The Global Scourge of Money Laundering

Money laundering, a criminal activity that disguises the illicit origin of funds, has become a pervasive global problem with far-reaching consequences. It fuels corruption, de-stabilises economies, and undermines the integrity of financial systems. This article explores the nature of money laundering, the efforts to combat it and the challenges that remain.

1. What is Money Laundering?

Money laundering involves a series of transactions designed to conceal the source of illegally obtained funds. These funds often originate from criminal activities such as drug trafficking, human trafficking, extortion and fraud. To launder money, criminals employ various techniques, including:

• Placement: Introducing dirty money into the financial system through legitimate businesses or transactions.
• Layering: Complex transactions to obscure the trail of funds, often involving multiple accounts and jurisdictions.
• Integration: Reintroducing the laundered funds into the legitimate economy as seemingly legitimate income.

Textbook down, oh and it’s big, really big…

2. What do we currently do about it?

Governments and international organisations have implemented numerous measures to combat money laundering. These include:

• Anti-Money Laundering (AML) Laws and Regulations: Countries have enacted strict AML laws requiring financial institutions to report suspicious activity and maintain records.
• Financial Intelligence Units (FIUs): Specialised agencies that collect, analyse, and disseminate financial intelligence related to money laundering and other crimes.
• International Cooperation: Collaborative efforts between countries to share information and coordinate enforcement actions.

3. Where did AML laws and regulations start?

The roots of Anti-Money Laundering (AML) can be traced back to the early 20th century, when illicit activities like bootlegging and organised crime began to thrive during Prohibition in the United States. These criminal enterprises required complex financial transactions to conceal their illegal profits, leading to the first attempts to regulate and track financial flows.

Here are some key historical milestones in the development of AML:

• 1934 Bank Deposit Insurance Act: This U.S. law introduced reporting requirements for large cash transactions, laying the groundwork for future AML regulations.
• 1970s and 1980s: The rise of drug cartels and other transnational criminal organisations increased the scale and sophistication of money laundering activities. This led to international efforts to address the problem.
• 1986 Money Laundering Control Act: The U.S. passed this legislation, which expanded reporting requirements and criminalised money laundering.???
• 1989 Financial Action Task Force (FATF): Established by the G7 countries, the FATF is an intergovernmental body that sets international standards for combating money laundering and terrorist financing.???
• 1990s and 2000s: The global financial crisis and increased terrorist activity further highlighted the need for strong AML measures. Countries around the world implemented stricter regulations and enhanced international cooperation.

3. How Are We Performing?

The estimated amount of money laundered globally exceeds 2% to 5% of the global GDP, or approximately $800 billion to $3 trillion per year.

In addition to this global compliance costs are estimated to be an additional ~$200 billion per year (Forrester Research True Cost of Compliance | LexisNexis Risk Solutions)

Best estimates put the percentage of proceeds of crime seized at 0.05% - 0.2% (UNOC or The Journal of Policy Design and Practice) of total proceeds, ~$1.6 Billion in the best case, an underwhelming return to say the least.

Money laundering remains a significant global problem. While progress has been made in certain areas, it’s just bloody hard, due to:

• Complex Networks: Criminal organisations have become increasingly sophisticated in their money laundering operations, making it difficult to track and disrupt their activities. We all want to feed our kids.
• Regulatory Gaps: Weak AML regimes in some jurisdictions can provide safe havens for money launderers. No one wants the long term costs, but no one wants the short term pain either.
• Technological Challenges: The rapid evolution of financial technology can create new opportunities for money laundering. Making it easier for customers, makes it easier for criminals.

4. So.. Is it worthwhile?

Despite the seemingly small return on investment, we believe the fight against money laundering is worthwhile. While it's a long-standing issue, our efforts are crucial in displacing criminal funds and mitigating their harmful impacts.

It's important to remember that this isn't a binary win-or-lose situation. By targeting money laundering, we're indirectly addressing the underlying criminal activities. Although we can't eliminate crime entirely, our efforts contribute to a safer and more stable financial environment.

The costs of combating money laundering are significant, and we need to keep everyone honest in making sure we are getting value for effort, however the potential benefits are also large, reducing corruption, increasing economic stability, and enhancing public safety more than balancing the ledger.