The Practical and Legal Aspects of Interdicting the Flow of Dirty Money

DOIhttps://doi.org/10.1108/eb025715
Pages234-253
Publication Date01 Jan 1996
AuthorBarry A.K. Rider
SubjectAccounting & finance
Journal of Financial Crime Vol. 3 No. 3 Analysis
ANALYSIS
The Practical and Legal Aspects of Interdicting the
Flow of Dirty Money
Barry A. K. Rider
THE PROFITS OF CRIME
The acquisition of and control over wealth is the
motivation for most serious crimes involving pre-
meditation. This is all the more so when the crim-
inal activity resembles an enterprise which
inevitably requires capital to operate and lubricate
its aspirations. Money, or rather wealth, in its dis-
posable form, is therefore not only the goal of
criminal enterprises but the life blood of the enter-
prise. Therefore until the profits of crime are taken
away from subversive and criminal factions, there
is little chance of effectively discouraging criminal
and abusive conduct which produces great wealth
or, through its profits, allows power and prestige
to be acquired. As soon as the state devises
methods for the tracing and seizure of such funds,
there is an obvious and compelling incentive for
the criminal to hide the source of his ill-gotten
gains in other words to engage in money laun-
dering.
Like most social, let alone economic, evils,
money laundering is nothing new, it is as old as is
the need to hide one's wealth from prying eyes
and jealous hands, and concern about the uses and
misuses of hidden money is not just an issue in
our century.1 Of course, the modern money laun-
dcrcr will no doubt adopt rather more sophisti-
cated techniques than the gem carriers of India or
the Knights Templar,2 but his objectives and
essential modus operandi will be the same. The
objectives will be to obscure the source and, thus,
the nature of the wealth in question and the
modus
operandi will inevitably involve resort to trans-
actions, real or imagined, which will be designed
to confuse the onlooker and confound the
inquirer.
It is not surprising that those who arc tasked to
follow the wealth in question, whether for the
purpose of taxation, restitution or confiscature, will
require the assistance of those who knowingly or
otherwise facilitate the processes of laundering.
Therefore, in recent years an increasing burden has
been placed on those who handle other people's
money and wealth to record transactions and even
in some measure inquire into the providence of
funds and even the nature and integrity of a
specific transfer. The legal and administrative bur-
dens that have been cast upon bankers and other
intermediaries are onerous and may well involve
serious legal and other liabilities for non or defi-
cient compliance. The growth of this particular
form of 'facilitator' liability, has to be viewed in
the wider context of policing objectionable finan-
cial transactions, whether such are merely designed
to obscure the source of wealth or are fraudulent
and abusive in themselves. This paper seeks to do
this,
by placing these new legal and other obliga-
tions on financial intermediaries and often their
own professional advisers in the wider context.
HOT MONEY
The reasons why an individual, not to mention an
organisation, would wish to hide the source of
money, or transmit it in a manner which obscures
its ownership or character are legion.3 While a
great deal of attention has been given to the vast
profits that are being generated by the illicit trade
in narcotics, it is dangerously misconceived to
assume that the processes involved in money laun-
dering cannot be, and are not, deployed just as
effectively to wash and covertly transfer funds pro-
duced by other types of crime, or even activities
which would not be generally considered criminal,
but to which a certain amount of opprobrium
might attach.4 There are pressing needs for 'secret
money' not only in the underworld of organised
and syndicated crime, but for service intelligence
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Journal of Financial Crime Vol.3 No. 3 Analysis
and security networks and to facilitate if not 'ordi-
nary' commercial and banking transactions, at least
activities which are not necessarily abusive. There
arc needs for 'unaccountable funds' in many situa-
tions and the processes which are involved in
washing money can and are efficiently employed
to create hidden reserves of secret money, and are
then utilised to service and transmit such accord-
ing to the requirements of those who desire them.5
As more and more information surfaces in regard
to the 'special services' provided by the Bank of
Credit and Commerce International it becomes
increasingly obvious that the demand for such
funds is as pressing as it ever has been.6
It must also be remembered that the purposes
for which money is required, will also influence, if
not dictate, the transactions which are used to hide
its true character and the way in which it is per-
mitted to move. For example, those involved in
facilitating the flow of capital from developing
nations, in violation of currency and fiscal controls,
may be able to operate with impunity and no
embarrassment in other jurisdictions especially
those receiving the money in question. Therefore,
there will be little need to ensure that the money
surfaces covertly and there will be no requirement
that the money should appear to have a legitimate
origin. Indeed, when the money is escaping from a
country which is seeking to expropriate wealth,
whether pursuant to a programme of so-called
indiginisation or otherwise, those involved in such
financial operations may even be held, by those
whom they service and those outside the country
in question, in high esteem. On the other hand,
where the funds are the result of criminal activity
it will be necessary to ensure that each element in
the laundering process is covert and the money
must appear, when it finally emerges from the
pipeline, seemingly clear. The purpose to which
such funds is to be applied will also, to some
degree, influence the processes involved. If money
is to be reinvested in other criminal or subversive
operations it will be important that the transactions
which establish it are not referable to other risk
activity, but the money need not appear to those
who receive it to be from a legitimate source.
Where, however, the money is being used to pene-
trate an institution or organisation,7 then it will
have to not only be unconnected to the activity
which generated it, but also be apparently accept-
able to those in control of the relevant body. It
should be obvious that the somewhat simplistic
notions of money laundering that have been pre-
ferred in a number of recent reports and publica-
tions presuppose a clarity and simplicity of purpose
that rarely exist.
It is not uncommon to find indictments by poli-
ticians, law enforcement officers and the media, of
those who are thought to be involved in money
laundering. The term money launderer is pejora-
tive and the practice of money laundering conjures
up a shady world of men in wide-striped suits
claiming to be 'bankers' and acting for ill-defined
customers and vague offshore enterprises.8 The
fact that many of the cases that have come to light
involve exactly such scenarios has tended to rein-
force such perceptions.9 It is perhaps a useful
device, for those engaged in fighting serious crime,
to persuade, at least those whose job it is to handle
other people's wealth, that those who are prepared
to assist criminals and terrorists to retain their ill-
gotten gains and further their illicit enterprises, are
no better than the crooks they serve. Of course,
when the money is the product of drug trafficking
or even a bank robbery then the opprobrium that
can attach to those who assist in the laundering
process is justly deserved. However, it is very
important to remember that those most actively
involved in providing such services may never
transgress the law and in many cases the launder-
ing may well involve funds that are not referable to
a crime or other form of misconduct. The popular
press have been wont to ignore this when criticis-
ing the apparent failure of regulatory authorities to
take effective steps to interdict what arc assumed
to be money-laundering operations. Whether it
was appreciated that the Dank of Credit and Com-
merce International and its various offshoots were
engaged in laundering moneys which were not
necessarily the proceeds of serious criminal offen-
ces or not, will in all probability remain a matter of
debate for many years yet to come. However, it is
often forgotten that the relevant authorities, even if
they had such information in a reliable form,
would have been hard pressed to have curtailed
such operations through legal and coercive pro-
cesses. Laundering the proceeds of drug trafficking
is one thing, but merely assisting a leader of a
developing country to retain his wealth on a confi-
dential basis outside his country, may be a very
different issue.10 To say that even the knowing
facilitation of such an individual's acquisition of
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