What is Anti Money Laundering (AML)?

Densely populated inner cities of the 1920s and early thirties were Mob controlled; New York and Chicago were, at their core, the era of a MOB Society. Organized crime groups were making so much money that they were forced to launder their cash and dispose of it through regular channels. The term laundering comes from the Mafia’s ownership of Laundromats in the 1920s and 30s.

Cash-only Laundromats were the business of choice for the Italian Mafia. It is reported that Al Capone was laundering so much money he had no clue where to put it until his laundromat came in. The FBI got wind of it and convicted Capone of tax evasion.

Money Laundering Involves Three Distinct Phases

1. Placement refers to moving the money from ill-gotten criminal activities and first-hand association to a legitimate system.
2. Layering covers the trail to circumvent any pursuits and inquiries about the money’s origin.
3. Integration makes money available to criminals making it seem as though the money came from a legitimate source.

A big transaction money laundering scheme: funds are deposited into a legitimate financial system, sometimes in small chunks of cash. To create confusion, the money may be sent into an account by wire or cash, then deposited in several other discrete accounts. After sufficient movement, financial condition, and time, the fresh money is laundered back into the system through no-interest loans to criminals or other cash perks.

Dirty money from drug sales can be turned into clean hard cash in various ways, such as a nail salon or a car wash. Corporate Laundering takes advantage of all three stages; placement, layering, and integration. Corporate systems can use several transfers and other internal resources to conceal dirty money.

Types of Criminal Money Laundering

• Structuring is the process of taking large sums of cash, breaking it down into smaller chunks, and depositing the money into several disparate accounts.
• Trade-Based Laundering hides fraudulent transactions by creating duplicate invoices or charging more for goods. Companies pull this off by lying from the beginning; prices vary along with quality and quantity.
• Real Estate is the perfect framework for large-scale criminal activities with a lot of cash.

Money laundering accounts for nearly 2 to 5 percent globally, or nearly $2 trillion. Businesses that account for much of the laundering business are restaurants, nightclubs, and companies that handle large sums of cash. Nightclubs, casinos, trusts, and art galleries are great businesses to launder.

Savvy criminals always find innovative ways to dispose of money; however, criminals do not have the luxury of spending a lot of money without accounting for its source. Organized crime uses shell corporations to give the outside world a perspective of lawful money and profits.

Legitimate companies in the modern era must use every means possible to stay compliant and protect themselves.

The first significant tool in the fight against money laundering was the Bank Secrecy Act of 1970, also known as The Currency and Foreign Transactions Reporting Act. Most regulatory financial systems, protocols, and regulations are based on this BSA foundation. The BSA Act created a legal and legislative framework to prevent criminals from using financial institutions for hiding or laundering money.

10K 

The BSA law requires financial institutions to provide documentation for transactions over $10,000. Authorities can investigate suspicious transactions a lot easier than before. The key to this legislation is its documentation. Banks are required to document transactions over 10K.

Investopedia offers these two takeaways:

1. “The law requires financial institutions to provide documentation to regulators whenever their clients deal with suspicious cash transactions involving sums over $10,000.”
2. “The law does not require documentation for every transaction over $10,000, but businesses must file Internal Revenue Service (IRS) Form 8300 if they receive more than $10,000 in cash from one buyer.”

Vast volumes of data collected by the BSA are weighing down financial institutions. The agency continues to criticize its guidelines for not needing a court order to access the data. Many third-party activists feel the agencies are ill-equipped to find needles in the haystack when investigating illicit transactions.

Anti-Money Laundering Compliance and Rulemaking

$25.3 billion per year; cost US financial service companies pay for anti-money laundering regulatory compliance. 2022 Compliance will top $56.7 billion in the US and Canada. No other crime activity commands as much attention from the government as Money Laundering. In Mob-related activities, Cash is King!

The most important tools against dirty money are the AML compliance rules for Banking and Finance. Financial Institutions accepting the rules and regulations of AML are legally obligated to follow all compliance regulations. Banks are highly susceptible to all forms of money laundering because of their daily transactions.

Banks worldwide have heightened customer identity due to the increase in online transactions. Financial infrastructures have been upgraded to provide a technological shift in detecting dirty or unclaimed money. Most banks have adopted emerging trends to become more secure. AI and machine learning are efficient solutions to the relentless rise of new directives handed down regularly. New security protocols have been developed because of the advancements in AI.

Money Laundering Scandals

• Danske Bank, 2007 to 15, authorities determined extraordinarily weak controls and lapses in judgments while handing out a $1.4bn fine. Customers were allowed to launder over $228 billion. A significant number of executives have been charged.
• Wachovia, in 2010 was found to have enabled Mexican Drug Cartels to launder nearly $390 billion between 2004 – 2007. In 2010, Wachovia was one of the largest banks in the US but was fined only $160 million.
• HSBC was found to have insufficient safeguards in place, enabling nearly 8 billion to be laundered. The big news; HSBC allowed transactions involving blacklisted countries, including Iran and North Korea.
• Goldman Sachs was involved in a decades-long scandal involving bribery, Laundering, and mismanagement of funds. The activities brought in over $600 million in profit; however, the company was fined a hefty $2.9 billion.

Terrorism and Money Laundering

The international financial community fought against money laundering early in the process. In 2000, the International Monetary Fund expanded its work on anti-money laundering regulation. The IMF concerned itself with the consequences of laundering massive amounts of money. Risks to the stability of financial institutions, soundness of the system, and increased volatility of capital flows.

Legitimizing their money so criminal activities stay hidden is critical to any terrorist network. These criminal networks operate in complete secrecy to raise funds from criminal and legal sources. Detecting dirty money takes the entire global financial sector to become involved.