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Money laundering

Money laundering is the process of illegally concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions with varying definitions. It is usually a key operation of organized crime.

"Dirty money" redirects here. For other uses, see Dirty Money (disambiguation).

In United States law, money laundering is the practice of engaging in financial transactions to conceal the identity, source, or destination of illegally gained money. In United Kingdom law, the common law definition is wider. The act is defined as "the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin, so that they can be retained permanently or recycled into further criminal enterprises".[1]


In the past, the term "money laundering" was applied only to financial transactions related to organized crime. Today its definition is often expanded by government and international regulators such as the US Office of the Comptroller of the Currency to mean "any financial transaction which generates an asset or a value as the result of an illegal act," which may involve actions such as tax evasion or false accounting. In the UK, it does not need to involve money, but any economic good. Courts involve money laundering committed by private individuals, drug dealers, businesses, corrupt officials, members of criminal organizations such as the Mafia, and even states.


As financial crime has become more complex and financial intelligence more important to combating international crime and terrorism, money laundering has become a prominent political, economic, and legal debate. Money laundering is ipso facto illegal; the acts generating the money almost always are themselves criminal in some way (for if not, the money would not need to be laundered).

History[edit]

While existing laws were used to fight money laundering during the period of Prohibition in the United States during the 1930s, dedicated Anti-Money Laundering legislation was only implemented in the 1980s.[2] Organized crime received a major boost from Prohibition and a large source of new funds that were obtained from illegal sales of alcohol. The successful prosecution of Al Capone on tax evasion brought in a new emphasis by the state and law enforcement agencies to track and confiscate money, but existing laws against tax evasion could not be used once gangsters started paying their taxes.


In the 1980s, the war on drugs led governments again to turn to money laundering rules in an attempt to track and seize the proceeds of drug crimes in order to catch the organizers and individuals running drug empires. It also had the benefit, from a law enforcement point of view, of turning rules of evidence "upside down". Law enforcers normally have to prove an individual is guilty to seize their property, but with money laundering laws money can be confiscated and it is up to the individual to prove that the source of funds is legitimate to get the money back.[3] This makes it much easier for law enforcement agencies and provides for much lower burdens of proof. However, this process has been abused by some law enforcement agencies to take and keep money without strong evidence of related criminal activity, to be used to supplement their own budgets.


The 11 September attacks in 2001, which led to the Patriot Act in the U.S. and similar legislation worldwide, led to a new emphasis on money laundering laws to combat terrorism financing.[4] The Group of Seven (G7) nations used the Financial Action Task Force on Money Laundering to put pressure on governments around the world to increase surveillance and monitoring of financial transactions and share this information between countries. Starting in 2002, governments around the world upgraded money laundering laws and surveillance and monitoring systems of financial transactions. Anti-money laundering regulations have become a much larger burden for financial institutions and enforcement has stepped up significantly.


During 2011–2015 a number of major banks faced ever-increasing fines for breaches of money laundering regulations. This included HSBC, which was fined $1.9 billion in December 2012,[5] and BNP Paribas, which was fined $8.9 billion in July 2014 by the U.S. government.[6] Many countries introduced or strengthened border controls on the amount of cash that can be carried and introduced central transaction reporting systems where all financial institutions have to report all financial transactions electronically. For example, in 2006, Australia set up the AUSTRAC system and required the reporting of all financial transactions.[7]


With the surge in digital asset late 2010s, there's been a noticeable rise in money laundering and fraud tied to cryptocurrency. In 2021 alone, cybercriminals managed to secure US$14 billion in cryptocurrency through various illicit activities.[8]


Chinese organized criminal groups have become the principal money launderers for drug cartels in Mexico, Italy, and elsewhere.[9][10][11][12]

Features[edit]

Definition[edit]

Money laundering is the conversion or transfer of property; the concealment or disguising of the nature of the proceeds; the acquisition, possession or use of property, knowing that these are derived from criminal acts; the participating in or assisting the movement of funds to make the proceeds appear legitimate.


Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, human trafficking, and illegal gambling is "dirty" and needs to be "cleaned" to appear to have been derived from legal activities, so that banks and other financial institutions will deal with it without suspicion. Money can be laundered by many methods that vary in complexity and sophistication.


Money laundering typically involves three steps: The first involves introducing cash into the financial system by some means ("placement"); the second involves carrying out complex financial transactions to camouflage the illegal source of the cash ("layering"); and finally, acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending upon the circumstances. For example, non-cash proceeds that are already in the financial system would not need to be placed.[13]


According to the United States Treasury Department:

: Unknown amount, estimated in billions, of criminal proceeds, including drug trafficking money, laundered during the mid-1980s.

Bank of Credit and Commerce International

: US$7 billion of Russian capital flight laundered through accounts controlled by bank executives, late 1990s.[62]

Bank of New York

in June 2014, pleaded guilty to falsifying business records and conspiracy, having violated U.S. sanctions against Cuba, Iran, and Sudan. It agreed to pay an $8.9 billion fine, the largest ever for violating U.S. sanctions.[6][63]

BNP Paribas

in May 2017, was shut down by the Monetary Authority of Singapore for serious breaches of anti-money laundering requirements, poor management oversight of the bank's operations, and gross misconduct of some of the bank's staff.[64]

BSI Bank

: $6 billion of bank funds embezzled or fraudulently loaned to shell companies and offshore holdings by the banks former chairman and CEO Mukhtar Ablyazov.[65]

BTA Bank

: Charter House Bank in Kenya was placed under statutory management in 2006 by the Central Bank of Kenya after it was discovered the bank was being used for money laundering activities by multiple accounts containing missing customer information. More than $1.5 billion had been laundered before the scam was uncovered.[66]

Charter House Bank

+ Swedbank: $30 billion – $230 billion US dollars laundered through its Estonian branch.[67][68][69] This was revealed on 19 September 2018.[70] Investigations by Denmark, Estonia, the U.K. and the U.S. were joined by France in February 2019. On 19 February 2019, Danske Bank announced that it would cease operating in Russia and the Baltic States.[71][72] This statement came shortly after Estonia's banking regulator Finantsinspektsioon[73] announced that they would close the Estonian branch of Danske Bank.[74] The investigation has grown to include Swedbank, which may have laundered $4.3 billion.[75][76] More at Danske Bank money laundering scandal.

Danske Bank

was accused in a vast money laundering scheme, dubbed the Global Laundromat, involving secret Russian accounts that were transferred from European Union banks in Estonia, Latvia and Cyprus between 2010 and 2014. Newspaper sources estimated the total value of laundered currency to be as high as $80bn. The bank is also under investigation for its involvement in Europe's biggest banking scandal through Denmark's Danske Bank, which laundered €200bn, also from Russian sources.[77]

Deutsche Bank

' Dubai Islamic Bank was accused of "knowingly and purposefully" providing "financial services and other forms of material support to al-Qaeda operatives" when the terrorist group was planning the execution of the 11 September attacks against the United States.[78] In addition, the Sharjah branch of Standard Chartered Bank was also involved in opening the accounts of the terror operatives and allowing financial transactions to take place between them and Khalid Sheikh Mohammed, "the principal architect of the 9/11 attacks".[79]

United Arab Emirates

: On 21 September 2020, The International Consortium of Investigative Journalists (ICIJ) revealed FinCEN Files, about the involvement of about $2tn of transactions by some of the world's biggest banks.[80] FinCEN files also revealed that Dubai-based Gunes General Trading, based in Dubai funneled Iranian state money via UAE's central banking system and processed $142 million in 2011 and 2012.[81]

FinCEN Files

: In 2018, Cybersecurity firm Sixgill[82] discovered that stolen credit card details may be used to purchase Fortnite's in-game currency (V-Bucks) and in-game purchases, for the account to then be sold online for "clean" money.[83][84] Epic Games, the makers of Fortnite, responded by urging customers to secure their accounts.[85]

Fortnite

in December 2012, paid a record $1.9 Billion fines for money-laundering hundreds of millions of dollars for drug traffickers, terrorists and sanctioned governments such as Iran.[86] The money-laundering occurred throughout the 2000s.

HSBC

: Italian authorities investigated suspected money laundering transactions amounting to US$218 million made by the IOR to several Italian banks.[87]

Institute for the Works of Religion

in May 2013, was seized by United States federal authorities for laundering $6 billion.[88][89][90]

Liberty Reserve

: US$70 billion of Russian capital flight laundered through unregulated Nauru offshore shell banks, late 1990s[91]

Nauru

: US$2–5 billion of government assets laundered through banks in the UK, Luxembourg, Jersey (Channel Islands), and Switzerland, by the president of Nigeria.[92]

Sani Abacha

: Standard Bank South Africa London Branch – The Financial Conduct Authority (FCA) has fined Standard Bank PLC (Standard Bank) £7,640,400 for failings relating to its anti-money laundering (AML) policies and procedures over corporate and private bank customers connected to politically exposed persons (PEPs).[93]

Standard Bank

: paid $330 million in fines for money-laundering hundreds of billions of dollars for Iran. The money-laundering took place in the 2000s and occurred for "nearly a decade to hide 60,000 transactions worth $250 billion".[94]

Standard Chartered

: On 24 September 2020, Westpac and AUSTRAC agreed to a AUD $1.3 billion penalty over Westpac's breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 - the largest fine ever issued in Australian corporate history.[95]

Westpac

: Implemented the Proceeds of Crime Act (POCA) to establish money laundering offenses and facilitate asset recovery.

United Kingdom

: Enacted the Corporate Transparency Act (CTA) requiring companies to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), effectively banning anonymous shell corporations and enhancing transparency in corporate ownership.

United States

: Introduced the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act) to regulate financial transactions and enhance transparency.

Australia

: Established the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act to confiscate proceeds from serious crimes.

Singapore

: Strengthened its anti-money laundering framework through the Swiss Anti-Money Laundering Act (AMLA), which mandates due diligence and reporting requirements for financial institutions.

Switzerland

Anti-Money Laundering Act (Switzerland)

Anti-money laundering framework for financial institutions in France

Azerbaijani laundromat

Bank Secrecy Act

Danske Bank money laundering scandal

Financial Action Task Force

Gold laundering

Operation Greenback

Media related to Money laundering at Wikimedia Commons

Archived 20 May 2011 at the Wayback Machine: profile from the United Nations Office on Drugs and Crime

UNODC on money-laundering and countering the financing of terrorism

Archived 13 November 2021 at the Wayback Machine of the World Bank

Financial Market Integrity Unit

Archived 15 August 2019 at the Wayback Machine (INCSR), annual report issued by the United States Department of State in March every year (prepared by Bureau of International Narcotics and Law Enforcement Affairs) on country money laundering risk

International Narcotics Control Strategy Report