Twenty years ago, anti-money laundering (AML) programs primarily focused on tracking the money derived from criminal activities such as gambling, prostitution, and drug trafficking. Profits from these illegal activities were often significant and in cash. These funds were also untaxed. Consequently, U. S. federal, state and municipal governments were deprived of income. The primary function of the Bank Secrecy Act (BSA) was to limit tax evasion, which was a by-product of illegitimate proceeds derived from ‘covered crimes’ as listed in the BSA. The BSA, passed in 1970, was eventually followed up with another law: the U. S. Money Laundering Control Act (MLCA) of 1986. The MLCA and its subsequent amendments were passed to prevent and detect the infusion of illegal proceeds into the national banking system through placement, layering and integration. The cleansing of criminal proceeds would not only legitimize these funds but also hide the criminal activity that generated them.
With the tragic events of September 11, 2001, there was an expansion in the scope of money laundering prevention. In addition to tracking illegal cash proceeds, there was a heightened concern about clean funds being used for nefarious purposes, namely terrorism. The linking of these two activities was important because both money laundering and terrorist financing (the solicitation, collection and provision of funds for the purpose of terrorism) adversely impacted the financial system. Both of these activities, which can be on a national or an international scale, sought to avoid detection by taxing and legal authorities, involved the transmission of cash via the banking system, and were connected to criminal activity.
Regulatory international bodies such as The Financial Action Task Force (FATF) and The Basel Committee on Banking Supervision (BCBS) established voluntary standards for countries and banking systems to adhere to so that each could effectively develop strategies and frameworks to mitigate the risks associated with money laundering and terrorist financing. Understanding these widespread activities and their connection to each other is a critical prerequisite for combatting each. In sum, anti-money laundering and counter-terrorist financing are two sides of the same coin and must be addressed simultaneously.
By: Dr. Sheryl Smikle
https://www.imf.org/external/np/leg/amlcft/eng/aml1.htm#financing terrorism https://www.treasury.gov/press-center/press-releases/Pages/po3711.aspx