In Pursuit of Dirty Money: Identifying Weaknesses in the Global Financial System
| Pages | 122-132 |
| Published date | 01 April 2001 |
| DOI | https://doi.org/10.1108/eb027298 |
| Date | 01 April 2001 |
| Author | Jackie Johnson |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 5 No. 2
In Pursuit of Dirty Money: Identifying Weaknesses in
the Global Financial System
Jackie Johnson
INTRODUCTION
Over the last two years a number of initiatives have
been brought to the attention of the financial regula-
tors sectors of the global financial system most at risk
from money laundering. The Durban Declaration
called for the return of wealth plundered by corrupt
leaders. The Financial Action Task Force (FATF), the
Financial Stability Forum (FSF) and the OECD all
identified countries with unregulated or poorly regu-
lated financial systems which encourage money laun-
dering and the US Senate identified problems with
correspondent banking. This added attention has
encouraged more countries to join the anti-money
laundering movement and there are now 116
member countries in anti-money laundering groups
in Europe, Asia, South America and Africa. How-
ever, until their legislation is effectively implemented
and the remaining countries join the global anti-
money laundering movement there is unlikely to
be any significant reduction in the amount of
money being laundered.
Estimating the amount of money being laundered
is virtually impossible, given its secretive nature.
Annual estimates of laundered funds range from
USS450bn to as much as USSl,500bn, with up to
USS400bn a year flowing from the illegal drugs
trade. To give an indication of the size of the activity
the FATF states that the amount laundered each year
is at least equivalent to the value of the total output of
an economy the size of Spain. Despite the introduc-
tion of anti-money laundering legislation in an
increasing number of countries, the amount of laun-
dering is not declining.
Pressure is being brought to bear on a number of
countries, however, as specific problems are identi-
fied. In 1999 the Durban Declaration called on the
developed nations to return the plundered wealth (of
the developing countries) which is hidden in their
domestic banks. During 2000 the FATF, the FSF and
the OECD identified countries with weak anti-
money laundering controls, poor banking regulation
and a 'liberal' attitude to taxation and in February
2001 the US Senate released their report on the role
of correspondent banking in facilitating laundering.
SOURCES OF LAUNDERED MONEY
A number of activities, other than the sale of illegal
drugs,
feed the laundering cycle. They include, but
are not limited to, illegal arms sales, the illegal sale
of wildlife, prostitution, fraud and embezzlement,
insider trading and securities fraud, bribery and
corruption, tax evasion, syphoning off of aid funds
and the sale of oil outside of OPEC quotas or UN
sanctions.
Petty crimes are not the issue here. Money laun-
dering goes hand in hand with the activities of
organised criminal gangs, ongoing political corrup-
tion and corrupt business practices. As the proceeds
from one activity dry up, so other opportunities are
explored and exploited. The following are typical
of the varied sources of illegal profits. Money enters
the laundering cycle from these illegal activities
from all over the world.
Bribery and corruption
Bribery and corruption are evident at all levels of
society. In a number of countries petty corruption
is almost a way of life and considered an unfortunate
necessity for daily survival.1 In these situations the
amount of money earned by a single person is not
large and as such it is unlikely to be laundered. How-
ever, bribery and corruption reach much more
significant levels, involving such large amounts that
those involved would need to find some way of
handling the funds, with the payments kept secret
and hidden from the authorities, unless of course
they are the authorities.
Transparency International (TI),2 an independent
organisation formed in 1993 to focus attention on
corruption, regularly publishes a Corruption
Perception Index (CPI) which ranks countries in
terms of the degree to which corruption is perceived
to exist among public officials and politicians. Since
1999 they have also taken an active interest in bribery
and now publish an index of Bribe Payers (BPI). TI
claims that bribery is widespread, their data pro-
viding evidence of widespread corrupt practices in
international commerce, even though 34 countries
have agreed to an OECD Anti-Bribery Convention
Journal of Money Laundering Control
Vol.
5,
No.
2,
2001,
pp.
122-132
© Henry Stewart Publications
ISSN 1363-5201
page 122
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