Wednesday, 2 December 2015

Banking Awareness : MONEY LAUNDERING

Money laundering can be described as the process of transforming illegitimate money into legitimate money. Money laundering is called so because it perfectly describes the washing business-illegal or dirty money is put through a cycle of transactions, or washed, so that it comes out at the order end as legal or clean money. In other words, the course of illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds can eventually be made to reappear as legitimate income.

Common factors of laundering operations
There are four factors common to all money laundering operations.
  • The true ownership and the real source of the money is concealed. The purpose of   laundering money gets defeated if everyone knows who owns it when it comes out the order end.
  • The form it takes is changed. The launderers change the form of the proceeds in order to shrink the huge volume of cash generated by the initial unlawful activity.
  • The trail left by the process is obscured so as to make it difficult to follow the money from beginning to end.
  • Constant control must be maintained over the money.
Stages of the process
The money laundering process can be divided into three stages:
  • Placement Stage
  • Layering or agitation stage, and
  • Integration stage.
Placement Stage
The Placement Stage is the first introduction of dirty money into the legitimate world. It is done at the simplest level by placing the illicit funds to purchase goods and services for the criminal. More sophisticated placement involves using the banking and financial system but this will involves the disguise of true depositor. ‘Smurfing’ is one way of minimising broken the risk of getting caught and this occurs when the sum to be laundered is broken up into smaller amounts – often among a variety of individuals or corporate entities –and introduced into the legitimate system in this way.
Layering or agitation stage
The object of this stage is to prevent the tracing of illegal proceeds by disrupting any paper trail that may have been started at the placement stage. Layering is judged to have been successful when tracing is rendered so complex as to frustrate any real analysis of the true source of funds. The more complex and numerous the transactions in the agitation stage, the more likely it is that the chain of detection will be broken.
Integration stage
This occurs when placement and laying have been successfully achieved. It is the means by which the criminal enjoys the proceeds of his crimes. To do this, the integration process achieves the appearance of total legitimacy for the funds, thereby ensuring safety from enquiry as to their true source. At the end of this stage, the money will appear to have been acquired utterly lawfully.
Various ways of laundering
  • Frequent exchange of cash into other currencies.
  • Customers transferring large sums of money to or from overseas location with instructions for payment in cash.
  • Large an withdrawals from previously dormant or inactive account , or from an account which has just received an unexpected large credit from abroad
  • Use of letters of credit and other methods of trade finance to move money between countries where such trade is not consistent with the usual business of the customer.
  • Building up of large balances not consistent with the known turnover of the business of the customer, and subsequent transfer to accounts held overseas.
  • Frequent requests for travelers’ cheques foreign currency drafts or other negotiable instruments to be issued.
  • Frequent playing in of travelers’ cheques or foreign currency drafts particularly if originating from overseas.
  • Any apparently unnecessary use of an intermediary in the transaction.
  • Customers who deposit cash by means of numerous credit slips so that the total of each deposit unremarkable but the total of all the credits is significant.
  • Customers who seeks to exchange large quantities of low-denomination notes for those of higher denomination.
  • Playing in large third party cheques endorsed in favour of the customer.
  • Greater use of safe deposit facilities and the use of sealed packets deposited and withdrawn.
  • Insufficient use of normal banking facilities, for example avoidance of high interest rate facilities for large balances.
  • Customers who appear to have accounts with several banks within the same locality.
  • Large number of individuals making payments into the same account without an adequate explanation.

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