Money laundering has been called the world's third largest industry, and is associated with all manner of crime. Money laundering is the way that a criminal engage in illegal transaction. It is refer to the method by which criminals manage to gather illegal or black money and convert it into clean money by removing the proof of criminality. Christian Eigen-Zucchi Anti-Money Laundering Literature Search, Organized Crime world bank institute
Money laundering can be defined in different as adopted by the United Nations Convention Against Illicit Traffic in Narcotics Drugs and Psychotropic Substances (1988) and the United nation Convention against Trasnation Organised Crime:
The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property knowing that such property is derived from an offence or offenses or from an act of participation in such an offence and offences.
Any property in possession or acquired from or in participation any crime shall commit an offence.
Transaction involving the transfer of property. If the property is acquired from any offences (drug trafficking or the use of piracy) or having participate in the act of offences, or anyone having involved directly or indirectly shall commit the offence.
SCHOTT, 2006 define money laundering as "The conversion or transfer of property, knowing that such property is derived from any (drug trafficking) offense or offenses or from an act of participation in such offense or offenses, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offense or offenses to evade the legal consequences of his actions." SCHOTT, 2006 Money Laundering In Brazil and in the United States
POWIS 1992 define money laundering as "the use of money derived from illegal activity by concealing the identity of the individuals who obtained the money and converted it to assets that appear to have come from a legitimate source. A simpler definition is the washing of dirty money to make it appear to be legitimate." POWIS 1992 Robert E. Powis Bank Secrecy ACT Compliance
Thus money laundering is the way in which illegal money is being transformed into clean money as being legitimate and the sources cannot be traced.
Hinterseer (2002) stated that "money laundering is criminal finance as it corrupts markets, shifts an unfair economic burden in the legal economy, weakens the universal stability of the international financial markets and raises numerous civil liberty related issues." The Political Economy of Money Laundering in a Comparative Legal Context, (The Hague-London-New York: Kluwer Law International), 2002
ROBINSON define money laundering as "Money laundering is called what it is because that perfectly described what takes place illegal of dirty, money is put through a cycle of transactions or washed, so that it comes out the other end a legal, or clean money. In other words, the source of illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds can eventually be made to appear as legitimate income."
The financial Action Task Force on Money Laundering (FATF) is a recognize entity that supervise Anti-Money Laundering define the term "money laundering" as the "processing … criminal proceeds to disguise the legal origin" in order to "legitimize" the ill-gotten gains of crime. The financial Action Task Force 2003
2.2 Origin of Money laundering
Money laundering is referred in the past from the existence of money. In the past people didn't pay any attention about money being laundered considering it as a crime. In 1980's drug trafficking increase money laundering. The reason behind it was that it generates huge profits from criminal activity as well as the massive drug abuse that was a problem in the western society.
(http://www.laundryman.u-net.com/page1_hist.html)
But whilst the term "money laundering" was invented in the 20th Century, the principles of money laundering have been around for far longer. Sterling Seagrave in his excellent book "Lords of the Rim" conducts a roundup of the history of the Overseas Chinese. He explains how the abuse of merchants and others by rulers led them to find ways to hide their wealth, including ways of moving it around without it being identified and confiscated. Money laundering in this sense was prevalent 4000 years before Christ. (http://www.countermoneylaundering.com)
2.3 Money laundering techniques
There are different ways money laundering can take place. It can start from small deposit done at the bank at different time. The money is then use for the purchase and resale of luxury products. World Bank Group 2003
Sometimes the money launderers usually move to other countries where the legislation allows the establishment of new companies where the right to secrecy is protected. Moreover when they will export their product, false invoices are drawn where the product is overvalued. Hence the launderer is free to move the money from countries. Furthermore, the financial Intelligence's role start, it has to collect information, analyze it and conclude where fraud is easy. Steel(2003)
2.4 Money Laundering Stages
money_laundering_scheme_big.jpg
Money laundering is a new form of criminal activity. It threatens our economy as well impact on international economies.
In the past money laundering can be traced back by a gangster name Meyer Lansky which is still practiced today to laundered money. Since years many people, societies, organizations, as well as the government have regard this activity as a mere crime.
Leonard Jason6 has classified money laundering in three stages:
Money Laundering
Placement Stage Laying or Agitation stage Integration stage
2.4.1 Placement stage
Leonard describes placement stage where the greatest risk is involved. It requires sum of money in term of cash to be deposit in the counters of banks or other institution dealing in financial matters. In the past through a process called "smurfing" prevent money from being laundered. A limit in deposit of cash was imposed. Thus when groups of individual are dealing with the bank this will automatically detect the suspicious transaction.
Many drug traffickers and professional money launderers settle business that their suspicious transaction is not taken into consideration such as operating in a casino, a bar, or a restaurant. They can generate huge sum of money in terms of cash. Bosworth-Davies & Saltmarsh 1994
Thus the placement stage is where the physical movement and placing the cash into financial institutions that is in the economy.
2.4.2 Laying or Agitation Stage
The cash deposit is broken into several transaction whereby to hide the true origin of the money. These transactions have spread and yet those who are involved have remained unidentified. One of the most popular transactions is changing the value of imported goods. Some professional convert the money into gold in the form of ingot, a ring, bracelet, pendant or ornament. The values of gold remain the same and the form of the gold can be modified to change its original form.
Another technique that is more practiced is that the launderer takes the money and placed it in an offshore company. He then uses that money as a loan to himself which are supervised and control by the author of the money. As said Hijar (2004) "This technique works because it is difficult to determine who actually controls the offshore accounts in some countries" As such, in this stage financial transactions are conducted to hide their illegal nature
2.4.3 Integration or re-integration stage
The dirty money has been clean. This means that when the launderers corrupt and laundered the money, the latter is bad money. Thus, the money is kept safely until the original criminal activity has been cleared by the time they reached the integration stages. The final stage is an operation involves injecting the illegal funds into the economy. The fund has become clean and accepted by the society. This stage involved the launderer to use the money without doubt of the legal authorities. The purchase of assets, such as real estate, securities or other financial assets, or luxury goods. Illicit funds re-enter the economy as licit business earnings.
2.4 Importance of establishing and implementing Anti-Money laundering Measures
Money laundering is not just about cash and other monetary instruments; neither is it a problem isolated to conventional deposit taking and lending institutions and activities. Money launderers have greatly diversified their operations across financial services sectors and, increasingly, across the core and non-core financial activities of non-financial services businesses. International Federation of Accountants (IFAC)
The amount of accumulated balances of launderes has been economically dangerous as it tend to affect small economies or even corner markets. The possibility that control economics activity con be compounded by insider trading using the balance as said Alldridge 2003
Criminals are able to transfer millions of dollars my manipulating the satellite through private computer by using financial system. For this reason many countries are building a more powerful campaign informing banks financial institution and cash dealers about the adept criminals who are abusing the financial systems.
FAFT on Money Laundering 2003 ensures that every business are not involved in money laundering. If ever its employees or any particular person involved in that business have participate in taking bribe which means that the institution has turn a blind eye to the criminal nature of such fund.
2.5 Financial Intelligence
In 1995 a group of Financial Intelligence Units met at the Egmont Arenberg Palace in Brussels. The purpose is to establish an informal group and a network to communicate International Corporation. The Egmont groups meet regularly to find some way to discuss new expertise, exchange of suspicious information and train their agent.
Financial intelligence is a legal organization that facilitates the gathering of suspicious information concerning financial affairs. The information collected is used by them to define to predict the intention capabilities and nature of any suspicious transactions.
The financial intelligence will take into consideration any abuse of money, involving any amount in a bank or any financial institution involving money. For example, tax payers trying to avoid paying tax. They would move their wealth in a jurisdiction where tax is not levied on wealth. Sometimes the financial intelligence usually investigates when a huge sum of money is handed to another person, and that money disappeared. So the financial intelligence would collect information, investigation will follow and would determine whether the sum of money is stolen or the money was use for illegal purposes. The Law on Money Laundering: Statutes and Commentary by Leonard Jason-Lloyd
2.6 Anti-Money laundering Measure adopted in Mauritius
Financial Intelligence and Anti-money laundering Act 2002 govern anti-money laundering in Mauritius. (FIAMLA). This act FIAMLA has replaced and repeals the Economic and Anti Money laundering Act 2000
2.7 Financial Institution that facilitate money launderers to launder money
Business that involved cash intensive such a restaurant or bars where drugs exchange is done and also where criminals activities such as money launderers.
Some tend to invest in item to trade such as; highly expensive cars and antiques.
Banks and other nonbank financial institutions are particularly vulnerable because of the high volume of money and financial transactions and because they have access to the international financial system.
Foreign exchange bureaus and remittance offices; they are cash intensive and access to financial international system.
Accountants, lawyers, notaries, and company formation agents have technical skills that are indispensable to highly sophisticated money laundering operations.
2.8 Types of money laundering on developing countries
Money laundering on certain economies may have different effects such as;
Domestic is where money being laundered in the developing economy and the money is being re-invested or spend with the economy.
Returning is when money originates from one country and being laundered abroad. This money will then use to in the developing country for integration.
Inbound funds are when the disguising of money occurred abroad. This money is either place abroad or in the developing country with the hope to integrate the money in the developing country.
Outbound funds
Domestic Returning Outbound Inbound
2.9 Impact on economic development
The effect of money laundering on economics development is difficult to predict. This activity is a rival for the financial sector institution which will affect badly economic growth. However it also increases crime and corruption as well as reduces productivity in the economy's real sector. This will slow economic growth as well as international trade and capital flows.
2.9.1 Economics policy
In some developing countries money laundering may deteriorate the government budget that is leading to a deficit due to a fall in economic policy. This can result in an extreme change in money demand and increase in rate of interest, exchange rate and capital flows. These effects will prevent the policy control and eventually economics policy will not be able to be attained.
2.9.2 Economics instability
The motive of the launderers is to protect their transaction, to prevent the legal authorities to find out. So as they are not profited orientated, they decide to invest in the fund where it is beneficial to the economy. For example, entire industries, such as construction of hotels, have been financed by money launderers. When these industries no longer suit the Money launderers, they abandon them, causing a collapse of these sectors and immense damage to economies that could ill afford these losses.
2.10 Money laundering affects Macro economy
Launders made an impact on the Macro economics system. To prevent suspicious transaction, launderers invest in legitimate business or in assets to make their money clean. Hence their money is transferred through financial transaction. But their aim is not concern toward the economy. As said before they are not profit and social orientated. However, as they does investment not with the aim to obtain the highest rate of return but to avoid suspicious and detection.
As a result, when detection is avoided they put large sum of money in less productive activities till it is undetectable. Sometimes launderers move their money in and out of the country. As large amount of money is being moved, this can destabilize small developing economies. Combating Money laundering and terrorism financing. A Comprehensive Training Guide
2.11 The rule of law
The rule of law consist a legal system for economic development as market will need a well organized institution to function properly. The rule of law presumes that there is transparent system of clear and certain rule that will be applied. There should be transparency behind every transaction involving money that criminal always escape to defeat the law and escape the consequences of its act.
2.12 Magnitude of the problem
To find out the solution using techniques to identify the problem will need reliable data in this area. Estimation is used but sometimes is bias.
According to Bartlett, in France, in the year 2001, an investigation was launch to find out frauds that was taking place into an officials of France leading banks. These involved fraud, tax evasion and money laundering. There were a large amount of cheques which was stolen, were endorsed or sign over to new beneficiaries before being cashed at money changers in Israel. France-Plus Ca Change," The Banker, Ap, 1, 2000; Barclays France Execs probed in Israel-linked money laundering, The Jerusalem Post, Nov. 21, 2001.
The volume of laundered money was 273 billion USD in the year 1995 for these 20 organizations for economic co-operation and development (OECD) countries and increased to 603 billion USD in 2006. The overall turnover in organized crime had a value of 595 billion USD in 2001 and increased to 790 billion USD in 2006. These figures are very preliminary but give a clear indication how important money laundering and the turnover of organized crime is nowadays. Money Laundering and Financial Means of Organized Crime: Some Preliminary Empirical Findings Friedrich Schneider
2.13 Money Laundering Trends in the financial sector
One of the common effort to combat money laundering is to impose on the deposit-taking procedures of business involving in finance where suspicious transaction is recognized. However, as authorities are aware that most of the money laundering is happening with deposit, they have imposed more enquiries. There before the financial business like banks will accept the cash a list of enquiries will have to be satisfied.
On the other hand money laundering will tend to take the "dirty money" or illegal money to put it in the economy. To do so the usually mix it up to legitimate cash earnings before this cash enters the economy financial system. This will prevent detection of dirty money entering the financial system. this is usually done my using smart card and wire transfer which is difficult to track it.
Some criminals that are experience in money laundering would prefer to use their company to transfer the money from country to country. This happen when they create large quotations but which are false international trade activities with the aim to transfer money from one country to another. False invoices are issued to hide the intention of money laundering and with this proof they are able to use international wire transfer. Some of them would also generate false letters of credit to make the whole work create red-tapism. Some false companies would also deal with bank to get loan and thus they finance their illegal activity.
2.14 Implication of Anti-Money Laundering Legislation for non-financial institution in Mauritius
Money laundering involved:
Any person who is directly indirectly or partly involved in a proceed of a crime
Is in procession of , conceal, disguises, transfers, converts, dispose of, remove from or bring into Mauritius any property that represents the proceeds of a crime
Anyone that accept to corporate with one or more person will commit an offence
Any person who makes or accept the payment in cash exceeding 500,000 rupees or in any foreign currency equivalent
Financial Institution, licenses under the FSC or Central Bank of Mauritius shall have the obligation to lodge a report under the FIAMLA of any suspicious transaction. Financial Intelligence and Anti-Money Laundering Act 2002 article 3 and 5
2.15 International Organisation
2.15.1 Financial Action Task Force(FATF)
The FATF was formed in 1989 G-7 Summit in Paris, amended in 1996, reinforced in 2003. There are 36 member, inter governmental body that form the committee and force to tackle money laundering. http://www.imf.org/external/np/exr/facts/aml.htm
They represent the provider of justice for criminals and law enforcement. They share their knowledge, new techniques and provide training internationally to stop money laundering. Each member has its own contribution; that is has his own political commitment to combat money laundering. Financial Action Task Force on money laundering 2003
2.15.2 International Monetary Fund(IMF)
The IMF supports the FATF. The IMF brings his contribution to the FATF by sharing precious information, introduces policies and standard and help the FATF to developed approaches to issues. These issues were difficult for them to fight against money launderers. "Fund has expertise based on its board experience in conducting financial sector assessments providing technical assistance in the financial sector and exercising surveillance over member's exchange system" Burgess 2004
2.16 The Independent commission against corruption (ICAC)
The Independent commission against corruption (ICAC) was formed through the treaty that Mauritius has sign showing the interest in fighting against corruption at the Convention on Combating Bribery of Foreign Public Officials in International Business Transaction 1997.The need for the protection of money laundering and corruption arises, a report was submitted in 2001 where the majority of the members deciding that there is a good reason that the country need to settle a good strategy to manage the problem of corruption and fraud. On February 2002 the Bill pass through the parliament and the latter enacted the Financial Intelligence and Anti-Money Laundering Act 2002 (FIAMLA) and the Prevention of corruption act 2002 (POCA) which proclaim of an independent body known as the In Independent commission against corruption. The economics of crime and anti money laundering act has set up the economics of crime office and at the same time was repeal and the Financial Intelligence and anti-money laundering act (FIAMLA).
2.17 The economic crime and anti-money laundering act 2000 V/S FIAMLA
The economic crime and anti-money laundering act 2000, the use of reporting of suspicious transaction by financial institution was primary objectives. These report were made to the Bank of Mauritius. On the other hand, under FIAMLA all suspicious transaction should be report to the financial intelligence. The financial intelligence will collect, analyze and will interpret the information to find out the true intention of the launderer.
The economic crime and anti money laundering act 2000 investigate of laundering offences by the economics of crime office as states in the act while investigation will be carried out by the ICAC.
The FIAMLA states all the possible possibilities to tackle money laundering that is for the dissemination of information to regulatory and law enforcement body. These enforcement body has for their aim to report any suspicious transaction to the Financial Intelligence Unit. In the economics crime and anti-money laundering act 2000 there were no procedure available which now in the FIAMLA.
In the FIAMLA it includes transaction concerning terrorism.
2.18 Prevention of Corruption Act 2002
Under this act, corruption and money laundering is being supervise by the Independent Commission against Corruption (ICAC) in June 2002.
2.19 The Financial Services Development Act 2001(FSD)
The FSD acts regulate and grant business licenses and make provision for the supervisory powers of the FSC. Financial Services Development Act 2001
The FSC will use it power to ensure the proper running of the business under which the FSC has issue licenses. These licenses will be regulating by the FSC to be protected against by money laundering financing. Financial Service Commision and FSC code on the prevention of money laundering and terrorist Financing 2003
2.20 Financial Service commission
The aim of the financial services commission is to ensure that licensees comply with the act above mention. "The FSC regulates and supervises Non-Banking Financial Institutions (NBFIs) other than Insurance and Capital Markets sectors." http://www.fscmauritius.org/
2.21 Committee to combat anti-money laundering and the financing of terrorism in Mauritius
This committee will involve the representative from law enforcement agencies, the state law office and other ministers which are directly or indirectly involved in anti-money laundering and combating the financing of terrorism.
