Key Attributes of Money Laundering and The Impacts

Introduction

Although it is impossible to calculate the exact amount of money that is laundered world-wide each year estimates have been made that range from 300 to 500 million US dollars. It is important to note that if other non-drug crimes generating significant profit such as extortion, arms smuggling and white collar crime were included in this estimate the figures could potentially double Money laundering is consequently is a very large business and employees thousands of people world wide on a full time basis. This paper will define what money laundering is, international efforts to combat money laundering, the effects that money laundering has on economies and a trace of how to launder money through the Cayman Islands. What is Money Laundering?Money laundering is called what is because that perfectly describes what takes place illegal, or dirty, money is put through a cycle of transactions, or washed, so that it comes out the other end as legal or clean money. In other words, the source of illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds can eventually be made to appear as legitimate income.The term money laundering is said to come from the mafia in the 20 s and 30 s. Gangsters at that time, such as Al Capone were profiting from illegal activities such as extortion, prostitution, gambling and bootleg liquor. A need to make this money legitimate and useful was a huge concern during this time. The gangsters decided to buy legitimate businesses to mix with there elicit business profits.

Laundromats were perfect because they are a cash based businesses, basically a perfect platform to launder or cleanse money before reusing it.Today money laundering is a truly global phenomenon, aided by the international financial community, with stock markets and legal/non-legal businesses that are operational 24 hours a day. The Financial Action Task Force (FATF) is set out to be the main international body engaged in continuous, comprehensive efforts both to define policy and to promote the adoption of countermeasures against money laundering.

Money laundering draws thousands of people into is corrupt web every day. There is no hard and fast rule about who gets involved as the majority of people are motivated by greed and profits. Individuals who take part in this process primarily comprise of the financial sector, including professional advisors, financial transmitters, bankers, and casinos. According to the OZE PAGE the top three countries of origin for laundered money are in order the US with 46.3% of the total which amounts to $US 1.3 billion dollars annually, followed by Italy with 5.3% of the total which amounts to $US 150 million and then Russia with 5.2% of the total which amounts to $US 147 million. The top three countries, which are the destination for laundered money, are the United States (18.9%), Cayman Islands (4.9%) and Russia (4.2%). What in the fuck Money laundering presents an on-going challenge for those the at enforcement end. The techniques and structures used by launderers are changing all the time, which makes enforcement a contestant battle, the advent of technologies, specifically the internet has allowed funds to be easily transferred continuously and at a contestant rate. The risk that such flows of money may de-stabilize our economy and corrupt our financial and legal institutions is an ongoing challenge faced by organizations such as (FATF). If money laundering is going on everywhere around us and costing our economy millions of dollars then why is it so easy for people to do, why isn t it a public issue? One of the reasons contributing to the success of money launderers is that it is a victimless crime. It does not have any of the drama associated with robbery or the fear that violent crime imprints upon people s psyche and yet money laundering can only take place after a predicate crime (such as robbery or housebreaking of drug dealing) has taken place. This is not true I don t think what about bribes. It is the lack of information about money laundering that is available to the person on the street, which makes it and invisible problem and hence difficult to tackle.

International Efforts to Combat Money LaunderingThere have been numerous international initiatives created to stop or at a minimum curb international money laundering. In 1988, the United Nations (UN) recognized that money laundering is not only a law enforcement problem but also a serious national and international security threat that required countermeasures by the international community as a whole. The UN required all parties to the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 to establish money laundering as a punishable offence and to adopt the measures necessary to enable the authorities to identify, trace and freeze or seize proceeds.Over the past 30 years, starting with the Bank Secrecy Act of 1970 in the US, a multitude of laws and regulations have been enacted in an effort to detect and deter money laundering. Yet many national government agencies have now concluded that these anti-money laundering rules and programs now in effect have not done an adequate job. With the increase in telecommunications and computer technology money laundering has forced law enforcement agencies, governments and businesses around the world to develop cooperative efforts in developing creative investigative techniques. No single organization can possess sufficient resources or the necessary amount of knowledge in international laws to effectively investigate international money laundering initiatives. Within the last ten years countries have combined efforts to combat this growing international problem.

For example, in 1993, states belonging to the Caribbean basin agreed to establish the Caribbean Financial Action Task Force (CFATF) to prevent and control money-laundering activities within their membership. The FATF currently consists of 29 countries and two international organizations: the European Commission and the Gulf Co-operation Council. Its membership includes the major financial center countries of Europe, North and South America, and Asia. It is a multi-disciplinary body bringing together the policy-making power of legal, financial and law enforcement experts. The expansion and continuation of intelligence information sharing between international countries is vital to the success of anti-money laundering initiatives.

The need to cover all relevant aspects of the fight against money laundering is reflected in the scope of the forty FATF Recommendations -- the measures which the Task Force have agreed to implement and which all countries are encouraged to adopt. These Forty Recommendations set out the basic framework for anti-money laundering efforts and they are designed to be of universal application. They cover the criminal justice system and law enforcement, the financial system and its regulation, and international cooperation.It was recognized from the outset of the FATF that countries have diverse legal and financial systems therefore, not all can take identical measures. The Recommendations are therefore the principles for action in this field, for countries to implement according to their particular circumstances and constitutional frameworks allowing countries a measure of flexibility rather than prescribing every detail.

All FATF member/ in many countries banks and financial institutions are required by law to maintain records and file currency transaction reports on financial transactions that exceed a certain amount. These amounts vary depending on the country involved. For example, financial institutions in the United States are required to file Currency Transaction Reports on cash transactions greater than US$10,000. When financial institutions monitor financial transaction they look for unusual activity in a customer's account that might suggest money laundering or other suspicious activity. If the financial institution finds that the company cannot adequate explain the transaction then it is the responsibility of the institution to report their findings to the appropriate authorities. Unfortunately, not all financial institutions are required to report suspicious activity to regulators if they are not associated with a bank. what are these? Therefore, crime syndicates look to institutions and countries that do not tightly regulate financial transactions to continue their illegal activities.

The United States government is trying to combat these financial loopholes by enacting stiffer penalties for money laundering.Money laundering investigations are extremely complex and difficult to conduct as a result of the sheer size, variety and fast paced change within the financial sector. Law enforcement agencies have found that money laundering procedures are quickly changed to be come more sophisticated once investigators decipher these methods. Due to the complexity of financial laundering, investigators must be intimately familiar with financial methods, procedures, and investigative tools as well as understand local, national and international laws. Forensic accountants are often seconded to law enforcement agencies to aid in money laundering and proceeds of crime investigations. Forensic accountants are able to analyze, interpret, summarize and present their findings in a logical and understandable way to law enforcement personnel. This know-how coupled with law enforcements ability to effective gather intelligence information as well as interview and interrogation techniques aid in successful prosecutions of illegal financial activities.

According to the U.S. Department of Justice, the cost for money laundering has increased approximately 19% within the last fifteen years. This is largely due to the increase in penalties associated with money laundering activities. Asset Forfeiture laws have become increasingly popular to deprive criminals of their ill-gotten gains. Seized assets are shared with cooperating foreign governments to continue to combat illegal criminal activities. The expansion of Asset Forfeiture laws could further improve international efforts by closing loopholes related to foreign bank secrecy laws that criminals use to avoid forfeiture of ill-gotten gains. In those areas where it has been proactive such as prosecutions, forfeiture, and general international assistance it has achieved considerable success.

The effects of Money Laundering on EconomiesMoney Laundering has been proven to have profound effects on national economies. Although they are not necessarily economically detrimental, there are numerous menacing undertones which create investor trepidation, industry spending imbalances, and the weakening of social principles. Money laundering has numerous far-reaching macroeconomic and microeconomic implications.The International Monetary Fund has cited inexplicable changes in money demand, prudential risks to bank soundness, contamination effects on legal financial transactions, and increased volatility of international capital flows and exchange rates due to unanticipated cross-border asset transfers, which are direct effects of money laundering. Economies with growing or developing financial centres, but inadequate controls are particularly vulnerable to money laundering operations. The potential social and political costs of money laundering in these situations are crippling.

Through infiltration and investment in financial institutions, criminals gain control of large sectors of the economy. Through this contamination and control, money-laundering organizations are able to influence public officials, and governments. This filters down to criminal organizations influencing legislative policy and the integrity of entire social systems. As well, when a country s commercial and financial sectors are perceived to be subject to the control and influence of organized crime as a result of money laundering activities (insider trading, fraud, and embezzlement), there is a damping effect on foreign direct investment Input-Output models explain the relationship between how much of the output of one industry is required to produce one unit of output in another industry. If industry X is dependent upon input products from industry Y, the model will show how much more industry Y product is required to increase industry X output.

As industry Y is also required to increase its output to supply the needs of industry X, then all the industries which provide inputs to industry Y will have to increase their output; and so in response to an initial increase in the demand for the products of industry X, there is a ripple effect throughout the economy involving increased demand for other industries' products. Money laundering affects the normal economic balance of industry expenditure as large sums of money are diverted from consumption industry expenditures like the clothing and shoes industry to investment in industries like real estate. This happens because people who would normally purchase sustaining or basic need goods are purchasing drugs/weapons/prostitution etc instead. Money that would normally have been spent in these basic needs industries is instead filtering up to a small number of individuals who instead spend the cash in luxury industries (cars, art, real estate, etc.). This creates two sets of "ripples" within the economy, affecting numerous other industries that have an integrated dependency on the two initial industries. Because of the diversion of investment from the clothing and shoe industry, there will be a drop in the output demand from the agricultural, textile, and wholesale and retail industries.

However, because of the increase in real estate investment, there will be an increased need in outputs from the construction, and wood and wood products industries. The economy becomes distorted and misaligned. It is not necessarily disadvantaged by the distortion, because the positive ripples set by the launderer's investments may have a greater effect than the negative ripples.Most fundamentally, money laundering is inextricably linked to the underlying criminal activity that generated it. Laundering enables criminal activity to continue.