What is Money Laundering
Recent years saw the crucial role that money laundering has played in the cleaning of drug
syndicate funds, organized crime groups and financing terror groups. As a result, much has been done in the last
few years to combat this growing transnational crime.
Money laundering is the process of concealing money obtained from illegal means (crimes) by making its source
appears to be from legitimate and legal transactions.
In article 1 of the European Communities (EC) Directive of March 1990 defined it as: “the conversion or transfer
of property, knowing that such property is derived from serious crime, for the purpose of concealing or disguising
the illicit origin of the property or of assisting any person who is involved in committing such an offence or
offences to evade the legal consequences of his action, and the concealment or disguise of the true nature, source,
location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is
derived from serious crime.”
Although the process of money laundering has only come to the attention of the international community in recent
years, the practice has long ago been present, dating back to the time of the pirates in European seas. But it was
only in the 1920s that the term money laundering was used to refer to these kinds of activities.
Whati is Money Laundering in History
According to historians, the term was first coined in the United States, referring to criminal gangs who used
business establishments such as car washes and laundry shops to mask their illegal activities. Payments in laundry
shops as well as vending machines in general are coins. The coins put into the machines are the only proof of how
the business is going. Seeing that there will be no paper trail to point out the “additional” earnings that came
from their illegal activities, crime groups intentionally add coins to the daily business income, making it appear
that the coins were put there by paying customers. Some however, place the origin of the term money laundering to
mean “the act of washing clean dirty money.”
Money laundering involves three stages, placement, layering and integration. The placement stage refers to the
way money launderers will put the “hot” money in banks or invest them in legitimate business transactions. Others
will use the money to buy goods, services and properties, which they can later resell to other people.
The next stage, is layering. Money launderers will try to disguise the origin of the funds by leaving a
complicated paper trail. Often times, the money once deposited in a bank will be wired or transferred to different
offshore accounts that will be very hard to trace. Some choose to deposit the money in foreign banks in
jurisdictions that limit foreign legal intervention and have strict bank secrecy laws.
The final stage is integration. The funds have been transferred into the mainstream economy and it is now
difficult to differentiate if the source is legal or not.
Money laundering used to only be
applied to financial transactions related to criminal acts and criminal activities. But now as money laundering
schemes and techniques evolve, so does its definition. Now, it encompasses any financial transaction that
generates income as the result of an illegal act such as tax evasion and false accounting.
Banks are often the first-line financial institutions that are used by money launderers. This is especially true
with offshore and international banks. To combat this growing problem, some countries have already adopted policies
that tasks bank officials to disclose key information should the need arise. This is a far cry from laws before
that puts value on confidentiality. Swiss banks, for instance, have already made the giving of information to
authorities not only a right, but an obligation.
In this light, money laundering has become one of the major international issues that countries all over the
world need to address. Regardless of how big or small the laundered money is, money laundering is still a boiling
pot of schemes that anti-money laundering authorities should keep a lid on.
software has been developped to monitor financial transactions.
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