Money laundering which hiyherto was hardly mentioned in the financial cycles in the 1960’s and 1970s, has grown to a global attention since 1990s.
It has become a worrisome phenomenon both national and international.
The consequence of money laundering has led to global effort to combat its dangerous effects on the nation’s economy as well as the financial institutions.
Most uninformed especially in the developing countries have not seen any justifiable reason for the global outcry against money laundering.
However, the fact remains that money laundering is an aberration in wealth accumulation.
It’s implication on social, economic and political life of any country remains a source of concern to every informed citizen.
What is money laundering, what are mode of operation and effects and what are the global efforts in combating it are what i’ve discussed on this post.
Money Laundering Definition
Money laundering involves transforming the proceeds of crime into a usable form and disquising their illegal origin.
According to Alashi (1994) defined it as a process of concealing the existence, source or use of an illegally obtained money by converting the cash into an untraceable transaction in banks.
The cash is disguised to make the income appear legitimate.
You also say that money laundering is the act of washing black money whiter than white. It is a criminal activity.
After the criminal proceeds are introduced into the financial system, they are hidden and laundered through a variety of transactions and financial vehicles, and finally invested in financial and other related assets.
The psychology and psychological dimension of the fraudsters shows that they think round the clock in order to devise ways of defrauding someone somewhere.
All they do is to think out a means of dangling can unseen bigger carrot, before their victim to encourage him to give out his small carrot for a bigger one.
Let’s take a look at the money laundering examples or cases that observed by some financial experts or bodies.
Money Laundering Examples and Cases
A financial expert Aninant observed, money laundering operations often involves international transactions as means of layering, that is of obscuring the source of fund.
Reported cases abound which reveal the mode operation of this criminal activity. One of the money laundering cases reported thus
A recent case of money laundering was revealed when three financial institutions reported similar suspicious transactions. It turned out that drug traffickers were using go-between who would deliver the cash proceeds of crime to professionals in travel agencies and import/export business. The professionals would then place the funds in their bank account and for a fee, transfer them on the basis of fake accounts to banks abroad. An estimated $30 million was laundered through this way. According to IMF(2002)
From this account, it is observed that cash is introduced into the banking system by people far removed from the predicate criminal activity.
Layering is achieved by splitting the funds among many small seemingly innocuous agents know as Smurfs, thereby creating a misleading paper trail and transferring the funds abroad as soon as possible.
A trick use by the scammers is to take the stolen money through a circuitous route to prevent easy tracing and early detection.
In this case, the money laundering examples of the circuitous trail as reported states;
From Feb 1996 when $2m was first moved through swift transfer from X account at Bank of New York to XX Nigeria Ltd and in October 1996, a total of $8.9m was eventually transferred into the company account. X account is owned by KP. The money moved from Bank of New York to Midland Bank and then to Nigeria AC Bank for the benefit of X. (2001)
The steps in laundering money remains a process ridden with circuitous processes that will obviously obscure any trace of such process.
Effects of money laundering
Some people especially in developing countries see no reason in denouncing money laundering as long as the launders invest the money in their countries economy.
This reasoning fails to recognize the serious dangerous consequences of money laundering and other financial crimes.
The following consequences can be noted;
- A financial institution reputed to be connected with money laundering and other financial crimes will risk damage to its reputation
- Customers of an institution found to be engage in such may also suffer loss of reputation
- Investors will shy away from investing in such financial institution
- It affects the whole financial system by dainting its sound principles
- When criminals control the economy and political power, the growth of that economy will be stunted
- The integrity of financial institutions controlled by criminals will obviously loose their integrity
- It affect the correspondent relationship and business of financial institution with outside world.
- Economically, decisions on resource allocation will be corrupted while investment will be misallocated thereby dampering economic growth
How to tackle It
Efforts have been intensified by both national and international communities to combat money laundering.
The rising trend which manifest itself in various ways has tasked various monetary authorities into initiating measures aimed at combating it.
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The measures adopted can only be effective if coordinated effort are made by all countries. Some of the measures includes the following;
1. Introduction of Anti Money laundering legislation
IIn order to Kickstart effective war on money financial crimes, relevant legislation needs to be established and it will empower the relevant agencies in prosecuting any offender.
2. Implementation of the provisions of money laundering Acts
For any primary legislation to be operational, regulations and supervision must be implemented.
It is a proper implementation that will ensure effectiveness of the laws.
As a result, it is expected that the financial institution in the world will make efforts to avoid dealing with money laundering criminals.
Financial institutions must establish that potential clients are who they are, as well as checking their clients background.
3. Establishment of specialized agencies
The establishment of special agencies or institutions for the purpose of implementing and the relevant financial crime laws is very crucial to the ef of the war against money laundering.
4. Suspicious and unusual transaction
Financial institutions must strive to establish systems of identifying and reporting unusual and suspicious transactions.
This will instill fear in the minds of the financial crimes perpetrators.
Other anti financial crimes measures which government and institutions must purse include;
- Increasing pressure on developing countries to enthrone or embibe a culture of accountability, transparency and democratic government
- To increase pressure on offshore financial supervision and the threat of economic sanctions in default
- To forge greater international collaboration and networking by anti crime agencies and supervisory authorities in the areas of exchange of information
- To take measures both on multilateral, regional and national levels to deal with various forms of economic and financial crimes
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This is where i will round it up on money laundering definition, example and cases, the effect and the drastic measures needed to combat it.