It’s the law 2.1 money laundering
Like other businesspeople, criminals and terrorists need financing. As such, money laundering is their lifeblood. According to the IMF, poorly supervised financial institutions channel $590 billion in illicit cash a year.
Money laundering is a process to transform pro- ceeds of crime into a usable form and disguise their illegal origins. The illegal profits may be derived from drug or arms trafficking, political corruption, prosti- tution, and so on. To clean or launder them, criminals move the proceeds through a variety of transactions and financial vehicles before investing them in finan- cial and related assets.
A recent case of money laundering was revealed when three financial institutions reported similar sus- picious transactions. It turned out that drug traffick- ers were using go-betweens who would deliver the cash proceeds of crime to professionals in travel agencies and import/export businesses.The professionals would place the funds in their bank accounts and, for a fee, transfer them on the basis of fake invoices to bank accounts abroad. An estimated $30 million was laun- dered in this way. However, the coordinated analysis of suspicious transaction reports led to prosecutions in two countries. This case displays many of the common features of money laundering: cash is intro- duced into the banking system by people far removed
from the predicate criminal activity; layering is
achieved by splitting the funds among many small, seemingly innocuous agents (known as “smurfs”); creating a misleading paper trail; and getting funds abroad as soon as possible.
Money laundering is global. If one country’s regulations are tightened, criminals will simply shift their laundering activities to a more hospitable environment. The IMF calls for more effective infor- mation sharing among authorities. Governments are urged “to create mechanisms to enable collection and sharing, including cross-border sharing of relevant financial information with appropriate supervisory and law enforcement activities.”
The USA, in response to terrorist acts, has passed the 2001 USA PATRIOT Act. The US Treasury Department has required banks, credit card com- panies, and financial institutions to adopt compre- hensive programs to combat money laundering. These firms may have to verify the identity of customers. Car dealers and travel agencies may be required to do the same.
Sources: Eduardo Aninat, Daniel Hardy, and R. Barry Johnston, “Combating Money Laundering and the Financing of Terrorism,” Finance & Development, September 2002,
44–7; “Manila Pushes to Adopt Money-Laundering Law,” Asian Wall Street Journal, June 26, 2001; “Car, Travel Trades Sought in Fight,” San José Mercury News, February
27, 2003; “Money Laundering and Terrorist Financing,”
IMF Survey, November 26, 2001, 359.
While
immigration
laws
often
restrict
labor movement
across
countries,
business
laws
tend
to welcome
capital
movement
to
employ
labor
in
a foreign
country.
When
wages
in
South
Korea
esca- lated,
Goldstar
Co.
minimized
the
labor
problem
by
importing
goods
from
its
overseas
facilities
back
into
South
Korea.
It
may
be
said
that,
in
the
pro-
duction
of
tradable
goods, unskilled
labor
markets
in
the
developed
countries
have
been
effectively
joined
with
international
markets.
As
in
the
case
of apparel
assembly
and
footwear
which
do
not
lend themselves
as
yet
to
technology-intensive
methods, a
large
share
of
output
has
already
been
transferred
to poor countries. Even in Thailand where labor was once plentiful and cheap but where labor cost has moved up, some Thai apparel firms are transferring parts of their production operations to Cambodia and Vietnam. Likewise, Taiwanese shoe companies are establishing new operations on the mainland.
Because workers cannot easily emigrate to another country which has better wages and bene- fits, wages have not been equalized across countries. Conceivably, computer workstations and communi- cations technology could lessen this problem by allowing a portion of the workforce to work for any company in any part of the world. As mentioned by