AML- KYC Tutorial | Global Phenomenon in Money Laundering

Global Phenomenon in money laundering

The methods of concealment and money laundering have become increasingly sophisticated and attract attention globally. Some of the reasons why it has attracted global attention are:

Successfully laundering money means that criminal activity actually does pay off. This means more fraud, more corporate embezzling, more drug on the streets, more drug-related crime.
It is the fuel to expand criminal enterprise.
Legitimate small business can’t compete with a money-laundering front business that can afford to sell a product for cheaper and even in loss as their motive is to clean money and not to make profits.
Risks for financial systems and institutions
Huge amounts of illicit money in the financial system erodes integrity.

The connection between money laundering and terrorism may be a bit more complex, but it plays a crucial role in the sustainability of terrorist organizations.

To harmonize the efforts of the international community to counter money laundering, the United Nations Convention against Illicit traffic in Narcotic Drugs and Psychotropic Substances of 1988 requires the States which are party to it to declare money laundering a punishable offence. They are also required to adopt measures to identify and freeze or confiscate proceeds from the sale of illicit drugs and promote international cooperation against laundering.

How is Money Laundering a Global Threat?

It has acquired a global character that not only threatens security, but also compromises the transparency, stability and efficiency of financial systems. Methods and techniques used by criminals have become more complex and sophisticated. Criminals go to great lengths to protect themselves and their criminal businesses. As a result of these actions, the prosperity and security of many are put at risk by today’s criminal and terrorist threats. Due to involvement of various criminal and terrorist organizations in this activity and globalization in trade and commerce, laundering poses a global threat. It can have a range of macroeconomic consequences on countries with inefficient measures to control laundering such as,

Threat to the stability financial systems and institutions
Unpredictable changes in money demand and supply
Contamination of legal financial transactions
Reduces tax revenue as it becomes difficult for the government to collect revenue

Volatility in international capital flows and currency markets due to cross-border transfers