In previous blogs I discussed “What is money laundering ( https://shaileshdash.com/2016/01/12/what-is-money-laundering/)”, “How Money Laundering Works ( https://shaileshdash.com/2016/01/24/how-money-laundering-works/ )”, and “Why and how to money laundering is illegal and immoral ( https://shaileshdash.com/2016/03/02/why-and-how-money-laundering-is-illegal-and-immoral/ )”
Today I would like to delve into the laws and actions governments and authorities take to prevent money laundering.
Anti-money laundering (AML) efforts describe the legal controls used to fight money laundering. Global AML guidelines were the result of the formation of the Financial Action Task Force (FATF) in 1989 which put forward 40 recommendations on an international framework to be used in combating money laundering. The FATF also publicizes the identity of countries with deficient AML laws, which then come under intense international pressure to amend their laws.
Key components of effective AML programmes include:
- Criminalisation of money laundering
- Providing police and regulators with power and tools to trace and seize money laundering proceeds
- Sharing of information with other countries as needed, and
- Requirements for financial institutions to identify customers, keep records and establish controls and reporting procedures.
What Do Governments Look Out For When Identifying Money Laundering?
When identifying the money laundering, the governments look out for —
- Large amount of transaction
- Source of the money
- Ownership of the money
- Destination of the money
- Identity of the owner
- Is there any relationship between the owner and any criminal or terrorist group?
How Governments Identify Money Laundering
Although it is increasingly difficult to measure, the money which is laundered each year poses a significant concern for governments worldwide. Efforts have been undertaken to prevent, identify and apprehend those who engage in money laundering. Financial regulatory authorities, private financial institutions and law enforcers all need to be heard when developing national AML programmes.
The first line of defense is the involvement of financial institutions. In order to fulfil government requirements and avoid any risk to their professional reputations, they play a large part in monitoring transactions to determine which may involve “dirty” money. Customer identification, record keeping and reporting systems are all needed to verify compliance with government guidelines. Suspicious transactions may be identified by monitoring to find those which are not compatible with a customer’s finances or those which make no commercial sense.
The importance of international cooperation also factors in here. As much money laundering involves cash moving across borders or transferring between financial systems, data from various sources often needs to be correlated to uncover the whole picture of the money laundering operation.