draining development.pdf - Khazar University

Illicit Capital Flows and Money Laundering in Colombia 147This particular situation is reflected in Colombian AML policy andlaws (UIAF 2008). Indeed, in recent decades, the regulatory frameworkhas focused on three dimensions of the effort to combat money launderingin Colombia: the administrative control of financial transactions,the penalization of money laundering and illicit enrichment asseparate offenses, and the development of comprehensive asset forfeiturelegislation. In this context, financial entities are responsible foradopting adequate and sufficient control measures to avoid being usedas instruments for concealing, handling, investing, and, in any otherway, using funds or other assets originating from criminal activities orto give an appearance of legitimacy to criminal activities or transactionsand funds related to such activities. Colombia has also criminalized thelaundering of the proceeds of extortion, illicit enrichment, rebellion,narcotics trafficking, arms trafficking, crimes against the financial systemor public administration, and criminal conspiracy (Law 365 of1997). Additionally, Colom bian law provides for both conviction-basedand nonconviction-based in rem forfeiture.The academic literature on illicit money flows in Colombia has alsofocused on illicit inflows, particularly on the macroeconomic effects ofthese inflows, and has disregarded illicit outflows (Steiner 1997; Rocha2000, 2005).This situation raises a question, however: why do Colombian recipientsof illicit funds have little or no incentive to send or maintain thefunds abroad? The answer is quite simple: in Colombia, despite some ofthe most advanced AML legislation in the world, there are no real obstaclesto invest or spend illegal revenue. Institutional weaknesses haveimpeded the adequate implementation and enforcement of the AMLlaws, and the power of the paramilitary, guerrillas, and drug traffickingorganizations, particularly at the local level in many regions, and the gapbetween formal norms and culturally accepted informal norms haveshaped an extralegal economy that is immune to traditional mechanismsfor combating illegal economic activities.More precisely, in the case of corruption and illegal drug income, thedecision on where to invest the illicit revenues depends on the social andcriminal networks in which the lawbreaker participates. For example, acorrupt official who is not part of a criminal network and receives a largesum would be tempted to deposit the sum in an offshore center. However,