Thursday, August 20, 2009

"Too often we are guilty of not effectively enforcing our laws much to the detriment of society"

Guyana Chronicle Editorial, Thursday 20 August 2009. Countering the dreaded money laundering problem

Money laundering, which is defined as the practice of disguising illegally obtained funds so that they seem legal, is one of the huge problems facing the world today and has become even more complex with the growth of the illegal drug trade and terrorism.

In response to this growing problem the Global Programme against Money Laundering (GPML) was established in1997 in response to a mandate arising from the 1988 Convention under which Member States were required to criminalise money-laundering related to the proceeds of illicit trafficking in drugs and to put legal frameworks in place to facilitate the identification, freezing, seizing and confiscation of the proceeds of crime.

Touching on the macroeconomic effects of money laundering former Managing Director of the International Monetary Fund, Michel Camdessus in address to Plenary Meeting of the Financial Action Task Force (FATF) on Money Laundering in February 1998 asserted:

“I hardly need say that the IMF regards the anti-money laundering actions advocated by the FATF as crucial for the smooth functioning of the financial markets. While we cannot guarantee the accuracy of our figures—and you have certainly a better evaluation than us—the estimates of the present scale of money laundering transactions are almost beyond imagination—2 to 5 percent of global GDP would probably be a consensus range. This scale poses two sorts of risks: one prudential, the other macroeconomic. Markets and even smaller economies can be corrupted and destabilised. We have seen evidence of this in countries and regions which have harbored large-scale criminal organisations. In the beginning, good and bad monies intermingle, and the country or region appears to prosper, but in the end Gresham’s law operates, and there is a tremendous risk that only the corrupt financiers remain. Lasting damage can clearly be done, when the infrastructure that has been built up to guarantee the integrity of the markets is lost. Even in countries that have not reached this point, the available evidence suggests that the impact of money laundering is large enough that it must be taken into account by macroeconomic policy makers. Money subject to laundering behaves in accordance with particular management principles. There is evidence that it is less productive, and therefore that it contributes minimally, to say the least, to optimisation of economic growth. Potential macroeconomic consequences of money laundering include, but are not limited to: inexplicable changes in money demand, greater prudential risks to bank soundness, contamination effects on legal financial transactions, and greater volatility of international capital flows and exchange rates due to unanticipated cross-border asset transfers.”

In Guyana, the government has recognised the implications and harmful effects of money laundering on society and moved to introduce appropriate legislation to deal with it.

In this regard, therefore the announcement by the Minister of Finance, Dr. Ashni Singh that the Anti-Money Laundering and Countering of Terrorism Act was assented to by President Bharrat Jagdeo last Friday should be good news for most people.

According to the minister this has now set the stage for government to proceed with implementation of this important piece of financial sector legislation.

Dr. Singh described the Act as modern and comprehensive, and consistent with international standards. He also stated that the provisions of the Act had benefitted from extensive examination and consideration while the Bill was before Special Select Committee in the Parliament.

According to the legislation, a person who, knowingly or having reasonable grounds to believe that property (money, investments, holdings, possessions, assets and all other property movable or immovable) is the proceeds of crime, and engages to conceal or disguise the illicit origin of that property, will be guilty of money laundering. Terrorist financing has been defined as willfully providing or collecting funds with the unlawful intention that they should be used to aid the execution of terrorist acts or in support of terrorist organisations or individuals.

The important first step in combating this scourge has been made but equally important is that those tasked with the enforcement must do so with vigour and diligence because we will be back to square one if this legislation is not enforced rigidly.

Too often we are guilty of not effectively enforcing our laws much to the detriment of society. However, in this case the consequences of not effectively enforcing the financial regulations contained within the Act could be very telling and pose a serious threat to our macroeconomic framework.

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