Prevention of Money Laundering Seminar on Financial Services Sofia, 14-16 September 2005 Jaakko Christensen Senior Det

1. Prevention of Money Laundering Seminar on Financial Services Sofia, 14-16 September 2005 Jaakko Christensen Senior Detective Superintendent NBI-Finland

2. Criminalising Money Laundering Preventing and investigating money laundering Case Examples

3. 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

4. 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

5. 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 committednegligently (person ought to have known)

6. 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

7. 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

8. 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

9. 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

10. 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.

11. 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.

12. 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).

13. 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.

14. 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

15. 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

16. 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)

17. 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

18. 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

19. 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.

20. 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;

21. 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.

22. 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)

23. 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

24. 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

25. 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).

26. 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

27. 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 40+9 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)

28. 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

29. 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

30. 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

31. Judiciary Public Prosecution Law Enforcement & Security Services Financial Intelligence Unit Financial Regulators & Central Bank Financial Services Providers Foundation of AML/CFT Structure Financial Services Sector

32. 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)

33. FOREIGN FIU FIU PROSECUTORIAL AUTHORITIES FINANCIAL INSTITUTION LAW ENFORCEMENT INFORMATION FROM OTHER DATA BASES BASIC FIU CONCEPT Information received and analyzed by FIUs. Information disseminated by FIUs.

34. 3 Stages of Money Laundering • Placement • Layering • Integration

35. 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

36. 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

37. 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”

38. 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