Anti-Money Laundering: What It Is & Why It Matters – Are We Prepared?

A crime syndicate is only as good as its ability to launder its ill-gotten money. Hence, breaking a criminal’s financial credit and the debit line is equal to stopping him from doing his actions. We have partially entered a digital era, where almost every aspect of lifestyle is online. From making daily life purchases to conducting university exams, the majority of our dealings are directly or indirectly connected to the internet. The same new phase is also a breeding ground for Fraud, cyber, and money laundering, which will continue to grow as criminals exploit grand-scale digital adoption through computer and mobile-enabled crime. 

  • Per textbook definition, Money laundering is a process by which criminals attempt to conceal the illicit origin and ownership of the proceeds of their unlawful activities. By means of money laundering, criminals attempt to transform the proceeds from their crimes into funds of an apparently legal origin.

Anti-Money Laundering: What It Is & Why It Matters - Are We Prepared?
Anti-Money Laundering: What It Is & Why It Matters – Are We Prepared?

A major portion of the business community acknowledges that cybersecurity is the toughest challenge they face in 2021. As per the latest survey, more than 2 trillion US dollars have been laundered even in this difficult situation. The COVID-19 phase has shown us that legitimate businesses can get hamper but it didn’t stop criminals from conducting their “businesses”. The uncertainty and chaos COVID19 brought gave the anti-socials the best chance to conduct their criminal activity and launder its proceeds. 

The estimated amount of money laundered globally in one year is 2 – 5% of global GDP. For years, the international community has urged worldwide collaboration, coordination, and cooperation to fight money laundering and terrorist finance. 

The Financial Action Task Force (FATF) is the inter-governmental body that sets international standards to prevent money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction. Per FATF’s second 12-month review, among 128 jurisdictions (38 nations and 90 similar regional organizations) a good number of nations have updated their Anti-Money Laundering (AML)/CTF regime to address newborn issues like virtual currency, but certainly not enough. 

Money Laundering, Cryptocurrency and Innovative Crime: 

Ransomware attacks had increased manifold, with the US, India, Sri Lanka, Russia, and Turkey as the most affected countries by denial-of-service attacks in exchange for payment, double extortion, and trojan viruses. Due to the revolutionary digital boom, a criminal sitting in a remote village of Russia can threaten any individual in Hong Kong. The pitfalls made due to fragmented anti-financial crime rules across the globe do not limit to identity theft, investment frauds, crypto Ponzi schemes, online romance scams, social media, social engineering and online shopping, online loans, and fake online jobs all requiring victims to disclose bank account details. 

Terrorist financing has also gotten creative. Israel security organization has seized cryptocurrency wallets used by Hamas, which were not only Bitcoins but also various other cryptocurrencies. The US Department of Justice also announced the dismantling of virtual assets of Al-Qaeda, and the Islamic State of Iraq, and the Levant (ISIS). 

Culprits in The Ship 

The 2,500 leaked Suspicious Activity Reports (SARs), held by the US Financial Intelligence Unit FinCEN, showed that between 1999 and 2017, top tier banks reported over $2 trillion worth of transactions with clients in over 170 countries. This was exposed by the International Consortium of

Investigative Journalists (ICIJ), who were also behind the Panama Paper leaks and the 5 global banks JPMorgan, HSBC, Standard Chartered Bank, Deutsche Bank, and Bank of New York Mellon were allegedly reaped humongous profits per these leaked reports. The major finding from these leaks was the inadequate usage of Suspicious Activity Reports. A suspicious activity report (SAR) is a tool governed by the Bank Secrecy Act (BSA) of 1970 for monitoring suspicious activities that would not ordinarily be flagged under other reports (such as the currency transaction report). The main loophole is that the bank’s duty stops after filing a SAR and the banks continue to proceed with the transactions as they charge transaction fees for these transactions which is basically a major part of their profit. Now the ball is on the regulator’s court, if they don’t follow up with these SARs there is no utility for such tools, and the SARs keep on accumulating without further investigation. 

Recently, the federal reserve of the United States and The German financial regulator BaFin warned Deutsche Bank AG to solve its frequent shortcomings to address the money laundering activities via its bank. Even a couple of years back BaFin took the extraordinary step of installing the auditor KPMG as a monitor of the bank and the lender also frequently surfaced in news due to huge fines put on the bank by the US and European regulators. 

Technology and Collaboration: Money Laundering

In an ever-evolving economy to identify customer details and filtering out false positives is a challenge. Artificial Intelligence and machine learning are the only solutions. Unique software and programs are the most important weapons that institutions can adopt to fight financial crimes. The problem gets manifold when coming to monitoring transactions. To address the exceptional and suspicious activities within the highly complicated transactions by an analyst might become a fight between the Godzilla and lizard. Here artificial intelligence comes to the rescue, but it cannot entirely replace human judgment, as they cannot update themselves when the criminal step-up the game. Hence steps to adopt technologies like Blockchain technology, automated Natural-Language generation, and strengthen widely used Robotic Process Automation (RPA). International organizations like FATF, IMF, and other domain experts back the idea of aggressive adoption of digital technology to curb this mutating financial virus called Money laundering. 

All this come up with a huge cost indeed, Per a LexisNexis report, the cost of financial crime compliance across all financial institutions reached $213.9 billion in 2021, which comes almost near to $300.00 billion marks which the various financial institutions have paid as a result of regulatory penalties, enforcement actions, and other fines. So in the future, these figures seem to be rising as we need innovative technologies, which are definitely expensive but also better than almost the same amount of fines and ill effect that financial crimes shower upon society. 

Where does India Stand? 

As per various reports, more than 80% compliance burden is handled by western European countries and the United States. Even Though these nations, which are well known for their compliance culture, cannot stop money laundering to an optimum level, how can Asia-Pacific countries, especially India, fight this menace sufficiently? 

Mutual Evaluation Report for India published by FATF in 2009 acknowledged India’s commitment and rules and regulations enacted in crippling money laundering and financial terrorism but also pointed out the unsuccessful convictions rate and persecutions. Per the report, India is struggling to fight corruption at various levels like the judiciary, policing, and administrative levels. This factor is evident from India’s ranking in Transparency International Corruption Index and World Governance Indicator.


Also Read: Indian Financial Situation Amid COVID-19: Awaiting The Third Wave


– Control of Corruption with 40/100 and 48/100 points respectively. The next decennial MER assessment report for India is due in 2021, which has been postponed due to a pandemic. 

Broadened definition of ‘proceeds of Crime’, and replacement of Adjudicating Authority with a Special Court, in line with Finance Act 2008 and 2015 might help India to reap more conviction numbers. In addition, incorporating ‘Corporate Fraud’ in scheduled offenses under Finance Act 2018 and enactment of Fugitive Economic Offenders Act, 2018 may also help. 

Deep penetration of the Internet, and vast adoption to digital payments, and with the advent of cryptocurrencies, fighting money laundering, terrorist financing, and other financial crimes became a difficult task, but not an impossible one. We have to think like criminals and mimic them by creating worldwide syndicates and should gain and maintain a technical upper hand.

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