Dr Nicholas Ryder Commercial Law Research Unit University of the West of England

Introduction What is financial crime? Part 1 Money Laundering Part 2 Fraud Part 3 Terrorist Financing

What is financial crime? “there is no internationally accepted definition of financial crime” and it “interprets financial crime in a broad sense, as any non-violent crime resulting in a financial loss” (International Monetary Fund, 2001) Financial crime has also been referred to as ‘white collar crime’, a term first used by Professor Edwin Sutherland in 1939 which has since “become synonymous with the full range of frauds committed by business and government professionals” (FBI, 2009)

What is financial crime? More recently the US Department of Treasury and HM Treasury have referred to financial crime as ‘illicit finance’ Financial crime is defined as “any offence involving fraud or dishonesty; misconduct in, or misuse of information relating to, a financial market; or handling the proceeds of crime” (Financial Services and Markets Act 2000, s. 6(3)).

What is money laundering? Processing of criminal proceeds to disguise their origin Concealing Disguising Converting Transferring or removing Facilitates the acquisition Retention Use or control Acquisition Use Possession Above relate to proceeds of criminal activity

The Scale of Money Laundering International Monetary Fund Between 2 and 5 % of Global GDP $590 billion to $1.5 trillion £20 to £50 billion (UK) Financial Action Task Force $500 billion

How is money laundered? Three recognisable stages: Placement Layering Integration

United Kingdom’s Anti-Money Laundering Policy Criminalisation of money laundering Regulated financial institutions are compelled to put in place systems to preclude and identify money laundering Financial Intelligence

Criminalisation of money laundering Drug Trafficking Offences Act (1986) Criminal Justice Act (1993) Money Laundering Regulations (1993) Proceeds of Crime Act (2002) Section 327 Section 328 Section 329

Financial Services Authority Financial Services and Markets Act 2000 Section 6(3) Risk based approach Money Laundering Handbook Senior Management Arrangements, Systems and Controls Enforcement policy R v Rollins [2010] UKSC 39 Regulated financial institutions

Financial Intelligence Drug Trafficking Offences Act (1986) Section 24(1) Criminal Justice Act (1993) Sections 93 (a-g) Proceeds of Crime Act (2002) Part 7 Suspicious Activity Reports Defensive reporting Compliance costs

Fraud “The modern thief can steal more with a computer than with a gun” (Computer Science and Telecommunications Board, 1991)

What is fraud? “Persuading someone to part with something” (Doig, 2006) “Deceit or an intention to deceive” (Omerod and Williams (2007) “Act of deception intended for personal gain or to cause a loss to another party” (Serious Fraud Office, 2006) “involves the perpetrator making personal gains” (Financial Services Authority, n/d)

The Extent of Fraud Norwich Union Report (2005) £16 billion Equivalent to £650 per household per annum Association of Chief Police Officers (2007) £15-17bn National Fraud Authority (2010) £30bn

The Extent of Fraud Mortgage Fraud £800m Benefit Fraud £8bn Corporate Fraud £72bn It costs the US economy $400bn (Ryder, 2010).

Some classic frauds Bank of Credit and Commerce International Barings Bank Enron WorldCom Bernard Madoff Polly Peck (Azil Nadir), Mirror Group Pension Scheme Guinness Barlow Clowes

The United Kingdom’s Fraud Policy Criminalisation of fraudulent activities; Regulatory agencies, and Anti-fraud reporting requirements.

Criminalisation of Fraud The Fraud Act 2006 creates a new general offence of fraud and introduces three possible ways of committing it (s 1). Firstly, it makes it an offence to commit fraud by false representation (s 2). Secondly, the Act makes it an offence to commit fraud by failing to disclose information to another person where there is a legal duty to disclose the information (s 3). Thirdly, it makes it an offence to commit a fraud by dishonestly abusing one's position (s 4).

The Regulatory Agencies There are several agencies that attempt to combat fraud: The Financial Services Authority The Office of Fair Trading HM Revenue and Customs The Serious Fraud Office The Serious Organised Crime Agency National Fraud Authority National Fraud Intelligence Bureau Economic Crime Agency

Anti-fraud reporting requirements. Proceeds of Crime Act (2002) Senior Management Arrangements, Systems and Controls (FSA Hand Book) Home Office Guidelines Who reports? Do all financial institutions report allegations of fraud?

The Costs of Terrorist Attacks World Trade Centre bomb 1993 $129 IRA bomb hoax Grand National 2p The London tube and bus suicide bombings which killed 56 people costs between £100 and £200 The al-Qaeda bombing of the USS Cole which resulted in the death of 19 $10,000 The al-Qaeda inspired train bombings in Madrid which killed 191 people cost approximately $10,000; The Bali night club attack cost $74,000 and resulted in the murder of 202 people The terrorist attacks of 9/11cost approximately $500,000

The Impact of 9/11 International community was concerned with the illegal drugs trade, money laundering and fraud Not prepared to tackle terrorist financing UN Security Council Resolution 1373 “kick started a new era” (Whiner and Roule, 2002, 88). It also acted as a Galvanising effect (Akindemowo, 2004, 289).

Terrorist Financing Policy Criminalisation of terrorist financing; The freezing of terrorist assets, and Financial Intelligence.

Criminalisation Section 14 Terrorist Property Section 15 Fund Raising Section 16 Use and Possession Section 17 Funding Arrangements Section 18 Money Laundering Section 19 Disclosure of Information

The freezing of terrorist assets, and Anti-Terrorism Crime and Security Act (2001) HM Treasury allowed to “freeze the assets of overseas governments or residents” See: Case T-306/01, Ahmed Ali Yusuf and Al Barakaat International Foundation v Commission Case T-315/01, Yassin Adbullah Kodi v Council and Commission A v HM Treasury UKSC 2 Terrorist Asset-Freezing etc. Act (2010)

Financial Intelligence Terrorism Act (2000) Anti-terrorism, Crime and Security Act (2001)

Conclusions Fraud Money Laundering Becoming the crime of choice for organised criminals and terrorists Tougher sanctions Cyber crime Adverse impact on the economy E-Fraud Too many vulnerable governments have not criminalised all forms of money laundering Too many governments place restrictions on AML measures International cooperation not sufficient The Internet Laws and regulations fail to keep pace

Conclusions Terrorist Financing Cheap terrorism 7 th July 2005 Reporting requirements are redundant Asset freezing provisions rethink