Money Laundering: Definitions, Statistics, and Bank Policies

Defining Money Laundering

Money laundering is a serious problem at the global level. Before detailing its dimensions, however, it is necessary to understand the concept clearly. The specialized literature presents a multitude of definitions, of which the following are of notable importance and relevance.

The Organisation for Economic Co-operation and Development (2002) defines money laundering as: "The attempt to conceal or disguise the ownership or source of the proceeds of criminal activity and to integrate them into the legitimate financial systems in such a way that they cannot be distinguished from assets acquired by legitimate means. Typically this involves the conversion of cash-based proceeds into account-based forms of money."

The Electric Law Library (2010) defines it as: "Conduct/acts designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of money (can be currency or equivalents, e.g. checks, electronic transfers, etc.) to avoid a transaction reporting requirement under state or federal law or to disguise the fact that the money was acquired by illegal means."

A third definition is offered by the Financial Supervision Commission: "Money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of criminal activities. If successful, the money can lose its criminal identity and appear legitimate." The Commission further identifies sources of dirty money, such as insider trading, prostitution, fraud, and drug trafficking. With the proceeds from these activities, the launderer aims to introduce them into the legal financial circuit without raising suspicion, move the money through a series of transactions that make its origin difficult to identify, and ultimately link the money to the legitimate financial system and business assets (Isle of Man Government, Financial Supervision Commission, 2010).

Global Money Laundering Statistics

Money laundering activities are complex and, by definition, conducted in ways that make them difficult to trace. Finding reliable statistics is therefore a challenging endeavor. According to the International Monetary Fund, money laundering is estimated to comprise somewhere between 2 and 5 per cent of the entire global gross domestic product (OECD Observer, 1999). The validity of these estimates is often questioned, and the political and economic communities have yet to reach a common consensus on the true scale of the phenomenon.

John Walker identified the following as the most desirable locations for international money launderers (in order of appeal): Luxembourg, the United States of America, Switzerland, the Cayman Islands, Austria, the Netherlands, Liechtenstein, Vatican City, the United Kingdom, Singapore, Hong Kong, Ireland, and Bermuda (Walker, 1998).

The identification of these countries was based on the construction and implementation of an index model that assessed internal country-level factors considered to foster money laundering activities. These factors include political instability, high corruption levels, high crime rates, cultural and geographic differences, and the size of GDP in the destination country. It was assumed that money launderers prefer countries with higher national outputs so that their own transactions can more easily become lost and untraceable within the system. In relation to corruption, countries where the phenomenon is most intense have been estimated to reach money laundering levels of up to 80 per cent (Walker, 1998).

Source and Destination Countries

Based on Walker's model, the following regional estimates are noteworthy:

The largest source of laundered money is the European continent, with an estimated yearly total of $1,281 billion. The second largest source is North America, with an estimated $686 billion. The Caribbean follows with a total yearly estimate of $331 billion, and East Asia ranks fourth with an estimated $322 billion per year. Smaller contributors include: Central America with $73 billion per annum; South-West Asia with $52 billion; South America with $47 billion; South Africa with $21 billion; Australia with $18 billion; North Africa with $15 billion; and South Asia with $5 billion per year (Walker, 1998).

In terms of individual countries, twenty states generate the largest proportion of laundered money. By far the largest is the United States of America, accounting for 46.3 per cent of total laundered money. The remaining 53.7 per cent is distributed across Italy, Russia, China, Germany, France, Romania, Canada, the United Kingdom, Hong Kong, Spain, Thailand, South Korea, Mexico, Australia, Poland, the Philippines, the Netherlands, Japan, and Brazil.