Money on the run
Bernard Otabil explains billions lost through capital flight and money laundering.
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Did you know that ever since money came into being much of it has been moving around the world and evading government regulations and taxes?
The Chinese call it fei ch’ien, flying money. I will call it “money on the run”, for its obvious impact on communities where it was taken from, and most often also because it never stops running; moving from one place to another sometimes just to avoid regulatory authorities.
Obviously, you will get to understand this a bit more later, as l proceed to offer the reasons behind this movement.
Drugs muggling and arms trade, traditionally, have offered an avenue for money laundering, and in some cases have also become an avenue for resource mobilisation by terrorists and groups engaged in armed conflict.
In this example, the money would have moved in various forms, even though the beneficiaries would have hardly physically moved.
Drug cartels and dealers in illicit arms generate billions of dollars in profits and organise their trade like a multinational corporation, with real business portfolios - vice presidents for finance, trade, production, etc. It is, and can be that sophisticated.
Mention can be made of the dreaded Islamic State (IS) group, whose international network and operations, some say, is fuelled by some of these illicit trades, and also the Boko Haram group, who also use similar tactics to secure the necessary funding to keep followers and recruits happy.
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After all, clandestine terror requires hidden funds.
Well, these are examples that may perhaps sound a bit remote to you, therefore, let us consider a very basic, simple money movement that would resonate well with us, individuals.
Take the case where you have friends and family connections spread across the globe. You can deposit some money in a shop in London who may need the cash, and in turn the shop owner may also ask a partner, who also probably needs to be paid, to pay your beneficiary in New York the equivalent cash.
There could be no trace to this and can often be done without any signing of documents. This is some form of paperless “banking”, on the blind side of formal banking.
A similar process is the hawalah, a system that originated from India and used worldwide by some to send money and others to make transactions arising from various business ventures, but because of its non-regulatory nature, others fear that it could be used as an avenue for ill-gotten gains from bribery, drug dealing, crime and terrorism to be transferred.
In the main, however, not all ill-gotten gains end up funding conflict or is used to foment trouble; some of those who have found avenues to get into drugs smuggling or arms trading have also found a way to “wash” the dirty money by bringing it into the legal financial system, a process known as money laundering.
What money laundering actually is, is the process whereby money which has been made in ways which the owners of the money wish to keep secret changes its form so that it can enter the legitimate financial market.
Estimated as the world’s third largest business, money laundering and other financial crimes have led to the introduction of various measures by governments and regulators of the financial system globally.
In the UK for example, there are special teams and taskforce in place, today, to ensure, for instance, that suspicious financial activities are not only reported, but are also done away with promptly.
Remittance companies in the UK, again, are made to implement the necessary systems and structures that would ensure, for instance, that linked transactions are promptly reported.
Linked transactions, in this case, is plainly about situations whereby someone would decide to send money in very small lots to avoid suspicion, but over a period, could have sent quite a sizeable amount of money through that medium.
In other words, to avoid detection with large sums, these amounts would be broken down into small lots. Therefore, when a certain threshold is reached with these linked transactions, red flags must be raised and authorities notified, according to the regulation.
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In other countries, such as Ghana, also, agencies have been set up to deal with financial and other organised crimes. The whole idea, as it is the case in almost every part of the world, is to protect the sanctity of the financial system and to make it credible to sustain economic growth and development.
Put another way, if the confidence in the financial system was lost because people see it to be very loose, compromised and controlled by bandits, as opposed to the bandits rather being held in check by the system, not only would the financial system be threatened but also the security of the state as a whole would be threatened.
In fact, governments could crash as a result of this and the breakdown of the financial system could create a contagion effect because of the linkages, these days, of financial institutions globally.
The effect could be felt in countries that were not even connected directly to where the trouble first started from.
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Hence, the global understanding that financial markets must be controlled and made to be fit for purposes.
The next edition will look at two other situations where money can literally sprint from one country to another- capital flight and tax-dodging, commonly referred to as tax avoidance.
(botabil@gmail.com)