Laundering of money

Money laundering is the process of moving money from the illegitimate to the legitimate economy. Money laundering consists in deliberately disguising the source, origin or ownership of illicit funds.

Any criminal transactions are carried out in cash, and the function of the money launderer is often to translate these small amounts into a larger, more liquid sum, which will be difficult to track and easier to invest. Money laundering has emerged on a massive international scale with the globalization of the world economy and the internationalization of organized crime.

Money earned in one region can, with increasing facility, be transferred to another part of the world, preventing their possible recovery by law enforcement. The globalization of organized crime activity is making money in all regions of the world and must be collected, consolidated and relocated.

This growth has been facilitated by new technologies, the increasing movement of goods and people globally and the declining importance of borders. A large number of professionals, including lawyers, accountants and bankers, have been proven to provide services to this criminal and corrupt clientele with large amounts of money at their disposal. These professionals are not involved in the original act and help perpetuate criminal and corrupt activities through their services. Organized criminal groups have particularly benefited from the expansion of global financial markets. They have taken advantage of the differential regulatory arrangements and the opportunity to move money across jurisdictions quickly to prevent disclosure by taking advantage of discrepancies between land-based regulatory systems.

They are looking for sites that are less regulated in terms of international money laundering laws. These ports, often offshore banking centers, provide both banking and business secrecy. They also provide secrecy for the trusts used to hide large assets that are often illegally diverted from companies controlled by organized criminal groups. In 1996, International Monetary Fund (IMF) economists suggested that 2 percent of global GDP (gross domestic product) was related to drug crime, and the money laundered sums associated with corruption and tax evasion would be an even greater percentage. The share of the world economy would be even higher today for several reasons as many forms of organized crime have grown during this period and countermeasures have failed to prevent the profits from this activity except by the margins.

Much money laundered has been invested in dollarized accounts and other strong currencies where they have avoided significant losses through currency valuations in countries of origin. In offshore regimes where financial capital is untaxed, growth is faster than money that is part of taxed and regulated regimes. The range of companies and financial institutions that used to launder money has spread with the profits and the growing amounts to be laundered. Among the employed institutions are large banks, offshore banks and financial institutions, currency exchange and bank transfer companies, stock brokers, gold dealers, casinos, insurance and trading companies.

The ability to protect revenue from transnational criminal activity, tax evasion, and corruption has served as significant incentives for the growth of this activity. There is limited risk and few deterrents for money launderers and the professionals who help with their activities. The limited seizures that take place are just “an added expense to doing business.” The international efforts sponsored by the Organization for Economic Cooperation and Development (OECD) to curb sea ports and to sanction countries that facilitate money laundering have not yet failed to sharply curb money laundering.

Sources of money laundered millions

Money laundered stems from the full range of illegal activities related to organized crime such as drugs and arms trafficking, human trafficking, extortion, gambling, counterfeiting of money and goods, trafficking of endangered species and stolen art and cars. Often, corrupt officials move bribes they have received or the money they have embezzled to offshore locations for security. Much of this cannot be treated as money laundering in many countries because these corrupt activities are no violation of money laundering.

The need to have a pre-existing criminal act under many criminal codes is a major deterrent to effective money laundering investigations. The money laundering techniques of organized criminal groups have become more sophisticated. Experts who have the capacity to dispute the source of funds and make them look legitimate are retained. Therefore, organized criminal groups have increasingly penetrated legitimate economies and financial markets.

Such operators have laundered the assets from these various investments as well as from the original illegal activities. Money laundering associated with high-level state corruption has gained more attention in the post-Cold War era. Corrupt leaders are laundering money from multiple sources: transferred out of the national treasury; derived from foreign aid; wages from foreign investors or contractors working on development loans from multilateral organizations and proceeds from privatization.

The wave of privatizations in the 1990s in many parts of the world has contributed to the increased deposit of funds into unregulated offshore accounts. During the transition period from state ownership to private ownership, when there is limited transparency, many of the insiders have managed to allocate significant resources to the privatization of businesses, and through elaborate trust agreements that comply with the law of the country have parked very valuable national resources in financial tax havens . Money laundering linked to the privatization process has also resulted in large and visible international money laundering cases, such as the Raul Salinas case from Mexico and the Pavel Lazarenko case from Ukraine. Investigations into each of these cases by Swiss and US authorities as well as other governments have totaled hundreds of millions of dollars. In the Salinas case, the wages of drug trafficking were mixed with wages for advantageous privatizations of important state-owned industries.

A key question is whether mechanisms will be made available in the future to determine such deposits and whether procedures will be put in place to make such amounts easier to recover from the source country. Since the issue of corruption is no longer a taboo issue for employees of multilateral financial institutions, the substantial money laundering associated with project and structural adjustment loans has become permissible discussion topics.

Eg. Researchers at the IMF now recognize that they could observe the economic flows out of Haiti immediately after international borrowing entered the country. An investigator investigating the fun of a World Bank loan to Pakistan traced $ 30 million to a Swiss bank. Increasingly, investigators of corruption in these international financial institutions need to be trained to find money laundering because both bribery of money and actual project loans are gaining ground in banking centers in Western countries.

Banks and other financial institutions engaged in money laundering

The types of financial institutions utilized for money laundering have spread as reporting requirements for major banks have increased. Offshore banks have emerged in many locations to meet the demands of wealthy clients seeking secrecy and lack of reporting requirements. By the end of 1997, offshore premises had more than half of all cross-border assets held globally. Very few countries have been active in taking measures to seize money laundered assets.

The exceptions are the United States and Switzerland. However, the amount they have managed to freeze and confiscate has been very limited compared to the total amount of illegal money in their financial markets. Many other major banking centers, such as those located in England and Germany, have thousands of suspicious transaction reports, but still have relatively few successful criminal prosecutions or confiscation of assets. While there are significant risks of being caught for drug smuggling, there is far less chance of being caught and losing the proceeds of drugs or other criminal proceeds. Most money laundering takes place in offshore banking centers, many of which are less regulated than in large banking centers.

Not all offshore banks launder money. The most obvious abusers are offshore locations without financial infrastructure or regulatory mechanisms to monitor the banks or to track the transactions passing through their locality. In these situations, individuals and businesses are taking advantage of the opportunity for banking and business secrets that these sites provide. Many parts of the Caribbean have established large legitimate banking services that provide services to a large international clientele of legitimate businesses. This provides evidence to indicate that size and location are not absolute determinants of whether a financial institution is used as a money laundering facility to purge doubtful profits.

At present, there are different niches for different categories of money laundering. Drug dealers have the widest range of assets to dispose of and continuous financial flows, therefore they use all available financial instruments. There is a marked differentiation in the market. Eg. Bank transfer companies are used primarily by street-level drug dealers, while larger banks’ private banking services are only available to large customers.

Offshore banks are used by individuals and groups engaged in a wide range of illegal and licensing activities. There is increasing scrutiny of large financial institutions, but recent cases have revealed that it is still possible to launder huge sums of money through larger banks and through these banks offshore branches. Major US banks such as Citibank, Bank of New York and Union Bank of Switzerland (UBS) as well as their offshore branches have emerged prominently in the recent money laundering studies. When one of the minority congresses at the House of Representatives of the Banking and Finance Committee commented, during the Bank of New York hearings, it was the failure to sanction Citibank in the Salinas money laundering case that has compounded the problem. While such actions as a geographic targeting order in the New York area have limited bank transfer from small businesses, it is still possible to move large, dubious and illegal funds through large banks’ private banking operations.

The surplus for the institutions, and especially for the officials of these departments, has led to bankers often turning a blind eye. A recently released U.S. The General Accounting Office (GAO) report, conducted by the agency’s investigative branch, investigated the possibility of money laundering in the United States. Investigators tracked $ 800 million to such funds that had been moved to the U.S. banks of a Russian. He did this by registering companies in the “offshore location” of the state of Delaware, which protects corporate anonymity. The money was then transferred to accounts in the private banking sector in Citibank. No legal action had been taken against the banks, any of the account holders, or against the person who had managed to transfer these funds of unknown origin through the US banking system. This study reveals how sophisticated money launderers can leverage significant loopholes in the United States to move large amounts of questionable money through a leading US institution.

Money laundering in Mercosur

Money laundering is becoming an increasingly serious problem in several Mercosur countries. Part of this is related to the Colombian and Mexican drug lords’ need to launder their money, and the larger facility they can do this in Spanish-speaking countries. This is also due to the spread of offshore banks in Latin America and the Caribbean, which now make up 43% of the international total. The most visible manifestation of this phenomenon has been the construction of resorts in Cancun made with drug money. Nevertheless, the use of hotels that can make money is not limited to Mexico, as the proliferation of luxury hotels in Argentina with limited clientele are further visible signs of this problem. More difficult to detect and investigate is money laundering through the Mercosur banking sector, shell companies, commodity brokerage and currency exchange.

A joint investigation by the Brazilian federal police, the Central Bank and other entities reported that between 1998 and 1999, $ 18 billion was made. Dollars launched through Brazil. Brazilian money launderers, according to U.S. Ministry of Foreign Affairs, disposing of drug money and the profits of crime in white collar. Much of the arms and drug trade takes place through the border town of Foz de Iguacu. The proximity to Paraguay, which is a major money laundering center for Latin America, is exacerbating the problem. About 20% of Paraguay’s money laundering is related to drugs, while the vast majority comes from smuggling and smuggling.

No major scandals have disrupted the Uruguayan banking system, but the reliance on the Uruguayan economy by its banking sector has failed to make it very vigilant in reviewing the source of client funds. A large Scandinavian money laundering erupted in early 2001 with Argentine central bank President Pedro Pou accused of having covered over illegal cash moved through local and foreign banks. I have tried to hide information about these illegal transactions by the Argentine Congress. This public scandal arose following a report by a U.S. The Senate subcommittee on money laundering traced drug money from Citibank back to an Argentine bank. As much as $ 10 billion may have been launched through Buenos Aires. In response to these problems, the South American Financial Action Task Force (GAFISUD) was established on December 8, 2000. Its member countries include Argentina, Bolivia, Brazil, Colombia, Chile, Ecudor, Paraguay, Peru and Uruguay. The vital function of this organization is to improve coordination in monitoring and combating money laundering in the region.

Why has it been so difficult to move towards money laundering?

Until recently, anti-money laundering measures have been difficult to implement due to the lack of necessary political will and the cumbersome international legal mechanisms currently in place. In addition, the profits from this activity, especially in private banking, have been very lucrative for financial institutions and registration and affiliated services. The offshore sites have provided an incentive for many sites without alternatives. Large-scale money laundering has been around since the 1960s. Dictators have moved money to safe haven, and with the rise of international drug trafficking since the late 1960s, there has been an increasing need to move large amounts of money into the legitimate economic system. Covert arms sales have been facilitated for decades by money laundering. Although many knew this was going on, the fight against money laundering has been treated as a secondary concern for the preservation of influence in a particular geographical region. After the end of the Cold War, the desire to protect certain dictators who were key figures in this strategy collapsed.

There was no longer a need to “protect our dictator” whose corruption became an embarrassment for the states and, consequently, multilateral lending institutions. The huge money laundering of the states of the former Soviet Union in the 1990s has revealed that the entire country’s budgets and economies can be ruined by the ability to launder money for major financial centers and offshore locations. The credibility of such multilateral institutions as the World Bank and the IMF has been called into question. This tolerance of corruption has been a very significant factor in the reduced legitimacy of these institutions, which have not necessarily been vigilant to monitor the restructuring of the loans they have made abroad.

Their new emphasis on corruption is an attempt to reverse this trend. The rise of the Internet and the speed of financial transactions facilitated by computers have expanded the opportunities for money laundering and activities in the latter half of the 1990s. There are increasing numbers of websites requesting money for offshore transfer, the rise of internet gambling and virtual banking has made it possible to launder money without any infrastructure to operate or regulate international banking. Instead, the advent of information technology and the growth of non-traceable encryption has provided the opportunity to launder money with larger facilities and with near-perfect anonymity. All that is needed is a computer. The advent of new information technology has facilitated an incredible communication revolution, but it has led to the spread of money laundering in some of the most remote destinations in the world. Such locations include Vanuatu, Nauru and the Marshall Islands, through whose “banks” billions have been laundered over the last few years.

Facilitating the emergence of virtual banking in offshore locations has been the willingness of major banks to receive funds directed through these locations. While well-written software could screen these transactions and prevent the entry of these funds into mainstream banking centers, this has not happened. The legal institutions for combating money laundering are much slower than those built on an order before the information age. Therefore, a bank transfer moving between four jurisdictions in one hour, a typical feature of a money laundering machine, would require law enforcement in the United States a year to split due to the need to provide documents to four different jurisdictions to obtain information about the transaction. Law enforcement agencies in countries without such resources as the United States should never be able to track these transactions. In some cases, it is either legally impossible or physically impossible to obtain necessary information about the money movement due to the banking secret or the presence and protection of trusts. In the United States, a predicate offense is needed to prove money laundering. However, this requires cooperation on law enforcement in the source country. In cases where the money is linked to a high-level official or his / her staff, or where domestic law enforcement has been neutralized by corruption by criminal groups, this crucial cooperation will never come. In many countries, many categories of crime are not money laundering violations or there is no absence of money laundering, leaving many economic transactions out of the reach of US law enforcement. A new situation exists now.

The complexity of money laundering cases means that the number and expertise of enforcement required to tackle these crimes is so important that even well-staffed U.S. law enforcement can handle only a few major law enforcement cases annually. Furthermore, between the corruption of domestic law enforcement in many countries and banking secrecy in others, most money laundering investigations are condemned to failure from the start. As the amounts of money laundered grow, the ability to tackle the problem remains constantly lagging behind.

Why the current money laundering campaign?

A growing consensus is developing in many developed countries that the problem of money laundering must be solved both within their economies and offshore locations. Much of this is done at diplomatic level and is aimed at financial institutions because the previous legal strategy has inherent limitations. The focus now is on prevention rather than on remedies. The current movement against money laundering is the result of a convergence of mutual interests rather than as a consequence of an overall perception of the harms of money laundering. For the United States, the driving force has been the rise of international drug trafficking, a trade with enormous economic and social consequences for the United States. US makers have become increasingly concerned that money laundering allows drug trafficking and terrorism maintenance.

The opportunity to park funds at sea ports provides these illegal operators with the working capital to carry out and perpetuate their activity. But money laundering is not limited to local offshore. US authorities now estimate that $ 9 billion Dollars in narco dollars are laundered in New York City, and $ 30 billion Dollars dollars for drugs are laundered in Texas. For European countries, the opening of borders and the creation of the euro in 2002 put their territory and financial systems at greater risk. The threat of cross-border crime is not only higher rates of violence, undesirable immigrants, but also large-scale economic crime and money laundering within the European financial system. The movement of capital to offshore locations has had serious consequences for Europe’s revenue collection. The increasing amount of capital protected in offshore locations prevents the collection of necessary taxes, which makes maintaining offshore accounts an even bigger problem for European countries in need of substantial revenue to maintain expensive social welfare systems and recover. of aging populations. Therefore, revenue concerns are more driving force for European than US actions against sea ports.

What is the current money laundering campaign?

In 1989, the Financial Action Task Force (FATF) was created to coordinate a response to the money laundering problem. The following year, FATF issued 40 money laundering recommendations, which were subsequently revised in 1996. FATF now comprises 29 countries and two international organizations and represents the larger developed countries as well as some of the more prosperous developing countries. The first recommendation requires countries to sign the Vienna Convention on Money Laundering. The Vienna Convention concerns only the money laundering proceeds of drug trafficking.

However, it does not include the other serious categories of crime that money laundering may be associated with. Accordingly, the recommendations also suggest that money laundering bans be extended to other serious offenses. This discretion has resulted in many countries having different legislative measures. Some have not made human trafficking, one of the fastest growing forms of organized crime, a predicate offense for money laundering. Similarly, corruption in most countries, including the United States, remains off the list of many serious crimes intended for money laundering.

The recommendations also address measures to identify, track and confiscate money laundered assets. Various measures need to be taken by financial institutions to ensure that they maintain proper record keeping, know their clients and keep records for at least five years to enable reconstruction of financial transactions. Bank officials are required to monitor large and questionable transactions and report suspicious transactions to competent authorities without giving advice to the clients concerned. These principles are applied not only to the domestic banks, but also to their subsidiaries located outside the country. Signatory countries need to step up border controls in order to limit the movement of large amounts of cash. In addition, countries are expected to develop modern methods of money management such as control and direct deposits that reduce dependence on a liquid economy. Effective supervisory bodies must be set up to ensure that there are adequate measures and sufficiently trained staff to implement these rules.

Regulators must take action to ensure that criminals do not acquire or gain significant control over financial institutions. International cooperation must be expanded in terms of suspicious transactions, confiscation, mutual assistance and extradition. Collaborative studies should be encouraged and initiated whenever possible. In order to ensure cooperation between states, decisions must be made on the best places to prosecute offenders. Annual reports are issued by the FATF, within which the country teams have monitored developments in the member states and issue typologies. The typology report follows an annual meeting where law enforcement, legal, economic and regulatory experts discuss the latest trends in money laundering, new trends of concern and countermeasures that have proven effective. In June 2000, the FATF cited a group of 15 jurisdictions with serious deficiencies in the fight against money laundering. This “blacklist” was based on the extent of compliance with 25 published criteria.

Three of the fifteen jurisdictions are located in the Caribbean and include Dominca, St. Kitts-Nevis and St. Vincent. According to the annual report that was issued at the same time, the member states of the FATF group largely comply with the rules. This evaluation is largely based on the mutual evaluation of the Member States. There is a dichotomy between the perception of developed countries and offshore centers. The tax havens or international financial centers claim that legislation and infrastructure are in place and that most of the money laundering is done through major financial centers. On the other hand, mainland countries perceive that money laundering occurs in offshore sites. The problem remains that money laundering continues in both kinds of locales. The FATF now addresses such issues as money laundering through online banking, foundations and other non-commercial vehicles, the professionals who facilitate money laundering, the role of cash vs. non-cash activities and money laundering for terrorists. The FATF is just one of several visible multilateral agencies working on money laundering. It has regional workforces that include the Caribbean Financial Action Group and the Asia-Pacific Money Laundering Group. The United Nations and its Office on Drug Control and Crime Prevention (ODCCP) have a money laundering program.

The Organization of American States (OAS) The Inter-American Commission on Drugs Control as well as the Council of Europe have launched special money laundering initiatives. Much has also been done at the national level. Bureau of International Narcotics and Law Enforcement of U.S. The State Department annually releases its international drug control strategy, about a quarter of which is devoted to anti-money laundering actions and compliance with money laundering rules. The report not only assesses drug-related money laundering, but it related to other offenses. A significant group of countries are identified as the primary concern due to their failure to meet a wide range of asset and information sharing criteria as well as deficiencies in their legal framework. Individual countries have set up domestic financial intelligence units to tackle financial crime issues to formulate more effective countermeasures.

These countries share some information within the framework of the Egmont Group. This informal alliance includes over 45 countries facilitating the exchange of records and evidence between member states. The United Nations Convention against Transnational Organized Crime was signed in Palermo, Italy by 123 countries (December 12-14, 2000). It contains provisions to combat money laundering as it is related to organized crime. These include an appropriate system of internal regulation in the signatory countries, cooperation at regional, international and multilateral level and the mechanisms needed to detect cross-border capital movements. In addition, it requires customer identification, record keeping, reporting of suspicious transactions. Money laundering in this convention is linked not only to traditional forms of organized crime, but also to the corrupt practices that facilitate it.

The huge growth in money laundering is due to several factors at the same time: the rise of transnational organized crime, the globalization of corruption and the competition for capital in an increasingly globalized international economy. The major players in this significant criminal business practice are large banking centers and offshore locations, although many other institutions and companies participate. The possibility of money laundering in so many regions of the world has resulted in a massive transfer of resources from developing and transitional countries to safe havens in the more developed countries and more protected offshore locations.

Placering af penge i udlandet, giver kriminelle og korrupte enkeltpersoner mulighed for at undgå kontrol med lokale myndigheder, undgå ustabilitet af indenlandske bankinstitutioner, samtidig med at de sikrer adgang til deres midler internationalt. Bekæmpelse af hvidvask af penge kræver en mangesidet tilgang. Det er ikke kun nødvendigt at målrette modtagere af de hvidvaskede penge, men også at anerkende ustabiliteten i det finansielle system i kildelandet. De forskellige staters kapacitet til at bekæmpe organiseret kriminalitet og hvidvaskning af penge skal også forbedres. Dette er et vanskeligt problem i stater, der ofte ikke har de tilstrækkelige ressourcer til at imødekomme de grundlæggende uddannelsesmæssige, medicinske og sociale behov i deres borgerskab. De internationale aktioner mod hvidvaskning af penge fokuserer nu mere på forebyggelse og sanktioner snarere end de mangesidede strategier, der er nødvendige for at tackle de faktiske årsager til problemet.

Forebyggelse fungerer mere effektivt i det internationale finansielle samfund end i et enkelt land, hvor korruption og tvang fra kriminelle grupper eller korrupte embedsmænd på højt niveau muligvis forhindrer implementering af nødvendige kontrol. Sanctioning may work in embarrassing major banking centers into greater compliance but the enormous profits of private banking services make many institutions adhere to the letter but not the spirit of money laundering controls. Their internal audit rules screen out some of the most blatant violators but the proliferation of trust agreements and front companies make it very difficult to screen clients effectively. Many larger financial systems, such as Switzerland, which have served as major repositories for drug kingpins, corrupt officials, and oligarchs are evaluated as in compliance of money laundering provisions.

Yet they do not provide enough law enforcement resources to investigate the vast amounts of money and the diversity of actors who are laundering money through their financial system. Therefore, the probability of successfully laundering large sums may be greater and there are many jurisdictions that are considered medium or high risk for money laundering by the FATF. In developing countries, which house many offshore locations, there is desperate competition for capital. Some Caribbean nations suggest that the drive against offshore locations is not motivated so much by the desire to combat money laundering but to counter the competition for financial services. In the absence of development alternatives, there is often little incentive to get out of the money laundering business. The sanctioning regime that has been instituted is being executed without equity. Countries placed on the high-risk list, otherwise known as the “black-list,” by the FATF are not necessarily the worst offenders. Some countries with very significant problems of money laundering have escaped sanctioning because of their political connections. Some small countries in the Caribbean or territories of larger countries do not have the public relations or the regulatory capacity to prevent their sanctioning have been exposed to the full force of the FATF. Whereas a country like Liechtenstein has the abundant resources to put towards the hire of lobbyists to clear its name and also address some aspects of the problem.