Fighting dirty money

• Pages: 242-244

Page 242

According to Johnston, September 11 brought home clearly that "money laundering and terrorism financing are a global problem, and you need to develop global systems to combat them. If one country has a weakness in its system, then there is a risk that the money laundering and terrorism financing will gravitate to that country."

The social and political costs of money laundering are serious. Organized crime can infiltrate financial institutions, gain control over large sectors of the economy, and corrupt the political system. Dirty money can also destabilize a country's financial systems, and lead to serious financial crisis. "Money laundering may be symptomatic of broader problems of governance within financial institutions and that can have significant implications for a country's economic development," Johnston said. Money laundering has, for instance, been a factor in some recent banking crises in Latin American and elsewhere.

How money is laundered

Illicit transfers of money are carried out for two main purposes: to hide the criminal origin of the funds and to protect them from confiscation. According to Thony, criminal proceeds are usually in cash, so the first-and usually the most difficult-thing the launderer has to do is to integrate the cash into the financial system. Once this has been done, the money undergoes a series of transactions, all of which are aimed at having it appear as if it has a legitimate origin.

In the third phase, the funds-now almost clean- are spent or reinvested in the licit economy. According to Thony, this is usually done in one of three ways. "First, through consumption-criminals like big boats, cars, and houses. Second, through normal investment. It is not unusual to see criminals investing as 'bon père de famille' in nonrisky instruments such as bonds or annuities. Third, the almost- clean money is invested in businesses such as casinos, restaurants, cinemas, and hotels that typically involve a lot of cash payments. In fact, such businesses can themselves serve as money laundering machines."

The IMF's role

Because of its expertise in financial matters and global reach, the IMF has become a key player in fighting money laundering and the financing of terrorism. In March, following the successful completion of a 12-month pilot program during which the IMF and its partners assessed the anti-money laundering regimes of more than 50 countries, the institution's shareholders decided to make such assessments a standard feature of the institution's work. They involve the following elements:

- assessing member countries' compliance with an international standard-in this case, the 48...