Corruption and Money Laundering - Coursework Example

CORRUPTION AND MONEY LAUNDERING] By Insert Presented to Location Due Introduction The recent trends in globalisation have led to an increase in international business and trade of which they present numerous advantages not only for businesses, but also for national economies and countries. However, globalisation has also brought to life significant challenges while fuelling others. Some of these global challenges include terrorism, drug trafficking, arms trafficking and human trafficking. These aforementioned criminal activities are particularly pervasive owing to certain loopholes within international law and governance structures. From a business perspective, two of the most imperative threats to economic development in today’s global scene are money laundering and corruption. Money laundering is a phenomenon whereby individuals endeavour to reintroduce illicitly acquired money into the legitimate cash flow channels. This illegitimate money is usually sourced from predicating activities that are of criminal nature, such as the ones highlighted above. Corruption on its part encompasses a wide range of activities, particularly those that afford private benefit to an individual, arising from a misuse of public authority. Corruption can in itself be, and usually is, a predicating criminal activity for money laundering. Owing to the international characteristic of these two crimes, international efforts such as Financial Action Task Force on Money Laundering (FATFML) and the United Nations Convention Against Corruption (UNCAC) have sprung to combat each of these criminal activities. In the subsequent section, the risk of corruption and money laundering will be assessed, alongside the effectiveness of international efforts. The preceding section will evaluate the UK bribery Act of 2010, and assesses its impact on UK companies attempting to conduct their businesses abroad. Global Risk and Mitigation of Money Laundering Money laundering and corruption are two of the most formidable threats to economic development and progress both in developed and developing nations. They have consequently attracted much attention from international bodies and agencies such as the World Bank and Transparency International. Money laundering can be understood as a process through which the origins of illicitly acquired money are obscured. It normally involves the “washing” or “cleansing” of illegally acquired money through individuals or organisations, to portray the money as legitimately acquired (Gonzalez-Perez & Leonard, 2013). It is predicated by an offence that introduces money into the hands of offenders. Such offences may include criminal activities such as drug dealing, bank robbery or child and human trafficking. Once the money has been acquired, the conundrum for criminals lies on how to subtly reintroduce the money into legitimate financial circulation without arousing suspicion from authorities. The percolation and prevalence of international trade has promoted an international character of money laundering. In order to evade being captured, offenders usually choose to use international finance systems to obscure their illegitimately acquired money. The need to combat money laundering is underscored by the fact that money is a form of capital. The capacity for money laundering promotes continued criminal activities while at the same time facilitating new forms of crimes due to a capability to finance them. It is because of this reason that money laundering requires to be combated on its own. Towards this end, a concerted international effort is required. These efforts are necessitated because of international crime phenomena such as the international drug trade as well as human trafficking (Chaikin & Sharman, 2009). More recently, the threat of terrorism has increased concern on money laundering activities. This is because laundered money provides capital to finance terrorist activities (IMF, n.d). It is for this reason that the combating the financing of terrorism program has been set up. There have in fact been several efforts to combat money laundering. For instance, in 1986, the United States criminalized money laundering. The country has also played an instrumental role in campaigning for an international regime on Anti Money Laundering. Other instrumental figures include the Commonwealth, the Council of Europe and Interpol (Chaikin & Sharman, 2009). The 1988 UN Vienna Convention against Illicit Trade in Narcotic Drugs and Psychotropic Substances marked the first major international agreement aimed at tackling money laundering. The convention effectively made money laundering a crime. Consequently, over 180 nations have criminalized money laundering (Chaikin & Sharman, 2009). This is an indication of the progress towards combating money laundering. The most important international AML to materialize is the Financial Action Task Force (FATF), which was created in 1990. While it is not a formal treaty, the FATF has still managed to influence policy considerably. One of the achievements of the FATF is that it stressed the need to address money laundering through the regulation of financial intermediaries (Chaikin & Sharman, 2009). The International Monetary Fund is instrumental in influencing the adoption of international standards developed by the FATF. Moreover, it also provides technical assistance to member states on how AML regime can be improved (IMF, n.d). One of the methods of tackling money laundering involves the use of Financial Intelligence Units (FIUs). These units receive and assess information on possible suspicious financial activities that may be money-laundering activities. Global Risk and Mitigation of Corruption Corruption on the other hand encompasses a wide range of activities and is classified as one of the forms of occupational fraud in organisations. It is a rather wide time and therefore, a concise definition of the term is rather ambiguous. Transparency International, a leading institution championing the fight against corruption defines it as “the misuse of entrusted power for private gain” (Chaikin & Sharman, 2009, p. 8). A broader definition provided by the United Nations Convention against Corruption (UNCAC) encompasses a broad range of activities such as active and passive bribery of domestic and foreign officials as well as those from international organisations, misappropriation of public property through embezzlement or diversion, embezzlement and bribery within the private sector. Bribery is considered a form of corruption even where the transaction terminates merely at offering or solicitation of bribes without any exchange. Corruption covers a wide scope and while it usually involves some form of monetary gain, this is not always the case. Moreover, it may involve both individuals and companies particularly those involved in public management activities. A growing consensus is that corruption does not always have to involve a public official but that rather, it may also involve two players within the private sector. Corruption has detrimental consequences. It results in economic losses for the public as well as private entities involved due to the huge sums of money that are stolen. Corruption also has significant societal implications. These implications vary based on the scale of corruption, but it is corruption at the international level that has the most significant impacts. They are felt internationally across a number of nations. To combat corruption at this level, a collaborative and concerted approach is necessary. In recognition of this fact, a number of internationally concerted approaches have sprung at various levels. Such actions that have been undertaken include the formulation of international agencies and inter-governmental panels as well as monitoring efforts by international monitoring agencies. Perhaps the most significant of international efforts that have been set up to address corruption is the (UNCAC). This convention is signed and ratified by a great majority of the United Nation’s members. According to its charter document, it has several purposes, the first of which is to promote and strengthen measures that facilitate effective and efficient corruption prevention and combat. It also aims to promote virtues such as integrity and accountability, as well as the proper management of public affairs and property. Finally, the UNCAC also aims to “promote, facilitate and support international cooperation and technical assistance in the prevention of and fight against corruption, including in asset recovery” (UNCAC, 2004, p. 7). In a 2008 meeting of the convention, grand corruption was singled out as a key priority of the convention. Another international effort to address corruption is the Organisation for Economic Development Anti-Bribery Convention. The United States had a major role to play in the development of this convention, first by legislating anti-corruption policy for its companies. The convention was agreed upon in 1997 and came into force in 1999. The convention, while not the first, heralded a new era for international corruption, owing that it sprung from a commitment by the world’s largest economies (Chaikin & Sharman, 2009). While this convention largely affected rich countries, the efforts of the World Bank had a reverberating effect across all nations, including the developing ones. The World Bank developed guidelines for countries whereby those who otherwise failed to comply had their loans retracted. The actions of these bodies and conventions have largely been direct through conventional or coercive action. Besides the direct action of internationally convened actions, there have also been indirect efforts to combat international corruption. One of the most significant bodies working towards the realization of anti-corruption is Transparency International. This is an international Non-Governmental Organisation founded in 1993 (Chaikin & Sharman, 2009). Its main goal is to apply pressure on nations by publicizing various corruption indexes such as the Corruption Perceptions Index and the Bribe Payers’ Index. The former enquires from foreign investors on their perceptions of the prevalence of corruption whereas the latter surveys which exporting nations are most likely to engage in corrupt practices. In its anti-corruption endeavours, some of the activities that Transparency International is involved in include the promotion of holistic ant-corruption approaches that involving stakeholders such as the various arms of governments, civil society bodies, the media and dedicated anti-corruption bodies. The international efforts targeting corruption and money laundering have increasingly intensified and have become more sophisticated with increased consultation between nations. Considerable progress has been achieved such as the ratification of various conventions. However, there are significant challenges in addressing the two vices. For instance, it is difficult to address corruption due to the fact that it relies on secrecy (Chaikin & Sharman, 2009). Thereby, the detection of the same becomes difficult. Similarly, determining incidences of money laundering is also complicated by the fact that financial institutions have a duty of fiduciary confidentiality within their transactions. Additionally, even where they may suspect money laundering to be occurring, there is usually no way for the institutions to substantiate these suspicions (IMF, n.d). The lack of an effective framework for implementation and monitoring marks one of the most significant shortcomings towards the successful implementation of combative efforts (Argandoña, 2007). There is therefore a need to create capacity among nations, particularly developed ones, to implement such policies. The UK Bribery Act of 2010 and Its Impact on United Kingdom’s Foreign Investment The Bribery Act 2010 was drafted with a view to address corrupt practices by international organisations either those of UK origin or those operating within the UK. It is a much stricter legislation that provides enforcement agencies with greater powers and stipulates much tougher penalties. It also creates new corporate crimes, such as the failure by businesses to prevent bribery, whether or not the firm was aware (Trautman & Altenbaumer-Price, 2013). The expanded scope of the act is reflected on the fact that the Act dictates that the bribery incidence may also arise out of an act by any individual associated with the company (Loughman & Sibery, 2012). The four categories covered under the new policy are offering bribes, receiving bribes, bribing foreign officials and failure to prevent bribery. The Bribery Act 2010 has significant implications for UK businesses. According to the act, its provisions apply to any business that is remotely associated with the UK. The new category further affects companies that conduct their business within the UK. For any commercial markets that would desire to expand into emerging markets, it is imperative that they do not breach any of the four key offences outlined by the act (PwC, 2011). PricewaterhouseCoopers indicates some of the general challenges that UK businesses have to contend with across four of the world’s emerging economies, Brazil, India, Russia and China. These challenges include the lack of a assertive ethical stand at the highest level, inadequate anticorruption procedures within most business organisations, poor risk assessment structures and limited or absent due diligence. These risks are prevalent even in developed economies, albeit at much lower levels. In order to avert the consequences arising from the failure to comply with the provisions of the Bribery Act, it is imperative for UK companies to put in place anti-bribery programmes. These programmes would affect a host affect including the creation of an anti-bribery policy and analyzing the areas of risk (The Law Society, 2011). Risk analysis would allow the firm to identify areas of potential bribery. Such risk analysis should then be combined with due diligence practices to mitigate the possibility of bribery. According to Clarke, such due diligence should practices proportionately to the identified risks (2011). This will ensure that such procedures suffice to mitigate the potential of bribery arising from the respectively identified risk. Apart from requiring businesses to step up their anti-bribery practices, the Bribery Act has also affected businesses in terms of their commercial capacity. One of the impacts on UK businesses attempting to establish themselves within foreign markets is that they sometimes find it more difficult to compete. There is a growing perception that the act restricts UK companies from competing for contracts outside the UK (Wright, 2013). However, Yeoh avers that there is no substantial evidence to support the assertions that UK businesses are predisposed to a competitive disadvantage to other bribe-paying competitors (2012). All in all, this should not be the case since guidance has been proffered by bodies such as the UK Law Society (The Law Society, 2011) as well as the Ministry of Justice (Clarke, 2011) on how to go about compliance with the Act while yet maintaining a competitive advantage. Moreover, with an outlook on the future, it is likely that UK’s anti-bribery laws will place UK companies at a competitive advantage. This is because the global trend converges towards support for anti-bribery laws and corruption-free economies. Thus, with the right attitude, it is likely that UK companies will be ahead of the pack when comprehensive anti-corruption frameworks have been put in place. Conclusion There is a heightened global risk of corruption and money-laundering. This is particularly in developing countries where there are inadequate frameworks in place to address corruption and money-laundering practices. International efforts to address the two vices have spread globally and with reference to corruption, the UNCAC has been ratified by a majority of UN members. However, such efforts are often hampered by the inadequacy of frameworks that can facilitate the monitoring and implementation of policies. The need to address money-laundering is underscored by the fact that the vice facilitates and promotes the continued perpetration of international crimes such as drug trade, child trafficking and more recently terrorism. Corruption on the other hand affects businesses and the society at large, by denied publics fair and just access to services. In its efforts to address corruption at the international level, The United Kingdom implemented the Bribery Act 2010. This Act is more expansive and affects all UK business operations within and without the countries territorial jurisdiction. It has been argued that the act has reduced the competitive advantage of UK businesses abroad. However, there is no conclusive evidence to support such assertions. References Argandoña, A. (2007). The United Nations convention against corruption and its impact on international companies. Journal of Business Ethics , 74 (4), 481-496. Chaikin, D., & Sharman, J. (2009). Corruption and money laundering a symbiotic relationship. New York: Palgrave Macmillan. Clarke, K. (2011). The Bribery Act 2010 - Guidance. Retrieved November 28, 2014, from United Kingdom Ministry of Justice: http://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf. Gonzalez-Perez, M.-A., & Leonard, L. (2013). International business, sustainability and corporate social responsibility. Bingley [England: Emerald. IMF. (n.d). Anti-Money Laundering/Combating the Financing of Terrorism - Topics. Retrieved November 28, 2014, from International Monetary Fund: http://www.imf.org/external/np/leg/amlcft/eng/aml1.htm Loughman, B., & Sibery, R. (2012). Bribery and Corruption: Navigating the Global Risks. Hoboken, NJ: Wiley. PwC. (2011). Responding to the UK Bribery Act 2010. Retrieved November 28, 2014, from PricewaterhouseCoopers: www.pwclegal.co.uk The Law Society. (2011, June 7). Bribery Act 2010 . Retrieved November 28, 2014, from The Law Society: http://www.lawsociety.org.uk/support-services/advice/practice-notes/bribery-act-2010/ Trautman, L. J., & Altenbaumer-Price, K. (2013). Lawyers, Guns and Money – The Bribery Problem and U.K. Bribery Act. The International Lawyer , 47, 481-517. UNCAC. (2004). United Nations Convention Against Corruption. New York: United Nations Ad Hoc Committee Against Corruption. Wright, E. (2013, April). The House of Lords Report on the impact of The Bribery Act 2010 on SME. Retrieved November 28, 2014, from JMW: http://www.jmw.co.uk/blog/the-house-of-lords-report-on-the-impact-of-the-bribery-act-2010-on-smes-1175/ Yeoh, P. (2012). The UK bribery act 2010: Contents and implications. Journal of Financial Crime , 19 (1), 37-53. Read More