In recent ten years, the phenomenon of money laundering became a problem perceived by both theorists and practitioners especially those who are responsible for the financial security of economic turnover. In the era of globalization, this problem should not be limited only to seek regulatory solutions at national and international level. Progressive changes in economies require action to improve the detection efficiency gains transactions related to money laundering at the level of individual countries and their financial systems with regard to international relations. The problem should be taken as important especially in countries like Kazakhstan which has just opened their economy for foreign direct investments (FDI).
Kazakhstan – economy growing trend Kazakhstan is growing very fast and the changes that have taken place recently in its economy stimulated absorption of the capital into this market. makes Kazakhstan one of the most interesting markets for European Union Countries.
Kazakhstan is a Eurasian country, since 12% of the country lies in Europe and the remaining part of it is in Asia. Kazakhstan is a young state, which resulted from the disintegration of the Soviet Union in 1991. Kazakhstan has now become a very popular country recognizable by the companies on the investments‘ map, due to increasingly stronger position and wealth of the country. It is estimated that the GDP of Kazakhstan every year increases by approximately 5-7% and the sheer size of FDI only in 2013 amounted to 129 billion USD [1]. Many entrepreneurs forget about Kazakhstan, because Russia is the first on their mind when they are thinking about the East.
While Kazakhstan, next to Russia, has the highest income per capita among the Commonwealth of Independent States (CIS countries), it is characterized by increased domestic demand, as well as easy and fast access to the Russian market.
The rapid economic growth of Kazakhstan can be a great business for foreign investors, because the conditions that are offered by the government encourage to the increase of expenditure. Especially promises to turning the Republic of Kazakhstan into an economic power by the end of 2030 seems to be the most interesting from the perspective of foreign companies [2].
Rapid and significant profits make the direction very lucrative, but from the perspective of the young Kazakhstan there is a great threat to the security of the financial system. The problem seems to be the primarily high level of corruption and the risk of money laundering. In particular the problem of money laundering is a major threat to the further economic development of the Republic of Kazakhstan. The impact of these practices can have negative effects in a slowdown of GDP growth in the future. It is therefore important to already properly diagnose areas of the economy that have to be protect from practices of money laundering.
If Kazakhstan wants to carry out efficient processes of globalization it is necessary to eliminate this type of pathology of the financial system.
The impact of money laundering for the economy
Money laundering has a negative impact on the area of legal and social system, but above all it adversely affects the financial system. According to P. Quirk, legalization of money from illegal activity carries many risks for financial systems [3].
On the other hand, J. Strachan, S. Smith and W. Beedels in their studies show that money laundering and related consequences have a negative impact on the real economy and lead to negative changes noticeable by both the economy at micro and macro side. It seems reasonable to analyze the dangers of money laundering and the impact on the real economy and the entire financial sector in the Republic of Kazakhstan. A wider analysis of the direct impact will show the negative consequences of this practice, but now the implications are presented to illustrate the challenges which should meet the regulators. This requires, above all, efficient and effective detection, reporting and control of illegal transactions. This applies in particular to the police, treasury, courts, prosecutors offices‘ and departments of the Ministry of Finance. The estimates regarding the losses made by the individual national and international organizations show that problem exists. However, credible estimates of where several factors influence is difficult to define, and reporting systems of individual countries differ from each other. Many problems regarding money laundering have also social dimension and the ability to estimate the opportunity cost to society and the economy, as counting the cost of alternative solutions and their impact becomes, tangible only when it is expressed in monetary value [4]. The most important effects of money laundering are presented in Table 1.
As we can observe the list of negative effects is long. The first and most obvious problem arising from money laundering to the economy of country like Kazakhstan is the loss of the good image and reputation of the banking and financial institutions.
Most customers, in case of the information about the involvement of a bank or financial institution for money laundering, almost immediately decide to end the cooperation. Not only investors and the depositaries, but also borrowers are willing to give up, even with the best services available in the financial market. The mere suspicion of involvement in money laundering, can lead to the exclusion of the financial institution market. In order to maintain its reputation among other institutions, so far they decided to refrain from any business contacts, so as not to be in the circle of suspicion.
Loss of customers, investors and help of other financial institutions can lead to rapid loss of liquidity which ultimately results in a problem of insolvency and consequently into the fall. Status and position of each of the financial system depends on trust and perception of its participants. Revealed irregularities or fraudulent transactions may result in many investors‘ concerns arising from the increasing risk of loss of the invested money. Lack of transparency in the financial system and rapidly operating mechanisms evolve into a complete lack of confidence [5].
It should also be mentioned that the public financial system at the current stage development of investment in Kazakhstan depends also on the operation of the financial market system. Numerous institutions and public organizations entrust their money to the specialists who, through appropriate investment decisions tend not to earn as much as maintain the appropriate time value of money.
Another real problem in emerging economies is not only corrupt but also intimidated employees, that faced threats are ready to execute all commands criminals.. Often, employees execute suspicious transactions do not register border amounts and not notify such transactions and suspicious customers. Their actions can be dictated by their own benefits or intimidation on the part of interest groups seeking to accomplishment illegal process. Abuses made by staff are dangerous, because due to the presumption of innocence employees are more difficult to detect money laundering problem.
Money laundering has many negative effects on countries like Kazakhstan because even though it leads immediately into increase in consumption, investment and savings, in the long run may result in distorted prices and the destruction of fair competition.
Also regarding financial trading, money laundering can have negative effects in the form of an increased risk of insolvency and illiquidity of the financial sector. Additionally, this problem generates significant financial costs arising from the need to implement systems to prevent money laundering and opportunity costs as loss of reputation and customers. Money laundering can also interact indirectly on the economy contributing to the changes in GDP, inflation, instability of the financial system and the improper allocation of resources.
As we can see the problem of money laundering is much larger than it seems to be and must be prevented on many different levels and areas of the economy
The anti-money laundering systems – recommendation for each country
Technological advances that occurred in the last thirty years, causing numerous problems for the safety of the financial system. The previous point presents the danger of this title in countering money laundering and the opportunities in recent years have gained criminals. The government must find effective and sufficient solution, unfortunately modern technology not always have to be unfavourable for preventive action. . Skilful use of the possibilities offered by modern computer‘s systems and databases may prove crucial in the analysis of suspicious transactions [6]. Nevertheless, in order to gain an advantage over the technology used by criminals it is necessary that all the following conditions:
- constant investment in tools and technologies dedicated for AML;
- creating interstate database on the safety of the financial system with regard to the universality of software;
- cooperation with financial institutions regarding control authorities and entities involved in economic security;
full of originality and authorization of digital evidence.
It seems important to show all of the above, the fulfilment of which could lead to increased security of the financial system. The first and most important condition is to have the latest technology in the field of money laundering. All units involved in the state financial assistance should have access to more advanced technology than groups of international financial fraudsters.
Having the right tools is not everything, it is important that these tools allow cooperating all parties responsible for the safety of the financial system in each country. Especially such institution like police, Ministry of Finance and fiscal control authorities should cooperate together and fight against money laundering.
Money laundering and its negative impact on the economy shows that there are some loops in the law system. Implementing new technologies could help to secure financial trading and combat the adverse effects for the whole economy.
Due to the fact that foreign investments are being increased each year, it is important to understand the scale of problem. Adoption of legislative initiatives by the Republic of Kazakhstan will help to develop appropriate patterns of behaviour, which will take care on the specificity of economic and could make possible to achieve the highest economic growth in the future. The most important factor is to implement regulation and advanced technology as soon as possible.
List of references
- http://www.money.pl/gospodarka/wiadomosci/artykul/zwolnienie-z-podatku-i-zwrot- kosztow,108,0,1637740.html [reading: 04.2016].
- http://www.osce.org/astana/208281 [reading: 04.2016].
- Quirk, Macroeconomic Implications of Money Laundering, International Monetary Fund, Workig Paper 96/66, 1996.
- Dach (red.), Microeconomics, Economic Academy in Cracow, Cracow 1995, p.154.
- van Wijnbergen i N. Budina, Inflation Stabilization, Fiscal Deficits and Public Debt Management in Poland, Tinbergen Institute Discussion Papers 99/022/2.
- ACAMS & Ernst & Young, Introduction of the Global AML Insights Series, ACAMS & Ernst & Young