Factors that Facilitated the Explosion of Money Laundering
Cash intensive businesses are good breeding ground for Money Laundering /Financing Terrorism activities.
Money Service Business (MSBs) effectively convert cash into another form, such as wire transfers, money orders, or stored value cards. An MSB’s customer base is highly transient, and the transactions processed offer a relatively high degree of anonymity with minimal documentation.
Private
ATM operators are another type of cash processor with a
high money laundering risk. These businesses own ATMs which are often located
in convenience stores, gas stations, and other retail locations. The ATM owner
provides the cash for the machine from their own funds and is then reimbursed
through a payment processing service.
A money
launderer could purchase ATMs and install them in various retail locations,
potentially within business establishments that are co-conspirators. The launderer
loads the ATMs with illegal cash or co-mingled with clean cash. Ordinary people
use ATMs, and the electronic transaction process debits the cardholder’s
account and credits the ATM operator’s bank account. These transactions appear
as electronic deposits from a legitimate financial institution, effectively
laundering illegal cash.
Private ATM
operators are regulated by state banking agencies but are extremely difficult
to oversee and control.
Foreign Business Activities
As part of
the customer due diligence process, a business client’s anticipated
cross-border transactions should be evaluated. Imports and exports are the most
common source of foreign transaction activity for business customers.
Historically,
import/export activity was the domain of large multinational corporations.
However, today’s global economy allows small and medium-sized businesses to
actively participate in international trade.
The risk of money laundering activity is inherently higher when overseas counterparties are involved. Traditionally, a buyer and seller executing a foreign trade transaction would use a commercial letter of credit (LC) issued by a financial institution to ensure payment and delivery of goods. The supporting documentation required by the financial institution to issue and collect funds under an LC ensures that both parties’ interests are protected and provides a complete.
However, these protections come at a price, in the form of bank fees paid by both parties, which increases the buyer’s cost and reduces the seller’s profit. To avoid the additional costs of letters of credit, many exporters have transitioned to “open account trading.” Under open account trading, the seller simply invoices the buyer for the shipment, and payment is made directly from the buyer to the seller, usually by wire transfer. Without an LC, there’s no independent set of eyes examining the transaction, which in turn facilitates two particular types of money laundering: trade-based money laundering through over- or under-invoicing, and Black Market Peso Exchange.
Factors that facilitated the explosion of Money Laundering can be summarised as:
1. The globalisation of markets and financial flows, most evident in the advent of the Internet. The creation of the single market means that money can now travel in nanoseconds, meaning that multiple jurisdiction leaps are made effortlessly on a daily basis
2. Deregulation of financial markets has bought with it no consistency or coherence in respect of anti-money laundering regulations; simultaneously today’s global market place has bought with it very few if any restrictions.
3. Globalisation implies global competition, meaning more competitors and increasing pressure to deliver profits. The proceeds of crime are massive meaning that the people who control them can yield great influence with legitimate businesses, which are hungry, sometimes even desperate for profits.
4. The Internet and Money Laundering As a result of international clampdown against money laundering, criminals have started to look for new tools and mechanisms to hide the origins of their ill-gotten gains and to channel them from one location to another. What they want is a way to launder their illicit proceeds that is quick, discrete, secure and global. A near perfect tool meeting all these conditions is the internet: an extremely swift, relatively secure, almost anonymous and truly global instrument. Due to its decentralised structure, the internet has increasingly become the mechanism of choice of many criminals to channel funds from one global location to another, sometimes in mere minutes and, if handled professionally, without leaving too many traces. Although most of the amounts thus shifted are currently thought to be still relatively small compared to the overall volume of funds laundered, the practice of using the internet as a tool to hide the origins of illicit funds is growing fast. And as criminals and terrorists across the world get increasingly cyber-savvy, they make more and more frequently use of the above mentioned advantages of the internet and thus succeed in often staying several steps ahead of most law enforcement officers, who are only gradually starting to get to grips with the virtually unlimited possibilities of the World Wide Web.
5. Countries with less rigorous AML/CFT regime get hooked to risks of ML/FT
Happy reading,
Those who read this, also read:
1. Organised Financial Crime Customer
C
Comments
Post a Comment