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Unformatted text preview: Money Laundering Introduction In response to mounting concern over money laundering, the Financial Action Task Force on money laundering (FATF) was established by the G-7 Summit in Paris in 1989 to develop a co-ordinated international response. One of the first tasks of the FATF was to develop Recommendations, 40 in all, which set out the measures national governments should take to implement effective anti-money laundering programs. Members of the FATF include 26 countries and jurisdictions – including the major financial centre countries of Europe, North America and Asia – as well as the European Commission and the Gulf Co-operation Council. The FATF works closely with other international bodies involved in combating money laundering. This Policy Brief discusses the phenomenon of money laundering, how it works and the reasons why it should be combated. It also describes the work of FATF in confronting the problem. What is the scale of the problem? By its very nature, money laundering occurs outside of the normal range of economic statistics. Nevertheless, as with other aspects of underground economic activity, rough estimates have been put forward to give some sense of scale to the problem. The International Monetary Fund, for example, has stated that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross domestic product. Using 1996 statistics, these percentages would indicate that money laundering ranged between US Dollar (USD) 590 billion and USD 1.5 trillion. The lower figure is roughly equivalent to the value of the total output of an economy the size of Spain How is money laundered? In the initial or placement stage of money laundering, the launderer introduces his illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited into accounts at another location. After the funds have entered the financial system, the second – or layering – stage takes place. In this phase, the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channelled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations....
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This note was uploaded on 04/04/2012 for the course AASTT 24 taught by Professor Khlilaburass during the Spring '12 term at Arab Academy for Science, Technology & Maritime Transport.
- Spring '12