Literature Review Chapter: Bank Insure That the Level of Money

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¶ … bank insure that the level of money laundering is kept to a minimum?

Defining money laundering

Money laundering is a stringent problem at a global level. Before detailing its dimensions however, it is necessary to best understand the concept. The specialized literature presents the reader with a multitude of definitions, out of which the following are of notable importance and relevance:

"The attempt to conceal or disguise the ownership or source of the proceeds of criminal activity and to integrate them into the legitimate financial systems in such a way that they cannot be distinguished from assets acquired by legitimate means. Typically this involves the conversion of cash-based proceeds into account-based forms of money" (Organization for Economic Co-operation and Development, 2002).

"Conduct/acts designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of money (can be currency or equivalents, eg. checks, electronic transfers, etc.) to avoid a transaction reporting requirement under state or federal law or to disguise the fact that the money was acquired by illegal means" (The Electric Law Library, 2010).

3. "Money Laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of criminal activities. If successful, the money can lose its criminal identity and appear legitimate." This definition is offered by the Financial Supervision Commission, which continues with the mentioning of the sources of dirty money, such as inside trading, prostitution, frauds, drug trafficking and so on. With the money retrieved through these activities, the launderer hopes to introduce them in the legal financial circuit and not raise suspicion; move the money through a series of transactions which make it more difficult for the origin of the money to be identified and then link the money to the legal financial system and to the business assets (Isle of Man Government, Financial Supervision Commission, 2010).

2. Money laundering statistics

The money laundering activities are complex and, by definition, developed in such a manner that they are difficult to trace. This means that finding actual statistics and information on money laundering is a difficult endeavor. According to the International Monetary Fund, money laundering is estimated to comprise somewhere between 2 and 5 per cent of the entire global gross domestic product (OECD Observer, 1999). The validity of the estimates is often questioned and the political and economic communities have yet to come to a common ground relative to the size of the money laundering phenomenon.

John Walker has identified that the international money launderers find the following as most desirable locations as to where they could launder their money (in order of appeal to money launderers): Luxembourg, the United States of America, Switzerland, the Cayman Islands, Austria, the Netherlands, Lichtenstein, the Vatican City, the United Kingdom, Singapore, Hong Kong, Ireland and Bermuda (Walker, 1998).

The identification of these countries was based on the construction and implementation of an index model which assessed the internal elements of the country, elements which would be considered as fostering money laundering activities. Some of the elements include political instability, high corruption levels, high crime rates, cultural and geographic differences, or the size GDP in the destination country. Relative to the gross domestic product, it was assumed that money launderers prefer countries with higher national inputs so that their own transactions can easily become lost and untraceable in the system. Relative to corruption, countries where the phenomenon is intense have been estimated to reach money laundering levels up to 80 per cent (Walker, 1998).

Based on the same model, the following are noteworthy:

The largest source of laundered money is considered the European continent, with an estimated yearly total of $1,281 billion

The second largest source of laundered money is constituted by the North American continent, with an estimated $686 billion

The Caribbean follow with a total yearly estimate of $331 billion

The fourth largest money launderer is constituted by East Asia, with an estimated yearly total of $322 billion laundered money

The smaller money launderers include: Central America with $73 billion per annum; South-West Asia with $52 billion per year; South America with $47 billion per year; South Africa with $21 billion per year; Australia with $18 billion per year; North Africa with $15 billion per year and South Asia with $5 billion per year. The picture below reveals these figures:

Source: Walker, 1998

In terms of countries, twenty states are the ones that generate the largest proportion of laundered money. The largest of them is by far the United States of America, with a total of 46.3 per cent of the laundered money. The rest of the countries comprise the 53.7. These countries are: Italy, Russia, China, Germany, France, Romania, Canada, the United Kingdom, Hong Kong, Spain, Thailand, South Korea, Mexico, Australia, Poland, Philippines, Netherlands, Japan and Brazil. Relative to the main destinations of the laundered money, these include: the United States of America (with the largest proportion of 18.9 per cent; the rest of the countries receive each proportions between 4.9 per cent and 1.2 per cent), the Cayman Islands, Russia, Italy, China, Romania, Canada, Vatican City, Luxembourg, France, Bahamas, Germany, Switzerland, Bermuda, Netherlands, Lichtenstein, Austria, Hong Kong, United Kingdom and Spain (Walker, 1998).

3. Anti-money laundering policies and practices

The United States Department of State has developed and implemented sixteen different sets of actions and policies by which it aims to regulate the laundering of money. These actions refer to the following:

1. Criminalized drug money laundering -- money laundering linked to drug trafficking is considered criminal

2. Criminalized beyond drugs -- actions and policies are enlarged to include money laundering outside drug trafficking

3. Record large transactions -- banks are required to keep records of high sum transactions

4. Maintain records over time -- keeping the records of large transactions for specific time periods, such as five years

5. Report suspicious transactions -- banks are required to report any suspicious transactions

6. Financial intelligence -- the assessment of information related to money laundering

7. System for identifying and forfeiting assets -- laws on the identification, tracing and seizure of assets related to money laundering

8. Arrangements for asset sharing -- the assets seized can be shared among legal agencies

9. Cooperates with international law enforcement -- refers to the fact that banks are required and/or permitted to cooperate with the authorities conducting a money laundering investigation

10. International transportation of currency -- the entries and exists of currency are carefully monitored

11. Mutual legal assistance -- the U.S. Department of State receives and offers assistance through data sharing

12. Non-bank financial institutions -- they are requested to comply with the same requirements as banks

13. Disclosure protection safe harbor -- "safe harbor" defense is offered to banks and bank employees who offer information on money laundering'

14. State parties to 1988 UN drug convention -- a new United Nations formation in charge of anti-money laundering operations and policies at a global scale

15. Criminalized the financing of terrorism -- the offering of support to terrorism is considered a crime

16. States party to the UN international convention for the suppression of the financing of terrorism -- the UN organization in charge of combating money laundering and terrorism (U.S. Department of State).

As it has been revealed throughout the statistics section, money laundering represents a major problem in Russia. In order for the country to address the challenges, they have developed and implemented a complex legislation against money laundering. The main aim of the policy was that of reducing the high 15 per cent of GDP money laundering. The country's anti-money laundering legislation up until 2001 was poor and this meant that the international community often frowned upon the country and even discriminated against its financial institutions. In 2001 however, Russia ratified the Council of Europe Convention on Laundering, Tracing, Seizure and Confiscation of Proceeds from Crime. The direct result was that of the creation of a new legislation on money laundering. The new law, the federal law number 115-FZ on combating money laundering and the financing of terrorism, forces banking institutions to report the following:

1. All transactions over 600,000 Roubles ($19,441, at the exchange rate on July 13, 2010 and according to the Universal Currency Converter) which are related to "cash payments, individuals or legal entities domiciled in countries that do not participate in the international fight against money laundering, bank deposits, precious stones and metals, payments under life insurance policies, and/or gambling;

2. All transactions of extremist organizations or individuals included on Russia's domestic list; and

3. Suspicious transactions" (Minaeva and Aksenova).

Relative to Estonia, the issue of money laundering is less stringent, but still existent. The national authorities have early on requested the financial institutions and otherwise players in the Estonian economy to adhere to the internationally available standards and regulations. In 2001, the national legislation was further developed and enforced to reduce money laundering.

The Estonian legislation and the adherent institutions are continually assessed, developed and improved.… [END OF PREVIEW]

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