Why Does Stopping Money Laundering Matter?

Financial crime doesn’t exist in a vacuum, and even if no one is hurt by the physical act of laundering money, that’s not where financial crime begins. All money laundering starts with a predicate crime – a crime that generates the illegal funds in need of laundering. Some of the most common predicate crimes are also some of the worst imaginable: human trafficking, narcotics manufacturing and distribution, and illegal arms sales are all examples of common crimes that fuel money laundering operations. Understanding what’s at stake when even a single dollar is successfully laundered is key to developing an appreciation for the significance of anti-money laundering work.

Introduction

Financial Crimes have a real-world cost.

Taken in isolation, the act of money laundering might not appear to be a serious crime: no one is injured directly by moving money around to hide its origins. The problem, of course, is the crime committed to make the money in the first place. 

Crimes committed for profit can be truly atrocious. To understand why it’s worth fighting money laundering, you have to understand what crimes of profit are.

Common Crimes of Profit

Some of the most common crimes of profit include:

• Human trafficking: the use of force, coercion, and fraud to obtain some type of labor (commonly forms of prostitution). Extreme forms of human trafficking like slavery are still common in parts of the world. The victims of trafficking are commonly women and children.
• Illegal drugs: the sale of illegal narcotics. Regardless of your stance on the personal freedom to ingest psychoactive substances, the drug cartels behind illegal narcotics are highly organized, exploitative, and incredibly violent. 
• Illegal weapons sales: the illegal sale of weapons, including to terrorist organizations. Violence needs weaponry, and this is where it gets it.
• Corruption: many industries, governments, and other organizations throughout the world are plagued by corruption. Corruption is often fueled by bribery, which brings money into the equation.
• Tax evasion: society is powered by shared resources, and those resources are paid for through taxation. Illegally avoiding taxes by hiding your money exploits fellow citizens that share the same resources.

Sadly, these are just a few examples of crimes that are committed for profit. Many other types exist, and the crimes are always evolving. The UN estimates that 2-5% of the world’s GDP is from illegal activities, which implies a multi-trillion dollar market for crime every year.

To understand how society fights these crimes, we have to look at a range of approaches that are in use.

Putting Things in Context

Specific vs. general tactics to fight crime.

Broadly speaking, fighting crime involves both crime-specific tactics and general tactics. We use this distinction because anti-money laundering is a general tactic – we’ll come back to that in a moment. First, this is a quick overview of what we mean:

• Crime-specific tactics: law enforcement agencies employ many tactics that are tailored to the crimes they prevent. Using trained K9 units to sniff out drug trafficking is an example.
• General tactics: preventing the use of money obtained through crime is a general tactic – it applies to any crime that is committed for profit.

Anti-money laundering and anti-fraud efforts make it harder for criminals to use money, which in turn makes the crimes less attractive to commit.  

Both crime-specific and general tactics are needed. Increasing the effectiveness of our efforts to fight financial crime through smart technologies may be one of the most cost-efficient ways to reduce crimes of profit.

Wrap-up

Why it matters.

The work that compliance professionals do to stop money laundering is incredibly heroic. Society needs to take a stand against the people that would exploit others for profit, and compliance teams are on the front lines of this battle, providing valuable information to law enforcement agents that can take action.