The Role and Outcomes of Money Laundering for The World Bank

Money laundering means practice used by criminals to convert dirty money into clean looking. Accounting, legal or tax loopholes are generally used. Banks are used in these transactions. Which is a cause of grave concern. Banks have also started taking efforts to stop money laundering. In this report, a short study is conducted to identify what is money laundering. Study has been undertaken to discover incidents and present them with all facts in this report. Regulations relating to money laundering is part of this discussion. Further, these regulations have been critically evaluated for their effectiveness.

Meaning and Recent Developments in the World of Money Laundering

The meaning of money laundering is the process turns money generated from an illegallegal source whereby true source cannot be determined. The main aim is hiding the proceeds from taxation and detection. End use is either investing or spending. It is estimated that amounts worth 2-5% of GDP is laundered every year.

Various small transactions are often used to insert money through the banking channel. These amounts are below the limit for reporting of cash transactions by banks to the government.

One of the most recent developments it is Crypto. It is not issued by any regulatory boardbank of any sovereign nation. Legally not mandatory as acceptable payment mode. Currency issuing authority is with Bank of and Bank of America for their respective nations and can be traded in forex market. It is popular because of myth of ability to give return and is used for money laundering and regulators are struggling to stop this.

World-Known Incidences Due to Money Laundering 

Xyz

In 2015, a company named Xyz Ltd was facing issues with its investment in land in the town of Panchgani. It had bought 2,00,000 square foot of land. The land was encroached. The time required by legal way was uneconomical. Further, there was no guarantee of winning lawsuit. They employed an illegitimate way of using force with the help of local criminal (Mr A). Consideration was paid for this work was masked as advance for goods from Mr A. Amount of Rs 5,00,000 was paid by cheque . Xyz gained access to its own land. No goods were sent. Xyz after showing that all possible efforts were made to recover goods and later advance. Made an accounting entry to bad debts of Rs 5,00,000. This advise to Xyz was given by its auditor Mr B based in Pune. Names of criminal, auditor and company have been changed. Above information was found by specking individually to the Ex-employees of Mr B.

Enron

Enron an energy company in US. Money was laundered by management of Enron. Window dressing was applied to hide the ongoing money laundering. All possible loopholes from Generally Accepted Accounting Practices (GAAP) were used. They created a private company. All the directors were the shareholders of that private company. The machinery of Enron was sold to this private company at very cheap price. The same machinery was leased back to Enron at a big multiple of fair rent. Many new laws were made after the incident came into limelight. Related party transactions, Disclosure of interest, improvement in accounting standard for revenue recognition are few new regulations that came into effect for avoiding similar incidents.

The importantce of observation lies in regulation laws. Regulations are reactive in nature. Financial institutions, capital markets, and banking infrastructure are mainly regulated.  Banks do regulate anti-money laundering compliance programs like Know Your Customer, Customer due diligence, Customer and transaction screening and Suspicious activity reporting. FATF is a global mechanism to tackle money laundering. It was established in 1989 by the then G7 countries. Terrorism financing has been recently added to the issues that it is addressing.  What refers to money laundering has been described in Proceeds of Crimes Act 2002 (POCA). The most recent amendment in regulations was done by in 2020 for aligning itself with the FATF regulations.

Regulated professions include tax advisors, letting agents, cryptocurrency providers, custodian wallet provider etc. Before Bre-exit, was following European regulations for money laundering. Now, they are making their own regulations to eliminate money laundering. London which is also known as the financial capital of Europe is important in relation to money laundering as effective reduction can reduce crimes like but not limited to drugs and human trafficking and terrorism.

Conclusion

Money laundering has been found to be a significant percentage of the global GDP. Bank infrastructures are used to commit this crime. Incidences are found which have been successfully hidden from regulators. Also, reactions of regulators to money laundering have also been noted. In both the incidences banking systems were used to do money laundering.

References

1. Walker, Clive. 'Money Laundering Law: Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and Taxation of the Proceeds of Crime.' Publisher: Oxford University Press, 2011.

2. Levi, Michael, and Peter Reuter. 'Money Laundering.' Publication: Crime and Justice, vol. 42, 2013, pp. 289-375. URL: https://www.jstor.org/stable/10.1086/670236

3. Masciandaro, Donato. 'Money Laundering: The Economics of Regulation.' Publisher: Springer, 2011.

4. Bussmann, Katherine. 'The Role of Offshore Financial Centers in the Global Financial System and Money Laundering.' Publication: George Mason University, 2003.

5. Felson, Marcus. 'Money Laundering and Cybercrime.' Publication: Handbook of Digital Currency, 2015, pp. 611-621. URL: https://doi.org/10.1016/B978-0-12-802117-0.00030-4

6. Interpol. 'Money Laundering: A Global Overview.' Publication: Interpol, 2012. URL: https://www.interpol.int/en/How-we-work/Crime-areas/Corruption/Asset-Recovery/Money-laundering-a-global-overview

7. Unger, Brigitte. 'The Scale and Impacts of Money Laundering.' Publication: Chatham House, 2007. URL: https://www.chathamhouse.org/sites/default/files/legacy/files/15435_0207pp_moneylaundering.pdf

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8. Financial Action Task Force (FATF). 'The Role of the Financial Intelligence Unit in Combating Money Laundering.' Publication: FATF, 2005. URL: http://www.fatf-gafi.org/media/fatf/documents/reports/RoleofFIUinAML.pdf