Crime and Corruption | Page 9

can never be entirely eliminated - but it can
be restrained and its effects confined. The cooperation of good people
with trustworthy institutions is indispensable. Corruption can be
defeated only from the inside, though with plenty of outside help. It is a
process of self-redemption and self-transformation. It is the real
transition.
Money Laundering in A Changed World Israel has always turned a
blind eye to the origin of funds deposited by Jews from South Africa to
Russia. In Britain it is perfectly legal to hide the true ownership of a
company. Underpaid Asian bank clerks on immigrant work permits in
the Gulf states rarely require identity documents from the mysterious
and well- connected owners of multi-million dollar deposits.
Hawaladars continue plying their paperless and trust-based trade - the
transfer of billions of US dollars around the world. American and Swiss
banks collaborate with dubious correspondent banks in off shore
centres. Multinationals shift money through tax free territories in what
is euphemistically known as "tax planning". Internet gambling outfits
and casinos serve as fronts for narco-dollars. British Bureaux de
Change launder up to 2.6 billion British pounds annually. The 500 Euro
note will make it much easier to smuggle cash out of Europe. A French

parliamentary committee accuses the City of London of being a money
laundering haven in a 400 page report. Intelligence services cover the
tracks of covert operations by opening accounts in obscure tax havens,
from Cyprus to Nauru. Money laundering, its venues and techniques,
are an integral part of the economic fabric of the world. Business as
usual? Not really. In retrospect, as far as money laundering goes,
September 11 may be perceived as a watershed as important as the
precipitous collapse of communism in 1989. Both events have forever
altered the patterns of the global flows of illicit capital. What is Money
Laundering? Strictly speaking, money laundering is the age-old process
of disguising the illegal origin and criminal nature of funds (obtained in
sanctions-busting arms sales, smuggling, trafficking in humans,
organized crime, drug trafficking, prostitution rings, embezzlement,
insider trading, bribery, and computer fraud) by moving them
untraceably and investing them in legitimate businesses, securities, or
bank deposits. But this narrow definition masks the fact that the bulk of
money laundered is the result of tax evasion, tax avoidance, and
outright tax fraud, such as the "VAT carousel scheme" in the EU
(moving goods among businesses in various jurisdictions to capitalize
on differences in VAT rates). Tax-related laundering nets between
10-20 billion US dollars annually from France and Russia alone. The
confluence of criminal and tax averse funds in money laundering
networks serves to obscure the sources of both. The Scale of the
Problem According to a 1996 IMF estimate, money laundered annually
amounts to 2-5% of world GDP (between 800 billion and 2 trillion US
dollars in today's terms). The lower figure is considerably larger than
an average European economy, such as Spain's.

The System It is important to realize that money laundering takes place
within the banking system. Big amounts of cash are spread among
numerous accounts (sometimes in free economic zones, financial off
shore centers, and tax havens), converted to bearer financial
instruments (money orders, bonds), or placed with trusts and charities.
The money is then transferred to other locations, sometimes as bogus
payments for "goods and services" against fake or inflated invoices
issued by holding companies owned by lawyers or accountants on
behalf of unnamed beneficiaries. The transferred funds are re-

assembled in their destination and often "shipped" back to the point of
origin under a new identity. The laundered funds are then invested in
the legitimate economy. It is a simple procedure - yet an effective one.
It results in either no paper trail - or too much of it. The accounts are
invariably liquidated and all traces erased. Why is it a Problem?
Criminal and tax evading funds are idle and non-productive. Their
injection, however surreptitiously, into the economy transforms them
into a productive (and cheap) source of capital. Why is this negative?
Because it corrupts government officials, banks and their officers,
contaminates legal sectors of the economy, crowds out legitimate and
foreign capital, makes money supply unpredictable and uncontrollable,
and increases cross-border capital movements, thereby enhancing the
volatility of exchange rates. A multilateral, co-ordinated, effort
(exchange of information, uniform laws, extra-territorial legal powers)
is required to counter the international dimensions of money laundering.
Many countries opt in because money laundering has also become a
domestic political and economic concern. The United Nations, the
Bank for International Settlements, the OECD's FATF, the EU, the
Council of Europe, the Organisation of American States, all published
anti-money laundering standards. Regional groupings were formed (or
are being established) in the Caribbean, Asia, Europe, southern Africa,
western Africa, and Latin America. Money Laundering in the