money laundering, AML, learn
Written by Stockpile Support
What is money, laundering?
Money laundering is a process that aims to make illegal money look like it came from legitimate sources.
Using illegal money is problematic for criminals because authorities can trace it back to the crimes where it originated.
Money laundering involves three steps: placement, layering, and integration.
Money laundering is the illegal way of turning money obtained from criminal activities such as drug trafficking, terrorism, illegal gambling, prostitution, or extortion, making it appear as if it’s from legal business operations. The process is called “laundering” since it involves trying to make “dirty” money look like it comes from a “clean” source.
Why do criminals need to launder their money?
Using money from illegal sources can be problematic because criminal organizations can’t explain where they got it. If they spend dirty money, it’s much easier for police and government officials to trace the funds back to their crimes. Having large amounts of illegal cash lying around is dangerous for criminals, so they create different ways to hide their money. If you are reporting to the government that you make $60,000 a year, and all of a sudden you buy a Maserati with all cash, it will make the government and authorities suspicious of the source of the funds. This is just one example of why criminals go through the process of money-laundering.
There are countless ways to launder dirty money because of the many years criminals spent trying to perfect their crimes. However creative the criminals get with their tactics, laundering money can be broken down into three general steps: placement, layering, and integration.
The first step is called “placement” or looking for a way to enter the money in the market. The second step is “ layering.” In this step, the criminal will send the money to bank accounts owned by shell companies, creating layers and layers of transactions to conceal the money source. Shell companies are inactive companies that criminals only maintain for possible use in the future, such as laundering money. Lastly, “integration” is returning the money to the criminal through legitimate means. The entire illegal process involves two entities, the criminal organization and the shell company, to move the dirty money back into the financial system.
How do governments fight money laundering?
Despite how intelligent money launderers think they are, they eventually get caught. Regulations have been put in place by the government to combat this kind of illegal activity. In 1989, France, Germany, Italy, Japan, the United States, the United Kingdom, and Canada formed the international committee Financial Action Task Force (FATF) to fight money laundering across borders.
Many related laws were passed, such as the Banking Security Act of 1970. This law requires banks to report some of their transactions like cash purchases of negotiable instruments or if their daily earning exceeds $10,000 to the Department of Treasury, and The USA Patriot Act, which was passed a few months after the September 11 attack. Financial institutions, like Stockpile, have rules in place that raise alerts of suspicious activity that could be viewed as money laundering. Remember to come by your assets honorably, and you will never need to worry about money laundering laws.
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