Every once in a while, the world’s criminals need to recycle their “dirty money” in order to wash away any traces of its illegal past. A Spanish drug dealer, for example, may end day’s work with a large amount of cash that needs to be deposited or otherwise spent.
Since there’s a limit to the number of Miami condominiums or luxury automobiles a drug dealer can pay cash for without creating suspicion, illicit earnings somehow have to be put into a bank.
The idea of any money laundering scheme is to get illegally earned money into legitimate bank accounts without alerting anyone to the money’s past. The best way to do this is to transfer the money from another “respectable” bank account. But it all has to start somewhere. One popular money-laundering practice is to make hundreds of small deposit, which would normally be reported to law enforcement agencies. This can be done best by mixing the money with legal deposits-using a restaurant’s bank account, for instance, preferably one with a lot of cash deposits.
Once money is in legitimate bank account, it can be transferred around the world quite easily without interference from the authorities. This is possible because most international bank transfers are simply electronic messages sent from one bank account to another. A bank in Miami could transfer money to London by using a correspondent bank that would simply credit the account of one bank and debit the account of another. The sheer size of these international transfers-more than one trillion a day by some estimates-makes difficult to control money laundering. The illegal transfers simply disappear into a sea of legal ones.Another way to get illegal money into banking system is to first put the money in a bank.
System is to first put the money in a bank that ask few questions about the money origin. Since the early 1990s several countries, such as Switzerland, have restricted money coming from unknown sources. Others, such as those in tax heavens in the Caribbean, questions about the money origin. Once a bank account in the Cayman Islands or Aruba sends the money to a respectable bank, it is usually too late to track the money’s source. Money launderers, also use several different bank transfers to get the money intro the bank where they actually use it, by which time no one has any idea where it originated.
Several international groups-such as the Financial Stability Forum (FSF), the Financial Action Task Force (FATF), and the OECD have made efforts to investigate the money laundering activities of various countries around the globe. They have even gone so far as to list the countries that are seen as being lax or uncooperative in dealing with the problem. A list published by the Financial Stability Forum, named the following countries: Anguilla, Antigua and Barbuda, Aruba, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica, Cyprus, Lebanon, Liechtenstein, Marshall Islands, Mauritius, Nauru, Netherlands, Antilles, Niue, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Samoa, Seychelles, the Bahamas, Turks and Caicos, and Vanuatu. Those countries placed in an “intermediate” category include: Andorra, Bahrain, Macau, Malta and Monaco.
What can be done? Some countries in the European Union have threatened to ban all transactions with banks that are known to be encourage or turn a blind eye to money laundering. Others have proposed making international loans and aid contingent on honest banking standards. The amount of illegal money that get discovered, however, is just the tip of the iceberg. Global money laundering, it is estimated moves anywhere from half a trillion to 1.5 trillion dollars per year-more than the entire economic output of most countries.
The currency of choice for most money launderers is the U.S dollar. This partly explains why more than half the “greenbacks” printed cannot be found anywhere in the U.S economy. Drug lords in Latin America, prostitute in Southeast Asia, and Russian “Mafiosi” all make heavy use of the U.S dollar for their illegal activities, which is why laundering U.S. dollars is easier than laundering other currencies. The dollar is especially prized for its “liquidity” in the sense that can be exchanged almost anywhere in the world without rising suspicion.
Once money is in a legitimate bank account, it can be transferred around the world quite easily without interference from the authorities. This is possible because most international bank transfers are simply electronic messages sent from one bank to another. A bank in Miami could transfer-more than one trillion dollars a day by some estimates-makes it difficult to control money laundering. The illegal transfers simply disappear into a sea of legal ones.