Money Laundering Proof Your

Company: AML Check

by David Drake
The World Bank and the International Monetary Fund (IMF) estimate that global money
laundering constitutes about to 3 to 5 percent of the worlds gross domestic product. In nominal
terms thats a staggering $2.17 and $3.61 trillion dollars in a year.

Money laundering is the act of attempting to conceal proceeds from illegal activity thereby
making them appear legitimate. These dirty monies are often associated with proceeds coming
from drug trafficking, however any monetary activity can be associated with money laundering. In
a largely global environment money laundered can come from and support financial fraud, cyber
crimes, human trafficking, black market arm sales, corruption and terrorist financing.
Aside from directly aiding criminal activity, money laundering has devastating effects to the overall
development of economies especially those in developing nations and the financial institution.
In the case of the financial sector, rampant money laundering stumps growth and creates
inefficiencies so much so it impacts the overall growth of the economy. According to a report
released by the Asian Development Bank (ADB), money laundering erodes financial institutions
as it imbibes a culture of fraud and corruption within its walls. When fraud is exposed, this erodes
trust among customers and the institution. This is especially destructive in developing countries

where perception of risk is higher and any indication of rampant money laundering hurts the
investment climate.
Aside from its negative impact on the financial sector, money laundering has a more direct
negative growth impact on the economy. It diverts resources to less productive activities and
enables domestic corruption and criminal activity thereby depressing the local economy.
The adverse effects of money laundering are not lost on world leaders. There have been conscious
efforts among governments to put into place the proper safeguards to curtail, and one day perhaps
completely eliminate, money laundering activities.
In the United States alone, there have been laws and frameworks in place that must be observed
by financial institutions and various businesses to ensure that they are properly safeguarded
against money laundering.
My partner (1) in ConsultDA.com, Scott Andersen, spent 20 years as a prosecutor with the
Financial Industry Regulatory Authority (FINRA), NYSE Regulation, Inc and New York State
Attorney General. He says, FINRA announced its examination priorities for 2015, which once
again places a heavy emphasis on anti-money laundering (AML) surveillance systems and
processes to identify suspicious transactions. He added, Broker-dealers are required to establish
and maintain a written Customer Identification Program (CIP) to verify the identity of each
customer opening a new account.
Safeguarding Against Money Laundering
The Bank Secrecy Act (BSA) of 1970 provides the base framework for antimoney laundering
(AML) initiatives. The BSA provides the requirements for record keeping of private individuals,
banks and other financial institutions that are designed to help identify source, volume and
movement of funds in or out of the United States. With this law, banks are obliged to report the
persons who make cash transactions exceeding $10,000. This is intended to catch a wide net of
potential illegal activity.
Money laundering was officially established as a federal crime in the Money Laundering Act of
1986. Other laws soon followed that further enhanced the capabilities of law enforcement agencies
to implement AML initiatives.
In the wake of 9/11, the Patriot Act was enacted that further strengthened AML measures by
enhancing due diligence measures in financial institutions. It gave the US government further
reach in scrutinizing bank records should there be suspected threats to national security.
So how do these regulations impact common businesses? For starters, even if the primary target
of AML measures are financial institutions, money laundering means that there must be an
apparent legitimate source from which the money is derived. Prior to the Patriot Act, money
laundered was channeled from shelf companies to banks, but because the Act now prohibits banks
from doing so, launderers need other channels. Now, they are conducting money laundering
activities through legitimate businesses.
FundAmerica, a leading crowdfunding financial tech provider, provides an illustration on such
mechanism in their blog post AML ChecksWhat? Why?. If a business unknowingly takes on a
known terrorist or financial criminal as an investor, and this is flagged by the FBI or any other
regulatory body, this might lead them to think that the business is aiding these criminals in money
laundering.
What follows suit would be a host of negative publicity and massive expenses for litigation and
time lost disproving such claims.
Scott Andersen, who is also the General Counsel for FundAmerica says, The failure to establish
proper AML procedures and systems can lead to regulatory action against your company, and
diminish your companys good name and reputation. Businesses, especially startups and SMEs,
may be hesitant to put in place proper AML structures for they are expensive to set up initially.

FundAmerica, however, has developed the necessary software to do AML checks. This software
ties into the LexisNexis databases to run AML reports all for the inexpensive price of $2. There are
other AML software out there that provide the same checks, such as Beta Systems Software and
Safe Banking Systems, but FundAmericas AML check is more cost effective.
It pays for businesses to properly safeguard themselves from the potential threats of money
laundering without burning a hole in their pockets. As they say, prevention is better than cure, and
FundAmerica provides a cost efficient AML service.
Footnote:
(1)
IN FULL DISCLOSURE, Scott Andersen and I recently formed and are partners in a SECURITIES
COMPLIANCE CONSULTANCY for BROKER-DEALERS, INVESTMENT ADVISERS and other financial
institutions: CONSULTDA.COM.

Note: This article originally appeared on HedgeCo.Net with this link http://thesoholoft.com/moneylaundering-proof-your-company-aml-check-by-david-drake/on February 18, 2015.

Photo credit to wallpaper4me.com

David Drake is an early-stage equity expert and the founder and chairman of New York-based
Victoria Global with divisions LDJ Capital, a family office and private equity advisory firm, and The
Soho Loft Media GroupThe Voice of Capital Formationa global financial media company
involved in Corporate Communications, Publications, and Conferences. You can reach him directly
at David@LDJCapital.com.