Introduction
The two topics that have dominated national as well as parliamentary debates on Guyana’s political economy in recent months are, namely, the future of the Amaila Falls Hydropower Project and Guyana’s money-laundering legislation in light of its regional and global regulatory obligations. I have recently completed two papers on these topics. The first entitled Eight Essays on the Political Economy of the Amaila Falls Hydropower Project is part of a larger study (Appraising the Management of Guyana’s Public Investment Programme) and has also been recently published in the Dayclean Special Publications series. It has formed the basis of recent articles carried in my Stabroek Sunday column. The second was presented at a recent symposium on money-laundering and its ramifications in Guyana. Beginning today, and in coming weeks, I will be addressing the money-laundering situation in Guyana.
What is money-laundering?
08In financial, economic, and legal theory, (as well as their current practices) money laundering is considered an extremely complex and complicated phenomenon. Not surprisingly, there are numerous definitions of it. Nonetheless, I have found the definition given here the most suitable one for introducing laypersons to the concept in a formal, yet easy way. That definition is: “money-laundering represents illicit financial flows that are generated from crime, corruption, embezzlement and tax evasion and are then transformed into legitimate flows.” This definition is short, direct and simple, yet it is quite accurate.
When examined closely, this definition is seen as referring to two processes, which while remaining distinct, yet meet at the common standard of constituting illicit flows. The first process focuses on those illicit flows which are from the outset, generated from crime. These are therefore criminal in essence. Crime, corruption, and embezzlement mentioned in the definition above have the common characteristic of being generated through criminal acts. These activities are, therefore, always intrinsically criminal in nature.
The second process is not necessarily generated through crime, and therefore is not uniformly and inherently illegal at the outset. That process is tax evasion. Persons or businesses can generate income and wealth legitimately. It is only when subsequently they resort to evading tax laws and regulations in the disposition of these that illegality enters into the picture and therefore, the potential for illicit flows arise. Put another way, legitimately earned income and wealth become involved in money-laundering when they are transferred outside a jurisdiction in contravention to its relevant tax laws and regulations. These laws and regulations include financial and foreign exchange control regulations.
It is important to remind readers that there is a qualitative difference between tax evasion and tax avoidance. Tax evasion is a criminal offence, because persons or businesses evade the payment of taxes and other fees that are legally due to the state. Tax avoidance, however, is not a criminal act because the persons or businesses use legal or regulatory opportunities available to them to avoid paying taxes and fees. This is an important distinction, although in practice it becomes more difficult to observe and to enforce, the weaker is the tax regime of the country or jurisdiction, under consideration.
As we shall observe more fully later, arising out of this distinction ‘tax havens’ have mushroomed across the world, leading to a distinct subset within the generic phenomenon known as money-laundering. As implied, tax havens specialize in creating opportunities for persons and businesses to evade tax laws and regulations. Basically they do this by offering zero or very low income and wealth taxes.
The new dimension: political crime
Since the traumatic events of the September 11 attacks on the United States in 2001, a new dimension of political crime has entered into the lexicon of money-laundering. That is, the financing of terrorism. This is a politically inspired crime. The financing of terrorism is considered as a new a
nd added dimension to the criminal acts listed in the definition of money-laundering’s illicit flows provided above. Indeed it has become so important that, as we shall discuss in more detail later, the regional and global regulatory oversight mechanisms for dealing with financial crimes are now identified as covering both money laundering and the financing of terrorism.
It is not unusual, however, for those jurisdictions where money-laundering thrives, to possess all three dimensions simultaneously: criminal activity, tax-evasion and terrorist financing. In practice, however, specialisations have emerged. In the Caribbean region relatively little has been attributed to its role in financing terrorism. The specialisation for which the region is famous is tax evasion. Guyana, however, (and to a lesser degree Jamaica and Trinidad and Tobago) are known principally for their links to criminal activity, especially organized crime in the form of drug-trafficking, trafficking in persons, gun-running, smuggling, and global cyber crimes.
The distinction between tax evasion and the other forms of criminal activity indicated above (including terrorist financing) is readily observed when money-laundering is considered from a regional perspective. There are at least twelve Caricom jurisdictions, which are recognised worldwide as tax havens, facilitating tax evasion and twenty-two in the wider Caribbean area. The reputation of all tax havens carries the presumption that they are fully complicit in tax evasion. (I shall address this in greater detail later).
Goal of money-laundering
As the definition indicates the ultimate goal of money laundering is to transform illicit flows into financial instruments and funds that are seemingly legitimate. Over the years this has become more and more the task of specialist groups of criminals (money launderers) who are distinct from the underlying class of criminals who generate the illicit funds in the first instance. This specialisation has made the task of both detection and regulation of money laundering extremely difficult. The present techniques used to accomplish this are indeed quite complex.
Next week I shall, among other matters, address the recognised ways in which the laundering of illicit funds proceeds in Guyana and the wider Caribbean.
