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 have 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 Organised Crime, also known as the ‘Palermo Convention’, defines money laundering as:
- The conversion or transfer of property, knowing it is derived from a criminal offence, 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 offence.
- 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 be carried out, there must be a crime or predicate offence.
Money laundering activities go through three major stages, which are the placement, layering and integration stages.
The placement stage is the one when 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 comingled with genuine funds and deposited into the church’s bank account 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 unusually huge deposit, they will then say the money comes from special offerings to the church. The church leader will have used the church as a means to launder the money.
At the layering stage, the illegally acquired money is separated from its source by layers of financial transactions intended to conceal the origin of proceeds. This second stage involves converting 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 when apparent legitimacy is given to illicit wealth through re-entry of the funds into the economy, in what appears to be normal business or personal transactions. 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 imposes serious negative effects on the economy of a country, businesses (including religious organisations) and individuals. It can have potentially devastating economic, security and social consequences, and these include:
a/ A 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 that enables the criminals to carry on criminal activities.
b/ 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, as it could block direct investment into the country.
Also, if a church is perceived to be encouraging the activities of money laundering, nobody – including financial institutions – will want to do business with it.
There would be weakening of financial institutions, as 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.
c/ Loss of tax revenue. Tax evasion is a criminal activity that contributes to the country’s revenue loss. 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 privatisation initiatives are often economically beneficial, they can also serve as a vehicle (washing machine) to launder funds.
Some church leaders are using the church to acquire wealth for themselves without paying any taxes to government. Some church leaders have reality shows and move around the world to deliver motivational and inspirational messages – all in the name of church activity – and avoid the payment of taxes. However, professionals who delivery the same motivational and inspirational messages are taxed by government.
Another way the church can be used for money laundering activities is when the criminal who is a church-member gives a loan to the church for 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 affiliations can also fuel money laundering activities. Funds acquired through illegal means can be smuggled across borders to other countries where they have sister-churches. The foreign church will either transfer the money back through its bank to the local church, or use the funds in its country. When this happens, the money has been washed to look clean.
The churches can help fight the money laundering menace by doing a ‘KYC’ on their members. That is, the churches should be able to know what 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 churches should encourage members to use electronic means or cheques to pay for their pledges, tithes, building project contributions, seed-sowing and special offerings. In short, the church should discourage the use of physical cash.
From time to time, church authorities should engage the services of an expert in Money Laundering matters to create awareness on the subject matter for their members.
Money Laundering and Terrorist Financing are now becoming a serious problem for countries, especially those in the African and Caribbean region – as the provision of grants and loans to these countries are subject to implementation of the FATF (Financial Action Task Force) 40 recommendations. So, we all have stake in the fight against money laundering and terrorist financing.