Many people who are either born in or migrate to the United States have hopes to achieve the “American Dream.” That dream is, through hard work and determination, one can have a prosperous life. However, there are some people who want to achieve the
American Dream sans the hard work. These people violate the laws and regulations established by the government, be it federal, state or local. One scheme used is money laundering which has a massive effect on the United States. Not only does money laundering support the continuance of criminal activities including terrorism, it dilutes the financial stability of the United States by reducing tax revenues, restricting fair competition with legitimate businesses and, disrupting economic development. The United States Government has implemented many laws to combat and counter the effects of money laundering.
Introduction
Money laundering is “the practice of engaging in specific financial transactions in order to conceal the identity source and/or destination of money.” (Wikipedia Encyclopedia) In a normal money laundering scheme, there are three steps that occur: (1) placing of illegal money into a legitimate financial market, (2) moving the money between different financial institutions and (3) finally, integrating the money back into the economy. The World Book Encyclopedia states “money laundering involves eliminating evidence and making it difficult for authorities to trace the money back to the illegal source.” (p.718) “The term ‘money laundering’ was first coined in the 1930s by the US Treasury agents who were trying to lock Al Capone.” (Mathers, p 21) Capone used the laundromats he owned to conceal money he had made from his illegal liquor operation. He made it seem as though the revenue from the liquor came from his operation of the laundromats. Since then the term has become widely used officially and unofficially alike.
Money laundering is no longer a practice limited to your everyday criminal but it includes your normal citizen who just doesn’t want to pay their taxes or who doesn’t want his or her spouse to know how much asset is being held during the time of divorce. As time goes by, there is becoming increasingly more reasons as to why someone wants to launder money. Common reasons why people launder money is that they want to avoid prosecution, increase profits, avoid seizure of accumulated wealth, appear legitimate and evade tax.
Just like the reasons are endless so are the methods of money laundering which are very simple in nature. A money launderer can choose to launder through currency exchanges, asset purchases with bulk cash, telegraphic transfer of funds, credit cards, gambling in casinos , and commingling of funds. However, the common choice of money launderers is to structure transactions through different financial institutions.
Although, no one knows the exact amount of money involved in the money laundering schemes, it is believed to be in the high billions, and maybe trillions, of dollars each year. Some of the common money laundering schemes include drug trafficking, organized crime, corruption, illicit dealing in weapons, human trafficking, fraud and theft. The United States Government has made it a criminal offense to launder money. The Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970, also known as the Bank Secrecy Act of 1970 , was one of the first laws implemented as a tool the United States government used to fight money laundering. In order to convict a person of money laundering, the prosecutor must prove that the individual knowingly engaged in financial transactions or international transportation that involved the concealment of proceeds of an illegal activity.Effects
Criminal Activities
Historically, the most strenuous effect money laundering has on the United States is that it often supports criminal activities, such as organized crime and drug trafficking. This is because the money laundered is often used to continue the operation of the crime. Often, these crimes are associated with the killing of others to maintain control of the underworld market.
In today’s world, organized crime groups generate enormous amounts of money. This money is often referred to as “dirty money.” This dirty money will often bring suspicion to the organized crime group and leave a trail of evidence which can lead to conviction and jail time. Therefore, the criminals conceal the origin of the profits from the authorities so that they can benefit from the illegal activity.
One of the ways these criminals are concealing the illegal money is by moving the money quickly across the country’s borders. “The rapid expansion and ease of access to foreign markets has catapulted American organized crime onto the front of the international money laundering stage.”(Sheetz, p. 106) Today’s technology, like Electronic Funds Transfer (EFT) and on-line banking, allows criminals to move the money through the different institutions around the world in a matter of seconds. The more international transactions made with this dirty money , the more difficult it is to identify its origin.
One of the largest operations in which money laundering plays an integral part is drug trafficking. From 1992 to 1998 Raymond Kelly reports “US Customs has seized more than 756 million dollars of laundered money. It has made approximately 2100 arrests and seized more than 40,000 kilograms of cocaine.” (p. 39) The high ranking drug dealers exchange the drugs for money in which they use the proceeds to buy more drugs. With any other business, this would be acceptable. However, the effects of the drugs leave the United States in a predicament in which there is an increasing rate of mental and physical illness, incurable diseases, robberies, shooting and killing.
Most recently, terrorist attacks have been a high priority for the United States due to the events of September 11, 2001 when so many Americans lost their lives. Although terrorists obtain their money through legal sources like charitable donations, they also obtain some financing through illegal sources such as people-smuggling, drug trafficking, kidnaping and extortion. “By using convoluted transactions in the layering stage, terrorist financing conceals the source of the funds, which ensures that such sources remain fertile.” (Waszak, p.673) With the money they obtain, terrorists can continue to threaten the United States and the livelihood of the American citizens.
Reduces tax revenues
Another way money laundering effects the United States is through tax evasions. In the eyes of the United States Government and the Internal Revenue Service, income from any source, be it legal or illegal, is taxable income. Money laundering is one of the mechanisms in which individuals use to circumvent paying taxes on income. It is ideal for criminals who want to hide the proceeds and evidence of an illegal operation or for individuals who want to keep one hundred percent of their income to themselves.
In some instances, the individuals will launder the money through offshore accounts to foreign countries. These countries operate as an Offshore Financial Center, also known as Tax Havens. The Tax Havens allow individuals a way out of paying their share of taxes by shielding the money under their guardianship. The 2001 U.S. Senate subcommittee report titled “Correspondent Banking: A Gateway for Money Laundering,” stated
One U.S. correspondent banker told the Minority Staff that he is learning that a large percentage of clients of offshore banks are Americans and, if so, there is a “good chance tax evasion is going on.” He said there is “no reason” for offshore banking to exist if not for “evasion, crime, or whatever.” There is no reason for Americans to bank offshore, he said, noting that if an offshore bank has primarily U.S. clients, it must “be up to no good” which raises a question why a U.S. bank would take on the offshore bank as a client. A former offshore bank owner told the investigation that he thought 100% of his clients had been engaged in tax evasion. (p.16)
Furthermore, the New York Times reported “Tax evasion by Americans using offshore accounts is rising and will increase” (Johnston, ). Therefore, the United States has to endure an increasing gap in the budget. For every dollar laundered overseas is a dollar that is not taxed and is not portioned to the United States government which goes to support itself and continue federally funded programs such as Financial Aid and Social Security. “United States loses $70 billion in taxes annually from such evasion — a figure so huge that if even half that amount were collected it would pay for a Medicare prescription drug program without raising anyone’s taxes or cutting anyone’s budget.” (Johnston)
Ultimately, it will not be the United States Government who will be the victim of the tax evasion through money laundering but the American citizens who will be the true victims. For the last four years, there have been major budgetary cuts government-wide in order to carry out the function of the government. If the United States continues to experience hefty losses due to money laundering, the government will eventually begin to raise the tax rates. It will even eliminate non-critical programs like The American Dream Home Ownership Program which has been an instrumental factor for so many Americans buying homes.
Disrupts economic development
Money laundering creates an underground economy that cripples the United States’ overall economic strength. When money is transferred overseas it leaves less money in the United States to circulate. This reduces the purchasing power of the United States and its citizens. It also lessens the amount of resources the United States has available to operate its businesses to produce revenue. Thus, this creates a cycle. Additionally, money laundering can increase the desire for cash and create an exchange rate that is unpredictable.
Furthermore, money launderers are typically greedy in the sense that they are only interested in protecting their financial interests. Money launderers will often use their funds for efforts that may not necessarily benefit the United States’ economic position. This is clearly illustrated in the Enron scandal. At its peak, Enron was one of the top corporations in the United Stated and, in a matter of months, they were bankrupted. A company that once was perceived as an institution that was good for the United States had really been a company that was good for the executives.
“The motives and attitudes behind decisions and events leading to Enron’s eventual downfall appear simple enough: individual and collective greed born in an atmosphere of market euphoria and corporate arrogance.”(Thomas, p. 42) The top executives were looking for ways to increase their own equity instead of Enron’s. Therefore, the “methods the company used to disclose (or creatively obscure) its complicated financial dealings were erroneous and, in the view of some, downright deceptive.” (Thomas, p. 42) As the story slowly unfolded, it was revealed that the executives had laundered some money overseas to hide how much they actually had. And when it is all over, the company we knew as Enron no longer existed. “November 30 the stock closed at an astonishing 26 cents a share. The company filed for bankruptcy protection on December 2.”(Thomas, p45)
The greed of the money laundering executives was a hard blow to the United States, as a people and as a government. “Four-thousand five hundred individuals have seen their careers ended abruptly by the reckless acts of a few” (Thomas, p. 48) and the money they were hoping to retire with is now gone. Additionally, the investors who purchased stocks suffered drastic losses. As a result, the country was left to play clean up. They will have to provide financial assistance to the workers who lost their jobs by paying unemployment, providing additional employment training and outreach, and supplying health benefits until the former employees are able to be self-sufficient. The United States has to suffer a lost in tax revenue; where individuals would have realized a profit they are now showing a loss and will not pay the same amount in taxes.
Regulations
Authorities will never totally eliminate money laundering, however; the United States enacted cash deposit reporting requirements and anti money-laundering legislation some 25 years ago. In addition, the United States is still developing and amending laws to combat the money launderers and prosecute any future offenders and also deter individuals from committing or conspiring to commit money launder crimes. Because money laundering has significant impact on the United States, it is not surprising how many laws are related to money laundering.
The first law that was created to deal with any aspect of money laundering was the Bank Secrecy Act of 1970. This law does not make money laundering a criminal act but simply requires financial institutions to prepare and preserve documentation for specific types of transactions. One type of documentation requires is a Currency Transaction Report. This report is created for every transaction that is made over $10,000. In certain instances, a combination of transactions may be recorded. Another type of documentation is Report Of Transportation Of Currency Or Monetary Instruments. This report is created whenever United States currency or other monetary instruments, totaling over $10,000, are shipped, mailed, or transported into or out of the United States at one time.
A third type of documentation is a Suspicious Activity Report. This report is created when a financial institution knows or suspects criminal offenses, at specified thresholds, or transactions over $5,000 that relate to money laundering or violate the Bank Secrecy Act. This is generally in response to the structuring method of money laundering. With structuring, a person causes or attempts to cause a bank to fail to file the requires reports by making several transactions with one or more domestic financial institutions to prevent from going over the $10,000 markat any one institution. Once drug trading became more popular, the United States Congress increased its focus on money laundering and decided to expand the current laws. In 1984, financial institutions were then required to report business cash transactions exceeding $10,000.
Finally, the United States Congress begin to specifically concentrate on money laundering when they created the Money Laundering Act in 1986. This act did three things. First, it made money laundering a criminal act. Secondly, it prohibited structuring transactions to evade Currency Transaction Report filings. Lastly, it introduced civil and criminal forfeiture for BSA violations. Therefore, anyone suspected of these acts could now be indicted and prosecuted in a court of law. Then in 1988, Congress passed the Money Laundering Prosecution Improvement Act. This act elaborated on the definition of financial institution. The act included businesses like car dealerships and real estate mortgage companies and subsequently required them to file reports on large currency transactions
In 1992 the Annunzio-Wylie Anti-Money Laundering Act was passed and it extended the Bank Secrecy Act in several respects. Most importantly, it required any financial institution, and its officers, directors, employees and agents, to report any suspicious transaction that may be in violation of federal laws and regulations. Other Annunzio-Wylie amendments to the Bank Secrecy Act required financial institutions to establish and implement anti-money laundering programs, initiated special record-keeping rules relating to funds transfer transactions, and created the Bank Secrecy Act Advisory Committee. Lastly, the Annunzio-Wylie Money Laundering Act made it a criminal act to operate illegal money transmitting business , and required mandatory re-examination of the charters of financial institutions that were convicted of money laundering.
In 1994, the United States created the Money Laundering Suppression Act. .This act required the banks to develop their own procedures for examining anti-money laundering activities. The act also reconstructed the Currency Transaction Report exemption. Four years later, Congress passed the 1998 Money Laundering and Financial Crimes Strategy Act which required the banks to create and perform anti-money laundering training for their examiners. It also compelled the United State Treasury and other governmental agencies to create and implement a National Money Laundering Strategy; and Created the High Intensity Money Laundering and Related Financial Crime Area (“HIFCA”) Task Force.
The criminal punishments for violation of these laws include prison sentences for a long as 20 years and fines that go up to $500,000 or twice the value of the money involved, whichever is greater. In additional to the criminal punishments, the offenders may face civil charges and have to pay amounts up to the value of the assets involved in a transaction. The United States Congress believe that these punishments to be too severe. Before the 1986 Money Laundering Act, defendants had to be prosecuted under other statutes related to the underlying unlawful activities that had induced the money laundering, such as tax evasion and the Bank Secrecy Act, and, these statutes generally had more lenient penalties. .
Following September 11, the United States Congress search for answers as to how such tragedy could happen here on the United States soil. One answer they came up with was through money laundering. The United States Congress found that money laundering was a contributing factor for the financial fuel which allowed a transnational criminal organization to conduct and increase their operations terrorist activities towards Americans. .Money laundering was used to conceal the actual source and use of the money to conduct the terrorist threats. Congress in particular noted that correspondent accounts are subjected to use by money launderers as it is easier to conceal the identities of the owners of such accounts and that private banking services can be susceptible to deception by money launderer. (Wikipedia Encyclopedia)
As a result, the most recent legislation associated money laundering came about in 2001 after the event of September 11, 2001. This act is called the Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act, commonly reffered to ad USA PATRIOT Act. The USA PATRIOT act requires the sharing of government-institution information and voluntary information among financial institutions. It also required financial institutions to develop and implement programs designed to verify the customers. This will ensure the banks are aware of who they are dealing with and if they are associated with any terrorist. Additionally, the USA PATRIOT Act required financial institutions to take extra precautions with the daily operations of business. Lastly, the act required the establishment anti-money laundering programs across the financial services industry. The Patriot Act as it relates to money laundering is designed to reconstruct and improve the United States procedures which were created to deter, detect, and prosecute international money laundering and terrorist financing.