The incestuous relationship between corruption and money laundering

Abstract

Corruption and money laundering are closely linked. Corruption offenses, such as bribery or theft of public goods, generate significant amounts of proceeds that need to be laundered - or "cleaned" - to enter the financial system without the stigma of illegality. At the same time, corruption may facilitate money laundering: corrupt officials may influence the process by which proceeds (regardless of the asset-generating crime they derive from) are laundered, and enable launderers to escape all controls and sanctions. This article describes this "incestuous" relationship between money laundering and corruption. It discusses first the evolution of international law in the area of the prevention and repression of corruption and money laundering. It shows the extent to which, since the 1990s, virtually all international institutions have stepped up their efforts against these criminal phenomena, while at the same time progressively building on each other's achievements. More than twenty years later, the result is a rather comprehensive set of legal norms which, if properly and effectively implemented, should considerably mitigate the threats posed by corruption and money laundering to both the economy and the rule of law. The article subsequently discusses the financial crisis through the lens of money laundering and corruption. It shows, including with concrete examples, the negative impacts these criminal behaviors are having on the global economy, and the prompt response by the international community. The article continues by focusing on the role the International Monetary Fund (IMF) has played, and is continuing to play, in this context. This occurs notably through the Fund's policy work in the context of other international institutions (such as the Financial Action Task Force (FATF) and the FATF-Style Regional Bodies) and the Fund's own Financial Sector Assessment Program (FSAP) and surveillance (under Article IV of the Fund's Articles of Agreement) activities. It discusses how the Fund's anti-money laundering and combating the financing of terrorism (AML/CFT) program has evolved in the last 10 years, and the direction given by the Executive Board moving forward. It notably refers to the support by the IMF Executive Directors of a framework for the coverage of ML/FT and the related predicate crimes in the context of modular financial stability assessments (MFSA) under the Fund's FSAP and of surveillance under Article IV. The article concludes by underlining the importance of a multidisciplinary approach to the action against money laundering and corruption. It argues for greater integration of the anti-money laundering and anti-corruption frameworks at a national level. The article also stresses the need for countries and international institutions alike to focus their resources on the areas where the money laundering and corruption risks are higher to maximize the impact of the response. It also points out that, beyond adopting international standards, their effective implementation is key to the success of any anti-money laundering and anticorruption policy. © ERES.