Think money laundering is a victimless crime? The impact might be closer to home than you think.
In the process of our daily business activities, we perform thousands of anti-money laundering checks on beneficial owners of corporate entities, and individuals. Many small to medium enterprises and business owners are quite surprised at the extent of the legislation, and requirements around initial KYC, and then ongoing customer due diligence, with some level of reluctance to comply.
The gap in understanding
There seems to be a significant gap in the business communities' awareness of the bigger picture of anti-money laundering initiatives, and the reasons the governments of the world are taking it so seriously. To many, it is often seen as a victimless crime, and AML processes an impost on honest business people.Many think their businesses are too small to be impacted by the laws around AML, or not in an industry that is targeted.
Unfortunately, the reality is quite different. Money Laundering affects individuals and communities, at almost every level. The ability to launder illegally obtained cash is the fundamental enabler of organised crime. Everybody remembers the billions of dollars in cash generated by Pablo Escobar’s drug empire, stacked on pallets filling warehouse after warehouse while waiting to be laundered globally. To be useful and beneficial, proceeds from crime (cash) have to eventually end up in a legitimate bank account, and this core purpose of the world's fight against money laundering. To fight or minimise organised crime. Remove the ability to launder money, and you severely restrict a criminal organisation's ability to operate.
Organised crime has a serious impact on every community, everywhere in the world. Think about this:
- Private costs: these impact upon individuals directly connected to the victim - you.
- Parochial costs: these are borne through community ties,
- Public costs: these occur when the impacts are shared among citizens not directly connected with each other, such as a cost of policing.
The emotional impact on you personally
Much of the drug trade is controlled through organised crime. In some cities, ICE (Crystal Meth) use is in epidemic proportions. If you, or your neighbours are the victim of burglary, there is a high likelihood that it was perpetrated to feed a drug habit, and that the cash generated from your goods ultimately ended up in the hands of a crime syndicate, only to be laundered into legitimate funds. Most of us know the emotional distress caused by home invasion or burglary, the feeling of being violated, and the sense of helplessness.
The next time you have a credit card compromised, you can be fairly certain that it was as a result of a highly organised criminal group, and even though you may have had your financial institution reimburse you days, weeks or months later, it will still have had a significant impact on you or your family. For many, that time period where your account is frozen, or you are missing funds, it can have a significant negative effect emotionally, and for some, shame and embarrassment.
And if you are unlucky enough to have your identity stolen, you can almost guarantee that the financial fraud perpetrated on you was ultimately laundered to become useful clean funds. Loans taken out in your name, goods and services purchased on credit, can all take years to unravel. In many instances, the first you know about it is when you find your credit score severely impacted after receiving a rejection on a credit application.
The impact on your community
So you can see that money laundering is very much not a victimless crime, in fact the very opposite.
The enablement of organised crime to benefit from illicit activities trickles down to every level of society, in every country in the world, and almost all of us would know someone who has been the victim of crime where the proceeds have ultimately been laundered. That’s the personal direct impact. There is a significantly larger impact that also trickles down to every person through increased costs of living.
- Financial underwriting costs are passed to the end consumer.
- Lost tax revenue means less community services.
- There is a higher cost to provide policing and enforcement services due to higher workloads, and more complex infrastructure required.
In the UK, the Home Office reported that organised crime now costs at least £37 billion every year, “more than any other national security threat”. This was a sharp increase up from an estimated £24 billion in 2013, according to the published “New Strategy to Tackle Serious and Organised Crime”.
In a recent study in Australia, serious or organised crime cost the community $36 billion a year and rising, equivalent to:
- 24% of the nation's welfare budget;
- 6% added to the average cost of living;
- $1560 dollars for every man, woman and child in Australia; or
- 3 weeks pay.
These are just samples of what organised crime is costing the average community, and imagine this is repeated every year, in every country, globally. The United Nations Office on Drugs and Crime reported the estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars. Though the margin between those figures is huge, even the lower estimate underlines the seriousness of the problem governments have pledged to address.
So as a business owner, when there is a requirement from a financial services provider or other “reporting entity” to complete anti-money laundering compliance, and KYC, (Know Your Customer), these impacts to individuals and communities are behind a massive focus by every government to stamp out money laundering, and the legitimising of assets and cash secured through criminal activities.
Please be patient with your provider. The penalties for non-compliance with AML law is harsh, and fines measured in hundreds of millions of dollars are not unusual. And you may personally benefit as a result.