3 ObjectivesDefine money launderingHow AML supports anti-corruption
4 “After foreign exchange and the oil industry, the laundering of dirty money is the world’s third-largest business.”Jeffrey Robinson, The LaundrymenHow Much Is Laundered?IMF ESTIMATE = 2-5% Global GDP
5 What is Money Laundering? Definition: The process of disguising the proceeds of crime in an effort to conceal their illicit origins and legitimize their future use.Objective: To conceal true ownership and origin of the proceeds, a desire to maintain control, a need to change the form of the proceeds.Techniques: They can be simple, diverse, complex, subtle, but secret.Proceeds = any economic advantage derived directly or indirectly from criminal offenses
6 Money Laundering Cycle 2. PLACEMENT3. LAYERING4. INTEGRATIONThe last stage in the laundering process.Occurs when the laundered proceeds are distributed back to the criminal.Creates appearance of legitimate wealth.Involves distancing the money from its criminal source:movements of $ into different accountsmovements of money to different countriesIncreasingly difficult to detectInitial introduction of criminal proceeds into the stream of commerceMost vulnerable stage of money laundering process1. Predicate CrimesCorruption and BriberyFraudOrganized crimeDrug and human traffickingEnvironmental crimeTerrorismOther serious crimes…Money Laundering Cycle
7 Money is laundered through… BanksFinancial servicesBrokerage firmsOther Examples: Insurance companies,Money remitters,Cash intensive businesses,Brokerage firms,RealtorsCrooked LAWYERS and ACCOUNTANTS
8 Simple Bribe and Money Laundering Transaction Company ANeeds to generate $1 million for bribe to Finance Minister.Uses invoices from company in Country 2Country 1Country 2Company Bank AccountCountry 3Company owned by Minister’s cousinCountry 4$500,000 - Purchase of Real Estate$500,000 - Purchase of Bearer Share
9 What Are The Benefits Of Money Laundering Laws? Money Laundering is a separate offense which carries additional jail time. Allows for seizure and confiscation of proceeds of crime.Allows law enforcement access to bank and other financial institution records.Requires financial institutions to file suspicious and sometimes cash transaction reports, and to identify the beneficial owners of legal entities.Requires establishment of Financial Intelligence Units which receive reports from financial institutions and can provide new channels for international exchange of information.
10 Key QuestionsHow does anti-money laundering make it riskier for corruptors/corruptees?How much can AML deter corruption?What are the measures that will contribute to increase risk and prevention of corruption?
11 Incentives to LaunderLarge amount of proceeds from corruption that need to be hiddenLow confidence in the security of assets in countryAsset disclosure requirementsPolitical instability or possible regime changeGreater risk for corruptors and corruptees of investigation and prosecutionGreater opportunities for corruption and money laundering but at the same time greater risk of investigation
12 Where are we in 2006? Tighter controls on AML globally Fewer secrecy havensGreater international cooperation and pressure to adopt international standards (FATF and FSAPS by IMF/WB)Private sector generally proactive in monitoring their business relationshipsGreater opportunities for corruption and money laundering but at the same time greater risk of investigationNo database of Money Laundering Cases
13 The Case of Switzerland Originally known for its extreme bank secrecyEvolution of reputational risk assessment of Swiss financial sector. Began to freeze assets.Recent Cases with Swiss Banks:Marcos: returned $700 millionAbache: returned $200 millionMontesinos: returned $77.5 millionFrom Swiss Bank, money went to Banks in Nigeria, USA, UK, Austria, Lichtenstein, Luxembourg—with a total of more than $700 million
14 What are some of the Challenges? Developing political will at senior levels of government.Tighter AML can be costly and reduce resources from other needs.Building capacity in developing countries for investigation and prosecution.Knowing your client is not always easy. Knowing your client’s client is difficult to impossible.Coordination among countries law enforcement, financial intelligence units, regulators, and judiciaries.Application of AML regime in a cash based economy.Greater opportunities for corruption and money laundering but at the same time greater risk of investigation
15 ConclusionResults unkown—don’t know whether there has been a reduction in corruption because of AML (no database of Money Laundering Cases)It is easier to prosecute AML even when local jurisdictions are not able (i.e. ML is usually multi-jurisdictional)AML is a compliment to anti-corruption programs but it is not a silver bulletGreater opportunities for corruption and money laundering but at the same time greater risk of investigation
17 Examples Of What Countries Can Do? Enact and implement AML regime including creating “Financial Intelligence Units”, suspicious transaction reporting, enhanced due diligence on financial transactions regarding “politically exposed persons” and civil/criminal forfeiture.Build clear and efficient internal mechanisms to share information by and between regulators and law enforcement agencies.Join regional anti-money laundering group to help enhance regional and international cooperation opportunities.Build capacity of investigators, prosecutors and judges to handle financial investigations.
18 How does the Bank help? Effective AML/CFT regime: Understanding of ML & TF amongst stakeholdersLegal frameworkFunctioning FIUSupervision of AMLLaw enforcement capacityWB technical assistance:Awareness raising workshops/ Global DialoguesLegislative draftingFIU capacity buildingCapacity building for regulators/ supervisorsCapacity building for law enforcement
19 Money laundering, why do we care? Is a global threat;Is fuel to expand criminal enterprise;Helps hide corrupt payments;Uneven playing field for honest business;Risks for financial systems & institutions-erodes integrity RegulatoryReputational, credit and operational risk.Market risk.Economic:Deters private investmentDestroys competitionRevenue impactFinancial:Perpetuates corruption, obstructs good governanceErodes confidenceDestabilizes financial institutions
20 Money laundering is any transaction which seeks to conceal or disguise proceeds from illegal activities. Proceeds = any economic advantage derived directly or indirectly from criminal offenses.
21 Money laundering, why do we care? Is a global threat;Is fuel to expand criminal enterprise;Helps hide corrupt payments;Uneven playing field for honest business;Risks for financial systems & institutions-erodes integrity RegulatoryReputational, credit and operational risk.Market risk.Economic:Deters private investmentDestroys competitionRevenue impactFinancial:Perpetuates corruption, obstructs good governanceErodes confidenceDestabilizes financial institutions