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Money Laundrying

Autor:   •  January 16, 2018  •  3,061 Words (13 Pages)  •  347 Views

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as well. For instance, this can be done through stock exchange, casinos or other financial institutions apart from banks. They can also use facilities such as trade financing, offshore banking to conceal the source of these illegal funds. As these criminals start to make use of the financial systems to achieve their objectives, it removes the integrity and credibility of the business. Besides exploiting the financial system, it can have an adverse impact on both interest rates and foreign exchange. At last, then after undergoing the money laundering process, these illegal money will be circulated into the market and people will remain unaware of such illegal acts. (Chowdhury 2012).

Undermining the private sector

Money laundering can affect the private sector severely. This is because money launderers will manipulate it to mask their illegal dealings and these legitimate businesses will aid in combining both legal and illegal funds together. These criminals are less concerned with the profits obtained from the legitimate business as they want to find a avenue to facilitate the money laundering process. Hence, these firms will sell products at low prices and thus disrupt others’ businesses as consumers will switch brands and purchase products sold at low prices. Legitimate firms will suffer from a loss of sales and unable to compete with these illegal firms due to lack of capital. (Dion, 2015). Therefore, these illegal firms will result in the formation of negative impact on the legitimate companies and thus force them out of the industry.

Tarnishing reputation of legitimate businesses

Legitimate businesses may face the likelihood of having their reputation destroyed by associating with money laundering. Various money laundering schemes will threaten to undermine the firm’s credibility and erode stakeholders’ confidence in the firm. Whether legitimate firms participate in the money laundering process knowingly or unknowingly, they will be branded as an illegal company by people and thus forming negative publicity. Negative publicity will be detrimental for the firm as it causes a dip in confidence by both internal and external stakeholders. The firm will not have any more business opportunities and in turn be associated with illegal dealings thus having a poor reputation in the corporate world. It will also deter foreign investors from investing in the firm. In addition, consumers will boycott the firm’s products and services while other firms will not form any partnership with the firm. (Reuter 2004).

As a firm experience more negative publicity, its reputation will be severely affected. It is tougher to obtain capital and resources to reduce the impact of the damage. It is unfair for these firms to bear all consequences due to the manipulation of the money launderers. These money launders will make use of these firms for their own gains and thus form a situation that will cause panic among companies. (Chowdhury 2012).

Firms have to be more vigilant when they conduct business with international financial institutions as they need to comply with the necessary regulations as compared to the domestic firms. As such, it creates more risks for these firms and they will lose out by being involved in a complex situation where they will not recoup losses. Instead, the firm will be held responsible for the illegal dealings. As these firms are exposed to massive losses, it results in more volatility for the economy and causes an unstable financial system. (Kochan 2005).

Problems in handling company assets

Legal firms that relied on funds that have undergone money laundering process which are obtained from illegal companies will face an uphill task to manage its assets and liquidity. The illegal money obtained has to be reported in the firm’s annual financial statements so that it is legitimate and not arouse suspicion. The sources of these additional funds have to be accounted for and be align with its operations. Upon receipt of the illegal funds, it will be transferred to the financial institutions. When these funds are transferred, it will result in the creation of more problems with the authorities and regulators. Firms will face shortage of funds to continue daily operational processes. (Unger et al. 2014).

How managers ensure that their companies avoid being involved in money laundering.

Managers have the responsibility to ensure that their companies are not involved in money laundering. Although these measures will not eliminate money laundering, it will protect the firm against such illegal dealings.

Risk management

The first way is to manage risk. Such approach will factor in the ways to assess the least costly yet most effective method to mitigate the presence of such risks which firms encounter on a day to day basis. As these firms are aware of the risks, they will proceed to create and implement controls to reduce the risks analysed. With the aid of the controls, firms can monitor and bring more improvements to the firm. (Schott 2006).

Risk management must be reviewed periodically and ensure that it is constantly updated. This ensures that the firm is not involved in any money laundering process. In addition, the firm should devote more resources and employ more experts to effectively manage such risks. The risk management system have to be upgraded by the firm as criminals become bolder and they will exploit other areas to manipulate the firm. Different types of risks will require different level of measures. For instance, high risks shall be addressed using high technology methods. IN addition, managers should be meticulous in their work and alert the respective departments if they encounter any suspicious dealings or customer relationships. (Unger & Van der Linde, 2013).

The presence of risks found in any organisation shall be categorised as country and product risks.

Country Risk

Country risk coupled with many other risks can result in the firm being exposed to money laundering risks. Firms should be wary of the presence of high risks as they deal with foreign countries’ customers. They need to factor in the nature of the transaction and their interests as well. It is critical to ensure that they adhere to certain rules to classify the customers in accordance to the countries and type of transaction. Firms need to know the countries that are sanctioned by the United Nations or other international bodies. These countries often have illegal dealings or have high criminal rates. (Schott 2006).

Product Risk

Next, firms should also


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