The impact of money laundering on economic and financial stability and on political development in developing countries. The case of Nigeria
| Published date | 05 October 2012 |
| DOI | https://doi.org/10.1108/13685201211266024 |
| Date | 05 October 2012 |
| Pages | 442-457 |
| Author | Ayodeji Aluko,Mahmood Bagheri |
| Subject Matter | Accounting & finance |
The impact of money laundering
on economic and financial
stability and on political
development in developing
countries
The case of Nigeria
Ayodeji Aluko
Institute of Advanced Legal Studies, University of London, London, UK, and
Mahmood Bagheri
University of Tehran, Tehran, Iran and Institute of Advanced Legal Studies,
University of London, London, UK
Abstract
Purpose – Money laundering is indeed a global phenomenon which undermines the economic and
political stabilities of States. However, as much as money laundering is a global phenomenon, over the
last decade, it has been apparent that development countries have been more exposed and vulnerable
to its exploits. Thus, the purpose of this paper is to evaluate, specifically, the impact of money
laundering on economic development, financial stability and also political development of “developing
countries”. Hence, the aim and purpose of the paper is to deeply analyse the immense scale, concise
effect and impact of the phenomenon of money laundering that hinders economic and political growth
in developing countries in contrast to the developed countries. The paper also intends to examine the
above issues in the context of Nigeria as a developing country.
Design/methodology/approach – In developing this paper, emphasis was placed on primary
sources of information and references to secondary sources of information where relevant. Therefore,
the methodology employed in this paper is analytical and based on the facts reflected in the secondary
sources and also legal and socio-economic analyses of money laundering phenomenon.
Findings – The phenomenon of money laundering, amongst other economic and financial crimes
have had better success in infiltrating into the economic and political structures of most developing
countries therefore resulting to economic digression and political instability. Although, developing
countries have responded and continue to respond, through legislative measures, to the menace of
money laundering, at national level, however, money launderers, have exploited the lax regulatory
environment, vulnerable financial systems along with persistence civil and political unrest of most the
developing countries. The findings of the paper also highlight the relationship between corruption and
money laundering in developing countries.
Originality/value – The paper is very unique in its approach as it combines legal analyses with
social philosophy or combating money laundering and from a perspective of law of development both
at the national and international levels, it focuses on the negative impacts of money laundering on the
development of developing countries such as Nigeria.
Keywords Money launderingregulation, Nigeria, Financialstability, Political development,
Developing countries, Nigeria, Money laundering
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
JMLC
15,4
442
Journal of Money Laundering Control
Vol. 15 No. 4, 2012
pp. 442-457
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201211266024
Introduction
This work evaluates the impact of money laundering on economic development,
financial stability and also political development of “developing countries”. The
objective is to critically analyze the large-scale and concise effect and impact of money
laundering practices that hinder economic and political developments in developing
countries in contrast to the developed countries.
Over the last two decades, since its criminalization, there has been an increasing
interest in the phenomenon of money laundering globally. However, most of the study
has focused on money laundering from the perspective of developed countries.
Accordingly, international opinion, policies and legislation aimed at combating money
laundering have also been designed mainly on the needs of the developed countries.
However, money laundering is indeed an international phenomenon and its impact and
effect reflect on all the facets of the global society. In particular, money launderers, most
often, look for ways of to disguise their wealth, which is the basic component of money
laundering practice. As such, most developing countries have characteristics and
attributes that the money launderers find attractive to carry out their act. Consequently,
this impacts on the economic, political and social facets of such countries. Therefore,
understanding the economic, political and social settings of these developing countries
is fundamental ingredient in the war against money laundering.
The work is divided into four chapters with the first chapter evaluating explicitly
the effect of money laundering practices on the economic and financial stability in
developing countries. The second chapter looks at the impact of money laundering in
governance and political stability of developing countries with particular reference to
the effects of corruption and organized cries in the political process of the developing
countries. The third chapter focuses on legislative measures against money laundering
in Nigeria, as a focus of reference. Nigeria has been known as a major center of money
laundering ventures, particularly in Africa. Hence, that chapter will evaluate legislative
measures the country has taken in combating money laundering. The last chapter of the
work argues for the case of a converged global anti-money laundering (AML) measures.
The argument is that a converged global AML measures will benefit developing
countries in their fight against money laundering.
1. Impact of money laundering on economic and financial stability in
developing countries
1.1 Attributes of developing economy
The economies of most developing countries are often classified as informal economies.
In broad terms, an informal economy is the unregulated non-formal component of the
market economy that produces goods and services for sale or for other forms of
remuneration (GIABA Report, 2010). In this context, a vast size of informal economy in
most developing countries goes hand-in-hand with the cash- and commodity-based
nature of the economy (GIABA Report, 2010). For instance, in the West African region,
the informal economy of the region is virtually cash and commodity oriented. As such,
cash payment is the most common method of purchasing products and most often
services. According to the World Bank, across Africa more than 80 percent of
households do not use formal banking (The World Bank Report, 2009).
Furthermore, the practices that are norms in the informal sector contradict the basic
standards for banks on transparency of financial operations and accounting procedure s
The impact
of money
laundering
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