Banking Sector Development - Research Paper Example

?CHAPTER 2 – LITERATURE REVIEW The formal banking sector plays a crucial role in the fight against the money laundering efforts of criminal syndicates and unscrupulous individuals. It is because the banking system gives their illegal or dirty money a much-needed legitimacy. Once money laundering is successful in the first stage of the three- step process, the money goes on its way to becoming clean and ready for use by the syndicates that will perpetuate their criminal activities. Although monetary authorities are fully aware of the magnitude and dangers of unchecked money laundering, the present banking technologies as used by global authorities are clearly insufficient. There is a paucity of good data as to why newer and more effective computerized banking technologies were not utilized in the first place when these technologies are readily available. It is just a matter of re-programming their IT structures and software to make these anti-money laundering efforts more effective. The present methods allow too many loopholes for bank officers to be complicit. This is a good reason why anti-money laundering should have a minimum of human interventions in place of adopting newer technologies to remove the human elements in the detection and reporting of possible money laundering. The authorities are looking into alternative banking and remittance systems a bit more closely through the Serious Organized Crime Agency (SOCA) as good avenues for money laundering (Burns & Peel, 2006:1). Ironically, Col. Qaddafi and his family have billions stashed away in UK banks. The question is how were they able to move such huge sums without triggering the anti-money laundering laws of the country? Private banking involves investing for select individuals sizable assets in businesses where large sums of money are normal. Examples are insurance, stock investments and building societies (Bicker, 1996:143). A new troubling area in money laundering in the UK is the use of private trusts (OECD, 2006:30). Private banking plays a big role in the setting up of various trusts (Kalin and Goldsmith, 2007:28) for property ownership and wealth management but pose big risks. The present anti-money laundering technologies produce mostly a bunch of data that relies to a great extent on human interventions. Again, these reports are reliable only to the extent on how reliable are the people who reviewed these reports. In other words, the degree of human intervention in reporting makes these efforts to control dirty money mostly wasted efforts because the humans involved (bank officers) compete in an environment that is not very conducive to compliance with anti-money laundering regulations. When the dirty money amounts to substantial sums, and banks are in need of liquidity, the incentive to comply with the laws and regulations is much lessened. The more crucial priority is the survival of the banking institution itself and so the “dirty money” continues to flow and bank officers turn a blind eye. There is a need to inject a sense of urgency to anti-money laundering efforts because the survival of society itself is at stake. It has social, political, legal and economic implications which are mostly adverse to the well-being of the people. If these efforts fail, it can mean only that crime really pays. It will also encourage other people to commit the same crimes and get rich themselves. Money laundering threatens and undermines the thread that keeps a society functioning because of its corrosive effects on the moral values of people. Its tentacles are slowing finding its ways into various aspects of daily life. A review of existing literature on money laundering will indicate that people are aware of the seriousness, magnitude and urgency of the problem (ADB, 2003:5) but there is a lack of materials on why money laundering continues to proliferate. Most literature materials on this topic have not discussed or investigated why present anti-money laundering efforts have largely failed to stop the flow of illegal funds around the world (Kalin and Goldsworth, 2007:374). In fact, money laundering seems to be getting worse over the years, with new technologies being used to launder larger and larger amounts of dirty money. Efforts to control this menace had been limited to passing legislation to make banking institutions more compliant with stiffer penalties being imposed on those who turn a blind eye to this issue. However, this paper tries to address a perceived gap in the research literature by examining how banking technology can be used to counter and disrupt the flow of illegal funds right from the start. As stated earlier, money laundering is a three-step process but it is in the first step where it is most vulnerable. This is also the point where banking technology can be put to most effective use. A few suggestions are put forward in this paper to combat money laundering in more effective ways. The first is to use the sophisticated computer software to detect patterns from thousands of seemingly-unrelated bank transactions. It is the same technology being used by anti-terrorism authorities to catch early the terrorists when they are still planning an attack by listening to what is known as “background chatter” which should ideally be the same principle in fighting money laundering. Criminals and syndicates also generate the same “background chatter” through patterns in their actions. What is just required is a more robust way of detecting these actions using sophisticated software. Another suggestion in this paper is to adopt a new paradigm in current efforts to fight money laundering. By this, I mean using the mind-set of a spy who is more attuned to detecting a pattern from observing “background chatter” that was mentioned in the above paragraph. The anti-money laundering campaign should be conducted much like what is being done in the larger intelligence community such as counter-espionage in catching enemy spies. Urgency of more robust efforts should be given top priority because crime syndicates had moved into the banking system itself, buying up distressed banks in countries which had weak political structures. This paper intends to give that sense of urgency. Comment: 1. Well written review in stating clearly the research gap. To improve, there should be more in-text citation where applicable. The present literature review is general and should be included. To also include literature on money laundering in the UK private banking since this is focus in the working title. 2. Parts in purple font are suggestions and recommendations which should be in chapter 5. To be removed from chapter 2. New additions: Bicker, L. (1996) Private Banking in Europe. London, UK: Routledge. Kalin, C. and Goldsmith, J. G. (2007) Anti-money Laundering: International Law and Practice. West Sussex, UK: John Wiley & Sons, Inc. Organisation for Economic Co-operation and Development (2006) Tax Co-operation: Towards a Level Playing Field. Paris, France: OECD Publications. Read More