Money Laundering Acts: Money Laundering Regulations and Guidelines

4 mins

Money laundering refers to the act of sneaking “dirty” money obtained through criminal activities through seemingly legitimate channels, as a way of disguising the true source of the funds. Money laundering has a few key sources, including organized crime, white-collar offenses, terrorist activities, and drug smuggling.

Since money laundering poses a massive risk to the global economy, such as draining a large number of funds in addition to funding criminal activities, combatting it is essential to the international community. That’s the reason why there are several national, international, and regional bodies that monitor and regulate money laundering.

These organizations, such as the Financial Action Task Force (FATF) and United Nations Office on Drugs and Crime (UNODC), draft and implement Money Laundering Acts and guidelines that financial institutions must comply with. These refer to a set of processes and procedures institutions must implement in order to prevent and promptly catch financial crime or any illegal fiscal activity. If companies do not follow these regulations, they must pay hefty non-compliance fines.

Every country around the world has clearly outlined regulations pertaining to money laundering. Money Laundering Acts, such as the Money Laundering (Prevention) Act (1996), as amended by the Money Laundering (Prevention) (Amendment) Act (1999), and the Money Laundering (Prevention) (Amendment) Act (2001) in Antigua and Barbuda, are good examples.

The digital age provides the perfect environment for money launderers to keep innovating new methods to commit financial crimes. That is why money laundering acts and regulations are subject to constant change and updates. This is especially applicable in 2020, where the aml risk due to the COVID-19 era is both new and challenging.

History of Anti-Money Laundering Acts

Numerous laws and legislations have been passed with the intention to prevent money laundering and punish the perpetrators of this illegal activity. Initially, these laws were drafted to combat the mafia and other elements of organized crime, though, over time, the focus shifted to curbing drug smuggling and, later, anti-terrorism.

In the USA, the first such law was The Bank Secrecy Act (BSA), which was passed in the 1970s. The Act refers to a collection of laws that require financial institutions to report suspicious transactions to the USA Department of Treasury. Financial institutions could either have reason to believe that the money is related to criminal activity through their client risk assessments, or could track clients who appear to avoid BSA reporting requirements.

The Money Laundering Control Act (1986) restricts people from engaging in financial transactions with funds obtained through criminal activities. This includes the transferring of money from one private individual to another. The Annunzio-Wylie Anti-Money Laundering Act (1992) strengthened penalties for non-compliance. Review, training, and examination procedures were boosted through the Money Laundering Suppression Act (1994) and the Money Laundering and Financial Crimes Strategy Act (1998).

The Patriot Act

The Patriot Act resulted from the 9/11 terrorist attacks in the USA. This Act seeks to strengthen and expand the regulation of financial transactions and the financial market as a whole. Title II of the Patriot Act is referred to as the International Money Laundering Abatement and Anti-Terrorist Financing Act (2001). It focuses almost exclusively on money laundering and related issues.

The Patriot Act explains in detail some of the questions regarding the BSA’s applicability, as well as introducing fresh requirements. Financial institutions can often try and be “willfully blind” to illegal financial transactions taking place right within their organizations. So, the Patriot Act requires the creation and implementation of new and improved anti-money laundering programs that hold financial institutions accountable if money laundering does occur. The Act further mandates companies to appoint a compliance officer, draft an internal compliance policy, regularly train staff, and conduct independent audits.

It also necessitates that financial institutions must implement proper “Know Your Customer” (KYC) procedures to verify the identity of their clients and also check them against lists of known terrorists and other criminals. These are called “forthcoming requirements,” and strengthen the BSA’s need for KC.

The Patriot Act and the Bank Secrecy Act provide a layer of protection to the USA’s economy and financial institutions against money laundering and other financial crimes. These laws encompass the procedure to recognize suspicious activity, flag off concerned authorities, and trigger the necessary legal action required to charge the criminals. These laws have the power to have suspicious financial institutions investigated by the Federal Reserve and the Office of the Comptroller of Currency.

There is one loophole, however. The definition of “financial institution” under both of these Acts excludes investment advisors and transfer agents. Hence, these companies are treading a thin, unregulated line of profits at the moment. Generally, though, these companies must be registered under the Investment Company Act (1940) to carry out operations.

Other National Money Laundering Regulations

As mentioned earlier, all countries across the globe have regulations and laws pertaining to money laundering. They also have internal bodies to govern the finance industry, such as the Monetary Authority of Singapore, the Australian Transaction Reports and Analysis Center, the Honk Kong Monetary Authority, and the The Financial Conduct Authority in the UK, all of which pass acts and laws regarding financial crimes within their respective jurisdiction. India passed the Prevention of Money Laundering Act in 2002 as an attempt to curb the rampant money laundering and corruption being carried out within the country. The European Union, too, passed two directives, EU 5AMLD and 6AMLD, in an attempt to harmonize transactions between all the member states. All of these organizations aim to regulate, track, monitor, and prevent money laundering, terrorist financing, or any other illegal activity involving money in their regions.

These bodies change and update regulations often. Indeed, the financial market and industry are in flux due to the advent of technology. So, they need to be on their toes and think one step ahead of criminals in order to outsmart them and prevent financial crimes from being committed. By doing so, they begin the process of drafting and designing AML compliance regulations and policies.