Money Laundering and Financial Crime

Introduction to Money Laundering Laws 

•          Existed since days of Prohibition in the USA

•          Process by which criminals attempt to hide the origins and ownership of the proceeds of their criminal activity

•          Retain control over proceeds – cover for income and wealth

•           Dirty money – drug money – criminal money -  black money  - dinero negro

•          Doesn’t have to involve actual money

•          Transaction / relationship  involving any form of property or benefit

•          Tangible or intangible

•          Derived from criminal activity

•          Not necessary to move the criminal proceeds in order to launder:  eg tax evasion

•          Conversion of property – disguising property è avoid detection

The Money Laundering  Process

•          No one way of laundering money /property

•          Range from simple method  to complex scheme involving web of international business and investments

•          Three stages (traditionally):

•          Placement

•          Layering

•          Integration

Placement

•          Placing the criminal funds into the financial system

•          Directly or indirectly

Layering

Process of separating criminal proceeds from their source

Using complex layers of financial transactions

Designed to hide / complicate  the audit trail

Provide anonymity

Directly or indirectly

Integration

Assumes layering process successful

Places laundered proceeds back into the legitimate economy

Giving the appearance  that they are normal business funds

Terrorism and Terrorist Financing

•       Considered to be part of money laundering

•       Correct?

•       Special aspects?  International Convention for the Suppression of the Financing of Terrorism 1999

“..to intimidate a population, or to compel a government or an international organisation to do or abstain from doing any act..”

è Different from other forms of criminal activity where obtaining financial gain is often the ultimate objective

è Yet terrorist = criminal  and require financial help and support

How do terrorists raise funds?

è supporter states or organisations

èfund-raising either from legitimate / illegitimate sources

(Drug trafficking  - people smuggling – kidnapping – extortion – theft – fraud – illicit arms trade – computer crime – environmental crime)

Transnational and Organised Crime

Globalisation

Boarder control

Reduced state authority  (gangs)

Organised crime

(criminal enterprise  - systematic violence – high profits  - laundered through the legal economy – set up legitimate business)

Mafia (Italian – Russian)

Japanese Yakuza

Chinese Triads

Colombian Cartels

Development of Law and Regulation of Money Laundering

•       International breadth of the ML problem requires action by the international community.

Effective action requires:

•       Country’s CJS to be able to enforce tracing – freezing – confiscation

•       Legislation  needs to be enacted to criminalise and counter the process of ML

•       Enhanced level of international co-operation

•       Recognise that CJS cannot succeed alone.  Need to empower regulate financial sectors / professions to become partners in the task

Financial Action Task Force (FATF)

EU Directives on the Prevention of the Use of the Financial System for the Purpose of Money Laundering 1991 – 2001 – 2005  EU)

Vienna Convention 1988 (Illicit Traffic in Narcotic Drugs and Psychotropic Substances)

Palermo Convention 2000 (Transnational Organised Crime)

Basel Committee on Banking Regulations and Supervisory Practice 1974 – 2001 – 2008 (‘Basel Principles’ – due diligence when dealing with customers)

IMF – World Bank – Wolfsberg Group – Egmont Group - FSF

UK Battle against Money Laundering

•       UK has been at the forefront of the international fight against ML

•       London seen as particularly vulnerable

•       Instrumental in setting up FATF

•       First legislation 1986: Drug Trafficking Offences Act 1986

Terrorism Act 2000

Anti-terrorism, Crime and Security Act 2001

Proceeds of Crime Act 2002 part 7

Money Laundering Regulations 2007

NB: Serious Organised Crime Agency (SOCA)

Proceeds of Crime Act 2002

Aims

•       Create Assets Recovery Agency

•       Consolidate, reform and update the criminal law in respect of ML

•       Make provision for the confiscation of the proceeds of crime

•       Allow for the recovery of any property which has been obtained through any unlawful conduct

•       Provide for the search and seizure of cash which is reasonably suspected of having been obtained through unlawful conduct

Provides definition of:

•       Criminal conduct     note:  potential dangers: eg parking fine

•       Criminal property    note:  know or suspect that property represents the                                                          proceeds of crime  

                                                                                    s.340 POCA 2002

Defines Money Laundering

•       An act which constitutes an offence under ss 327, 328, 329

•       An act which constitutes an attempt, conspiracy or incitement to commit an offence ss 327, 328, 329

•       An act which constitutes aiding , abetting counselling or procuring the commission of an offence under ss 327, 328, 329

•       An act which would constitute an offence if done in the United Kingdom

Money Laundering Regulations 2007

1. General

2. Customer Due Diligence

3. Record Keeping – Procedures –Training

4. Supervision
5. Enforcement
6.  Miscellaneous