Anti-Money Laundering Compliance: What You Need to Know

What is money laundering?

Money laundering is the introduction of illegally obtained money into the banking system, or using the banking system to illegally hide legitimate currency.

Currency that was lawfully obtained, use of this is in areas like tax evasion.

So to repeat, there are two sources of money laundering:

1) Is taking illegal money and pushing it into the banking system and using methods to try and hide it.

2) The other is taking legally obtain earned money and illegally trying to hide it from the tax authorities or other authorities.

How does money laundering work?

There’s three-stage processes involved:

The first stage is called Placement.

This is the process of depositing the illegal asset into the financial industry using all sorts of methods such as wires, cable transfers, cash, checks, money orders, traveler’s checks, and so on.

The second stage is called Layering.

That takes these illegal assets and it moves them through financial institutions to try and separate the assets from its original illegal source.

Wire transfers are used, money is moved into certificates of deposit, a draft might be purchased,  letters of credit established, there might be international transport, there might be a purchase of negotiable instruments, purchases of foreign exchange, ACH (Automatic Clearing House) transactions that are used to move the funds and so on.

The third stage is called Integration.

Now, Integration is the movement of the laundered funds. Now remember these funds are being placed, they’ve been layered, they’ve been shifted around, they’ve been mixed up and and that you’re taking these laundered funds and you’re introducing them back into the legal economy as legal legitimate funds using the same tools and the same processes.

Such as wire transfers, ACH transfers, checks, the Internet, whatever method is available to do this legally.

Why is there money laundering?

The goal of a large number of criminal acts is really there to generate a profit for individuals or groups that carries out the illegal act.

Money Laundering is the processing of these criminal press its proceeds to disguise their legal origin. The process is of critical importance, because it allows the criminal to enjoy these profits without jeopardizing their source.

Why is an anti-money laundering (AML) program important?

With an effective AML program, a bank or a financial institution, is able to comply with money laundering laws and regulations by establishing standards that need to be implemented and complied with.

A financial institution is able to prevent its operating system from being used as a vehicle for money laundering schemes.

Financial institutions or banks will be able to recognize and report on any suspicious activity and transactions, which may be related to money laundering.

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