When we talk about money laundering, all attention is placed on the financial institutions as being the most vulnerable to this practice or activity. As the world keeps evolving, there has been so many vulnerable avenues to launder money and religious bodies (churches and mosques) are no exception.
Money laundering involves taking criminal proceeds and disguising their illegal source in anticipation of ultimately using the criminal proceeds to perform legal and illegal activities.
The United Nations 2000 Convention Against Transnational Organized Crime, also known as the “Palermo Convention,” defines money laundering as:
- The conversion or transfer of property, knowing it is derived from a criminal offense, for the purpose of concealing or disguising its illicit origin or of assisting any person who is involved in the commission of the crime to evade the legal consequences of his actions.
- The concealment or disguising of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property knowing that it is derived from a criminal offense.
- The acquisition, possession or use of property, knowing at the time of its receipt that it was derived from a criminal offense or from participation in a crime.
One important concept in the definition of money laundering is “knowledge.” In all three definitions above, we see the phrase “…knowing that it is derived from a criminal offense.” Generally, a broad explanation of “knowledge” is used for the definition of money laundering.
Simply put, money laundering is the process of making dirty money look clean.
We should note that for Money Laundering to exist and/or carried out, there should be a crime or a predicate offense.
Money laundering activities go through three major stages which are the placement, layering and integration stages.
The placement stage is the stage where money sourced from illegal activities is first “placed” into the financial system to be used as clean money. At this stage, the church can be used to advance the course of Money Laundering as Christians and/or church goers who have engaged in criminal activities can give offerings, pledges, tithes, building project contribution, seed sowing and special offerings with the illegally acquired funds.
These illegal funds received by the churches will be co-mingled with genuine fund and deposited into the bank account of the church as normal church activity money. Some pastors or church leaders can easily add their illegally acquired money to the donations and other offerings from church members and deposit the money in their bank accounts. When asked by their “curious” bank because of the unusual huge deposit, they will then say the money is from special offerings from the church. The church leader would have used the church as a means to launder the money.
At the layering stage, the illegally acquired money is separated from their source by layers of financial transactions intended to conceal the origin of the proceeds. This second stage involves converting the proceeds of the crime into another form and creating complex layers of financial transactions to disguise the audit trail, source and ownership of funds.
The integration stage is where apparent legitimacy is given to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transaction. This stage entails using laundered proceeds in seemingly normal transactions to create the perception of legitimacy. The launderer, for instance, might choose to invest the funds in real estate, financial ventures or luxury assets. By the integration stage, it is exceedingly difficult to distinguish between legal and illegal wealth.
Money laundering possess serious negative effects on the economy of a country, businesses (including religious organizations) and individuals. It can have potentially devastating economic, security and social consequences and these includes:
High rate of crime and corruption. When the world perceives a country as a haven for money laundering, it attracts criminals and terrorist financiers into the country. It also breeds bribery and corruption to enable the criminals to carry on criminal activities.
High reputational risk. A country perceived to be as a money laundering haven could cause negative effects for development and economic growth in that country which could block direct investment in the country. Also if a church is perceived to be encouraging the activities of money laundering, nobody, including financial institution will want to do business with it.
There will be weakening financial institutions as the soundness of the financial sector would be affected. Indeed, criminal activities have been associated with a number of bank failures around the globe, including the failure of the first Internet bank, the European Union Bank, as well as Riggs Bank.
Loss of tax revenue. Tax evasion is a criminal activities which contribute to revenue loss to the country. It also diminishes government tax revenue and, therefore, indirectly harms honest taxpayers.
Criminals can outbid legitimate purchasers for formerly state-owned enterprises because they have the funds. Furthermore, while privatization initiatives are often economically beneficial, they can also serve as a vehicle (washing machines) to launder funds.
Some church leaders are using the church to acquire worth for themselves without paying any tax to the government. Some church leaders are have reality shows and move around the world to delivery motivational and inspirational messages, all in the name of church activity, and avoid the payment of taxes. But professionals who delivery the same motivational and inspirational messages are taxed by the government.
Another way the church could be used for money laundering activities is when the criminal who is a church member gives a loan to the church for the construction of a church building. The church then pays off the loan by issuing a cheque to the church member. The cheque will then find itself in the financial system as clean money.
Churches with international affiliation could also fuel the money laundering activities. Funds acquired through illegal means could be smuggled across borders to other countries where they have sister churches. The foreign church will either transfer the money back through their bank to the local church or use the funds in its country. When this happens the money has been washed to look clean.
The church can help fight the money laundering menace by doing a “KYC” on their members. That is, the church should be able to know the job their members do, how they get their money and also try to visit their members at their homes and offices. This will help build a close relationship among their members.
Also the church should encourage church members to use electronic means or cheque to pay for their pledges, tithes, building project contribution, seed sowing and special offerings. In short the church should discourage the use of physical cash.
From time to time, the church authorities should engage the services of an expert in Money Laundering matters to create the awareness on the subject matter for the church members.
Money Laundering and Terrorist Financing are now becoming a serious problem for countries especially countries from the African and Caribbean region, as the lending of grants and loans to these countries are subject to the implementation of the FATF (Financial Action Task Force) 40 recommendations. So we all have stake in the fight of money laundering and terrorist financing.
By Richieson Gyeni-Boateng, ACAMS, FCCA, MBA, BSc.