History of Anti-Money Laundering Regulations

What is money laundering and what are the main stages involved in money laundering?

Banks and other financial institutions play a key role in the global economy and are more regulated and supervised than other sectors. As a result, the Governments around the globe have leveraged the vital role that financial institutions play to enlist them in the fight against crimes including tax evasion, drug smuggling and arms trafficking, bribery, terrorism, etc. However, by involving banks in the fight against these activities, governments have created a new crime – “money laundering”. It can be defined as the “concealment or disguise of the proceeds of a predicate crime” and it generally consists of three steps:

• Placement: introducing the proceeds of crime into the financial system
• Layering: placement of funds through intermediaries to disguise the funds’ origins
• Integration: reintroduction of funds into legitimate assets, investments or activities

Development of Money Laundering Regulations in the USA

In 1970, the US Congress enacted the Currency and Foreign Transactions Reporting Act this was the first legislative step to commandeer banks into the fight against criminal organisations. This Act is now part of a series collectively known as the Bank Secrecy Act. The Bank Secrecy Act established reporting requirements to identify the source, volume and movement of currency and other monetary instruments through US-regulated banks. 

In 1986, money-laundering itself became a crime under US law and then finally the USA Patriot Act was enacted after the terrorist attacks of September 11, 2001. This had exposed and focused the attention on a the use of the global financial system by people seeking to commit terrorist acts.