Money Laundering Regulation – from Al Capone to Al Qaeda

Money laundering, bringing illicit proceeds from drugs, fraud, tax evasion, back into the legal economy, owes its name to Chicago gangster Al Capone. He literally used launderettes for disguising illegal alcohol revenues during the US prohibition in the 1930ies. Launderettes, when almost nobody had a washing machine, were ideally suited to slipping money from illegal alcohol sales into the cash register. But money laundering became a crime only in the late 1980ies. How then did it suddenly become a topic of major international concern and one which needed regulation? How can we explain that the scope of concern with money laundering expanded from drugs to terrorism and tax evasion?

Estimating the Money in the Dark

We are being cheated. Some of our tax money strangely disappears into the dark, but how much, where and how? How much money is laundered each year? How much tax money is evaded each year? It is impossible to measure things like money laundering and tax evasion, simply because they are by definition hidden in the dark by criminals. But what if we still want to analyze these phenomena? What if we want to know how big these problems are in order to test whether policies tackle the problem? We may not be able to measure these problems, but we can make an estimation.

Tools Against Financial Secrecy and Tax Havens

Over one trillion dollars is siphoned out of countries and into tax havens each year through illicit financial flows like tax dodging, money laundering and terrorist financing. That’s money being drained away from the hospitals, schools and social services in your neighborhood. And it’s all made possible by one of the world’s greatest enabler of inequality; financial secrecy.

Tax Spillovers

Across the world governments are missing out on billions of dollars, euros, pounds, yen and other currencies of tax revenues. In the EU alone I recently estimated that the annual loss of tax revenues as a result of illegal tax evasion is €825 billion and tax avoidance might add another €150 billion or more to that. That is almost a trillion euros! In many countries the loss is bigger than the national health budget. This is a big issue! So the question is what can be done about it?

Mapping Multinational Tax Avoidance

Tax havens are a mysterious phenomenon that seems almost like a magic trick: they are empty cups where money somehow disappears. But that doesn’t happen automatically – and it is not magic either. It can only happen because of the hands that know exactly how to fool your eyes.