Introduction
As indicated last week that column was prompted by the seemingly orchestrated public statements by private organizations, steps being taken by the US Treasury against tax evasion in the region as well as diplomatic and other pressures brought to bear on the parliamentary “opposition.” All this supposedly in the expectation that it would accede to the legislative amendments before the Special Select Committee and therefore not pursue “the goal of effective money laundering reform” designed to reduce the economic burden this deep-seated problem heaps on the country. Large as it was, my estimate of the value of money laundering presented last week seemed to have surprised no one!
Age-old adages
On this score, over the years my several excursions into investigative and forensic economic analyses have revealed the deep wisdom of two age-old adages. One of these is to let the facts speak for themselves. In other words, the aim in such analyses should be to avoid, at all costs, putting one’s preferences, opinions and even passion into the reported results. Indeed to indulge in such can easily result in the messenger becoming the main focus of the discussion and not the message or information which the study uncovers. Last week I had estimated the amount of money laundering in Guyana as relatively huge, of the order of US$220 million to US$250 million.
The other adage that has served me well is to follow the money. In the present circumstances this means that if money laundering is being accomplished in Guyana, it must undeniably be principally taking place within the country’s formal financial institutions and private businesses. Following from this the rightful question to be asked therefore is: does this explain why the various private bodies are publicly leading the charge to have the legislative amendments before the National Assembly and other reforms speedily implemented?
Flagship studies
There are four flagship or landmark estimates of the size of money laundering that have guided the estimate of money laundering in Guyana that I have provided. The first and oldest estimate is that given by the IMF in 1998 as a measure of global money laundering. That was initially provided by its Managing Director in a speech to a Plenary Session of the Financial Action Task Force (M Camdessus, Money laundering: the importance of international countermeasures). The estimate was a consensus range of 2-5per cent of global GDP. This estimate was later echoed by the World Bank and presented in its Reference Guide to Money Laundering and Countering Financing of Terrorism (2006).
The second flagship study was done for the United States (Peter Reuter, Chasing Dirty Money – The Fight against Money Laundering, 2004); this estimate was for 8.1 per cent of its GDP. Of special note the study also revealed well over half of US criminal proceeds was derived from tax evasion; one fifth was derived from drug trafficking; and, as much as 13 per cent was attributable to fraud. For readers’ convenience the main categories are displayed in Table 1.
The third flagship estimate has been provided by RW Baker of Global Financial Integrity (Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System, 2005). This study has focused on developing nations and transition economies. The offered estimates range from 5.9 to 8.6 per cent of GDP. This study also confirms to the widely held view that, expressed as a proportion of national GDP, “All crime proceeds appear to be generally higher in developing countries and tend to be laundered abroad more frequently” (cited in UNODC, 2011, page 7).
That study also shows that the main items accounting for cross-border illicit flows in developing countries are crime, commercial, and corruption (see Table 2 below).
Table 1: Source of Global Crime Proceeds
Item Percentage of Total *
1. Tax evasion 56
2. Drug Trafficking 21
3. Fraud 13
4. Prostitution 3
5. Loan Sharking 3
6. Motor Vehicle Theft 2
7. Illegal Gambling 2
8. Other 2
*Note Numbers do not add due to rounding
Source, UNODC, 2011
Table 2: Cross-border Illicit Flows (developing
countries, 2000-2005)
Item % of GDP
Crime 2.6
Commercial 5.5
Corruption 0.5
Total 8.6
Source: RW Baker, Global Financial Integrity, 2005
The fourth and final flagship study I wish to refer to here is that provided by the United Nations Office on Drugs and Crime (UNODC) in its report Estimating Illicit Financial Flows Resulting from Drug Trafficking and other Transnational Organized Crimes 2011. As the UNODC describes it, its report was a “study-of-studies or a meta-analysis” relying on received expert presentations. The estimate agreed on in the study is that money laundering represented 2.3 to 5.5 per cent of global GDP. As can be seen this estimate is within the range provided earlier by the IMF and World Bank. Interestingly, for our purposes this more recent study identifies illicit drugs as the major source of money laundering, accounting for one-fifth of all illicit proceeds.
Finally, and maybe of interest to some readers the data reveal the estimated distribution of money laundering across broad global regions is as shown in Table 3 below for 2005; the Americas lead followed by Asia-Pacific, Europe and the Middle East-Africa.
Table 3: Money Laundering by Region (2005)
Region % of Total
1. Americas 38
2. Asia – Pacific 31
3. Europe 26
4. Middle East/Africa 5
Source: * Forecast based on Celent, 2002 method.
Next week I shall address the recent United States Treasury Notice based on the country’s proposed Foreign Account Tax Compliance Act (FATCA). This is the remaining striking development that I have referred to as having occurred since drawing my original conclusion on the money laundering situation in Guyana.
