Category: Money Laundering

White-Collar Crimes are nonviolent crimes that are committed by businessmen and government professionals who commit a criminal act for financial gain, but there is one white-collar crime that would be considered the most dangerous form. Money laundering is the most dangerous form of White-Collar crime there is.

When it comes to what would be considered the most dangerous white-collar crimes money laundering would be on top. Money laundering is quite common amongst businessmen, it can have an impact on businesses reputation and economic stability. Money laundering is a serious crime that needs to be taken serous, and how the investigation process is in these types of cases it takes time.

What is money laundering? Money laundering is a criminal act were large amounts of money are being illegally processed. This is where money is ‘dirty’, but the laundering process makes money look clean and legit, so when people see it, they will not question. There has been a variety of businesses that have been caught laundering money. For example, Wachovia bank being one of them. The Wachovia back was at one point in time considered to be one of the largest banks in the United States. The Wachovia bank is a popular case amongst the many other money laundering cases. Wachovia bank was involved with laundering money for the Mexican drug trade and was involved in a drug bust. The bank is now owned by the Wells Fargo bank, but because of the incident that happened with the Wachovia bank it could cause a negative impact on the Wells Fargo company and many other bank companies’ reputations as well. Reputation is especially important to any business, (especially banks) but it can be easily be ruined when potential clients or current clients start to lose trust with the business, they are customers to. Which will result in losing customers and eventually losing some business, which is never good. Weather good or bad, reputation will stay afloat.

Money laundering has also been shown to have had a negative effect on society. It has impacted society because “it fuels drug dealers, terrorists, illegal weapon dealers, and corrupts public officials” (McDowell. Novis, 2020). It allows criminals to evade economic institutes and possibly cause an impact in exchange and interest rates.

This type case has to be taken seriously, because not only are businessmen committing such an act, but two major groups that are a threat is drug cartels and terrorist groups, who have been known to money laundering as well. With the money that these groups are able to launder they are able to purchase weapons. These groups may be able to get not only weapons, but they are able to train and supply their new recruits. With these groups being able to supply the new recruits with weapons who says they are not training the newbies to become the next bombers to destroy human life.

When it comes to the investigation process of money laundering it can be time consuming because although investigators might have access to the records the tough part is tracking down the connections and piecing them together to make a complete view of the money laundering scheme. Money laundering involves three steps. First is placement, this is when the ‘dirty’ money is placed into the financial system. Second is layering, this is when money is being moved around though series of elaborate transactions. Then lastly interrogation, this wis where criminals can withdraw their money from legit business transaction and spend the money as they please. As explained in the book the “Fanatical Action Task Force (FATF) is an organization who has no enforcement authority but they have an international assembly of 34 countries and territories, as well as two regional organizations, deemed to have anti- money laundering controls” (Hess. Orthmann. Cho. 2015) in other words the FATF have developed policies to help combat the money laundering situation.

In conclusion, money laundering is at the top of the list of being the most dangerous white collar crime there is, because not only may it ruin a business’s reputation after what a previous businesses has done, have a negative affect on society, but it needs to be taken more seriously. Terrorist and the drug cartels are able to money launder and with all the money that they are able to get their hands on can be quite scary to think about. With these two groups being able to get their hands-on weapons really hits home because who says the individuals that they are recruiting, and training are not going to be the next mass bomber or shooter. Lasty, the investigation process seems like a lot, but as long as investigators knows how to be patent when read through hundreds maybe even thousands of transactions thoroughly and able to make connections with the documentations they will be able to complete the money laundering scheme.

Introduction

“Money is the fruit of evil, as often the root of it”, a famous quote by novelist Henry Fielding (“Henry Fielding Quotes,” n.d., par 1). This quote quantifies what this presentation will be about today: money laundering. Money laundering is the process of taking the income from criminal activities and making them appear legitimate. This is also known as making dirty money appear clean. A simple comparison I will be comparing a money launder and a magician: a money launderer appears to make money from drugs, fraud, or other illicit activities untraceable. Where a magician uses the illusion of making objects disappear on stage. Both the money launder and the magician require professional skills and techniques to make their illusions successful.

Money laundering is a well-known act by criminals. Launders primary goal is to take illegal funds and make them clean through the financial system as quickly as possible. I There are three steps in making money laundering successful they are: placement, layering, integration, it is important to know how each step impacts the money laundering process.

Today, I will be talking about how money laundering works. Members of the U.S. Congress passed the Money Laundering Act of 1986, which required banks to have stricter policies against money laundering (GovTrack.us, 2019).

Today, to help us understand money laundering, we will begin by first examining the first step of money laundering.

Placement is the maneuvering of cash from its illegal source, such as drug money, tax evasion, and embezzlement. On occasion the source of the cash can be easily camouflaged by certain techniques in which money launders will use to make the money laundering process successful. Money launder’s primary goal in placement is to place the cash funds from criminal earnings into the financial networks or systems, import/export businesses, and casinos.

According to a written testimony by Steven M. D’Antuono, Section Chief of the Criminal Investigation Division of the FBI there are several ways money launders will place illicit funds into the financial system.

1. Loan repayments- in the process of loan repayment, the funds that are paying the loan in full are from illegal sources. By money launders using this technique it hides the true nature of where the funds were originated from. (D’Antuono, 2018).
2. Gambling- in the process of using gambling as a form of placement, launders will buy large sums of gambling chips and ask for a monetary instrument like a check to hide where the funds were generated from. (D’Antuono, 2018).
3. Currency Smuggling- currency smuggling is the physical process of taking illegal funds from criminal activities and moving the funds across international borders. (D’Antuono, 2018).
4. Blending of funds- in the technique of blending funds, a money launder will ask a legitimate business to mingle the dirty money into the legitimate day to day transactions of the business to cover up the source of funds from the illegal activities of the money launders. (D’Antuono, 2018).

Now that we’ve examined what placement is, let’s move onto the second step of money laundering which is layering.

The purpose of this step is to make it challenging to distinguish and expose laundering activity. The purpose of this is to make the tracking of illegal cash sources difficult for law enforcement and government agencies to detect. Layering is considered the most critical step in the money laundering process.

There are several ways that criminals achieve success through the layering process of money laundering. Today I am going to discuss two main ways:

• Smurfing- Once funds are effectively stationed into the financial network or system, the proceeds can then be changed over into monetary instruments. Monetary instruments can include things like checks, reloadable cards, gift cards, official checks, and money orders. Criminals will hire “Smurfs” to conduct multiple cash transactions at separate banks, to keep all the transactions under the mandatory cash reporting threshold, which is $10,000.01. This process is known as smurfing (Frankl, 2017).
• Money Mules- a money mule is a person who acts on behalf of someone else’s direction to move illegal funds from criminal activities through the financial network or system. Money launder’s recruit mules to move money by electronic means through the financial network, examples can be establishing front accounts and then wiring funds out stating the purpose is to purchase an asset. A money mule can be a victim or employed by the money launders. Often money launders will target retirees, single mothers, or students via email to open the front accounts, in which they victim can keep a small portion of the funds. Unfortunately, money mules add layers to the complicated process of detecting money laundering activities. (Frankl, 2017).

We have discussed the first step of money laundering which is called placement, and the second most critical step layering, we will discuss the final step of money laundering integration.

Money laundering has a significant influence on the world’s economy and can impact political instability, social instability, and open trade market. (Frankl, 2017). Once integration, the transfer of previous laundered money into the economy has occurred, the laundered money is considered clean and often untraceable.

Criminals strive to make the laundered money appear to be normal business earrings, some of their methods are:

• Property Dealings- is the process of purchasing large assets bought with laundered money. For example, a real estate transaction is considered clean and marketable. Once the purchase is made it is considered clean and marketable, the asset then can be resold on the open market for profit (D’Antuono, 2018).
• Front Companies and False Loans- Front companies often prefer to be in foreign states or countries that provide corporate secrecy laws that will protect the fraudulent corporation or business. Criminals choose to establish fraudulent corporations or businesses to be a front to lending their own laundered money to themselves under the disguise of a legitimate transaction (D’Antuono, 2018).

Today, we have discussed what money laundering is and how it works.

Conclusion

Over the past few minutes I have explained that money launders primary goal is to take illegal funds and make them clean through the financial system. Throughout this presentation I explained how dirty money is placed into banks, this is known as placement. I discussed layering, and how launders make dirty money appear clean by the process of smurfing or using money mules. The goal of layering is to keep the transactions non reportable to the government and add layers the system to make it more complex. The final step of money laundering was discussed was integration. Money launders will buy real estate or big-ticket items that can be sold on the open market and integrated into the economy as clean. A famous quote by author Agatha Christie that is relatable to today’s presentation is” Where large sums of money are concerned, it is advisable to trust nobody” (‘Agatha Christie Quotes’ n.d., par 1).

Abstract

The huge amount of Bank operations performed daily and extremely hard for Financial Institutions to spot malicious Money Laundering related operations. This really impact and generates the fear while performing financial activity. There are already some predefined heuristics are performed by Financial Institutions but still manual intervention required to identify the malicious activity.

This motive the needs for intelligent system (Anti Money Laundering) to learned and help Financial Institutions to fight money laundering in a diversity way such as intelligent filtering of bank operations, intelligent analysis of suspicious activity trained and learned new objectives and rules that restricts, stop and identify the suspicious activity.

Introduction

Money laundering is the crime which is increasing day by day in the entire world. US$500 Billion and US$1 Trillion amount being laundered in entire world. “Now we know the Money Laundering is very common, important and serious problem not for bank only but for all Financial institutions even government regulatory authority because it’s bad impact on global Economy of the country”.

There are three stages of money laundering placement, layering, and integration. Placement is the process in which illegal money or dirty money enters into the financial system. Then the money is transferred into offshore / onshore accounts or fake accounts. Finally Integration is the process purchase of luxury assets, financial investments.

Objective

Pakistan is facing economical crises which increasing day by day and one of the major reasons are Money Laundering due to which Pakistan is included in the “Grey List” issued by the FATF in June 2018.

International banks can pull their business out of Pakistan as a result of the inclusion in the ‘grey list’. There are different steps and efforts are taken by financial institutions to stop malicious transactions using Anti Money Laundering rule based techniques.

Past Work Review

Importance is given to this critical issue in the past and different ways was implemented from 2005 to 2017 to stop this malicious activity with the time of different publications. In 1995 detection of money laundering was described by Senator (Senator et al. 1995) which was rule-based. System matches these predefined rules and then would be further investigated by analyst. Further Rule Based was encoded using Decision Tree by Wang and Yang in the year 2007. Rule Based approach depend on domain knowledge and sometime generate false positive alerts with new operations later system updated with this issue by approach supervised and un-supervised by Kingdon, this process is based on “Know Your System”. Zhu 2006 Le-Khac, Markos, and Kechadi 2010; Zengan 2009; Raza and Haider 2011 improved the system using distance based clustering. Further different systems apply supervised learning to identify suspicious behaviour(Lv, Ji, and Zhang 2008; Heidarinia and Harounabadi 2014).

Conventional Way to Fight

Over decades Financial institution are relying on Rule Base Transaction Monitoring system which generate lot of false positive alerts and create lot of backlog for compliance department to review these alert transactions.

Typically, monitoring starts with a rule-based system which scans customer transactions for red flags consistent with money laundering. When a matching pattern is observed, an alert is generated and the case is referred to the bank’s internal investigation team for manual review.

Efficient Way to Fight

Using Machine Learning techniques we can complement these rule based transactions monitoring systems by substantially reducing the number of false positives alert.

Machine Learning does not perform humanistic programmed cognitive tasks. Rather, machine learning algorithms learn novel new relationships from data. Uncovering hidden patterns in money movement makes machine learning for AML a very attractive enhancement to existing AML operations.

“Clustering is used to group the account which have the suspicious transactions”.

“Techniques like Neural Network are used to detect pattern of money laundering”.

“Social Network Analysis or Link Analysis is used to find the communities involved in the money laundering”.

Discussion

In order for this to work, the modeling dataset containing historical alerts and their outcomes (SAR filed or not) must be carefully constructed from mostly the same data that is made available to reviewers.

An analyst, with little or no expertise in machine learning, can then feed the modeling dataset into the automated machine learning platform, which will perform the key steps of the model development process for them automatically.

It will determine the best ways to pre-process the data, structure it for validation and final holdout assessment, distill out the relevant features related to money laundering according to the historical data, and identify the best machine learning algorithms to apply based on this dataset. This is only the beginning of the story of how automated machine learning can be used to enhance an AML compliance program. Dataset: https://www.kaggle.com/ntnu-testimon/paysim1

Conclusion

As of 2017 Banks globally have paid $321 billion in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing.

With growing amounts of data, reliance on online transactions, and the increase of digital-currency adoption, banks must address money laundering to not only stop it, but to also avoid fines. Many banks have started implementing business process automation and see Artificial Intelligence (AI )and particularly Machine Learning (ML ) as the next step in the journey to greater efficiency and effectiveness.

Introduction

The economic problems have taken a global dimension after the globalization. It has also increased the supply chain of products across the borders. Cross-border transaction of black money and money laundering are serious economic crimes, and it causes substantial impacts on the economic development of the world. The Illicit trade is the fountainhead of these problems, and estimated total cost of illicit trade is $ 1.77 Trillion in 2015 which is about 10 percent of global trade in merchandise (World Economic Forum 2015). Both crimes associated with corruption and the combat against these problems demands both local and international actions. United Nations Office on Drugs and Crimes (UNODC 2019) reveals that money laundering accounts for 2-5 percent of global GDP (Gross Domestic Product), that is the lowest estimation. UNODC is an international organization fighting against international crimes, and it depends on the voluntary contribution of governments for its 90 percent of financial needs (UNODC 2019). UNODC (2019) provides technical assistance, model legislation and needed instruments for the nations. This essay analyses the global dimension of money laundering and solutions in detail.

Money laundering: A globalized problem

I argue that globalization has enabled the illicit outflow of money and money laundering because diminished state control had made money laundering as a global problem.

After the end of the cold war, capitalism accessed into new territories and unprecedently established more economic integrations in the global scale (Gilman, Goldhammer & Weber 2011, p.7). Privatization programs in the post-soviet territories facilitated quick and painless mobility of state assets into the hand of private entrepreneurs, and this was a major agenda of US-centric capitalist order (Gilman, Goldhammer & Weber 2011, p.7). The deviant form of globalization that is parallel to mainstream globalization possesses an attribute that changes the problems of governing a global economy (Gilman, Goldhammer & Weber 2011, p.7). Deviant globalization has resulted in a huge amount of black money through illegal businesses such as sex trade, drug dealing, terrorism, illegal arms supply and the market for human organs.

The causes of black money are excess government intervention in the economy (via licensing and regulations), funding of political parties, a higher rate of taxes and inefficient enforcement of tax laws (Sarkar 2010, p.128-129). Vice versa, the privatization also brings new scopes to earn black money through the bribes of bureaucrats and politicians as well (Sarkar 2010, p. 129). However, tax law enforcement becomes difficult in developing countries due to its sunshine laws.

As a result, huge amounts of black money are formed in the focal points, and the money laundering also becomes a serious problem at the global level. Money laundering is the processing of profits gained by criminal activities through the financial system to disguise their origins and to make them appear clean money (Buchanan 2004, p.117). Money laundering offers chances to make the black money into clean forms and again used for their prescribed purpose in the legal business. Criminals use the advantages of globalization by transferring funds across the borders in a quick way (UNODC 2019). Money laundering process creates burdens on the world economy by crippling the operations of national economies (Buchanan 2004, p.116). In addition, Financial markets become corrupted, risky and unstable, and finally slow down the growth rate of the economy (Buchanan 2004, p.116). Therefore, money laundering takes global dimension after the globalization.

The governments have moved toward the openness of trade, finance, and investment. These changes are the prima facie evidence of a new global logic of capitalism (Weiss 2000, p.9). In this context, states become apparently powerless to make real changes in the public policies, and states have to adapt similar policies of a global trend (Weiss 2000, p.9). In addition, Weiss (2000, p.13) articulates that globalization and state power are not a negative sum game where the growth of the former can only happen at the expense of the later.

It is appropriate to examine the World Trade Organization (WTO) guidelines and research in the capital flows and financial service markets. WTO consists of 164 country members around the world since 29th of July 2016 (WTO 2019). The General Agreement of Trade and Services (GATS) is the multilateral rules and regulations governing international trade in services and, it came into effect in 1995 (WTO 2019). GATS agreement demands only limited liberalization of capital flow in terms of financial services trade liberalization (Kono & Schuknecht 1998, p.4). However, restrictions enforced on capital flows in the forms of control of capital and exchange greatly decline the freedom of choice to obtain services from foreign financial institutions, and give negative incentives to the entry (Kono & Schuknecht 1998, p.5). Therefore, practically speaking, liberalization of capital accounts and financial services are complementary in nature in the market-based economy (Kono & Schuknecht 1998, p.5).

Although Kono & Schuknecht (1998, p.32) have articulated that nations having strong macroeconomic policies, regulations and stable financial system are highly deserved to adapt very broad capital and financial market liberalization, it is indispensable to allow some sort of strong regulatory measures on capital and foreign direct investment flows to achieve full benefits rather than adapting a laissez-faire policy. In this context, while neo liberalized policies are enforced in developing countries having lack of under-developed financial system and governance, it substantially encourages a parallel economy and black market.

For brevity, illicit flow of capital and money laundering are indeed a global problem by nature, and its flow across the border is a menace to the world’s economic development.

Failed Promise: Does neo-liberalization enhance money laundering?

The economic perspective of globalization prescribes neo-liberal policies for development. Presently, the neo-liberal policy is the only available way to allocate resource efficiently with more privatization and foreign direct investment (FDI) (Friedman 2000, p.106). Nevertheless, the countries which fervently adapted liberalization policies as a remedy for past miseries show different experiences. India introduced liberalization in 1991 in the name of economic reforms. Evidently, the statistically significant correlation found between the sizable volume of illicit capital flow and deteriorating income distribution after the economic reform (Kar 2011, p.51). Particularly since 2000, this picture sounds more prominent. Kar (2011) mentions:

Above empirical study vividly proves that economic policies embraced during the globalization facilitate outward flow of black money, which is the source of global money laundering.

Money laundering in a legalized form: from black to white

I argue that neo-liberalization policies encourage money laundering practices because the double tax evasion treaties and tax havens provide the chances to legalize money laundering in the guise of deregulation of Foreign Direct Investment (FDI).

Illicit financial flow (IFF) is the illegal movement of capital or money across the border, and the IFF afflicts the tax revenue of developing countries and undermines the efforts to achieve the sustainable development goals (Global Financial Integrity [GFI] 2019). GFI (2019) estimated that on average, 20 percent of the trade of developing countries with developed countries falls under the IFF.

The actual purpose of the transformation of black money is to convert that money into the version of legal usability (Schneider, & Windischbauer 2008, p.6). The illegally originated money is used to inject into the financial system and converted into visible assets and investments such as tourism projects, business and industrial enterprises (Schneider, & Windischbauer 2008, p.7). Newly developed technologies such as smart cards, online banking, and cyber money facilitate a very easiest form of money transaction, and it also encourages money laundering without territorial and legal barriers. In this case, customer identification is extremely difficult when money laundering takes place through the internet (Schneider, & Windischbauer 2008, p.13-14).

In this context, we have to examine the role of tax havens and double tax avoidance agreements which facilitates the easiest and legalized form of money laundering. Tax havens are the secrecy jurisdictions found around the world, and anyone can deposit their cash in a very confidential manner without any scrutiny (GFI 2019). About seventy or above tax havens serve as just booking centres of the financial centres of London, Tokyo and, New York, etc. (Palan 2002, p.151). A rough estimation reveals that about 50 percent of the world’ money stock resides in these tax havens or pass through them (Cassard 1994; Kochen 1991 cited in Palan 2002, p.151). Tax havens are not similar in their mode of taxation, but they have possessed some similar attributes such as effective bank secrecy laws, minimal or no corporate taxation, few or no restrictions or regulations on financial transactions and the protection of the secrecy of transactions (Palan 2002, p.155).

Evidently, these tax havens can be utilized to deposit the money, which was originated and safely transferred from the national borders. The strict secrecy laws of tax havens thwart the information about its customers to required countries who investigates the black money’s origin.

In the studies of Slemrod & Wilson (2009, p.1261), they state that partial or full elimination of tax haves shall improve the welfare of non-haven countries. As substantial non-taxed money is deposited in the tax havens, it results in inequality among the states. Eliminating tax havens creates two desirable effects in non-haven countries. Each countries’ residents obtain benefits from resources that were used for income shifting and tax enforcement activities, and as the marginal cost of public goods declines, countries could increase the public good’s provision to their citizens (Slemrod & Wilson 2009, p.1265).

Conversely, Hong & Smart (2010, p.17) suggest a different view of the tax havens. The international tax planning opportunities allows countries to keep their tax rate at the highest level and reduce the outward flow of capital. In addition, they articulate that an increase in the international tax avoidance increases both statutory and effective tax on capital and if the initial tax rate is small, it will enhance the welfare of citizens of high- tax paid countries (Hong & Smart 2010, p.17). Notwithstanding, tax havens provide opportunities to investors not to report it to the own countries’ tax authorities, and to avoid paying taxes in a legal way (GFI 2019). Evidently, this situation offers the best chances to protect the black money in these havens and to use them as new investments in another country without criminalizing the investors.

Tax Double Avoidance Agreement: No tax Burden Anywhere

Double tax avoidance (DTA) agreements offer a golden opportunity to the money laundering in the guise of Foreign tax Direct Investment (FDI). Many countries have rectified double tax avoidance agreements with tax havens. Therefore, while money entered into the tax havens and move outward to the country where DTA is found, so that money obtains tax concession in two points.

Economically, some arguments favour of DTA. Developing countries having more DTA agreements with capital-exporting countries, especially the USA obtain more FDI inflows and a higher share of FDI (Neumayer 2007, p.20). However, Neumayer (2007, p.21) further adds that the DTA agreements will be beneficial to only middle-income developing countries. Another study shows that the firms enjoy the privilege of reduced cost via the tax haven operation, and those firms’ activities increases in non-tax haven territories due to its cost-effectiveness (Desai, Foley & Hines 2006, p.7).

Nevertheless, offshore financial centres (Tax havens) consists of numerous shell companies which conduct no business activities, and these financial centres’ secrecy laws prevent the investigation of such registered shell companies for money laundering (Buchanan 2004, p.118-119). If any developing countries sign the DTA treaty with these offshore financial centres, the money laundering could take place through the shell companies from tax havens to developing countries. These transactions facilitate a legalized form of money laundering, which assists to wash the black money originated from developing countries to the same territory in the form of investment.

Tax Justice Network (TJN) has developed the Financial Secrecy Index (FSI), and this index ranks jurisdictions based on their secret and non-transparent financial activities (TJN 2018). This index gives an understanding of the financial secrecy, flow of capital, and illicit financial flow (TJN 2018). The world’s most powerful countries, OECD members and their satellites are the major recipients of illicit flow through their offshore financial centres, and African countries’ wealth has been stored in these centres by elites (TJN 2018).

Above mentioned examples clearly exhibit the enormous dimension of the problem. For brevity, globalization enhances the capital flow across the world, but it also creates the chances to carry out money laundering in a legalized form through the tax havens, shell companies, and DTA treaties. Further, developing countries obtain this illicit money from offshore financial centres under the scheme of FDI with tax concessions.

Globally organized plunder: Do states require a global solution through global governance to tackle money laundering?

Finally, I argue that money laundering requires global governance to be solved in an effective way, but strong regulations and good governance are the prerequisites at the domestic level.

From the above details, we can postulate that money laundering is a global problem and a global solution is inevitable in the globalized era to tackle this issue. The global policy on anti-money laundering in the globalized world has some unique attributes.

Instead of relying on intergovernmental relationships, the global governance encompasses all comprehensive actors, including local and international NGOs, citizens’ movements, multinational cooperation, nation-states and global capital market (Weiss 2000, p.810). The policy of anti-money laundering also requires strong cooperation between financial professionals and law enforcement agencies across the world (Favarel-Garrigues, Godefroy & Lascoumes 2011, p.180). This cooperation results in tension between the state’s sovereignty and neoliberal governmentality (Favarel-Garrigues, Godefroy & Lascoumes 2011, p.180). This is the main obstacle to achieve global cooperation in anti-money laundering strategy. Effective global financial regulation assists the supply of huge capital stock to the prosperity of humanity, and of marginalized groups of the world (Scholte 2011, p.110). But weak legitimacy is the common scenario of contemporary global governance (Z ̈urn 2005; Buchanan & Keohane 2006 cited in Scholte 2011, p.111).

Financial Action Task Force (FATF) has established international standards to fight against money laundering. The article 37 of the FATF recommendations emphasizes to provide strong mutual legal assistance between countries to combat money laundering (FATF 2018, p.25). But most recommendations insist on strong financial regulations through the competent authorities at the domestic level along with the sound international corporation. Despite the culture of confidentiality of banks in tax havens, countries have achieved some outcome in the money laundering problem. In 2002 Organization for Economic Corporation and Development [OECD] released an agreement, and in 2015, the OECD committee on fiscal affairs accredited to establish a protocol to form Tax Information Exchange Agreements (TIEA) among the nations through bilateral agreements to facilitate the exchange of information of persons who are suspected to involve in tax evasion practices (OECD 2019). Importantly, numerous offshore financial centres such as British Virgin Island, Bahamas, Cayman Island, Switzerland, etc. have signed bilateral agreements with OECD countries (OECD 2019).

Notwithstanding, the efficacy of this agreement is questionable. The tax haven only corporate with countries for financial investigation when their submitted evidence is wrong (Addison 2009 cited in Sawyer 2011, p.44). Most TIEAs do not overrule the provisions of confidentiality of law of tax havens, and these TIEAs do not much underpin to curtail international tax cap (Avi-Yonah 2007 cited in Sawyer 2011, p.44). This situation degrades the overall purpose of TIEAs. The global governance on anti-money laundering reflects some empirical evidence to the realistic views. International law’s measures which prohibit anonymous participation in the global financial networks are ineffective, especially in G7 countries than tax havens (Sharman 2011. P.36). FATF publishes the blacklist of high-risked and monitored jurisdictions having discrepancies in anti-money laundering practices (FATF 2019). Interestingly, the countries having higher financial secrecy index such as Switzerland, Hong Kong, Singapore, Panama, etc. (TJN 2018) have been carefully excluded from the FATF’s list. Democratic governance is one of the main criteria for the legitimacy of global institutions, and multilateral institutions should make them more difficult for special interest’s operations (Keohane 2011, p.103). But, TATF’s actions exhibit realistic approaches of powerful countries in the global governance of the financial system. As Sharman (2011, p.1) mentioned, the powerful states impose international standards on other weaker states while they do not choose it to implement themselves.

Some improvements have been achieved in the global financial corporation. Recently, the Swiss government has signed with India to share the banking information of Indian depositors (Rupawat 2019). But, the central government of India refused to share the obtained information about black money under the Right to Information Act in the name of confidentiality of account holders (Scroll.in 2019). It is evident that countries should strengthen their national regulatory measures, and should develop a system of close collaboration for the information exchange (Reinicke 1998, p.158). Otherwise, money launders may use this disjuncture found between the internal legal system and nonterritorial characteristics of global financial flow (Reinicke 1998, p.158). The Indian case is an example of the deficit of transparent governance of developing countries.

Developing countries have to adapt sound macroeconomic policies and good governance through building up strong institutions and rules of law to reduce illicit financial flow (Kar 2011, p.54). It refers to the increasing power of the state to manage the money laundering problems, on the contrary to Friedman’s prescriptions.

Due to its global nature, money laundering requires a global solution in long-run. But, at the present context, global governance of money laundering is intricate to implement since inefficiency of TIEA and less compliance of powerful states to international measures. Considering the developing countries, above Indian experience shows that transparency, good governance, and strong regulations are prerequisites to combat money laundering in an effective way since black money is formed within the territories.

Conclusion

In conclusion, the money laundering shows a global dimension after the pro-globalization policies such as neo-liberalism and reducing restriction on capital flow and financial services. The globalization also encourages parallel economy and the formation of black money in developing countries. The tax haves are the secret financial centres, and they allow the black money through their jurisdictions with the least tax and double tax avoidance agreements offer chances of money laundering in the legalized form of foreign direct investment. The money laundering is a global problem, and it requires a global solution, but the global governance of the financial system is not much effective because of the realistic approach of powerful states in intergovernmental organizations. Although some notable improvements have been observed in anti-money laundering strategies through global governance, transparency, good governance, and strong regulations are the prerequisites in the developing countries to tackle money laundering along with global cooperation.

Introduction

The case presented depicts a money laundering case. Money laundering is the illicit practice of covering up the source of illegally acquired money bytransferring it through a complex sequence of banking transactions or business dealings. In an ambiguous and indirect way, the general scheme of this method returns the ‘clean’ cash to the launderer. Former Rizal Commercial Banking Corporation (RCBC) branch manager Maia Santos- Deguito is found guilty by the Makati Regional Trial Court on January 10 for money laundering. However, the RTC’s decision was appealed and asked for a motion for reconsideration by Deguito as she explains that there is no act of money laundering that occurs in her case. However, the motion for reconsideration was not granted.

Issues Underlying the Problem

This case primarily deals on the issues of money laundering committed by the former RCBC branch manager, Maia Deguito. The case has presented several facts with regards to the problem. The court found her guilty of laundering the $81 million from the Bangladesh Bank in the year 2016. However, she appealed the decision saying that there is no act of money laundering thus, she should not be punished for an act she did not do. She states that the judge only misinterpreted the definition of money laundering and at the same time, misunderstood the evidences found against her. Deguito asserted that no monetary instruments were used in her dealings and even no transactions of the suspected laundered transactions happened in the bank accounts. Deguito was also suspected for facilitating deposits and withdrawals of laundered money even though it exceeded the amount to be considered a covered transaction although she claimed that this does not directly mean to be from unlawful activities. Furthermore, she denied the evidences that she is aware about the illegal source of money. Nonetheless, Makati Regional Trial Court has accepted the testimony of the one who investigated the case and did not grant the appeal of Deguito to reconsider the decision of being guilty from the money laundering case.

Alternative Solutions to the Problem

There can be many ways to possibly fight against money laundering. Establishment of a more formal and stricter Anti- Money Laundering Policy can be done. Moreover, everyone must have sufficient knowledge about the different money laundering schemes that may happen. Through our knowledge, we tend to ask a lot of questions that may gear towards the truth and avoid illegal acts. One must also be mindful, watchful and use initiatives and common sense in such a way that no matter how small a certain suspected act of laundering, it should be investigated earlier to avoid it from getting complicated.

Conclusion

From the presented solution above, I can consider the most effective way to solve the problem is being watchful and the use of common sense. Everything will start from ourselves. People must have a mindset of being knowledgeable and curious at all times as this can be the foundation towards searching for the truth leading to eradicate illegal acts happening in our society today. Once we are curious, we tend to have a lot of questions and ensure that all of these are answered. In this way, we are able to investigate deeper and fuller and may report to the authority for proper actions such as the Anti- Money Laundering Council.

Recommendation

In order to reduce the cases of money- laundering in the Philippines, knowledge and education is one of its keys. Through educating others, people can gain sufficient information that lead to the avoidance of the occurrence of money laundering among them. Change starts with a small step. And one of the small steps that needs to be undertaken is obtaining knowledge on money laundering, its possible methods or schemes, probable solution and the laws that pertains to it. Through this, the humanity might achieve a world where money laundering cases will not continue to increase, be reduced and be avoided.

INTRODUCTION

The case talked about the money laundering case of Maia Santos-Deguito a former Rizal Commercial Banking Corp. (RCBC) branch manager and her appeal to her sentence of a maximum of seven years in prison with a fine of $109.5 million. Deguito was accused of laundering money over the 2016 Bangladesh bank heist (Buan, 2019). The appeal stated that the court gave the wrong penalty because of the misinterpretation of what constitutes money laundering under the Anti-Money Laundering Act.

ISSUES UNDERLYING THE PROBLEM

There are two issues, in this case, the first being the Anti-Money Laundering Act being open to interpretation, and the second is letting the act of laundering money happen because of the lack of standardized systems. The first issue of AMLA being open to interpretation is not an issue that this case focused on, essentially because of all laws having loopholes and every accused will find a reason to go against it and interpret it for their own gain. The second issue is the reason why the case existed in the first place. Upon researching the case, the opening of several dollar accounts by Deguito as testified by Echaluse was done by the accused without knowledge of the bank’s higher-ups. To be able to blatantly process money by Chinese hackers from the government of Bangladesh through the Federal Reserve bank of New York which the money is then withdrawn from dummy accounts to be gambled in casinos in the Philippines before being tracked by authorities (CNN, 2019) is a crime done because of lack of proper tracing in order to find abnormal patterns.

ALTERNATIVE SOLUTIONS TO THE PROBLEM

The solution to combat money laundering in extreme and small cases is to invest in technology; here are the following solutions that can be done by the banks and authorities:

Communication with the Authorities and the bank.

The fastest way to stop the withdrawal of the money being laundered so that the bank and authorities can freeze it is communication. The authorities must have a system that constantly asks for updates from the banks whenever there is weird or huge money being processed. This system must be automated and constantly updated by both parties.

Pattern Checker

This solution focuses on analyzing the movements of money and accounts. The pattern checker would look into the abnormality of movement in the accounts of the clients and the person in the bank involved with the client. Whenever there would be an abnormality, the pattern checker would notify the authorities and the bank.

Standardized System

This solution aims to find one system to be used in recording accounts. In this way, the bank can review patterns, and trace withdrawals, and the creation of dummy accounts quicker and evidence can easily be gathered to hold those accountable properly and recover the money before it will be lost.

CONCLUSION

The best solution to trace and stop money laundering as much as possible in big and small institutions is to standardize systems and have a backup in order to trace abnormalities in the patterns of the movement of money.

RECOMMENDATION

In order to have a standardized system, the first thing a company must do is choose the means of standardization (e.g. internet, excel, spreadsheets, developed application for tracking, etc.), the second step is to have seminars for the employees to understand the process and usage of the chosen means of standardization, the third step is to do a trial test while doing the existing method of recording to figure out what works better and if it is effective, the fourth step is to implement the system and coordinate with authorities for big businesses or cooperate with fellow small businesses, and the last step is to constantly do a maintenance check quarterly in order to gauge the effectivity and improve the processes that need to be improved.

REFERENCES

1. Buan, L. (2019, January 10). Rappler. Retrieved from https://www.rappler.com/
2. CNN. (2019, January 10). CNN Philippines. Retrieved from https://cnnphilippines.com/
3. Thomson Reuters. (n.d.). Thomson Reuters. Retrieved from legal.thomsonreuters.com

White-Collar Crimes are nonviolent crimes that are committed by businessmen and government professionals who commit a criminal act for financial gain, but there is one white-collar crime that would be considered the most dangerous form. Money laundering is the most dangerous form of White-Collar crime there is.

When it comes to what would be considered the most dangerous white-collar crimes money laundering would be on top. Money laundering is quite common amongst businessmen, it can have an impact on businesses reputation and economic stability. Money laundering is a serious crime that needs to be taken serous, and how the investigation process is in these types of cases it takes time.

What is money laundering? Money laundering is a criminal act were large amounts of money are being illegally processed. This is where money is ‘dirty’, but the laundering process makes money look clean and legit, so when people see it, they will not question. There has been a variety of businesses that have been caught laundering money. For example, Wachovia bank being one of them. The Wachovia back was at one point in time considered to be one of the largest banks in the United States. The Wachovia bank is a popular case amongst the many other money laundering cases. Wachovia bank was involved with laundering money for the Mexican drug trade and was involved in a drug bust. The bank is now owned by the Wells Fargo bank, but because of the incident that happened with the Wachovia bank it could cause a negative impact on the Wells Fargo company and many other bank companies’ reputations as well. Reputation is especially important to any business, (especially banks) but it can be easily be ruined when potential clients or current clients start to lose trust with the business, they are customers to. Which will result in losing customers and eventually losing some business, which is never good. Weather good or bad, reputation will stay afloat.

Money laundering has also been shown to have had a negative effect on society. It has impacted society because “it fuels drug dealers, terrorists, illegal weapon dealers, and corrupts public officials” (McDowell. Novis, 2020). It allows criminals to evade economic institutes and possibly cause an impact in exchange and interest rates.

This type case has to be taken seriously, because not only are businessmen committing such an act, but two major groups that are a threat is drug cartels and terrorist groups, who have been known to money laundering as well. With the money that these groups are able to launder they are able to purchase weapons. These groups may be able to get not only weapons, but they are able to train and supply their new recruits. With these groups being able to supply the new recruits with weapons who says they are not training the newbies to become the next bombers to destroy human life.

When it comes to the investigation process of money laundering it can be time consuming because although investigators might have access to the records the tough part is tracking down the connections and piecing them together to make a complete view of the money laundering scheme. Money laundering involves three steps. First is placement, this is when the ‘dirty’ money is placed into the financial system. Second is layering, this is when money is being moved around though series of elaborate transactions. Then lastly interrogation, this wis where criminals can withdraw their money from legit business transaction and spend the money as they please. As explained in the book the “Fanatical Action Task Force (FATF) is an organization who has no enforcement authority but they have an international assembly of 34 countries and territories, as well as two regional organizations, deemed to have anti- money laundering controls” (Hess. Orthmann. Cho. 2015) in other words the FATF have developed policies to help combat the money laundering situation.

In conclusion, money laundering is at the top of the list of being the most dangerous white collar crime there is, because not only may it ruin a business’s reputation after what a previous businesses has done, have a negative affect on society, but it needs to be taken more seriously. Terrorist and the drug cartels are able to money launder and with all the money that they are able to get their hands on can be quite scary to think about. With these two groups being able to get their hands-on weapons really hits home because who says the individuals that they are recruiting, and training are not going to be the next mass bomber or shooter. Lasty, the investigation process seems like a lot, but as long as investigators knows how to be patent when read through hundreds maybe even thousands of transactions thoroughly and able to make connections with the documentations they will be able to complete the money laundering scheme.

Introduction

“Money is the fruit of evil, as often the root of it”, a famous quote by novelist Henry Fielding (“Henry Fielding Quotes,” n.d., par 1). This quote quantifies what this presentation will be about today: money laundering. Money laundering is the process of taking the income from criminal activities and making them appear legitimate. This is also known as making dirty money appear clean. A simple comparison I will be comparing a money launder and a magician: a money launderer appears to make money from drugs, fraud, or other illicit activities untraceable. Where a magician uses the illusion of making objects disappear on stage. Both the money launder and the magician require professional skills and techniques to make their illusions successful.

Money laundering is a well-known act by criminals. Launders primary goal is to take illegal funds and make them clean through the financial system as quickly as possible. I There are three steps in making money laundering successful they are: placement, layering, integration, it is important to know how each step impacts the money laundering process.

Today, I will be talking about how money laundering works. Members of the U.S. Congress passed the Money Laundering Act of 1986, which required banks to have stricter policies against money laundering (GovTrack.us, 2019).

Today, to help us understand money laundering, we will begin by first examining the first step of money laundering.

Placement is the maneuvering of cash from its illegal source, such as drug money, tax evasion, and embezzlement. On occasion the source of the cash can be easily camouflaged by certain techniques in which money launders will use to make the money laundering process successful. Money launder’s primary goal in placement is to place the cash funds from criminal earnings into the financial networks or systems, import/export businesses, and casinos.

According to a written testimony by Steven M. D’Antuono, Section Chief of the Criminal Investigation Division of the FBI there are several ways money launders will place illicit funds into the financial system.

1. Loan repayments- in the process of loan repayment, the funds that are paying the loan in full are from illegal sources. By money launders using this technique it hides the true nature of where the funds were originated from. (D’Antuono, 2018).
2. Gambling- in the process of using gambling as a form of placement, launders will buy large sums of gambling chips and ask for a monetary instrument like a check to hide where the funds were generated from. (D’Antuono, 2018).
3. Currency Smuggling- currency smuggling is the physical process of taking illegal funds from criminal activities and moving the funds across international borders. (D’Antuono, 2018).
4. Blending of funds- in the technique of blending funds, a money launder will ask a legitimate business to mingle the dirty money into the legitimate day to day transactions of the business to cover up the source of funds from the illegal activities of the money launders. (D’Antuono, 2018).

Now that we’ve examined what placement is, let’s move onto the second step of money laundering which is layering.

The purpose of this step is to make it challenging to distinguish and expose laundering activity. The purpose of this is to make the tracking of illegal cash sources difficult for law enforcement and government agencies to detect. Layering is considered the most critical step in the money laundering process.

There are several ways that criminals achieve success through the layering process of money laundering. Today I am going to discuss two main ways:

• Smurfing- Once funds are effectively stationed into the financial network or system, the proceeds can then be changed over into monetary instruments. Monetary instruments can include things like checks, reloadable cards, gift cards, official checks, and money orders. Criminals will hire “Smurfs” to conduct multiple cash transactions at separate banks, to keep all the transactions under the mandatory cash reporting threshold, which is $10,000.01. This process is known as smurfing (Frankl, 2017).
• Money Mules- a money mule is a person who acts on behalf of someone else’s direction to move illegal funds from criminal activities through the financial network or system. Money launder’s recruit mules to move money by electronic means through the financial network, examples can be establishing front accounts and then wiring funds out stating the purpose is to purchase an asset. A money mule can be a victim or employed by the money launders. Often money launders will target retirees, single mothers, or students via email to open the front accounts, in which they victim can keep a small portion of the funds. Unfortunately, money mules add layers to the complicated process of detecting money laundering activities. (Frankl, 2017).

We have discussed the first step of money laundering which is called placement, and the second most critical step layering, we will discuss the final step of money laundering integration.

Money laundering has a significant influence on the world’s economy and can impact political instability, social instability, and open trade market. (Frankl, 2017). Once integration, the transfer of previous laundered money into the economy has occurred, the laundered money is considered clean and often untraceable.

Criminals strive to make the laundered money appear to be normal business earrings, some of their methods are:

• Property Dealings- is the process of purchasing large assets bought with laundered money. For example, a real estate transaction is considered clean and marketable. Once the purchase is made it is considered clean and marketable, the asset then can be resold on the open market for profit (D’Antuono, 2018).
• Front Companies and False Loans- Front companies often prefer to be in foreign states or countries that provide corporate secrecy laws that will protect the fraudulent corporation or business. Criminals choose to establish fraudulent corporations or businesses to be a front to lending their own laundered money to themselves under the disguise of a legitimate transaction (D’Antuono, 2018).

Today, we have discussed what money laundering is and how it works.

Conclusion

Over the past few minutes I have explained that money launders primary goal is to take illegal funds and make them clean through the financial system. Throughout this presentation I explained how dirty money is placed into banks, this is known as placement. I discussed layering, and how launders make dirty money appear clean by the process of smurfing or using money mules. The goal of layering is to keep the transactions non reportable to the government and add layers the system to make it more complex. The final step of money laundering was discussed was integration. Money launders will buy real estate or big-ticket items that can be sold on the open market and integrated into the economy as clean. A famous quote by author Agatha Christie that is relatable to today’s presentation is” Where large sums of money are concerned, it is advisable to trust nobody” (‘Agatha Christie Quotes’ n.d., par 1).

Abstract

The huge amount of Bank operations performed daily and extremely hard for Financial Institutions to spot malicious Money Laundering related operations. This really impact and generates the fear while performing financial activity. There are already some predefined heuristics are performed by Financial Institutions but still manual intervention required to identify the malicious activity.

This motive the needs for intelligent system (Anti Money Laundering) to learned and help Financial Institutions to fight money laundering in a diversity way such as intelligent filtering of bank operations, intelligent analysis of suspicious activity trained and learned new objectives and rules that restricts, stop and identify the suspicious activity.

Introduction

Money laundering is the crime which is increasing day by day in the entire world. US$500 Billion and US$1 Trillion amount being laundered in entire world. “Now we know the Money Laundering is very common, important and serious problem not for bank only but for all Financial institutions even government regulatory authority because it’s bad impact on global Economy of the country”.

There are three stages of money laundering placement, layering, and integration. Placement is the process in which illegal money or dirty money enters into the financial system. Then the money is transferred into offshore / onshore accounts or fake accounts. Finally Integration is the process purchase of luxury assets, financial investments.

Objective

Pakistan is facing economical crises which increasing day by day and one of the major reasons are Money Laundering due to which Pakistan is included in the “Grey List” issued by the FATF in June 2018.

International banks can pull their business out of Pakistan as a result of the inclusion in the ‘grey list’. There are different steps and efforts are taken by financial institutions to stop malicious transactions using Anti Money Laundering rule based techniques.

Past Work Review

Importance is given to this critical issue in the past and different ways was implemented from 2005 to 2017 to stop this malicious activity with the time of different publications. In 1995 detection of money laundering was described by Senator (Senator et al. 1995) which was rule-based. System matches these predefined rules and then would be further investigated by analyst. Further Rule Based was encoded using Decision Tree by Wang and Yang in the year 2007. Rule Based approach depend on domain knowledge and sometime generate false positive alerts with new operations later system updated with this issue by approach supervised and un-supervised by Kingdon, this process is based on “Know Your System”. Zhu 2006 Le-Khac, Markos, and Kechadi 2010; Zengan 2009; Raza and Haider 2011 improved the system using distance based clustering. Further different systems apply supervised learning to identify suspicious behaviour(Lv, Ji, and Zhang 2008; Heidarinia and Harounabadi 2014).

Conventional Way to Fight

Over decades Financial institution are relying on Rule Base Transaction Monitoring system which generate lot of false positive alerts and create lot of backlog for compliance department to review these alert transactions.

Typically, monitoring starts with a rule-based system which scans customer transactions for red flags consistent with money laundering. When a matching pattern is observed, an alert is generated and the case is referred to the bank’s internal investigation team for manual review.

Efficient Way to Fight

Using Machine Learning techniques we can complement these rule based transactions monitoring systems by substantially reducing the number of false positives alert.

Machine Learning does not perform humanistic programmed cognitive tasks. Rather, machine learning algorithms learn novel new relationships from data. Uncovering hidden patterns in money movement makes machine learning for AML a very attractive enhancement to existing AML operations.

“Clustering is used to group the account which have the suspicious transactions”.

“Techniques like Neural Network are used to detect pattern of money laundering”.

“Social Network Analysis or Link Analysis is used to find the communities involved in the money laundering”.

Discussion

In order for this to work, the modeling dataset containing historical alerts and their outcomes (SAR filed or not) must be carefully constructed from mostly the same data that is made available to reviewers.

An analyst, with little or no expertise in machine learning, can then feed the modeling dataset into the automated machine learning platform, which will perform the key steps of the model development process for them automatically.

It will determine the best ways to pre-process the data, structure it for validation and final holdout assessment, distill out the relevant features related to money laundering according to the historical data, and identify the best machine learning algorithms to apply based on this dataset. This is only the beginning of the story of how automated machine learning can be used to enhance an AML compliance program. Dataset: https://www.kaggle.com/ntnu-testimon/paysim1

Conclusion

As of 2017 Banks globally have paid $321 billion in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing.

With growing amounts of data, reliance on online transactions, and the increase of digital-currency adoption, banks must address money laundering to not only stop it, but to also avoid fines. Many banks have started implementing business process automation and see Artificial Intelligence (AI )and particularly Machine Learning (ML ) as the next step in the journey to greater efficiency and effectiveness.

Introduction

The economic problems have taken a global dimension after the globalization. It has also increased the supply chain of products across the borders. Cross-border transaction of black money and money laundering are serious economic crimes, and it causes substantial impacts on the economic development of the world. The Illicit trade is the fountainhead of these problems, and estimated total cost of illicit trade is $ 1.77 Trillion in 2015 which is about 10 percent of global trade in merchandise (World Economic Forum 2015). Both crimes associated with corruption and the combat against these problems demands both local and international actions. United Nations Office on Drugs and Crimes (UNODC 2019) reveals that money laundering accounts for 2-5 percent of global GDP (Gross Domestic Product), that is the lowest estimation. UNODC is an international organization fighting against international crimes, and it depends on the voluntary contribution of governments for its 90 percent of financial needs (UNODC 2019). UNODC (2019) provides technical assistance, model legislation and needed instruments for the nations. This essay analyses the global dimension of money laundering and solutions in detail.

Money laundering: A globalized problem

I argue that globalization has enabled the illicit outflow of money and money laundering because diminished state control had made money laundering as a global problem.

After the end of the cold war, capitalism accessed into new territories and unprecedently established more economic integrations in the global scale (Gilman, Goldhammer & Weber 2011, p.7). Privatization programs in the post-soviet territories facilitated quick and painless mobility of state assets into the hand of private entrepreneurs, and this was a major agenda of US-centric capitalist order (Gilman, Goldhammer & Weber 2011, p.7). The deviant form of globalization that is parallel to mainstream globalization possesses an attribute that changes the problems of governing a global economy (Gilman, Goldhammer & Weber 2011, p.7). Deviant globalization has resulted in a huge amount of black money through illegal businesses such as sex trade, drug dealing, terrorism, illegal arms supply and the market for human organs.

The causes of black money are excess government intervention in the economy (via licensing and regulations), funding of political parties, a higher rate of taxes and inefficient enforcement of tax laws (Sarkar 2010, p.128-129). Vice versa, the privatization also brings new scopes to earn black money through the bribes of bureaucrats and politicians as well (Sarkar 2010, p. 129). However, tax law enforcement becomes difficult in developing countries due to its sunshine laws.

As a result, huge amounts of black money are formed in the focal points, and the money laundering also becomes a serious problem at the global level. Money laundering is the processing of profits gained by criminal activities through the financial system to disguise their origins and to make them appear clean money (Buchanan 2004, p.117). Money laundering offers chances to make the black money into clean forms and again used for their prescribed purpose in the legal business. Criminals use the advantages of globalization by transferring funds across the borders in a quick way (UNODC 2019). Money laundering process creates burdens on the world economy by crippling the operations of national economies (Buchanan 2004, p.116). In addition, Financial markets become corrupted, risky and unstable, and finally slow down the growth rate of the economy (Buchanan 2004, p.116). Therefore, money laundering takes global dimension after the globalization.

The governments have moved toward the openness of trade, finance, and investment. These changes are the prima facie evidence of a new global logic of capitalism (Weiss 2000, p.9). In this context, states become apparently powerless to make real changes in the public policies, and states have to adapt similar policies of a global trend (Weiss 2000, p.9). In addition, Weiss (2000, p.13) articulates that globalization and state power are not a negative sum game where the growth of the former can only happen at the expense of the later.

It is appropriate to examine the World Trade Organization (WTO) guidelines and research in the capital flows and financial service markets. WTO consists of 164 country members around the world since 29th of July 2016 (WTO 2019). The General Agreement of Trade and Services (GATS) is the multilateral rules and regulations governing international trade in services and, it came into effect in 1995 (WTO 2019). GATS agreement demands only limited liberalization of capital flow in terms of financial services trade liberalization (Kono & Schuknecht 1998, p.4). However, restrictions enforced on capital flows in the forms of control of capital and exchange greatly decline the freedom of choice to obtain services from foreign financial institutions, and give negative incentives to the entry (Kono & Schuknecht 1998, p.5). Therefore, practically speaking, liberalization of capital accounts and financial services are complementary in nature in the market-based economy (Kono & Schuknecht 1998, p.5).

Although Kono & Schuknecht (1998, p.32) have articulated that nations having strong macroeconomic policies, regulations and stable financial system are highly deserved to adapt very broad capital and financial market liberalization, it is indispensable to allow some sort of strong regulatory measures on capital and foreign direct investment flows to achieve full benefits rather than adapting a laissez-faire policy. In this context, while neo liberalized policies are enforced in developing countries having lack of under-developed financial system and governance, it substantially encourages a parallel economy and black market.

For brevity, illicit flow of capital and money laundering are indeed a global problem by nature, and its flow across the border is a menace to the world’s economic development.

Failed Promise: Does neo-liberalization enhance money laundering?

The economic perspective of globalization prescribes neo-liberal policies for development. Presently, the neo-liberal policy is the only available way to allocate resource efficiently with more privatization and foreign direct investment (FDI) (Friedman 2000, p.106). Nevertheless, the countries which fervently adapted liberalization policies as a remedy for past miseries show different experiences. India introduced liberalization in 1991 in the name of economic reforms. Evidently, the statistically significant correlation found between the sizable volume of illicit capital flow and deteriorating income distribution after the economic reform (Kar 2011, p.51). Particularly since 2000, this picture sounds more prominent. Kar (2011) mentions:

Above empirical study vividly proves that economic policies embraced during the globalization facilitate outward flow of black money, which is the source of global money laundering.

Money laundering in a legalized form: from black to white

I argue that neo-liberalization policies encourage money laundering practices because the double tax evasion treaties and tax havens provide the chances to legalize money laundering in the guise of deregulation of Foreign Direct Investment (FDI).

Illicit financial flow (IFF) is the illegal movement of capital or money across the border, and the IFF afflicts the tax revenue of developing countries and undermines the efforts to achieve the sustainable development goals (Global Financial Integrity [GFI] 2019). GFI (2019) estimated that on average, 20 percent of the trade of developing countries with developed countries falls under the IFF.

The actual purpose of the transformation of black money is to convert that money into the version of legal usability (Schneider, & Windischbauer 2008, p.6). The illegally originated money is used to inject into the financial system and converted into visible assets and investments such as tourism projects, business and industrial enterprises (Schneider, & Windischbauer 2008, p.7). Newly developed technologies such as smart cards, online banking, and cyber money facilitate a very easiest form of money transaction, and it also encourages money laundering without territorial and legal barriers. In this case, customer identification is extremely difficult when money laundering takes place through the internet (Schneider, & Windischbauer 2008, p.13-14).

In this context, we have to examine the role of tax havens and double tax avoidance agreements which facilitates the easiest and legalized form of money laundering. Tax havens are the secrecy jurisdictions found around the world, and anyone can deposit their cash in a very confidential manner without any scrutiny (GFI 2019). About seventy or above tax havens serve as just booking centres of the financial centres of London, Tokyo and, New York, etc. (Palan 2002, p.151). A rough estimation reveals that about 50 percent of the world’ money stock resides in these tax havens or pass through them (Cassard 1994; Kochen 1991 cited in Palan 2002, p.151). Tax havens are not similar in their mode of taxation, but they have possessed some similar attributes such as effective bank secrecy laws, minimal or no corporate taxation, few or no restrictions or regulations on financial transactions and the protection of the secrecy of transactions (Palan 2002, p.155).

Evidently, these tax havens can be utilized to deposit the money, which was originated and safely transferred from the national borders. The strict secrecy laws of tax havens thwart the information about its customers to required countries who investigates the black money’s origin.

In the studies of Slemrod & Wilson (2009, p.1261), they state that partial or full elimination of tax haves shall improve the welfare of non-haven countries. As substantial non-taxed money is deposited in the tax havens, it results in inequality among the states. Eliminating tax havens creates two desirable effects in non-haven countries. Each countries’ residents obtain benefits from resources that were used for income shifting and tax enforcement activities, and as the marginal cost of public goods declines, countries could increase the public good’s provision to their citizens (Slemrod & Wilson 2009, p.1265).

Conversely, Hong & Smart (2010, p.17) suggest a different view of the tax havens. The international tax planning opportunities allows countries to keep their tax rate at the highest level and reduce the outward flow of capital. In addition, they articulate that an increase in the international tax avoidance increases both statutory and effective tax on capital and if the initial tax rate is small, it will enhance the welfare of citizens of high- tax paid countries (Hong & Smart 2010, p.17). Notwithstanding, tax havens provide opportunities to investors not to report it to the own countries’ tax authorities, and to avoid paying taxes in a legal way (GFI 2019). Evidently, this situation offers the best chances to protect the black money in these havens and to use them as new investments in another country without criminalizing the investors.

Tax Double Avoidance Agreement: No tax Burden Anywhere

Double tax avoidance (DTA) agreements offer a golden opportunity to the money laundering in the guise of Foreign tax Direct Investment (FDI). Many countries have rectified double tax avoidance agreements with tax havens. Therefore, while money entered into the tax havens and move outward to the country where DTA is found, so that money obtains tax concession in two points.

Economically, some arguments favour of DTA. Developing countries having more DTA agreements with capital-exporting countries, especially the USA obtain more FDI inflows and a higher share of FDI (Neumayer 2007, p.20). However, Neumayer (2007, p.21) further adds that the DTA agreements will be beneficial to only middle-income developing countries. Another study shows that the firms enjoy the privilege of reduced cost via the tax haven operation, and those firms’ activities increases in non-tax haven territories due to its cost-effectiveness (Desai, Foley & Hines 2006, p.7).

Nevertheless, offshore financial centres (Tax havens) consists of numerous shell companies which conduct no business activities, and these financial centres’ secrecy laws prevent the investigation of such registered shell companies for money laundering (Buchanan 2004, p.118-119). If any developing countries sign the DTA treaty with these offshore financial centres, the money laundering could take place through the shell companies from tax havens to developing countries. These transactions facilitate a legalized form of money laundering, which assists to wash the black money originated from developing countries to the same territory in the form of investment.

Tax Justice Network (TJN) has developed the Financial Secrecy Index (FSI), and this index ranks jurisdictions based on their secret and non-transparent financial activities (TJN 2018). This index gives an understanding of the financial secrecy, flow of capital, and illicit financial flow (TJN 2018). The world’s most powerful countries, OECD members and their satellites are the major recipients of illicit flow through their offshore financial centres, and African countries’ wealth has been stored in these centres by elites (TJN 2018).

Above mentioned examples clearly exhibit the enormous dimension of the problem. For brevity, globalization enhances the capital flow across the world, but it also creates the chances to carry out money laundering in a legalized form through the tax havens, shell companies, and DTA treaties. Further, developing countries obtain this illicit money from offshore financial centres under the scheme of FDI with tax concessions.

Globally organized plunder: Do states require a global solution through global governance to tackle money laundering?

Finally, I argue that money laundering requires global governance to be solved in an effective way, but strong regulations and good governance are the prerequisites at the domestic level.

From the above details, we can postulate that money laundering is a global problem and a global solution is inevitable in the globalized era to tackle this issue. The global policy on anti-money laundering in the globalized world has some unique attributes.

Instead of relying on intergovernmental relationships, the global governance encompasses all comprehensive actors, including local and international NGOs, citizens’ movements, multinational cooperation, nation-states and global capital market (Weiss 2000, p.810). The policy of anti-money laundering also requires strong cooperation between financial professionals and law enforcement agencies across the world (Favarel-Garrigues, Godefroy & Lascoumes 2011, p.180). This cooperation results in tension between the state’s sovereignty and neoliberal governmentality (Favarel-Garrigues, Godefroy & Lascoumes 2011, p.180). This is the main obstacle to achieve global cooperation in anti-money laundering strategy. Effective global financial regulation assists the supply of huge capital stock to the prosperity of humanity, and of marginalized groups of the world (Scholte 2011, p.110). But weak legitimacy is the common scenario of contemporary global governance (Z ̈urn 2005; Buchanan & Keohane 2006 cited in Scholte 2011, p.111).

Financial Action Task Force (FATF) has established international standards to fight against money laundering. The article 37 of the FATF recommendations emphasizes to provide strong mutual legal assistance between countries to combat money laundering (FATF 2018, p.25). But most recommendations insist on strong financial regulations through the competent authorities at the domestic level along with the sound international corporation. Despite the culture of confidentiality of banks in tax havens, countries have achieved some outcome in the money laundering problem. In 2002 Organization for Economic Corporation and Development [OECD] released an agreement, and in 2015, the OECD committee on fiscal affairs accredited to establish a protocol to form Tax Information Exchange Agreements (TIEA) among the nations through bilateral agreements to facilitate the exchange of information of persons who are suspected to involve in tax evasion practices (OECD 2019). Importantly, numerous offshore financial centres such as British Virgin Island, Bahamas, Cayman Island, Switzerland, etc. have signed bilateral agreements with OECD countries (OECD 2019).

Notwithstanding, the efficacy of this agreement is questionable. The tax haven only corporate with countries for financial investigation when their submitted evidence is wrong (Addison 2009 cited in Sawyer 2011, p.44). Most TIEAs do not overrule the provisions of confidentiality of law of tax havens, and these TIEAs do not much underpin to curtail international tax cap (Avi-Yonah 2007 cited in Sawyer 2011, p.44). This situation degrades the overall purpose of TIEAs. The global governance on anti-money laundering reflects some empirical evidence to the realistic views. International law’s measures which prohibit anonymous participation in the global financial networks are ineffective, especially in G7 countries than tax havens (Sharman 2011. P.36). FATF publishes the blacklist of high-risked and monitored jurisdictions having discrepancies in anti-money laundering practices (FATF 2019). Interestingly, the countries having higher financial secrecy index such as Switzerland, Hong Kong, Singapore, Panama, etc. (TJN 2018) have been carefully excluded from the FATF’s list. Democratic governance is one of the main criteria for the legitimacy of global institutions, and multilateral institutions should make them more difficult for special interest’s operations (Keohane 2011, p.103). But, TATF’s actions exhibit realistic approaches of powerful countries in the global governance of the financial system. As Sharman (2011, p.1) mentioned, the powerful states impose international standards on other weaker states while they do not choose it to implement themselves.

Some improvements have been achieved in the global financial corporation. Recently, the Swiss government has signed with India to share the banking information of Indian depositors (Rupawat 2019). But, the central government of India refused to share the obtained information about black money under the Right to Information Act in the name of confidentiality of account holders (Scroll.in 2019). It is evident that countries should strengthen their national regulatory measures, and should develop a system of close collaboration for the information exchange (Reinicke 1998, p.158). Otherwise, money launders may use this disjuncture found between the internal legal system and nonterritorial characteristics of global financial flow (Reinicke 1998, p.158). The Indian case is an example of the deficit of transparent governance of developing countries.

Developing countries have to adapt sound macroeconomic policies and good governance through building up strong institutions and rules of law to reduce illicit financial flow (Kar 2011, p.54). It refers to the increasing power of the state to manage the money laundering problems, on the contrary to Friedman’s prescriptions.

Due to its global nature, money laundering requires a global solution in long-run. But, at the present context, global governance of money laundering is intricate to implement since inefficiency of TIEA and less compliance of powerful states to international measures. Considering the developing countries, above Indian experience shows that transparency, good governance, and strong regulations are prerequisites to combat money laundering in an effective way since black money is formed within the territories.

Conclusion

In conclusion, the money laundering shows a global dimension after the pro-globalization policies such as neo-liberalism and reducing restriction on capital flow and financial services. The globalization also encourages parallel economy and the formation of black money in developing countries. The tax haves are the secret financial centres, and they allow the black money through their jurisdictions with the least tax and double tax avoidance agreements offer chances of money laundering in the legalized form of foreign direct investment. The money laundering is a global problem, and it requires a global solution, but the global governance of the financial system is not much effective because of the realistic approach of powerful states in intergovernmental organizations. Although some notable improvements have been observed in anti-money laundering strategies through global governance, transparency, good governance, and strong regulations are the prerequisites in the developing countries to tackle money laundering along with global cooperation.