Think Again: Money Laundering

From Moscow to Buenos Aires, money laundering scandals sap economies and destabilize governments. Policymakers blame crime cartels, tax havens, and new techniques like cyberlaundering. But dirty money long predates such influences. Without unified rules governing global finance, outlaws will always exploit disparate legal systems to stash the proceeds of their crimes.

BY NIGEL MORRIS-COTTERILL | MAY 1, 2001

"Money Laundering Is a Modern Phenomenon"

No. Protecting legitimate or illegitimate wealth from the unwanted attentions of government has a long history. In his excellent book Lords of the Rim, historian Sterling Seagrave describes how, more than 3,000 years ago, merchants in China hid their wealth for fear that rulers would take the profits and assets they had accumulated through trade. The techniques he describes -- converting money into readily movable assets, moving cash outside the jurisdiction to invest it in a business, and trading at inflated prices to expatriate funds -- are used today by sophisticated money launderers.

Illegal money can be moved by all manner of means. Individuals have been convicted of laundering for transporting diamonds bought with the proceeds of crime and destined for criminal groups; cash deposited in a checking account can be withdrawn worldwide with debit cards; even simple methods, such as wire transfers, can facilitate money laundering. Economic and financial globalization has also made the life of a launderer easier. The high volume of legal funds circulating around the globe makes the movement of dirty money less conspicuous. And the globalization of financial-services companies means that money placed in a bank branch in a less regulated jurisdiction is easily transferred internally within the organization to a branch in a more regulated jurisdiction.

There are various estimates of the global scale of money laundering. The Financial Action Task Force on Money Laundering (FATF) -- a 31-member intergovernmental organization under the auspices of the Organisation for Economic Co-operation and Development (OECD) -- cites the common estimate that the aggregate size of global money laundering is 2 to 5 percent of world economic output, or, using 1996 statistics, equal to anywhere from $590 billion to $1.5 trillion. But such numbers are little more than guesswork. It is impossible to tell whether money is being counted for the first or 21st time as it passes through financial centers. And, of course, it is impossible to tell how much money is successfully laundered and therefore left out of accounts completely. But, whatever the exact scope, money laundering is an enormous problem endemic to any financial system.

 SUBJECTS: BUSINESS, FINANCE, CORRUPTION
 

Nigel Morris-Cotterill is editor of World Money Laundering Report and author of How Not to Be a Money Launderer, 2nd edition (Brentwood: Silkscreen Publications, 1999).