What is Money Laundering?
“The President’s Commission on Organized Crime has defined money laundering as the process by which one conceals the existence, illegal source, or illegal application of income. He then disguises that income to make it appear legitimate, In other words, laundering involves the hiding of the paper trail that connects income or money with a person in order for such person to evade the payment of taxes, avoid prosecution, or obviate any forfeiture of his illegal income or assets. It is the process used by a successful criminal to legitimize his ill-gotten wealth. He takes dirty money and makes it look clean so that he can spend it freely and even assume a respectable position in society.”
Whitney and Williams Jr. Federal Money Laundering Crimes and Forfeitures. Lexis Law Publishing, Charlottesville, Virginia. (1999). Pg. 4.
The three stages of money laundering are: Placement, Layering, and Integration.
Placement is when the criminal puts the illegal funds into the financial system.
Layering is the second phase of the money laundering operation. It involves moving the funds among legitimate accounts and businesses.
Integration is the final step in the money laundering scheme. It occurs when the funds are so far removed from their illegal source that for all practical purposes they appear to be legitimate,
How is Money Laundering carried out? Shell companies, intermediaries and money transmitters usually transfer these funds around the world – Banks and other financial institutions are the chosen medium for laundering these illegal funds
- The Bank Secrecy Act is the most important Anti-Money Laundering (AML) regulation
- The BSA requires financial institutions to: Keep records of cash purchases of negotiable instruments – File reports of cash transactions exceeding $10,000 (daily aggregate amount) – Report suspicious activity that might signify money laundering, tax evasion, or other criminal activities – Implement a written, board-approved compliance monitoring program
- The USA Patriot Act – Expands AML requirements to all financial institutions – Augments existing BSA framework
AML Best Practices
- In order to combat money laundering, banks should implement the following best practices: Customer Identification Program (CIP) – Customer Due Diligence (CDD) Program – Bank Secrecy Act/Anti-Money Laundering Risk Assessment – Identification and Reporting of Suspicious Activity
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