Emerging economies may find it difficult to break the cycle of money laundering if the Anti-Money Laundering (AML) regulations are not effectively enforced. Following several money laundering cases in Uganda, bodies such as the Financial Intelligence Authority, Criminal Investigation Department, and Uganda Revenue Authority have been appointed to counter the unlawful act. In terms of policy and legal frameworks, Uganda developed a National Strategy for Combating Money Laundering and the Financing of Terrorism and Proliferation for FY 2020/21 to FY 2024/25 to ensure that the AML regime is aligned with international standards.
With few exceptions, criminals are motivated by profit. Greed drives the criminal, and the end result is that illegally-gained money must be introduced into the nation’s legitimate financial systems. Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. Through money laundering, the criminal transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source. In recent years, Trade-Based Money Laundering (TBML) has been cited as the most commonly used method to launder money. It is termed as a complex and multifaceted form of financial crime that involves disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins. Various sectors including but not limited to import and export, the extractive industry, and the agricultural sector have been cited for being susceptible to TBML.
Furthermore, service-based money laundering is another tactic that is often ignored in financial crimes. This revolves around fraudulent invoicing to move illicit funds across borders. However, unlike trade-based money laundering, no physical goods are involved in the transaction, making detection difficult during investigations. Common service-based laundering scams include accounting, legal, marketing, and natural resource exploration fees.
Money Laundering can create global and local impacts on businesses, economies, and nations. The negative effects of money laundering on the economy are quite numerous as expounded below;
Decline in tax revenues. Revenue from taxes is the primary source of income for the government, contributing significantly to public revenues. However, if this revenue is insufficient, it can pose the risk of not meeting the public expenditure requirements which subsequently results in budget deficits. In addition to taxed earnings, there is also income generated through illegal means, known as black money, which remains untaxed by countries all attributed to activities of money laundering.
Reputation risk: Nations that are competing as destinations for legitimate investments may face difficulty in doing so if there is a perception that the country has a poor track record of dealing with money laundering or is seen to be a center for money laundering. This is because legitimate investors are wary of being associated with any nation that has a negative reputation.
Economic distortion and instability: Money laundering may also misrepresent capital flows, and thus destabilize the effective functioning of the economy. Scholars argued that money launderers would not look at where to best invest their money based on economic principles, but rather at where it would be easier to avoid being caught or based on where the cost of avoidance was lower.
The undermining of the legitimate private sector: The use of front companies by money launderers undermines the legitimate private sector, as the motive of money launderers is not necessarily to make a profit out of the operations of the front company.
Increased criminality: The increase in criminality is a serious effect and a matter of concern in money laundering. The triumph of money launderers is the distance they create between themselves and the criminal activity producing profit so that they can live lavish lives without attracting attention and could also go to the extent of reinvesting their profits to finance other crimes. Therefore, government, legislative acts,s, and other bodies must enforce the policies in place in order to curb the crime.
Loss of potential investors: Rational entrepreneurs will find it inconvenient to invest in an economy characterized by money laundering due to the risks involved. Countries with a high volume of money are considered risky places for investors. For those who want to attract international capital to their countries, fighting black money is an important message that provides investors confidence. Through the struggle’s effectiveness, investors will increase, which will positively affect growth rates and the economy.
It is therefore concluded that Money laundering constitutes a serious risk to monetary and financial development. The penetration and sometimes saturation of illicit money into legitimate financial sectors and nations’ accounts can intimidate economic and political constancy.
By Shamim Nantongo
