Money Laundering in the EU
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Methods and Stages

The explosion of money laundering

 

Macroeconomic Consequences

The Risks to Financial Institutions

 

The Risk to the Financial System

 

The Euro and Money Laundering

 

Money Laundering as Tax Evasion

 

Social and Political Costs

 

International Conventions

 

EU Directives on Money Laundering

 

The Achilles Heel

 

Bibliography and some useful links


The Risk to the Financial System

Another important area of risk to the financial system is the risk posed to the securities markets, most notably the derivatives markets. Owing to the complexity of some derivative products, their liquidity and the daily volume of transactions, these markets have the ability to disguise cash flows and hence are attractive to money launderers. However, their activities pose huge risk to these markets.

Firstly, brokers used to execute orders on behalf of money laundering clients may be criminally liable for aiding and abetting money launderers. What may possibly be of greater concern than that is the money laundererís skilful manipulation of the futures markets. With regard to local futures exchanges, individuals have colluded to take correspondingly short and long positions so as to clean money debts being paid with dirty money, at the same time profits now being clean money. Owing to their capital, and collusion in positions, they have also in the past deliberately manipulated market prices. If markets are not seen to be transparent and the price system not exogenous of individual agentís actions, participants may retire from the market and so make the marketís allocative efficiency diminish.

The other major risk is owed to offshore banks, which can wash money by way of derivative markets. Owing to the fact that these banks are foreign, it is not a pre-requisite for them to abide by the same regulations as domestic investors as regards to overexposure to uncovered risks, they can take on huge risk relative to their institutional size. If losses were to arise from such positions the debts may not be fully paid, as the contracts purchased may be only one step in the course of a complex laundering chain that is untraceable. Thus, it is a probable scenario for huge losses to be incurred by legitimate investors, causing damage to the derivates markets.

Hence, money laundering could pose a huge and worrying problem to the financial system of the EU. The various techniques used by organised crime syndicates could most definitely cause a lot of damage and should not be underestimated. Any damage caused by money launderers to the financial system in its entirety has the potential to affect all peoples of the EU.

A Conflict of Interest?

There are in fact two conflicts of interest that arise with banks compliance to such laws. Firstly, in this competitive world, bank officials are constantly under increasing pressure to bring in new business and increase profits. Indeed, it has been suggested that the only reason why many western banks stay afloat is because of the money laundering services they offer and perform. This can be exemplified by the case of the Bank of Credit and Commerce International (BCCI). In this case the bank needed to earn profits in order to cover up the huge losses from loans and trading and the simple solution of money laundering provided an easy way of doing this. The second conflict is that certain banks and countries have a competitive advantage in providing private banking services, i.e. client confidentiality. Bank secrecy laws exist in fifty nations around the world and for such banks this is a necessity for attracting clients. Any moves to abolish or continually override such laws are likely to be strongly opposed.

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