Australian Institute of Criminology

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Foreword

Most developed countries across the globe have enacted legislation to proscribe acts of money laundering and financing of terrorism, and to enable the proceeds of crime to be recovered from offenders. Such legislation reflects the principles developed by the Financial Action Task Force’s (FATF-GAFI) 40 plus Nine Recommendations to combat money laundering and the financing of terrorism (FATF-GAFI 2004) to varying degrees. FATF-GAFI was established in 1989 as an international body to examine techniques employed by criminals to launder the proceeds of crime and the approaches taken internationally to counteract such activities, as well as to identify policies to impede money laundering and the financing of terrorism. FATF-GAFI issued 40 Recommendations to combat money laundering in 1990 and expanded these to deal with the problem of financing of terrorism after the 11 September 2001 attacks by adding a further Nine Special Recommendations on terrorism financing.

Despite the normative approach taken in the FATF-GAFI Recommendations, the specific legislative and procedural responses taken by individual countries have differed in many respects. Documenting these differences and comparing key aspects of the regimes in different countries is of considerable value to regulators and analysts for several reasons.

Law enforcement and prosecutorial agencies need to understand the differences that exist in criminal laws relating to money laundering between different countries when investigating and prosecuting illegal conduct, as conduct of this nature often entails cross-border activity requiring mutual assistance between agencies and extradition of suspects across jurisdictional borders.

Understanding the approaches taken by different countries to enhancing compliance with legislation and with soft regulatory measures can help policymakers develop best-practice mechanisms for increasing compliance with regulatory controls. Improved compliance has the potential to increase the quality of the financial intelligence gathered and the potential utility of regulatory regimes internationally.

Comparative research on the implementation of AML/CTF systems may illustrate the potential advantages of, and problems with, proposed changes to the regimes, such as extending the requirements to designated non-financial businesses and professions. Some countries have far greater experience with these approaches than others and it is important to make use of constructive lessons that have been learned.

The present research sought to compare the legal framework and compliance, and enforcement outcomes of the AML/CTF regimes across countries with disparate legal traditions. The countries included in the scope of the project were from the European Union (the United Kingdom, France, Germany and Belgium), Asia (the Republic of China (Taiwan), Hong Kong and Singapore), the United States and Australia. Within each of the selected countries, the structure of the criminal provisions proscribing money laundering and the financing of terrorism were reviewed and the judicial interpretation of these laws compared. Information is also presented on the number of businesses regulated within each country’s AML/CTF system and the extent to which businesses outside the formal financial sector are regulated. The approach taken to financial intelligence reporting is also compared with the evidence presented on the nature and extent to which financial reports are required and undertaken in the selected countries as well as the circumstances triggering reports. The extent to which entities comply with each country’s AML/CTF regime is also considered and a number of quasi-indicators of compliance are presented, as well as the actions taken by regulators for non-compliance and the extent to which regulators and others have adopted non-punitive strategies to encourage or enhance compliance with the regimes.

One of the principal findings concerns the vast differences that exist between countries in the designation of crimes considered to be predicate offences for money laundering—that is, the types of serious crimes that can generate funds for laundering. These differences can have important implications where cross-border prosecutions are undertaken, as there may not be a corresponding degree to which conduct is proscribed in different countries, thus creating barriers to mutual legal assistance and extradition of suspects.

Another clear finding related to the extensive differences that exist between the countries examined is the extent to which specific regulated entities comply with their reporting obligations. Australia, for example, requires businesses to lodge a report in respect of all attempted transactions that raise suspicions of illegality, while Belgium requires businesses to undertake a degree of preliminary analysis of transactions prior to submitting a report to authorities. Belgium, France and Germany further limit the circumstances that trigger a reporting obligation to those associated with a list of specific crimes. The German system, for example, limits those crimes to either money laundering or the financing of terrorism. Other countries consider all serious crimes as potential predicate offences for money laundering reporting purposes.

As might be expected, the volume of reports of suspicious financial activity submitted by regulated entities each year has increased considerably, with entities both in Australia and the United States increasing the number of reports made to regulators by more than 300 percent between 2002–03 and 2008–09. Such increases are due to the increasing publicity of reporting obligations by regulators, increasing numbers of entities being subject to reporting obligations and potentially an increase in underlying criminality. Further research is required to understand the precise reasons behind the increase in reporting in the countries examined.

Interestingly, designated non-financial businesses and professions demonstrated similar levels of reporting to regulators across the countries examined. None of the countries that have included legal practitioners, accountants, real estate agents, dealers of precious metals and stones, and trust and company service providers, in their AML/CTF regimes reported receiving volumes of reports from these businesses by comparison with those from financial services businesses. Financial services businesses (particularly banks), continue to contribute the bulk of financial intelligence through reports of suspicious financial activities due to the large number of transactions dealt with on a daily basis.

Despite certain similarities, and the shared basis in FATF-GAFI’s Recommendations, the elements of international AML/CTF regimes differ sufficiently to make direct comparisons between countries difficult. Care is needed in making direct comparisons between countries owing to their different legislative requirements, different cultures of compliance and differing patterns of financial crime and terrorism. The Australian Institute of Criminology has published a separate report that examines these different factors in some depth and such differences need to be considered in making any direct comparisons between countries. Prosecution, enforcement and reporting data can reveal interesting trends regarding the development of the AML/CTF regime over time within a specific country, or the impact changes to the regime have had on these measures. Using such measures as evaluative criteria between different countries can, however, be misleading unless local circumstances are considered in detail.

Future comparative studies of this nature would benefit from multilingual research, access to data held by regulators and other government agencies rather than reliance on publicly available information alone and from qualitative information held by financial intelligence units, regulated businesses and AML/CTF regulators. The present study does, however, provide a preliminary indication of how a number of countries from different legal traditions and continents have approached the challenges raised by money laundering and financing of terrorism in the twenty-first century.

Adam Tomison
Director