Money Laundering

Money Laundering

The effects of money laundering to the economy can be damaging especially for countries with a weak economy. Money laundering refers to the process of making large amounts look as if they are from a legitimate source while they were generated from illegal activities such as terrorism funding or drug trafficking (European Union, United Kingdom, 2019). The money from criminal activities is considered dirty, and money laundering is done to make it look clean. Money laundering is primarily used by criminal organizations that want to use the money obtained illegally in an effective way. Dealing with a large amount of dirty money is dangerous and ineffective. There is, therefore, a need for the criminals to find a way to be able to deposit the funds in a financial institution. It can only be done if the money seems to come from a legitimate source.

The purpose of writing about money laundering is to determine whether the economy of a country can thrive where money laundering is prevalent. It will also help us understand why strict bank regulations put into place today help our country grow. Banking regulations changed drastically in 2001, and this is mainly due to the 9/11 experience (McAndrew, 2016). The USA Patriot Act, which is short for “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism” was introduced in October 2001 (McAndrew, 2016). The Act “allows investigators to use the tools that were already available to investigate organized crime and drug trafficking.

Investigations after the 9/11 disaster indicated that the perpetrators of the act had been laundering money for several months till they had enough to commit the attack (McAndrew, 2016). The attackers used several international and local banks to clean their money. They used legal documents to open their accounts, and there is no evidence that the hijackers used fake social security numbers to open their bank accounts. The attackers did not do anything that would make the banks suspicious of their activities. However, if the regulations seen today were in place at that time, it is more likely that the terrorist attack would have failed. It is sad to understand that money laundering can lead to financial market instability, political corruption, tax evasion and terrorist plots against innocent people.

The best way to determine the effects of money laundering on the economy is by carrying out interviews.  The interview will be done by approaching financial institutions such as banks and requesting them to have a meeting with us whereby we will ask questions about their views on the effects of money laundering on the economy of our country. The meeting will have a formal approach, and there will be specific questions asked to all the officers. The answer will get recorded and reviewed later to ensure that there is a free flow of information. The procedure for the interview will include an introduction to ensure all the interviewees understand the research process.

Information will also get obtained from other sources besides the financial institutions. The European Union commission has made it a requirement that all countries understand the riskiest countries to operate in when it comes to money laundering. States selected for involvement in this study include Iran, Ghana, Pakistan, Trinidad and Tobago. These are countries with weak systems when it comes to controlling money laundering. A sample of these five countries will serve the purpose of understanding the study topic. After gathering information, the next step involved in the analysis of the data. The report looks at the levels of cleaning the money and cleaning process requires record matching, duplication, and column segmentation. Other computed items include the mean, standard deviation and frequency (Loayza, Villa & Misas, 2019).

The effects of money laundering are devastating as they lead to the downfall of a country’s economy—laundering cuts across various sectors such as the real sector, capital flow, international trade, among others. The effects of money laundering also affect the surrounding of a country by paralyzing trade activities bringing the country’s economy to a standstill (Ferwerda, 2019). The focus of money laundering is to quantify the extent and nature of the act as opposed to quantifying the magnitude of the effects on the growth of the economy. It is, therefore, necessary to understand how money laundering affects the economy of our state. The economic growth of a country has its roots on the financial institutions. Increased levels of money laundering lead to the depreciation of the economy. The most affected sector is the private sector. Many money launderers use front companies to clean their money. For instance, in Pakistan, organized crimes utilize the power of fast-moving food and store, such as pizza parlors to insulate the illicit business of heroin trafficking (Qureshi, 2018). On the contrary, the pizza parlors offer pizza at a lower price compared to the average market price hence affecting the economic growth of the private sector and other microeconomic businesses.

The limitations of this study are that the use of a few nations and the broad scope of the research has led to limited information. The study, however, focuses on the primary issues that encourage money laundering in the monetary system. The essence of this topic is to gather essential information from reliable sources to increase the awareness of money laundering and its effects on the economic development of different countries. It also seeks to expose how the illegal activities are carried out under the watch of government officials. It also seeks to notify other researchers on the importance of the collection of data on the topic.

 

References

European Commission. (2019, 13 February). European Commission adopts a new list of third countries with weak anti-money laundering and terrorist financing regimes. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/IP_19_781

European Union, United Kingdom. (2019, 23 September). EU black and grey lists of high-risk countries back on the agenda. Lexology. Retrieved from https://www.lexology.com/library/detail.aspx?g=50bd5aea-a68e-40c4-96e0-518f29b44d87

Ferwerda, J. (2019). Criminological perspectives on money laundering: the efficiency of anti-money laundering policies. In Research Handbook on Transnational Crime. Edward Elgar Publishing. doi.10.4337/9781784719449.00015

Loayza, N., Villa, E., & Misas, M. (2019). Illicit activity and money laundering from an economic growth perspective: A model and an application to Colombia. Journal of Economic Behavior & Organization, 159, 442-487.doi.10.1016/j.jebo.2017.10.002

McAndrew, E. (2016, 9 September). Five Laws and Regulations that Emerged from 9/11: Events & News. Retrieved 9 February, 2020, from https://www.ballardspahr.com/eventsnews/mediacoverage/2016-09-09-five-laws-and-regulations-that-emerged-from-9-11

Qureshi, W. A. (2018). An Overview of Money Laundering in Pakistan and Worldwide: Causes, Methods, and Socioeconomic Effects. University of Bologna Law Review, 2(2), 300-345.DOI: 10.6092/issn.2531-6133/7816