The Steps and The Importance of Preventing Money Laundering

Preventing money laundering and financing of terrorism is of great importance to the global financial system, as it can damage the reputation of financial institutions, thus undermining the banking system, government institutions and even countries as a whole.

Money laundering can be done as follows:

Money from illegal or criminal activities is put into the financial system in the form of cash. This can be done by depositing cash in banks, exchange offices or any other business that accepts cash.

When money is stratified, it is difficult to link the capital with the beneficiary of the funds, when is used deposited cash or any other capital to buy foreign exchange, stocks, bonds, in a quick rotation, or by investing in collective investment plans or products linked to insurance programs or when funds are transferred from country to country. Eventually, the ultimate beneficiary appears to be in possession of capital, even if it is not legal since its money has now been incorporated into the financial system.

Financial Institutions and authorities to avoid the risk of integrating dirty money into the financial system shall have adequate and appropriate systems in place to enable the detection and prevention of money laundering.

To achieve this purpose, three important steps are required.

The first concerns customer identification and due diligence. There should be a verification of the customer's identity using documents and links that came from a reliable source. If the client is a legal entity or business an understanding of the ownership and control structure is required. The extent of the measures and identification procedures can be determined based on the degree of risk depending on the type of customer, business relationship, the type of product or type of transaction.

The second and crucial step is to be maintained all the records of transactions in a way that they can be traced and identified all the money trails. Transactions that are carefully considered are complex transactions, unusually large transactions, and transactions that follow abnormal patterns.

In the third and final step, all suspicious activities and behaviours are reported by company employees, who receive regular training, to the compliance department, which in turn informs regulatory and legislative authorities.

The elimination of money laundering requires the establishment of common global rules. From now on, the main question will not be whether the entities have the same opportunities, because, as a result of the 4th industrial revolution, everyone finally has access to the same global opportunities. The crucial question from now on is whether everyone will be able to play by the same rules. That is why global compliance will be required, which will be achieved and with the deep understanding of the importance of preventing money laundering through the cooperation of investors, financial institutions and authorities, so that everyone will be able to play by the same rules, on the basis of trust and transparency.