Money-Laundering

Money laundering is the process of hiding the source of money obtained from illegal sources and converting it to a clean source through the use of shell companies and complex transactions such as layering, integration, etc. thereby avoiding prosecution, conviction, and confiscation of the criminal funds.

Several steps have been taken to counter money laundering, such as:

• Global efforts:
  • Financial Action Task Force (FATF): It designs and promotes global policies and standards to combat financial crimes.
  • UN Vienna Convention, 1988: It lays down the groundwork for efforts to combat money laundering by obliging the member states to criminalize the laundering of money from drug trafficking, and promote international cooperation in criminal investigation and extradition in such cases.
  • Basel Committee on Banking Supervision: It is an international Committee formed to develop standards for banking regulation. It has developed a series of highly influential policy recommendations known as the Basel Accords.
• Strict legislations:
  • Anti-money laundering laws have been adopted by many countries based on the model laws formulated by the IMF. For example, the Prevention of Money Laundering Act, 2002 (PMLA) and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 in India.
  • The Prevention of Money Laundering Act, 2002 not only includes the power to impose fines, summons, and production of documents and evidence, but also possesses the power of survey, search and seizure, confiscation of property, and arresting the person involved.

Despite these initiatives, it is very difficult to trace money laundering offences due to the following reasons:

• Managing cross-border and multi-jurisdictional anti-money laundering compliance standards poses a significant challenge for banks and financial institutions.
• Many countries have not ratified the international conventions yet as the cost of prevention of money laundering for society and financial institutions is often high, and strict regulations may become a hindrance for a poor or developing country.
• The regulators often lack authority to investigate and have limited access to time-sensitive data needed for surveillance purposes. They also possess insufficient resources for inspection, surveillance, and investigation, and have a limited enforcement mandate.
• Financial institutions may not have the necessary data, technology resources, and skilled professionals to detect and prevent money laundering activities effectively.
• The rules/legislations need to be continuously updated due to the rapid rise in technological innovations such as virtual currencies.

In this regard, technology can help in combating the menace of money laundering:

• Artificial intelligence and machine learning: They will help in providing complete risk assessment and identifying high-risk individuals by checking them against national and international checklists such as global and regional sanctions, watch lists, politically exposed persons (PEPs), and adverse media mentions.
• Cognitive computing: It can manage large amounts of structured and unstructured information and make determinations that are evidence-based, evaluate multiple options, and continually evolve to account for new outcomes and actions.
• Cloud computing: It can help with the rationalization of disparate data sources both within and external to an institution. The enriched data would help in enriching the knowledge related to customers, beneficial ownership, or other required anti-money laundering remediation activities.
• Graph analytics: They thrive on high levels of complexity and interconnectedness and in discerning significant relationship patterns among varied data types. Graph analytics can help in determining relationships among anti-money laundering documents to make connections and flag anomalies.

Manual processes are often slow, while financial manipulators are becoming more sophisticated than ever. Therefore, use of technology along with a more coordinated global strategy against money laundering is required.