Money laundering
Money laundering is the process of transforming illegally obtained funds into assets that appear legitimate, effectively "cleaning" what is often referred to as "dirty money." This criminal practice is crucial for funding various illegal activities, including drug trafficking and terrorism. It typically involves a three-stage process: placement, layering, and integration. In the placement stage, illicit funds are introduced into the financial system, often through methods like electronic transfers or purchasing cashier's checks. The layering stage obscures the source of the money by moving it through numerous transactions, while the integration stage reintroduces the funds into the economy as seemingly legitimate income.
Money laundering schemes can operate globally, especially in regions with weak financial regulations. Governments have enacted legislation, such as the U.S. Bank Secrecy Act and the Patriot Act, to combat money laundering and enhance detection measures within financial institutions. These laws require banks to report suspicious activities and monitor high-risk transactions, reflecting the ongoing efforts to address this pervasive issue. As such, money laundering remains a significant concern, influencing the way criminal enterprises operate and impacting global security.
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Money laundering
SIGNIFICANCE: Money laundering provides the means to fund criminal enterprises, including drug trafficking and terrorism.
Money laundering enterprises are inventive and widespread. The participants vary from small-time gangsters to drug traffickers and international terrorists. In 2016, for example, a Minnesotan involved in a marijuana distribution ring was also convicted of laundering more than $116,000 through purchases of jewelry, a car, and other luxury items, as well as through casino gambling and bank deposits. The same year, executives of a New York–based online "payment processor and money transfer system" were prosecuted for processing over $8 billion in funds, much of which derived from Ponzi schemes and various cybercrimes the world over. The website for the Internal Revenue Service lists numerous examples of money laundering investigations from Madison, Wisconsin, to Tampa, Florida. The United States first began pursuing money launderers in 1970, with the Bank Secrecy Act.
Money laundering schemes process criminal finances in order to make the funds appear to have originated from a legitimate source. Money laundering allows the true source of funds to remain hidden while converting the money into assets that appear to have a legal basis. In simple terms, money laundering is cleaning dirty money.
Criminal activity often requires considerable capital and generates substantial profits. Money laundering operations need to control and change the form of the funds while concealing the principal activities and people involved. This usually consists of three stages: placement, layering, and integration.
In the placement stage, the illegal funds enter the financial system. Criminals might attempt to break up large amounts of money into smaller, less conspicuous amounts by employing the services of casinos, banks, and other financial institutions. Money may be moved or placed through a variety of measures: smuggling; wire or electronic transfers; purchasing cashier’s checks, money orders, traveler’s checks, or securities; or cashing third-party checks. During this stage, the funds are most vulnerable to detection and seizure by law enforcement.
Once the money has been placed in the financial system, a series of secondary transactions take place that obscure the trail by moving the funds from location to location. This is called the layering stage. The funds are channeled through the purchase and sale of assets in order to distance them from the original source.
In the final stage, or integration stage, the funds are reintroduced into the economy as legitimate money. This money is used to pay employees, fund business ventures, or purchase luxury items and properties.
Because money laundering is a necessary process in any profit-generating crime, it can occur anywhere in the world. Generally, illegal organizations will use countries that have weak or ineffective anti-money-laundering laws. After the terrorist attacks of September 11, 2001, Congress passed the Patriot Act . The act was passed in order to prevent and detect money laundering and funding of terrorist activities. Under it, financial institutions report suspicious activity, such as large monetary transfers and withdrawals.
According to the US Securities and Exchange Commission, banks develop “watch lists” of clients who have exhibited suspicious behavior and monitor these clients’ accounts, screen wire transfers and client backgrounds, and review new account documentation. As of July 2004, Swiss banks and securities dealers were required to have electronic monitoring systems to identify high-risk transactions and accounts. That same year, the United States' Intelligence Reform & Terrorism Prevention Act mandated that banks disclose international electronic funds transfers if necessary to prevent terrorism-related money laundering. Later in the 2000s, 2010s, 2020s the US government identified the jewelry, insurance, mutual fund, mortgage, and commodity trading industries as needing stronger protections against money laundering.
Bibliography
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