Moving the dirty money away from the sources is a trend that is on the rise globally.They have recorded over $5 billion fines for the financial institutions due to AML, KYC and breach of sanctions. According to the United Nations Office on Drugs and Crime, around USD 800 million up to $ 2 trillion is being laundered every year.. Money laundering phases could endanger your company’s reputation, retain revenue loss, millions in fines, or your company license suspension. For instance, persons involved in money laundering in United States of America are liable to serve 20 years imprisonment and a penalty of upto $500000. AML rules are needed for the prevention, while KYC is needed to adhere to these important rules.
Breaking Down the Money Laundering Stages
Money laundering is the most frequent type of financial criminality in the global economy and implies the existence and further transformation of funds received by – legalizing Them. An example is Danske Bank case where at least € 200 billion were funneled through the branches in Estonia between the years 2007 and 2015.The three stages of money laundering are
Stage 1: Placement
The first AML stage deposits the money into the financial system. Some examples of placement are in activities that relate to buying and selling of houses, businesses that deal with large amounts of money such as lotteries and gaming among others. Such other measures are like cashing in the loans to pay off or even coming up with another type of currency. Other money launderers still move his money to such countries that have poor or less regulation on the flow of funds.
Stage 2: Layering
The second process of money laundering process is known as layering. This is the process of making multiple layers of transactions, to obscure the source of the money as well as the identity of the people behind it. Change of funds to several accounts or regular conversion of the funds to different currency attracts the attention of the authorities. Any banker or company which grants loans is required to carry out some checks to be able to identify such incidences.
Stage 3: Integration
Finally the money are reintroduced into the economy and given back to the criminals or organizations through purchasing assets which are legal in regard to money laundering. This is so because the legal process of sending, receiving, and transferring funds does not put into consideration the legal or otherwise of the said funds. A criminal can now use or dispose off items like cars ,houses, art works, or jewelry acquired at the previous level. Another popular scheme is when a shell company create bogus invoices in order to receive payment for some imaginary goods or services.
How to Prevent Stages of Money Laundering?
The Monetary Transactions reporting law 1970 widely known as The Bank Secrecy Act (BSA) was instituted to prevent money laundry and make standards of reporting compulsory on the institution offering services in banking. Other agency that is apart of AML compliance is the Financial Action Task Force (FATF). There are some measures, which could be taken by the businesses in order to assist in the identification of three stages of money laundering. Here are some ways
KYC:
Financial entities should have robust KYC procedures in place to verify the identity of their customers. It collects customer data, such as identification documents, company information, and transaction history. Then carefully investigate any discrepancies or suspicious data. KYC is critical to preventing AML stages because it detects potential money laundering early before it enters the system.
Transaction Monitoring:
Businesses can detect unusual or suspicious financial activity by implementing a transaction monitoring system. They can configure this system to monitor transaction patterns such as large cash deposits or transfers to high-risk areas.
Customer Due Diligence (CDD):
Conduct CDD to monitor customer behavior. The integration stages of money laundering can be prevented by verifying customers in large transactions and reporting sudden and significant changes in customer trading patterns.
Enhanced Due Diligence (EDD):
The second is that if a customer is recognized as a high-risk person, companies have to carry out recognizing activities of enhanced due diligence checks that allow companies to collect additional information about a customer beyond the information that is collected at the CDD stage. One of the procedures carried out in EDD is sourcing of funds to ensure that the transaction does not come fromillicit funds.
Ongoing Customer Monitoring:
This adds another layer to the 3 stages of AML risk management. It involves ongoing due diligence to ensure that customers are not exposing the company to criminal risks.
Appoint AML Compliance Officer:
Having a compliance officer or MLRO in your organization will make it easier to manage the AML stages. They will be able to review your current AML policies and make any necessary changes to ensure that you comply with the latest AML laws and regulations.
AML Compliance:
Ensure that companies comply with local and international AML and CFT regulations. The government oversees the public system and updates the rules accordingly.
Employee Training and Awareness:
Employee training and awareness programs play a critical role in preventing the three stages of money laundering. It makes certain that the employees know what they are supposed to do and how they can identify warning signs. This may involve capacity building oriented to the various phases of money laundering, the techniques employed by offenders and the threats and openings typical of a line of commercial activity.
Closing Remarks
Last but not the least, it is crucial for business and individuals to understand the Money laundering process and different activities that are done by the criminals. Indeed, the proper measures such as the adoption of the stiff measures of anti-money laundering, monitoring, carrying out of the CDD, and EDD, as well as training of employees help businesses safeguard themselves and fight financial crimes all over the world.
