Criminals, terrorists and numerous businessmen worldwide commit illegal money transactions that have come to plague the free market system. Analysts say the corruption of international capitalism prevents the spread of global prosperity.
Drug dealers, racketeers, terrorists and other criminals have to conceal the sources of the money they earn through their illegal activities. Thus they usually have other legitimate businesses, such as shops, garages and restaurants, through which they channel their illicit incomes. This practice is often called “laundering dirty money.” In his new book, Capitalism’s Achilles Heel, former businessman Raymond Baker writes that money laundering takes many forms and is not restricted to criminal and terrorist circles.
“Dirty money comes in three forms: corrupt, criminal and commercial. The corrupt component is the proceeds of bribery and theft by foreign government officials. The criminal component is the drug and the racketeering and the terrorist money that sloshes around the globe in the billions of dollars. The commercial component has the characteristic of being almost always tax evading,” says Mr. Baker.
Analysts say the easiest way to conceal unlawful funds is to move them across international borders. Kannan Srinivasan, a researcher specializing in money laundering at the Monash Asia Institute in Melbourne, Australia, says the absence of coordinated international legal and law enforcement efforts makes this possible.
“When money comes out of any country, one does not go very deeply into the origin of that money. Therefore, it takes on this new character of being a variety of international money and can sometimes come back into the very country from which it has exited because it is presumed to be a sort of international investment.”
Mr. Srinivasan says many banks, including those in the United States and Switzerland, accept large deposits of money from overseas, typically without checking their origin. For example, a person making money by running a prostitution ring in the United States could not by law deposit that money in an American bank. But if dirty money is earned outside the United States, it can be deposited in US banks.
Author Raymond Baker says western laws passed since the 1960s have created a financial structure that facilitates the circulation of illegal money. “This structure consists of tax havens, off-shore secrecy jurisdictions, disguised corporations where no one knows who owns the business, flee clauses that enable the trustee who is the nominal head of the disguised corporation to shift that disguised corporation to a different secrecy jurisdiction if anyone comes knocking on the door trying to find out who owns it, shell banks; anonymous trust, fake foundations where you can donate money to the foundation and then benefit yourself out of the foundation; false documentation, mispricing and a whole host of loopholes that facilitate the movement of money out of the dirty money structure into western coffers.”
Mr. Baker estimates that some 11 trillion dollars of dirty money are hidden away in tax havens around the world. And, he says, about one trillion dollars in illicit funds cross international borders every year, half of which originates in poor countries. According to Raymond Baker, this makes eradicating global poverty a near impossible task.
Impact on Poverty
“Consider the impact of this money," asks Mr. Baker. "First, it eviscerates foreign aid. [Western] foreign aid has currently been running at about 50 billion dollars a year, a little bit higher in recent years. Match that against the 500 billion dollars of dirty money that comes illicitly out of developing and transitional economies.”
Mr. Baker says corrupt leaders in developing countries often use huge portions of aid money to enrich themselves. He notes that global terrorism, which has been on the rise for the past 25 years, has also been financed by dirty money. “It accounts for the rise of al-Qaida with an estimated 300 million dollars flowing through the dirty money structure into al-Qaida coffers in the decade prior to September 11, 2001. It’s the way that Saddam Hussein re-armed after the Persian Gulf War, buying munitions that are killing Americans in Iraq today. It’s the way that Abdul Quadeer Khan in Pakistan operated his nuclear network, buying and selling nuclear materials around the world. [A.Q. Khan helped build Pakistan’s nuclear weapons program]”
Many analysts call for more international laws on money laundering. World Bank analyst Branko Milanovic says, “When you have people who are actually mutually benefiting from a relationship that is somewhere in a gray area and which may be illegal in one country and quasi-legal or legal in another country, it is very difficult to actually go after them.”
But Mr. Milanovic warns that simply having laws in place is not enough, because even those already on the books often are not properly enforced. Furthermore, he says, most of the victims of money laundering are poor and powerless people in developing countries. “It’s almost impossible for poor people to organize themselves and to fight back. They have no political power, they have no economic power and they have no access to the media.” Perhaps more importantly, notes Branko Milanovic, the poor in developing countries often are unaware they have been harmed by money laundering.
Many analysts agree that educating the public of the devastating effect of illegal money transactions may be more effective than new laws. Despite massive international aid, an estimated 18 million people die every year from poverty-related causes. But many analysts say no amount of aid can erase poverty until the illegal flow of money out of poor countries is stopped.
This story was first broadcast on the English news program, “VOA News Now.” For other “Focus” reports, Click Here.