Stay tuned with CashEssentials news ! - beyond payments
By subscribing, you accept our Privacy Policy.

How do $1.6 trillion simply vanish?

Categories : Cash is efficient, Costs of cash versus costs of electronic payment instruments
February 16, 2017
Tags : Costs of payments, Fraud, Money laundering, Payment instruments, Tax evasion
Of the $1.6 trillion illicit financial flows, less than 1% of it is caught and frozen, but how can so much money simply move around, unseen?
Communication Team / Equipo de Comunicación

A 2011 United Nations Office on Drugs and Crime (UNODC) report found that less than 1% of $1.6 trillion of laundered money worldwide is caught by the financial system. That’s less than $16 billion. To get an idea of what $16 billion looks like, here are some comparisons. The Republic of Georgia’s GDP is around $16 billion, a third of what it cost Russia to run the 2014 Winter Olympics in Sochi ($51 billion). Alternately, $1.6 trillion is 1/10th of the America’s 2016 GDP. It is also estimated that the war on terror cost that much to the US economy between 2001 and 2014.

But how can so much money simply disappear into thin air? Chris Skinner, writer and founder of Finanser and chair of the Financial Services Club, clearly explains how in an article published on BNKNXT. All that money vanishes through financial institutions that are supposed to monitor and flag any suspicious activities: banks. Despite the $7 billion spent annually in the US alone on Anti-Money Laundering (AML) activities, there is still 2.7% of the world’s GDP that is lost to illicit financial flows. That estimate grows to 3.6% when tax evasion is included in the mix.

Even though all major banks are equipped with compliance officers, when a deal is too good, solutions are found to circumvent any unwanted scrutiny. One cited example is Deutsche Bank’s 2008 Monte dei Paschi di Siena case where $462 million miraculously disappeared from the books. As Geraint Anderson once said at the Financial Services Club: “no one bothered unless they were caught”.

Developing countries see more illicit money leave their shores than what they receive in foreign direct investment – a situation that undermines the integrity and stability of any country’s financial market.

If maybe some of the money is literally carried out of these countries in cash, it is very unlikely that larger sums are. Sixteen billion dollars are equal to 16 tonnes of $100 bills – the amount that is caught and frozen each year. Now try to imagine how that would look like if it were 10 times that amount, for a total of $1.6 trillion.

It might be time to rethink today’s financial markets. This could start by implementing greater scrutiny on other, less cumbersome, payment methods while imposing stricter compliance on financial institutions worldwide, making sure – in the process – that the “unless we are caught” jargon becomes a thing of the past.