Money Laundering

ECON 2024

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 Definition
• Money laundering is the process by which one
conceals the existence, illegal source or illegal
application of income and then disguises that
income to make it appear legitimate.
• “The conversion or transfer of property,
knowing that such property is derived from
any offense(s), for the purpose of concealing
or disguising the illicit origin of the property or
of assisting any person who is involved in such
offense to evade the legal consequences of his
actions” 2
• Money laundering is a global economic crime
• It is driven by criminal activities
• It allows crime to pay

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• Money laundering is used to conceal criminal
activities such as:
 Drug trafficking
 Tax evasion
 Customs fraud
 Illegal sales of firearms
 Bribery

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• Launderers wishing to avoid detection in one
country will move funds to other countries to
cover the trail.
• The objective is to move dirty money through
the financial system in a way which is difficult
to trace.

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 Steps
• Money laundering involves 3 steps:
• 1. Placement- this is the physical deposit of
bulk cash into the financial system.

• 2.Layering- separates the funds from the

source by using layers of complex financial
transactions to make the fund difficult to
trace.

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• 3. Integration- Provides a legitimate cover for
the dirty money. The funds are employed in a
manner that allow them to re enter the
financial system as normal business proceeds.
• For example supermarket or used car
dealership.

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 International cooperation against money
laundering
• United Nations Convention Against Illicit
Traffic in Narcotic Drugs and Psychotropic
Substances:
• requires criminalization of laundering of the
proceeds of narcotic trafficking

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 International cooperation cont’d
• The G-7 Financial Action Task Force
(established at G7 Summit in Paris 1989)
requires:
• Financial institutions to report “suspicious “
transactions to law enforcement.
• Monitoring of international wire transfers
• The Caribbean Financial Action Task Force
based in Trinidad and Tobago facilitates
regional cooperation in the investigation of
money laundering. 10
Potential effects of money laundering on the
international banking system
• Outflows of funds could have adverse effects on
the liquidity of banks in the countries losing
money.
• Money launderers can provide loans at lower
costs than banks thereby reducing the loan
business of banks
• Bank personnel may be corrupted as launderers
seek to prevent the submission of “source of
funds declarations”
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 Effects on intl banking system
cont’d
• Anti- money laundering measures increase the
reporting requirements of banks and lead to
higher operating costs.
• Large inflows of funds into an economy can
lead to appreciation of the exchange rate.
Banks may be adversely affected as export
business declines.

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 Potential effects of money laundering on
Caribbean economies
• 1. Loss of correspondent banking
relationships
• 2. Inflation of real estate prices
• 3. Adverse effects on BOP
• 4. Corruption of public officials and bank
employees
• 5. Threat to social stability from increasing
economic power of criminals
• Unfair competition to legitimate businesses
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