Recap
In order to wrap up the present discussion on money laundering, let me recap on what I have covered so far. First, I considered the modern-day legal meaning of the term, based on US law, because that is the country to which most laundered funds from Guyana are exported and we do not yet have local legislation in place. In the process of doing this I exposed seven of the most common fallacies encountered among the general public, observing that money laundering: 1) is not the exclusive domain of organized crime 2) involves all types of financial transactions, as well as selected commodities 3) is directly related to the overall underground economy (which is broader than the phantom economy controlled by organized crime) 4) is not a ‘victimless crime’ as many presume 5) operates not only through banks but all financial institutions 6) is an exceedingly complex multi-stage process and 7) is continuously transforming itself, aided by the development of both new technologies and innovative forms of criminal wrongdoings.
Following this discussion, I then pointed out the several international efforts which are directed at countering money laundering. Spearheaded by the Financial Action Task Force (FATF) and organised around its ’40 Recommendations’ for global cooperation and national implementation, these efforts have been supported by several important global agencies (eg, Interpol, the United Nations Office of Drug and Crime Control, the World Bank and IMF), as well as hemispheric organisations (eg, the OAS and the European Union), regional ones (Caricom) as well as national drug and financial intelligence organisations in most countries.
Thirdly, I proceeded to establish what might be considered as essential legislative, operational, and administrative safeguards countries should adopt in efforts to counter money laundering. These are arrangements which ensure that:
1. ‘Bank secrecy’ is not used as a cover for money laundering.
2. The location of the underlying crime behind money laundering in any part of the world does not prevent for example, its legal prosecution in Guyana’s jurisdiction if the money laundering is suspected as having occurred here.
3. Financial institutions are expected to exercise ‘due diligence’ and further are obligated as professional commercial entities to ‘know their customers.’
4. The duty on all to report suspected wrongdoing is absolute.
5. Cooperation with relevant national, regional, hemispheric and international bodies is mandatory and,
6. Stiff penalties apply to all legally proven infractions of money laundering legislation.
Effects on economy
As I conclude this discussion on money laundering today, it is important at this stage for readers to have an appreciation of its general effects both on the economy and the wider Guyanese society.
First and foremost because money laundering goes hand-in-hand with the underground economy and this has been estimated as high as between 42-52% of the official economy (GDP) in recent years, the negative consequences of this unwelcome reality can be sourced to the facilitative role that money laundering plays in converting dirty money into clean money. A similar conclusion also follows from its indispensable role in facilitating the explosive growth of organized crime (as represented by the phantom economy, which is that part of the underground economy attributable to organized crime).
Furthermore, it is the case that among the criminal activities which underpin both the underground economy and the phantom portion are cross-border smuggling of commodities and trafficking in persons. The effect of these crimes in particular is to turn several border areas of Guyana into entry ports for criminality. Such a development in the context of a small poor economy like ours, with no effective capacity to police its relatively large borders undermines the country’s security and weakens the territorial legitimacy of defined borders. The nation state is thus both weakened and threatened by these developments.
Legitimate businesses within the country face a similar danger. Firms whose primary function is to launder money are far less sensitive than legitimate ones to the cost of doing commercial business and securing profitable returns on it. This gives them a huge competitive advantage when dealing with legitimate business.
This effect on legitimate business is linked to a broader undermining of the incentive and reward system for legal economic activities. It makes it appear as if ‘crime pays’ and the cost of crime and theft are then borne heavily by those enterprises which do not prosper from criminal wrongdoings.
From what economists term as the ‘macroeconomic standpoint’ money laundering makes regulation of the economy extremely difficult. Consider as examples: 1) It facilitates tax evasion 2) It encourages capital flight 3) It distorts the exchange rate 4) It distorts the interest rate 5) It also distorts the credit creation and expansion process. In other words dirty money drives out clean money from the economic system distorting all the fundamental prices in a market-based economy.
Effects on society
The effects of all this on the broader society are always negative. Such pervasive criminality directly linked to everyday economic operations sustains a norm of illegality that was first established here in Guyana during the years of PNC authoritarian rule. At that time the PNC government, in the name of ‘cooperative socialism,’ made most economic activity that normally takes place in a market-based capitalist economy ‘illegal.’ The population at large responded in near-universal disregard of these laws and regulations.
As the norm of illegality has become more and more central and the underground and phantom economy prospered relative to the legitimate economy, so too has the political and social influence of crime bosses who have emerged during this process. Universally referred to as “business persons” Guyana has now reached a very crucial crossroad. Several questions are being asked: Will criminal capital be able to transform itself into legitimate capital? Will criminal capital add political control to its already formidable economic clout? Will the international, hemispheric, and regional forces of law and order respond, and more importantly prevail? Correct answers to all these questions are impossible at this stage.
