Money laundering is a massive global problem. It allows criminals to infuse billions of dollars of black money into the stream of commerce and business, corrupting financial institutions and officials. However, the precise scale of money laundering is much disputed.In 1996, the IMF came up with the vague estimation that 2-5 % of the global economy involved laundered money. But, the Financial Action Task Force (FATF), an inter-governmental body set up to combat money laundering, said: “Overall, it is absolutely impossible to produce a reliable estimate of the amount of money laundered.”
The estimate most often bandied around in the media is $1.5 trillion a year, but Dr Dionysios Demetis, the author of the book Technology and Anti-Money Laundering, disputes the figure.
“The broader system of money laundering operations exhibits such a degree of complexity that it is impossible to determine the amount being laundered. The most commonly cited figure of $1.5 trillion is for media consumption alone,” he said.
Few academics will give estimates. But there is one distinguished expert who believes it is possible to give more accurate figures. John Walker, the CEO of Crime Trends Analysis in Australia, has produced analysis which suggests that the scale of money laundering is much larger than had been thought. Using a comparatively simple crime-economic model constructed from readily available international databases, he estimated a total of $2.85 trillion per year, heavily concentrated in Europe and North America.
Walker said: “I’ve been contracted by the UN Office on Drugs and Crime to update those 1998 figures, but sadly, the project has stalled due to the fear of upsetting member countries’ sensitivities. But I would stand by the 1998 figures if we factor in the rise in the value of the dollar. The major criticism of my 1998 figures was that my estimates were way too high. Subsequent events have shown that any criticism along those lines was laughably wrong,” he said.
The reason the figures still stand up is that recent attempts to combat money laundering have been ineffective, Walker argues.
“I do not believe that anti-money laundering has had any significant impact on rates of global crime, except to have forced changes in the way that the proceeds of crime are laundered. If I had money to launder right now, I would take advantage of the lack of oversight of international trade prices – particularly in services. The Global Financial Integrity Project led by Raymond Baker focuses on flows of finance illicitly removed from developing countries, concluding that for every dollar of aid ‘given’ to developing countries, there are $10 going the other way due to corruption, multi-national company tax evasion and straight out fraud,” he said.In Walker’s model, the US was responsible for 46.3% of money laundered ($1.32 trillion). Two other well-known centres of organised crime came next: Italy ($0.15 trillion, 5.3%) and Russia ($0.147 trillion, 5.2%). There followed China, whose share one would expect to have grown since 1998, along with the rest of its economy ($0.13 trillion, 4.6%). The rest of the top 10 consisted mainly, though not exclusively, of Western countries: Germany, France, Romania, Canada, the UK , Hong Kong. The model’s total for money laundering of $2.85 trillion would need to be increased by 38% to allow for dollar inflation, making it $3.933 trillion. The figure for the US would be $1.82 trillion.
In Walker’s model the destinations of money laundering are sometime different from the sources. The US is top again, but with 18.9%, followed by one of the world’s major offshore financial centres, the Cayman Islands (4.9%), Russia (4.2%), Italy (3.7%), China, Romania, Canada, Vatican City, Luxembourg and France.
One necessary update to Walker’s models is that both the City of London and Wall Street now play a bigger part in global money laundering than they did in 1998.
“The capacity of these financial centres to carry out financial operations at larger scales makes them vulnerable despite the perceived strong regulatory initiatives. Also, there is a further perceived legitimacy to the laundering of funds if they go through London or New York,” said Dr Demetis.
In recent years, the banks have been implicated in a number of major money laundering scandals. One of the most shocking involved the Miami-based Wachovia Bank, which admitted responsibility in 2009 for moving $420 billion for account holders thought likely to be involved in the laundering of drug proceeds. Some of the money was traced to the purchase of aircraft used by trafficking organisations to smuggle more than 22 tons of cocaine.
“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor. Yet, the total fine of $160 million was less than 2% of the bank’s $12.3bn profit for 2009.
Read the FULL STORY: Black Money: The Business of Money Laundering
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