MONEY LAUNDERING

Money Laundering



Money Laundering

Money Laundering

Money Laundering is a conversion process of money earned via illegal means to a legal financial reserve. The process of money laundering surpasses three phases, which are placement, layering and integration. In the first phase, money is transferred to less risky and less suspicious form, which is easily accessible by the criminals. Second stage separates the illegal money from its base source by processing some complicated transactions such as, wire transfer or other monetary tools in order to omit the audit procedures. In the final stage, the illegal money is converted into lawful source of income via financial processes. Participants of money laundering process can be respectable financial Institutions or small nonfinancial companies (Reuter and Truman, 2004, p. 25-32).

Methods of Money Laundering

There are several methods of money laundering. Cash smuggling is one of the oldest techniques used to transfer money from one place to another via shipping across borders. Casinos are also considered as a means of money laundering, where gamblers buy a chip for cash and trade those chips worldwide. Smurfing is a technique in which launderer deposits the smaller portion of illegal money in different banks to escape the suspicion. Informal Value Transfer system or Hawalas (Arabic Word) transfers the money placed in one country by converting it into gold at times in another country. Wire transfer is used to transfer funds from one to another bank account and so on to blur the evidence of original source. It is the most common tool used for this purpose (Shehu. Y. A. 2000, p. 1-9). Legal Business ownership method adds the illegal money in the revenues of legal businesses such as restaurants, bar etc. where invoices can be easily deployed. Shell corporations facilitate the money laundering when a business is operated from another country in form of special purpose entity to obtain a legal image in the world, and money is transferred from one business to another business' bank account. Gold and fine arts can also be used as a means of money laundering. An advance payment on Credit card can also serve the purpose of money laundering as bank pays back the culprit due to negative balance, which can be later deposited as fair money (Reuter and Truman, 2004, p. 25-32).

Financial Institutions and Money Laundering

Financial Institutions play a vital role in the process of money laundering because it servers as a means of transferring money to anywhere in the world. Thus it may unknowingly facilitate this crime. Financial institutions are at the front line of combating the money laundering. The money launderers put these institutions under scrutiny and on the other hand these institutions are obliged to carefully supervise the financial transactions. For example, in UK, the financial organizations are obliged to report any suspicious transactions as well as all transactions with a value of over £10,000. Therefore, the financial institutions are affected by money laundering from two aspect: Legally due to the obligations imposed by the exiting laws; financially due to the compliance ...