From tick to spark; from compliant to socially conscious. The negative effects of money laundering do not affect the financial sector alone but all of us.
Money laundering efforts in broader perspective
posting and review.
In recent years, under pressure from the regulator and media, billions have been invested by banks and financial companies in improving financial economic crime prevention and detection processes. According to DNB, the cost of combating money laundering and terrorist financing for the entire banking sector was €1.4 billion in 2021. The four largest banks accounted for nearly 80%. To put it in perspective; the total net profit of the four major banks was nearly 10 billion euros in 2021.
Of course, you can see the obligations (read costs) to do customer research and monitor transactions as a “must do” to satisfy the regulator. In general, such a compliant attitude is uninspiring for both customers and employees. In our view, it works better if you place measures against money laundering and terrorist financing in a broader (societal) perspective.
With terrorist financing, it is abundantly clear what the harmful consequences could be. The images of the Ramblas, Bataclan and 9/11 speak for themselves. Money laundering may seem at first glance to be a victimless crime. Indeed, we can even name some positive (short-term) effects of money laundering based on literature review. So, what are the negative social consequences of money laundering now?
as a process
First, it is good to get clear what we mean here by money laundering. Not everyone understands money laundering to mean the same thing. The Criminal Code alone distinguishes six different forms of money laundering. According to the “economic” view, which we adopt in this article, money laundering is primarily about engaging in acts that conceal the criminal origin of proceeds (FATF, 2022). This is because the criminal wants to be able to enjoy his wealth at some point without the risk of a conviction because of the underlying criminal source, usually drug trafficking or fraud.
From an economic perspective, money laundering is a process in which the first step is to bring the criminal proceeds into the financial system. Then the original criminal origin is concealed by, for example, moving the proceeds several times, converting them into smaller and different units, whether through different companies and structures or not. In the final phase, the integration phase, the concealed criminal assets, which appear to be legal, are used for consumption and investment. It can be anything from groceries, luxury goods, businesses, real estate to buying up soccer clubs. In this final stage, the mixing between the underworld and the upper world is complete. It is thus inherent in the process of money laundering that illegally earned wealth enters the legal circuit and that a wide range of service providers, at the various stages can play a facilitating role.
Based on exploratory literature review, we listed the most common social impacts.
Sustain and promote crime
The main negative consequences flow directly from the definition of money laundering. As indicated earlier, money laundering is directly or indirectly linked to a crime with “real” victims. In the Netherlands, basically every crime qualifies as a predicate offense. One can therefore say without question that money laundering sustains and also encourages crime. The need for money laundering services creates derivative criminal activities ; a kind of multiplier effect. Moreover, if there is a perception that crime pays, this will increase the appeal to certain (vulnerable) groups with all the social consequences that this entails. In Amsterdam alone, hundreds of young people are being groomed for criminal careers with the prospect of “Snabba Cash.”
In addition, there is a clear relationship between money laundering and administrative subversion. Investing in real estate, investing in businesses are popular destinations for mistake money. Nothing wrong with that in itself; good for local jobs and business. The flip side, however, is that as a result of these investments, criminals can exert pressure on local government for their own benefit.
In the streets we also see the effects of money laundering. Consider, for example, the striking number of souvenir stores in Amsterdam that seemed to be turning over sales even in Corona time, the barber stores, tanning salons, candy stores, etc. Often located in places with relatively high rents and seemingly few customers. Not only does this make residents feel uncanny, but it is bad for competitiveness. After all, legal entrepreneurs cannot afford low turnovers.
Thus, countering money laundering is primarily countering crime. Still gets a better feeling from it than putting a check mark.