Straight Talk: Cleaning Up
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- Authors: Rhoda Weeks-Brown
- Published: December 3, 2018
Scope 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 can threaten economic stability and undermine the rule of law.
- Money laundering can create asset bubbles in markets like real estate.
- Example case: a Guinean minister accepted $8.5 million in bribes, falsely reported it as income, transferred it to the United States, and bought a luxury estate; the minister was convicted of money laundering.
- A public advisory reported 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.
- 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.
- Terrorism financing and proliferation are additional risks: terrorist groups need substantial funds to pay fighters, buy weapons, food, and fuel, and proliferation (for example, North Korea) has reportedly devoted substantial resources to developing nuclear weapons.
Threats to financial systems and economies
- Countries with weak anti–money laundering and combating the financing of terrorism (AML/CFT) regimes risk being called out by the Financial Action Task Force (FATF).
- Consequences of perceived vulnerability include:
- Long-term reputational damage for banks.
- Costly demands for additional documentation from international business partners.
- Loss of correspondent banking relationships.
- Marginalization of fragile economies, threats to remittance channels and foreign direct investment, and displacement of financial flows underground.
Technology and evolving risks
- Financial technology developments—mobile money transfers, distributed ledgers, and virtual currencies—have legitimate uses but can also facilitate concealment of criminal activity.
- The trade-off: increase transparency about who is behind financial transactions, where, and for what purpose, without unduly increasing transaction costs or driving financial flows underground.
Policy recommendations and priorities
- Understand and address threats from changing technology while avoiding undue constraints on financial innovation and inclusion.
- Increase transparency to know who is behind financial transactions, their origins, and purposes, without stifling legitimate activity.
- Remove legal and practical barriers to international cooperation to safeguard and share financial intelligence and follow the trail of illicit funds across borders.
- Strengthen the effectiveness of AML/CFT efforts through consistent and persistent implementation beyond laws on the books.
IMF role and country-level efforts
- The IMF maintains an extensive AML/CFT program to preserve economic stability and financial integrity, including participation in international efforts and provision of advice and know-how to over 100 of its members—and counting.
- 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 imposing 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.
Conclusion
- Almost every country has criminalized money laundering and terrorism financing and established a legal framework to freeze terrorist assets, but significant work remains due to legal and institutional loopholes and criminal innovation.
- The IMF is committed to helping members identify and close modern “dirty money laundromats.” The stakes have never been higher.
Rhoda Weeks-Brown, Straight Talk: Cleaning Up, F&D Magazine, December 2018.
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