Unpacking the laundry machine: Why are debt instruments easy laundry devices?

• Jurisdiction: South Africa
• Published date: 24 May 2019
• Pages: 84-112
• Citation: (2018) 31 SACJ 84
• Date: 24 May 2019
• Author: Paul Nkoane

Unpacking the laundry machine:

Why are debt instruments easy

laundry devices?

PAUL NKOANE*

ABSTRACT

Money laundering is a cri me that comes in all shapes a nd sizes. It is by its

very nature a cri me crafted for speci c needs and goals. The mag nitude of

laundering would hinge on the amou nt of money that needs launderi ng.

Where crimi nals generate huge sums of i llicit money, the bigger the

‘laundry machi ne’ that would be required, a nd where moderate amounts

are generated, the average ‘laundr y machine’ would be requi red, so to

speak. Thus moderate amo unts would be laundered with tech niques that

would sufce to realise t he object. Where a cri minal enter prise generates

modest amounts it is un likely that offshore companies would be s et up

for laundering. Techniques that are relatively obscu re, but equally effective

may be adopted. In this re spect, the art icle seeks to explore the use of debt

as a possible vehicle for money laundering.

1 Introduction

There can, of course, never be clean illegal dr ug money or clean money

proceeding from extortion, bribe ry or corruption. Exposi ng illegally

obtained currency to po ssible detection and forfeiture would defeat

the very purpose and motivation for the commi ssion of an offence,

i.e. to enjoy illicit proceeds. Criminal s generating amounts of cash

that may arouse suspicion if freely spent would rather disgui se such

funds in ways that are obscure, i n legal terms they’ll rather have their

ill-gotten gains ‘l aundered’. In truth, the money is not ‘laundered’ in

the true sense of the word but it is conditioned to be readily usable

in the mainstrea m economy.1 The concept of money laundering is

conceived from the notion that criminal s would adopt a variety of

methodologies to ‘lter’ money owing from illicit activities, r ather

than expose these proceeds to detect ion and forfeiture. This typ e of

criminal d isorder has roused moral panic in m any jurisdictions. The

plague of money laundering has not only troubled many domestic

* BComm LLB (Uni sa).

1 Illicit money, in trut h, remains il licit but because th e money is masked to seem

clean it becomes freely u sable in the mainstream economy. The word ‘launder ed’ in

terms of money launder ing describe s dirty money t hat is conditioned for usa ge in

the mainstr eam commerce withou t the prospect of forfeit ure.

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(2018) 31 SACJ 84

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authorities but it has become a global phenomenon where criminals

adopt inter-jurisdictional m anoeuvres to neutralise civil and cr iminal

forfeit ures. 2

In the same vein, law-makers often attempt to stay abreast with

the ever-changing and complex schemes employed to launder

money emanating from a wide range of law infr actions. Numerous

jurisdictions pri marily resort to st atute to counteract and adequately

deal with money laundering.3 Although machiner y encompassed

in legislation may prove sufcient in curtai ling a myriad of money

laundering schemes, it is doubtful that t he legal agencies created in

most statutes can satisfactori ly combat all forms of money laundering.4

The more complex the anti-money laundering machiner y becomes,

the more multifaceted the form of money laundering is likely to be

orchestrated.5 In some cases a simple ‘legitimate’ busi ness transaction

may prove efcient in laundering proceeds of unlawf ul activities.

In such a case it might be hugely problematic for law enforcement

authorities to properly track and identify il legally gained proceeds.

Even if such money is adequately identied it might be difcu lt to

conscate it from an instit ution which conducted its business to the

letter of the law, particularly if the propert y was used to consummate

a quid pro quo t ransaction. This a rticle seeks to investigate whether

other nancial inst ruments could be used to accomplish money

laundering, where the crime may take atypical for ms.

2 LA Barbot ‘Money lau ndering: An intern ational challenge’ (1994) 3 Tulane J Internat’l

& Comp Law 161; P Alldridge ‘Money laund ering and globalization’ (2008) 35 JLaw

& Soc’y 437 and D Lute scu and C Bucur ‘Money laund ering – An inter national

phenomenon’ 2008 AGOR A Int’l Journal of Juridical Science 15 4.

3 South Afric a: Financial Intel ligence Centre Act 38 of 2 001 (FICA) and Prevention

of Organised Cr ime Act 121 of 1998 (POCA); USA: Money L aundering Contr ol Act

of 1986 and Bank Secre cy Act of 1970 (both enh anced by the Patriot Act 2 001);

Uganda: Anti– Money Laundering Act 2013; United K ingdom: The Money Laundering

Regulations 20 07; Mauritius: T he Financial Intelligence and Anti -Money Laundering

Act 2002; India: P revention of Money Launder ing Act 2002; Jama ica: The Money

Laundering Act.

4 United States v Mend enhall 446 U.S. 54 4 (1980) 561-2: ‘Much of the drug trafc is

highly organi zed and conducted by sophis ticated crim inal syndicat es. The prots

are enormous .... As a result, t he obstacles to detec tion of illegal conduc t may be

unmatched in any ot her area of law enforcement’.

See further F Ba ldwin ‘Money launderi ng and wire tran sfers. When the new

regulations ta ke effect wil l they help?’ (1996) 14 Dickinson J Int’l L aw 413.

5 N Clark ‘The impac t of recent money launderi ng legislation on na ncial

intermediar ies’ (1996) 14 Dickinson J Int’l Law 467 at 470: ‘there is a vicious

circle in [tighteni ng money laundering legi slation] stringent legi slation enabling

asset forfeiture me rely makes it necessar y for the crimi nal to launder his mon ey

more effectively (to hide those as sets) which, in tur n, requires fu rther anti-m oney

laundering legislat ion’.

Unpacking the laundry machine: Why are debt

instruments easy laundry devices? 85

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