Effect of Money Laundering and Corruption on International Business - Essay Example

EFFECT OF MONEY LAUNDERING AND CORRUPTION ON INTERNATIONAL BUSINESS By 10th, December, Effect of Money Laundering and Corruption on International Business Introduction With globalization, economic interdependence has increased. This has resulted in internationalization of business and other financial systems. Moreover, negative problems have also taken an international dimension. Corruption and money laundering are examples of crimes that have become internationalized. Corruption is an economic crime that entails abuse of public office. This is because it involves breaching of one’s duty. Moreover, corruption has been linked with money laundering. This is because money laundering entails concealing funds that have been generated through illegal means. Money laundering is often conducted internationally since the concealing of the illegal funds entails transferring it across international borders. The money is then deposited or invested in legitimate institutions to make it appear as if it was generated legally. Therefore, there is need for comprehensive strategies to deal with corruption and money laundering. This is because money obtained through corruption is often used for laundering purposes. Consequently, money laundering and corruption crimes are often interwoven and require to be dealt with concurrently. This essay focuses on analyzing the risks posed by money laundering and corruption to the global financial system and international business. Additionally, the essay will entail identification of the sufficiency of the current international efforts in dealing these threats. Currently, corruption is considered one of the major obstacles hampering global economic development. This is because it is a major crime affecting many nations and impedes sustainable economic development. Furthermore, corruption is a major global concern since it hampers global business. Moreover, global corruption is more complicated since it requires cooperation of different governments to deal with it. On the other hand, money laundering is considered a major profit driven crime facing international businesses and financial systems. Actually, the corruption and money laundering are closely linked. Moreover, they continue to play a big role in threatening international business operations. This is because money laundering accelerates corruption and vice versa (Lilley 2006; Chaikin & Sharman 2009). Risks Posed By Money Laundering and Corruption to the Global Financial System and International Business In the past, money laundering was viewed as a means of cleaning dirty money obtained through criminal activities such as drug trafficking. However, it has been realized that money laundering entails more that this and it is a crime. Since most criminal activities involve corruption, money laundering enhances corruption by enabling criminals conceal their activities. The effects of corruption are eminent in social, economic, and politic settings. In case of international business, corruption and money laundering contribute to distortion of the financial markets. This is because these misconducts spread from one financial market to another easily (Chaikin & Sharman 2009). Corruption and money laundering are an international concern. This is because there is increasing imitation of the forms of corruption used from one country to another. In cases where money obtained through corruption mean is transferred and invested in another company elsewhere, the companies involved might start conflicting. Therefore, corruption and money laundering threaten international business relations since they create international disputes. Such disputes often involve banks (Lilley 2006). Money laundering leads to creation of illegal schemes aimed at concealing unlawfully earned assets. Therefore, it becomes hard for corruption cases to be identified. Therefore, corruption and money laundering affect the judicial system making it hard to prevent cases of corruption, which are hard to detect. Actually, the major obstacle in corruption detection and prevention is money-laundering practices. Therefore, corrupt deals can continue for long periods without being detected. This may affect the economy of the countries involved negatively (Chaikin & Sharman 2009). Corruption and money laundering are a great risk to international business since they entail use of legitimate institution in transfer of illegal funds. In most cases, the institutions involved are unaware of the sources of the money. This results in possible loss of reputation by such organizations. Moreover, most financial institutions such as banks lack adequate measure to control the illegitimate transfers. This heightens the level of international crime. In some cases, the money ends up being used for terrorism activities, which are a threat to global economy and international business. Therefore, there is need for application of Customer Due Diligence (CDD). However, most financial institutions are profit oriented and ignore such measures. Actually, there have been instances of institutions involved in protecting money-laundering criminals. This risks the global economic activities (Lilley 2006). Sufficiency of the Current International Efforts in Dealing with Money Laundering and Corruption Criminals involved in corruption and money laundering are often very creative and intelligent. It thus becomes hard for anti-corruption and anti-laundering agencies to detect and combat these crimes. In the recent past, there have been increased efforts in tackling corruption and money laundering. This is mainly because the consequences of corruption are progressively becoming a threat to international business (Lilley 2006). United Nations is one organization that has heightened its effort in fighting corruption. United Nations Convention against corruption, which was signed in 2003, is a depiction of the commitment of the United Nations member states to fight corruption. The agreement came to force in 2005 and is considered the paramount global instrument designed to combat corruption. The United Nations convention aims at averting laundering of money obtained through corrupt means. Moreover, the convention has criminalized corrupt practices and aid is in return illicit funds that have been transferred illegitimately to the countries of origin. However, the convention is limited in fighting corruption since it cannot override state sovereignty in its operations. Therefore, if the involved governments are not corporative or are no members of UN, returning of illegally transferred funds might be impossible. Another limitation of the convention is that it does not obligate member countries to criminalize corruption acts such as bribery or illicit enrichment. Additionally, some articles of the convention are prone to misinterpretations (Lilley 2006). Another shortcoming of international measures such as United Nation convention is their lack of stipulated mechanisms of punishing criminals caught engaging in corruption or money laundering activities. Moreover, conventions such as that for the UN do not have measures of punishing member states that fail to implement the obligations of the convention. However, proper implementation of the UN convention will lead to reduction of corruption and money laundering practices. There are quite a number of institutions established with the aim of fighting against international corruption and money laundering crimes. However, the efforts of such agencies have not been successful. The financial Action Task Force (FATF) is an example of an intergovernmental body that aims at promoting policies to prevent money laundering in global financial systems (Chaikin & Sharman 2009). The Sufficiency of the Current International Efforts in Dealing with Money Laundering and Corruption are threatened by certain factors. There is lack of apposite international cooperation. Corruption is often considered a national issue. Therefore, each national government implements its own measures that aim at combating corruption at a national level. Therefore, different countries have dissimilar frameworks of dealing with corruption and money laundering. Inconsistence in these measures reduces the efficiency of international combating of corruption and money laundering crimes. Therefore, there is need for establishment of inter-governmental institutions and policies to fight corruption at an international level. To increase the sufficiency of international anti-corruption and anti-laundering authorities, there is need for their empowerment. This can be through increasing their power in investigating and prosecuting organizations or individuals involved in corruption related money laundering malpractices. Actually, current anti-corruption authorities lack the prosecuting power. This is so even at a national level, especially in developing countries where money laundering and corruption are common (Chaikin & Sharman 2009). With the aim of fighting corruption and money laundering, international organization created to fight these crimes often, propose financial and nonfinancial business report suspicious financial transactions. However, there is existing tradition of confidentiality that governs financial institutions. Therefore, some institutors may ignore suspicious transactions as they try to protect their client’s privacy. Some countries have established agencies such as Financial Intelligence Unit (FIU) that trap information regarding suspicious transactions. However, some governments lack such mechanisms. Therefore, money obtained through corrupt deals ends up being transferred internationally without detection (Lilley 2006). Money laundering threatens the ability of international authorities in dealing with other business related crimes such as fraud. This is because the global market has evolved into a single system. Therefore, authorities operating within a single nation cannot track criminal groups operating internationally. Moreover, money transferred illegally is used in perpetrating other forms of crime such as terrorism. Therefore, connecting the corruption and money laundering schemes becomes increasingly easy especially with the growth of computer technology. A good example is cybercrimes involving money fraud. Such crimes often end in money laundering since the money obtained is transferred across nations. Money laundering threatens the operations of financial institutions conducting business through online means. Actually, e-commerce is a rapidly growing form of business. Therefore, corruption and money laundering are a great threat to expansion on business globally (Chaikin & Sharman 2009). Conclusion Corruption and money laundering are major crimes facing different countries, international financial systems, as well as international business. Corruption and money laundering are closely linked. In most cases, money obtained through corruption is often transferred across nations, which entails money laundering. Therefore, money laundering enables criminals involved in corruption conduct their practices without fear of being caught. Money obtained through corruption is often used for other forms of crimes such as terrorism. Therefore, money laundering and corruption are threat to political stability. Additionally, money laundering may result in conflict between companies. This happens when corrupt deals are used to obtain money from one company. If the money is transferred and invested in another legitimate company, conflict may arise if the company of origin learns of such dealings. International strategies such as UN Convention, created to combat corruption and money laundering have not been fully successful. This is because of inconsistencies in the ways of dealing with corruption. Moreover, need to respect sovereignty of nations prevent successful implementation of some measures against corruption and money laundering. Works Cited Chaikin, D & Sharman, C 2009, Corruption and Money Laundering: A Symbiotic Relationship, Palgrave Macmillan, London. Lilley, P 2006, Dirty Dealing: The Untold Truth About Global Money Laundering, International Crime And Terrorism, 3 ed, Kogan Page Publishers, New York. 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