As the Money Laundering Capital of the World - Assignment Example

London “As the Money Laundering Capital of the World” Introduction Money laundering refers to a process where a crime’s proceeds are transformed into supposedly legitimate money or assets.1 Money laundering is a huge global problem. The act allows criminals to permeate big amounts of black money into business and commerce, corrupting banks and other financial institutions’ officials. Money Laundering rules and regulations are made to protect the world’s financial system. In case, a business, is under these regulations; controls are designed to prevent it from money laundering. The proceeds of Crime Act of 2002 has the primary anti-money laundering legislation that includes provisions that require businesses in the regulated sector (investment, banking, money transmission, and other professions) to report to the authorities any suspicions of laundering money by their customers. Money laundering has a broad definition in the UK. Any involvement or handling of proceeds of crime (assets or monies representing crime’s proceeds) can easily qualify to be a money laundering crime.2 A person’s possession of proceeds of crime is under the UK understanding of money laundering. In addition, the definition covers activities that are within the traditional understanding of money laundering, as a procedure that disguises a crime’s proceeds to make them look like legitimate.3 In jurisdictions, such as the US and many of the European countries, money-laundering crimes are limited to serious crime proceeds. The scenario is not the same in the UK. Financial transactions do not need money laundering for the laws of UK to regard them a money laundering crime. The offense of money laundering under UK legislation does not even involve money because money-laundering legislation entails assets of any kind. In consequence, a person committing an acquisitive crime (a crime that produces benefit of an asset or money) in the UK unavoidably also commits a crime under UK legislation.4 It also applies to a person who evades a liability, such as the liability of taxation by criminal conduct. A person is deemed to obtain money that is the same value as that of the liability that was evaded. The money laundering crimes have a maximum sentence of 14 years in prison. The question that arises in peoples mind is why London has degenerated into the money laundering business despite the existence of strict anti-money laundering laws around the world. The answer could be simple.5 The fact that, despite different laws and regulations, the laws have never been enforced to the letter by financial regulators, banks and other financial institutions seem to be aware that if they appear to implement the rules, no one will require him or her to implement them effectively. London “as the money laundering capital of the world” Although the money laundering idea as a criminal act lacks a base deep in the legal framework as other main crimes, it has come to take a recognizable place of relevance in the world community nevertheless. However, the problem of preventing people suspected of amassing riches through activities that are illegal from reintroducing this wealth into the economy to legitimize their criminal gain is old around the world.6 In recent days, however, specific laws and definitions with tougher measures have been inaugurated in the fight against the laundering of money in England and other parts of the globe such as the USA and European Union. The said measures were necessitated because of the need to counter terrorism and funding of terrorism activities. The main legislation that touches on money laundering in the United Kingdom is called the Proceeds of Crime Act, POCA (2002).7 There is a huge difference between making rules that people must obey and doing nothing within ones power to provide an important compliance form with the rules. The role of the regulations is to make it impossible for persons who acquired money illicitly, around the world, to get a haven in the banking system.8 Due to this, there are existence of rules and regulations imposed on some banks and other financial institutions. Banks and financial institutions, when dealing with money from a client, must ensure that get a clear view of its provenance. The institutions need to have details of clients, their sources of money, businesses, and if they had held political offices.9 The institutions must ensure that they make the necessary inquiries know if funds deposited are not the proceeds of aid payments stolen from the countrys Treasury.10 Local financial institutions have routinely flouted the above rules. The institutions will say that they have compliance departments, with staff who ensure that such situations may not arise. In many circumstances, the financial institutions tell the truth. The key problem is that they fail to tell the whole truth. In 2001, for example, The Financial Services Authority (FSA) did conduct an investigation into banks of London. FSA discovered that three quarters of banks were not doing sufficient work to verify some customers’ sources of wealth. The probe helped to give information concerning the system failing to stop the unaccounted money flow, an issue that has continued to have devastating consequences for many people around the world.11 As predicted, the regulator failed to name the financial institutions neglected the rules, nor gave any clear indication that they would do so. The FSA has failed to take any legal action against these institutions for the flouting of the rules. FSA was expected to start prosecutions against the institutions for their failure to implement the necessary. The action by the FSA is typical of the body’s response to blatant wrong-doing in the banking sector. It is considered by the institutions and their workers as a sign of vast weakness, and they can exploit at any opportunity. It is now clear that the quality and caliber banks’ employees who are supposed to execute the anti-money laundering rules and regulations undermine the compliance authority. The banks employ lowly qualified personnel with little experience. Banks are looking for people with a few years of experience, people capable of filling new positions. The banks do not want to pay real money for persons with skills, good experience, and a sense of knowledge to stand up against commercial people with negative thoughts and actions. One has to look at the amount of salary levels that compliance officers get, and then compare their salaries to traders and businesspersons; to notice the discrepancies in importance banks has on compliance. A good number of employees in compliance functions are paid peanuts in comparison to the business part of these organizations.12 The major problem with people’s mentality towards conformity is the lack of emphasis on effective enforcement’ as compared with the process. The compliance function is saturated with procedures and processes. They have many manuals, but they only seek to demonstrate to regulators that they possess a process to fulfill. A process, not thoroughly tested, and analyzed by an experienced and skilled person is not worth its salt. If London has a regulatory agency that continually refuses to enforce the rules and regulations of anti-money laundering. Additionally, if it is sufficiently clumsy to recognize that the compliance level provided by the banks and financial institutions can be done using a simple mentality, then there is an answer to the city as seen as the world’s money laundering capital.13 London is no droop when attracting foreign investment is concerned. At the moment, when the dollar is sliding, wealthy foreign investors are vehemently snapping up millions-worth property in the city and purchasing British companies with the expectation of making big profits in the future.14 The investors’ ability thrives due to their ability to borrow big sums of money at very low rates of interest. Accessibility to cheap money makes some business people winners, while the others appear losers. For an organization, cheap loans imply reduced costs, higher profits, higher dividends, greater demand for shares and bonds of the company, and more buying power. Criminals can easily offer loans to companies below the acceptable rate of interest. For a criminal, the chance to channel illegal through an institution is an opportunity to allow cash safe to use with no fear of prosecution. Some financial institutions and wealthy criminals are business partners. It is no longer a secret. The CIA fact book, in the section on Illicit Drugs, mentions the United Kingdom as a ‘money-laundering center’. For example, Afghan opium alone is creating large amounts of dirty money.15 Internationally, according to the estimates of the IMF, an amount of between $600 billion and about $1.50 trillion is laundered each year. Corrupt politicians from African countries have been buying multi-million dollar properties in London.16 There are many loopholes permitting such leaders to put their money in London. Loopholes, which the authority shows the reluctance of closing, permit companies to receive full registration without full details of people owning them. Since the name of each shareholder has to be written in the organization’s statutory registers and also at Companies House, a person can easily hide his/her ownership by using another company as a nominee shareholder.17 Officials may explain that companies do this in order to make it a secret the ownership of a company for commercial reasons. It is difficult to identify the amount of corrupt Russian assets that were laundered through London since people will try to hide them by nature. It is certainly millions of dollars, maybe billions of dollars. There is the lack of enough information concerning that issue. Recent information revealed that there were 2,174 Russian pupils that were boarding at Britains schools. The students contributed total fees of about $100 million per year, or $500 million in a five-year school curriculum. And in the same year, about 5% of London property was purchased by Russian citizens. Many allegations have been in the media for a decade now that the London City and advisers are reluctant in laundering doubtful Russian money. They have either ignored or even actively tried to assist them.18 Rapid developments in technology, financial information, and communication give room for money to move everywhere around the world with ease and speed. It makes the role of stopping money-laundering an urgent issue. The far black money gets into the world’s banking system, the more difficult it becomes to note its origin.19 Due to the concealed nature of laundering money, it is hard to know the amount of money pass through the hands of criminals. There are developments in the financial system, in recent times that have made combating money laundering a difficult task. The issues include "dollarization" of black markets, trends toward financial deregulation, and Euro market progress and the increase of financial secrecy shelters. Fuelled by developments in technology, the financial infrastructure has become a perpetual operating system in which money can move around the world with ease and speed.20 The world has prioritized the fight against the laundering of money and financing of terrorists. The International Monetary Fund (IMF) is keen about the consequences of money laundering, financing terrorists, and governance issues.21 The activities can demoralize the stability and integrity of financial systems, dampen foreign investment, and affect capital flows. They can have negative results for financial stability and performance of macroeconomic, resulting in losses, resource drainage, and also have destabilizing effects on country economies. In an interconnected world, the effects of the activities are wide, and their effects on the financial integrity and countries stability are recognized. Money launderers exploit the difficulty inherent in the financial system and also differences between national laws and systems. Problems in a country can speedily move to other nations in the world. References Aluko, A., & Bagheri, M. (2012). The impact of money laundering on economic and financial stability and political on development in developing countries: The case of Nigeria. Journal of Money Laundering Control, 15 (4), 442-457. Armitage, J. (2014). David Clarke: Villains choose safe London to launder their dirty money. Retrieved on April 24, 2014 from http://www.independent.co.uk/news/people/profiles/david-clarke-villains-choose-safe- london-to-launder-their-dirty-money-9155974.html Beare, M. E. (Ed.). (2003). Critical reflections on transnational organized crime, money laundering and corruption. University of Toronto Press. Costello, T. (2012). London is the ‘global capital of money-laundering’. 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Money laundering counter-measures in the European Union: a new paradigm of security governance versus fundamental legal principles. The Hague New York Frederick, MD: Kluwer Law International Sold and distributed in North, Central, and South America by Aspen Publishers. Reuter, P., & Truman, E. M. (2004). Chasing dirty money: The fight against money laundering. Unger, B., & Busuioc, E. M. (2007). The scale and impacts of money laundering. Edward Elgar Publishing. Shelley, I. L. (1999). Identifying, Counting and Categorizing Transnational Organized Crime. Transnational Organized Crime, 5(1). Walker, J., & Unger, B. (2009). Measuring global money laundering: the Walker gravity model. Review of Law and economics, 5(2), 821-853. Read More