Why is Money Laundering Illegal?

Table of Contents:

  1. Is Money Laundering Illegal?
  2. What is Money Laundering and Why is it Illegal?
  3. What is Illegal Money? Methods and Stages of Money Laundering
  4. Is There Any Such Thing as Legal Money Laundering in India?

Is Money Laundering Illegal?

Why is money laundering illegal? Illegal activity typically involves the use of money, and money is almost always the prime reason behind it. Money laundering is the process used by criminal groups or individuals to disguise the origins of their illegal profits. They also make sure that their financial assets are protected. In order to be free from any suspicion by any law enforcement agencies, the criminals make sure to prevent leaving behind any trail of evidence that could be r.

What is illegal money? Terrorist groups make use of the laundered money to fund their illegal activities and carry out other missions. The illicit, laundered funds are used by criminals as per their requirements. Criminals make use of various money laundering techniques to conceal their illicit funds as they aren’t only disguising the origin of the funds but also the destination and use behind it’s collection.

The prevention and detection of money-laundering are effective means of identifying criminals and terrorist groups and finding out the illegal activities from which they receive their funding. The application of intelligence and investigative techniques, which is carried out by different international organizations, is one way of disrupting terrorist groups and eradicating financial crime.

What is Money Laundering and Why is it Illegal?

Why is money laundering illegal? Money laundering is the method used to clean ‘dirty money’, which is the profit that criminals generate through various criminal activities – drug narcotics, human trafficking, smuggling, etc. In order to hide the source of their income, criminals, mafias, drug peddlers, and terrorist groups make use of various money laundering methods which make it less likely for them to be suspected by the authorities of government agencies.

Is money laundering illegal? In response to increasing concerns over money laundering, the G-7 Summit (in Paris, 1989) established the Financial Action Task Force (FATF) as a coordinated international solution. FATF’s foundation helped them to establish the 40 FATF Recommendations. This was put in place to instruct the authorities and government officials on AML measures that should be implemented to achieve effective compliance programs.

Since then, a number of laws have been issued to prevent and punish those responsible for money laundering activities. The first such law, the Bank Secrecy Act (BSA), originated in the 1970s and refers to regulations followed by insured financial institutions to maintain certain records and report them to the U.S. Department of Treasury. The BSA requires that financial institutions report large cash transactions into, out of, and within the U.S. in excess of $10,000. The firms are supposed to report any suspicious activities that are based on the client’s account or their transactions, including any signs of criminal activity.

In U.S. history, there has been more than one act or regulatory reform that has helped to strengthen the establishment of AML/CFT measures. Many of these acts have now become a part of the legislation, such as the Money Laundering Control Act (1986) or the Money Laundering Suppression Act (1994). However, the USA PATRIOT Act was passed by Congress following the devastating terrorist attacks of 9/11. The USA PATRIOT Act intended to strengthen the existing BSA framework by enhancing the customer identification processes. So, the AML measures needed to be implemented by all of the financial institutes. Further, they needed to follow the new regulatory requirements. These requirements included that the firms should hire a compliance officer or an MLRO, who would include an internal training program as part of the institution’s policies and procedures and conduct independent audits. Under the U.S. PATRIOT Act, financial institutes are also supposed to verify each customer against the SDN list and suspected terrorist groups.

Is money laundering illegal? A study was conducted by the United Nations Office on Drugs and Crime (UNODC) to determine the magnitude of illicit funds generated by organized crimes, and further investigate the extent to which these illicit funds are laundered. The results found that criminal proceeds in 2009 amounted to 3.6% of global GDP, with 2.7% (or USD 1.6 trillion) being laundered money.

What is Illegal Money? Methods and Stages of Money Laundering

What is money laundering and why is it illegal? Money laundering is the illegal process of making large sums of money through criminal activities. It involves three stages: placement, layering, and integration.

Placement – It can be called as the first stage of money laundering, where money is moved from one destination to another in order to conceal its original source. Criminals can disguise the original funds by circulating the illicit money through different money trails and place them in financial institutions, offshore accounts, currency exchange services, or other legal establishments. This process of placement can be carried out through various methods which include:

  1. Currency Smuggling – Cash smuggling occurs when cash is hidden or concealed, in or out of the United States. It is concealed to avoid filing a report for transporting currency or monetary instruments outside the country
  2. Bank Complicity – This is when a financial institution is owned or controlled by corrupt individuals suspected of working with criminals and other terrorist groups. It makes the process of passing funds through banks easy for money launderers. The financial sector requires adequate checks to prevent any leeway for laundering
  3. Currency Exchanges – The liberalization of foreign exchange markets provides room for currency movements in a number of transitional economies, and money laundering schemes can benefit from such policies
  4. Securities Brokers – Brokers have power and are able to facilitate the process of money laundering by structuring large deposits in a way that the original source of the funds remains unknown
  5. Blending of Funds – Financial institutions are vehicles for laundering, because one way to hide cash is to blend it with a lot of other cash. An alternative way to use the money and disguise it from illicit activities would be to set up front companies, enabling the funds to be obscured in legal financial transactions
  6. Asset Purchase – Asset purchases made in cash are a classic method of money laundering. The purpose is to change the form of the funds from conspicuous cash to an equally valuable but less suspicious form

Layering is meant to make the detection of money more difficult and cover the laundering activity. This process is to make the tracking of illegal proceeds carried out by law enforcement agencies more difficult. Layering includes the following methods:

  1. Cash Converted into Monetary Instruments – With the use of banker’s drafts and money orders, and after the placement is successful within the financial system by way of a bank or more. After the money has been placed successfully, the proceeds can be converted into monetary instruments.
  2. Tangible Assets Bought with Cash then Sold – The financial assets that are bought with the illicit money can be sold in the same country or outside. In this case, it’ll be more difficult to find the original source or detect the money trail.

Integration is the process that involves money that has been laundered by the above two processes in order to move into the economy, mainly through the banking system. Thus, this financial transaction appears to be part of legal business earnings. However, this is not the same as layering; in integration, detection and identification of money laundered are provided through informants. Further, the methods include:

  1. Sale of Properties – Through the sale of properties, criminals can integrate the laundered funds back into the legal financial system. They make use of shell companies to buy the properties, so that the proceeds from the sales are considered legitimate
  2. Front Companies and False Loans – Criminals lend themselves their own laundered proceeds in an apparently legitimate transaction, with front companies that are incorporated with corporate secrecy laws
  3. Foreign Bank Complicity – Known foreign banks are a difficult target for law enforcement, because they represent a higher order of sophistication. Assistance by foreign banks is often protected and is against law enforcement scrutiny, which is not just through criminals. It is also because of the banking regulations in other sovereign countries
  4. False Invoices of Import and Export – False invoices are used by import and export companies. This is an effective way of transferring illicit funds back into the economy. Overvaluation of entry documents is made to justify the funds, which are later deposited in domestic banks and funds received from exports

Is There Any Such Thing as Legal Money Laundering in India?

No. There is no such thing as legal money laundering. The initial money laundering law in India – namely, the Prevention of Money Laundering Act (PMLA) – was passed in 2002 but has been amended three times since: in 2005, 2009, and 2012, respectively. The last amendment was approved by the President on January 3, 2013, and came into effect from February 15, 2013.

The three main objectives of PMLA in order to combat money laundering in the country were:
1. Firstly, to prevent and control money laundering
2. Secondly, to confiscate and seize tangible property obtained from laundered money
3. Thirdly, to deal with any other issue connected with money laundering in India.

The PMLA Amendment Act of 2012 has put concealment of funds, acquisition of a possession, use of proceeds of crime, and possession of money on the criminal list. The provisions of the Act apply to all financial institutions – banks, mutual funds, insurance companies, and their financial intermediaries.

Read More: About the Financial Action Task Force (FATF) organization.
Read More: What is the role of Money Laundering Reporting Officers (MLROs)?
Read More: What are some common money laundering techniques?

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Why is money laundering illegal? Read more about money laundering and why it is illegal. Find out the methods and stages of illegal money laundering.

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Despite its general strength, the US federal banking system is apparently susceptible to the ongoing economic weakness caused by the rampant spread of coronavirus. Earlier this month, The US Office of...

How Criminals Used COVID-19 Sales Pitch to Defraud, Launder Money

As the world is working hard to contain the spread of the COVID-19, criminals continue to take advantage of the pandemic. They are devising sophisticated methods to defraud people and launder the crim...

5 Top Myths and Facts about AI Implementation in AML Programs

We are more confirmed about the power of Artificial Intelligence (AI) to transform lives and businesses now. There are countless possible applications of AI and machine learning at present, and we see...

Typology Repository Management: Solving AML Problems Via Collective Intelligence and Continuous Learning

Despite its general strength, the US federal banking system is apparently susceptible to the ongoing economic weakness caused by the rampant spread of coronavirus. Earlier this month, The US Office of...

Money Laundering Amid COVID-19: What Regulators Across Globe Say

As the world continues to fight against the COVID-19 pandemic, there are reports that criminals are taking advantage of the difficult situation. They are seizing the moment to proliferate their crimin...

How will Art Cease to Be a Preferred Money Laundering Vehicle?

Money laundering via high-end art and antiquities is not new yet it is difficult to detect. Art-related money laundering amounts to about US$3 billion per year, according to this blog, quoting the Uni...

Beware! Money Mules in Demand amid COVID-19. Here’s an Effective Cure

If reports are to be believed, cybercrooks are taking advantage of the COVID-19 situation. They are targeting people who were laid off or working from home due to the pandemic to work for them as mone...

How do we weather a tornado of change?

“Great works are performed not by strength but by perseverance” – Samuel Johnson All of us are in challenging times. However, we cannot afford to be lethargic to life, work, and busi...

Roundtable Rewind: Embracing Next-gen Tech & Collaboration Key to Sustainability

As a regtech player with a vision to enable sustainable compliance programs in financial institutions, Tookitaki organized a first-of-its-kind industry roundtable in Charlotte, NC, USA to discuss oppo...

Tookitaki Appoints Industry Veteran Joe Friscia as Advisor

Tookitaki Holding Pte. Ltd. appointed industry veteran Joe Friscia, former President of NICE Actimize and BAE Systems as Advisor to the Company’s Advisory Board. Joe brings over 25 years’ extensi...

Should Modern Machines Be Ethical?

There are mounting concerns across the globe about the reliability and safety of artificial intelligence (AI) based systems and its enabling technologies such as machine learning (ML). On the air are ...

Tookitaki Raises Another US$11.7 million in Series A; Closes Round at US$19.2 million

– by Abhishek Chatterjee, Founder & CEO The Tookitaki team and I are excited to announce that we have raised an additional US$11.7 million in Series A funding, taking the total investment in...

30 Years of FATF: Notable Facts About Global AML Watchdog

The Financial Action Task Force (FATF), the intergovernmental body formed in 1989 to combating money laundering, is celebrating its 30th anniversary this year. Since its inception, the global agency p...

Tookitaki Joins Aite Financial Crime Forum as Sponsor

Technological advances have fundamentally changed the operational landscape of financial institutions. However, there are also new risks emerging in forms of sophisticated financial frauds and complex...

Will Machine Learning Replace Compliance Professionals?

The impact of modern technologies such as artificial intelligence (AI) and machine learning on job security has been a widely discussed topic today. Of course, AI has advanced very quickly in the last...

6 Most Prevalent Cyber-Laundering Methods in APAC

Despite being a medium to exchange information in real-time and with scale, the Internet is being misused in several ways. Among the slew of financial crimes facilitated by the Internet, money launder...

What Made Us Earn the WEF Technology Pioneer Title

Tookitaki has bagged another global acknowledgement for its outstanding works in the regulatory compliance field. Our company was selected among hundreds of candidates as one of the World Economic Fo...

We Stay as a Team, We Win as a Team and We Flourish as a Team

“Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to a...

ABA Regulatory Compliance Conference: 10 Sessions You Can’t Miss

The 2019 edition of the American Bankers Association (ABA) Regulatory Compliance Conference is a few more days away. Organized by the Washington, D.C.-based trade association, the conference is touted...

Tookitaki AMLS Wins SBR Technology Excellence Award 2019

Tookitaki’s Anti-Money Laundering Suite (AMLS), an end-to-end machine learning-powered transaction monitoring and names screening solution, has bagged the inaugural Singapore Business Review Tec...

Watchdogs Grow Optimistic about AI Prospects at Banks

Proper regulation of banking operations is important as any failure in the banking system would affect the wider economy. Therefore, banking is one of the most regulated industries across the globe. F...

Pitfall of Black Box AI at Banks: Explaining Your Models to Regulators

The use cases of artificial intelligence (AI) and machine learning in front-office, middle-office and back-office activities at banks are growing slowly but steadily. The major areas of AI play includ...

AI for Regulatory Compliance at Banks: 4 Assessments Before You Okay the Solution Proposal

Banking is one of the industries where artificial intelligence and machine learning find their applications at a rapid pace. Regulatory compliance within banking is an area which has become a costly a...

We Believe in Innovation, the Key to Survival and Growth

“Innovation distinguishes between a leader and a follower.” -Steve Jobs What comes on the top of your screen when you google the meaning of the word innovation is – the introduction of somet...

Compliance Functions in Need of a Technological Overhaul. Can Machine Learning be the Game-Changer?

McKinsey in its latest compliance benchmarking survey found that compliance function at financial institutions has reached “an inflection point” and current compliance standards are in an “incho...

Tookitaki Raises US$7.5 mn Series A from Global VCs to Transform Regulatory Compliance

Tookitaki, a regulatory technology company that aims to enable financial institutions to develop sustainable compliance programs, has raised US$7.5 million in Series A round. The round was co-led by L...

From Wachovia to Danske Bank: Biggest Money Laundering Cases in Recent Times

Money laundering – the criminal activity of processing criminal proceeds to disguise their origin – is one of the gravest problems faced by the global economy, and its size is growing rapidly. It ...

A Modern Approach to Address the Reconciliation Challenges of Financial Services

Reconciliation of transactions is deemed critical for the smooth running of every financial institution. The speed and accuracy of data reconciliation can distinguish a successful institution from its...

Busting a Myth: Compliance Officer’s Job is All About Risk

Regulatory compliance has become a dreadful task for banks after regulators across the globe set stricter norms in the aftermath of the 2008 financial crisis in an effort to prevent financial crimes s...

SocGen Goes Next-Gen with Tookitaki Reconciliation Suite

Société Générale leveraged Tookitaki’s Reconciliation Suite to automate the bank’s existing break reconciliation system. Key Challenges Addressed The bank’s finance department was unable to ...

Attending ACAMS Conference in Singapore? Tookitaki Awaits You with Its Disruptive AML Solution

“In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it.”- Jeff Bezos Singapore is hosting ACAMS’...

MAS’ Stress on Transaction Monitoring for Effective AML/CFT Compliance and Machine Learning is the Answer

Singapore is known for its top-notch AML/CFT regime created through up-to-date legislation, stringent policy and uncompromising supervision to safeguard against the abuse of the city state’s financi...

Mifid II and the Pressing Need for a New Reconciliation Approach

The financial services industry in the EU has been confused with the introduction of a revamped version of the Markets in Financial Instruments Directive (Mifid II). The ambitious regulatory reforms t...

Is Automated Reconciliation Next to Impossible in Today’s Complex Financial World?

The 2008 global financial crisis and fairly new regulatory requirements like Basel III asked financial institutions (FIs) to cut operating costs and adopt a lean operations structure, pushing FIs to r...

Modern Tech to Reshape US AML Compliance with Regulators’ Recent Handshake

George Bernard Shaw once said: “Those who cannot change their minds cannot change anything.” The past week has seen a significant change of mind from financial regulators in the US in their ardent...

Skills Development: We Have Talents and We Strive to Multiply Them

“Mastery lies on an infinite continuum, and as a result, we will never reach the end. We can, however, see to it that we are as far along that continuum as our circumstance allows.” ― Chris Mat...

It’s Our Fourth Founding Day; Taking a Pause to Cherish Our Simple but Awesome Journey

Today, as we step into our 4th year of foundation, I feel proud and honored to be leading Tookitaki that has been successful in creating added value to all its stakeholders. I was never a CEO and Took...

Tookitaki Expands into the US with New Office in Charlotte

SINGAPORE, Sept. 24, 2018: Tookitaki Holding Pte Ltd, a leading regulatory technology company, is pleased to announce the official opening of its North American office in Charlotte, NC, in the Unite...

We Tame Machines but We Unleash Human Spirits

We are well aware of the fact that our progress as an organization is in the hands of our employees. The more energy, time and attention we invest in them, the more yield we receive. So, we always mak...

5 Methods That Modern Money Launderers Use To Beat Detection

Society prepares the crime, the criminal commits it. DID YOU KNOW? Every year, an estimated amount in the range of US$800 billion-US$2 trillion (2-5% of global GDP) is being laundered globally Regulat...

Risk Management Conference: Positive Vibes from All Corners

The Risk Management Association’s (RMA) premier annual event, the Risk Management Conference, came to an end on 6 November, and Tookitaki had the privilege to attend the event which we believe was ...

Singapore Fintech Festival: Tookitaki to showcase advanced machine learning solutions in financial services

Singapore is assured of the Fintech world’s unwavering attention next week, as the city state, is hosting this year’s Fintech Festival during 12-16 November. Touted as the world’s largest platfo...

The RMA Clarion Call to Address Risks and the Tookitaki Way

Risk officers, doing your best today is good while preparing hard for tomorrow is extraordinary. Risk management at banks has become difficult due to operational and regulatory changes. The Risk Manag...