MONEY LAUNDERING RE-FRESH

Brandeis University

BUS 279

Professors Erich Schumann, Michael A. Barry

April 2014

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Money LaunderingWho Is Involved / Why is it done?

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• Illegal weapons/arms dealers• Terrorists• Organized criminals• Human traffickers• Drug traffickers• Tax Evaders (Vs. tax avoidance)

Anti Money LaunderingWhat is Money Laundering?

• Money laundering is the criminal practice of:• Filtering ill-gotten gains or “dirty” money • Through a maze or series of transactions, • So the funds are “cleaned” to look like proceeds from legal activities.

• Money laundering does not have to involve cash at every stage of the laundering process. (Often does not.)

• Any transaction conducted with a bank might constitute money laundering.

• Although money laundering is a diverse and often complex process, it basically involves three independent steps that can occur simultaneously.

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Anti Money LaunderingThe Three Steps of Money Laundering

• Placement: The process of placing, through deposits or other means, unlawful cash proceeds into traditional financial institutions.

• Layering: The process of separating the proceeds of criminal activity from their origin through the use of layers of complex financial transactions, such as:• Converting cash into traveler’s checks, money orders, wire transfers, letters of

credit, stocks, bonds, or • Purchasing valuable assets, such as art or jewelry.

• Integration: The process of using an apparently legitimate transaction to disguise the illicit proceeds, allowing the laundered funds to be disbursed back to the criminal.

Different types of financial transactions, such as sham loans or false import/export invoices, can be used.

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Chronology of Regulation• BSA (Bank Secrecy Act of 1970)

• Money Laundering Control Act (1986)

• Anti-Drug Abuse Act of 1988

• Annunzio-Wylie Anti-Money Laundering Act (1992)

• Money Laundering Suppression Act (1994)

• Money Laundering and Financial Crimes Strategy Act (1998)

• “Patriot Act (2001)

• Intelligence Reform & Terrorism Prevention Act (2004)

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Anti Money LaunderingFATF: Financial Action Task Force

Who or what is FATF?• Established by the G-7 Summit that was held in Paris in 1989.

• To agree on worldwide regulations in respect to money laundering.

• Recognizing the threat posed to the banking system and to financial institutions.

• Given responsibility for:• Examining money laundering techniques and trends, • Reviewing the action which had already been taken at a national or

international level, and • Setting out the measures that still needed to be taken to combat money

laundering.

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Anti Money LaunderingFATF – Strategic Issues

• Establish international standards for combating money laundering and terrorist financing.

• Ensure global action to combat money laundering and terrorist financing.

• Ensure that FATF members have implemented the revised Forty and the Eight Recommendations in their entirety and in an effective manner.

• Enhance the relationship between FATF and FATF-style regional bodies (FSRBs), the Offshore Group of Banking Supervisors (OGBS) and non-member countries.

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Anti Money LaunderingFATF: High Risk / Non-Cooperative Countries

The International Co-operation Review Group (ICRG) issues two documents three times each year:

1. FATF’s Public Statement:• Jurisdictions with deficiencies to which “counter measures” apply.

• Iran, Democratic People’s Republic of Korea.

• Jurisdictions that have not made sufficient progress:• Algeria, Ecuador, Ethiopia, Indonesia, Myanmar, Pakistan, Syria, Turkey.

2. Improving Global AML/CFT Compliance: On-going process:• Albania, Angola, Argentina, Cuba, Iraq, Kenya, Kuwait, Kyrgyzstan, Loa PDR,

Mongolia, Namibia, Nepal, Nicaragua, Papua New Guinea, Sudan, Tajikistan, Tanzania, Uganda, Zimbabwe.

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FATF Report: Angola June 2013 FATF Report: Angola June 2013

In June 2010 and again in February 2013 in view of its revised action plan, Angola made a high-level political commitment to work with the FATF to address its strategic AML/CFT deficiencies.

However, the FATF has determined that certain strategic AML/CFT deficiencies remain.

Angola should continue to work on addressing these deficiencies, including by:

(1)Adequately criminalizing money laundering and terrorist financing;

(2)Establishing and implementing an adequate legal framework for the confiscation of funds related to money laundering and the identification and freezing of terrorist assets without delay;

(3)Ensuring an effectively functioning Financial Intelligence Unit; and

(4)Ensuring that appropriate laws and procedures are in place to provide mutual legal assistance.

The FATF encourages Angola to address its remaining deficiencies and continue the process of implementing its action plan.

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Anti Money Laundering: Conclusion

• Considerable international regulation and coordination.

• Banks carry the administrative burden but it can impact anybody.

• Many transactions can be suspicious in respect of money laundering (beware of e-mails).

• Money laundering is a Federal crime with high potential penalties.

• Technology helps the fraudster in creating new products and techniques for money laundering.

• Technology assists enforcement agencies in improving monitoring process and strengthen over side.

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CITIGROUP AND HR3886Brandeis UniversityBrandeis UniversityBUS 279BUS 279Professors Erich Schumann, Michael A. BarryProfessors Erich Schumann, Michael A. BarryApril 2014April 2014

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Case Study: Cahill, Citigroup and HR3886

• Facts of the case?• What is HR3886?• What is the context from Citigroup’s perspective?

• What should Citigroup’s objectives be toward HR3886?

• What actions should Citigroup contemplate?

• What arguments should Citigroup employ when implementing its strategy?

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HR3886: Financial Privacy and the International Money Laundering Act

• What are the opposing arguments?

• Who are the key stakeholders on each side?• Supporters?• Opponents?

• As a Supporter/Opponent of HR3886, what would you do to advance/defeat it?

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August 31, 2000August 31, 2000 The Heritage FoundationThe Heritage Foundation

The Counter-Money Laundering Act: An Attack on Privacy and Civil The Counter-Money Laundering Act: An Attack on Privacy and Civil LibertiesLibertiesBy Scott C. RaydorBy Scott C. Raydor

Congress has renewed its efforts to combat international money laundering in recent months. In the House of Representatives, Representative Jim Leach (R-IA) has introduced H.R. 3886, the International Counter-Money Laundering Act, which has moved swiftly through the Banking Committee and is now positioned to move to the House floor. In the Senate, John Kerry (D-MA) has introduced an identical bill, S. 2972.

The stated goal of both bills is to track down the funds that criminals keep track down the funds that criminals keep in financial institutions worldwide.in financial institutions worldwide. Their real impact, however, would be to restrict constitutional freedoms restrict constitutional freedoms by undermining the Fourth Amendment right to be free from government criminal investigations without reasonable and specific evidence of wrongdoing. They are also likely to impinge on consumers' financial privacyconsumers' financial privacy. Moreover, their effect would be less to corral drug kingpins than to make it easier for large nations to collect taxes by forcing smaller nations to violate their citizens' financial privacyviolate their citizens' financial privacy.

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Letter to the House on Financial Privacy and Letter to the House on Financial Privacy and the International Money Laundering Actthe International Money Laundering Act

July 13, 2000 Re: Financial Privacy & the International Money Laundering Act, H.R. 3886 July 13, 2000 Re: Financial Privacy & the International Money Laundering Act, H.R. 3886  MAKE A DIFFERENCE: Your support helps the ACLU defend privacy rights and a broad range of civil liberties.

Dear Representative:  

We urge you to protect financial privacy protect financial privacy by opposing H.R. 3886, the "International Counter-Money Laundering Act and Foreign Anti-Corruption Act of 2000." The bill may come to the House floor next week. Like the Bank Secrecy Act of 1970, this legislation gives Executive Branch officials the authority to require the reporting of personal financial information for law enforcement purposes without probable cause of a crime, and creates incentives for banks to spy on their customers. H.R. 3886 would continue an unfortunate trend of expanding government access to continue an unfortunate trend of expanding government access to personal financial information rather than shielding it against intrusionpersonal financial information rather than shielding it against intrusion.  

This trend began in 1970 with enactment of the Bank Secrecy Act. It required banks to maintain records of financial transactions and make them available to law enforcement officials……

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Stakeholders In Favor?Stakeholders In Favor? 

Stakeholder 

Interest 

Relative SizeOrganizational Capability

 Credibility

Government Law enforcement agencies (FBI, DEA, Secret Service) Financial Regulatory Agencies. (IRS, Treasury) Victims

Current laws are ineffective at tracking money obtained by criminal means. Huge tax loss associated with laundered money Catching criminals would reduce the number of victims.

Thousands of employees with offices in every US State. Several hundred thousand employees with offices in most US States. Large; Exact number unknown

Government organizations are not permitted to form active coalitions; Individuals may testify in Congressional hearings but not mount a campaign. Same as above for Government agencies. No well-organized entity for victims.

High. Moderate for IRS; High for Treasury. Not known or tested

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Stakeholders Opposed?Stakeholders Opposed?

 Stakeholder

 Interest

 Relative Size

Organizational Capability

 Credibility

Civil Libertarians (ACLU, Liberty Committee) ABA Wealthy Customers

Regulations would be an invasion of Privacy; A violation of individual rights. Would be expensive and cumbersome for banks to comply with. Banks already self-regulate. Regulations would be troublesome, inconvenient.

Hundreds of thousands of members with offices in every state. Millions of employees of member banks. Not known

Highly organized lobbying apparatus. Organized and well-funded lobbying apparatus with all members in support because all banks would be affected equally by the regulations. Banks/ABA will work on their behalf

Well-known and credible to the public. The ABA is recognized as the voice of the industry but may be perceived as motivated by self interest. Not known or tested

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What Happened to HR3886?What Happened to HR3886?Title III: US Patriot ActTitle III: US Patriot Act

Of primary concern for financial institutions is Title III of the Patriot Act, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 ("Title III").

Title III substantially amends the Bank Secrecy Act of 1970 ("BSA") by enhancing reporting obligations, toughening standards for transaction structuring, and requiring the implementation and oversight of customer identification and anti-money laundering programs.

While Title III has certainly increased law enforcement's ability to investigate the records of individuals and organizations suspected of financing terrorist organizations, its capacity to thwart an attack similar to the disaster of September 11, 2001 is debatable….

Source: Illinois University Law JournalSource: Illinois University Law Journal

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