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“And the whole earth was of one language, and of one speech. And they said one to
another, … let us build us a city and a tower, whose top may reach unto heaven; and let
us make us a name, lest we be scattered abroad upon the face of the whole earth. ”
(Genesis 11:5-8).
Introduction
Yet another human mega project RMS Titanic 1, despite being the
largest and most technologically advanced passenger steamship of
its time, has sunk during her maiden voyage from England to
America. Many have thought a tragedy like that was absolutely
impossible, since due to sophisticated design, water could only
fill some compartments but not all. The trade journal The Shipbuilder
and Marine Engine Builder in June 1911 writing about Olympic
and Titanic said "The captain may, by simply moving an electric
switch, instantly close the watertight doors throughout, making
the vessel virtually unsinkable."”2 Still, the water- tight doors
1 The second form of globalization was marked by the expansion of Britain’s trading empire in the nineteenth century. According to Cohen, this period was marked by a significant increase in trade between countries and the transfer of technological and cultural goodsbetween peoplesacross the globe. Daniel Cohen in his recent book Globalization and Its Enemies2005As Mr Ndlovo’s globalization ‘have the privilege to enjoy’. (BROWN, 2008)2 "Titanic - 2100 Science and Technology Videos". 2100science.com. 1912-04-14. Retrieved 2010-07-31. Wikipedia
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somehow failed to stop the water that quickly filled more
compartments than critically possible thus sending the ship with
1517 international passengers to meet the silent end by the coast
of Canada.
Globalization
In many respects the phenomenon of Globalization could be likened
to permanently disabling all of the watertight doors on a ship,
surrendering control of economy to unpredictable forces of demand
and supply. In globalization “ national markets are increasingly
opened to the global market, national cultures similarly are
opened to the global culture. National sovereignty is eroded in
terms of both control of the national economy” (Neack, 2008) p.8
Also (BROWN, 2008) mentions that “notions of absolute state
sovereignty are being weakened in favor of a more politically
interconnected and economically unified world.”
On one hand increasing globalization is good- capital, ideas,
people and goods can freely float in this liquid world finding
more effective ways to compete. Borders are becoming virtual,
money global, networks and culture universal. Less iron doors and
curtains mean faster turnaround time for global commerce and
economy, thus making new and improved products cheaper and more
readily available to the larger number of people. On the other
hand globalization “promotes the possibility for greater economic
inequality, ideological ethnic conflict and a failure to secure
human development.” (BROWN, 2008)
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With the fall of the Iron Curtain the world is becoming a smaller
place with the West being at an extraordinary peak of power in
relation to other civilizations. (The Clash of Civilizations?,
1993) Now all the countries are open to impacts of the
Globalization be it for good or for evil. In 1930ies Soviet Union
was immune to the financial crisis that plagued US and Europe
because it [USSR] did not participate much in the world economy
via trade and its currency was not convertible. But now all of
the safe harbors have been effectively eliminated. If the perfect
storm comes it will affect all now. There have been several
financial bubbles attributed directly to psychological factors
and lack of oversight. The latest example has been the subprime
housing bubble of 2008 in US, which has led to the burst of the
super bubble of the credit expansion. “A financial crisis that
began in New York and London and spread to manufacturing in rich,
then industrializing countries, has now hit the “bottom
billion”.”3Just like the Japanese tsunami that has smashed all
the walls, houses and cities on its deadly path, similarly did
the American subprime shockwave (fueled by Arab and Chinese ‘hot’
money) affect even the most remote corners of the globe.
After WWII, the Bretton Woods conference directed almost of all
the national currencies to became floating or semi- floating and
pegged to US Dollar. Today all the stocks are globally traded
instantaneously via the world wide web and there is no place to
hide from the turbulences of global economy for before
3 The Economist Mar 12 2009 3
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International Institutions and politicians could gather again the
world became one global economy. Thus in many respects the
globalization being a processes entirely of human doing that
reduces human agency to a merely a reactionary role. (BROWN,
2008)Therefore to prevent this global ship from sinking under the
weight of all the problems some internal mechanisms need to be
established throughout whole perimeter to avoid the tragedy but
at the same time not to impede the progress.
Corruption in the new era
The process of Globalization, described in the introduction, has
made the vice of corruption a truly global problem. Today
organized crime is well educated, uses the cutting age technology4 , fluently speaks many languages, travels internationally and
is moving finances to safe harbors from the countries they
pillage. Thus to fight corruption today it is not enough to audit
companies and banks locally, more drastic collaborative measures
on an international scale are needed to stop this global
problem. Corruption is no longer a local problem, but a as many
would say a glocal one-that simultaneously exists locally and
globally. Talking about corruption UN Secretary Kofi Annan has 4 Italy's interior minister Roberto Maroni (photo) has formed a team of security officials to tackle the mafia and other criminal groups' growing use of Internet telephony including computer programmes such as Skype to avoid police wiretaps. The 'taskforce' of police and computer experts will seek technical and legal means of intercepting suspected criminals' conversations via Skype and other VoIP technologies and making these admissible in Italy's courts of law. A top-secret algorithm invented by Skype's programmers encrypts speakers' voices as they are carried over the Internet. No electronic trace of Skype conversations remains. The software creates a new temporary password for each conversation, meaning Skype conversations are currently impossible to intercept. http://www.adnkronos.com/AKI/English/Security/?id=3.0.3031811578
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said that corruption is “a key element in economic
underperformance and a major obstacle to poverty alleviation and
development.”
Money laundering and corruption
It goes without saying that Criminal proceeds need to be
legitimized. The process of such legitimization is often called
money laundering, thus corruption and money laundering go hand in
hand. Money Laundering is defined as ―conceal[ment] of the origins
of money (obtained illegally) by transfers involving foreign
banks or legitimate businesses‖..
Years ago, before the era of jumbo jets and internet banking
money laundering was used primarily to legitimize criminal funds
earned locally and intended to used locally as well. The process
was quite simple and involved a cash intensive business or
inflated inventory on accounting books. Today the situation has
drastically changed: Criminal activity happens all over the
globe. Money laundering is done internationally and criminal
proceeds are used internationally as well via ” increasingly
sophisticated combinations of techniques, such as the … use of
legal persons to disguise the true ownership and control of
illegal proceeds, and … use of professionals to provide advice
and assistance in laundering criminal funds.” Officials are not
even sure about the volume of the money that is laundered
globally. In 1996 the International Monetary Fund estimated that
2-5% of the worldwide global economy involved laundered money.
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But IMF is nevertheless warning the international community that
“Money laundering threatens economic and financial systems in many countries, and
the international financial community should strongly support anti-laundering
efforts.” (Quirk, 1997)
Money laundering 101
For the criminal proceeds to be legitimately used they first need
to be introduced into the financial system through a process
known as placement via Structuring. Structuring "smurfing,"
refers to breaking the criminal proceeds into smaller chunks that
are then used to acquire financial instruments that are later
deposited in a bank. Throughout the process shell companies and
trusts are also used to disguise the true owners of the capital.
Offshore banks in countries with lax banking regulations are
often used while layering or structuring the funds. After that a
complex procedure is carried out to camouflage the illegal source
also known as “layering”. After the footsteps have been cleared
the dirty money can be safely used to acquire goods such as
houses, shares, cars, businesses, etc. (“integration”)
Global community prevention efforts
Brown writes that “Real globalization’ happened with the advent
of an institutional component with 20th century’s high-speed
communication and financial transactions. (BROWN, 2008)
The international community became ever more aware that
globalization is used not only for good but for evil as well.
Perhaps the criminal elements are the first to embrace
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globalization as a means to expand their activities all over the
globe. They are the first to meticulously study the new rules and
regulations to find loopholes for their activity. “In response to
the monumental collective action problems associated with
globalization, it is becoming increasingly apparent that radical
changes to global governance are needed and that robust normative
principles are also needed.” (BROWN, 2008)
Financial Action Task Force
At the 1989 economic summit in Paris, the G7, understanding all
the negative effects of money laundering around the globe, has
set up the Financial Action Task Force (FATF). Its goal was to
prevent banks and financial institutions from laundering the
proceeds of criminal activities.”5 In order to implement its
goals, FATF has developed 40 Recommendations on money laundering,
such as:
implement international conventions
criminalize money laundering
implement customer due diligence, record keeping and
suspicious transaction reporting
establish a financial intelligence unit
cooperate internationally fighting money laundering
FATF recommendations are expected to be implemented though
national legislation but allowing counties certain flexibility. 5 http://www.imf.org/external/pubs/ft/fandd/1997/03/pdf/quirk.pdf
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Following 9/11 The FATF issued 8 additional Special
Recommendations on Terrorist Financing introducing new
requirements relating to services such as alternative
remittance, wire transfers and cash couriers as well as non-
profit organizations.
FATF also does assessment of each member country against it
recommendations and issues reports of the jurisdictions that, are
believed to be uncooperative with other jurisdictions in
international efforts against money laundering. FATF's Eighth
NCCT Review listed no countries as non-cooperative. FATF issued a
"Statement" on 25 February 2009 noting concerns and encouraging
greater compliance by the following countries:6
1. Iran
2. Pakistan
3. Turkmenistan
4. Uzbekistan
5.São Tomé and Príncipe
While, under international law, the ‘FATF Blacklist’ has no
formal sanction, in reality, a jurisdiction placed on the FATF
Blacklist often found itself under intense financial pressure.
UN CONVENTION AGAINST TRANSNATIONAL ORGANIZED CRIME
The CONVENTION of 2 November 2000 has been adopted as a response
to events of 9/11. International community saw the tragic events
in US as a direct result of financial sponsorship from abroad. 6 http://www.fatf-gafi.org/dataoecd/18/28/42242615.pdf
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Articles 6-7 deal with “Criminalization of the laundering of
proceeds of crime” and “Measures to combat money-laundering ”,
demanding of each country to label money laundering as a
criminal offence, when committed intentionally. States Parties to
the Convention should implement feasible measures to detect and
monitor the movement of cash and appropriate negotiable
instruments across their borders without impeding in any way the
movement of legitimate capital. Convention also calls for the
development and promotion of global, regional, sub regional and
bilateral cooperation among judicial, law enforcement.
At the same time it is worth noting that the situation is still
dire. Italian weekly newspaper L'Espresso 7 recently published an
article by Loretta Napoleoni titled ‘Terrorists- Drug dealers’.
Napoleoni claims that Starting from 2005 Talibs are self-
financing, not only by selling counterfeit goods at the mega
market in Kvett, but also through joint ventures with the drug
dealers of opium. They do not have the lack of money since then.
For the last 10 years the production of heroin has increased 3
fold. “We are talking about nearly 500 bn USD of such global
revenue to be able to support the most mighty army in the world
and create the constant threat for the West and the rest.” She
says that the past model of the financing –was the financing of
the terrorism, i.e. Finances were coming from the financial
capitals: New York, London and from 1990ies from Dubai. All the
7 (as retrieved from a Russian website http://inopressa.ru/article/09May2011/espressoedit/laden_ter.html)
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transactions were happening in front of Americans, that did not
want pay any attention since Talibs were fighting America’s
enemies. But Since 2005 terrorists are capable of self-financing
due to flourishing military economy starting from smuggling of
oil and armaments, finishing with prostitution-the horizon of
criminal activity is limitless.
UNITED NATIONS CONVENTION AGAINST CORRUPTION
This convention has been adopted by the United Nations General
Assembly in on 31 October 2003 by Resolution 58/4. As of 5
November 2010, the convention had been ratified, accepted,
approved or acceded by 144 countries (which became thus States
Parties to the convention).Chapter III, Articles 15-44 deal with
Criminalization and Law Enforcement States have to reexamine
their laws and criminalize activity has fallen through the cracks
of the legal system. Article 23 specifically deals with Laundering of proceeds of
crime. UNCAC calls for establishing as criminal offences, when committed
intentionally. It specifically mentions the conversion or
transfer of property, knowing that such property is the proceeds
of crime, for the purpose of concealing or disguising the illicit
origin of the property or of helping any person who is involved
in the commission of the predicate it. UNCAC also calls for better
cooperation between national and international bodies and with
civil society.
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Country specific measures
Moving from international organizations, it is worth mentioning
how US, as a financial system founding country is dealing with
money laundering. As observed by Burges “ the international
economic and monetary system needs leadership, a country that is
prepared, consciously or unconsciously, under some system of
rules that it has internalized, to set standards of conduct for
other countries and to seek to get others to follow them,” (Burges, 2008)
Following discussion on US, this paper will review the anti-
money laundering procedures of Cyprus within the superstructure
of European Union. Even thou Cyprus8 is not a financial capital
of the world, this country has been identified as a paradise for
tax optimization and regrettably for money laundering too. Thus
it is worth noting its government’s fight against the crime.
United States of America
Overall American anti-money laundering efforts can be divided
into preventive measures and criminal sanctions.
Preventive Measures: US Bank Secrecy Act of 1970 attempts to
prevent ‘dirty’ money from entering the US financial system in
the first place. These laws require financial institutions to
8 For American companies, though, there are still obvious attractions. Cyprus offers the lowest corporate tax rate in the EU, 10%, as well as a bevy of tax breaks and 33 international treaties to prevent double-taxation.Forbes.com
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report cash transactions in excess of $10,000, identifying the
individual making the transaction as well as the source of the
cash. Additionally, a Suspicious Activity Report (SAR) must be
filed if the financial institution regards a transaction to be
“suspicious”9. Any attempts to circumvent the system, by
structuring cash deposits to amounts lower than $10,000 also
violates the law. The financial database called the Financial
Crimes Enforcement Network (FinCEN), creates reports of abnormal
financial activity made available to US criminal investigators
around the globe.
Criminal sanctions: Money laundering has been criminalized in
the United States by the Money Laundering Control Act of 1986.
This legislation prohibits individuals from engaging in a
financial transaction with proceeds that were generated from
certain crimes, known as “specified unlawful activities” (SUAs).
There is no minimum threshold of money. According to the law
merely passing money from one person to another, done with the
intent to disguise the source, ownership, location or control of
the money, is regarded as the financial transaction.
US legal “arms” also stretch abroad. Recently US Justice
Department and the IRS obtained a court order demanding that UBS
Bank of Switzerland turn over records on the 19,000 Americans
believed to have secret Swiss accounts.
UBS finally agreed to pay a $780 million fine, cease its offshore
9 defined as a knowing or suspecting that the funds come from illegal activity or disguise funds from illegal activity
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banking activities with Americans, and for the first time in
history turn over the names of more than 4,000 U.S. citizens
suspected of tax fraud. UBS having a major presence in the U.S.
could not survive as a global banking power without access to the
U.S. market.10
The USA PATRIOT Act
After the events of 9/11 the U.S. Congress has adopted The USA
PATRIOT Act that was signed into law by President George W.
Bush on October 26, 2001. The Patriot Act divided into three
subtitles, with the first dealing primarily with strengthening
banking rules against money laundering, especially on the
international stage. The second attempts to improve communication
between law enforcement agencies and financial institutions, as
well as expanding record keeping and reporting requirements.
Specifically USA PATRIOT Act, Title III titled "International Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001,"
is intended to facilitate the prevention, detection and
prosecution of international money laundering and the financing
of terrorism. It primarily amends portions of the Money Laundering
Control Act of 1986 (MLCA) and the Bank Secrecy Act of 1970(BSA).
The European Union and Cyprus
10 Read more: http://www.cbsnews.com/stories/2009/12/30/60minutes/main6038169.shtml#ixzz1M9nORMXs
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The EU directive 2005/60/EC on the prevention of the use of the
financial system for the purpose of money laundering and
terrorist financing attempts to prevent such crimes by requiring
banks, to investigate and report usage of cash in excess of
€15,000.
Forbes reports that ‘150 miles from Beirut, closer to the Middle
East than to Europe, Cyprus has been a mecca for money laundering
--even terror financing, according to a post-Sept. 11 U.S.
congressional hearing’. Russia, a country described by Wikileaks
as a "mafia state" with widespread corruption, bribery and
protection rackets has very close connections with Cyprus.
Russian off-shore companies which benefit from generous fiscal
conditions on the island, is the major conduit for capital
invested in Russia (37.4 billion euros in 2010). Most of this
money was originally sourced in Russia itself. Nearly 16 billion
dollars moving from Russia to Cyprus and the Russian deposits in
Cyprus are the biggest part of the total 22.7 billion of deposits
in foreign currency.11
“In July, 2001, the Internal Revenue Service of the United
States of America, officially approved Cyprus’s “Know-Your-
Customer” rules which form a basic part of Cyprus’s anti-money
laundering system. As a result of the above approval, banks in
11 (http://www.moneymarketing.co.uk/analysis/cyprus-plans-sweeping-changes-to-bring-in-offshore-investors/186764.article)
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Cyprus which may be acquiring US Securities on behalf of their
customers.”12
Desiring further integration into the global and European
communities Cyprus has enacted laws, over the past decade, that
comply with international standards, requiring, persons entering
or leaving the country to declare currency or gold bullion worth
$15,500 or more. Banks must report large cash deposits and
suspicious transactions just like in US.
On 13/12/2007 the Cypriote House of Representatives enacted “The
Prevention and Suppression of Money Laundering Activities
Law” .Under the current Law, the Cyprus legislation has been
harmonised with the Third European Union Directive on the
prevention of the use of the financial system for the purpose of
money laundering and terrorist financing (Directive 2005/60/ΕC).
Conclusion
Brown writes that ‘globalization creates a strange
world where ... it has altered people’s
expectations more than it has increased their
ability to act’. (BROWN, 2008) In this ‘a strange
world’ some firms are ‘too big to fail’ and as
global as the world itself; individual actors can
challenge superpowers via terrorism and a computer
virus sent from Starbucks can affect the global
12 Forbes.com
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economy as much and as quickly as a flu that spread from a
Mexican swine to UK ex- prime minister’s wife.
Today the global community is simply unable to revert the
process of globalization via stepping backwards and lowering the
‘iron doors’, discussed in the introduction, for this will
trigger consequences that we are not yet able to predict. But
leaving the Globalization “on its unbridled course then there is
a real possibility that it could seriously affect the ability of
the human race to coexist peacefully, or to continue to exist at
all. (BROWN, 2008)
Thus it seems that the only thing that could be done today is the
establishment and execution of universal rules via which
globalization will developed as a man controllable process. This way
perhaps it will benefit the whole human family and not just the
“Free World”13.
In the world financial capital -London at 30 St Mary Axe, there
is a building also known as the Gherkin. The design of this
building is as peculiar as its name. This building is constructed
with a concept of redistribution ‘of loads from failing columns
to other columns via embedding steel cables in the floors at the
building perimeter.’ These cables thus redistribute gravity loads
13 The very phrase "the world community" has become the euphemistic collectivenoun (replacing "the Free World") to give global legitimacy to actionsreflecting the interests of the United States and other Western powers.' (The Clash of Civilizations?, 1993)
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to other columns if an exterior column were to be severely
damaged.”
Globalization, if it is done right, should be like those steel
cables that connect the supporting columns of the whole
structure. Only when all the countries cooperate and are equally
resolute when it comes to fighting corruption and money
laundering can they succeed. With international cooperation and
uniformity in legal framework there will be no loopholes and safe
harbors for those that want to launder criminal funds-
international financial structure thus withstand any shock just
like the Japanese skyscrapers did. In an interconnected world
one country’s failure to have stringent anti-money laundering and
anti- corruption laws will mean that criminals from other
countries will flock to its shores, thus negating everybody’s
efforts. The Economist writes: “Governments, .. should think more
in terms of reducing risk and increasing resilience to shocks …
the sort that comes not from other states but networks of states
and non-state actors, or from the unintended consequences of
global flows of finance, technology and so on.”14Even though “for
the relevant future, there will be no universal civilization, but
instead a world of different civilizations, each of which will
have to learn to coexist with the others” let us not forget that
that “civilizations are dynamic; they rise and fall”. (The Clashof Civilizations?, 1993)
14 The Economist Jan 28 2010
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Collapse of the system comes from a decline in the capability or
willingness of the
major actor to continue providing the necessary public goods.(Burges, 2008)
Today humanity is at the point when international cooperation is
vital for its survival. Perhaps the West brought up with the
notion that the Tower of Babel is an impossible and sinful
project should re-evaluate it and put joint efforts to succeed
this time around. This time, in case of a failure, there will be
too many people and too little space to be scattered…instead
humanity will be buried under the rubble of the global tower it
still aspires to build.
“And the LORD came down to see the city and the tower, which the children of men
builded. And the LORD said, Behold, the people is one, and they have all one language;
and this they begin to do: and now nothing will be restrained from them, which they
have imagined to do. [And the LORD said] let us go down, and there confound their
language, that they may not understand one another's speech. So the LORD scattered
them abroad from thence upon the face of all the earth: and they left off building the
city. Therefore is the name of it called Babel; because the LORD did there confound the
language of all the earth: and from thence did the LORD scatter them abroad upon the
face of all the earth.”
(Genesis 11:6-9)
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BROWN, G. W. (2008). Political Studies Review, 1.
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Glebov, S. (2009). Black Sea security as a regional concern for
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Neack, L. (2008). The New Foreign Policy: Power Seeking in aGlobolized Era.
Lanham: Rowman & Littlefield Publishers, Inc.
Quirk, P. E. (1997). Money Laundering: Muddying the Macroeconomy.
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Unknown. (1611). King James Version of the Holy Bible. London.
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