The World Trade Organization, Money Corruption and Money Laundering - Research Paper Example

 Introduction There is a difficulty in defining trade corruption. This is because corruption has very different meanings and definitions. “In the absence of a commonly held and widely agreed upon definition of corruption, perception indexes are able to measure different things because the respondents could have very different concepts in mind”1. However, for the purposes of dealing with the issue of corruption and illegalities on an international levels, most legal systems tend to define 'corruption' in relation to its linkage with illicit trade and terrorism finance2. This forms the crux of the various anti-money laundering laws which have gained prominence over the past decade. Aizenman and Noy argue that corruption affects trade flows negatively3. To this end, they identify that money laundering is used as a vehicle for overriding money laundering barriers across international boundaries. Also, “most public statements about the evils of corruption include a reference to distortion of international competition and trade flows4. This shows emphatically that illegalities have an impact on competition and it affects the way trade is conducted in so many ways. In illustrating this further, Wraight states that trade and investments are limited by “dizzying taxes, outlandish regulations, administrative inertia, the legal system, the labor code, monopolies, corruption and fraud”5. Clearly, these are the textbook examples of corruptions and illegalities that are relevant to international trade and international business. Although, some of them are inherent in nature and cannot be routed out easily, others are of an external nature and can be dealt with through laws, monitoring, evaluation and other controls. In this research, the aim is to examine and analyze the tools and mechanisms used by the World Trade Organization to deal with trade corruption. It will involve an examination of the relationship that exists between the WTO and illegalities in trade. In doing this, the paper will undertake a critical analysis of the various interventions used by the WTO and how effective or ineffective these mechanisms turn out to be in practice. This will involve a set of recommendation on how to deal with some of the issues and problems. In doing this, the following objectives will be examined: 1. The relationship between money laundering and trade. 2. The Role of the World Trade Organization in fighting money laundering in trade. 3. Assessment of WTO arrangements and money laundering laws, its application and other legal instruments. 4. Proposals for improvements and direct provisions to deal with the limitations. Money Laundering and Trade International trade has taken a different turn over the past twenty years. It can be identified that three main things have played a major role in the changing terrain: globalization, deregulation and financial secrecy services6. The world's boundaries are fast disappearing in terms of trade due to globalization. Globalization is boosted by the promotion of internationalization and the harmonization of standards as well as the growth of technology. This allows people to communicate over huge distances with ease and also allows business parties to conduct business and trade in different jurisdictions without having to deal with overwhelmingly different rules and standards. Secondly, the deregulation of the late 1980s have led to a situation where there is so much liberalization of many institutions like the financial services. This means that most banks and other financial intermediaries have a higher degree of freedom in dealing with issues and matters. This gives rise to the third component which is financial secrecy. Due to financial secrecy, many illegal activities can be carried out without being noticed. “Discrepancies in the policies pursued by governments in different countries will either open up or close off profitable opportunities”7. Due to this, many countries have to adhere to different means and systems to promote trade internationally. And in doing this, there are many opportunities which are pursued which leads to several loopholes that causes money laundering to be promoted and enhanced around the world. Legally, money laundering is explained as the process of integrating proceeds from crime into legitimate financial streams and disguising its illegal origins8. Money laundering is about 'washing' illegal funds and presenting them as legal. In other words, a person who earns money through a venture that is wrong has the tendency of re-injecting it into the economy as legal funds. Thus, a person who earns money from selling drugs might want to present the funds as legal. In doing this, they will either inject it into their bank accounts as 'profits' from some business or invest it into real estate. In examining the development of Money Laundering Laws, the United States began it with the Bank Secrecy Act of 1970 which made it imperative for banks to blow the whistle on people they suspected to hold funds that were obtained illegally. In a landmark UK case, R V Cuthberson9 a man was convicted of trading in banned drugs. This man was jailed in the face of overwhelming evidence of his conduct. The Crown Prosecution Service went on to confiscate his assets. However, he came back from jail and appealed against the decision to seize his assets. It was held that the Crown Prosecution Service did not have the legal right to confiscate those properties. The precedence in R V Cuthberson was that people who get money through illegal means are only liable to punishment. This punishment did not include seizure or confiscation of assets that they acquired through the illegal activity. Effectively, people who were successful in hiding their booty could endure the punishment of their conviction and come from jail to enjoy the wealth they stored away. Thus, there was the need for the British authorities to come up with laws that will force people to give up the benefits they enjoyed through illegal activities. After much deliberations and discussions, the British parliament passed the Money Laundering Control Act of 1986. The Act made it possible to confiscate the assets of people involved in illegality, particularly, the sale of drugs. This was done by calculating the benefit that the individual accrued through the illegal trade. The Proceeds of Crime Act (2002) sets out the methodology for calculating money deemed to be laundered. This is done by assessing the assets owned by the individual in question and calculating all the revenue that the person accrued through legally recognized means. The properties that the individual has above his legal means of making money is deemed to be part of illegal funds. All those properties are confiscated. There are three main stages of money laundering. They are placement, layering and integration10. Placement involves the situation where illegally accrued funds are used to purchase an asset or placed in a financial institution like a bank. In other words, it involves putting funds acquired from illegal activities in a medium that will store its value. One of such means is trade. The second state, layering is to conceal or disguise ownership. This is done by trying to present it as a legitimate source of income. Typically, it could include overstating profits or adding it as part of income from rent or a business. The motive here is to put it in a way that they will be seen to be part of some legal venture or means. This is often done through the use of forged documents and systems. The final state is to integrate it into the economy. This is done through the presentation of the funds through some legally accepted system or means. This shows that the funds are legitimate when they are not and the illegality continues with the perpetrator. Money laundering through trade is known as “Trade Based Money Laundering”11. This means that the illegal funds are injected into the economy as though it was acquired legally through trade. “Trade based money laundering is where goods change hands in support of money laundering”12. Trade based money laundering can involve the sale of goods that do not exist and off balance sheet finance. The main aim is to disguise the source of income and present it as legal when in fact it was acquired illegally. This includes over and under invoicing and the massaging of figures in income statements to show that certain transactions were carried out when indeed they never occurred13. The World Trade Organization and Money Laundering. WTO and Anti-Money Laundering Laws in Protecting International Trade Limitations of the WTO and AML Laws Proposals for Improvement Conclusion Trade corruption involves a myriad of illegalities and activities that are not acceptable. In order to deal with them, there are money laundering rules that have the scope and power to handle them. This is classified under the broad heading of trade-based money laundering. Bibliography Aizenman, Joshua and Noy Ilan. Links Between Trade and Finance: A Disaggregated Analysis. (Chicago: University of Chicago Press, 2008) Elliot, Kimberley Ann. Corruption and the Global Economy. (Washington DC: Peterson Institute, 1997). Gilmore, William. Dirty Money: The Evolution of International Measures to Counter Money Laundering. (Strasbourg: Council of Europe, 2009). Hinterseer, Kris. Criminal Finance: The Political Economy of Money Laundering (Amsterdam: Kluwer Law International, 2002) Mendilow, Jonathan. Money, Corruption and Political Competition in Established and Emerging Nations.(New York: Rowman and Littlefield, 2012). Odeh, Ismail. Anti-Money Laundering and Counter and International Terrorism Financing (New York: Dorrance Publishing, 2010). Organization of Economic Cooperation and Development. Money Laundering: Handbook for Tax Examiners and Tax Auditors (New York: OECD, 2010) Rotberg, Robert. Corruption, Global Security and World Order (Washington DC: Brookings Institute, 2009) Shanty, Frank and Mishra, Patit. Organized Crime: From Trafficking to Terrorism. (Palo-Alto: ABC-CLIO, 2007) Wraight, Christopher. The Ethics of Trade and Aid: Development, Charity and Aid. (New York: Continuum International Publishing Group, 2011). Read More