The world economy is heavily affected by money that is illegally acquired and used for illegitimate purposes. Large sums of money are laundered every year, posing a threat to the global economy and its security.
For the past several years, the US banking industry has focused on regulatory issues, such as the corporate governance provisions of the Sarbanes-Oxley Act (enacted in 2002) and the banking-related parts of the USA Patriot Act (enacted in 2001). Much literature and studies have been provided regarding the cost impact of the various implemented measures. Lal Chand Advises Anti Money Laundering
Smaller community banks have contended that it is difficult for them to comply with certain Sarbanes-Oxley provisions, such as the requirement that audit committees be composed entirely of independent directors and that companies have a ‘financial expert” on the board of directors. The provisions of the USA Patriot Act require increased investments in technology (though many in the industry have questioned the effectiveness of these investments in preventing the funding of terrorist groups or activities).
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- The Reporting Impact
Resulting from the impetus of the Al Qaeda’s terrorist attacks of 9111, the US financial institution regulators became an enforcement hawk of the money laundering provisions of the Bank Secrecy Act (“BSA’). In turn, hawkish enforcement has led to a drastic increase in the number of BSA filings. In 2007, the approximate two hundred thousand US financial institutions filed over 649,176 Suspicious Activity Reports (‘’SAR’s), as recently reported by the US Government Accountability Office (“GAO’). In contrast, just two hundred thousand STRs were filed in the UK in 2006.:
This begs the question: are too many being filed in the USA, clogging the investigatory system, or are too few filed in the UK?
- Notwithstanding this level of apparent US hawkish compliance, the GAO noted that the federal regulatory authorities cited well over 7,000 BSA violations, leading to over 2,000 various actions against banking institutions. Interestingly, a majority of 2005 actions were issued against the traditionally smaller credit unions that at first glance may be considered to carry less risk for money laundering.’ Moreover, these enforcement figures did not include the actions taken against casinos, jevoelry stores, and money service businesses, such as check-cashing, whose anti money-laundering (‘AML’) program compliance is audited by the IRS.
- Profits generated by some organised criminal activities, such as drug trafficking or traffic in human beings, cause a threat not only to public safety, because of the huge economic power accumulated by a number of criminal organisations, but also financial systems themselves and to economic development. Recent events showed that terrorist groups also build financial empires. the purpose of which are specifically to undermine public safety and international financial stability.
The anti-money-laundering strategy developed at that time was in response to the reality that the traditional means for combating organised crime had reached the limits. The only existing weakness of criminal organisations was their need to utilize the legal channels of the banking and financial system to transfer funds and disguise the origin of assets. The necessity to put these funds “on the market” made them extremely vulnerable, and tracing the laundering process was a more cost-effective and a less dangerous means to achieve law enforcement objectives. Such a strategy had also the advantage of targeting efforts on the richest and thus most dangerous criminal organisations.
Financial services institutions such as banks, non-banking financing companies, insurers, and capital market finals are generally the most favoured channels through which illicit money is laundered across the globe. Many financial services institutions may be associated with money launderers unknowingly, which is a primary reason that financial firms are subjected to stringent anti-money laundering (AML) regulations to track the trail of illegally-sourced earnings.
This paper provides a brief overview of the evolution of money laundering and common money laundering tactics around the world, and discusses the implications of money laundering activities on the global economy and financial services industry. The analysis also describes key anti-money laundering regulations and regulatory bodies, and shows how financial services firms can leverage technology to comply with increasing AML regulations and control the money laundering menace.
The term ‘money laundering’ refers to the activities and financial transactions that are undertaken with the specific aim of hiding the true source of income. Usually the money involved has been derived from an illegal enterprise and the goal is to give that money the appearance of coming from a legitimate source. Sometimes,