Deterrence is the name of game

Mar 28, 2014 Features / Columnists, Peeping Tom

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The American federal authorities had long suspected that illicit funds from the Colombian underworld may have found its way into the financial corporation run by Allen Stanford in Antigua. However, they were never able to prove this; but it was on their radar.
They finally got Stanford, but not for money laundering. They got him for promising to pay his clients a certain rate of interest, for which they argued there was no realistic possibility of him doing. They got him on what they believed was a Ponzi Scheme.
They never charged him with money laundering. And the reason is simple. It is the hardest crime to prosecute. Even though the US has the strongest money laundering laws in the world, there are relatively few prosecutions for this offence.
When they do make a prosecution for money laundering, it is always a secondary charge. They catch you siphoning off some money from someone and then investing that stolen money. They charge you with the stealing of the money and thus having proven that the money was stolen, they then add a charge of money laundering, because it was stolen money that was invested.
The point is that laws designed to ensure strong enforcement have never proven effective in the fight against money laundering. So why is there a need in the first place to have such laws if their enforceability and the persecution of violators have been so ineffective?
The reason is firstly because such laws can establish a trace to the source of the crime, and secondly, because such laws can be used to deter the laundering of funds through a country’s financial system.
When the Americans wanted to bring down Al Capone, they were unable to do so by charging him with mafia-related crimes. They simply could not find witnesses who were willing to testify or who lived long enough to testify against the mobster.
And so they came up with a new strategy. The objective was to get at his crimes. But since it was hard to build a criminal case against Al Capone, they tried to identify his crimes by tracing the money he derived from those crimes. They got him on tax evasion.
The successful prosecution of Al Capone opened the eyes of the law enforcement authorities to a new strategy of dealing with the criminal underworld. To get to the crime, follow the money.
This strategy was employed in the fight against the trade in narcotics. More drugs were getting in than was being caught; far more. The Americans also did not know who were all the drug lords and other underworld figures involved in the drug trade.
To get at these figures meant that the fight against the narco-trade had to be pursued on more than one front. One new front was anti-money laundering. Since drug lords had to be paid, it meant that following the money trail would lead the investigators to the drug lords and their underlings.
This is what anti-money laundering is about. It is about trying to break the financial flows of the drug lords and thus have them identified or bankrupted. It is not a strategy that has worked successfully. In fact, of all the counter narcotics strategies that have been employed, it has been the least successful. And so the strategy that has evolved is meant to primarily deter illicit funds’ contaminating a country’s financial system.
Following the September 11 attacks, the Americans decided that they also had to pay greater attention to countering the financing of terrorism. As such, certain international norms merged, aimed at deterring the financing of terrorist organizations and deterring the movement of funds from illegal narcotics through the world’s financial system.
Laws relating to Anti-Money Laundering and Countering of the Financing of Terrorism are primarily based on the principle of deterrent. True, there is provision for prosecution and enforcement, but the primary objective is about deterrence. Deterrence is the name of the game.
This is something that APNU members do not seem to understand. They are stressing the need for a strong enforcement and they are bemoaning the lack of prosecutions.
They are missing the point. Anti-Money Laundering Laws are meant to primarily deter. These laws target a country’s financial system by requiring the banks and financial institutions to demand certain requirements of those with whom they do business. Those requirements are aimed at deterring the movement of illicit funds through the financial system.
These requirements can be grouped into a number of categories. Firstly, the banks are required to improve measures for the identification of those with whom they do business. By insisting, for example, on proof of addresses, the anti-money laundering requirements are not so much targeting the illegal money as they are developing a system to trace where that money is coming from and who is implicated in its passage through the financial system.
The anti-money laundering laws also require the banks to keep certain records. Amongst the records is the source of funds. A person in Guyana, for example, who is dealing with a foreign currency transaction as little as US$500 has to indicate to the teller in writing where he got the money from and has to subscribe to a declaration to that effect.   Those records have to be kept by the banks and financial institutions. The objective here is deterrence and the strategy is to ensure that there is a paper trace of certain transactions.
 (To be continued).

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