Banking Law

Banking Law

Introduction

Law enforcement officials have long struggled to combat money laundering, the disguising of illegally obtained funds to make them appear legitimate. Today, those efforts are viewed as part of the battle against international terrorism. Some observers argue that stricter laws against money laundering would weaken the ability of terrorist groups to conduct operations around the world. Others disagree, however, and contend that the costs of tougher money-laundering laws would outweigh the benefits.

Although the exact origin of the term "money laundering" is unknown, most experts trace it back to Mafia ownership of public laundry facilities during the 1920s. At the time, organized crime leader Al Capone sought a way to hide the origins of his unlawful profits. By mixing that money with the legal profits earned by his laundry businesses, Capone could make it appear that all of his income had been derived through legitimate means.

Over time, criminals have discovered increasingly sophisticated ways to launder their money. Computers and the Internet now enable lawbreakers to transfer funds through multiple banks and financial institutions around the world in a matter of minutes. As a result, law enforcement efforts to track those funds and thus the criminals behind them--have become increasingly difficult.

Some analysts, however, argue that the latest money-laundering regulations will cause more harm than good. They argue that the law places too heavy a burden on financial institutions and is unlikely to be effective, because money launderers will simply find other methods of avoiding detection. Moreover, critics within the banking industry argue that the new restrictions are an invasion of financial privacy that will hurt innocent clients and weaken the economy.

Should U.K. policy makers push for stronger laws to prevent and detect money laundering? Or would additional requirements impose unfair constraints on the national and global financial systems?

Money Laundering Explained

Criminals trying to disguise the origin of their money are nothing new. Since the days of Capone, organized-crime groups have used legitimate businesses as "fronts" for criminal activity. However, such enterprises are limited in scope--if a business reports profits far exceeding what one might commonly expect, it can draw the attention of tax investigators and federal officials.

As a result, in recent years sophisticated criminals have taken advantage of national and global financial networks to launder illicit funds. A financially-astute criminal can move millions of dollars through a series of financial institutions or accounts to disguise the money's true origin, ownership and purpose. Today, money laundering is commonly practiced by terrorist organizations, drug traffickers and organized crime.

Money launderers usually go to considerable lengths to ensure that their money cannot be traced. In general, the money-laundering process can be broken down into three key steps:

Placement

During this stage, illegal funds are first introduced into the mainstream banking system or transferred to a foreign country with looser money laundering laws than the U.K. In order to avoid police detection, money launderers have developed multiple placement methods. For example, rather than deposit money directly into an account, a launderer could convert it into the cashier's checks, ...