Money Laundrying

Money Laundering

Student’s Name

Table of Contents

Abstract 3

Introduction 3

How Firms Launder money 4

What impact money laundering has on the operations of companies operating legally 5

Undermining the private sector 6

Tarnishing reputation of legitimate businesses 6

Problems in handling company assets 7

How managers ensure that their companies avoid being involved in money laundering. 8

Risk management 8

Country Risk 8

Product Risk 9

Customer Due Diligence 9

Customer Activity Monitoring 10

Reporting Procedures 11

Record Keeping 11

Confidentiality and Personal Data Protection 11

Training 12

Internal Control and Audit 12

Conclusion 12

Bibliography 14

Abstract

Money laundering can be explained as the act in which the acquisition of money and properties through illegal events or activities are converted into legal items. This conceals the source in which these items are derived from. Large amount of money are acquired on an annual basis through illegal dealings. These funds need to undergo a process which will not make it illegal. Such process is also known as money laundering. This pose a huge threat to large companies especially financial institutions as they make use of precautionary measures to prevent themselves from becoming part of the money laundering process. The purpose of this essay is to examine the association between companies and money laundering and how do they handle the likelihood of such process that will pose threat to the corporate world.

Introduction

Money laundering can be explained as the process which people or organisations want to conceal their illegal actions or activities. Such process is critical as they can continue to derive income from these illegal activities through money laundering and without putting their source of income in jeopardy. The development of technologies and financial systems worldwide has facilitated the transfer of funds easily. The pace and convenience pertaining to the transfer of funds have increased the urgency to implement anti money laundering policies. As these criminals deposit these illegal funds into the financial institutions, it will make it tough for the authorities to trace the source and of it.

The money laundering business aids in disguising these illegal funds and without disclosing those who seek to obtain benefits through this process. It is a tedious process to determine the overall amount of funds that that has undergone the money laundering process worldwide. Nonetheless, data from the International Monetary Fund (IMF) have revealed that the amount that is being laundered annually is approximately 2 to 5% of the global gross domestic product. Most people will make use of the financial systems to conceal such money laundering process. This is because they do not want to leave any trail of excessive funds that will arouse suspicions from the authorities and thus expose their illegal dealings. Money laundering is utilised by various criminals and can be conducted using different methods or tools but with the same objective. (Schneider, 2010).

How Firms Launder money

Money laundering is a process which is conducted in three different steps during one transaction and can be separated in different forms. These three steps are placement, layering and integration. In the first stage – placement, the money launderer will attempt to place the illegal funds into the financial system. In addition, the money obtained will be broken into small amounts to prevent any need to report large amount of cash transactions. This is also known as structured payment. During this stage, financial institutions as well other professionals are prone to be involved in the money laundering process. (Ryder, 2012).

The next stage is known as the layering process and this tend to take into account many different transactions. The objective of this stage of the money laundering process is to divert attention from the initial source. Hence, the funds will be used to purchase real estate, stocks or bonds in the financial markets or transfer to various accounts in several nations through online procedures which makes it tough to discover. The last stage is to integrate and circulate in the market. (Ryder, 2012).

It is difficult to obtain an accurate estimate of money laundering in the world. For instance, the Financial Action Task force states that the total amount is estimated to be at least 500 billion dollars to 1.5 trillion dollars annually while the United Nations claims that the total amount should be slightly higher to at least 2 trillion dollars. On the other hand, the IMF has a rough estimation of an average of 3% of global gross domestic product. Ryder felt that it is tough to gauge the exact amount of the money that is being laundered annually. Nonetheless, these staggering figures have indicated that illegal activities have been on the rise and money laundering will create more threats to both the world’s economy and national security. (Schneider, 2010).

What impact money laundering has on the operations of companies operating legally

It is difficult to determine the exact figures and impact of money laundering on the economy. The current financial systems help to facilitate daily operations and financial activities. Thus, criminals can transfer money using electronic gadgets at ease. Although money laundering depends on financial systems, criminals have the option to launder money through various mediums

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