Money laundering has always been in the talk in financial institutions for years now. It’s an offensive criminal activity that can affect the economic growth of a nation immensely. In simpler words, money laundering is a process where an individual launders its black money into white money to avoid future circumstances. These funds are usually generated through criminal activity, terrorist funding and then processed further to make it look like it has been procured from a legitimate source.
Being a serious financial crime, money laundering is employed mainly by street-level or white-collar criminals. To combat this issue, many financial institutions have come up with restrictive anti-money laundering policies. This post covers almost every aspect that’s involved, including the stages of money laundering.
Stages of Money Laundering
It’s the very first stage of money laundering, where the criminal is on a quest for a legitimate source to launder their money. Usually, it’s seen that in most cases, casinos, financial instruments, and financial institutions have been their first choice to place the money. The main trick here is to hide the source from the institution.
The placement stage is the most vulnerable stage out of all because the criminal here is holding a hefty amount of money. Even many financial institutions fail to spot the criminal at this stage, but if the amount is much more, the criminal might easily attract the attention of law enforcement agencies.
Also known as the structuring stage, layering is one of the crucial stages of money laundering. The reason is, the criminal now distributes the black funds into small chunks and makes it difficult for financial institutions to actually spot the source. Usually, these activities are performed on international levels to avoid getting into legal proceedings easily.
In most cases, the money at this stage is moved around the globe through an electronic mode of transactions. Talking about the current market, criminals now prefer to utilize this money in different currencies and stocks across global markets. Another standard investment option they pick up is buying assets with just the cash and holding them for years.
Being the last stage of money laundering, the money is further returned to the criminal in multiple financial transactions. Criminals now are able to retrieve their funds in a completely legal way easily and can use it for their future purposes.
Ways to Prevent Money Laundering
As mentioned previously, money laundering does have severe effects on a country’s economy. And for that reason, many financial institutions have opted for strict anti-money laundering policies. The preventive measures taken are usually a set of procedures, technologies, and policies that prevent such heinous crimes.
Most popular countries like the US, UK, Canada, Germany, France, Italy, and Japan have collectively worked on an intergovernmental organization, FATF, that dedicatedly works for this issue. Launched back in 1990, the Financial Action Task Force works for standardizing and improving money laundering laws.
Steps Taken By Far By Financial Institutions to Prevent Money Laundering
Many financial institutions often have a list of black-listed countries that facilitate money laundering. And if the criminal has any related evidence based on this list, these institutions instantly take legal actions against them.
Moreover, the guidelines by the United Nations Convention Against Transnational Organized Crime states that any individual involved in money laundering, directly or indirectly, must be held behind bars with no further delays.
Yet another best step practiced by financial institutions is to know their customer forms/policies. This policy includes monitoring the activities of the customer and analyzing their type of transactions to avoid laundering. If the financial institution spots suspicious activity, they can directly contact the significant authorities and prosecute the individual involved.
Dedicated Holding Period
Many financial institutions have started up a new anti-money laundering policy named as holding period. This period lasts for 4-5 days, and thus institutions get an excellent time to analyze the source. It’s seen that the holding periods have already helped many institutions manage the risk associated with money laundering.
Implementation of New Technology
Money laundering is getting bigger each passing day. The more the financial institutions are taking steps to combat this issue, the more criminals are able to find more ways to launder their money. Sometimes it even gets difficult for humans to spot such an individual at the early stages of money laundering.
However, many financial institutions have already started using updated technologies to avoid human errors. These technologies include Big Data Software, and AI and the results they offer are absolutely accurate.
Software Filtering and Record Management
Lastly, record management is even one of the significant steps taken by most financial institutions to curb money laundering issues. Usually, such institutions manage a colossal record of their client’s transactions and use software to spot suspicious activities instantly. The customer data is further classified on the transaction they usually do, and if they don’t meet the end criteria, instant criminal actions are taken against them.
Since these criminals often find ways to launder their black money, it’s getting tougher for financial markets to trace the source. However, the above-given steps have genuinely provided a massive relief to major institutions in terms of detecting the criminal.
Undoubtedly, financial institutions are now pressured even more to follow in-depth procedures to identify money laundering and implement the right anti-money laundering strategies. They know that the client measure truly worked like wonder because identifying and monitoring suspicious customer activities got a lot easier.
Naturally, it turned out to be efficient in spotting those who are involved in such unjust activities. This, eventually, reduced the risk of experiencing money laundering. On an ending note, financial institutions have been working rigorously to fight against money laundering, but what lies in the future is still a matter of doubt. Updated technology is the need of the hour, and that needs to be implied right away to combat such heinous crimes!