Economic risks of money laundering crime

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Economic risks of money laundering crime

There are many dangers that threaten countries because of professional criminals’ approach to the crime of money laundering in many ways and various methods, affecting all sectors of society, but the most dangerous of them is the harmful economic risks that affects the national economy. So, the risks and economic damages of the money laundering crime are summarized in the following cases:

/1/ The depletion of the national economy:

The transfer of money outside the country with the intention of laundering it in other countries leads to depriving the country of the funds and balances that feed the national economy, which prevents the investment of those funds in economic and development projects that generate income for the state and individuals, contribute to reducing unemployment, and work on Increasing employment and high rates of the labor force. Various economic, social, and political problems are reflected in the depletion of the national economy, including the increase in the external and internal debt on the burden of the state, and the increase of the annual budget deficit.

/2/ Economic Recession:

Smuggling money abroad to launder it, as well as using the laundered money to implement unproductive investment deals, by freezing it by buying famous collectibles for huge sums, such as oil paintings by famous painters, or by buying expensive antiques and precious stones, leads to the weakening and decline of the financial capabilities available to implement national projects. Productive, which leads to recession and continued economic stagnation with the continuation of money laundering operations.

/3/ Low GDP growth rates:

The increase in money laundering operations leads to an increase in countries’ interest in security affairs, doubling spending on them at the expense of social and economic development plans and programs, and obstructing economic correction programs, which negatively affects the growth rates of GDP and leads to decline, meaning that the relationship between these two variables is a direct relationship. The greater the volume of money laundering operations, the greater the decrease in the gross domestic product.

/4/ An increase in the balance of payments deficit and an increase in the external indebtedness:

The decline in the rate of domestic savings leads to countries resorting to borrowing from international institutions and governments, which constitutes a burden on the national economy and a deficit in the balance of payments, due to the obligation to pay debt installments and the payments that are committed to being paid. Countries that have achieved interim growth may find high economic growth considering financial corruption and money laundering, that what you have achieved in the short term will pay a heavy price in the future, because the illegal money revolves around the illegal money itself, and it becomes enlarged first, and in a limited period it migrates to other countries, and local banks become empty, if not bankrupt.

/5/ Drop of the national currency exchange rate:

  Money laundering operations lead to an increase in the demand for foreign currencies for the purpose of transferring them to deposit in banks outside the country or investing them there. Confidence in the value of the national currency locally and regionally, speculation on foreign currencies, and the emergence of the black market for currency exchange.

/6/ Increase in the interest rate on the local currency:

The decline in the local currency exchange rate leads to fear that this decline will continue, forcing countries to an inflationary transfer that leads to an increase in funds transferred abroad, and in such a case the state is forced to take monetary policy measures, such as raising the interest rate and stabilizing the exchange rate, because The free interest rate, which is subject to the supply and demand market, may be affected in the event of increased expectations about currency devaluation and inevitably lead to a rise in the interest rate as an inevitable result of the decline in the local currency exchange rate, with the aim of enhancing confidence in the national currency, and of course such a procedure has various economic caveats.

/7/ Drop Production Capacity:

Money laundering operations lead to an increase in consumption rates to a greater extent than the rate of increase in national income, which contributes to a decrease in savings and investment rates, and consequently weak and declining productivity. Some studies in the United States of America have concluded that illegal incomes are responsible for the decline in productivity in the national economy by 27%.

/8/ High rates of inflation, decline in monetary purchasing power, and increase in tax burdens:

Money laundering operations lead to an increase in consumption, a rise in the level of spending, an increase in demand, and a rise in the general level of prices, which leads to the deterioration of the purchasing power of money. Moreover, the money that comes out of any country to settle in international banks according to money laundering operations poses a threat to the national income, which negatively affects the national economy in general, and has a negative impact on those with legitimate incomes in the national economy. Also, the decrease in the national income recorded in local accounts, makes governments must raise the ceiling of the prescribed taxes, and impose new taxes on different sectors, which leads to increased suffering of taxpayers, a decrease in their savings, and a decrease in the level of luxury.

/9/ Decreased domestic saving rate:

The flight of capital abroad leads to a lack of domestic savings, a lack of investment needs, and a widening of the financing gap. In cases of money laundering through the purchase and storage of gold, jewelry, antiques, and expensive paintings, saving declines and consumption escalates. In the event of a lack of domestic savings, countries resort to external financing and indebtedness, which constitutes a burden on the annual budget and the national economy.

/10/ Burning of Prices:

 Owners of projects and companies with laundered financial resources sell goods and services at low prices that may not sometimes reach the value of their real capital, because they are looking to clean their money, even if it is less than its real value, and they are thus profitable even if their sales are less than the cost price, and this transaction leads Trade leads to burning prices and harming projects and institutions with legitimate capital, which destroys the system of fair competition and causes serious damage to the freedom of trade.

/11/ Volatility of Stability in Stock Exchanges:

When the illegal money that is intended to be laundered enters the financial markets, it is not bound by the stock exchange prices and the actual traded value of the stock and bond prices. Rather, it buys and sells at speculative prices far from the real market prices because of the illogical dealing in buying and selling shares and bonds, especially since it does not take into account the profit equation or The loss, rather, its goal is to launder those funds through unequal competition with serious investors, and this leads to a fluctuation of stability in the financial markets, and is thus reflected in the destabilization of confidence in the financial markets, and constitutes a heavy burden on investments in them.

/12/ The spread of the phenomenon of financial corruption:

  The temptations of money launderers for workers in banks and financial institutions lead some of them to fall into the traps of money launderers and circulate in their orbits and serve them by contributing to overlooking their money-laundering operations, and this, in turn, leads to the leakage of corruption to employees of banks and financial institutions related to this matter.

/13/ Unfair distribution of national income:

Laundered funds contribute to raising the incomes of unproductive groups at the expense of the incomes of productive groups, which affects the standard of living of hard-working and hard-working members of society and thus constitutes an unfair and indiscriminate distribution of national income, coupled with a wide gap between rich and poor, resulting in social injustice and a security threat to society.

/14/ High unemployment rates:

Money-laundering operations, which depend on the evasion of customs, duties, and taxes, contribute to the reduction of the public revenue of the State, which is reflected in the reduction of the volume of public expenditure, thereby impeding programs aimed at increasing employment opportunities, reducing unemployment rates or compensating the unemployed, leading to higher unemployment rates.

/15/ High rates of economic crimes:

The crime of money-laundering is already an economic crime, and its execution generates other economic crimes, directly or indirectly, because unemployment resulting from money-laundering, the scarcity of resources of citizens, the limited capacity of individuals, and the decline in the liquidity of individuals all contribute in one way or another to increasing the rates of economic crimes, particularly those involving money-laundering.

/16/ The emergence of new criminal categories:

Money laundering leads to the emergence of new criminal categories that engage in money laundering, which are already separate from the original criminal gangs that engage in money-laundering offenses. The new criminal groups contribute with the help and service of criminal gangs. Money laundering is usually committed by vulnerable bankers, accountants, lawyers, businessmen, and others who betray their conscience and are underpaid to facilitate public money laundering.

/17/ High crime cost rates:

There is no doubt that the high rates of economic crime resulting from money-laundering crimes require increased efforts and possibilities, at times, to prevent and combat crime in all its forms and manifestations. This is reflected in an increase in the allocation of funds to agencies dealing with aspects of crime prevention, control, and awareness of the dangers and damage to the individual and society.

/18/ The emergence of gangs specializing in money-laundering:

Criminal gangs need strong influence in their money-laundering, which can protect these funds, ensure positive results in money-laundering operations, and look for people they can serve in this area, and the emergence of a so-called category has emerged. Money Launderers have a criminal organization that is integrated with specific roles for each of them, so that they form a gang that specializes in money laundering, that is, a criminal gang that spawns another criminal gang, but with different roles and tasks.

/19/ Bad reputation and collapse of banking and financial institutions exposed to money-laundering:
Banking and financial institutions, through which money-laundering operations are carried out, are subjected to the reluctance of customers to deal with them, which leads to a weakening of their economic position, the withdrawal of their assets and the departure from their transactions of honest customers. This in turn undermines confidence in these financial institutions, their financial instability, and their international reputation, especially if the money is withdrawn from them, causing them to fall into bankruptcy.

Author: MR. MOHANAD BABIKER\ Senior Legal Consultant

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