Scribd
Upload
89 views5 pages

Economic Consequences

Money laundering has significant negative economic and social consequences. It can damage an organization's reputation through negative publicity and legal risks in the form of lawsuits and fines. It also poses operational risks if financial institutions do not have adequate anti-money laundering controls and processes in place. Concentration risks occur if too much exposure is given to high-risk customers or business relationships without proper due diligence. These consequences undermine legal and ethical standards and integrity in financial systems.

Uploaded by

Abhisek
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
89 views5 pages

Economic Consequences

Money laundering has significant negative economic and social consequences. It can damage an organization's reputation through negative publicity and legal risks in the form of lawsuits and fines. It also poses operational risks if financial institutions do not have adequate anti-money laundering controls and processes in place. Concentration risks occur if too much exposure is given to high-risk customers or business relationships without proper due diligence. These consequences undermine legal and ethical standards and integrity in financial systems.

Uploaded by

Abhisek
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 5

Money Laundering - Economic and Social Consequences Vivek Mishra

Money laundering has significant negative economic and Facts and Statistics on
social consequences, especially for developing countries and Money Laundering
emerging markets. The easy passage of funds from one
organization to another, or relatively facile systems that allow 91.1% of money laundering
offenders were imprisoned,
money to be placed without raising any questions, is fertile according to money laundering
territory for money launderers. The upholding of legal, conviction statistics
professional, and ethical standards is critical to the integrity Money laundering activities cost
the world 2% to 5% of its GDP
of financial markets.
Anti-money laundering activities
Stages of Money Laundering recover only 0.1% of criminal
funds
Placement Layering Integration 95% of system-generated alerts
Commingling illegitimate Electronicall transferring of against money laundering
Purchasing luxury assets,
funds with legitimate funds funds from one FI to
Purchasing pre-paid card another, one country to
such as property, artwork, resulted in false positives
jewelry, and high-end
with fiat currency another The anti-money laundering
automobiles
Purchasing foreign currency Conversion of cash into
Entering into financial software market is projected to
with illegal funds monetary instruments
arrangements and other reach $1.77 billion by 2023
Structuring - Dividing cash Purchasing real-estate and
into small parts and legitimate business
ventures in which Identity theft has become one of
investments can be made in
depositing amount in Purchasing life insurance, the top money laundering trends
business enterprises
difference banks stocks etc
Economic Consequences: Vivek Mishra

Reputational Risk
Adverse publicity regarding an As on today, the average value of Top
organization’s business practices and 10 banks brand is US $227
associations, whether accurate or
Example
not, will cause a loss of public
confidence in In 2020, a large US-based cryptocurrency
exchange was charged with violating AML
the integrity of the organization. As
regulations. The company allegedly failed to
an example, reputational risk for a implement effective AML programs, including
bank failing to properly identify and report
represents the potential that suspicious transactions, and was charged with
borrowers, depositors, and investors operating an unlicensed money transmitting
business. The case received significant media
might stop doing business with the
coverage and damaged the company's
bank because of a money laundering reputation.
scandal.
Economic Consequences: Vivek Mishra

Operational Risks: A survey by the American Bankers Association


(ABA) found that 75% of banks identified
The potential for loss results from
operational challenges as the biggest obstacle
inadequate internal processes, to implementing effective AML programs.
personnel, or systems, or from external
events. Example
Some of the factors, which have
In 2018, the Australian Securities and
brought operational risk into focus, are: Investments Commission (ASIC) imposed a
Inadequare information systems $45 million fine on Commonwealth Bank of
Operational execution problems Australia (CBA) for AML compliance failures.
Loop-holes in internal controls The bank had inadequate systems and
frauds, or unforseen external controls to monitor and report suspicious
transactions, leading to over 53,000 breaches
catastrophes that results in
of the Anti-Money Laundering and Counter-
unexpected losses Terrorism Financing Act 2006
Economic Consequences: Vivek Mishra

Legal Risks: A study by the law firm Norton Rose Fulbright


There is potential for lawsuits, adverse found that the number of enforcement actions
related to AML violations has been increasing in
judgments, unenforceable contracts,
recent years. The study revealed that from 2010 to
fines and penalties that generate 2020, the number of enforcement actions related
losses, increased expenses for an to AML violations rose by more than 300%.
organization, and even the closure of
Example
the organization.
In 2020, the US Department of Justice (DOJ)
Legitimate customers could charged a global bank with a $1.3 billion
become victims of financial frauds penalty for failing to maintain an effective
Legitimate customer could lose AML program and for violating US sanctions.
money due to financial frauds The bank admitted to failing to properly
There could be investigations monitor transactions on behalf of customers
conducted by law enforcement in countries subject to US sanctions, including
Iran, Sudan, and Myanmar, and for failing to
could incurred Fines and sanctions.
file required suspicious activity reports
Economic Consequences: Vivek Mishra

Concentration Risks: According to the Financial Stability Oversight Council (FSOC),


concentration risks are a leading cause of AML enforcement
actions. A report by FSOC states that financial institutions that
The potential for loss results from too fail to properly identify and manage the risks associated with
much credit or loan exposure to one concentrated business relationships, such as correspondent
banking relationships, are at a higher risk of being used for illicit
borrower or group of borrowers. financial activities.
Lack of knowledge about a specific
Example
customer, who controls the customer,
In 2019, a major European bank was fined $1.3
or the customer’s relationships to
billion for AML compliance failures related to
other borrowers can place an its correspondent banking relationships. The
organization at risk in this regard. bank had a significant concentration of high-
This is particularly a concern when risk correspondent banking relationships,
there are related counterparties, including with financial institutions in
connected borrowers, and a common countries with weak AML regimes, and failed
to conduct sufficient due diligence on those
source of income or assets for
relationships or to properly monitor and
repayment. report suspicious activity.

You might also like