1 Market abuse
Market abuse is an offensive behavior in relation to the stock market which may harm the position of investors. In general way we can say that market abuse is a false behavior created for investors or stock market.
Market abuse is dealt under the financial services and market Act 2000.
This behavior of market abuse created due to the following crimes or offences.
- Insider dealing
- Misuse of information
- Improper disclosures
- Manipulating transactions
- Misleading behavior
- Market distortion
We know about the insider dealing already in which some insiders disclose confidential information to the people (investors) who get benefit in the stock market or may use it by themselves. This may creates an unfair position of investors in the market.
A manager working in a company came to know that our company is going to make a takeover bid in some days. So he immediately purchased shares in his company because he knew that share price will go rise due to the potential bid. We all know that this is an insider dealing but this dealing also creates an unfair position in the market through which some people get benefit or some not.
This situation also leads to a misuse of information and improper disclosure of information. For example an insider may use the information to avoid from the potential loss. If he knew that share price will go down he immediately sold the shares in the market. Here he misuses the information to get the benefit while on the other hand the buyer would not buy the shares if he had that information. This is called market abuse where some people can get the benefit through misuse of information, wrong information and improper disclosure.
Manipulation of transactions may also create a false impression in the stock market and people may get benefit through an unfair or false impression.
For example a big investor purchases number of shares creating the impression that market position are going up while this is an artificial up just to manipulate the minds of others. This ultimately leads to a wrong investment decisions.
This can is also termed as misleading behavior in which they encourage other people to invest through creating false impression.
In last market distortion, an unstable condition of market at which price is distorted in current situation by intervention and different from the price that market would achieve in perfect conditions.
Market distortion also leads to the market abuse because this may also change the reasonable condition of the market putting over it a false impression.
2 Money laundering
This term of money laundering is widely used and in simple terms we can define it a process of cleaning dirty money into white money.
What is meant by dirty money and white money?
The money that is obtained through illegal sources like distortion, insider trading, smuggling illegal goods, theft and tax evasion, known as dirty money. Using this money is prohibited under the legal framework due to its illegal source. To use this money into regular use it must be converted into clean money which appears to be derived from a legitimate source. Now this money is called white money.
So we concluded that money laundering is an offence or financial crime because in this a legal source is substantiating over an illegal sources. So it becomes apparent that money is earned through a legal way and destroyed all crimes at its back.
On other way money laundering is a process of converting illegitimate money into legitimate money.
2.1 Process of money laundering
Money is laundered through a prescribed method in which three steps followed.
A three step washing cycle
Placement: This is the first step in which illegal money is placed in number of financial systems by making into small parts. Banks are mostly used for this purpose. A large amount is transformed into small parts and then deposited into different banks. It may also be deposited into different countries to void from any investigation.
This is the most risky stage in which launderers may be suspected by putting large amount of cash into number of financial systems.
Layering: Is the second step which is more complex. In this the original source of money is concealed through creating a complex structure of transactions into many layers.
There is a fast movement of cash at this stage. Money is exchanged into many countries and then invested into different markets.
Integration: is the final stage in which money is returned to the criminal with legitimate sources. After passing through lots of transactions its original sources is destroyed so it can be used for any purpose.
Money laundering is dealt under the Money Laundering Regulations 2007 but its effects can be seen in other ac also.
- Drug trafficking offence 1986
- Criminal justice Act 1993
- Terrorism Act 2000
- Anti-terrorism crime and security Act 2001
- Proceeds of Crime Act 2002
Money Laundering Regulations 2007
As we know that money laundering is an offense so this act regulates who to deal investigate and control this offense.
According to this act different rules and regulations formed to control this offense which covers all the suspicions like investors, bankers, auditors, accountants, lawyers and tax advisers.
This act covers all types of organizations so different procedures used to detect criminals for different organizations. Few of them are given here.
- Awareness of employees
- Record keeping procedures
- Customer due diligence procedures
- Internal reporting procedures