essays on money laundering

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Essays on Money Laundering

Money laundering is a serious crime that involves disguising the origins of money obtained through illegal activities. It is a growing concern for governments and financial institutions worldwide, as it undermines the integrity of the financial system and facilitates criminal activities. As a result, many students and researchers are interested in writing essays on money laundering to understand its complexities and implications. However, choosing a suitable topic for a money laundering essay can be challenging. This article will provide a comprehensive guide to selecting the best money laundering essay topics and offer some examples to inspire your research.

Understanding Money Laundering

Before delving into specific essay topics, it is essential to have a solid understanding of money laundering. You can start your essay by defining money laundering, explaining its process, and discussing its impact on the global economy. This will provide the necessary background information for your readers and set the stage for a deeper exploration of the topic.

One interesting essay topic is the evolution of money laundering laws. You can explore the history of anti-money laundering regulations, starting from the first efforts to combat this crime to the modern legal framework. This topic allows you to analyze the effectiveness of existing laws, identify loopholes, and propose potential improvements to the regulatory framework.

Another compelling essay topic is the role of financial institutions in money laundering. You can investigate how banks and other financial entities have been used to facilitate illicit financial transactions and explore the measures implemented to prevent money laundering within the financial sector. This topic provides an opportunity to examine the responsibilities of financial institutions in combating money laundering and the challenges they face in fulfilling their obligations.

With the advancement of technology, money laundering techniques have evolved as well. You can write an essay on the impact of technology on money laundering, focusing on the use of cryptocurrencies, online payment systems, and other digital platforms to launder illicit funds. This topic allows you to analyze the effectiveness of current anti-money laundering measures in the digital age and propose innovative solutions to address emerging challenges.

Money laundering is not confined to a specific region or country. You can explore the global dimensions of money laundering in your essay, examining the interconnectedness of financial systems and the challenges of international cooperation in combating this crime. This topic provides an opportunity to analyze the role of international organizations, such as the Financial Action Task Force, in setting global standards for anti-money laundering efforts.

Money laundering has significant implications for developing economies, where the proceeds of crime can have a detrimental impact on economic development and stability. You can write an essay on the impact of money laundering on developing economies, addressing issues such as corruption, illicit financial flows, and the erosion of governance structures. This topic allows you to explore the social, political, and economic consequences of money laundering in the context of developing countries.

While financial institutions are often the focus of anti-money laundering efforts, non-financial businesses also play a role in money laundering activities. You can explore the vulnerabilities of sectors such as real estate, trade, and professional services to money laundering and discuss the measures that can be implemented to mitigate these risks. This topic provides an opportunity to examine the broader implications of money laundering beyond the financial sector.

Choosing the right topic for a money laundering essay is crucial for conducting meaningful research and producing a compelling piece of writing. Whether you are interested in exploring the legal framework, the role of financial institutions, the impact of technology, or the global dimensions of money laundering, there are various topics to consider. By selecting a well-defined and relevant topic, you can contribute to the ongoing discourse on money laundering and make a valuable contribution to the field.

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Essays on Money Laundering

Money laundering is a method used to make money obtained illegally appear to originate from legitimate sources (Madinger, 2016). The process is termed as “laundering” since money from the illicit activities is considered as “dirty.” The most commonly used strategies of laundering money include utilizing legitimate cash-based businesses, shell companies,...

Criminals use money laundering as a means of evading detection and punishment. The main goal is to keep themselves and the proceeds of their criminal activity out of the hands of tax and law enforcement officials. Criminals have had an edge on this front for a long time. They have...

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Money Laundering: Concealing the Origins of Illicit FundsMoney laundering is a process that allows criminals to disguise the origin of money they've received through criminal activity, so that it can be used in legal ways. This method is often used to conceal the proceeds of criminal activities like drug trafficking,...

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International Money Laundering Essay

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Introduction

Human trafficking, money laundering detection system, international cooperation, globalization, principal organizations, operation supersonic.

The article entitled “International Money Laundering” written by Alani M. Mundie outlines the problem of financing various illicit activities on the global level. Mundie emphasizes the critical importance of money laundering operations in the human trafficking business that has become increasingly lucrative over recent years. The immense amount of human trafficking profits is integrated into the global financial system. Thus, money laundering has a profound impact on the state of the global economy, as well as on the economy of the U.S.

Mundi cites an article from Al Jazeera covering the issue of the child sex trade in Cambodia. Numerous reported examples of this type of illegal business demonstrate that to human traffickers people truly represent the direct source of immense profit. It might be called slavery of the twenty-first century, as the numbers reported by the International Labor Organization indicate 2.45 million of exploited people, yielding approximately 39 billion dollars per year.

However, such an amount cannot enter the financial system undetected. Thus, human traffickers employ an array of money laundering methods: cash couriers, transaction structuring, wire remittance, and false identities. The author of the article emphasizes how important it is for the government to gain a deeper understanding of the human trafficking system to prevent money-laundering schemes.

A money-laundering scheme usually comprises three steps: placement, layering, and integration. Financial institutions abroad are chosen as the primary locations, with suitable back secrecy regulations and a sufficiently stable economic system. Due to the secrecy and efficiency of money laundering operations, it is rather difficult to determine the exact amount in question.

While identifying the primary source of illicit financial operations can potentially lead to uncovering a great number of crimes, it is a rather difficult task. There are many opinions on what are the most efficient tracing techniques: tracing the geographical location, analysis of the connections in financial records, and the importance of regional trends. Certain experts claim that the combination of these approaches might yield the most significant results. For instance, human trafficking in both North and South America is closely tied to casinos, wire transfer services, and import/export companies that help perform their schemes and remain undetected.

However, the author of the article points out that certain trends that have recently emerged on the global market significantly hinder the process of tracing and detection of money laundering schemes. It is increasingly common for the black market to use the US dollar for the transactions, technological progress provides endless possibilities of instant transfer of funds on a global scale and an increasing number of financial locations that help money launderers maintain the clandestine nature of their operations. Mundie points out that even though after the events of 9/11 the security protocols were improved and global anti-money laundering efforts were strengthened, the problem is far from being solved.

In 2003, the United Nations Convention against Transnational Organized Crime developed the first global legal method of human trafficking prevention: Protocol to Prevent, Suppress, and Punish Trafficking in Persons. A uniformity of human trafficking crimes was established to improve international cooperation. The Protocol specified the characteristics of human trafficking crimes, including the notion of exploitation.

The 2010 report of the U.S. Department of State read that in 2009, the number of adults and minors engaged in forced labor and prostitution amounted to 12.3 million people, with sexual exploitation being the primary goal of human trafficking operations. Among other activities of trafficked workers are domestic servitude, manufacturing, janitorial services, hotel services, club dancing, etc. Mundie explains that the increasingly globalized economy is the cause of an increase in illegal movements from poorer to wealthier countries, with the U.S. being the main destination.

Approximately fifty thousand people are estimated to be trafficked into the U.S. each year, mainly children and women for domestic labor, agriculture, and sexual exploitation. Trafficked workers are brought mainly from countries such as Thailand, Mexico, Philippines, Haiti, India, Guatemala, and the Dominican Republic. Moreover, this type of crime can occur on a domestic level as well. In 2010, the efforts of the U.S. system of human trafficking prevention were recognized as meeting the necessary standards.

The most important institutions in the money laundering detection and prevention are the Financial Action Task Force (FATF), Interpol, and the United Nations Office on Drugs and Crime. Established in 1989, the FATF is an inter-governmental institution. Its goal is to develop national and international Anti-Money Laundering (AML) guidelines, to promote the legislative reform in AML and anti-terrorism policies. The FATF developed a compilation of recommendations of universal character, helping policymakers around the world detect and prevent money laundering, as well as other illicit financial operations.

United Nations Office on Drugs and Crime, formed in 1997, pursues the policy of fighting international crime on the level of global cooperation. Its purpose is to assist the governments of over 150 countries in dealing with difficulties brought about by illicit activities such as human trafficking, drug, and arms trafficking, and to upgrade their knowledge on the evolution of criminal schemes, e.g. cybercrime. The organization holds 54 offices around the world.

The steps undertaken by the UNODC to help resolve the global problem of money laundering and terrorism financing include AML measures implementation, financial activity monitoring, member nations’ responses analysis, raising public awareness, and coordinating various initiatives. The program developed to prevent human trafficking is known as the Framework for Action.

Interpol comprises 190 member states. Uniformity of information management is the principal asset of this international police organization. Its technology allows all members to access a universal database to screen the immigration network to detect suspicious activities. The possibility of instant sharing of information among the country members facilitates the process of crime detection.

Operation Supersonic was initiated after the kidnapping of a child in Mexico. Due to international cooperation, a large-scale human trafficking system was revealed, wherein young girls over 18 were brought to New York and forced to engage in prostitution. The traffickers not only subjected the victims to sexual exploitation but also violent treatment, physical abuse, and abortions. The lead defendants were sentenced to 50 years of imprisonment for sex trafficking.

As a result, 25 victims were rescued. Due to the efficient cooperation between the U.S. and Mexico, the financial details of the scheme were revealed. The discovered money transfer receipt amounted to two hundred thousand U.S. dollars from 1998 to 2004. It was also suspected that these illicit activities could have begun even several years earlier.

Money laundering is a key issue in the detection and prevention of financial crimes, human trafficking, and terrorism. The substantial scope of the problem is caused by advanced technology, globalization, and proliferation of bank secrecy havens. International organizations have developed uniformed instruments to join the efforts in fighting criminal activities.

Due to the global scale of cooperation, the developed programs yield significant results. By adopting uninformed legislation and developing databases and efficient data sharing systems, international organizations facilitate the process of detection and prevention of money laundering and human trafficking crimes. Although there is yet much to be done to detect and deter the mentioned criminal activities, the existing system of cooperation provides a solid foundation for further improvement.

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IvyPanda. (2020, October 13). International Money Laundering. https://ivypanda.com/essays/international-money-laundering/

"International Money Laundering." IvyPanda , 13 Oct. 2020, ivypanda.com/essays/international-money-laundering/.

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IvyPanda . 2020. "International Money Laundering." October 13, 2020. https://ivypanda.com/essays/international-money-laundering/.

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Anti-Money Laundering

Introduction.

Financing entities are entrusted with the responsibility of eradicating misconduct by withholding support. They strive to institute measures that prevent them from processing corrupt payments. However, financial systems are vulnerable to crisis, especially when they are unable to absorb shocks. Anti-money laundering compliance requirements increase complexity and costs for banks globally. Despite the regulatory changes being the basis to increase financial system resilience and intervention of financial crimes, they increase pressure on the correspondent, interfering with their functioning. Also, they act as a barrier to cross-border financial networks and banking relationships. There is a need for a compelling business case to upgrade a bank’s anti-money laundering capabilities. Leading banks in emerging markets can be supported since they hold strong positions in maintaining and growing cross-border banking networks. Expectations for continuous improvement in anti-money laundering compliance pervade the international financing systems. Financing institutions must fathom the business implications of money laundering alongside implications for criminality and security. They should focus on identifying additional and efficient compliance requirements and formulate ways to excel in anti-money laundering. Different countries and institutions provide different support regarding regulatory guidance towards anti-money laundering. This literature review attempts to discuss financial system alignment to address anti-money laundering.

Mekpor, E.S. (2019) “Anti-money laundering and combating the financing of terrorism compliance,”  Journal of Money Laundering Control , 22(3), pp. 451–471. Available at: https://doi.org/10.1108/jmlc-09-2018-0057.

Emmanue Senanu Mekpor, a Doctoral researcher in the department of finance at Brunel University London, investigates the country’s practices to comply with anti-money laundering regulations. He recommends adoption and compliance with Financial Action Task Force (FATF). He argues that money laundering can be reduced or mitigated by using these guidelines and recommendations. These recommendations are critical for Canada to utilize in fighting anti-money laundering, which has prevailed in many parts of Canada. It is an obstacle to Canadians’ quality of life, safety as well as security. FATF recommendations process access to information on compliance and adoption of the correct measures. This can help Canada reorient its anti-money laundering policies and regulations and focus its efforts on the parts lacking approaches to AML. Canada acquires guidelines on how to make alterations to AML frameworks and thus ensure the effectiveness of regulatory practice. These changes to anti-money laundering impact CPAs concerned with activities protected by the Proceeds of Crime (Money Laundering).

Wheeler, J. (2021)  AML technology: Where companies should invest ,  Jumio . Available at: https://www.jumio.com/aml-technology/

Jackie Wheeler, a Fiscal Analyst in the greater Seattle region, pursues her research interests in developing AML technology that she believes would boost compliance. She perceives money laundering as a financial crime that is currently common, and businesses can be manipulated to finance criminal enterprises without their knowledge. She suggests technologies such as automatic AML screening since financial institutions serve widely diverse clients whose intentions are unknown. Transaction monitoring tools are useful in identifying suspicious activities. An increased amount of illicit funds is observed to be laundered in the Canadian economy yearly. This is due lack of proper ways of identifying money launderers. Automatic screening ensures that the country keeps track of all the customers against international and national checklists. It minimizes risks and helps a country to undertake its due diligence, especially when it encounters new clients. Thus, customers’ identities should be verified, as risks of associating with them. Canada should incorporate advanced software that monitors individual transactions. It identifies high-risk transactions as well as their patterns, thus the follow-up for money laundering. Financial institutions detect financial crimes and determine how to end them effectively. Also, artificial intelligence can be applied in the financial ecosystem to reduce money laundering risks.

Faccia, A. (2021)  Electronic money laundering, the dark side of Fintech: An overview of … ,  Researchgate . Available at: https://www.researchgate.net/publication/347312080_Electronic_Money_Laundering_The_Dark_Side_of_Fintech_An_Overview_of_the_Most_Recent_Cases (Accessed: February 16, 2023).

Alessio Faccia currently works at Coventry university in the department of finance and accounting and Economics. Her research interest extends to technology and innovation; thus, she explains the contribution of the rapidly growing fintech sector to money laundering. She focuses on the most critical issues regarding transactions’ reliability, legality, and security. It is a research primarily addressed to economic players offering payment services, for example, cryptocurrencies or financial services, especially those managed by the use of technology advanced ways. Canada continues to embrace digital technologies and the internet. This can expose it to risks and threats of advancement in technology. Financial institutions and most businesses in Canada rely on digital technologies hence cyber security risks. The country has several fintech such as the multiplatform banking firm Wealthsimple and Bitcoin miner Blockstream.

Labib, N.M. (2021)  Survey of machine learning approaches of anti-money laundering … ,  research gate . Available at: https://www.researchgate.net/profile/Nevine-Labib/publication/340424014_Survey_of_Machine_Learning_Approaches_of_Anti-money_Laundering_Techniques_to_Counter_Terrorism_Finance/links/625d9db4709c5c2adb84ed2f/Survey-of-Machine-Learning-Approaches-of-Anti-money-Laundering-Techniques-to-Counter-Terrorism-Finance.pdf

Dr. Nevine Makram Labib is the computer and information systems department leader in Sadat Academy’s faculty of management sciences. He analyzes machine learning approaches to anti-money laundering and discovers that money laundered in a year across the globe is approximately 5% of global GDP. He points out that criminal money launderers use financial institutions to exploit weak global financial systems to disguise their illicit funds. Financial institutions are obliged by law to monitor and provide reports of suspicious transactions. RCMP in Canada is less involved in money laundering and lacks the expected expertise to manage proceeds of crime investigations. This gap has a negative impact as it is the basis upon which money laundering has increased in Canada. Moreover, currently, there is nobody in Canada responsible for performing money laundering investigations. This has contributed to the intensification of money laundering in various sectors, such as the gaming sector.

Tarmizi, M.A. (2019)  (PDF) compliance determinants of anti-money laundering regime among … ,  research gate . Available at: https://www.researchgate.net/publication/361716083_Compliance_determinants_of_anti-money_laundering_regime_among_professional_accountants_in_Malaysia (Accessed: February 16, 2023).

Masetah Ahmad Tarmizi is a senior lecturer in the faculty of Accountancy at the University of MARA. He investigates the extent of data content, internal control, and compliance of accounting professionals to the anti-money laundering regime. Professional accounts are presumed responsible for implementing compliance programs and informing the authorities of illegal practices. They are expected to keep track of their clients as well as the due diligence of the customers. The complexity of money laundering poses a challenge due to the lack of adequate evidence to support money laundering practices in Canada. Despite the federal government enforcing complex legislation to address money laundering, the regime has been ineffective, thus increasing illicit funds activities. The failure is attributed to agencies such as FINTRAC, whose role is to receive and evaluate information about money laundering threats and risks and later communicate them for analysis and law enforcement.

Cassella, S. (2019)  Bulk cash smuggling and the globalization of crime: Semantic scholar ,  Berkeley Journal of International Law . Available at: https://www.semanticscholar.org/paper/Bulk-Cash-Smuggling-and-the-Globalization-of-Crime-Cassella/5427c9be8e2dc06a409107c14637ef7956799c86 (Accessed: February 16, 2023).

Stefan Cassella specialized in money laundering and asset forfeiture and worked in the field for over thirty years. He explains the globalization of crime by highlighting that money laundering criminals travel from one country to another. He relates this to how tourists freely move from one place to another. Money launderers move intending to cover their proceeds from one residence to another. Further, he elaborates on tools used to initiate international fraud schemes, such as; internet connection and internet devices such as computers. Law enforcement is based on a country’s laws and traditions; for example, what is unlawful in Canada may be unlawful in another state, thus the increased rates of transnational money laundering. Canada presents itself as a liberal democracy and allows people across the globe to use its financial institutions. However, it has a regime to counter transnational organized money laundering.

In Conclusion, this literature review has provided various sources that address the alignment of financial systems to anti-money laundering. These sources are the foundation for the detection of money laundering practices as well as the guidance to curb illegal practices. For example, the first source reveals that adopting the Financial Action Task Force (FATF) by all countries across the globe helps them share in managing money laundering. A manager should be aware of three major observations regarding this topic. First, technology plays a key role in money laundering. In the modern world, despite the wide advantages of technological advancements, people misuse this power and develop unlawful and illegal practices supporting money laundering, such as cybersecurity. Second, financial institutions are the central feature of money laundering practices. They are widely distributed across the globe, and people perform illegal transactions to disguise illicit funds. A nation can secure its security and integrity of financial systems by strengthening the global chain. Third, money laundering requires a holistic approach to combat those practices and monitor tax evasion. Anti-money institutions’ collaboration with law enforcement can have a positive impact on the control of the issue. This cooperation helps in setting standards and requirements that promote the effective implementation of operational, regulatory, and legal measures for preventing money laundering. Additionally, it leads to the development of common international policies, helping a country stay ahead of criminals.

Bibliography

Cassella, S. (2019)  Bulk cash smuggling and the globalization of crime: Semantic scholar ,  Berkeley Journal of International Law . Available at: https://www.semanticscholar.org/paper/Bulk-Cash-Smuggling-and-the-Globalization-of-Crime-Cassella/5427c9be8e2dc06a409107c14637ef7956799c86

Faccia, A. (2021)  Electronic money laundering, the dark side of Fintech: An overview of … ,  Researchgate . Available at: https://www.researchgate.net/publication/347312080_Electronic_Money_Laundering_The_Dark_Side_of_Fintech_An_Overview_of_the_Most_Recent_

Labib, N.M. (2021)  Survey of machine learning approaches of anti-money laundering … ,  research gate . Available at: https://www.researchgate.net/profile/Nevine-Labib/publication/340424014_Survey_of_Machine_Learning_Approaches_of_Anti-money_Laundering_Techniques_to_Counter_Terrorism_Finance/links/625d9db4709c5c2adb84ed2f/Survey-of-Machine-Learning-Approaches-of-Anti-money-Laundering-Techniques-to-Counter-Terrorism-Finance.pdf

Mekpor, E.S. (2019) “Anti-money laundering and combating the financing of terrorism compliance,”  Journal of Money Laundering Control , 22(3), pp. 451–471. Available at: https://doi.org/10.1108/jmlc-09-2018-0057.

Tarmizi, M.A. (2019)  (PDF) compliance determinants of anti-money laundering regime among … ,  research gate . Available at: https://www.researchgate.net/publication/361716083_Compliance_determinants_of_anti-money_laundering_regime_among_professional_accountants_in_Malaysia

Wheeler, J. (2021)  AML technology: Where companies should invest ,  Jumio . Available at: https://www.jumio.com/aml-technology/

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• Money Laundering
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Why in news?

The Asia-Pacific Group (APG) on Money Laundering, a regional affiliate of the Financial Action Task Force (FATF) , has placed Pakistan in the "Enhanced Expedited Follow Up List (Blacklist)" for its failure to meet its standards.

What is Money Laundering?

• Money laundering is concealing or disguising the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources. It is frequently a component of other, much more serious, crimes such as drug trafficking, robbery or extortion.   
• According to the IMF, global Money Laundering is estimated between 2 to 5% of World GDP.

How Money Laundering works?

• Placement puts the "dirty money" into the legitimate financial system.
• Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
• In the case of integration, the now-laundered money is withdrawn from the legitimate account to be used for criminal activities.

• Structuring also called as Smurfing
• Bulk Cash Smuggling
• Cash intensive Businesses
• Trade based Laundering
• Shell companies
• Round tripping
• Black salaries
• Tax amnesties
• Transaction laundering

Impacts of Money Laundering

• Undermines legitimacy of private sector
• Undermines integrity of financial markets
• Loss of control of economic policy
• Economic distortion and instability
• Loss of revenue
• Security threats to privatisation efforts
• Volatility in exchange rates and interest rates due to unanticipated transfers of funds
• Rise of economic prices
• Affects trade and international capital flows
• Increased criminality
• Decreases human development
• Misallocation of resources
• Affects trust of local citizens in their domestic financial institutions
• Declines the moral and social position of the society by exposing it to activities such as drug trafficking, smuggling, corruption and other criminal activities
• Initiates political distrust and instability
• Criminalisation of politics

Steps Taken by Government of India to Prevent Money Laundering

• Criminal Law Amendment Ordinance (XXXVIII of 1944): It covers proceeds of only certain crimes such corruption, breach of trust and cheating and not all the crimes under the Indian Penal Code.
• The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976: It covers penalty of illegally acquired properties of smugglers and foreign exchange manipulators and for matters connected therewith and incidental thereto.
• Narcotic Drugs and Psychotropic Substances Act, 1985: It provides for the penalty of property derived from, or used in illegal traffic in narcotic drugs.
• It forms the core of the legal framework put in place by India to combat Money Laundering.
• The provisions of this act are applicable to all financial institutions, banks(Including RBI), mutual funds, insurance companies, and their financial intermediaries.
• Adds the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary etc.
• PMLA, 2002 levied a fine up to Rs 5 lakh, but the amendment act has removed this upper limit.
• It has provided for provisional attachment and confiscation of property of any person involved in such activities.
• Financial Intelligence Unit-IND: It is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
• It is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
• One of the main functions of ED is to Investigate offences of money laundering under the provisions of Prevention of Money Laundering Act, 2002(PMLA).
• It can take actions like confiscation of property if the same is determined to be proceeds of crime derived from a Scheduled Offence under PMLA, and to prosecute the persons involved in the offence of money laundering.
• India is a full-fledged member of the FATF and follows the guidelines of the same.

Global efforts to combat Money Laundering

• The Vienna Convention: It creates an obligation for signatory states to criminalize the laundering of money from drug trafficking.
• The 1990 Council of Europe Convention: It establishes a common criminal policy on Money Laundering.
• G-10’s Basel Committee statement of principles: It issued a “statement of principles” with which the international banks of member states are expected to comply.
• The International Organization of Securities Commissions (IOSCO): It encourages its members to take necessary steps to combat Money Laundering in securities and futures markets.
• 24 OECD countries
• The Gulf Cooperation Council
• The European Commission
• It monitores members’ progress in applying measures to counter Money Laundering.
• The famous Forty Recommendations are given by FATF.
• IMF: It has pressed its 189 member countries to comply with international standards to thwart terrorist financing.
• The United Nations office on Drugs and Crime: It proactively tries to identify and stop Money Laundering.

Way Forward

The evolving threats of money laundering supported by the emerging technologies need to be addressed with the equally advanced Anti-Money Laundering mechanisms like big data and artificial intelligence. Both international and domestic stakeholders need to come together by strengthening data sharing mechanisms amongst them to effectively eliminate the problem of money laundering.

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Tightening the net: EU adopts sweeping AML reforms

Exploring the European AML reforms and the role of the AMLA in financial supervision

A landmark reform of the European anti-money laundering (AML) regime is on the verge of completion. On 24 April the European Parliament  formally adopted  a new AML Regulation and legislation creating the new EU Anti-Money Laundering Authority (AMLA). This in effect completes the legislative journey for the EU’s ambitious AML reform package, launched in 2021 to enhance Europe’s ability to detect and prevent financial crime.

Common standards: The single AML rulebook

Beyond the need for a clear strategy, a governance structure and well-defined financial and legal boundaries, digital trust is one of the key components of a truly cyber-resilient ecosystem.

KPMG, together with the World Economic Forum and other collaborators, has developed a global framework for digital trust. This framework serves as a decision-making guide for organizations, enabling the development and deployment of reliable, trustworthy technology and, through it, trusted collaboration ecosystem wide. The WEF defines digital trust as public expectations that “digital technologies and services — and the organizations providing them — will protect all stakeholders’ interests and uphold societal expectations and values.”

The digital trust framework provides a precise and compelling roadmap in this dynamic digital world and the inevitable need to enhance adaptability and cyber resilience among digital ecosystems. Reliance on a common framework and language offering mutual standards and practices drives enhanced collaboration, consistency and trust in ever-evolving technologies while bolstering ecosystem defenses against potential threats. The digital trust framework encapsulates three goals:

Beneficial ownership

(of companies, trusts etc) is defined as based on both ownership and control. The beneficial ownership threshold is set at 25 percent, but with a lower threshold (up to 15 percent) for sectors identified as high-risk by the European Commission. This will require obliged entities to review the beneficial ownership of potentially thousands of entities subject to the lower threshold.  

Enhanced due diligence

measures are required for customers who apply for a so-called "Golden Passport". These are third-country nationals who receive European citizenship in return for an investment. Enhanced due diligence measures must also be applied for business relationships with high-net-worth individual (HNWI) customers when providing wealth management services involving amounts of EUR5 million or more. This will require firms to gather additional information regarding customers who may qualify as HNWIs.

Customer data

including identity records must be  updated  at least every five years (except in low-risk cases where simplified due diligence is applied) and every year for high risk customers. This is much more frequent than existing rules in many EU countries require. As a result, firms should invest heavily in updating their know-your-customer (KYC) systems and preferably switch to highly automated processes in order to avoid a massive increase in workload for manual periodic customer data updates.

Risk Assessments

must consider and classify firms’ exposure to money laundering and terrorist financing risks and financial sanctions according to a set of prescribed risk variables: activity, products, transactions, delivery channels, customers and geography. This may require significant reconfiguration of firms’ approaches to their AML risk assessments and might require upgrades to firms’ internal data systems to help ensure the necessary information is available. There is also an obligation to take into account enumeratively listed specific information sources when identifying those risks. This will require the obliged entities to revise their risk assessment methodology including regarding the external information used.

Outsourcing

of AML-related services is tightly regulated. Some key functions, including approval of AML policies, decisions on customer risk profiles and reporting of suspicious transactions, must be done in-house: how far ancillary functions and analysis may be outsourced will be specified in AMLA guidelines. As outsourcing of functions such as customer ID verification and data analysis is currently common practice, the new rules could require firms to review their existing outsourcing arrangements. In addition to these restrictions, all outsourcing of AML-related services must be notified in advance to supervisors.

In addition, the Regulation expands the list of ‘obliged entities’ required to comply with AML rules — for example, to include professional football clubs and football agents —and imposes an EU-wide cap of EUR10,000 on cash payments. For more detailed analysis, see the  KPMG AMLA Office website .

The new watchdog: AMLA starts up

The second pillar of the new AML regime, AMLA, is expected to go live in the second half of 2024, starting with the appointment of its first Chair. AMLA will serve as both a regulator and supervisor.

1. AMLA the regulator

AMLA’s main regulatory function will be prescribing many details of the new AML rulebook via guidelines and technical standards (RTS/ITS). We understand that informal working groups of national regulators, coordinated by the European Banking Authority (EBA), have already begun preparing over 80 standards and guidelines, drawing on analysis of existing rules in different countries. Under the AML Regulation, AMLA will have between two and three years to finalise these standards. This means some could be promulgated only shortly before the Regulation itself begins to apply (three years after publication in the EU Official Journal). Consequently, firms should closely monitor AMLA’s regulatory work programme (once this is published) to prepare for each standard or guideline as it emerges.

2. AMLA the supervisor

Alongside its regulatory work, AMLA must establish itself as a supervisor. Much of the public discussion to date has focused on AMLA’s role directly supervising the entities deemed to pose the highest money laundering risks. But given that it will directly supervise only 40 firms and will only start direct supervision in 2028, AMLA’s greatest impact will likely come from its position as an indirect supervisor, coordinating and harmonizing supervision by national competent AML supervisors/authorities.

AMLA is mandated to develop a harmonized supervisory methodology for all EU competent AML supervisors/authorities to use. This methodology will include common benchmarks for assessing the risks of each supervised firm, and common approaches to supervising firms’ internal policies, practices and controls. AMLA is also required to develop standardized templates for data collection, to ensure all EU AML supervisors are working on the basis of comparable information. These tools, along with judicious use of AMLA’s powers of peer review and recommendation, will enable AMLA to drive up standards and build a common supervisory culture across the EU.

In this effort, AMLA will be able to learn from the experience of its Frankfurt neighbour, the ECB, which began prudential supervision of significant euro area banks 10 years ago. In its early years, the ECB’s supervisory approach was characterized by extensive use of standardized policies, methods and questionnaires. This prioritized consistency across banks over responsiveness to differences in business model or geography. ECB leaders argued that this was necessary to forge a common European supervisory culture: the incoming AMLA leadership may take a similar view.

How financial firms can prepare

With the introduction of the new AML regime, financial firms should take great care to follow AMLA’s policy making process to understand how far they need to adapt or overhaul their existing AML controls, policies and practices to comply. The harmonization of different national rules will mean the precise changes required will vary depending on the countries in which firms operate – and in some cases, will give firms more, not less flexibility. The new single rulebook will take effect in 2027, but the groundwork will already be laid in the coming months. Therefore, firms should take the following key steps now to prepare:

Closely monitor AMLA and the development of its guidelines and technical standards, to understand the new authority’s thinking.

Review existing aml policies on a cross-group basis, as the first step toward developing group-level aml controls that meet the requirements of the new rulebook., identify issues and geographies where the greatest change will be required, to prioritise efforts to ensure compliance..

KPMG’s new AMLA Office will act as a centre of expertise on the new agency. As the authority begins operations, our AMLA Office will provide regular updates and analysis of AMLA’s rulemaking and the development of its supervisory policies and practices. KPMG professionals are a prime contact for support in preparing for the new regulatory environment and for assistance with the implementation of appropriate compliance measures, i.e. to help you achieve “AMLA readiness”.

Quarterly KPMG SSM Insights Newsletter – May edition

Welcome to KPMG’s first SSM Insights Newsletter of 2024. This year will see the SSM celebrate its 10th anniversary. It was in November 2014 that the ECB took over direct.

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Benedict Wagner-Rundell

Senior Manager

KPMG in Germany

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