By: Kelsey B.
Money Laundering
Money laundering has catastrophic effects on economies. It is basically illegal money. People launder money by putting away their gains into multiple bank accounts with a series of complex transactions. "Money laundering is the criminal's way of trying to ensure that, in the end, crime pays" (McDowell). Laundered money leads to a rise in illegal businesses, corruption, and taxes.
"The Money-Laundering Cycle." Cartoon. undoc.org 07 Feb. 2013 <http://www.unodc.org/images/money-laundering/money_laundering_scheme_big.jpg>.
Causes
Hiding Illegal Activities
To avoid detection of crimes such as drug trafficking, terrorism, arms trafficking, blackmailing and credit card swindling, criminals launder their proceeds so the origin of their money can be hidden (McDowell). Laundering seems to essentially hide their crimes.
People launder money by putting away their ill-gotten money into financial institutions where they hide the money’s origin and make use of legitimate transactions to cover up the illicit ones (McDowell). |
Tax Evasion
To avoid paying taxes, many people launder their money to look like they have less income coming in than they really do. They would not get hit with as many taxes this way (van Reijen).
The higher the tax rates, the more reluctant people are to pay them. People start to hide their income and some will also strive to make less money because of the extra effort it takes them to hide their excess cash (van Reijen). |
Effects
Corruption
Some countries accept the money that has been laundered from another country. It provides them with extra money coming in. This increase in revenue can provide them with an improved business sector and an increase in employment. This effect is only short lived, however, and will have devastating effects in the long run (Unger).
One country can get rich off of it while hurting the other country's economy. |
Higher Tax Rates
Money laundering takes money away from the government. With less money coming in, the government has to compensate with taxes. The taxes will be at a higher rate than they would normally be if no one was laundering their money (McDowell).
This seems to be counterproductive to those who launder their money to avoid paying taxes. They probably don't realize it, but they are contributing to their own high tax rates along with the rest of the nation's. |
Loss of Legal Businesses
Criminals use a company, such as pizza places, to help launder their money. They own and run this company while running their illicit business in the back. These are called front companies.
Front companies can offer their products at lower prices than the legal companies can because the front companies already have so much money coming in. This causes the front companies to out-compete the legal companies; putting them out of business. If this trend continues, there can be a major loss of legal businesses, giving most of the consumers to the front companies (McDowell). |
"Model of Money Laundering Control." Diagram. Emeraldinsight.com 11 Feb 2013 <http://www.emeraldinsight.com/content_images/fig/3100150306003.png>.
Recommendations
" '...it is ironic that the international community would fail to produce a single, unified set of rules to take on criminal activity that thrives precisely on exploiting differences in laws and regulations ' Nigel-Morris (2001, P.22)" (Unger).
EnforcementMany countries are no longer printing high denomination notes and conduct searches. Cars are now stopped and searched at the German side of the border between Germany and Switzerland and a fine of 25 percent must be paid if the amount of money is over 10,000 euro. Some banks are requiring a fee to be paid to help pay the costs of the anti-money laundering legislation. "The ultimate aim of many governments seems to be the removal of cash from their society" (Van Reijen).
The DEA also conducts sting operations in the United States such as the 1999 Operation Juno (Layton). |
Laws and Regulations
Bank Secrecy Act (1970)--Requires banks to keep record of every transaction so they can spot money laundering easier (Layton).
1994 Money Laundering Suppression Act-- Banks must have their own money laundering task force (Layton). 2001 U.S. Patriot Act-- mandatory identity checks for U.S bank patrons (Layton). |
According to Experts:
William Goss has a Bachelor’s Degree from Rutgers University but his experience in anti-money laundering comes from his 15 years of owning an investigations agency. It specialized in white collar investigations for a Wall Street clientele (banks, brokerage firms, etc.). He has also worked for IPSA International in their anti-money laundering practice for five years and has headed the group for one. He is CAMS (Certified Anti-Money Laundering Specialist) certified, which is a professional designation for the anti-money laundering field. He has also written two articles, one is about an investigation known as “Look-Back” and the other was about SAR(Suspicious Activity Report) which has been the number one Google search result for “SAR Writing” for several years.
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Ted Shork has a Bachelor’s Degree in Economics and a Master’s Degree in Organizational Management. He is currently employed at Hantz Bank as a Vice President and Commercial Banker. He has been in the banking industry for 24 years, which include positions in management, commercial banking, and private banking. He is also a Certified Wealth Specialist (CWS).
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Main reasons people launder:"Money from illegal activities cannot be easily used for the criminal's benefit unless they can get it (undetected) into the formal financial system. You can't buy a car or a house in the U.S. with a bag of cash without a suspicious activity report being filed. The suspicious report may lead to an investigation which could result in the criminal's arrest. The criminal must "launder" the money (get it into the financial system undetected) in order to benefit from his illegal activity" (Goss).
"The main reasons people launder money include trying to conceal the funds that were gained from illegal activities (such as the sale of illegal drugs) or the funds are being used to support illegal or terrorist activities and organizations" (Schork). |
Effects on amount of money in circulation:"It artificially increases the amount of money in the financial system and devalues the money in the system that came from legal means" (Goss).
When money is transferred to organizations that support terrorist activity, it harms the originating country because they now have to spend billions in stopping the activities that are funded (Schork). |
Effects on the country's economy that is receiving laundered money:"The U.S. is a gatekeeper for identifying money laundering because so much of the world's capital must be converted into U.S. dollars from the original country's currency. Panama, Cayman Islands, Belize and other small countries have become major financial centers because they provide a destination for (often) illegal proceeds from criminal activity" (Goss).
"These funds may negatively impact currency value of the country receiving the money. Large influxes of laundered money into a country's economy may cause unwarranted or undesirable changes or adjustments to economic policies or strategies, like interest rates" (Schork). |
Most successful ways to prevent laundering:"By identifying where the money is coming from when it enters the formal financial system...If legitimate financial institutions are diligent about determining that funds are coming from illegal sources, a good amount of money laundering can be stopped. The three pillars of a successful money laundering program involve steps to detect Placement, Layering and Integration" (Goss).
"...preventative (bank regulations) and criminal (laws and punishments that hopefully stop people from wanting to launder money). The process starts with the bank completing its due diligence by identifying the person(s) establishing an account or completing a transaction like wire transferring funds to other accounts, people, countries or businesses...It is then up to the management to decide if suspicious activity reports should be filed with the government" (Schork). |
New Solutions:"Enhancements in computer software detection programs over the past ten years have been the single biggest technological improvement. Banks analyze and filter all customer bank activity using software that can identify potential suspicious activity and generate Alerts ('Red Flags') which may be an indicator that a customer is a suspect of money laundering. Bank investigations of Red Flags and subsequent reports (SARS) filed with law enforcement authorities help detect money laundering that in the past, would have gone unnoticed" (Goss).
"Newer, successful methods used by banks include the implementation and use of specialized software that can monitor and track millions of transactions and alert bank management of potential suspicious activity" (Schork). |
Works Cited List
Layton, Julia. "How Money Laundering Works." HowStuffWorks. N.p., n.d. Web. 01 Feb. 2013. <http://money.howstuffworks.com/money-laundering6.htm>.
Goss, William. "anti-money laundering." Message to the author. 10 Feb. 2013. E-mail.
McDowell, John, and Gary Novis. "The Consequences of Money Laundering and Financial Crime." Economic Perspectives(2001): 1-4. Web. 01 Feb. 2013.
<http://usinfo.state.gov/journals/ites/0501/ijee/state1.htm>.
“Model of Money Laundering Control." Diagram. Emeraldinsight.com 11 Feb 2013
<http://www.emeraldinsight.com/content_images/fig/3100150306003.png>.
Schork, Ted. "interview." Message to the author. 10 Feb. 2013. E-mail.
"The Money-Laundering Cycle." Cartoon. undoc.org 07 Feb. 2013 <http://www.unodc.org/images/money-laundering/money_laundering_scheme_big.jpg>.
Unger, Brigitte, Prof. Dr., Melissa Siegel, Drs., Joras Ferwerda, Wouter Der Kruijf, Madalina Busuioic, Drs., Kristen Wokke, and Greg Rawlings, Dr. The
Amounts and the Effects of Money Laundering. Rep. Vredenburg, Netherland: Utrecht School of Economics, 2006. Dutch Ministry of Finance, 16 Feb.
2006. Web. 04 Feb. 2013.
Van Reijen, Hugo J. Tech. N.p., n.d. Web. 01 Feb. 2013. <http://www.butterbach.net/VanReijen2.htm>.
Goss, William. "anti-money laundering." Message to the author. 10 Feb. 2013. E-mail.
McDowell, John, and Gary Novis. "The Consequences of Money Laundering and Financial Crime." Economic Perspectives(2001): 1-4. Web. 01 Feb. 2013.
<http://usinfo.state.gov/journals/ites/0501/ijee/state1.htm>.
“Model of Money Laundering Control." Diagram. Emeraldinsight.com 11 Feb 2013
<http://www.emeraldinsight.com/content_images/fig/3100150306003.png>.
Schork, Ted. "interview." Message to the author. 10 Feb. 2013. E-mail.
"The Money-Laundering Cycle." Cartoon. undoc.org 07 Feb. 2013 <http://www.unodc.org/images/money-laundering/money_laundering_scheme_big.jpg>.
Unger, Brigitte, Prof. Dr., Melissa Siegel, Drs., Joras Ferwerda, Wouter Der Kruijf, Madalina Busuioic, Drs., Kristen Wokke, and Greg Rawlings, Dr. The
Amounts and the Effects of Money Laundering. Rep. Vredenburg, Netherland: Utrecht School of Economics, 2006. Dutch Ministry of Finance, 16 Feb.
2006. Web. 04 Feb. 2013.
Van Reijen, Hugo J. Tech. N.p., n.d. Web. 01 Feb. 2013. <http://www.butterbach.net/VanReijen2.htm>.