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Anti-Money
Laundering

Combating the market woes

Day in and day out, we all speak of development of people, businesses, and our community. However, most of us has definitely heard of numerous money violation crimes in the name of development. Before we dive deeper into what anti-money laundering is, let us have some insights on the current scenario of money laundering activities.


The Current Scenario of

Money Laundering Activities:

Our researchers at Research Nester has observed that globally, money laundering activities worth between USD 850 Billion and USD 2 Trillion were reported on an annual basis. In the United States itself, these activities occupied between 17% and 40% of the global share, registering a minimum of about USD 350 Billion of the global figure. In the year 2020, banks around the globe received more than USD 10 Billion in fines for making such violations. On the other hand, these schemes costed between 2.5% and 5.5% of the global GDP. Our analysis also found that over 90% of the crimes related to these violating activities went undetected, despite of over 90% of the offenders being imprisoned globally.

Cases of Money Laundering all Over the World

In another research taken up by the analysts at Research Nester, our researchers have analyzed two different real-life cases related to money laundering. These are:

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· Case 1- Standard Chartered Bank

By failing to implement effective anti-money laundering measures, the Iranian government was able to circumvent U.S. regulations for USD 265 billion, according to allegations made against Standard Chartered Bank in 2012 by the New York Department of Financial Services (DFS). The bank was alleged to have violated US sanctions against Sudan, Libya, and Burma. As Standard Chartered Bank continued to flout AML regulations and disregard sanctions against Zimbabwe, Burma, Iran, Sudan, Cuba, and Syria, the Federal Reserve Bank decided to give up on the bank in 2019.

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· Case 2- Nauru

The smallest island nation in the world, Nauru, is situated in Australia. In the 1990s, the island nation became a tax haven. Because of this, Russian thieves began using fictitious banks to launder money. Nauru failed to ask the appropriate questions and failed to verify banking customers. Nauru therefore assisted Russian thieves in 1998 in laundering an estimated USD 70 billion. Nauru was given a money-laundering state designation by the US Treasury in 2002, and severe penalties were put in place to match those in place in Iraq. With the assistance of the Financial Action Task Force, Nauru passed anti-money laundering (AML) and tax haven rules up until 2005.


What is Anti-Money Laundering?

With so many money laundering activities going around globally, government and businesses worldwide were definitely in need to lower down these violation activities. These gave birth to the principles of anti-money laundering. In short, anti-money laundering (AML) is a network of laws, regulations, and procedures that strives to reveal attempts to disguise criminal payments as legitimate income. Infractions include small-scale drug sales, tax evasion, public corruption, and sponsorship of terrorist organizations are all covered up via money laundering. The most frequent companies involved in money laundering are those that deal with big sums of cash, including casinos, nightclubs, charity trusts, and restaurants. Others deal with merchandise that is challenging to value, such as jewelry or works of art.

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What Effect Does

Money Laundering on the Economy?

  • Impact on Growth Rates: The price instability brought on by black money in the financial system will harm the economy's reputation in the external environment. If lawful currency is prevented from circulating in a country’s economy, the investment rates in that case won't grow. Consequently, a long-term sustainable growth drop will take place.
  • Impact on Tax Revenues: Tax income makes up the largest portion of all public revenues. If this income is low, there is a greater chance that public revenues may fall short of public expenditures, which could result in budget deficits. Black money generates income that is not taxed by the government. Tax income will decline as a result of these gains.
  • Impact on the Money Demand: The cash inflows and outflows are easy for money launderers. The nation's unrestrained and quick money inflow is causing expenditure rates to increase, especially luxury expenditures. It occurs more frequently in countries where there is little potential of money laundering. In nations without regulations against money laundering, a larger portion of the economy is in the informal sector. These irregular money demands caused by black money will have a significant negative impact on monetary policy.
  • Impact on Income Distribution: One of the most important harms that needs to be evaluated is the negative effect that black money has on income distribution. The harm brought on by the diversification of revenue sources and income distribution is difficult to measure. Money becomes more appealing and the likelihood of criminality rises as a result of differences in income distribution amongst individuals. People who labor in the official sector pay a larger tax burden since tax fraud is common in informal economies, which has a detrimental effect on income distribution.

Different Methods of Money Laundering

As we now understand what money laundering is, let us now try to find out the different methods by which the criminals perform these crime activities.

  • Layering: It is a way to distance the money from its illicit sources by subjecting it to a variety of transactions. When layering, the assets' types, such as cash, gold, casino chips, real estate, etc., can be changed. By gradually giving unlawful money more legitimacy, layering entails making it as difficult as possible to identify the source of the funds. For instance, transferring money from one financial instrument to another, including stocks, bonds, money orders, life insurance, and letters of credit or establishing or making use of shell corporations to transfer illicit funds and hide ultimate beneficial ownership and assets are few examples of layering. After a significant amount of time has passed throughout the layering process, criminals can remove their funds and reintroduce them as lawful currency; this stage of the process is referred to as integration.
  • Structuring: Structuring, sometimes referred to as smurfing, is a money-laundering technique in which large sums of cash are divided into smaller portions and deposited into a variety of accounts, almost eliminating any chance of the unlawful funds being discovered. Financial institutions may examine individual accounts more closely for additional scams as a result of suspected smurfing because they are constantly on the lookout for strange transactions.
  • Money Laundering Through Cash-Based Businesses: Money launderers choose cash-based establishments such as strip clubs, laundromats, and car washes. When a large cash business is used to launder money, law enforcement organizations for instance the FBI have little evidence on which to base their actions. However, the IRS often examines these companies' cash records carefully to check for any questionable conduct.
  • Real-Estate Laundering: Under this method Criminals frequently use funds obtained from criminal activity to purchase real estate, which they then rapidly sell and transfer the money into a normal bank account. They can utilize a shell company or hire a third party to buy the property. Once they have sold the property, it is more challenging to determine where the money for the purchase came from.
  • Bank Laundering: A money launderer can fairly readily transfer money through their business to another financial institution if they run a bank, mortgage company, or stock trading company. These transfers frequently take the form of currency exchanges, which are very challenging for regulatory bodies and the other financial institutions involved to identify. One of the key causes for the creation of the Bank Secrecy Act was bank laundering.

What are the Legal Protective Measures Against Money Laundering?

  • The Bank Secrecy Act is enforced by FinCEN, which also has the authority to establish rules, check on financial institutions' compliance, and levy and collect fines for breaches.
  • The Bank Secrecy Act of 1970, also known as the Currency and Foreign Transactions Reporting Act, was created to stop criminals from utilizing financial institutions to launder their illicit funds.
  • The Financial Action Task Force (FATF) wants to check every nation annually to make sure that they are all upholding preventative legislation that forbid the use of cryptocurrency for money laundering and terrorism funding. The governments of several countries are required to collect identifying information on the senders, recipients, and beneficiaries of virtual assets in accordance with FATF principles.

What Opportunities Can Businesses

Have from Anti-Money Laundering?

A rise in the market size of anti-money laundering can be witnessed around the world over the past few years and this is further anticipated to increase at a CAGR of around 18% from 2023 to 2035. More number of money laundering cases and the requirement for monitoring money laundering activities have arisen than ever before, which is anticipated to increase the demand for such solutions. As per our research, the global anti-money laundering (AML) software solution market is poised to grow with a CAGR of around 17% between 2023 and 2035 and also touch a revenue of more than USD 5 Billion by the end of 2035. Supportive government regulations regarding money laundering is one of the major driving factors that would push the market growth forward.

Anti-Money Laundering in Banking

Owing to the growing age of digital banking and the fact that banks mediate millions of transactions every day all around the world, these financial institutions are more susceptible to financial crimes. In reality, criminal organizations routinely employ banks and other financial institutions to carry out their money-laundering operations. Banks must be aware of the risks in order to fulfil their anti-money laundering obligations and implement the necessary safety measures. For a bank to remain solvent and project a positive public image, anti-money laundering procedures are crucial. Auditors and regulators are compelled by law to follow this procedure.

The Scenario of Money Laundering in North America:

Money laundering is viewed as a serious white-collar crime in the United States. The penalties for breaching the law are harsh. Criminals caught laundering money are normally required to pay USD 500,000 or twice that amount, whichever is bigger. Often, a judge will sentence a criminal to three years of probation. Some will spend time in prison for their misdeeds. If they are found guilty of a misdemeanor, they might serve up to a year in jail. If they are charged with a felony, they could be given a sentence of 35 years or longer. Hence, for business organizations offering anti-money laundering solutions and services, North America is treated to be a very lucrative market. As per our research, the anti-money laundering market in North America is expected to hold the largest share by the end of 2035.

On and all, with the growing incidences of money laundering activities globally, and several of these activities yet to occur in the years to come, the demand for anti-money laundering solutions and services would definitely be on the rise. Moreover, with the growing trend of digital currencies, such as Bitcoin and other similar cryptocurrency banking currencies, which are poised to change the ball game in the future, money laundering crimes are projected to grow further. Clearly, the need to address these issues would also grow, creating more opportunities for business organizations globally.

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swara-keni
Swara Keni

Head- Global Business Development

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