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'Dirty Money' Threatens Global Financial and Capital Markets

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Noting that money is the common denominator of every type of illicit activity, from terrorism to wildlife trafficking, the United States of America today underlined that illicit financial flows (Dirty Money) are preventing fair and open markets from reaching their full economic potential.

In his remarks at Washington DC, Director for Anticrime Programs, David M. Luna addressed an issue that is of increasing concern to those charged with protecting businesses and communities around the world: illicit financial hubs and how the provision of legal and professional services, either wittingly or unwittingly, facilitates the laundering of dirty money through illicit financial transactions.

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Al Capone, a name often associated with organized crime. Photo: Wikipedia Commons
"Such activities corrupt the integrity of financial systems around the world and the vitality of legitimate markets." -Mr. Luna
If kleptocrats, criminal organizations, and terrorists cannot launder their money, they will have a harder time spending it, thereby decreasing their ability to finance their illicit activities and enjoy their wealth, Mr. Luna stressed.

Mr. Luna reports that according to the United Nations Office on Drugs and Crime (UNODC), kleptocrats and criminal entrepreneurs hide the proceeds of their crimes in legal structures such as offshore shell companies and foundations and then launder most of that through financial institutions into the global financial system.

"As a result, illicit financial flows are flooding financial centers such as Dubai, London, New York City, Hong Kong, Sydney, and others." - Mr. Luna

In addition, a UNODC Research Report published in 2011 shows that an estimated $1.6 trillion was laundered in the global financial system, of which an estimated $580 billion is related to drug trafficking and other transnational criminal activities.

Mr. Luna cites that studies such as these further illuminate the dark corners of the illegal economy and the tangled pathways of illicit trade.

Illicit money flows into the United States through conduits, including facilitators allowing access to the financial system or financial institutions ignoring their anti-money laundering obligations, he noted.

"The world we live in is one in which legal business transactions and legitimate commerce both facilitate and feed off the illegal economy." - Mr. Luna

Mr. Luna says dirty money keeps communities from building the markets and investment frontiers of tomorrow.

As long as illicit networks are able to launder their money and continue to enjoy the proceeds of their criminal ventures, they are contributing to insecurity and destabilization in many of today's geopolitical hot spots, Mr. Luna said.

He adds that dirty money will also contribute to continued looting of national wealth by kleptocrats.

"It will also weaken the state of the global economy and financial markets." - Mr. Luna

Global criminal activity allows the black market to thrive and depress the value of, and demand for, goods and services produced that are contributing positively to the legitimate economy and therefore contributing to global economic growth, Mr. Luna stated.

Dirty money also diverts money from the balance sheets of legitimate businesses and national revenues and keeps cash in the hands of criminals, who build larger and larger illicit networks.

In addition, Mr. Luna stresses that illicit financial flows and illicit networks threaten the stability of governments and the prosperity of our economies.

"We must shut down today's criminalized markets and illegal economy, and not allow policies that lead to crippled, unproductive markets driven by short-term gains and ill-gotten profits by deviant and criminal actors and networks." - Mr. Luna

According to Mr. Luna, the United States is committed to combating transnational crime, corruption, and money laundering.

In July 201l, the US released a National Strategy to Combat Transnational Organized Crime: Addressing Converging Threats to National Security.

A key pillar of the Strategy is to enhance international cooperation with key partners to combat the lethal nexus of organized crime, narco-trafficking, and terrorism, and to protect our communities from the violence, harm, and exploitation wrought by transnational threat networks, Mr. Luna underlined.

According to a new report released by Global Financial Integrity, illicit trade in "goods, guns, people, and natural resources" is a $650 billion enterprise, which most negatively impacts the developing world.

Of the 12 illicit activities studied, trade in drugs ($320 billion per year) and counterfeiting ($250 billion per year) were ranked first and second in terms of illicit funds generated. Another key finding of the report was that profits from illicit markets are making their way to transnational crime syndicates through vast international trade networks. The report also emphasizes a link between transnational crime and economic "underdevelopment."

The cross-border passage of criminal money is facilitated by the global shadow financial system comprising tax havens, secrecy jurisdictions, disguised corporations, anonymous trust accounts, fake foundations, trade mispricing, and money laundering techniques.

This is precisely the same structure that enables the movement of the other two components of illicit proceeds-the corrupt and commercially tax evading money.

Mina Fabulous follows the news, especially what is going on in the US State Department. Mina turns State Department waffle into plain english. Read more stories by Mina Fabulous. Contact Mina through NewsBlaze.

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