Australian Institute of Criminology

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Executive summary

This report presents a review of the different approaches taken by nine countries, including Australia, to the adoption of anti-money laundering and counter-terrorism financing (AML/CTF). In response to mounting international concern about money laundering in the late 1980s, countries around the world established the Financial Action Task Force (FATF-GAFI) to set international standards and develop policies to combat money laundering and terrorist financing. In 1990, the FATF-GAFI issued a set of 40 Recommendations to guide the fight against money laundering and these were expanded following 2001 to include nine additional Recommendations to respond to the financing of terrorism.

The FATF-GAFI’s 40 plus nine Recommendations to combat money laundering and the financing of terrorism (FATF-GAFI 2004) have three primary objectives—to support the 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.

This report reviews the state of international responses to the FATF-GAFI Recommendations in order to assess how countries have applied the requirements, which sectors have been subject to regulation and how compliance and enforcement are undertaken.

Nine countries were chosen for review—Australia, the United States, the United Kingdom, France, Germany, Belgium and in Asia, Singapore, Hong Kong and the Republic of China (Taiwan). These were chosen to provide an indication of how diverse nations in separate continents have approached AML/CTF implementation. They were also chosen to be indicative of the measures taken in countries with different legal traditions and different types of risk in terms of money laundering and financing of terrorism.

The majority of the information used in this report came from publicly available documents published by regulatory bodies, financial intelligence units, law enforcement and other government agencies, industry bodies and FATF-GAFI itself. The authors also undertook a number of consultations with stakeholders in the countries in question in order to supplement the publicly available written material.

Regulatory regime

The regulatory regime in each country was examined by reviewing its criminal and regulatory legislation including assert recovery provisions, the nature of each country’s government regulator (or financial intelligence unit), the extent of the regulated sector and the nature of the obligations cast upon reporting entities including laws against disclosing the fact of reporting to the business in question (tipping-off) and the nature of compliance and enforcement activities.

Overall, AML/CTF regimes across the countries in question share a common basis in FATFs Recommendations and accordingly, they were remarkably similar in their responses to, and implementation of, the Recommendations. A key area of difference between the nine countries is the extent and size of the regulated sector in each country. This affects not only the scale of reporting undertaken, but also the capacity to regulate and enforce compliance for large numbers of regulated businesses in some countries.

All of the countries considered have made money laundering a criminal offence and one distinct from the crime that generated the funds in question. One of the key components of criminal money laundering offences that differs between each country is the consideration given to predicate offences, that is, the type of criminal conduct that generates funds which can then be laundered. Australia, the United States, Belgium, Germany, Hong Kong, Singapore and Taiwan all restrict money laundering predicate crimes to serious offences. Germany has included specific less serious offences as predicate offences, whereas Taiwan places a further restriction by adding a lower limit of NT$20m for the amount of funds in question. The definition of a serious, indictable, or felony offence differs between countries and is tied to minimum imprisonment periods in each country, generally a minimum period of 12 months imprisonment.

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.

Taiwan is the only country considered 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. The United States and the United Kingdom have made illegal the funding of terrorist groups or acts, while Singapore has specifically mentioned individual terrorists and acts. Hong Kong has focused entirely on terrorist acts and purposes.

Reporting requirements

The reporting requirements within each country showed considerable variation. All of the countries required at least some sectors to submit reports of suspicious financial transactions, although the conditions of reporting were quite varied between countries.

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.

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 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.

Including a reporting requirement for cash transactions that exceed a threshold was less common among the nine countries considered. Australia and the United States require regulated entities to submit a report of transaction made using cash above a specific threshold set in legislation. The Australian threshold is AUD$10,000 and the United States threshold is US$10,000. Taiwan also requires regulated entities to submit a report of any cash transaction valued at NT$1m or over.

Singapore, rather than requiring a report for every cash transaction beyond a threshold, suggests to its regulated entities that large cash transactions are likely to be suspicious and warrant reporting. France and Germany have not required regulated entities to submit cash transaction reports. Germany, however, requires businesses to retain customer identification for cash transactions valued at €15,000 or more. French-regulated entities are similarly required to scrutinise cash transactions beyond a threshold limit and retain that information. Belgium prohibits cash payments of more than €15,000, rendering any reporting of this nature redundant. The United Kingdom and Hong Kong do not have any large cash transaction requirements.

Almost all of the nine countries have identical requirements to report the movements of cash across country borders, on entry and exit, but vary in the threshold amount required to trigger a report. Hong Kong is the only country considered that currently does not require reporting of international movements of cash.

Australia is one of two countries that have not mirrored the reporting requirements for cash for the movement of bearer negotiable instruments across international borders. The United States, United Kingdom, Belgium, France, Germany and Singapore subject movements of bearer negotiable instruments to the same reporting requirements, with the same thresholds, as cash movements.

Australia, instead, can require individuals moving bearer negotiable instruments across international borders to submit a report to a police or customs officer on request. There is no mandatory requirement to report all movements. Hong Kong similarly has no requirement for bearer negotiable instruments. Taiwan does not require reports for movements of instruments of value.

Australia is the only country under consideration that requires all regulated entities to report all electronic funds transfers (international funds transfer instructions—IFTIs) regardless of value.

Tipping-off clauses

Each of the nine countries currently has ‘tipping-off’ provisions that criminalise the revealing of details of a report about a suspicious transaction to those involved. The variations in tipping-off clauses come from the extent of the information encompassed and the exemptions made.

The United States and France have the simplest models for tipping-off and prohibit disclosing information connected to a report after it has been filed to those involved in the transaction. Belgium and Germany extend this to prohibit a disclosure connected to a report to any third party as well as the subject of a report. Both Hong Kong and Singapore prohibit the disclosure of any information related to reports to any person where the disclosure might prejudice an investigation.

Tipping-off in the United Kingdom applies to details of investigations as well as reports and extends to all third parties. The United Kingdom also has additional tipping-off provisions for civil recoveries, asset confiscations and money laundering offences. Taiwan’s provisions are similar as they encompass both reports of suspect transactions and any suspected money laundering offence.

Australia specifically prohibits disclosing the details of reports of suspicious financial activity and any person or matter triggering a report to any third party. Australia also has one of the most extensive lists of persons exempt from tipping-off. Australia, like the United Kingdom, France and Singapore, exclude legal practitioners (in specific circumstances) from the requirements. Australia extends the exemptions beyond this to accountants, businesses with a joint anti-money laundering program and anyone trying to dissuade a customer from committing an offence under any law in Australia.

Judicial interpretation

The jurisprudence in the countries considered is continuing to evolve, with a number of cases having come before the courts in which questions of law have arisen. Courts have considered the meaning of ‘structuring’, ‘concealing’, ‘profits’ of crime and ‘suspicion’. The Australian case of R v Narayanan addressed the definition of structuring under the Financial Transaction Reports Act 1988 (Cth) (FTR Act) with the court defining structuring as two or more non-reportable transactions conducted to ensure, or to attempt to ensure, that the transaction was not a significant cash transaction. The court stated that multiple transactions that had been subjected to structuring could still, collectively, constitute a significant cash transaction.

In the United States, two cases have narrowed the scope of money laundering offences, one in terms of the process of laundering, the other in terms of what can be laundered. Regalado Cuellar v United States centred on the definition of concealment, finding that hiding currency for the purpose of transport was in itself not an act of laundering. The second case, United States v Santos et al, questioned what was meant by proceeds of crime and decided that it referred only to the profits generated.

Further cases have defined the actions that can constitute a conspiracy to commit money laundering. In Australia, A Ansari v R, H Ansari v R allowed a broad interpretation of conspiracy to launder money where the fault element for the laundering offence is recklessness. In the United States, the courts have ruled that the offence of conspiracy was to be treated the same as an actual act of money laundering.

In the United Kingdom, the definition of suspicion in relation to money laundering was examined in R v DaSilva, with the court requiring a suspicion that is more than fanciful in order for an offence of money laundering, or assisting, to be present. Cases have also questioned the extent to which proof of a predicate offence is necessary to establish money laundering.

The application of AML/CTF legislation to legal practitioners has also generated substantial debate. The decisions in the European Union and Bowman v Fels in the United Kingdom confirmed that legal practitioners are exempt from reporting requirements if they act in connection with giving legal advice to a client. Further issues debated in these cases were centred on the offence of making an ‘arrangement’ for money laundering.

The profile of the regulated sectors

Documenting the composition and size of the regulated sectors in each of the countries in question proved difficult owing to the limited data available in some countries. Difficulties were particularly encountered in obtaining information concerning industries without prudential regulation or other long-standing registration processes. Additional problems arose in obtaining information from some non English-speaking countries. Accordingly, the data located were somewhat incomplete, making comparisons across countries problematic.

Generally, the core financial institutions (the banking industry, finance companies and insurance industry) are regulated for AML/CTF purposes in all nine countries, although variations exist between the regulated sectors in relation to money service businesses (MSBs) and non-financial businesses including the professions.

The way in which AML/CTF requirements are applied to legal practitioners across the different countries gives rise to the greatest variations. Hong Kong and Singapore include legal practitioners in the full scope of their requirements, while legal practitioners in Germany, Belgium, the United Kingdom and France have obligations only when dealing with customers in financial transactions or the settlement of real estate transactions. Legal practitioners in the United States and Taiwan are excluded from AML/CTF obligations. Australian legal practitioners, with the exception of those holding an Australian Financial Services Licence, are also excluded from AML/CTF responsibilities.

The requirements for legal practitioners in the United Kingdom, France, Belgium, Germany and Singapore are further complicated by legal professional privilege. Legal professionals in these countries, which would otherwise have AML/CTF obligations for at least some transactions, are exempt from the obligation to report suspicious transactions under some circumstances. Where the information was gained in circumstances protected by legal privilege, the lawyer involved is not required to submit a report.

Non-financial businesses in Australia, the United Kingdom and Singapore (3 countries with the most data available to estimate the size of the regulated sector) contributed the largest proportion of the regulated sectors in those countries. Undertaking a comparison between the numbers of businesses providing regulated services in all of the countries considered is a task complicated by the variations in the types of business providing services and the lack of available data for some countries. It can be concluded, however, in relation to the size of the regulated AML/CTF sector as a proportion of the entire business sector, that Australia and the United States have approximately one percent of businesses regulated for AML/CTF purposes, while the United Kingdom has almost 10 percent regulated. Complete comparative data is not available for other countries. The differences lie largely in the inclusion of the professional sectors in the United Kingdom, which account for very large numbers of businesses subject to regulation.

Compliance

Most of the countries considered in this report, with the exception of Germany and Taiwan, showed an increase in the volume of reports between the base year and the last year for which data were available. The volume of reports submitted to authorities in Hong Kong, Singapore, France, the United Kingdom, the United States and Australia steadily increased over the period for which reporting data was available. Reporting entities in each country generally submitted a vastly increased volume of reports in 2008 or 2008–09 compared with the base year. Between 2004 and 2008, Singapore experienced an increase in reports of more than 580 percent. Reporting numbers in the United Kingdom and United States grew by 308 percent and 359 percent respectively. Singapore, unlike the United Kingdom and European Union countries, did not vastly expand the number of industries encompassed in the AML/CTF regime in that time.

Germany and Taiwan recorded a fall in the volume of reports over the period of available data. In 2007, Taiwan’s Finance Intelligence Unit (FIU) received less than 40 percent of the reports filed in 2004; and Germany’s FIU received 14 percent fewer reports in 2008 than in 2002.

The fluctuations in report volumes, particularly suspect transaction reports, are likely to have been influenced by factors outside of the level of suspicious activities. Any amendments made to the AML regimes, particularly any expansion in the reporting requirements or thresholds, were likely to have had an impact on the volume of reports. Also, as KPMG (2007) noted, the vast increases in reporting volumes in some countries may reflect an increased capacity to capture suspect transactions, rather than an increase in suspicious activities, in order to meet AML/CTF compliance requirements.

Including non-financial businesses in the AML/CTF regimes of these countries probably has not had a large impact on the volume of reports each FIU received within the timeframes considered in this report. Businesses in the financial services sector overwhelmingly submitted the largest proportion of reports in each of the countries considered, even in countries where non-financial businesses constituted a large percentage of the regulated sector. The non-financial businesses in the countries considered were still filing relatively low numbers of reports in the last year for which data was available. At best, the reports were low in volume and, at worst, were non-existent.

Professions with reporting requirements in the United Kingdom were responsible for only eight percent of suspicious reports in 2007, with the majority of these submitted by solicitors and accountants. In 2007, in Belgium, less than two percent of reports originated from non-financial businesses (excluding notaries), with legal practitioners and real estate agents submitting only three and two disclosures respectively. In Taiwan, only high-value dealers are required to submit reports; no businesses in this industry had submitted a report prior by 2007. The United States was the only country in this report to show comparable levels of reporting between the different sectors, with 48 percent of suspicious financial transaction reports in 2007 submitted by businesses outside of the financial sector.

The low levels of reporting from businesses outside of the financial sector cast doubt on the effectiveness of the regime in reaching these industries. Low levels of supervision have been suggested by the International Monetary Fund (IMF) as an explanation of the low numbers of reports by these industries in France. Recent changes to regulatory regimes in several countries, including Australia and those in the European Union, means that it is too early to adequately evaluate the level of compliance in this area.

Belgium had one of the highest percentages of reports leading to cases being forwarded to prosecution officials in 2007. Belgium’s FIU received just over 12,000 reports and submitted 1,666 cases to the public prosecutor in that year. This represented 13 percent of all reports submitted and 23 percent of the total number of files opened. Taiwan’s FIU also passed on a large proportion of cases to law enforcement in 2007. The Taiwanese FIU received fewer than 2,000 reports in that year and sent more than 20 percent of these onto law enforcement agencies. France, by contrast, passed on approximately 400 reports to law enforcement (3%) of the 12,000 reports received in 2007. The United Kingdom filed charges in 766 cases, resulting in 276 convictions, from more than 220,000 reports filed with the FIU.

Prosecution and enforcement

As with the levels of reporting suspicious financial activity, the number of people charged or prosecuted for money laundering has also generally increased within the nine countries analysed in this report. The approach to reporting enforcement figures also varied between countries.

Prosecution data in the Australian statistics show the number of charges dealt with by the public prosecutor, Germany reports the number of convictions, Taiwan measures prosecutions, the United Kingdom provides convictions and formal cautions and Hong Kong records convictions only. Statistics were not able to be gathered from France, Belgium and Singapore. Nevertheless, some general trend data can be extracted for the countries that published information in this area.

Most countries reported annual increases in the levels of enforcement activity in each country. By contrast, Germany reported a 40 percent decrease in the number of offences between 2002 and 2003. However, the number of recorded offences then increased between 2003 and 2007, with a 160 percent increase in the number of convictions in 2005 and 2006.

The United Kingdom demonstrated a dramatic increase from 16 offenders found guilty or cautioned in 2003 to 1,328 offenders in 2006. Convictions in Hong Kong increased from 49 convictions in 2004 to 179 in 2007. The volume of Australian offenders dealt with for criminal money laundering offences increased from five in the 2003–04 financial year, to 50 in 2009–10. Despite the increased volume of offenders dealt with during this period, Australia’s volume of prosecutions is still low compared with other countries considered within this report. Statistics from the United States were obtained for the period 1994 to 2001 and it was found that the volume of money laundering charges remained constant during this period.

Best-practice strategies to enhance compliance

The strategies employed by the FIUs and AML/CTF regulators to enhance compliance fall into two principal categories—dialogue between the FIU and reporting entities, and increasing the ease of submission. The countries considered in this report have all adopted some aspects of both of these broad strategies for heightening compliance through non-punitive means.

Electronic report filing systems are common throughout all nine countries examined. Information available suggests that electronic filing has all but replaced paper disclosures in most cases.

In terms of feedback from FIUs to industry, it appears that the UK’s FIU publishes more information on the volume and type of feedback provided to reporting entities than the Financial Crimes Enforcement Network (FinCEN) in the United States. A key feature of the feedback given to reporting entities in the United Kingdom is the systematic visits and seminars conducted within each sector. The Serious Organised Crime Agency (SOCA) also provides more general feedback to reporting businesses with website-based guidance on producing useful suspicious activity reports (SARs). Reporting entities also receive alerts to industry which detail information about the SARs regime. France has released less information on the feedback systems between Traitement du renseignement et action contre les circuits financiers clandestins (TRACFIN) and reporting entities in English than other countries, making gauging the level of interaction less accurate. TRACFIN’s annual report, however, contains some information intended for a reporting audience in the form of sanitised cases.

A number of FIUs reported providing or assisting in training key officers in reporting entities. The sector-specific seminars run by SOCA in the United Kingdom are conducted as an education tool for money laundering reporting officers. The United States, United Kingdom and Hong Kong all report formal processes for seeking feedback from reporting entities and others.

Future initiatives

Future comparative studies of this nature should aim to provide more complete information on the variables under consideration. This would entail undertaking qualitative research targeted at the regulators and industry associations in each country and, in the case of non-English-speaking locations, would require multilingual research and access to business and government statistical collections. Additional qualitative research would be likely to provide a more complete picture of the AML/CTF enforcement outcomes and the utility of the financial intelligence gathered by AML regimes. Additional qualitative information could inform regulators and others of the potential value of providing feedback to regulated businesses and highlight the effectiveness of other compliance-enhancing initiatives. This research may also inform regulators and policymakers of the practical implications for regulated businesses of the changes made to AML/CTF preventative systems in place.

As is apparent from this review, the challenges of conducting such research from open source documents are considerable, as public source material provides only a limited perspective. Problems also exist within individual nations where data are not being collected, or are collected in variable formats using different data fields, categories and definitions. The FATF-GAFI Mutual Evaluations provide a good deal of uniformly collected and comparable information, but often these reports are incomplete. Regulators and FIUs also collect considerable amounts of data from the regulated sectors in annual compliance reports, but these are not readily available or are collected using non-uniform categories across countries.

Ideally, a single repository of AML/CTF compliance and regulatory data should be established, although in practice, the resources required for this would be prohibitive. At present, the most that can be asked is that FIUs, law enforcement agencies and regulators maintain a dialogue to develop the use of harmonised data recording practices for the key variables of policy importance such as measures of enforcement outcomes and compliance statistics. The present report aimed to provide a basis for comparing the AML regimes by mapping the key components of the AML systems and identifying variables for tracking the use of those systems and has suggested areas for improving data collection in these areas. It is hoped that it provides an indication of the areas requiring most attention for dialogue and discussion in the years ahead.