Money Laundering and Terrorism Financing: Nature and Prevention - Research Paper Example

?Running head: MONEY LAUNDERING AND TERRORISM Money Laundering and Terrorism Financing: Nature and Prevention Money Laundering and Terrorism Financing: Nature and Prevention Money Laundering is an evil which is increasingly being fought worldwide with the efforts having been heightened following the September 11, 2001 attack. This is because of the presumed association that money laundering has with terrorism activities. Dicken (2007) observes that this connection results in global problems which portend serious impact on security besides negatively affecting the world economy as it dilutes and compromises financial systems and their stability. No wonder, the former president of the World Bank Group James Wolfenson, once asserted that the ‘global community should act where it really matters” (Chatain et al, 2011). Indeed, the situation is more embedded in the fact that approximately more than 1 trillion dollars is laundered every year in the last decade. Money laundering is thus a monster that fosters the success of many a criminal enterprises, and a practice which happens by virtue of normalizing criminal money by different methods/means Further, pundits have observed that money laundering and terrorist criminal activities are made intimately possible for the fact that they both bring about corruption, drug trafficking and smuggling. This paper seeks to address the issue of money laundering and terrorist financing. It examines what money laundering is all about, its historical development and its nature in the current globalized world. Further the paper highlights the relationship between money laundering and organized crime—paying attention to terrorism as an example. While the paper recognizes that there are many ways by which this vice can be curbed, it illuminates only on two ways in which terrorist financing in the context of money laundering can be minimized. What is Money Laundering and What Forms does it take? While scholars and thinkers alike seem to know exactly what money laundering is, there is not yet universally agreed definition of the term. Stanley Security (2011) defines money laundering as the ‘’the process of concealing financial transactions with the aim of hiding the source or the destination of the money’’ World Bank (2005) sees it as the ‘legitimization or washing of illegally obtained money to hide its true nature or source (typically the drug trade or terrorist activities)’’. Accordingly, money laundering in this sense is often executed by making the ill-gotten money go through mysterious ways and by means of legitimate business means and processes. This can occur by way of depositing the money in the bank, investing the money, or transferring the money from one location or person to another location/person. World Bank (2005) however contends that the best way to comprehend money laundering is to examine the examples or the forms which it takes. An example is redistribution of money that is got from drugs into small units, into many different accounts, which belong to different individuals Money laundering in the context of globalization: Overall View Money laundering has been more compounded and heightened with globalization. This according to Dicken (2007) is embeded in economic globalization which is mostly brought into being in two major ways. First is that there is momentous lessening of bottlenecks that had traditionally defined international trade, with the emergence of a lot more emphasis on the aspect of free flow of goods, free flow of services, and also free flow of capital and raw materials, which has predominantly been experienced since the Second World War. The second reason which Dicken (2007) advances has to do with technological advancement. These developments include advancement in communication methodologies such the internet, mobile phones (with reduction of call costs), information dispensation, and increased transport technologies and reliabilities in such with speed and convenience. The argument here is that these has made money laundering a lot easier and organized crime much easy to execute. Steel (2011) recognizes that money laundering fits very well as a global phenomenon, which is facilitated and streamlined by the ‘International financial Community’. He argues that is more propped by the fact that globally, every minute, business is going on somewhere-when it closes in one place, it open in another. The 1993 UN report indicates that the main features of money laundering, which is related to organized crime as well as transnational one, is to be found in its global angling and the usage of technological advancement and the mutating nature of laundering itself (Steel, 2011). History of Money Laundering Steel (2011) asserts that money laundering traces its origin in the ‘Mafia ownership of Laundromats’’ which existed in the United States. In these establishments, historians argue that the organized members of gangs were enjoying great deal of money from prostitution, gambling, and swindling as well as bootleg liquor. However, they often wanted to indicate that the money they earned was legitimate. This necessitated a search of ways such as investing in outwardly legitimate enterprises so that the illegitimate income would mix with those that were legally recognized. This explains why Laundromats was chosen by most of these people due to their nature as ‘cash businesses’ to the advantage of one Al Capone, who without questions bought such businesses (Steel, 2011). Al Capone, Steel (2011) notes was, prosecuted and found guilty in 1931 and jailed for evading tax. Some historians and scholars have however poked holes in the reason for convicting him, arguing that instead of examining and scrutinizing other deep financial crimes, related to illegitimacy of his business, he was only charged with tax evasion. According to Steel (2011) this set the take off for money laundering. He imagines that the likes of Meyer Lansky, otherwise referred to ‘the Mob’s Accountant’ having in mind that he could face the fate that had befallen Al Capone, he strategically looked for ways to hide conceal his income, and before long he and kept some money in a Swiss Bank Account. Thus is perhaps regarded as the main onslaught of money laundering, with Lansky regarded as the father who propelled the vice. Steel affirms that it was the employment of these facilities that enabled Lansky to ‘incorporate one of the first real laundering ever’’. Example was the use of Loan back-which facilitated the possibility of organizing illegal money into loans, and could ultimately ne regarded as revenue when necessary. It also portent-ended a possibility of deducting tax got into such deals (Steel, 2011). Eventually, money laundering-which is a fairly new term, was first sighted in Watergate scandal in the US in the year 1973, and later featured in the judiciary in the year 1982 in America. Following this, the term gained momentum and has been widely used the world over (Steel, 2011). Money Laundering and Organized Crime: A focus on Terrorism Historically, money laundering was closely paid attention to in the 1980s as it was seen as narrowly related to drug trafficking. Governments become much interested in combating the vice when it was seen as leeway through which drug money was finding its legitimacy and the fact that western societies were becoming increasingly concerned with the problem of drug abuse. Steel (2011) further believes that increasingly governments the world over have recognized that such insurmountable profits would used to influence, negatively, state structures. Terrorism and the manner by which it is financed affects economies in a large scale, and money laundering is closely associated with it. Terrorist mainly source their income from acts such kidnapping, smuggling, drug trafficking, as well as robbery among other criminal activities (World Bank, 2005). How then can terrorists financing, through money laundering be prevented or at least minimized. This paper focuses on two methods namely Licensing in Banks, and Security Control of the Supply Chain. Licensing of Banks This has been identified as a crucial way to curbing terrorist financing. Effective bank licensing must take considerations of a number of factors. First approach is to ensure that the strategy taken by a jurisdiction is keen with possible risks. Chatain et al (2011) note that licensing endeavors ought to factor in the possible risks extended by a legal person or entity which wants to take ownership or control a huge amount of a bank’s shares. In the same vein they argue that the bank must carefully examine the potential risks posited by natural persons who are recommended to ‘hold directorships and senior management positions’. The authors outline a number of issues which should be considered while considering this strategy. One is the reason for which such a person is being touted for such a position and the criminal record of such a person, as well as the degree of such crimes. In the case of legal person, they argue that the entity must be scrutinized to validate concerns such as transparency and governance. Further, the grand characteristics of the local environment including degree of disclosure as well as the nature of the financial data provided and group configuration must be factored in. Overall, the licensing prerequisites involving such measures must be in line with the possible risks so that while minimizing the possibilities of money laundering, they also do not interfere with legitimate entry into the banking industry (Chattain et al, 2011). Global Trade and Terrorist Security Concern Measures by Governments: Focus on the Supply Chain. Tempeir (2011) exposes the meaning of supply chain in this context as the international principles of practice which facilitate administration and management of customs and their partners in order to enhance security of the ‘global trade supply chain’ while at the same time ensuring that lawful goods go through, and minimizing money laundering and issues to do with terrorist financing. While he agrees that effective facilitation of trade is one of the key contributors to a sound economy is the global spectrum, measures must be taken into account to prevent legitimization of ill-gotten money through drug trafficking, extortion, kidnapping among others from getting into terrorist hands.. Recognizing that as economic development marries with other demands such job creation, protection of the environment and elimination of poverty, he contends that trade at the ports should be well handled, not only for these purposes but prevention of organized as well as transnational criminality (Tempeir, 2011) In a global economy, Tempeir (2011) observes that there has been undying talk about the need to be security complaint at various ports given threats that terrorist posit, and issues such as money laundering, smuggling of items, and organized crime. All these have meant an increase in security concerns leading to stringent security measures being placed on international goods transit, to curb such menace and to promote effective revenue collection (Tempeir, 2011). The dilemma posited by this development led to the World Customs Organization (WCO) initiating its own ‘Framework of Standards to secure and Facilitate Global Trade’’. This development recognized international trade reality in the present times, and took care of such concerns as bringing in a tradition of safer and secured international trade and the WCO unanimously agreed for its adoption in Brussels, in 2005. It is believed that with this development, facilitation of international trade will be smoothly handled (Tempeir, 2011). Conclusion In the current financial recession, a number of challenges in relation systems and structures are posited to many countries the world over. The need for transparent and financial system challenged with issues such as money laundering and terrorist financing must not be left unchecked. Money laundering has mutated overtime and will continue to do so especially due to the fact that terrorist mainly rely on it as a method of financial distribution. This calls for a critical oversight measures to be enacted to ensure protection of the financial systems and minimizing of terrorist activities. While there are a number of measures which might be applied, the thrust seems to be with initiating a clean banking system and controlling supply chain at the ports. References Chatain, P., De Willebois, E., McDowell, J., Mousset, C. & Schott, P. (2011). Preventing money laundering and terrorist financing. Washington DC: World Bank. Dicken, P. (2007). Global shift: Mapping the changing contours of the world economy. London: Sage Publications. Stanley Security (2011). What is money laundering. Stanley Security. Steel, B. (2010). Money laundering. BMLIW. Tempier, L. (2011). Security and facilitation of the international trade supply. GFP World Bank (2005). Combating money laundering and the financing; Of terrorism-a comprehensive training guide. Washington DC, World Bank. Read More