TYPOLOGIES AND INDICATORS OF MONEY LAUNDERING IN CHILE. Financial Analysis Unit July, 2018 Santiago - Chile

Transcription

1 TYPOLOGIES AND INDICATORS OF MONEY LAUNDERING IN CHILE Financial Analysis Unit July, 2018 Santiago - Chile

2 The IV Report on Money Laundering and Indicators in Chile published by the Financial Analysis Unit (FAU, or UAF for its acronym in Spanish), and updated to December 2017, was drawn up from money laundering convictions handed down by the Chilean Courts of Justice. This information was provided by the Specialized Unit on Money Laundering, Economic Crimes, Environmental Crimes and Organized Crime (ULDDECO in Spanish), which is a unit within the Public Prosecutor s Office. This report presents the updated findings on the subject, identifying convictions by type of judicial procedure, business activities used for laundering the proceeds of crimes, typologies, legal structures and the financial products used in money laundering schemes, and the confiscated assets value between 2007 and

3 TYPOLOGIES AND RED FLAG INDICATORS OF MONEY LAUDERING IN CHILE MONEY LAUNDERING COURT RULINGS Between 2007 and 2017, 91 final judgments for money laundering were handed down by Chilean courts, in which 176 people were convicted. NUMBER OF CONDEMNATORY SENTENCES FOR MONEY LAUNDERING

4 DISTRIBUTION OF CONVICTIONS BY TYPE OF JUDICIAL PROCEDURE In total, 88 sentences were issued by the actual criminal justice system and 3 were imposed by the previous criminal justice system, out of which 71.4% were reached through an abbreviated proceeding 1 ; 24.2% through an oral trial; and 1.1% through a simplified procedure. Between 2016 and 2017, there were 8 final court rulings, 5 reached through an abbreviated procedure (11 people convicted), 2 through an oral trial (3 people convicted) and one issued by the previous criminal system (1 person convicted). Each type of criminal procedure has different numbers of people convicted, being the abbreviated procedure the one that resulted in the most people sentenced and the higher number of condemnatory sentences for money laundering. The table below shows these results. TYPE OF JUDICIAL PROCEDURE (A) NUMBER OF CONDEMNATORY SENTENCES (B) NUMBER OF PERSONS CONVICTED (B/A) AVERAGE CONVICTED PER SENTENCE ABBREVIATED PROCEEDING ,7 ORAL TRIAL ,7 PREVIOUS CRIMINAL SYSTEM 3 7 2,3 SIMPLIFIED PROCEDURE 1 2 2,0 TOTAL ,9 In average, by each sentence for money laundering, two people were convicted. COURT RULINGS BROKEN DOWN BY TYPE OF PREDICATE OFFENCES Money laundering takes place when funds from illegal activities (predicate offences) are placed into the economic system, mainly, through financial institutions, in order to disguise their origin, and then integrate them back into the formal economy, so that criminals can use them more easily. Between 2007 and 2017, 74.7% of the money laundering cases involved trafficking in narcotic and psychotropic substance as the predicate offence; 16.5% involved different predicate offences related to corruption crimes 2 and 8.8% of money laundering sentences were related to predicate offences involving fraud, insider trading, market manipulatio, trafficking in human beings and migrant smuggling, and smuggling. 1 A process in which the accused expressly accepts all the facts of the accusation and the prosecutor offers a penalty of no more than five years imprisonment 2 Bribery of a local/foreign public official, fraud of public funds, misappropriation of public funds, incompatible negotiation. 4

5 Since 2014, trafficking in narcotic and psychotropic substance as the predicate offence in money laundering convictions dropped from roughly 80.0% in years before 2014 (and even 100% in some years) to 50.0% in 2014, 40.0% in 2015 and 2016, and then to 33.3% in Conversely, money laundering court rulings involving different predicate offences related to corruption, loan frauds and other crimes, have risen up to 60.0% in 2016 and 66.7% in CONDEMNATORY SENTENCES: MAIN PREDICATE OFFENCES OVER THE YEARS 100.0% 0.0% 100.0% 0.0% 80.0% 81.8% 88.2% 10.0% 18.2% 11.8% 100.0% 90.9% 0.0% 9.1% 30.0% 50.0% 40.0% 30.0% Trafficking in narcotic and psychotropic substance Corruption 40.0% 40.0% 20.0% 20.0% 10.0% Loan frauds Others 33.3% 33.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2017 Note: The term other crimes refers to economic crimes, trafficking in human beings and migrant Predicate Offence TRAFFICKING IN NARCOTIC AND PSYCHOTROPIC SUBSTANCE Number of condemnatory sentences BRIBERY 9 EMBEZZLEMENT OF PUBLIC FUNDS 6 LOAN FRAUDS 5 MISAPPROPRIATION OF PUBLIC FUNDS 4 INCOMPATIBLE NEGOTIATION 3 MARKET MANIPULATION 1 INSIDER TRADING 1 TRAFFICKING IN HUMAN BEINGS AND MIGRANT SMUGGLING SMUGGLING 1 TOTAL smuggling, and smuggling. 5

6 COURT RULINGS BROKEN DOWN BY REGION Between 2007 and 2017, 91 condemnatory sentences for money laundering were imposed in nine regions. The majority of court rulings were issued in the Santiago Metropolitan Region (67.0% of the total convictions), followed by the region of Valparaíso (9.9%), the Libertador Bernardo O Higgins region (7.7%) and Biobío region (4.4%), and 11% of the remaining convictions were issued in Tarapacá (3.3%), Coquimbo (3.3%), the Araucanía (2.2%), Arica y Parinacota (1.1%), and Maule (1.1%). CONDEMNATORY SENTENCES BROKEN DOWN BY REGION 9.9% 7% 7.7% 4.4% 11.0% 67.0% Santiago Metropolitan region Region of Valparaíso Region of O Higgins Region of Biobío Others 6

7 FINES Between 2007 and 2017, money laundering convictions resulted in fines totaling around CLP 4,407 million (USD 7.2 million). A single case named Tax return (case N 60) concentrates 71.2% of the overall fines imposed. ECONOMIC SECTORS USED FOR MONEY LAUNDERING ACTIVITIES This report has grouped the 91 money laundering convictions into 60 cases for a better understanding of money laundering schemes used by criminals. A number of economic activities have been identified from money laundering convictions, used for laundering the proceeds from different predicate offences. Their inclusion is not a stigmatization of the activities themselves, but just a confirmation that the economic sectors were involved in the money laundering scheme. As in the previous report, published in 2015, between 2007 and 2017, the most used economic activities for money laundering were notaries and car dealers, followed by banks, Real Estate Property Register, real estate agents/property brokers, and money exchange houses. Of all these sectors, only car dealers are not regulated by law N 19,913 (Anti-Money Laundering Act), so they are not reporting entities and do not follow compliance obligations created by the Law. Notaries have been used in 51 of the 60 cases, while car dealers have been used in 47 cases. Banks and Real Estate Property Registers were used in 36 cases each. In the previous report (published in 2015) banks were the fourth most used economic sector, behind Real Estate Property Registers. ECONOMIC SECTORS USED FOR MONEY LAUNDERING ACTIVITIES. (NUMBER OF CASES) Notaries Car dealers Banks Real Estate Real estate Property Registers agents/ property brokers Money exchange houses 7

8 TYPOLOGIES IDENTIFIED FROM CONVICTIONS Four money laundering methods and techniques (or typologies) were identified in the 60 cases. The use of figureheads is the most frequently applied money laundering technique for disguising the illicit origin of the proceeds of the crime. It was identified in 48 of the 60 cases (80.0%). It was followed by the use of legal person structures (such as shell, shelf or front companies), present in 38 of the 60 cases (63.3%) which may be used to conceal illicit movement of funds. Finally, the structuring ( smurfing ) was identified in 4 cases (6.7%) and the Black Market Peso Exchange was present in 1 case (1.7%). TYPOLOGIES IDENTIFIED FROM CONVICTIONS. (NUMBER OF CASES) Figureheads Legal person structures Structuring ("smurfing") Black market peso exchange 8

9 Regarding the legal structures deployed for disguising the illicit origin of the proceeds, a deeper analysis shows that front companies were used in 23 of the 60 cases (38.8%), shell companies in 17 cases (28.3%) and shelf companies in 5 cases (8.3%). Considering 2016 and 2017, 8 types of legal person structures were identified in 6 cases: 7 Limited Liability Companies (LLC) and 1 Public Limited Company (PLC). In addition, 7 financial products were identified for laundering illicit proceeds: TYPE OF PRODUCT CASES CASH 4 BANK ACCOUNTS 3 LOANS 3 CURRENCY EXCHANGE 2 BANK CHECKS 2 MUTUAL FUNDS 1 INTERNATIONAL MONEY TRANSFER OPERATIONS 1 TOTAL 6 9

10 RED FLAG INDICATORS OF MONEY LAUNDERING ACTIVITIES IDENTIFIED FROM CONVICTIONS Between 2007 and 2017, 75 red flag indicators of money laundering activities were identified from condemnatory sentences. The most frequent were those related to customer behavior and declared business activity. MAIN RED FLAG INDICATORS OF MONEY LAUNDERING ACTIVITIES CASES Financial transactions are inconsistent with the socio-economic profile of the individual. 55 Customer appears as the owner of large assets or new businesses, after a short time 46 Customer makes large financial transactions and he/she does not have a known job. 40 Purchases made on behalf of third parties, providing ownership anonymity of assets. 36 Several financial transactions on behalf of third parties. 19 The buyer is acting on behalf of a third party, and he tries to hide the identity of the beneficial owner/controller. 16 TOTAL 60 ASSET FORFEITURE AND MONEY LAUDERING: Between 2007 and 2017, the total value of the assets forfeited based on money laundering convictions was roughly CLP 7,280 million (USD 11.8 million). TOTAL VALUE OF ASSETS FORFEITED (CLP MM)

11 The recipients of the forfeited assets are the drug rehab centers managed by the National Service for Prevention and Rehabilitation on Drugs and Alcohol Consumption (SENDA for its acronym in Spanish) dependent on the Ministry of Internal Affairs. In addition, forfeited assets may be used for the prosecution of money laundering. TOTAL VALUE OF ASSETS FORFEITED, BY TYPE OF ASSET (CLP MM) Properties Money Vehicles Machineries Others Property forfeiture: Buying a property is one of the most common ways for disguising the illicit origin of the proceeds from different predicate offences, mainly using figureheads, in the case of Chile. There are a number of bussineses and institutions that are involved in the process of buying a property, such as notaries, real estate property registers, property brokers and banks, which are vulnerable to the money laundering schemes. Between 2007 and 2017, 102 properties were forfeited, which have been valued at CLP 3,015 million (USD 4.9 million), most of them located in The Santiago Metropolitan Region (52 properties valued at about CLP 1,638 million, around USD 2.7 million, equivalent to 54.3% of total value of property forfeitures). It was followed by the region of Valparaíso (21 properties valued at CLP 588 million, USD thousand, 19.5% of total value of property forfeitures), Coquimbo (9 properties valued at CLP 216 million, USD thousand, 7.2%), and Libertador Bernardo O Higgins (6 properties value dat CLP 130 million, USD 2121 thous and,4.3%). Local governments with the highest value of properties forfeited are Lo Barnechea (CLP 378 million, USD thousand, 12.6% of total value of property forfeitures), Las Condes (CLP 323 million, USD thousand, 10.7%), Viña del Mar (CLP 233 million, USD thousand, 7.7%) and La Florida (CLP 200 million, USD thousand, 6.6%). 11

12 Money forfeiture: Between 2007 and 2017, forfeited money was around CLP 2,574 million (USD 4.2 million, 35.4% of total value of forfeitures). In detail: CLP 945 million from money held in bank accounts, term deposits, among others (USD 1.5 million, 36.7% of total money forfeited) CLP 802 million in cash (USD 1.3 million, 31.2% of total money forfeited) CLP 759 million in foreign currency (USD 1.2 million, 29.5% of total money forfeited) CLP 68 million from other items, including shares, gold, among others (USD thousand, 2.7% of total money forfeited) MONEY FORFEITURE (CLP MM) Bank money Cash Convertible currency Others Vehicle forfeitures: Between 2007 and 2017, 225 vehicles were forfeited, which have been valued at CLP 1,657 million (USD 2.7 million, 22.8% of total value of forfeitures). In 2016 and 2017, 15 vehicles were forfeited, valued at CLP million (USD thousand). Industrial machinery forfeitures: Between 2007 and 2017, 2 industrial machineries were forfeited, both in the Biobío region, valued at CLP 18.8 million (USD 30.5 thousand, 0.3% of total value of forfeitures). 12

13 TYPOLOGIES AND INDICATORS OF MONEY LAUNDERING IN CHILE