Money Laundering as a White-Collar Crime - Research Paper Example

MONEY LAUNDERING By Introduction The phrase white-collar crime came into existence in 1939 through a speech offered byEdwin Sutherland in an American Sociological Society gathering. He used the term to refer to crime that was committed by an individual of high social status and respectability in the course of their occupation (Jewkes & Letherby 2002, p.209). In as much as this meaning has evolved severally, today, it still refers to multiple non-violent crimes that committed mostly in commercial contexts for the sole purpose of financial advantage or gain. The Federal Bureau of Investigation revealed that white-collar crimes cost the US an average 300 billion dollars annually. This is because the crime is termed as difficult to unearth and prosecute as the offenders use complex and sophisticated means to commit crimes and conceal them (“White-collar crime” n.d., n.p.).Under the white-collar term are various types of crime. They include telemarketing fraud, embezzlement, insider trading, environmental law violations, tax evasion, computer fraud, bankruptcy fraud, economic espionage (Maggio 2011, p.170), and specifically for this study; money laundering. Money laundering is a type of white-collar crime in which financial transaction schemes are used to conceal the source, identity, and destination of money that is illicitly obtained. In short, it is a process in which money acquired from one [illegal] source is made to appear like it originated from a different (legal) source to avert apprehension. Money laundering is experienced in most countries in the world, but owing to the sophistication of its functionality, money laundering cases are hardly unearthed. In the light of these, the following research paper will seek to provide a clearer insight into money laundering as a white-collar crime. In it, it will discuss the nature and organization levels of money laundering, as well as highlight who the offenders are, and why they might commit such crimes. Additionally, the research will provide the means through which it can be controlled and regulated by focusing on one form of money laundering; drug money laundering. Definition of terms Money laundering The process by which money acquired from an illegal source is made to appear like it originated from a [different] legal source to avert apprehension (Hopton 2012, p.1). Drug money Money that is involved in purchase, transportation, storage, marketing, or buying of illegal substances such as cocaine, heroin, and cannabis, amongst others (Urban dictionary 2015, n.p.). Placement stage This is the first stage in money laundering in which the illegal money gets into the legitimate financial system. It helps the criminal from holding large amounts of cash (Richards 1998, p.47). Layering stage This is the second stage in money laundering. At this stage, the money moves internationally and is meant to separate the illegal money from its source (Madinger 2011, p.259). Integration stage This is the third and final stage of money laundering. In it, the money gets back to the criminal after undergoing the placement and integration stages to appear like it is obtained from a legitimate source. Criminals use it to avert suspicion and attention (Levy 2003, p.6). Nature and Organization Drug money laundering can be understood by splitting it into its three main segments of money laundering; placement, layering, and integration. These segments are the notable processes applied by criminals to ensure their illegal money is “transformed” into legal money and incorporated into the mainstream legitimate financial system. The first segment is known as the placement stage. This is the stage at which the money moves from its source (Molander, Mussington, & Wilson 1998, p.5). To avert suspicion or tracking down since drug money is usually in its millions to billions of dollars; the criminal owners put it into circulation in financial institutions. These may be bureau de changes, casinos, or shops to mention but a few. The other method applied in drug money laundering is smuggling physical currency out of a country into another. Again, financial institutions such as scrupulous banks may support such trades, and harbor the transfer and storage of such money. This introduces the second stage of money laundering; layering. In layering, the illegal drug money is made more difficult to uncover and detect by law enforcement bodies (Jason-Lloyd 1997, p.2). One of the main known methods of layering is by converting the drug money into monetary instruments. One way of doing this is by depositing the money into the scrupulous banks and converting them into money orders and banker’s drafts. The second method of layering drug money is through buying material assets and then selling them. Assets acquired using the drug money are sold abroad or locally, thus becoming harder to trace. The final segment of drug money laundering is the integration process. At this stage, the previous “dirty money” is reunited with the owners having circulated in the economy thus appearing like earnings acquired through normal business (Jason-Lloyd 1997, p.6). One way of concerting the assets back to real cash is done by dealing in property. Upon selling previously acquired property, the criminals receive their money which now appears to have been acquired through land sales. Criminals may also use the scrupulous banks to “loan” themselves money. As such, they may explain that their huge sums of money are simply bank loans. The other method used in reintegration is by stashing drug money abroad, in foreign banks, where the governments have no idea where the money originates from (Savona 2005, p.27). Finally, the money launderers may falsely export or import invoices to avert suspicion. This is done by overvaluing the invoices during the entry of documents to indicate the funds which are later deposited in domestic banks. The inflated value is then withdrawn from them as legal cash. Drug money laundering fits into the white-collar crime context in that it adheres to the definitions of white-collar crimes. First, the crime is nonviolent as money is transferred through “silent” and discreet means without requiring much attention (O’Sullivan 2009, p.6). Second, the methods of laundering money are highly sophisticated as banks, stock markets, and logistics channels are tactfully applied to avert legal authorities. Drug money laundering also fits into the white-collar crime context in that the objective of the criminals is mainly for financial benefits (McCollum 2001, p.34). Concisely, the drug traders aim to continue with their drug trade which attracts huge sums of money which they need to acquire without risking their trade. According to Maggio (2011, p.45), criminologists are aware that the twenty-first century has experienced extreme permeation by organized crime more than any previous time. Money laundering, and particularly of money connected to illegal drug trade and consumption, attains global revenues of trillions of dollars annually. This therefore explains the major connection between the illicit drug sales and money laundering in the United States (Alexander 2013, p.165). The concept here is that the trade attracts billions and even trillions, and money laundering has to be used to avert the tracing down or suspicion of the offenders. There is also irony in that while drug prohibition, which has been in effect for a century, has not reduced the crime as drug trade is one of the most profitable forms of criminal trades. Mexico is notably the largest producer of illegal drugs in the world, and its neighbor state, the US, is the biggest market for the illegal drugs (Fabre 2003, p.58). As such, money laundering of money used in this trade is very common in the two nations. The two-thousand mile border shared by Mexico and the US makes a perfect entry point for smuggling of drugs into the US. Following the above revelation, it makes sense that the drug traders have to launder their proceeds to aver their large sums of money from being traced back to their origins. In the early 1980s, drug traders could easily conduct their trades then proceed to deposit their earnings in US banks (Verage 2011, p.35; Savona 2005, p.15). This contributed to the laundering of money in that drug proceeds would move from country to country and bank to bank without being suspected. However, the US has in recent decades set up anti-money laundering initiatives, AML to try and fight organized crime such as drug trade and money laundering in general. The international financial system has also undergone tightening in the past, making it more difficult to launder money. These measures have not fully addressed the issue of money laundering since the criminals devise new methods of doing the same all the time. The instability of the Mexican political system, in addition to the political power and wealth held by drug cartels in Mexico enables money laundering between the US and Mexico to continue (Guerrero 2008, n.p.). In the past, billions of dollars of questionable monies are revealed in Mexico-US trades, and such phenomena can only be explained by the wealth and power held by the launderers. Mexico smuggles drugs into the US, and the US is where much of the laundering occurs as money in large sums is required to reach its owners in Mexico. There is a large and constant drug demand in the US that drives the drug trade, thus the drug money laundering. In 2011, it was estimated that about six point two billion dollars’ worth of illegal drugs were smuggled into the US (Realuyo 2012, p.4). Additionally, it is estimated that between nineteen to twenty-nine billions dollars of drug money is laundered from the US to Mexico as the proceeds of the illegal trade (Dell 2014, p.2). Today, the network that enables drug money laundering between Mexico and the US has several branches that enable its success. First are the legitimate customers of the laundering cartels who despite knowing the activities of such bodies accept the services and products sold by the offenders. In this way, illegal money enters the legitimate financial system. There are also global security service companies which move logistics worldwide. Through their secure transportation products, these companies are used by money launderers to move their money from nation to nation without requiring the financial system. Scrupulous banks continue to be notorious for their support of the illegal trades, layering and transfer of drug money. Finally, drug money launderers use investment companies to buy and sell stocks through public or private transactions. This is the same method applied by drug money launderers to integrate their money into the stock exchange. Collectively, these methods enable drug money to be laundered without being apprehended by legal authorities. As such, the drug money laundering crime continues to thrive. Offenders and Explanations Drug money laundering, as a form of money laundering, and as a white-collar crime, can be explained using several criminology theories. This is relevant in that criminology seeks to understand crime by evaluating the behavior and circumstances of the acts and criminals. As such, drug money laundering can be understood and explained by highlighting the rational decisions embraced by the criminals. These decisions highlight the circumstances that contribute to, and encourage the force behind the explicit activity. In so doing, the following section will apply the rational choice theory and the organization theory of criminology in decoding drug money laundering as a legal, rather than natural offense. In definition, the rational choice theory asserts that patterns of individuals’ behavior in society reflect the choices they make as they seek to maximize their benefits while minimizing their costs. Better put, people may decide to behave in a certain way after weighing the costs and benefits and in it realizing that minimal costs will attract larger benefits. In this way, they engage in the behavior, even if it means breaching the penal code. In the money laundering trade, several aspects emerge from application of the rational choice theory. The theory states that at some point, criminals choose their paths out of will and are not pushed in to the acts as other theories explain. In application, most of the money launderers are wealthy individuals. As such, the fact that they trade drugs and launder money cannot be attributed to “surrounding” factors such as unemployment or poverty. As such, it means that their crime is a matter of personal choice. The concept of choice as explained by the rational choice theory can be explained in that while the people who form the cartels are wealthy, they have the choice to invest their money elsewhere, but still, they choose to go into drug trade, which is illegal. The explanation behind their choice is that they perceive of drug trade as easy and fast cash. This may be explained by the fact that there is a ready market for drugs in the US, and that Mexico has surplus drugs. Therefore, these two conditions create the urge and push for the choice of going into crime despite the fact that legal means of investment exist. Again, the drug money traders and launderers are aware that money laundering and drug trade is illegal but still, they choose to go into the trades. The motivation to go against the penal code is further explained in the rational theory. The theory states that the criminals weigh the costs and benefits of their intended behavior. In the event that their behavior is likely to have more benefits than costs (including risks), there likelihood of engaging in the acts are high.Again, if they find that the associated costs are higher than the benefits, they are likely to quit the intent overall. The fact that drug trade is illegal in most parts of the globe accounts for their high costs. This explains why drug barons who trade in cocaine and related substances are overly wealthy. As such, the choice to go into crime is potentially driven by the benefits that are promised by such trades. In short, money laundering occurs because the criminals are after the much promising benefits that arise from drug trade. To them, money laundering is a worthy risk considering the benefits in dollars that drug sales in the US are likely to attract. As such, they apply the rational choice theory in that according to them, the benefits overshadow the associated risks. The organizational theory of explaining behavior applies in defining the context of organized crime in drug money laundering. The theory ascertains that organized crime is similar to legal businesses in some ways. However, owing to its illegal nature, organized crime has associated constraints and modifications. The cartels that launder drug money are organized such that the acquiring, marketing, and delivery of drugs are enabled, and that the money successfully reaches the owners without being tracked by legal authorities. At the top of the drug laundering cartels are powerful individuals who have money and political power. The political power may not be directly owned, but with the wealth, these individuals can easily influence legal and federal authorities into allowing their criminal acts. This kind of relationship between drug cartels and legal authorities takes the form of partnerships in real organizations. Again, the drug money laundering cartels have “employees” in which case each is assigned to a specific duty within the illegal network. According to Richards (1998, p.73), criminal gangs have temporary organizational structures which are made up of few employees. The little number of employees secures their dealings, thus keeping the legal authorities out. Again, the reason why Mexico, a mid-economy state, is preferred by the drug dealers and launderers is that their organizations are able to avert complex technology. According to Richard, criminal organizations such as drug cartels reside in hostile environments to conceal their functions. “As a result of residing in hostile environments, criminal enterprises avoid complex technology and stay small in size with organizational complexity and formality” (73). These two theories therefore explain the motivation of drug money launderers and their functionality. Therefore, a correlation exists between the two theories in explaining their behavior. First of all, the promise of fast and easy cash while risking “little” has motivated the drug cartels and launderers to further drug sales. Money laundering mediates by providing safe channels of transferring and legalizing their proceeds. On the other hand, the organizational theory explains why these criminals are hard to apprehend. It is because they operate in small groups. In this way, their functions remain concealed from authorities. Again, they choose to operate in hostile bases such as Mexico where technology is low and the political system is easy to manipulate using money. With these factors combined, drug money laundering continues between Mexico and the US while successfully evading legal authorities and systems. Regulation and Control As highlighted earlier, drug trade has been prohibited for decades. The US has also established Anti-Money Laundering policies that seek to reveal and prosecute drug money launderers. These two policies have been effective for decades but still, the offense still thrives. This occurrence is explained by the complexity of money laundering as sophisticated from of white-collar crime. Today, several policies have been proposed in seeking to regulate and control the drug money laundering crime. The policies show an interconnection between discouraging drug consumption and trade as well as controlling the movement of money. They are highlighted herein; The first policy is based on the grounds that there should be zero tolerance when it comes to drug consumption and trade. This framework emphasizes on intensifying the prohibition policies, severe punishment of drug traffickers, and drug addicts to be forcefully treated. China is known for its strict implementation of this policy in that since the late 1940s, it has been sending drug addicts to forced rehabilitation and inflicting death penalties on traffickers. Generally, this policy seeks to discourage drug use and trade since it encourages money laundering. The second policy is through legalizing and regulating some drugs termed as illegal. In short, it has been proposed that some drugs should be produced, distributed, and consumed within set rules and regulations. Different drugs would have different regulations and rules. For instance, when the alcohol prohibition was lifted in the US in 1933, money laundering and smuggling decreased. Therefore, this policy suggests that if governments produced and commercialized most of these drugs, the cartels would not have to smuggle the drugs into other countries since a low demand would mean risks that are higher than the benefits. Again, organized crime would decrease as these criminal organizations disintegrate. The other proposed policy of addressing drug money laundering is by implementing Laissez-fare legislation. This means allowing the market to determine the production of drugs, distribution, and consumption without the interference by authorities. The concept in this is connected to the legalization of drugs in that it will take the business away from the laundering cartels, thus dry up the international pipeline of illicit drug cash. Again, this framework implies that the prohibition of drug use and trade is what has driven the demand and prices of the commodities up, thus the behavior of criminals to take up the illegal trade. Laissez-fare legislation will make drugs available, thus a decrease in price, and disintegration of the money laundering bodies. The problem with the above three policies is that they are likely to promote drug use and addictions. Drug use on its part is likely to encourage crime, increasing health expenses, and deteriorating health. The final proposed method of controlling drug money laundering is through tightening the regulation of banks and financial institutions. As the research has shown, most of the laundering occurs through scrupulous [local] banks and financial institutions which work with drug cartels. Governments in areas that are known to have high money laundering offenses should intensify their efforts of evaluating small institutions which owing to their small sizes can easily conduct money-related offenses while averting suspicion since most are registered and recognized by the governments. Additionally, minimizing such institutions would also go a long way in discouraging money laundering activities. Other feasible measures of controlling money laundering include filtering content that enters through border points. Since most of the drug money is smuggled physically, governments are advised to monitor their borders closely. In the case of the US-Mexican border, such policies are highly proposed since it is termed as porous. Second, logistics companies which have activities in areas famous for money laundering and drug trade are advised to check the content that their clients need moved. This is because some of the money is sent in sealed packages which evade the authorities and logistics companies as well. The two above policies are weakened by the fact that drug traders are wealthy and can use bribes or blackmail to bypass legal authorities. Again, some cartels are connected to high political officials in their bases of operation, thus are free to conduct their activities. Conclusion As the research shows, white-collar crime takes many forms, many of which are high-skill offenses that easily escape legal authorities. Drug money laundering is the type of money laundering in which criminal organizations involved in drug trade use to conceal the source of their funds and integrate their proceeds to legitimate mainstream financial systems. Money laundering is explained in three phases, that is, placement, layering, and integration stages. The process involves acquisition of illegal money, transfer of the money from its source, conversion to legitimate money, and reception of the money by the owner in legal nature. Drug money laundering behavior is explained using two social theories; the rational choice theory which states that people choose to go into crime when benefits of their actions exceed the risks; and the organizational theory which compares criminal organizations to legal businesses. There are multiple policies implemented in fighting drug money laundering. They include legalization and regulation of drugs, zero tolerance to drug consumers and traffickers, use of Laissez-fare legislation in drug markets, stringent regulation on money transfer and logistics bodies, and finally improving border monitoring. Evidently, drug money laundering is a complex and sophisticated type of white-collar crime which requires more criticality than it is currently offered in terms of elimination. 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