Presentation on theme: "The Effects of Money Laundering on Economic Development"— Presentation transcript:
1The Effects of Money Laundering on Economic Development A Presentation byWinnie TatSarah He YingIcee Paramio
2Agenda What is Money Laundering? Link to Economic Development Effects on Economic DevelopmentFinancial SectorReal SectorExternal SectorAnti-Money Laundering EffortsConclusionSources :THE NEGATIVE EFFECTS OF MONEY LAUNDERING ON ECONOMIC DEVELOPMENT, by: Brent L. Bartlett for the Asian Development Bank
3What is Money Laundering? Is the movement of illicit funds for the purpose of concealing the true source, ownership or use of the fundsMonetary proceeds derived from criminal activity are transformed into funds with an legal sourceMoney laundering provides the fuel for drug dealers, terrorists, arms dealers and other criminals to operate and expand their enterprises.
4Statistics - Money Laundering In 1996, the aggregate size of money laundering in the world may be between 2% and 5% of the world’s gross domestic product.Estimated the size of the money laundering is over $500 billion annually.Using 1996 statistics, money laundering ranged between US Dollar (USD) 590 billion and USD 1.5 trillion.
5Washing Dirty Money Placement Layering Integration physically moving and placing the funds into financial institutions or the retail economyLayeringmultiple and sometimes complex financial transactions are conducted to further conceal their illegal natureIntegrationillicit funds re-enter the economy disguised as legitimate business earnings (securities, businesses, real estate)
7Link to Economic Development It will distort the economic data and complicate government’s efforts to manage economic policy.It will have adverse consequences for interest and exchange rate volatility, particularly in dollarized economies.
8Link to Economic Development (cont.) It will affect income distribution.It can deter the legal transaction by contamination.It can increase the potential for destabilizing and economically inefficient movements.Reduce the annual GDP.
9Money laundering erodes financial institutions The Financial SectorMoney laundering erodes financial institutionsby increasing the probability individual customers will be defrauded by corrupt individuals within the institutionby increasing the probability that the institution itself will become corrupt or even controlled by criminal interests, again leading to customers being defraudedby increasing the risk of financial failure faced by the institution as a result of the institution itself being defrauded.
10The Financial SectorMoney laundering weakens the financial sector’s role in economic growthStrong developing-country financial institutions are critical to economic growthConfidence and reputation play a special role in developing economies’ financial systems⊕sound financial systems are essential for private entrepreneurs to emerge, for business to flourish, and for local people and investors from abroad to find the confidence to invest, and create wealth, income, and jobs⊕private investors are more reluctant to commit funds to obtain ownership in enterprises cited for corruption
11The Financial SectorAnti-money laundering reforms support financial institutions through enhanced financial prudenceStrong correspondence between anti-money-laundering policies and financial good-governance rulesPrivate institutions and associations often adopt parallel rulesThe cost burden of anti-money-laundering policies on financial institutions must be assessed in context
12Money laundering depresses growth The Real SectorMoney laundering depresses growth
13The Real Sector Money laundering: distorts investment and depresses productivityfacilitates corruption and crime at the expense of developmentcan increase the risk of macroeconomic instability
14The Real Sector : Crimes Criminal organizations can transform productive enterprises into sterile investments.An efficient money-laundering channel is a key "input" to crime because the financial proceeds from crime are less valuable to the criminal than are laundered fundsThe less expensive the money-laundering "input" to crime, the more "productive" the criminal element will be.
15ML, Crime & Corruption MC = Cost of committing Quantity of Crime crime MR = Crime opportunitiesQuantity of CrimeCosT
16Money laundering diverts capital away from development The External SectorMoney laundering diverts capital away from development
17The External SectorOutbound capital flows: facilitating illicit capital flightInbound capital flows: depressing foreign investmentTrade: distorting prices and content
18The External SectorIllicit capital flight worsens scarcity of capital in developing countries‘The costs of capital flight are well known: they include a loss of productive capacity, tax base and control over monetary aggregates - imposing a substantial burden on the public… and rendering policymaking more difficult’- International Monetary Fund
19The External SectorInward capital flows: depressing foreign investment‘… Such allegations or actions can, through reputational effects affect the willingness of economic agents, particularly those outside the country, to conduct business in a given country with adverse consequences.’- International Monetary Fund
20The External Sector Trade: distorting prices and content ‘The exchange rate differential reflected… a premium that purchasers of foreign exchange were willing to pay to falsify import documents so that they could evade customs duties, or to make transfers that were otherwise restricted or illicit.’- International Monetary Fund
21AML EffortsCreating anti-money laundering regulatory and enforcement organizations in countries and regional groupingsFinancial Action Task Force (FATF), UN, Egmont GroupFinancial Crimes Enforcement Network (FinCEN)Office of Foreign Assets Control (OFAC)Bank Secrecy Act (BSA) and the USA PATRIOT Act of 2001Cooperation between national governments
22Conclusion Money laundering threatens economic development. The international financial community should strongly support anti-laundering efforts, and cooperate to share information, and regulatory and enforcement actions.Developing countries should impose anti-laundering laws to improve the credibility of not only its financial sector, but its governance as well.