STRAIGHT TALK

PHOTO: IMF
Cleaning Up inclusive growth by diminishing the resources avail-
able for productive purposes, such as building roads,
schools, and hospitals. Criminal activity undermines
Countries are advancing efforts to stop state authority and the rule of law while squeezing out
criminals from laundering their trillions legitimate economic activity. And money laundering
may create asset bubbles in markets like real estate,
Rhoda Weeks-Brown a common vehicle.
A recent example illustrates the point. A Guinean
AL CAPONE HAD A PROBLEM: he needed a way to dis- minister helped a foreign company obtain important
guise the enormous amounts of cash generated by his mining concessions in exchange for $8.5 million
criminal empire as legitimate income. His solution in bribes. Falsely reporting that money as income
was to buy all-cash laundromats, mix dirty money from consulting work and private land sales, the
in with clean, and then claim that washing ordinary minister transferred it to the United States and
Americans’ shirts and socks, rather than gambling bought a luxury estate in New York. But his effort
and bootlegging, was the source of his riches. to turn ill-gotten gains into a seemingly legitimate
Almost a century later, the basic concept of money asset was ultimately unsuccessful; last year, he was
laundering is the same, but its scale and complexity convicted of money laundering.
have grown considerably. Were Capone alive today, he In some ways, expensive homes are the modern
would have to run his washers and dryers around the mobster’s collection of laundromats. A public advisory
clock to keep pace with demand; the United Nations issued by US authorities last year indicated that over 30
recently estimated that the criminal proceeds laun- percent of high-value, all-cash real estate purchases in
dered annually amount to between 2 and 5 percent New York City and several other major metropolitan
of global GDP, or $1.6 to $4 trillion a year. areas were conducted by individuals already suspected
of involvement in questionable dealings. The govern-
Threat to stability ments of Australia, Austria, Canada, and other coun-
Money laundering is what enables criminals to reap tries have concluded that their own real estate markets
the benefits of their crimes, including corruption, tax could also be used to invest and launder dirty money.
evasion, theft, drug trafficking, and migrant smug-
gling. Many of these crimes pose a direct threat to Terrorism financing
economic stability. Corruption and tax evasion make More worrying still, dirty money—along with
it difficult for governments to deliver sustainable and clean—may be a source of funding for terrorism

44 FINANCE & DEVELOPMENT | December 2018

and the proliferation of weapons of mass destruction. is behind financial transactions, where, and for what
Terrorist groups need money, lots of it, to compensate purpose—without unduly increasing transaction
fighters and their families; buy weapons, food, and costs or driving financial flows underground.
fuel; and bribe crooked officials. Similarly, prolif- Second, they should remove legal and practical bar-
eration does not come cheap. For example, North riers to international cooperation. Detecting money
Korea has reportedly devoted a substantial portion laundering and terrorism financing requires both
of its scarce resources to developing nuclear weapons. safeguarding and sharing financial intelligence, and
Countries with weak anti–money laundering deterring criminals requires following the trail of dirty
and combating the financing of terrorism (AML/ money or money intended for nefarious purposes,
CFT) regimes could be called out by the Financial wherever it leads.
Action Task Force (FATF), a global standard-setting Finally, they should continue to strengthen the
organization. Once countries come to be viewed as effectiveness of their efforts to mitigate identified
vulnerable to illicit financial flows, their banks may risks. Whether national AML/CFT laws are perfect
face long-term reputational damage, costly demands or not, beyond laws on the books, consistent (and
for additional documentation on the part of interna- persistent) implementation is critical to achieving
tional business partners, and the loss of correspondent durable results.
banking relationships. This may marginalize already
fragile economies, threaten remittance channels and Ukraine, Libya
foreign direct investment, and drive financial flows Given its mandate to preserve economic stability and
underground. So ignoring AML/CFT or delaying financial integrity, the IMF maintains an extensive
related reforms is no longer an option. AML/CFT program, which includes active partic-
Thankfully, this message is starting to resonate. ipation in international efforts to raise awareness of
Under the leadership of the FATF, and with the the threat and generate effective responses, along with
support of the IMF, United Nations, World Bank, and the provision of advice and know-how to over 100 of
other stakeholders, almost every country has criminal- its members—and counting.
ized money laundering and terrorism financing and What are some examples of these efforts? To name
established a legal framework to freeze terrorist assets. just a few, in Ukraine, we are working with national
But this work is far from finished. Whether because authorities to prevent banks from being misused by
of lingering legal and institutional loopholes or inno- corrupt officials. As a result, regulatory sanctions for
vation on the part of criminals (or both), there is no AML/CFT violations are increasing and the reporting
shortage of money laundering scandals in the news. of suspicious transactions is on the rise, yielding a
As a case in point, investigators are currently probing significant number of corruption investigations and
the possibility that the better part of $233 billion in prosecutions of high-level public officials.
payments was laundered through the Estonian branch In Libya, we helped the authorities craft a new
of Danske Bank from 2007 to 2015. AML/CFT law that criminalized terrorism financing
and established the legal basis for the imposition of
Financial technology sanctions against recognized terrorists.
Rapidly developing financial technology has further And in the Caribbean, where the withdrawal of
complicated the picture. Mobile money transfers, dis- correspondent banking relationships is a critical
tributed ledgers, and virtual currencies have legitimate concern, we convened international banks and their
and productive uses but can also be used to conceal local counterparts to foster bilateral cooperation in
or facilitate criminal activity. Put another way, nearly addressing information gaps and meeting regula-
cost-free consumer payments and nearly untraceable tory expectations. One global bank that had left
ransom payments are two sides of the same (Bit)coin. the region has now decided to reestablish ties with
So how should countries prioritize their response some local banks.
to this evolving and globalizing challenge? The IMF is committed to helping its members
First, they should heed the FATF’s call to under- identify today’s dirty money laundromats—and close
stand and address the threats that stem from chang- them down. The stakes have never been higher.
ing technology, but should do so without stifling
financial innovation and inclusion. The objective RHODA WEEKS-BROWN is general counsel and director of the
should be to increase transparency—to know who Legal Department of the IMF.

December 2018 | FINANCE & DEVELOPMENT 45