Money laundering refers to the criminal activity in which money and funds that have been obtained illegally are used to fund or support legitimate and legal activities. In the process, the illegality of the original criminally obtained money and funds is, in essence, “washed” through its use in the legal activity. A more formal definition of money laundering defines it as, “the process through which criminals, hide, disguise, and legitimize the financial proceeds of their crimes” (FATF). There are a number of benefits that money laundering provides to criminals. First, by using the money to fund legal activities, money laundering eliminates or decreases the opportunities for law enforcement authorities to regain possession of the stolen or otherwise illegally obtained funds. Moreover, if diminished the chances that victims can force offenders to provide restitution. Second, by putting the money in use, rather than hiding it, offenders are able to open an alternate, and legal, revenue stream to supplement their illegal activities. Lastly, by through money laundering, offenders are able to “get rid of” piles of cash that might draw the attention of other criminals or, still worse, law enforcement.
While money laundering does not grab the public’s attention like other crimes, it is one of the most commonly perpetrated and costly crimes of our contemporary globalized society. To be sure, globalization has been particularly helpful for the expansion of money laundering activities, as offenders have greater opportunities to move money into legitimate activities abroad, far and away from local and state law enforcement authorities that have the jurisdiction to investigate and capture money laundered domestically.
Money laundering can take a wide range of forms. It can be as simple as using illegally obtained funds to buy legal property such as land, buildings, jewelry and precious metals. Conversely, money laundering can entail complexly elaborate schemes of hiding money as far from law enforcement authorities’ abilities to access as possible. To be sure, to locations that are known to be exceptionally friendly to money laundering activities are the Cayman Islands and Switzerland.
The Cayman Islands (Caymans) are a British territory located in the Caribbean Sea. Over the last several decades, the Caymans has aggressively developed its financial service sector. Not only are there a number of local banks and financial services, but many of the world’s largest multinational banks and financial services have opened branches in the Caymans as well. There are several reasons for this. First, the Cayman have an incredibly low tax rate, which means that by putting money in a Cayman bank, one will not need to pay a tax on it. Second, Cayman financial laws emphasize, or at least tolerate, a significant lack of transparency or enquires into where one’s money has come from. Accordingly, is it easy for a person to deposit large sums of cash with no questions asked. For these reasons, the Caymans are quite popular with people that want to avoid taxes and lauder their money (Rogoff). Switzerland, like the Caymans, aggressively developed their financial sector over the last century. One of the ways that they marketed banking in Switzerland, was that Swiss banks were legally prohibited from provided much information about their customers (Hjelmgaard). Accordingly, by depositing money in a Swiss bank account, a money launderer is offered almost complete privacy as to where the funds came from and also from government efforts to access or learn about it.
Investment banks Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch and other global banks such as HSBC have been in the news most recently as a result of allegations that they have involved themselves in money laundering schemes. The most recent case concerns Goldman Sachs involvement as consultant for a Malaysian investment fund 1MDB. According to reports, the Federal Bureau of Investigation (FBI) and Department of Justice (DoJ) have recently begun an investigation into whether or not as advisors to 1MDB, Goldman Sachs facilitated, allowed or did not report money laundering activities with 1MDB. A few years earlier, in 2013, the FBI and DoJ conducted a similar investigation into the activities of HSBC in Mexico. According to that investigation, the federal authorities found that HSBC was deeply involved with facilitating the money laundering activities of Sinaloa, one of Mexico’s most notorious and deadly drug cartels (Taibbi). Moreover, this was not HSBC’s first time to launder money. HSBC was also known to have assisted one of the financial supporters of Al Qaeda a few years after the terrorist attacks on New York and Washington, D.C.
In 2008, while campaigning for his first chance to become president, Senator Barack Obama and the Democratic Party’s nominee, suggested that the banks had made a number of mistakes and errors in how they did business, they should still be supported (Obama). To be sure, Obama argued that failure to support the banks might eventually result in the collapse of the American financial system. Obama also argued, however, that a new regulatory system needs to be established to provide “oversight and accountability” (Obama).
Now in 2016, as President Obama settles into the last few months of his second term as president, an analysis of the financial system and those same banks show little if any of the fears that Obama voiced have actually been realized. While it is true that Lehman Brothers was allowed to fail and the Merrill Lynch was purchased by another bank, most of the other investment banks were bailed out by the government, who in essence bought or supported other in the purchase of the “toxic” accounts that were so hurtful to them in 2008. Moreover, while there has been some improvement on the oversight and accountability that Obama demanded in 2008, it has not been very effective. For instance, while HSBC was indeed found to be money laundering for a range of criminal and terrorist parties, no one was arrested. To be sure, other than a U.S. $ 1.9 billion fine. HSBC has been allowed to continue on as it was before. Similarly, Goldman Sachs has gone on to regain much of it pre-2008 prestige, power, and influence.
In this year’s election, Democratic nominee Hillary Clinton has stated, like Obama before her, that a “more intensive” regulatory framework is needed to ensure that both investment and traditional banks, as well as, other financial services and institutions, do not break the law, put the nation a risk of a financial collapses and exploit their customers (Irwin). Moreover, just as with Obama, Clinton does not necessarily feel that the banks themselves need to be changed, but rather the system and structures that police their behaviors.
Based on the statements that Obama made prior to becoming president and the results after he did, as well as the statements made by candidate Clinton; it seems reasonable to believed that if Clinton actually does become president there will be little change in the system. That is to say, there will be little change in the system was an effort from the White House. Indeed, if systemic changes will come they will most likely be initiated by Congress and the Senate. Another aspect of the system that is made clear is its substantial resiliency to change and ability to maintain the status quo.
Suppose you have U.S. $10 million that I want to hide from income tax official in the U.S. How can I do this legally?
Assuming that I simply want to avoid paying taxes as opposed to actively trying to evade taxes, depositing the money in a Cayman Island bank is legal and would not only avoid U.S. jurisdiction over the funds for tax purposes but would allow me to benefit from Caymans low tax rate.
Works Cited
Hjelmgaard, Kim. “Secret’s Out on the Swiss Bank Account.” USA Today, 11 Jan. 2014. Web. http://www.usatoday.com/story/news/world/2014/01/22/swiss-banking-secrecy/4390231/
Irwin, Neil. “How Hillary Clinton Would Reform Wall Street.” New York Times, 08 Oct. 2015. Web. http://www.nytimes.com/2015/10/09/upshot/how-hillary-clinton-would-regulate-the-too-big-to-fail-banks.html?_r=0
Obama, Barack. “Senate Floor Speech in Support of the Wall Street Bailout Bill.” American Rhetoric, 01 Oct. 2008. Web. http://www.americanrhetoric.com/speeches/barackobama/barackobamasenatespeechonbailoutbill.htm
Rogoff, Natasha L. “Haven or Havoc.” Frontline, 19 Feb. 2004. Web. http://www.pbs.org/wgbh/pages/frontline/shows/tax/schemes/cayman.html
Taibbi, Matt. “Gangster Banks: Too Big to Jail.” Rolling Stone, 14 Feb. 2013. Web. http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214
