Targeting Illicit Financial Flows

Targeting Illicit Financial Flows

Overview What is meant by the term illicit financial flows Who can monitor financial flows How can it be monitored The importance of domestic coordination 2

Illicit financial flows = money laundering 1. The transfer itself is illegal 2. The funds are proceeds of illegal activity 3. Legal obligations relating to the funds e.g. payment of tax, are not complied with Ref: Corruption and illicit financial flows Quentin Reed & Alessandra Fontana 3

Financial flows can be Informal: alternate remittance e.g. hawala, hundi underground banking Illegal in some countries 4

Capital flight movement of funds abroad to secure a better return or protect them legal or illegal Money laundering disguise the source of funds obtained through illegal activity and make them appear legal Ref: Corruption and illicit financial flows Quentin Reed & Alessandra Fontana 5

International standards to combat illicit financial flows United Nations Convention Against Corruption (UNCAC) Does not provide a definition for corruption Provides a framework to combat corruption Financial Action Task Force (FATF) Does not provide a definition for corruption Provides a framework for combat money laundering 6

The initial entry of dirty money into the financial system Money is returned into the Australian economy as legitimate funds the money is now clean The money laundering cycle Consists of a series of transactions designed to conceal the origin of the funds 7

The three stages of money laundering Legitimate Funds Financial Planner Insurance Broker Bank Account 2 Finance Company Accountant Bullion Dealer Bank Account 1 Casino Criminal Funds Placement Layering Integration 8

The link between corruption and money laundering funds received from corrupt activities need to be made to look legitimate money laundering is used by both the criminal & the receiver of corrupt funds Aim: to legitimise funds from illegal or corrupt activities to make the funds look legitimate 9

Who can monitor financial flows? Financial Intelligence Units: A central, national agency responsible for receiving (and, as permitted, requesting), analysing and disseminating to the competent authorities, disclosures of financial information. (Egmont Group definition) Receives transaction reports from financial institutions Suspicious and threshold reporting Cross border movement reports (Australia wire transfer with zero threshold) 10

Legislation Anti-Money Laundering Illegal logging to be a predicate offence FATF Rec1 money laundering to be a predicate offence Money laundering offence If an offence cannot be proved for the illegal act itself, a money laundering offence can still result in a positive prosecution Not every jurisdiction has money laundering as a stand alone offence 11

How can illicit financial flows be monitored? 12

Regional Cooperation Risks Legitimate banks passively engage in laundering funds from illegal logging Legitimate banks risk penalties review correspondent relationships Controls Strengthen KYC and due diligence in transactions associated with forest industries Bank regulators consider special guidance on timber finance sector 13

Ongoing customer due diligence (OCDD) Under AML/CTF OCDD is part of your dynamic, risk-based model. Know Your Customer info Transaction monitoring program ECDD program OCDD processes work together; responding to changing ML/TF risk assessments 14

Ongoing Customer Due Diligence (OCDD) AUSTRAC Model Start Know Your Customer Risk Assessment Low Medium High Sets level of Transaction monitoring program Continue Complex, unusual large transaction? Flowchart taken from Chapter 8 AUSTRAC Regulatory Guide Know Your Customer Unusual patterns with no economic or lawful purpose? Yes No Submit a suspicious matter report (SMR) Continue ECDD unless a business decision is made to terminate customer relationship Enhanced customer due diligence Is there suspicious activity? Yes No 15

How can coordination work? 16

Local cooperation: Developing MOUs with FIUs ANTI-CORRUPTION POLICE & JUSTICE PROSECUTOR FIU 17

Building relationships with Financial Intelligence Units (FIUs) CUSTOMS ANTI-CORRUPTION POLICE & JUSTICE FORESTRY ENVIRONMENT NGOs 18

Regional cooperation Risks Failure to identify smuggled logs Controls Improve ability to recognise trade-based laundering GLOBAL PRIORITY Closer intelligence sharing between Customs and FIUs Develop trade-based laundering profile 19

IT IS ALL ABOUT THE MONEY! WHEN THE MONEY IS FOLLOWED ILLICIT FINANCIAL FLOWS CAN BE TARGETED 20

AUSTRAC website AUSTRAC Help Desk http://www.austrac.gov.au help_desk@austrac.gov.au 1300 021 037 DISCLAIMER: The information contained in this document is intended only to provide a summary and general overview on these matters. It is not intended to be comprehensive. It does not constitute nor should it be treated as legal advice or opinion. This presentation contains statements of policy which reflect AUSTRAC s administration of the legislation in carrying out its statutory functions. The Commonwealth accepts no liability for any loss suffered as a result of reliance on this publication, including any errors or omissions therein. AUSTRAC recommends that independent professional advice be sought. The information contained herein is current as at the date of this document.