Is money laundering a real problem in the world today?
Ashford University
By: A’ Lexis Gailes
BUS670: Legal Environment
Professor Robert Tocker
May 25, 2014

Abstract
Money laundering the process whereby the proceeds of crime are transformed into apparently legitimate money or other assets has been recognized as a criminal activity which causes serious social and economic damages. The traditional method of money laundering is through financial institutions. However, with the development of new science and technology the approaches of money laundering have become more and more diverse. This paper is discussing the legal and ethical issues which surround this topic, as well as, develop an analysis for the ethical concerns raised by the laundering of money. The writer will then provide explanations from at least three relevant areas of law that have been discussed throughout the course and assess each area as it applies to money laundering. Finally, the write will provide recommendations on this situation to reduce liability exposure and improve the ethical climate or the overall ethics of money laundering.

Is money laundering a real problem in the world today? I. Introductions
There are many ethical issues that can arise in the course of operating a small business. A comprehensive understanding of the different types of ethical issues will help you to identify and handle this situation’s responsibility to maintain core business values. Let’s look at this scenario for example, money laundering. This paper is discussing the legal and ethical issues which surround this topic, as well as, develop an analysis for the ethical concerns raised by the laundering of money. The writer will then provide explanations from at least three relevant areas of law that have been discussed throughout the course and assess each area as it applies to money laundering. Finally, the write will provide recommendations on this situation to reduce liability exposure and improve the ethical climate or the overall ethics of money laundering. II. What Are Money Laundering?
When a person hear of the word “money laundering” what is the first things that is projected in their mind? The answer is: an illegal activity that is being taken place which involves money and the answer would be correct. By definition, money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. Information taken from FreeDictionary.com, gives an insight on the development of this topic. It states, “Money laundering allows criminals to transform illegally obtained gain into seemingly legitimate funds. It is a worldwide problem, with approximately $300 billion going through the process annually in the United States. III. Is Money Laundering Legal?
The sale of illegal narcotics accounts for much of this money. Those who commit the underlying criminal activity may attempt to launder the money themselves, but increasingly a new class of criminals provides laundering services to organized crime. This new class consists of lawyers, bankers, and accountants.” Criminals want their illegal funds laundered because they can then move their money through society freely, without fear that the funds will be traced to their criminal deeds. In addition, laundering prevents the funds from being confiscated by the police.” (“Money laundering legal definition”, 2014)
Money laundering is not a new phenomenon. It's as old as crime itself. Criminals have always endeavored to conceal the origin of illegally generated funds in order to erase all trace of their wrongdoings. The objective of this operation is most described as “turning dirty into clean or white money.” When dealing with corporate America, there is always some business being investigated because of money laundering. Let’s take the company, Enron for example.
In an online report taken from CBCNews.com talks about the former Chief Financial Operator for the company was charged with fraud and money laundering. The article states that in 2002, Andrew Fastow, former chief financial officer for Enron Corp, and the man fingered as the mastermind behind the financial schemes that led to the company's downfall, was charged with securities, wire and mail fraud, money laundering and conspiracy. Fastow was charged in connection with the web of partnerships he is alleged to have devised that hid about $1 billion US of Enron's debts. The company collapsed into bankruptcy late last year after the partnerships and hidden debts were revealed, prompting a massive restatement of the company's financial records. (CBC News, 2002) IV. Ethical Concerns Analysis
In her book, Legal Globalization: Money Laundering Law and Other Cases, Heba Shams provides a superb review and analysis of jurisdictional questions related to money laundering. Although money laundering serves as the theme of this book, the overarching concern relates to how to combat this criminal conduct in a global society. Money laundering laws provide a case study to demonstrate the jurisdictional challenges faced by nations working to eradicate this form of criminality. (Shams, 2004)
Not only is this a problem in America, but other countries such as Spain, India, Russia, just to name a few, are all going through the same situation. According to an article written by Anastasia Wincorn, Princess Cristina and her husband Inaki Urdangarin became prime suspects in Spain’s ongoing money laundering and tax fraud case. According to Wincorn, the judge alleged that the Princess and her husband participated in a scheme to embezzle approximately $8 million in public funds, which they allegedly hid in offshore accounts and used to renovate their mansion. The judge’s report states that the couple carried out the scheme by laundering money paid to their non-profit, the Noos Foundation, through a company called Aizoon. (Wincorn, 2014)
When dealing with the ethical concerns raised by money laundering, an article written by Carol M. Baumier and Carl J. Hatfield entitled “Effective anti-money-laundering monitoring: issues and challenges,” discusses how the USA PATRIOT Act and other money-laundering legislation are aimed at assisting law enforcement in its efforts to combat money laundering and at protecting financial institutions from being used unwittingly by money launderers. The article also states that “no one not law enforcement, not regulators, not financial services management who understand the size and complexity of the problem believes that money laundering can be stopped. Rather, the shared objective of these constituencies is to create a framework that allows financial services companies to detect unusual or suspicious activity and provide information to law enforcement on the money trail.” (Beaumier & Hatfield, 2003) V. Ethical Theories
Cooperative Blog Administrator, Heather Salazar wrote an article titled, “HSBC Accused of Money Laundering (2012), in which she conducted a business ethics analysis on the company HSBC. Salazar performed a business analysis on the company of HSBC in which she based it on four business ethics theories: Individualism (Friedman’s Economic Theory), Utilitarian, Kantianism, and Virtual Theory. She states that according to these theories, the company HSBC is not acting ethically.
The Individualism theory states, “The most important thing is to maximize profit and maximize the well being of the company. However, they need to do so within the limitation of the law and people’s rights.” Salazar continued stated how the company, HSBC, ended to maximize their profits by allowing people to launder money through their bank branches and to make this go unnoticed. However, they got caught breaking the law and ended up doing the opposite of maximizing their profits and the company's well-being. This act caused the company to act unethically. (Salazar, 2012)
The next theory is the Kantianism theory. Salazar states, “When talking about this theory there are four basic principles that are involved. These principles are that companies should act rationally, allow and help people to make rational decisions, respect people, and be motivated by good will. HSBC did none of these things and acted very selfishly and didn’t make rational choices.” While reading the article, the author came to the conclusion that the company was not thinking about all of the parties involved or what the consequences could potentially be when they chose to look the other way on this issue. (Salazar, 2012)
Salazar (2012) points out, “Another part of the Kantianism theory is the three formulas that it consists of. These formulas include the formula of universal law, the formula of humanity and the formula of autonomy. The formula of universal law states that companies should act only on the maximum whereby you can at the same time will that it becomes universal law. This law prohibits people from making exceptions of them. However, that is exactly what HSBC did. They knew money laundering was illegal but made an exception for them that are was okay to do so. Therefore this is another theory that HSBC would seem unethical according too.” (Salazar, 2012) VI. Relevant Areas of Laws
There were several areas of law that was discussed throughout this course, but the author is only going to touch base on three of them. The first area of law is called the antitrust law. The word “antitrust law,” according to Justin Bynum for Investopedia.com, also referred to as “competition laws” are statutes developed by the U.S. Government to protect consumers from predatory business practices by ensuring that fair competition exists in an open-market economy. Bynum also states that the antitrust laws are apply to a wide range of questionable business activities, including but not limited to. (Bynum, 2011)
The second area of law is called the securities regulation. The Legal Information Institute at Cornell University Law School defines the word “securities regulation. It states, “Securities law exists because of unique informational needs of investors. Securities are not inherently valuable; their worth comes only from the claims they entitle their owner to make upon the assets and earnings of the issuer or the voting power that accompanies such claims.” (Securities regulation definition, 2014). According to the website, “the value of securities depends on the issuer's financial condition, products and markets, management, and the competitive and regulatory climate. Securities laws and regulations aim at ensuring that investors receive accurate and necessary information regarding the type and value of the interest under consideration for purchase.” (Securities regulation definition, 2014)
The areas of law focus on criminal law. According to the Legal-dictionary.com, Criminal Law is defined as” a body of rules and statutes that defines conduct prohibited by the government because it threatens and harms public safety and welfare and that establishes punishment to be imposed for the commission of such acts.” (Criminal Law definition, 2014) Criminal law refers to substantive law. Substantive criminal laws define crimes and may establish punishments. In contrast, criminal procedure describes the process through which the criminal laws are enforced. For example, the law prohibiting murder is a substantive criminal law. The manner in which government enforces this substantive law through the gathering of evidence and prosecution is generally considered a procedural matter. (Criminal law definition, 2014) VII. Assessing Each Laws
When it comes to the money laundering, the antitrust laws seek to help the business to compete fairly. According to Dr. Stephen Hartman, the antitrust laws have serious effect on business practices and the organization of U.S. industry. Premised on the belief that free trade benefits the economy, businesses, and consumers alike, the law forbids several types of restraint of trade and monopolization. These falls into four main areas: agreements between competitors, contractual arrangements between sellers and buyers, the pursuit or maintenance of monopoly power, and mergers.” (Hartman, 1995)
Alberto Chong & Florencio Lopez-de-Salinas (2007), showed how the securities regulation and money laundering applies to each other. According to Chong and Salinas, “The basic legal framework controlling crime is insufficient to keep money laundering under control because the incentives to engage in such activities might be too high for “long-run” benefits of honesty to matter and because litigation may be too unpredictable and expensive to serve as a deterrent.” (Chongo & Lopez-Silanas, 2007)
Armone & Borlini (2010), authors of the journal article “International anti-money laundering programs: Empirical assessment and issues in criminal regulation” presented an assessment and outline issues in criminal regulation relating to international anti-money laundering (AML) programs. In the first part of the article, the author wrote about possible threats of transnational laundering operations in the context of economic globalization, and calls for highly co-ordinate international responses to such a crime.
In the second part of the article, the authors pinpointed out several elements of international criminal regulation of money laundering. Also, the article states, “The non-criminal measures recently implemented under the auspices of the main inter-governmental public organizations with competence in these fields seem to be consistent with the insights of economic analysis. However, some key criminal issues need to be better addressed.” (Arnone & Borlini, 2010) VIII. Recommendations to Reduce Money Laundering Liabilities
Based on the detailed research I have carried out on these topics, I now can make the following recommendation when dealing with money laundering. According to the FATF, Financial Action Task Force, an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions, mandated and set standards just to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system. Also, according to FATF, I would recommend that companies should identify, assess, and understand the money laundering and terrorist financing risks for the country in which they seek to do business, and should take action, including designating an authority or mechanism to coordinate actions to assess risks, and apply resources, aimed at ensuring the risks are mitigated effectively.
Continue my research on this topic through the FATF, I would recommend that companies should be prohibited from keeping anonymous accounts or accounts in obviously fictitious names. Companies should be required to undertake customer due diligence measures when: (i) establishing business relations; (ii) (ii) carrying out occasional transactions, above the applicable designated threshold (USD/EUR 15,000); (iii) (iii) there is a suspicion of money laundering or terrorist financing; or (iv) (iv) the company has doubts about the veracity or adequacy of previously obtained customer identification data. IX. Conclusion
Money laundering is known as a crime that refers to actions taken to conceal how and why a person obtained ill-gotten gains. The name comes from the fact that the money is "dirty" before the crime and appears to be clean, or legitimate, after the crime. For example, someone selling illegal weapons wouldn't want the money he receives to be traceable to the sale so he might have it paid to an offshore entity, then transfer it to a legitimate domestic company and have the legitimate company pay him. Under federal law, a money laundering conviction requires the prosecutors to show the concealment of money was intended to conceal the "ownership, source, or control" of the money. If convicted by the federal government for money laundering, you could face a fine of up to the larger of $500,000 or double the amount of money laundered, 20 years in prison, or both.
Criminals want their illegal funds laundered because they can then move their money through society freely, without fear that the funds will be traced to their criminal deeds. In addition, laundering prevents the funds from being confiscated by the police. Money laundering usually consists of three steps: placement, layering, and integration. Placement is the depositing of funds in financial institutions or the conversion of cash into negotiable instruments. Placement is the most difficult step.

References
Armone, M., & Borlini, L. (2010). International anti-money laundering programs: Empirical assessment and issues in criminal regulation". Journal of Money Laundering, 13(3), 226 - 271. doi:10.1108/13685201011057136
Beaumier, C. M., & Hatfield, C. J. (2003). Effective anti-money-laundering monitoring: issues and challenges.(Regulatory Outlook) | HighBeam Business: Arrive Prepared. Retrieved from http://business.highbeam.com/434984/article-1G1-117034913/effective-antimoneylaundering-monitoring-issues-and
Bynum, J. (2011, April 27). What is an antitrust law? Retrieved from http://www.investopedia.com/ask/answers/09/antitrust-law.asp
CBC News (2002, October 31). Former Enron CFO charged with fraud, money laundering - Business - CBC News. Retrieved May 25, 2014, from http://www.cbc.ca/news/business/former-enron-cfo-charged-with-fraud-money-laundering-1.305056
Chongo, A., & Lopez-de Silanas, F. (2007). Money Laundering and its Regulation.
Cornell University Law School (n.d.). Criminal Law legal definition of Criminal Law. Criminal Law synonyms by the Free Online Law Dictionary. Retrieved from http://legal-dictionary.thefreedictionary.com/Criminal+Law
Cornell University Law School (n.d.). Securities | Wex Legal Dictionary / Encyclopedia | LII / Legal Information Institute. Retrieved from http://www.law.cornell.edu/wex/Securities
Hartman, S. (1995). Antitrust Law. Retrieved from http://iris.nyit.edu/~shartman/mba0101/trust.htm
John F. Reed Library (2014, April 1). Business Ethics - Research Questions by Topic - Current Events - LibGuides at Fort Lewis College. Retrieved May 27, 2014, from http://subjectguides.fortlewis.edu/CurrentEvents
Money Laundering legal definition of Money Laundering. Money Laundering synonyms by the Free Online Law Dictionary. (2014). Retrieved from http://legal-dictionary.thefreedictionary.com/Money+Laundering
Salazar, H. (2012). Businesss Ethics Case Analyses. HSBC Accused of Money Laundering. Retrieved from http://businessethicscases.blogspot.com/2013/04/hsbc-accused-of-money-laundering-2012.html
Shams, H., British Institute of International and Comparative Law, Dedman School of Law, Queen Mary and Westfield College (University of London), & London Centre for Financial Studies and the Rule of Law (2004). Legal globalization: Money laundering law and other cases. London: British Institute of International and Comparative Law.
Small Business Commisioner (2012). Ethical Issues in Small Business. Retrieved from http://toolkit.smallbiz.nsw.gov.au/part/17/85/370
Wincorn, A. (2014, January 8). Money Laundering : The Ethical Investigator. Retrieved from http://www.ethicalinvestigator.com/money-laundering/