What is Money Laundering?
Money laundering is the process of creating the appearance that large sums of money obtained from fraudulent sources, originated from a legitimate source. This is achieved through a series of three steps (that can often occur simultaneously):
Placement - where the money enters the financial system, often through several small currency deposits, or commingled deposits from several legal and illegal enterprises.
Layering - this money is then moved throughout the financial system through a process of several complex transactions to confuse the paper trail.
- Integration - the funds are made to appear legal through additional transactions, such as the purchase and resale of real estate, stocks or other assets.
Check out the article The Biggest Stock Scams of All Time for some examples of how management of some companies have swindled shareholders by reporting fraudulent earnings and revenues figures.
USA PATRIOT Act
Under the USA PATRIOT Act, (enacted in 2001 in response to terrorist attacks around the world), an Anti-Money Laundering Program was established and requires all broker/dealers to comply. FINRA has listed this requirement under Rule 3011, and requires firms to:
- Establish and implement policies and procedures that will detect and report suspicious transactions.
- Establish and implement policy procedures, and internal controls that comply with the Bank Secrecy Act.
- Provide for independent testing for compliance by an outside party or member personnel.
- Provide FINRA with identification of individual(s) responsible for monitoring day-to-day operations and internal controls. (Providing immediate updates should anything change.)
- Provide training for the appropriate personnel regularly.
For your interest, click here for a PDF of the USA PATRIOT ACT.
FINRA has a page dedicated to anti-money laundering (AML) and updates it frequently should there be any changes regarding AML rules, regulations or compliance. We strongly recommend a visit to this page during your studies and throughout your financial career: Anti-Money Laundering.
Bank Secrecy Act (BSA) and Compensation
InvestingAnti-money laundering involves the laws and regulations designed to prevent criminals from generating income through illegal activities.
Small BusinessThe process of creating the appearance that large amounts of money obtained from serious crimes actually originated from a legitimate source.
InvestingThe USA Patriot Act gave the government more muscle to fight financial crime after the Sept. 11 terrorist attacks. Here's an overview.
InvestingThe market for laundering money has been estimated to be as high as $500 billion annually. Here are some recent investigations.
Managing WealthA pilot program designed to cut back on money laundering in high-end residential real estate is bound to affect the transactions of cash buyers.
InsightsThe Obama administration went after tax evaders and money launderers yesterday by releasing a set of new proposals that make ownership disclosures mandatory.
Financial AdvisorLaunching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
TaxesThere are many reasons why you might need to go to the Philippines with more than $10,000. If you do, follow these guidelines to avoid penalties.
Financial AdvisorFind out the history of FINRA, and how it's organized to monitor the markets and protect investors.
InvestingJudge sets a legal precedent by declaring that bitcoin laundering is not money laundering because bitcoin isn't money.