Money Laundering in the EU

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Methods and Stages

The explosion of money laundering

 

Macroeconomic Consequences

 

The Risks to Financial Institutions

 

The Risk to the Financial System

 

The Euro and Money Laundering

 

Money Laundering as Tax Evasion

 

Social and Political Costs

 

International Conventions

 

EU Directives on Money Laundering

The Achilles Heel

Bibliography and some useful links



 

The Risks to Financial Institutions

Financial institutions, such as banks, stockbrokers, life assurance firms and so forth, who either intentionally or unintentionally launder money, are also at risk and is another problem associated with money laundering. Banks are susceptible to risks from money launderers on several fronts. There is a thin line between a financial institution suspecting that it is being used to launder money and the institution becoming criminally involved with the activity. Banks that are exposed as laundering money are most certain to face costs associated with the subsequent loss of business on top of vast legal costs.

At the very least, the discovery of a bank laundering money for an organised crime syndicate is more than likely to generate adverse publicity for the bank. This is exemplified by the case of E.F.Hutton, a US brokerage house that received a fair amount of negative publicity for laundering criminal funds. A lack of confidence in a banking institution is likely to result in declining business as clients take business elsewhere.

However, a much graver risk that banks face is the risk of criminal prosecution for laundering money whether they know the funds are criminally obtained or not. There are EU laws and directives stating that if a financial institution in the EU is found to be assisting a money launderer and failed to follow the appropriate procedures as laid out by the EU, the individual employee and respective supervisors, including company directors are personally liable to imprisonment or fines or worse both. Seldom are bank directors aware that their institution is being used to launder money. The scenario is usually one employee colluding with a criminal group; this employee will circumvent the bank’s depository procedures to launder money. However, the bank is still liable for the actions of its employees. Hence, it being essential that banks adopt and enforce the new legal procedures in deposit taking and keep tight controls on staff likely to be useful to money laundering. This is also the reason why the EU directives on money laundering include the ‘know your customer’ initiative.

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