It is impossible to say exactly how large is the problem of money laundering, but the International Monetary Fund have estimated that it could amount to 5% of global gross domestic product.
Its broader threat though is to the economy itself and the civil society it serves.
Whilst the UK definition of money laundering covers all forms of handling or possessing criminal property, including possessing the proceeds of one's own crime, and facilitating any handling or possession of criminal property.
It is important to stress that organised money laundering and terrorism financing are financial crimes with economic effects.
The underlying crime (which could be corruption, drug trafficking, market manipulation, fraud, tax evasion), along with the intent to conceal the proceeds of the crime, generate financial flows away from economically- and socially-productive uses—and these diversions can have negative impacts on the financial sector and its stability.
They also have a corrosive effect on society and the economic system as a whole.
The IMF stresses that AML controls, when effectively implemented, mitigate the adverse effects of criminal economic activity and promote integrity and stability in financial markets.
The NCA echo these points with respect to the UK:
The critical importance of the financial sector to the UK’s economy means that money laundering, particularly high-end money laundering (the laundering of large amounts of illicit funds through the financial and professional services sectors) can threaten the UK’s national security and prosperity, and undermine the integrity of the UK's financial system and international reputation.
Large volumes of criminal money flowing through the UK could result in criminal and regulatory penalties being imposed by UK, EU and US authorities. This could in turn lead to the withdrawal from the UK, or potential collapse, of major financial institutions.
These are points made also by the FATF (Financial Action Task Force), the body formed in 1989 to instigate common standardized international practice:
The possible social and political costs of money laundering, if left unchecked or dealt with ineffectively, are serious. Organised crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments.
The economic and political influence of criminal organisations can weaken the social fabric, collective ethical standards, and ultimately the democratic institutions of society. Most fundamentally, Money Laundering & Terrorist Financing is inextricably linked to the underlying criminal activity that generated it. Laundering enables criminal activity to continue.
There is an increasing acceptance that in order to be effective compliance needs to imbue business cultures laterally and vertically, with holistic strategies and overviews replacing siloed risk operations.
Such overarching compliance regimes not only safeguard reputation and credit-rating, and shield against regulatory pressure and audit, but work in tandem with other risk operations in the financial institution to reduce risks, improve efficiencies, and thereby raise long-term business prospects.
AML procedures also operate as gatekeepers against general fraudulent activity.
By emphasising, streamlining, leveraging, and investing in KYC, organisations inevitably and healthily focus more on their customers, ensuring increased conversion and retention, and enhancing customer satisfaction and engagement overall by optimizing touchpoint experience.
Indeed, customer trust in organisations is greatly enhanced by the professionalism and depth of their own KYC and ongoing monitoring experiences, and clients will value the intent behind the policy and the efficiency of its execution.
For this reason, organisations increasingly seek long-standing relationships with compliance professionals, who increasingly operate in discrete ecosystems of mutually-trusted service suppliers, so that compliance teams within organisations are able immediately to flex towards solutions for any new demand for check type or related service.
By such means compliance may add real value across an organization, rather than distracting or inhibiting.
Of course, the avoidance of penalties is crucial. These may include fines, loss of credit rating, temporary or permanent closure of business. Swedbank lost bank lost €7 billion off its market value along with a decrease in credit rating in its recent money-laundering scandal.
No entity is too big or too small to be penalised, and no entity is too small or too big to be at risk either from being targeted or from weakly applied procedures.
But all entities will gain from the benevolent discipline of compliance.
We help firms build the foundations of a successful anti-money laundering program via our Pillars of AML Compliance Initiative.
To learn more about our Pillars of Compliance Scheme, please click here.
Loving your company's services! I switched to you from another provider, and what you deliver is much better, and your web interface is so much simpler to use.
I absolutely love it. I can't believe how easy it is to use and how user friendly it is in its format.
Love it – very happy client as well as we can now speed up the process by 4 days for him.
The system was extremely easy to set up and we were up and running with it very quickly… It made a refreshing change to be in that position so quickly.
This is very user friendly – brilliant! I wish I’d discovered this at the start of trading.
Very clear & simple. Used it, without reading the manual of course, just to give it a try. Excellent service.
I have just used Veriphy for the first time. It is excellent – so much easier than chasing old passports and utility bills that are sent by email.