According to the International Monetary Fund (IMF), money laundering annually represents more than 600 billion dollars worldwide. Criminal activities like drug trafficking, arms smuggling or prostitution rings also generate very high profits.
However, the money earned illegally is of little use to criminals, as it awakens the suspicions of the authorities responsible for law enforcement and its usage leaves traces that could compromise them.
Money laundering, thus gains importance, as it allows criminals to conceal the source of the money obtained illegally and reinvested it in legal activities. They are able to use their massive illicit profits while protecting their source of income.
To better understand the mechanisms of money laundering and the scale of the phenomenon, this report will first define it and then study how criminals hide the sources of money acquired illegally. It will then analyze the consequences of money laundering. In the third and final part of this document, it will show how the fight against this practice is organized on a national and international level.
Money laundering is a complex process that involves multiple transactions to be restated profits of crime and to conceal the illegal origin. The list of illegal activities behind these products is extremely long. It includes drug trafficking, prostitution rings, arms smuggling, corruption, insider trading, currency counterfeiting, fraud, murder, or computer fraud.
In today's global economy, criminal organizations derive huge sums of illegal activities and need to launder the profits for two reasons: to prevent the traces of the money earned from becoming evidence against them and to prevent the money from making itself the subject of an investigation and seizure.
Although money laundering can take place all over the world, money launderers tend to seek areas where controls are weak or nonexistent.Thus, the major discoveries in recent years are cases that have a lot in common: the criminal organizations benefit greatly from the opportunities offered by financial havens and offshore banking centers to launder their money while escaping prosecution or service responsible for the repression.
Indeed, the financial havens offer numerous services to foreign investors and host of funds from all sources, while protecting the anonymity of the depositary. The Financial Stability Forum was established in 1999 by the G7 has compiled a list of states (or entities) whose regulation and control remain very low and are defined as "tax havens". It includes the Cayman Islands, Grenadines, Cook, Virgin or Panama and Liechtenstein.
Tags: money laundering; definition of the term; consequences of money laundering
[...] There are three main steps in the process of money laundering: placement, layering and integration. These steps must be taken in order, but sometimes they overlap. The initial phase or stage of investment, is to break any direct links between funds and the offense or the illegal source from which they come. This is by investing large sums often in small bills via companies manipulating a lot of cash (such as casinos, hotels, restaurants, corporate management of vending machines, laundromats, cars) The stack is the most difficult stage of the process. [...]
[...] Economic, social and political Money laundering can have adverse effects on currencies and interest rates as launderers choose to reinvest their money in areas where they have less risk of detection rather than in sectors that are more profitable. Furthermore, according to the IMF money laundering could lead to inexplicable variations in the demand for capital because of unexpected transfers of assets between different countries, this could increase the volatility of exchange rates and capital flows. Money laundering may also aggravate inflation (mainly in developing countries).The ability to control part of the national economy because of investments made is not excluded. This type of crime can go even further by infiltrating financial institutions and undermining their reputation. [...]
[...] The FATF is not tightly defined. The Action Group reviews its mission every five years. It has existed since 1989, and its current term will expire in 2004. It will continue to exist and perform its function after this date if the member governments consider it to be necessary. But what will likely be the case since it is observed that the FATF members are becoming numerous (about 130 countries). It account for 85% of world population and 90 to 95% of global economic output. [...]
[...] But a major problem in the fight against money laundering is the fact that the obligations are in conflict with some personal freedoms. For example, bank secrecy is very strong in many countries that have had to soften their legislation on this subject to better cooperation. In addition to reinforcing the fight against money laundering the 3rd European Directive provides the possibility to exchange information between credit institutions. Finally the CNIL (Commission Nationale Informatique et Libertés) established in 1978 are in-charge with ensuring the protection of personal data and privacy to authorize a waiver system for data processing systems, related to the fight against money laundering and against financing of terrorism. [...]
[...] Example of someone wanting to launder 1 Million Dollars in a casino (this method requires an accomplice: the person 1. Placement: Person X converts $ 1 million in chips Stacking: inside the casino X gives half of his chips to Y Integration: Y converts his money to chips, this amount will be considered as legal gain. (Laundered money: $ 500,000) II. The consequences of money laundering II.1. The vulnerability of emerging markets Money laundering is mainly conducted in countries where the financial situation is fragile. It is therefore legitimate to assume that the initially affected countries are emerging ones. [...]
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