Money Laundering, Financial Fraud, and Technology: The Perils of an Instantaneous Economy (1992)

I. INTRODUCTION The interplay between technology and makes crossborder transactions possible in a matter of seconds and reinforces the significance of the often repeated maxim: time is money. This is clearly the case for the millions of people who make daily use of automated teller machines (ATMs), computer checkout machines at grocery stores, and electronic wire transfers. Corporate and individual record keeping is now done by computer. Credit checks on eager consumers can be conducted within a minute. While these areas of low finance increasingly are becoming part of the texture of daily life in large parts of North America, Europe, and Asia, finance, such as the packaging of derivatives(1) for specific corporate customers, also is assisted by a computer program that charts out the intricate bundle of interest and principal payment options and schedules. This phenomenon of blending and technology and the shift to an almost instantaneous payments system is global in nature. It is a dynamic force in shaping economic activities in the 1990s, especially considering the efforts of many developing countries to reopen or, in the case of the former Eastern bloc, to open their economies to trade and commerce with the outside world.(2) While the trends of economic liberalization and technological advancement are complementary, they also carry a significant peril. The very nature of open economies, growing interdependence, and the sheer instantaneity of financial transactions can be, and is being, abused by those who intentionally seek to conceal the source of their earnings.(3) For those who conduct serious crimes, such as drug trafficking, arms smuggling, and terrorism, technological breakthroughs offer more sophisticated variations of the traditional means to launder ill-gotten proceeds. Added to these are other abuses, including credit card fraud and insider trading. Efforts made during the mid-1980s to deal with the problem of transnational drug trafficking stimulated the creation of an international anti-money laundering legal regime(4) based on the premise that attacking the profits of such activities is the best strategy against large, multinational criminal organizations.(5) Enactment of the money laundering provisions in the 1986 and 1988 Anti-Drug Abuse Acts(6) and section 6501 of the Internal Revenue Code(7) in the United States laid foundations for an international anti-money laundering legal regime. The international anti-money laundering legal regime then gained momentum through such international agreements as the 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (U.N. Drug Convention).(8) Another important cornerstone in the international antimoney laundering legal regime was the creation of the Financial Action Task Force on Money Laundering (FATF) at the 1989 and 1990 Economic Summits of the Group of Seven Leading Economic (G-7) countries.(9) This body of countries sought to establish a global consensus on legislative and regulatory actions to curb the flow of drug proceeds through both banking and nonbanking financial institutions.(10) In April 1990, the FATF, by then expanded to fifteen participating financial center countries,(11) released a ground-breaking report containing forty recommendations that paralleled the U.N. Drug Convention(12) and established high international standards for legislative and regulatory actions to control money laundering.(13) By the early 1990s, a greater number of nations embraced the need to enact laws that criminalize money laundering for drug trafficking as well as for the proceeds from other serious crimes.(14) While the movement to an international anti-money laundering legal regime is a positive trend in confronting trans-national crime, new money laundering problems resulting from technological developments potentially jeopardize the gains that have been made. …