The Implications of Money Laundering on Peace and Security

Money Laundering is the process by which the proceeds of crime, and the true ownership of those proceeds, are changed so that the proceeds appear to come from a legitimate source .  Hence money laundering is a criminal activity. The implications of this criminal activity filter down to almost every cross section of the socio-political framework, jeopardizing the effective functioning of the National Security Mechanism and thereby the Peace and Security of a Nation State.

This article will try to explore the very effects of the money laundering on Peace and National Security.  The problem with money laundering is that money laundered is always sourced from a criminal activity. Money laundering is not a solitary predicament but rather forms part of a web of criminal activity with influences running across numerous activities  . According to the UNODC the estimated amount of money laundered globally is 2% to 5 % of Global GDP or 800 billion to 2 trillion dollars. Further according to the Banker 2% of all financial flows are from the drugs trade .  The magnitude of the figure connotes the enormity of the problem.   Measuring the exact proportion of Money Laundered, remains a serious challenge as the Money Laundering process is completely clandestine and problematically complex with various transfer channels, across various jurisdictions.  “Alarmingly”    in the very words of Professor Alastair Hudson a significant proportion of this laundered money is used to finance terrorist activities. A view backed by the latest report on Money Laundering by the RUSI’s centre for Financial Services and Security Studies.  Therefore money Laundering is not only a problem that affects regulators and banks but rather a problem that directly or indirectly affects you and I.

The Complexity of the Money Laundering Process
Mr. A is a professional criminal stealing money from a sterling dominated bank account in London, by hacking into the banking system and then paying the money into a bank account in New York before changing it into dollars and then diving it into a number of irregular amounts, converting it into different currencies again and then paying each amount into different bank accounts in different jurisdictions. Each time the money is transferred into another account there will be money belonging to another person in it. Each bank account would usually be owned by “a dummy company” controlled by some associate of the criminal making the process of tracing extremely complicated.  In the meantime the money would have moved onwards again and again until it reaches an offshore island jurisdiction. Where the identity of the account holder would be kept a secret or would allow the money to be held on trust without the name of the beneficiary being disclosed. The above scenario depicts a hypothetical construction of a Money Laundering process- made rather effortless by the existence of offshore jurisdictions and virtual currencies.    

The above helps establish the argument that money laundering is a completely complex criminal activity that poses a significant challenge to law enforcement and government agencies. Analysis of the transaction charts of the 1 MDB  scandal (laundering of Money worth $4.5 bn)  which number to “thousands of transactions and movements of money from one offshore location to another”   through companies, associates and institutions based in the United States, London, Switzerland, the British Virgin Islands and many other jurisdictions, helps ascertain the following. That money laundering has become an international issue needing multilateral corporation. Secondly highlighting the immediate need for the effective implementation of Anti Money Laundering measures in compliance with FATF standards. It was be mentioned that FATF  ( Financial Action Task Force ) is the inter-governmental body that that sets standards and promotes the effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the “integrity of the international financial system” .

The Significance of 9/11

It is my assessment that the gravity of the issues surrounding money laundering remained hidden until the events of September 11 2001. Combating money laundering was not a governmental priority until the events of 9/11 which robbed the lives of 2753 people. As Hudson expounds   “it is when the world realized the destructive potential of money laundering”. The unfortunate events of 9/11 illustrated the relationship between terrorist financing and money laundering. Organized crime being another significantly important consequence of money laundering that affects Nations National Security Interests. Levi argues that Money laundering is the common denominator for organized crime and terrorist financing and therefore “is a necessary activity/ requirement for either of these two activities” . Hence it is integral that both regulators and Intelligence agencies monitor, identify and combat Money Laundering activities.
As identified by the United States National Commission on Terrorist Attacks upon the United States, the hijackers deposited money into US accounts using wire transfers, deposits of cash and travelers checks. The funds were raised from Germany and the UAE or came directly from Khalid Sheikh Mohammed (the mastermind behind the 9/11 attacks) through Pakistan .  The entire plot cost $400 000 to $500 000. The existing money laundering controls were largely focused on other areas of ML such as Financial Fraud and could not detect the hijacker’s transactions.

Further it can also be assessed that US intelligence services failed to understand the Al Qaeda financing strategy. Al Qaeda was funded, up to about $30 million per year, by diversions of money from Islamic charities and the use of well-placed financial facilitators who gathered money from both witting and unwitting donors, primarily in the Gulf region.  They also had any substantial involvement with conflict diamonds, or were financially sponsored by any foreign government .  In 1996 with Bin Laden moving to Afghanistan the report comments that they “made less use of formal banking channels to transfer money, preferring instead to use an informal system of money movers or bulk cash couriers ”… Further informal banking systems such as the Hawala system were used and continue to be used by such terrorist organizations to move money and thereby pose a significant threat to financial integrity and national security. Post 9/11 the United States continues to make terrorist financing a priority on foreign and domestic intelligence. The events illustrate the need to plug intelligence gaps on money laundering by connecting professional services, financial institutions and Intelligence Services under a common monitoring system. A recommendation strongly forwarded by RUSI’s 2015 Money Laundering study. Since 9/11  a vast majority of countries, especially financial hubs such as the United Kingdom, Singapore … have adopted firm and rigorous AML policies.  

Lessons for Sri  Lanka

Revisiting and reassessing Sri Lanka’s Anti-Money Laundering regime is crucial to Sri Lanka’s National Security Interests.  The events of 21st April (Easter Sunday Bombings) further highlights the need for a stronger, integrated response against terrorist financing and money laundering.   Identified organizations such as National Thowheeth  Jama’ath  were capable of expanding their base of activity and fund the  slaughter of  over  259  innocent civilians due to veiled money flows  from supporting cohorts.  A large proportion would have been laundered   by any method discussed above. Hence for the sake of National Security, an integrated response unit consisting of regulators and the intelligence community is vital to identify and track suspicious money flows.  

In February this year Sri Lanka was included in the list of 23 countries with strategic deficiencies in the anti-money laundering and terrorist financing regimes.  To my mind this signals a dire need to strengthen AML legislation, implement FATIF recommendations while improving intelligence collection with a coordinated response mechanism. Such measures are justified in the context where Sri Lanka hopes to become a financial hub with the development of the Colombo International Financial City (Port City), thereby opening doors to the risk of Money Laundering activities. 

The article addresses the vital implications of Money Laundering through events such as 9/11 and our very own 23/ 04. Accordingly it can be inferred that money laundering would always be utilized by organized crime, terrorist organizations and criminals to endanger peace and National Security. Hence combating money laundering and terrorist financing has become a multilateral coordinated effort. It is crucial that Sri Lanka adopts and reinforce our Anti-Money Laundering Regime with further recommendations in order to achieve our National Security objectives. 
K.D.D.B.Vimanga is a Research Assistant at INSSSL.  Views expressed are the author’s own.