Insider Trading & Money Laundering
Insider trading (or insider dealing) is often regarded as something connected with money laundering. While the offence of insider trading may not predicate the offence of money laundering, the offence of money laundering could arise in case inside dealing involves engaging in a business transaction that involves property acquired with proceeds of illegal activity. Also, insider trading may be related in corruption, which may be related to money laundering. Therefore, insider trading is quite worth discussion.
First of all, it is worth indicating that insider trading is a term that includes both legal and illegal conduct. However, most people usually associate it with illegal conduct.
Legal insider trading is when corporate insiders (including directors, officers, employees) buy and sell stock in their own companies. When trading in their own securities (like bonds or stock options), they usually must report their trades to the Securities and Exchange Commission.
Illegal insider trading generally regards buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, when having some material nonpublic information about the security at one’s disposal. The prevention of insider trading is widely considered to be an important function of securities regulation.
However, some economists and legal scholars consider that insider trading should be absolutely legalized because insider trading based on material nonpublic information benefits investors by means of introducing new information into the market more quickly. They also suggest that insider trading has nothing to do with crime as it has nothing to do with victim – a willing buyer and a willing seller agree to legally trade – so who’s the victim?
Still, pros and cons of insider trading are not the subject under consideration here. What is important is that if illegal insider trading is connected with money laundering it must be identified and punished.