ANTI-MONEY Law Insider

By Tashmayee Sarkhel

Published on: 05 September 2022 at 22:45 IST

Anti-Money Laundering is a process that includes laws and regulations for seeking action against illegitimate funds which are illegally made to be legitimized. Taking into consideration this day and age of money laundering, IMF’s idiosyncratic amalgamation with universal membership, surveillance functions, and financial sector expertise makes it a stipulated component of international efforts to counter money laundering and economic terrorism.

In other countries, the procedure of AML (Anti-Money Laundering) is enacted concerning the number of risks that the country undergoes for money laundering.

We can take the example of the Anti-Money Act of 2001[1], which was stated as the primary Anti-Money Laundering Philippines Law[2], does incorporate under it the sore working of investigating money laundering and other financial crimes to protect the financial institutions and deter criminals from making the country into a site full of criminal proceeds through money laundering, which shows the presence of AML (Anti-Money Laundering) statues in all of the countries.

The introduction of AML (Anti-Money Laundering) has not brought a drastic change, as still an estimated percentile of 2% to 5% of the money is being laundered globally in close relation to delinquent activities, but at a larger scale, it has brought with itself precautionary measures which have assisted many countries in battling with their illegitimate country funds.

Money Laundering

Money laundering does include the summoning of the illegally acquired funds to stand out as a legally approved funds. Acquisition of illegal money is done by transferring the illegal funds into a legitimate financial system to cover up their illegitimate activity. By combating such a situation, Anti-Money Laundering Compliance Program came into existence.

Money Laundering: Process

Rendering of the processes of money laundering could be vividly understood by the three stages involved in it,

  • Placement – It includes the stage where the money is placed in any of the financial institutions having a legal backing to it so that the illegitimate money is turned into a legitimate fund.
  • Layering – Under this, numerous transactions are being made, so that the actual source of the money remains unknown thereby no flags being raised upon the suspicion activity of that individual, in a briefer sense, putting layering to that illegitimate fund.
  • Integration – The last phase where the money is drawn out of it is considered to be its purest form and is being acquired and used.

Anti-Money Laundering

Anti-Money Laundering legislation[3] was enacted by the United States in 1970 when Bank Secretary Act (BSA)[4] was established. To prevent and fight against this illegal funding the BSA has been amended and underpinned by ancillary Anti-Money Laundering Laws.

It has close relevance to CFT (Counter Financing Terrorism) which is widely being used by the varied financial sectors for holding out against financial terrorism, as stated under the regulations and orders of AML for conglomerating money laundering with financial terrorism, in a simpler sense it is a combination of a source of funds with a destination of funds.

Financial Action Task Force (FATF) was established in 1989 by multiple countries, including AML, and combating financial terrorism after the 9/11 attack on the United States, thereby expanding its mandate. Money laundering and the prerequisite crimes by it are also taken under the counsel of the International Monetary Fund (IMF).

Manoeuvre of AML is done by the financial institutions rather than the wonted usage of its guidelines, them being:

  • Compliance with regulations to monitor customers and transactions and do report they’re suspicious activity if required.
  • To protect their brand reputation and shareholder value.
  • Avoidance of consent orders as well as civil and criminal penalties that might or might not be mulcted because of negligence.
  • Reduction of costs related to fines, employee and IIT costs, and capital reserved for risk exposure.

FATF has brought cryptocurrency under its scrutiny and has brought obscurity to its user. It has so been done by FATF to maintain control over the widely used digital or virtual currency which is a cryptocurrency to lower the risk of illegitimate funding and their transactions.

Preventive methods concealed by AML

There are various methods under AML to control the widely spread issue of economic terrorism, may it be a developed or developing nation. The methods divulged as,

  • Criminalization – The United Nations Convention Against Transactional Organized Crime has dotted the guidelines to the government to indict those individuals who are illegitimately webbed with money laundering and financial terrorism.
  • Know your customers – “Know your customers” is a policy adopted and initiated into day-to-day work by financial institutions. They use this policy to keep an eye on their respective clients and do possess the right of raising a red flag if so, a doubtful situation is raised, and needs to raise a complaint against that particular client in any of the financial investigating units.
  • Record Management and Software Filtering – This method is mostly and prevalently being used by financial institutions as well as businesses. Under this, they do adopt the virtual proceedings of flagging any such activity of any of the clients if at all it stands out to be suspicious. This can be so done because of the record of the transactions made by the clients registered with them, just to keep an eye upon them, so that illegitimate financial activities could be avoided.
  • Holding period – There are several banks, where money is kept deposited for a maximum period of five days so that the risk involved in the money being laundered through the banks could be avoided.
  • New technology – Technologies like AI and Big Data Software, with their evolution have brought into the processes of extra security and defined investigation of any suspicious activities being ever noticed on part of any of the individuals.

AML in divergent countries

AML is universally present all over because of the unpleasant presence of the immemorial concept of money laundering in all parts of the world. According to the Basel AML 2021, five countries are trounced by the activity of money laundering and financial terrorism over there. They are namely Haiti, the Democratic Republic of Congo, Mauritania, Myanmar, and Mozambique.

Haiti, a Caribbean country, constitutes the third-largest country within it, in terms of its area. It remains the be the poorest in the entire LAC (Latin America and the Caribbean) region. Haiti is said to be on the list of FATF which has a high deficiency in following AML to its core. In June 2021 Haiti made a high-level political commitment to strengthen the effectiveness of its AML/CFT regime and did agree to an action plan encompassing several specific measures, including, increasing risk-based monitoring and information sharing and increasing the identification, tracing, and recovery of criminal proceeds, as stated in the latest FATF statement on 4th March 2022.

The Democratic Republic of Congo is the second-largest country in Africa regarding its area. It is not at all considered to be an important regional financial center but because of percolative borders, inadequate law enforcement, and judicial system, dollarized economy, and dominant informal sector put an excessive authority over the country and its financial structure thereby letting its criminals having access to Money Laundering and terrorism of finance.

Major of the economic transactions in DRC takes place through the informal sectors, and they mainly constitute illegitimate transactions. In January 2018 EU confirmed the alignment of the Yugoslav Republic of Macedonia, Montenegro, Albania, Bosnia and Herzegovina, the EFTA (European Free Trade Association) countries (there are four countries under it – Iceland, Liechtenstein, Norway, and Switzerland), the Republic of Moldova and Armenia concerning the restrictive measures in place against the Democratic Republic of the Congo, as was read the council decision.

In contrast to the petrifying condition of Money Laundering and financial terrorism in these above countries, there do exist countries according to the index of Basel AML 2021, which are placed at the most appreciable position of the intact usage as stated under AML guidelines, them being – Andorra, Finland, Slovenia, Norway, and Cook Island.

Andorra is a tiny independent country located between France and Spain in the Pyrenees mountains and is especially known for its ski resorts and a tax-haven status that encourages duty-free shopping within the country. It is one such country that is not being enlisted in the list of countries having AML deficiencies under FATF.

According to the study of the US Department of State Money Laundering assessment (INCSR), the country was stated to be not a regional financial center but has a well-developed financial infrastructure, including a low non-financial crime rate, with few instances of drug-related offenses or other serious crimes.

Finland is a Northern European country that borders Sweden, Norway, and Russia, and is also considered to have the second-lowest poverty rate among OECD (Organisation for Economic Co-operation and Development) countries. The US Department of State Money Laundering assessment (INCSR), the country is stated to be not a regional center for money laundering, financial crime, or illegal commerce. The only major source of illegal proceedings in the country is related to financial crimes, and the stated majority of investigated suspicious financial activities have an international dimension.

United Nations Office on Drugs and Crime: Money Laundering, Proceeds of Crime and the Financing of Terrorism

UNODC, a Global Programme, do encourage states to inculcate policies to combat money laundering and the financing of terrorism, monitors and analyses the related issues and their responses, raises public awareness about money laundering and terrorism-related to finance, and even does acts as a coordinator of initiatives carried out jointly by the United Nations and other international organizations.

Landmark Cases

There are various landmark cases like Commerzbank case, 2020, Westpac Bank case, 2020, Goldman Sachs, 2020, Wachovia case, 2010, Standard Chartered case, 2012, Danske Bank case, 2007 to 2015, Nauru case, 1998, BCCI case, 1980, and HSBC case, 2012.

Delineation of a few of the cases

  • Commerzbank case, 2020[5] – It accounts to be a part of one of the most severe fines in the UK, which was the London branch of it. The bank was facilitated with a fine of $50 million in June 2020, because of its ignorance of several warnings from the cautious regulator and did fail to adopt the policy of ‘Know your customer’, thereby causing grievous harm to its thousands of customers. Back in 2016 and 2017, the German bank failed to keep up to date with its anti-money laundering and anti-kickback laws.
  • Westpac Bank Case, 2020[6] – An Australian bank, with its 19 million global transactions resolved its AML concerns along with AUSTRAC (Australian Transaction Reports and Analysis Centre) in 2020. The bank paid one of the largest fines because of their ignorance which was being linked to offshore pedophile rings in Southeast Asia, ultimately prompting harsh reprimands. When investigated, the fine upon them accounted for $13 billion.
  • Goldman Sachs, 2020[7] – One of the world-famous financial institutions, in its history of 151 years, was incorporated to pay the biggest fine ever being issued in the US, agreeing upon paying a fine of $2.5 billion with an additional amount of $1.4 billion, to avoid of the prosecution of them by making them pay 1MBD assets.
  • Standard Chartered case, 2012[8] – One of the huge British banking was accused by the New York’s Department of Financial Services (DFS) back in 2012, because of its utter failure in anti-money laundering controls that helped the Iranian government to outwit US regulations to clean money of almost US $265 billion over 10 years, and was also imposed with the accusation of violating US sanctions on Burma, Libya, and Sudan.


AML stands to be the most important program or if so, considered a concept in our society and globally as well. It helps in keeping the financial system of any of the countries to be in its purest form with the smooth working of its sub-systems within it.

With an increasing threat of economic terrorism in our day-to-day changeable world, the guidelines of AML need to be followed surely. Banking institutions are the ones that contribute directly to the core economic structure of any of the nations, so it’s highly appreciable and important for the proper adoption of AML by them and their amendment whenever so required.

Such activities are initiated by the people turned criminals illegitimately attached or bent together with money laundering or may it be the financing of terrorism, needs to be stopped and prevented firstly for ensuring a better economic concrete. As aptly said by Peter Drucker about it is,

“The ultimate resource in economic development is people. It is people, not capital or raw materials that develop an economy”.

Author – Tashmayee Sarkhel, currently pursuing a B.A.LL.B. (Hons.) at University Law College and Department of Studies in Law, Bangalore University.

  1. Anti-Money Act, 2001

  2. Anti-Money Laundering Philippines Law

  3. Anti-Money Laundering Legislation

  4. Bank Secretary Act

  5. Commerzbank case, 2020

  6. Westpac Bank Case, 2020

  7. Goldman Sachs, 2020

  8. Standard Chartered Case, 2012

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