International banks and the washing of dirty money: The economics of money laundering

Kent Matthews* 1 INTRODUCTION The chapters in this book are devoted to issues in banking. By this stage it should be clear to the reader that the nature of banking from its earliest conception of taking in deposits and making loans has altered beyond simple description. The modern bank is a multifaceted financial institution, staffed by multiskilled personnel conducting multitask operations ranging from retail business to corporate business, personal banking to syndicated, and balance sheet to off-balance sheet operations. The modern bank has had to re-engineer in the face of growing competition from the non-bank financial institutions, and fast-moving communication technology. In response, banks have merged, restructured, downsized, and increased productivity by investing in information technology (IT)-driven methods. However, the banking sectors face a further threat from two sources. First, banks have become an important conduit in the process of ‘money laundering’. Money laundering (ML) raises the danger that a bank’s reputation could be unintentionally harmed by the activities of some of its clients. Second, banks face the threat of prosecution from the law enforcement agencies for not reporting suspicious financial transactions to the supervisory authorities. In the last decade of the twentieth century, the banks have been forced to tread a fine line between confidentiality - a term that is synonymous with banking - and reputational and legal considerations. The term ‘money laundering’ conjures up pictures of seedy individuals, mob bosses, Colombian drug barons and Russian mafiosi, in the process of disguising the proceeds of their….