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Money_Laundering_in_A_Changed_World_ _Part_I
| Money Laundering in A Changed World - Part I
Israel has always turned a blind eye to the origin of funds
deposited by Jews from South Africa to Russia. In Britain it is
perfectly legal to hide the true ownership of a company.
Underpaid Asian bank clerks on immigrant work permits in the
Gulf states rarely require identity documents from the
mysterious and well-connected owners of multi-million dollar
deposits. Hawaladars continue plying their paperless and
trust-based trade - the transfer of billions of US dollars
around the world. American and Swiss banks collaborate with
dubious correspondent banks in off shore centres. Multinationals
shift money through tax free territories in what is
euphemistically known as "tax planning". Internet gambling
outfits and casinos serve as fronts for narco-dollars. British
Bureaux de Change launder up to 2.6 billion British pounds
annually. The 500 Euro note will make it much easier to smuggle
cash out of Europe. A French parliamentary committee accuses the
City of London of being a money laundering haven in a 400 page
report. Intelligence services cover the tracks of covert
operations by opening accounts in obscure tax havens, from
Cyprus to Nauru. Money laundering, its venues and techniques,
are an integral part of the economic fabric of the world.
Business as usual?
Not really. In retrospect, as far as money laundering goes,
September 11 may be perceived as a watershed as important as the
precipitous collapse of communism in 1989. Both events have
forever altered the patterns of the global flows of illicit
capital.
What is Money Laundering?
Strictly speaking, money laundering is the age-old process of
disguising the illegal origin and criminal nature of funds
(obtained in sanctions-busting arms sales, smuggling,
trafficking in humans, organized crime, drug trafficking,
prostitution rings, embezzlement, insider trading, bribery, and
computer fraud) by moving them untraceably and investing them in
legitimate businesses, securities, or bank deposits. But this
narrow definition masks the fact that the bulk of money
laundered is the result of tax evasion, tax avoidance, and
outright tax fraud, such as the "VAT carousel scheme" in the EU
(moving goods among businesses in various jurisdictions to
capitalize on differences in VAT rates). Tax-related laundering
nets between 10-20 billion US dollars annually from France and
Russia alone. The confluence of criminal and tax averse funds in
money laundering networks serves to obscure the sources of both.
The Scale of the Problem
According to a 1996 IMF estimate, money laundered annually
amounts to 2-5% of world GDP (between 800 billion and 2 trillion
US dollars in today's terms). The lower figure is considerably
larger than an average European economy, such as Spain's.
The System
It is important to realize that money laundering takes place
within the banking system. Big amounts of cash are spread among
numerous accounts (sometimes in free economic zones, financial
off shore centers, and tax havens), converted to bearer
financial instruments (money orders, bonds), or placed with
trusts and charities. The money is then transferred to other
locations, sometimes as bogus payments for "goods and services"
against fake or inflated invoices issued by holding companies
owned by lawyers or accountants on behalf of unnamed
beneficiaries. The transferred funds are re-assembled in their
destination and often "shipped" back to the point of origin
under a new identity. The laundered funds are then invested in
the legitimate economy. It is a simple procedure - yet an
effective one. It results in either no paper trail - or too much
of it. The accounts are invariably liquidated and all traces
erased.
Why is it a Problem?
Criminal and tax evading funds are idle and non-productive.
Their injection, however surreptitiously, into the economy
transforms them into a productive (and cheap) source of capital.
Why is this negative?
Because it corrupts government officials, banks and their
officers, contaminates legal sectors of the economy, crowds out
legitimate and foreign capital, makes money supply unpredictable
and uncontrollable, and increases cross-border capital
movements, thereby enhancing the volatility of exchange rates.
A multilateral, co-ordinated, effort (exchange of information,
uniform laws, extra-territorial legal powers) is required to
counter the international dimensions of money laundering. Many
countries opt in because money laundering has also become a
domestic political and economic concern. The United Nations, the
Bank for International Settlements, the OECD's FATF, the EU, the
Council of Europe, the Organisation of American States, all
published anti-money laundering standards. Regional groupings
were formed (or are being established) in the Caribbean, Asia,
Europe, southern Africa, western Africa, and Latin America.
(continued)
About the author:
Sam Vaknin is the author of Malignant Self Love - Narcissism
Revisited and After the Rain - How the West Lost the East. He is
a columnist for Central Europe Review, United Press
International (UPI) and eBookWeb and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.
Web site:
http://samvak.tripod.com/
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