How Laws against Money Laundering in the United States Have Evolved Over the Last 20 Years
Money laundering in the United States is a serious concern. Over the years, the country’s financial system has become a breeding ground for money laundering practices. As a rough estimate, it is believed that between $500 billion to $1 trillion laundered money is generated via international banks and financial institutions in the United States itself. While they indeed have strict anti-money laundering laws, the fact also is the US has a colossal banking system which means regulators find it difficult to police and monitor every single transaction.
According to a report, the banking regulatory body of New York State made serious allegations against the Standard Charter Bank by accusing that it assisted Iran to launder $250 billion between 2001 and 2007. Another report submitted by Financial Action Task Force (FATF) in 2016 discloses that though the US made robust anti-money laundering efforts, they did not do enough to stop corporate secrecy. This elicits serious gaps in law enforcement efforts, which has further made the financial system vulnerable to dirty money, the report said. The governments around the world, therefore, have started to converge on the fact that money laundering facilitates crimes such as drug trafficking and terrorism, which eventually will severely impact the global economy.
What is money laundering and how does it work?
To put it in simple words, money laundering is the process with which money earned through illegal or criminal activities is disguised and made to appear as though it had come through legitimate sources. According to the World Bank and International Monetary Fund (IMF), money laundering accounts for 3 to 5 percent of total global GDP, which is equivalent to US$2.2 trillion to $3.7 trillion annually.
Money laundering typically involves three stages: placement, layering, and integration.
Placement: In this stage, the money obtained from illegal activities is introduced into the financial system.
Layering: It is done by conducting a series of transactions in order to disguise the audit trail, which makes it more difficult to figure out the initial source of the money.
Integration: In this stage, the money is disbursed back to the launderer in what appear to be legitimate transactions.
History of US anti-money laundering laws
Since the establishment of the Banking Secrecy Act (BSA) in 1970 which became one of the most powerful tools to fight money laundering, several other laws were passed that allowed the BSA to enhance regulatory agencies with the necessary power to combat money laundering. The various money laundering laws since 1970 with their specific requirements are listed below in chronological order:
Bank Secrecy Act (BSA) of 1970
It was established for keeping records of reports by private individuals, banks, and other financial institutions. It was designed to help identify the source, volume, and movement of money used in any form. As per the provisions of this Act, the banks were required to report cash transactions of more than $10,000 using CTR (Currency Transaction Report) as well as maintain their paper trail.
Money Laundering Control Act of 1986
With the establishment of this Act, money laundering was classified as a federal crime by introducing civil and criminal forfeiture for BSA violations. The Act made it clear that the banks should establish and maintain guidelines to monitor compliance with recordkeeping requirements of the BSA.
Anti-Drug Abuse Act of 1988
This Act was considered as part of the Federal Government’s profound War on Drugs. It came down heavily on those who were involved in the sale and use of illegal drugs. This Act also proved to be a serious body blow to money laundering activities conducted by selling illicit narcotics. The individuals who were involved in drug trafficking were then starting to be framed for drug charges and were rescued by bail bond companies.
Annunzio-Wylie Anti-Money Laundering Act (1992)
The sanctions for violating BSA were strengthened even more after this Act. As per its provisions, it was now required to use Suspicious Activity Reports rather than criminal referral forms. It also required verification and record keeping for wire transfers.
Money Laundering Suppression Act of 1994
This Act was an important milestone as it required the banks to review and enhance examination procedures for anti-money laundering and refer the cases to appropriate enforcement agencies. It streamlined the CTR exemption process and required the registration of Money Service Business (MSB). The operation of an unregistered MSB was made a federal crime.
Money Laundering and Financial Crimes Strategy Act of 1998
As per this Act, the banking agencies were required to make anti-money laundering training for examiners. The Department of Treasury was taken on board for developing a National Money Laundering Strategy. Afterwards, the law enforcement efforts were heightened at the federal, state, and local levels, or at any place where money laundering was prevalent.
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) of 2001
This Act was yet another powerful law aimed at curbing money laundering by criminalizing the financing of terrorism and reinforcing the existing BSA framework and customer identification procedures. It prohibited financial institutions from engaging in business with foreign shell banks as well as required the implementation of due diligence procedures. It enhanced the level of information sharing between financial institutions and the US Government. This Act also made civil and criminal penalties even stricter.
Intelligence Reform & Terrorism Prevention Act of 2004
This Act was promulgated and passed in the wake of the 9/11 attack on the United States. It was passed with a purpose of unifying the intelligence and law enforcement agencies of the United States. It amended the BSA to require the Secretary of Treasury to stipulate regulations that are “reasonably necessary” to aid in the fight against money laundering and terror financing.
It is often said “where there’s muck there’s brass” meaning when it comes to huge amounts of money generated by illegal means, the line separating sinners from saints often gets blurred. This brings us to the conclusion that it will always be difficult for anti-money laundering laws to become perfect because financial institutions around the world are still engaged in lucrative transactions. The above mentioned laws, therefore, were designed to fill the loopholes through which a lot of money launderers were benefiting from.