Money Laundering

6 June 2016

Today’s emerging business developments pose a question on whether or not company performances can be measured by its profitability and its return on assets. There is a need to protect and at the same time to increase the interests of its shareholders, and reduce, if not, pay off its Company’s debts.

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However, in the process of achieving these business performance measurements, the management, most especially, is faced with a dilemma on whether or not to come up with accurate and honest assessment of its company accounts especially when faced with some economic difficulties or uncontrollable and mismanaged accounts.  Such business or company is vulnerable to twist facts and figures in order to hide the truth behind its books of accounts just to save its image of financial stability and security in the eyes of the public, and its shareholders and creditors.

Money laundering and the world of criminal financing prevention have changed dramatically. The attention paid to these topics by governments worldwide has resulted in greater regulatory pressure and scrutiny of financial institutions. High-profile cases and multi-million penalties by governments around the world are becoming more and can no longer be ignored by anyone in the field.

Basically no financial institution, regardless of size, is outside the reach of new laws and regulations. A violation or lack of knowledge of these new rules poses devastating dangers to financial and non-financial institutions and can ruin businesses and careers. Damage to a company’s reputation can be irreparable. These new dangers and risks present strong challenges.

Staying informed of risks, challenges and best practices is a critical step toward protecting yourself and your organization. This paper delves into the money laundering business and the many facets of money laundering. This paper will also look into the various methods used by different international and criminal organizations as well as the success of law enforcements in preventing the crime. The Enron scandal will be used as an example to gain valuable lessons on how observable business ethics are important in running a business.

Definition of money laundering
“Money laundering” is the term used to refer to a broad category of offenses that involves financial transactions with funds or monetary instruments gained through criminal activity.” (Money Laundering Working Group.  Summary of Findings). The law is very specific as in this area and according to the Title 18 of the U.S. Code, there are four different types of money laundering violations.  The subsection a)(1) of 18 U.S.C. 1956 considers it illegal to conduct a financial transaction from unscrupulous origins or those known to be from specified unlawful activity. (Money Laundering Working Group.  Summary of Findings).

This definition evolves through time and Wikipedia states that it has expanded to ways in which criminals process these “dirty” money, generated illegally through several transmissions and deals such that the source is illegally hidden and the money seems clean funds or assets. This is accomplished through tax evasion or false accounting. Thus, with this definition, the term money laundering has come to widen in scope and not just limited to large amounts of money. Private individuals, corrupt officials, members of organized crimes can practice it. (Wikipedia).

Mores specifically, money laundering is a term usually used to describe the ways in which criminals process illegal or “dirty” money derived from the proceeds of any illegal activity through a succession of transfers and deals until the source of illegally acquired funds is obscured and the money takes on the appearance of clean funds or assets. Money laundering is also the process by which the true ownership of those proceeds, are changed so that the proceeds appear to come from a legitimate source. (HM Treasury)

Criminals who make money from drug dealing, smuggling, robbery, prostitution, fraud and other crimes need to find ways to make their activities appear valid and legal. One way of doing this is to place the money with banks or other financial services firms. This way they are able to hide the money that they can safely get later.

The ability to launder the proceeds of crime is vital to the success of criminal operations. Anti-Money Laundering (AML) laws and systems are aimed at preventing criminals from being able to benefit from their actions, and at taking the profit out of crime. Under the said Act, someone is engaged in money laundering if they:

conceal, disguise, convert, transfer or remove criminal property
enter into or become concerned in an arrangement, which they know or suspect facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person or acquire, use or have possession of criminal property.
Property is criminal property if it:

constitutes a person’s benefit in whole or in part (including pecuniary and proprietary benefit) from criminal conduct or
represents such a benefit directly or indirectly, in whole or in part and
alleged offender knows or suspects that it constitutes or represents such a benefit.
(Law Society of England and Wales)

Phases to Money Laundering

Placement – This consists of introducing the funds gained from criminal activities into the banking and financial system.  This phase has become more and more fraught with risks due to the heightened attention now given the movements of cash by law enforcement, and the now widespread requirement that banks report suspicious transactions. (HM Treasury)

Layering – This consists of putting the funds that have entered the financial system through a series of financial operations, the purpose of which is to mislead potential investigators and to give these funds the appearance of having a legal origin. This is the money-laundering phase that most often uses offshore mechanisms. Numerous comings and goings between financial havens and the launderers’ banks, punctuated by false invoices, false loans, or other devices, ultimately mislead investigators regarding the origin of the money. (HM Treasury)

Integration – In this phase, the funds appear to have a legitimate origin. They consist of reintroducing the funds into the legal economy through consumption of luxury items, through investments in common place assets, through investments in economic entities that are themselves susceptible of becoming money laundering machines including casinos and hotels as well as in companies in which payments are made in cash and where the dirty money can easily be mingled. (HM Treasury)

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