Would you care to take a guess at the amount of money that is laundered globally per year?
Of course, it’s a difficult figure to calculate, given that we are talking about illegal activity, but according to the United Nations Office on Drugs and Crime (UNODC) it’s somewhere between $800bn and $2tn, or between 2 and 5% of global GDP.
Interpol describes money laundering as ‘any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.’ Those engaged in illegal activities including terrorism, drug and human trafficking, illegal arms sales, smuggling, counterfeiting and prostitution need to ‘wash’ their so-called dirty money to turn it into a legitimate asset. They do this by putting it through different transactions such as real estate purchases, purchasing life insurance policies or filtering it through cash-intensive businesses.
The social and economic consequences of money laundering are wide-reaching. Money laundering disrupts economic systems by creating false demand and can wrongly influence economic policy. Several banks have collapsed as a result of money laundering – most recently Latvia’s ABLV. Tax is not paid on the proceeds of criminal activity so we all suffer from the loss in tax revenue and legitimate businesses find it difficult to compete with businesses which front money laundering and can afford to lower the price of goods and services.
Money laundering also creates a vicious circle of criminal activity because all too frequently it pays off and criminals get away with it spending their illegal profits with no repercussions and therefore engaging in even more drugs, violence and crime to create even more profit.
Many organisations, governments and regulatory bodies are engaged in fighting money laundering using two main tools: legislation and law enforcement. Given the global nature of our financial systems, international cooperation is key. The Financial Action Task Force is an inter-governmental body that was set up in 1989 specifically to fight money laundering via the use of legal, regulatory and operational measures. In 2012 it issued recommendations to set international standards on combating money laundering and over 200 jurisdictions have signed up to follow these.
It is an ongoing battle as money launderers are skilled at staying one step ahead of those fighting them. As measures are introduced to crackdown in one sector (financial, real estate) they find other, sometimes surprising, ways to clean dirty money. The art market, which is largely unregulated, has become a popular one.
That said, the financial system remains one of the most popular methods of laundering money as funds are transferred. It is for that reason that banks and other financial institutions, including Infinity, have had to put many more controls and procedures in place in recent years to ensure that they know the individuals with whom they are dealing with. We must undertake adequate due diligence on all customers in order to make sure they are who they say they are.
We realise that it can be frustrating for customers to have to provide extra documentation in order to be correctly identified but please be aware that we are simply playing our part in weeding out illegal activity and ensuring that we are not dealing with dirty money which, at the end of the day, is in the interests of all of us law-abiding citizens investing for our futures.
I have over 20 years of experience in the financial services industry and hold a Chartered MCSI qualification. I ensure that our operations are fully compliant with the rules of our most stringent regulators.