Money laundering is the process of concealing the ways illegal money has been obtained, towards presenting and using it as legitimate income. It is a criminal act that entails a complex sequence of transactions involving banks, enterprises, and other commercial stakeholders. Money laundering has significant economic implications such as reduced government revenues and increased tax rates for honest taxpayers. At the same time, it has considerable societal implications as it fuels the activities of drug traffickers, smugglers, and other criminals.
In this context, Anti Money Laundering (AML) activities aim at deterring criminals from laundering money through exposing the sources of illegal money and making it very difficult to transfer and use such money. At the technical and technological forefront, AML activities aim at tracking and tracing money flaws towards exposing potentially illegal activities. Likewise, at the regulatory forefront, financial institutions adhere to AML regulations that oblige them to keep track of monetary transactions, identify potentially suspicious activities, and reporting to regulators and law enforcement agencies.
In recent years, AML activities have been expanding and made more efficient. Specifically, financial organizations employ disciplined processes for tracking money flows and detecting activities that are likely to be fraudulent. Nevertheless, the scale of money laundering activities has been recently increasing. According to the United Nations, the estimated amount of money laundered globally in one year is $2 trillion. There are various recent large-scale money laundering cases such as the Danske Bank money laundering case in 2018 that involved almost $200 billion of potentially fraudulent financial transactions. Overall, designing and implementing AML activities is a very challenging task given the complex ecosystem of digital finance transactions.
AML activities track all the phases of money laundering including:
Tracing money and its transformations across the above phases is generally challenging. This is because several transactions take place by different people and across different institutions. Moreover, they entail multiple assets that are not obviously connected to the original money flaws. In recent years, the process has become even more complicated because of the emergence of new digital platforms and their integration in the global digital finance ecosystem. For example:
In an environment of multiple stakeholders, technologies and payment modalities, money laundering criminals are offered with increased opportunities for concealing the source and flow of money acquired in illegal ways. Likewise, digital channels enable them to act much faster than in the past, even when transactions take place across different countries and digital finance ecosystems. These are some of the reasons why existing AML systems and regulations fall short when it comes to dealing with sophisticated laundering activities that involve multiple internet platforms worldwide.
To cope with money laundering activities in a complex digital finance landscape, financial organizations, regulators, and law enforcement agencies had better adhere to the following best practices:
The rapid evolution of the global digital finance ecosystem enables the delivery of improved services to citizens and businesses. It also facilitates the development of innovative products and services. Nevertheless, it creates new opportunities for conducting financial crime, including money laundering opportunities. Fortunately, advanced digital technologies are not only a source of the problem but also a part of the solution. In the next few years, financial organizations and law enforcement agencies will be increasingly deploying such technologies to enhance the effectiveness and timeliness of their AML activities.
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