1. Criminalization of Money Laundering
and the Financing of Terrorism
A presentation to the Workshop
“Developing An Effective AML/CFT Regime”
Damascus
January14-15,2005
Joy Smallwood
International Monetary Fund

2. Criminalization of Money Laundering Material elements (R. 1)
Assessors need to establish that :
The physical and material elements of the ML offense are in line with the UN Vienna (Art. 3) and Palermo (Art.6) Conventions (c.1.1) i.e. that they cover :
conversion or transfer ;
concealment or disguise ;

3. Criminalization of Money Laundering Material elements (R. 1)
aacquisition, possession or use of property with knowledge at the time of receipt; [subject to fundamental concepts of legal system]
participation in, association or conspiracy to commit ML [subject to fundamental concepts of legal system]

4. Criminalization of Money Laundering Material elements (R. 1)
The ML offense extends to any type of property that represents proceeds of crime, not simply cash
Proving the illicit origin of the proceeds does not require conviction of a predicate offense. Discuss what level of proof regarding the illicit origin of proceeds is needed and how specific it must be to a particular predicate offence

5. Criminalization of Money Laundering Predicate offenses
Mandatory scope of ML -- assessors examine whether:
The jurisdiction’s ML offense covers all “serious offenses” and the range of serious offenses is defined as widely as possible.

6. Criminalization of Money Laundering Predicate offenses
In all cases, predicate offenses for ML cover at a minimum a range of offenses in each of the 20 “designated categories of offenses” as defined in the Glossary to the FATF 40, including the financing of terrorism.

7. Criminalization of Money Laundering Predicate offenses
Predicate offenses for ML extend to conduct that occurred in another country, which constitutes an offense in that country and which would have constituted a predicate offense had it occurred domestically. Look at legal basis for this and ask for case law.
Note that market manipulation, insider dealing and environmental crimes may not be listed in the criminal or penal code. Ask for other legislation to look for these offences.

8. Criminalization of Money Laundering Predicate offenses
Jurisdictions can use various methods to achieve this minimum coverage:
Threshold approach
Category-based: all offenses defined as “serious” [or as “indictable” offenses, “crimes”, etc.] in domestic law ;
Numerical : all offenses punishable by 1 year of imprisonment or more (if maximum); or by 6 months of imprisonment (if minimum); or a combination of these

9. Criminalization of Money Laundering Predicate offenses
List approach
all offenses specifically referred to in the ML provision (note that threshold 1 year/6 months minimum does not apply here)

10. Criminalization of Money Laundering Predicate offenses
All crimes approach
no list, no threshold (again : note that threshold 1 year/6 months minimum does not apply here, but Glossary offenses must be covered) ;
Combination
Threshold plus list (e.g. all “serious offenses” or all offenses above the threshold, plus certain designated offenses that are not “serious” or below the threshold) ;

11. Criminalization of Money Laundering Predicate offenses
Issues to examine :
Whatever method is used, predicate offences must:
cover all designated categories of offences in the FATF 40 Glossary
be criminalized in the jurisdiction's laws
have a range of offenses in each category, where appropriate

12. Criminalization of Money Laundering Predicate offenses
Note that if the description (or definition or name) of the offence is different but conduct or concept is there, it is OK.

13. Assessors should examine that:
Criminalization of Money Laundering: Self Laundering and Ancillary Offences R 1
Assessors should examine that:
Self-laundering is criminalized, unless contrary is required by fundamental principles of law
Unless contrary to the fundamental principles of domestic law, ancillary offences include:
Conspiracy to commit
Attempt
Aiding and abetting
Facilitating, and
Counseling the commission of

14. Criminalization of Money Laundering: Self Laundering and Ancillary Offences R 1
Ultimately, the assessors must determine that all parties involved in laundering money may be prosecuted for committing a criminal offence

15. Criminalization of Money Laundering- R. 2
The standard is knowingly but knowledge should be able to be inferred from objective factual circumstances. This principle needs to be set forth at least in case law (civil law countries = free evaluation of evidence).
Sanctions for natural and legal persons: effective, proportionate, dissuasive (for all types).
Assessors should look annual statistics to confirm that sanctions have been issued and that they are appropriate.

16. Criminalization of Money Laundering: Corporate Liability R 2
Assessors should establish that:
criminal liability for money laundering extends to legal persons
legal persons are subject to civil or administrative liability for money laundering and to criminal liability, where it is not contrary to fundamental principles of domestic law

17. Criminalization of Money Laundering: Corporate Liability R 2
legal and natural persons may be held concurrently liable for the same act of money laundering (c.2.4)
parallel criminal, civil and administrative proceedings may be initiated against a legal person for the same money laundering act or acts (c. 2.5)

18. Criminalization of Money Laundering – Implementation and effectiveness
Assessors should examine:
Has the assessed jurisdiction kept statistics annual for prosecution and conviction of money laundering? (R 32)
The adequacy of criminal sanctions. Relative to other crimes in the jurisdiction, what is the penalty for money laundering? Look at a range of offences for comparison. Relative to other countries in the region, what is the penalty for money laundering?

19. Criminalization of Money Laundering – Implementation and effectiveness
If no convictions, clarify whether there are any prosecutions underway and take into account the date of criminalization of ML
If no prosecutions, but ML offense is recent, clarify whether there are any investigations.

20. Criminalization of Money Laundering - Implementation and effectiveness
Where money laundering is criminalized but no prosecutions/investigations are underway, look at possible problems of implementation (e.g. lack of resources) – compare with ML situation in the country or region. Look also at the predicate offence statistics.
If prosecutions are undertaken but fail for lack of evidence, check on evidentiary standards (statutory or case law)
If judicial interpretation exists look at whether it is overly restrictive, look at numbers of investigations, prosecutions and convictions.
Look at who is being targeted by the investigations and prosecutions (self-laundering or third-party laundering).

21. Criminalization of FT : Material and mental elements of the FT offense (SR II)
Assessors need to establish whether:
The FT offense in the assessed jurisdiction is in accordance with the definition of FT as set forth in:
the Financing of Terrorism Convention (1999), Section 2; and
FATF SR II on Terrorist Financing (and IN)

22. Criminalization of FT
The FT offense should be criminalized on the basis of the FT Convention and SR II and should cover the following minimum elements:
The Conduct: Provision or collection of funds by any means, directly or indirectly, to be used in full or in part:
*To carry our “terrorist acts”
*By a terrorist organization
*By an individual terrorist
Funds: assets of every kind, however acquired (IN SR II).
It should be irrelevant whether the funds:
(i) were actually used to carry out or attempt terrorist acts; or
(ii) be linked to a specific act (s).

23. Criminalization of FT
Mental state: willfully and with intent that funds be used or in the knowledge that they are to be used for financing
The FT offense must be a predicate offense for ML

24. Criminalization of Financing of Terrorism: Definitions
Assessors need to examine FT-related definitions in the assessed jurisdiction’s laws. Reference definitions are provided by FATF SR II and FT Convention :
Financing of Terrorist organization : refer to IN to SR II
Financing of Terrorist acts : refer to FT Convention (Art 2) and IN
to SR II
Financing of a Terrorist individual : refer to IN to SR II
Funds: refer to definition in FT Convention and IN to SR II
(identical)
Provision [of funds]: no definition
Collection [of funds]: no definition

25. Criminalization of Financing of Terrorism: Summary
Assessors need to examine:
Definitions of terrorist, terrorist act and terrorist organization and confirm that all three are part of the offence.
Does the FT offense cover both proceeds and legitimate funds?
Does the FT offense cover “provision of funds” and “collection of funds” as distinct material acts as required ?
Is the FT offense an autonomous offense or only an ancillary offence (e.g. related to “terrorism”)? Note that criminalising FT solely on the basis of aiding and abetting, attempt, or conspiracy does not comply with SR II (see IN to SR II and footnote 40 of Methodology).

26. Criminalization of Financing of Terrorism Summary
Does FT offence extend to the situation where:
the funds, legitimate or proceeds, have not been used?
the terrorist act that is “financed” has not been carried out or attempted?
the funds are not linked to specific terrorist acts?

27. Criminalization of Financing of Terrorism Implementation and Effectiveness
Assessors also need to examine whether :
The assessed jurisdiction has obtained any convictions for FT, relative to the threat of terrorism or financing of terrorism.
If no convictions, clarify whether there are any prosecutions underway and take into account the date of criminalization of FT
If no prosecutions but FT offense is recent, clarify whether there are any investigations.
If prosecutions are undertaken but fail for lack of evidence, clarify whether there are any judicial decisions on evidentiary standards.
If judicial interpretation exists but is overly restrictive, look to issues of effectiveness.
In some countries, there may be no real FT threat. Assessors will need to examine the particular circumstances of the country in order to make this determination. In those rare circumstances, no FT prosecutions may not be a problem.

28. SR IX : Cross border movement of cash or bearer instruments
For cross border movements of currency or bearer instruments valued at USD/EUR 15,000 or more, the term “physical cross border transportation” refers to and in-bound or out-bound physical movement of currency or bearer instruments from one country to another country including the following modes of transportation:
Physical transportation by a natural person, or in a person’s accompanying luggage or vehicle
Shipment through containerized cargo
Use of the mail systems (IN, SR IX, Para 5)
Given the various modes of transport of currency or bearer negotiable instruments, assessors will need to hold meetings with customs officials and postal officials in order to determine how effectively countries are implementing SR IX. Assessors will need to confirm that officials have the legal authority to stop vehicles/person or open mail packages. Furthermore, assessors should determine what resources are available in the country in the context of the size of their borders/ports and their mail system.
For EU law, there should be no internal border which impedes the free movement of goods and persons. Discuss this with the authorities and what they are doing in their own country to comply with SR IX.

29. SR IX: Declaration or disclosure
Countries are required to put in place either a declaration or disclosure system to deter cross-border movements of currency and monetary instruments related to ML/FT.(c.IX.1)
In a declaration system it is required that persons making cross-border transportation of currency or bearer negotiable instruments exceeding the threshold to make a truthful declaration to a designated competent authorities ( usually a written declaration on a form).
A disclosure system requires that countries have a system in place whereby if a person is asked to make a disclosure while making a cross-border transportation of currency or bearer negotiable instruments exceeding the threshold, that such a person be required to make a truthful disclosure to a designated competent authority upon request.

30. SR IX: False declarations/disclosures
Upon discovery of a false declaration or disclosure of currency or bearer negotiable instruments, failure to disclose, or suspicion of ML/FT, designated competent authorities should have the ability to:
request and obtain further information from the carrier with regard to the origin of the currency (Criterion IX.2)
be able to stop or restrain currency or bearer negotiable instruments in order to ascertain whether evidence of ML/FT may be found (Criteria IX.3)
sanction persons who make a false declaration or disclosure and confiscate the cash or bearer negotiable instruments (Criteria IX.8 - IX.10)

31. SR IX: Records
Information on the amount of currency or bearer negotiable instruments declared/disclosed or otherwise detected, and the identification data of the bearer(s) should be retained for use by the appropriate authorities when:
* a declaration which exceeds the prescribed threshold is made; or
* where there is a false declaration/disclosure; or
* where there is a suspicion of money laundering or terrorist financing (c. IX.4)
Information obtained under the declaration/disclosure system should be available to the FIU either where the FIU is notified of suspicious transactions or where the FIU has direct access to the declaration/disclosure information
(c. IX.5)