Money Laundering & Evolution of AML
Historically, money laundering is in existence since at-least 2000 years. Chinese merchants cycled money through various businesses and complex financial transactions to hide the income from government bureaucrats. But the term gained glamour only when the accountant of Alphonse Gabriel Capone (Al-Capone ) found it difficult to explain the source of money obtained from illegal activities. This accountant purchased cash-only laundromats and used them as a front in order to disguise the source of the dirty money they were getting from prostitution, bootlegged liquor sales and other criminal activities
A common belief is that the term Money Laundering originated because Italian members of the mafia in the United States, such as Al Capone. Offshore centres were first mentioned in the 1920s, when criminals like Al Capone brought their illegal proceeds from alcohol during the American prohibition (1920-1933) outside their US state to places like Delaware or New Jersey (van Koningsveld 2015). Al Capone was finally convicted for tax evasion (and though the term laundering is attributed to his launderettes not for money laundering).
The
term “Money Laundering” is said to have originated from Mafia ownership of
Laundromats in the United States. Gangsters were earning huge sums in cash from
extortion, prostitution, gambling and bootlegging. They needed to show a
legitimate source for these monies. One of the ways in which they were able to
do this was by purchasing outwardly legitimate businesses and to mix their
illicit earnings with the legitimate earnings they received from these
businesses. These gangsters chose Laundromats because they were cash businesses
and this was an undoubted advantage to people like Al Capone who purchased
them. Alphonse Gabriel "Al" Capone (January 17, 1899 – January 25,
1947) was an American gangster who led a Prohibition-era crime syndicate. The
Chicago Outfit, which subsequently became known as the "Capones," was
dedicated to smuggling and bootlegging liquor, and other illegal activities
such as prostitution, in Chicago from the early 1920s to 1931. Al Capone,
however, was prosecuted and convicted in October, 1931 for tax evasion. It was
for this that he was sent to prison rather than the predicate crimes that
generated his illicit income. He states: “Money laundering is called what it is
because that perfectly describes what takes place – illegal, or dirty, money is
put through a cycle of transactions, or washed so that it comes out the other
end as legal or clean, money. In other words, the source of illegally obtained
funds is obscured through a succession of transfers and deals in order that
those same funds can eventually be made to appear as legitimate income.”
Ironically, one of the methods of concealing the source of the money was legal
gambling. The major headache that gangsters faced was that the money was in
cash, often in small denomination coins. If the coins were put into the bank,
questions would be asked. The storage of large amounts of money in low value
coins is a storage nightmare. So they created businesses, one of which was slot
machines, and another was laundries. It is thus, that the term “money laundry”
was born. The abuse of merchants and others and sometimes by rulers led them to
find ways to hide their wealth, including ways of moving it around without it
being identified and confiscated.
Amount of cash flowing into the
laundromat operations was hard for law enforcement to monitor, which means a
lot of cash could sneak past the system unnoticed.
"Follow the money" is a catchphrase popularized
by the 1976 docudrama film ‘All the President’s Men’, which suggests
political corruption can be brought to light by examining money transfers between
parties.
"Follow the money" – a phrase
that's now part of USA’s national lexicon — was supposedly whispered to
reporter Bob Woodward by Deep Throat as a way to cut through the lies and
deceptions and find the truth about the Watergate scandal. The so-called
third-rate burglary that happened 1972 ended the presidency of Richard Nixon.
The burglars at the Watergate burglary were unsuccessful. The
men were attempting to take illegal photographs and wiretap a democratic office
but were unable to do so. In the end, nothing was stolen at Watergate.
Watergate scandal, interlocking political scandals of the
administration of U.S. Pres. Richard M Nixon that were revealed following
the arrest of five burglars at Democratic National Committee (DNC) headquarters
in the Watergate office-apartment-hotel complex in Washington, D C on June 17,
1972. On August 9, 1974, facing likely impeachment for his role in
covering up the scandal, Nixon became the only U.S. president to resign. Early
on June 17, 1972, police apprehended five burglars at the office of the DNC in
the Watergate complex. Four of them formerly had been active in Central
Intelligence Agency (CIA) activities against fidel Castro in Cuba. (Though
often referred to in the press as “Cubans,” only three of the four were of
Cuban heritage.) The fifth, James W McCord, Jr, was the security chief of the
Committee to Re-elect the President (later known popularly as CREEP),
which was presided over by John Mitchell, Nixon’s former attorney general.
“Follow the Money”
trial is what happens in the AML/CFT efforts linking sources and uses through
the formal system of the nation. The authorities try to fix the elements that
cause disruption in the economy/geography or cause terror to the public at
large in their national jurisdiction.
Bank failures like Bank of Credit and Commerce International , Luxumberg that had presence on almost all continents , considered 7th largest bank with international presence created an urgency among nations to have collective efforts to protect the economy.
The Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) was established in 1989 by the G7 to examine and develop measures to combat money laundering. It originally included the G7 countries, the European Commission and eight other countries.
The
FATF was given responsibility to examine money laundering techniques and
trends, review the action already taken at a national or international level,
and to set out measures needed to combat money laundering. In 2001, the FATF expanded its mandate to
also combat terrorist financing.
Since
2019, the FATF has had an open-ended mandate, after originally operating under
fixed-terms.
In
April 1990, less than a year after its creation, the FATF issued a report
containing a set of Forty Recommendations. These aimed to provide a
comprehensive plan of action to fight money laundering.
In
October 2001, the FATF issued Eight Special Recommendations on terrorist
financing.
In
June 2003, the FATF comprehensively revised its Recommendations due to the
continued evolution of money laundering techniques.
In
October 2004, the FATF published a Ninth Special Recommendation on terrorist
financing, further strengthening the FATF standards - the 40+9
Recommendations.
In
February 2012, the FATF published revised Recommendations, to cover issues such
as the financing of weapons of mass destruction. This integrated the +9 Special
Recommendations on terrorist financing with measures against money laundering,
resulting in a comprehensive set of 40 FATF Recommendations.
Since
2012, the FATF has continued to refine and strenghten the Recommendations, to
ensure that countries have the strongest possible tools to tackle money
laundering, terrorist financing and the financing of proliferation of weapons
of mass destruction.
In
particular, in June 2019, the FATF revised its standards to include binding
measures for the regulation and supervision of the activities and service
providers related to virtual assets, or crypto assets.
In
2022, the FATF further strengthened the global beneficial ownership rules in
the FATF Standards to stop criminals from hiding their illicit activities and
dirty money behind secret corporate structures.
Happy Reading,
Those who read this, also read:
1. Organised Financial Crime Customer
3. Preventive Legislations - Major Countries/Regions: India
4. Anti-Money Laundering - Definitions, Origins
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