The problem of money laundering, which existed before countries enacted laws to criminalise it, has developed over the decades such that a complex, global anti-money laundering regime has similarly developed, consisting of international organisations, departments of various governments, and voluntary, private sector organisations, writes Richard Horowitz an attorney concentrating in corporate, security, and international matters who spoke at last year’s Global Compliance Solutions conference. This article presents a short overview of this regime. All entities referred to in this article have their own websites.
The main international organisation regarding money laundering is of course the Financial Action Task Force, established in 1989 by the G-7 and headquartered in Paris, famous for its Forty Recommendations on money laundering and since 11 September, its nine recommendations on terrorism financing, together referred to as the FATF Standards. The first of the FATF’s 40 recommendations is that countries criminalise money laundering. On 29 July, 2005, the United Nations’ Security Council passed Resolution 1617, which, among other things, “strongly urge[d] all member states to implement the comprehensive, international standards embodied in the” FATF’s recommendations.
Since the FATF’s inception Financial Action Task Force Style Regional Bodies have been created; today over 180 jurisdictions are members of the FATF and the various FSRBs. The eight FSRBs are the Caribbean Financial Action Task Force, the Asia Pacific Group, Grupo de Acción Financiera de Sudamérica, the Financial Action Task Force on Money Laundering in South America, the Eurasian Group on Combating Money Laundering and Financing of Terrorism, the East and Southern African Anti-Money Laundering Group, the Middle East and North Africa Financial Action Task Force, the Intergovernmental Anti-Money Laundering Group in Africa comprised of Sub-Saharan countries, and the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism. It is the FATF along with the relevant FSRB, at time in coordination with the Offshore Group of Banking Supervisors that publishes Mutual Evaluation Reports about various countries. The US State Department publishes its annual International Narcotics Control Strategy Report, which also contains country reports on money laundering.
The United Nations also has departments dealing with anti-money laundering; its International Money Laundering Network helps coordinate information and events among other international organisations, and the Law Enforcement, Organised Crime and Anti-Money-Laundering Unit of its Office on Drugs and Crime, established in 1997. It provides a Global Programme against Money-Laundering, Proceeds of Crime and the Financing of Terrorism and the Anti-Money Laundering International Database, established in 2006 and accessible only to governments.
Numerous countries have established Financial Intelligence Units and other departments that focus on countering money laundering. Among the better known national entities for example are the U.S. Treasury Department’s Financial Crimes Enforcement Network, and Treasury’s Office of Foreign Assets Control, Canada’s Financial Transactions and Reports Analysis Centre, TRACFIN, the FIU of France, and the UK’s Serious Organised Crime Agency. The Cayman Islands FIU is the Cayman Islands Financial Reporting Authority.
The Egmont Group founded in 1995 and headquartered in Brussels was established to facilitate coordination among FIUs. Today the Egmont Group has a membership of FIUs from about 110 countries. The UN’s Office of Drugs and Crime has an Anti-Money-Laundering and Counter Terrorist Financing System, established to assist FIUs.
Numerous non-governmental entities exist as well. For example, the Wolfsberg Group is an association of eleven of the world’s largest banks. Since 2002 it has published eleven Wolfsberg Standards on various AML issues and in coordination with the Bankers Almanac publishes the International Due Diligence Repository. The Joint Money Laundering Steering Group is comprised of UK trade associations in the financial services industry and primarily publishes industry guidance material
Since no other crime has generated such a large and complex global regime to counter it, the question therefore arises – what is unique about money laundering which has done so?
First, money laundering, while itself a crime, is in its essence a tool to catch other crimes – whether it be drug trafficking, human trafficking, or illegal arms sales. Money laundering facilitates the success of these various criminal enterprises which could be stifled without the ability to launder its proceeds. Focusing on the laundering of the funds of other unlawful activity therefore functions also as an attempt to control many types of criminal activity.
Second, by the very nature of business and crime, money laundering is an international enterprise. The difficulty in identifying a money laundering scheme increases with its complexity. The greater use of shell companies, banks, and other financial and non-financial institutions, in more jurisdictions, the greater the chance of successful money laundering. International cooperation is therefore clearly required and the international community has properly responded through the development of the global AML regime.
Third, the participation, wittingly or unwittingly, of entities apart from the launderers themselves is by definition essential to money laundering, requiring governments to include the private sector in global AML efforts and establish requisite compliance obligations. The private sector in turns has created its own regime of trade associations, databases, and other measure to insure compliance with government standards and to protect itself from exploitation by money launderers.
Fourth, certain financial transactions can be determined to be money laundering not based on its paper trail but by the intention of the people behind the transactions. While the paper trail may serve as a red flag, the evidence proving the transactions to be a money laundering scheme may need to be acquired through other investigative and intelligence techniques, hence government Financial Intelligence Units for example and the cooperation among them.
Finally, since 9/11, anti-money laundering and combating terrorism financing have become intertwined. AML conferences having taken places for years are now routinely entitled AML/CTF conferences. The Nine FATF CTF Recommendations have been added to its Forty AML Recommendations. International terrorism is a serious problem which has a strong money laundering component, hence the additional international scrutiny.
The ability to counter money laundering, whether on the international level or through the efforts of individual institutions, requires not only an understanding of various crimes, money laundering schemes, and due diligence techniques but an understanding of this complex global AML regime as well.