Dissertation Example on Anti-Money Laundering

2021-06-08 16:08:21
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University of California, Santa Barbara
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Dissertation
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Money laundering refers to the process where an individual or organization hides the existence of an unlawful source or application of income by making it appear legal. It can be said to be a procedure where dirty capital is made clean by being integrated into an economy. The activity allows criminals to acquire profits from their unscrupulous activities. Felons apply this technique to cover their tracks since the money could be used to track them. By making it legitimate, they reduce suspicion, especially by the authorities (Kurchenko, 2012). The process has been made worse by developments in technological departments. The advent of new forms of payment such as mobile banking has made transactions faster. Moreover, some of these payments are untraceable, making it hard to enforce the regulation. As such, people can easily get away with serious offenses. Notably, there are three crucial stages involved in money laundering.

The first stage, commonly referred to as placement, involves the movement of money from the source to another account where it can be easily disguised as legitimate. It can be conducted by smuggling currency across countries, especially through unsupervised borders. A bank can also purify the lot by accepting the funds as deposits and later disseminating them through credit creation. Complacent institutions allow unscrupulous traders to make transactions such as depositing cash in safe deposit boxes. Currency exchanges and securities brokers also assist in cleaning the illegal capital. Alternatively, the dirty money may be used to make asset purchases that may be disposed later without raising any suspicion.

The second stage is layering, which refers to the process of hiding the transactions to make them difficult to detect. The procedure protects the criminals from being caught by the authorities. The common methods applied here include the conversion of money into monetary instruments by use of bankers drafts and money orders. Alternatively, physical assets can be bought and later disposed locally or abroad. Offshore accounts and shell corporations are also used to hide these transactions.

The last stage involves the integration of the dirty money into an economy through the banking systems. The cash is handled in such a manner that it resembles earnings from normal business activities. The common techniques that are used include property dealing, issuance of false loans from front companies, use of false invoices, and exploiting the complicity of foreign banks.

Money laundering has become a common crime in most nations in the world. The globalization of financial markets and the deregulation of these institutions have promoted the increase of such activities (Ionescu, 2012). Aside from that, the increased competition among global firms has necessitated the use of unscrupulous methods to earn higher yields. To make matters worse, the internet has created a platform through which the activity can be conducted fast and with low levels of detection.

Money laundering affects all aspects of an economy. It creates macroeconomic, social, and political problems. Additionally, it affects banks and other financial institutions, as well as the employees in those departments. To begin with, if the practice is discovered, it leads to loss of trust in banks. As such, a majority of the people withdraws their capital from these institutions since they fear that they could lose their capital.

The practice also created unmanageable changes in the money demand. It could create a surplus of cash, thus reducing the value of the affected currency. In other terms, money laundering could lead to inflationary tendencies. Aside from that, it causes the contamination of legal, financial institutions, thus ruining their image and functionality. The practice is also associated with an increase in the volatility of foreign exchange rates. During the placement and layering process, a lot of international currency could be demanded, causing a hike in the price of the legal tender.

The financial institutions involved in the practice could also be pushed out of the market since they are likely to lose their customer base. To make matters worse, the officials in charge could be prosecuted for laundering money. The brokers in the financial sector are also threatened by the practice. The individuals are likely to receive long sentences if they are caught engaging in the illegal activity.

Money laundering also affects the ethical and moral fabric of a society. The practice is associated with other vices such as corruption. It is also known to encourage the growth of criminal syndicates since the felons can easily clean their dirty capital. As such, drug dealers and traffickers are seen to thrive in communities. The lack of solid evidence against them makes it hard to convict them.

According to Ejanthkar and Mohanty (2011), money-laundering techniques have evolved over the years. Felons no longer use paper and hard currency; instead, they are adopting technological and sophisticated strategies that involve the use of online facilities. The current environment provides some better platforms of money laundering. The new techniques are faster and leave little traces of the transactions.

Loan-Back money laundering is a common practice. The criminals borrow their own capital without the notice of the regulators. As such, the cash appear to be a legitimate liability. Others hide assets from legitimate creditors, judicial actioners, and tax regulators by using trust funds (Ejanthkar & Mohanty, 2011). The cash is transferred to beneficiaries, some of whom may be ghost people. Third party cheques, casinos, and insurance companies are also used to commit this crime. For example, someone may take out a false insurance claim after liaising with the institution.

The new non-cash payment methods such as prepaid cards, internet payments, and mobile banking have also opened up new gateways for illegal transactions. The rapid speed of transactions as well as the reduced face-to-face interactions between the customers and the service providers encourages money-laundering activities.

The rise of mobile banking in developing countries is providing a new avenue for money laundering and other illegal practices such as counter-terrorist financing. The practice involves the use of handsets to deposit, withdraw, and send money from one person to another. In Africa, there are two recognized facilities that offer this service, namely, WIZZIT in South Africa and MPESA in Kenya. The platforms have improved access to finance. The process of handling cash has been shortened, making it easier for unscrupulous traders to engage in illegal trades (Dumitrache, Boroi, Pusca, Pocora, & Chiril, 2011). Additionally, the growth in technology seems to be faster than the rate at which regulation is updated. As such, there are many loopholes, which can be exploited by individuals.

Solin and Zerzan (2010) proposed a risk assessment methodology to handle money laundering committed through mobile phones. The first step that is proposed is to gain understanding of the mobile money service. Such knowledge enables the parties involves comprehending the functioning of the system. For example, risk managers in South Africa should have a thorough understanding of how WIZZIT operates, gains profits, and makes loses. The regulators should then identify the vulnerabilities associated with the given platform. The people should also check the manners in which felons may exploit the gaps available. The information will then enable them to come up with techniques to mitigate the said risks. The authors suggest that this procedure should be conducted regularly to keep up with technological changes.

However, the existence of mobile banking is not entirely negative. Once proper legislations are in place, the platform makes it easier to stop money laundering. To begin with, the transactions carried out are traceable unlike those comprising of cash since a digital imprint accompanies them. Aside from that, the channel brings the unbanked individuals into the formal system, thus making it easy to control their operations.

Anti-money laundering groups increase their efficiency in curbing the problem by exploiting the technological advances. The forums help the individuals conduct compliance assessments. The systems are used to assess risk, thus enabling the creation of a strategy. The new information aids the formulation of basic filter rules. The digital elements also help in data exploration and visualization. The recent techniques help in predictive and descriptive modelling, clustering, time series analysis, statistical modelling, and sequential pattern discovery among others.

The recent technologies can also be exploited to monitor transactions. Engines can be manipulated to identify suspicious activities. Additionally, the methods help in coming up with discovery-driven data analysis as well as solutions. The systems that have developed help manage the workflow by sorting, filtering, and searching alerts related to money laundering activities. Lastly, the digitalization of information creates platforms that can be used to generate comprehensive reports regarding the crime.

Since money laundering has become an international crime, several nations have come up with techniques to curb the practice. Global organizations such as the IMF and World Bank have come up with four main initiatives to end the behavior. The first one is to raise awareness on the negative impact of the procedure. Alternatively, they intend to develop a universal methodology to fight with money-laundering activities. Additionally, the facilities intend to conduct organizational training to build institutional capacity to battle the rising crime. Lastly, they plan to keep check on alternative settlement channels.

The International Money Laundering Information Network (IMoLIN) was also established to fight against money laundering. The body is internet based and it is bent on assisting national governments, public, and private corporations as well as individuals fight against this heinous crime.

The United Nations Office of Drugs and Crime (UNODC) is another such body. It implements global programs against money laundering. Its basic goal is to empower member states to fight against this practice as well as terrorist financing activities. It helps its participants identify and confiscate proceeds acquired from illegal transactions.

Interpol is also an anti-money laundering unit focused on increasing the speed of information exchange among investigators of financial crime. As such, it provides intelligence on individuals who are or wish to engage in the process. Therefore, it prevents as well as handles existing cases.

In his work, Thorn (2010) elaborated that since money laundering was declared an international crime, countries have met on several occasions to come up with comprehensive methods of fighting the crimes. The conventions were used as platforms to set up rules and regulations that can be applied domestically or internationally to curb money laundering.

The 1988 Vienna convention was one of the earliest interventions on the activity. The meeting was meant to come up with a remedy for money laundering of drug money. The illicit trafficking of narcotic substances had become an international problem that was yielding millions of cash in profits (Thorn, 2010). The wealth had enabled the tycoons to penetrate, contaminate, and corrupt government structures, legitimate business, and the society. The nations that attended this meet instituted a mechanism for mutual international assistance in confiscation of illegally acquired assets. The collaboration enabled the freezing or provisional seizure of the property. However, the Vienna agreement did...

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