Money Laundering - Dissertation Example

Money laundering Introduction: Money laundering is the process of passing off and using other peoples money as one’s own. According to Article ofthe European Communities draft directive dated March 1990 refers to money laundering as the transfer or conversion of monies or property in such a manner that its illicit origin is disguised and the parameters of this offence would also extend to include those who knowingly assist in the perpetration of such offences. In 1995, the Interpol General Secretariat Assembly defined money laundering as “any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.”(www.interpol.int). The General Secretariat has also been working in close association with several organizations all over the world in order to promote an awareness of such activities and to ensure that appropriate financial investigative techniques are used in order to detect and take action against such crimes. This essay will examine money laundering in China, Hong Kong and Macau and the anti money laundering measures that have been instituted by these respective Governments. It will then assess different models of crime and punishment and apply them in the context of money laundering to determine how relevant they would be and the extent to which each could be applied. The context of money laundering in China, Hong Kong and Macau: China has been a fertile ground for money laundering and the primary cause of the high levels of activity lie in the corruption and degeneration of political and financial officials. According to inside sources in mainland China, the figures for the money laundered per year could be as high as 22.5 billion U.S. dollars (www.english.peopledaily.com.cn). The breakdown of the large amount of $22.5 billion takes place primarily through three specific channels, i.e, smuggling which accounts for a considerable portion of money and property that disappears, embezzlement of bank and other funds derived from exports as well as tax evasion carried out by companies that are funded from foreign sources. Through these three channels, there is ample scope for money launderers to capitalize on the corruption of government and financial officials to ensure that some monies remain unaccounted and are diverted away into unauthorized pockets through the three different means outlined above. In Hong Kong, there is a similar large magnitude in terms of money laundering activities, with a large part of illicit revenues being derived from the stashing away of funds drawn from narcotics trafficking within the large American market. According to the Financial Action Task Force in Hong Kong, narcotics trafficking is the single largest source of criminal proceeds, closely followed by different types of fraudulent activities, as well as smuggling, gambling and trafficking in human beings, all of which generate considerable amounts of illegal monies from such criminal activities(www.unafei.or.jp). In Macau money laundering is closely associated with casinos. The spate of terrorist activities that have followed the 9/11 incident have been funded by cash which is laundered through the casinos in Macau. While cash based casinos have traditionally been one of the best venues for money laundering, the conversion of most of the transactions on to the online medium has meant that such electronic transactions can be easily tracked, making it harder for money launderers to successfully carry out their nefarious activities (Hansen, 2007). In Macau however, the casinos are still of the traditional brick and mortar variety where most transactions are carried out through the exchange of cash by hand. In these casinos, money is exchanged in the old fashioned way, over drinks, and often disappears without a trace. Some banks are also functioning as channels through which dirty money can be washed clean and used by unauthorized sources. Preventive measures instituted by these Governments: In China, no government measures were instituted against money laundering until the revised criminal code of 1997 provided a revised definition of money laundering and brought it within the purview of criminal and punishable activities.(Guiying, 2006). The legislation stipulates that in addition to the ill gotten gains being confiscated, the perpetrators of such acts could also be subject to a fixed term imprisonment for a period of up to five years. (Guiying, 2006:2). But as pointed out by Yiang (no date), these anti corruption measures instituted by the Chinese government have not proved very effective because the criminals only find other ways and loopholes that they are able to exploit to serve their own selfish ends. In Hong Kong, money laundering has been designated as a crime, and the associated laws have been categorized primarily into two ordinances. The first is the Drug Trafficking (recovery of proceeds) Ordinance, where “knowing or reasonable belief” that s/he was engaging in appropriation of property or monies belonging to another would itself constitute grounds to take criminal action. In addition, Hong Kong also introduced the organized and serious crimes ordinance which has essentially expanded the scope of the former ordinance to activities other than drug trafficking as well. This legislation also provides scope to take action against individuals or groups who bring money laundered funds into the country.(Kam Wah, no date). Banks in Hong Kong are being warned that they will need to deal with unexplained funds rather than aiding and abetting the activities of money launderers. The significant problem posed in Macau in dealing with money laundering is the comprehensive level of control exerted by Stanley Ho, the richest man in Macau, who accounted for two thirds of the nation’s wealth. He not only controls most of the nation’s casinos, but also some of the nation’s major banks. In this case, international pressure has been the only tool available to counteract the high levels of money laundering (Hansen, 2007). Broken window theory: The broken window theory may have relevance in the context of money laundering, This theory was put forward by criminologists James Wilson and George Kelling, who stated that if a window in a house is broken and does not get repaired immediately, it will set off a chain of incidents whereby more windows will be broken and ultimately the house itself will deteriorate (Kelling and Wilson,1982). This could wlel be applied in the context of money laundering, where preliminary activities in money laundering and unaccounted finances would need to be looked into and action taken quickly. If the initial money laundering is allowed to go on without being punished and thereby stopped, then it could result in higher levels of money laundering that could ultimately lead to substantial damage to the actual economy of the countries in question where the money laundering activities are taking place. The theoretical background for the broken windows theory was derived by these authors from an analysis of foot patrols by police officers in Newark. They noted that after the police officers started on foot patrols, purportedly to control levels of crime in the neighbourhood, there were two startling and contrasting results. Firstly, the levels of crime did not go down despite the foot patrols, But surprisingly enough, residents of the neighbourhoods that enjoyed the benefit of these foot patrols felt more safe and there was a better interaction between the police and the citizens of these foot patrolled neighbourhoods. Hence, the presence of foot patrols appeared to have an impact on community morale. Secondly, these authors point out that at the community levels, disorder and crime are generally linked to each other. As a result, when one window is broken and is left unrepaired, it appears that the owner does not really care about the property and therefore provides an impression to criminals or vandals that it is all right to break other windows as well and the costs involved in such an exercise do not really matter and need not be taken into consideration. This produces a chain reaction that would, over a certain period, produce a deterioration in the entire neighbourhood with an escalation of criminal activity. When applied in the context of money laundering, it may be noted that this theory has a significant amount of relevance, quite apart from the spiralling in the rate of money laundering as mentioned earlier. Money laundering itself is founded in an inherently dishonest, criminal act which deserves to be detected and punished. However, because money laundering is often classified as a white collar crime, it may be taken as seriously as other more serious crimes such as murder. As a result, punitive measures instituted, especially in the countries mentioned earlier, may be lukewarm at best, thereby leading to high levels of losses of money through the nefarious activities and channels discussed earlier. The general impression which is therefore conveyed to criminals engaging in this activity is that it is not serious enough to result in a high cost to society and that such activities are acceptable. As a result, this only means that more individuals and groups are likely to engage in money laundering activities, which produces a domino effect, leading to more and more losses and ultimately making itself manifest in the damage to the economy in general. The due process and crime control models: In a criminal trial, one of the most important rights that will accrue to any person accused of a crime is the constitutional right to every aspect of the due process of law that will ensure that his or her guilt is established by proof beyond a reasonable doubt (Clark-Stapleton, No date). The due process of law is the right accorded to every person alleged to have committed a crime to be treated fairly when involved in a legal action. The notion that defendants are presumed to be innocent until proven guilty is a fundamental principle of English law (Martin, 2003). Article 6 of the Human Rights Act of 1998, which came into force in 2000 in the U.K, establishes the right of every individual to a fair trial, in order to ensure that an individual’s civil liberties are protected and that every person who is charged with a criminal offense in particular, shall be presumed innocent unless proved guilty according to law (www.opsi.gov.uk). However, the predominantly client centered approach in legal defense which protects them from incriminating themselves may also create a soft stance towards crime.1 Two major criminal justice paradigms have been developed in approaching crime – the due process model and the crime control model. The “proponents of both models [due process and crime control] embrace constitutional values.” (Packer, 1968:12). Moreover the goal of both the process is to protect individual privacy while reducing the incidence of criminal conduct. However, the focus of the due process model is upon individual privacy. Therefore, according to this model, there are limits on the powers or abilities of Government when investigating a crime or a person (Packer, 1968:13). The Government cannot extend its powers to the extent of interfering with the individual’s right to privacy and freedoms that are guaranteed under the law. While the repression of crime is important, the police will not always be assumed to be correct in their fact finding. This model moves the accused person through the criminal justice system with support extended to the individual. The finality is low in the due process model and there is room for appeals that may be made, because the due process model aims to ensure that no innocent person is convicted. In the context of money laundering, it may be noted that the application of this model is unlikely to be effective, because it would emphasize the rights of individuals, which could make it difficult to pin down money launderers without specific evidence against them. In the case of individuals such as Stanley Ho of Macau, for instance, it would be virtually impossible to bring any significant criminal action against him, because he would always be able to escape prosecution on the grounds that high individual rights to privacy are being infringed. However, the basic premise of the Crime Control Model is set out as follows: “the repression of criminal conduct is by far the most important function to be performed by the criminal process.” (Packer, 1968:13). Hence, the focus of this approach is not upon protection of individual rights but upon ensuring that crime is punished. Therefore, the major thrust of this approach is to assume that the accused person is guilty when he steps into Court. This model supports the actions of the police and prosecutors. This model moves the alleged criminal through the criminal justice system as if he/she is guilty, unless proven otherwise. The focus is upon the guilt as established by the facts and limits the extent of plea bargaining and appeals that are allowed within the system. Therefore, this model allows for a definitive result on a particular crime and since the scope for appeals is limited, the process if faster although the scope for appeals may be limited. This approach is likely to be much more effective in the context of money laundering. Here, punishing the crime itself would be more important, and the rights of the individual would assume a subordinate role. The laws passed by the Hong Kong Government could for example, be quite effective in this regard, because if this model is applied, then the crime of trafficking as defined under legislation would itself provide adequate grounds to initiate criminal action against perpetrators of these crimes and to ensure that they are punished. David Garland’s theory: David Garland (1996) has highlighted two different kinds of responses that are exercised by Governments in contemporary crime control. His theories are relevant because money laundering is in general, the kind of crime where strong Government action is required, because the perpetrators may often be public bodies such as government and financial officials who function as abetters in crime. One of these is the adaptive approach, wherein the Government functions as a facilitator to rehabilitate criminals, focusing upon the consequences rather than the causes of crime. According to Garland, in earlier years, the criminal justice system had assumed a hybrid penal welfare structure, combining due process and proportionate punishment with a decisive thrust in the correctionalist direction, favoring rehabilitation, welfare and criminological expertise.(Garland, 2001: 27). Developments in correctional policies demonstrated a commitment to community based solutions, with a focus on the rehabilitation of offenders and the tailoring of individual penal sentences framed in accordance with the characteristics and needs of the offenders. This approach exemplifies a pragmatic and adaptive Government response to crime, characterized by (a) the State role as a facilitator rather than controller of criminal policy (b) focus on the consequences rather than causes of crime (c) participation of non-State actors in prevention of crime (d) viewing crime prospectively, i.e, institution of crime prevention measures (Garland, 1996). This is similar to the Crime control model set out above, wherein the offenders need to be severely punished, thereby directing it towards correction of the crime itself rather than bothering unduly about the underlying causal factors for it. While it is possible that this approach may apply to a limited extent, applying the broken window theory as well in this context would literally mean that the first broken window is fixed, i.e, by meting out punishment, criminals know that there is a cost linked to criminal activity, which functions as a deterrent. The other is the denial approach. During the last part of the twentieth century, rationales for crime controls have become non correctional with new philosophies of punishment and new penological aims. (Garland, 2001:103). This is more in line with a non adaptive strategy, wherein the characteristic response of Governments is one of denial. Despite evidence that may exist on the relative inefficacy of harsh punishment as a means of controlling crime, Governments may still insist that harsh punitive measures be applied. Criminal policy objectives may include impulsive reactions to underlying problems, such as the introduction of harsh measures, valued for their symbolic effect rather than any actual mitigation of crime. Garland is of the view that because of the social and economic changes that have taken place in recent years, the new politics of crime control has become more expressive and instrumental, (Garland, 2001:139) tending to be non adaptive rather than adaptive. This may be relevant to money laundering only to the extent that it may help to uncover underlying causes and circumstances existing within a particular society which make it more prone to the crime being committed. Other models: The Positivist approach to crime states that people commit crimes because they are abnormal and often resort to it because of their biological make up, rather than the crime being the result of a rational choice made by an individual. (Joyce, 2006). This criminological approach focuses on the offender, seeking to gain an understanding of the person committing the offence rather than dwelling on the crime itself. This was in line with earlier correctional approaches to crime that advocated the rehabilitation of the offender as the ultimate objective of the criminal justice system. This would also apply in the money laundering context where the effort would beto understand the motivations of the offenders committing the crimes so that preventive measures which would be effective in the long term can be devised. Conclusions: In conclusion therefore, it may be noted that the broken windows theory appears most relevant in explaining how money laundering can have a domino, mushroom effect if it is not nipped in the bud when it first occurs. The theories offered by the other models may be relevant to the etent that they are able to attribute a cost to the commission of the crime, because it is only then that a deterrent effect to criminal activity would be achieved. References: Article 6 , section 2 of the Human Rights Act of 1998. [Online] Available at: http://www.opsi.gov.uk/acts/acts1998/80042--d.htm Clark-Stapleton, Karen Lesley, No Date. “Injustices within the System: Is the System fundamentally flawed?” [Online] Available at:http://www.portia.org/chapter13/KarenLCS/system.html “Funds derived from criminal activities”, retrieved July 28, 2010 from: http://www.interpol.int/Public/FinancialCrime/fopac/default.asp Garland, D, 2001. “The Culture of Control”, Oxford: Oxford University Press Garland, D, 1996. “The Limits of the Sovereign State”, British Journal of Criminology 36(4): 445-471. Hansen, Burke, 2007. “As gold fever hits Macau, Ho’s still in the money”, The Register, 26 March 2007; retrieved July 27, 2010 from: http://www.theregister.co.uk/2007/03/26/ho_macau_mgm_banco_delta_asia/ Kam Wah, Sin, “Current situation and counter measures against money laundering: Hong Kong”, retrieved July 28, 2010 from: http://www.unafei.or.jp/english/pdf/PDF_rms/no58/58-28.pdf Kelling, George L and Wilson, James Q, 1982. “Broken Windows”, The Atlantic, March 1982, Retrieved July 28, 2010 from: http://www.theatlantic.com/magazine/archive/1982/03/broken-windows/4465/ Martin, J, 2003. “The English Legal System” London” Hodder Arnold Packer, H, 1968. “The limits of the criminal sanction”. Ying, Huang, No Date: “Money laundering challenges China’s economy”, retrieved July 28, 2010 from: http://english.peopledaily.com.cn/200207/09/eng20020709_99413.shtml Read More