Anti Money Laundering

In today’s high tech digital age, it has become increasingly more difficult for lawbreakers to conceal their illegally obtained funds through criminal business practices. Criminals are being forced to hide their money from government institutions to avoid taxation and investigations into their shady dealings. One way criminals go about hiding this ill gotten cash is to launder their money through banks, brokerage houses, investment firms and many other financial businesses to make it appear as if the money is clean and obtained legally. Money laundering is a method used by criminals to conceal their income obtained from criminal activities such as drug trafficking and organized crime. This process allows criminals to effectively legitimize their dirty money by mixing it with clean money. It usually involves a series of transactions from bank account to bank account with the hope of thwarting law enforcement and remaining unnoticed as a criminal. Money laundering has become a worldwide problem that has globally devastating effects. After the money is laundered it usually returns to the hands of drug dealers, terrorists, gun traffickers and other criminals so they may continue their harmful and dishonest illegal operations. The International Monetary Fund has stated that “the aggregate size of money laundering world wide is somewhere between two and five percent of the world’s gross domestic product” (Wayne, 4). In a US currency this would be between $590 billion and $1.5 trillion, which continues to grow each year despite increased government initiatives to combat this practice. After September 11, 2001, money laundering became a top priority of the Bush administration’s war on terrorism after it was revealed that funds supporting Al Qaeda were laundered through banks in Luxembourg. One way in which financial businesses are fighting back is by creating Anti-Money Laundering policies that make it extremely difficult for criminals to slip under the radar. The government has also taken actions such as the Patriot Act which hopes to put an end to money laundering. In the following paragraphs we will take a more in-depth look at the process of money laundering, how it effects businesses and economies, and analyze measures being taken to fight this illegal process.

To launder money effectively criminals must follow three key steps. The first step is referred to as placement; this is the disposing of criminal revenue by depositing the funds into one of many legitimate business enterprises such as a bank, hedge/mutual fund or stock market. The second step is to layer the cash. Layering is how criminals separate themselves completely from the money so there is no way of determining the original source. By moving the funds to bank accounts all over the world the criminals set out to make it difficult to create an audit trail allowing their money to eventually look clean. The final stage is referred to as integration. Integration is the process of using the newly cleaned money within an economy as legitimate cash.

To better understand this process we can look at one way this process would work from start to finish. Let’s say Mr. X wants to launder Ђ1 million he would place the money into an account at the Bank of Ireland in Dublin. From there he would begin the layering process by transferring the funds to another account under a different name in a Luxembourg bank. After that he would continue to layer the cash by wire transferring the money to an offshore bank in Bermuda. The reason it would be sent to Bermuda is because they keep their clients information private and do not have to report to a legislative body on their practices. Then Mr. X withdraws the funds from his Bermuda bank and loans it to a legitimate company in need of investment capital. When Mr. X calls in the loan he will receive a certified check from the company’s bank, which is completely legal and upstanding. From there he will proceed to integrate his money into the economy by purchasing real estate, sports cars, and investing the rest in stocks. Mr. X has now successfully cleaned his dirty money without worrying about investigation or arrest.

When it comes to money laundering, criminals are ingenious and careful about how to clean their money. Since banks have begun to implement measures to deter money laundering, criminals have found new ways around this. Criminals have started seeking out the help and advice of professionals such as accountants, lawyers, and stockbrokers. These financial professionals are known as “gatekeepers”. “Notaries, solicitors, and accountants may be sought out by crime groups who desire to profit from their expertise in setting up schemes that will help to launder criminal proceeds” (JP Morgan Tranaut). These professionals have an immense understanding of how financial institutions run and are knowledgeable in ways around their systems.