Money Laundering Makes the World Go Around, the World Go Around

“A mark, a yen, a buck or a pound,
a buck or a pound, a buck or a pound,
Is all that makes the world go around,
that clinking clanking sound,
Can make the world go round.”
–from Cabaret

Back in May 2001, the State Department’s John McDowell and Gary Novis from the Bureau of International Narcotics and Law Enforcement Affairs wrote

“Money laundering has potentially devastating economic, security, and social consequences. It provides the fuel for drug dealers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. Crime has become increasingly international in scope, and the financial aspects of crime have become more complex due to rapid advances in technology and the globalization of the financial services industry. [...]

“Unchecked, money laundering can erode the integrity of a nation’s financial institutions. Due to the high integration of capital markets, money laundering can also adversely affect currencies and interest rates. Ultimately, laundered money flows into global financial systems, where it can undermine national economies and currencies. Money laundering is thus not only a law enforcement problem; it poses a serious national and international security threat as well.”

Four months after this was written, on 9/11, we all saw what just a little financing from Al Qaeda could accomplish.

Now six years after the attack on the World Trade Center, after the passage of the USA Patriot Act and the Bank Secrecy Act (BSA), you would think banking regulations would have evolved to stem the tide of dirty money. You could think that, and you would be wrong.

The clinking clanking sound of money laundering — the third largest business in the world at $1.5 trillion annually, according to the TowerGroup — does indeed make the world go around. And if the subprime loan debacle could set off a worldwide panic, imagine what would happen to the world’s economy if banking regulations were effective and the third largest business ceased to exist.

The possible repercussions are something that regulators and governments should be cognizant of. It shouldn’t be just the bank compliance officers that suffer from ulcers over the threats and effects of money laundering.