Money Laundering, Financial Transparency, and Human Rights

Atefeh Shahsavari

PhD Student in Political sociology, Razi University

Introduction

Money laundering is a process through which the proceeds of illegal activities—such as human trafficking, terrorism, corruption, and drug trafficking—are concealed in a way that makes them appear legitimate. This phenomenon is not merely an economic crime; it is directly linked to human rights violations, as illegal revenues are often generated through the exploitation of vulnerable individuals. Financial transparency, as a mechanism for revealing financial flows, can play a key role in preventing money laundering and, consequently, protecting human rights. However, anti–money laundering (AML) regulations can at times negatively affect civic space and human rights. This paper examines these interconnections.

Definition of Money Laundering

Money laundering refers to conducting financial transactions aimed at “legitimizing” illicit assets by obscuring their origin and destination, thereby enabling criminals to use those assets safely. Criminal activities such as trafficking, drug trade, and fraud—along with more concealed crimes such as corruption, bribery, and insider trading—can generate substantial assets for perpetrators.

Generally, a typical money laundering scheme consists of three essential stages:

1. Placement,
2. Layering, and
3. Integration.

In the placement stage, individuals introduce their illegal funds into the financial system by opening multiple bank accounts or purchasing financial instruments such as checks and money orders. The layering stage consists of a series of complex financial transactions aimed at obscuring the original source of the funds, including repeated buying and selling of financial instruments and the use of bank accounts across different countries to transfer funds through international remittances. The purpose of this stage is to create confusion in the trail of transactions and make tracing the initial source of the money more difficult.

In the integration stage, after passing through earlier phases and undergoing multiple processing cycles, the funds re-enter the legitimate economy and acquire a lawful appearance—for example, through the purchase of real estate, luxury goods, or commercial investments (Liu, 2025: 1814).

Money Laundering and Human Rights Violations

Money laundering is not only an economic crime but also a human rights issue. The only way criminals such as traffickers and terrorists generate money is through exploiting and harming their victims—treating them as property, selling them into illegal labor or sexual markets, or killing, torturing, and stealing from them. The wealth that such networks produce constitutes money derived from systematic human rights violations. Laundering their proceeds absolves criminals of their offenses and implicates governments, banks, and financial institutions in the underlying human rights abuses.

Allowing human traffickers and drug cartels to launder money enables organized criminals to continue perpetuating these abuses. Those most affected by perpetrators who steal public funds from positions of power include Indigenous populations, economically and racially marginalized communities, and children. Efforts to combat money laundering must therefore be coherently linked to broader initiatives addressing human trafficking, terrorism, drug trafficking, and other international and transnational crimes, as well as their associated human rights violations.

It must be noted that human rights and international financial integrity are closely interconnected. Poverty increases when money is illicitly transferred out of countries rather than being invested in the essential needs of their populations. While these issues may appear unrelated, the common thread that links cash flows derived from crime, corruption, and tax evasion is the need for a global shadow financial system that facilitates such transactions (Ganesan, 2010).

Illicit financial flows (IFFs)—including corruption and money laundering—have a significant negative impact on the enjoyment of human rights. Combating illicit financial flows is an integral part of the 2030 Agenda for Sustainable Development. Sustainable Development Goal 16 explicitly articulates the relationship between the rule of law, social security, and efforts to curb illicit financial flows. IFFs are understood as an urgent international problem that threatens the rule of law, the protection of human rights, and ultimately human dignity and human security. As such, combating illicit financial flows has become a global cause.

States’ obligations to fight IFFs derive from legal instruments related to illicit financial flows as well as from policy and human rights commitments that require governments to undertake positive measures (Roomen & De Jonge, 2023). Money laundering routinely appears as a common form of transnational organized crime that fuels human rights abuses. It is common for the public to assume that money laundering predominantly occurs in countries with inadequate legal frameworks, weak regulations, entrenched corruption, and fragile rule of law.

Financial Transparency and the Prevention of Human Rights Violations

In contexts where widespread poverty persists, civil, political, and economic rights are often not realized. Today, massive flows of illicit funds—amounting to several multiples of total global development assistance—significantly exacerbate poverty and repression in many developing countries. Illicit capital is removed from poorer nations through a global shadow financial system composed of tax havens, secrecy jurisdictions, shell companies, anonymous trust accounts, fictitious foundations, trade mispricing, and money-laundering techniques. A significant portion of these assets is permanently transferred into Western economies. Reducing these illicit flows requires greater transparency and integrity within the global financial system.

Financial transparency contributes to the protection of human rights by preventing the illegal outflow of capital that deepens poverty. Institutions such as the United Nations and the World Bank should recognize the connection between transparency and human rights (Ganesan, 2010). In today’s financial landscape, transparency is no longer merely a legal requirement; it has become the foundation of integrity and trust. As governments, regulatory bodies, and financial institutions around the world increase their efforts to combat money laundering, terrorist financing, tax evasion, and corruption, the focus on beneficial ownership has gained unprecedented importance. Consequently, financial transparency serves as a powerful tool to counter money laundering and promote human rights.

Over the past decade, transparency in beneficial ownership has become one of the central themes in international policy-making and domestic regulation. Several key institutions and frameworks have played a crucial role in shaping the current landscape (Woods, 2025):

• The Financial Action Task Force (FATF): The Financial Action Task Force (FATF) is an intergovernmental body established in 1989 by the ministers of its member jurisdictions. FATF’s primary mandate is to set standards and promote effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing, the financing of the proliferation of weapons of mass destruction, and other similar threats to the integrity of the international financial system. FATF also collaborates with other international bodies and stakeholders to identify vulnerabilities at the national level and to prevent the misuse of the global financial system. The FATF Recommendations provide a comprehensive and harmonized framework of measures that countries should implement to combat money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction. Given that countries have diverse legal, administrative, and operational systems and varying financial structures, implementing identical measures across all jurisdictions is not feasible. Therefore, the FATF Recommendations establish an international standard that countries must adopt through tailored and localized approaches consistent with their specific circumstances (Fatf-gafi.org, 2025).
• United Nations Convention against Corruption (UNCAC): The United Nations Convention against Corruption (UNCAC) is the only multilateral international treaty dedicated to combating corruption. Negotiated by UN Member States, it was adopted by the UN General Assembly in October 2003 and entered into force in December 2005. As the first globally binding anti-corruption agreement, UNCAC represents a major step taken by the international community toward effectively addressing corruption. Chapter I of UNCAC focuses on preventive measures, covering both the public and private sectors. The Convention calls on States Parties to adopt, maintain, and effectively implement coordinated anti-corruption policies in accordance with the fundamental principles of their legal systems. It emphasizes the expansion of public awareness and requires States Parties to ensure the establishment of one or more bodies dedicated to combating corruption. This chapter articulates three principles—participation, transparency and access to information, and accountability—which lie at the core of anti-corruption efforts and human rights policy frameworks. From a human rights perspective, effective access to public information is a prerequisite for the realization of other civil, political, economic, social, and cultural rights. Citizens, when informed and able to assess public information, are better positioned to claim and exercise their rights. Consequently, transparency forms the backbone of a significant portion of anti-corruption policies (Sepeh Sara, 2014: 126–134).
• The Cullen Commission: In 2019, the provincial government of British Columbia, Canada launched a public inquiry to address widespread concerns about the impact of money laundering on the province’s economy, its role in exacerbating the opioid overdose crisis, and its contribution to surging real estate prices. The “Commission of Inquiry into Money Laundering in British Columbia,” known as the Cullen Commission, examined the full extent of money laundering across the real estate, gambling, financial, corporate, and professional sectors. Justice Cullen was tasked with assessing the role of regulatory bodies and identifying barriers hindering the effective enforcement of anti–money laundering legislation in connection with illicit financial activities (Gov.bc.ca, 2025).
• United Nations Convention against Transnational Organized Crime (UNTOC): Adopted by the UN General Assembly in resolution 55/25 on 15 November 2000, the United Nations Convention against Transnational Organized Crime (UNTOC) is the primary international instrument for combating transnational organized crime. The Convention was opened for signature at a high-level political conference in Palermo, Italy, from 12 to 15 December 2000, and entered into force on 29 September 2003. UNTOC is supplemented by three additional protocols, each addressing specific forms of transnational crime:

1. The Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children;
2. The Protocol against the Smuggling of Migrants by Land, Sea and Air;
3. The Protocol against the Illicit Manufacturing of and Trafficking in Firearms, Their Parts and Components and Ammunition.

A State must first ratify or accede to the Convention itself before it can become party to any of its supplementary protocols (United Nations, n.d.).

Conclusion

Overall, it must be emphasized that money laundering is not merely an economic issue; it constitutes a serious threat to human rights and can significantly exacerbate poverty. Financial transparency, however, has the potential to break this cycle. Regulations must be implemented in ways that do not restrict civic space. By adopting rights-based approaches, it becomes possible to move toward a more just global system.

It is also essential for national policymakers and enforcement agencies to incorporate considerations grounded in international obligations, universal human rights norms, and the foundational concepts of human dignity and human security into policy-making processes and criminal enforcement measures related to illicit financial flows.

References

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• The FATF Recommendations (2025). International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation. FATF. From: fatf-gafi.org/en/publications/Fatfrecomm
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