Money Laundering: Legal and Financial Effects on Financial Institutions

 

 Since the initiation of international anti-money laundering efforts in the mid-1980s, various substantive requirements have been established: the requirement to criminalize money laundering activities; the requirement that covered persons must know-their-customer; the requirement to identify and report to authorities suspicious transactions; the requirement to freeze, trace, seize, and ultimately forfeit the proceeds and instrumentalities of money laundering crimes; the requirement of covered persons to have a compliance officer and to train employees; the requirement for covered persons to have outside audits the compliance of their organization with anti-money laundering standards; and the prohibition of secrecy as a reason for a country and covered persons to refuse to follow any of the anti-money laundering obligations.

 

Preventive Measures of Financial Institutions to Curb Money Laundering

Financial institutions such as banks are normally used as intermediaries for cleansing laundered money. In order to curb out this crime, financial institutions must therefore be vigilant in regulating this activity. These institutions must investigate on any dubious accounts and peculiar undertakings of their clients in their system. Suspicious activity may include the use of Letters of Credit and other methods to move money between countries where such trade is inconsistent with the customer's usual business. Another is thing that should be looked into is those customers who make regular payments or receive wire transactions from countries which are tax havens. Similarly,            frequent requests or use of travelers cheques, foreign currency drafts or other negotiable instruments should also be considered as a suspect for launderers. The reluctance to provide normal information or providing minimal or fictitious information that is difficult or expensive for the financial institution to verify when applying to open an account as well as those using accounts with several financial institutions then consolidating them prior to onward transmission of the funds are a good indication of money launderers. A      greater or unusual use of safe deposit facilities as well as companies' representatives avoiding contact with the branch should provide enough skepticism among the bank’s top management regarding the sources of the assets deposited in their institutions. Finally, the requests to borrow against assets held by the financial institution or a third party, where the origin of the assets is unknown or the assets are inconsistent with the customer's standing should also be taken into account.