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Money Laundering

What is Money Laundering?

The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance to constantly counteract money laundering activities.

Illegal arms sales, smuggling, and the activities of organised crime, including, for example, drug trafficking and prostitution rings, can generate huge amounts of money. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to 'legitimise' the ill-gotten gains through money laundering.

When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.

The Financial Action Task Force on money laundering (FATF) was established by the G7 Summit in Paris in 1989 to develop a co-ordinated international response to mounting concern over money laundering. They soon developed 40 recommendations which set out measures national governments should take to implement effective anti-money laundering programmes.

What is AML?

The term 'anti-money laundering' specifically refers to all policies and pieces of legislation that force financial institutions to proactively monitor their clients in order to prevent money laundering and corruption.

AML procedures and policies are coordinated by national authorities (e.g. NCA in UK) and international organisations (e.g. FATF or UN Office on Drugs and Crime). They all work constantly on challenging activities of counteracting money laundering.

AML’s regulation based on the ​5th Anti-Money Laundering Directive: on 19 June 2018 the 5th Anti-Money Laundering Directive (Directive (EU) 2018/843), which amended the 4th anti-money laundering Directive, was published in the Official Journal of the European Union. The Member States had to transpose this Directive by 10 January 2020.

These amendments introduced substantial improvement to better equip the Union to prevent the financial system from being used for money laundering and for funding terrorist activities.

These amendments were introduced to:

  • Enhance transparency by setting up publicly available registers for companies, trusts and other legal arrangements;
  • Enhance the powers of EU Financial Intelligence Units, and provide them with access to broad information for the carrying out of their tasks;
  • Limit the anonymity related to virtual currencies and wallet providers, but also for pre-paid cards;
  • Broaden the criteria for the assessment of high-risk third countries and improve the safeguards for financial transactions to and from such countries;
  • Set up central bank account registries or retrieval systems in all Member States;
  • Improve the cooperation and enhance of information between anti-money laundering supervisors between them and between them and prudential supervisors and the European Central Bank.