Introduction
In my recent Sunday Stabroek columns I have sought thus far to provide a background for assessing the money laundering situation in Guyana, with specific regard to examining its local, regional, and international regulatory regimes.
An appropriate definition of money laundering in Guyana and the wider Caricom region was first presented. After that the distinction was brought out between the main driver of money laundering for the large majority of countries in the wider Caricom region (which is, tax evasion) and Guyana (and to a far lesser extent Jamaica and Trinidad and Tobago as well) where other organised criminal pursuits constitute the main driver.
As was clearly indicated, although tax evasion is a crime, the illicit proceeds that are laundered in this way could have been, in all probability, earned through legitimate activities. To this extent therefore, we must recognise that Guyana’s money laundering is directly rooted in crime from the very inception, while for most of the rest of the Caribbean this is not by any means the usual circumstance.
Schedule 1
Last week’s column further addressed those factors, (derived from financial, economic and legal research in the past three decades), which give the practice of money laundering in the region, traction. I concluded that presentation indicating I would focus today’s discussion on those major techniques, which this research has also revealed are used by regional money launderers. This information is presented in Schedule 1 below, which lists the ten most reported money laundering vehicles.
Schedule 1
Caribbean Money Laundering: Ten Most Reported Vehicles
1. Remittances
2. Stock Exchange
3. Lotteries
4. Automobile Dealers
5. Stage Shows
6. Money Carriers
7. Real Estate
8. Purchase of deposit accounts
9. Special Purpose Vehicles
10. Control of Locally Incorporated Banks
Source: Author’s calculations
Several observations should be noted about the information displayed in Schedule 1. First and perhaps most importantly, all the vehicles listed in the Schedule are distinguished by the fact that they either involve considerable cash (currency) accumulation in small forensically untraceable currency bills or have the potential for same.
Second, it would be very difficult in most practical circumstances to distinguish legitimate cash (currency) transactions from those that are illicit. Indeed the law requires that there has to be the legal presumption that nothing illicit is involved, since an illegal transaction can only be legally established as such through due process.
Third, all of the listed mechanisms in the Schedule may not be significant factors in all Caribbean OFCs at all times or indeed at any time. Flowing from this observation, the further conclusion is that, the importance of the vehicles listed in Schedule 1 (both as a group and individually) varies among Caribbean OFCs.
Readers should additionally observe that, some of the vehicles used in money laundering, which were prominent a couple of decades ago are not so any more. A good example of this is a fake or fictitious bank account.
This has been since replaced by the direct capture of banks or other depository financial institutions and fictitious corporate vehicles by organised groups of money launderers.
Let us consider one of the listed vehicles in more detail: remittances. In these columns I have previously argued that, for Guyana to have enjoyed high rates of annual growth in remittances since 2007 (the year the global financial crisis erupted and the Great Recession started) has to have other explanations than growth in employment, income, and wealth in our diasporas whose members overwhelmingly live in North America, Europe and the Caribbean, the regions which were most adversely affected by these economic occurrences.
Offshore financial centres
In the majority of Caricom countries where tax evasion is the main driver of money laundering, these countries have evolved into fully fledged offshore financial centres (OFCs), and in almost all instances have also become known worldwide as attractive ‘tax havens.’
A wide range of enterprise structures operates in Caribbean OFCs. This variety has developed through time to accommodate to the requirements of those seeking their services.
This includes corporations (whether they are branch operations, affiliates, or special purpose vehicles); partnerships; trusts; foundations; private businesses; and individuals. The consequence is that, while on the one hand, individuals may concentrate on wealth and asset management services, insurance, securities trading, banking and the like; transport service corporations on the other hand, may be more interested in the ship and aircraft registry operations of Caribbean OFCs.
The leading types of financial services provided by OFCs are displayed below in Schedule 2. As can be seen some of these are easily understood from their descriptors: for example international banking, wealth management and insurance services. (As an aside, it should be noted that there has been remarkable recent innovation in all types of insurance services provided by Caribbean OFCs.) Some of the descriptors, however, such as structured finance and collective investment vehicles refer to more complex activities. Thus the range of collective investment vehicles is considerable, including: mutual funds, hedge funds, unit trusts, and joint ventures. Additionally it should be observed that some of the descriptors refer to real and not simply financial activity, as is in the cases of foreign direct investment (FDI), and ship and aircraft registration.
Schedule 2: Ten Leading Financial Services Offered by Caribbean OFCs
1. Collective Investment Vehicles
2. Asset holding and protection
3. Foreign Direct Investment (FDI)
4. Derivatives Trading
5. International Banking
6. Structured Finance
7. Insurance
8. Wealth Management
9. Headquarter Services
10. Ship and Aircraft Registration
Source: Author’s calculations
Next week I shall briefly explore the modern origins of OFCs and the explosive growth of modern money laundering associated with this development.
