Are cryptocurrencies driving further money laundering?
Money laundering has been creating a chronic headache to global economies, as illegal business activities and trading usually occur outside the normal range of economic and financial statistics.
According to the United Nations Office on Drugs and Crime, global money laundering transactions account for roughly $800 billion to $2 trillion annually, constituting around 2 to 5 percent of global gross domestic product.
This does not only lead to understating the value of global GDP, but it also significantly contributes to world-wide tax evasion activities.
Money laundering is defined as the process of concealing the origin of money, which is usually obtained and generated from illegal and illicit activities — such as drug trafficking, corruption, embezzlement, gambling, prostitution, human trafficking, tax evasion and unauthorized arms trade.
While some business activities in some countries are considered illegal and ultimately as money laundering, other countries might not consider them as such. However, despite these different considerations between countries, the world unanimously agrees that proceeds obtained from certain activities are considered money laundering, such as drug and human trafficking and tax evasion.
Money laundering often goes through three main stages. Placement where the proceeds from illegal activities are introduced into the legal financial system. Layering whereby the origin or source of funds are disguised by moving them around in a series of complex bank transfers or financial transactions. Integration where the funds are infused back into the economy and a “legal” origin is created.
It is believed that cryptocurrencies have been playing a major role in the growth of money laundering activities or the so-called “dirty money”. Simply because cryptocurrencies in their nature are decentralized currencies, make it very difficult for legal authorities, such as central banks to track and trace funds generated from money laundering activities and injected into cryptocurrencies.
One would say this is the reason why cryptocurrencies are becoming more popular in recent years, even imposing certain risks on central banks globally mainly because of their anonymity.
Saudi Arabia is committed to detecting and preventing money laundering activities in the Kingdom, as well as penalizing the perpetrators in accordance with the anti-money laundering law.
The Kingdom had ratified and signed several agreements both on a regional and international level.
For example, the Kingdom signed the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in Vienna in 1988 and the United Nations Convention against Corruption in January 2004.
In recognition of its successful efforts in connection with fighting money laundering activities, Saudi Arabia joined the Financial Action Task Force in June 2019 and became the first Arab country and the 37th country in the world to obtain the membership.
I believe that money laundering is an ailment for any economy, causing turmoil to global commercial activities, promoting unfairness in business practices and increasing crime and corruption. Therefore, global collective efforts are needed to eliminate these activities globally or at least reduce it to the utmost minimal.
This would require countries across the globe to closely coordinate and cooperate with the FATF. I would go even further to recommend imposing economic sanctions and isolation from the international community, to any country that does not collaborate on this initiative.