Money laundering is the process of making illegally-obtained funds (i.e. “dirty money”) appear legal (i.e. “clean”). It is a crime in many countries. The methods used to launder money are constantly evolving, but some common techniques include:
- Placement: This is the initial stage of money laundering, where the criminal introduces the “dirty money” into the financial system. This can be done by depositing it into bank accounts, buying assets, or investing it in businesses.
- Layering: This is the second stage of money laundering, where the criminal breaks up the “dirty money” and moves it around through a series of complex transactions. This makes it more difficult to trace the source of the money.
- Integration: This is the final stage of money laundering, where the criminal brings the “clean” money back into the legitimate economy. This can be done by withdrawing it from bank accounts, buying assets, or investing it in businesses.
Banks are often used to launder money because they are trusted institutions that have access to large sums of money. Criminals may open bank accounts under false names or use shell companies to launder money. They may also use banks to make large cash deposits or wire transfers.
Banks have a responsibility to prevent money laundering. They are required to implement anti-money laundering (AML) programs, which are designed to detect and report suspicious activity. These programs typically include:
- Customer identification and verification (KYC): Banks are required to identify and verify the identity of their customers. This helps to prevent criminals from opening bank accounts under false names.
- Transaction monitoring: Banks are required to monitor all transactions for suspicious activity. This helps to identify and report potential money laundering activities.
- Suspicious activity reporting (SAR): Banks are required to report any suspicious activity to the authorities. This helps to law enforcement investigate and prosecute money laundering crimes.
Banks that fail to comply with AML regulations can be fined or even shut down. It is important for banks to take AML seriously because it is a crime that can have a devastating impact on society.