Securities Markets Open to Money Laundering

It would be naïve to deny that there is significant money laundering through securities markets. There is simply too much money changing hands for a certain portion of it not to be dirty. Where there is money there will be money laundering.

 For example, British police have uncovered various schemes to launder money through the London Stock Exchange (LSE). The problem is certainly not limited to the LSE. The liquidity and relative lack of regulation on the United States Over-the-Counter Bulletin Board (“OTCBB”) has made it a prime target of money launderers. However, evidence to support the argument is based on no more than a handful of documented cases. We can extrapolate from those cases and conclude that the problem is enormous but there are no reliable statistics to support the conclusion.

After undertaking a study specifically intended to measure the problem, the International Organization of Securities Commissions (“IOSCO”) concluded “the consultations revealed few publicly reported instances of money laundering in securities and futures markets”. The Financial Action Task Force on Money Laundering (“FATF”) says: “There is good reason to suspect that money laundering may pose a substantial threat in derivatives and security markets,” yet offers scant evidence to support its conclusion. At the moment we have little more than suspicion, albeit a well-founded one.

 The sheer magnitude of transactions in securities markets and the ease of moving funds make the market an obvious target for dirty money. Unfortunately, because there is little to differentiate a routine transaction from one intended to launder money, securities industry professionals and regulators are blind to the problem. Law enforcement professionals, experts on countering money laundering in other areas, lack the necessary expertise to unravel schemes to launder money through securities transactions.