A Review of Money Laundering Detection Systems

Money Laundering is a major challenge and a threat to both financial institutions and government. People steal money from public treasury and launder it to unknown destination. Most often the laundered money is integrated back into the financial system concealing the illicit sources. Most of the money laundered is used to finance terrorism. Terrorism today has become a global threat to the security of every individual. Terrorism clearly has a very real and direct impact on human rights, with devastating consequences for the enjoyment of the right to life, liberty and physical integrity of victims. In addition to these individual costs, terrorism can destabilize Governments, undermine civil society, jeopardize peace and security, and threaten social and economic development. An effective Anti-Money Laundering technique is necessary as it helps in uncovering evidence of criminal activity through identification of suspicious movements of financial assets in the financial institutions. As money laundering is getting more and more sophisticated making it difficult for financial institutions to detect this criminal activity, financial institutions and governments require equally sophisticated systems that are adoptive and flexible to be able to continue detecting money laundering activities. Most of the existing system has some defects which include: Threshold is used to check the volume of money an individual or company can transact in a single transaction. This is defective as the transaction can be broken into pieces to avoid being detected. There is no automatic reporting system to the Anti-money laundering agencies as banks are only mandated to report transactions that exceed the set threshold to the Anti – Money Laundering Authorities. Often banks can renegade on this due to personal interest. This review is aimed at evaluating the success of the available money laundering detection systems, their limitations and gaps that need to be addressed so that the menace of money laundering can be reduced to the barest minimum. Keywords: Anti-money laundering, Suspicious Transaction Reporting, Threshold