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Dirty money - The evolution of international measures to counter money laundering and the financing of terrorism

Dirty money - The evolution of international measures to counter money laundering and the financing of terrorism

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Published by Council of Europe
Dirty Money has been extensively rewritten and expanded to provide an up-to-date assessment of this fast evolving subject area. In addition to taking into account such major developments as the revised Recommendations of the Financial Action Task Force on Money Laundering (FATF, an intergovernmental body), as agreed in June 2003, and the second European Directive, it has been restructured so as to fully reflect the high priority which has been afforded by the international community since September 2001 to the financing of terrorism. The third edition includes coverage of relevant initiatives taken in this latter sphere by the United Nations, the FATF, the Council of Europe, the Organization of American States and other institutions and groupings and places them in context.
The book is, as with the previous editions, designed for a wide audience. It will be of particular value for government officials and regulators with responsibility for money laundering and terrorist finance issues, for their counterparts in banks, non-bank financial institutions, as well as members of professions such as lawyers and accountants, to whom many of the counter-measures in question have now been applied. Finally, scholars and university students will continue to find Dirty Money a valuable tool for both research and teaching.
Dirty Money has been extensively rewritten and expanded to provide an up-to-date assessment of this fast evolving subject area. In addition to taking into account such major developments as the revised Recommendations of the Financial Action Task Force on Money Laundering (FATF, an intergovernmental body), as agreed in June 2003, and the second European Directive, it has been restructured so as to fully reflect the high priority which has been afforded by the international community since September 2001 to the financing of terrorism. The third edition includes coverage of relevant initiatives taken in this latter sphere by the United Nations, the FATF, the Council of Europe, the Organization of American States and other institutions and groupings and places them in context.
The book is, as with the previous editions, designed for a wide audience. It will be of particular value for government officials and regulators with responsibility for money laundering and terrorist finance issues, for their counterparts in banks, non-bank financial institutions, as well as members of professions such as lawyers and accountants, to whom many of the counter-measures in question have now been applied. Finally, scholars and university students will continue to find Dirty Money a valuable tool for both research and teaching.

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Published by: Council of Europe on Oct 27, 2010
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C
HAPTER
II – M
ONEYLAUNDERING
:
ANOVERVIEWOFTHEPROCESS
Introduction
Governmental interest in seeking to combat money laundering is, as wehave seen, of relatively recent origin. Similarly, the term itself has enteredthe accepted vocabulary of diplomacy and legislative drafting only in thecourse of the last fifteen years. Although the terminology may be relativelyrecent, the concept is one of very long standing in relation to financiallymotivated criminal conduct. As McClean has stated:
From the point of view of the criminal, it is no use making a large profit out ofcriminal activity if that profit cannot be put to use. ... Putting the proceeds to useis not as simple as it may sound. Although a proportion of the proceeds of crimewill be kept as capital for further criminal ventures, the sophisticated offender will wish to use the rest for other purposes. ... If this is to be done without run-ning an unacceptable risk of detection, the money which represents the proceedsof the original crime must be “laundered”, put into a state in which it appearsto have an entirely respectable provenance.
1
This is not to say that all criminals will have the need to resort to elaborateschemes in order to create the perception of legitimacy of the source andownership of wealth and property. Small-time criminals will rarely do so. AsEvans has pointed out: “They deal in cash and avoid financial institutions asmuch as possible. Their criminal associates and suppliers expect cash and theypay cash for most living expenses.”
2
Even in more significant ventures theperception of the need to engage in laundering activity will differ widely fromcountry to country. Here the judgment of those involved as to the effective-ness of the local criminal justice system and the associated level of risk ofdetection and prosecution will be central considerations. For example, in juris-dictionswhich have effectively embraced modern law enforcement strategiesin which the confiscation of the proceeds of crime is used both as a deterrentand as a form of punishment, money laundering schemes are likely to beresorted to with greater frequency than elsewhere. As has been pointed out:
As financial investigative and prosecutorial activity becomes more professionaland effective, the more resources the criminal organisation tends to devote tolowering the risk of being traced and apprehended through the money trail andthe risk of losing the criminal proceeds. ... Increased sophistication in preventionand control methods tends to be matched by increased sophistication in moneylaundering activities, until one side or the other reaches the point of diminishingreturns.
3
29
 
In much the same way considerable variations exist, both between countriesand among sectors of criminality, as to the scope, complexity and sophisti-cation of the money laundering schemes which are in fact resorted to. Asthe National Crime Authority of Australia was to note in a December 1991report:
Money laundering schemes uncovered so far are generally unsophisticated butsome of the very large cases involve the use of complex corporate structures andtrusts as part of the laundering process. Most money laundering activity is carriedout by the primary offender, not by “professional” launderers, although the useof corrupt or complicit individuals is often crucial to the success of money laun-dering schemes.
4
On the other hand, organised crime and drug trafficking groups have createddiverse and sophisticated systems with a global reach in order to protectand legitimise the vast profits which are generated by their activities. OneColombian cocaine “kingpin”, Rodriguez Gacha, is reputed to have laun-dered approximately US$130 million using eighty-two company and other accounts in sixteen countries located in Central and South America, theCaribbean, Asia and Europe. As a UN report has noted:
The basic characteristics of the laundering of the proceeds of crime, which to alarge extent also mark the operations of organised and transnational crime, areits global nature, the flexibility and adaptability of its operations, the use of thelatest technological means and professional assistance, the ingenuity of the oper-ators and the vast resources at their disposal. In addition, a characteristic thatshould not be overlooked is the constant pursuit of profits and the expansioninto new areas of criminal activity.
5
It should be stressed, however, that while the international movement ofcriminal proceeds is a hallmark of laundering activities carried out by or onbehalf of such powerful organised groups, it is by no means restricted tothem. Indeed, the transnational movement of funds is a common featureof sophisticated laundering activities. For example, an early report carriedout by the Ministry of the Solicitor General of Canada, based on an exam-ination of actual police files, revealed that an international dimension waspresent in over 80% of those cases.
6
While the evidence suggests that theCanadian figures may be higher, for a variety of reasons, than in someother jurisdictions, they do underline the fact “that crime, like much else, isincreasingly international”.
7
There are sound reasons for resorting to such an international strategy. Atone level, as the European Commission has noted, “[i]nternationalisation ofeconomies and financial services are opportunities which are seized uponby money launderers to carry out their criminal activities, since the origin offunds can be better disguised in an international context”.
8
In addition,such mechanisms take advantage of the delays and inefficiencies which
30
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