Last week’s column carried a brief description of the current situation of Guyana in regard to the Caribbean Financial Action Task Force (CFATF). The next column (and the remainder of this series) will be devoted to addressing the way forward, in light of the present impasse in regard to the proposed new anti-money laundering legislation and Guyana’s broader relations with CFATF. However, this week’s column seeks to provide readers first with a broad appreciation of the scale and extent of money laundering at the international level in order to reveal the highly significant threat this phenomenon poses to the functionality of the modern state and operations of the global economy.
Threats to the modern state
While the threats posed by the financing of terrorism and the proliferation of weapons of mass destruction are in a sense, vividly self-evident, it is therefore important that readers do not as a consequence of this result underestimate the systemic threats, which the growth of money laundering poses 
to the modern state. Four of these threats are indicated below.
First tax evasion lies at the heart of all forms of money laundering, and therefore, in so far as it thrives, this systematically erodes the fiscal capacity of states. And, with less revenue at their disposal, modern states are less able to afford all types of expenditures, ranging from social services and public infrastructure to national and personal security.
Second, tax evasion linked to money-laundering incentivizes criminal endeavours. And if successful, more illicit proceeds are turned into legitimate income and wealth than would otherwise be the case. Such processes would inevitably undermine the rule of law and democratic institutions. And, as it has been observed worldwide, this also exposes state functionaries to the temptations of corruption and other serious malpractices.
Third, when crime becomes deeply interwoven into everyday transactions, markets invariably become distorted. Market signals (prices), which are central to buying and selling among economic agents consequently become unreliable and their role in ensuring economic efficiency fails. Market distortions occasioned by criminal practices therefore, undermine the market’s presumed advantages for the efficient accumulation of income and wealth in market-based economic systems.
Fourth, the negative impacts of these criminal-led distortions of markets are not only felt among economic agents, but through them on the economic regulators as well. Thus for example, the heavily relied on open market macroeconomic regulation of the modern economy becomes fatally disrupted when criminally motivated transactions become significant. This has been revealed in situations where a criminally-led underground economy drives the production of economic livelihoods thereby resulting in the market regulation of the formal/legal economy becoming largely ineffectual.
The four cases described above reveal the gravity of the threats which money-laundering potentially poses to the modern state. Indeed, one can further argue that these threats strike at the very core of the dynamic governing the extended reproduction of the capitalist economy. Readers can from this observation therefore, better appreciate why in the 1980s the leading industrial nations reversed so rapidly from promoting OFCs as a development vehicle towards efforts to contain their growth to the strict provision of legal and legitimate financial services only. The global size and scale of money laundering (discussed below) also shows how deeply embedded it is in cross-border transactions in the present international economy. Indeed the Canadian authorities have estimated the cross-border impact of tax evasion transactions in that country to be about 80 to 90 per cent!
Global empirics
What do the data reveal about the present size and scale of money laundering globally? Because money laundering is a crime there can be no definitive measurements of this phenomenon. The range of estimates most commonly cited by analysts is that offered by the International Monetary Fund (IMF) of 2-5 per cent of global GDP, which in 2012 stood at 72 trillion United States dollars.
Significantly, the FATF has declined to offer estimates of the size of money laundering on a global scale, because it argues, as indicated above, due to its criminal nature the truth can never be known. However organizations associated with the FATF have offered estimates. Thus the United Nations Office on Drugs and Crime has estimated criminal proceeds at 3.6 per cent of global GDP and money laundering per se at 2.9 per cent of global GDP. This is within the IMF range.
Currently, the annual value of global money laundering most commonly reported is at least US$1.6 trillion. The United Nations (2010) has estimated that, in the decade 2001-2010, the annual money laundering outflow rate from poor states averaged 8.6 per cent. This compares to their real GDP growth rate of 6.0 per cent over the same period. Of note these estimated outflows combine both proceeds from crime and legitimate funds transferred outside the jurisdictions of states in contravention of their tax laws and/or incurring breaches of exchange control regulations. Of great concern, the losses of poor states from tax evasion have been estimated at ten times larger than the overseas development assistance (foreign aid) they had received over the same period.
The Third World Economics (2013) cites a joint study produced by the African Development Bank and Global Financial Integrity, which revealed that while Africa is the most aid-dependent region in the world, with ODA inflows approximating US$50 billion annually, yet over recent decades (1990-2009) about US$1.5 trillion illicitly left Africa. This huge outflow is linked to tax evasion, corruption and money laundering. Strikingly, much of this ‘dark money,’ as it has been termed, has originated from among natural resources rich (mainly mineral) economies such as Nigeria, Libya, South Africa and Angola. A key feature of this is that Western banks have been the main facilitators of this particular outcome!
In conclusion it would be appropriate to remind readers of two earlier observations: 1) the existence globally of 24 hour international financial markets and 2) the sheer volume of electronic transfers. Together these make financial transactions extremely difficult to monitor. This therefore adds enormous difficulty to the tasks of anti-money laundering regulatory and oversight bodies.
