Anti-Money Laundering and Risk Management

This assignment delves into the complexities of anti-money laundering and risk management, featuring a comprehensive list of academic sources and patents related to the topic. From international standards and regulatory strategies to digital currency and online money laundering, this collection provides in-depth insights and analysis. Students can access past papers and solved assignments for further study and guidance.

Essay

CONTENTS
INTRODUCTION...........................................................................................................................1
Main body........................................................................................................................................1
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Money laundering is the procedure of create the appearance of large amount of money
obtained from the illegal operations such as terrorist activity, drug trafficking and many more.
Mainly the money created from the illegal activity is consider as dirty and the process of
launders help in make it look clean (Masciandaro, 2017). One of the major disadvantage of this
process is that it slow down the economic development of nation and creates various unnecessary
problems in its development. This process consists three steps known as placement, layering and
integration. Impact of this can be seen on various sectors of a country. One of the main
advantage of this is that it help in bring the illegal money into upon. Money laundering and
various stages involve in this is all detailed in this report. Further, its impact of financial, real and
external market is also given in this. In addition to this, how economic development get affected
by the process of money laundering is all detailed in this.
Main body
Concept of money laundering refers to the conceal, relocate and retain the money for a
long time period created from a crime. Basically it is process of transfer of property knowing that
such property is origin from crime. Process of money laundering help criminal to enjoy profits
without uncovered their illegal source (Moser, Bohme and Breuker, 2013). Mainly, insider
trading, bribery and various fraud schemes produce large amount of money. Process of money
laundering help criminal to have the incentive and provide various legal profits. Main aim of
criminal activities is to make large number of profits as soon as possible. Procedure of money
laundering is very significant for criminals as this provide them an opportunity to enjoy huge
amount of profits.
Stages of Money laundering
Basically there are three stages involved in the process of money laundering that is
placement, layering and integration. All these can be better understood by the points given
below: Placement: This is the first step involve in the process of money laundering this is
movement of cash from its source. It is followed by placing money into circulation with
help of financial institutes, shops, casinos and from various other businesses including
both local and international (Madinger, 2011). Further, the process of placement can be
carry through various other process include the following:
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Currency smuggling: This include the illegal movement of various monetary instruments
and currency out of a country. Various transport methods do not leave a discernible audit
trail.
Bank complicity: Under this financial institutions such as bank is owned by individuals who
are suspected to convinced with crime groups and drug dealers. This make the whole easy for
launders. Further, liberalisation of finance sector without any adequate cheque provide
freedom for laundering.
Currency exchanges: Liberalisation of foreign exchange markets make the currency
movements easy (Force, 2012). Further all these policies facilitate the process of laundering.
Securities Brokers: Brokers are the one who facilitate the process of laundering by
structuring large money deposits of cash in a unique way that disguise the original source
of money.
Blending of funds: One of the best way to hide cash is with huge amount of other cash. Due
to this, financial institutes and banks are the major vehicles for money laundering. Other
method is to use the money created from illegal activities to set up a firm. This helps in
enable the funds of illegal activities into legal process.
Purchase of assets: Buy fixed assets is one of the classic and traditional method of money
laundering. One of the main purpose of this is to convert the conspicuous bulk money into
less conspicuous but equally valuable form. Layering: This is the second step involve in the process of money laundering, major
purpose of this is to make it more complex to identify or detect the activity of laundering
(Bryans, 2014). This means make the illegal activities difficult for the agencies of law
enforcement. Major known methods of this are as follows:
Cash converted into monetary instruments: After successful of placement with financial
system with help of a bank or financial institution, proceeds then can be converted into
monetary instruments (Stokes, 2012). Further, this consists the use of money orders and
banker’s draft.
Assets brought with cash and then sold: Under this assets are brought with help of illegal
funds are sold locally and in this case it become difficult to find. Integration: This is the third or last step, basically this involves the movement of
laundered money into the economy with help of banking system and all this help in
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appear that money as normal business earnings (Grant and Reynolds, Bank of America
Corp, 2013). This is different from the layering. During the integration identification and
detection of laundered money is provided with help of informants. Major known methods
of this are as follows:
Property dealing: Sale of fixed assets and property to bring the laundered funds back into the
economy is one of the most common method among criminals. Number of criminals are
there that use shell firms to purchase property, due to this process of sale the property is
known as legal.
Front firms and false loans: Enterprises that are based in countries with various corporate
secrecy laws, in which criminals lend their laundered money is known as a legal transaction.
Foreign bank complicity: Foreign banks using money laundering indicate a high order of
sophistication and all this highlights a complex target for law enforcement. Assistance of
foreign banks is protected against law enforcement scrutiny (Favarel-Garrigues, Godefroy
and Lascoumes, 2011). This is not only by criminals but also through banking regulations
and laws.
False export/import invoices: use of false invoices is known as one of the effective way to
bring back illegal money back into the economy. This consists overvaluation of documents,
to justify it later when deposited into local banks.
All these are the main steps include into the process of money laundering. Major other
factors related with this are as follows:
Money laundering charges: An individual who complete the whole process of money
laundering is known as a subject to money laundering charges.
Defenses to money laundering: Process of money laundering is known as a complicated crime.
Various defences arise to such kind of charges (Baird, 2014). Potential defences apply in the
money laundering are as follows:
Lack of Evidence: Prosecutor bears the burden of establish each factor of crime. If that
individual present adequate evidence to fulfil that burden, jury cannot prisoner the defendant. It
is very essential for prosecution to show that defendant has received the funds from the illegal
activity. (Barone and Masciandaro, 2011). Further, prosecution must proof that defendant tried to
cover up the sources of illegal funds.
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Duress: When bankers, accountants and other financial professionals are involve into the process
of money laundering by aggressive criminal, duress may be a valid defence.
Negative impact of money laundering
Negative impact of money laundering on economy is hard to define but it can be said that
these activities not only harm financial institutes directly but also impact productivity of country
in its various economic sectors such as international trade, capital flows and many more.
Negative economic effects of money laundering on economic develop of a country can be
qualified in major three sectors known as financial, real and external (Bergström, Svedberg
Helgesson and Mörth, 2011). Process of money laundering hamper the financial sector that are
very significant for economic growth of a nation. Corruption decrease productivity of a economy
by encourage time and diverting resources and all this slow down the economic growth.
Due to lack of research in case of money laundering, various economic professors give
their views that developing country should not devote their scare resources in development of
policies to reduce money laundering. Some arguments in the concept of money laundering is are
as follows:
Money laundering flows funds from developed economies to developing economies and
due to this, it results in flow of capital in developing countries.
Process of money laundering encourage economy, this results in occurrence of crime in
developed economies, and government of developing country should not spend their limited
resources on prevent crime in developed economies. This indicate that economic damage done
by the process of money laundering through channels of developing country is at the expense of
developing economies.
Imposition of anti money laundering various financial regulations discourage the use of
banks in developing country and encourage people to save their funds with themselves.
Impact of money laundering on three sectors can be better understood by the following
points:
Impact on financial sector: Banks, financial institutions and non financial institutes such as
private lender and equity markets all come under the financial sector. All these are very
significant as this highlight the concentration of financial resources for nation its investment
which contribute in economic development of nation (Bergström, Svedberg Helgesson and
Mörth, 2011). Impact of money laundering on financial is indirect. Whenever money
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laundering takes place in financial institution, than most of the cases an employee is involved in
that either knowingly or unknowingly. When knowingly then it hamper the image of financial
institution. Once process of money laundering take place in a financial institution then it
damaged the trust of customers. Once the trust of customers gone then it become difficult for
financial institute to survive in market and to collect or invest capital resources.
Impact of money laundering on real sector: Real sector deals with various things such as arts,
automobile, real estate and anything that can be called good. Laundering of money with help of
real estate take place frequently or one can say that real estate is utilised by individuals for
process of money laundering (Christopher, 2014). When real estate is purchased with help of
illegal funds then it create artificial demand in market, which affect the supply falsely and
saturate the market of real estate. Real estate is one of the aspect that greatly affect by the
process of money laundering because its prices are artificially fixed which are below then the fair
market prices.
Impact of money laundering on external sector: This sector contain the activities such as
export, import and international capital flows. All this get affected when illegal activity is take
place to purchase the luxury items with the intention of money laundering. When import are
purchased through these funds then no fair economic activity take place and due to this economy
suffers. Further employment is not generate and not even competition get supported due to
artificial prices for the main purpose of laundering. All these activities affect process of domestic
products, hamper natural competition between domestic and international enterprises further,
decrease the profitability of domestic firms.
Overall process of money laundering largely affect the various activities of a country
negatively. But this can be prevented.
Positive side of money laundering
With large number of negative points there are some positive side relate with the process of
money laundering that is detailed under some following points:
 One of the positive side of process of money laundering is that, it bring the illegal money
into open which government in take tax which could not be possible otherwise.
Money laundering and its impact on financial institutions
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Today, money laundering is one of the topic which is widely talked about. It affect
various aspects both at micro and macro level further, government and financial institutions also
get affected by this.
For financial institutes, money laundering is one of the most important aspect as this can
hamper their reputation and at the same time can ruin its reputation. Reliability or integrity is
known as one of the most important and valuable intangible assets for a bank and this largely
depend on the perception of its customers (Kolhatkar and et. Al., 2014). This is the only factor
that help financial institutes to being apart from the competition and other major players in
market. This help banks in attract large number of customers. Perception is that if criminal and
illegal funds can be easily passed through a bank then there are many chances that it become part
of criminal network and all this hamper the positive reputation of bank in market. Today, it is
very significant for financial institutes to maintain integrity in all its operations.
One of the major impact of money laundering is felt in the private sector. Money launders take
help of front companies which transfer the illegal funds into legal money. In specific cases, front
companies are able to offer various products at lower prices in what manufacture produce it. Due
to this, front enterprises have a competitive advantage over legal companies that draw funds
from financial institutes. All this make it complex for legitimate firms to compete against front
companies.
Financial enterprises that depend on the proceeds of crime `have to face more challenges
to manage their assets and other operations(Beekarry, 2011). For example, huge amount of
laundered money come at banks and then disappears fast and suddenly without any notice,
through wire transfers. All this can give rise to liquidity problems at banks. All criminal
activities is associated with various bank failures around the globe, including the failure of first
internet bank. Further, banks are susceptible to risks from money launders. There is a small
difference between financial institution that used to launder money and the institute that is
criminally involve in process of money laundering. When its reveals that a bank is involve in
money laundering then face specific costs such as loss of business and various business costs.
Banks and its directors has to face the risk of criminal prosecution for being involve in the
process of money laundering whether they are aware about the funds are derived from criminal
activity or not.
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In large number of cases, directors of bank are unaware about this that their institute is
being used for launder money. An employee involve in the process of money laundering. Bank is
this situation is also responsible for the actions of its employees. Due to this, it is very essential
for banks to adopt and enforce the legal procedures to deposit and banks require to keep a control
overall all staff members to be useful for money laundering.
Mainly there are two factors that is affecting the enthusiasm of banks to comply with
various laws. First is bank officials are under increasing pressure to drive up profits. Various
western banks are there that remain buoyant due to the services related with money laundering.
For example in case of BCCI bank (banks of credit and commerce international), the bank
require to create huge amount of profits to cover up the loss arise from trading and loans. In this
case, money laundering and easy way to do the same. Secondly, some specific countries and
banks have a competitive advantage in offering private services which is confidentially of client.
Secrecy laws of banks exist in almost fifty nations all over the globe and for such kind of banks
this is very significant for attract large number of customers.
Money launders are not mainly interested in making profits but rather than do efforts to
save their proceeds. Due to this they save their funds in the operation that are not economically
beneficial for country’s economy. Financial crime and money laundering redirect the funds from
effective investments to low quality investment due to all this economic growth of a country
suffers. In some nations various industries such as hotels and construction have financed and all
this take place not because of actual demand but due to short term interest of money launders.
When money launders loose their interest in this then this cause a down fall in theses sectors and
all this hamper the industry a lot.
Process of money laundering decrease the tax revenue of government and all this hamper
the honest tax payers. Further this make the process of tax collection more difficult. Further all
this threatens the efforts of many states to introduce reforms in economies with help of
privatisation. Concept of privatisation is economically beneficial for a country but at the same
time provide a vehicle for money launder. Research revealed that criminals have the power to
purchase resorts , casinos to hide all their illegal funds and all this enhance their criminal
activities. Concept of money laundering hamper the image banks and creates various obstacles in
their growth and development. Further, money laundering diminish the global growth
opportunities for a bank and at the same time complex the economic development of nation.
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CONCLUSION
From the given information, it can be summarised that concept and process of money
laundering hamper the economic development of nation and create number of obstacles in this.
Individuals who carry out the process of money laundering has to face through various costs.
Large number of individual go with this not to generate huge amount of profits but just to save
their proceeds. It is very essential for government of nation to introduce reforms in laws and
regulations on continuous basis to decrease the negative impact of money laundering. It is very
important for bank to maintain transparency in its operations as when a bank involve in the
process of money laundering then it not only decrease the number of its profits but at the same
time hamper its reputation in market. In order to achieve economic growth and to maintain
sustainability it is very essential for government of nation to maintain the process of money
laundering.
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REFERENCES
Masciandaro, D. ed., 2017. Global financial crime: terrorism, money laundering and offshore
centres. Taylor & Francis.
Madinger, J., 2011. Money laundering: A guide for criminal investigators. CRC Press.
Force, F.A.T., 2012. International standards on combating money laundering and the financing
of terrorism & proliferation: the FATF recommendations (pp. 90-93). FATF/OECD.
Bryans, D., 2014. Bitcoin and money laundering: mining for an effective solution. Ind. LJ, 89,
p.441.
Stokes, R., 2012. Virtual money laundering: the case of Bitcoin and the Linden
dollar. Information & Communications Technology Law, 21(3), pp.221-236.
Grant Jr, H.W. and Reynolds, T., Bank of America Corp, 2013. Method and system to evaluate
anti-money laundering risk. U.S. Patent 8,412,601.
Favarel-Garrigues, G., Godefroy, T. and Lascoumes, P., 2011. Reluctant partners? Banks in the
fight against money laundering and terrorism financing in France. Security Dialogue, 42(2),
pp.179-196.
Baird, I.G., 2014. The global land grab meta-narrative, Asian money laundering and elite
capture: Reconsidering the Cambodian context. Geopolitics, 19(2), pp.431-453.
Barone, R. and Masciandaro, D., 2011. Organized crime, money laundering and legal economy:
theory and simulations. European journal of law and economics, 32(1), pp.115-142.
Bergström, M., Svedberg Helgesson, K. and Mörth, U., 2011. A New Role for For‐Profit Actors?
The Case of Anti‐Money Laundering and Risk Management. JCMS: Journal of Common Market
Studies, 49(5), pp.1043-1064.
Bergström, M., Svedberg Helgesson, K. and Mörth, U., 2011. A New Role for For‐Profit Actors?
The Case of Anti‐Money Laundering and Risk Management. JCMS: Journal of Common Market
Studies, 49(5), pp.1043-1064.
Christopher, C.M., 2014. Whack-A-Mole: Why Prosecuting Digital Currency Exchanges Won't
Stop Online Money Laundering. Lewis & Clark L. Rev., 18, p.1.
Kolhatkar, J.S. and et. Al., 2014. Multi-channel data driven, real-time anti-money laundering
system for electronic payment cards. U.S. Patent 8,751,399.
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Beekarry, N., 2011. International Anti-Money Laundering and Combating the Financing of
Terrorism Regulatory Strategy: A Critical Analysis of Compliance Determinants in International
Law. Nw. J. Int'l L. & Bus., 31, p.137.
Moser, M., Bohme, R. and Breuker, D., 2013, September. An inquiry into money laundering
tools in the Bitcoin ecosystem. In eCrime Researchers Summit (eCRS), 2013 (pp. 1-14). IEEE.
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