What is Money Laundering?
Money laundering is a process of converting cash or property derived from criminal activities to give it a legitimate appearance. It is a process to clean ‘dirty’ money in order to disguise its criminal origin.
What is Terrorism Financing?
Terrorism financing is the act of providing financial support, funded from either legitimate or illegitimate source, to terrorists or terrorist organisations to enable them to carry out terrorist acts or will benefit any terrorist or terrorist organisation.
While most of the funds originate from criminal activities, they may also be derived from legitimate sources, for example, through salaries, revenues generated from legitimate business or the use of non-profit organisations to raise funds through donations.
Impact of Money Laundering and Terrorism Financing on Country
- Increase in the overall rate of crime that could threaten national security.
- Inhibit the growth and competitiveness of the economy.
- Taint the integrity and reputation of the business and financial sector.
- Increase cost of doing business and operations of various sectors of the economy.
How do Criminals Launder Money?
Criminals commonly use three methods of money laundering processes to hide their illegal proceeds.
Placement is one of the ways where illicit funds are separated from their illegal source and are placed into the financial system. Some of the common methods include:
- depositing the ill gotten gains into financial institutions;
- structuring (smurfing) which the funds are of high value are broken into many small value transactions;
- use of financing facilities at a financial institution and making accelerated repayment before its tenure; and
- cashing unused chips at casinos for casino cheques, making them appear as “winning cheques”.
Layering is the second stage of the money laundering process where it involves the process of creating multiple layers of transactions to further distance the illegal funds from their illegal sources. The purpose of layering is to obscure or to make it difficult to trace the origin of the funds. Examples of layering are:
- multiple transfers and re-transfer of funds into the same or various accounts;
- repeat invoicing for the same transaction; and
- re-sale of assets originally purchased in cash by using the illicit funds.
Integration is the final stage that completes the money laundering process where laundered proceeds are successfully integrated into the economy as legitimate funds.
Transactions normally involve buying property or high value items or engaging in legal businesses by using funds that have been successfully placed or layered in the financial system. At this stage, it will be quite difficult to detect the illegal funds as the funds would appear legitimate. Integration normally involves the following activities:
- trading activities that include invoice manipulation to remit money abroad;
- engaging in legal business by providing capital or loans; and
- buying property or high value items.