The role of offshore financial centres in elite money laundering practices: evidence from Nigeria
| Pages | 336-361 |
| Published date | 06 July 2012 |
| DOI | https://doi.org/10.1108/13685201211238070 |
| Date | 06 July 2012 |
| Author | Olatunde Julius Otusanya,Sarah Lauwo |
| Subject Matter | Accounting & finance |
The role of offshore financial
centres in elite money laundering
practices: evidence from Nigeria
Olatunde Julius Otusanya
Department of Accounting, University of Lagos, Lagos, Nigeria, and
Sarah Lauwo
Essex Business School, University of Essex, Colchester, UK
Abstract
Purpose – In addition to contributing to the supply side of corruption in Africa, the West has
historically played a major role in laundering the proceeds. The Offshore Financial Centres (OFCs) are
characterised as jurisdictions that attract a high level of non-resident financial activity.The purpose of
this paper is to examine how senior political figures, their relatives and close associates have used
OFCs in moving funds that may be a product of foreign corruption into Western countries.
Design/methodology/approach – The paper locates the role of OFCs within the political economy
theory of globalisation to argue that mobility of capital has been promoted by a number of advanced
countries and micro-states that use their sovereignty and law-making powers to create an environment
conducive to anti-social practices by the major corporations and the political elite. The paper uses
publicly available evidence to illuminate the role played by offshore financial centres in facilitating
elite money laundering practices.
Findings – The evidence shows that, in pursuit of organisational and personal interest, the offshore
financial centres create enabling structures that support illicit activities of the political and economic
elite from developing countries. The paper concludes that the establishment of money laundering laws
and the creation of anti-money laundering agencies had not brought about ethical conduct within the
global banking systems.
Practical implications – It is impossible to quantify the volume of money laundered, but it has
been estimated that money laundering may account for as much as 5 per cent of the world economy.
Social implications – Substantial amounts of illicit money undoubtedly flow out of developing
countries. Combating money laundering is a key goal in all democracies, due to its corrosive efforts on
the rule of law, economic development, democratic principles, and its serious consequences for people
everywhere.
Originality/value – The paper examines predatory practices of the international financial industry
in money laundering activities.
Keywords Nigeria, Moneylaundering, Developing countries, Globalization, Offshorefinancial centre,
Elite
Paper type Research paper
1. Introduction
Money laundering is not just synonymous with developing countries, but that it is also
a significant problem in developed countries (Sikka, 2008). The proceeds of corruption
do not always need to be laundered internationally. However, it has been argued that
the proceeds of many of the biggest thefts of public property have to be laundered,
either as money or as goods such as real estate and fine art (AAPPG, 2006; US Se nate
Subcommittee on Investigations, 2010). Money laundering has the notorious tendency
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JMLC
15,3
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Journal of Money Laundering Control
Vol. 15 No. 3, 2012
pp. 336-361
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201211238070
to discourage or frustrate legitimate business enterprise, corrupt the financial systems
and ultimately, thesocial-political systems (Okogbule, 2007; Otusanya,2011). A number
of Western countries have gained international reputation during the twentieth century
for a secretive banking industry which facilitated money laundering and other financial
centres have also been implicated.
It has been argued that offshore financial centres(OFCs)[1] have played a significant
role in shaping the economies and the lives of those who live in developing countries
(Palan et al.,2 010). OFCs play a key ro le in facilitating the g rowing mobility of financ e and
in shaping complex webs of interactions and relationships involving the nation-states,
multinational corporations, a wealthy elite and ordinary citizens (Hampton, 1996). This
process is facilitated by states which offer shelter to finance and to “footloose” capital.
These micro[2]states use their sovereignlegislative powerto enact “light” regulationsand
to have low tax or no tax regimes in order to persuade companies and wealthy elite to
establish structures in concealing their illicit activities by avoiding or evading the
payment of taxes (Mitchell et al., 2002; Palan, 2002;Stark, 2009). Thus, “footloose” capital
seeks out locationsthat offer political and economic stability, secrecy, confidentiality and
the same locations can also be used for illicit activities (such as money laundering, tax
evasion, tax avoidance). The system thus facilitates the transmission of illicit funds
through thebanking system to disguisethe origin or ownership of the funds(Stark, 2009).
The OFCs are characterised as jurisdictions that attract a high level of non-resident
financial activity. It has been argued that in offshore locations, banking transactions
are mostly tax-exempt, or treated under favourable fiscal regime, and they are free
of interest and exchange rate restriction (Sikka, 2003; Palan et al., 2010). A number of
companies and wealthy elite or individuals claiming “residence” in such jurisdictions
rarely physically locate or trade there, but the “fictional spaces” enable them to avoid
the taxes and regulations of host countries. This is because their affairs are protected
by strictly enforced secrecy and anonymity laws (International Monetary Fund, 2000;
Stark, 2009). Christensen (2006) further noted that:
The “secrecy space” creates an effective barrier to investigation of the activities in the OFCs
by external authorities and facilitates the laundering of proceeds from wide range of criminal
and unethical practices, including fraud, embezzlement and theft, bribery, narco trafficking,
illegal arms trafficking, counterfeiting, insider trading, false trade invoicing, transfer
mispricing and tax dodging (p. 2).
The anonymity, low taxes and light regulations instituted by the OFCs are attractive
not only to capital escaping territorial jurisdictions, but also to speculators and
criminals (United Nations Office for Drug Control and Crime Prevention, 1998). For
instance, a number of political leaders, oligarchies and elite have bled their countries
dry by siphoning off funds abroad and countries with anonymous bank accounts are
deeply implicated (Hutton and Giddens, 2000; Shaxson, 2007; Stark, 2009).
The illegal flight of capital (money laundering) is simply the movement across
international borders of money “that is illegally earned,illegally transferred, or illegally
utilised if it breaks the laws in its origin, movement, or use” (Baker, 2005, p. 23). It has
therefore been argued that:
[...] there is in fact already a massive transfer of wealth in the global system but the
transfers – amounting to several hundred billion dollars a year – are overwhelmingly from
the world’s poorest countries to the richest (Smith, 2006, p. 2).
Offshore
financial
centres
337
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