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Anti-money laundering

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Anti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti-money laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the USA PATRIOT Act.

Today, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit in the respective country. For example, a bank must perform due diligence by ascertaining a customer's identity and monitor transactions for suspicious activity. To do this, many financial institutions utilize the services of special software, and use the services of companies such as WorldCompliance to gather information about high risk individuals and organizations.United States federal law related to money laundering is implemented under the Bank Secrecy Act of 1970 as amended by anti-money laundering acts up to the present. Many people have confused Anti-Money Laundering (AML) with Anti-Terrorist Financing (ATF). Under the Bank Secrecy Act of USA, Money Laundering and Terrorist Financing are classified into two different categories when financial institutions file Suspicious Activity Reports (SAR) to Financial Crimes Enforcement Network (FinCEN) which is a US government agency. To effectively implement AML and ATF measures, The US government encourages financial institutions to work together for AML and ATF purposes in accordance with Section 314(b) of the USA PATRIOT Act. However, since financial institutions are required by law to protect the privacy of their clients, section 314(b) cooperation has not been generally adopted by financial institutions. To overcome this obstacle, the United Crimes Elimination Network (UCEN) has been established by AML and ATF professionals to achieve this global cooperation goal in compliance with the privacy laws of most countries.

[edit] Steps

Money laundering involves three independent and often simultaneous steps :

  1. Placement - Physically placing bulk cash proceeds.
  2. Layering - Separating the proceeds of criminal activity from their origins through layers of complex financial transactions.
  3. Integration - Providing an apparently legitimate explanation for the illicit proceeds.

[edit] Additional information

An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions, that may constitute illegal financial activity. Financial institutions face penalties for failing to properly file CTR (Currency Transaction Report) and SAR (Suspicious Activity Report) reports, including heavy fines and regulatory restrictions, even to the point of charter revocation. These software applications effectively monitor bank customer transactions on a daily basis and, using customer historical information and account profile, provide a whole picture to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers, credit card activity, cheques (checks), share (securities) dealing and ACH activity. In the bank circles, these applications are known as BSA software or AML software.

Different standards exist in different countries and, depending on the activity, demand different action. For example; in the US a deposit of US$10,000 or more requires a CTR, in Europe it is EUR 15,000, and in Switzerland it is CHF 25,000. In some countries there is no CTR requirement. Suspicion of ML activity in the US requires the submission of a SAR, while in Switzerland a SAR will only get filed if that activity can be proved. As a result, thousands of SARs are filed daily in the US, while in Switzerland the rate is much lower.

The United Nations Office on Drugs and Crime maintains the International Money Laundering Information Network, a website that provides information and software for anti-money laundering data collection and analysis.[1]

[edit] Costs

The financial services industry has become increasingly vocal about the rising costs of anti-money laundering regulation, and the limited benefits that appears to bring. As one commentator expresses the issue:

“ It seems that the bigger the figure for money laundering the more likely it is to be quoted. Indeed, there is even a tendency to 'talk up' the figures as smaller estimates would not only invalidate the logic of the approach [of strict anti-money laundering regulation] but would possibly deter the levels of investment necessary for its operational impact. Without facts, legislation has been driven on rhetoric, driving by ill-guided activism responding to the need to be "seen to be doing something" rather than by an objective understanding of its impact on pedicate crime. The social panic approach is justified by the language used - we talk of the battle against terrorism or the war on drugs...[2]) ”

The Economist newspaper has become increasingly vocal in its criticism of such regulation, particularly with reference to countering terrorist financing, referring to it as a "costly failure".[1]

[edit] See also

[edit] Notes

  1. ^ International Money Laundering Information Network
  2. ^ Money Laundering Bulletin, Issue 154, June 2008, Dr Jackie Harvey (Newcastle Business School

[edit] External links

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