|This article is outdated. (March 2014)|
Money laundering is the process whereby the proceeds of crime are transformed into ostensibly legitimate money or other assets. 
It is said that the term ‘money laundering’ was coined from the practice of the American mafia who, at one time, channelled the cash proceeds of crime through laundrettes to legitimize the cash. Whether this is true or not, the term ‘money laundering’ is now widely used.
Money obtained from certain crimes, such as extortion, insider trading, prostitution, drug trafficking, illegal gambling or tax evasion is "dirty". It needs to be cleaned to appear to have derived from non-criminal activities so that banks and other financial institutions will deal with it without suspicion. Originally, the term applied to real money but now money laundering applies to the proceeds of crime that are laundered using a variety of monetary instruments including securities, digital currencies such as bitcoin, credit cards, and traditional currency. Money can be laundered by many methods, which vary in complexity and sophistication.
Different countries may or may not treat tax evasion or payments in breach of international sanctions as money laundering. Some jurisdictions differentiate these for definition purposes, and others do not. Some jurisdictions define money laundering as obfuscating sources of money, either intentionally or by merely using financial systems or services that do not identify or track sources or destinations.
Other jurisdictions define money laundering to include money from activity that would have been a crime in that jurisdiction, even if it were legal where the actual conduct occurred. This broad brush of applying the term "money laundering" to merely incidental, extraterritorial, or simply privacy-seeking behaviors has led some to label it "financial thoughtcrime".
Many regulatory and governmental authorities issue estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996, the International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money. The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body set up to combat money laundering, stated, "Overall, it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard." Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance. Various estimates of the scale of global money laundering are sometimes repeated often enough to make some people regard them as factual—but no researcher has overcome the inherent difficulty of measuring an actively concealed practice.
Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions (US dollars) and poses a significant policy concern for governments. As a result, governments and international bodies have undertaken efforts to deter, prevent, and apprehend money launderers. Financial institutions have likewise undertaken efforts to prevent and detect transactions involving dirty money, both as a result of government requirements and to avoid the reputational risk involved. Issues relating to money laundering have existed as long as there have been large scale criminal enterprises. Modern anti-money laundering laws have developed along with the modern War on Drugs. In more recent times anti-money laundering legislation is seen as adjunct to the financial crime of terrorist financing in that both crimes usually involve the transmission of funds through the financial system (although money laundering relates to where the money has come from, and terrorist financing relating to where the money is going to).
- 1 Methods
- 2 Enforcement
- 3 Laws and enforcement by region
- 4 Electronic money
- 5 Notable cases
- 6 See also
- 7 References
- 8 External links
Money laundering is commonly defined as occurring in three steps: the first step involves introducing cash into the financial system by some means ("placement"); the second involves carrying out complex financial transactions to camouflage the illegal source ("layering"); and the final step entails acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending on the circumstances; for example, non-cash proceeds that are already in the financial system would have no need for placement.
Money laundering takes several different forms, although most methods can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing".
- Structuring: Often known as smurfing, this is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.
- Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement.
- Cash-intensive businesses: In this method, a business typically involved in receiving cash uses its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Service businesses are best suited to this method, as such businesses have no variable costs, and it is hard to detect discrepancies between revenues and costs. Examples are parking buildings, strip clubs, tanning beds, and casinos.
- Trade-based laundering: This involves under- or overvaluing invoices to disguise the movement of money.
- Shell companies and trusts: Trusts and shell companies disguise the true owner of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner.
- Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant on this is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.
- Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.
- Casinos: In this method, an individual walks into a casino with cash and buys chips, plays for a while, and then cashes in the chips, taking payment in a check, or just getting a receipt, claiming it as gambling winnings.
- Other gambling: Money is spent on gambling, preferably on higher odds. The wins are shown if the source for money is asked for, while the losses are hidden.
- Real estate: Someone purchases real estate with illegal proceeds and then sells the property. To outsiders, the proceeds from the sale look like legitimate income. Alternatively, the price of the property is manipulated: the seller agrees to a contract that underrepresents the value of the property, and receives criminal proceeds to make up the difference.
- Black salaries: A company may have unregistered employees without a written contract and pay them cash salaries. Dirty money might be used to pay them.
- Tax amnesties: For example, those that legalize unreported assets in tax havens and cash
- Fictional loans
- A goal of money laundering is to be able to use the dirty money for private consumption. If unable to use it openly, the traditional way to keep the dirty money near is hiding it as cash at home or other places. A more modern method is a credit card connected to a tax haven bank.
Anti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent, detect, and report money laundering activities. Anti-money laundering guidelines came into prominence globally as a result of the formation of the Financial Action Task Force (FATF) and the promulgation of an international framework of anti-money laundering standards. These standards began to have more relevance in 2000 and 2001, after FATF began a process to publicly identify countries that were deficient in their anti-money laundering laws and international cooperation, a process colloquially known as "name and shame".
An effective AML program requires a jurisdiction to have criminalized money laundering, given the relevant regulators and police the powers and tools to investigate; be able to share information with other countries as appropriate; and require financial institutions to identify their customers, establish risk-based controls, keep records, and report suspicious activities.
Criminalizing money laundering
The elements of the crime of money laundering are set forth in the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and Convention against Transnational Organized Crime. It is defined as knowingly engaging in a financial transaction with the proceeds of a crime for the purpose of concealing or disguising the illicit origin of the property from governments.
The role of financial institutions
While banks operating in the same country generally have to follow the same AML laws and regulations, financial institutions all structure their AML efforts slightly different. Today, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit in the respective country. For example, a bank must verify a customer's identity and, if necessary, monitor transactions for suspicious activity. This is often termed as "know your customer". This means knowing the identity of the customer and understanding the kinds of transactions in which the customer is likely to engage. By knowing one's customers, financial institutions can often identify unusual or suspicious behavior, termed anomalies, which may be an indication of money laundering.
Bank employees, such as tellers and customer account representatives, are trained in anti-money laundering and are instructed to report activities that they deem suspicious. Additionally, anti-money laundering software filters customer data, classifies it according to level of suspicion, and inspects it for anomalies. Such anomalies include any sudden and substantial increase in funds, a large withdrawal, or moving money to a bank secrecy jurisdiction. Smaller transactions that meet certain criteria may also be flagged as suspicious. For example, structuring can lead to flagged transactions. The software also flags names on government "blacklists" and transactions that involve countries hostile to the host nation. Once the software has mined data and flagged suspect transactions, it alerts bank management, who must then determine whether to file a report with the government.
Value of enforcement costs and associated privacy concerns
The financial services industry has become more vocal about the rising costs of anti-money laundering regulation and the limited benefits that they claim it brings. One commentator wrote that "[w]ithout facts, [anti-money laundering] legislation has been driven on rhetoric, driving by ill-guided activism responding to the need to be "seen to be doing something" rather than by an objective understanding of its effects on predicate crime. The social panic approach is justified by the language used—we talk of the battle against terrorism or the war on drugs". The Economist magazine has become increasingly vocal in its criticism of such regulation, particularly with reference to countering terrorist financing, referring to it as a "costly failure", although it concedes that other efforts (like reducing identity and credit card fraud) may still be effective at combating money laundering.
There is no precise measurement of the costs of regulation balanced against the harms associated with money laundering, and given the evaluation problems involved in assessing such an issue, it is unlikely that the effectiveness of terror finance and money laundering laws could be determined with any degree of accuracy. The Economist estimated the annual costs of anti-money laundering efforts in Europe and North America at US$5 billion in 2003, an increase from US$700 million in 2000. Government-linked economists have noted the significant negative effects of money laundering on economic development, including undermining domestic capital formation, depressing growth, and diverting capital away from development. Because of the intrinsic uncertainties of the amount of money laundered, changes in the amount of money laundered, and the cost of anti-money laundering systems, it is almost impossible to tell which anti-money laundering systems work and which are more or less cost effective.
Besides economic costs to implement anti-money-laundering laws improper attention to data-protection practices may entail disproportionate costs to individual privacy rights. In June 2011, the data-protection advisory committee to the European Union, issued a report on data protection issues related to the prevention of money laundering and terrorist financing, which identified numerous transgressions against the established legal framework on privacy and data protection. The report made recommendations how to address money laundering and terrorist financing in ways that safeguard personal privacy rights and data-protection laws. In the United States, groups such as the American Civil Liberties Union have expressed concern that money laundering rules require banks to report on their own customers, essentially conscripting private businesses "into agents of the surveillance state".
Many countries are obligated by various international instruments and standards, such as the 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, the 2000 Convention against Transnational Organized Crime, the 2003 United Nations Convention against Corruption, and the recommendations of the 1989 Financial Action Task Force on Money Laundering to enact and enforce money laundering laws in an effort to stop narcotics trafficking, international organised crime, and corruption. Mexico which has faced significant crime problems established anti-money laundering controls to curb the underlying crime issue in 2011.
Global Organizations working against money laundering
Formed in 1989 by the G7 countries, the FATF is an intergovernmental body whose purpose is to develop and promote an international response to combat money laundering. The FATF Secretariat is housed at the headquarters of the OECD in Paris. In October 2001, FATF expanded its mission to include combating the financing of terrorism. FATF is a policy-making body that brings together legal, financial, and law enforcement experts to achieve national legislation and regulatory AML and CFT reforms. As of 2014 its membership consists of 36 countries and territories and two regional organizations. FATF works in collaboration with a number of international bodies and organizations[who?]. These entities have observer status with FATF, which does not entitle them to vote, but permits them full participation in plenary sessions and working groups.
FATF has developed 40 recommendations on money laundering and 9 special recommendations regarding terrorist financing. FATF assesses each member country against these recommendations in published reports. Countries seen as not being sufficiently compliant with such recommendations are subjected to financial sanctions.
FATF’s three primary functions with regard to money laundering are:
- Monitoring members’ progress in implementing anti-money laundering measures.
- Reviewing and reporting on laundering trends, techniques, and countermeasures.
- Promoting the adoption and implementation of FATF anti-money laundering standards globally.
The FATF currently comprises 34 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe:
- European Commission
- Gulf Cooperation Council
- Hong Kong
- New Zealand
- South Africa
- South Korea
- United Kingdom
- United States
The United Nations Office on Drugs and Crime maintains the International Money Laundering Information Network, a website that provides information and software for anti-money laundering data collection and analysis. The World Bank has a website that provides policy advice and best practices to governments and the private sector on anti-money laundering issues.
Laws and enforcement by region
Many jurisdictions adopt a list of specific predicate crimes for money laundering prosecutions, while others criminalize the proceeds of any serious crime.
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The Financial Transactions and Reports Analysis Center of Afghanistan (FinTRACA) was established as a Financial Intelligence Unit (FIU) under the Anti Money Laundering and Proceeds of Crime Law passed by decree late in 2004. The main purpose of this law is to protect the integrity of the Afghan financial system and to gain compliance with international treaties and conventions. The Financial Intelligence Unit is a semi-independent body that is administratively housed within the Central Bank of Afghanistan (Da Afghanistan Bank). The main objective of FinTRACA is to deny the use of the Afghan financial system to those who obtained funds as the result of illegal activity, and to those who would use it to support terrorist activities.
To meet its objectives, the FinTRACA collects and analyzes information from a variety of sources. These sources include entities with legal obligations to submit reports to the FinTRACA when a suspicious activity is detected, as well as reports of cash transactions above a threshold amount specified by regulation. Also, FinTRACA has access to all related Afghan government information and databases. When the analysis of this information supports the supposition of illegal use of the financial system, the FinTRACA works closely with law enforcement to investigate and prosecute the illegal activity. FinTRACA also cooperates internationally in support of its own analyses and investigations and to support the analyses and investigations of foreign counterparts, to the extent allowed by law. Other functions include training of those entities with legal obligations to report information, development of laws and regulations to support national-level AML objectives, and international and regional cooperation in the development of AML typologies and countermeasures.
AUSTRAC (Australian Transaction Reports and Analysis Centre) is Australia's anti-money laundering and counter-terrorism financing regulator and specialist financial intelligence unit.
The Anti-Money Laundering & Counter Terrorism Financing Act 2006 (Cth) (AMLCTF) is the principal legislative instrument, although there are also offence provisions introduced into the Crimes Act 1901 (Cth). Upon its introduction the AMLCTF was further amended by a second tranche of reforms to extend inter alia to other commercial contexts such as real estate agents, but those further reforms have since not been effectuated.
AUSTRAC works collaboratively with Australian industries and businesses in their compliance with anti-money laundering and counter-terrorism financing legislation.
Financial institutions in Australia are required to track significant cash transactions (greater than A$10,000.00 or equivalent in physical cash value) that can be used to finance terrorist activities in and outside Australia's borders and report them to AUSTRAC.
In Bangladesh, this issue has been dealt with by the Prevention of Money Laundering Act, 2002 (Act No. VII of 2002). In terms of section 2, "Money Laundering means (a) Properties acquired or earned directly or indirectly through illegal means; (b) Illegal transfer, conversion, concealment of location or assistance in the above act of the properties acquired or earned directly of indirectly through legal or illegal means". In this Act, "properties" means movable or immovable properties of any nature and description.
To prevent these Illegal uses of money, the Bangladesh government has introduced the Money Laundering Prevention Act. The Act was last amended in the year 2009 and all the financial institutes are following this act. Till today there are 26 circulars issued by Bangladesh Bank under this act. To prevent money laundering, a banker must do the following:
- While opening a new account, the account opening form should be duly filled up by all the information of the customer.
- The KYC must be properly filled.
- The Transaction Profile (TP) is mandatory for a client to understand his/her transactions. If needed, the TP must be updated at the client's consent.
- All other necessary papers should be properly collected along with the National ID card.
- If any suspicious transaction is noticed, the Branch Anti Money Laundering Compliance Officer (BAMLCO) must be notified and accordingly the Suspicious Transaction Report (STR) must be filled out.
- The cash department should be aware of the transactions. It must be noted if suddenly a big amount of money is deposited in any account. Proper documents are required if any client does this type of transaction.
- Structuring, over/ under invoicing is another way to do money laundering. The foreign exchange department should look into this matter cautiously.
- If any account has a transaction over 10.00 lakh in a single day, it must be reported in a cash transaction report (CTR).
- All bank officials must go through all the 26 circulars and use them.
In 1991, the Proceeds of Crime (Money Laundering) Act was brought into force in Canada to give legal effect to the former FATF Forty Recommendations by establishing record keeping and client identification requirements in the financial sector to facilitate the investigation and prosecution of money laundering offences under the Criminal Code of Canada and the Controlled Drugs and Substances Act.
In 2000, the Proceeds of Crime (Money Laundering) Act was amended to expand the scope of its application and to establish a financial intelligence unit with national control over money laundering, namely FINTRAC.
In December 2001, the scope of the Proceeds of Crime (Money Laundering) Act was again expanded by amendments enacted under the Anti-Terrorism Act with the objective of deterring terrorist activity by cutting off sources and channels of funding used by terrorists in response to 9/11. The Proceeds of Crime (Money Laundering) Act was renamed the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
In December 2006, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act was further amended, in part, in response to pressure from the FATF for Canada to tighten its money laundering and financing of terrorism legislation. The amendments expanded the client identification, record-keeping and reporting requirements for certain organizations and included new obligations to report attempted suspicious transactions and outgoing and incoming international electronic fund transfers, undertake risk assessments and implement written compliance procedures in respect of those risks.
The amendments also enabled greater money laundering and terrorist financing intelligence-sharing among enforcement agencies.
The EU directive 2005/60/EC "on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing" tries to prevent such crime by requiring banks, real estate agents and many more companies to investigate and report usage of cash in excess of €15,000. The earlier EU directives 91/308/EEC and 2001/97/EC also relate to money laundering.
In 2002, the Parliament of India passed an act called the Prevention of Money Laundering Act, 2002. The main objectives of this act are to prevent money-laundering as well as to provide for confiscation of property either derived from or involved in, money-laundering.
Section 12 (1) describes the obligations that banks, other financial institutions, and intermediaries have to
- (a) Maintain records that detail the nature and value of transactions, whether such transactions comprise a single transaction or a series of connected transactions, and where these transactions take place within a month.
- (b) Furnish information on transactions referred to in clause (a) to the Director within the time prescribed, including records of the identity of all its clients.
Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above, must be maintained for ten years after the transactions finished. It is handled by the Indian Income Tax Department.
The recent activity in money laundering in India is through political parties, corporate companies and the shares market. It is investigated by the Enforcement Directorate and Indian Income Tax Department.
Bank accountants must record all transactions over Rs. 10 Lakhs. Bank accountants must maintain this records for 10 years. Banks also must make cash transaction reports (CTRs) and suspicious transaction reports over RS. 10 Lakhs within 7 days of doubt. They must submit the report to the enforcement directorate and income tax department.
Money laundering and terrorist funding legislation in the UK is governed by four Acts of primary legislation:-
- Terrorism Act 2000
- Anti-terrorism, Crime and Security Act 2001
- Proceeds of Crime Act 2002
- Serious Organised Crime and Police Act 2005
- Money Laundering Regulations 2007
Money Laundering Regulations are designed to protect the UK financial system. If a business is covered by these regulations then controls are put in place to prevent it being used for money laundering.
The Proceeds of Crime Act 2002 contains the primary UK anti-money laundering legislation, including provisions requiring businesses within the "regulated sector" (banking, investment, money transmission, certain professions, etc.) to report to the authorities suspicions of money laundering by customers or others.
Money laundering is broadly defined in the UK. In effect any handling or involvement with any proceeds of any crime (or monies or assets representing the proceeds of crime) can be a money laundering offence. An offender's possession of the proceeds of his own crime falls within the UK definition of money laundering. The definition also covers activities within the traditional definition of money laundering, as a process that conceals or disguises the proceeds of crime to make them appear legitimate.
Unlike certain other jurisdictions (notably the US and much of Europe), UK money laundering offences are not limited to the proceeds of serious crimes, nor are there any monetary limits. Financial transactions need no money laundering design or purpose for UK laws to consider them a money laundering offence. A money laundering offence under UK legislation need not even involve money, since the money laundering legislation covers assets of any description. In consequence, any person who commits an acquisitive crime (i.e., one that produces some benefit in the form of money or an asset of any description) in the UK inevitably also commits a money laundering offence under UK legislation.
This applies also to a person who, by criminal conduct, evades a liability (such as a taxation liability)—which lawyers call "obtaining a pecuniary advantage"—as he is deemed thereby to obtain a sum of money equal in value to the liability evaded.
The principal money laundering offences carry a maximum penalty of 14 years imprisonment.
Secondary regulation is provided by the Money Laundering Regulations 2003, which was replaced by the Money Laundering Regulations 2007. They are directly based on the EU directives 91/308/EEC, 2001/97/EC and 2005/60/EC.
One consequence of the Act is that solicitors, accountants, tax advisers, and insolvency practitioners who suspect (as a consequence of information received in the course of their work) that their clients (or others) have engaged in tax evasion or other criminal conduct that produced a benefit, now must report their suspicions to the authorities (since these entail suspicions of money laundering). In most circumstances it would be an offence, "tipping-off", for the reporter to inform the subject of his report that a report has been made. These provisions do not however require disclosure to the authorities of information received by certain professionals in privileged circumstances or where the information is subject to legal professional privilege. Others that are subject to these regulations include financial institutions, credit institutions, estate agents (which includes chartered surveyors), trust and company service providers, high value dealers (who accept cash equivalent to €15,000 or more for goods sold), and casinos.
Professional guidance (which is submitted to and approved by the UK Treasury) is provided by industry groups including the Joint Money Laundering Steering Group, the Law Society. and the Consultative Committee of Accountancy Bodies (CCAB). However there is no obligation on banking institutions to routinely report monetary deposits or transfers above a specified value. Instead reports must be made of all suspicious deposits or transfers, irrespective of their value.
The reporting obligations include reporting suspicious gains from conduct in other countries that would be criminal if it took place in the UK. Exceptions were later added for certain activities legal where they took place, such as bullfighting in Spain.
More than 200,000 reports of suspected money laundering are submitted annually to authorities in the UK (there were 240,582 reports in the year ended 30 September 2010. This was an increase from the 228,834 reports submitted in the previous year). Most of these reports are submitted by banks and similar financial institutions (there were 186,897 reports from the banking sector in the year ended 30 September 2010).
Although 5,108 different organisations submitted suspicious activity reports to the authorities in the year ended 30 September 2010 just four organisations submitted approximately half of all reports, and the top 20 reporting organisations accounted for three-quarters of all reports.
The offence of failing to report a suspicion of money laundering by another person carries a maximum penalty of 5 years imprisonment.
Bureaux de change
All UK Bureaux de change are registered with Her Majesty's Revenue and Customs, which issues a trading licence for each location. Bureaux de change and money transmitters, such as Western Union outlets, in the UK fall within the "regulated sector" and are required to comply with the Money Laundering Regulations 2007. Checks can be carried out by HMRC on all Money Service Businesses.
The approach in the United States to stopping money laundering is usually broken into two areas: preventive (regulatory) measures and criminal measures.
In an attempt to prevent dirty money from entering the US financial system in the first place, the United States Congress passed a series of laws, starting in 1970, collectively known as the Bank Secrecy Act. These laws, contained in sections 5311 through 5332 of Title 31 of the United States Code, require financial institutions, which under the current definition include a broad array of entities, including banks, credit card companies, life insurers, money service businesses and broker-dealers in securities, to report certain transactions to the United States Treasury. Cash transactions in excess of US$10,000 must be reported on a currency transaction report (CTR), identifying the individual making the transaction as well as the source of the cash. The US is one of the few countries in the world to require reporting of all cash transactions over a certain limit, although certain businesses can be exempt from the requirement. Additionally, financial institutions must report transaction on a Suspicious Activity Report (SAR) that they deem "suspicious", defined as a knowing or suspecting that the funds come from illegal activity or disguise funds from illegal activity, that it is structured to evade BSA requirements or appears to serve no known business or apparent lawful purpose; or that the institution is being used to facilitate criminal activity. Attempts by customers to circumvent the BSA, generally by structuring cash deposits to amounts lower than US$10,000 by breaking them up and depositing them on different days or at different locations also violates the law.
The financial database created by these reports is administered by the U.S.’s Financial Intelligence Unit (FIU), called the Financial Crimes Enforcement Network (FinCEN), which is located in Vienna, Virginia. These reports are made available to US criminal investigators, as well as other FIU’s around the globe, and FinCEN conducts computer assisted analyses of these reports to determine trends and refer investigations.
The BSA requires financial institutions to engage in customer due diligence, which is sometimes known in the parlance as "know your customer". This includes obtaining satisfactory identification to give assurance that the account is in the customer’s true name, and having an understanding of the expected nature and source of the money that flows through the customer's accounts. Other classes of customers, such as those with private banking accounts and those of foreign government officials, are subjected to enhanced due diligence because the law deems that those types of accounts are a higher risk for money laundering. All accounts are subject to ongoing monitoring, in which internal bank software scrutinizes transactions and flags for manual inspection those that fall outside certain parameters. If a manual inspection reveals that the transaction is suspicious, the institution should file a Suspicious Activity Report.
The regulators of the industries involved are responsible to ensure that the financial institutions comply with the BSA. For example, the Federal Reserve and the Office of the Comptroller of the Currency regularly inspect banks, and may impose civil fines or refer matters for criminal prosecution for non-compliance. A number of banks have been fined and prosecuted for failure to comply with the BSA. Most famously, Riggs Bank, in Washington D.C., was prosecuted and functionally driven out of business as a result of its failure to apply proper money laundering controls, particularly as it related to foreign political figures.
In addition to the BSA, the U.S. imposes controls on the movement of currency across its borders, requiring individuals to report the transportation of cash in excess of US$10,000 on a form called Report of International Transportation of Currency or Monetary Instruments (known as a CMIR). Likewise, businesses, such as automobile dealerships, that receive cash in excess of US$10,000 must likewise file a Form 8300 with the Internal Revenue Service, identifying the source of the cash.
Money laundering has been criminalized in the United States since the Money Laundering Control Act of 1986. The law, contained at section 1956 of Title 18 of the United States Code, prohibits individuals from engaging in a financial transaction with proceeds that were generated from certain specific crimes, known as "specified unlawful activities" (SUAs). The law requires that an individual specifically intend in making the transaction to conceal the source, ownership or control of the funds. There is no minimum threshold of money, and no requirement that the transaction succeeded in actually disguising the money.A "financial transaction" has been broadly defined, and need not involve a financial institution, or even a business. Merely passing money from one person to another, with the intent to disguise the source, ownership, location or control of the money, has been deemed a financial transaction under the law. The possession of money without either a financial transaction or an intent to conceal is not a crime in the United States.Besides money laundering, the law contained in section 1957 of Title 18 of the United States Code, prohibits spending more than US$10,000 derived from an SUA, regardless of whether the individual wishes to disguise it. It carries a lesser penalty than money laundering, and unlike the money laundering statute, requires that the money pass through a financial institution. According to the records compiled by the United States Sentencing Commission, in 2009, the United States Department of Justice typically convicted a little over 81,000 people; of this, approximately 800 are convicted of money laundering as the primary or most serious charge. The Anti-Drug Abuse Act of 1988 expanded the definition of financial institution to include businesses such as car dealers and real estate closing personnel and required them to file reports on large currency transaction. It required verification of identity of those who purchase monetary instruments over $3,000. The Annunzio-Wylie Anti-Money Laundering Act of 1992 strengthened sanctions for BSA violations, required so called "Suspicious Activity Reports" and eliminated previously used "Criminal Referral Forms", required verification and recordkeeping for wire transfers and established the Bank Secrecy Act Advisory Group (BSAAG). The Money Laundering Suppression Act from 1994 required banking agencies to review and enhance training, develop anti-money laundering examination procedures, review and enhance procedures for referring cases to law enforcement agencies, streamlined the Currency transaction report exemption process, required each Money services business (MSB) to be registered by an owner or controlling person, required every MSB to maintain a list of businesses authorized to act as agents in connection with the financial services offered by the MSB, made operating an unregistered MSB a federal crime, and recommended that states adopt uniform laws applicable to MSBs. The Money Laundering and Financial Crimes Strategy Act of 1998 required banking agencies to develop anti-money laundering training for examiners, required the Department of the Treasury and other agencies to develop a "National Money Laundering Strategy", created the "High Intensity Money Laundering and Related Financial Crime Area" (HIFCA) Task Forces to concentrate law enforcement efforts at the federal, state and local levels in zones where money laundering is prevalent. HIFCA zones may be defined geographically or can be created to address money laundering in an industry sector, a financial institution, or group of financial institutions . The Intelligence Reform & Terrorism Prevention Act of 2004 amended the Bank Secrecy Act to require the Secretary of the Treasury to prescribe regulations requiring certain financial institutions to report cross-border electronic transmittals of funds, if the Secretary determines that reporting is "reasonably necessary" in "anti-money laundering /combatting financing of terrorists (Anti-Money Laundering/Combating the Financing of Terrorism AML/CFT}.
In theory, electronic money should provide as easy a method of transferring value without revealing identity as untracked banknotes, especially wire transfers involving anonymity-protecting numbered bank accounts. In practice, however, the record-keeping capabilities of Internet service providers and other network resource maintainers tend to frustrate that intuition. While some cryptocurrencies under recent development have aimed to provide for more possibility of transaction anonymity for various reasons, the degree to which they succeed—and, in consequence, the degree to which they offer benefits for money laundering efforts—is controversial.
In 2013, Jean-Loup Richet, a research fellow at ESSEC ISIS, surveyed a new techniques that cybercriminals were using in a report written for the United Nations Office on Drugs and Crime. A common approach was to use a digital currency exchanger service which converted dollars into a digital currency called Liberty Reserve and could be sent and received anonymously. The receiver could convert the Liberty Reserve currency back into cash for a small fee. In May 2013, the US authorities shut down Liberty Reserve charging its founder and various others with money laundering. Another increasingly common way of laundering money is to use online gaming. In a growing number of online games such as Second Life or World of Warcraft, it is possible to convert money into virtual goods, services or virtual cash that can later be converted back into money.
- Bank of Credit and Commerce International: Unknown amount, estimated in billions, of criminal proceeds, including drug trafficking money, laundered during the mid-1980s.
- Bank of New York: US$7 billion of Russian capital flight laundered through accounts controlled by bank executives, late 1990s.
- Ferdinand Marcos: Unknown amount, estimated at US$10 billion of government assets laundered through banks and financial institutions in the United States, Liechtenstein, Austria, Panama, Netherlands Antilles, Cayman Islands, Vanuatu, Hong Kong, Singapore, Monaco, the Bahamas, the Vatican and Switzerland.
- In December 2012, HSBC: paid a record $1.9 Billion fines for money-laundering hundreds of millions of dollars for drug traffickers, terrorists and sanctioned governments such as Iran. The money-laundering occurred throughout the 2000s.
- In May 2013, Liberty Reserve was seized by United States federal authorities for laundering $6 billion.
- Institute for the Works of Religion: Italian authorities investigated suspected money laundering transactions amounting to US$218 million made by the IOR to several Italian banks.
- Nauru: US$70 billion of Russian capital flight laundered through unregulated Nauru offshore shell banks, late 1990s
- Sani Abacha: US$2–5 billion of government assets laundered through banks in the UK, Luxembourg, Jersey (Channel Islands), and Switzerland, by the president of Nigeria.
- Standard Chartered: paid $330 million in fines for money-laundering hundreds of billions of dollars for Iran. The money-laundering took place in the 2000s and occurred for "nearly a decade to hide 60,000 transactions worth $250 billion".
- Bank Secrecy Act
- Currency transaction report
- Customer Identification Program
- Financial Crimes Enforcement Network
- Money trail
- Michael H. O'Keefe
- Office of Foreign Assets Control
- Offshore banking
- Organized crime
- Penny stock scam
- Politically exposed person
- Round-tripping (finance)
- Shell (corporation)
- Terrorist financing
- USA Patriot Act
- White Collar Crime
- Duhaime, Christine. "Duhaime's Financial Crime and Anti-Money Laundering Law".
- Jon Matonis (May 7, 2013). "Money Laundering Is Financial Thoughtcrime". AmericanBanker.com. Retrieved March6,2014.
- Financial Action Task Force. "Money Laundering FAQ". Retrieved 2 March 2011.
- Reuter, Peter (2004). Chasing Dirty Money. Peterson. ISBN 978-0-88132-370-2.
- For example, under UK law the first offences created for money laundering both related to the proceeds from the sale of illegal narcotics under the Criminal Justice Act 1988 and then later under the Drug Trafficking Act 1994.
- Lawrence M. Salinger, Encyclopedia of white-collar & corporate crime: A – I, Volume 1, page 78, ISBN 0-7619-3004-3, 2005.
- National Drug Intelligence Center (August 2011). "National Drug Threat Assessment". p. 40. Retrieved 20 September 2011.
- "National Money Laundering Threat Assessment". December 2005. p. 33. Retrieved 3 March 2011.
- Baker, Raymond (2005). Capitalism's Achilles Heel. Wiley.
- Financial Action Task Force. "Global Money Laundering and Terrorist Financing Threat Assessment". Retrieved 3 March 2011.
- "Underground Economy Issues. Ontario Construction Secretariat".
- "Tax amnesties turn HMRC into 'biggest money-laundering operation in history'". Retrieved 14 June 2013.
- Financial Action Task Force. "About the FATF". Retrieved 20 September 2011.
- Financial Action Task Force. "About the Non-Cooperative Countries and Territories (NCCT) Initiative". Retrieved 20 September 2011.
- "The Global Anti-Money Laundering Regime: A Short Overview, by Richard Horowitz, Cayman Islands Journal, 6 January 2010". Compasscayman.com. Retrieved 2013-11-10.
- Financial Action Task Force. "Money Laundering FAQ". Retrieved 20 September 2011.
- Roth, John, et al. (20 August 2004). "Monograph on Terrorist Financing". National Commission on Terrorist Attacks Upon the United States. pp. 54–56. Retrieved 20 September 2011.
- Ball, Deborah, et al., (22 March 2011). "U.S. Banks Oppose Tighter Money Rules". Wall Street Journal. Retrieved 19 September 2011.
- Money Laundering Bulletin, Issue 154, June 2008, Dr Jackie Harvey (Newcastle Business School
- "The Lost Trail". The Economist. 20 October 2005. Retrieved 19 September 2011.
- Levi, Michael and William Gilmore (2002). "Terrorist Finance, Money Laundering and the Rise of Mutual Evaluation: A New Paradigm for Crime Control?". European Journal of Law Reform 4 (2): 337–364.
- Levi, Michael (May 2010). "Combating the Financing of Terrorism: A History and Assessment of the Control of 'Threat Finance'". British Journal of Criminology 50 (4): 650–669.
- "Coming clean". The Economist. 14 October 2004.
- Bartlett, Brent (May 2002). "The Negative Effects of Money Laundering on Economic Development". Asian Development Bank. Retrieved 19 September 2011.
- Article 29 Data Protection Working Party. "Opinion 14/2011 on data protection issues related to the prevention of money laundering and terrorist financing" (PDF). European Commission. Retrieved 18 February 2014.
- Article 29 Data Protection Working Group. "Opinion 14/2011 Annex: Recommendations" (PDF). European Commission. Retrieved 18 February 2014.
- American Civil Liberties Union. "The Surveillance Industrial Complex". Retrieved 23 October 2011.
- Booth, William (26 August 2010). "Mexico targets money laundering with plan to limit cash transactions". Washington Post. Retrieved 19 September 2011.
- Financial Action Task Force. "Member Country and Observers FAQ".
- Financial Action Task Force. "Mission". Retrieved 1 March 2011.[dead link]
- International Money Laundering Information Network. Retrieved on 21 October 2011.
- World Bank Financial Market Integrity. Amlcft.org. Retrieved on 21 October 2011.
- "fintraca.gov.af". fintraca.gov.af. Retrieved 2013-11-10.
- Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. Eur-lex.europa.eu. Retrieved on 21 October 2011.
- "Prevention of Money Laundering Act, 2002". Financial Intelligence Unit (FIU-IND), Ministry of Finance, India. Retrieved 10 October 2012.
- "The Prevention of Money Laundering (Amendment) Act, 2005" (PDF). Retrieved 2013-11-10.
- "The Prevention of Money Laundering (Amendment) Act, 2009" (PDF). Retrieved 2013-11-10.
- "ED – functions". Archived from the original on 26 April 2012. Retrieved 20 May 2013.
- "OPSI: Terrorism Act". Retrieved 14 February 2009.
- "OPSI: Anti-Terrorist Crime & Security Act". Retrieved 14 February 2009.
- "OPSI: Proceeds of Crime Act". Retrieved 14 February 2009.
- "OPSI: Serious Organised Crime and Police Act 2005". Retrieved 14 February 2009.
- Sections 327 – 340, Proceeds of Crime Act 2002
- Section 330, Proceeds of Crime Act 2002
- Section 340, Proceeds of Crime Act 2002
- Section 329, Proceeds of Crime Act 2002
- Section 327, Proceeds of Crime Act 2002
- Section 334, Proceeds of Crime Act 2002
- "OPSI: Money Laundering Regulations 2003". Retrieved 14 February 2009.
- "OPSI: Money Laundering Regulations 2007". Retrieved 14 February 2009.
- Section 333A, Proceeds of Crime Act 2002
- "Joint Money Laundering Steering Group". Retrieved 14 February 2009.
- "Law Society AML Guidance". Retrieved 14 February 2009.
- Section 340(2), Proceeds of Crime Act 2002
- David Winch, "Money Laundering Law Changes" (2006)
- The Suspicious Activity Reports Regime Annual Report 2010 published by SOCA
- FinCEN. "Bank Secrecy Act". Retrieved 2 March 2011.
- FinCEN Mission. "FinCEN mission". Retrieved 2 March 2011.
- Roth, John; Douglas Greenburg and Serena Willie (2004). Monograph on Terrorist Financing. pp. 54–56. Retrieved 2 March 2011.
- Joseph, Lester; John Roth (September 2007). "Criminal Prosecution of Banks Under the Bank Secrecy Act". United States Attorneys' Bulletin. Retrieved 2 March 2011.
- "SEC resources". Retrieved 2 March 2011.
- "IRS web site regarding Form 8300". Retrieved 2 March 2011.
- "Informal Value Transfer Systems", Financial Crimes Enforcement Network, 1 September 2010
- Cassella, Stefan (September 2007). "Money Laundering Laws". United States Attorneys' Bulletin: 21–34. Retrieved 2 March 2011.
- "US Sentencing Commission Date, 2009". 2009. Retrieved 2 March 2011.
- US Dept Treasury. "What is a HICFA?". Financial Crimes Enforcement Network. Retrieved 6 March 2014.
- Richet, Jean-Loup (June 2013). "Laundering Money Online: a review of cybercriminals methods". arXiv. Retrieved 20 October 2013.
- Zetter, Kim (May 2013). "Liberty Reserve Founder Indicted on $6 Billion Money-Laundering Charges". Wired. Retrieved 20 October 2013.
- Solon, Olivia (October 2013). "Cybercriminals launder money using in-game currencies". Wired. Retrieved 22 October 2013.
- "BCCI's Criminality". Globalsecurity.org. Retrieved 3 March 2011.
- O'Brien, Timothy L. (9 November 2005). "Bank of New York Settles Money Laundering Case". New York Times. Retrieved 3 March 2011.
- Dunlap, David W. (January 13, 1991). "Commercial Property: The Bernstein Brothers; A Tangled Tale of Americas Towers and the Crown". The New York Times. Retrieved 12 June 2010.
- "HSBC to Pay Record Fine to Settle Money-Laundering Charges". New York Times. 11 December 2012. Retrieved 24 January 2013.
- Josephine McKenna (7 December 2009). "Vatican Bank reported to be facing money-laundering investigation". The Times. Retrieved 12 June 2010.
- Hitt, Jack (10 December 2000). "The Billion Dollar Shack". The New York Times. Retrieved 3 March 2011.
- "Sani Abacha". Asset Recovery Knowledge Center. Retrieved 3 March 2011.
- "Standard Chartered to Pay $330 Million to Settle Iran Money Transfer Claims". New York Times. 6 December 2012. Retrieved 24 January 2013.
- Money laundering on the Open Directory Project
- Duhaime's Financial Crime and Anti-Money Laundering Law
- UNODC – United Nations Office on Drugs and Crime – on money-laundering and countering the financing of terrorism
- Financial Market Integrity Unit, The World Bank
- US Department of State International Narcotics Control Strategy Report (INCSR), annual report issued in March every year. Essential reading for all compliance officers for evaluating country money laundering risk