Strengthening Laws and Financial Institutions to Combat Emerging Trends in Money Laundering
| DOI | https://doi.org/10.1108/eb027196 |
| Pages | 303-311 |
| Published date | 01 February 1999 |
| Date | 01 February 1999 |
| Author | Michael F. Zeldin,Carlo V. di Florio |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 2 No. 4
Strengthening Laws and Financial Institutions to
Combat Emerging Trends in Money Laundering
Michael F. Zeldin and Carlo V. di Florio
Money is the lifeblood of all domestic and interna-
tional organised crime groups regardless of whether
the criminal activity giving rise to the proceeds is
drug trafficking, arms smuggling, terrorism or
white-collar crime. The flow of criminally tainted
money through the international banking and trad-
ing system is what sustains these criminal activities.
Systemically, however, money laundering harms
every legitimate business transaction that it touches.
On a macroeconomic level, policy makers have
emphasised that it impedes international trade and
finance to such an extent as to present a serious
threat to the world economy. On a microeconomic
level, it can damage an institution's good reputation,
the public's confidence, revenues and employee
morale. This is why the world has attached heigh-
tened significance to the money-laundering problem.
While countries can honestly debate the nuances of
the 'best' anti money-laundering regime, there is a
growing consensus on the broad parameters if an
effective regimen. Specifically, it is understood that
strong laws must be enacted to combat money-
laundering crimes and the predicate criminal activity
underlying these offences must reach all proceed-
generating activities, from narcotics to bribery to
terrorism. Anti money-laundering protocols must
include national financial intelligence units, such as
AUSTRAC, to collect and analyse financial intelli-
gence centrally and assist in the coordination of law
enforcement efforts. Some policy advisers at the
IMF argue that countries that refuse to abide by mini-
mum international standards should face punitive
taxes on capital channelled through their financial
centres and have international legal recognition
denied to financial transactions taking place on their
soil.
Positive global trends are shaping government and
private sector efforts against money laundering.
International resolve is growing, through multilateral
institutions such as the Financial Action Task Force
(FATF) to uniformly combat money laundering
and other economic crimes. Reporting requirements
for large transactions are becoming law in more
countries. Suspicious Activity Reporting (SAR) is
increasingly becoming mandatory, and compulsory
Know Your Customer (KYC) policies loom large
on the horizon. Furthermore, money-laundering
regulation is being expanded to cover all manner of
financial services businesses, beyond traditional
depository institutions, to include brokerage firms,
insurance companies, casinos, car dealerships and a
whole range of money service businesses.
In addition to global initiatives, national efforts are
continuously evolving to face new challenges and
capitalise on lessons learned. The US experience
will be examined for the purposes of this discussion,
although many of the issues are of universal applic-
ability. In particular, this article will examine (1)
emerging threats and recent trends in money launder-
ing; (2) the existing anti money-laundering legal
regime and recently proposed bills to further
combat laundering; and (3) how financial sector
institutions can implement effective compliance pro-
grammes and KYC regimes to ensure legal compli-
ance and institutional integrity.
EMERGING TRENDS IN MONEY
LAUNDERING
Money laundering is the process by which criminals
conceal the existence, nature or source of criminal
proceeds and then disguise them to make them
appear legitimate. Money laundering involves three
distinct stages: placement (the initial placement of
bulk cash into the financial system), layering (exploit-
ing the frequency, volume or complexity of financial
transactions for the purpose of disguising the audit
trail),
and integration (where illicit money is mingled
with licit finance thereby making criminally derived
wealth appear legitimate).
Government and law enforcement authorities
focus constant pressure on laundering activities and
seek to detect, disrupt, and prevent the completion
of the laundering cycle. As a result, the money-
laundering industry is both innovative and highly
dynamic. What began as a process of trucking bags
of cash to the bank after hours has evolved into a
vast spectrum of highly complex structuring schemes
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