A 2011 United Nations Office on Drugs and Crime (UNODC) report found that less than 1% of $1.6 trillion of laundered moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More 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)Many jurisdictions have established regulations and set up sophisticated financial and other monitoring systems to enable law enforcement agencies to uncover illegally obtained funds and detect suspicious transactions or activities. International cooperation arrangements have been set up to assist these endeavors. Many anti-money laundering laws combine money laundering (which is concerned with the source of funds) with terrorism financing (which is concerned with the destination of funds) when ... More 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 cashMoney in physical form such as banknotes and coins. More, 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, paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More 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.