AML POLICY
While interpreting these statistics, it is imperative to remember that there are various
factors involved in investment decisions, and
the purpose here is to demonstrate investment patterns into jurisdictions rated high
risk in terms of money laundering as well
as into those with lower risk rating. A close
examination of Figure 2 demonstrates the
low number of FDI projects in higher risk
countries that have lax money laundering
regulations and controls. For example,
Antigua received no foreign investments
from 2003 to 2008. Bahamas received 7,
Cayman Islands received 3, Cuba 19, Dominican Republic 47, Equador 43, El Salvador 29,
Guyana 9, Iran 85, Kenya 67, Krgyzstan 19,
Liechteinstein 2, Zimbabwe 13, Yemen 22,
Uruguay 45, Syria 77 and Sri Lanka 59.
Note that these numbers are quite low
compared to inbound FDI projects in lower
risk countries that have higher political
stability and better international reputations.
Conclusion and policy implications
The overall examination of FDI trends and
studies in the literature on the relationship
between foreign investments and money
laundering reveals that investing acrossPM
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borders in transition economies has been
do not make economical sense or there is
evidence that the purpose of those investments is not to generate profits.
used for the purpose of concealing the
sources of illicit funds and facilitating the
entry of these funds into the financial system
but not necessarily to jurisdictions recognized as money laundering centers.
Among those, auditing of balance sheets,
income statements, statement of retained
earnings and statement of cash flows in line
with International Accounting Standards are
crucial. Verification of documentation and
invoicing associated with purchases of fixed
assets, prepaid expenses, real estate, insurance, employee payroll and utilities will be
necessary to confirm that the company is
investing for the purpose of profit generation. If the investment is in the form of
acquisitions of foreign entities, associated
documentation should be audited as well.
Finally, another countermeasure for those
companies investing in high risk jurisdictions includes enhanced scrutiny of ownership structure, shareholders and the board
of directors to mitigate risks associated with
these persons who are the ultimate controllers of the company, and who may possibly
be politically exposed persons.
Governments, regulators and international
regulations (for instance FATF typologies,
Wolfsberg Group, Basel Committee, etc.) have
countermeasures to detect and deter more
commonly known money laundering methods.
In the case of detecting and deterring money
laundering through foreign investments, more
enhanced scrutiny of these companies will be
required to accomplish this goal. One of the
most important due diligence requirements
would be auditing the financial statements of
companies whose choice of location does not
make economical sense.
The major determinants of FDIs such as
labor cost, the host country’s political
stability, cost of raw materials, profitability,
competitors’ decision, etc. are widely known
and are factors of common sense. Any investment decision that is unusual in nature or has
irrational motives may indicate the existence
of money laundering. Therefore, companies
from transition economies investing across
borders
Page 1 should be subject to enhanced scrutiny especially if the investment decisions
Vefa Buyukalpelli, CAMS, MA (Finance),
AML Investigations, Global AML FIU, Royal
Bank of Canada, Toronto, ON, Canada,
[email protected]
www.ACAMS.org
www.ACAMS.org/espanol
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