Effects of Money Laundering

Fri, Feb 24. 2012

by: the Financial Intelligence Unit

Criminals launder anywhere between $500 billion and $1 trillion worldwide every year. The global effect is staggering in social, economic and security terms.

The economic effects are on a broad scale. Developing countries often bear the brunt of modern money laundering as governments may still be in the process of establishing regulations for their newly privatized financial sectors. This makes them prime targets.{{more}}

The effect on Banks which are rumored to receive large deposits of dirty money may result in patrons vigorously withdrawing their money for fear of losing it if the banks come under investigation, lose their license and insurance and ultimately collapse. The banks also run a reputational risk, resulting in the refusal of intermediary and other financial institutions to do business with them.

Another real effect of money laundering includes errors in economic policy resulting from artificially inflated financial sectors. Huge influxes of dirty cash into particular areas of the economy that are desirable to money launderers create false demand, and officials act on this new demand by adjusting economic policy. When the laundering process reaches a certain point, and when law enforcement starts to show interest, all that money will disappear without any predictable economic cause, and that financial sector falls apart.

Effects on a local scale touch and concern taxation and small-business competition. Laundered money is usually untaxed, meaning the rest of us have to make up the loss in tax revenue. Legitimate small businesses cannot compete with money-laundering ‘front’ businesses which can afford to sell a product cheaper as their primary purpose is to clean dirty money, not turn a profit. Cash is so readily available that they tend to sell products below cost.

Fighting Money Laundering

What are authorities doing to prevent money laundering? In St. Vincent and the Grenadines there are two primary methods employed by the government to detect and combat money laundering: Legislation and Law enforcement. St. Vincent and the Grenadines addresses the crime of money laundering in various pieces of legislation:

Proceeds of Crime and Money Laundering (Prevention) Act, CAP 181 of the Revised Laws of 2009:

Criminalizes money laundering

• Creates the offences of tipping-off which essentially is informing another individual that a money laundering investigation is ongoing with the intention of prejudicing said investigation

• Establishes record keeping requirements for financial institutions and relevant businesses including establishing compliance programs

• Establishes the requirement on the part of institutions and relevant businesses to monitor and report suspicious transactions and criminalizing a failure to do so

• Endows police officers with the power to seize and detain cash suspected of being derived from or intended for use in criminal conduct

• Establishes a Confiscated Assets Fund

• Establishes a National Anti-Money Laundering Committee

Financial Intelligence Unit Act, CAP 174 of the Revised Laws of 2009:

• Establishes the FIU as the national centralized agency for the collection, analysis and dissemination of information pertaining to offences created under POCA and UNATMA

• Provides for transnational cooperation with Foreign FIUs

• Provides for awareness raising in financial institutions and relevant businesses

• Investigation of relevant offences created under POCA

Notwithstanding the foregoing attempts, no nation on its own has the ability to stop money laundering. If one country is more hostile to money laundering, criminals look to a more vulnerable environment to clean their money. Global and transnational cooperation are therefore essential.

The most prominent international organization involved in the fight against money laundering is the Financial Action Task Force (FATF). It is a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in the areas of money laundering and terrorist financing.

Since its creation, the FATF has spearheaded the effort to adopt and implement measures designed to counter the use of the financial system by criminals. It established a series of Recommendations in 1990, revised in 1996 and in 2003 to ensure that they remain up to date and relevant to the evolving threat of money laundering that set out the basic framework for anti-money laundering efforts and are intended to be of universal application.

While increased worldwide efforts are making a small dent in the money-laundering industry, the problem is huge, and it is only with increased global awareness and cooperation that we can curb the success of the money-laundering industry. The authorities remain committed in this fight to eradicate this scourge and maintain a stable financial system.