Practical Implementation of UN Standards and Financial Action Task Force on Money Laundering (FATF) Recommendations: Challenges and Assistance

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1 2007/ACT/WKSP/005 Practical Implementation of UN Standards and Financial Action Task Force on Money Laundering (FATF) Recommendations: Challenges and Assistance Submitted by: United Nations Office on Drugs and Crime (UNODC) Capacity Building Workshop on Combating Corruption Related to Money Laundering Bangkok, Thailand August 2007

2 Capacity Building Workshop on Combating Corruption Related to Money Laundering APEC / NCCC August 2007 / Bangkok, Thailand Practical Implementation of UN standards and FATF Recommendations: Challenges and Assistance Rick McDonell Chief, Global Programme against Money Laundering (GPML) Summary of presentation 1. What is money laundering? 2. Requirements of the international standards - UN standards - FATF 40+9 Recommendations 3. Challenges in the implementation of the standards - Financial Intelligence Units (FIUs) - Politically Exposed Persons (PEPs) - Asset recovery - Case study: Sani Abacha, Nigeria 4. Technical assistance provided by UNODC - Global Programme Against Money Laundering - Global Programme Against Corruption 1

3 What is Money-laundering? Purpose To hide the illegal proceeds of crime To use those proceeds safely by making them appear legitimate Casinos/Gambling Methods: Some examples Cash smuggling Wire and electronic funds transfers Underground banking Insurance policies Shell corporations Real estate transactions Legitimate business ownership Purchase of goods Requirements of the international standards UN Conventions and Resolutions: (already examined in the previous presentation) UN Convention against Corruption as the most advanced legal instrument on Money-Laundering and Corruption: Article 14: Prevention of Money-Laundering - Comprehensive domestic regulatory & supervisory regime for banks and nonbank financial institutions - Customer or beneficial owner identification, record-keeping and the reporting of suspicious transactions - Establish a financial intelligence unit - Asset recovery - Ensure internal and international cooperation 2

4 UNODC mandate concerning money-laundering Resolution 1617 (2005) of the UN Security Council: Strongly urges all Member States to implement the comprehensive, international standards embodied in the Financial Action Task Force s (FATF) Forty Recommendations on Money Laundering and the FATF Nine Special Recommendations on Terrorist Financing; Resolution 60/288 of the UN General Assembly (20 Sept 2006): Annexed Plan of Action: To encourage States to implement the comprehensive international standards embodied in the Forty Recommendations on Money-Laundering and Nine Special Recommendations on Terrorist Financing of the Financial Action Task Force, recognizing that States may require assistance in implementing them; Summary of requirements FATF 40 Recommendations on Money-Laundering (2004) Legal Systems Criminal offence; freezing / confiscation Preventive measures: Financial Institutions and Designated Non-Financial Businesses and Professions Financial / non financial institutions measures Customer identification; record-keeping; reporting of suspicious transactions; Regulation & supervision Institutional Measures Financial intelligence units (FIU) Powers of competent authorities Transparency of legal persons and trusts International co-operation Mutual legal assistance; extradition; law enforcement co-operation 3

5 FATF Recommendations Specific requirements Measures to be taken by financial institutions Suspicious transaction reports and other reports (immunities and no tipping off provisions) Customer Due Diligence (CDD) & Know Your Customer (KYC) Politically Exposed Persons (PEPs) Bank secrecy Record keeping, including wire transfer rules Internal controls - AML/CFT guidelines, compliance Supervision and monitoring FATF Recommendations Specific requirements Measures to be taken by Designated Non-Financial Businesses and Professions STR requirements and limited CDD Casinos (CDD for all transactions over $3000) Real estate agents Lawyers prepare for or carry out transactions in relation to specific activities Accountants - same as lawyers Gold and gem dealers (CDD for transactions over $15000) Dealers in high value items Trust and company services providers 4

6 FATF Recommendations Predicate offences of Money-Laundering: -> FATF Recommendations = all serious offences should be covered by Money- Laundering Laws -> List of 20 predicate offences: a minimum requirement : -participation in an organised criminal group and racketeering; - terrorism, including terrorist financing; - trafficking in human beings and migrant smuggling; - sexual exploitation, including sexual exploitation of children; - illicit trafficking in narcotic drugs and psychotropic substances; - illicit arms trafficking; - illicit trafficking in stolen and other goods; - CORRUPTION and BRIBERY; - fraud; - counterfeiting currency; - counterfeiting and piracy of products; - environmental crime; - murder, grievous bodily injury; - kidnapping, illegal restraint and hostage-taking; - robbery or theft; - smuggling; - extortion; - forgery; - piracy; and - insider trading and market manipulation. Challenges Challenges involved in implementing the UN and FATF standards: Anti Money-Laundering / Anti Corruption issues FIUs / Anti-corruption agencies PEPs / Immunity Confiscation / Asset forfeiture Asset recovery International cooperation (international requirements, obstacles in reality) 5

7 FIUs Role and function: Suspicious reports: utility of data and reports, investigations Vulnerable places: need of independence of influence and sustainability Need to have procedures in place Major part of the fight against corruption because of the information they receive; source of information Need of cooperation with anti-corruption agencies, as FIUs are really useful in the fight against Corruption National role / international role of FIUs PEPs Definition (FATF Glossary): Individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves. Enhanced customer identification measures for higher risks How recent are they? Problem of the list: need of an independent body No sufficient criteria on how to set up and maintain the list Immunity issue: PEPs shall not have immunity if corrupted 6

8 Asset recovery UN Convention Against Corruption: Chapter V, art Need of trust between the different actors Importance of a good relationship between the Central Banks and the Law Enforcement Agencies Efficiency of an Asset declaration system Need to focus not only on the person prosecuted but on his property: a profit-oriented approach to criminal law, as opposed to a more traditional suspect-oriented perspective Creation of Asset Forfeiture Funds / sensitive issue: what to do with these funds? (for Law Enforcement Agencies, Asset-sharing systems, or victims compensation?) Case study : Efforts to Recover Assets Looted by Sani Abacha of Nigeria General Sani Abacha was the military dictator of Nigeria from November 17, 1993 to June 10, 1998 The new democratic government has implicated the deceased general and his family in wholesale looting of Nigeria s coffers According to the post-abacha government sources, some US$ 4 billion in foreign assets have been traced to Abacha, his family and their representatives (which represents about 10% of Nigeria s annual income from oil over 5 years). The sum includes: monies allegedly derived from the systematic misappropriation of funds from the Central Bank of Nigeria, bribes received from foreign companies Abacha was listed as the world s fourth most corrupt leader in recent history by Transparency International in 2004 Abacha s son Mohammed Abacha was arrested in 2004 in Germany on warrant from the Swiss authorities, charged with money-laundering 7

9 Case study : Efforts to Recover Assets Looted by Sani Abacha of Nigeria Abacha s family agreed to return US$ 1.2 billion taken from the central bank in 2002 To date approximately US$ 825 million of the funds frozen in foreign jurisdictions have been repatriated (Jersey, UK, Switzerland and Luxembourg) More money remained frozen in other jurisdictions, including approximately US$ 1.3 billion in Switzerland, Luxembourg and Liechtenstein The Abacha recovered funds are to be used in healthcare and education sectors, as well as for infrastructure projects (roads, electricity and water supplies) Technical Assistance provided by UNODC UNODC has capacities and a special mandate to assist Member States in ratifying and implementing the international standards related to corruption and money-laundering Resolution 1617 (2005) of the UN Security Council: Strongly urges all Member States to implement the comprehensive, international standards embodied in the Financial Action Task Force s (FATF) Forty Recommendations on Money Laundering and the FATF Nine Special Recommendations on Terrorist Financing; Resolution 60/288 of the UN General Assembly (20 Sept 2006): Annexed Plan of Action: To encourage States to implement the comprehensive international standards embodied in the Forty Recommendations on Money-Laundering and Nine Special Recommendations on Terrorist Financing of the Financial Action Task Force, recognizing that States may require assistance in implementing them; 8

10 Technical Assistance provided by UNODC 2 Units within UNODC specialised on Money-laundering and Corruption: Global Programme Against Money-Laundering (Anti-Money Laundering Unit) Global Programme Against Corruption (Anti-Corruption Unit) -> They provide different kind of technical assistance Global Programme Against Money-Laundering Programme components Technical assistance Capacity building Advisory services Mentorship programme Specialised training Mock trials FIU development Building capacity in asset recovery Raising awareness Advisory services on policy development Legislative drafting assistance 9

11 Global Programme Against Money-Laundering Tools available: Computer-Based Training IMoLIN / AMLID (Internet-based network assisting governments, organizations and individuals in the fight against money laundering and the financing of terrorism / compendium of analyses of anti-money laundering laws and regulations) GoAML* (FIU software) Model legislation * A product of ITS developed in cooperation w/ GPML Global Programme Against Corruption Programme components Technical assistance and Advisory Services Policy development Interagency anticorruption coordination TA needs assessments Supporting anti-corruption policies Supporting the establishment of national anti-corruption agencies Prevention and control of corruption Development of legislative, investigative, judicial and enforcement capacity in asset recovery Supporting judicial systems to strengthen integrity and capacity Raising awareness Enhancing coordination and cooperation: Secretariat to the International Group for Anti-Corruption Coordination (IGAC) 10

12 Tools: Global Programme Against Corruption Commentary to the Bangalore Principles of Judicial Conduct UN handbook on practical anti-corruption measures for prosecutors and investigators Technical guide for the implementation of the UNCAC** (will be available within the next few months) Technical guide on strengthening judicial integrity and capacity (will be available within the next few months) ** In collaboration with UNICRI Legal Advisory Section of UNODC: Mutual legal assistance tool For further information: GLOBAL PROGRAMME AGAINST MONEY LAUNDERING Vienna International Centre P.O. Box 500, A-1400 Vienna (Austria) Tel:(43-1) Fax:(43-1) and GLOBAL PROGRAMME AGAINST CORRUPTION Vienna International Centre P.O. Box 500, A-1400 Vienna (Austria) Tel:(43-1) Fax:(43-1) Thank you 11