According to Fanta and Mohsin (2010), money is classified into two types, i.e. dirty and clean. Working legally ends up earning clean money or legal money and illegal working ends up earning dirty money or illegal money. Occasioning from various criminal activities and having successfully developed over many centuries, money laundering remains one of the most influential features of organized crime. Serving to empower criminals, money laundering provides the necessary option through which to preserve illegally gained funds, while at the same time incentivizing the overall profitability of crime. In forming a shroud of apparent legal cleanliness around an object, the process of money laundering directly supports the legitimization of wealth (Rider, 2006) by Journal of Money Laundering altering the perceived source and ownership of the criminally derived funds or property
Over recent years, money laundering has become a key area of focus for risk assessment within the banking sector (AUSTRAC, 2013). Within the area of financial crime money laundering (ML) is recognized as possibly the biggest major problem, and constitutes the third largest “business” in the world (Le-Khac and Kechadi, 2014). Money laundering has an estimated value of approximately 2-5 per cent of the world’s gross domestic product (Takáts, 2007), with 50 per cent of all money US banking sector (Unger and Van Waarden, 2009).
Now anti-money laundering programs effectiveness to identify criminal customers and suspicious transactions is achieving more importance in financial institutions for their sound running and efficiency. Evaluation of the anti-money laundering recommendations for combating money laundering can be used to determine whether these regulations achieve their objectives. United Nations (UN) plays an important and active role to strengthen International cooperation and synchronization of laws and policies practiced globally for fighting money laundering and taking possession of criminal proceeds. Pakistan has signed and ratified four conventions given by UN to fight money laundering and for better implementing the FATF recommendations. These conventions include Vienna convention given in December 1988, International Convention for the Suppression of the Financing of Terrorism given in April 2002, United Nation Convention against Transnational Organized Crime given in 2003 and United National Convention against Corruption given in December 2005.
Money laundering is the process by which large amount of illegally obtained money, from drug trafficking, terrorist activity or other serious crimes, is given the appearance of having originated from the legitimate source. Money laundering has an adverse impact on global economic system and 0political stability of country and hence such an activity must be curbed with strong implementation of anti-money laundering policies, effective compliance, regulations and policies. Therefore, nations of the world must join hands and adopt measures to dismantle syndicates engaged in money laundering by resorting to aggressive enforcement of law.
Through this article the individuals, businesses, and organizations as a society can develop tactics to minimize the money-laundering. Through these kinds of researches anti-money laundering policies can be developed and implemented to prevent the illegally-obtained funds. Different economic sectors i.e. Banking, Financial institutions can make their own anti-money laundering policies, and compliances through which they can restricts all to abide by these policies in order to support efforts against money-laundery crime.
The significance of this paper has implications for the banking, financial institutions, regulatory and law enforcement considering future preventative and corrective measures to be taken to curb money laundering practices in the country because it is the global issue. It will also be valuable to financials investigators and LEAs willing to investigate on money laundering because it can help them to broad their investigation scope while keeping in view the different factors and angles involved behind money laundering. Moreover, this research will also aid in conceptualizing the gap associated with the theory and research on the topic of money laundering.
Furthermore, this paper can help to take certain measures which include hiring of management that monitors compliance of institution policies with anti-money laundering regulations, collection of extensive by data of consumers, maintenance of proper records of customer information and their previous transactions, training of employees to enhance their skills to easily identify false transaction and promotion of globalized effort to curb the money laundering crime.
This article study was based on four variables, one is dependent and three are
(1) Money laundering (dependent variable).
(2) Customer record keeping (independent variable).
(3) Suspicious transaction reporting (independent variable).
(4) Employee training (independent variable)
Money laundering is a financial crime in which criminals convert dirty money into clean money. This crime damages economic as well as social and political environment. It is a three-step process consisting of placement, layering and integration. According to Rodriguez-Clare and Stein (2005), money laundering depends on soundness of banks pervasiveness of insider trading, gross domestic product (GDP) and effectiveness of law-making bodies. It is very important to combat money laundering applying anti-money laundering regulations as it spread across the world because of globalization and destabilize integrity, efficiency and effectiveness of financial institutions and their systems.
Customer record keeping
Customer record keeping is the most important measure to combat money laundering. Selection of criteria and time period for which record should be kept is the crucial part of decision making. Most recommendations of FATF are related to customer record keeping. It is important to practice information secrecy and information about customer should be revealed where necessary. hehu (2010) studied about the determinants of customer record keeping, which are customer/owner’s background, location, method
Suspicious transaction reporting
Reporting suspicious transaction is the mandatory for financial institutions to combat money laundering. It is a four-step process including screening account, asking questions from customers, finding customer’s previous record and evaluating the three-step information for identifying whether the transaction is suspicious or not. According to Financial Intelligence Act (2001), determinants for reporting suspicious transactions are unusual businesses, knowledge of reporting and record keeping requirements, identification, report threshold and general.
Training is an effective coaching and mentoring process for changing employee’s attitude, skills, knowledge and behavior for better. For fighting money laundering crime, it is necessary to have professionally trained and motivated employees who can easily identify, monitor and report suspicious transactions. Training programs could be arranged within the financial institution or outside in some university or training school. Timely and accurate training has no match, and it increases employee’s overall performance. According to Alldridge (2008), determinants of employee training are training in days, its intensity, expenditure and trainer’s experience.
Fight against money laundering is resource-intensive; therefore, special budget should be allocated for the capacity building of employees through trainings. Timely guidance and assistance of foreign-trained instructors or experts in combating money laundering should be taken. Implementation of anti-money laundering regulations should be transparent, consistent and timely. Collection, maintenance and dissemination of information related to customers should be administered properly. Effective preventive measures and law enforcement efforts should be made to reduce money laundering crimes.
Transactions taking place in banking sector or other sectors of the economy should be monitored regularly. Global collaboration with anti-money laws making and enforcement bodies should be promoted to combat money laundering.