by Elisabeth Glatzenberger Analyst Controversies & Global Norms Research ISS ESG
The term money laundering is said to date back to a time when laundromats in the United States were often owned by organized crime who used legal businesses as a way of “cleaning” money obtained from the proceeds of crime. In this way, they were able to disguise the money’s origin, integrate it into the legitimate financial system and use the proceeds without detection. However, to legitimize the vast amount of illicit money it has to pass through one or more banks. The steep curve in the development of technology, though welcome, has changed the landscape in which banks and criminal networks operate in significantly, challenging the ongoing efforts to combat illegal networks or individuals trying to exploit the banks’ systems by circumventing anti-money laundering (AML) regulations. Through fungible transits, the origin of finances is almost untraceable once it has moved through several banks. As a result, the importance of comprehensive AML regulations and robust systems, including strong Know Your Customer (KYC) procedures, cannot be overemphasized. The numbers confirm the urgency. According to the United Nations Office on Drugs and Crime (UNODC) between 2–5% of the global Gross Domestic Product (GDP), approximately $800 billion–$2 trillion, is laundered each year.
In 2014 news broke of the so-called “Russian Laundromat”, in which organized crime and corrupt politicians used a virtual laundromat to funnel billions of dirty funds via a complex system of offshore companies before entering the European Union (EU). Three years later, the press exposed the sums moved through 50 banks, shaking public trust in the financial system. The scandals continued with the exposure of the Azerbaijani Laundromat in 20175 and the Troika Laundromat in March 2019.
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