The Global Anti-Money Laundering Regulatory Landscape in Less Developed Countries

Norman Mugarura

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317030331
• Edition: 1
• Topic: Law
• Subtopic: Commercial Law
• Index: Law

Examining the challenges of using the global anti-money laundering (AML) framework in an uneven global regulatory landscape, this book discusses the difficulties of relating de-regulation, liberalization and conflict of laws to the dynamics of the market economy and demonstrates how the global environment engenders money laundering. It suggests that corruption, general systemic failure and lack of infrastructural capacity in some developing economies are hampering the implementation of laws and regulations. Suggesting that these challenges can be overcome by designing AML regimes more suited to developing economies within the prevailing global climate, the book questions the assumption that that global regimes will be applicable and emphasises the need for more representation of developing economies on the relevant committees. This book is the first of its kind to present the perspective of developing economies and their involvement in AML regimes and should be of interest to those involved in business and commercial law as well as comparative law.

Chapter 1
The Conceptualization of Money Laundering Offences and Typologies

Introduction

This chapter explores the genesis of money laundering and its underlying offences (hereinafter the money laundering predicate offences). Money laundering is an elusive concept that involves the illicit movement of funds generated from drug trafficking, human trafficking, terrorism, motor vehicle trafficking, etc. In view of this, this chapter addresses multiple issues such as the scope, nature and money laundering typologies.¹ Specifically, it outlines money laundering offences and why it is a preferred method of avoiding law enforcement, its strategies and techniques, and its relationship to other forms of crimes. Money laundering can be described as an opportunistic crime because not only does it ‘lubricate the wheels’ of other organized crimes, it is also exploited as a strategy to transmit the proceeds of crime to their destination and purpose. Thus, unless robust money laundering counter-measures are devised, it has the potential to fuel the commission of transnational organized crime such as terrorism, drug trafficking and human trafficking. Since money laundering is a transnational crime, its typologies are likely to differ from society to society.² Criminals in some countries might choose to launder their profits, while in others they might simply decide to spend them. In this regard, the explosion of corruption and counterfeit currency crimes in some countries constitute money laundering predicate crimes. Thus, the last part of this chapter addresses the nexus of corruption and money laundering within the broad context of money laundering predicate offences.

The Early History of Money Laundering

The term ‘money laundering’ is relatively new, having come into parlance in the mid-1970s. According to the Oxford English Dictionary, the term first came into use in connection with the Watergate Scandal in 1973–1974.³ It is derived from the early practice of American criminal organizations operating laundromats as cash-intensive businesses to hide their criminal wealth. It has become the accepted term ever since in relevant legislation and legal texts. It can be found, for example, in titles such as the US Money Laundering Control Act (1986) and the 1990 European Convention on Money Laundering, Search, Seizure and Confiscation of Crime Proceeds.⁴ Money laundering was not criminalized in the USA until the passage of Money Laundering Control Act. The earliest legal development against money laundering took place in the USA with the passage of Bank Secrecy Act 1970.⁵ This Act fully recognized the link between money laundering, including security fraud and the global dimension of the problem.⁶ It required banks to report cash transactions of $10,000 or more and this provision was also enacted in the Money Laundering Act 1986, which for the first time defined money laundering as a federal crime.⁷

In the UK, money laundering was not a distinct offence but would be prosecuted under various statutes in the 1980s. Section 22 of the Theft Act 1968 provided the framework for the prosecution of launderers who dishonestly handled stolen assets. The most famous case to be prosecuted under this provision was the Brink’s-Mat bullion robbery case. Michael Relton, a former solicitor, was successfully prosecuted under this provision of the Theft Act 1968. The concept of money laundering in the UK can also be traced back to the House Lords’ decision in R v. Cuthbertson (1980).⁸ This decision revealed the failure of forfeiture laws to deprive the offender of the proceeds of crime. The defendants were engaged in long-term criminal activity involving the supply of controlled substances. They are said to have generated over £750,000, some of which was placed in bank accounts in Switzerland and France. Pleading guilty, the defendants were convicted and the court ordered that their assets be forfeited. The defendant appealed to the House of Lords against the sentence and the forfeiture orders of their assets. The question of law presented before their Lordships was the interpretation of the Misuse of Drugs Act 1971 and the section on which the court was empowered to order the forfeiture of the aforementioned assets.⁹ It was concluded that the powers of the court to order the forfeiture of assets did exist, but only as long as the asset in question was a tangible property and not choses in action such as cheques or other intangibles.¹⁰ In 1986 the Drug Control Act was passed, which was to consolidate confiscation orders of criminal assets by stripping criminals of the proceeds of their criminal activities. Section 24 of the Act creates an offence of assisting another to retain the proceeds of drug trafficking. However, to secure a successful prosecution, the defendant must demonstrate that he/she knew or suspected that the owner of the property has been engaged in drug trafficking or has benefited from drug trafficking.¹¹ Yet, s. 24 was only applicable in relation to the confiscation of the proceeds of drug trafficking, an issue that for some time confined money laundering to drug trafficking. This was later to be addressed by states following the adoption of United Nations (UN) instruments such as the United Nations Convention against Transnational Organized Crime in 2000 signed at Palermo (hereinafter the Palermo Convention).

The Definition of Money Laundering

Money laundering is defined as a process of manipulating legally or illegally acquired wealth in a way that obscures its existence, origin or ownership for the purpose of avoiding law enforcement.¹² Money laundering describes a deliberate, complicated and sophisticated process by which the proceeds of crime are camouflaged, disguised or made to appear as if they were earned by legitimate means. It is a three-stage process, which is as follows: (i) the dirty money must be severed from the predicate crime generating it; (ii) it must be characterized by a series of transactions designed to obscure or destroy the money trail in order to avoid detection; and (iii) the criminal proceeds must be reinvested in furtherance of the objectives of the business (launderer). In Article 3(1) of the United Nations Convention Against Illicit Traffic in Narcotic Drugs and other Psychotropic Substances (1988), states are required to enact legislation necessary to establish a modern code of criminal offences relating to illicit trafficking in all its different dimensions.¹³ The scope of criminalization should cover a comprehensive list connected to drug trafficking – from production, cultivation and possession to the organization, management and financing of trafficking operations.¹⁴ This article requires each party to the Convention to establish money laundering as a criminal offence in its domestic law when it is committed internationally.¹⁵

In Article 3(1)(b), each state party is required to establish as a criminal offence:

the conversion or transfer of property knowing that such a property is derived from any offence or offences established in accordance with subparagraph (a) of this paragraph or from an act of participation in such offence or offences, for purposes of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such offence or offences to evade the legal consequences of his action. The 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 an offence or offences established in accordance with subparagraph (a) of this paragraph or from an act of participation in such an offence or offences.

Article 3(1)(c) provides that each party render as criminal: ‘The acquisition, possession or use of property, knowing at the time of the receipt, that such property was derived from an offence or offences established in accordance with subparagraph (a) of this paragraph or from an act of participation in such offence or offences.’¹⁶ Article 3 creates a framework for criminalization and treating money laundering as a serious offence, and would ease state cooperation in relation to confiscation, mutual legal assistance and extradition of alleged money laundering criminals. The Convention is particularly important because all parties are obliged to establish Article 3(1) offences as criminal offences in their domestic law.

Thus, money laundering involves the following when committed intentionally:

• The conversion and transfer of property, knowing that such property is derived from criminal activity, 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 activity to evade the legal consequences of his/her action.¹⁷

• The 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 criminal activity or from an act of participation in such activity.

• The acquisition, possession or use of property, knowing at the time of receipt that such property was derived from criminal activity or an act of participation in such activity.

• Participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions mentioned in the foregoing indents.

• Knowledge, intent or purpose required for the commission of the above-mentioned money laundering activities should have been carried out in the territory of another state or in that of a third country.¹⁸

‘Property’ means assets of every kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments evidencing title or interests in such assets.¹⁹

The element of conversion is central to ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Abbreviations
• Foreword
• Preface
• Acknowledgements
• 1 The Conceptualization of Money Laundering Offences and Typologies
• 2 The Dynamics of Globalization and Money Laundering
• 3 The Global Anti-Money Laundering/Countering the Financing of Terrorism Framework
• 4 The Evolution of a Global Anti-Money Laundering Paradigm
• 5 Corruption and the Domestication of Global Anti-Money Laundering Schemes
• 6 Challenges to the Localization of Global Anti-Money Laundering Standards in Less Developed Economies
• 7 Harmonization of Global Anti-Money Laundering Laws
• 8 The Proposed Reforms to Transpose Global Anti-Money Laundering Regimes into some Countries
• 9 A Glimpse into Law and Global Markets
• 10 Conclusion
• Appendix 1
• Appendix 2
• Appendix 3
• Appendix 4
• Bibliography
• Index