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Keeping an eye on the washing machine

Money laundering is a US $1.5 to 2 trillion business per year. According to IMF estimates, this accounts from about 2 and 5 percent of global gross domestic product (GDP). Using the same methodology in Latin America and the Caribbean, money-laundering transactions are roughly estimated somewhere between 2.5 and 6.3 percent of the regional GDP, according to a recent study by IDB economist Alberto Chong.

This not only means tax revenue lost. Money laundering, Chong said, distorts economies and produces instability. In addition, it undermines the private sector and may even push it away from certain industries, since front companies have advantage over legitimate firms. Chong also pointed out how money laundering jeopardizes integrity of financial markets as well as countries’ reputations.

The World Economic Forum estimates that Latin America is perhaps the most active emerging region with money laundering through both bank and non-banks channels. WEF figures show several levels of money laundering  among different countries in the region. Chong’s study also finds that the larger the size of the underground economy and the lower the quality of corporate governance, the more pervasive money laundering is. A more stable financial system and solid institutions make life difficult for money launderers.

In order to fight money laundering, financial systems need to be strengthened on prevention and enforcement through multilateral cooperation. Some of this has already happened. Some Latin American countries have made strides to comply with 40 recommendations by the Financial Action Task Force (FATF), an intergovernmental body whose purpose is to develop and promote policies at the national and international level to combat money laundering. Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Paraguay, Peru and Uruguay are compliant with most key money laundering FATF recommendations.

In addition, multilateral organizations have begun work on strengthening financial supervision, training, and technical assistance in order to better prevent and monitor money laundering. These programs seek to create legal sanctions against money laundering and improve enforcement capabilities.

In most cases, multilaterals work with partner organizations specializing on the issue. The IDB has partnered with the Organization of American States’ drug commission (CICAD) and CICAD’s work against money laundering initiative.

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