What is Money Laundering? How does It Occur? What are the Development Impacts of Money Laundering?...
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What is Money Laundering? What is Money Laundering? How does It Occur?How does It Occur?
What are the Development What are the Development Impacts of Money Laundering?Impacts of Money Laundering?
Emiko TodorokiEmiko Todoroki
The World BankThe World Bank
Building Financial Market Integrity in AfghanistanBuilding Financial Market Integrity in Afghanistan
April 16, 2006April 16, 2006
Money Laundering: Money Laundering: How big is the threat?How big is the threat?
How much money is laundered each year?How much money is laundered each year?
Publicized figures vary between Publicized figures vary between US$ 500 billion and US$ US$ 500 billion and US$ 1.5 trillion annually1.5 trillion annually. .
To put this figure into context, To put this figure into context, Wal-Mart, the largest retail company in the world, reported Wal-Mart, the largest retail company in the world, reported
annual revenue of US$ 250 billion dollars in January 2004. annual revenue of US$ 250 billion dollars in January 2004. Spain is 7Spain is 7thth largest economy in the world with about $1 trillion largest economy in the world with about $1 trillion
GDP/year. GDP/year. The amount of criminally derived funds entering The amount of criminally derived funds entering
legitimate financial systems each year is almost legitimate financial systems each year is almost incalculable.incalculable.
What is money What is money laundering?laundering?
A process by which A process by which proceeds proceeds from a criminal activity are from a criminal activity are disguised to conceal their illicit origins. This process disguised to conceal their illicit origins. This process enables the criminal to enjoy these profits without enables the criminal to enjoy these profits without jeopardizing their source. jeopardizing their source.
Where you can find the definitions?Where you can find the definitions? United Nations Convention against Illicit Traffic in Narcotic Drugs and United Nations Convention against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances (Vienna Convention,1988)Psychotropic Substances (Vienna Convention,1988) United Nations Convention against Transnational Organized Crime United Nations Convention against Transnational Organized Crime
(Palermo Convention, 2000)(Palermo Convention, 2000)
Simple money laundering Simple money laundering conceptconcept
Is Mr A Laundering Money?Is Mr A Laundering Money? How about the Friend?How about the Friend?
Mr AMr A FriendFriend
Works in a Bank inWorks in a Bank in
jurisdiction Xjurisdiction X
Jurisdiction B: secrecy lawsJurisdiction B: secrecy laws
illicit smuggling
of weapons
Three Stages of Three Stages of Money LaunderingMoney Laundering
Placement Placement StageStage
Layering Layering
StageStage
Integration Integration StageStage
Initial injection of illicit Initial injection of illicit funds into the financial funds into the financial systemsystem
Multiple layers of Multiple layers of transactions that further transactions that further separate funds from their separate funds from their illegal origins illegal origins
Reintroduction of illicit Reintroduction of illicit funds into legitimate funds into legitimate economy. economy.
Purpose is to separate Purpose is to separate illicit funds from their illicit funds from their illegal origins. illegal origins.
Purpose is to make it Purpose is to make it difficult to trace the funds difficult to trace the funds to their illegal origins. to their illegal origins.
Purpose is to allow Purpose is to allow criminals to use the criminals to use the funds without raising any funds without raising any suspicion. suspicion.
Placement StagePlacement Stage
ExamplesExamples Depositing cash into an account or into several Depositing cash into an account or into several
accounts in different locations.accounts in different locations. Paying cash for bank drafts, traveller’s cheques, Paying cash for bank drafts, traveller’s cheques,
and other value instruments.and other value instruments. Purchasing items of value for cash (such as Purchasing items of value for cash (such as
works of art, antiques, motor vehicles, and so works of art, antiques, motor vehicles, and so on) for the purpose of selling them. on) for the purpose of selling them.
Commingling criminal cash with legitimate cash Commingling criminal cash with legitimate cash in a business account.in a business account.
Converting cash in one currency into another Converting cash in one currency into another currency.currency.
Layering StageLayering Stage
ExamplesExamples Wiring payments to and from various accounts Wiring payments to and from various accounts
(personal and corporate) in different jurisdictions(personal and corporate) in different jurisdictions Buying, then selling, an investment productBuying, then selling, an investment product Buying and then surrendering a single-premium Buying and then surrendering a single-premium
insurance contractinsurance contract Engaging in international trade transactionsEngaging in international trade transactions Making other types of payment where funds Making other types of payment where funds
move from one account to anothermove from one account to another
Integration StageIntegration Stage
ExamplesExamples Purchase of property (for personal use or Purchase of property (for personal use or
investment)investment) Purchase of other high-value items, for example, Purchase of other high-value items, for example,
jewelries, antiques, works of art jewelries, antiques, works of art Purchase of legitimate businessesPurchase of legitimate businesses Purchase of investments for incomePurchase of investments for income Any purchase for personal use with a cheque, Any purchase for personal use with a cheque,
credit card, or other payment methodcredit card, or other payment method
What is Terrorist Financing?What is Terrorist Financing? ““Terrorist Financing is the Terrorist Financing is the actact of providing of providing
financial supportfinancial support to to terroriststerrorists or or terrorist terrorist organizationsorganizations to enable them to carry out to enable them to carry out terrorist acts”terrorist acts” Where to find the Definition:Where to find the Definition: UN International Convention UN International Convention
for the Suppression of Financing of Terrorism for the Suppression of Financing of Terrorism
Primary Objective is non-financial, Primary Objective is non-financial, yet as with yet as with all organizations, terrorist groups require funds all organizations, terrorist groups require funds in order to carry out their primary activities.in order to carry out their primary activities.
Source of Funds can be Source of Funds can be legallegal or or IllegalIllegal
What are the sources of What are the sources of Terrorist Financing?Terrorist Financing?
Legal Sources
CONTRIBUTIONS AND DONATIONS
SALE OF PUBLICATION
LEGITIMATE BUSINESS ACTIVITIES
Illegal Sources
DRUG TRAFFICKING
EXTORTION AND KIDNAPPING
ROBBERY
FRAUD
GAMBLING
SMUGGLING AND TRAFFICKING IN COUNTERFEIT GOODS
Why measures to fight ML and Why measures to fight ML and TF are brought together?TF are brought together?
What are similarities between money laundering and What are similarities between money laundering and terrorist financing?terrorist financing?
• Terrorists also need to move their funds and avoid suspicion, just as Terrorists also need to move their funds and avoid suspicion, just as money launderersmoney launderers
• Terrorists use the same methods as money launderers to handle Terrorists use the same methods as money launderers to handle their funds (placement, integration and layering stages)their funds (placement, integration and layering stages)
What is the difference between money laundering and What is the difference between money laundering and terrorist financing?terrorist financing?
• Terrorists are Terrorists are notnot in their business for money in their business for money• Terrorist sources of funds can be Terrorist sources of funds can be legal or illegallegal or illegal
Where do ML/TF operations take Where do ML/TF operations take place?place?
• Money Laundering and Terrorist Financing are Money Laundering and Terrorist Financing are GLOBAL CRIMESGLOBAL CRIMES!!
• Money launderers and financier of terrorism Money launderers and financier of terrorism INTERNATIONALIZEINTERNATIONALIZE their operations to their operations to achieve various objectives.achieve various objectives.
Where do ML/TF operations take Where do ML/TF operations take place?place?
OBJECTIVES FOR ML AND TF
AVOID JURISDICTIONS WITH STRONG LAW ENFORCEMENT FRAMEWORK
TAKE ADVANTAGE OF CONSTRAINTS IN COMMUNICATION BETWEEN DOMESTIC AGENCIES
EXPLOIT REGULATORY AND LAW ENFORCEMENT WEAKNESS
ADD LAYERS TO TRANSACTIONS TO MAKE IT DIFFICULT TO TRACE THE TRANSACTIONS
What are the Implications of ML What are the Implications of ML for Development?for Development?
Money laundering can exploit Money laundering can exploit any any jurisdiction - therefore no country is jurisdiction - therefore no country is immune. immune.
It has serious impact for development:It has serious impact for development:
MACROECONOMY RULE OF LAW
FINANCIALSYSTEM
GOVERNANCE
What are the Implications of ML What are the Implications of ML for Development?for Development?
Affecting macro economy… Affecting macro economy…
RapidRapid movement of large amount of money inconsistent movement of large amount of money inconsistent with financially productive purposes destabilizes: with financially productive purposes destabilizes: Proper interest rate movementProper interest rate movement Proper exchange rate movementProper exchange rate movement Proper pricing of real estatesProper pricing of real estates
DiscourageDiscourage long-term investment in legitimate activities long-term investment in legitimate activities
DeprivesDeprives the country of legitimate tax paying the country of legitimate tax paying businessbusiness
What are the Implications of What are the Implications of ML for Development?ML for Development?
Affecting the rule of law…Affecting the rule of law… UndermineUndermine the rule of law in society. the rule of law in society. Tend to induceTend to induce corruption in the public corruption in the public
sector.sector.
What are the Implications of ML What are the Implications of ML for Development?for Development?
Affecting the financial system…Affecting the financial system…
Reputational riskReputational risk• Discourage people to put their money in banks because of lack of Discourage people to put their money in banks because of lack of
trusttrust Operational riskOperational risk
• Institutions incur reduced, terminated, or increased costs for inter-Institutions incur reduced, terminated, or increased costs for inter-bank or correspondent banking servicesbank or correspondent banking services
Legitimate businesses and enterprises suffer from reduced Legitimate businesses and enterprises suffer from reduced access to world markets or access at a higher cost due to extra access to world markets or access at a higher cost due to extra scrutiny of their ownership, organization and control systemsscrutiny of their ownership, organization and control systems
Tend to induce corruption in the financial sectorTend to induce corruption in the financial sector
What are the Implications of ML What are the Implications of ML for Development?for Development?
Affecting economic liberalization…Affecting economic liberalization…
By using front companies and other investments in legitimate By using front companies and other investments in legitimate companies money laundering proceeds can be utilized to companies money laundering proceeds can be utilized to control whole industries or sectors of the economy of certain control whole industries or sectors of the economy of certain countriescountries
Threaten the efforts of many countries to reform their Threaten the efforts of many countries to reform their economies through privatization. Criminal organizations are economies through privatization. Criminal organizations are capable of outbidding legitimate purchasers of former state-capable of outbidding legitimate purchasers of former state-owned enterprisesowned enterprises
Encourage governments to impose restrict capital controlsEncourage governments to impose restrict capital controls Encourage governments to impose restrict regulations on Encourage governments to impose restrict regulations on
financial transactions and trade with jurisdictions that do not financial transactions and trade with jurisdictions that do not have adequate money laundering control policieshave adequate money laundering control policies
How does AML system help?How does AML system help?
A well functioning anti-money laundering system:A well functioning anti-money laundering system: Makes it difficultMakes it difficult for corrupt officials to expatriate their ill- for corrupt officials to expatriate their ill-
gotten fundsgotten funds IncreasesIncreases public confidence in the financial system public confidence in the financial system Increases Increases investment in the legitimate private economy, investment in the legitimate private economy,
allowing for increase resources from taxesallowing for increase resources from taxes ProvideProvide a disincentive for the criminal involvement in the a disincentive for the criminal involvement in the
economy, promoting transparency and productivityeconomy, promoting transparency and productivity
Thank youThank you
Contact:Contact:Emiko TodorokiEmiko Todoroki
[email protected]@worldbank.org
phone: +1-202-458-9466phone: +1-202-458-9466