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The Process of Converting or Transferring Properties Analytical Essay


The process of converting or transferring properties with full knowledge that the property is obtained from severe crime, with the intention of covering up the prohibited origin of the material or helping an individual who has committed such offence to elude the legal consequences of his actions constitutes money laundering.

It is also the covering up of the true situation, movement, disposition, location, or material ownership knowing out rightly that the material is obtained from severe crime (Bazley & Foster 2004). Placement, layering, and integration form the process of money laundering.

With huge volumes of imports and exports, tax evasion by different trading partners becomes common. The internet has made fraud, marketing, and corruption more sophisticated than before since money can easily move anywhere in the world. Markedly, money laundering has infiltrated the international market with the globalisation of financial flows and markets.

With globalisation comes easy movement of funds from one nation to another; countries aim at building stronger trading relations with the globalisation aspect. Since globalisation allows a few developed economies to a mass wealth at the expense of the poor nations, competition among the developed economies, as well as the move by developing economies to match their counterparts results in illegal practices like money laundering (Hopton 2009).

The constant pressure on all countries to deliver profits makes money laundering an option to salvage economies that are performing poorly. Clearly, in a globalised market, there is urgent need to deliver positive returns. Additionally, globalisation opens doors for cutthroat completion, as all economies tend to be at the top. As a result, this opens ways for money laundering in order to gain competitive edge over each other in the international market.

The speedy developments in communication, technology, and financial information enable money move to any place with ease and speed; therefore, there is imperative need to combat money laundering. The situation makes it possible for “dirty money” to infiltrate the international banking system (Money laundering: prevention of the use of the financial system 2011). Advances in communication and technology have made it difficult to address the issue of money laundering.

Deregulation of financial markets has also resulted in no consistency and coherence in fighting anti-money laundering programmes. The increase in access to external financing challenges the economic crunch, which is also a cause of the recent recessions. Globalisation opens up market interconnection, thus paving way for interdependence among states, which leads to economic collapse in case of rampant malpractices.

With different nations coming together to form a global village in the 21st century, deregulation and liberalization of national economies has become the key feature. According to the IMF’s report, money laundering in 1996 had a value between $800 billion and $2 trillion worldwide; this represented an estimate of 2-5% of the world’s GDP (McDowell n.d).

Event though it is difficult to quantify the negative effects of money laundering on international business and economy of the world, permitting the process results in unsustainable economic development. This form of financial crime undermines formation of domestic capital since these criminals do not invest such funds in activities that are not of great economic benefit to the world.

Therefore, the unabated capital flight drains scarce resources from a developing country’s economy, thus distorting international business (Money Laundering n.d.). As the process encourages corruption and crime, there is high rate of resource diversion, which slows economic growth of affected nations. The financial sector always plays vital roles in economic growth, as it carries out efficient allocation of resources to investment projects that create sustained economic progress (Saadiakh 2012).

Fraudulent activities in the financial sector erode customers’ trust, which is essential in the growth of sound financial foundations. At the same time, high rates of money laundering increase vulnerability to corruption and other fraudulent activities. Notably, corruption and crime in developing economies, which arise from money laundering, are great exact opposite of sustainable economic growth. Diverting money to less-productive domestic assets such as luxury automobiles, jewellery, and art leads to economic downfall.

The entire process causes inefficiency within the financial sector, as it opens ways for criminal acts. Therefore, to avert confidence backlash among local and foreign investors, imposing anti-monetary policies that impel notable flights of capital to more lax jurisdictions are necessary. Market confidence plays key roles in making investment decisions. Products imported using laundered funds usually use illegal procedures to reach the final users, hence evading tax.

This shows that government revenue can reduce tremendously, while more funds can be committed to create services that meet the needs of the public. Moreover, imported products can depress domestic prices, as well as generate no employment; this reduces the profit levels of domestic enterprises (Measures to Prevent Money Laundering n.d.).

This behaviour indirectly harms genuine taxpayers since government bodies will be under pressure to expand their services to cater for all citizens. In line with this, loss of revenue translates to higher tax rates on honest taxpayers. In such scenarios, a lot of money that the government cannot trace their sources moves within the country, evading taxes. This can cause inflation. Evidently, money laundering negatively affects the financial sector of any economy.

When these criminals have large capital bases, they can purchase key public institutions like banks, casinos, and resorts since they can easily outbid genuine bidders on public properties (Combating money laundering and the financing of terrorism a comprehensive training guide 2009).

The privatisation creates numerous risks to the economy of a nation, as money launders get the opportunity to continue practising their illicit acts. With these criminals controlling the economy, there arise several dynamic and complex challenges, thus calling for international cooperation, as well as use of global standards in mitigating such acts.

A country that suffers the aforementioned challenges finds it difficult to attract foreign investors since there will be less assurance on sizeable returns on investment (ROI). In other words, an economy that shows no signs of growth due to money laundering activities scares foreign investors, as they will not be able to exploit and benefit from the vast resources that exist in the country.

Foreign Direct Investment (FDI) remains a key development tool for countries; therefore, if the integrity of a given sector is doubtable due to unethical, unprofessional, and illegal standards, investors lose faith in investing in such services. Investors always place their money where they have trust and surety of possible positive returns (Stessens 2000). With corruption and crime becoming rife, coupled with high volatility of international capital flows, foreign investment becomes difficult.

The negative effects of money laundering on the financial sector and on FDI diminish economic growth and sustainable development. Rectifying a damaged financial reputation is extremely difficult given the intricacy of removing the money laundering tag from such nations.

Illegal, unethical and unprofessional practices create negative environment for conducting business transactions among key investors, as they value transparency and accountability, which do not exist is this scenario. A country experiencing high rates of money laundering have high-levelled corruption and crime; this puts away potential foreign investors from investing in such economy.

Islamic societies with no formal banking services use hawala to transfer money to their relatives and friends (Faith 2011). The US has suspected terrorists to be using this informal money transfer system to fund their activities. In this system, there are no written records, as the engagement is based on faith and trust. From this aspect, the hawala system becomes difficult to track and regulate.

In regions like Kashmir and Jammu, terrorists use this underground banking system to transfer between 90 and 95% of the funds (Faith 2011). According to US Treasury Department, Dubai, India, and Pakistan forms the ‘hawala triangle’ in the Persian Gulf, as they use the system for drug trafficking and other crimes. The secretive aspect of the system allows for money laundering.

On the other hand, the hawala system has been vital in growth of Afghan’s economy since immigrants in the US use the system to send money to their families. Somalia has also benefited from the system, as evident in the development projects in Eastleigh, in Kenya’s capital, Nairobi (Faith 2011). Money transferred through hawala does not only evade tax, but also encourages trading in illegal arms, as is believed to be used by the Al-Qaeda in the 2001 US attack.

Combating financing of terrorists and money laundering has attracted the attention of world governments leading to formation of the Financial Action Task Force (FATF). This independent inter-governmental body has put forward internationally recognised recommendations that tend to counter-terrorist financing, financing of proliferation and stop global money laundering.

Identification and assessment of risks of financing terrorists and money laundering help countries to understand the appropriate mitigation steps that can address the problems successfully (The 40 Recommendations, published October 2004 n.d.).

Even though the risk-based approaches are essential in mitigating the identified risks, the entire process requires integrity and internal will to end the vices. Apart from the will to fight these vices, there is need for cooperation among significant bodies in the financial sector, such as law enforcement bodies, the financial intelligence unit (FIU), supervisors, and policymakers.

High competency level is also necessary among the groups charged with implementing activities and policies that fight the aforementioned vices (Unger & Busuioc 2007). Seizing and confiscating properties laundered by all countries without prejudicing the rights of bona fide third parties is a uniform way that nations can implement to eradicate money laundering. The measures in Vienna Convention allowing confiscation of properties intended for money laundering tend to eliminate criminal conviction in the process.

If countries can recover such properties without requiring criminal convictions, it will ease the whole process since suspects will easily be prosecuted within a short notice. Additionally, it is an offence to finance terrorist activities, and such persons are treated as criminals. Financing individual terrorists and terrorist organisations are criminal acts even in the absence of a link to a specific event. Clearly, this recommendation can help countries to eradicate money laundering.

Even though there are high chances of seizing and freezing legitimate accounts, the move can make the account owners to validate the source of their funds (Steel n.d.). To suppress terrorism, which has remained a major impediment to economic growth, countries ought not to delay in freezing funds and assets of suspected financiers. In attempt to comply with the United Nations Security Council resolutions, countries must prevent, suppress, and disrupt acts that may lead to proliferation of weapons (Preventing money laundering 2013).

Proliferation of weapons of mass destruction occurs through money laundering process; therefore, the recommendation to freeze funds related to such acts is necessary. All countries have to review all their laws and regulations that touch on money laundering in order to ensure adequacy. Fighting terrorism requires stringent laws, which should be uniform in all nations. At the same time, cooperation among countries is significant in eradicating actions that lead to money laundering.

With the concept of globalisation, fighting financing of terrorist activities requires universal approach to ensure that financial institution secrecy laws in any country do not inhibit the implementation of recommendations by FATF. Financial institutions, at the same time, can prohibit opening of accounts using anonymous names by undertaking customer due diligence (CDD) (The IMF and the Fight against Money Laundering and the Financing of Terrorism 2013).

Suspicious wire transfers have to be withheld upon investigation to verify customer identification data. As a way of eliminating hawala system of transferring funds, financial institutions in all countries have to maintain records on transactions for at least five years. In keeping all transaction records, tracing incidences of money laundering become easy.

Since money laundering remains an international problem, financial institutions have to monitor business relationships that exist among their customers. Monitoring business relationships helps in determining whether customers engage in legal activities. Financial institutions, however, should not delay processing of funds for business people as a way of countering money laundering and financing of terrorist activities, as this may put away investors from putting their resources in a country.

Even though suspicious financial transactions ought to be reported to the financial intelligence unit (FIU), financial institutions have to carry out internal investigations to verify the claim before forwarding the case to FIU. To ensure uniformity in mitigating financing of terrorism and money laundering, all countries should implement the FATF recommendations (Combating money laundering and the financing of terrorism a comprehensive training guide 2009).

Therefore, there should be no giving up in implementing money laundering in developed and developing nations. Since the vices affect both countries, especially the developing nations, these nations should execute the same recommendations from FATF.

Even though FATF has laid necessary preventive measures to curb money laundering, the inter-governmental body ought to create awareness among the public so that eradication of the vice starts from the grass root levels (Money laundering: prevention of the use of the financial system 2011).

Money laundering greatly affects the financial systems of countries if not detected and dealt with in time. The act can increase unemployment rates in nations, as well as increase inflation. The mitigation approaches requires collective responsibility among key stakeholders so that any mischief in a sector is detected and handled within time. Salvaging the economy of the world requires proactive actions since giving up on the approaches can lead to economic recession.

List of References

Bazley, S., & Foster, C. 2004, Money laundering business compliance, LexisNexis, Croydon.

Combating money laundering and the financing of terrorism a comprehensive training guide 2009, World Bank, Washington DC.

Faith, D. C. 2011, ‘’, Global Security Studies. Web.

Hopton, D. 2009, Money laundering a concise guide for all business (2nd ed.), Gower Pub, Surrey, England.

McDowell, J., T, Homeland Security Digital Library (HSDL). Web.

. Landsbankinn. Web.

Money Laundering., Financial Action Task Force (FATF). Web.

Money laundering: prevention of the use of the financial system 2011. Web.

. Web.

Saadiakh, D. 2012, . Web.

Steel, B., Money Laundering – Effects On Financial Institutions, Billy’s Money Laundering. Web.

Stessens, G. 2000, Money laundering a new international law enforcement model, Cambridge University Press, Cambridge.

. Web.

, The International Monetary Fund. Web.

Unger, B., & Busuioc, E. M. 2007, The scale and impacts of money laundering, Edward Elgar, Cheltenham, UK.

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IvyPanda. (2020, February 12). The Process of Converting or Transferring Properties. Retrieved from https://ivypanda.com/essays/money-laundering-2/

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"The Process of Converting or Transferring Properties." IvyPanda, 12 Feb. 2020, ivypanda.com/essays/money-laundering-2/.

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IvyPanda. (2020) 'The Process of Converting or Transferring Properties'. 12 February.

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