Money Laundering

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Financial Accounting For Financial Services Assignment

Money Laundering

The word money laundering, according to the myth, is derived from Al Capone's practice of using a string of coin-operated launderettes in Chicago to disguise his revenues from gambling, prostitution and protection rackets. It's a nice story but not true, money laundering is so called because it perfectly describes the process of removing the stains and smells which money acquires when criminals earn it.

In this report I will go on to discuss the topic of money laundering in the following order; firstly, I will begin by explaining what is money laundering?, why it is done?, and how it is done? I will then go on to explain the effects of money laundering and the institutions/organisations that are at risk from these activities. I will also be discussing the current situation in the UK regarding money laundering and whether anything can be done to prevent or restrict laundering activities, and will then go on to conclude my findings.

Money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities. If they are successful they can then maintain control over the proceeds and, so, provide a legitimate cover for their source of income. J.D. Mclean defined money laundering in the International Judicial Assistance as:

"Although the proceeds of crime will be kept as capital for further criminal ventures, the sophisticated offender will wish to use the rest for other purposes. If this is to done without running a risk of detection, the money which represents the proceeds of the original crime must be "laundered"; put into a state in which it appears to have an entirely respectable provenance"

It is important to bear in mind that money laundering is a process (often a highly complex one) rather than a single act. In an effort to expose and analyse this phenomenon it has become common to use a three-stage model which encompasses an ideal money laundering scheme. The three stages are as follows:

* Placement Stage
This is where cash derived directly from criminal activity (e.g. from sales of drugs) is first placed either in a financial institution or used to purchase an asset.

* Layering Stage
The stage at which there is the first attempt at concealment or disguise of the source of the ownership of funds.

* Integration Stage
The stage at which the money is integrated into the legitimate economic and financial system and is camouflaged with all other assets in the system.

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