THE stability and efficiency of the international financial system are important concerns of the international community. Money laundering is a key transnational challenge facing international financial institutions and individual states, with illicit funds regularly entering and exiting financial markets. Money laundering also plays an integral role in terrorist financing and organized crime. While the Financial Action Task Force on Money Laundering (FATF) is the leading international organization in anti-money-laundering (AML) efforts, Canada, with its robust financial regulations, infrastructure and international reputation, is in a prime position to take leadership, in close cooperation with the FATF.
The scale of international money laundering has been difficult to track. The FATF, citing the United Nations Office on Drugs and Crime (UNODC), estimated that in 2009 criminal proceeds amounted to 3.6 percent of global GDP, with 2.7 percent (or US$1.6 trillion) being laundered. In a separate report, the UNODC indicates that the total amount of money laundered is between 2 percent and 5 percent of global GDP each year, which translates to approximately $800 billion to $2 trillion. International money laundering causes global economic problems. In a 2003 article, the economist Bonnie Buchanan explains that it “imposes significant costs on the world economy by damaging the effective operations of national economies and by promoting poorer economic policies.”
Money laundering can also cause a shift in the money demand from one country to another, thereby creating misleading monetary data. These false data subsequently affect interest rates, asset prices in economies and exchange rates. Effective national economic policies are damaged by this false information, leading to poor economic policies. As domestic and international financial markets become more corrupt and poor economic policies continue to be implemented, public confidence in financial systems and institutions decreases, resulting in financial markets becoming risky and unstable. Consequently, global economic growth is slowed and reduced. According to Transparency International, the main challenges with international AML efforts are noncompliance with, and a gap in the implementation of, FATF recommendations.
Simply put, global money laundering damages Canadian interests. Canada wants not only to ensure stability and confidence in its domestic financial sector — for instance, the stock market is heavily contingent on the confidence of the market — but also to protect international financial institutions and avoid global instability. As an International Monetary Fund fact sheet astutely notes, “In an increasingly interconnected world, the harm done by these activities [money laundering and terrorist financing] is global.”
While international organizations and states do cooperate in AML efforts, major gaps and loopholes exist. These gaps offer Canada an excellent opportunity to lead on this key economic issue at the international level. Taking the lead here also aligns with current Canadian foreign policy and stays true to our global identity of finding international consensus on challenging issues. According to a June 2017 address by Minister of Foreign Affairs Chrystia Freeland, one of Canada’s primary foreign policy priorities is playing “an active role in the preservation and strengthening of the global order from which we have benefited so greatly.” This position signals exactly the reason why Canada should not merely participate, but rather should take an active leadership role in global AML and counterterrorism financing (CTF) efforts. Money laundering contributes to sluggish economic growth and weak economic resilience, placing major stressors on the global order. By taking a leading role, Canada can more effectively help strengthen and maintain the global order.
In her address Minister Freeland also placed a major emphasis on an “international order based on rules” and stated that Canada will “robustly support the rules-based international order, and all its institutions, and seek ways to strengthen and improve them.” Through active coordination of AML efforts with international governmental organizations and individual states — and particularly with developing markets that have weak financial institutions — Canada can take a major step toward strengthening the current international rules and order, while simultaneously fulfilling our own foreign policy goals.
Confidente. Lifting the Lid. Copyright © 2015