Crackdown on Money Laundering: A Comparative Analysis of the Feasibility and Effectiveness of Domestic and Multilateral Policy Reforms

61 Pages Posted: 8 Jul 2009 Last revised: 21 Sep 2009

Barbara Crutchfield George

California State University, Long Beach - College of Business Administration

Kathleen A. Lacey

California State University, Long Beach - College of Business Administration

Date Written: January 1, 2003

Abstract

In the last decade, there has been increased global, domestic and media focus on the economic, political, and social costs associated with corruption, such as the prevalent business practice of bribing foreign public officials in order to obtain lucrative contracts, with the resulting need of the bribe recipient to launder the illicit proceeds. This increased focus on corruption can be attributed to factors such as the end of the Cold War, the further integration of Europe, the increase in international business mergers, the borderless global market and a greater recognition of the economic costs of corruption.

One of the most significant economic costs of corruption results from money laundering. Money laundering occurs when secret deposits of illicit funds move through a series of deceptive transactions designed to disguise the source of the funds and make them reappear in the market in a legitimate form, without a trace of their origin. As an integral part of numerous forms of business corruption, drug trafficking, arms smuggling, terrorism and other illegal activities, the consequences of money laundering have a notable economic impact. With one estimate as to the annual global amount of money laundered calculated in a range between $500 billion and $1 trillion and an estimate that such laundered funds are equal to approximately 2 percent to 5 percent of the worlds' gross domestic product, it is obvious that decisive action needs to be taken to halt this flow of illegal funds.

This is a uniquely opportune time for anti-money laundering initiatives and policy reform to occur. Since the terrorist attack in the U.S. in September, 2001, security agencies throughout the world have rushed to follow leads that may prove that Osama bin Laden financed the attack with massive amounts of money that was laundered to hide the source through a variety of schemes. Greater awareness of the harmful effects of money laundering, and public and governmental concerns regarding reverse-money laundering by terrorists, has resulted in a surge of attention directed toward anti-money laundering efforts. Consequently, financial institutions are under increasing pressure to comply with existing anti-money laundering regulations by implementing internal anti-money laundering guidelines. Governments also are experiencing significant public pressure to enhance and expand the anti-money laundering legislative framework.

To determine the future direction for effective anti-money laundering initiatives, it is important to first examine the multiple challenges faced by government and other organizations and institutions trying to eradicate money laundering. These challenges include, inter alia, private banks, correspondent banks, unregulated financial services and various banking practices traditionally shrouded in secrecy. In order to assess these challenges it is necessary to evaluate the existing money laundering initiatives to determine if they sufficiently resolve the challenges relevant to the eradication of money laundering. The initiatives evaluated by the authors include those from the U.S., European Union (EU), Council of Europe (COE), the Organization for Economic Cooperation and Development (OECD), United Nations, the Organization of American States (OAS), Transparency International (TI), the Financial Action Task Force (FATF), and the Financial Stability Forum (FSF).

In this paper the authors will: 1) delineate the insidious role of money laundering in business corruption, 2) identify the challenges to the eradication of money laundering, 3) summarize the adopted and proposed initiatives taken by the U.S., EU, COE, and a number of multilateral and non-governmental entities, 4) analyze the feasibility and effectiveness of the current adopted and proposed domestic, European, and multilateral initiatives in addressing those challenges identified, and 5) make recommendations regarding future money laundering policies.

Keywords: money laundering, Patriot Act

Suggested Citation

George, Barbara Crutchfield and Lacey, Kathleen A., Crackdown on Money Laundering: A Comparative Analysis of the Feasibility and Effectiveness of Domestic and Multilateral Policy Reforms (January 1, 2003). Northwestern Journal of International Law & Business, Vol. 23, No. 2, 2003. Available at SSRN: https://ssrn.com/abstract=1431264

Barbara Crutchfield George

California State University, Long Beach - College of Business Administration ( email )

1250 Bellflower Blvd.
Long Beach, CA 90840
United States
562-985-8618 (Phone)

Kathleen A. Lacey (Contact Author)

California State University, Long Beach - College of Business Administration ( email )

1250 Bellflower Blvd.
Long Beach, CA 90840
United States
562-985-5668 (Phone)
562-985-1754 (Fax)

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