Money laundering is a far-reaching and immensely crippling problem for financial organisations. Started from something as simple as transferring money, it can be a difficult problem to detect while being even harder to combat.
The heart of the problem is in the methodology.
Laundering takes place in three steps: the first involves transferring the money from the main account to the recipient accounts. Then the money is “layered” to provide a smoke screen to make it seem like it was legitimately acquired. Finally, the last stage involves transferring the ill-gotten gains into a form of wealth or profit.
Due to the layering and integration processes it can be very difficult to track the money after it reaches this point, resulting in losses (or worse).
Previously, the term was applied only to financial transactions related to organized crime.
Today its definition is often expanded by government and international regulators such as the U.S. Office of the Comptroller of the Currency to mean any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting.
There are, however, measures which have been introduced to try and choke the ability for organisations/individuals to launder money.
These come in the form of anti-money laundering laws which are upheld by financial regulatory bodies, financial organisations and government policies. Examples of these laws involve diligence when verifying a customer’s identity, or requiring a check to be undertaken when large sums of money are required to be transferred.
In the US, any sum larger than $10,000 requires a CTR (currency transaction report) which notes and details the transaction for future purposes.
That said, many countries and regulatory bodies handle these in different ways.
Some go as far as to provide details of suspicious transfers even if they have not yet been proved (as is the case in the US), while some require proof (as is the case in Switzerland), to be handed to the regulatory body.
This is a form of money laundering prevention as it is possible to catch some transactions before they are able to transfer a large bulk of the money.
It does, thereby, create an amount of work and requires an amount of cost to monitor these transactions. Some would argue that the cost more than covers the benefit of the solution.
That's all for now!
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