Regulating and Prosecuting Global Money Laundering By: Aida Kebere

What is Money Laundering? Money Laundering is the process of making illegally-gained proceeds( i.e. “ dirty money “) appear legal (i.e. “clean). “The World Bank and International Money fund estimate that global money laundering linked to corruption, criminal activity, and tax evasion constitutes about 3 to 5 percent of the world’s domestic product- or between roughly $2,17 and $3.61 trillion a year.”

How does money laundering work? Placement: refers to the initial point of entry for the funds derived form the criminal activities. Layering : refers to the creation of complex networks of transactions which attempt to obscure the link between the initial entry point and the end of the laundering cycle. Integration: refers to the return of funds to the legitimate economy for later extraction Money laundering can and does take many forms. It typically occurs in three stages: Placement, Layering and Integration. Money Laundering can facilitated crimes such as drug trafficking and terrorism, and can can adversely impact the global economy.

Crimes Associated With Money Laundering Drug trafficking 7. Foreign official corruption Terrorist financing 8. Exchange control violation Financial fraud 9. Illegal gambling Computer Crimes 10. Bribery of public officials Alien smuggling 11. Misappropriation, theft Illegal arms sales 12 Embezzlement of public fund Although money laundering is often equated with drug trafficking, the proceed of many crimes can be associated with money laundering. Other unlawful activities- these crimes are explicitly defined as including bribery of a public officials, or the misappropriation, theft, or embezzlement of public funds.

Who may be Potentially Exposed? Banks Financial institutions International Business Operations Companies Investors Corporate executives Individuals Due to the growing use of money laundering charges to combat financial fraud and police international business operation, companies , investors and corporate executives should be aware of their potential exposure under the Money Laundering Act.

The Financial Action Task Force (FATF) FATF is an inter-governmental body established in 1989 by the Minister of its Member jurisdictions. Sets international standards , promote effective implementation of legal, regulatory and operational measures. FATF currently has 34 members jurisdictions and 2 regional organizations. International Money laundering laws and guidance are set The Financial Action Task Force (FATF) The Objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measured for the combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. -FATF is therefore a policy-making body -The FATF currently comprises 34 member jurisdictions and 2 regional organizations, representing most major financial centers in all parts od the glove. United States ,Argentina, Australia, Brazil , Canada, Germany, Russian Federation, Switzerland ,United Kingdom Hong Kong, China European Commission, Gulf Co-operating Council and more….

U.S. AML Laws and Regulations Bank Secrecy Act of 1970 (BSA) The Uniting and strengthening America by Providing Tools required to intercept and Obstruct Terrorism Act of 2001 ( commonly referred to as USA Patriot Act). Money Laundering Control Act of 1986 (MLCA) Anti-Drug Abuse Act of 1988 Act of 1992 Money Laundering Suppression Act of 1994 (MLSA) Money Laundering and Financial Crimes Strategy Act of 1998 -The BSA was the first major money laundering legislation in the United States. It was designed to deter secret foreign bank accounts and provide an audit trail for law enforcement by establishing regulatory reporting recordkeeping requirements to help identify the source, volume and movement of currency and monetary instrument into or out of the United States or deposited in financial institutions. -The USA PATRIOT Act was singed into law by President George W. Bush on October 26, 2001. Following thr terrorist activity of September 11. - Other AML Laws that have been enacted in the United States

Anti Money Laundering Statutes Comprehensive oversight, monitoring, and reporting framework designed to limit money laundering activity, focused primarily on financial institutions. The criminalization of money laundering activities by any individual or corporation Money laundering statues can be divided into two general types: 1. Comprehensive oversight, monitoring, and reporting framework designed to limit money laundering activity, focused primarily on financial institutions. 2. The criminalization of money laundering activities by any individual or corporation - Together, these laws serve as complementary pillars of the U.S. AML regime

The Statute of the Money Laundering Act The statute allows for a broad jurisdictional hook The Statute can reach any U.S. citizen anywhere in world, if part of the conduct takes place in the U.S. Transactions value exceeds $10,000 -The statue can reach any U.S. citizen anywhere in the world or any conduct by a non-U.S. citizen if at least part of the conduct takes place in the U.S. So long as the transaction or series of transactions value exceeds $10,000

Key U.S. Regulatory Authorities Financial Crimes Enforcement Network (FinCEN) Self-Regulatory Organizations (SROs) Financial Industry Regulatory Authority (FINRA) Department of Justice (DOJ) The following regulators have the authority to assess penalties for violations of AML and regulations. FINCEN, SROs, FINRA , DOJ - Some state regulatory agencies have their own authority to assess civil penalties as well

Anti-money laundering (“AML”) programs - Information sharing, Risk Assessments -Customer Acceptance and Maintenance Program -Large Currency Monitoring and Currency Transaction Report Filling Program - Monitoring, investigating and Suspicious Activity Filling Program - Sanction Program , Information Sharing, Training ,Record keeping and Retention Programs Key components of an AML Compliance Program include, but are not limited to the following

HSBC’s Case HSBC’s U.S branch failed to monitor transactions with branches in other countries for money- laundering violations. It accepted $15 billion without further inquiry HSBC was fined by both the U.S. and British regulators. HSBC to pay $1.9 BILLION U.S. fines HSBC has also shouldered significant remediation costs HSBC’s highly-publicized troubles began in the summer of 2012 when the U.S. Senate released a report detailing the numerous inadequacies in HSBC’s anti money laundering controls and failures in its past monitoring efforts. - The bank U.S branch failed to monitor transactions with other branches for at least three years.

Policy Proposal Strengthen and refine the Anti-Money Laundering regulatory regimes for all financial institutions Improve the effectiveness of the AML controls through greater guidance, communication and information sharing Re-evaluate some of the existing procedures Improving compliances systems

Impact of proposal Pros Cons Will comply with regulation - Costly to continuously Mitigate risks revamp the procedures Won’t have to pay fines - you can’t deal with certain Build strong brand in the industry parameters - have to alienate certain industries due to sanctions Ex. For financial institutions such as Western Union can’t provide their services in certain countries. One will have to decline a business that sells Persian rugs, because they come from Iran.