Money Laundering; A Critical Assessment Assignment Sample

Introduction of Money Laundering; A Critical Assessment Assignment

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In this essay, an in-depth analysis of money laundering is done. Definition of money laundering, a brief background of the process and why it continues to be in practice, is elaborated even after many attempts to remove it from the system. In the modern financial system, the aspect of money laundering remains a significant one. Money laundering techniques that are a part of the system are now discussed in detail. Furthermore, with the help of a few examples and historical cases that explain the depth of money laundering in the E.U., the effect of money laundering on the illegal activities in the continent is explained. Moreover, this essay sheds light upon the rules and regulations used to prevent and mitigate money laundering. The concepts and theories kept in mind during the initiation of these regulations are also explained. With that, the weaknesses and the errors these rules have, due to which they are not completely effective in removing the process of money laundering, are also briefed. In addition to that, critical analysis and evaluation of certain regulations and industry groups are conducted where the effectiveness of these are discussed in-depth.

Discussion

Criminal organisations and groups require a huge amount of money to fund and finance their illegal acts. The money for their activities comes majorly from the process of money laundering (Kang, 2018). The major goal for these groups is to make money look like it is coming from a clean or legitimate source so that it has a lesser chance of getting jeopardised by the government officials. Since the activities that fund these huge amounts of money are completely illegal, like drug trafficking, funding by terrorism, illegal selling of items, smuggling, etc., they, with the help of some processes, by disguising the source of the money, make it look like it is coming from a legitimate source at attracting the least amount of attention from intelligence organisations (Fadly et al., 2021). This process of disguising the money coming from illegitimate sources and making it appear like it is from a legitimate source is called money laundering. The amount of money laundered in any country does not come in the financial and economic statistics of that country, also affecting its financial growth since the amount laundered by the criminals is huge. Moreover, activities like these keep happening in the underground world; despite the efforts taken by officials to stop it, this shows that it has been a major problem that remains undetected and unsolved by many countries even in today’s time. In 2009, a study was conducted by the United Nations Office on Drugs and Crimes(U.N.O.D.C.) to estimate the extent to which money is laundered globally. The study displayed that the money assembled by criminal activities in the whole world summed up to around 3.6% of the G.D.P. of the whole world. The percentage of money being laundered in this rounded off to around 2.7, nearly 1.2 trillion USD. Since the money is laundered and disguised various times, the exact amount can not be estimated, and therefore a rough and probable figure is provided in this study. Amount of money this big sums up to even the economy of a few countries, which displays the scale of this criminal activity and how it has become a problem for countries and big-scale financial advising firms (Hopton, 2020). It affects the world's economy, and with that, it funds more criminal activities and terrorism giving them scope to cause more illegal and inhumane activities (Kruisbergen et al., 2019). The process of laundering money involves three major steps: placement of the money, layering it, and finally, integration of the money being laundered. For the initial or the placement stage, the launderer introduces or places the illegal money into the financial system, helping to make it legitimate. This is done by breaking up the larger amount of money into smaller sums and depositing it in different banks. Doing this ensures that the money has entered the financial system of the country; for the next stage, that is, layering, the amount is distanced from the source it has come from; this is done by either transferring the money into bank accounts throughout the world or by hiding it through investments or payment of some activities that might help them to make it look like the money is coming from a legitimate source. In the last phase, integration, the launderer either invests the funded money in sources that offer investments for a limited time or buys luxury items and real estate. This allows them to finally enable the money to appear as it has come from legitimate sources. Some of the modern money laundering techniques used by activists are Online Banking, where fraudsters often trick innocent people into laundering money into their bank accounts and then trick them into revealing their passwords to take the money back; this has become possible because of the unsafe processes of online banking. Anonymous Online Payment Services is the purchase and use of gift cards or prepaid gift vouchers that can be bought and used from anywhere in the world without revealing the identity and whereabouts of the person redeeming them. The most used and new technique used is buying and selling of cryptocurrency (Houben and Snyers, 2018). The process of dealing with crypto is accessible to anyone without having to reveal their identity, which has made way for money laundering easier (Campbell-Verduyn, 2018). Switching to transactions online has made it far more comfortable for launderers to circulate the money throughout the world without risking their identity being revealed. It has intensified the practice of money laundering. Cybercrime is also a branch that has emerged after the world switched to online banking. Criminal activities have increased since it is now easier to fund money to cybercriminals, often termed cyber-terrorists (Barone and Masciandaro, 2019).

What are the rules and regulations related to Money Laundering?

Money laundering not only poses a major threat to the global economy but has become the support system for the criminal and terrorist activities taking place. It has become important to have solid and concrete regulations that can prevent smooth money laundering. The main motive of these criminal groups to launder money is to make huge amounts of profits for their leisure, so if by processes, money laundering is stopped, then the criminal groups will automatically dissipate. A special organisation was assembled to fight against the problem of money laundering. The Financial Action Task Force (FATF)’s main function is to initiate and suggest regulations and rules that counties and financial firms can follow to mitigate the chances of money laundering (Suntura, 2020). Since its formation, it has been a global anti-money laundering (A.M.L.) organisation that has done impeccable work against money laundering. The regulations are made to keep in mind that the funds received by terrorist organisations and groups should be minimised in order to lower the chances of money laundering. Anti-Money Laundering (A.M.L.) refers to a large set of rules and regulations to prevent money laundering. This set of laws and rules is very important since it directly deals with the issue of money laundering (Velkes, 2019). Fighting against money laundering directly means fighting against criminal and terrorist activities. Thus the role of this set of regulations becomes very significant. The main function of A.M.L. is to bring out and expose the profits criminals make after committing a crime. This way, it becomes impossible for them to hide the money and layer it by legitimising it. The FATF is an independent organsiation that mainly focuses on providing suggestions and recommendations to governments and global banks to minimise the money laundering process (Wronka, 2021). The first forty recommendations provided by the task force were very helpful for countries in reducing it to an extent. In general, the task force used the theory of dealing with the process of money laundering by improving the security of the system and safeguarding it. For example, it has been advised to identify the customers properly before creating the account for transactions and online banking systems or banking in general. In addition to that, for the problem of fraudsters transferring money online through various bank accounts by fooling people, it has been strictly advised to all banking portals to confirm the identity of the receiver and sender’s bank account before successfully transacting a large amount of money. To prevent the crime of fraud, stealing money from people’s bank accounts by showing them the benefit of gift cards, banks, and financial institutions have started following strict security measures before any kind of purchase or transaction is confirmed from the side of the account holder through the methods of one-time passwords and CVV and the transaction is failed immediately if the account holder does not approve it (Jullum et a., 2020). New methods of double-checking every suspicious transaction, purchase, or investment have been introduced as a regulation to minimise the chance of launders being able to integrate money into the financial system. Countries worldwide have been advised to introduce laws into their judicial system to negate the possibility of money laundering and strict punishments against those who have been caught doing that are indulged in the system. Certain countries have made amendments in the previous laws that were regulated to prevent the new technologies used by launderers for money laundering. They have focused especially on developing certain financial organisations and systems within the country that works solely towards maintaining the laws and order for money laundering. The major recommendation given by the FATF was to declare that money laundering is officially a crime and that certain laws should be made to punish those who have offended it. This was done in 1989, after which many cases of big money laundered came out, and they were confiscated for their crimes.

The Money Laundering Regulations 2007 was applied to the system of the U.K. on the 15th of December, 2007. It works towards preventing money laundering and financing terrorists by bringing changes in the financial system. The main focus has been on bringing and applying the customer due diligence and some other methods to obstruct the process of money laundering. Constantly monitoring the customer activities and working toward identifying the customer who might be suspicious is among the few methods these regulations involve (Sulchan et al., 2021). The primary method introduced by this set of regulations was customer due diligence, or identifying a customer before registering them by properly checking the documentation and reliable sources. Also, the records of every customer should be kept so as they can be investigated in the future if any problem occurs. This set of regulations has been effective since it allows institutions and banks to run background checks on customers and identify their true nature. If any suspicious findings are there, then the culprit might be investigated then and there, reducing the chances of money laundering in the future by that person. It runs on the policy of trying to stop a crime from happening before it happens by taking preventive measures. The European Union Regulations is a set of law directives against money laundering, first adopted into the system in 1990. It has since then seen many amendments to improvise and restrict the activities related to money laundering. The regulations strictly command new institutions that enter the market or the ones that have been well-established to maintain proper customer due diligence and monitor every big or suspicious transaction made by the customers in order to negate the chances of money laundering (Johari et al., 2020). There have been many amendments in the regulations to improve the methods constantly. One of the important amendments was made in the year 2005, called the 5th anti-money laundering Directive. These amendments helped the intelligence units working in the European Union to work towards efficiently removing the risks of money laundering. One of the major problems in recent times has been the privilege of anonymity provided to people while purchasing gift cards or virtual currencies. This has made it easier for criminals to launder money without risking their identity. This amendment has also taken the initiative to work towards this problem and asked companies and providers of virtual currencies for customer due diligence. It has been able to work towards solving the problem up to an extent. At the same time, the process of money laundering is still a major problem in the United Kingdom, which has also affected the country’s economy. The KYC initiative taken by the countries worldwide has been a major step toward fighting money laundering. Know Your Customer (KYC) is an initiative adopted by institutions and banks to protect them against crimes such as money laundering, terrorist funding, and fraud. The method involved in doing the KYC is to evaluate the customer's identity through legitimate processes; this also allows them to understand the activities or business the customer is involved in to make sure that the money is coming from a particular legitimate source (Riccardi and Levi, 2018). The uprising of processes involving A.M.L. has made sure that KYC is focused upon and effective use of this method by the institutions ensures safety. It has been significant and effective in preventing criminal activities involving money laundering to fund their initiative. Still, indeed to bring about a global change, every country must work together to mitigate it. Joint Money Laundering Steering Group (J.M.L.S.G.) is a committee formed in the U.K. to obstruct the country's rising and complex money laundering process (Mugarura, 2018). It has members coming from big institutions like the British Bankers’ Association, the Association of British Insurers, the Building Societies Association, etc. The committee's main focus is to focus on the regulations of money laundering that are followed in the country properly. In addition to that, it also ensures the regulations are updated and improved consistently to protect the country from the economic loss it faces due to money laundering. It has been effective in identifying the individuals involved in such criminal activities and also guides the country and institutions to mitigate issues related to money laundering.

Conclusion

The above essay’s main focus is money laundering. The process of money laundering and how it has affected the global economy is discussed in brief (Kang, 2018). It is known that every criminal group requires funding to conduct illegal activities. The essay briefs on how these groups are funded and how they manage to transact the money without getting caught. Techniques and stages of money laundering used by these organisations to conduct such activities are discussed in brief. Apart from that, the rules and regulations that exist to fight against the crime of money laundering are elaborated. The theories and frameworks of methodologies and concepts used to construct these regulations to prevent money laundering are discussed. With the help of some examples, the extent to which these regulations have succeeded in intercepting the practice of money laundering is discussed. For the third task, the evaluation of regulations like the ML, 2007, E.U., KYC initiative, and the amendments made in the 2017/18 regulation is done where its processes and effectiveness are briefed. As concluded, some of the amendments have been able to obstruct money laundering. Still, it has become necessary to work towards the total prevention of this process to cure the damage it causes to the global economy and the criminal threat it poses to countries, harming global peace.

References

Books and Journals

Barone, R. and Masciandaro, D., (2019). Cryptocurrency or usury? Crime and alternative money laundering techniques. European Journal of Law and Economics, 47(2), pp.233-254.

Campbell-Verduyn, M., (2018). Bitcoin, crypto-coins, and global anti-money laundering governance. Crime, Law and Social Change, 69(2), pp.283-305. 

Fadly, M., Danil, E. and Yoserwan, Y., (2021). Legal Protection against Notary Related to Parties Conducting Transactions of Crime Products in the Crime of Money Laundering. International Journal of Multicultural and Multireligious Understanding, 8(1), pp.277-281.

Hopton, D., (2020). Money laundering: a concise guide for all business. Routledge.

Houben, R. and Snyers, A., (2018). Cryptocurrencies and blockchain: Legal context and implications for financial crime, money laundering and tax evasion.

Johari, R.J., Zul, N.B., Talib, N. and Hussin, S.A.H.S., (2020), March. Money laundering: Customer due diligence in the era of cryptocurrencies. In 1st International Conference on Accounting, Management and Entrepreneurship (I.C.A.M.E.R. 2019) (pp. 130-135). Atlantis Press. 

Jullum, M., Løland, A., Huseby, R.B., Ånonsen, G. and Lorentzen, J., (2020). Detecting money laundering transactions with machine learning. Journal of Money Laundering Control.

Kang, S., (2018). Rethinking the global anti-money laundering regulations to deter corruption. International & Comparative Law Quarterly, 67(3), pp.695-720. 

Kruisbergen, E.W., Leukfeldt, E.R., Kleemans, E.R. and Roks, R.A., (2019). Money talks money laundering choices of organized crime offenders in a digital age. Journal of Crime and Justice, 42(5), pp.569-581. 

Mugarura, N., (2018). The implications of Brexit for U.K. anti-money laundering regulations: Will the fourth A.M.L. directive be implemented or be binned?. Journal of Money Laundering Control. 

Riccardi, M. and Levi, M., (2018). Cash, crime and anti-money laundering. In The Palgrave handbook of criminal and terrorism financing law (pp. 135-163). Palgrave Macmillan, Cham. 

Suntura, J.H.C., (2020). Customer identification in currency exchange companies as per FATF recommendations. Journal of Money Laundering Control. 

Sulchan, A., Musofiana, I. and Rusydi, A.A., (2021). IMPLEMENTATION OF PRINCIPLES IN IDENTIFYING SERVICE USERS REGARDING THE PREVENTION AND ERADICATION OF MONEY LAUNDERING OFFENSE. International Journal of Law Reconstruction, 5(1), pp.61-74. 

Velkes, G.C., (2019). International Anti-money Laundering Regulation of Virtual Currencies and Assets. N.Y.U.J. Int'l L. & Pol., 52, p.875.

Wronka, C., (2021). Anti-money laundering regimes: a comparison between Germany, Switzerland and the U.K. with a focus on the crypto business. Journal of Money Laundering Control.