Sample Law Paper on Anti Money Laundering and Financial Stability

Anti Money Laundering and Financial Stability

Introduction

Money laundering and anti money laundering are synonymous in this century albeit to a very large extent. Anti-money laundering therefore are the efforts that aim and preventing money laundering. Their prevalence of this crime has negatively impacted on the stability of world economy, and largely on matters of security. Money laundering has taken several facets. These stages include the availability of cash, proceeds of crime at a particular place, disguising the origin of these moneys and, injecting the money into the economy. This has negative effects on the economy. Many illegal activities have been known to involve money. Money launders engage in several illegal activities that generate cash so fast.  The money acquired is stashed in places where it cannot be detected by authorities. Money laundering is an international crime due to the fact that money acquired is stashed in foreign banks where little or no suspicion will be raised (Durrieau, 2013).

There was clamor all over the world to establish an effective anti money laundering law or regime after the financial crisis of 2008. Most economies, including those of the United States and Britain were brought to their knees. The big economies went into recession and the only option to save the situation involved bailing out major market players in the economy. These countries used taxpayer’s money to prevent a total collapse and to protect the shareholders from total losses. However, most companies were not spared and ran to recession and bankruptcy. This phenomenon was unprecedented and the world players were able to identify money laundering as one of the major causes of instability (Nanto and Library of Congress, 2009).

The governments, therefore, came up with laws that would check on market stability. Whereas the government was a major player in the economy, the banking sector also had a very big role to play in detecting and preventing this crime. Money laundering required a global regime to fight. The European Union came up with money laundering directives. The United Nations passed several resolutions on money laundering. According to Koh (2006), the IMF and World Bank among other international players came up with committees to advice states on how well to tackle money laundering and implement effective anti money laundering laws.

National AML Regimes

The British government bore the greatest brunt of the financial meltdown of 2008, and therefore needed strong laws that would try to prevent a similar occurrence. The British government established the Financial Services Authority through The Financial Service Act 2001 (Themes and Trends in Regulatory Reform: Ninth Report of Session, 2008-09). The Financial Services Authority was a quasi-judicial body. The British government put in place effective mechanism to prevent money laundering within its territory. The Financial Services Authority was tasked with supervision of banks among other financial sectors. It should be noted that whereas the Financial Services Authority carried out supervisory functions for all these sectors, it did not have direct control over the banks. The Financial Services Authority was an effective tool in preventing cases of money laundering. Early detection through high-risk areas was encouraged. It was also a requirement that all depositors in banks provide their details to make it easy to track the source of the money and the details of the banker.

Whereas the Financial Services Authority was an effective tool in combating money laundering and other proceeds of crime, there was a need for reforms after the financial crisis of 2008. The United Kingdom government restructured the FSA in1st April 2013   and split it to the distinct departments. The Financial Conduct Authority (FCA) was established with the mandate of regulating the insurance industry. The Prudential Regulation Authority (PRA) was tasked with the overall mandate of regulating the financial industry. There was a greater realization that the banks were major players in the stabilization of the economy and could not be ignored. The Bank of England was given a much bigger mandate as a supervisor of other sectors of the economy or financial market. The bank of England supervised the Financial Conduct Authority and the Prudential Regulation Authority (Kenadjian, 2011).

The United States was also affected by both terrorism and recession in unimaginable proportions despite having had a better legal regime to combat money laundering and terrorism. The American financial sector was very fluid and major companies went down during the 2008 financial crisis. The United States Patriot Act amended the Bank Secrecy Act (BSA) after the bombing of the world trade center in September 11 2001 by the terrorists. The intention was to fend of money laundering and create a mechanism to detect and prosecute culprits engaged in terrorist activities and money laundering. The act was also to check on the banking sector and the financial sector. The Patriot Act intended to strengthen the United States efforts for early detection of crimes related to money laundering. The US AML regime ensures that there is early detection of suspicious activity, easy verifying of records, and enhance monitoring of foreigners. The patriot Act can also make special requirements regarding foreign money laundering entities that are of primary concern to the United States economy.

 

 

International AML Regime

An intergovernmental taskforce, a G-8 summit in Paris recognized the threat that the banking sector faced from the banking sector and other financial institutions. This summit was a formation of the European Union and eight other member states. The Financial Action Task Force (on Money Laundering) (FATF), which was set up in Paris in 1989 had the sole mandate of setting up effective anti terrorism mechanisms.

The Financial Action Taskforce has published several recommendations, the latest being in 2010. The recommendations are meant to be adopted by member countries, which currently stand at 36. The recommendations included 40 on money laundering detection and prevention, and 9 special recommendions on terrorism financing. There has been constant revision since the recommendations were issued in 1990. The recommendations were on implementation of various conventions in the international arena; Giving authorities power to confiscate terrorism related properties, having proper records of people dealing with financial institutions, coming up with proper early detection intelligence unit, and making sure that the fight against money laundering is done through close sharing and co-operation with other international players. To encourage non co-operative states to partner in the fight against money laundering, the Financial Action Taskforce came up with a list of blacklisted states. These states were considered non-cooperative, and therefore member states were discouraged from dealing with them. These kinds of isolation encouraged member states to enact anti-money laundering efforts.

The United Nations has also been at the forefront in trying to fight money laundering. This organization has a much bigger number of member states and goodwill to be able to make great achievements in the fight against money laundering. The UN also created the Global Program against Money Laundering (GPML) under the United Nations Office OF Drugs and Crime (UNODC). All these were part of the United Nations effort in the development of the compliance industry. This was to ensure that countries complied with the regulations espoused (Durrieu, 2013).

Corruption impedes Anti –Money Laundering efforts in the international globally. The greedy corrupt officials have been known to stash looted accounts in foreign countries. According to the Corruption perceptions index of 2000 to 2011, the state of Argentina has been ranked the most corrupt in the region. Corruption has helped terrorist financiers and other people engaging in illegal money transfer escape the law. Over 178 countries rank highly in the corruption perception index done in 2010 (Crawley, Swailes and Walsh, 2013). This demonstrates clearly that whereas there is goodwill to fight money laundering, the corrupt officials have made the fight futile. No wonder the saying corrupt habits die hard.

The IMF and World Bank have been at the forefront setting up guidelines to be followed by countries to fight this vice. The EU has also set up committees to make sure that the efforts to fight money laundering are not futile. The World Bank has set sanctions and rules that need to be followed by a state before any financing can be advanced to any state. This has made sure that the agenda on fighting money laundering can easily be advanced by the World Bank and IMF (Koh, 2006).

Interpol has also played a very big role in trying to fight money laundering. They have come up with annual reports on money laundering and other related crimes. For example, Interpol noted that the European Union is a culprit of money laundering due to its rules on free movement of citizens within member states. The airports in Europe are very porous due to less stringent measures on the documents of travel among member states. There is a need to track travelers and intercept those in the Interpol database (Schott, 2006).

The Role of the Banking Sector

The international monetary fund and the World Bank came up with the Financial Sector Assessment Program (FSAP). The Financial Sector Assessment Program was to offer support or assist countries stabilize its banking sectors. A stable banking sector has the capacity to protect the economy or offer stability to the market. The banks play a very big role in early detection of money laundering and confiscating of laundered cash. The banking sector is very significant in curbing money laundering. A proposal for international integrated effort in dealing with the financial crisis was muted. The European Systemic Risk Board (ESRB), for example, has taken the mandate to stabilize the European Union’s financial markets. The current trend in the financial sector showed that none is indispensable to the effects of money laundering and not even the most stable bank is spared. Tighter regulations had to be put in place to ensure that the banks are not used as a conduit to commit crimes (Chu and World Bank, 2006).

Europe has been in the forefront in anti money laundering initiatives. In their book, Demirgüç-Kunt, Evanoff, Kaufman and Federal Reserve Bank of Chicago, (2011), state that European Systemic Risk Board (ESRB) was established to ensure that there is financial stability in Europe. This was part of the international effort to have integrated laws to deal with the financial market stability of the world. An established board helped monitor and give recommendations on the market. Europe has greatly been affected by crimes associated with money laundering. EU countries have been used to stash laundered cash both from the Middle East and to a bigger extent from Africa.

Conclusion

Anti-money laundering efforts need to be stepped up. The global economy has become more vulnerable to crimes related to laundered money. The international co-operation is very essential in coming up with laws that work in tandem with those of individual states. This will ensure that weaker economies do not become victims of financial manipulations. The international legal recommendations should factor in views of individual state unique areas to be effective. Frequent sharing of information by states will also help stabilize the economy. The banking sector, especially the central banks should share financial information useful in stabilizing the market.

The sharing of information on money laundering should be a global initiative. The fast changing technology has greatly affected and complicated anti money laundering law. Money laundering was greatly affected by coming into force of paper money. The use of credit cards and the internet has posed a great challenge to money laundering efforts all over the world.

There is an urgent need to motivate and help most African countries develop anti-money laundering laws. Money laundering cannot be fought selectively by a few nations. With effective and collective approach, the world economy will be stable. Terrorism funding can also be eliminated.

 

 

 

 

References

Chu, L. L., & World Bank. (2006). Financial Sector Assessment Program: IEG Review of the Joint World Bank and IMF Initiative. Washington, D.C: World Bank.

Durrieu, R. (2013). Rethinking money laundering & financing of terrorism in international law: Towards a new global legal order.

International Banking and Finance Conference, Demirgüç-Kunt, A., Evanoff, D. D., Kaufman, G. G., & Federal Reserve Bank of Chicago. (2011). the international financial crisis: Have the rules of finance changed? Singapore: World Scientific.

Kenadjian, P. S. (2011) Too Big to Fail – Brauchen Wir Ein Sonderinsolvenzrecht Für Banken? Berlin: Walter de Gruyter.

Koh, J. (2006). Suppressing terrorist financing and money laundering. Berlin [etc.: Springer.

Nanto, D. K., & Library of Congress. (2009). the global financial crisis: Analysis and policy implications. Darby, Pa: Diane Publishing.

Schott, P. A. (2006). Reference guide to anti-money laundering and combating the financing of terrorism. Washington, DC: World Bank [u.a.

Themes and Trends in Regulatory Reform: Ninth Report of Session (2008-09). London: Stationery Office.