“The international community has made the fight against money laundering and terrorist financing a priority. The IMF is especially concerned about the possible consequences money laundering, terrorist financing, and related crimes have on the integrity and stability of the financial sector and the broader economy. These activities can undermine the integrity and stability of financial institutions and systems, discourage foreign investment, and distort international capital flows.”
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A Modern Twist on a Traditional Crime
For thousands of years, crime syndicates, financiers, and everyday criminals have found creative ways to move and hide money. With the continued globalization of world markets,[ii] and the development of today’s global economy, comes consequences; namely, transnational organized crime.[iii] The International Criminal Police Organization (INTERPOL) defines money laundering as "any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources."[iv] The ultimate aim of money laundering is “to retain control over the proceeds,” and turn them into usable funds.[v]
Although the principles of money laundering have stayed the same, the mechanisms and typologies of money laundering are ever evolving.[vi] Through diminishing national economic boundaries and advancements in technology and financial systems, organized crime groups have more avenues than ever to launder their illicit money, thus creating an urgency to combat the issue.[vii] Look no further than the United Nations Office on Drugs and Crime (UNODC) estimate that approximately $800 billion to $2 trillion is laundered globally every year.[viii]
Money Laundering and Terrorism
Interestingly, most fail to recognize the growing connection between money laundering and terrorism. “Terrorist financing involves the raising and processing of assets to supply terrorists with resources to pursue their activities. While these two phenomena differ in many ways, they often exploit the same vulnerabilities in financial systems that allow for an inappropriate level of anonymity and non-transparency in the execution of financial transactions.”[ix] As a result, the fight against money laundering often intersects with the fight against terrorism.
To combat this issue, both the United States and the European Union place restrictions on transactions with shell banks, banks that do not have a physical presence in any country.[x] In the US, financial institutions are prohibited from conducting any business with foreign shell banks,[xi] but there is no such prohibition domestically. The EU has taken the prohibition a step further by prohibiting financial institutions from conducting any business with all shell banks, both foreign and domestic.[xii]
Considering that the US and EU are the leaders in establishing anti-money laundering regulations, it is really up to them to set the stage for eliminating the use of shell banks altogether. This could be done through a number of steps starting with the US extending its prohibition to all shell banks. Then, the US and EU would have to prohibit other, non-financial institutions from conducting business with shell banks. With the support of international organizations such as the United Nations, other countries could be pressured to follow suit.
Unfortunately, not much is known about how major terrorist groups utilize shell banks. Despite this uncertainty, various governmental organizations are making the fight a priority. What is certain, though, is that the only way to put a stop to terrorist funding is through international cooperation.
[i] The IMF and the Fight Against Money Laundering and the Financing of Terrorism, IMF Factsheet, March 21, 2016, available at http://www.imf.org/external/np/exr/facts/aml.htm.
[ii] Theodore Levitt, The Globalization of Markets, Harvard Business Review (May 1983), available at https://hbr.org/1983/05/the-globalization-of-markets#.
[iii] Transnational Organized Crime: The Globalized Illegal Economy, United Nations Office on Drugs and Crime, https://www.unodc.org/toc/en/crimes/organized-crime.html (last visited Oct. 21, 2015).
[iv] Money Laundering, International Criminal Police Organization, http://www.interpol.int/Crime-areas/Financial-crime/Money-laundering (last visited September 19, 2015).
[v] Doug Hopton, Money Laundering A Concise Guide for All Business 1 (2nd ed. 2009).
[vi] See generally id.
[vii] Money-Laundering and Globalization, UNODC, https://www.unodc.org/unodc/en/money-laundering/globalization.html (last visited Oct. 2, 2015).
[ix] The IMF and the Fight Against Money Laundering and the Financing of Terrorism, IMF Factsheet, March 21, 2016, available at http://www.imf.org/external/np/exr/facts/aml.htm.
[x] 31 U.S.C.A. § 5318(j)(1) (Westlaw 2015).
[xii] See Directive (EU) 2015/849, 2015 O.J. (L 141) 95.