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The Economic and Social Consequences of Money Laundering

It can be easy to understand the impact of money laundering on the initial victims – those who lost funds as a result of the predicate crime – but there can be an even deeper, more lasting effect on society as a whole.

While some fear that Anti-Money Laundering (AML) efforts can have a damaging effect on commerce, especially in developing nations, let us take a look at a number of ways money laundering hurts us all. We'll focus on emerging nations as the impact there can be magnified to extreme proportions.

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The first, and most obvious, the impact is the increase in corruption and crime. In many jurisdictions that are havens for successful laundering one often finds lax concern on the part of government and/or regulators – few predicate crimes, little or no reporting, enforcement, penalties or provisions to confiscate illicit funds, etc. Those conditions can then foster bribery of government and bank officials, lawyers, accountants and others. Once that beachhead is established, it is not long before bribery turns eyes away from other, even violent, crime.

The second impact (valid in any jurisdiction) is on legitimate businesses.

Where a launderer uses a front company to hide his illegal funds, it is possible, even probable, that the operations of the front company may be subsidized. This can enable the front company to sell products at or below cost, driving their legitimate competition out and opening the door for expansion by the front company.

As the front company grows, it provides a greater opportunity for the launderer to move even more illicit funds. In a developing country, it would not take long for the criminal/launderer to gain control of an entire industry.

KYC Compliance Mandate – What Are the Required Documents?

KYC compliance is a mandate that the world demands from financial institutions worldwide. KYC compliance is a mainly presented on the risk mitigation platform.

Though KYC Compliance had been introduced to many countries' financial institutions, it was taken more as best practise and not mandated. It was only after the 9/11 terrorist attacks on the twin towers in the America that it became a mandate for many countries. There were increased terrorist attacks and activities with the dawn of the new millennium.

Blockchain for Enterprise Focus on KYC, AML, and Regulatory Compliance Are We Calling it RegTech? - Infocast

With Globalisation and improved communication in the world, the ills of society were unmasked. Corporate scandals which had reached new heights were also exposed. It was clear the role played by dirty money or laundered money was very influential in local and cross border crime and terrorism. The need to discourage and attempts to cut down these exploitations of the worldwide financial services and systems became most urgent.

KYC compliance did not originate with the coming into law of the USA Patriot Act which by President George W Bush signed in October 2001. Many financial services worldwide were already having some form of know your customer compliance mandates in place.

The need for due diligence and customer identifications checks were in place to mitigate operational risks and frauds while ensuring acceptable and consistent levels of service provision.