LAUNDERING?
Laundering
EN-GB'>
Laundering is the practice of processing criminal proceeds to disguise their
illegal origin. (FATF, 2002) The term derives from the fact that certain
organized crime rings in the 1920's commingled the proceeds of their illicit
operations with the practically untraceable proceeds from coin laundries
operated by the ring, thereby making the funds appear to be legitimately
derived. (Schroth, 1996) Though the term "money laundering" may have
originated in the twentieth century, the practice of disguising ill-gotten
gains pre-dates recent history and indeed traces its roots back to the dawn of
banking itself. (
1992) For instance, when the Roman Catholic Church in medieval times condemned
usury, or lending money at interest, financiers devised methods to circumvent
this restriction that are still in practice today. (O’Meara, 2000)
of Money Laundering
its simplest form, money laundering involves three stages; placement; layering,
and integration. (Schroth, 1996) The placement stage is the process during
which criminally derived funds are used to purchase an asset or are deposited
into a financial institution. (p. 290) Next, launderers engage in one or a
series of transactions to distance the funds from their original source. (p 290)
This is the layering stage, which may include such transactions as multiple
funds transfers between accounts and across state and international borders,
complex loan arrangements, and purchases and resale of assets. (Bauer and
Ullman, 2001) Finally, there is the integration stage. This is the point at
which the illicitly derived proceeds are reintegrated with the legal financial
system and made available for use without suspicion. (Schroth, 1996) As with
any criminal enterprise, the variations on these three steps are myriad and
have evolved apace both with the sophistication of the financial systems upon
which they depend and the law enforcement tactics which threaten their existence.
used by Money Launderers
part of the chapter shall discuss the methods employed by money launderers to stash
their financial assets without the government noticing their crime. One such
technique is called smurfing. In this
technique, an individual who wants his finances undetected will open several
bank accounts on different banks under different names. It is also possible for
them to purchase bank drafts from several financial institutions to outwit
ceilings for transaction reporting.
technique is by shipping huge amounts of money overseas and consequently
orchestrates means of getting it back locally. On other accounts, less
cumbersome substances such as diamonds, gold or anything that is
extraordinarily valuable are purchased domestically. However, the value of
their items being directly related to their bulk is a prerequisite, thus
allowing an uncomplicated in terms of shipping them overseas and ensures the
solvency of the items even if it is outside the borders of the country of
origin. Generally, the American dollar is used as the currency of choice in the
context of illegal transactions. The reason is that the US dollar considerably
more widely circulated outside
compared to other leading currencies in the world.
technique is through electronic wire transfers. Scrupulous individuals are currently taking extensive
utility of the payment on their transactions through electronic means and
message systems for wire transfers. Recent innovations for financial systems authorize
iniquitous individuals to transfer monetary remunerations amounting to millions
though private desktop computers and satellite dishes. The swift passage of
funds between financial records in various jurisdictions increases the intensity
and complexity of scrutinizing and discovering the source of funds especially
when non-customers and non-correspondent banks transmit to,
every individual affianced in the business of dealing in securities must look
after appropriate customer data and records. Unusual activity includes wishes
by clients for investment management services, either foreign exchange or
securities, where the origin of the funds is not in agreement with the
customer's perceptible eminence, large or strange settlements of securities in
cash arrangement and purchasing and acquiring a security with no noticeable objective.
These should be taken into account because money launderers are also using
investment related transactions in placing their stashed cash.
with the personnel of the financial institution as well as its agents would
also be a means of laundering money without the head of the financial
institution knowing. Doubtful
indications include modification in employee characteristics such as lavish
life styles or performance, remarkable or unexpected increase in business
volume of selling products for cash; consistently high levels of single premium
insurance business far in excess of any average company expectation. Similarly,
a growing trend of money launderers moving away from the banking sector to the
non-bank financial institution sector where the use of currency exchange houses
and wire transfer companies to dispose of criminal proceeds remain among the
most often cited threats.
will institute a bank account in a financial sanctuary as a company rather than
as an individual with a numbered account. In order to augment the manifestation
of legality it is preferable that such a company already have an account of tangible
activity. Once the business is set up, a bank deposit is consequently completed
in the haven state in the appellation of that offshore corporation. The inducement
for businesses to be enlisted in offshore havens is to break away from the stern
tax and registration policy on local companies. They can concentrate not
inconsiderable quantity of financial assets to and from offshore countries devoid
of the requirement to announce the dealings to domestic economic authorities.
On the stipulation that it does no commerce where it is set up, having an
international business (IBC) or "offshore" company facilitates its
owners to operate with absolute anonymity and not disburse financial
remuneration on taxes. In many fields it is not even necessary to shelve
corporate books or records and thus is just the thing for concealing the derivation
and destination of merchandise in international commerce. Similarly, companies
could be capitalized with holder stocks such that while there is no owner on documentation
anywhere, the individual who actually possesses the share certificates owns the
corporation.
by unfettered trust companies. Loads of decontaminating schemes then develop an
additional stratum of cover where management of the company is conveyed to the
offshore trust. Consequently, the trustees basically hand over the proprietor immediate
admission and control over the assets while trouncing true ownership. The
unregulated trust companies can help conceal assets by moving the shares of a
corporation from one account to another, by changing corporate names, by
merging corporations and by changing trust documents on the instruction of the
account holder. They have also been known to manufacture false paper trails and
false documentation to assist money launderers and they have routinely provided
invoices, receipts and other documents to help fool the customs and tax
authorities of other countries.
could be further complicated if the launderer acquires their own bank among
several jurisdictions that propose such services. Consequently, the individual makes
sure that his bank is one of those through which his cash passes so he can
either shut down the bank or obliterate the records to elude authorities. Moreover,
money launderers recurrently bring into play various legal representatives the
length of the route so that they will also be sheltered by the discretion of
the lawyer-client affiliation. There is also a mounting dependence in offshore
centres on agents and representatives to engender a solid clientele, to function
as mediators in instituting accounts, and trusts. Similarly, they are also
employed to act as an added tier of insulation and confidentiality.
accountants, lawyers and private bankers who, at the same time as offering
money-laundering assistance to an extensive range of felons, are adroit at not
asking queries that would compel them to rebuff business or even to give an
account of their clients or potential clients to the authorities. They are conscious
that those who are unsuccessful to meet the terms with professional standards possibly
will be predisposed under the want of probity principle.
institutions will spawn false invoices, bills of lading, end-user certificates
and other forms of documents to give the facade of legality to an assortment of
dishonest transactions. Over-invoicing using phony documents can be an exceptional
protection for moving the proceeds of drug trafficking and other crimes. On the
other hand, fake invoices, bills and receipts can be utilized for an assortment
of tax frauds.
style='font-family:"Arial Unicode MS";mso-ansi-language:EN-GB'>Statement of the
Problem
stated earlier in the chapter, money laundering is implied as the venerable
method of concealing the unlawful source and iniquitous character of finances
which is normally acquired in unscrupulous undertakings such as arms sales, smuggling,
human trafficking, organized crime, drug trafficking, prostitution rings,
embezzlement, insider trading, bribery, and computer fraud. These funds are
concealed by repositioning them indiscernibly and investing them in lawful commerce,
securities, or bank deposits. Nevertheless, the plain description of the
alleged crime disguises its more significant offence. Hiding a bulk of money
and laundering it to specific places is an act of tax evasion, avoidance of
tax, and blatant practice of fraud. Tax-related laundering nets between 10-20
billion US dollars annually from
and
alone. The convergence of criminal and tax reluctant funds in money laundering complex
function to obfuscate its mutual sources.
as well as tax evaded finances are immobile and inefficient. Nevertheless, the
incorporation of these funds to the financial system of an economy allows them
to engage in commercial activity as a valuable not to mention inexpensive
source of investment. The problem with this kind of laundered money is that it
is shrouded by secrecy and eventually does away with transparency, especially
those in powerful positions. It is thus a source of corruption among government
officials. It also figuratively taints the legal segments of the economy. Being
financial remuneration from unscrupulous origin, it displaces the availability
of legitimate as well as the resources coming from other areas. Similarly, a
huge amount of laundered money creates an erratic and irrepressible money
supply while encouraging cross-border financial movements. This phenomenon
enhances the precariousness of exchange rates
corresponding, endeavour is therefore mandatory to contradict the global proportions
of money laundering. A lot of states chooses to engage in these actions for the
reason that money laundering has as well develop into a local political and
economic affair. The United Nations, the Bank for International Settlements,
the Financial Action Task Force, the EU, the Council of Europe, and the
Organisation of American States, all circulated their respective anti-money
laundering principles.
Chapter 2
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and Financial Effects on Financial Institutions
anti-money laundering efforts in the mid-1980s, various substantive
requirements have been established: the requirement to criminalize money
laundering activities; the requirement that covered persons must
know-their-customer; the requirement to identify and report to authorities
suspicious transactions; the requirement to freeze, trace, seize, and
ultimately forfeit the proceeds and instrumentalities of money laundering
crimes; the requirement of covered persons to have a compliance officer and to
train employees; the requirement for covered persons to have outside audits the
compliance of their organization with anti-money laundering standards; and the
prohibition of secrecy as a reason for a country and covered persons to refuse
to follow any of the anti-money laundering obligations.style='font-family:"Arial Unicode MS";mso-ansi-language:EN-GB'>
Measures of Financial Institutions to Curb Money Laundering
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institutions such as banks are normally used as intermediaries for cleansing
laundered money. In order to curb out this crime, financial institutions must
therefore be vigilant in regulating this activity. These institutions must
investigate on any dubious accounts and peculiar undertakings of their clients
in their system. Suspicious
activity may include the use of Letters of Credit and other methods to move
money between countries where such trade is inconsistent with the customer's
usual business. Another is thing that should be looked into is those customers
who make regular payments or receive wire transactions from countries which are
tax havens. Similarly, frequent
requests or use of travelers cheques, foreign currency drafts or other
negotiable instruments should also be considered as a suspect for launderers.
The reluctance to provide normal information or providing minimal or fictitious
information that is difficult or expensive for the financial institution to
verify when applying to open an account as well as those using accounts with
several financial institutions then consolidating them prior to onward
transmission of the funds are a good indication of money launderers. A
facilities as well as companies'
representatives avoiding contact with the branch should provide enough
skepticism among the bank’s top management regarding the sources of the assets
deposited in their institutions. Finally, the requests to borrow against assets
held by the financial institution or a third party, where the origin of the
assets is unknown or the assets are inconsistent with the customer's standing
should also be taken into account.
Chapter 3
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laundering efforts in the
to include serious crimes rather than just drug trafficking brings this group
current with practice in the rest of the world. The consideration of a
multilateral evaluation mechanism, the exchange of information, training, and
even a convention are all efforts to strengthen compliance and indicate broader
political agreement and acceptance of the purposes of anti-money laundering.
the establishment of financial intelligence units (FIUs), and the typologies
exercise are small steps towards cooperation in hemispheric anti-money
laundering enforcement. Meaningful and effective cooperation, harmonization of
laws and standards, and effective establishment of an anti-money laundering
regime must await the establishment of a proper network. A solid legal
infrastructure with funding for professionals is needed for intensive and daily
work on compliance with conventions and resolutions, harmonization of laws,
collaboration on common approaches to mechanisms and technology, and common
approaches to operational problems. At present, the governments and
international organizations in the
are searching for ways to develop ad hoc solutions to individual criminal
problems, such as anti-money laundering.
laundering provisions multiplied at a comparable pace.
enacted a counterpart to the American Money Laundering Control Act with the
1986 passage of the Drug Trafficking Offences Act. (Barbot, 1995; Weeling and
Todd, 1996) The 1986 Act provides immunity from suit for breach of the implied
banking secrecy contract if a person discloses to a police officer "a
suspicion or belief that any funds or investments are derived from or used in
connection with drug trafficking or any matter on which such a suspicion or
belief is based." While the Drug Trafficking Offenses Act, and its
successor, the Drug Trafficking Act, contained a defense against disclosure
rather than an affirmative duty to disclose, (Helleiner, 1999) this latter
obligation was not far behind. In fact, just three years later, Parliament
enacted the Prevention of Terrorism Act of 1989, which imposed just such a duty
upon any person who is "concerned in an arrangement whereby the retention
or control ... of terrorist funds is facilitated."
as in the
more stringent anti-money laundering statutes and regulations soon followed. (
after the
launched their first targeted strikes specifically against money laundering,
the United Nations joined the fight against dirty money. (Quillen, 1991) The
Vienna Convention of 1988, " recognizing the links between illicit traffic
and other related organized criminal activities which undermine the legitimate
economies and threaten the stability, security and sovereignty of States,"
enjoined its signatories to criminalize the act of money laundering and to
adopt measures to enable the identification, tracing, freezing, seizing and
confiscation of illicitly derived proceeds. The Vienna Convention of 1988 was
important not only in that it was the first multi-national recognition of the
seriousness of the money laundering problem, but because it marked the first
major step in affording to law enforcement officials the same international
reach formerly available to drug smugglers and organized crime rings, whose
complex laundering schemes regularly involved cross-border funds transfers that
made their transactions more difficult to trace. style='font-family:"Arial Unicode MS";mso-ansi-language:EN-GB'>
Prevention: International Level
framework for anti-money laundering standards, mechanisms, and institutions.
The United Nations pioneered the 1988 Vienna Convention Against the Trafficking
in Illegal Narcotic and Psychotropic Substances, which contains the
requirements to criminalize money laundering and immobilize the assets of
persons involved in illegal narcotics trafficking. (Gilmore, 1999)
established the Financial Action Task Force (FATF), which operates out of the
Office of Economic Cooperation and Development (OECD) headquarters in
FATF has issued a set of forty recommendations (Forty Recommendations) that
concern legal requirements, financial and banking controls, and external
affairs. FATF operates through a Caribbean FATF (CFATF) and is in the process
of establishing a similar group in
issues an annual report that provides an overview of progress and problems in
international anti-money laundering.
has actively provided guidelines for central bank supervisors and regulatory
controls. As mentioned below, on
supervision. Regionally, the Council of Europe's 1991 Convention on Laundering,
Search, Seizure and Confiscation of Assets has become the major international
convention that obligates signatory governments to cooperate against anti-money
laundering from all serious crimes.
the 1988 Vienna Drug Convention and due to its own actions to combat financial
crimes against the Communities, issued a 1991 Anti-Money Laundering Directive that
it is poised to strengthen. As mentioned below, it is now in the process of an
initiative against cybercrimes. An important regional organization in the
anti-money laundering has been the Inter-American Drug Abuse Control Commission
(CICAD). At its meeting on
4-7, 1997
ongoing assessment of compliance with standards and the creation of national
financial intelligence units (FIUs). National governments and international
organizations are striving to create mechanisms to monitor regularly compliance
with international standards. Because the recent FATF annual reports and
topologies provide cutting-edge discussions of the status of money laundering
trends, they are discussed next.
1996-97 was the annual survey of money laundering methods and countermeasures.
The survey provides a global overview of trends and techniques, especially the
issue of money laundering through new payment technologies, such as smart cards
and banking through the Internet. (Schroth, 1996) FATF reviewed the issue of
electronic fund transfers and examined ways to improve the appropriate level of
feedback that should be provided to reporting financial institutions. (Bauer
and Ullman, 2001) While drug trafficking remains the single largest source of
illegal proceeds, non-drug related crime is increasingly important. (Scroth,
1996) The most noticeable trend is the continuing increase in the use by money
launderers of non-bank financial institutions and of non-financial businesses
relative to banking institutions. The trend reflects the increased level of
compliance by banks with anti-money laundering measures. The survey noted,
"Outside the banking sector, the use of bureaux de change or money
remittance businesses remains the most frequently cited threat." (Gilmore,
1999)
their money laundering laws, covering non-drug related predicate offenses,
improving confiscation laws, and expanding the application of their laws in the
financial sector in order to apply preventive measures to non-bank financial
institutions and non-financial businesses. (Gilmore, 1999) FATF discussed money
laundering threats that may be inherent in the new e-money technologies, of which
there are three categories: stored value cards, Internet/network based systems,
and hybrid systems. Important features of the systems that will affect this
threat are the value limits imposed on accounts and transactions; the extent to
which stored value cards become inoperable with Internet-based systems; the
possibility that stored value cards can transfer value between individuals; the
consistency of intermediaries in the new payment systems; and the detail in
which account and transaction records are kept. (Hernandez, 1993) Future issues
include the need to review regulatory regimes, the availability of adequate
records, and "the difficulties in detecting and in tracking or identifying
unusual patterns of financial transactions." (Summers and
application of new technologies to electronic payment systems is still in its
infancy, law enforcement and regulators must continue to cooperate with the
private sector. (Levi, 1991) Then authorities may understand the issues that
must be considered and addressed as the market and technologies mature.
illicit funds routed through the international funds transfer system, the
Society for Worldwide Interbank Financial Telecommunications (SWIFT) board
"issued a broadcast to its members and participating banks encouraging
users to include full identifying information for originators and beneficiaries
in SWIFT field tags 50 (Ordering Customer) and 59 (Beneficiary)." (Helleiner,
1999) Many countries have acted to encourage compliance within their financial
communities with the SWIFT broadcast message.
identifying the true originating parties in transfers, SWIFT has devised a new
optional format (MT103) for implementation after November 1997. (Helleiner,
1999) The message format will have a new optional message field for inputting
all data "relating to the identification of the sender and receiver
(beneficiary) of the telegraphic transfer." Additionally, "SWIFT has
issued guidance to users of its current system to describe where such
information may appear in the MT 100 format." FATF has helped SWIFT devise
the new mechanism and is encouraging the use of the new message format.
recipient of a suspicious transactions report should acknowledge receipt
thereof. If the report is then subject to a fuller investigation, the
institution could be advised of either the agency that is going to investigate
the report or the name of a contact officer. If a case is closed or completed,
the sending institution should receive timely information on the decision or
result. Further cooperative exchange of information and ideas is required for
the partnership between units that receive suspicious transaction reports,
general law enforcement, and the financial sector to work more effectively.
created an ad hoc group that "will consider the available statistical
information and other information concerning the proceeds of crime and money
laundering."(OOC, 1993) This ad hoc group will also "define the
parameters of a study on the magnitude of money laundering and agree on a
methodology and a timetable for the study."
laundering Laws after September 11
While the infamous Al Qaeda terrorists were furtively
hatching their schemes of destruction that depended upon filtering money
through the international financial system, policy-makers and legislators were
publicly hatching schemes to combat the filtering of money derived from or used
to support international illegal activity. Although the European Union's (EU)
new Directive on money-laundering was recently adopted in the world-wide surge
of counter-terrorism measures, it reflects legislative choices made before the
world could imagine the terror that would be executed by Al Qaeda.
Nevertheless, trends have occurred due to the terrorists
attack on the 11th of September. The slightest central trend is the contraction
of financial regulations and the organization or enhancement of obligatory
regulatory and enforcement agencies. New laws in the US which sums to broadening
the command of the CIA and of the DOJ extra-territorially, was to a certain
extent xenophobically described as proposed to make sure the banking system
does not become a refuge for overseas fraudulent leaders or other type of
foreign structured criminals. Confidentiality and bank privacy laws have
been diluted.
Similarly, alliance with off shore shell banks has been prohibited.
Dealing with patrons of correspondent banks was truncated. Banks were successfully
altered into law enforcement agencies, accountable to verify both the characteristics
of their clients and the origin of their funds. Cash transactions were to a
certain extent proscribed. And the securities and currency trading industry,
insurance companies, and money transfer services are introduced to developing inspection
as an intermediary for laundered money.
Consequently, in excess of 150 countries guaranteed to lend
a hand with the US in its struggle opposed to the bankroll of terrorism - 81 of
which (including the Bahamas, Argentina, Kuwait, Indonesia, Pakistan,
Switzerland, and the EU) in point of fact immobilized assets of distrustful
individuals, supposed charities, and leery firms, or approved new anti money
laundering laws and more stringent regulations. A listed EU instruction would compel
lawyers to divulge incriminating information about their clients' money
laundering actions.
commenced a "loyalty scheme", awarding expatriates who have a
preference on official bank conduits to the much criticized Hawala, with extra
baggage allowance and special treatment in airports.
Still, a worldwide system is emerging, established on the
work of the OECD's FATF since 1989 and on the relevant UN conventions. All nations
are anticipated by the West, on pain of probable punishments, to approve a homogeneous
legal manifesto including reporting on dubious transactions and freezing assets
and to apply it to all types of financial mediators, not only to banks.
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Chapter 4
structure has been the topic of much writing and research (Woodward, 1965;
Perrow, 1967; Thompson, 1967; Hickson, Pugh, and Pheysey, 1969; Mohr, 1971;
Hage and Aiken, 1969; Barley, 1986). Although the accumulation of research
studies has modified the concept of technological imperative, technology is
still considered an important variable in relation to organizational structure
(Rousseau, 1979). Yet, after decades of research relating organizational
technology to organizational structure, "the evidence for technology's
influence on structure, is at best, confusing and contradictory" (Barley,
1986: 78). The same may be said for the multitude of conceptions and methodologies
employed in such studies (Rousseau, 1979). While technology may be generally
defined as the transformation of organizational inputs into organizational
outputs (Perrow, 1967; Rousseau, 1979), numerous definitions and
operationalizations at varying levels of analysis and contexts demonstrate the
diversity of technology research (Comstock and Scott, 1977; Rousseau, 1979;
Fry, 1982). Despite this diversity, little attention has been paid to the
effects of technology over time. Cross-sectional research has typically focused
on existing technologies and corresponding formal organizational structures.
The majority of these cross-sectional studies treat technology as the
independent variable, based on an assumption that organizational technology is
inflexible and, correspondingly, that there is a need for structure to adapt to
the requirements of technology. These assumptions are questionable. Technology
can be a flexible organizational strategy that can be modified by an
organization's structure, in particular, the informal structure. Structural
arrangements act as the conduits of technological change and, as such, may
influence organizational technology as well as be influenced by it.
Investigation of the effects of a change in technology may illuminate the
process by which structure affects technology, or vice versa. Few studies
relating technology to structure have considered the relationship between
organizational structure and power. Structural position is an important source
of power in that it provides access to people, information, and other
resources. As Pfeffer (1981) noted, power is first and foremost a structural
phenomenon. Likewise, power strengthens existing structural configurations.
Those in power seek to maintain power by reinforcing the existing
organizational structure (Pfeffer, 1981). Thus, a change in structure may
necessitate a change in the distribution of power, and vice versa.
power and structure may occur gradually over long periods of time, the
likelihood of a major restructuring may only occur when the organization
encounters an "exogenous shock" (Barley, 1986: 80) such as the
implementation of a new technology. Such a shock might be conceptualized as a
sudden, dramatic increase in uncertainty (Tushman and Anderson, 1986). Attempts
to reduce uncertainty may foster changes in interaction patterns, with those
able to cope with uncertainty adjusting their social location and increasing
their power (Salancik and Pfeffer, 1977; Tushman and Romanelli, 1983). Thus, it
is possible that a change in technology may produce changes in structure,
power, or both. However, as Pfeffer (1981) noted, stability, not change, is
typical of the distribution of power and influence in most organizations. Those
in power seek to perpetuate their power advantage. Such processes as commitment
to previous decisions, institutionalization of beliefs and practices, and the
ability of those in power to generate additional power contribute to stability
(Pfeffer, 1981). Likewise, structural patterns of interaction become
institutionalized over time and contribute to organizational stability. Thus,
while a technological change may provide the opportunity for a redistribution
of power and organizational structure, it does not guarantee it.
money through money laundering procedures has also been affected by technology.
Example of these changes includes the new drug trafficking routes are spawned
in
Soviet regime, the list of countries more vulnerable to money laundering
widens. Perhaps more dangerous is the absence of implementation of anti-money
laws or even ratification of the 1988 Vienna-U.N. Drug Convention. (Bureau of
International Narcotics and Law Enforcement Affairs, 1998) The INCSR lists
the
as important, the anti-money laundering laws that governments enacted in the
early 1990s are now no longer sufficient, especially given the increase in
non-drug crimes, the use of new technologies, and more sophisticated ways to
move money.
crimes include the more common types of financial frauds and new variations,
especially the use of prime bank guarantees, phony or fictitious letters of
credit, counterfeit or stolen bonds, and other monetary instruments offered as
surety for loans, and other scares. Some of the new methods include the use of
secret telex codes for bank-to-bank transactions in order to move $42 million
in cash from the
in
of International Narcotics and Law Enforcement Affairs, 1998) The use of fake
certificates of deposit drawn on other branches of an international bank that
can range from $10 million to $25 million recently occurred. "`Fraudsters'
will also use counterfeit letters of agreement, drawn on bank letterheads,
seemingly vouching for a client from another branch of that bank," or
confirming the approval of a bogus deal.
differ little in their money management than corporate money managers. Money
brokers and transnational criminals collaborate to minimize their risk, partly
through diversification of the means to transport, convert cash, or both, as
well as to layer and integrate the laundered funds.(532)
global, inter-connected, and operates twenty-four hours. Large multinational
banks have global branch and subsidiary networks as well as correspondent
relationships. Correspondent banking enables launderers to initiate
transactions through the weakest link in the bank. Once launderers start a bank
relationship, they can quickly move money globally within the bank. (Bureau of
International Narcotics and Law Enforcement Affairs, 1998) At the June 1996
International Conference of Banking Supervisors, banking supervisors from 140
countries agreed to adhere to twenty-nine recommendations "designed to
strengthen the effectiveness of supervision by both home and host-country
authorities of banks that operate outside their national boundaries."(p
154) The recommendations were incorporated into a report by the Basle Committee
on Banking Supervision, issued in October 1996. Home supervisors must be able
to assess "all significant aspects of their banks' operations, using
whatever supervisory techniques are needed, including on-site
inspections." Means to overcome impediments to effective consolidated
supervision are suggested. The
forth "guidelines for determining the effectiveness of home country
supervision, for monitoring supervisory standards in host countries, and for
dealing with corporate structures which create potential supervisory
gaps." Additional guidelines are provided for host country supervision.
conflict with bank secrecy or similar legislation in certain countries,
supervisors have agreed to use best efforts to amend the secrecy legislation.
Countries with further recommendations were reviewed prior to the international
meeting scheduled for October 1998. (Bureau of International Narcotics and Law
Enforcement Affairs, 1998) Much competition exists globally to attract high
net-worth individuals and companies as private banking clients. The
transactions of these clients are treated confidentially. Such customers are
treated with more deference and receive various types of personal services. A
concern exists that, in the competition to attract and maintain these clients,
financial institutions or their officials may suspend or not implement
anti-money laundering and other due diligence procedures.
microchip-based electronic money for financial transactions, via smart cards
and the Internet, has the potential to revolutionize the means for laundering
money. Some new cyberpayments systems are engineered to be an electronic
emulation of paper currency. Cybercurrency has the attributes of conventional
currency: a store of value; a medium of exchange; a numeraire; potential
anonymity; and convenience. Other features include transfer velocity--an almost
instant electronic transfer from point to point--and substitution of electrons
for paper currency and other physical means of payment. Cyberpayments also include
other payment components, such as cyberchecks, cybercredit, cyberdebit, and so
forth. This development requires close attention because the use of microchip
and telecommunications technologies adds some significant new dimensions for
law enforcement.
include other payment components, such as cyberchecks, which emulate paper
checks, cybercredit, cyberdebit, etc. Cyberpayments raise the issue of whether
such payments can be made subject to monetary reporting and supervision
measures. Law enforcement issues that will arise include fraud, counterfeiting,
and computer hacking. High-speed, worldwide transfers add complexity to law
enforcement's ability to trace criminal activity and recover illicit proceeds. (p.
512)
laundering enforcement include the counterfeiting of currencies and other
monetary instruments, especially bonds, the rise in contraband smuggling, the
acquisition of banks and other financial institutions by suspected criminal groups,
and the resort by criminals to the use of smaller, pass-through banking, and
electronic cash systems. As a result of the occurrence of financial crimes and
money laundering with varying degrees of regularity in more than 125
jurisdictions, a continuing concern exists that some governments still have not
criminalized all forms of money laundering.
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