Money laundering is the process by which criminals attempt to conceal the true criminal origin and ownership of the proceeds of their criminal activities. It is the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin. If undertaken successfully, it allows criminals to maintain control over and to enjoy these proceeds.
The requirement to launder the proceeds of crime through the financial system and through other means is vital for the success of criminal operations. Those involved, seek to exploit the facilities of the world’s financial institutions if they are to benefit from the proceeds of their criminal activities. The increased integration of the world’s financial systems, the removal of barriers to the free movement of capital and technological developments have enhanced the ease with which criminal money can be laundered, thereby complicating the tracing process.
Estimates for the amount of money laundered worldwide are quoted from time to time. The International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money. However, in reality it is impossible to produce a reliable estimate of the amount of money laundered. The amount of money laundered each year amounts to billions of Euros and poses a significant concern for governments. As a result, governments and international bodies have undertaken efforts to prevent and apprehend money launderers.
Money laundering traditionally occurs in three steps: The first - placement
- involves cash being introduced into the financial system by some means, the second - layering
- involves carrying out complex financial transactions in order to camouflage the illegal source, and the final step - integration
- entails acquiring wealth generated from the transactions of the illicit funds. This rather simplistic approach does not necessarily reflect every type of money laundering operation and depending on the circumstances of the particular case, one or more of the traditional steps may not take place. Indeed, the definition of money laundering focuses on the conversion, concealment, disguise, acquisition, possession, use and retention of property knowing or even suspecting that it is derived from criminal activity.
Funding of Terrorism
Funding of terrorism (FT) and ML are conceptual opposites: whereas ML aims at converting proceeds deriving from criminal activity into seemingly legitimate assets for re-integration into the financial system, FT is not concerned with the source of the funds but rather the scope for which these are used.
FT is the process by which terrorists (whether individuals or organisations) are funded in order to be able to carry out acts of terrorism. FT involves the receipt, collection or provision of funds whether originating from legitimate or illegitimate sources, for use by individuals or organizations engaged in terrorist activity. It does not require the funding of a specific terrorist act or that a terrorist act is actually committed and it includes also the funding of all activities of terrorists, including legitimate activities.
The primary goal of individuals or entities involved in the financing of terrorism is therefore not to conceal the sources of the money but to support terrorist activity.
The MFSA’s role
While the Financial Intelligence Analysis Unit (FIAU) is the national agency with responsibility for prevention of money laundering and financing of terrorism and is also responsible for ensuring compliance by all subject persons, the MFSA, as the financial services supervisory Authority has a vested regulatory interest to prevent the use and involvement of authorized persons in such crimes.
In terms of the Prevention of Money Laundering Act (PMLA), the MFSA is considered to be an agent of the FIAU and is required to extend assistance and cooperation to the FIAU in the fulfilment of its responsibilities under the PMLA. Accordingly the FIAU may request the MFSA to provide it with information of which it may become aware during the course of its supervisory functions, including that a subject person may not be in compliance with the requirements of the PMLA or regulations made thereunder.
The MFSA also carries out on behalf of the FIAU, on-site examinations on subject persons falling under its supervisory competence with the aim of establishing that person’s compliance with the requirements of the PMLA or regulations and reports to the FIAU accordingly.
The MFSA is also required by law to disclose to the FIAU any facts or information that could be related to money laundering or the funding of terrorism, discovered or obtained in the course of its supervisory work or in any other manner.
For convenience and ease of reference, information regarding AML/CFT is available under different headings as follows:
The information provided by the MFSA throughout these pages aims to assist licence holders and other interested persons to be aware of and to comply with international standards, national legislation and measures on the prevention of money laundering and terrorist financing. While every effort is made to avoid errors or omissions, the content of these pages is being made available for information and guidance purposes only, may not be complete and should not be construed as any form of legal advice. Licence holders and interested persons are urged to consult the appropriate legislation and to seek professional advice as may be necessary.