Money Laundering and the Importance of AML Compliance
Money laundering is one of the crimes that
can be hard to put a face to. Everybody is at least familiar with the term, but
because it’s often associated with fancy accounting work rather than actual
harmful illegal activities, people tend to think of it as a victimless crime.
That is a grave mistake. Money laundering
is the bread-and-butter of large, international crime rings, from cybercrime to
drug trafficking to organized crime. That’s why we should never underestimate
the importance of AML compliance.
Anti-Money Laundering (AML) compliance is a
set of laws, regulations and procedures that have been put in place to prevent
the generation of income through illegal actions. For example, businesses in
the payment card industry (PCI) must undergo a series of due-diligence procedures
to prove that they are not facilitating, intentionally or unintentionally,
money-laundering activities.
What
Is Money Laundering?
At its most basic level, to launder money
simply means disguising the source of illegally or unethically-gained profits
to make it appear as though the money had been earned legitimately.
For example, if you were to rob a bank then
you wouldn’t be able to then use that cash to open the restaurant you’ve always
dreamed of. All those capital expenses need to come from somewhere – if you can’t account for where the money came from,
you’ll soon have the police knocking on your door.
So what money launderers do is literally
“clean” the money; just like putting dirty clothes in the laundry, dirty money
needs to be cleaned. Profits made from crimes such as extortion, insider
trading, drug trafficking, illegal gambling and tax evasion are laundered using
a variety of monetary instruments including securities, digital currencies such
as bitcoin, credit cards, and traditional currency.
The
Importance of AML Compliance
Though AML laws cover only a relatively
limited number of transactions and criminal behaviors, their implications are
extremely far reaching. At a time when the HSBC and Standard Chartered scandals
are still fresh in everybody’s memory, the big players in the financial world
are under more scrutiny than ever.
However, to have the discerning gaze of
regulators looming over the industry should not be looked upon as an
inconvenience but as a blessing. In most cases, it is these very same big
players of finance who are the most passionate about AML compliance in the
eradication of financial crime. The problem is that all it takes is for one key
player to be a little too lax in their security measures for the whole industry
to be compromised.
This is a result of the digital economy.
Financial organizations, both traditional and alternative, are all connected.
Once any dirty money has slipped through the system, that is, once it has been
successfully laundered, it can move freely through the financial world with
very little chance of discovery.
Living up to AML compliance regulations is
for the benefit of the entire global financial network. Ultimately, financial
organizations and regulators are on the same side in the fight against money
laundering.
More
Related In-depth Article:
Money laundering is one of the most common
forms of financial crime. Due to the digital economy, this crime can send
ripples through the entire interconnected financial industry. This article
explains the basics of money laundering and the importance of AML compliance –
the rules and regulations in place to maintain the financial industry’s policy
of anti-money laundering.
