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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by David Lyman, assisted for this edition by Carlos Natera
RELEVANT PROVISIONS OF THE ICC RULES AND THE OECD AND UN CONVENTIONS
The 2005 Revised ICC Rules of Conduct to Combat Extortion and Bribery in International Business Transactions as yet have no specific provisions on money laundering. However, the provisions on financial recording and auditing in Article 8 of the Rules (dealt with elsewhere in this manual) - which insist on proper and fair recording of financial transactions, prohibit “off-the-books” accounts and require independent systems of auditing - can all be viewed as preventive measures Against Money Laundering (“AML”). Article 9 deals with compliance, sanctions and public disclosure of corporate codes of conduct.
The 1997 OECD Convention does contain an article on money laundering, Article 7, which reads: “Each party which has made bribery of its own public official a predicate offence for the purpose of the application of its money laundering legislation shall do so on the same terms for the bribery of a foreign public official, without regard to the place where the bribery occurred.”
The 2003 UN Convention against Corruption (UNCAC) specifically addresses money laundering issues. These include model preventive policies, such as the establishment of anti-corruption bodies and the criminalization of the concealment and laundering of the proceeds of corruption. Offences [Page119:]corruption, including money laundering and obstructing justice, are also dealt with. In addition, countries are required to undertake measures which will support the tracing, freezing, seizure and confiscation of the proceeds of corruption regardless of where the corruption occurred.
Why this chapter?
Other chapters of this manual deal with extortion and bribery and the curtailment of corruption in public-private and private-private transactions. This chapter addresses how the ill-gotten moneys therefrom are disposed of if not spent promptly. By common usage and statutory definition, such “money laundering” is a crime. Consequently, an examination of money laundering extends beyond corruption, extortion and bribery into a plethora of illicit activities, such as illegal trade in narcotics, arms and weapons and people trafficking, terrorism, fake passport/travel documents, intellectual property counterfeiting, trade in human organs and illegal trade in wild animals and endangered species, as well as art crimes, toxic waste, prostitution, financial frauds, tax evasion, insider securities trading, computer fraud schemes and other serious offences, domestic and transnational. The focus of this chapter, however, will be on the narrow use of money laundering, i.e., to cover up instances of public-private corruption, with some attention being given to other criminal and business-related transactions. Terrorist financing is also addressed because of its impact on the world today.
This chapter defines “money laundering”, looks at the techniques thereof and dwells on the international conventions and rules dealing with AML, finishing with some recommendations for the reader to reduce the occurrence of money laundering.
The Issues
Governance
Should companies in the conduct of their business care about money laundering? Yes. Money laundering is a crime. AML counter-measures and compliance are essential elements of good corporate governance and corporate social responsibility (CSR). Any business, whether a financial institution, professional service, industrial enterprise, charitable non-governmental organization (NGO) or other entity, caught in the web of money laundering could have its reputation irreparably damaged. Even its well-intentioned directors, management and staff could be the subjects of private and public investigations out of which indictments and criminal and civil prosecutions could arise. At best, it would be a public relations nightmare. As the corporate scandals from 2001 to the present have demonstrated, it only takes one unethical person with the discretion to make decisions to jeopardize an entire organization. A reputation for integrity takes many years to build and only a few moments to damage or destroy.
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To avoid losses and possible prosecution, virtually all businesses would be wise to be alert to money laundering methods and tactics. For their own protection, businesses should implement AML defences and counter-measures and install, implement and monitor various other forms of prevention, detection and protection, as detailed later in this chapter.
Anti-money laundering measures – a new dimension
Money laundering, the illegal use of banking and other financial channels to hide the origin of the money and identity of the criminal owner of the money, has been with us for decades. Traditionally associated with tax evasion and the Mafia, it was, until the late 1980s, an often neglected problem. It became a matter of growing global concern, however, as the narcotics trade blossomed, organized crime networks disposed of the proceeds of their illegal activities and terrorist cells and networks sought new sources of funding.
In the aftermath of the terrorist attacks of 11 September 2001, AML efforts have been allocated much greater attention and support by governments and legislative bodies. Moreover, the public, largely because of its fear of more terrorism, is becoming better educated about money laundering. Recently, the Financial Action Task Force (FATF) has focused on methods to prevent the financing of WMD – Weapons of Mass Destruction.
Terrorists employ the same money laundering techniques and mechanisms as organized crime, corrupt officials in governments and businesses and others engaged in illegal activities that generate significant amounts of illicit money. Denying access to the financial systems to those who rely upon money laundering is the major objective of AML.
Money laundering defined
In its simplest non-legal terms, money laundering is “the processing of criminal proceeds (profits or other benefits) in order to disguise their illegal origin” (the Financial Action Task Force [FATF]). Note that the illegal act of money laundering occurs only after a defined predicate criminal offence has been committed to generate the criminal proceeds, which in turn need to be laundered to convert them into “legitimate capital”. This transformation process has become a thriving business, albeit quite illegal in most, but not yet all, countries.
If the money being moved did not come from an illegal activity, then its handling and processing are not considered to be money laundering. Thus, preparatory measures only, such as pre-positioning funds to be used for, say, bribing a foreign government official, are not necessarily illegal in the money laundering context.
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Cash is heavy
Actual cash currency in large amounts is heavy. For that reason, it must generally be placed into the financial system as early as possible to move it back into circulation. Contrary to movie and television lore, USD 1 million in cash will not fit into a briefcase. For example, USD 1 million in USD 100 bills weighs 22 pounds (10 kilos); USD 10 million in USD 20 bills weighs 1,100 pounds (500 kilos); the same amount in USD 100 bills still weighs 220 pounds (100 kilos); and USD 100 million in USD 100 bills weighs 2,200 pounds (1000 kilos, i.e., 1 metric ton)!
The washing cycle
“There are three distinct stages to the money laundering cycle. The first is immersion or displacement or physical disposal, which means consolidation and placement. A drug dealer who amasses USD 5 million in cash is faced with the herculean task of putting perhaps as many as one million pieces of paper into the banking system. Unlike the counterfeiter, who needs to get his forged notes into circulation, the laundryman takes his money out of circulation by relying on bank accounts, postal orders, traveller’s cheques and other negotiable instruments to funnel the cash into the banking system.
Continuing the metaphor, the second step – known as layering – might also be called heavy soaping. This is where the laundryman disassociates his gains from their illicit source. By moving his money between as many accounts as he can – in and out of dummy companies that he has set up around the world for just this purpose – and relying on bank secrecy and attorney-client privilege to hide his own identity, he deliberately creates a complex web of financial transactions, keeping in mind at every step that his main task here is to obliterate any sort of audit trail.
The final stage is in the spin dry – sometimes described as repatriation and integration. This is the point where the washed funds are brought back into circulation, now in the form of clean, and often taxable, income.”
Excerpted from “The Laundrymen” by Jeffrey Robinson. Reprinted by permission of Simon & Schuster Inc., London, UK
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Money Laundering
The Washing Cycle
Sources of illegal proceeds
In their modern context, AML precepts and laws were originally only aimed at preventing the disposal of the proceeds of the trade in narcotics, including psychotropic substances. Though hiding money has probably been around since currency was invented, the US, through its Bank Secrecy Act in 1970, was the first country in the world to criminalize money laundering, albeit only as it then related to the illegal drug trade.
The US and other countries soon realized that the ill-gotten proceeds of extortion, bribery and fraud also needed international cooperation legislation to inhibit money laundering, to track and recover the illegal money and to prosecute offenders. With the onset of globalization, the lifting of exchange controls, instantaneous electronic money transfers, internet banking, the growth in the last decade or so of organized crime and the public disclosure of corporate and political scandals, public-private and private-private corruption and other serious crimes involving money laundering practices have, unfortunately, been blossoming.
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How pervasive is money laundering?
Money laundering is said to be the world’s third largest business in terms of value. And it is growing. But these are just educated guesses. No one really knows how big it is. Both the experts and competent authorities have avoided estimating the scope of the practice except to conclude it is large, pervasive and growing. Annual Reports of FATF say: “It must be said that overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard.” The IMF estimates that money laundering amounts to 2.5 per cent of the world’s GDP, but this is simply a broad estimate.
The overall turnover in organized crime had a value of USD 800 billion in 2001 and increased to USD 1,500 billion in 2005. These figures are very preliminary and have a large margin for error, but they give a clear indication, of the importance of one aspect/source of money laundering and the turnover of organized crime.
In 2008, the OECD estimated that trade in counterfeit goods amounted to 9-10 per cent of world trade, up from about 3 per cent in 1990. In 2008, the World Health Organization (WHO) reported that counterfeit drugs represent in EUROS 45 billion or about USD 70 billion in sales, which equals almost 10 per cent of the world’s pharmaceutical markets. The proceeds of trading derived from intellectual property violations, such as counterfeiting, must also pass through money laundering systems.
In addition, a recent business report from Australia found that international trade in all types of counterfeit goods was growing at an alarming rate and, according to the International Chamber of Commerce, is worth USD 650 billion.
According to the World Customs Organization (WCO), a group of 170 Customs administrations that collectively administer 98 per cent of international trade, counterfeiting and piracy account for about 10 per cent of global commerce. The US Department of Commerce reports that seizures of fake and counterfeit goods at US borders have doubled since 2001. The US Customs and Border Protection agency made 14,500 seizures in 2006, 80 per cent more than in 2005.
Thus, according to Interpol, the WCO and ICC, estimates are that roughly 9–10 per cent of world trade every year is in counterfeit goods. In other words, one of every ten items purchased is fake.
Fraud
For the purposes of this manual, another important AML issue is corporate fraud, which often leads to money laundering. Businesses are subject to fraud through simple and complex deceptions by both insiders – managers, employees, agents, et al – and outsiders. Being a victim of fraud is embarrassing and expensive, while recoveries are limited. On a wider scale, in the information age, fraud can be[Page124:]perpetrated through credit cards, smart cards, stored value cards, e-money, e- commerce, internet scams, identity theft, loss of customer data, etc. Technology helps the good and the evil alike.
The element of fraud involved in the deliberate falsification of company accounts by insiders, whether employees or senior management, is a principal concern of corporate governance. These frauds can be the subject of civil or criminal proceedings depending on the individual country. If this falsification is compounded by an effort to launder the funds illegally received, the legal implications can be very serious indeed. Beginning in 2001 and 2002, a number of massive corporate frauds were uncovered and caused the collapse of major corporations then and since.
Conventional arms vs. Terrorism
Terrorism occupies the world’s attention today. This section looks at terrorist financing and the acquisition of WMD, which are aided by money laundering. The techniques used to raise, move, use and launder money are essentially the same as those used to conceal the sources of, and uses for, terrorist financing. Funds used to support terrorism may originate from legitimate sources, criminal activities or both. Legitimate sources may include donations of gifts of cash or other assets to organizations, such as foundations or charities which, in turn, are used to support terrorist activities or terrorist organizations. This difference requires special laws to deal with terrorist financing. If derived from illegal sources, these funds may already be covered by a country’s AML regime, depending upon the scope of predicate offences for money laundering.
There are some distinctions between conventional criminal activities and terrorism with respect to money laundering and AML measures. The following comparisons are illustrative:
Conventional crimes
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By way of illustrating the above differences, the following is extracted from the FATF Report on Terrorist Financing of 29 February 2008:
The direct cost of terrorist attacks and conflict
“The precursor materials necessary to stage specific attacks are highly diverse and include, for example, vehicles, improvised bomb-making components, maps, surveillance material, etc. These direct costs of terrorist attacks are often very low relative to the damage they can yield, as illustrated by the following estimates:
To these direct costs must be added funds needed for salaries, subsistence, family support, communications, training, travel, logistics, propaganda, other organizational costs and funding shared with kindred cells or networks.”
Money laundering techniques
The experts have noted little difference in the ways that terrorists and other criminals use the financial and other systems to launder money. The methods identified include cash smuggling by couriers or bulk cash shipments; structured transactions, both into and from bank accounts; purchases of money instruments in various forms and movements of funds via the non-bank or underground systems, the internet and other electronic methods.
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The most common methods
The vast majority of criminal money laundering still follows the well-worn trails created by the tax evasion industry. Many offshore banking and tax haven centres still offer corporate and commercial secret facilities, and so far the tax planning industry has been sufficiently lucrative to ensure that a whole sector of commercial business activity is not going to disappear overnight. At the same time, global business continues to make use, both legitimate and questionable, of the structures and complex corporate holdings to protect commercial secrecy and discourage financial transparency. Lawyers, accountants and other “gate keepers” have close relationships with the world’s major businesses and financial institutions.
The techniques used in money laundering can be broken down into funds channelled through three principal conduits: (a) banking, (b) non-bank institutions and (c) non-financial businesses. Summarized, but not all-inclusive, these channels and their most common laundering techniques are as follows:
Banking
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Non-bank financial institutions
One problem for law enforcement efforts to find, freeze and confiscate funds earmarked for terrorists is that some of these funds, particularly in small to mid- sized amounts, are moved through “underground or parallel banking channels”, i.e., alternative and unregulated remittance systems. These are virtually untraceable.
Parallel banking, money and trade networks had their origins in China 4,000 years ago. They are used extensively by workers to send money home to small villages in their home countries often without using formal banks. “Hawala” or “Hawallah” (meaning “in trust” in Hindi) and in Chinese – “fei-ch-ien” (meaning “flying money”) is an ancient system mainly used in China, South and Southeast Asia and the Middle East for transferring money or value across borders without any physical movement of money or paper transactions, thereby escaping the attention of financial regulators. It is swift and efficient. The system is thought to be one of the key channels for terrorist financing which often does not require large amounts of money. Hence parallel banking is now on everyone’s radar screen.
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Hawala
How hawala works
“Say a Pakistani immigrant living in Baltimore [Maryland, US] wants to send USD 5,000 home to his parents. He contacts a local hawaladar, as dealers are called, known to him through cultural or ethnic ties, and gives him or her USD 5,000 plus a small fee for the latter’s efforts. The dealer then phones another hawaladar in Karachi. The Karachi dealer delivers USD 5,000 worth of Palestani rupees to the man’s parents. End of story.
Sort of. the Karachi dealer is not now out USD 5,000? Yes, but only temporarily. As stated earlier, the key to hawala is trust: the Karachi dealer knows that the USD 5,000 will be returned to him – his outlay will be remitted – in the future, when he initiates a similar deal.
Hawala dealers give money out and take money in, not necessarily from the same client, so that in the end, their books balance … what appears to be invisible accounting, isn’t.
Written accounts of transactions, if they are done at all, are done in code on scraps of paper that are destroyed when the transaction is over. The code may be a combination of serial numbers taken from currency notes and known only to the hawaladar and the recipient.”
Excerpted from US Customs Today, published by the US Customs Service, April 2002
The hawala system can handle large transactions of millions of dollars as well.
In 2003, the IMF sponsored the first international conference on Informal Funds Transfer Systems. A result of that conference is the Abu Dhabi Declaration on Hawala. The IMF’s Occasional Paper 222, “Informal Funds Transfer Systems”, provides an analysis of the informal hawala system. It encourages a two-pronged approach toward regulation: (1) In countries where an informal hawala system exists alongside a well-functioning conventional banking sector, it is recommended that hawala dealers be registered and keep adequate records in line with the FATF recommendations; (2) simultaneously, the regulatory response should address weaknesses that may exist in the formal sector.
Policymakers should address economic and structural weaknesses that encourage transactions outside the formal financial systems, as well as the weaknesses in the formal financial sector itself. Regulators need to possess the appropriate supervisory capacity to enforce the regulations and there need to be incentives to comply with the regulations.
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The report also cautions that the application of international standards needs to pay due regard to specific domestic circumstances and legal systems. The broader response of well-conceived economic policies and financial reforms, a well- developed and efficient payments system and effective regulatory and supervisory frameworks are required.
Non-financial businesses or professions
FATF, in a study on money laundering typologies, highlighted “gate keepers”, such as lawyers and accountants, as the common element in complex money laundering schemes. Money launderers often target struggling professional practices that are in financial difficulties, since the latter may find it hard to turn away lucrative business, high-risk or not. FATF reports that lawyers are primarily used to establish corporate entities through which money can be laundered by their clients or to provide bank accounts (client accounts).
To hide illegitimate sources, charities and NGOs can be established to receive donations that stem from criminal activities and to fund terrorist activities. Some solicitors arrange to hold funds in their clients’ accounts or in an off-shore trust, making the identification of the true beneficiary impossible. Other services offered by lawyers include advising on complex financial transactions and investment schemes. The law firms in question are not expected to become involved, but rather to serve as a shield of legitimacy to give third parties confidence.
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Non-profit organizations
The world should take notice of what the US has done with respect to its non-profit sector. Independent Sector, a major private national organization that promotes the non-profit sector, explored ways to apply elements of the American Sarbanes-Oxley law to non-profits (NPOs).
The Sarbanes-Oxley Act and implications for non-profit organizations provides some practical recommendations on promoting effective oversight of NPOs: “(1) understand fully all laws regarding compensation and benefits to directors and executives and establish a conflict of interest policy and a regular and rigorous means of enforcing it; (2) establish an independent and competent audit committee, with specific responsibilities for auditors; (3) ensure certified financial statements with Board review and approval; (4) use proper disclosure forms if required by the national government; (5) develop, adopt and disclose a formal process to deal with complaints and prevent retaliation; and (6) have a written, mandatory document retention and periodic destruction policy which includes guidelines for electronic files and voicemail.”
FATF Interpretive Note to Special Recommendation VIII, “Non-Profit Organizations” explains the objectives of the Recommendation and offers specific measures that countries should put into place to ensure that their non-profit sectors are not misused for terrorist or illegal or illicit financing purposes.
Money laundering and the internet
It is a common belief that the internet provides new and undetectable methods of money laundering (“cyber laundering”). However, the internet is nothing more than a messaging system. To move money, banks move information by several different kinds of messaging systems.
Identifying customers is the primary problem arising from internet usage. Though emails leave audit trails, there are ways to circumvent such traces. Characteristics of internet banking (easy access, depersonalized contact between customer and financial institutions and the speed of electronic transactions) make customer identification and the monitoring of transactions difficult for the authorities.
In a recent report, FATF found that in the context of internet banking –
FATF has also identified what they call NPM – New Payment Methods. These consist of prepaid cards, electronic passes, mobile payments, internet payment services and digital precious metals. These are explored in a FATF Report of October 2006. New techniques continue to evolve.
To reduce online money laundering, the FATF recommends that Internet Service
Providers (ISPs):
The important personnel issues to consider are privacy and confidentiality. One of the internet’s advantages is that it is a largely unregulated medium, allowing free access to, and exchange of, information. The conflict between freedom of access and the demands to track suspicious transactions has yet to be resolved.
Worldwide initiatives on cyber laundering include the Draft Council of Europe Convention on Cybercrime, and that promulgated by the Electronic Banking Group of the Basel Committee. ICC Commercial Crime Services (CCS) has also done important work in this field.
Deterrence and countermeasures: company responsibilities
Several means of deterrence have garnered broad support. Companies concerned with good corporate governance should work AML practices into their own normal accounting and financial control systems. To assure adherence, such initiatives should be backed up by commitments from the Board of Directors as to monitoring compliance and imposing sanctions for failure to do so;
Legislation
The next two sections deal with national and regional legislation, international conventions, the OECD, the UN and private sector organizations’ individual and collective efforts to be collaborative in addressing and countering money laundering.
While AML laws have been or are being adopted in over 120 countries, no country yet requires its financial institutions to detect money laundering. Realistically, the most they can do is to require that “suspicious transactions” (hard to define) be reported, subject to a plethora of regulations and policies. Despite the pressing need, which is slowly being recognized by nation states, the effectiveness of anti-money laundering laws has been mixed, i.e., better than having no laws at all, but falling far short of the ideal of strict, fair and universal enforcement with well- knit international cooperation within and between governments, regulatory and supervisory authorities, law enforcement agencies, the judiciary and the private sector. As usual, vigorous enforcement is limited to too few countries.
FIUs
A major part of a country’s AML regime is its Financial Intelligence Unit (FIU). The Egmont Group of FIUs, formed in 1995, is the international standard setter for FIUs, and has adopted the current definition of an FIU: “A central, national agency responsible for receiving (and as permitted) requesting, analyzing and disseminating to competent authorities, disclosures of financial information: concerning suspected proceeds of crime and potential financing of terrorism, or required by national legislation or regulation, in order to combat money laundering and terrorist financing.”
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As of June 2008, 108 member countries of the Egmont Group had established FIUs. The Egmont Group’s definition of an FIU is entirely consistent with FATF’s Forty Recommendations.
The UN
The UN has published a Legislative Guide for the United Nations Convention Against Transnational Organized Crime and the Protocols thereto. The guide spells out the “basic requirements of the Convention and the Protocols thereto, as well as the issues that each State party must address”. It also furnishes a “range of options and examples that national drafters may wish to consider as they try to improvement the Convention and its Protocols”.
The United Nations’ International Convention for the Suppression of the Financing of Terrorism (1999) has attracted recent attention. The Convention only came into force on 10 April 2002 after years of being ignored. As of this writing, it had 132 signatories, with 42 parties having ratified the Convention. Since the Convention had not come into force by 11 September 2001, the UN Security Council calling on all nations to sign, ratify and implement all relevant conventions criminalizing terrorism on 28 September 2001 adopted Resolution 1373, which provides the primary legal basis for requiring member states of the UN to take concrete steps to suppress terrorist funding (a resolution by the Security Council taken in response to a threat to international peace and security is legally binding).
The UN Convention Against Corruption (UNCAC), adopted on 31 October 2003 (see Chapter 2), tries to cover all activities related to deterring, preventing, detecting, evidence gathering, cross-border cooperation, prosecuting those concerned and recovering the ill-gotten gains of corruption. The Convention, which entered into force two years later on 14 December 2005, contains provisions which address money laundering. As of this writing only 117 countries had ratified or accepted the Convention and passed domestic laws to implement it. Monitoring and enforcement of these laws remain uncertain.
Among other provisions, the 2001 UN Security Council Resolution 1373 stipulates that countries must cooperate in criminal investigations and other proceedings, as required by the earlier 1988 United Nations Vienna Convention against Illicit Traffic in Narcotics Drugs and Psychotropic Substances.
EU initiatives
At a regional level, several organizations have adopted conventions or other agreements to combat terrorism, including regulations concerning money laundering and/or designated laws that solely tackle money laundering. For example, the European Union in November 2001 widened the scope of the original EU money laundering directive in its Second EU Money Laundering Directive (Directive 2001/97/EC) amending Council Directive 91/308/EEC. The Directive required EU member states to update their national legislation by June 2003. It criminalizes laundering the proceeds of all serious crimes; extends its applicability to[Page134:]a series of non-financial professionals who are believed to offer or provide vital services for criminals (e.g., casinos, bureaux de change, auctioneers, lawyers, notaries, estate agents, fund transporters and dealers in high cost goods); extends the “KYC” record-keeping and suspicious transaction reporting requirement to external accountants and auditors, notaries, lawyers and others.
Other legislative initiatives
Other legislative developments include the following:
A number of individual countries enacted new legislation on money laundering or extended laws that were already in place. Some did so under pressure by the FATF, others in a voluntary attempt to intensify the fight against terrorist financing.
Examples are:
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USA Patriot Act passed by the US Congress, 25October 2001 (excerpts)
SEC. 314. COOPERATIVE EFFORTS TO DETER MONEY LAUNDERING.
(B) The relationship, particularly the financial relationship, between international narcotics traffickers and foreign terrorist organizations, the extent to which their memberships overlap and engage in joint activities, and the extent to which they cooperate with each other in raising and transferring funds for their respective purposes; and
(C) Means of facilitating the identification of accounts and transactions involving terrorist groups and facilitating the exchange of information concerning such accounts and transactions between financial institutions and law enforcement organizations.
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Other worldwide initiatives
Apart from the OECD and UN Conventions and the new laws mentioned above, there have been other international efforts to counter money laundering. AML laws, policies and practices are gaining broad acceptance among nation states and regional and international organizations.
FATF
In 1989, the G-7 countries created the Financial Action Task Force, the “FATF”, mentioned previously, an independent intergovernmental agency consisting of 29 (now 34 plus 2 observers and 175 jurisdictions in the FATF network) countries (including the major economies) and two regional organizations. FATF’s purpose is to examine and report on measures to combat money laundering, to monitor implementations of counter money laundering measures, to track and review money laundering activities in combating the financing of terrorism and otherwise promote FATF activities and advise members and non-member countries. This global watchdog has its headquarters located within the OECD in Paris, France, though it is not part of the OECD.
In 1990, FATF issued its now famous Forty Recommendations which “provided a comprehensive blueprint for action against money laundering, covering the criminal justice system and law enforcement, the financial system and its regulations; and international cooperation”. Amended in 1996 and then again in 2003 to reflect changes in money laundering trends and potential future threats, the Forty Plus Nine Special Recommendations (of 2001) are the most comprehensive set of AML directives yet created for governments, legislatures, law enforcement, financial institutions and businesses in general. They are under review again for updating in light of FATF’s expanded responsibilities.
FATF conducts an annual review to identify Non-Cooperative Countries or Territories (NCCT) – a “name and shame” campaign – aimed at countries and territories that do not comply with the FATF’s 25 AML criteria. It also monitors compliance with its Forty Plus Nine Recommendations. FATF reported that as of 13 October 2006 there were no NCCT countries or territories. All jurisdictions have finally complied.
The FATF also monitors compliance with its Forty Plus Nine Special Recommendations through its Mutual Evaluation Process. This has represented a central pillar of the work of FATF over the last ten years and is aimed at assessing the effectiveness of the anti-money laundering systems in FATF member jurisdictions. These evaluations are based on the Forty Recommendations 2003 and the Nine Special Recommendations 2001 and use the Anti-Money Laundering/Combating Terrorist Financing (AML/CFT) Methodology 2004.
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Rounds of mutual evaluations for its members are ongoing. The scope of these evaluations is to assess whether the necessary laws, regulations or other measures required under the new standards are in force and effect, that there has been a full and proper implementation of all necessary measures and that the system in place is effective.
In 2001, FATF’s mission was expanded to include combating terrorist financing. Eight Special Recommendations (SRs) implementing this new objective were concurrently adopted. All countries were called upon to ratify and implement the UN Convention on Suppression of Financing of Terrorism, SC Resolution 373 and numerous related measures. The Ninth FAFT SR was adopted and addresses cross- border cash movements by terrorists and criminals.
Wolfsberg Group of Banks
Other international self-regulatory organizations, for example, the Basel Committee on Banking Supervision and the Wolfsberg Group of Banks, now numbering twelve, have focused on extending standards for international financial regulations to cover transparency issues.
The Wolfsberg Anti-Money Laundering Principles for Private Banking were published, in cooperation with Transparency International, in October 2000 and revised in May 2002. In 2007, the Wolfsberg Group issued its “Statement against Corruption”, again in close association with Transparency International and the Basel Institute on Governance. This Statement identifies some of the measures financial institutions may consider in order to prevent corruption in their own operations and protect themselves against the misuse of their operations in relation to corruption.
OECD
An indirect initiative started in 1998 is the OECD’s List of Uncooperative Tax Haven naming countries or territories that have not committed to the principles of transparency and effective exchange of information. Another OECD initiative concerns the misuse of corporate entities for money laundering, bribery and corruption – a new OECD publication, Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes – urges governments to combat such misuse by ensuring the availability of information about ownership and control of corporate entities.
IMF/World Bank
Since 2000, the International Monetary Fund and the World Bank have joined the world of AML and counter terrorist funding. They focus on threats and vulnerabilities within their mandates.
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Private sector
In general, unfortunately, industry-led initiatives (especially on a domestic level) seem to be lacking, but some organizations are beginning to catch up with responsible governance practices. ICC, Transparency International, the World Economic Forum’s Partnering Against Corruption Initiative and the UN Global Compact are jointly addressing this issue of promulgating common standards against corruption and money laundering.
International and regional bodies
A variety of international and regional bodies have issued or adopted similar guidelines and initiatives, in whole or in part. The United Nations, in cooperation with leading anti-money laundering organizations, has established the International Money Laundering Information Network (IMoLIN). This is an internet-based database that includes legislation and regulation throughout the world (AMLID), as well as an electronic library and a calendar of events in the anti-money laundering/countering the financing of terrorism fields. Several other specialized agencies are important in the fight against corruption and money laundering: the International Organization of Securities Commissions, the European Union (EU), the Council of Europe, Gulf Cooperation Council, Organization of American States (OAS), South Pacific Forum, Council for Security Cooperation in the Asia-Pacific (CSCAP), INTERPOL, ASEANPOL, World Customs Organisation (WCO), Bank for International Banking Security Association and the Banking Federation of the European Union.
CARIN
One of the newest (established in 2004) groups to join the fight against criminal profits is the Camden Asset Recovery Inter-Agency Network (CARIN). Originally an initiative within the European Union, CARIN is now connected to EUROPOL and is an informal international network for tracing, freezing, seizing and confiscating the proceeds from criminal activities. The network will assist in setting up national points of contact or help with the preparation of legislation regarding the recovery of assets. It also serves as a medium for the exchange of best practices with its database which will be accessible to police officers and prosecutors from all over the world.
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Summary of Major International Developments since 1999
Basel Committee on Banking Supervision
Wolfsberg Group
Guidelines and recommendations for setting KYC standards
A number of international and domestic KYC guidelines and recommendations have been designed for particular industries (e.g., banking). Guidelines and regulations are normally not legally binding but can become effective, either by voluntary adherence to such agreements/contractual obligations and/or adoption into domestic law. Most of the current guidelines concern financial institutions:
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Sources of information
The FATF annual reports and reports on types of money laundering are some of the best sources of information on the subject. See the FATF website at www.oecd.org/fatf/reports.html. FATF’s Forty Plus Nine Special Recommendations can also be downloaded from this site.
In 2006, the World Bank and the International Monetary Fund published their second edition of the Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism. It includes items including international standards setters, impacts on development, regional bodies and relevant groups, legal system requirements, preventive measures, international cooperation and the Bank’s and IMF’s respective roles. See their websites at www.worldbank.org and www.imf.org respectively and in their site search engines type in the phrase “money laundering”.
Another source of current information on money laundering is “Money Laundering Alert” by Alert Global Media, a subscription service which is available at www.moneylaundering.com. Its list of “suspicious activities” is instructive.
For more detailed descriptions of money laundering techniques and how they work, case studies can be found in the Money Laundering Guide published in mid- 1998, as amended, by the Commercial Crime Bureau of ICC, located in Barking, England, UK. See a more recent book from the Commercial Crime Bureau, Preventing Financial Instrument Fraud: The Money Launderer’s Tool, published in 2002 and also available from www.iccbooks.com.
By far the most comprehensive website for information and sources on “Money Laundering – how it is done, and what is being done about it; A guide to sources” is found at www.projects.ex.ac.uk/RDavies/arian/scandals/launder.html.
See also “Billy’s Money Laundering Information Web Site” at www.laundryman.u- net.com. Another interesting site is the US Government’s Financial Crimes Enforcement Network at www.ustreas.gov/fincen.
As to a list of and reports on a myriad of financial scandals, visit www.projects.ex.ac.uk/RDavies/arian/scandals/
For readers who want more information, refer to lists of internet links on the Web. The authors typed in “money laundering” on www.google.com and got 5,870,000 results. For British-oriented material, see the money laundering compliance website at www.countermoneylaundering.com and www.compliance.co.uk. Also, periodically check the web site of Transparency International, the coalition against corruption in international business at http://www.transparency.org. See also www.globalkyc, which gives practical advice to companies; www.vortexcentrum.com dealing with AML on a global basis; and www.imolin.org for UN AML programmes. To help reduce money laundering risks, check out the database of World-Check at www.world-check.com
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Finally, there is a variety of magazine and professional periodicals on the subject. A particularly useful one is Foreign Policy, www.foreignpolicy.com.
Summary of the ICC Recommendations on Money Laundering
Money laundering is big business, i.e., thought to be 2/5 per cent of global GDP. Should a business inadvertently, directly or indirectly, become a victim of or a participant in any serious crime, the chances are high that its money will disappear through one or more money laundering ploys. Finding money and recovering it will be time-consuming and expensive, and, for some, embarrassing. Probably less than 10 per cent of the victims, corporate and individual, even make the effort to recover lost funds. Little of the lost money is actually recovered.
Yet it is not just corporate reputations that are at risk when money laundering occurs. Officers, directors and other individuals involved can face prison terms, substantial fines and confiscations. The costs of reputation repair and recovery are enormous, far outweighing the costs of precaution.
Self-policing by business is crucial to attack this scourge of international commerce.
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Therefore companies should:
David Lyman is Chairman and Chief Values Officer of Till eke & Gibbins International Ltd, Advocates & Solicitors, Bangkok, Thailand. He was assisted in the preparation of this 2008 revision by Carlos Natera, who was a legal consultant at Tilleke & Gibbins International Ltd Thailand.