Literature Review
It has been increasing attention being given to the topic of money laundering, since it could undermine a country’s financial structure and put the credibility of the country at risk. Money laundering is the process by which illicitly gained funds are made to look legitimate—facilitating illicit activity by hiding it(Rose-Ackerman & Palifka, 2018). It is the processes by which criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source. Money laundering is the conversion of criminal incomes into assets that cannot be traced back to the underlying crime (Reuter, 2004).
In the past few decades, the economic and the electronic technological development have been growing fast all over the world. It shortened the distance between individuals and even countries, which made our lives much more convenient than before. However, such development also put some risks, too. One of those problems is that it might make money laundering easier and even transnational. With the development of technology and communication system, it is easier for the funds and capitals to flow among countries, including the illegal financial resources. In additions, money laundries are common to be seen in the last 20 years. It is hard for government to specifically separate those proceeds from legal to illegal one since some of the legal proceeds may be “whiten” from the criminal proceeds hence we can’t really calculate the amount of those criminal proceeds precisely.
In addition, most of the proceeds of corruption will eventually be converted into a legitimate global economy. Much of it flows across national borders into assets and financial institutions located in money centers in wealthy countries. It could be deposited in financial institutions or be invested in real estate or commercial enterprises. Even if domestic law enforcement is weak, however, through the international control of money laundering and of non-transparent ownership of investment vehicles, it could make corruption more expensive and troublesome.
Nowadays, money laundering is a serious problem since it is believed to cause some harm to the integrity of a country’s financial system. In 1995, money laundering from transnational crime was 273 billion USD(1,33% of official GDP) for 20 OECD countries (Australia, Austria, Belgium, Canada, Denmark, Germany, Finland, France, Greece, Great Britain, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Switzerland, Spain and the U.S.A) and was 603 billion USD ( 1,74% of official GDP) in 2006(Schneider, 2013). An estimated report issued from Global Financial Integrity(2017) pointed out that the illicit flows in the developing world have not declined appreciably over the 2005-2014 period and the ilicit flows and out of the developing world amounted to at least 13.8 percent of total trade (or $2 trillion) in 2014.
However, is calculating the volume of money laundering worthwhile? The answer might be negative. There has still been no methodology that plausibly would produce credible numbers at how much money is laundered hence it might be simply one of those adornments for conversations about the phenomenon (Reuter, 2013).
The Money Laundering Process
The major concern about the money laundering is not only itself but also the crimes that money laundering supports. Therefore, the goals of anti- money laundering controls can be focussed on reducing predicate crimes and protecting the integrity of the core financial system. Money laundering generally involves disguising the origin of criminal proceeds by turning the proceeds from the original form into other forms through financial institutions. Take the money laundering scandal which is known to worldwide for example, American Express Bank International(Amex) was believed to intentionally violate the related anti-money laundering regulation and was responsible for approximately $55 million which was related to drug trafficking and laundered funds(Platt, 2015). Offshore banks and companies are responsible for large volumes of laundered money. They are based in different countries which do not tax or have low taxes on deposit. They might operate accounts seems to be legitimate but are actually controlled by offshore shell companies.
The process of money laundering can be divided into three distinct phases: placement, layering, and integration(Madinger, 2016). Money launderers turn illicit proceeds into legitimate money or goods by resorting to the three processes of money laundering, which are placement, layering, and integration, regardless of the crime(Schott, 2006).
In the placement stage, it involves introducing illicit funds into the financial system, usually through a financial institution. At this point, the illicit funds are moved from a cash-based transaction system to a business-based one. In the layering stage, the funds are transferred among multiple institutions. Conducting this process routinely makes it more difficult to be trailed by investigators due to it obscure the source of illicit funds. During integration as the final stage, money launders attempt to illegally transfer obtained proceeds into legitimate businesses by accomplishing through purchasing real estate, securities, luxury goods or other financial assets.
With globalization, money launders have seized on the new opportunities created by it. They broadened the criminal activities. Indeed, money laundering is now an international problem since it is almost involved with cross-border transaction and relies on other countries’ financial systems and business operations. Apparently, money laundering is now a serious global problem. Our society and governments from all of the countries need to take a global view of money laundering and apply international standards to conquer this issue. Therefore, countries from all over the world had been coordinating altogether to execute international efforts for fighting this issue by identifying and enforcing laws and seizing assets that result from these criminal activities.
In 1989, Financial Action Task Force was established (FATF). It produced 40 Recommendations on Money Laundering in 1990, which have since been revised and expanded(Campos & Pradhan, 2007). It also set up global standards on Anti- Money Laundering (AML) measures. The major purposes of AML measures are to make it hard for launderers to take action with the illegal assets, such as hide, move, store, and convert them. Since money laundering is a cross-border issue and it might be involved with authorities and jurisdiction, FATF also requires countries to adopt legislation that allows authorities to identify, trace, freeze, or seize, and confiscate the illegal proceed.
Efforts to Combat Money Laundering
In the past years, more and more countries have been taking initiatives to limit money laundering since it’s apparently an international issue. However, there is little strong evidence to evaluate the effect of these AML measures. One of the reasons is the difficulty to measure the amount of the laundered money at any given time. The other bigger problem is the existence of the jurisdiction. Take United Kingdom and the United States for examples, foreign banks are operating within their jurisdiction, however, most of the related AML legislation on confiscation of criminal proceeds are still applicable to domestic crime problem(Levi & Reuter, 2006). Therefore, the international cooperation on AML must include the international legislation to conquer the jurisdiction problem.
Another problem related to money laundering is technological development. Virtual currencies create a decentralized and anonymous peer-to-peer network among users. Take bit coin for example; Bit coin offers users, regardless legal or illegal, an entry to the transaction with very low barriers and enables users to transfer money instantaneously at almost no cost while remaining anonymous. Virtual currencies such as Bit coin allow money launderers to move illegal proceeds faster and more discretely at cheaper cost. It’s much easier for money launders to obfuscate the sources of illicit funds, which makes AML efforts more difficult than before(Bryans, 2014).
There is a fairly large amount of literatures on the topic of money laundering. Most of the studies are focusing on the process of money laundering and are trying to generalize a conclusion of a specific scheme to explain all type of money laundering. However, with globalization and the development of electronic technological, even various governments are now making every effort to limit money laundering; money launders will still be seeking new methods. Hence, as new methods emerge, the old scheme of money laundering process might be no longer applicable and need to be revised.
There were also fruitful researches found out that money laundering was intertwined with corruption and organized crime. Organized crime and corruption prosper in an environment of bad governance. How organized crime and corruption are flourishing depends on the quality of core public state institutions, which the relationship seems to be similar among countries at all levels of development(Buscaglia, 2005). Organized crime profits might be major source of funds that are laundered; however, corruption may be the most important source in many small developing countries. It was estimated that around US$ 1 trillion of illicit funds are laundered annually which was contributed to corruption and that the illicit funds are even laundered increasingly in the international financial system(Chaikin & Sharman, 2009) . Apparently, it is necessary that corruption and organized crime should be included when we talk about money laundering since the three mentioned factors are closely linked and inseparable. When researchers are trying to understand money laundering, based on the old scheme of money laundering process, we should not neglect the influences of globalization and electronic technological development on money laundering. Thus, we should appropriately modify the existence scheme of money laundering process by adding potential factors or delete the inapplicable one.
Virtual Currencies and Money Laundering
In sum, under condition of considering corruption and organized crime when exploring the issue of money laundering, researchers must consider globalization and electronic technological development as well. In addition, researchers must view globalization and electronic technological development as dynamic and longitudinal. How globalization and electronic technological development affect money laundering could be changing at any given time. It is essential that we take a long view on the issue of money laundering.
This study is a theoretical research, which means that the researcher won’t make any assumptions at first. The purpose of theoretical research is to define and clarify concepts, to interpret or reinterpret ideas, to relate concepts into larger systems, to introduce new concepts or metaphors or frameworks that allow a better understanding of the object of research (Williams & Chesterman, 2014). This study aims at understanding how globalization and electronic technological development could affect money Laundering. In order to reach the purpose as mentioned above, the researcher will first point out the definition of globalization and electronic technological development respectively and the current degree of globalization and electronic technological development. Also, the researcher will do the comparison from the past and the present to demonstrate why the influences of globalization and electronic technological development on money laundering are stronger than before. Besides, the researcher will explain the interaction among them. Therefore, it raises some questions as below:
- What is the relationship between globalization and money laundering?
- What is the relationship between electronic technological development and money laundering?
- What level of globalization and electronic technological development are currently?
- What factors affect globalization and electronic technological development on money laundering? Through deeply exploring the above questions, the researcher hopes to reach the following goals:
- Since money laundering is now a global issue, many countries now share investigative capacity and results under the auspices of Mutual Legal Assistance treaties. Therefore, the researcher hopes to offer deeper information and facts about money laundering. When international cooperation on AML is made, the findings of this study might offer assistance on international regulation and strategies making.
- Many countries now have signed bilateral extradition agreements to prosecute foreign criminal who is in a foreign country. Therefore, the researcher hopes that there will be more and more countries are willing to join the international AML cooperation when they realize the importance of the influence of globalization and electronic technological development on money laundering.
Research Design
The study will be done through the quantitative approach due to the availability of enough secondary sources that can provide the secondary information that is relevant to this particular project. Quantitative approach is on record for enabling researchers to seek out and conceptualize the latent social patterns and structures of the area that the researchers are interested in. At the initial stages; the researcher will apply the inductive approach to generate substantive codes from data so as to be able to gradually establish the theory. After the theory will have been properly established then the next step that will follow will be the collection of the data relevant to the research. Quantitative approach is the most ideal for this type of research as it helps prevent researchers from opportunistic use of theories that have dubious fit and working capacity(Glaser & Strauss, 2017). The central purpose of secondary data in this research is the construction of theory from data. The methodology process will follow the following process for the purpose of ensuring that reliability and validity of the final paper is guaranteed.
This is an empirical study that centralizes on the development of the real image and not the verification of the hypothesis. In this respect, voluminous information will be gathered for the purpose of establishing the theoretical foundation of this research through the compilation of the relevant journals, research reports and various kinds of documents. The researcher will also make reference to the prior theories for the whole purpose of data collection and analysis.
The secondary information relevant to the identified organizations will be collected from the secondary sources related to the established companies. All the steps in the sampling process must be theoretically guided instead of being by rigorous statistical procedures or by more loosely conceived theoretical strategies so as to guarantee both the coherence and relevance of the collected data for further analysis (Denzin, 2017).
Coding
The initial line-by-line open coding of all data will be applied by the researcher at the onset and it is an act of attaching initial labels to all available data. Through selective coding, the researcher will establish categories that are related to the core category and justify the specific steps in abstraction. The last step of coding will be theoretical coding, which relates the substantive categories generated from selective coding to one another. In the final analysis, the researcher will translate the verbatim into meaning units and reorganize these meaning units and transform them into easy-to-read storyline.
By constantly comparing every unit of data with the other, the researcher will be able to confirm that the finding will be well grounded after systematical coding procedures. Besides, it may also generate new properties to ensure the best fit between the analysis and the data. This process will run until the grounded theory is fully integrated for valid and reliable results to be obtained (Birks & Mills, 2015).
The memos are an integral part of the methodology since they will enable the researcher to be to write down ideas about concepts, categories, and the relationships that occur during the analysis process. This is a true testament to the fact that memos are written records of a researcher’s thinking during the process of conducting a grounded theory study.
In the final analysis, the examination of data regarding conditions, interactions, tactics, and consequences is a mandatory step that cannot be dispensed with. At the same time, coding paradigm can be extended to inculcate elements of coding families to fit into the contexts of the research (Wiesche, Jurisch, Yetton, & Krcmar, 2017).
References
Birks, M., & Mills, J. (2015). Grounded theory: A practical guide: Sage.
Bryans, D. (2014). Bitcoin and money laundering: mining for an effective solution. Ind. LJ, 89, 441.
Buscaglia, E. (2005). Controlling organized crime and corruption in the public sector.
Campos, J. E., & Pradhan, S. (2007). The many faces of corruption: tracking vulnerabilities at the sector level: The World Bank.
Chaikin, D., & Sharman, J. (2009). Corruption and money laundering: a symbiotic relationship: Springer.
Denzin, N. K. (2017). The research act: A theoretical introduction to sociological methods: Routledge.
Glaser, B. G., & Strauss, A. L. (2017). Discovery of grounded theory: Strategies for qualitative research: Routledge.
Global Financial Integrity. (2017). Illicit Financial Flows to and from Developing Countries: 2005-2014. Retrieved from: https://www.gfintegrity.org/wp-content/uploads/2017/05/GFI-IFF-Report-2017_final.pdf
Levi, M., & Reuter, P. (2006). Money laundering. Crime and Justice, 34(1), 289-375.
Madinger, J. (2016). Money laundering: A guide for criminal investigators: CRC Press.
Morse, J. M., Stern, P. N., Corbin, J., Bowers, B., Charmaz, K., & Clarke, A. E. (2016). Developing grounded theory: The second generation: Routledge.
Platt, S. (2015). Criminal capital: How the finance industry facilitates crime: Springer.
Reuter, P. (2004). Chasing dirty money: The fight against money laundering: Peterson Institute.
Reuter, P. (2013). 18. Are estimates of the volume of money laundering either feasible or useful? Research handbook on money laundering, 224.
Rose-Ackerman, S., & Palifka, B. J. (2018). Corruption, Organized Crime, and Money Laundering Institutions, Governance and the Control of Corruption (pp. 75-111): Springer.
Schneider, F. (2013). The Financial Flows of Transnational Crime and Tax Fraud in OECD Countries:What Do We (Not) Know? Public Finance Review, 41(5), 677-707.
Schott, P. A. (2006). Reference guide to anti-money laundering and combating the financing of terrorism: The World Bank.
Wiesche, M., Jurisch, M. C., Yetton, P., & Krcmar, H. (2017). Grounded Theory Methodology in Information Systems Research. MIS Quarterly, 41(3), 685-701.
Williams, J., & Chesterman, A. (2014). The map: a beginner’s guide to doing research in translation studies: Routledge.
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