World Bank International Standards and Action to Combat Money Laundering - Legal Aspects Mark Butler Financial Sector Specialist, Financial Market Integrity, The World Bank April 16, 2006

International Standards to Combat Money Laundering  Financial Action Task Force on Money Laundering (FATF)  United Nations Conventions  Basel Committee on Banking Supervision  Wolfsberg Group

FATF Recommendations  Set out the legal, institutional and implementation framework for AML/CFT efforts.  Designed as minimal standards/best practices for universal application subject to the local risk, vulnerabilities and legal framework of the country.  Revised to take into account new trends and threats in the area of money laundering and terrorist financing

Key Elements of an AML Strategy Legal Prevention Detection & Enforcement International cooperation

Legal Creating a legal framework that provides for: –Criminalising of ML and FT –Freezing, Seizing and other provisional measures –Investigative powers –Forfeiture of Proceeds of Crime & Terrorist Property –International Cooperation –Customer Due Diligence –Establishment of Financial Intelligence Unit Effective court system and competent judiciary

Prevention Establishment of Effective Institutional Framework Financial Intelligence Unit Financial Supervisors - central bank, insurance commission, securities commission Law enforcement agencies - Police, Customs, Immigration

Prevention Preventative Measures and Supervision –Comprehensive List of Involved Institutions –CDD Obligations for Institutions KYC - client identification & record retention Monitor accounts for unusual activity Suspect Transaction Reporting (STR) Other types of reporting (CTR, WTR) –Comprehensive AML Procedures Training Compliance program –Supervisory Framework

Detection and Enforcement Creation of a Financial Intelligence Unit Requirement to report suspicious transactions Monitoring and Investigation of compliance by supervisors Comprehensive Investigative Powers Law enforcement agencies to have requisite powers Prosecution of ML & FT Forfeiture of proceeds

International and Domestic Cooperation Should be as broad as possible and cover as a minimum cooperation between: Supervisors FIUs Law Enforcement Agencies Supervisor and FIU FIU and law enforcement agencies Supervisors and law enforcement agencies

Assessment of Compliance Assessment Methodology compiled by FATF –252 Criteria –Assesses Implementation and Effectiveness Assessments can be conducted by either World Bank, International Monetary Fund or FATF Styled Regional Bodies

Legal Aspects

Criminalisation of Money Laundering Criminalization on the basis of the 2000 UN Convention on Transnational Organised Crime Intent and Knowledge of the offense Should ensure the widest range of coverage of predicate offenses All Offences / List of Offences / Threshold Approach Offenses covered should have extraterritorial application Where possible, should incorporate self- laundering of proceeds

Minimum Designated Categories Participation in an organized criminal group; Terrorism, including terrorism financing; Trafficking in human beings and migrant trafficking; Sexual exploitation (including of children); Illicit trafficking in narcotic drugs; Illicit Arms Trafficking; Corruption and bribery; Illicit trafficking in stolen and other goods; Fraud; Forgery; Robbery or theft; Counterfeiting currency; Counterfeiting and piracy of products; Environmental crime; Murder, grievous bodily injury; Kidnapping, illegal restraint and hostage taking; Smuggling Extortion; Piracy; Insider trading and market manipulation

Criminalization of Terrorist Financing Criminalize Terrorist Financing in accordance with UN International Convention for the Suppression of the Financing of Terrorism (1999) Broad definition of TF TF offense must cover any funds (proceeds of crime & legitimate funds) TF offense must be an autonomous offense TF must be designated as a ML predicate offense

United Nations Instruments Ratify and fully implement the 1999 UN Convention for the Suppression of the Financing of Terrorism Includes measures to criminalize Financing of Terrorism, to freeze without delay terrorist funds and other assets, international cooperation Take immediate steps to implement the relevant UN Security Council Resolutions (UNSCR), in particular, UNSCR 1373

Sanctions Criminal liability, and, where that is not possible, civil or administrative liability, should apply to legal persons. Criminal sanctions (imprisonment, fines & other penalties) should be available against individuals and where possible, legal persons Sanctions should be effective, proportionate and dissuasive Should not preclude parallel criminal, civil or administrative proceedings with respect to legal persons in countries in which such forms of liability are available.

Confiscation Measures Measures (including civil forfeiture) for freezing/restraining, seizing and forfeiting/confiscating of proceeds of crime, funds related to terrorist activity including instrumentalities of crime or terrorist activity. Should not affect rights of third parties Provision for ability to identify, trace and evaluate property suspected of being proceeds of crime or funds related to terrorist activity Civil and criminal forfeiture – Burden of proof different.

International Co-operation Should ensure provide the widest possible range of international co-operation to their foreign counterparts, notwithstanding the absence of dual criminality Clear and effective gateways to facilitate the prompt and constructive exchange between counterparts either spontaneously or upon request, relating to ML/FT and/or the underlying predicate offence without unduly restrictive conditions Refusal of assistance should not be on the sole ground that the request is considered to involve fiscal matters Laws that require financial institutions to maintain secrecy or confidentiality should not be a ground for refusing to provide co-operation

International Co-operation Competent authorities should be able to conduct inquiries; and where possible, investigations on behalf of foreign counterparts Should be able to freeze, seize and confiscate property pursuant to a foreign request Have procedures to extradite persons charged with ML/FT offences - If extradition is not possible, country should have means to prosecute

World Bank International Standards and Action to Combat Money Laundering - Legal Aspects Mark Butler Financial Sector Specialist, Financial Market Integrity, The World Bank April 16, 2006