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What is Anti-money Laundering?
Anti-money laundering (AML) is the financial function of organizations dealing with public money, which encompasses laws, regulations, and procedures designed to prevent criminals from exchanging money obtained through illegal activities. The term money laundering originates from the criminal activities of gangsters like Al Capone, who had a chain of cash-based coin laundromats to convert illicit money or ‘dirty money’ into ‘clean money’ using seemingly legitimate businesses. This illegal activity caught the popular imagination of the world and was termed ‘money laundering’.
Money laundering is divided into three stages: Placement, Layering, and Extraction.
- Placement is the act of injecting dirty money into financial systems such as bank accounts or businesses. Some examples of placement methods include combining funds with legitimate income (for example, cash transactions), paying off debts with dirty money, gambling, real estate investments, and smuggling and currency transactions.
- Layering hides the source of funds through various obscure bookkeeping operations. Stratification generally involves international transfers, especially to countries with laws that favor the privacy of account holders. The money is usually divided and transferred multiple times until the source is virtually impossible to trace.
- Extraction refers to the withdrawal of cash settlement to a “clean” bank account, where money can be used for any purpose. Law against money laundering covers money laundering and limited criminal activities, but its impact is far-reaching. For example, anti-money laundering regulations require financial institutions (including banks) to issue a credit or accept customer deposits to monitor customer behavior and ensure they do not assist in money laundering activities. If banks fail to comply with these laws and regulations, it can have drastic consequences, leading to massive fines and other enforcement actions.
Know more about the various stages of the anti-money laundering process here.
What is the Anti-Money Laundering Act of 2020?
The Anti-Money Laundering Act (AML Act) encompasses various bills and policies intended to jointly prevent and prosecute money laundering offenses in the United States. The fight against money launderers also involves cooperation between several national and foreign government organizations because these crimes often occur in several countries. The following is an overview of some of the most notable American actions to prevent money laundering.
These acts and organizations include:
1, Bank Secrecy Act (BSA):
The BSA (also known as the Foreign and Currency Transaction Reporting Act) was established in 1970. It was the first legislation designed to prevent and prosecute the act of money laundering through banks and other financial institutionsThe Bank Secrecy Law requires banks to cooperate with government investigations to crack down on the financing of illegal activities by monitoring the flow of foreign exchange. For example, it requires banks to fill out a Currency Transaction Report (CTR) for any cash transaction over $ 10,000.
2. The Money Laundering Control Act:
This law was enacted in 1986 and made money laundering a federal crime. Its main objective is to control money laundering by drug cartels. It allows the government to confiscate assets without prosecuting anyone. The bill also expanded the click-through rate to cover more than 10,000 transactions of any kind, not just cash.
3. The Annonzio-Wylly Anti-Money Laundering Act:
This law was primarily implemented for banks in 1992. It requires them to implement preventive measures against money laundering and punishes them for allowing criminals to use their institutions to launder money. It introduces a suspicious activity report (SAR). If a customer or transaction is suspected of carrying money laundering signs, the bank must complete the report.
4. The Patriot Act:
Implemented after the terrorist attack in New York on September 11, 2001, the Patriot Act aims to track and combat money laundering for terrorism (CFT) and terrorist activities. It strengthened the cooperation between the bank and the government’s internal anti-terrorism department and increased the fines and sentences for money laundering. One focus of the Patriot Act is the Customer Identification Process (CIP), also known as “Know Your Customer” (KYC), which requires banks to inspect their customers.
The Financial Crime Enforcement Network (FinCEN) has been added to the BSA and Patriot Act regulations. It implemented the strict customer due diligence that financial institutions must comply with.
6. U.S. Organizations:
Regulatory and law enforcement agencies include FinCEN, the Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), the Central Intelligence Agency (CIA), and the United States Postal Service. United States (USPS).
7. International Organizations:
Organizations include the Financial Action Task Force (FATF), the United Nations Office on Drugs and Crime (UNODC), the Financial Integrity Unit of the World Bank, and the International Monetary Fund (IMF).
Numerous domestic and foreign government organizations, agencies, and law enforcement agencies worldwide are fighting money laundering activities. The next article deciphers the various stages of the anti-money laundering process. Read it here.