With the international environment in a precarious state, the banks must work hard and impart banking training to ensure they keep up with the antimoney laundering laws.
The black or illegal money is often earned through nefarious activities such as extortion and drug smuggling. Money laundering ensures that the black money seems to originate from legal proceeds.
Banking training must ensure that the bank employees know about money laundering.
Hence, banks and financial institutions must ensure that such money does not enter their systems. The banks must have a complete idea of where the money submitted into their bank accounts has come from.
The Bank Secrecy Act is important for banks to follow to prevent this money from getting legalized. As per this Act, all the national banks and branches of foreign banks must maintain records including name, date of birth, address etc. about their customers. When such records are maintained, no problems arise for banks. The banks must also verify such information some time after an account has been opened with them.
Going further, there are three stages to money laundering, placement, layering, and integration.
In the first stage of money laundering, placement which involves depositing money into banks so that it enters the financial system of a country, the criminals deposit that money into small amounts in different accounts so that it does not invoke any suspicion.
It’s because the government has prohibited deposits of large amounts to prevent any money laundering. It’s the job of the banking officials to check whether the invoices and receipts of money are original or not. Hence the first stage of placement of money laundering requires banks to be extra cautious about the origin of funds.
Therefore the banking training must ensure that the banks must do the KYC of the depositors before allowing them to open bank accounts.
In the second stage of money laundering, called the layering, the criminals introduce illegal foreign currency into another country. In the second stage, they use the money to buy such businesses in another country. The holding period of deposits in bank accounts is a tactic to ensure that the depositors don’t withdraw the money before a period of 5 days has elapsed since opening the account.
They buy such businesses, because the criminals can show their black money proceeds to be occurring from casinos and hotels because these sources often generate a large amount of revenue. They can also show fake companies through which they have received such money, i.e., through the sales of their products or services.
Integration is the last stage of the money laundering business; in this stage, the criminals introduce money back into the economy. They buy real estate in a country. For example, they have to prove that they are buying this real estate with legal money and show fake purchase receipts.
The criminals withdraw the money from the local bank accounts of a foreign country and then buy letters of credit, bonds, and money orders with it. They lend that money to someone and, in exchange, get a letter of credit. Integration can also be done by purchasing luxury goods; e.g., someone can buy jewelry in another country to be sold later.
Apart from luxury goods, they could also transfer this money to a terrorist organization.
To prevent this, for example, the UK anti-money laundering laws have prohibited withdrawing 10,000 Euros. This rule has established that the money which has originated from the terrorist countries can’t be withdrawn to the maximum of 10,000 Euros in one transaction. This law applies to all financial institutions across European Union.
If any financial institution disobeys such laws, it’s penalized by the European banking authority, which has set this law. If the money of this amount is withdrawn, it’s immediately reported to the authorities, and action is taken.
How can banking training stop anti-money laundering?
- Get rid of obsolete technology:
Technology can be quite useful to banks in preventing money laundering. For example, all the banks should use similar kinds of technologies, and their systems should be integrated with one another. Integrating the data is tough when one bank operates on a different technology, like spreadsheets, and one on another, such as ledgers. Hence all banks should use cloud software to prevent such problems.
- Research about the customer:
Apart from the KYC process, the banks must also carry out due diligence on the customer. This implies that the information given by the customer is checked against the database. Such databases include those people who have been banned from conducting transactions in any country by their own governments. They are included in international watch Lists created by several governments. The banks must check these lists before allowing customers to open an account.
- Screening of weird transactions:
Banks must also check the size of transactions between them and another bank. If the transaction is more than a certain amount, they must stop it immediately. If the bank cannot regulate such transactions in time, it has to pay heavy fines. Apart from checking the size of such transactions, it must also detect who is the recipient of such funds, which could be a terrorist organization. Any black money criminal might be making such a transfer of funds earned through his so-called legitimate activities, and the bank must keep a check on it.
- Suspicious activity report:
Banking training for antimony laundering must involve training such officers to screen transactions of more than the permitted amount. They must also be updated with the new methods adopted by criminals to carry out transactions.
The Employees must be trained in an AML compliance program which ensures that they know how to prepare a suspicious activity report. This report has to be provided to apex financial authorities if any conspicuous transaction has happened in a bank. The transaction might not violate antimony laundering laws, but it still must be brought to the government’s notice.
This is how banks can prevent any money laundering and severe punishment by keeping due checks on transactions and their customers.