Vulnerability of the Financial System to Money Laundering

Is money laundering vulnerable to the financial system or economy?

Money laundering is habitually assumed to be accompanying solely with financial institutions and money changers. All financial institutions, both banks and non-banks, are vulnerable to money laundering activities.

Whilst the old-fashioned banking procedures of deposit taking, money transfer schemes and lending do offer a dynamic laundering mechanism, predominantly in the primary conversion from cash, it should be renowned that products and services offered by other sorts of financial and non-financial sector trades are also attractive to the launderer.

Vulnerability of Financial System to Money Laundering

The intellectual launderer often comprises many other unknowing abettors such as currency exchange houses, stock brokerage houses, gold dealers, real estate dealers, insurance companies, trading companies and others selling great rate commodities and luxury things.

Certain topics of susceptibility have been recognized in the laundering procedure, which the money launderer discovers problematic to dodge, and where his actions are therefore more prone to being familiar. These are:

• Entry of cash into the financial system;
• Cross-border flows of cash; and
• Transfers within and from the financial system.

Financial institutions should cogitate the money laundering threats posed by the products and services they offer, predominantly where there is no face-to-face customer, and devise their processes with due respect to that risk.

Though it may not seem obvious that the products might be used for money laundering purposes, awareness is essential throughout the financial system to confirm that flaws cannot be misused.

Banks and other Financial Institutions conducting appropriate financial trade in liquid products are clearly most susceptible to use by money launderers, mostly where they are of extraordinary value.

The liquidity of some products may invite money launderers since it permits them rapidly and certainly to move their money from one product to another, mixing lawful and illegitimate earnings and integrating them into the legitimate economy.

All banks and non-banking financial institutions, as providers of an extensive range of money transmission and lending services, are vulnerable to being recycled in the layering and integration stages of money laundering as well as the placement stage.

Electronic funds transfer structures escalation the vulnerability by allowing the cash deposits to be moved rapidly between accounts in different names and different jurisdictions.

Moreover, banks and non-banking financial institutions, as provider of an extensive series of services, are susceptible to being used in the layering and integration stages. Other loan accounts may be used as part of this procedure to make complex layers of transactions.

Private banking is one of the popular examples of the vulnerability of money laundering and the following video briefly highlights it.

Some financial institutions may additionally be susceptible to the attention of the more sophisticated criminal organizations and their “professional money launderers”. Such organizations, possibly under the disguise of front companies and nominees, may create large scale but fabricated international trading activities to move their unlawful money from one country to another.

They may make the delusion of foreign trade using fabricated invoices to produce seemingly legitimate international wire transfers, and may use bogus letters of credit to complicate the track further. Numerous front companies may even proposed their bankers for credit to fund the business activity.