Due to ever-evolving exposure to financial crimes, the regulations and guidelines are continuously being updated. Governments have recognized the severity of the impact that money laundering and financing of terrorism can have on the economy and are contributing to the international mission of combating these crimes with strict implementation of AML/CFT regulations.
The government intends to create awareness amongst business entities about financial crimes, their implications, and how to comply with the laws to mitigate these risks. These regulations also provide for payment of penalties and imprisonment of the person non-complying with the AML requirements.
Let’s get started with this most discussed topic in the financial arena – money laundering and financing of terrorism.
It is an unlawful process aimed at concealing the origin of the money (which is illegally obtained) and transferring it through the legal system via multiple complex transactions (these transactions might be micro-ones). These layers of transactions are difficult to detect. The illegally obtained cash is combined with other legal proceeds and then diverted towards criminal and terrorist activities.
With several commercial transactions, the criminals try to hide the source of the money and the owner of such funds. In this way, the traces of the origin and originator are lost in a series of transactions.
Money laundering started as early as the 1920s when alcohol smugglers started legalizing their criminal proceeds by investing them in legitimate businesses. But today, it has taken a more sophisticated form with the help of technology and global networking.
We live in a digital age, where the presence of technology is omnipresent, and the same is exposed by criminals to launder money. Criminals deposit illegal cash in legalized financial institutions, and through layering and other means, they make the illicit money appear legal and obtained lawfully. Their sole motive is to pass the illegal funds through the genuine financial system, make it appear that it has been obtained from legitimate sources, and use it further for unlawful activities or personal benefits.
Let’s understand the money laundering process step-by-step. There are three main steps in the money laundering process:
It involves putting the illegally obtained proceeds or money into a financial system that is legal and approved by law, such as banks and financial institutions. This exercise is to release the launderer from the responsibility of managing the bulky cash and getting a safe entry of such illicit funds into the stable economy.
This process involves hiding the source of the unlawfully obtained money with many layers of transactions and using different tactics in the bookkeeping and accounting process, such as off-book entries or shell companies. This stage aims to distance the dirty money from its origin and originator.
This step involves withdrawing the money from a legitimate account to make the source of cash appear legit and justifiable. Such funds are subsequently used for further funding of criminal activity. Often this money is used for financing terrorism which is a global threat.
Criminals use several ways to launder money; nowadays, they are using technology rampantly to safely pass their illicit money through the legal and financial systems. They combine the black money or illegally obtained funds with the legitimate proceeds in ways like inflating the bills or showing receipts from fake accounts. They later withdraw the funds from banks, which now appear to be legally obtained from a legitimate business.
Cash-intensive businesses are a soft target for criminals such as real estate or gambling.
They use video games and cryptocurrencies and exploit the loopholes in these industries to launder money. It is a scary situation – beyond imagination! The problem is enormous – with estimates such as trillions of dollars being laundered annually on a global basis- one can think of the danger such a vast scale of operation puts the whole world in.
The political unrest worldwide and the recommendations by international organizations like FATF have prompted governments to take appropriate actions to mitigate the ML/FT risks. Accordingly, the governments are making changes in the AML policies. Governments often revise the AML rules and regulations based on the current socio-economic situations.
A recent example is a Russia-Ukraine battle which has led the US, UK, EU, and several countries to impose sanctions on Russia. So, businesses must update their AML compliance framework with the revised AML rules and regulations to fight against the evolving money laundering or terrorism financing, or proliferation financing typologies. Only then can they stay fully compliant with AML regulations. Awareness of the latest developments and AML rules will ensure their timely compliance, safeguarding their businesses against financial crime-related risk and avoiding penalties.
Therefore, it is advisable to continuously monitor the customers’ profiles and track their changing behavior to detect any potential money laundering attempts. Businesses can rely on AML software to detect suspicious activities and transactions, report them in the Suspicious Transaction Reports, and submit them to the Relevant Unit of the Ministry.
Since financial crimes like money laundering, terrorism financing, and financing of proliferation of weapons for mass destruction have become a global threat, international organizations are coming forward to fight these vices. The Financial Action Task Force (FATF) is one such organization to specifically checks on these crimes. FATF was founded in 1989, and since then, it has played an instrumental role in preventing money laundering and funding terrorist activities. Further, the proliferation financing of weapons for mass destruction was also included in its scope. The organization has brought AML laws to the global center stage and is helping to prevent money laundering and other crimes with its exhaustive list of several strong recommendations.
The FATF recommendations are designed to assist organizations in combating ML/FT and PF risks. It is highly advisable to implement the recommendations and develop a solid compliance model equipped to deal with the threat of money laundering and related crimes.
Obliged financial and non-financial organizations must perform AML compliance processes to restrict the criminals from misusing their business organizations for their illegal activities. The financial services sector, jewellers and auditors, etc., are subject to stringent AML regulations.
AML Bahrain is an expert AML consultant and an advisor to many businesses in Bahrain. We help businesses with their AML compliance framework, which includes the following:
We can help you achieve full AML compliance with the AML rules and follow the FATF recommendations by implementing the best AML practices acknowledged worldwide. We also assist in streamlining the customer onboarding process without worrying about money laundering and without impacting your business’s core operations.
Our experts will validate your AML policy, guide you to improve it and help you develop a robust AML compliance system to secure your organization against money laundering and financing of terrorism
