Corruption and Money Laundering: The Role of the Private Sector
| Published date | 01 April 1999 |
| DOI | https://doi.org/10.1108/eb027220 |
| Date | 01 April 1999 |
| Pages | 115-124 |
| Author | Peter A.M. Diekman |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 3 No. 2
Corruption and Money Laundering:
The Role of the Private Sector
Peter A. M. Diekman
INTRODUCTION
The fight against corruption and money laundering is
a universal phenomenon. Corruption has a negative
impact on the economy and, in the long run, on eco-
nomic prosperity. Corruption, as part of economic
crime, can flourish in circumstances where it is
given incentives and where countervailing powers
are weak. 'Corruption is, at most, a second-best
response to a government failure. At worst, it is a
highly distortionary method of public choice.'1 Cor-
ruption can be defined as the abuse of public office for
private gain and is a distortion of the government
system.
Corruption is part of the more comprehensive
economic crime, which also encompasses theft,
fraud, the production and sale of illegal products
and services and money laundering. It is possible to
distinguish a cycle of economic crime that starts and
ends at the legal economy. Funds are withdrawn
from legal sources and turned into an illegal circuit,
out of sight of the legal system. Economic crime
theory tries to explain that, based on an economic
rationale, these funds will then be channelled back
into the legal system.
In order to re-route the illegal funds back into the
legal system it is necessary to channel the funds
through a system of corruption and money launder-
ing. Corruption of government officials is only one
link in the whole chain of economic crime. In order
to combat corruption it is necessary to understand
the rationale of every link.
The problem is global and from a financial point of
view it is also enormous. Economic crime is not an
isolated problem of less developed economies or
poor countries. It also exists in rich countries with
a highly developed economic infrastructure. The
financial magnitude of economic crime can only be
roughly estimated because the nature of economic
criminal behaviour is that it will be concealed as
much as possible. Nevertheless, estimates have been
made by scholars and national organisations. Based
on these studies, the global problem of economic
crime varies between USS500bn to US$1,000bn per
year.2
In this paper, the concept of corruption will be ela-
borated from the point of view of the private sector.
Thus the nature of money laundering will be
explored. Finally, the role of the private sector,
more particularly the role of accountants, will be dis-
cussed. In this part the focus will be on control possi-
bilities and on ways of improving the transparency of
accounting and reporting systems, which are
Journal of Money Laundering Control
Vol.
3, No. 2, 1999, pp. 115-124
© Henry Stewart Publications
ISSN 1363-5201
Page 115
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