AML/CFT

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Prevention of Money Laundering Seminar on
Financial Services Sofia, 14-16 September 2005
Jaakko Christensen Senior Detective
Superintendent NBI-Finland
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Criminalising Money Laundering Preventing and
investigating money laundering Case Examples
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• Criminalising Money Laundering
• UN Vienna Convention 1988
• Conversion or transfer of property, knowing that
  such property is derived from any (drug) offence
  or offences... or from an act of participation in
  such offence or offences, for the purpose of
  concealing or disguising the illicit origin of
  the property or of assisting any person who is
  involved in the commission of such an offence of
  offences to evade the legal consequences of his
  actions

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• Criminalising Money Laundering
• UN Vienna Convention 1988
• Concealment or disguise of the true nature,
  source, location, disposition, movement, rights
  with respect to, or ownership of property,
  knowing that such property is derived from (a
  drug) offence or offences or from an act of
  participation in such an offence or offences
• Bulgarian Law on Measures Against Money
  Launderings applies

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• Criminalising Money Laundering
• Council Of Europe Strasbourg Convention 1990
• Main principle and wording as in Vienna
  Convention
• Not limited to drug offences
• May be punishable also when committed negligently
  (person ought to have known)

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• Criminalising Money Laundering
• UN Convention Against Transnational Organized
  Crime (UNTOC-Palermo 2000 09/2003)
• main principle and wording as in Vienna
  Convention
• not limited to drug offences, article also on
  measures aimed at combating money laundering e.g.
  the establishment of a financial intelligence
  unit (FIU)
• Commission proposed to Council to ratify UNTOC on
  behalf of Community

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• Criminalising Money Laundering
• Some variables in criminalisation
• Intentionally / negligently
• Punishable separately / included into predicate
  offence
• Attempt criminalised / not criminalised
• Criminalisation of failure to report suspicious
  transaction
• Related issues Smurfing and tipping off

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• Preventing and investigating money laundering
• Financial Action Task Force FATF
• G-7 countries established in 1989
• Tasked to take global measures against money
  laundering
• 1990, FATF 40 recommendations with an aim to
  enhance international co-operation in the fight
  against money laundering
• Significant impact on national laws of FATF
  members but also to wider scope of countries

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• Preventing and investigating money laundering
• Financial Action Task Force FATF
• Revised 40 Recommendations
• Revised in June 2003 to take into account new
  trends and threats in the area of money
  laundering and terrorist financing
• Set out the legal, institutional and
  implementation framework for AML/CFT efforts
• Minimal standards/best practices for universal
  application subject to the local risk,
  vulnerabilities and legal framework of the
  country

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• Preventing and investigating money laundering
• Financial Action Task Force FATF
• 9 Special Recommendations
• Take immediate steps to ratify and implement the
  relevant UN instruments UN Convention for the
  Suppression of the Financing of Terrorism and
  Resolution 1373.
• 2. Criminalise the financing of terrorism,
  terrorist acts and terrorist organisations.

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• Preventing and investigating money laundering
• Financial Action Task Force FATF
• 9 Special Recommendations
• 3. Freeze and confiscate terrorist assets.
• Require financial institutions and other entities
  subject to AML obligations to report suspicous
  transactions linked to terrorism.
• Provide the widest possible range of assistance
  to other countries law enforcement and
  regulatory authorities for terrorist financing
  investigations.

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• Preventing and investigating money laundering
• Financial Action Task Force FATF
• 9 Special Recommendations
• 6. Impose AML controls on alternative remittance
  systems.
• 7. Require customer identification measures on
  international and domestic wire transfers
  (cross-border transfers including originator
  information).

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• Preventing and investigating money laundering
• Financial Action Task Force FATF
• 9 Special Recommendations
• Ensure that entities, in particular non-profit
  organisations, cannot be misused to finance
  terrorism.
• Measures in place to detect the physical
  cross-border transportation of currency and
  bearer negotiable instruments, including a
  declaration system or other disclosure
  obligation.

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• Preventing and investigating money laundering
• CoE Convention on the Laundering, Search, Seizure
  and Confiscation of the Proceeds from Crime and
  on the Financing of Terrorism 2005 - CETS 198
• Widens 1990 convention to take into account that
  terrorism can be financed not only through money
  laundering from criminal activity, but also
  through legitimate activities
• First international treaty covering both the
  prevention and the control of money laundering
  and the financing of terrorism

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• Preventing and investigating money laundering
• CoE Convention on the Laundering, Search, Seizure
  and Confiscation of the Proceeds from Crime and
  on the Financing of Terrorism 2005 - CETS 198
• Quick access to financial information or
  information on assets held by criminal
  organisations, including terrorist groups, is the
  key to successful preventive and repressive
  measures
• The convention includes a mechanism to ensure the
  proper implementation

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• Preventing and investigating money laundering
• European Union ML directive 1991 (2001)
• Credit and financial institutions obligated to
• identify customer,
• exercise due diligence
• report suspicious transactions
• Authority responsible for the prevention of ml
• Council Decision 2000 concerning arrangements for
  cooperation between financial intelligence units
  of the Member States in respect of exchanging
  information
• Bulgaria complies with acquis (CION 10/2004
  Regular Report on Progress Towards Accession)

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• Preventing and investigating money laundering
• European Union 3rd ML directive 2005
• Directive on the prevention of the use of the
  financial system for the purposes of money
  laundering or terrorist financing
• Adopted June 2005 by the Council of Economic and
  Finance Ministers
• Replaces the 2001 Directive

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• Preventing and investigating money laundering
• European Union 3rd ML directive 2005
• Applies to financial and other key services
  sectors
• Providers of goods, when payments are made in
  cash in excess of 15.000.
• Measures to establish customers identities,
  report suspicions and set up preventive systems
  within their organisations

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• Preventing and investigating money laundering
• European Union 3rd ML directive 2005
• Builds on existing EU legislation and
  incorporates into EU law the June 2003 revision
  of the 40 Recommendations of the Financial Action
  Task Force (FATF)
• The Directive is applicable to the financial
  sector as well as lawyers, notaries, accountants,
  real estate agents, casinos, trust and company
  service providers.

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• Preventing and investigating money laundering
• European Union 3rd ML directive 2005
• Those subject to the Directive must
• identify and verify the identity of their
  customer and of its beneficial owner, and to
  monitor their business relationship with the
  customer

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• Preventing and investigating money laundering
• European Union 3rd ML directive 2005
• report suspicions of money laundering or
  terrorist financing to the public authorities
  -usually, the national financial intelligence
  unit and
• take supporting measures, such as ensuring proper
  training of personnel and the establishment of
  appropriate internal preventive policies and
  procedures.

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• Preventing and investigating money laundering
• European Union 3rd ML directive 2005
• The Directive introduces risk based assessment
  and additional requirements and safeguards for
  situations of higher risk enhanced customer due
  diligence (e.g. correspondent banks situated
  outside the EU) but also gives possibility for
  simplified due dilligence
• Member States have agreed to implement the
  Directive within two years after its publication
  (2006-2007)

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• Preventing and investigating money laundering
• Overview of International Cooperation
• Council of Europe, Moneyval
• Egmont Group of Financial Intelligence Units
• Financial Action Task Force
• IMF
• World Bank
• United Nations / UNODC / UNCTC
• Interpol
• Europol

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• International co-operation
• Council of Europe, Moneyval
• Select Committee of Experts on the Evaluation of
  Anti-Money Laundering Measures
• tasked to take measures against money laundering
  in a similar manner as the FATF
• significant impact on national laws of CoE
  members and of countries willing to become members

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• International co-operation
• Egmont Group
• central, national agency responsible for
  receiving (and as permitted, requesting)
  analysing and disseminating to the competent
  authority, disclosures of financial information
  concerning suspected proceeds of crime or
  required by national legislation or regulation in
  order to combat money laundering
• 101 members meeting the definition (doubled in 5
  years)
• two purposes in definition
• to distinguish FIUs from other agencies in the
  anti-money laundering effort
• to avoid emphasising any particular type of
  structure (police, judicial, administrative or
  regulatory).

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• International co-operation
• Financial Action Task Force FATF
• G-7 countries established in 1989
• tasked to take global measures against money
  laundering
• 1990, FATF 40 recommendations with an aim to
  enhance international co-operation in the fight
  against money laundering
• significant impact on national laws of FATF 31
  members but also to wider scope of countries

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• International co-operation
• International Monetary Fund and World Bank
• Since 1999 IMF and WB run joint program called
  the Financial Sector Assessment Program (FSAP)
• WB and IMF collaborative framework with FATF for
  conducting comprehensive AML/CFT assessments of
  countries compliance with the FATF 409 using
  single common global methodology for AML/CFT
  assessments and mutual evaluations
• WB and IMF have agreed to step up the delivery of
  technical assistance to those countries whose
  financial systems are most at risk
• ROSC Report on the Observance of Standards and
  Codes (Bulgaria prepared in August 1999 and
  reissued in March 2000)

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• International co-operation
• United Nations UNODC
• United Nations Office on Drugs and Crime
• GPML model laws, TA and research
• IMoLIN International Money Laundering Information
  Network - Internet-based network assisting
  governments, organizations and individuals in the
  fight against money laundering
• AMLID - Database that analyses jurisdictions'
  national anti-money laundering legislation
  intended as a tool for practitioners to assist
  them in their international cooperation and
  exchange of information efforts

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• International co-operation
• United Nations UNCTC
• Counter-Terrorism Committee
• 28.09.2001 Security Council Resolution 1373
  (2001) which includes provisions on CFT
• UNSCR 1373 also established the Counter-Terrorism
  Committee made up of all 15 members of the
  Security Council
• UNCTC monitors the implementation of resolution
  1373 and tries to increase the capability of
  States to fight terrorism

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• International co-operation
• Interpol
• Financial Crimes support to investigations
• Europol
• Maastricht Treaty on European Union February 1992
• Based in The Hague, The Netherlands
• Limited operations 1994, Europol Drugs Unit (EDU)
  
• Full activities 1999 - extension of mandate
  (Tampere 8/1999) to cover money laundering from
  all serious crimes

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Foundation of AML/CFT Structure
Financial Services Sector
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• Preventing and investigating money laundering
• Financial Intelligence Unit -FIU
• central, national agency responsible for
  receiving (and as permitted, requesting)
  analysing and disseminating to the competent
  authority, disclosures of financial information
  concerning suspected proceeds of crime or
  required by national legislation or regulation in
  order to combat money laundering
• police/law enforcement unit (FIN, SWE, N, DK, UK)
• administrative unit (BG, USA, B, NL)

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BASIC FIU CONCEPT
Information received and analyzed by
FIUs. Information disseminated by FIUs.
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3 Stages of Money Laundering

• Placement
• Layering
• Integration

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3 Stages of Money Laundering

• Placement
• Layering
• Integration

• Placing money into financial system
• Conversion of currency or denominations
• Depositing cash into an account or multiple
  accounts
• Smurfing
• Conversion into checks, gold

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3 Stages of Money Laundering

• Placement
• Layering
• Integration

• Creating layers to cover trail
• Transactions between financial institutions, both
  domestic and foreign
• Splitting funds up and bringing them together
  again
• Loans, deposits, securities
• Front/shell companies

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3 Stages of Money Laundering

• Placement
• Layering
• Integration

• Integrating into legal economy
• Real estate
• Vehicles
• Luxury goods
• Precious metals and stones
• Art, antiques, etc.
• MONEY REMAINS DIRTY-
• IT ONLY APPEARS CLEAN

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Case examples
Any act or attempted act to conceal or disguise
the identity of illegally obtained proceeds so
that they appear to have originated from
legitimate sources. Interpol definition of
money laundering