For years, the United States’ anti-money laundering legislation has lagged behind those of other countries. Not only has this made it simpler for criminals to reap the rewards from their illegal activities, it has also put the burden of identifying money launderers on financial institutions. This means brokers and other organizations that either are ill-equipped to identify potential money laundering activity or have no incentive to report it. Thankfully, new legislation passed by Congress earlier this year promises to close existing loopholes while making it easier for the authorities to investigate suspected money laundering activities.
It is important to note that money laundering does not happen in a vacuum. It involves multiple players, some of whom may be acting completely within the law and in the belief they are assisting with a legitimate transaction. However, under the current laws, a person can still be charged with money laundering even if they did not know that the proceeds in question are the result of criminal activity. Wilful blindness – that is, ignoring potential red flags and refusing to make further enquiries – is also not considered a proper defense. This is why businesses need to have systems and technologies in place that will enable them to spot potential money laundering and prevent those transactions from taking place.
The Anti-Money Laundering Act of 2020 puts in place several key provisions. First, it requires all companies to disclose beneficial ownership data – that is, the person or persons who exercise control over the company and own over 25% of the ownership interest of that entity. This makes it so that money launderers can no longer hide behind anonymous limited liability companies to make high value transactions and wash large amounts of money. Second, the AML Act requires financial institutions to put formal processes in place with the aim of combating money laundering and preventing money from being used to finance terrorism. Third, the act expands the powers of FinCen (the Financial Crimes Enforcement Network) as well as increasing coordination and information-sharing between relevant agencies while increasing the penalties for those found guilty of violating the Bank Secrecy Act (BSA).
Because of these robust new policies, businesses now find themselves having to conduct more corporate customer checks than ever – but they are also able to access more information on these corporate customers than they could previously. That is, of course, if they are able to make use of more sophisticated tools such as automated AML and sanctions checks, instead of relying on antiquated paper-based methods that can be easily falsified. Not only do these systems give businesses assurance that they are operating in compliance with all existing AML regulations, they also reduce the potential for fraud by confirming almost instantly whether or not an entity is legitimate.
The consequences of money laundering can often be difficult to see, hidden as they are amidst a tangle of legitimate transactions. Yet it is important to remember that the money that is being laundered comes from illegal operations that often cause very real harm to others, and that the same money often goes back into the system to enable those people to continue to carry out those crimes. It may be in people’s financial interest to turn a blind eye to money laundering in the short term. But the fact of the matter is that letting money launderers go free results in innocent people having to pick up the tab, whether because of increased taxes or higher banking fees to offset money lost due to fraud.
I can understand that many businesses, especially small ones where every transaction makes a huge difference, might be reluctant to invest in additional processes, especially when the act of money laundering might seem so far removed from their everyday lives. However, these businesses are actually more at risk of falling victim to money laundering because they’re subject to much less oversight. It is, therefore, time for companies of all sizes to take steps to protect themselves and deter criminal activity by implementing robust anti-money laundering systems and protocols.