What Is Money Laundering? A Simple Guide - Napier's AI

2000 BC and earlier:

‍Historical evidence suggests that Chinese merchants would conceal wealth acquired through trade from rulers and officials whom they feared would confiscate profits.

‍1920s and ‘30s: ‍

The USA’s Prohibition Era sees the development of organised crime gangs - syndicates - in American cities which profited enormously from bootlegging during the 13-year nationwide alcohol ban. Alongside ‘cleaning’ dirty money through gambling, these syndicates hid the source of their wealth from authorities by engaging in legitimate business enterprises. These included laundries, which is most likely how the term ‘money laundering’ came to be.

‍The 1970s:

‍The USA’s Bank Secrecy Act (BSA) of 1970 obliged vendors to declare cash transactions above a certain amount. This indelibly elevated the targeting of profits from financial crime above the trend of focusing on tax evasion. The act acknowledges, emphasises, and combats money laundering in the drug trade. Reporting on the 1973 Watergate scandal saw the term ‘money laundering’ enter the media lexicon.

‍The 1980s:

‍In the USA, the Reagan presidency’s War on Drugs emphasised seizing the assets and funds of drug barons.  The 1986 Money Laundering Control Act (MCLA) represented the culmination of laws passed and threw down the gauntlet to drug cartels attempting to legitimise their profits. The relevant agencies in the many countries with strong economic and cultural ties to the USA followed suit.

The 1988 Vienna Convention against Illicit Traffic in narcotic drugs and psychotropic substances acknowledged money laundering as an illegal practice in relation to the drug trade. A treaty was drawn up and 171 countries pledged co-operation.

At the G-7 summit the following year, the Financial Action Task Force on Money Laundering (FATF) was established to study and analyse this financial crime, and implement measures to prevent or combat it. The organisation is now 39 members strong.

‍The 1990s:

‍Significantly, Mexico, as both a producer and conduit for drug cartels smuggling illegal narcotics into the USA, criminalised money laundering for serious offenses in 1996.‍

2000s:

‍2001’s 9/11 terrorist atrocities influenced the international drive against money laundering due to the role of terrorist financing in the incident. The 2001 USA Patriot Act amplified the fight against terrorism and its financiers, broadening the scope and strengthening the rules of the 1986 MLCA. Inter-agency co-operation was improved, lines of communication between law enforcement and financial institutions were increased, and the latter’s financial reporting requirements for international transactions were expanded.

‍2010s:

‍While global co-operation on combating money laundering increased, the proliferation of cryptocurrencies and online trading provided more avenues for innovative criminals to commit this financial crime. Legislators worldwide responded by tightening AML laws and placing higher compliance requirements on financial institutions, imposing massive penalties for breaches and failures. The financial sector was inexorably forced into the front line of the war against money laundering.

‍2018/19:

‍Improved technology, online anonymity and criminal ingenuity saw interactive, multi-player internet games emerging as a mechanism for crooks to launder money.

‍2020 to current:

‍The ongoing COVID-19 global pandemic has caused lockdowns and other restrictions worldwide. High connectivity, restricted human movement, and huge technological advances in online communications have prompted savvy criminals to innovate new and sophisticated methods of money laundering, often based on cryptocurrency trading. Anti-money laundering (AML) practitioners are heavily engaged in the battle to stay abreast of and overcome this new breed of financial criminal.

‍