Let me know if you disagree with me, the most commonly occurring fraudulent activity all across the world is money laundering. Undoubtedly, money laundering is providing oxygen to organized crimes. The approximate amount of money that is laundered all across the globe ranges from US$800 billion to US$2 trillion. Hence money laundering is the most persistent issue currently on this earth.
What’s the solution to this? Will the financial infrastructures keep sitting ideal and let this criminal activity happen again and again? Technology is not 100% perfect and cyberspace is not 100% safe. But all organizations need to do currently is adopt sophisticated measures for the enhancement of their security protocols. Let us have a deep into what is money laundering, stages of money laundering, and how to combat that with the acquisition of anti-money laundering compliance.
What is Money Laundering?
You might have come across numerous wordy definitions of money laundering that are complex to understand. Here, I will explain to you the term money laundering in layman terms. Anti- money laundering, as the name suggests, is a process of illegal money transfer by hiding the original source of money. Black money can be attained via illicit activities, for example, human trafficking, terrorism, drug selling, etc.
In other words, money laundering is also called a white-collar crime because most of the time, politically exposed people (PEPs) and high authority or high rank officials are involved in it. The main agenda behind money laundering is the washing of black money in a consistent manner and then eventually mixing it with black money. Platforms that are used to launder money include e-gaming platforms, real-estate agencies, stock exchanges, fintech companies, etc.
Stages of Money Laundering
Typically money laundering involves 3 activities: placement stage, layering stage, and integration stage. Let’s look at each of that stage in detail:
The first step of money laundering, placement is the procedure of transferring money into the legitimate source through financial infrastructures, financial instruments, casinos, etc by hiding the source of money at that particular time. There are numerous methods by which money laundering and terrorist financing can be carried out. No doubt, this is the most vulnerable stage of money laundering because the criminal is holding a bulk of funds at this stage and then placing it into the financial system, which might attract the attention of law enforcement agencies.
The second stage of money laundering, layering is usually referred to as the structuring stage. In this stage, the bulk of funds is broken into small transactions that make the detection of money laundering procedures difficult. This method usually entails international money movement, so that law enforcement agencies will not be able to detect the occurrence of money laundering procedure effortlessly. Money circulated around the globe electrically in this stage and trades in overseas markets.
The last and final stage of money laundering, integration, is the process in which money is returned back to the criminals legitimately after the placement of money in the financial system, by breaking it into small transactions most often. After the complete integration into the legitimate source, criminals can finally retrieve their illicit funds in a legal way. Various redemptions are usually via purchasing luxurious assets, for example, jewelry, properties, or numerous other such items that require an immense amount of money and will not capture much of the attention.
How Anti Money Laundering Compliance Combats Terrorist Financing?
A set of rules, regulations, and procedures that must be required by organizations, especially financial infrastructures to combat any terrorist financing and money laundering activity is called anti-money laundering. AML compliance must be mandatorily acquired by all sorts of enterprises as organizations deal with different sorts of data as well as people on a regular basis. It is an effective procedure of background screening for the monitoring of on-boarding customers for the identification and elimination of money laundering activities. The potential customers of organizations are screened against PEP lists, sanction lists, and global watchlists. Basically, anti-money laundering compliance is a part of the KYC verification process that helps in distinguishing between criminals and potential customers. There would be no wrong in saying that anti-money laundering compliance plays a promising role in combating illicit money transfers, terrorist financing, and money laundering activities.
Difference Between AML Compliance and Efficient AML Compliance
Let’s have a look at the AML compliance checklist first.
- Performs manual screening on customers
- Reports the transactions only that are above the set threshold.
- Performs minimum verification on customers at the domestic level.
- Keeps the manual record of customer’s data
Now, let’s have a look at efficient AML compliance.
- Performs real-time AML screening on customers
- Reports the unusual transactions of the potential customers. Also, it performs EDD on customers before the reporting of transactions.
- Performs real-time verification on customers and screens their data against sanction lists, PEPs lists, and global watchlists.
- Maintains the online updated record of customers and performs online verification