Money Laundering - An Endless Cycle?

A Comparative Analysis of the Anti-Money Laundering Policies in the United States of America, the United Kingdom, Australia and Canada

Nicholas Ryder

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136458378
• Edition: 1
• Topic: Diritto
• Subtopic: Diritto penale

This book provides a detailed examination of anti-money laundering policies and legislative frameworks in a number of jurisdictions and considers how successful these jurisdictions have been in implementing international measures to combat money laundering.

Looking at the instruments and proposals put in place by a number of institutions including the United Nations (UN), the Financial Action Task Force (FATF) and the European Union, the book begins by reclassifying and expanding the traditional global anti-laundering policy to include aspects such as having a national money laundering strategy in place, the implementation of international instruments and the role of government and regulatory agencies. Ryder then offers a comparative analytical review of the anti-money laundering policies adopted in the United States of America, Canada, the United Kingdom and Australia and considers to what extent they have followed and implemented the identified global anti-money laundering policy. Money Laundering – An Endless Cycle? will be of particular interest to academics and students in the fields of Law, Finance, Banking and Criminology.

1 Introduction

Economic crime is as old as the organised economy itself. Criminals invariably need to hide their bounty, but they also want to be able to retrieve and use it as they like.¹

1.1 Money laundering – an introduction

The goal of a large number of criminal activities is to generate a profit for organised criminals, drug cartels and human traffickers. Money laundering is the illegal process or act by which these individuals or groups attempt to disguise, hide or distance themselves from their illegal activities. This process is crucial as it enables them to enjoy a criminal lifestyle by laundering the illegal proceeds of crime without jeopardising their source. The money laundering process has three recognisable stages – placement, layering and integration. At the placement stage of the money laundering process the money launderer seeks to position the proceeds of the illegal activity in the financial system. The money launderer normally attempts to break up the profit into smaller amounts so as to avoid any cash or currency transaction reporting obligations. This technique is referred to as smurfing, or structured payments. It is at this stage of the money laundering process that financial institutions and many other professions including for example estate agents, accountants and lawyers are susceptible to money laundering. The second stage, which is referred to as the layering process could involve a large number of financial transactions or conversions. The purpose of this phase of the money laundering transaction is to create as much distance between the initial placements of the proceeds of crime from their original source. It is during this stage that the money could be moved via the purchase of property or shares, or simply transferred to several different countries via the World Wide Web, thus making it increasingly difficult to detect. The final stage of the money laundering process is integration, and it is at this stage that the money reappears into the economy.

It is impossible to accurately determine the global extent of money laundering and estimates vary. For example, Financial Action Task Force (FATF) claims that the annual amount of money laundering is between $590bn and $1.5tn per year.² The United Nations (UN) Office on Drugs and Crime states that the figure was slightly higher, $800bn to $2tn. Conversely, the International Monetary Fund (IMF) estimated that the global amount of laundered money could be between 2 and 4 per cent of the world’s gross domestic product. Morais took the view that ‘it is very difficult to determine the precise magnitude of the money laundered globally on an annual basis’.³ The calculation of its extent is also hampered because there is no visible data on the amount of money laundered. This has been referred to as the shadow economy, or a nation’s unrecorded economic activity.⁴ It has been argued that any ‘economic analysis of money laundering is an area fraught with difficulty … [and] in the absence of hard statistical data; studies to date have had to employ indirect methods of estimation’.⁵ Therefore, if these statistics are relatively accurate, money laundering poses a significant threat to the global economy and national security. Money laundering can occur in any country or city in the world, irrespective of a country’s level of compliance with the global anti-money laundering (AML) legislative and preventive measures. Money launderers have learned to adapt and vary their techniques in response to the increased levels of international, regional and national AML legislative mechanisms. The scale of the problem is aggravated by a number of important factors such as the increasingly global nature of the financial markets, the inherent link between money laundering and the sale of illegal narcotic substances and the immeasurable number of money laundering mechanisms that exist. The relationship between money laundering and the sale of illegal narcotics is very well documented and it is often associated with the instigation of the ‘war on drugs’ by President Richard Nixon in the 1970s. This approach was subsequently followed by President Ronald Reagan in the 1980s. As a result of the US-led ‘war on drugs’ the international community implemented a plethora of legislative measures aimed at tackling money laundering. These measures were initiated by the UN in the form of the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which is more commonly referred to as the Vienna Convention. This was followed by several other measures including the UN Convention against Transnational Organised Crime, or Palermo Convention, and the UN Convention against Corruption. Additionally, the European Union (EU) introduced a series of legislative measures, the first of which, the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism was implemented in 1990. Furthermore, the EU has introduced three Money Laundering directives, which require each member state to implement a wide range of AML measures. Nonetheless, the terrorist attacks of September 11, 2001 resulted in a reinterpretation of money laundering by the international community and nation states. Reverse money laundering was viewed by President George Bush as a bigger threat to the United States of America (US) than money laundering, thus illustrating the threat posed by money laundering to a country’s national security. This resulted in introduction of the USA Patriot Act (2001) and a wide range of new measures to tackle the threat posed by reverse money laundering. In addition to the international legislative measures introduced by the UN and EU, we have also seen an increase in the use of international best practices and industry guidelines. An example of such are the 40 Recommendations of the FATF, which have become the international AML benchmark on which countries are assessed to determine their level of compliance. Nonetheless, it is essential to note that these measures need to be incorporated into domestic legislation by nation states.

1.2 Rationale

The aim of this book is to identify the global AML policy by incorporating a critical review of the international legislative measures of the UN and EU, the international best practices and the industry guidelines. This holistic approach has resulted in the identification of the global money laundering policy that can be divided into eight parts:

1 implementation of international legal AML instruments;

2 recognition and implementation of international best practices and industry guidelines;

3 adoption of a risk-based policy;

4 creation of competent AML authorities;

5 criminalisation of money laundering;

6 Mutual Legal Assistance;

7 preventive measures; and

8 confiscation of the proceeds of crime.

The book then seeks to provide a comparative analytical commentary of how and to what extent this policy has been incorporated into four jurisdictions:

1 United States of America;

2 United Kingdom;

3 Australia; and

4 Canada.

1.3 Why the United States of America?

The US has adopted an aggressive stance towards money laundering and is the instigator of the ‘war on drugs’, which was the catalyst for the introduction of the Vienna Convention in 1988. Interestingly, the US AML policy pre-dates those of the United Kingdom (UK), Australia and Canada, and it can be traced back to the 1960s when the Department of Treasury became concerned about the link ‘between illegal activities and offshore bank accounts’.⁶ Furthermore, its legislative measures towards money laundering pre-date the international measures introduced by both the UN and the EU. It is impossible to precisely determine the amount of money laundered annually in the US, and estimates vary from $100bn,⁷ $300bn⁸ to $500bn.⁹ The US is at the forefront of the global fight against money laundering; which is not surprising given the amount of laundered money that is transferred through its banking system. Therefore, it will be interesting to see how one of the most susceptible countries to money laundering has implemented and administered the global money laundering policy, which it played such an integral role in implementing in the 1980s.

1.4 Why the United Kingdom?

The UK, like the US, has adopted an aggressive stance towards money laundering which pre-dates the measures introduced by the international community. Nonetheless, its legislative framework has been broadened to encapsulate the legislative measures introduced by the UN and the EU. Its membership of the EU provides an interesting and unique comparative opportunity on how it has implemented these measures in addition to those of the UN. The Financial Services Authority (FSA) reported that the level of laundered money annually in the UK is between £23bn and £57bn.¹⁰ HM Treasury offered a more conservative approximation of £10bn.¹¹ An important question that needs to be considered is what mechanisms are employed by criminal entities to launder the proceeds of crime of their illicit activity? One of the most common mechanisms of money laundering is to abuse the banking system, as graphically illustrated by the illegal transactions of General Sani Abacha. The UK’s AML policy is influenced by the need to protect its banking sector and the City of London due to the contributions that each make to the economy. Therefore, it is at greater risk than other financial centres.¹² Indeed, the Department of State took the view that ‘the UK plays a leading role in European and world finance and remains attractive to money launderers because of the size, sophistication, and reputation of its financial markets’.¹³ The UK’s money laundering policy is currently in a state of flux due to the election of its first Coalition Government in nearly a century. This represents both a challenging and rare opportunity to review the implementation of a global AML in the UK.

1.5 Why Australia?

Australia is one of the largest financial markets in the Asia-Pacific region, which makes it very susceptible to illicit financial activities. Australia introduced its first AML legislation in the 1980s, which included the Proceeds of Crime Act (1987), the Financial Transaction Reports Act (1988), the National Crime Authority Act (1984) and the Mutual Assistance in Criminal Matters Act (1987). Collectively, these were described as ‘one of the leaders in counter money laundering laws’,¹⁴ and some aspects were ‘groundbreaking’.¹⁵ However, their deficiencies were demonstrated by a dramatic increase in the levels of money laundering activities. For example, according to the National Crime Authority, the extent of money laundered in Australia in 1989 was $1.8bn.¹⁶ In 1995, Australia’s Transaction Reports and Analysis Centre (AUSTRAC) estimated that the figure had increased to $4.5bn.¹⁷ More recently, Sathye took the view that the figure is nearer $11.5bn per y...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Preface
• List of Abbreviations
• Legislative tables
• 1. Introduction
• 2. Global anti-money laundering strategy
• 3. The United States of America
• 4. The United Kingdom
• 5. Australia
• 6. Canada
• 7. Conclusions
• Bibliography
• Index