Earlier this year U.S. authorities said they had broken a crime ring that laundered tens of millions of dollars from drug cartels through businesses in Los Angeles, California. Authorities suspect that drug cartels were funneling their profits through the companies in an international laundering scheme. Those might have included ransom payment made to release a U.S. citizen tortured by a drug cartel in Mexico.
Also this year, U.S. officials accused the British bank Standard Chartered of illegally laundering $250 billion in financial transactions with Iran during the past decade, allegedly filtering money through its New York branch in about 60,000 transactions with Iranian financial institutions.
Illegal money transactions have come to plague the free market system because western laws passed since the 1960s have created a financial structure that facilitates the circulation of illegal money, wrote former businessman Raymond Baker, in his book Capitalism’s Achilles Heel.
Kannan Srinivasan, a researcher at Melbourne's Monash Asia Institute, said the easiest way to conceal unlawful funds is to move them across international borders. 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.”
Srinivasan said many banks, including those in the United States and Switzerland, accept large deposits of money from overseas, typically without checking their origin. "For example," he said, "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 U.S. banks."
Drug dealers, racketeers, terrorists and other criminals have to conceal the sources of the money they earn through their illegal activities. So they usually have other legitimate businesses, such as shops, garages and restaurants, through which they channel their illicit incomes. But money laundering takes various forms and is not confined to criminal and terrorist circles.
“Dirty money comes in three forms: corrupt, criminal and commercial," said Baker. "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,” he said.
But many people are not aware of the devastating effect illegal money transactions have had on them and the rest of the world.
Baker estimated that some $ 11 trillion of dirty money were hidden away in tax havens around the world. In addition, about $1 trillion in illicit funds crossed international borders every year, half of it originating in poor countries who receive aid. According to Baker, this makes eradicating global poverty a near impossible task.
“Consider the impact of this money. First, it eviscerates foreign aid. Foreign aid has been running at about $50 billion a year, and higher in recent years. Match that against the $500 billion of dirty money that comes illicitly out of developing and transitional economies.”
Corrupt leaders in developing countries often use huge portions of aid money to enrich themselves and bribe those who help them in the endeavor. Terrorism also is financed by dirty money and as we can see in the case of ISIS, there is no shortage of it.
Baker said that al-Qaeda had accumulated an estimated $300 million through the dirty money structure in the decade prior to September 11 attacks. "It’s the way that Saddam Hussein re-armed after the Persian Gulf War, buying munitions that were later killing Americans in Iraq. It’s the way that Abdul Quadeer Khan in Pakistan operated his nuclear network, buying and selling nuclear materials around the world," he said.
Branko Milanovic, a senior scholar at the City University of New York, said international monetary laws should be tougher and more coordinated.
“When you have people who are 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,” said Milanovic. "And having laws in place is not enough," he warned, "because even those already on the books are not properly enforced."
Milanovic said the main reason is that 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, noted Milanovic,"the poor in developing countries often are unaware they have been harmed by money laundering."
Huge amounts of international aid attract the vultures who siphon off large portions of it and often send it back to where it came from, using illegal channels. Meanwhile, millions of destitute people die every year from preventable poverty-related causes.
The corruption of international capitalism has prevented the spread of global prosperity, with those most hurt by it unable to prevent it. Experts agree that new laws will hardly change a thing. But governments can and should do more to educate the public and establish mechanisms to enforce the existing laws. No amount of aid will erase poverty until the illegal flow of money out of poor countries is stopped.
And on a lighter note: