Money Laundering and Terrorists Finance - Essay Example

?Money Laundering and Terrorists Finance: Money laundering is considered to be the practice of disguising the origins of the illegal money that is obtained in the process. The proceeds of crime are made to appear more legitimate by the process of money laundering. A number of criminal activities are involved in the generation of money for this process. These criminal activities can involve different parties dealing with the exchange of drugs for money, the corruption activities, and the frauds that are done in the processes of accounting and also the tax evasion. The money can be laundered by using various methods that are usually varied and can also range in the sophistication from the simple processes to the complex ones. The government usually has lots of problems when combating the crime of money laundering. It has no association with the drama that is involved in the cases of robbery or any kind of fear that that is imprinted on the people’s physic through the violent crimes. However, money laundering usually takes place after a predicate crime that can be a house robbery, a housebreaking or a drug dealing that takes place at a particular place. It is usually perceived to be an invisible problem due to the lack of information about the money laundering that is available to the people on streets, hence making it more difficult to tackle and deal with by everyone who is affected by it in one way or the other. When money laundering is done successfully, it allows the criminals of the society to maintain their control over the proceedings and also ultimately provides them a legitimate cover over their sources of income. It plays a fundamental role and facilitates the activities and the ambitions of the drug traffickers, the terrorists, the insider dealers, the organized criminals, the people involved in the tax evasion along with many others who seek to avoid particular attentions from various people. The people who are not involved directly but do it by being involved in one way or the other are benefitted from money laundering. It hides their work from the authorities and the work they have done as a reason for their sudden increase in wealth in a short span of time which comes from the illegal activities they are involved in for most of their time. The engagement of people in these activities makes sure that it works according to their hopes in order to place the proceeds beyond the reach of any restrictions laid by the authorities or the reach of any of the asset forfeiture laws. Money laundering can be looked upon by taking in different situations to make the study more complex: Classic Money Laundering A person who has an illicit income is believed to be involved in classing money laundering. This person is usually a drug dealer, a jewel thief or a conman. Such a person is usually worried about that he will have to suffer from the Al Capone treatment and will be convicted of the tax evasion even if the government does not put any kind of the underlying criminal activity on the person in the given situations. Modern Money Laundering The other way in which a person can get involved in the money laundering process is when a person has some big lump of cash that a person makes sure that it is not known to other people in the neighborhood in the society. Most of the times, this is an effort to keep the income hidden from the income tax department people. The other goal that is associated is to make sure that the money keeps coming without the attention of any other person in the society who might claim their authority or their part on the money that is involved. For this kind of money laundering, the focus is on making the money disappear from the notice of other people. A person is usually tended to use the facilities of foreign banks and other shell companies so that all their money can be kept hidden and their work goes on without notice. Disappearing the Money The easiest and the quickest way of disappearing money for a person, especially when it is in the form of cash is to stash it in the safety deposit box. It does restrict the person from making any investments on anything to further boost his income but on the other hand money is safe and the person knows where it is kept. However, if the person really wants to invest that money instead of storing it in the safety deposit box, he can move the money to the banks abroad in order to take them overseas. Banks provided help enough help for these customers who were good customers according to them to get their money overseas in a more discrete manner. However, these days such transactions are heavily affected by a huge number of laws and bankers are more directed to get themselves in jails if they assist their customers in such activities. They expect the bankers to refuse such transactions from the people outside their country and do not get involved or get themselves rat out. This leaves the bank safe without any violations in law and money laundering is controlled to some extent. Reappearing the Money This is more part of the classic money laundering technique. A person’s cash is that has been stored in the safety deposit box safely can be pulled out in small amounts depending on particular situations. The person can use that cash for a few bills that he might have to pay and also when the person is heading out of his house for a night to be spent in the town. The standard of living modesty of that person can be raised by doing so. The amount that is going to the person’s bank account can be raised alternatively by keeping the standard of living the same as before. This makes sure that the money that is hidden by the person is used more as the above-board money. The money that is stored overseas can be brought back in a way that it is more legitimate. The best way of doing so is by creating a company abroad which can then hire the person to do something for the company. Whatever a person does then, he can easily send an invoice whenever necessary at the time he wants the money for his use. This process can also be reversed in sending the money abroad that is prohibited and also restricted according to the laws that exist in the country. Terrorists Finance The groups of terrorists have become increasingly adept in their way of eluding detection through the use of cash that they need for their activities. They do this through the effective use of cash, the laundering operations that are usually sophisticated or through the companies that have a legitimate front. These help them to continue with their activities and the money that is generated is usually done behind the doors. The sources of financing for the terrorists for their activities are as follows: Charities One of the largest sources of earning for the terrorists group at one time were through donations which came mostly from the charities or the individuals who were wealthy enough to provide the cash. It has been found out that the individuals living in Saudi Arabia were once were once a very important sources of finance for the likes of Al-Qaeda along with the likes of the charities in Saudi Arabia. Illegal Activities The largest source of funds or the income for the terrorists is the illicit drug trade that is done by the terrorists with different people. However, many of the other terrorist groups have supported themselves by the help of illegal commerce that exists. Front Companies Most of the organizations of the terrorists try to operate the legitimate businesses in their attempts to generate their own profits. This process can also be used to establish a front for money laundering to take place. There are ties that exist between the terrorists with the people of particular countries through the trade of livestock, leather and fish. Another support for terrorists is created by the businesses involved that deal with the agriculture and the construction processes of the country. The shipments that are used for trade are not only for the goods that are exchanged for money, they are also loaded with concealed shipments of money and also the weapons that are used by these terrorist groups. These activities are performed within the legitimate way and are carried out affectively between the businesses and the groups of terrorists to generate funds. Money Laundering Affecting the Global Financial System Money laundering can lead to potentially negative consequences for the economic performance of a particular company. Along with this money laundering can also impose welfare losses and also the negative cross border and the negative externalities. However, the money laundering abuse is facilitated by the globalization of the world and also the integration of the financial markets. Since the development and the existence of the financial markets are underpinned on the basis of trust, the effective functioning of these markets relies a lot more on the expectations that are highly professional, a lot more according to the ethical standards and the legal processes that are observed and enforced. The reputation of the country is built on integrity which includes the factors of soundness, honesty and the adherence to the standards and the codes that are set up initially. These factors are one of the most valued assets of the investors, the financial institutions and the jurisdictions that are highly destroyed by money laundering processes that take place in that particular country. Money laundering makes the country compromise on the reputation of their financial institutions and the jurisdictions. It also has a dramatic affect on other macroeconomic processes and may result to negative consequences. It may lead the bank to compromise on their soundness with the potentially large fiscal liabilities. It can also lessen the ability of the bank to attract foreign investors in the country along with increasing the volatility of international exchange rates and the capital flows of the banks in the country. These days the financial systems are run with high capital mobility. The process of money laundering results in high difficulty in the national tax collection and the enforcement of law in the country. Money laundering can also lead in distorting the allocation of the resources and the distribution of wealth of the country. This proves to be very costly for the country to remove in order to remove and then eradicate. The economic damage that the country is more inclined to suffer from is not only due to the direct impact of money laundering but also from the allegations of money laundering that have a direct affect on the reputation of the country. This can be taken into account by the list of actions that one country has done against the money laundering system that is perceived in another country. These actions or these allegations results in the reputational effects that directly affect the willingness of the economics, particularly the ones that are outside the country when they think of conducting a business in the given country that has to suffer with such adverse consequences. Activities that involve the money laundering processes, a type of a financial crime, is concealed and their observation is usually not easy to notice directly by the statisticians or the macroeconomists in the country. Therefore in the absence of the required data, these statisticians and the macroeconomists are more inclined to use the indirect methods to cater with these situations by taking into account the estimated use of such activities to a potentially reasonable volume so that they can analyze the situation and then interpret what can be done as a possible solution. This is mostly a hypothesis as direct ways cannot be implemented due to the lack of information data that might be required to develop a more concrete analysis of the whole situation at the macro level. Terrorist Financing Affecting the Global Financial System In the past few years, the terrorist attacks that have occurred all around the world has raised considerable awareness of the danger that is imposed with terrorism all over the world and the repercussions that come along in the financial markets all over the world which have made the situation more complex. Financial markets are affected by terrorism as they are the victims either directly or indirectly. The financial markets are not only have to confront the major disruptions that is caused by the massive damage of the property along with the communication systems of all the countries and the people associated with it, but it also creates a souring level on uncertainty in the market along with the volatility. Even the most hardened decision makers of economics tend to react more emotionally to the events that are associated with terrorism. Once the investors lose their confidence in the value of money in a particular currency of the country, there is a massive decline in the value of the currency of that country. One of the most noticeable and huge problems which are endured during these uncertainty periods that were caused due to the effects of terrorism which were the specific conflicts within the countries that led to instability that is caused in the exchange markets to a larger extent. In such circumstances, all the nations are obliged to work together on such matters in order to avoid serious and more considerate financial crisis that can take place all over the world. These human tragedy events have a huge impact on the international financial system along with the global economy. Initiatives to counter the effects of Money Laundering and Terrorist Financing in Global Financial System Since the early 1980s, considerable efforts have been made to contradict with the issues related to money laundering and the way it affects the global financial system either directly or indirectly. In 1988, the United Nations (UN) Convention was used to counter the Illicit Trafficking that was been done in Narcotic Drugs and also the Psychotropic substances that were being used widely. This treaty was implemented after considerate countries became the signatories of the treaty in order to criminalize the laundering of the money from one country to another along with confiscating it wherever found. These necessary steps were the first major steps to counter money laundering affects in all the countries and to have a fair say in the global financial system. In 1989, the Financial Action Task Force (FATF) was established to control money laundering. This was mostly an inter-governmental body that worked with the collaboration of all the countries that were affected by these threats. Since 9/11, more attention has been given to money laundering compared to the initiatives that were taken in the past. Most of the jurisdictions have tried to strengthen their internal regulations to counter the threat that is imposed by money laundering. Since the money laundering processes are more sophisticated, the technology that is used to stop or restrict money laundering is also more complicated. However, with the use of information technologies of modern times, the financial transactions are easier and far better than what they had been in the past. This enables a more efficient monitoring of the processes as compared to what happened in the past that allowed money laundering more conveniently. The Financial Action Task Force is more of an inter-governmental body that is responsible for developing and promoting strategies in order to protect the global financial system against the massive threats that are imposed by terrorist financing and money laundering. The recommendations that are issued by FATF define in more detail the criminal justice and the regulatory measures that need to be implemented in order to counter this situation which creates such dramatic effects. The recommendations by the FATF also include the measures for international cooperation and the preventive measures that are in need to be taken by the institutions of finance and others that are involved. These other financial institutions can be the likes of casinos, the real estate dealers, the accountants and the lawyers. The recommendations of FATF are well recognized by the standards that have been set up for the global anti-money laundering (AML) and countering-terrorist financing (CTF). The FATF constantly monitors and tries to identify the new threats and the risks that can be imposed by the processes of money laundering and terrorist financing for the financial and the non-financial institutions that exist in different countries. One of the aims of FATF is to increase the global awareness of this issue and also allow the detection of use as early as possible to avoid the abuse of these financial systems. Their work is also instrumental in developing the most appropriate standards in order to respond globally to the emerging new threats posed by the money laundering processes along with the terrorist financing process that take place all over the world these days. They methods used by FATF are in constant evolution and the techniques that are used are more appropriate. The massive need of creating awareness in different countries due to the vulnerability of the security industry to terrorist financing and money laundering was understood by FATF and looked forward upon. It marks the steps necessary and that should be taken by a wide range of people, ranging from the private sector to the national competent authorities that are involved in the processes of global financial systems. This also includes the law enforcing authorities of the country along with the supervisors that work on their parts to the processes through in these situations. There are usually huge risks for all the people involved in the money laundering process and the terrorist financing processes. This can also include the intermediaries who play the major role as money in both the processes is transferred or exchanged through them. However, the other aspects that are involved are the products, the payment methods and the clients that are involved in the security industry of a particular country. This financial abuse will not only create problems for them but also for the country in the long term as it may lose its credibility and its image in the international financial market. The typical schemes of money laundering that are related to securities often involve a larger series of transactions that take place and do not match with the investor’s profile. They also do not appear to be designed in order to provide a return on investment that is made by the investor. However, some of the areas of security are not as peculiar to the vulnerability of the security industry. This is marked by taking an example of the rogue employees or the transactions that involve terrorist financing. All these steps are embarked to make sure that the transactions need to be screened in order to be pursued later. The sector of security is usually characterized by the high speed of executing the transactions along with its global reach and its adaptability. New products and services are developed all around the world constantly with regard to the quick reaction of the demand of the investor along with the conditions of the market and the advances that have been made in technology with due respect to time. This enables the money launderers and the terrorist financers to use the sectors of security and various methods can be used to by which they can fraud with the transactions. However, the suggestions by FATF can be used in the process of defrauding these criminals to some extent. Money laundering can be done using various currency exchange providers and also the money remitters. The transactions and the channels through which this can be done is important to understand the regime that is applicable to the professional people of one country in comparison to the other. There are various ways by which the money launderers or the terrorist financers that can be either used or abused for their desired purposes. Not only the clients are affected, but also the staff and the management along with the associates of the money remitter company or the bureau to the change can also make use of the facilities that are provided which can assist in the process of laundering money or assist the money launderers. The private sector is also provided with a list of indicators and the competent authorities in order to detect and deter the illegal activities that are backed through these businesses in various countries. These indicators help in countering the problem that exists and provide a more beneficial global financial system. Terrorists are more inclined to in their need of money so that money can also be moved. They try to exploit the international banking system in order to move money around the world so that their activities can be financed. In the other way, they may launch the physical or the cyber attack against the banking system that exists in the world by freezing the payments system along with the ATM networks to make sure that people are not able to access their money for a longer duration. This brings the money in the economy to a grinding halt and also a weakening havoc. Another way is by engineering a financial crash. In order to prevent the terrorists from laundering money for their activities, a few more steps that can be taken include: Keeping Track of Debit and Credit Cards As most people take advantage of using store credit cards with usually no intentions of ever using it in the near future. This is fine. What people usually do is throw their cards in their drawers and forget about it after the passage of time. It can usually lead in the hands of a wrong person who may use it for other activities. Checking Bank/Credit Card Statements for anything Suspicious Terrorists who are usually smart will not use anyone’s account for considerably huge transactions that can be spotted easily. Conversely, they will use small transactions and disguise their large transactions. This is usually not able to be tracked by the radar system and the consumer himself but the terrorist financing can be done easily through these small transactions at different times. Being Careful of ‘Phishing’ – Fraudulent Messages pretending to be coming from the financial institutions The cases of phishing have been considerably large in the cases of phones, emails and text messages that are directed to be either from the bank or the credit card company that marks some problem with the account. The fraudsters ask the customer to click on a particular link or even ask the personal information of the account number or the password. For the customers, it is usually very hard to distinguish between the original website and the fake website that collects the information. Never giving out the Financial Information This is to make sure that a person does not reply to dubious emails that are received from other countries that usually promise to give millions of dollars in exchange for an expense fee on the modest upfront. Knowing who is getting the money The institutions of charity are at times involved in the funneling of money for money laundering and terrorist financing. Checking the tax-exempt status of the company can help to check the authenticity of the institution of charities that often refer themselves to be non-government organizations. Not Relying Sole on Electronic Statements of the Bank If the bank’s financial records are destroyed due to some situation or the other, the bank will usually have backups through which the financial records can be restored. This may take a longer duration and enables the terrorists to use techniques to develop financial records according to their interests. Always keeping some emergency cash at home As there is a risk of robbery, too much of the cash should not be stored at home but a considerable amount should be kept in order for survival for an individual for a few days when needed. When travelling, keep emergency cash or two credit cards It can be useful as there might be problems using a credit card and terrorists can make use of it. In order to be on a safe side, it is beneficial to carry at least two credit cards or some emergency cash to deal with the circumstances. Accessing Publicly Stated information on the state of economy and financial system in different countries A person interested in investing their money in some other country should check out the IMF (International Monetary Fund) which develops annual reports on the financial systems of different countries in the world. All these factors are very important to make sure that money laundering processes and terrorist financing processes can be counted in an effective way. This is because it has a huge affect on the global financial system. Not only the investors in other countries are affected but also the company itself is affected as the credibility of the country in the international market becomes questionable. 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