Money laundering prevention
Money laundering involves activities performed to give third parties a false impression as to the origin of illegally obtained property. The financial system and seemingly normal transactions are used to create an appearance of legal origin of the money. The Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing defines money laundering as:
- the conversion of proceeds of crime into other valuables, change of their location or ownership while being aware that these funds are the proceeds of crime, and if such actions have been carried out for the purpose of concealing or disguising the illicit origin of funds or assisting another person who is involved in committing a criminal offence in the evasion of legal liability.
- the concealment or disguise of the true nature, origin, location, disposition, movement, ownership of the proceeds of crime, while being aware that these funds are the proceeds of crime;
- the acquisition, possession, use or disposal of the proceeds of crime of another person while being aware that these funds are the proceeds of crime.
Money laundering can be divided in to three main phases:
- Placement, when the proceeds of crime (e.g. cash or its equivalent) are introduced into the legal financial system;
- Layering, or structuring, whereby the proceeds of crime are moved and structured by simulating various transactions, with the purpose of distancing them from their original source, creating an appearance of legal transactions;
- Integration, in which the proceeds of crime are integrated into the legal financial system and see further use as apparently legal assets (e.g. for withdrawing cash, buying property, various purchases).
Reasonable suspicion of money laundering may arise when all of these phases are identified, or even only one of them. For example, only the integration phase may be identified when the offender uses the proceeds of crime to buy a car. Or, if the crime is committed abroad, and its proceeds are moved using accounts in Latvian credit institutions, the layering phase can be identified in Latvia.
According to the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing, money laundering can be committed by the person that committed the crime, and is now laundering its proceeds (self-laundering), or by a person that engages in laundering the proceeds of crime obtained by another party (third-party laundering), or a person that engages in the so-called professional laundering.
Money laundering prevention
Individuals committing criminal offences seek various ways to use global financial markets to gain financial benefit from the proceeds of their crimes. The globalisation of financial systems, free movement of capital and advances in technology make it easier to launder money and, at the same time, make it difficult for the combating authorities to track the laundering schemes and to prosecute the individuals involved in these crimes.
In order to prevent money laundering, every country, both individually, and on the European and global level, establishes a system to prevent money laundering. The system includes financial intelligence, investigation of the offences, charging and conviction of the persons committing these offences, temporary freezing of assets, seizure and confiscation of assets in accordance with court rulings.
Extent of money laundering
There are no precise estimates as to the amount of money laundered globally; however, the most conservative assessments made by experts indicate laundered money taking up to 2– 5% of the global GDP, with most of the laundering occurring via the financial sector. Studies show a rising trend for moving criminally obtained capital into the financial systems of OECD countries, with an average proportion of 2% of the GDP, which can be as high as 3.5– 4% in certain countries. According to the estimate, the total value of proceeds of crime moved into the financial systems of OECD countries amounts to 2–4% of their GDP, and given that the GDP of Latvia is 25 billion euros, one can assume that the total value of proceeds of crime injected into its economy is approximately 0.5–1 billion euros.