## Cleaning Up

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### Scale and nature of the problem
- 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.
- Money laundering enables corruption, tax evasion, theft, drug trafficking, and migrant smuggling, which undermine state authority, the rule of law, and legitimate economic activity.
- Money laundering can create asset bubbles in markets like real estate, a common vehicle for converting illicit proceeds into seemingly legitimate assets.
- A public advisory by US authorities 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.
- Governments of Australia, Austria, Canada, and other countries have concluded that their own real estate markets could be used to invest and launder dirty money.
- Investigators are probing the possibility that the better part of $233 billion in payments was laundered through the Estonian branch of Danske Bank from 2007 to 2015.

### Threats to economic stability and security
- Criminal proceeds:
  - Reduce government resources available for productive purposes, such as building roads, schools, and hospitals.
  - Squeeze out legitimate economic activity.
  - Undermine sustainable and inclusive growth.
- Terrorism financing and proliferation:
  - Dirty money—and clean money intermixed—may fund terrorism and the proliferation of weapons of mass destruction.
  - Terrorist groups need funds to compensate fighters and families; buy weapons, food, and fuel; and bribe officials.
  - Proliferation efforts, such as reported North Korean investments in nuclear weapons, require substantial resources.

### Systemic and reputational risks
- Countries with weak AML/CFT regimes may be identified by the Financial Action Task Force (FATF) as vulnerable to illicit financial flows.
- Consequences of being viewed as vulnerable:
  - Long-term reputational damage to banks.
  - Costly demands for additional documentation by international business partners.
  - Loss of correspondent banking relationships.
  - Marginalization of fragile economies, threats to remittance channels and foreign direct investment, and driving financial flows underground.

### Financial technology implications
- Rapidly developing financial technology (mobile money transfers, distributed ledgers, virtual currencies) has legitimate uses but can also conceal or facilitate criminal activity.
- Nearly cost-free consumer payments and nearly untraceable ransom payments are highlighted as dual-use characteristics.
- FATF guidance: understand and address threats from changing technology without stifling financial innovation and inclusion.
- Objective: increase transparency—to know who is behind financial transactions, where, and for what purpose—without unduly increasing transaction costs or driving flows underground.

### Policy priorities and recommendations
- Understand and address AML/CFT threats stemming from changing technology, while preserving financial innovation and inclusion.
- Remove legal and practical barriers to international cooperation:
  - Safeguard and share financial intelligence.
  - Follow the trail of illicit funds wherever it leads.
- Strengthen effectiveness of AML/CFT efforts through consistent and persistent implementation beyond laws on the books.

### IMF role and country-level examples
- The IMF maintains an extensive AML/CFT program consistent with its mandate to preserve economic stability and financial integrity, including:
  - Active participation in international efforts led by FATF and supported by the United Nations and World Bank.
  - Provision of advice and know-how to over 100 members.
- Country examples:
  - Ukraine: Working with national authorities to prevent banks from being misused by corrupt officials; regulatory sanctions for AML/CFT violations are increasing and reporting of suspicious transactions is on the rise, yielding a significant number of corruption investigations and prosecutions of high-level public officials.
  - Libya: Helped craft a new AML/CFT law that criminalized terrorism financing and established the legal basis for the imposition of sanctions against recognized terrorists.
  - Caribbean: Convened international banks and local counterparts to foster bilateral cooperation to address information gaps and meet regulatory expectations; one global bank that had left the region has decided to reestablish ties with some local banks.

*Finance & Development | December 2018. Rhoda Weeks-Brown.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2018/december/imf-anti-money-laundering-and-economic-stability-straight.pdf_