Anti-Money Laundering - Law of Economic Crime
The 21st century is an era where mankind push to the limits the various technological applications and characterized by new “global” thinking and that this new thought transcends to how man deal with his fellow men, the society where he lives and even beyond - Anti-Money Laundering - Law of Economic Crime introduction. Not only technologies are pushed to the limits but also crime fighting as criminal organization uses the new technological frontiers to conduct their trade. The proceeds of their criminal activities are laundered to evade detection of authorities. The United Nations Office on Drug Crimes in a report held that organized crime groups generate huge amounts of money in our globalize economy through drug trafficking, arms smuggling and financial crime. This research paper aimed to: a) to be able to know the different statutes that govern the Anti-Money Laundering Act; and b) to be able to understand the scope of Anti-Money Laundering Act as an Economic Crime.
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The United States passed several anti-money laundering statutes through the years in response to its commitment to curb the country from these economic crimes. The Department of Treasury’s Financial Crimes Enforcement Network named the different money laundering schemes use by the criminals and criminal organizations, like the polar cap, operation c-chase, the Bank of Credit and Commercial and International, and operation green ice. Finally, money laundering activities are very elusive because it uses legitimate businesses to perpetrate their shady dealings and the government will not be a deterrent to its effort to curb these illegal activities through passing of stringent criminal law which governs the conduct of financial institutions on money transfer and related activities for without this strong law these groups will undermine the economic and political stability of a country.
Anti-Money Laundering – Law of Economic Crime
The 21st century is an era where mankind push to the limits the various technological applications for it to live in comfort. In this century, man’s existence is characterized by “global” thinking and this new thought transcends to how a man deal with his fellow men, the society where he lives and even beyond. The advent of sophisticated technology and its uses in crime prevention and detection led to the individual and organized criminal to disband and re-organize using the technology to hide their trails or the corpus delecti or the body of the crime.
Government(s) and its institutions were forced to take appropriate actions and make proactive choices to give solutions to this new modus operandi of organized and technologically advanced criminal entity. Public and private financial intuitions were prone channels of organized crimes’ laundered money if left unchecked, will erode the country’s economic fundamentals resulting to a weak and volatile economy. Thus, anti-money laundering law(s) were enacted to give protection to the real threats of this activity.
The United Nations Office on Drug Crimes’ paper entitled “Global Programme Against Money Laundering” states that organized crime groups generate huge amounts of money in our global economy through drug trafficking, arms smuggling and financial crime. The paper further adds that “dirty money” were of no use to the groups for it leave a trail of evidence that could be
used by law enforcement to hound them; instead, the proceeds of their criminal activity were “laundered” or disguised to protect them.
Fuelled by advances in technology and communications, the financial infrastructure has developed into a perpetually operating global system in which “megabyte money” (i.e. money in the form of symbols on computer screens) can move anywhere in the world with speed and ease.
The Money Laundering
Charles Doyle (2002) defines “Money Laundering” as the flow of cash or other valuables derived from; or intended to facilitate, the commission of a criminal offense or as transactions intended to disguise fund’s true source; disguise the ultimate fund disposition; eliminate any audit trail and make it appear as though the funds came through legitimate sources; and evade income taxes (The Federal Deposit Insurance Corporation, 2006).
Laundering as a tool of an organized crime group is detrimental to business stability and growth, development, government, and rule of law where drug trafficking and corruption are also involved. A good reputation, integrity or probity are the banking industry’s weapon to thrive in the business and any shady dealing with any suspected organized crimes can severely damage its good name, which is bad for business (UNDOC, 2004).
Also, an international financial institution to keep its major client’s account of a legitimate corporation, must shun its doors to organized crime groups and drug traffickers,’ for fear of a tarnished reputation through association (UNDOC, 2004). Laundered money if left unchecked will erode a nation’s economy for it can artificially intervene cash demand, makes interest and exchange rate volatile and can cause high inflation rate in countries where these criminal elements are doing business.
Finally, the failure to curb money laundering has many social consequences like: promoting corruption of public officials; the laundering of proceeds from the activities of an organized crime, drug trafficking, and commodity smuggling; and the buying of arms of terrorist groups.
Money Laundering and Globalization
The present technological revolution and the “exploitation” of available technologies to conduct economic activities resulting to a globalized economy is the new battle ground of organized crimes’ money laundering activities. According to the United Nation’s Office on Drug Crime (UNODC) the swift cycle of development in financial information, technology and communications allow money to move anywhere with speed and ease, thus, the urgency to combat money laundering activities. UNODC admitted that as the laundered or dirty money enter into the international banking system, it is very difficult for authorities to identify its origin. The clandestine nature of money laundering activities resulted to the difficulty of ascertaining the exact amount of money that goes through the “laundry cycle” though UNDOC estimated that a total of $500 billion to $1 trillion are laundered globally. The above figures are just estimates but was believed that even if the margin is lowered the fact still remains that this so-called economic crime (money laundering) is a every serious problem that need an urgent governmental attention and solution. On the other hand, the three F’s-finding, freezing, and forfeiting of criminally derived income and assets, as used by government(s) decades ago were proved to be difficult to implement as recent development in international financial system were in place like: the “dollarization” (use of United States dollar in transactions) of black markets; the general trend towards financial deregulation; the progress of the Euromarkets; and proliferation of financial secrecy havens (UNDOC, 2004).
Statement of the Problem
1. To be able to know the different statutes that govern the Anti-Money Laundering Act; and
2. To be able to understand the scope of Anti-Money Laundering Act as an Economic Crime.
The Bank Secrecy Act 1970. Congress passed the Bank Secrecy Act in 1970 as the first law to fight money laundering in the United States. The BSA requires businesses to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory matters under the BSA requirements are heavily used by law enforcement agencies, both domestic and international to identify, detect and deter money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity (IRS, 2006).
The act requires bank to report cash transactions over $10, 000 via the Currency Transaction Report (“CTR”) (Bank Secrecy Act and Ant-Money Laundering, 2004).
Money Laundering Control Act of 1986. In 1986, the Money Laundering Control Act was enacted by Congress and codified at 18 U.S.C. §§ 1956, 1957; and §1956 applies to the knowing and intentional laundering of monetary instruments and §Section 1957 pertains to monetary transactions involving property that is “derived from specified unlawful activity,” which includes “racketeering activity” under RICO (Rodefer, 2003).
According to Bank Secrecy Act and Anti-Money Laundering of the Federal Deposit Insurance Corporation (2004), the law prohibits structuring of transactions to evade CTR filings; and introduced civil and criminal forfeiture for BSA violations.
The Anti-Drug Abuse Act of 1988. This law reinforced anti-money
laundering efforts in several ways. The Act, according to the Money Laundering Prevention: A Money Services Service Guide of the Financial Crimes Enforcement Network: significantly increased its civil and criminal penalties for money laundering and other BSA violations, including forfeiture of any property, real or personal, involved in a transaction or attempted transaction in violation of laws relating to the filing of Currency Transaction Reports, money laundering or structuring transactions; requires strict identification and recording of cash purchases of certain monetary instruments, including money orders and traveler’s checks between $3,000 and $10,000, inclusive; permits the Department of the Treasury to require certain financial institutions in specific geographic or “target” areas to file additional BSA reports of currency transactions in amounts less than $10,000 by use of “Geographic Targeting Orders;” directs the Department of the Treasury to negotiate bilateral international agreements covering the recording of large U.S. currency transactions and the sharing of such information; and increased the criminal sanction for tax evasion when money from criminal activity is involved.
The 1988 Money Laundering Prosecution Improvement Act. US Congress in 1988 pass the Money Laundering Prosecution Improvement Act that expands the definition of financial institution to include businesses such as car dealers and real estate closing personnel and required them to file reports on large currency transactions; and required the verification of identity of purchasers of monetary instruments over $3,000 (Bank Secrecy Act and Anti-Money Laundering, 2004).
1990 Bank Fraud Prosecution and the Taxpayer Recovery Act of
1990 (Crime Control Act). The laws updated the FDIC Statement of Policy issued pursuant to Section 19 of the Federal Deposit Insurance Act that prohibits, without the prior written consent of the FDIC, any person from participating in banking who has been convicted of a crime of dishonesty or breach of trust or money laundering, or who has entered a pretrial diversion in connection with such an offense (Bank Secrecy Act and Anti-Money Laundering, 2004).
The 1992 Annunzio-Wylie Money Laundering Suppression Act. The law added Sections 18(w) to the Federal Deposit Insurance (FDI) Act which provides for the revocation of federal deposit insurance of institutions convicted of certain money laundering crimes; it requires reports for a Suspicious Activity and eliminated criminal referrals; and required verification and recordkeeping for wire transfers (Bank Secrecy Act and Anti-Money Laundering, 2004).
Also, the law required the Secretary of the Treasury to: adopt a rule requiring all financial institutions, both banks and non-banks (including MSBs), to maintain records of domestic and international funds transfers, which can be used in law enforcement investigations; establish a BSA Advisory Group (BSAAG), comprised of representatives from the Department of the Treasury and Department of Justice, Office of National Drug Control Policy and other interested persons and financial institutions, including MSBs. The BSAAG, established in 1994, meets twice per year and informs representatives of the financial services industry about new regulatory developments and how reported information is used.
Annunzio-Wylie also permitted the Secretary of the Treasury to: require any financial institution, or any financial institution employee, to report suspicious transactions relevant to any possible violation of law or regulation; and require any financial institution to adopt an anti- money laundering program.
The 1994 Money Laundering Suppression Act. The law specifically addressed the Money Service Businesses (MSBs). The MLSA: requires each MSB to be registered by an owner or controlling person of the MSB; to maintain a list of businesses authorized to act as agents in connection with the financial services offered by the MSB; makes operating an unregistered MSB a federal crime; and recommended that states adopt uniform laws applicable to MSBs (Bank Secrecy Act and Anti-Money Laundering, 2004).
The 1998 Money Laundering and Financial Crimes Strategy Act. The 1998 Money Laundering and Financial Crimes Strategy Act requires banking institution to develop training program for its bank examiners in anti money-laundering; requires the US Treasury Department and other agencies to develop a National Money Laundering Strategy; and Created the High Intensity Money Laundering and Related Financial Crime Area (“HIFCA”) Task Forces (Bank Secrecy Act and Anti-Money Laundering, 2004).
2001 Uniting and Strengthening America by Providing Appropriate Tools
to Restrict, Intercept and Obstruct Terrorism Act (USA PATRIOT Act 2001). According to the Money Laundering Prevention: A Money Services Service Guide of the Financial Crimes Enforcement Network, the USA PATRIOT Act of 2001 (P.L. 107-56), which is the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, requires: establishment of anti-money laundering compliance programs by all financial institutions. At a minimum each program must include: policies, procedures and controls; designation of a compliance officer; training; and an independent audit function; establishment of a confidential communication system between government and the financial services industry; implementation of customer identification procedures for new accounts; enhanced due diligence for correspondent and private banking accounts maintained for non-U.S. persons; and establishment of a highly secure network by FinCEN for electronic filing of BSA reports.
Many regulations were issued by the treasury department to strengthen the government’s fight against anti-money laundering.
BSA Regulation’s on Mutual Funds Reporting. In May 4, 2006, the Federal Register, 71 Fed Reg. 86 (2006), registered the Department of Treasury’s Financial Crimes Enforcement Network (FinCen) Final Rule amending Bank Secrecy Act’s Regulations which requires for a mutual funds’ report regarding suspicious transactions and mandates them to report to the FinCen (Anti-Money Laundering, 2006).
BSA Regulation’s on Insurance Companies’ AML Program. In November 3, 2005, the Department of Treasury’s Financial Crimes Enforcement Network (FinCen) adopted the Final Rule,
(70 Fed Reg. 212 (2005), amending the Bank Secrecy Act Regulations which requires that Insurance Companies should have an anti-money laundering program. The rule also defines insurance companies and their products that are subject to the said requirements. According to issued regulations, the mandatory requirements for the issuance of the anti-money laundering programs is the vital key in a nationalized effort for prevention and detection of money laundering and the financing of terrorism. The regulation recognizes that non-depositary financial institutions like the insurance companies which have long been subject to Bank Secrecy Act requirements, are also vulnerable to money laundering. This final rule is applicable to insurance products such as life insurance policies, annuity contracts, property and casualty insurance policies, and health insurance policies (Anti-Money Laundering, 2006).
NASD AML Rule 3011. In February 28, 2002, The Securities and Exchange Commission published for comment the proposed National Association of Securities Dealers (NASD) Rule 3011, which prescribes minimum standards for anti-money laundering compliance programs established by NASD members. According to the Investment Company Institute (2006), the proposed rules require financial institutions, including broker-dealers and investment companies, to establish anti-money laundering compliance programs by April 24, 2002, in compliance with the pertinent provisions of the USA PATRIOT Act. The said rule proposed that on or before April 24, 2002, each NASD member as a requirement should develop and implement written anti-money laundering program practically intended to achieve and monitor the member’s compliance with Bank Secrecy Act’s requirements. The proposed rule provides that a senior management member should approve the program in writing.
The NASD member programs are required by the rule to, at a minimum: “establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of suspicious transactions; establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act; provide for independent testing for compliance to be conducted by member personnel or by a qualified outside party; designate an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program; and provide ongoing training for appropriate personnel.
Joint Securities and Exchange Commission (SEC) and Department
of Treasury Final Rule on Customer Identification Program For Broker-Dealers. In May 9, 2003, the SEC and the Department of Treasury’s Financial Crimes Enforcement Network jointly adopted a Final Rule, 68 Fed Reg. 90 (2003), regarding the customer identification for broker-dealers. The rule, according to the Financial Crimes Enforcement Network (2006), implement § 326 of The USA Patriot Act of 2001 requiring the Treasury Department and SEC to jointly adopt a regulation that minimally requires “brokers or dealers to implement reasonable procedures to verify the identity of any person seeking to open an account, to the extent reasonable and practicable; to maintain records of the information used to verify the person’s identity; and to determine whether the person appears on any list of known or suspected terrorists or terrorist organizations provided to brokers or dealers by any government agency.” The regulation applies only to “brokers or dealers in securities except for brokers or dealers that register with the Securities and Exchange Commission solely because they effect transactions in securities futures products.”
U.S Treasury Department’s Regulation on Special Information
Sharing Procedures to Deter Money Laundering and Terrorist Activity. In September 26, 2002, The U.S Department of Treasury’s Financial Crimes Enforcement Network adopted a Final Rule, 67 Fed Reg. 187 (2002), that outline procedures on special information sharing to deter money laundering and terrorist activity. The regulation encourages information sharing among the financial institutions and various law enforcements agencies in the federal level in order to identify, and deter money laundering and terrorist activity (Financial Crimes Enforcement Network, 2006).
Department of Treasury’s Regulation on Anti-Money Laundering Requirements-Correspondent Accounts for Foreign Shell Banks; Recordkeeping and Termination
of Correspondent Accounts for Foreign Banks. In September 26, 2002, The Department’s of Treasury’s Financial Crimes Enforcement Network adopted a Final Rule, 67 Fed Reg. 187 (2002), that implement new provision of Bank Secrecy Act that: prohibit certain financial institutions from providing correspondent accounts to foreign shell banks; require them to take reasonable steps to ensure that correspondent accounts provided to foreign banks are not being used to indirectly provide banking services to foreign shell banks; require certain financial institutions that provide correspondent accounts to foreign banks to maintain records of the ownership of such foreign banks and their agents in the United States designated for service of legal process for records regarding the correspondent account; and require the termination of correspondent accounts of foreign banks which failed to comply with or fail to contest a lawful request of the Secretary of the Treasury (Secretary) or the Attorney General of the United States (Attorney General) (Financial Crimes Enforcement Network, 2006).
Department of Treasury’s BSA Regulations Amendment that Requires
that Brokers or Dealers in Securities Report Suspicious Transactions. In July 1, 2002, Department of Treasury’s Financial Crimes Enforcement Network, adopted the Final Rule, 67 Fed Reg. 126 (2002), requiring that securities brokers or dealers should report suspicious transactions to the department. The final rule is a positive step in creating a comprehensive system that will report suspicious transactions by the major categories of financial institutions operating in the United States, as a part
of the counter-money laundering program of the department (Financial Crimes Enforcement Network, 2006).
Department of Treasury’s Regulation on Ant-Money Laundering Programs
for Financial Institutions. In April 29, 2002, the Department of Treasury’s Financial Crimes Enforcement Network adopted a Final Rule, 67 Fed Reg. 82 (2002), that requires financial institution to have an anti-money laundering programs. The rule provides that “banks, savings associations, credit unions, registered brokers and dealers in securities, futures commission merchants, and casinos, will be deemed to be in compliance with § 352 of the 2001 USA riot Act if they establish and maintain anti-money laundering programs as required by existing FinCEN regulations, or their respective Federal regulator or self-regulatory organization. The establishment of anti-money laundering programs by money service businesses, operators of credit card systems, and mutual funds are the subject of separate rules published in a separate part of this issue of the
Federal Register. This rule temporarily exempts, pending further analysis and review by Treasury and FinCEN, all other financial institutions (as defined in the BSA) from the requirement in section 352 that they establish anti-money laundering programs” (Financial Crimes Enforcement Network, 2006).
Laundering Schemes and Cases
The Department of Treasury’s Financial Crimes Enforcement Network in a published paper entitled “Money Laundering Prevention: A Money Services Service Guide” outlined the different money laundering schemes used by the criminals and criminal organizations. These are the operation polar cap, operation c-chase, the Bank of Credit and Commercial and International, and operation green ice. These are the landmark investigations that primarily involve banking institutions.
Operation Polar Cap The case involved two different banks and two different customers. In the 1st bank, a jewelry broker was making a $25 million deposit in three months, too large for his usual business, and more than the $10,000 threshold deposit a day without a need of CTRs. Bank official aside from filing CTRs reported the case to the IRS Criminal Investigation. In the 2nd bank, when a grocery store and check cashing service owner stopped from taking cash back for the check he deposited, with the help of an observant bank employee. With the help of the U.S Customs Service, more than 127 people were arrested, a foreign bank was indicted, and one ton of cocaine was seized resulting to numerous convictions. The investigations resulted to uncovering and disruption of about $1.2 billion laundered money over two years (Money Laundering Prevention: A Money Services Service Guide, n.d).
Operation C-Chase. A Luxembourg-based bank, two of its subsidiaries, nine bank officials, and 75 other individuals in several countries were indicted for possible involvement in a worldwide money laundering scheme. Convictions were obtained in a significant number of cases resulting to the disruption of $10 million per month in drug proceeds to these groups.
According to the Money Laundering Prevention: A Money Services Service Guide of the Treasury Department, operation c-chase look into type of operation used by a criminal organization that launders money through their associates that “pick up cash from drug activities in cities around the United States and, either through funds transfers or by physically transporting the cash, depositing it into undercover accounts in a U.S. bank.” A blank check drawn on the undercover accounts signed by the “group’s” associates and after the cash pick up, the laundering operation’s head would enter the amount into one of the blank checks and forward it to the owner of the funds or sell it on the currency black market. The group head use several variations in the way cash is picked up or deposited as the operations expand. In some instances, some under cover accounts’ funds were wired to similar Central American bank accounts as a form of disguise, others transferred to a foreign bank funds from the US. A 90-day certificate of deposits was used, in both instances, as a form of Central American Bank’s collateral of the “groups” associates. “The loan proceeds were then deposited in undercover accounts in the bank and forwarded through the chain as before. At a later date, funds wired through two foreign banks were used to purchase certificates of deposit at a second foreign bank. The certificates were then used as collateral on loans made at a third foreign bank, the proceeds of which were wired back to the undercover accounts at the U.S. banks, and transferred from there to the owner’s account in South America.” The participants were warned by the organizers to use variations or combinations to avoid pattern detection. This organized criminal groups used many “legitimate businesses, such as hotels and restaurants, to originate funds transfer to the undercover accounts.”
Bank of Credit and Commerce International (BCCI). One of the world’s largest privately owned financial institutions of the 80s, The Bank of Credit and Commerce International operated in 70 countries. Bank’s employees were found to have indulged in illegal activities and one of them was money laundering. During the years of its operations, BCCI employees were found to have engaged in a number of illicit activities, including money laundering. In 1970s, due to troubled shipping loans, the bank was already in a precarious financial situation but because of an intricate shell game it used, the bank shuttled assets and liabilities among its subsidiaries, giving the appearance of being a well capitalized financial institution. In 1991, BCCI’s operations were seized by regulators in seven countries after the results of the investigations (Money Laundering Prevention: A Money Services Service Guide, n.d).
The BCCI case resulted to reforms in the financial institutions, like: “financial institutions should be careful about knowing other institutions with which they do business; they should carefully screen potential major owners or shareholders, pay attention to the quality and extent of supervision that foreign institutions receive in their home countries; and be aware that asset forfeiture laws put institutions at risk of having assets, including bank accounts and outstanding instruments and money transfers, frozen or seized.
Operation Green-Ice. The eight nation’s law enforcement agencies cooperated in a sting of operation resulting to 167 arrests and the $54 million in cash and other assets seizure. Green Ice‘s operation led to the arrest of cocaine cartels’ high-ranking financial officers and their convictions. Foreign and U.S. bank accounts were frozen after transfers and receipt of cash deposits laundered funds. U.S. banks that received cash deposits in this case cooperated with Drug Enforcements Agency’s agents resulting to the continuing filing of detailed CTRs, which provided additional evidence. The less access to information “intermediary banks” was at risk as they were unwittingly used as part of the money laundering chain (Money Laundering Prevention: A Money Services Service Guide, n.d).
Whitifeld v. United States. Whitefield, a member of the Greater Ministries International Church’s (GMIC) executive board was indicted by a federal grand jury on March 1999, for violation of §1956(h) a money laundering conspiracy statute for conspiracy to lauder money. The GMIC operated a gifting program and pocketed more than $400 million for the period of 1996 to 1999. Investors were promised to double back their money within one year and half. Whitefield marketed the program throughout the country and claims that the return of the investor’s money will be returned through investments in gold and diamond mining, commodities, and offshore banks and the “church would use some of the profits for philanthropic purposes. The promises entered by the GMIC to its investors were false and misleading. The petitioners were allegedly laundered more than $1.2 million dollars in commissions.
The district court denied Whitefield and others’ motion for the court to instruct the jury that the Government was required to prove beyond a reasonable doubt that at least one of the co-conspirators had committed an overt act in furtherance of the money laundering conspiracy. The jury found the petitioners guilty of money laundering conspiracy chargers. The Court of Appeals (11th Circuit) affirmed the district court’s ruling saying that the district court’s ruling were correct because §1956(h) does not require proof of an overt act.
The Supreme Court through Justice O’Connor held that a conviction for conspiracy to commit money laundering, in violation of §1956(h), does not require proof of an overt act in furtherance of the conspiracy.
REVIEW AND ANALYSIS OF LEGAL LITERATURE
The Fundamental Laws of Money Laundering
The United Nation’s Office on Drug Crime (2006) enumerated the ten fundamentals of money laundering. The following:
The more successful a money laundering apparatus is in imitating the patterns and behaviour of legitimate transactions, the less the likelihood of it being exposed;
The more deeply embedded illegal activities are within the legal economy and the less their institutional and functional separation, the more difficult it is to detect money laundering;
The lower the ratio of illegal to legal financial flows through any given business institution, the more difficult it is to detect money laundering;
The higher the ratio of illegal “services” to physical goods production in any economy, the more easily money laundering can be conducted in that economy;
The more the business structure of production and distribution of non-financial goods and services is dominated by small and independent firms or self-employed individuals, the more difficult the job of separating legal from illegal transactions;
The greater the facility of using cheques, credit cards and other non-cash instruments for effecting illegal financial transactions, the more difficult it is to detect money laundering;
The greater the degree of financial deregulation for legitimate transactions, the more difficult it is to trace and neutralize criminal money;
The lower the ratio of illegally to legally earned income entering any given economy from outside, the harder the job of separating criminal from legal money;
The greater the progress towards the financial services supermarket and the greater the degree to which all manner of financial services can be met within one integrated multi-divisional institution, the more difficult it is to detect money laundering; and
The greater the contradiction between global operation and national regulation of financial markets, the more difficult the detection of money laundering.
Money Laundering: The Process
In 2002, the Office of the Comptroller of Currency, U.S Treasury Department in a paper entitled “Money Laundering: A Banker’s Guide to Avoiding Problems describes money laundering as a diverse and often complex process that need not involve cash. The act has three independent steps that occur simultaneously. These are: a) placement –placing, through deposits or other means, unlawful proceeds into the financial system; b) layering –separating proceeds of criminal activity from their origin through the use of layers of complex financial transactions; and c) integration –using additional transactions to create the appearance of legality through the purchase of assets.
Money Laundering and the USA Patriot Act of 2001
According to Doyle (2002), the USA Patriot Act expands Treasury Secretary’s authority to regulate U.S financial institutions’ activities, particularly their relations with foreign individuals and entities. The Secretary is mandated to promulgate regulations: “under which securities brokers and dealers as well as commodity merchants, advisors and pool operators must file suspicious activity
reports (SARs); requiring businesses, which were only to report cash transactions involving more than $10,000 to the IRS, to file SARs as well; imposing additional “special measures” and “due diligence” requirements to combat foreign money laundering; prohibiting U.S. financial institutions from maintaining correspondent accounts for foreign shell banks; preventing financial institutions from allowing their customers to conceal their financial activities by taking advantage of the institutions’ concentration account practices; establishing minimum new customer identification standards and recordkeeping and recommending an effective means to verify the identity of
foreign customers; encouraging financial institutions and law enforcement agencies to share
information concerning suspected money laundering and terrorist activities; and requiring financial institutions to maintain anti-money laundering programs which must include at least a compliance officer; an employee training program; the development of internal policies, procedures and
controls; and an independent audit feature.”
Doyle (2002) synthesizes the new money laundering crimes contained in the USA Patriotic Act of 2001. These are: outlaws laundering (in the U.S.) any of the proceeds from foreign crimes
of violence or political corruption; prohibits laundering the proceeds from cybercrime or supporting a terrorist organization; increases the penalties for counterfeiting; seeks to overcome a Supreme Court decision finding that the confiscation of over $300,000 (for attempt to leave the country without reporting it to customs) constituted an unconstitutionally excessive fine; provides explicit authority to prosecute overseas fraud involving American credit cards; and endeavors to permit prosecution of money laundering in the place where the predicate offense occurs.
The Act provided for two forfeitures cases (Doyle, 2006) and at the same time modifies several confiscation related procedures. The Act allows individual property or entity’s to be confiscated if it was found out that they participated in or plans an act of domestic or international terrorism; confiscation is permissible if any property derived from or used to facilitate domestic or international terrorism. The Anticipated breath of these provisions is subject to the Constitution’s provision on due process, double jeopardy, and ex post facto clauses may limit the anticipated breath of these provisions. Procedurally, the Act: establishes a mechanism to acquire long arm jurisdiction, for purposes of forfeiture proceedings, over individuals and entities; allows confiscation of property located in this country for a wider range of crimes committed in violation of foreign law; permits U.S. enforcement of foreign forfeiture orders; CRS-5 calls for the seizure of correspondent accounts held in U.S. financial institutions for foreign banks who are in turn holding forfeitable assets overseas; and denies corporate entities the right to contest a confiscation if their principal shareholder is a fugitive.
Money Laundering and the International Organizations
The U.S Department of Treasury through the Financial Crimes Enforcement Network believed that the fight against the financial crimes is not for the United State alone (Money Laundering Prevention, n.d.) but for other countries and international organization too. The seriousness of the crusade has led to a number of international organizations and regional groups to adopt an anti-money laundering rules and regulations.
Basel Committee. Central bank’s representative and supervisory authorities of Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the USA composed the Basel Committee. The Basel Committee in 1988 published a “Statement of Principles” on money laundering, which generally recommended obtaining proper identification from customers and complying with laws and regulations governing financial transactions (Money Laundering Prevention: A Money Services Service Guide, n.d).
United Nations (UN). According to the Money Laundering Prevention: A Money Services Service Guide of the Treasury Department, the United Nations calls for all foreign government to criminalized money laundering, to assure that bank secrecy is not a barrier to criminal investigations, and to promote removal of legislative barriers to investigation, prosecution, and international cooperation. This UN call was made in the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention).
Financial Action Task Force (FATF). The 1989 Industrialized countries’ Economic Summit led to the FATF was creation. The Summit issued a protocol consistent with the Vienna Convention, for money laundering laws implementation and coordination among member states. The Caribbean Financial Action Task Force and the Organization of America States patterned their money laundering rules and regulations from the task force. Finally, the task force issued a report on non-cooperative countries and territories that does not cooperate and obstruct international cooperation in the fight against money laundering (Money Laundering Prevention: A Money Services Service Guide, n.d).
European Union (EU). The European Union’s 1991 directive on money laundering was compatible with the original 40 FATF recommendations that require mandatory reporting of suspicious transactions and identification of beneficial owners and customers of financial transactions and accounts (Money Laundering Prevention: A Money Services Service Guide, n.d).
PRESENTATION OF ANECDOTAL INFORMATION
FISCA opposes Joint Government Agencies Threat Assessment. In January 17, 2006, the Financial Services Centers of America in strong voice reacted against the joint findings of the Department of the Treasury, Department of Justice, Department of Homeland Security and the US Postal Service’s US Money Laundering Threat Assessment dated January 11, 2006. The anecdotal information contained in the stated joint report was gathered by these federal agencies. The government-wide money laundering analysis aimed at helping policy makers, regulators and federal law enforcement agencies to have a better understanding to the said issue and how to strategically plan and combat it (Financial Services Centers of America, 2006).
Anecdotal information used by these agencies were not that current or not based on prevailing industry’s standards, thus, some of the threats or informations given were off-tangent to what is really happening in the field. Money laundering activities uses state of the art technologies available or those channels used by legitimate business and any information derived using these channels to combat the said crime should be approached with caution.
Money laundering activities are very elusive because it uses legitimate businesses to perpetrate their shady dealings and it is very challenging on the part of the government to uncover such illegal acts and prosecute the perpetrators. On the other hand, the obstacles encountered by the government will not be a deterrent to its effort to curb these illegal activities through passing of stringent criminal law which governs the conduct of financial institutions on money transfer and related activities for without this strong law these groups will undermine the economic and political stability of a country.
Doyle, C. (2002). The USA Patriot Act: A Sketch. Library of Congress: Congressional Research Service Report for Congress. RS21203, April 18. 2002.
Federal Deposit Insurance Corporation (2004). Bank Secrecy Act and Anti-Money Laundering, Retrieved June 01, 2006, from http://www.fdic.gov/regulations/examinations/bsa/bsa_5.html
Federal Deposit Insurance Corporation (2004). Bank Secrecy Act and Anti-Money Laundering, Retrieved June 01, 2006, from http://www.fdic.gov/regulations/examinations/bsa/bsa_5.html
Federal Deposit Insurance Corporation (2004). Bank Secrecy Act and Anti-Money Laundering, Retrieved June 01, 2006, from http://www.fdic.gov/regulations/examinations/bsa/bsa_5.html
Financial Crimes Enforcement Network (2006). Regulatory/Federal Register Notices. U.S. Treasury Department. Retrieved June 01, 2006, from http://www.fincen.gov/326bdfinal.pdf
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