Criminology

Money laundering may be defined as a multi staged process of converting illegally gained capital and assets into legal accounts, as if derived from a legal venture. By concealing the origin of funds, these funds now enter the economic circulation main stream. The origin of such funds include all type of crimes like drug trafficking, gun smuggling, corruption, murder for profit, prostitution etc. However the funds associated with drug trafficking is of huge proportions. Money laundering is an aspect of the criminal finance system, which has huge implications for the organized and legal finance system.

Money laundering inflicts an unfair economic burden on the legal economy, affecting all its participants, apart from corrupting markets and destabilizing international financial markets. The rise in transnational organizational crime and the resulting finance may be attributed to the economic boom and the technological explosion, which led the geopolitical situation, subsequent to the fall of socialism. The scope and ease of legitimate business in the international arena only helped the growth of transnational illegal activities (Shelly, 1995). Transnational crimes have only recently been acknowledged as a threat to international setup, although it had been for most of the 20th century.

International money launderers prefer destinations which exhibit a tolerant attitude towards money laundering, for instance, countries having banking secrecy laws, or whose governments have uncooperative attitude towards prevention of money laundering. Countries with high GNPcapita would facilitate hiding such transactions and are therefore preferred. Countries with high levels of corruption and conflict, or countries with significantly different linguistic and cultural differences would be unfavorable to the money launderers. The US is an important, favored destination for international money laundering. According to Agarwal, the Director of Indian Institute of Finance, the amount of money laundered through the banking sector worldwide is in the range of 500 billion to  1 trillion, with half of this circulated through the US banks. He attributed the increasing threat of global money laundering to excess freedom provided in countries like Switzerland and other tax havens, and too much of control in countries like Russia.

Earlier, this informal economy was not considered a severe issue mainly due to the difficulties associated with investigating the developments associated with it, and the lack of recognition of the range and level of its economic activity. However today, the developments of the informal economy is considered and investigated seriously given the fact that the narcotics trade, illegal military equipment trade and trade in human beings are among the worlds largest businesses. Money laundering links the formal and informal economies. Corruption and embezzlement of funds from the states development projects is facilitated and encouraged due to the possibility of money laundering. Today, money laundering is no more a sidelined economic activity. Rapid technological advances, integration of financial markets and globalization has provided newer opportunities for both the legal and illegal economies. Criminal syndicates have considerable influence throughout the legal economy and easily adopt efficient money laundering systems, without much fear or apprehension.

Efforts to control money laundering have been more focused in the last 15 years, with the last five years seeing a real momentum. The National Money Laundering Strategy for 1999, the first US national report on money laundering, emphasizes that money laundering is the financial side of almost all crimes for profit, and associated with brutality, deceit and corruption. The report recollects the Presidents 1995 speech to the UN assembly, We must not allow criminal enterprises to wash the blood off profits got from drug trade, terror or organized crime.. and if allowed to thrive, would erode public trust in the integrity of our financial institution. The United Nations Office for Drug Control and Crime Prevention (UNDCCP) in its World Report 2000 itself had estimated the annual turnover of narcotics trade to be about 500 billion. The Financial Action Task Force (FATF), an inter-governmental organization consisting of about 31 members affiliated to the Organization for Economic Cooperation and Development (OECD) estimates global money laundering to aggregate to about 2 to 5 of global economic output, which by 1996 statistics should be about 590 billion to 1.5 trillion (Cotterill, 2001).

Given the economic, political and regional perspectives of money laundering, effective strategies for controlling money laundering needs a cross-disciplinary analysis. However it has not been possible to undertake a cross-disciplinary analysis, as there is no proper methodology for assessing money laundering. Without accurate estimates, it would not be possible to study the impact of control strategies on money laundering. Realizing the importance for effective control strategies, the United States Financial Crimes Enforcement Network awarded  1 million in private contract for developing a methodology to assess money laundering. Using artificial intelligence, suspicious transactions related to money laundering may be flagged off, based on transactional analysis of multiple situations, which detect odd and unusual patterns in data. However novel laundering methods can beat the software, particularly by splitting noticeable amounts into smaller amounts or by spreading it across multiple accounts.

The Money laundering Control Act of 1986 (MLCA) recognizes the laundering of proceeds from certain illegal activities, as federal crimes. The legislation was brought out in response to increasing growth of money laundering and the increasing association of money laundering and organized crime. The enormous money and the modus operandi adopted have led to the evolution of a new profession within the criminal circles, called the professional money launderer (Gurule, 1995). With bankers, lawyers and accountants being either unconcerned or actively participating in laundering, the MLCA was directed at halting the activities of those who make and those who take the dirty money.

As smuggling cannot be prevented by anti-drug trafficking methods, the strategy calls for monitoring financial transactions and confiscating the crime proceeds. To achieve this, an appropriate global infrastructure and legislation are required. Money laundering regulations at the level of nation states should be directed at making key private sector entrepreneurs responsible for compliance of public policies and ensuring public goals (Levi, 2002). The proposed regulations of the US federal agencies require financial service providers to create customer profiles, and whenever transactions seem inappropriate, should determine source of funds.  Link analysis is an approach taken in controlling money laundering. Through record linkage and social networking methods, money-laundering attempts can be recognized. Fraudsters are known to always work in association (Bolton and Hand, 2002).

Therefore whenever an account has been terminated for fraud, it is always possible that the fraudster would link to the same connections from a new account. Without any prior illegal conduct observation, suspicious accounts are subjected to unsupervised methods. Among the many strategies adopted by money launderers to adapt to the prevailing detection methods is to switch between wire and physical cash movements. Money launderers also have good contacts within banks that provide them details of the detection strategies used.