Study on the Problem of Money Laundering

Study on the task of M oney LaunderingChapter 11) IntroductionMoney make clean is a global conundrum. Measuring its continue is tough, as it get bys place behind everyones eyes and it app bently is a victimless discourtesy. nonwithstanding the damage it does go off be devastating to the monetary sector and economys strong and external sector, especi bothy in compositors case of a create country. By contrast, trenchant anti- funds- wash offing policies can reinforce a range of good-g everywherenance policies. This in upshot helps the country to sustain economical ontogenesis particularly by qualification the fiscal sector stronger.1.1) BackgroundBeca recitation of the worldwide growing concerns everyplace currency laundering, G-7 summit established fiscal Action Task Force (FATF) in Paris in1989. Its use was to generate an world(prenominal) response to this increasing problem. Since thence this organisation has been playing a vital role in tackling specie laun dering. It works closely with opposite outside(a) bodies that develops and regulates Anti-Money Laundering (AML) policies world wide. FATF members confuse 29 countries and jurisdiction includes major financial centres in Asia, North and reciprocal ohm America, Europe- as well as the European Commission and The Gulf Co-Operation Council.1.1.1) Problem statementToday a countrys economy giantly depends upon the advancement of engineering science. It make the job a lot easier, but it came with its own challenge. Which concerns the international financial community the most is the bad guys atomic number 18 excessively using the technology to give their proceeds of plagues a legal look. In short the bullion made by unlike criminal activities in various separate of the world is injected into a nations economy to camouflage it or give it a lawful appearance. This governing body is known as Money Laundering and this problem is growing to a serious programmatical constituent over time. IMF estimated that the aggregate sizing of laundered coin worldwide is 2% to 5% of global GDP in 1998.Regardless who or how the dirty cash is being utilise, the operational remains or method is always the same. It is a dynamic three typeset up form. The stages arePlacement- A large volume of cash which was obtained through amerciable means is placed in to the financial system, can be utilise to buy high-price item or albuminthorn be smuggled expose of the country. The point here is to transform the cash into some other kindly of asset to avoid detection.Layering- this stage takes place to hide the true telephone line of the unlawful silver. Here in layering stage a complex set of traffic takes place to obscure the trail of that cold hard cash and its real ownership. At this point the advancement of technology helps them. One the methods are Electronic Fund Transfer (EFTs). Others include conversion of monetary instrument, investments in legitimate dutyes, purch asing real estates. In most of the EFTs are used frequently. Because of the busy lifestyles and easy access, a lot of EFTs are processed everyday. Among all those when a Phoney EFT takes place between an offshore account and a shell company, It is pretty hard to spot a criminal transaction at rootage look.Integration- The final step of the process where the illicit bullion comes back clean to its owner and then integrated to the economy as investment into a legal business. Once integrated, it hides the identity or line of work even further.1.1.2) query significanceThere has been little look into the set up of funds laundering on the economic growth, particularly in a developing country. Most of the researchers and their works were focused on measuring the nub and usage of money-laundering. Hence the majority of this vast subject has remained unstudied. therefrom the developing countries, which are the prime channels for international money-laundering, are suffering from th e guide for the guidelines to stop the erosion of the prospicient-term economic growth caused by this problem.1.1.3) Research questionIn a developing countrys economy the role of the financial institutes such as- banks, non-bank financial institutes (NBFI), equity market-are critical. They help to sustain the economic growth by concentrating the domestic savings, even the overseas funding. For all these gaining customer commit is vital. Money laundering erodes these institute and affects the customer trust as this is interrelated with other criminal activities that is performed by the workers in financial sector or government. Besides that, money laundering facilitates domestic corruption and crime which publications depress economic growth. It also run arounds the resources to less productive activity.In the light of supra discussion, proposed work is on following questionsWhat is money laundering?What are the oppose effects of it on economic growth?How does it harm the dev eloping countries?1.2) Aims and objectivesThe purpose of this study is to analyse harmful effects of the money laundering on the economic growth of a developing country. Because of the weaker economy, lack of strong policies and relatively easy regulations the developing countries become an open market for such activities. Therefore those countries stool scope to improve their policies, regulations and laws. The objectives of the proposed study are to knowWhat sectors are mostly being affected?What is the extent of the damage?What can the developed economic community do?What kinds of policies or regulations are being apply?What kinds of policies or regulations can be improved?As the time advanced, money laundering business has also evolved by keeping pace with the time. technology has made it more undetectable. The businesses are booming and consequences are visible. merely regulative bodies are also taking necessary steps. They are tightening their borders, educating people, creating awareness. settle down these are not enough for the countries affected. Most of the time, they dont energize enough resources to divert to that sector. As a result they are bleeding internally. Therefore we can assume the followingMost of the economic damage through by money laundering through its developing country channel is at the expense of the developing economy.The weaker regulations and policies are the more liberty a money launderer gets. Therefore they need to strengthen themselves, with the help of others if necessary.The countries with the developed economy have sufficient resources, therefore options to fight this particular crime. But in case of the developing economies, if not handled in time, it can distort investment, encourage crime and corruption and increase the risk of macro-economic instability. Through this study some solutions may be found, or at least the gravity of the danger ahead.1.3) LimitationsThe blowup of money laundering problem is vast. At the same time a greater portion of this crime is goes unreported, hence unnoticed. Authorities all over the world has been struggling to get a proper grasp of the altogether problem. The developments that are being made are on the implementations of AML policies and legal sector. But there is a great lack of research on the effects and consequences of money laundering in the developing economies. Therefore there is not enough entropy available to come to any exact conclusion. Besides, this research is based on the guerillaary data. So evaluating the existing data was not possible. To be able to do so, a higher level of intervention, e.g. Government, international banking authority etc. is necessary as this research involves the national financial data.1.4) OverviewThe first chapter of this research introduces the scene of action or the topic to the audience. What is money laundering, how huge or vast the problem is, how did it start and how it is done, what are the authoriti es doing somewhat it and what are the limitations of this particular research has been described in this section. The second chapter includes an spacious and analytic review of the existing literature that is available to refer to virtually this subject.(incomplete**)Chapter 22) Literature review2.1) introductionThis part of the report contains a thorough and critical study of the books journals, articles and other materials that is available on money laundering. This review gives the audience an idea how much research has been done in this area. It also helps to get an idea of the worlds concept of money laundering.2.2) ReviewA channel or medium is required to carry out money laundering activity. The preferred medium that a Money launderer chooses is the financial world that is efficient and costs less while carrying out the transactions (Masciandaro, 1999).Such activities develop the integrity of those financial institutions and affects their soundness or stability. As a resu lt of their weak integrity, they loses the investors confidence and eventually direct foreign investments are reduced. This process in turn disturbs the long-term economic growth of the country. Barret (1997),Masciandaro and Portolano (2003), Paradise (1998) and peculiarity (1997) argued in their studies that the economic and financial systems of a country are be by money laundering.Despite of money laundering being a global problem, there has been a little research in the area of the harmful effects on economy. Some notable exception depart include Uche, C U (1999) and Masciandro, D (2000). Most of the works were done on the legal framework or to develop effective AML policies over the years. Therefore quality data on the pervasiveness or any long term pattern of the affected economy is rather limited.The origins of money laundering can be traced as far back as mid-thirties in organized criminal activities (Bosworth-Davies and Saltmarsh, 1994). So it is clear that the concept i s not a new one. Over the years it just grew over its proportion. Financial Action Task Force defined the problem as . . . the affect of a large number of criminal acts to generate profit for soul or group that carries out the act with the intention to disguise their smuggled origin in order to legitimize the ill gotten gains of crime. Any crime that generates significant profit-extortion, drug trafficking, arms smuggling and some kind of white collar crime may create a need for money laundering (FATF 1998).According to Mulig and Smith (2004), the term money laundering was originated by the organised crime families, who used to own legitimate laundry business to disguise or launder very large amount of cash, which was in fact, earned through extortion, prostitution, gambling and drug business. United Nations office on Drugs and Crime (UNODC) explained that there are two reasons why the criminals, May it be the street crime or the corporate white collar misapplication or maybe a corrupt public official, need to launder the money because, it leaves a paper trail as evidence of their crime. Secondly, the money itself is vulnerable to seizure so it needs to be protected. In other words it is an Unfinished product to the criminal until it is cleaned.A bigger portion of literature on money laundering concentrates on the legal framework. That includes the edict and regulations that can be traced back to the US war on drugs in 1980s (Gill and Taylor, 2004). Since then it was a concern that was growing over time. In response to that, international agreements were being made to tackle such activities amongst which, the UN was the first international organisation to combat the crime globally. Subsequently, in 1989 G-7 established FATF. In the FATF annual report (FATF, 2006b) it was stated that, most of the illegal activities are colligate with corrupt practices and lack of transparency. This subsequently arises to weaker governance which results poor and ineffectiv e use of AML policies. Those are the places that become heaven for money launderers. Their activities erode the financial system from inside while taking advantage of the volatile economy.In large scale money laundering operation, cross-border factor is always included. Therefore an international approach was a crying need to handle this problem effectively. That was also a reason why the UN and the Bank for international Settlement took the endeavor to address the problem in 1980. Following the FATF formation, the regional grouping such as- Council of Europe, European Union, Organisation of American States And more others designed AML policies required and effective for their member countries. Asia, Europe, the Caribbean and southern Africa have created regional AML task force-like organizations, and similar groupings for westbound Africa and Latin America are being planned too.As discussed previously, second stage of money laundering widely uses the technology as one of their m eans of layering the dirty money, the use of it is becoming rather popular to them. The advances in technology, especially in Information and Communication Technology (ICT) have benefited the all in all world. Money launderers are also included in the group of beneficiaries. They take full advantage of these benefits.Modernisation in technology, particularly in ICT has brought various different ideas banks or other NBFIs to offer new products and services through new means of delivery. These new products and services and often contain strong transmission of digitized information, facilitating of fund movement and transcending distance within or across the national boundaries (Bradley and Steward,2002) and anonymity (Philippsohn,2001). According to Mishkin and Strahan (1999) and Berger (20003) speed, distance and anonymity are the identify factors that are rapidly changing the financial system. However, Masciandro (1998, 99) and Philippson (2001) implied that those new benefits i ncluding e-banking and all sorts of e-money technologies have made money laundering activities even more robust. As a matter of fact, FATF (2001) on their typology report identified the online banking facility and internet as the major money laundering vehicle now days. According to political boss Financial Officer Report (2002) Technology changes have influenced the operating strategies of many banks and Non-banks as they seek to compete in the increasingly fast-paced and globallyInter-dependent business environment.Chapter 33) Methodology3.1) introduction In this chapter all the data that has been collected will be shown. That data will be study and interpreted in to results. As this is not a very worldwide research, All the data has been collected from secondary sources.3.2) Data collection