Money Laundering

By Suter, Keith | Contemporary Review, June 2002 | Go to article overview

Money Laundering


Suter, Keith, Contemporary Review


OF the six largest forms of international trade, only three are legal: the speculation in foreign exchange, the sale of oil and of coffee. A fourth has some questionable participants: the sale of weapons. Two are illegal: drug-smuggling and money laundering.

Crime is global but law enforcement is not. Criminal law is still largely only a national or local matter. International criminals are often better organized than national governments and their police forces -- and they are increasing. Criminals can, for example, move across national borders more easily than can police officers, who are very restricted in their powers of detection, arrest and detention. There is no international police force to arrest criminals and no international prison. Organized crime pays.

The spread of organized crime has benefited from three recent trends. First, the development of computer and communications technology means that electronic funds transfer systems can move billions of dollars around the globe in seconds. Second, as a result of the collapse of communism in the former Soviet Union and Eastern Europe, there are weak governments unable to control criminal gangs. China remains communist in name but it, too, has been unable to control the crime and corruption that it has unleashed because of the liberalization of the economy. Finally, there is the declining significance of national borders. As late as the 1960s, the Japanese were not allowed to travel abroad for pleasure and just a few years ago exit visas for people living in the Soviet Union, Eastern Europe and China were a rarity. Now Czech prostitutes work the Italian Riviera; illegal Chinese immigrants to America are trans-shipped through Hungary; South American drug lords recruit traffickers in Nigeria; and refugees from Afgh anistan travel to Australia with the aid of people smugglers. European police forces are now concerned that the Euro may make money launderings (as well as counterfeiting) much easier.

A particular concern is the way that during the 1980s, the profitability of the drug trade meant that the 'narco-dollar' began to assume the economic significance of the 'petrol-dollar' in the 1970s. It had been estimated that the capital generated during the 1980s by illegal drug trafficking was in the order of US$3000 billion to 5000 billion. A random scientific analysis of US currency showed that it appeared that almost every $100 note in circulation contained traces of cocaine, indicating that the notes had once sat in bags next to bags of drugs or had been handled by people with traces of cocaine on their hands.

The sale of drugs is often done on a cash basis to hinder the police tracking down the evidence. But the retention of cash is awkward. A stack of $1 million in $50 notes would reach almost three metres in height. Large sums of cash may be stolen by unscrupulous people. Therefore it is necessary to hide the illegally obtained money: both to avoid detection from the police and to protect it from theft.

Money laundering is the process whereby the proceeds of all types of serious crimes are turned into apparently legitimate financial resources. This ensures that if a criminal is under suspicion, there is little evidence that the money has been gained from illegal means. This requires putting as many national borders as possible between the original crime and the final account in which it resides. Money travels easily over national borders; police do not.

There are three stages in the money laundering process. First, 'placement' is where the large amounts of cash are negotiated into some other less obviously suspicious form. One of the most common methods is to employ 'smurfs': individuals who do not look out of place in a banking environment and who are used to dispose of large sums of cash by depositing small amounts at different banks. A smurf may also purchase international money orders to pass on to third parties, who will deposit them in a bank elsewhere. …

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