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F.A.Q.
Generalquestions
MemberCountriesand
Observers
MoneyLaundering
FraudWarning

WhatisMoneyLaundering?
Thegoalofalargenumberofcriminalactsistogenerateaprofitforthe
individualorgroupthatcarriesouttheact.Moneylaunderingisthe
processingofthesecriminalproceedstodisguisetheirillegalorigin.This
processisofcriticalimportance,asitenablesthecriminaltoenjoythese
profitswithoutjeopardisingtheirsource.
Illegalarmssales,smuggling,andtheactivitiesoforganisedcrime,including
forexampledrugtraffickingandprostitutionrings,cangeneratehuge
amountsofproceeds.Embezzlement,insidertrading,briberyandcomputer
fraudschemescanalsoproducelargeprofitsandcreatetheincentiveto
legitimisetheillgottengainsthroughmoneylaundering.
Whenacriminalactivitygeneratessubstantialprofits,theindividualorgroup
involvedmustfindawaytocontrolthefundswithoutattractingattentionto
theunderlyingactivityorthepersonsinvolved.Criminalsdothisbydisguising
thesources,changingtheform,ormovingthefundstoaplacewherethey
arelesslikelytoattractattention.
Inresponsetomountingconcernovermoneylaundering,theFinancialAction
TaskForceonmoneylaundering(FATF)wasestablishedbytheG7Summit
inParisin1989todevelopacoordinatedinternationalresponse.Oneofthe
firsttasksoftheFATFwastodevelopRecommendations,40inall,whichset
outthemeasuresnationalgovernmentsshouldtaketoimplementeffective
antimoneylaunderingprogrammes.

Howmuchmoneyislaunderedperyear?
Byitsverynature,moneylaunderingisanillegalactivitycarriedoutby
criminalswhichoccursoutsideofthenormalrangeofeconomicandfinancial
statistics.Alongwithsomeotheraspectsofundergroundeconomicactivity,
roughestimateshavebeenputforwardtogivesomesenseofthescaleof
theproblem.
TheUnitedNationsOfficeonDrugsandCrime(UNODC)conductedastudy
todeterminethemagnitudeofillicitfundsgeneratedbydrugtraffickingand
organisedcrimesandtoinvestigatetowhatextentthesefundsare
laundered.Thereportestimatesthatin2009,criminalproceedsamountedto
3.6%ofglobalGDP,with2.7%(orUSD1.6trillion)beinglaundered.
ThisfallswithinthewidelyquotedestimatebytheInternationalMonetary
Fund,whostatedin1998thattheaggregatesizeofmoneylaunderinginthe
worldcouldbesomewherebetweentwoandfivepercentoftheworldsgross
domesticproduct.Using1998statistics,thesepercentageswouldindicate
thatmoneylaunderingrangedbetweenUSD590billionandUSD1.5trillion.
Atthetime,thelowerfigurewasroughlyequivalenttothevalueofthetotal
outputofaneconomythesizeofSpain.
However,theaboveestimatesshouldbetreatedwithcaution.Theyare
intendedtogiveanestimateofthemagnitudeofmoneylaundering.Dueto
theillegalnatureofthetransactions,precisestatisticsarenotavailableandit
isthereforeimpossibletoproduceadefinitiveestimateoftheamountof
moneythatisgloballylaunderedeveryyear.TheFATFthereforedoesnot
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publishanyfiguresinthisregard.

Howismoneylaundered?
Intheinitialorplacementstageofmoneylaundering,thelaunderer
introduceshisillegalprofitsintothefinancialsystem.Thismightbedoneby
breakinguplargeamountsofcashintolessconspicuoussmallersumsthat
arethendepositeddirectlyintoabankaccount,orbypurchasingaseriesof
monetaryinstruments(cheques,moneyorders,etc.)thatarethencollected
anddepositedintoaccountsatanotherlocation.
Afterthefundshaveenteredthefinancialsystem,thesecondorlayering
stagetakesplace.Inthisphase,thelaundererengagesinaseriesof
conversionsormovementsofthefundstodistancethemfromtheirsource.
Thefundsmightbechannelledthroughthepurchaseandsalesofinvestment
instruments,orthelaunderermightsimplywirethefundsthroughaseriesof
accountsatvariousbanksacrosstheglobe.Thisuseofwidelyscattered
accountsforlaunderingisespeciallyprevalentinthosejurisdictionsthatdo
notcooperateinantimoneylaunderinginvestigations.Insomeinstances,
thelaunderermightdisguisethetransfersaspaymentsforgoodsorservices,
thusgivingthemalegitimateappearance.
Havingsuccessfullyprocessedhiscriminalprofitsthroughthefirsttwo
phasesthelaundererthenmovesthemtothethirdstageintegrationin
whichthefundsreenterthelegitimateeconomy.Thelaunderermightchoose
toinvestthefundsintorealestate,luxuryassets,orbusinessventures.

Wheredoesmoneylaunderingoccur?
Asmoneylaunderingisaconsequenceofalmostallprofitgeneratingcrime,it
canoccurpracticallyanywhereintheworld.Generally,moneylaunderers
tendtoseekoutcountriesorsectorsinwhichthereisalowriskofdetection
duetoweakorineffectiveantimoneylaunderingprogrammes.Becausethe
objectiveofmoneylaunderingistogettheillegalfundsbacktotheindividual
whogeneratedthem,launderersusuallyprefertomovefundsthroughstable
financialsystems.
Moneylaunderingactivitymayalsobeconcentratedgeographicallyaccording
tothestagethelaunderedfundshavereached.Attheplacementstage,for
example,thefundsareusuallyprocessedrelativelyclosetotheunderlying
activityoften,butnotineverycase,inthecountrywherethefundsoriginate.
Withthelayeringphase,thelaunderermightchooseanoffshorefinancial
centre,alargeregionalbusinesscentre,oraworldbankingcentreany
locationthatprovidesanadequatefinancialorbusinessinfrastructure.Atthis
stage,thelaunderedfundsmayalsoonlytransitbankaccountsatvarious
locationswherethiscanbedonewithoutleavingtracesoftheirsourceor
ultimatedestination.
Finally,attheintegrationphase,launderersmightchoosetoinvestlaundered
fundsinstillotherlocationsiftheyweregeneratedinunstableeconomiesor
locationsofferinglimitedinvestmentopportunities.

Howdoesmoneylaunderingaffectbusiness?
Theintegrityofthebankingandfinancialservicesmarketplacedepends
heavilyontheperceptionthatitfunctionswithinaframeworkofhighlegal,
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professionalandethicalstandards.Areputationforintegrityistheoneofthe
mostvaluableassetsofafinancialinstitution.
Iffundsfromcriminalactivitycanbeeasilyprocessedthroughaparticular
institutioneitherbecauseitsemployeesordirectorshavebeenbribedor
becausetheinstitutionturnsablindeyetothecriminalnatureofsuchfunds
theinstitutioncouldbedrawnintoactivecomplicitywithcriminalsand
becomepartofthecriminalnetworkitself.Evidenceofsuchcomplicitywill
haveadamagingeffectontheattitudesofotherfinancialintermediariesand
ofregulatoryauthorities,aswellasordinarycustomers.
Asforthepotentialnegativemacroeconomicconsequencesofunchecked
moneylaundering,onecanciteinexplicablechangesinmoneydemand,
prudentialriskstobanksoundness,contaminationeffectsonlegalfinancial
transactions,andincreasedvolatilityofinternationalcapitalflowsand
exchangeratesduetounanticipatedcrossborderassettransfers.Also,asit
rewardscorruptionandcrime,successfulmoneylauderingdamagesthe
integrityoftheentiresocietyandunderminesdemocracyandtheruleofthe
law.

Whatinfluencedoesmoneylaunderinghaveon
economicdevelopment?
Launderersarecontinuouslylookingfornewroutesforlaunderingtheirfunds.
Economieswithgrowingordevelopingfinancialcentres,butinadequate
controlsareparticularlyvulnerableasestablishedfinancialcentrecountries
implementcomprehensiveantimoneylaunderingregimes.
Differencesbetweennationalantimoneylaunderingsystemswillbeexploited
bylaunderers,whotendtomovetheirnetworkstocountriesandfinancial
systemswithweakorineffectivecountermeasures.
Somemightarguethatdevelopingeconomiescannotaffordtobetoo
selectiveaboutthesourcesofcapitaltheyattract.Butpostponingactionis
dangerous.Themoreitisdeferred,themoreentrenchedorganisedcrime
canbecome.
Aswiththedamagedintegrityofanindividualfinancialinstitution,thereisa
dampingeffectonforeigndirectinvestmentwhenacountryscommercialand
financialsectorsareperceivedtobesubjecttothecontrolandinfluenceof
organisedcrime.Fightingmoneylaunderingandterroristfinancingis
thereforeapartofcreatingabusinessfriendlyenvironmentwhichisa
preconditionforlastingeconomicdevelopment.

Whatistheconnectionwithsocietyatlarge?
Thepossiblesocialandpoliticalcostsofmoneylaundering,ifleftunchecked
ordealtwithineffectively,areserious.Organisedcrimecaninfiltratefinancial
institutions,acquirecontroloflargesectorsoftheeconomythrough
investment,orofferbribestopublicofficialsandindeedgovernments.
Theeconomicandpoliticalinfluenceofcriminalorganisationscanweaken
thesocialfabric,collectiveethicalstandards,andultimatelythedemocratic
institutionsofsociety.Incountriestransitioningtodemocraticsystems,this
criminalinfluencecanunderminethetransition.Mostfundamentally,money
launderingisinextricablylinkedtotheunderlyingcriminalactivitythat
generatedit.Launderingenablescriminalactivitytocontinue.

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Howdoesfightingmoneylaunderinghelpfight
crime?
Moneylaunderingisathreattothegoodfunctioningofafinancialsystem
however,itcanalsobetheAchillesheelofcriminalactivity.
Inlawenforcementinvestigationsintoorganisedcriminalactivity,itisoften
theconnectionsmadethroughfinancialtransactionrecordsthatallowhidden
assetstobelocatedandthatestablishtheidentityofthecriminalsandthe
criminalorganisationresponsible.
Whencriminalfundsarederivedfromrobbery,extortion,embezzlementor
fraud,amoneylaunderinginvestigationisfrequentlytheonlywaytolocate
thestolenfundsandrestorethemtothevictims.
Mostimportantly,however,targetingthemoneylaunderingaspectofcriminal
activityanddeprivingthecriminalofhisillgottengainsmeanshittinghim
whereheisvulnerable.Withoutausableprofit,thecriminalactivitywillnot
continue.

Whatshouldindividualgovernmentsbedoing
aboutit?
Agreatdealcanbedonetofightmoneylaundering,and,indeed,many
governmentshavealreadyestablishedcomprehensiveantimoneylaundering
regimes.Theseregimesaimtoincreaseawarenessofthephenomenon
bothwithinthegovernmentandtheprivatebusinesssectorandthento
providethenecessarylegalorregulatorytoolstotheauthoritieschargedwith
combatingtheproblem.
Someofthesetoolsincludemakingtheactofmoneylaunderingacrime
givinginvestigativeagenciestheauthoritytotrace,seizeandultimately
confiscatecriminallyderivedassetsandbuildingthenecessaryframework
forpermittingtheagenciesinvolvedtoexchangeinformationamong
themselvesandwithcounterpartsinothercountries.
Itiscriticallyimportantthatgovernmentsincludeallrelevantvoicesin
developinganationalantimoneylaunderingprogramme.Theyshould,for
example,bringlawenforcementandfinancialregulatoryauthoritiestogether
withtheprivatesectortoenablefinancialinstitutionstoplayaroleindealing
withtheproblem.Thismeans,amongotherthings,involvingtherelevant
authoritiesinestablishingfinancialtransactionreportingsystems,customer
identification,recordkeepingstandardsandameansforverifying
compliance.

Shouldgovernmentswithmeasuresinplacestill
beconcerned?
Moneylaunderershaveshownthemselvesthroughtimetobeextremely
imaginativeincreatingnewschemestocircumventaparticulargovernments
countermeasures.Anationalsystemmustbeflexibleenoughtobeableto
detectandrespondtonewmoneylaunderingschemes.
Antimoneylaunderingmeasuresoftenforcelaundererstomovetopartsof
theeconomywithweakorineffectivemeasurestodealwiththeproblem.
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Again,anationalsystemmustbeflexibleenoughtobeabletoextend
countermeasurestonewareasofitsowneconomy.Finally,national
governmentsneedtoworkwithotherjurisdictionstoensurethatlaunderers
arenotabletocontinuetooperatemerelybymovingtoanotherlocationin
whichmoneylaunderingistolerated.

Whataboutmultilateralinitiatives?
Largescalemoneylaunderingschemesinvariablycontaincrossborder
elements.Sincemoneylaunderingisaninternationalproblem,international
cooperationisacriticalnecessityinthefightagainstit.Anumberof
initiativeshavebeenestablishedfordealingwiththeproblematthe
internationallevel.
Internationalorganisations,suchastheUnitedNationsortheBankfor
InternationalSettlements,tooksomeinitialstepsattheendofthe1980sto
addresstheproblem.FollowingthecreationoftheFATFin1989,regional
groupingstheEuropeanUnion,CouncilofEurope,Organisationof
AmericanStates,tonamejustafewestablishedantimoneylaundering
standardsfortheirmembercountries.TheCaribbean,Asia,Europeand
southernAfricahavecreatedregionalantimoneylaunderingtaskforcelike
organisations,andsimilargroupingsareplannedforwesternAfricaandLatin
Americainthecomingyears.

WhocanIcontactifIsuspectacaseofmoney
laundering?
TheFATFisapolicymakingbodyandhasnoinvestigativeauthority.In
respecttoinvestigatingacompanyandpersonsinvolvedinmoney
laundering,individualsneedtocontacttheirlocalinvestigativeauthorities.

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