Banking Sector Followingprogressive globalisation process and communication revolutions, the scope forinternational crimes have amplified and the financial exposure of crime havebecome more complicated due to rapid changes in technology. It’s propagationhas enabled international banks in different part of the world to facilitatethe transmission and camouflage the real source of funds. The Financialmarket has become is directly or indirectly threatened by money laundering.Banks need to spend heavily through hugeinvestments in hi-tech software to be able to identify money launderingtransactions. It becomes difficult in evaluating AML costs as they are dispersed in variousareas like compliance, risk management and operations. These characteristicsprovide dubious estimation of the cost level and influence the assessment ofpast and future which also impacts the quality of the information.
For enhanced transaction monitoring andrevision of KYC documentation for existing customers, there is huge investmentin AML activities. Those institutions which fail to report any suspicioustransactions or comply with the regulations are subject to fines and sanctionsimposed by competent authorities, which in worst case may lead to revocationof banking license. Reputation riskis possible as negative publicity relating a bank’s business practices andassociations will lead to a loss of confidence in the integrity of theinstitution. Hence, customers, depositors and investors might discontinue theirbusiness activities with alleged banks of money laundering and terroristfinancing. Moreover, large laundered money kept as deposit in a bank cannot be consideredas stable source of funding as they are prior to unanticipated withdrawalsthrough transfers, thus resulting in liquidity shortfall.
EconomicEffects Itis not easy to quantify the cynical effect of money laundering on economicdevelopment as it is quite clear that such activities impair the financialsector institutions which are fundamental for the economic growth of thecountry, minimise productivity in the sector by inciting crime and corruptionswhich in turn sluggish economic growth and manipulate the economy’s externalsector international trade and capital flows to the detriment of long-termeconomic development. It may hasdevastating social consequences and poses a threat to the security of anycountry as it corrupts market, shifts an unfair economic burden, weakensuniversal stability of international financial markets and raises numerouscivil liberty related issues.Following high integration of capital markets, money laundering may alsounfavourably affect currencies and interest rates as launderers may reintroducefunds in schemes where they are least likely to be disclosed and reducing riskof being culpable.