LeoGlossary: Money Laundering
Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean"). Money laundering is typically carried out in three stages: placement, layering, and integration.
- Placement: The first stage of money laundering is placement, which involves the physical placement of the illegal proceeds into the financial system. This can be done through a variety of methods, such as depositing cash into bank accounts, making purchases with cash, or investing in assets.
- Layering: The second stage of money laundering is layering, which involves the use of complex financial transactions to obscure the source, location, and ownership of the illegal proceeds. This can be done through a variety of methods, such as transferring money between different accounts, investing in assets, or using shell companies. Integration: The third and final stage of money laundering is integration, which involves the introduction of the laundered proceeds back into the legitimate economy. This can be done through a variety of methods, such as investing in businesses, purchasing assets, or using the money to fund personal expenses.
Money laundering is a serious crime that can have a number of negative consequences, including:
- It can undermine the integrity of the financial system.
- It can facilitate other crimes, such as drug trafficking and corruption.
- It can make it difficult to detect and prosecute criminals.
- It can have a negative impact on the economy.
There are a number of measures that can be taken to prevent money laundering, including:
- Implementing strong anti-money laundering (AML) laws and regulations.
- Educating financial institutions and other businesses about money laundering.
- Increasing cooperation between law enforcement agencies and financial institutions.
- Money laundering is a complex and ever-evolving crime, but it is important to be aware of the risks and to take steps to mitigate them.
History
The history of anti-money laundering (AML) laws can be traced back to the early 1900s. In 1914, the United States passed the Currency Exchange Act, which required money changers to keep records of their transactions. This law was intended to prevent criminals from using money changers to launder money.
In 1933, the United States passed the Gold Reserve Act, which prohibited the private ownership of gold. This law was intended to prevent criminals from using gold to launder money.
In 1970, the United States passed the Bank Secrecy Act (BSA), which required banks and other financial institutions to report suspicious transactions to the government. The BSA was the first comprehensive AML law in the United States.
In 1986, the United States passed the Money Laundering Control Act, which made money laundering a federal crime.
In the 1990s, the United States passed a number of other AML laws, including the Annunzio-Wylie Anti-Money Laundering Act of 1992 and the Patriot Act of 2001.
Since the 1970s, the United States has been a leader in the fight against money laundering. The United States has worked with other countries to develop international AML standards.
The Financial Action Task Force (FATF) is an intergovernmental organization that sets international AML standards. The FATF was established in 1989 in response to the growing problem of money laundering.
The FATF's standards are based on 40 Recommendations, which cover a wide range of topics, including customer due diligence, recordkeeping, reporting, and international cooperation.
The FATF's standards have been adopted by over 200 countries and territories. The FATF's standards have helped to make the global financial system more resistant to money laundering.
AML laws are important because they help to prevent criminals from laundering their money. AML laws also help to protect the integrity of the financial system and to make it more difficult for criminals to finance their activities.
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