World Money Laundering Report: Volume Three

Comment: attempts by the EU and, seemingly, the OECD to regulate the internet leading to complex tax, privacy and consumer laws are leading to data businesses relocating their servers. Who benefits from some of the proposals?

Law: should there be a "reasonableness" test for knowledge in money laundering offences?

Reputation: US Senate report names banks involved in correspondent banking "scandal." Lloyds-TSB tell World Money Laundering Report the truth about their involvement with British Bank of Latin America.

Methodologies: A US Senate Committee has published a report into the laundering facilitated by the correspondent banking regime. We examine one part of the report that details the mechanisms created by a bank with laundering in mind.

Legislation: the UK has published a draft bill to overhaul counter-money laundering legislation and to create the framework for attaching proceeds of crime.

Regulation: Singapore updated its counter-money laundering legislation and regulatory framework in 2000. Part One of an examination of the new law and regulator's documents.

Flip Side: The UK's new Criminal Assets Recovery Agency's acronym is a girl's name. There was an infamous Cara recently... Also, surely there can be no merit in a conspiracy theory that links supra-national organisations, governments, regulators and banks in a scheme to create fiscal, regulatory and commercial global domination?

Spam Wars: an old friend returns; a way of reducing the spam in your mailbox; Entrapped by the Zeta virus?

News from: Antigua and Barbuda; Bahamas; New Zealand; UK; Australia; Kenya; Philippines; USA; Malaysia, Hong Kong.

Discussion Paper: Is there a black hole in the UK's counter-money laundering laws? A major analysis of the UK's counter-money laundering legislation applies a logical progression through a series of legislative measures cross referencing definitions sections and schedules and comes to the conclusion that there is an argument that the wording of one section undermines much of the premise that, in the UK, all serious crime is to be regarded as predicate crime for money laundering purposes. And, worse, the offending section predates the counter-money laundering laws and if the argument is correct, then many confiscation orders going back over a period of more than a decade may be unsafe.

EU: 2nd Directive. Negotiations seem to be making progress, then something stops the wheels turning.

Proceeds of Crime: Australia: a new Bill is intended to make it easier to seize assets accruing from a wide range of serious crime. But it's an opposition Bill, introduced to combat what the Labor Party see as laxity on the part of the incumbent government.

Flip Side: WMLR asked the press office at the Head Office of the UK's Crown Prosecution Service to define the classes of criminal offence in the UK. First they said they would do so only if we gave them the home address of our editor; we declined, saying that our office address should be enough for them. They said that if we didn't want an answer, that was fine - but in any case we could just look in a book. Their e-mails were hardly literate. Given that the CPS is supposed to be able to communicate effectively in order to secure convictions, the lack of competence in a department that it supposed to work on the organisation's slightly tarnished image means that it's hardly surprising that the CPS has the reputation of running away if a defendant threatens to put up a spirited fight.

Proceeds of Crime: UK : The UK already has a range of laws that impact upon proceeds of crime. Some of them are running into trouble, as are such procedures around the world as human rights activists and others question the strength of, particularly, pre-conviction confiscation. A wide ranging analysis of case law gives an indication of the direction things are taking. An introduction to the Draft Bill prefaces a major comparison of the UK and Australian Bills.

Identification: Two directly opposing political objectives (increasing the representation in parliamentary elections) and identification of applicants for business have collided. The result spells increased risk for financial services businesses in the UK where there are remarkably few ways of independently verifying any claim to identification from the so called "financially excluded."

The Scoop: The US Senate Sub Committee on Investigations is waging a lonely war on financial crime. WMLR examines the recent history of the Sub Committee that works hard to reach the parts of the financial services industry that others want to keep secret.

Compliance : Part II of WMLR's examination of Singapore's 2000 Regulations.

News with comment from USA, UK, South Korea, Africa, Yugoslavia

News from: Antigua and Barbuda; Bahamas; New Zealand; UK; Australia; Kenya; Philippines; USA; Malaysia, Hong Kong.

Is Africa the next money laundering frontier? The Interface between poverty and foreign corporations is creating the conditions in which fraud and money laundering will flourish. And the activities of some inter-governmental organisations will increase the likelihood that organised crime will move in.

Proceeds of Crime: the UK's Draft Proceeds of Crime Bill is not radical on the international stage but so far as the UK is concerned, it has a number of important and - for those who are not criminals or their associates - welcome measures. Unfortunately, it has some silly drafting errors, some distracting nods to fashion - and fails in one if its central stated objectives.

Russia's latest attempt at CML legislation.

ECOWAS: The Justice Ministers held an Anti-Corruption Conference, featuring the unusual - but valid - view that if corruption is to be curtailed, then it is the Judges who are in the front line and, therefore, the eradication of financial and political influence on the judiciary is a fundamental objective.

USA : warning on "growing problem" of identity theft.

News from Paris, Brussels, Islamabad, Singapore, London.

News from: Antigua and Barbuda; Bahamas; New Zealand; UK; Australia; Kenya; Philippines; USA; Malaysia, Hong Kong.

Proceeds of Crime: the Supreme Court in Jamaica has ruled on forfeiture in the case of a convicted drugs dealer. He said that a forfeiture order was unconstitutional. The Court said he was wrong.

Proceeds of Crime: private recovery proceedings launched by Interclaim against a against a convicted fraudster, ran into a brick wall in Canada late last year. Interclaim gave us copies of the Court papers and they make fascinating reading.

A victimless crime? Lawyers stealing from clients' account (moneys held in trust) is a rare occurrence but when it does happen it is often for large amounts of money and the consequences for law firms and the public at large are considerable - and go much further than simply questions of compensating the direct victims.

Anti-drugs policies in flux: Switzerland's tolerant heroin policy has seemingly produced dramatic results in the reduction of deaths, crime and social disorder associated with addiction; a large part of London, UK is now to adopt a tolerant approach to cannabis use and Portugal intends to adopt the most liberal regime yet. But can the schemes reduce the crimes associated with the supply of drugs as distinct from their use?

Conference Notebook: Elizabeth O'Brien attends the International Legal Congress in Dublin and examines issues of balancing the rights of criminals against the need for effective prosecution, punishment and deterrence.

The year of living dangerously - the trials and tribulations of running a country in the face of co-ordinated international attack: as recession, euphamistically called a "slowdown", looms across much of the world, the sound of protectionist walls being built is growing ever louder - and again the noise is amplified by repetition by self serving and inter-connected organisations. The OECD and the Financial Stability Forum are at it again with a report on the abuse of corporate vehicles. But, for once, their comments contain an element of balance.

Flip Side: the Dominion of Melchizedek is a group of people who assert dominion over a chunk of Antarctica almost 1.5 times the size of America and an island that keeps disappearing and popping up somewhere else, plus a few other bits of reef and rock around the world. Oh, and its constitution is based on its own rewrite of The Bible. But the idea of a micro-nation based on personal space connected by the internet is also gaining support. Of course, it is gaining support from people that have to put their physical presence somewhere and it's not entirely simple to disassociate the physical from the legal (and therefore taxable) presence.

International Initiatives: Barry Shailer, Group Compliance Officer for Bank of Bermuda, on the offshore perspective of money laundering and the impact of new international legislation.

News from Russia, Poland, South Africa, France and the IMF.

The shocking attacks on high profile buildings in New York and Washington has, for the first time, demonstrated to a totally global audience the realities of terrorism.so, now the question of terrorism is, at last, on the international agenda. For the full story subscribe at Orders

The focus on terrorist finance has drawn attention to the secretive world of parallel banking.and in doing so missed the point that the amounts of money needed were so small that they may not have featured in even the cash transaction reporting system under the USA's Bank Secrecy Act.

President Bush's naming of groups and individuals is no surprise - a similar list has been circulating in some countries for some time - but his "executive order" has an additional dimension that will create considerable problems for small and developing countries and their banks.

It only took a matter of days for governments around the world to begin a march towards stronger counter-money laundering and anti-terrorism laws. But there is an old adage that hard law is bad law, and should be another bon mot that ill-considered law is bad law. And that is the risk faced in many jurisdictions as the race to be seen to be doing something truncates the democratic process and parliamentary processes are abridged.

The demands of regulators and government departments to search records and disclose the existence of accounts in a specified name is dangerously close to compelling a "fishing expedition." In common law jurisdictions, such actions are almost always blocked by the courts. Does this mean that client confidentiality will be the first casualty of this war on terrorism?

Since 11th September, it has been usual to hear "money laundering" in the same breath as "terrorist funding." But there are legal and technical differences between them - and financial institutions are being told to identify one as if it is the other. Yet the differences mean unless terrorist money arises from the proceeds of another crime, it is not laundered and so the usual counter-laundering ideas do not work.

WMLR contains lists of names of persons and organisations which are denoted as terrorists and therefore subject to having their assets frozen.

Politicians are rushing to make new law - and not bothering to find out whether there are already laws to cover the topics concerned.

The impending implementation of the UK's new regulatory regime has finally clicked with those who will have personal responsibility for compliance. And they are putting on their walking shoes - putting financial services businesses at risk of regulatory breaches.

The USA has consistently failed to put in place effective counter-money laundering laws. Its know your customer laws are weak and limited in application and it has not adopted the UN Convention on the Financing of Terrorism. And its compliance with the Forty Recommendations of the Financial Action Task Force is lamentable. So the USA is rushing to get new laws. Unfortunately, other countries see this as an opportunity to pass unpopular measures with little dissent.

The French. You have to love them, don't you? Fed up that their tax regime encourages offshore investment, they have gone on the attack upsetting Lichtenstein (everybody does, it seems), Switzerland (you can (or, rather, you could until big fences were put up) accidentally walk into France at Geneva Airport) and Monaco (which was so incensed that it threatened to separate from the close relationship between the two). And now the attack has spread to the UK's Crown Dependencies and Gibraltar - and in passing there is a vicious swipe at the British claiming that the UK is a haven for laundering and terrorist financing. But all is not quite as it seems because there is an undercurrent that might be read as jealousy at the success of London as an international financial market - which the authors of the report admit began after the French Revolution.

Malaysia has written a huge new law to counter money laundering. Passed in July 2001, it has some problems but is largely a significant contribution to the region's legislative efforts. Detailed analysis in this issue of WMLR.

The Philippines passed a new counter-money laundering law hours before the Financial Action Task Force imposed sanctions that would have caused serious harm to the fragile economy in the Republic. The FATF has yet to make up its mind whether the law is good enough. But in the meantime, the threat of immediate sanctions is suspended. The law against money laundering was only one of a number of measures that were being passed to deal with far more pressing internal matters - matters that after September 11th are clearly far more important than the demands of foreign governments. Not, of course that they see it like that. **Since WMLR went to press, the EU has announced that, irrespective of the FATF's temporary respite for the Philippines and Nauru (also listed by the FATF as a NCCT), the EU is going to apply its own sanctions. More details in the next issue of WMLR.

What's 4000 years old, has come into its own with fax machines and computers and has the features of a black hole? Answer - the ancient financial system of "the chop" and its development hawala.

USA offers rewards for information leading to conviction of terrorists. ***Since WMLR went to press, Bin Laden has responded to the Bush Bounty by announcing a USD50,000 cash reward for every US serviceman captured in Afghanistan.

Editorial : The bombing of Afghanistan has gone on long enough. The continued attacks are of dubious legality, are exacerbating a human crisis and forcing ordinary people to make decisions as to the loyalty they bear to their homeland. But there is another risk that the action may cause - and it is an increase in money laundering and the funding of terrorism.

Are we all USA PATRIOTS now? - The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act 2001 has perhaps the most contrived name ever given to a piece of legislation. But the terms should be given the most careful attention. In this detailed analysis of the Money Laundering Provisions of the Act, WMLR identifies areas of concern not just to the USA's domestic financial services businesses but also to financial services businesses across the world. It's powerful stuff.

UK makes sudden move against money services businesses - hurried drafting and missed opportunities characterise the UK's proposed Money Laundering Regulations 2001. These will be overlaid on the Money Laundering Regulations 1993. Most money services businesses are already required to comply with the 1993 Regulations and the proposals do not increase the range of businesses subject to the 1993 Regs. It does, however provide a licensing system and powers of entry - but only for a tiny part of the financial services industry. We publish detailed comment by Silkscreen Consulting.

Terrorists attack UK on the day that the Government announces freezing orders against their funds.

Spam Wars. Fed up with Win Fix spam? We've found the company that sells the product to all those "independent marketers" who deluge our mailboxes. And now we tell you how you can fight back.

FATF agree new counter-terrorism measures. The FATF has agreed a raft of measures to counter the financing of terrorism. Readers of World Money Laundering Report will recognise most of them from the analysis of the UN Convention of Combating the Financing of Terrorism: a treaty to which very few countries have signed up. In a snub to the UN, the 29 members of the FATF have agreed to all sign up to the Convention and to implement it. That, chaps, is the point of having an internationally agreed convention.

UK: HM Treasury has denied reports that it is to absorb the Joint Money Laundering Steering Group. It's a sad day for many in the counter-money laundering industry.

St Vincent and the Grenadines have passed new Regulations to combat money laundering: but the 2001 Proceeds of Crime and Money Laundering Act was, in many respects, already far ahead of the law in many FATF countries.

Risk Values: the story behind the revolutionary approach to "know your customer." Switzerland's FIU has gone through some troubled times - but a new commitment has seen big changes.

Liechtenstein: the French are on the attack - but it's the same old same old.

USA: heads down: the most told story on the conference circuit is coming around again.

Book Reviews

Title: Fraudbusters: the inside story of the Serious Fraud OfficeAuthor: Killick, MarkPublisher / Country: Victor Gollanz, UKYear: 1998ISBN: 0-575-06545-1Jurisdiction: UK

Fraudbusters is, in effect, a biography of the SFO in its formative years. And it shows the dubious side of the English legal profession. Anyone who is under the impression that the English legal system is populated with gentlemanly people who deliver their client's case with eloquence, clarity and open-ness will be disabused of that notion in the most savage way.

Title: International Banking Crises - large scale failures, massive government interventionsAuthor: Gup, Benton (ed)Publisher / Country: Quorum, USADate: 1999ISBN: 1-56720-290-7Jurisdiction: International

At first sight, this volume is predominantly an economics book, but in fact it also demonstrates the importance of due diligence relating not just to the individual customer but also the wider economic situation. And so, the failure of a number of financial institutions is attributed to the simple balance sheet test that liabilities exceed assets.

Title: The Law and Regulation of International FinanceAuthor: Tennekoon, RaviPublisher / Country: Butterworths, UKDate: 1991 (reprint 2000)ISBN: 1 56257 10060 8Jurisdiction: International

The abuse of financial instruments in fraud and money laundering is not a part of the brief of the book, but the book's clarity enables those who have an interest to work out what opportunities for both exist within the esoteric products which are the subject of the work. And anything that adds to the greater understanding of how criminals can access financial institutions is always welcome.

Title : The Euro and the MultinationalAuthor : A B N. AMRO (ED)Publisher/County : Kogan Page/Outspan/UKDate : 2001ISBN : 0 7494 2751 5Language : EnglishJurisdiction : Europe

This book is largely an economic-commercial work and it examines the way in which the euro can be used within the multinational organisations. It indicates particular difficulties over external currency exchange with the difficulties, which again, may be exploited by both speculators and criminals. It is useful to compare the multinational organisations operating within the euro-zone to the organised crime groups in Lamothe's book.

Book Reviews:

Here are extracts from the full review printed in World Money Laundering Report.

Title : The Money MakerAuthor : Gleeson, JanetPublisher/County : Bantam/UKDate : 1999ISBN : 0-553-81247-5Language : EnglishJurisdiction : not applicable

Scrupulous research and able story telling make this a fascinating study into the history of the dematerialisation of money. Recommended.

Title : The Oxford Book of MoneyAuthor : Jackson, Kevin (ED)Publisher/County : Oxford/UKDate : 1996ISBN : 0-19-214200-3Language : EnglishJurisdiction : not applicable

A valuable collection of quotations and anecdotes, many of which will be valuable in training and education.

Title : Bloodlines: The Rise and Fall of The Mafia's Royal FamilyAuthor : Lamothe, Lee and Nicaso, AntonioPublisher/County : Harper Collins/CanadaDate : 2001ISBN : 0-00-200034-2Language : EnglishJurisdiction : not applicable

Awe inspiring attention to detail makes this a highly recommended read. Amongst other things, an indictment on the way the judiciary fails law enforcement agencies who work tirelessly and at considerable risk to themselves and their families to bring organised crime barons to justice.

Title : Hidden Fortunes: Drug money, cartels and the elite banksAuthor : Varela-cid, EduardoPublisher/County : Hudson Street Press/USADate : 2001ISBN : 0 935016 00 0Language : EnglishJurisdiction : not applicable

When the author says there are flaws in counter-money laundering laws, he should know: he drafted them. Detailed examination of how major banks are used by money launderers, and how their systems have been corrupted or bypassed by wily criminals is an object lesson to all who believe that minimal compliance with a regulatory regime is enough to prevent money laundering.

Title : West Africa under Colonial RuleAuthor : Crowder, MichaelPublisher/County : Hutchinson/University Library for AfricaDate : 1968ISBN : 0 09 087161 8Language : EnglishJurisdiction : not applicable

Why is this here? Simple: the problems of poverty and corruption in Africa began under Colonial rule - regardless of which colonial power was present. We are reaping what we sowed. But there are lessons for today: as countries gain independence or come out from under great foreign influence, the same conditions are being created. Change the names of the countries, change the names of the powers, change the dates and history is repeating itself. And as it does, fraud and corruption will result in flows of illegally obtained wealth.

Title : The Secret Life of Money: How Money can be Food for the SoulAuthor : Crawford, TadPublisher/County : Allworth Press/USADate : 1994ISBN : 1-880559-51-XLanguage : EnglishJurisdiction : not applicable

Fascinating tales of the development of money - both as notes and coin and as alternative payment mechanisms. Look out for the story about the rocks as currency: it is simply hilarious. But this is not a humorous book: it deals with, for example, the motivations of moving money - far beyond the convenience or commercial reasons for so doing. It provides a valuable background to money laundering.

Thailand's Anti-Money Laundering Office is under fire following claims that an investigation has been launched into the financial affairs of journalists critical of the Government. Things are more complicated than they seem.

Auditors have a lot to answer for: in a large international corporation there is no hope of them auditing fully and they are reliant on statements from managers and officers. They seek to rely on disclaimers. And, more, they don't even notice and report money laundering. Question: why bother with audit at all?

Offshore : Enron's legacy is the focus on "Special Purpose Vehicles" - and will increase demands for the abolition of the services that are the staples of the offshore industry. The OECD could do something useful - by focusing on company reporting by onshore companies. A wish list includes making auditors and directors personally liable if they do not give a full, accurate and open account of the company's financial position.

Enron's collapse has echoes of past disasters. Will the SEC ever attack the big banks for pumping and dumping stocks with more PR than substance? A detailed look at how the value of tech stocks were inflated by one big false impression. Will we ever learn?

Flat Taxes : the Enron debacle raises consideration of a radical tax idea - yet it is one that has been around for a long time.

Telecoms : the use of premium and discount telecoms in fraud and money laundering.

Offshore : as more and more countries capitulate to the demands of the OECD, there may be trouble ahead as economies lose their primary means of support. Does anybody care? Yes, but the fact is that there are no realistic alternatives for most offshore centres which cannot hope to compete with the highly educated, hard working, dextrous and inexpensive labour of emerging economies.

Terrorism: The US votes USD3m to FinCEN and then USD3,000m to one of its friends so they can buy tanks and helicopters to shell and invade a neighbouring country with no comparable weaponry. So, who's supporting terrorism now?

USA PATRIOT ACT: UNCERTAINTIES LOOMING. The USA PATRIOT Act is rumoured to be undergoing considerable revision. But that will not help those struggling to meet the compliance deadline of 24th April 2002

Money Services Businesses: unforeseen pressures - but the pressures are in many cases self-inflicted as businesses in some countries have failed to put in place systems that have been required for a number of years.

Opposition to compulsory reporting. They call it DASO - Different Agenda, Same Objective. No matter what the purpose behind it, those seeking a reduction in client and customer confidentiality are gaining successes.

Money Laundering reporting is coming under pressure amongst claims that compulsory transaction reporting is unconstitutional.

The Anti Money Laundering Network: the new AML force. World Money Laundering Report, Risk Values, Silkscreen Consulting, The Financial Crime and The Economic Crime Fora and clicktolearnmore.com have joined together under a new umbrella website at www.antimoneylaundering.net.

Biter Bit - or slightly nibbled - as French examine their own back yard.- in the run up to the French Presidential elections, the French parliamentary commission that has been criticising neighbouring countries' attempts to stem laundering turns the spotlight on France - but picks on easy targets. It's a thinly disguised attempt at supporting the Socialist Jospin who wants to use counter-money laundering laws in tax investigations and is a vocal supporter of the "unfair tax competition" initiative.

Flip Side - Aside from the infuriating pop ups that even defeat programs such as Pop-Up Killer, and the bad side of internet scams and porn, internet marketing does have its funny side. Those who designed automated marketing systems never expected some of the results we have found; and why we are having to launder our request for a copy of the Joint Money Laundering Steering Group's guidance notes.

KYC debacle continues to haunt USA. Public consultation is under way on the exchange of information under the Gramm-Leach-Bliley Act and the USA PATRIOT Act. The responses are illuminating.

Questions of personal tax as new concept is floated. This time it's a ship. Is tax free living all it's cracked up to be?.

KYC USA 1988 - What went wrong? Actually, it was a lot more complicated than it at first seems.

Anatomy of a Nigerian Scam; other African frauds. The Nigerian scam is back in force. The anatomy is simple and it is amazing that so many people fall for it. We translate a typical scam letter. Now anyone acting on it has no excuse for claiming the offer looked attractive.

US Congressmen claim US must maintain tax competition advantage. 46 US congressmen have admitted that the US has a tax competition advantage and should ensure it retains it. The hypocrisy is tangible.

New Federal regulator in Germany - can it be effective? Restrictions on the powers of the new Federal Regulator mean that it is not the power that it first seems.

News from UK, Thailand, USA, Hong Kong, United Nations, UAE, South Africa.

Internet Gambling: Immovable object meets unstoppable force? The battle lines are being drawn in on line gambling. International gambling is creating new challenges. Countries are adopting a variety of measures to combat it.

Credit Card TTP Market set for a shakeout? One of the world's biggest security companies has shut up shop at its on-line payment clearing business. The market is fragmented and reputation is not enough, it seems.

Big. Really Big. China takes on anti-money laundering. When it comes to setting about the creation of a counter-money laundering regime, China is so big and so diverse that the task is daunting. But it has to be done.

Hedge Funds bet on light touch. On any analysis, hedge funds are nothing special - but they do have, and have used, the power to move markets. And there are those who want to clip their wings.

Malaysia records substantial seizures. Those who thought that Malaysia's counter-money laundering laws were inadequate should look at the results of property secured by the state - before the latest laws were passed. It should make uncomfortable reading for those that presume to demand homogenisation of laws.

Brunei Darussalam: Money Laundering Order 2000. When Brunei decided to develop its own financial services centre, it realised there would be international criticism. So it applied compliance standards designed to fend off criticism. Detailed analysis of the Money Laundering Order 2000.

News from USA, Connecticut; USA, New York; Saudi Arabia; Philippines; ASEAN; Philippines; Egypt; UK; Italy; Malaysia.