International money laundering, part 2 of 2

The role of the U.S.

By Alani Mundie, CFE


JulyAug-money-laundering-us-fixed International money laundering has become a key tool in facilitating the growing prevalence of human trafficking. The author outlines how the U.S. has entered the fray and the challenges facing it and the international community.  

The National Human Trafficking Resource Center (NHTRC) received an anonymous call from a young woman, offering information about a suspicious massage parlor. She reported that six Thai nationals, all around 18 years old, were forced to live and engage in prostitution at a commercial-front brothel in a strip mall. She said that an older woman named Thip lured the teenagers with promises of legitimate jobs. After they started working, Thip threatened to have them deported and kill their families in Thailand if they tried to quit. The caller provided the phone number for the massage parlor, but because she was afraid that someone might find out she had called, she opted not to provide additional information.
The NHTRC reported the situation to a local human trafficking task force, which matched the phone number the caller provided with a number from an online advertisement for erotic massages. An undercover officer was sent inside the massage parlor and arranged to pay $80 in exchange for sex. Once the arrangement was made, police raided the establishment and found buckets of condoms, hidden security cameras and five trafficking victims, including the anonymous caller. Thip was arrested and charged with involuntary servitude, human trafficking and pandering. She ultimately pled guilty and received a lengthy prison sentence.

This actual case, from the Polaris Project (an entity that works to end human trafficking) had a relatively positive ending because law enforcement caught the perpetrator. However, it doesn't end that well for most of the thousands of people trafficked into the U.S. 

Part 1 of this article in the May/June issue focused on the global
 impact of the relationship between international money laundering and human trafficking, including: 1) the perpetration, costs and trends of money laundering and human trafficking offenses; 2) the efforts of the Financial Action Task Force (FATF), United Nations Office on Drugs and Crime (UNODC) and Interpol, in combating these crimes and 3) its impact on the U.S. and its financial systems.  

Part 2 focuses on: 1) U.S. participation in the international institutions listed previously to detect and deter these insidious crimes, and U.S. policy compliance with global money laundering and human trafficking standards, and 2) the challenges that international cooperation, lack of global awareness and low prosecution rates present for future policymakers to curtail these crimes. 

The U.S. is a member of both the FATF and U.N. and is one of the 140 signatory participants of the Conference of States Parties of the United Nations Convention against Transnational Organized Crime, the global initiative to fight human trafficking. The U.S. signed the treaty on Dec. 9, 2003 and ratified it on Oct. 30, 2006. 


U.S. federal laws are consistent with international standards for money laundering. In response to the 9/11 terrorist attacks, President George W. Bush signed the USA PATRIOT Act to curtail the financing of terrorist activities through money-laundering schemes. Title III of the act, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, mandates financial institutions to comply with a series of anti-laundering measures including but not limited to the implementation of anti-money laundering (AML) programs and transparent financial reporting.

However, not all U.S. state laws are consistent with the federal mandate. Delaware, for example, has lax corporate tax laws that make it a de facto tax haven. This is because Delaware corporations can be used to hold assets in the U.S. with an effective tax rate of zero, as long as the majority of directors (not shareholders) are non-U.S. persons. (Read Beat Guldimann's Sept. 7, 2010, article, "Biden's Delaware: Making Swiss Banking Look Hyper-Clean," in The Globalist.) 

Furthermore, Delaware allows the registration of limited liability companies without the disclosure of their actual owners. This is where Delaware starts countering the AML standards set forth by not only the PATRIOT Act but also by the FATF. Critics argue that the U.S. needs to close these loopholes if it wishes to be taken seriously as a global leader of financial transparency.

The opportunity for individuals to register limited liability companies in Delaware without the disclosure of their actual owners eases the ability for anyone to launder illicit funds. This opportunity is enhanced by the Tax Justice Network's recent labeling of Delaware as "the most secretive financial jurisdiction in the world," based on an analysis of 60 financial jurisdictions and their levels of secrecy and cooperation with foreign tax authorities. 

The same study showed that the U.S. growth of private individual deposits by non-residents in 2007 was more robust than other popular financial jurisdictions such as the Cayman Islands, the U.K. and Luxembourg. In 2007, the total non-resident deposits in the U.S. equaled $2.6 trillion. (See Arthur Delaney's Nov. 1, 2009, article, "USA Tops International Tax Haven List, Thanks To Delaware," in The Huffington Post.)

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