Collecting money is an instinctive habit that was permitted by common laws, but its possession through illegal ways is forbidden by all the laws. The common laws have contributed to the illegal receipt of money by allowing free trade zones to exist between countries. The free trade zones have brought what is called money laundering, which refers to the unlawful acquisition of money. It is good to point out that money itself is not a disgrace, but the disgrace comes when it is collected illegally.
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Both the underdeveloped and the civilized countries are suffering from the growing phenomenon of economic crimes such as money laundering, which causes the destruction of their economies. For instance, money laundering reduces the government’s revenues from tax as it is difficult to levy taxes on illegal financial transactions. The mentioned phenomenon was considered as an organized and developing crime with an advanced means which obliged the weak and cowered people to surrender and fulfill what the criminals want. There is an international decision to fight economic crimes and money laundering crime and punish the organized crime groups. The international community is considered a huge crime, spreading, growing, and well organized.
Money laundering has become a common phenomenon in nearly all countries in the world. Money laundering is an action that involves moving money through a couple of nations with the objective of obscuring its origins.1 Money laundering can be regarded as an act of making that comes from one source to look like it originated from another source.2 To understand the aspect of money laundering, it is important to know what necessitates it, the people behind that act and what their motives are, and the strategies put in place by the authorities concerned to try to stop this act.3
The main aim of money laundering is to disguise the origins of money accrued from illegal contracts to look like it came from legal transactions.4 Without money laundering, the criminals cannot use the money for fear that they will be connected to criminal acts, arrested, and then taken to court. Money laundering has been complicated further by factors such as the technologies used in financial transactions, which make it easier for criminals to get away with money laundering acts.5
The economic crime problem is dangerous in all aspects. Socially it destroys the social structure by making a big gap between rich and poor people as the result of unlawful financial transactions, which make some individuals acquire wealth unfairly. The big gap is known to lead to unfair competition among the corporations that are funded legally and those that are funded using the laundered money.
Economically, economic crimes and money laundering will affect the national income and the currency value, which will lead to inflation, destruction of fair competition and increase in cases of unemployment in a country. Money laundering is dangerous for banking system, because the transfer of big amounts will affect negatively the financial establishments. Politically, the money laundering leads to increase in the number of the corrupted officials; increased rate of governmental corruption, transfer of power from legitimate elected official to criminals, and ultimately it leads to political instability.
Definition of Money Laundering
According to the International Monetary Fund, money laundering includes all the criminal activities, such as drug trafficking, smuggling, human trafficking, and corruption and which tend to generate large amounts of profits for the individuals or groups carrying out the criminal act. However, by using funds from such illicit sources, criminals risk drawing the authorities’ attention to the underlying criminal activity and exposing themselves to criminal prosecution. In order to benefit freely from the proceeds of their crimes, they must therefore conceal the illicit origin of these funds.6
The U.S. Department of Treasury defines money laundering as financial transactions in which criminals, including terrorist organizations, attempt to disguise the proceeds, sources or nature of their illicit activities. Money laundering facilitates a broad range of serious underlying criminal offenses and ultimately threatens the integrity of the financial system.7 According to WTO, money laundering act broadly consists of handling stolen products, handling proceeds from criminal activities such as robbery and tax evasion, helping in the laundering of terrorists’ belongings, and using the proceeds gained from criminal activities for legal purposes.8 From this definition, it is evident that if money laundering is not wiped out or closely monitored, it can give the criminals a chance to find legal cover for the proceeds they obtain from crimes.9
History of Money Laundering
According to some historians no one can be really sure when money laundering first began, but some suggested that the beginning was in China thousands of years ago, merchants would hide their wealth from rulers inside China or outside the country.
In United States in the early 1920s criminal investigation commenced for an opium trafficking case, however the U.S. government only charged the criminals with tax evasion. At that time, millions of dollars were being laundered through financial institutions, going untaxed and being used to purchase assets. There was no paper trail at the financial institution other than bank account records, if the money was deposited. There was no requirement for banks to report large amounts of currency transactions. In 1970, to counter money laundering, the U.S. Congress passed the Bank Secrecy Act (BSA).10 With the enactment of the BSA came the introduction of the Currency Transaction Report (CTR, Form 4789), Report of International Transportation of Currency or Monetary Instruments (CMIR, Form 4790) and Report of Foreign Bank and Financial Accounts (FBAR, Form TD F 90-22.1).11
In 1989 in Paris the G-7 summit, the member states established the Financial Action Task Force on Money Laundering (FATF) to respond to the growing concern of money laundering. BSA failed in its attempts to eradicate money laundering because it did not have enough machinery to deal with money laundering as a criminal offence. The Financial Action Task Force (FATF) was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering. In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which provide a comprehensive plan of action needed to fight against money laundering.12 The FATF works in close cooperation with other key international organizations, including the IMF, the World Bank, the United Nations, and FATF-style regional bodies.
FATF-Style Regional Bodies include the following:
- Financial Action Task Force (FATF)
- Basel Committee on Banking Supervision
- Council of Europe
- Egmont Group of Financial Intelligence Units
- European Union (EU)
- International Association of Insurance Supervisors (IAIS)
- International Organization of Securities Commissions (IOSCO)
- Offshore Group of Banking Supervisors (OGBS)
- United Nations Office on Drugs and Crime (UNODC)
- United Nations Counter-Terrorism Committee and Executive Directorate (UNCTED)
- World Bank.
Definition of Free Trade Zones
FTZs, which are considered as the factors that have contributed to growth of money laundering, are developed by countries throughout the world to promote trade, support new business formation, and encourage foreign direct investment. In FTZs governments are trying to provide a preferential environment, benefits, and minimal regulations for trade and services related to export between nations. The benefits include free duty and taxes, simple custom procedures and no charge for imports of raw materials, machinery, spare parts and equipment.
The are several names for the zones according to the main purpose that led to its establishment, the most common one is free trade zone, some of the other common terms for these zones include special economic zones, foreign trade zones, and export processing zones. Each zone created to facilitate a main economic activity, such as manufacturing, processing, warehousing, storage, and transshipment. The FTZs have a separate customs authority that provides duty free benefits and a single management and/or administration which can be governmental or private. The FTZs are located near ports of entry; air, land or sea, and it operate under special rules and regulations.13
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The staff working paper of WTO in 2010 concludes that in Central America and a few Caribbean countries, free trade zones (FTZ) became the backbone of manufacturing sectors of great importance due to their capacity to generate exports and attract foreign investment. However, due to their high import needs, net exports and value added from FTZ were much less significant than gross exports suggest. Typically, activities in FTZ related to the simpler stages of processing of items such as textiles, clothing and electrical goods.14
Evolution of Free Trade Zone
The FTZs prompted global trade for thousands years, and since 18th century the FTZs used as hub for trade and trans-shipment. The first world’s free trade zone is Shannon Free Zone, established in 1959 in Ireland. The Shannon Free Zone significantly improved the local economy, and become the model for subsequent international free trade zones.15
The Free Trade Zones are developed very rapidly by different countries. Currently there are around 3,000 FTZs in 135 different countries, handling billions of U.S. dollars. The Free trade zones are central to the integrated global economy. They stimulate economic growth and play a central role in business for many countries and leading manufacturers. The relevance of FTZs continues to grow as globalization defines economic progress. However the standards, oversight, and regulations governing FTZs have not kept pace with these developments. As a result, illicit actors have been able to take advantage of relaxed oversight and the lack of transparency in zones to launder the proceeds of crime, finance terrorism, and facilitate WMD proliferation.16
Oil and Gas Contracts and Bribery Crime
Oil and gas contracts refer to agreements reached at by several companies with the aim of developing a prospect area. The agreement can be concealed with each company taking up the costs of production and other expenses in a given proportion as determined in the contract. In a case where the contract is limited to a single spacing unit, the member companies will share the cost in a ratio that is equal to their leasehold estate position within the spacing unit.17
Apart from the contract area that determines how costs and production expenses are shared among the companies involved, oil and gas contracts also consist of a contract area. In the latter agreement, the sharing of the production cost is mainly based on the lease ownership and is spread throughout the contract.18 This type of agreement is more important as it discourages the unfairness that is associated with the share ratio based on the ownership of the spacing unit where the site is situated.19
Unlike the oil and gas contracts, bribery in legal perspective refers to an act that includes offering or accepting valuable items such as money in exchange for a favor or an action. The money laundering laws regard both the person offering the bribe and the one receiving it as criminal suspects and they both can be charged with a criminal offence.20 There are numerous types of bribes, although all of them are designed to influence the deeds of influential persons. The main driving forces behind bribery are political and public corruption and money laundering.21
A large number of bribery cases go unnoticed as they are normally given in form of gifts to induce exchange for certain favors. Some of the bribery related crimes for which a suspect may be charged before a court of law include kickbacks, fraud, extortion, and tax evasion. From this, the main reason that does drive individuals to bribe their way out of various contracts is to obtain illegal gains such as unlawful commissions. The kind of punishment accorded to the bribery cases depend on the degree of their severity.22
Case study: Tyco Caught in Saudi Aramco Bribery Probe.
Tyco’s case study describes the way Swiss oil and gas equipment manufacturer Tyco involved itself in a shoddy deal worth US$26 million. The bribery incident also involved major oil and gas companies from Middle East. According to a statement released by the US Department of justice last week, Tyco Valves & Controls Middle East Incorporated admitted the wrong it had committed in bribing the officials from Saudi Aramco.23
Tyco Valves & Controls Middle East Incorporated accepted that it bribed officials from state owned companies. The company’s main motive, which is also the driving factor behind the bribery incident, was to win lucrative petroleum contracts. The company, which is a wholly owned subsidiary of Tyco International, maintained that Tyco was willing to part with about $14 million should the deal fail to mature up.24
According to some of the media houses including the Financial Times, Saudi Aramco’s employees are not the only ones who received bribe, other employees from companies such as Vopak Horizon Fujairah, Emirates National Oil Company and the National Iranian Gas Company. For that reason, the bribery saga involves many companies making it difficult to follow it up.25
Tyco Company and its executive staff managed to hide the incident of bribery for so many years by applying a number of dirty tactics. They cooked the books of accounts and transactions, which involved the contract. It has now been proved that for the last decade, Tyco’s entities bribed foreign officials, but they were able to hide the incident from the public by cooking the cashbooks and concealing payments. The application of dirty tricks in financial transactions is the most common method that companies use to hide payments.26
In any case, the major companies that are involved in the saga agreed to settle it out of court. As a move of ensuring that all the victims of the incidents are fairly compensated, the Tyco International and Tyco Valves & Controls Middle East Incorporated agreed to work hand in hand with the US Department of Justice to ensure that the culprits are brought to face the law27. Tyco’s entities will be reporting to the department on a regular basis to update the department on their compliance efforts. The compliance efforts comprise implementing an effective compliance program and other internal measures that will ensure that the FCPA (Foreign Corrupt Practices Act) are not violated anymore.28
Oil and Gas Transactions and Free Trade Zones as a Channel forEconomic Crimes such as Money Laundering
From the case study, it is evident that oil and gas transactions are one the major financial transactions that malicious individuals can use to their advantage.29 Oil and gas transactions are easy to manipulate as they involve large sums of money, which someone can easily add or omit figures and unsuspecting auditor may not realize. It is very difficult to see the few figures added or omitted as most of the internal control measures put in place cannot detect such type of fraud and money laundering.30
The case of Tyco Entities on one side and National Iranian Gas Co., Emirates National Oil Company and Vopak Horizon Fujairah is a typical example of how transactions of oil and gas can lead to money laundering. Tyco entities managed to bribe the foreign officials from the companies who were able to hide such transactions by cooking the cashbooks.31 The aim of the bribery, which was to enhance the chances of Tyco Company winning the valuable petroleum contract, would see the company climb the top in the industry. This was going to be an unfair gain by the company and would make it an influential player within the industry.32
Tyco’s financial management team managed to hide the shoddy transactions by cooking the cashbooks. The cashbooks, which contained the transactions, were entered in such a way that it would be difficult to detect fraud. This is a common occurrence within financial records of most companies and it has been used for so many years to promote money laundering.33 Money laundering in the case of Tyco Entities would not only benefit the company alone but also the other firms that were on the receiving end. If the case of money laundering was undetected, the act would have unfairly enriched all the companies involved.34
For years the FTZs have been misused by criminals as a channel to start and assist illicit financial activity either through the traditional banking systems or through complicated money laundering techniques. The organized crime groups misused the free trade zones to initiate predicate offense and to assist in the legalization (laundering) of the illicit proceeds.35 In his closing remarks the chairperson of the World Trade Organization(WTO) in its meeting in Dominican Republic 2002, says “ the Members agreed that the Free Trade Zone, or FTZ, regime has played an important role in promoting exports, but also pointed to the structural distortions the regime had created, and which may undermine future growth prospects.”36
According to The Financial Action Task Force study (March, 2010) listed the common Predicate Crime in Free Trade Zone that include the participation in an organized criminal group and racketeering; terrorism, including terrorist financing; trafficking in human beings and migrant smuggling; sexual exploitation, including sexual exploitation of children; illicit trafficking in narcotics; illicit trafficking in stolen or other goods; corruption and bribery; fraud; counterfeiting currency; counterfeiting and piracy of products; environmental crime; murder, grievous bodily injury; kidnapping, illegal restraint and hostage-taking; robbery or theft; smuggling; extortion; forgery; piracy; and insider trading and market manipulation.
Trade Based Money Laundering (TBML)
TBML is one of the main methods used by crime organizations to launder the proceeds of crime. The U.S. Department of Homeland Security (DHS), Division of Immigration and Custom Enforcement defined the TBML as an alternative remittance system that allows illegal organizations the opportunity to earn, move and store proceeds disguised as legitimate trade. Value can be moved through this process by false-invoicing, over-invoicing and under-invoicing commodities that are imported or exported around the world. Global trade is frequently used by criminal organizations to move value around the world through the complex and sometimes confusing documentation that is frequently associated with legitimate trade transactions. This method is also utilized extensively by Colombian drug cartels to repatriate drug proceeds commonly referred to as the Black Market Peso Exchange (BMPE). Underground banking, unlicensed money service businesses, hawalas,etc., have all utilized trade to move value as settlement of a debt arising from remittances overseas. These organizations can accomplish settlement by purchasing commodities in one country and then transferring them to another country where the commodity is sold and the proceeds remitted to the intended recipient.37Furthermore, the U.S. DHS listed several red flags that indicate trade-based money laundering which include the following:
- Payments to vendor made in cash by unrelated third parties
- Payments to vendor made via wire transfers from unrelated third parties
- Payments to vendor made via checks, bank drafts or postal money orders from unrelated third parties
- False reporting: such as commodity misclassification, commodity over-valuation or under-valuation
- Carousel transactions: the repeated importation and exportation of the same high-value commodity
- Commodities being traded do not match the business involved
- Unusual shipping routes or transshipment points
- Packaging inconsistent with commodity or shipping method
- This is good
The Effects of Economic Crimes Conducted in Oil and Gas Contracts and Free Trade Zones
Economic crimes especially money laundering interfere greatly with the economy of the country where the act is done. First, the economic crime causes severe economic distortions as it impairs the growth of a legal private sector mainly through the supply of oil and gas products, which are excessively underpriced.38 For that reason, it makes it difficult for oil and gas companies which deal in legitimate activities to prosper. Criminals of money laundering, if not monitored, can without difficulty cause productive companies to become sterile to launder their funds, which ultimately decreases the productivity of such companies. Severe money laundering practices can also result in unpredictable patterns in the demand for money.39
Apart from the distortion of the economy, laundering of money can also lead to erosion of the financial sector. Criminals wishing to launder money can turn to the financial sector, despite its essentiality in supporting a legitimate economy. The flows of huge amounts of laundered money ingested into or out of an economy can affect the stability of financial institutions and markets.40 If this happens, laundering of money can destroy the reputation of the oil and gas companies that are involved in the illegal transactions or contracts. Serious situations in which money laundering goes on for long without being noticed can lead to the total failure of financial institutions in a nation or region.41
Money laundering can also result in an acute reduction in the government’s revenues as it becomes difficult for government to collect revenue from related transactions; this is because most of the contracts are done in the underground economy. Once the laundered money is successfully turned into legitimate proceeds, it can be used to fund unlawful activities such as terrorist attacks.42
The saturation and invasion of dirty money into legitimate financial sectors and national accounts can threaten economic, political, and social stability. In a working paper of U.S. Department of State in May, 2001, concludes that money laundering have economic and social effects, which include the following:
Damage the Genuine Private Business
Organized crime group used the front companies to inject the proceeds of illicit activity into legitimate funds. The front companies will market prices below the market rates which create unfair business practice and the front companies will have a competitive advantage over legitimate firms that draw capital funds from financial markets. Consequently the legitimate business will find very difficult to compete and survive against the subsidized front companies, and ultimately the legitimate business will be force out of business.
Destabilization the Integrity of Financial Markets
Knowingly or unknowingly when the financial institutions accepts proceeds of a crime will face difficulties and a huge challenges in managing their assets, liabilities and operations. Sudden withdrawal of a significant amount of fund from a financial institution as result of a law enforcement operation will deprive it from the necessary liquidity, and may lead to its failure.
Several banks have failed as result of criminal activity by organized crime groups.
Harm of Economic Policy
The magnitude of the money laundering is massive and an IMF scholar estimated it varies between 2 and 5 percent of world gross domestic product. The proceeds of crimes can shrink the budget of emerging market countries and smaller economies, and consequently lead to loss of control of economic policy. The money laundering can also negatively affect interest rates and currency.
Instability and Damage of Economy
The money launderers are using their proceeds of crime to invest in a low-quality investments, they focus primarily on generating profit, and not on economically beneficial projects to the country where the funds are allocated, resulting in a slow growth of the economy. When the money launderers decide to withdraw their funds from a specific industry, for example real estate, the result will be the collapse of the real estate market, with very possible dominos’ effect to other financial and industrial sectors and damage to the economies. In its 2004 Annual Report the WTO concluded that members recognized the important contribution that free-trade zones (FTZs) had made to the generation of investment and employment in Honduras. However, attention was drawn to the impact on fiscal revenue and the possible economic distortions, which could arise from the FTZ regime.43
Loss of Governmental Revenue
Governments are losing revenue as the money launderers are not paying taxes, and indirectly harming honest taxpayers. Moreover, it makes collection of tax by government more difficult and expensive. Losing revenue can lead to increase in the tax rates for business and individuals.
Threats to Privatization Efforts
In their efforts to hide their proceeds from crimes the money launderers can outbid legitimate purchasers for formerly state-owned enterprises, thus may not allow the legitimate corporation of buying governmental assets and it may lead to slowing or abandon of privatization efforts by governments. Furthermore, the money launderers can use the purchased assets to inject more funds into the financial institutions and further their criminal activities.
Loss of Trust and Reputation Damage
Money laundering can lead to loss of trust in financial institutions of a country and damage of its reputation. Legitimate business and International Corporation will avoid countries with bad reputation and that may be linked to money laundering activities. Countries will lose huge business investment and growth of their economies due to suspicious that their financial institutions are heavily infiltrated by proceeds of crimes. For instance, when people stop keeping their money in the bank for fear of money laundering, a country is likely to experience acute shortage in money supply into the economy.
The consequences of money laundering are negatively affecting individuals, communities, and the governments. Money laundering allows drug dealers, smugglers, and other criminal to expand their criminal activities. To combat crimes and its side effects governments spends huge amount of money to increase law enforcement and health care expenditures. Additionally money laundering shifts power from legitimate government, market, and citizens to criminal organizations.
International and Domestic Strategies and Measures to Combat Economic Crimes and Money Laundering
It is evident that most of the serious economic crimes that are carried out by transnational criminal groups and the crimes involve international contracts. The international standards defined in the 2000 UNTOC Convention should be redesigned to unveil the most effective strategies that can be used to combat the crimes.44 A campaign to mobilize all countries to comply with this convention by amending their internal laws should be carried out to reflect what is contained in the act. In addition to the compliance to the TOC Convention, the recommendations that were adopted by FATF 2003 should be incorporated into every country’s legal system.45
All the countries should install effective anti-money laundering laws and regulations to check the practices of international criminals within their soil.46 To make the money laundering laws effective, every country should ensure that its laws cover all the economic crimes as required by the TOC Convention Article 6. In addition, every nation should also enact other laws and regulations to constitute a strong regulatory and supervisory system to gourd and protect their financial institutions from money laundering.47
The United Nations Convention against Transnational Organized Crime in 2001 concludes that following articles are needed to combat the money laundering:
- Criminalization of participation in an organized criminal group;
- Criminalization of the laundering of proceeds of crime;
- Criminalization of corruption;
- Transfer of sentenced persons;
- Mutual legal assistance;
- Joint investigations;
- Establishment of criminal record;
- Criminalization of obstruction of justice;
- Protection of witnesses;
- Assistance to and protection of victims;
- Law enforcement cooperation;
- Training and technical assistance;
In February 2012 The Financial Action Task Force (FATF) recommended set of measures that countries should have in order to fight the money laundering, it includes:
- Identify the risks, and develop policies and domestic coordination;
- Pursue money laundering, terrorist financing and the financing of proliferation;
- Apply preventive measures for the financial sector and other designated sectors;
- Establish powers and responsibilities for the competent authorities (e.g., investigative, law enforcement and supervisory authorities) and other institutional measures;
- Enhance the transparency and availability of beneficial ownership information of legal persons and arrangements; and
- Facilitate international cooperation
Vulnerability Factors of Oil and Gas Contracts under Free Trade Zones to Economic Crimes
Free trade zones have created a lot of through ways for money laundering. The studies that have been conducted on money laundering vulnerabilities of trade zones show that many unscrupulous individuals have turned the zones to their own advantage into places for money laundering and financing unlawful activities such as terrorist attacks.48 The main factors that have made it easy for the people to carry out the economic crimes are the failure by the domestic authorities to keep vigilant sight on the borders and the poor coordination between the customs personnel.49
The susceptibility of the zones to money laundering has also been detected by the Financial Action Task Force (FATF). The FATF, whose headquarters is based in Paris and which is mandated to coordinate and monitor how governments control money laundering, agrees that a lot should be done to stop the money laundering practices.50 The volume and frequency of money laundering practices can be seen in the crime statistics. According to the statistics, China is the leading country in trade of counterfeit goods and money laundering followed by the United Arab Emirates; the latter study was conducted by the European Union customs department.51
Oil and Gas contracts together with other business transactions have created more than 2,700 free trade zones in about 130 state-owned nations. Most of the world’s free trade zones are concentrated in Asian countries such as Dubai. The free trade zones make it easy for companies like Tyco to make a fast deal with other countries on issues regarding oil and gas contracts.52 It is through the free trade zones that money received illegally from one country can be passed through another country in an attempt to confuse individuals about its origin. With these zones, an individual can circulate proceeds received from unlawful contracts through many countries to make them legal.53
The U.S. Department of State 2012 Report on International Narcotics Control Strategy (INCSR) listed several vulnerability factors, among them as related to FTZs are:
- Failure to criminalize money laundering for all serious crimes or limiting the offense to narrow predicates
- Lack of effective monitoring of cross-border currency movements
- No reporting requirements for large cash transactions.
- No requirement to maintain financial records over a specific period of time
- Lack of or weak bank regulatory controls, or failure to adopt or adhere to Basel Committee’s “Core Principles for Effective Banking Supervision,” especially in jurisdictions where the monetary or bank supervisory authority is understaffed, under-skilled or uncommitted.
- Limited asset seizure or confiscation authority.
- Limited narcotics, money laundering, and financial crime enforcement, and lack of trained investigators or regulators.
- Jurisdictions with free trade zones where there is little government presence or other supervisory authority
- Limited or no ability to share financial information with foreign law enforcement authorities
- Patterns of official corruption or a laissez-faire attitude toward business and banking communities
- Limited or no ability to share financial information with foreign law enforcement authorities.
The Financial Action Task Force (FATF) Report, March, 2010 also identified the following contributing factors that enable the organized criminal groups to conduct money laundering in the FTZs:
Relaxed Oversight and Lack of Transparency:
The custom control over trade and services are considered weak. Also, there is possibility of using the FTZs for commercial fraud.
Lack of Systems Coordination:
Variation of the customs document management from country to another, and it varies by region. Most often the customs management systems are not integrated.
Money laundering is a fiscal felony and a practice in which criminals get hold of earnings gotten from illegal contracts after which they send them to other countries and smuggle it back so that it can appear like it has come from justifiable sources as was witnessed in the case of Tyco and Saudi Aramco contract. Several oil and gas contracts have been identified as crucial sources from where the criminals make illegal proceeds, which give them unfair advantages over their colleagues. A good example is the case of Tyco and Saudi Aramco where money was laundered and the criminal act hidden for a long time. Money laundering can be combated by stringent international and domestic strategies. Most of the strategies are required to comply with the procedures of the TFT 2003 law and the 2000 UNTOC Convention.
The money laundering is a massive underground economy, as estimated by an IMF official it can reach up several U.S. billion dollars each year. Organized crime groups and criminal organizations throughout the world are primarily using the trade free zone as a means to clean their “dirty money”, and then use their proceeds of crime to infiltrate and saturate the legitimate financial institutions worldwide.
The free trade zones are very vulnerable to the money laundering activities due to several factors mainly due to relax regulation and inspection by different jurisdiction authorities; lack of transparency in the TFZs; variation of the custom control and management of the documents among different TFZs, and by regions; lack of cooperation and mutual legal agreements between different jurisdictions; poor or no training of custom and law enforcement personnel on how to combat the money laundering; no or poor money laundering laws or criminalization of the money launderers; and finally some countries are not making the necessary efforts to fight the money laundering.
Indeed, there are so many economic and social consequences related to the money laundering. The economic consequences includes damaging and undermining the legitimate private business; threatening the stability and integrity of financial markets; weaken or loss of control of the economic policy; instability and damage of economy; loss of tax revenue; threats to privatization efforts; and loss of reputation.
Socially, money laundering allows drug dealers, smugglers, and other criminal to expand their criminal activities, and consequently governments will spend a huge amount of money to increase their law enforcement, customs, and border patrol personnel. There will be an increase in crimes; violent offensive activities in communities; lack of security; and drug addiction problems that will force governments to spend money on treatment and rehabilitation of addicted individuals. The money used to correct problems caused by money laundering could be used to finance other productive activities.
There should be an agreement and sincere efforts by the different countries and free trade zones management authorities to minimize and combat the money laundering. Such efforts will not be successful unless there are a standardized management system of document control; adaptation and enforcement of effective laws and regulations.
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1 For more information on money laundering, see Hopton 26-30.
2 See Kale, especially 11-13, for a better understanding of how illegal financial transactions take place.
3 For more information on key issues in money laundering and possible actions, see Bowden 26.
4 Hinterseer 13 gives more information on how money laundering destroys an economy.
5 Kale 24 gives an insight into how advance technology promotes money laundering.
6 See International Monetary Fund especially chapter 1 for the definition of money laundering.
7See U.S. Department of Treasury chapter 2 and 3 for more information on how money laundering facilitates other criminal activities.
8For information regarding the uses of laundered money, see Kris 29-31.
9 Bowden 31explains key issues regarding money laundering.
10 For more understanding of U.S. Congress efforts to deal with money laundering, see U.S. Depart of Treasury chapter 2
11 See IRS. Web.
12 See The Financial Action Task Force (FATF) webpage.
13 See www.cbp.gov, U.S. Customs and Border Protection.
14 See World Trade Organization Webpage, LESSONS FROM THE FIRST TWO DECADES OF TRADE POLICY REVIEWS. IN THE AMERICAS, Staff Working Paper ERSD-2010-15 Date: 17 December 2010
15 See the Organization for Economic Co-operation and Development (OECD) webpage.
16The Financial Action Task Force (FATF), Money laundering vulnerabilities of Free Trade Zones– March 2010.
17Jennings, Anthony 29 contains Oil and Gas Exploration Contracts.
18Jennings, Anthony.(23) Oil and Gas Exploration Contracts.
19Jennings, Anthony.(36) Oil and Gas Exploration Contracts.
20Hall, Daniel.(178) Criminal Law and Procedure. Clifton Part, NY: Cengage Learning, 2009
21Kale, NdivaKofele.(33)The International Law of Responsibility for Economic Crimes.
22Hall, Daniel.(184) Criminal Law and Procedure. Clifton Part, NY: Cengage Learning, 2009
23“Tyco Caught in Saudi Aramco Bribery Probe.” Pipeline Magazine, 30 Sep. 2012. Web. 6 Oct. 2012.
24“Tyco Caught in Saudi Aramco Bribery Probe.” Pipeline Magazine, 30 Sep. 2012. Web. 6 Oct. 2012.
25“Tyco Caught in Saudi Aramco Bribery Probe.” Pipeline Magazine, 30 Sep. 2012. Web. 6 Oct. 2012.
26“Tyco Caught in Saudi Aramco Bribery Probe.” Pipeline Magazine, 30 Sep. 2012. Web. 6 Oct. 2012.
27Muller, Wouter.(47) Anti-money Laundering: International Law and Practice.
28“Tyco Caught in Saudi Aramco Bribery Probe.” Pipeline Magazine, 30 Sep. 2012. Web. 6 Oct. 2012.
29Masciandaro, Doanto.(61) Global Financial Crime: Terrorism, Money Laundering, and Off -Shore Centers.
30Masciandaro, Doanto.(67) Global Financial Crime: Terrorism, Money Laundering, and Off Shore Centers.
31Kale, NdivaKofele. (47)The International Law of Responsibility for Economic Crimes.
32Souza, Jayesh.(89) Terrorist Financing, Money Laundering and Tax Evasion: Examining the Performance of Financial Intelligence Units. New York, NY: CRC Press, 2011.
33Muller, Wouter.(49) Anti-money Laundering: International Law and Practice.
34Scott, Paul Allan. (14) Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism. Washington, DC: World Bank, 2006. Print.
35U.S. Department of State, International Narcotics Control Strategy Report, 2010.
36 See WTO webpage, meeting in Dominican Republic 2002.
37 See U.S. Immigration and Customs Enforcement Agency for more information on some of the unlawful transactions.
38For more information on money laundering, economic crimes and civil remedies, see Gallant 12-15.
39For more information on money laundering proceeds, see Gallant 17-20.
40See Scott 17-22 for more information on money laundering and how to combat terrorism financed by the laundered money.
41Reuter, Peter, and Edwin Truman.(73) Chasing Dirty Money: The Fight Against Money Laundering. Washington, DC: Institute for International Economics, 2004. Print.
42Gallant,(36) Mary Michelle. Money Laundering and the Proceeds of Crime: Economic Crime and Civil Remedies.
43 For more information on vulnerabilities of FTZs to money laundering, see World Trade Organization Annual Report 2004.
44 See Sharman 15-17 for more information on money laundering and criminal finance.
45Sharman, Jason Campbell.(19) The Money Laundry: Regulating Criminal Finance in the Global Economy. Ithaca
46Sharman, Jason Campbell.(22) The Money Laundry: Regulating Criminal Finance in the Global Economy. Ithaca
47Reuter, Peter, and Edwin Truman.(37) Chasing Dirty Money: The Fight Against Money Laundering. Washington, DC: Institute for International Economics, 2004. Print.
48See Souza 93-97 for more information on the function of financial intelligence units.
49Madinger 248-51 gives more information on criminal investigations regarding money laundering.
50Kale 77-81 explains how the International Law of Responsibility combats Economic Crimes.
51Souza 96 gives some of the problems associated with money laundering.
52For more information on criminal investigation on money laundering, see John 251-54.
53See Souza 99-102 for more information on activities financed by laundered money.