Last week the question was tackled: what is money laundering? This week we look at the techniques and circumstances, which give it traction in Guyana and the wider Caricom region. At all levels (global, regional and national), money laundering has been the subject of considerable study in recent years, particularly in the fields of law, economics and finance. Most of these studies have been in response to its explosive worldwide growth and the consequent efforts of various authorities (at all levels) to regulate, and hopefully contain this phenomenon. The studies reveal broad agreement among analysts (and practitioners) that, for analytical purposes, money-laundering can be conveniently categorized as a three-stage process involving placement, layering and integration. Each of these is explained in turn below.
Placement and smurfs
The definition of money laundering presented last week described its goal as seeking to convert “illicit flows of funds” into legitimate ones through placing them into legitimate financial institutions in such a manner that they cannot be traced as the proceeds of crime. This is the most difficult stage in the money laundering process and, as would be expected, involves several complex procedures. To take an example, if the illicit sum to be laundered is large then it must first be broken down into smaller non-traceable amounts so as to avoid attracting attention. This requires multiple transactions.
Usually low-level criminals, (called smurfs) are utilized for this break-down of the funds into smaller amounts. In some instances the task is so huge and tedious that some researchers have labelled it a ‘pre-wash phase’ in the laundering of illicit funds. Readers could infer from this instance that placement involves the physical assembly of the illicit funds, before they are placed into a financial depository. This is required so as not to draw attention to the deposits as they are being made. In several countries an important instrument used in this phase, is the pre-paid money card. This card not only ensures anonymity, but it is also easily transferable within the country as well as easily convertible into other currencies.
Layering
After having placed illicit funds into a financial depository, the risk of detection (and its consequences) does not end there. The money-launderers therefore continue to add several layers of transactions onto the initial deposit(s). This is usually accomplished through several wire transfers of the funds in a series of transactions designed to distance the funds from their source (or original deposit). This layering prevents audit trails in the event of forensic investigations. Furthermore, there is an incredible volume of wire transfers taking place on a daily basis worldwide, so that ready detection is very unlikely.
Integration
The final stage of the process requires that after layering, the funds are integrated into the formal legal financial system in a manner where they become indistinguishable from legitimate funds and therefore free from inquiry and audit disclosure. At this stage it is expected that the funds cannot be traced back to their criminal origins. Some analysts have sought to add to this stage a further effort known as ‘legitimization.’ Readers would recognize by now that money-laundering is a highly skilled criminal endeavour. The chief skills utilized in this activity are those offered by lawyers, bankers, and accountants. These do not constitute the typical run of the mill criminal elements, which make these persons exceptionally dangerous. Their specialist knowledge and skills are placed at the service of criminal endeavours and not the promotion of national well-being.
What aids money laundering?
Studies of money laundering in Caricom reveal certain definite patterns. First and foremost, these studies have revealed the nature of the ruling political regime is a major consideration. It has been found that the more members of the political ruling class mix and co-mingle with those reputed to be linked to organised criminal endeavours (whether socially, through business dealings, or benefiting from political donations) the easier it is for illicit flows to carry respectability by association.
Secondly, the more lax and therefore, the weaker is the national regulatory regime in control of financial crimes, the more there are signs of money laundering. Thirdly, this is further facilitated when insiders perceive that one or more financial depositories have been captured and placed under the discreet control of organized criminal agents. Further, the more pristine the captured businesses appear to the general public, the better for the money launderers. The general rule is, the less suspicious is the general public, the fewer are the public mutterings and therefore, the easier it is for scams to thrive.
However, these circumstances are extremely short-sighted. Over the long run the chances of a country becoming a major offshore financial centre (OFC) able to entice tax avoidance funds to commit tax evasion in its jurisdiction are hampered if the jurisdiction develops a reputation for lawlessness and links to organized crime. Such circumstances invariably invite the glare of global financial surveillance, which is not good for those involved in serious white collar crimes.
Across the Caribbean OFCs are viewed as major development vehicles. Trinidad and Tobago, which had a couple of years ago flirted with this sort of criminalization has quickly recognized the error of its ways and is today advertising its full compliance with anti-money laundering agencies as the foundation on which it plans to build itself as the premier financial centre in the Caribbean, Central and South America. Finally, another factor facilitating money laundering in Guyana and Caricom is that regional economies remain, by and large, heavily cash dependent. By this is meant that it is standard for transactions to be conducted primarily in cash; other financial instruments are rarely used. This provides an excellent economic environment for smurfs to operate in without drawing attention to their criminal actions.
Next week I shall start continue with a discussion of the chief methods used by regional money launderers.
