Many recent reports refer to the total amount of money laundering in the world, with wild and often unsupported estimates. For example, a September 2018 CD Howe research paper titled “Hidden Beneficial Ownership and Control: Canada as a Pawn in the Global Game of Money Laundering” (with the conclusion “with increasing concern about tax evasion, corruption, money laundering, the use of shell companies and offshore legal arrangements, it is time for a central publicly accessible registry to unmask the beneficial owners of corporations and certain trusts.”) found that “official estimates of money laundering in Canada range from $5 billion to $100 billion.” That is quite a range (imagine if a prospective employer offered to pay you between $50,000 and $1 million a year)! https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/Final%20for%20advance%20release%20Commentary_519.pdf
Other reports use statements like “over $1 trillion is laundered globally every year, and less than one per cent is seized.” Where do these numbers come from? Are they accurate? Even if they’re not accurate, can they be useful, if used responsibly?
The first question can be answered simply: both of those numbers come from the same United Nations Office of Drug Control report issued in October 2011 titled “Estimating illicit financial flows resulting from drug trafficking and other transnational organized crimes.” The report is available at https://www.unodc.org/documents/data-and-analysis/Studies/Illicit_financial_flows_2011_web.pdf.
As to the second question: are the numbers accurate? The authors do warn in the preface of the report that “the final monetary estimates are to be treated with caution. Further research and more systematic collection of data on this topic are clearly required.” And the various estimates of total criminal proceeds, criminal proceeds available for laundering, and transnational criminal organization proceeds laundered through the financial system, are all given in broad ranges. And the estimate of the amount seized by law enforcement – “less than one per cent” – is both accurate and inaccurate: the report actually provides that “globally, it appears that much less than 1% (probably around 0.2%) of the proceeds of crime laundered via the financial system are seized and frozen”. So yes, 0.2% is “less than 1%”, but it isn’t an impressive number either way.
As to the third question: even if they’re not accurate, can they be useful, if used responsibly? In my opinion, yes. Whether the amount laundered through the global financial system is $1,000,000,000,000 or $2,000,000,000,000 ($1 trillion or $2 trillion),
The report refers to a number of earlier reports, but four deserve a mention. The first was a paper written by John Walker: “Estimates of the Extent of Money Laundering in and through Australia” (1995). The second was a 1998 IMF report that provided a “consensus range” of the total amount of criminal proceeds as 2% to 5% of global GDP. The third was a paper written by a British academic, Brigette Unger, “The Scale and Impact of Money Laundering”. The fourth was a paper written by the aforesaid Walker and Unger, “Measuring Global Money Laundering: The Walker Gravity Model” (2009). Note that with the 2011 UNODC report, there has been nothing of consequence in almost eight years.
The Preface to the UNODC Report is useful. It provides:
“‘Always follow the money’ has been sound advice in law enforcement and political circles for decades. Nevertheless, tracking the flows of illicit funds generated by drug trafficking and organized crime and analysing the magnitude and the extent to which these are laundered through the world’s financial systems remain daunting tasks … As with all such reports, however, the final monetary estimates are to be treated with caution. Further research and more systematic collection of data on this topic are clearly required. Prior to this report, perhaps the most widely quoted figure for the extent of money-laundering was the IMF’s ‘consensus range’ of between 2-5 per cent of global GDP, made public in 1998. A study-of-studies, or meta analysis, conducted for the 2011 report, suggests that all criminal proceeds are likely to have amounted to some 3.6 per cent of GDP (2.3 – 5.5 per cent) or around US$2.1 trillion in 2009. The resulting best estimate of the amounts available for money-laundering would be within the IMF’s original ‘consensus range’, equivalent to some 2.7 per cent of global GDP (2.1 – 4 per cent) or US$1.6 trillion in 2009. From this figure, money flows related to transnational organized crime activities represent the equivalent of some 1.5 per cent of global GDP, 70 per cent of which would have been available for laundering through the financial system.
…..
Less than 1 per cent of global illicit financial flows are currently seized and frozen. UNODC’s challenge is to work within the UN system and with Member States to help build the capacity to track and prevent money laundering, strengthen the rule of law and prevent these funds from creating further suffering.”
The ranges can be summarized as follows:
Consensus Range Percentage USD (2009)
All Criminal Proceeds → 2.3% – 5.5% 3.6% global GDP $2.1 trillion
Proceeds available for
money laundering → 2.1% – 4.0% 2.7% global GDP $1.6 trillion
Transnational organized
crime (TOC) proceeds → 1.5% global GDP $870 billion
TOC proceeds laundered
through financial system → ~1% gobal lGDP $580 billion
That 1998 speech is important. Then-Managing Director of the International Monetary Fund (IMF) Michel Camdessus gave an address on February 4, 1998 at the FATF Plenary titled “Money Laundering: the Importance of International Countermeasures”. In it he stated, “While we cannot guarantee the accuracy of our figures – and you have certainly a better evaluation than us – the estimates of the present scale of money laundering transactions are almost beyond imagination – 2 to 5 percent of global GDP would probably be a consensus range.”
My research hasn’t (yet) found those “figures” he refers to.
Page 7 of the report provides some detail on the phrase “less than 1 per cent of global illicit financial flows are currently seized and frozen: “The results also suggest that the ‘interception rate’ for anti-money-laundering efforts at the global level remains low. Globally, it appears that much less than 1% (probably around 0.2%) of the proceeds of crime laundered via the financial system are seized and frozen.”
What about this now-accepted “consensus range” for the extent of money laundering of between 2% and 5% of global GDP? Page 9 offers an interesting observation on that consensus range: “The data suggest that the best estimates are situated at the lower end of the range. But this is to some extent a question of methodology. If tax- and customs-related money-laundering activities were included in the calculation, results would move towards – and perhaps exceed – the upper end of the ‘consensus range’. On the other hand, if only transnational crime-related proceeds were considered, the available estimates for laundering would fall to levels around 1% of GDP, and thus below the ‘consensus range’.” Note that global GDP is ~$75 trillion.
This is not to say that the report lacks rigor. The authors and contributors did a remarkable, and remarkably detailed, study; the results of which deserve to be used as benchmarks for the ongoing fight against global money laundering. An example of that rigor can be found in the sections that describe the methodologies used, including (at pages 16 and 17), the “dynamic multiple-indicators multiple-causes’ (DYMIMIC) model, which uses two sets of observable variables and links them as a proxy to the unobservable variable (the extent of money-laundering).”
The result? It remains fair to say that more than one trillion dollars is laundered every year, most of that flows through the global financial system, and less than one-quarter of one per cent of the proceeds of crime laundered via the financial system is seized and frozen. We must do better.