Countries are advancing efforts to stop criminals from laundering their trillions

From Finance & Development:

“Al Capone had a problem: he needed a way to disguise the enormous amounts of cash generated by his criminal empire as legitimate income. His solution was to buy all-cash laundromats, mix dirty money in with clean, and then claim that washing ordinary Americans’ shirts and socks, rather than gambling and bootlegging, was the source of his riches.

Almost a century later, the basic concept of money laundering is the same, but its scale and complexity have grown considerably. Were Capone alive today, he would have to run his washers and dryers around the clock to keep pace with demand; the United Nations recently estimated that the criminal proceeds laundered annually amount to between 2 and 5 percent of global GDP, or $1.6 to $4 trillion a year.

Threat to stability

Money laundering is what enables criminals to reap the benefits of their crimes, including corruption, tax evasion, theft, drug trafficking, and migrant smuggling. Many of these crimes pose a direct threat to economic stability. Corruption and tax evasion make it difficult for governments to deliver sustainable and inclusive growth by diminishing the resources available for productive purposes, such as building roads, schools, and hospitals. Criminal activity undermines state authority and the rule of law while squeezing out legitimate economic activity. And money laundering may create asset bubbles in markets like real estate, a common vehicle.

A recent example illustrates the point. A Guinean minister helped a foreign company obtain important mining concessions in exchange for $8.5 million in bribes. Falsely reporting that money as income from consulting work and private land sales, the minister transferred it to the United States and bought a luxury estate in New York. But his effort to turn ill-gotten gains into a seemingly legitimate asset was ultimately unsuccessful; last year, he was convicted of money laundering.

In some ways, expensive homes are the modern mobster’s collection of laundromats. A public advisory issued by US authorities last year indicated that over 30 percent of high-value, all-cash real estate purchases in New York City and several other major metropolitan areas were conducted by individuals already suspected of involvement in questionable dealings. The governments of Australia, Austria, Canada, and other countries have concluded that their own real estate markets could also be used to invest and launder dirty money.

Terrorism financing

More worrying still, dirty money—along with clean—may be a source of funding for terrorism and the proliferation of weapons of mass destruction. Terrorist groups need money, lots of it, to compensate fighters and their families; buy weapons, food, and fuel; and bribe crooked officials. Similarly, proliferation does not come cheap. For example, North Korea has reportedly devoted a substantial portion of its scarce resources to developing nuclear weapons.”

Continue reading here.


Rhoda Weeks-Brown

Posted by at 9:43 AM

Labels: Inclusive Growth


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