Anti-money laundering and counter-terrorism financing across the globe: A comparative study of regulatory action (RPP 113) by Julie Walters, Carolyn Budd, Russell Smith, Kim-Kwang, Raymond Choo, Rob McCusker & David ReesThe first report reviews approaches taken by nine countries regarding anti-money laundering and counter-terrorism financing (AML/CTF), following the 2001 revision of the 1990 Financial Action Task Force (FATF-GAFI) 'Recommendations' regarding AML and CTF. Those Recommendations aim to support criminalisation of money laundering and the financing of terrorism, to ensure that assets linked to money laundering or the financing of terrorism can be frozen and confiscated, and to ensure that financial institutions and other regulated businesses comply with the recommendations.
Money laundering and terrorism financing risks to Australian non-profit organisations (RPP 114) by Samantha Bricknell, Rob McCusker, Hannah Chadwick & David Rees - 83pp
Trade Based Money Laundering: Risks and regulatory responses (RPP 115) by Claire Sullivan & Evan Smith
The nine countries under review (Australia, US, UK, France, Germany, Belgium, Singapore, China (HK SAR) and Taiwan) provide an indication of AML/CTF implementation and of measures taken in countries with different legal traditions and different types of risk. Most information in the report derives from publicly available documents published by regulatory bodies, financial intelligence units, law enforcement agencies, industry bodies and FATF-GAFI. Each regulatory regime was examined by reviewing the criminal and regulatory legislation, including asset recovery provisions and obligations against tipping-off.
The authors conclude that the AML/CTF regimes were "remarkably similar in their responses to, and implementation of, the Recommendations", with the key difference between the nine countries being the extent and size of the regulated sector (affecting the scale of reporting undertaken and the capacity to regulate and enforce compliance for large numbers of regulated businesses in some countries). All of the regimes include money laundering as a criminal offence that is distinct from the crime that generated the funds. Australia, the US, Belgium, Germany, Hong Kong, Singapore and Taiwan all restrict money laundering predicate crimes to serious offences.
The real difference in the potential application of money laundering offences in these nine countries lies in the maximum prison sentences tied to potential predicate crimes. An offence can only become a predicate crime for a money laundering charge where the maximum sentence available for the predicate crime satisfies the conditions for money laundering in a specific jurisdiction. Illegal logging crimes, for example, do not carry the required sentences to meet the definition of a predicate offence for money laundering in Australia. The same offence in Indonesia, however, carries a maximum sentence that satisfies the severity condition of a money laundering charge in that jurisdiction.The authors note that "Taiwan is the only country in this report" that has not criminalised the financing of terrorism. Australia has criminalised financing individual terrorists, terrorist organisations and terrorist acts through providing funds and other resources. Singapore has specifically mentioned individual terrorists and acts. The UK and US have criminalised the funding of terrorist groups or acts. The Hong Kong SAR "has focused entirely on terrorist acts and purposes".
Reporting requirements within each country showed considerable variation, although all require at least some sectors to submit reports of suspicious financial transactions.
In Australia, the systematic reporting requirements introduced under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) exceed those enacted in most of the other countries examined. While there were requirements in every country to submit a suspicious financial activity report in some form or other, Australia was the only country that required reports for each of the following — systematic reports for suspicious financial activity, high-value cash transactions, international movements of cash, international movements of value and international funds transfers — indicating the scope of the formal regime in Australia exceeds the others in this regard.The report notes that -
Australia, the United Kingdom and Taiwan require all regulated entities to submit reports of suspicious transactions. The remaining six countries have caveats, or additional guidelines, for when a report of suspicious activity is warranted.The second report -
The United States limits the transactions considered for reporting of this kind with a monetary threshold. Belgium, France and Germany also limit the transactions that might warrant a report but do so by considering the crimes they might be connected to. France’s regulated entities must report transactions suspected to be connected to drug trafficking, organised crime, fraud against the European Communities, corruption, or terrorism financing. Belgium, like France, limits the reports received to those related to specific crimes which include terrorism or terrorist financing, organised crime, illicit trafficking, serious fraud and organised tax fraud, corruption, environment crime and counterfeiting. Belgium, however, only requires financial institutions to submit disclosures of suspicious transactions.
The approaches taken by Hong Kong and Singapore are somewhat different. Hong Kong and Singapore also limit the crimes that might trigger a transaction report to indictable offences in the case of Hong Kong and to drug trafficking or other criminal conduct in the case of Singapore. All individuals in Hong Kong, not just reporting entities, carry this obligation and an identical one to report suspicions of terrorist property. Singaporeans who come across transactions that might be connected to drug trafficking or criminal conduct in the course of business must submit a report. In addition, all persons in Singapore, and any Singaporean citizens overseas, must report any transactions suspected to be linked to the financing of terrorism.
The exploitation of the non-profit sector for money laundering and, in particular, the financing of terrorism, is understood to have been a long-established practice. However, the methods and sources used by terrorist organisations to finance their activities became a key policy focal point after the terrorist attacks of 11 September 2001 and subsequent (predominantly government) examinations of terrorism funding substantiated the position that non-profit organisations were at an elevated risk of criminal exploitation. The vulnerability of non-profit organisations was related to their social purpose, the cash-intensive nature of their activities and the generally minimal form of regulatory oversight applied to their operations. Adding to this risk was the provision of services that relied on financial contributions and the good will of its supporters, the often regular transmission of funds between jurisdictions and less rigorous forms of administrative and financial management.The third report considers trade-based money laundering (TBML), concluding that formation of a regulatory framework to deal with TBML would "be premature and unnecessary at this stage, as more research needs to be conducted to ascertain with greater precision the nature, risks and prevalence of TBML in Australia".
This report examines the risks to the Australian non-profit sector of money laundering and terrorism financing and describes the regulatory changes that could minimise risk. The report uses information derived from government, non-government and peer-reviewed literature, case law and regulator reports, and observations made by representatives from the non-profit sector, law enforcement and key regulatory agencies, and academia that were consulted for the study.
Sullivan & Smith aimed to examines the use of trade, principally international trade, to launder the proceeds of crime. They comment that -
TBML is known to be used to disguise proceeds of crime and to mask legitimately obtained funds that are directed towards terrorism and other criminal activity. TBML techniques range from simple fraud, such as the misrepresentation of prices, quantity or quality of goods on an invoice, through to complex networks of trade and financial transactions. While TBML schemes most commonly involve the misrepresentation of price, quantity or the type of merchandise, trade in intangibles (such as information and services) is emerging as a significant new TBML frontier—also known as service-based money laundering. TBML (and the approaches designed to address it) is defined in terms of international trade, rather than domestic trade.They conclude that -
There is a fine line between TBML and other money laundering methods and in practice, they often overlap. Many TBML schemes use financial transactions to launder funds. TBML may also result in evasion of income tax and excise and involve other financial crimes, although tax evasion may not be the primary objective. For clarity of analysis and to assist understanding of TBML and its ramifications, TBML is defined and differentiated from other types of money laundering and associated activities such as tax evasion.
Several factors make trade attractive to money launderers. These include growth in volume and value of world trade and the relative ease of disguising the true nature of the trade, especially by comparison with other money laundering avenues, which are subject to closer scrutiny. There is anecdotal evidence that increased reporting and scrutiny of financial transactions, as a result of anti-money laundering/counter terrorism financing (AML/CTF) initiatives, is making trade more attractive as a vehicle for money laundering (FATF 2006). The concern is that, unless TBML is addressed, it will increase and become entrenched.
While TBML methods such as over- and under-invoicing and merchandise substitution are not new, there is a growing awareness of TBML among governments, experts, business and individuals.
The full extent of TBML as it affects Australia and its interests is currently unknown. This is of concern, given the ramifications of TBML. However, TBML is arguably a significant concern for a country like Australia that relies heavily on trade and foreign investment, although it is likely that TBML poses a more significant risk in regions where border security is not as restrictive, such as Free Trade Zones (FTZs) or the European Union.
Future Australian and international anti-trade based money laundering strategies
There has been little research conducted internationally and within Australia on TBML. With the Australian Government’s emphasis on evidence-based policy and regulatory development, there is a need for further research to be undertaken in this space to address existing gaps in knowledge concerning the nature and extent of TBML and how to design national regulatory measures to address them most effectively.
In collaboration with the respective trade bodies and subject matter experts, the Australian Government could, arguably, take a leading role in capacity-building and awareness-raising, both within government agencies and with existing reporting entities who facilitate trade through the provision of financial or logistical services (eg financial institutions) in Australia and with Australia’s trading partners. These agencies and service providers would benefit from a better understanding of TBML within the Australian context.
