proceeds of crime and transactions made by spending the card or withdrawing cash.

Example, Depositing Different Lower Levels Of Funds On Multiple Prepaid Cards Which You Could Route To Use At Other Places.

EFFECTS OF MONEY LAUNDERING

1.Economic Effects:

Misallocates capital: Laundered money can be used to invest in growing legitimate businesses, providing them an unfair competitive advantage. This warps market competition and stifles economic efficiency.

Financial stability: if too much laundered money moves through the financial system it makes banks and other institutions fragile, reducing their ability to manage risks which can in turn lead into a systemic crisis.

Tax revenues decrease: A major issue with money laundering is that it allows criminals to avoid paying tax, which reduces the amount of money available for public services.

Fuels corruption: Money laundered can be utilized in bribing officials which decline the good governance and rule of man.

2.Social Effects:

Empowers criminals: Money launderers support unlawful acts and provide influences to keep criminal organizations active hence ensures all efforts are secure.I.e. more crimes and social instability as a result .

Undermines public faith: Watching criminals turn dirty money into clean again, lays their criminal activity and in a sense the entire legal system bare to its stark reality where it seems there is little difference between living honestly or embarking on the life of crime.

Money launderers target vulnerable populations: Money launderers often recruit the poor and uneducated to move their money for them. It can also serve to ensnare the most vulnerable among us in poverty and a life of crime.

Contributes to environmental harm: Much of the money laundered is used in funding criminal activities which are harming our environment like illegal logging and mining.

1.Individual Effects:

Loss of money - compromised individuals or businesses that have invested in companies or financial products funded by laundered cash may experience a loss if the scheme is exposed.

Reputational harm - People and companies involved in money laundering can be tarnished, making it difficult to access credit or do business with some of the established corporations.

Legal requirements: Money laundering is a federal offence that carries strict penalties including jail-time and large financial damages.

MEASURES AGAINST MONEY LAUNDERING

1.INTERNATIONAL INITIATIVES:

Financial Action Task Force FATF: Financial Action Task Force (intergovernmental organisation that sets standards to stop illegal financial activities with the aim of terrorism) The FATF standards are to be implemented by the member countries and jurisdictions through national legislation.

Egmont Group of Financial Intelligence Units: Egmont Group of Financial Intelligence Units is a global organization which provides an international network for member FIUs, promoting the secure exchange of expertise and financial information to come against money laundering.

UNSC Resolution 1373: Demands that all member states adopt controls against the financing of terrorism/money laundering.

NATIONAL INITIATIVES:

Anti-Money Laundering (AML) Laws: These are the laws that make financial institutions, and other regulated entities require to detect money laundering or terrorist financing. These laws differ depending on national priorities and the necessary risk factors.

Financial Intelligence Units (FIUs)-National agencies that receive, analyze and disseminate financial intelligence on suspected money laundering or terrorist financing relationships.

FIU, an important tool for connection in networks Closing the loop on enforcement: FIUs Identify Criminal Networks

Public-Private Partnerships: Governments and financial institutions are working together more than ever to exchange knowledge, relay AML strategies.

This is paramount to outsmarting the ever-changing methods of laundering illicit funds.

TECHNOLOGICAL INITIATIVES:

Blockchain technology: This features increased transparency on financial transactions that can reduce ability to be used by criminal illicit financing agents shard the form/sources of funds in a way they would no longer broadcast how/where it came from.

OTHER IMPORTANT INITIATIVES:

International cooperation and collaboration: as financial crime knows no border, different countries must cooperate each to other in order sharing information for infiltrating money laundering. This includes joint investigations and mutual legal assistance treaties as well international law enforcement operations.

Educating the public: Raising awareness of money laundering schemes, tactics and its consequences helps individuals, businesses to identify red flags that relates with criminal activities

Targeted sanctions: Implementing targeted financial sanctions against individuals, groups, and entities linked to criminal behavioure or terrorism can significantly disrupt their activities and funding sources.

Challenges in Preventing Money Laundering

Evolving Money Laundering Techniques: Criminals constantly adapt their methods to circumvent existing regulations and exploit loopholes .

The increasing use of digital currencies, new technologies, and complex financial instruments makes tracking and tracing illicit funds more challenging.

Limited Resources: Law enforcement agencies and regulatory bodies often face resource constraints, making it difficult to effectively monitor and investigate suspicious activity .

This challenge is further exacerbated by the increasing volume and complexity of financial transactions.

International Cooperation: Combating money laundering requires extensive international cooperation and information sharing .

However, jurisdictional differences, legal complexities, and varying levels of commitment among different countries can hinder effective collaboration.

Emerging Technologies: Technologies like virtual currencies and decentralized finance (DeFi) pose new challenges due to their anonymity, accessibility, and the potential for cross-border transactions .

Regulators and law enforcement agencies are still working to understand and adapt their strategies to effectively address these emerging risks.

Corruption and Weak Governance: In countries with weak governance or high levels of corruption, criminals can infiltrate financial institutions or exploit regulatory loopholes to launder illicit funds more easily.

THE WAY FORWARD:

Enhancing International Cooperation:

• Strengthen international collaboration and information sharing between law enforcement agencies, FIUs, and regulatory bodies.

Harmonize AML regulations and standards across jurisdictions to eliminate loopholes exploited by criminals. Develop joint investigations and target high-risk financial flows.

Improving Regulatory Frameworks:

• Update and strengthen AML regulations to address new technologies and evolving money laundering methods. Increase transparency and beneficial ownership requirements for legal entities and trusts.

Strengthen the oversight and supervision of financial institutions to ensure effective implementation of AML controls.

Leveraging Technology:

• Utilize advanced data analytics and artificial intelligence to detect suspicious patterns and transactions more effectively. Explore the use of blockchain technology to improve transparency and traceability of financial flows.

Invest in research and development to stay ahead of emerging money laundering trends and technologies.

Raising Public Awareness:

• Educate the public about money laundering schemes and how to identify and report suspicious activity. *Encourage businesses to implement robust AML policies and procedures.

Promote an ethical and responsible financial culture that discourages illegal activities.

Addressing Corruption and Weak Governance:

• Strengthen governance and the rule of law in countries vulnerable to money laundering. Support initiatives to combat corruption and promote transparency in public institutions. Foster international cooperation to address transnational financial crime.