Institute of Bankers Pakistan Examinees: What is Money Laundering Presentation

Money laundering is the process of concealing the nature, the identity, the source and the destination of illegal begotten money.

It involves three different stages:

• Placement

• Layering

• Integration

States in Money Laundering:

Criminals avoid record keeping requirement and “Paper trail” by structuring, bribing employees or having front business to open accounts.

Placement involves physically placing illegally obtained money into the financial system or the retail economy. Money is most vulnerable to detection and seizure during placement.

Layering involves separating the illegally obtained money from its criminal source by layering it through a series of financial transactions, which makes it difficult to trace the money back to its original source.

Integration involves moving the proceeds into a seemingly legitimate form. Integration may include the purchase of automobiles, businesses, real estate, etc. so that the money can be used without detection of its criminal source

Pictorial Example:

Where does Dirty money come from?

Let's start by having a common understanding of the definition of money laundering and the scale of the problem.

Every year, huge amounts of funds are generated from illegal activities such as drug trafficking, tax evasion, people smuggling, theft, arms trafficking and corrupt practices. These funds are mostly in the form of cash.

According to IMF (International Money fund), $600 billion are laundered each year

Why do criminals launder money & what are the consequences?

There are several reasons why people launder money. These include:

Hiding wealth: criminals can hide illegally accumulated wealth to avoid its seizure by authorities
Avoiding prosecution: criminals can avoid prosecution by distancing themselves from the illegal funds
Evading taxes: criminals can evade taxes that would be imposed on earnings from the funds
Increasing profits: criminals can increase profits by reinvesting the illegal funds in businesses
Becoming legitimate: criminals can use the laundered funds to build up a business and provide legitimacy to this business.

Economic & Socio Consequences:

There are severe economic and social consequences of money laundering. These include:

Undermine financial systems: money laundering expands the black economy, undermines the financial system and raises questions of credibility and transparency
Expand crime: money laundering encourages crime because it enables criminals to effectively use and deploy their illegal funds
Criminalize' society: criminals can increase profits by reinvesting the illegal funds in businesses
Reduce revenue and control: money laundering diminishes government tax revenue and weakens government control over the economy.