MoneyLaundering

The financial landscape is one that is constantly evolving to keep pace with new regulations and threats. We detailed recently how we’ve seen swathes of people convert from their traditional high-street bank account to an online-only bank account in the last 12 months.

But this evolution affects all aspects of the landscape, including an increased risk to financial institutions – and money laundering is no exception.

Below is a list of all the topics we will cover in this article. Go ahead and click on any of these links, and you’ll be taken to that specific section.

The Origins of Money Laundering

Money laundering isn’t the oldest crime in the book, but it’s certainly close. The term originated in the 1920’s during prohibition-era United States, but the crime far predates this…

More than 2000 years ago, Chinese merchants laundered their profits to keep their wealth safe from continuous extortions by bureaucrats. They would convert money into readily movable assets and move the cash out of the jurisdiction in order to invest money in their businesses.

The term ‘money laundering’ originated in the 1920’s during the prohibition period in the United States. Organised criminals were heavily involved in the profitable alcohol smuggling industry and to legalise their profits, began combining them with the profits from legitimate business.

According to the Oxford English Dictionary, ‘Money laundering is the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the “clean” money to the launderer in an obscure and indirect way.’

This video explores some of the basic ways fraudsters can clean money they’ve obtained through illegal means:

Money Laundering Today

Money laundering is essential for criminal organisations who wish to use illegally obtained money effectively. Dealing in large amounts of illegal cash is inefficient and dangerous; criminals need a way to deposit the money in legitimate financial institutions, yet they can only do so if it appears to come from legitimate sources.

The process of laundering money typically involves three steps: placement, layering, and integration.

  • Placement puts the ‘dirty money’ into the legitimate financial system.
  • Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
  • In the final step, integration, the now-laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals have in mind for it.

There are many ways to launder money, from the simple to the very complex. One of the most common techniques is to use a legitimate, cash-based business owned by a criminal organisation. For example, if the organisation owns a restaurant, it might inflate the daily cash receipts to funnel illegal cash through the restaurant and into the restaurant’s bank account. After that, the funds can be withdrawn as needed. These types of businesses are often referred to as ‘fronts’.

Today, money laundering has permeated almost every regulated market; we recently explored how criminals are using cryptocurrency and games to launder money. The scale of the pandemic is difficult to assess, but the United Nations Office on Drugs and Crime (UNODC) estimates that the amount of money laundered globally is “between 2–5% of global GDP, or $800billion – $2trillion per year.”

Combating Money Laundering

The global anti-money laundering landscape is diverse and financial institutions must keep pace with developing rules in order to remain compliant. Most regulated markets and countries in the world have strict AML laws and regulations with severe penalties.

Anti-Money Laundering regulations are in place to mitigate the risk of money laundering and terrorism financing. Financial institutions are required to monitor their clients to prevent money laundering and report any financial crime they detect to relevant regulators; where a business is functioning determines the local and international regulations they need to comply with in order to continue operating.

AML laws were brought to a global forefront after the creation of the Financial Action Task Force. The FATF is the global money laundering and terrorist financing watchdog. Its list of 97 Recommendations are the internationally endorsed global standards against money laundering and terrorist financing. They provide the framework for countries to build an effective system to combat money laundering and terrorist financing, and implement necessary measures. The FATF currently comprises 37 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe.

Here are some of the regulated markets which are required to perform AML checks:

  • Finance & Banking
  • Payments & Digital Money
  • Gambling & Social Gaming
  • Cryptocurrency
  • Retail Finance

Businesses operating within the EU must now conform to the updated 6th anti-money laundering directive which came into effect in December 2020. Download our guide for all you need to know on 6AMLD here.

How We Can Help

Wherever your business is operating you need to comply with local and international regulations, but keeping on top of jurisdiction while retaining efficient business practice is no mean feat. This is where Hello Soda can help.

Our global suite of AML solutions satisfy and comply with all of the above regulatory bodies while helping onboard your customers faster and more efficiently with more accurate results. Using our single universal API, Sodium you can onboard up to 68% more customers compared with traditional identity verification methods. One simple integration; a flexible 360° solution which is scalable and secure.

Book a demo today and see for yourself how powerful our suite of solutions are.

 

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