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Regulatory regime

This section presents information on a sample of international AML/CTF regulatory regimes and aims to compare the scope of the regime in Australia with that in the United States and selected countries in the European Union and Asia. The comparison of the AML/CTF regulatory regimes in this section is centred on the key legislation, extent of the regulated sector, the key obligations under the AML/CTF legislation and the financial intelligence unit. This section also addresses case law as it relates to AML/CTF and its implementations in the selected countries.

Financial intelligence units

FIUs were first established in the late 1980s and early 1990s in response to a need to centralise money laundering information. The scope of FIU responsibilities was subsequently widened to include the financing of terrorism following the increased risks of the twenty-first century. This represented new challenges as the methods of the financing of terrorism are different from those normally associated with money laundering (Schott 2004).

All FIUs share three core functions, which are to receive, analyse and disseminate information in order to combat money laundering and terrorist financing domestically and as Schott (2004) argues, internationally. Aside from these common core functions, however, the design of FIUs can differ dramatically. Schott (2004) identifies four types of FIU. These are based on an administrative model, a law enforcement model, a judicial (prosecutorial) model and a hybrid model.

The administrative model FIU may be either independent or attached to a regulatory or supervisory authority. The role of the administrative FIU as an intermediary between law enforcement and reporting entities allows this type of FIU to remain neutral. The information channelled through administrative model FIUs is also more easily exchanged between the FIUs of other countries. The drawback of the administrative model is that the separation of the FIU from law enforcement organisations limits its powers to obtain evidence and assert measures based on suspicious transactions. This style of FIU may also be subject to more stringent supervision by political authorities (Schott 2004).

The law enforcement model solves the issue of accessing evidence and obtaining outcomes from suspicious transaction reports (STRs), as this type of FIU has the maximum law enforcement use of disclosure information and access to criminal information. Law enforcement model FIUs, however, tend to be more focused on investigation than on prevention and may be treated with suspicion by reporting entities who may view the FIU as an extension of the police (Schott 2004).

Judicial or prosecutorial FIUs are affiliated with a judicial or prosecutors office. These are often relatively free from political influence and the intelligence obtained by the FIU can be given directly to the prosecutor. The disadvantages of judicial model FIUs can be the same as law enforcement models. A fourth approach to FIU structures is a hybrid of the above models (Schott 2004).

The countries in this report represent two different FIU types. The FIUs of Australia, Belgium, France and the United States are administrative FIUs. The FIUs of Germany, the United Kingdom, Hong Kong and Singapore are law enforcement examples.

FIUs also vary in the degree of autonomy experienced and this is often influenced by the placement of the FIU in the government and law enforcement structures. FIUs established outside of a government agency are likely to have the greatest level of autonomy, while those that are part of the central bank are likely to be more autonomous than one within a ministry (Schott 2004). FIUs may also serve as a regulator or supervising body over regulated entities.

Australia

Anti-money laundering and counter-terrorism financing legislation

Criminal money laundering offences

Australia has a complex legislative regime for detecting, prosecuting and deterring money laundering activities. Commentators have divided this legislation into three categories (Deitz & Buttle 2008):

  • criminal offences for money laundering at both a Commonwealth and a state and territory level;
  • asset recovery legislation, also present at both a Commonwealth and a state and territory level; and
  • prevention and detection measures, legislated at a Commonwealth level.

Money laundering offences are criminalised at a Commonwealth level in Division 400 of the Criminal Code Act 1995 (Cth) (Criminal Code). The definition of money laundering in the Criminal Code is broad. The Criminal Code does not limit predicate offences with a specific list. Predicate offences are, instead, those with a minimum sentence of at least one year’s imprisonment. Australia’s money laundering offences are distinguished from each other according to the amount of money involved in the activity and the level of intent of the accused.

The Australian states and territories have also enacted legislation creating offences for money laundering. The offences at a state and territory level differ according to areas such as relevant predicate offences, the intent of the defendant and penalties attached to the offences.

Asset recovery mechanisms

The bulk of the Commonwealth asset recovery provisions are contained in the Proceeds of Crime Act 2002 (Cth) (POCA 2002). POCA 2002 repealed the previous Proceeds of Crime Act 1987 (Cth) (POCA 1987). POCA 1987 allowed law enforcement to pursue the recovery of assets linked to offences after a conviction. POCA 2002 added the ability to use civil recovery to the Commonwealth’s asset recovery mechanisms.

Each Australian state and territory also has asset recovery legislation for funds generated by offences at state level. All Australian states and territories, with the exception of Tasmania, have replaced criminal-based asset recovery schemes with those that also enable the recovery of assets using civil procedures.

Key preventative legislation

Australian anti-money laundering legislation developed as a direct response to two Royal Commissions in the 1980s exposing the links between money laundering, major tax evasion, fraud and organised crime. The Costigan and Stewart Royal Commissions identified the need for legislative strategies to address these issues. While initially focusing largely on suspect transactions and large cash transactions, Australia’s anti-money laundering legislation was later extended to include the reporting and monitoring of certain international transactions. Australia’s primary anti-money laundering legislation, the FTR Act, was enacted to erect barriers in Australia’s wider financial and gambling sectors to discourage financially motivated criminals and to provide financial intelligence to revenue and law enforcement agencies. It applied to a wide range of businesses within the financial services industry, including banks, building societies, credit unions, the insurance industry, the travel industry and the gambling industry.

The FTR Act was the first piece of legislation related to the prevention and detection of money laundering and the financing of terrorism in Australia. The AML/CTF Act replaced the FTR Act as the primary AML/CTF legislation in Australia in 2006. The AML/CTF Act was subsequently amended in April 2007. Currently, there are 71 services with AML/CTF obligations identified in the Act. The AML/CTF regime is also comprised of supporting regulations and by legally binding Anti-Money Laundering and Counter-Terrorism Financing Rules Instruments issued by the AUSTRAC Chief Executive Officer.

The provisions of the AML/CTF Act encompass all sectors and entities that provide the services designated within the Act as carrying a risk of money laundering or of terrorism financing. The focus is on the nature of the service rather than on the nature of entity that supplies it. The Act applies to financial institutions and designated non-financial businesses including MSBs and some professions.

The AML/CTF regime is a risk-based system in which businesses supplying designated services have the discretion to assess the risks associated with specific customers and transactions and, to an extent, determine how to mitigate that risk by meeting the obligations under the Act.

Terrorism financing legislation

Australia also has a number of pieces of legislation prohibiting the financing of terrorism and aimed at preventing it. The current Australian legislation for terrorism financing offences can also be classified into similar categories as those of money laundering offences:

  • Criminal offences for the financing of terrorism in ss 102–103 of the Criminal Code—the Suppression of the Financing of Terrorism Act 2002 (Cth) amended the Criminal Code to include these provisions. The terrorism financing offences were later amended by the Anti-Terrorism Act (no. 2) 2005 (Cth).
  • Additional asset freezing legislation is also contained in the Charter of the United Nations Act 1945 (Cth) (CoTUNA)—this Act contains provisions related to Australia’s obligation, as a member state of the United Nations, to freeze the assets of nominated terrorists. The CoTUNA’s provisions (s 20) criminalise dealing with the assets linked to any individual or entity on the Consolidated List maintained by the Department of Foreign Affairs and Trade, in addition to criminalising the provision of assets (s 21) to individuals or entities on the list.
  • The AML/CTF Act, and the associated regulations, is targeted at the financing of terrorism as well as money laundering offences.

Financial intelligence unit

AUSTRAC acts as both the FIU and central AML/CTF regulatory body in Australia. AUSTRAC was originally established under the FTR Act in 1988.

AUSTRAC is a statutory authority within the Attorney-General’s portfolio (AUSTRAC 2007). While AUSTRAC is the AML/CTF regulator in Australia, it does not have any law enforcement powers or prosecutorial powers and is an administrative style FIU. AUSTRAC employed 311 full-time equivalent staff, on average, in 2008–09 (AUSTRAC 2009a).

Regulated sector

The AML/CTF regime currently applies to:

  • financial services (banks, credit unions, building societies, lending, leasing and hire purchase companies, stored value card issuers, asset management companies, financial planners (who arrange for the issue of financial products), life insurers, superannuation funds, custodial services companies and security dealers);
  • MSBs (remittance dealers, issuers of traveller’s cheques, foreign exchange dealers and cash couriers);
  • the gambling sector (casinos, bookmakers, TABs, clubs and pubs, internet and electronic gaming service providers); and
  • bullion dealers.

The AML/CTF Act does not encompass DNFBPs outside of providers of the above services, although the implementation of reforms to include legal practitioners and accountants providing specific services, real estate agents, trust and company service providers, and dealers in precious metals and stones are being considered by the Australian Government.

Obligations

The obligations contained in the AML/CTF Act were introduced in stages of six months, 12 months and 24 months after Royal Assent. The customer identification and verification obligations came into effect 12 months after Royal Assent (12 December 2006), as did the obligation to establish and maintain an AML/CTF program. Record keeping and other aspects came into effect the day after Royal Assent.

Financial intelligence reports

The AML/CTF Act currently requires regulated entities to provide the following financial transaction reports to AUSTRAC:

  • Reports of suspicious matters—all entities in the regulated sector are obligated to submit SMRs to AUSTRAC. SMRs are discretionary reports that may be triggered by transactions of any value or at any stage of a transaction.
  • Reports of high-value cash transactions—all entities in the regulated sector must submit a threshold transaction report for any transaction in physical currency, or e-currency, of $10,000 or more (or foreign currency equivalent). SMRs can be lodged in connection with a threshold transaction report.
  • Reports of international funds transfer instructions—reporting entities are obligated to report all IFTIs, regardless of value, to AUSTRAC. A report of IFTIs can also be the subject of an SMR or of a threshold transaction report.

The AML/CTF Act also contains the reporting requirements for individuals moving physical currency, or bearer negotiable instruments into or out of Australia:

  • Reports of international movements of cash—individuals moving AUD$10,000 or more, or the equivalent in foreign currency, into or out of Australia must submit an international currency transfer report under the AML/CTF Act. A previous obligation to report movements of cash existed under the FTR Act.
  • Reports of international movements of instruments of value—individuals moving instruments of value into or out of Australia may be required to submit a report of bearer negotiable instruments by a police or Australian Customs Service officer.

Tipping-off

The AML/CTF Act has tipping-off provisions for regulated entities that have filed a suspicious matter report. Entities are prohibited from disclosing information about the submission of a suspicious matter report, or any person or matter that leads to a reporting obligation, to anyone other than an AUSTRAC staff member or the AUSTRAC Chief Executive Officer .

There are exceptions to the tipping-off provisions in the AML/CTF Act. Businesses performing the following services are exempt from the tipping-off provisions if a disclosure is made to dissuade a customer from engaging in conduct that constitutes an offence against either Commonwealth or state or territory law:

  • legal practitioners, partnerships or companies supplying legal services;
  • qualified accountants, partnerships or companies supplying professional accountancy services; and
  • another person specified in the AML/CTF Rules.

Reporting entities are also exempt from the tipping-off provisions if a disclosure is made to a legal practitioner in order to gain legal advice. Any person to whom a disclosure is made under these circumstances is prohibited from further disclosing the information.

Matters reported under Part 4 of CoTUNA are also exempt from the tipping-off provisions, as are disclosures made in the following circumstances:

  • businesses with a joint anti-money laundering program within a designated business group are able to disclose information to other businesses within the group to inform them of the risks of dealing with a specific customer;
  • reporting entities that are authorised deposit taking institutions (ADIs) may disclose information to owner–manager branches of that ADI.
  • disclosures made in compliance with a Commonwealth, state, or territory law or those made to a law enforcement body.

Disclosures made contrary to the tipping-off provisions constitute a criminal offence for the individual, and not a civil penalty offence for the reporting entity, in Australia.

Anti-money laundering/counter-terrorism financing compliance programs

The AML/CTF Act requires all reporting entities to establish an AML/CTF program. This obligation came into effect on 12 December 2007. Reporting entities are required to assess their own levels of money laundering and terrorism financing risks and develop their own programs.

There are three types of programs—standard programs for individual businesses, joint programs for businesses that form part of a designated business group and special programs that apply only to Australian Financial Services Licence holders that offer a specific designated service under the AML/CTF Act.

The vast majority of reporting entities must develop either standard or joint programs. Each program type has two components. Part A of the program refers to identifying, managing and reducing the risk of money laundering and terrorism financing faced by the reporting entity. Part B of the program centres on customer identification measures and includes the minimum ‘know your customer’ information requirements.

All reporting entities must report their compliance with the AML/CTF Act to AUSTRAC. The AUSTRAC Chief Executive Officer defines the compliance reporting timeframe and submission date by issuing a Rules instrument.

United States

Other countries have imitated the AML/CTF regime of the United States because of its pioneering status and because of the centrality of the United States to international finance (Levi & Reuter 2006).

Anti-money laundering and counter-terrorism financing legislation

Money laundering legislation

The current AML regulations in the United States are a composite of a number of legislative acts and regulations which have evolved over time (Aggarwal & Raghavan 2006). The development and amendment of these acts has often been a response to concerns over specific incidents.

The Bank Records and Foreign Transaction Reporting Act 1970 (Bank Secrecy Act) was the first legislation introduced in the United States specifically targeting money laundering and was aimed primarily at the use of foreign banks for money laundering (Gup 2006). The Money Laundering Control Act 1986 (Money Laundering Control Act) was introduced as a component of the ‘war on drugs’ in the 1980s. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act 2001 (the PATRIOT Act) was a response to terrorism drafted after the 11 September 2001 attacks (Levi & Reuter 2006). Dividing the US legislation into criminal measures, asset freezing and prevention is complicated by the extended history of money laundering legislation in the United States.

The Bank Secrecy Act did not initially criminalise money laundering as an offence. The Bank Secrecy Act focused instead on tracking the secret use of foreign bank accounts by US customers. The criminalisation of money laundering occurred when the Money Laundering Control Act amended the Bank Secrecy Act to introduce criminal provisions. The Money Laundering Control Act amendments also increased the potential liabilities for legal persons. It extended the criminal offences beyond natural persons to financial institutions.

Criminal money laundering offences in the United States vary according to the circumstances of the laundering activity and not according to the amount of money involved or the level of intent of the launderer. The Money Laundering Control Act specifies the predicate crimes for money laundering offences in the United States. There are currently approximately 250 listed potential predicate offences (FATF-GAFI 2006), although felony offences under US federal or state law, or foreign felony offences, may be predicate crimes.

The United States has both criminal and civil asset recovery legislation. Criminal assets recovery provisions, requiring a conviction for an offence, are contained in 18 USC 982. The civil assets recovery provisions are contained in 18 USC 981.

The Bank Secrecy Act is the central legislation for the money laundering regulatory system in the United States. The PATRIOT Act amended the Bank Secrecy Act in 2001 and substantially increased the regulatory requirements intended to prevent and detect money laundering in the United States. The PATRIOT Act, in addition to expanding the regulatory regime, also increased the penalties for money laundering offences.

Other significant Acts have shaped the regulatory regime in the United States. The Annunzio-Wylie Anti-Money Laundering Act 1992 (Annunzio-Wylie Act) permitted the Secretary of the Treasury to require any financial institution to file a report of a suspicious transaction. This Act also required all businesses to keep customer identification records for all currency transactions between US$3,000 and US$10,000. The Money Laundering Suppression Act 1994, implemented in 1996, set out the requirement for banks, thrifts and credit unions to file reports of suspicious transactions to the FIU.

The Annunzio-Wylie Act criminalised the operation or ownership of an unlicensed money transmitting business. This provision is contained in 18 USC 1960 and also criminalises operating or owning of a business that knowingly transports or transmits funds derived from a criminal offence or funds intended to promote an unlawful activity.

US Sentencing Guidelines state that the fine imposed on regulated entities implicated in money laundering offences can be influenced by both the seriousness of the offence and organisation’s culpability. Culpability can be diminished by a compliance program in accordance with the Bank Secrecy Act.

Terrorism financing legislation

There are four federal criminal offences that deal directly with the financing of terrorism or terrorist organisations:

  • 18 USC 2339A—providing material support for the commission of offences specified;
  • 18 USC 2339B—providing material support or resources to designated foreign terrorist organisations;
  • 18 USC 2339C(a)—providing or collecting terrorist funds for a specified act; and
  • 18 USC 2339C(c)—concealing or disguising either material support to foreign terrorist organisations or funds used, or intended to be used, for terrorist acts.

The United States, like Australia, has additional asset freezing legislation. Executive Order 13224, issued after the 11 September 2001 attacks, prohibits dealing with the assets of individuals and entities identified in the Order or those added to the Order by the Secretary of State, Secretary of Treasury, or the Attorney-General.

The PATRIOT Act, as noted above, was passed in the aftermath of the 11 September 2001 attacks. The amendments made to the Bank Secrecy Act by the PATRIOT Act, and the regulatory regime as a whole, is targeted jointly at the financing of terrorism and money laundering activities. The United States has focused some specific measures on the financing of terrorism in response to the 11 September 2001 attacks. The requirement to register all value transfer businesses with FinCEN is one such measure.

Financial intelligence unit

FinCEN, established in 1990 by the Department of Treasury, is the FIU in the United States. FinCEN receives reports from regulated entities and works on combining this information with other government and public information. The intelligence reports generated from this process are passed onto law enforcement agencies. FinCEN is an administrative style FIU and does not have any law enforcement or prosecutorial powers. Like AUSTRAC in Australia, FinCEN is both an anti-money laundering regulator and the FIU in the United States. FinCEN employed 327 staff members in 2009 (FinCEN 2009b).

Regulated sector

The regulated sector in the United States is very large. Levi & Reuter (2006) describe the current United States prevention regime as having four areas. These are core financial institutions, non-core financial institutions, non-financial businesses and professions. As discussed above, the PATRIOT Act substantially expanded the AML/CTF requirements and one aspect of the expansion was to increase the industries covered by AML/CTF legislation.

The PATRIOT Act expanded the anti-money laundering program requirements to include broker-dealers, casinos, futures commission merchants, introducing brokers, commodity pool operators and commodity trading advisors. Informal value transfer systems (providers of remittance services) were also included in the definition of financial institutions (Gup 2006). The regime also includes dealers in precious metals, stones, or jewels.

The service providers identified as financial institutions under the Bank Secrecy Act are:

  • banks (commercial banks, savings and loan associations, credit unions);
  • federally regulated securities brokers;
  • currency and exchange houses;
  • funds transmitters;
  • cheque-cashing businesses;
  • persons subject to state or federal bank supervisory authorities;
  • casinos and card clubs; and
  • insurance companies offering selected products, such as life insurance, annuity contracts, property and casualty insurance, and health insurance.

Professions in the United States, such as legal practitioners, are not subject to preventive AML/CTF requirements. Members of the professions, however, may of course be prosecuted for any criminal involvement in the financing of terrorism and for assisting money laundering activities (Levi & Reuter 2006).

The third section of this report considers the regulated sector in a slightly different way to Levi and Reuter (2006) by dividing businesses with AML/CTF obligations into three categories—financial institutions, MSBs and non-financial businesses.

Obligations

Financial intelligence reports

The financial intelligence reports system of the United States is more complex than the Australian model. Different types of reporting entities are subject to different reporting requirements and different thresholds for each report type.

  • Reports of suspicious financial activity—compulsory SARs are subject to a minimum threshold for the value of the transaction. The threshold for SARs for MSBs is US$2,000. For financial institutions, casinos and the futures and securities sector, the threshold is US$5,000. The transaction threshold increases to US$25,000 where a suspect cannot be identified.
  • Reports of high-value cash transactions—financial institutions, casinos, trades and businesses must file Currency Transaction Reports (CTR) after engaging in a currency transaction of more than US$10,000. Some institutions, such as banks, can seek exceptions for filing CTRs for transactions with cash-intensive businesses for stated amounts and for specific time periods. Casinos are excluded from reporting payouts from slot machine jackpots and video lottery terminals.
  • Reports of international movements of cash—businesses and individuals transporting, or arranging to transport, more than US$10,000 into or out of the United States must file a Report of International Transportation of Currency or Monetary Instruments.
  • Reports of international movements of instruments of value—the transportation of more than US$10,000 in instruments of value into or out of the United States is subject to the same report as transporting cash.
  • Reports of international electronic transactions—the United States does not require this kind of report.
  • Additions—individuals with financial interests held overseas with an aggregate value of more than US$10,000 must submit a Report of Foreign Bank and Financial Accounts.

Tipping-off

Section 31 USC 5318 prohibits financial institutions, their employees, directors, officers and agents that have filed a SAR from disclosing this information to any person involved in the transaction. All government employees are also subject to the tipping-off provision, except where disclosure is part of their official duties. The Code of Federal Regulations (Chapter 12) states that SARs filed by banks are confidential and that any individual subpoenaed or otherwise requested to disclose any information about a SAR should refer to 31 USC 5318.

Compliance programs

The Bank Secrecy Act requires regulated entities to establish anti-money laundering programs that encompass, at a minimum:

  • internal policies, procedures and controls;
  • a compliance officer;
  • ongoing training for staff; and
  • independent auditing systems.

Different types of entities are subject to different specific anti-money laundering program requirements. The most stringent regulations apply to core financial institutions. Core financial institutions are required to have full anti-money laundering programs and are subject to additional regulations governing specific areas such as customer identification.

Non-core financial institutions have been progressively added to the anti-money laundering regime. MSBs are the largest sub-category of non-core financial institutions. MSBs must register with FinCEN before operating. The anti-money laundering program regulations for non-core financial service businesses, including money service providers, are less stringent than those for core financial services. MSBs are tasked with self-assessing their level of risk depending on their location and the specific services they provide.

The elements of an anti-money laundering program required by non-financial businesses are less specific although non-financial businesses do have some requirements such as identification checks and record-keeping. Compliance supervision and any practical use of sanctions is limited because most non-financial businesses are registered in state or local jurisdictions. Authorities have little leverage to punish non-compliance by non-financial businesses.

European Union

Money laundering legislation

The Directive 2005/60/EC of the European Parliament and the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (the Third Money Laundering Directive) is now the core of the EU’s AML/CTF preventative measures. The purpose of the Third Money Laundering Directive is to ensure that European legislation complies with the revised FATF-GAFI 40 plus nine Recommendations. The current Directive replaces the 2001 Second Money Laundering Directive and amends the requirements to more fully comply with the revised FATF-GAFI Recommendations.

The Third Money Laundering Directive outlines the AML/CTF requirements for member states, although members must implement the Directive into domestic legislation. The expanded requirements include extending the AML/CTF regime to DNFBPs and targeting the financing of terrorism. The Third Money Laundering Directive also introduced significant change by requiring member states to implement a risk-based approach to money laundering prevention. Some countries, such as the United Kingdom, had risk-based systems in place prior to the Directive. The Directive was, however, the first attempt to allow regulated entities flexibility in assessing their own levels of risk (KPMG 2007).

The European Union’s deadline for implementation was December 2007. The large changes many countries needed to instigate meant that implementation was realistically expected to be uneven (KPMG 2007).

The introduction of the Third Money Laundering Directive was met with heavy criticism. The European Union released the Directive in a climate where some member states had not fully implemented the reforms contained in the Second Money Laundering Directive of 2001. Criticism was also levelled at the European Union’s release of the Third Money Laundering Directive ahead of evaluating the impact of the Second Money Laundering Directive reforms.

Further concerns arose from the Directive’s inclusion of DNFBPs. Critics suggested that the regulated sector would comply with the reforms solely to avoid the costly legal consequences of non-compliance rather than to mitigate money laundering or the financing of terrorism. The consequences of approaching AML/CTF in this way was anticipated to result in defensive reporting, marked by a substantial increase in the number of financial intelligence reports submitted, but no gains in the quality of reports or information. Defensive reporting generates a backlog of intelligence, an increased workload for FIUs and other agencies created by superfluous reports, as well as less effective FIUs.

It is difficult to gauge the motivation for regulated businesses to comply with AML/CTF requirements from the data available in this report. Some Australian businesses, however, conceded that their compliance was to avoid penalties rather than from any perceived threats of money laundering or terrorism financing taking place in their businesses (Walters et al. forthcoming). The DNFBPs included in the regimes of the EU countries considered within this sample did not appear to engage in defensive reporting. Very few DNFBPs from within the sample filed any reports with the FIU or with regulators. The volume of reports the FIUs received overall did increase in most countries, although the number of reports in most cases had begun to increase years before the introduction of the Third Money Laundering Directive. The fourth section of this report considers compliance and report numbers in more detail.

In 2005, the Council of the European Union released Regulation (EC) No. 1889/2005 of the European Parliament and of the Council of 26 October 2005 on controls of cash entering or leaving the community. The Regulation requires member states to enact legislation to require any persons entering or leaving the European Union to declare movements of cash, currency, or bearer negotiable instruments valued at €10,000 or more. The regulation came into force on 15 June 2007.

The Regulation (EC) No. 1781/2006 on information on the payer accompanying the transfer of funds sets out the minimum payer identity information that must be sent with international funds transfers from member states.

Terrorism financing legislation

Alongside the Third Money Laundering Directive, the Council Regulation (EC) No. 881/2002 (United Nations Al Qaida and Taliban list) and Council Regulation (EC) No. 2580/2001 (European Union terrorism list) are also directly applicable in law in all member states (Howell 2007). The EU terrorism list was published at the end of 2001 and incorporated individuals are to be subjected to asset freezing mechanisms and prevented from engaging in business transactions (Neve et al. 2006). This list operates alongside the UN’s Al Qaida and Taliban list.

United Kingdom

Anti-money laundering and counter-terrorism financing legislation

Recent estimates of the cost of all serious organised crime to the United Kingdom approximate £15b per year (SOCA 2008a). Trafficking Class A drugs was perceived to be the greatest threat in terms of organised crime and money laundering in 2008 (SOCA 2008a, 2008b). The United Kingdom was believed to be one of the most lucrative markets in the world for Class A drug smugglers (SOCA 2006).

Property purchases, cash-intensive businesses and front companies were the methods that SOCA believed to be the most commonly used to launder money in the United Kingdom (SOCA 2006). SOCA identified cash as the mainstay of serious criminal activity due to its flexibility and because it does not leave an audit trail.

Money laundering legislation

Money laundering is criminalised in the United Kingdom by the Proceeds of Crime Act 2002 (UK) (POCA 2002 UK) as amended by the Serious Organised Crime and Police Act 2005 (UK).

POCA 2002 UK states that a person commits an offence by concealing, disguising, converting, or transferring criminal property, or by removing criminal property from the United Kingdom. Entering into, or becoming concerned with, an arrangement known or suspected to facilitate the acquisition, retention, use, or control of criminal property by or on behalf of another person is a separate offence in the United Kingdom. It is also an offence under this Act to acquire, use, or possess criminal property. Natural and legal persons may be convicted of a money laundering offence in the United Kingdom (FATF-GAFI 2007a).

The offences in POCA 2002 UK may apply to the perpetrator of a predicate offence or third parties. A money laundering conviction is not dependant on gaining a conviction for the predicate crime that generated the funds to be laundered.

The potential predicate offences for money laundering in the United Kingdom are not restricted to a list of specific crimes. All crimes committed in the United Kingdom, or acts committed in other jurisdictions considered criminal offence if they had occurred in the United Kingdom, are potentially predicate crimes. Criminal property is that constituting or representing any benefits derived from criminal conduct, in whole or part, either directly or indirectly (s 340 POCA 2002 UK).

Sections 330–332 create offences for persons failing to submit suspicious activity reports if the suspicion came about in the course of business in the regulated sector. Sections 330–331 apply to persons and nominated officers (individuals nominated to receive disclosures within a business) within the regulated sector. Section 332 applies to nominated officers in the non-regulated sectors who have an internal disclosure system under the risk-based approach. There are slightly different requirements with ss 331 and 332, where the first is suspicion based on reasonable grounds, whereas the second is a suspicion based in fact (Law Society UK 2008).

The United Kingdom also regulates money laundering through the Money Laundering Regulations. The 2003 regulations were recently amended in favour of the Money Laundering Regulations 2007 which were created to implement the EU’s Third Money Laundering Directive (Law Society UK 2008). These regulations took effect in December 2007.

The United Kingdom has provisions for confiscating laundered property under POCA 2002 UK, the Terrorism Act 2000 (UK) (Terrorism Act) and the Anti-terrorism, Crime and Security Act 2001 (UK). The confiscation regime includes both civil and criminal provisions. Criminal confiscation provisions are contained in POCA 2002 UK and the Terrorism Act.

The provisions in POCA 2002 UK allow for asset recovery providing the court shows the defendant is either:

  • guilty of a lifestyle offence;
  • has received a total of at least £5,000 in the course of criminal conduct; or
  • has received a total of at least £5,000 from an offence occurring over at least six months.

The provisions for civil recovery are located in the Anti-terrorism, Crime and Security Act 2001 (UK) and POCA 2002 UK. Assets can be seized under the Anti-terrorism, Crime and Security Act 2001 (UK) where there are reasonable grounds for suspecting they are linked to terrorist organisations or terrorist acts. POCA 2002 UK allows the civil recovery of assets of £10,000 or more without a conviction if prosecution has been attempted first and proven unsuccessful. Cash can only be recovered with this method if there are also other types of property involved.

The United Kingdom employs a risk-based approach to money laundering regulation for customer due diligence and ongoing monitoring of clients. The risk-based approach does not extend to suspicious activity reporting where specific obligations are defined (Law Society UK 2008). The Financial Services Authority (FSA) is the AML/CFT regulator for financial institutions. Ongoing regulation of the reporting entities in the United Kingdom is carried out under a risk-based approach based that employs an impact assessment based on the size of the entity and the number of customers (FATF-GAFI 2007a).

Terrorism financing legislation

Terrorism financing is criminalised under the Terrorism Act in Part III, ss 15–18 (FATF-GAFI 2007a). The offences are for raising funds, using and possessing terrorist property or money, creating funds arrangements and for money laundering. The Anti-terrorism, Crime and Security Act 2001 (UK) amended the Terrorism Act provisions for freezing assets linked to terrorism activities.

The Al Qaida and Taliban (United Nations Measures) Order 2006 (UK) and the Terrorism (United Nations Measures) Order 2006 (UK) create offences for providing funds or economic resources to terrorists. A case in April 2008 (A, K, M, Q and G v HM Treasury [2008] EWHC 869 (Admin)) raised doubts about the lawfulness of asset freezing under these Orders. The case has gone to appeal to the House of Lords (Jones & Zgonec-Rože 2009).

Financial intelligence unit

The UK FIU is part of SOCA (SOCA 2008b). SOCA was established in April 2006 under the Serious Organised Crime and Police Act 2005 (UK) (SOCPA) which amended POCA 2002 UK (SOCA 2007). SOCA replaced the National Criminal Intelligence Service (NCIS), the National Crime Squad (NCS), parts of Her Majesty’s Revenue and Customs (HMRC) and the UK Immigration Service (UKIS) (SOCA 2006). SOCA is sponsored by the Home Office but operates independently.

The aim of SOCA is to prevent, detect and contribute to a reduction in serious organised crime and to gather, store, analyse and disseminate information on crime (SOCA 2008b). The top three priorities of SOCA are Class A drug trafficking, people smuggling and people trafficking, in that order (SOCA 2008b). SOCA employed over 4,000 staff in 2008–09 (SOCA 2009a).

Regulated sector

The United Kingdom employed over one million people in the financial services industry in 2007, which made it one of the largest commercial banking sectors in the world. The insurance industry was the largest in Europe and third largest in the world that year (FATF-GAFI 2007a).

POCA 2002 UK defines the regulated sector by services and not by types of businesses. The United Kingdom’s regulated financial sector contains all of the financial activities defined by FATF-GAFI (FATF-GAFI 2007a). The Money Laundering Regulations 2007 expanded the boundaries of the regulated sector for DNFBPs to include auditors, accountants and tax advisors, independent legal practitioners, trust or company service providers, estate agents, high-value dealers and casinos (Law Society UK 2008). Legal practitioners are covered in POCA 2002 UK when they participate in selected financial and real estate transactions.

Obligations

Financial intelligence reports

The key difference between the financial intelligence reports required in the United Kingdom and those required in Australia is the absence of any requirement to report international electronic funds transfers.

  • Reports of suspicious financial activity—all regulated entities are required to report all suspicions of money laundering. The requirement applies to transactions of any amount, as well as attempted transactions (FATF-GAFI 2007a). An exception applies to professional legal advisors if the information or suspicion arose in privileged circumstances. Privileged circumstances apply to information communicated in connection with providing legal advice to a client or in connection with legal proceedings. The exemption does not occur if the interaction is intended to further a criminal purpose (Law Society UK 2008).
  • Reports of high-value cash transactions—the United Kingdom does not require reports of high-value cash transactions above a specific threshold. Businesses accepting €15,000 or more in physical currency, either as a single transaction or linked transactions, need to register with the Commissioners of HMRC but do not need to file cash transaction reports. A feasibility study conducted in 2006 concluded that the UK’s anti-money laundering regime would remain suspicion-based rather than threshold-based (FATF-GAFI 2007a).
  • Reports of international movements of cash—the United Kingdom has applied EU Council Regulation No. 1889/2005 (the European Union cash controls regulation) since June 2007. This regulation complements the previous disclosure rules that required all travellers entering and exiting the European Union to declare any currency and bearer negotiable instruments of €10,000 or more. The previous disclosure system required a verbal disclosure to customs officers rather than a formal written declaration. Those travelling within the European Union are still bound by the verbal disclosure system. The EU cash control regulation extends only to travel into or out of the European Union (FATF-GAFI 2007a).
  • Reports of international movements of instruments of value—instruments of value are covered by the EU cash controls regulation outlined above.
  • Reports of international electronic transactions—there is no specific requirement to submit a report to the FIU about electronic transactions. The transaction will only be the subject of a report if it fulfils the requirements for an STR.

Tipping-off

The United Kingdom has recently amended the tipping-off requirements and offences that apply to the regulated sector. Section 333 of POCA 2002 UK criminalises making a disclosure that might prejudice an investigation stemming from a report of a suspicious transaction. The maximum penalty for a conviction on indictment is 14 years imprisonment and a fine.

The defences to disclosing are also laid out in s 333 and apply to:

  • disclosures within an undertaking or group, such as employees of the same firm;
  • disclosures between institutions such as professional legal advisors;
  • disclosures to supervisory authorities; and
  • disclosures made by legal professionals to clients for the purpose of dissuading criminal conduct (Law Society UK 2008).

Section 342 contains further offences for making a disclosure that may prejudice criminal or civil confiscation proceedings or a money laundering investigation. The maximum penalty for this offence is imprisonment for five years and a fine. Legal practitioners have an exemption if the disclosure is in the process of giving legal advice or in connection to legal proceedings (Law Society UK 2008).

Anti-money laundering/counter-terrorism financing compliance programs

The Money Laundering Regulations 2007 require regulated entities to establish appropriate risk-sensitive policies and procedures for customer due diligence and ongoing monitoring, record-keeping, reporting, internal controls, risk assessment and management, and for monitoring compliance with these policies.

The Regulations require regulated businesses to train all relevant employees about money laundering and terrorism financing laws. Regulated entities must also provide regular training on recognising and responding to transactions that may be implicated in money laundering or the financing of terrorism.

Belgium

Belgium has a comprehensive anti-money laundering regime and a high rate of compliance with FATF-GAFI Recommendations. Forty-one out of 48 applicable Recommendations were marked as compliant or above in the most recent evaluation (FATF-GAFI 2005a). Belgium, despite its high level of compliance with the Recommendations, was identified as potentially vulnerable to money laundering through the informal financial sector due to the use of alternative remittance and the large diamond trade in the country used by the United States (US Department of State 2008).

The European Commission identified Belgium as one of 15 countries non-compliant with the Third Money Laundering Directive and initiated infringement measures in 2008 (Europa 2008). Belgium anticipated fully transposing the Third Money Laundering Directive into domestic law by November 2009 (European Commission 2009a, 2009b). The following information is based on the Belgian AML/CTF requirements prior to the full implementation of the Third Money Laundering Directive.

Anti-money laundering and counter-terrorism financing legislation

Money laundering legislation

Money laundering is criminalised in Belgium under Article 505 of the Penal Code. The offence is for laundering the proceeds of any crime.

The Law of 11 January 1993 is the central anti-money laundering legislation. The preventative requirements for regulated entities relating to specific predicate offences are contained in this Law. The legislation was most recently amended in 2007 and is expected to be amended again in line with the Third Money Laundering Directive.

This legislation focuses only on serious predicate offences, including terrorism or terrorist financing, organised crime, illicit trafficking, serious fraud and organised tax fraud, corruption, environmental crime and counterfeiting. The serious predicate crimes also extend to stockmarket-related offences, providing foreign exchange or fund transfer services without a licence, breach of trust, abuse of corporate assets, hostage taking, theft or extortion using violence or threats, or an offence related to the state of bankruptcy.

The Central Office for Seizure and Confiscation (COSC) monitors all asset freezing and confiscation in Belgium. FATF-GAFI (2005a) described Belgium’s existing asset confiscation regime as sophisticated, although lacking clarity in some areas. Belgium was in the process of drafting new legislation at the time of the FATF-GAFI evaluation in 2005.

Counter-terrorism financing

Articles 140 and 141 of the Penal code criminalise participating in and financing terrorist groups (FATF-GAFI 2005a). The Penal Code defines participation in a terrorist group to include providing information, material resources or financing for an activity with the knowledge that participation contributes to the commission of a crime. Article 141 penalises the provision of material resources and includes financial aid (FATF-GAFI 2005a). The penalties for these offences range from five years to 10 years in prison. The Law of 11 January 1993 combines AML/CTF requirements for regulated entities.

Financial intelligence unit

The Cellule de Traitement des Informations Financieres (CTIF-CFI) was created in June 2003. It is classed as an administrative FIU (Schott 2004) that is independent and supervised by the Ministries of Justice and Finance. CTIF-CFI’s main role is to receive, analyse and disseminate all disclosures from regulated entities. It operates as a filter between regulated entities and judicial authorities, reporting any possible money laundering to the public prosecutor.

CTIF-CFI, alongside its duties as FIU, also acts as the supervisory body for entities and professions not supervised by the Banking, Finance and Insurance Commission (CBFA) or other authorities (FATF-GAFI 2005a). Areas within the regulated sector are regulated by those agencies with the appropriate specialist knowledge of the respective sectors (eg the CBFA is responsible for financial institutions and the Gaming Commission is responsible for casinos) but CTIF-CFI nevertheless maintains a close relationship with all regulators. CTIF-CFI is an independent organisation with its own budget provided by the regulated sector.

The Belgian regime requires reporting entities to perform some analysis prior to submitting a disclosure to the FIU. This reduces the number of disclosures. CTIF-CFI argue the disclosures that are made are of a higher quality than if all matters were reported uncritically (CTIF-CFI 2006). Belgium has had an online disclosure system since 2006. As an additional power, CTIF-CFI has the authority to freeze bank accounts on a case-by-case basis, if there is sufficient evidence that money laundering has been committed. The FIU can suspend a transaction for up to two working days to complete analysis (FATF-GAFI 2005a).

Regulated sector

Belgium has a comprehensive list of regulated financial entities including the National Bank of Belgium and the Public Trustee Office (Caisse des Dépôts et Consignations). Entities and businesses engaged in banking, credit, investment, insurance, mortgage, lease-financing, currency exchange, derivatives, funds transport, real estate and dealing in diamonds are also covered. Professionals are also included in Belgium’s anti-money laundering regime, including notaries, bailiffs, auditors, approved accountants, tax advisors and tax specialist-accountants, and gambling establishments and gaming halls (casinos). The regulations also apply to legal practitioners, but only when performing certain transactions to do with finances and real estate.

Major objections were lodged by the legal profession to the Third Money Laundering Directive. Indeed, the profession has a history of litigation in relation to both the Second and Third Directives. In 2005, the then Court of Arbitration in Belgium (now the Constitutional Court of Belgium) heard arguments promulgated by the French and German-speaking Bar Association, Association of Flemish Bars and the French and Dutch Bar Association of Brussels to the effect that the duty to report imposed by the anti-money laundering legislation infringed the duty to maintain professional secrecy and impacted upon lawyers’ independence. Such principles, the combined professional bodies maintained, were safeguarded by the Belgian Constitution and the Convention for the Protection of Human Rights and Fundamental Freedoms. In 2005, the Court of Arbitration referred to the European Court of Justice the question of whether the Second EU Directive, in including reporting obligations on lawyers, violated the right to a fair trial. The European Court of Justice issued its opinion on 26 June 2007 and held that the reporting obligations under the Directive applied to lawyers only insofar as they advised a client in the preparation or execution of certain transactions—essentially those of a financial nature or concerning real estate—or when they acted on behalf of and for a client in any financial or real estate transaction. Given that such activities generally occurred outside of judicial proceedings, there could be no impact upon whether the client received a fair trial. Undeterred, the Belgian Bar Associations launched a second challenge to the implementation of the Second Money Laundering Directive in November 2007 in the Belgian Constitutional Court.

The CTIF-CFI believes that there is active involvement of the legal profession in criminal activity in Belgium. Interestingly, the 2007 International Narcotics Control Strategy Report (INCSR) noted that in 2005 there were no suspicious transaction reports filed by the legal profession and in 2006 CTIF-CFI recorded (in its 2006 annual report) just two such reports. Although the legal profession in many jurisdictions has tended to fall behind other reporting entities, the rate in Belgium should give cause for concern. Interestingly, CTIF-CFI also notes that the real estate sector claims not to be aware of any significant money laundering issues pertaining to its sector, which might explain the fact that it posted only two suspicious transaction reports in 2006 (L Umans, CTIF-CFI personal communication 11 January 2008). Belgium requires regulated entities to obtain customer identification and verification based on a risk-profile.

Obligations

Financial intelligence reports

Belgium legislation requires the following approaches to financial intelligence reporting:

  • Reports of suspicious financial activity—regulated financial entities are required to submit disclosures of any suspicious transactions to the FIU prior to conducting the transaction, or if this is not possible, the disclosure should be made immediately afterwards (Law of 11 January 1993 Article 12). The information may be provided by telephone but must be followed up by a written lodgement. Failure to report carries an administrative fine of between €250 and €1,250,000.
  • Financial institutions, professions and casinos are also required to disclose any facts which they know or suspect to be linked to money laundering or terrorism financing (Law of 11 January 1993 Article 14, 14bis). Legal practitioners must also adhere to this requirement. Legal practitioners make reports to the President of the bar association of which they belong and not directly to the FIU. The President of the bar association can pass the information to the FIU. Legal practitioners are exempt from the requirement to submit reports if the information came to them in the course of ascertaining the legal position of their client, defending the client, or providing advice on instituting or avoiding legal proceedings (Article 14bis).
  • An interesting addition to the regime in Belgium is the requirement for internal analysis to be conducted by the anti-money laundering compliance officer prior to submitting a disclosure (CTIF-CFI 2008).
  • Reports of high-value cash transactions—Belgium law prohibits cash payments for real estate that are in excess of 10 percent of the total price of the sale or greater than €15,000. Cash payments are also illegal for any goods over €15,000 (The Law of 11 January 1993, chapter IIbis, Article 10bis and 10ter). While Belgium does not include high-value dealers (except diamond dealers) in the list of reporting entities, the illegality of cash payments over €15,000 makes their explicit inclusion unnecessary. Regulated entities connected to the real estate sector who form a belief that this requirement is not being upheld must inform the FIU (The Law of 11 January 1993, article 10bis).
  • Reports of international movements of cash—the regime in Belgium also covers transporting cash in and out of the European Union. On 15 June 2007, Belgium enacted the Royal Decree of 5 October 2006 which requires any currency coming into or out of the European Union worth more than €10,000 to be declared (CTIF-CFI 2006). If sums above this amount are not declared and the money is suspected to have illicit origins, a report is filed and the money may be confiscated for up to 14 days (CTIF-CFI 2006).
  • Reports of international movements of instruments of value—bearer negotiable instruments are subjected to the same reporting requirements as cash in Belgium.
  • Belgium has committed to cease issuing bearer bonds from 1 January 2008 as an additional preventative measure targeting bearer negotiable instruments. Bonds issued before this date will still be accepted along with foreign issued bonds (US Department of State 2008).
  • Reports of international electronic transactions—The regulation (EC) No. 1781/2006 requires complete payer information to be sent with any transfers of funds outside the European community. Similarly, financial institutions conducting international electronic transfers of funds must retain information on the identity of the client (CTIF-CFI 2009). Under the regulation, transfers within the European Union only require account information unless they are deemed suspicious, when further information can be requested. There is no requirement to submit a specific report to the FIU with these regulations.

Tipping-off

Article 19 of the Law of 11 January 1993 contains the provisions for tipping-off. The law states that regulated entities may not inform their client or third parties that information has been transferred to the FIU or that an investigation is in progress. The offence carries an administrative fine of between €250 and €1,250,000.

Anti-money laundering/counter-terrorism financing compliance programs

Article 9 of the Law of 11 January 1993 directs regulated entities to train staff in money laundering preventative measures. Article 10 requires specified entities to appoint an individual responsible for implementing the preventative measures. In April 2007, CTIF-CFI produced a list of money laundering indicators, that is, a set of generic issues of which the relevant reporting entities ought to be aware. Thus, for example, financial professionals were advised to be wary of clients ‘...opening an account that is credited exclusively by cash deposits’ (CTIF-CFI 2007b: 1), insurance companies were advised to be wary of ‘…a client concluding an insurance contract who is particularly interested in its early surrender and in the amount that he will then have at his disposal’ (CTIF-CFI 2007b: 4) and real estate agents were advised to be wary of a client who ‘…buys real estate without having seen the property’ (CTIF-CFI 2007b: 7). CTIF-CFI also sends relevant sections of the Belgian AML/CTF legislation (Law of 11 January 1993 on Preventing Use of the Financial System for Purposes of Laundering Money and Terrorism Financing [as amended] and Article 505 of the Penal Code) that apply to a specific sector. CTIF-CFI provides other guidance and undertakes training activities with the professional bodies (L Umans, CTIF-CFI personal communication 11 January 2008).

France

IMF (2005) considers France to be attractive to money launderers because of its stable economy and strong currency. It describes France’s main vulnerabilities to money laundering as arising from the layering and integration stages rather than during the placement phases (IMF 2005).

France, like Belgium, has attracted infringement measures from the European Commission for failing to fully implement the Third Money Laundering Directive (Europa 2009). France had initiated full implementation of the Third Money Laundering Directive but not finalised doing so by October 2009 (European Commission 2009b).

Ordinance no. 2009–104 of 30 January 2009 implements the Third Money Laundering Directive into domestic French law. Full implementation of the Third Money Laundering Directive in France will be completed by a series of Decrees (IBA 2009).

Two administrative decrees expanded on the French AML/CTF requirements—Decree no. 2009–1087 on customer due diligence and reporting obligations for the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, and the Order of the Minister of economy on the application of Article R. 561–12 of the Code Monétaire et Financier (Monetary and Financial Code)—were enacted in September 2009 (Financial Standards Foundation 2011). Decree no 2009–1087 further defines the know your customer requirements for beneficial owners, exempt clients and transactions, high-risk transactions and customers included an expanded definition of politically exposed persons and using identity information collected by third parties (Ashurst 2009).

Anti-money laundering and counter-terrorism financing legislation

Money laundering legislation

France has been a leader in the development and promotion of the FATF-GAFI 40 plus nine Recommendations since money laundering, tied to narcotics, was first criminalised in 1987 (IMF 2005). In 1997, France expanded the scope of predicate offences to include the proceeds of all crimes. The offences are laid out in articles 222–38 and 324–1 of the Criminal Code and Article 415 of the Customs Code and the law does not require the conviction of a predicate offence for a money laundering conviction (IMF 2005). The penalties for money laundering are laid out in article 324 of the Penal Code. Convictions for laundering the proceeds of drug trafficking crimes carry much larger penalties than those for laundering the proceeds of other types of predicate offences. Both natural persons and legal entities may be convicted of money laundering offences (IMF 2005).

The requirements for regulated entities to perform anti-money laundering measures are laid out in the Title VI of Book V of the Code Monétaire et Financier (Monetary and Financial Code) (Articles L561–1 to L–565–3). Entities are required to disclose all transactions and facts suspected to derive from drug trafficking, organised crime, defrauding the financial interests of the European community or corruption, or those that might be linked to terrorism financing (L562–2).

The Act of 11 February 2004 extended mandatory reporting to all legal counsel and created a new disciplinary authority for legal practitioners (Chevrier 2004). There was considerable debate surrounding the mandatory reporting for legal practitioners as required in the European Union Second Money Laundering Directive. The legal profession was opposed to the requirement and the possible breach of legal security (Chevrier 2004). Legal entities therefore have some unique requirements and leniencies in France.

The regime in France allows for, in theory, all seized assets to be confiscated. The measures generally apply only to those assets seized in the course of judicial procedure (IMF 2005). The measures are contained in the Code of Criminal procedure (IMF 2005).

Counter-terrorism financing

Terrorism financing is criminalised in Article 421–2–2 of the Criminal Code (IMF 2005). The terrorism financing preventative measures are contained in the Monetary and Financial Code (Articles L564–1 to L564–6).

Financial intelligence unit

France was one of the first countries to establish an FIU (IMF 2005) with TRACFIN created by the Act of 9 May 1990 (Chevrier 2004). It is a service of the French Ministry of Finance and is responsible for analysing the suspicious transaction reports received from reporting entities (IMF 2005).

In cases of non-compliance with AML obligations, sanctions are imposed by the supervisory authorities (Commission Bancaire, Commission de Contrôle des Assurances, Autorité des Marchés Financiers) and not by TRACFIN. A number of entities, however, including gaming houses and high-value dealers do not have a competent supervisory authority. The IMF, as such, considers anti-money laundering supervision to be underdeveloped in France.

Regulated sector

France has a comprehensive legal and institutional framework for regulated entities. Alongside financial institutions, reporting entities include real estate professionals, casinos and gaming houses, high-value dealers including precious stones and metals, art and antiques dealers, and legal and accounting professionals (IMF 2005; Article L562–1 of the Financial and Monetary Code). Legal practitioners and notaries have been required to report suspicious transactions since 1998 whenever they intervene in financial and real estate transactions (Chevrier 2004).

Obligations

Financial intelligence reports

French legislation requires regulated businesses and international travellers to take the following approaches to financial intelligence reporting:

  • Reports of suspicious financial activity—French law requires reporting entities to submit two types of reports to the FIU. The first is an STR. The second type of report must be lodged when the identity of a beneficiary remains unknown after customer due diligence measures have been completed (IMF 2005; L562–2, L562–2–1). There are no size threshold limits for submitting either report. The reporting entity must submit the STR where there is a suspicion that the transaction is tied to drug trafficking, organised crime, fraud against the European Communities, corruption, or terrorism financing (IMF 2005). The reporting entity must submit the STR before the reportable transaction is completed unless the transaction cannot be prevented.
  • There has been some disagreement over which suspected crimes must be reported. The French legislation creates a disparity between the predicate crimes criminalised for money laundering and those triggering a financial intelligence report. Suspicions of transactions tied to the more serious crimes, such as drug trafficking, terrorism and organised crime are widely accepted. The requirement to report transactions linked to less serious offences of lower level misappropriation of funds and tax evasion is sometimes disputed (Favarel-Garrigues, Godefroy & Lascoumes 2008).
  • Legal practitioners are only required to submit reports when intervening in financial or real estate transactions for their clients. Legal practitioners must report all suspicious transactions to the Bar and the Bar determines whether there is cause to pass the investigation to the FIU (Chevrier 2004; IMF 2005). Legal practitioners are not required to make a report about a transaction if the practitioner came across the information in the course of representing the client in judicial proceedings, or in the course of giving legal advice, unless the contact serves money laundering purposes.
  • Reports of high-value cash transactions—there is no requirement to systematically report large cash transactions, however, Article L–563–3 allows transactions above a threshold to be subjected to scrutiny and for the reporting entity to retain a record of this. At the time of the last IMF evaluation the threshold was €150,000 (IMF 2005).
  • Reports of international movements of cash—under Regulation (EC) No. 1889/2005 of the European Parliament and of the Council of 26 October 2005 on controls of cash entering or leaving the Community and Articles 464 and 465 of the French Customs code, all persons entering and leaving the European Union must declare any sums, securities and assets valued at €10,000 or more. This includes cash, cheques, bearer cheques, travellers’ cheques, bearer debt notes, growth bonds and transferrable securities.
  • Reports of international movements of instruments of value—instruments of value are covered by the regulation described above.
  • Reports of international electronic transactions—the Regulation (EC) No. 1781/2006 requires complete payer information to be sent with any transfers of funds outside the European community. This, however, is not a direct requirement to submit a report to the FIU. Under this regulation, transfers within the European Union only require account information, unless they are deemed suspicious, and then further information can be requested. Article L562–2 allows the authority to require reports of transaction over a specified threshold if they involve countries deemed to be inadequate in the fight against money laundering.

Tipping-off

Executives and agents of regulated entities are not permitted to advise the party to a transaction of the existence of a declaration under article L574–1 of the Monetary and Financial Code. A breach of this provision carries a penalty of a fine of €22,500. An important exemption to this applies to legal practitioners who are permitted to reveal the existence of a report on their activities to a client.

Anti-money laundering and counter-terrorism financing compliance programs

The Article 6 of Decree 91–160 of 13 February 1991 requires all financial entities to adopt written rules defining the procedures for anti-money laundering and for all staff involved in anti-money laundering to be kept informed and to receive training (IMF 2005).

Germany

The European Union initiated infringement procedures against Germany for its failure to meet the 15 December 2007 implementation deadline for the Third Money Laundering Directive (Europa 2008). Germany narrowly avoided attending the European Court of Justice for the late implementation.

Anti-money laundering and counter-terrorism financing legislation

Money laundering legislation

Germany’s money laundering criminal offences were added to the German Criminal Code (Article 261) by the Act on Suppression of Illegal Drug Trafficking and other Manifestations of Organised Crime. Article 261 of the German Criminal Code has been amended several times to increase the scope of predicate offences. Predicate crimes for money laundering offences in Germany are listed in Article 261. German predicate crimes encompass all serious criminal offences, defined as those with a minimum sentence of one year’s imprisonment and specified less serious offences. The less serious offences included come from the German Criminal Code, Narcotics Law and Precursors Law, and the Fiscal Code and other financial regulation. Specific offences from the Residence Act and Asylum Procedure Law, where committed by a terrorist or criminal organisation, and others from the Fiscal Code, where committed by a gang or on a commercial basis, are also predicate crimes.

The available penalty for money laundering convictions is three months to five years imprisonment. Money laundering offences tied to tax evasion (predicate crimes specified from the Fiscal Code) may carry penalties from six months to 10 years imprisonment if the perpetrator acts professionally or as a member of a gang that has formed to continually commit money laundering offences.

Germany’s forfeiture and confiscation provisions apply to property used in, or derived from, criminal offences and property intended for the commission or preparation of a criminal offence (IMF 2004). The provisions extend to all property belonging to criminal organisations and not just to property directly connected to criminal offences. The confiscation regime applies, in principle, to all criminal profits belonging to criminal organisations even if individual acts cannot be identified (IMF 2004).

The Act on the Detection of Proceeds from Serious Crimes (the Germany Money Laundering Act) is the central preventative legislation in Germany.

Counter-terrorism financing legislation

Terrorism financing is criminalised under ss 129a–129b of the German Criminal Code. The offences are termed as providing support to a terrorist group rather than a specific offence for the financing of terrorism (Neve et al. 2006). A conviction for providing support to a terrorist organisation carries penalties from between six months and 10 years imprisonment.

Germany, unlike Australia, does not predefine or list terrorist organisations. In each case, the organisation in question must be demonstrated, at trial, to fit the definition of a terrorist organisation. Section 129a also defines a terrorist organisation as one with activities directed towards murder in aggravated circumstances, genocide, crimes against humanity, war crimes, or crimes against personal liberty. Organisations that aim to cause physical or psychological harm to individuals, to commit offences endangering the public, to commit some specific environmental offences, or to commit offences under the Weapons Act or the Weapons of War (Control) Act are also terrorist organisations in Germany.

Financial intelligence unit

FIU Germany is a single, centralised body within the Federal Office of Criminal Investigation (BKA; US Department of State 2008). BKA is the central office for police information and a subordinate agency of the Federal Ministry of the Interior (BKA 2006b). FIU Germany was established in August 2002 and later moved into BKA. The functions of FIU Germany are set out in the Germany Money Laundering Act.

FIU Germany is a law enforcement style FIU and is staffed by law enforcement personnel. The role of the FIU is to collect and analyse suspicious transaction reports and check these against the data stored by other offices and report these to prosecuting authorities. The FIU’s position within BKA means the FIU has access to numerous sources of information for analysis (IMF 2004). FIU Germany also provides information and resources to reporting entities in Germany.

BKA, in additional to housing FIU Germany, also contains a joint financial investigation task force. BKA can carry out investigations and law enforcement operations for money laundering and international terrorism offences. The Landerkriminalamt (state police forces) also conduct investigations and prosecute money laundering offences in Germany (Peters nd).

Regulated sector

Several financial regulators merged into the German Financial Supervisory Authority (BaFIN) in 2002 (IMF 2004). BaFin is responsible for implementing the MLA with regard to most credit and financial services institutions and insurance companies. Alongside these, BaFin supervises money remittance services, currency exchange and credit card businesses. The supervision of these additional businesses represents a unique component of the German anti-money laundering system (IMF 2004).

Aside from credit institutions, financial services with AML/CTF obligations also include investment, trading and portfolio companies and brokers, as well as money transmitters and currency dealers and non-European Economic Area deposit brokers.

The Germany Money Laundering Act (s 3) includes auditors, accountants, tax advisors, tax agents, real estate agents, casinos and persons trading in goods in the regulated sector in Germany. Legal advisors, and other registered persons in the Legal Services Act (Rechtsdienstleistungsgesetz), have AML/CTF obligations when assisting in the planning or execution of transactions for clients that encompass:

  • buying and selling real property or business entities;
  • managing client money, securities, or other assets;
  • opening or managing bank, savings, or securities accounts;
  • procuring funds to create, operate, or manage companies;
  • creating, operating, or managing trusts, companies and similar structures; and
  • any other financial or real estate transaction.

Trust and company service providers, not already regulated for another service, have AML/CTF obligations when:

  • creating a legal person or partnership;
  • acting as a director or manager or a legal person or partnership, a partner of a partnership, or a similar role;
  • providing a registered office, business address, mailing or administrative address, or a related service for a company, partnership, or other legal person;
  • acting as a trustee of a legal arrangement;
  • acting as a nominee shareholder for another person other than a listed company; and
  • arranging for another person to act in the functions of director, trustee, or nominee shareholder in the same circumstances.

Obligations

Financial intelligence reports

German legislation requires regulated businesses to submit the following types of financial intelligence reports:

  • Reports of suspicious financial activity—all reporting entities, including individuals, are obligated to report any suspicion of a money laundering or terrorism financing offence to the competent authority with a copy sent to the FIU. There is no threshold limit on reporting suspicious transactions in Germany. Reporting entities may make an STR verbally over the phone, although a written report must follow.
  • Regulated entities may not complete a transaction subject to an STR without prior consent from the public prosecutor’s office or before the end of the second working day after submitting the report. Reported transactions completed outside of these conditions are prohibited transactions under the Code of Criminal Procedure. Reporting entities may complete the transaction where preventing it is impossible or if delaying the transaction would inhibit an investigation.
  • Legal practitioners are required to report suspicions to the competent federal professional chamber but are exempt from this requirement if the information was obtained in the course of legal advice or representing a client. Section 11 of the Money Laundering Act, however, retains legal practitioners’ obligation to report if they are aware that the client deliberately uses their legal advice for money laundering.
  • At the time of the last IMF evaluation of Germany, failing to comply with an obligation to report suspicious transactions did not incur a criminal penalty, although serious breaches could result in administrative sanctions (IMF 2004).
  • Reports of high-value cash transactions—at the time of the most recent IMF evaluation, Germany had no systematic reporting requirement for high-value transactions (IMF 2004). Section 2 of the Money Laundering Act requires persons trading in goods to obtain customer identification prior to conducting any transactions in cash or precious metals valued at €15,000 or more. All other reporting entities are required to conduct due diligence for all transactions, singularly or where multiple transaction appear to be linked and amount to €15,000 or more.
  • Reports of international movements of cash—Germany, as of 15 June 2007, requires travellers to declare to the German Customs Service in writing all cash and equivalent instruments exceeding €10,000 in value when crossing the border to or from a non-European Union country. This is in line with the European Union directive on cross-border transportation of cash.
  • Reports of international movements of instruments of value—the requirement above covers bearer negotiable instruments.
  • Reports of international electronic transactions—the Regulation (EC) No. 1781/2006 requires complete payer information to be sent with any transfers of funds outside the European community, however, this is not a direct requirement to submit a report to the FIU. Transfers within the European Union only require account information unless they are deemed suspicious and then further information can be requested.

Tipping-off

Section 12 of the Money Laundering Act prohibits informing the customer or third party of the existence of an STR. Tipping-off carries an administrative sanction of up to €50,000 (IMF 2004).

Anti-money laundering/counter-terrorism financing compliance programs

Section 9 of the Money Laundering Act requires reporting entities to take safeguards against being used for money laundering. Reporting entities must designate a compliance officer, develop internal principles and controls to prevent money laundering, ensure employees who deal with financial transactions are trustworthy and provide regular information to employees about money laundering and obligations under the Money Laundering Act.

Asia

The Department of State (United States) suggested that the primary sources of the funds laundered in Hong Kong are generated by financial crimes such as corruption, tax evasion, fraud, illegal gambling and bookmaking, prostitution, loan sharking, commercial crimes and intellectual property rights infringement. This list of predicate offences for the funds laundered in Hong Kong is quite different from the narcotics trafficking origin of the funds laundered in European countries (US Department of State 2008).

Hong Kong

Anti-money laundering and counter-terrorism financing legislation

Money laundering legislation

The principal legislation enacted to combat money laundering in Hong Kong is Drug Trafficking (Recovery of Proceeds) Ordinance (Cap 405) (DTROP) and Organised and Serious Crimes Ordinance (Cap 455) (OSCO). DTROP and OSCO are collectively known as the Ordinances. Hong Kong, through the Ordinances, specifically criminalises laundering funds from drug trafficking offences as well as any proceeds from an indictable crime.

Section 25(1) of DTROP states that any person who deals with property knowing, or with reasonable grounds to believe, that the property directly or indirectly represents the proceeds of drug trafficking is guilty of an offence. The maximum penalty available for conviction on indictment is a HK$5,000,000 fine and 14 years imprisonment. The maximum penalty for a summary offence is a fine of HK$500,000 and imprisonment for three years.

Section 25(1) of OSCO replicates the offence set out in s 25(1) of DTROP but extends it to criminalise dealing with the proceeds of any indictable offence. Money laundering offences under OSCO carry the same maximum penalties for indictable and summary convictions as the money laundering offence under DTROP.

DTROP and OSCO money laundering offences use a list-based approach to predicate crimes for money laundering, although the inclusion of all indictable offences under OSCO provisions provides an extensive list. The potential predicate offences also extend to acts committed overseas that would constitute an indictable offence if committed in Hong Kong.

DTROP and OSCO Ordinances share the same definition of ‘dealing with’ the proceeds of proscribed offences. Each Ordinance criminalises acquiring, concealing, disguising, disposing of or converting, bringing into or removing from Hong Kong, or using the proceeds of the predicate offences as security.

Asset recovery mechanisms

OSCO also contains Hong Kong’s central asset recovery provisions. Hong Kong’s asset recovery system has both criminal and civil elements. Asset confiscation is permitted for the offences specified in Schedule 1 of OSCO, for organised crime offences and for the proceeds generated from any crime where they are worth at least HK$100,000.

Asset recovery may take place where a defendant has been convicted of an appropriate offence or where the proceedings have not been completed because the defendant has died or absconded. The Hong Kong system, in this respect, is a criminal one. Questions arising about the benefits gained from a specified offence, whether that offence constitutes organised crime, and the amount of funds gained, are to be answered on the balance of probabilities. This introduces some elements of civil proceedings.

The Prevention of Bribery Ordinance (Cap 201) (s 10) (POBO) contains unexplained wealth provisions for current and former prescribed officers. Prescribed officers are those holding an office under the government, officials appointed under the Basic Law, s 5A of the Exchange Fund Ordinance (Cap 66), the Chair of the Public Service Commission, all staff of the Independent Commission against Corruption and any staff member of the judiciary.

POBO creates an offence for any prescribed officer to maintain a standard of living, or to hold assets, beyond that consistent with current or previous appointments where the officer is unable to account for the wealth in question. A conviction for unexplained wealth may be followed by an order to confiscate the property involved.

Key preventative legislation

The Ordinances also outline the money laundering preventative framework in Hong Kong. OSCO and DTROP contain basic provisions for reporting funds suspected to be the proceeds of crime and basic customer identification requirements. All persons in Hong Kong, legal and natural, are obligated to report suspicious transactions under DTROP and OSCO. Prevention and detection regulatory controls in Hong Kong are predominantly found in guidelines released by Hong Kong’s three prudential regulators.

The Hong Kong Monetary Authority supervises banks and other authorised deposit taking institutions. The AML/CTF controls for authorised deposit taking institutions are found in the Hong Kong Monetary Authority’s Guideline on the Prevention of Money Laundering, issued in 1997 and the 2006 Supplement to the Guideline on Prevention of Money Laundering. The Supplement was superseded by the 2007 Supplement in May 2008.

The Office of the Commissioner of Insurance’s (OCI) Guidance Note on the Prevention of Money Laundering and Terrorist Financing regulates all insurance companies that are not also authorised deposit-taking institutions. The Hong Kong Securities and Futures Commission also released the Prevention of Money Laundering and Terrorist Financing Guidance Note predominantly for companies licensed under the Securities and Futures Commission. The Joint Financial Intelligence Unit (JFIUHK) issued the Guideline for Remittance Agents and Money Changers in 2007.

The regulatory guidelines do not direct entities to perform self-assessments of money laundering and terrorism financing risks. The guidelines released by each regulator are uniform for all of the businesses covered by each specific regulator.

The Guidelines issued by the three prudential regulators of Hong Kong are predominantly considered enforceable by FATF-GAFI standards. The guidelines for MSBs issued by JFIUHK were not considered enforceable means by the FATF-GAFI in 2008. Some designated non-financial businesses are also subject to AML/CTF rules. Few of these, however, are enforceable.

The Hong Kong Institute of Certified Public Accountants (HKICPA) has issued guidelines for members, highlighting aspects of FATF-GAFI requirements. The guidelines, however, are not enforceable although HKICPA is able to enforce some due diligence and record-keeping requirements present in the Hong Kong Standard on Quality Control 1, Code of Ethics for Professional Accountants and Hong Kong Standards of Auditing.

Real estate agents are obligated to comply with some customer due diligence and record-keeping requirements through the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation and the Practice Circular (issued by the Estate Agents Authority).

The legal profession is subject to basic customer due diligence, record keeping and training requirements established in the Law Society Circular 07–726.

Trust and company service providers that are also members of the Hong Kong Institute of Chartered Secretaries will be subject to the AML/CTF requirements due to be incorporated into the Code of Conduct.

Counter-terrorism financing legislation

Hong Kong criminalises the financing of terrorism in United Nations (Anti-Terrorism) Ordinance (Cap 575) (UNATMO). Section 7 of UNATMO criminalises providing or collecting funds with the intention of using them to commit a terrorist act or knowing that they will be used for a terrorist act. Section 8 criminalises making funds or financial services available to, or available for the benefit of, a person known or reasonably suspected of being a terrorist or a terrorist associate.

UNATMO is also the key legislation for freezing assets linked to terrorism. Section 6 allows the Secretary for Justice to issue a freezing order on any funds reasonably suspected to be the property of a terrorist or terrorist associate, intended to assist in the commission of a terrorist act, or that were used in the commission of a terrorist act. In s 13 of UNATMO, which permits the confiscation of terrorist property, the definition is expanded to include any funds derived from a terrorist act.

UNATMO is also the key Ordinance for prevention and detection measures for the financing of terrorism. Section 12 obligates all individuals to report any knowledge or suspicion of terrorist property to an authorised officer. Failure to do so is an offence.

Financial intelligence unit

Hong Kong’s FIU, JFIUHK, created in 1989, is operated by officers from Hong Kong Police and Hong Kong Customs. JFIUHK most closely resembles an administrative style FIU as its core functions are the analysis and dissemination of information. It does not conduct investigations. Investigations are conducted by units within the Hong Kong Police Force and the Hong Kong Customs and Excise Department. JFIUHK also refers all cases to law enforcement agencies such as Narcotics Bureau, the Organized Crime and Triad Bureau of the Hong Kong Police Force, the Customs Drug Investigation Bureau of the Hong Kong Customs and Excise Department, and the Independent Commission against Corruption, as well as some regulatory bodies.

Regulated sector

Hong Kong’s regulated sector encompasses the banking and finance sectors (including banks, deposit taking companies, insurance companies and insurance intermediaries, and money lenders), securities and futures companies, and real estate agents. Legal practitioners have obligations issued by the Law Society. These, however, are not considered enforceable by FATF-GAFI. Accountants (that are members of HKICPA) are subject to some obligations, although the FATF-GAFI does not consider these enforceable means either.

Obligations

Financial intelligence reports

The financial intelligence reporting regime in Hong Kong has some significant differences to those of Australia and the United States:

  • Reports of suspicious financial activity—all individuals, not just reporting entities, have a legal obligation to report funds suspected to the be the proceeds of, used in connection with, or intended to be used in connection with an indictable offence to an authorised officer. To fail to do so is an offence. All individuals have the same obligation to report suspicions of terrorist property.
  • Reports of high-value cash transactions—Hong Kong does not require reports of high-value cash transactions.
  • Reports of international movements of cash—Hong Kong does not require reports of international movements of cash.
  • Reports of international movements of instruments of value—Hong Kong does not require reports of international movements of instruments of value.
  • Reports of international electronic transactions—Hong Kong does not have a general requirement to report international electronic transactions. Remittance service providers and money exchangers, however, must record details of any transaction with the value of HK$8,000 or more (or foreign currency equivalent).

Tipping-off

Hong Kong’s Ordinances contain tipping-off provisions. UNATMO (s 12) contains tipping-off provisions for reports of known or suspected terrorist property, stating that any disclosure that might prejudice an investigation is an offence. Section 26 of OSCO contains similar provisions. It disallows the disclosure in criminal and civil proceedings, publishing, or broadcasting the details of any reports made. Section 26 of DTROP has similar provisions for reports filed in compliance with this Ordinance.

Anti-money laundering/counter-terrorism financing compliance programs

The guidelines released by the prudential supervisory bodies outline detailed compliance program requirements. The Hong Kong Monetary Authority’s guidelines direct entities proscribe:

  • statements of internal AML/CTF policies;
  • customer identification, account opening procedures and ongoing due diligence;
  • record keeping;
  • appointment of a compliance officer;
  • remittance transactions procedures;
  • recognition and reporting of suspicious transactions; and
  • staff training.

The guidelines released by the OCI and the Securities and Futures Commission also contain these common aspects. Hong Kong does not have a system of compliance reporting, as Australia does, in order to monitor the compliance programs of regulated entities. The regulatory bodies responsible for each industry may apply administrative and other sanctions for non-compliance with the requirements. The Estate Agents Authority, HKICPA and the Law Society of Hong Kong, have also issued AML/CTF compliance program guidelines.

Singapore

Anti-money laundering and counter-terrorism financing legislation

Money laundering legislation

The principal legislation enacted to combat money laundering in Singapore is the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap 65A) (CDSA). CDSA criminalises eight specific money laundering offences. Four of the eight possible money laundering offences (ss 46(1), 46(2), 46(3), 43(1)) are for self-laundering, professional laundering and possession of the proceeds of drug trafficking offences. The remaining offences are for the self-laundering, professional laundering, or possession of the proceeds of criminal conduct (ss 47(1), 47(2), 47(3), 44(1)).

CDSA defines criminal conduct as a serious offence, a serious offence in another jurisdiction, or the retention, control, acquisition, use, possession, concealment, disguise, conversion, or transfer of the benefits or funds derived from the benefits of a serious offence. In short, criminal conduct can be a serious offence or receiving or laundering the proceeds of a serious offence. CDSA specifically lists the crimes considered to be serious offences in the Second Schedule. These currently number 356 and include terrorism activities. The First Schedule lists an additional six offences that constitute drug trafficking in Singapore.

Singapore increased the maximum penalty for money laundering in September 2007 with the amendments of CDSA. The maximum penalties were increased to fines of SGD$500,000 or to imprisonment for a term of seven years, or both, for an individual offender while the fine for legal persons was increased to SGD$1m.

Asset recovery mechanisms

CDSA has also Singapore’s provisions for the criminal confiscation of the proceeds of crime for drug trafficking offences (s 4) and serious offences (s 5) (as listed by the Second Schedule). CDSA’s asset recovery provisions are criminal provisions. Proceedings can be commenced after the conviction of an offender, although CDSA does not require the defendant to be convicted of the criminal activity generating the funds.

Each of ss 4–5 allow the value of the assets subjected to a confiscation order to be determined using an unexplained wealth approach. CDSA states that any expenditure (s 5(7)) or wealth (s 5(6)) that cannot be lawfully accounted for is presumed to be the proceeds of crime although, as noted above, the defendant must be convicted of a serious offence for an application for a recovery order to be made. Singapore does not have civil asset recovery mechanisms for offences outside of some terrorism offences.

Key preventative legislation

Singapore’s regulatory regime uses legislation, regulations and notices to establish the prevention and detection requirements. The notices, which are enforceable mechanisms, contain the most detailed level of legal requirements.

The Monetary Authority of Singapore is the regulator for the financial services sector, including money exchangers and remittance businesses, and issues the bulk of regulation in these sectors. AML/CTF regulation currently extends to financial services businesses regulated by the Monetary Authority of Singapore and to legal practitioners. The Singaporean AML/CTF system is a risk-based one and, as a consequence, each industry is subject to industry-specific notices and regulations directing regulated entities to apply different standards for high-risk transactions and customers. The Institute of Certified Public Accountants of Singapore is the regulating body for approved trustees.

The Law Society of Singapore is the issuing body for AML/CTF requirements for legal practitioners. Legal practitioners are subject to the Legal Profession (Professional Conduct) Rules.

Terrorism financing legislation

Singapore has four offences for the financing of terrorism in the Terrorism (Suppression of Financing) Act (TSOFA) (Cap 325). The offences are providing or collecting property for terrorist acts (s 3), providing property for terrorist purposes (s 4) and using or having property for terrorist purposes (s 5).

TSOFA provides additional asset confiscation measures for the property of terrorists and terrorist entities. Unlike the asset confiscation measures in CDSA, available for serious offences, TSOFA’s asset confiscation mechanisms are available based on evidence on the balance of probabilities.

The AML/CTF regulatory system in Singapore is complemented with additional provisions specifically targeted at the prevention and detection of the financing of terrorism. Section 8 of TSOFA requires all persons in Singapore, and Singaporean citizens outside Singapore, to report the possession, custody, or control of assets belonging to a terrorist or terrorist organisation. Section 8 also requires all persons in Singapore and Singaporean citizens to report any information on a transaction or proposed transaction using such property to the Commissioner of Police. All persons are also required to periodically assess whether they are in control of property that may belong to a terrorist or terrorist organisation (s 9) and to provide any information that may prevent a terrorism financing offence or facilitate the detection or prosecution of a terrorism financing offence (s 10).

Financial intelligence unit

The FIU in Singapore is the Suspicious Transaction Reporting Office (STRO) which was established in 2000. STRO is part of the Financial Investigation Division of the Commercial Affairs Department of the Singapore Police Force. STRO has elements of an enforcement style FIU, as it is located within the Singapore Police Force and those of an administrative style FIU as it receives, analyses and disseminates financial intelligence reports and passes on the intelligence to law enforcement or regulatory agencies.

Regulated sector

The regulated sector in Singapore, as noted above, is almost entirely comprised of entities regulated as financial services businesses by the Monetary Authority of Singapore. A non-exhaustive list of the financial sector includes banks, finance companies, finance companies, capital markets services licensees, financial advisors, life insurers, trust companies, money changers and remittance providers, and approved trustees. Commodities futures brokers were expected to be regulated from 2008 (FATF-GAFI 2008a) although this had yet taken place as of mid 2009. Legal practitioners and casinos are currently the only non-financial service providers regulated for AML/CTF in Singapore. Singapore has two casinos which are supervised by the Casino Regulatory Authority. The Casino Regulatory Authority has issued regulations for AML/CTF controls.

Obligations

Financial intelligence reports

Singapore legislation differs from that in other countries by requiring individuals as well as regulated businesses to report suspicious transactions.

  • Reports of suspicious financial activity—all regulated entities are required to submit STRs to STRO. Financial institutions must also provide a copy of the report to the Monetary Authority of Singapore. Every person in Singapore, not just regulated entities, is required to report transactions suspected to be linked to the financing of terrorism. These, however, go to the Commissioner Police rather than to the FIU.
  • Reports of high-value cash transactions—there are no separate report requirements for large cash transactions. These, however, are likely to be the subject of STRs.
  • Reports of international movements of cash—moving in excess of SGD$30,000 (or foreign equivalent) of cash into or out of Singapore triggers a reporting requirement.
  • Reports of international movements of instruments of value—movements of bearer negotiable instruments with SGD$30,000 of value or more are subject to the same report as physical currency.
  • Reports of international electronic transactions—Singapore does not require regulated entities to report the electronic movement of funds into or out of Singapore.

Tipping-off

Singapore’s CDSA contains tipping-off provisions. Where an individual knows or has reasonable grounds to suspect that an investigation is proposed or currently underway, s 48(1) criminalises the disclosure of any information to any person that might prejudice that investigation. Section 48(2) criminalises disclosing information regarding a report made under CDSA to any other person that will prejudice an investigation. Singapore’s tipping-off provisions exempt legal practitioners (s 48(3)) from these two offences if the disclosure is made to a client, as their advocate, or other person in the course of legal proceedings. The exemption does not apply if the disclosure is intended to further an illegal purpose.

Anti-money laundering/counter-terrorism financing compliance programs

The Monetary Authority of Singapore’s Notices establish the compliance program requirements for regulated financial services businesses. Financial services businesses must nominate a compliance officer and establish an independent auditing system to ensure ongoing compliance with the requirements. The Monetary Authority of Singapore, in line with other countries, requires businesses to have internal policy statements for AML/CTF, establish customer due diligence procedures, establish record keeping systems and provide staff training. Unlike AUSTRAC in Australia, the Monetary Authority of Singapore does not require businesses to submit annual compliance reports. The Monetary Authority of Singapore does, however, conduct auditing, off-site surveillance and onsite visits.

Additional practice directions supplement the Law Society of Singapore’s Legal Profession (Professional Conduct) Rules. The compliance program requirements for legal practitioners include measures for risk-based customer due diligence, staff training and record-keeping requirements. The Law Society of Singapore has the power to conduct inspections.

Republic of China (Taiwan)

Money laundering

Economic crimes are regarded as the most serious threat for money laundering in Taiwan followed by corruption and drug-related crimes (APG 2007).

Anti-money laundering and counter-terrorism financing legislation

Money laundering legislation

The principal legislation enacted to combat money laundering in Taiwan is the Money Laundering Control Act (MLCA Taiwan), enacted in 1996, and most recently amended in July 2007. Article 2 defines money laundering as knowingly disguising or concealing property obtained from committing a serious crime or obtained by a serious crime committed by another person. MCLA Taiwan defines a serious crime as:

  • any offence carrying a minimum punishment of five years imprisonment;
  • where the commission of specified offences generates proceeds valued at NT$5 or more; and
  • other offences identified on a prescribed list.

Asset recovery mechanisms

Taiwan has provisions for freezing, seizing and confiscating of proceeds of crime. Several Acts contain the asset recovery provisions although MLCA Taiwan is the primary source. MLCA Taiwan allows property obtained in the commission of an offence to be confiscated or, where the property cannot be confiscated, the value of the property to be made as a payment. These provisions, and others in the Criminal Code allowing the confiscation of proceeds taken as a bribe or property used in the commission of an offence, are conviction-based. There are no civil confiscation measures in Taiwan.

Key preventative legislation

The anti-money laundering prevention and detection system in Taiwan is based around MLCA Taiwan. MLCA Taiwan contains specific AML/CTF requirements for the regulated sector as well as requiring financial institutions to establish their own anti-money laundering procedures (Article 6). MLCA Taiwan itself contains the requirements for some customer identification, record keeping and the submission of reports to the FIU.

In response to Article 6, industry associations and bodies have published Money Laundering Prevention Guidelines and Procedures specifically targeting each industry within the regulated sector. There are regulations that have been issued in accordance with Acts other than MLCA that also contain requirements for AML/CTF-related areas. The result is that the prevention and detection system of Taiwan is spread across multiple areas, some more clearly legally binding than others, with different aspects and standards applied to different industries.

The industry associations that have published AML/CTF guidelines are:

  • Bankers’ Association;
  • Securities Investment Trust and Consulting Association;
  • Trust Association;
  • Taiwan Securities Association;
  • China National Futures Association;
  • Life Insurance Association; and
  • Non-life Insurance Association.

The Taiwan system has aspects of a risk-based approach as certain customers, such as non-residents and those handling high-value transactions, warrant enhanced due diligence measures.

Counter-terrorism financing

Taiwan has not yet criminalised the financing of terrorism. The Asia-Pacific Group on Money Laundering (2007) noted that Taiwan had drafted a Counter-Terrorism Bill that had not been tabled in parliament as of 2007. Taiwan has not indicated that the draft bill has been enacted. Taiwan also does not have any specific measures to recover or freeze any assets suspected to be involved in the financing of terrorism.

The regulatory regime of Taiwan does contain some references to funds intended for terrorism activities or entities. The Money Laundering Prevention Guidelines for each sector direct businesses to submit a report of a suspicious transaction for any activity suspected to be related to a terrorist or terrorist entity. The Bankers Association additionally directs organisations to apply extraordinary due diligence to customers and transactions that may be linked to terrorists or terrorist organisations (APG 2007).

Financial intelligence unit

The FIU in Taiwan is the MLPC that exists under the Investigation Bureau, Ministry of Justice, Republic of China (MJIB). MLPC was established in 1997 and receives financial intelligence reports, undertakes analyses, disseminates intelligence and assists the investigation of money laundering and terrorism financing cases. MLPC is a law enforcement model FIU.

Regulated sector

The regulated sector of Taiwan consists of financial institutions, as defined in Article 5 of MLCA, and the jewellery sector. Trust businesses are also included in the regime although these services are usually provided by banks.

The financial institutions included in Article 5 of MLCA Taiwan are:

  • banks;
  • trust and investment corporations;
  • credit cooperative associations;
  • credit department of farmers’ associations;
  • credit department of fishermen’s associations;
  • Agricultural Bank of Taiwan;
  • postal service institutions which also handle the money transactions of deposit, transfer and withdrawal;
  • negotiable instrument finance corporations;
  • credit card companies;
  • insurance companies;
  • securities brokers;
  • securities investment and trust enterprises;
  • securities finance enterprises;
  • securities investment consulting enterprises;
  • securities central depository enterprises;
  • futures brokers; and
  • trust enterprises.

Foreign currency exchange service providers were included in Taiwan’s AML/CTF regime in 2007, with an amendment to the Regulations Governing Establishment and Administration of Foreign Currency Exchange Bureaus by the Central Bank of China. A range of businesses may provide foreign currency exchange in Taiwan:

  • hotels;
  • travel agencies;
  • department stores;
  • handicraft shops;
  • jewellery stores;
  • convenience stores;
  • administrative offices of national scenic areas;
  • sightseeing service centres;
  • railway stations;
  • temples;
  • museums; and
  • institutions and associations providing services to foreign travellers or hotels located in remote areas.

Obligations

Financial intelligence reports

  • Reports of suspicious financial activity—regulated entities are required to submit reports of suspicious financial transactions to the FIU.
  • Reports of high-value cash transactions—regulated entities are required to submit a Cash Transaction Report for any transaction in physical currency of NT$1m or more to the FIU.
  • Reports of international movements of cash—there are two types of reports of movements of cash into or out of Taiwan. Cross-border currency declaration forms are required for movements of US$10,000 or more of physical currency into or out of Taiwan. These are submitted to the Customs Service and forwarded onto the FIU. The Inward Passengers Carrying Baggage and Good Clearance Regulation also requires inbound passengers to pass through Goods to Declare when carrying foreign currency of US$10,00 or more, NT$60,000 or more, Chinese currency of ¥20,000 or more, or gold valued at more than US$20,000.
  • Reports of international movements of instruments of value—Taiwan does not require reports for movements of instruments of value.
  • Reports of international electronic transactions—Taiwan does not require international electronic transactions to be reported.

Tipping-off

MLCA creates tipping-off offences for government officials and employees of financial institutions. They are prohibited from disclosing any information, documents, pictures, or other items related to a report of a suspicious financial transaction or suspected money laundering offence to any person.

Anti-money laundering/counter-terrorism financing compliance programs

Article 6 of MLCA, directing regulated entities to establish anti-money laundering procedures, requires the procedures to have the following components at a minimum:

  • internal control procedures;
  • staff training;
  • appointing a money laundering control officer; and
  • additional requirements as set out by the Ministry of Finance.

The Financial Supervisory Commission is the single regulator in Taiwan for the financial markets and financial services industries. The Financial Supervisory Commission’s responsibilities include supervising financial institutions for compliance with the AML/CTF Guidelines issued by each of the industry associations. The Financial Supervisory Commission has the power to order entities to correct any areas of non-compliance with the appropriate Guidelines and to impose fines for non-compliance with MLCA Taiwan.

The Bureau of Agricultural Finance is responsible for supervising agricultural finance institutions and the Ministry of Economic Affairs is the supervisory body for dealers in precious metals and stones. The Financial Supervisory Commission conducts examinations of financial institutions and agricultural finance companies on behalf of the Bureau of Agricultural Finance.

Comparative analysis

The AML/CTF regimes across almost all countries share a common basis in the FATF-GAFI Recommendations and the countries considered within the scope of this report are remarkably similar in their responses to and implementation of the Recommendations. The variations arise in the detail and not in the general application of the principles. Commentators such as Levi and Reuter (2006) highlight the global pressure to expand the regime to cover non-financial businesses. Reuter and Truman (2004) also highlight that difficulties can arise with this globalised approach when countries have competing interests, different levels in motivation and varying abilities to comply with the Recommendations. Similarly, along with an increased burden on reporting entities, increased regulation also comes with greater difficulties in effectively monitoring and enforcing compliance with the requirements (Reuter & Truman 2004). The balance between the need for similar regimes in transnational economies and the need to recognise these competing interests is difficult to find.

Criminalising money laundering

All of the countries considered in this study have made money laundering a criminal offence distinct from the offence that generated the funds in question. The central difference between money laundering offences across jurisdictions is the way each country defines predicate crimes (ie the activities generating funds to be laundered).

Most countries limit the predicate crimes for money laundering offences in some way. Australia, the United States, Belgium, Germany, Hong Kong, Singapore and Taiwan all restrict predicate crimes to serious offences. Germany has also specified less serious offences that may also be predicate offences. Taiwan, in contrast, placed a further restriction on what might constitute a predicate crime by adding a lower limit of NT$20m for the amount of funds in question. Germany, the United States, Hong Kong and Singapore identify specific predicate offences within legislation, such as specifically naming tax crimes, although each of these countries also had a more expansive definition which includes all serious offences.

The definition of a serious, indictable, or felony offence differs between countries and is tied to minimum imprisonment periods in each country. Most of the countries in this sample used a minimum period of 12 months imprisonment to determine whether a crime fell into the definition of a serious offence. Taiwan, however, used a minimum of five years imprisonment as the cut-off for a serious offence. The real differences in the potential application of money laundering offences in these nine countries is with the prison sentences tied to specific crimes in each jurisdiction.

The result of the different requirements for a predicate offence for a money laundering charge is that some activities can lead to money laundering charges in some countries but not in others. The real impact of the different predicate offence requirements becomes apparent with cross-border investigations, cases that need mutual legal assistance from multiple jurisdictions and attempts to recover the proceeds of crimes once they have been moved overseas. The different treatment of environmental crimes, for example, and their inclusion or exclusion as predicate offences illustrates the potential impact of the different legal definitions of money laundering between jurisdictions.

The Lacey Act of 1900 (16 USC 3371–3378) in the United States creates felony offences for importing illegally sourced timber (16 USC 3373) that can attract prison sentences of up to five years. The funds generated by importing illegally sourced timber may become the subject of a money laundering offence in the United States as their definition of predicate crimes extends to all felony offences. The potential imprisonment terms also permit the United States to pursue civil asset recovery mechanisms for the proceeds of these offences under 18 USC 981.

Australia, in contrast to the United States, is unable to attach money laundering criminal offences to proceeds generated by the importation of illegally sourced timber. The penalties for these offences do not allow these activities to constitute a predicate crime for money laundering in Australia and, as they are not indictable offences, the funds generated cannot become the focus of a civil asset recovery application under s 19 of the Proceeds of Crime Act 2002 (Cth).

Criminalising the financing of terrorism

Taiwan was the only country considered in this report that has not, as yet, criminalised the financing of terrorism. The remaining eight countries had enacted terrorism financing legislation. Australia criminalised financing individual terrorists, terrorist organisations and terrorist acts through providing funds and other resources. The United States and United Kingdom made funding terrorist groups or acts criminal offences. Singapore specifically mentioned individual terrorists and acts, while others such as Hong Kong focused entirely on terrorist acts and purposes.

The counter-terrorism financing offences across the countries within the scope of this report, with the notable exception of Taiwan, were more uniform than those for criminalising money laundering. This is probably, in part, because the FATF-GAFI’s Special Recommendation II does not encompass additional issues such as defining or recommending approaches to predicate offences. Special Recommendation II states ‘[e]ach country should criminalise the financing of terrorism, terrorist acts and terrorist organisations’ (FATF-GAFI 2004: 2).

Despite a greater degree of uniformity of terrorism financing offences across the eight countries, Australia and Germany exemplified quite different approaches beyond creating criminal offences for providing support to terrorism. Australia’s terrorism financing offences are tied to predetermined lists of terrorist organisations, whereas Germany’s legislation requires prosecutors to demonstrate that the groups in question, in each accusation of providing support to terrorism, are terrorist organisations.

Reporting requirements

The requirement to submit financial intelligence reports is the cornerstone of using regulation to prevent money laundering and the financing of terrorism. Financial intelligence reports provide information to FIUs and to the law enforcement community in each of the countries considered in this report. The reporting requirements for each jurisdiction, however, showed considerable variations.

Suspicious transactions

All of the countries in this sample require at least some service providers to submit reports of suspicious financial transactions. The conditions of the reporting requirements, however, are quite varied between countries. Australia, the United Kingdom and Taiwan require all regulated entities to submit reports of suspicious transactions. These countries define the circumstances of a suspicious transaction broadly by not restricting what constitutes a suspicious transaction in legislation or regulation. The remaining six countries place caveats, or additional guidelines, on when a report of suspicious activity is warranted or required.

The United States limits the transactions considered for reporting of this kind with a monetary threshold. MSBs are required to report suspicious transactions only where the value of the transaction exceeds US$2,000. The threshold for transactions conducted by financial institutions is US$5,000. For both types of businesses, the thresholds expanded to US$25,000 where the suspected offender was unknown.

Belgium, France and Germany also limit the transactions that might warrant a report. These three countries limit the reports by specifying the crimes that might trigger a report.

France’s regulated entities are required to report transactions suspected to be connected to drug trafficking, organised crime, fraud against the European Communities, corruption, or terrorism financing. The predicate offences prompting a report are the source of some dispute in France, particularly those concerning lower level misappropriation of funds and tax evasion. The predicate crimes for reporting are not the same as those for French money laundering offences. All reporting entities have the additional requirement to submit a report where they are unable to verify the beneficial owner of assets or funds after conducting customer due diligence.

The reporting requirements of Belgium are similar to those in France in some aspects. Belgium limits reports of suspect transactions to those connected to specific crimes which include terrorism or terrorist financing, organised crime, illicit trafficking, serious fraud and organised tax fraud, corruption, environment crime and counterfeiting. Financial institutions, professions and casinos hold additional reporting requirements on forming a suspicion that a transaction is specifically connected with money laundering or the financing of terrorism. These businesses are required to make fact submissions for these transactions.

While Belgium limits fact submissions to transactions suspected to be connected to money laundering or the financing of terrorism, Germany limits the scope of reporting suspect transactions to those linked with these two types of offences only.

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 are to submit a report. Additionally, all persons in Singapore and any Singaporean citizens overseas, are to report any transactions suspected to be linked to the financing of terrorism.

Reports of high-value cash transactions

Reporting requirements for cash transactions that exceed a threshold are less common among the sample of nine countries. Australia and the United States require regulated businesses to submit a report of any transaction made using cash above a set threshold. Taiwan also requires regulated entities to submit a report of any cash transaction valued at NT$1m. The Australian threshold is AUD$10,000 and the United States threshold is US$10,000. Regulated entities in the United States can apply for an exemption for transactions carried out by certain businesses. Australian entities are able to file a suspicious transaction report for the same transaction that triggered a threshold report. Singapore, rather than requiring a report for every cash transaction beyond a threshold, suggest that large cash transactions are likely to be suspicious and to warrant reporting in that way.

France and Germany do not require 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 to 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.

Reports of international movements of cash and bearer negotiable instruments

Almost all of the nine countries have identical requirements to report the movements of cash across country borders on entry and exit. The cash thresholds that trigger a report are as follows:

  • Australia—AUD$10,000 or more, or the equivalent in foreign currency;
  • United States—more than US$10,000;
  • United Kingdom—€10,000 or more for cash brought into or out of the European Union;
  • Belgium—€10,000 or more for cash brought into or out of the European Union;
  • France—€10,000 or more for cash brought into or out of the European Union;
  • Germany—€10,000 or more for cash brought into or out of the European Union; and
  • Singapore—SGD$30,000 (or foreign equivalent) or more.

Taiwan has two types of reports of movements of cash into or out of Taiwan. Cross-border currency declaration forms are required for movements of US$10,000 or more of physical currency across Taiwanese borders. Inward bound passengers with foreign currency of US$10,00 or more, NT$60,000 or more, Chinese currency of ¥20,000 or more, or gold valued at more than US$20,000 are also required to undertake additional customs screening.

Hong Kong is the only country considered not to require passengers to report international movements of cash. 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 was one of two countries that do not apply the same requirements for moving cash across international borders to international movements of bearer negotiable instruments. Passengers moving bearer negotiable instruments into or out of Australia can be required to submit a report by a customs or police officer but there is no mandatory reporting requirement. Taiwan also does not require mandatory reports for moving instruments of value across its borders. Hong Kong does not require a report for moving cash across its borders and similarly has no requirement for bearer negotiable instruments.

Reports of international electronic transactions

Australia is the only country in this sample to require all regulated businesses to report all IFTIs, regardless of value, to the FIU. An IFTI can be the subject of a suspicious matter report, although this is not a requirement.

The United Kingdom, Belgium, France and Germany do not require a report of every international electronic transfer of funds. These countries do, however, require financial institutions transferring funds outside of the European Union to retain customer identification information of the payee and to send this information along with the transfer instruction. Transfers within the European Union can be completed with account information only.

Hong Kong, similarly, does not require the international transfer of funds to be accompanied by a report to the FIU, although remittance providers and money exchangers are obligated to record the details of any transaction of HK$8,000 or more.

Implications of different reporting requirements

The predominant implication for the different financial report requirements in each of the nine countries is the nexus between report numbers and available information. The majority of reports lodged in Australia, for example, are IFTIs. As the fourth section illustrates, these reports constituted more than 75 percent of the reports lodged to AUSTRAC, the Australian FIU, in 2007–08 (AUSTRAC 2009a). The additional reports offer the law enforcement community and other agencies such as the Australian Taxation Office, more information to inform investigations (Smith forthcoming).

The converse implication of Australia’s IFTI requirement is the vast amount of data sent to the FIU and the additional resources the FIU would require to process and analyse the information. The reporting requirements in countries such as France and Germany, which require reporting entities to file STRs for transactions suspected to be tied to money laundering only (FATF-GAFI 2010), act to restrict the volume of reports lodged with FIUs. Some of the positive consequences of more targeted yet fewer reports might include improving the quality of information and its utility (Unger & Van Waarden 2009). The data available in the fourth section is not sufficient to indicate which of these two approaches to gathering financial intelligence is more effective but these cases provide real world examples of two opposing ideals on financial intelligence reporting.

Tipping-off clauses

Each of the nine countries currently has tipping-off provisions that criminalise revealing the details of a report of a suspicious transaction to those involved. The tipping-off clauses vary in the extent of the information to remain confidential and the exemptions made to the tipping-off provisions.

The United States and France have the simplest models for tipping-off and they prohibit disclosing information connected to a filed report to those involved in the transaction. Belgium and Germany extend this to prohibit disclosures 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 relating to reports to any person where the disclosure might prejudice an investigation.

Tipping-off in the United Kingdom applies to the 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, and any person or matter that should trigger 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, excludes legal practitioners in specific circumstances from the tipping-off requirements. Australia extends the exemptions beyond these 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.

Case law

Australia

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)

The AML/CTF Act offers several types of penalties for non-compliance including criminal penalties.

Failing to report moving physical currency into Australia (s 1(a)(ii)) (2009)

The defendant failed to make a declaration under s 1(a)(ii) of the AML/CTF Act when he brought AUD$72,464 into Australia in April 2009. The defendant was aware of the requirement to make a declaration and purposefully concealed the cash he knew to be the proceeds of crime. He received a sentence of eight months imprisonment for failing to make the declaration and the money was forfeited under the Proceeds of Crime Act 2002 (Cth) (CDPP 2009).

Financial Transaction Reports Act 1988 (Cth)

R v Narayanan & Anor [2002] NSWCCA 200

Singapore Exchange and Finance Pty Limited (SEF) was a business providing currency exchange and travellers’ cheques. Narayanan was the CEO, director and a shareholder of SEF. SEF was a cash dealer for the purposes of the FTR Act. SEF and Narayanan were each convicted of three offences under s 31(1) (structuring transactions) of the FTR Act and one offence under s 28(1) (failing to submit a report of a significant cash transaction) of the FTR Act. Narayanan was sentenced to 10 months imprisonment for the offences under s 31(1) and four months imprisonment for the offence under s 28(1). SEF was fined a total of $100,000.

Narayanan and SEF appealed the convictions, in part, on the grounds that the trial judge erred in his directions as to what constitutes an offence under s 31(1) of the FTR Act. In the appeal decision, the court ruled that the trial judge had erred in these directions and clarified the conditions of a reportable cash transaction.

The court stated the offence of s 31(1) is one of being party to two or more non-reportable transactions for the purpose of ensuring or attempting to ensure that the transaction was not a significant cash transaction. Conducting two or more non-reportable transactions, those involving amounts below the reportable threshold of $10,000, might not ensure that the activities do not also constitute a significant cash transaction that should trigger a report. The multiple transactions below the threshold might constitute a reportable transaction even when the parties to the transaction have attempted to avoid triggering the report. Multiple transactions for amounts less than $10,000 can be both non-reportable transactions and collectively a significant cash transaction.

Money laundering criminal cases

A Ansari v R, H Ansari v R (2007) 70 NSWLR 89; Ansari v The Queen [2010] HCA 18

The Ansari brothers were convicted of two charges of conspiring to launder money valued at more than $1m through their remittance business Exchange Point. The Ansaris took receipt of $2m cash from another man and arranged for a second individual to collect the money. The Crown alleged that the Ansaris knew that the funds would be deposited in amounts of less than $10,000 to avoid triggering reporting requirements in Australia. The Crown demonstrated that the brothers were reckless of the risk that the money would become an instrument of crime. The money laundering offence the Ansaris were convicted of conspiring to execute was the reckless laundering of funds valued at $1m or more (s 400.3(2)).

The Ansaris appealed their original conviction on the basis that it is not possible to conspire to recklessly commit an offence. The decision of the court on appeal highlighted a number of key aspects to the way money laundering offences are framed in the Criminal Code. The NSW Court of Criminal Appeal (CCA) stated that offences for funds valued at $1m or more actually constitute six possible crimes. The six possible crimes are distinguished by the fault element involved (intent, recklessness, negligence) and whether the funds were the proceeds of crime or intended to be used as an instrument of crime.

The appeal was dismissed. Justice Howie found that there were two fault elements in question for the crime of conspiring to recklessly deal with funds intended to be the instruments of crime. The ‘reckless’ fault element is for the money laundering offence and separate to the intention of conspiring to commit the crime. The result of this decision is a validation of the charge to conspire to commit a money laundering offence in Australia where the fault element of the offence is recklessness rather than intent.

The Ansaris were granted leave to appeal this decision to the High Court, in 2009, on the grounds that CCA erred in holding that it was not bad in law for the Crown to charge a conspiracy to commit an offence for which the fault element is recklessness; and that CCA erred in its interpretation of the physical and fault elements of the offence of conspiracy under the Code. The appeals were unanimously dismissed.

R v RK (2008) 73 NSWLR 80; R v LK, RK [2010] HCA 17

RK was also charged with conspiring to recklessly deal with the proceeds of crime. RK and LK, a co-defendant, were alleged to have dealt with the proceeds of a scheme to defraud the Commonwealth Superannuation Scheme. The trial judge, Sweeney DCJ, directed a verdict of acquittal. RK and LK were not aware that the funds were the proceeds of crime. Sweeney held that the offence on the indictment was not an offence known to the law. The decision in Ansari was distinguished on the basis that, in the Ansari case, the Crown had alleged that the accused actually did know all of facts that made the conduct criminal. Here, only recklessness was alleged. The Crown’s appeals to the NSW CCA and the High Court were unanimously dismissed.

R v Huang, R v Siu [2007] NSWCCA 259

Huang and Siu pleaded guilty to offences under the FTR Act (s 31(1)) and of money laundering under the Criminal Code (s 400.3(1)). Huang believed the funds involved to be legitimately gained funds transferred offshore to evade Australian taxes. Siu believed the money to be the funds of an illegal fishing operation.

The Crown appealed the sentences given to both Huang and Siu. The submission on behalf of the respondents in this appeal argued that the offences of money laundering under the Criminal Code were very broad and stretched between the trivial and the very serious. The respondents argued the importance of assessing the seriousness of the conduct of the offender and not merely where the alleged offence falls into this spectrum between trivial and serious crimes. The submission further argued that there was no reason to fail to consider the criminal activity the accused intended to carry out (in this case a structuring offence under the FTR Act) where an offender was convicted of a money laundering offence.

CCA stated that the offender’s belief about the source of the funds in question will always be relevant for cases involving the proceeds of crime and the instruments of crime. The belief about the source of funds intended to be an instrument of crime is less important, as the offence is centred of the future use of the money.

The court upheld the Crown’s appeal against the sentences received by each of the offenders and re-sentenced Huang to five and a half years imprisonment, with a non-parole period of three years and four months. Siu received five years imprisonment, with a non-parole period of two years and six months. The Court stated that a sentence of between 12 and 14 years would have been an appropriate starting point for sentencing Huang; and a sentence of at least eight years would have been an appropriate starting sentence for Siu, were it not for the discretionary factors arising from a successful Crown appeal.

Terrorism financing-related cases

Since 2001, 38 people have been prosecuted, or are being prosecuted, as a result of counter-terrorism operations in Australia and 20 have been convicted of terrorism offences under the Criminal Code. More than 40 Australians have had their passports revoked or applications denied for reasons related to terrorism (DPM&C 2010).

In Australia, actual evidence of how terrorism is financed is limited. As is the case with anti-money laundering, financial intelligence plays a role in counter-terrorism investigations and contributes to successful prosecution outcomes. The Australian cases have involved individuals who have supported overseas groups, as well as those who have planned terrorist activities within Australia—fortunately without success. Although the incidence of Australian-based financing of terrorism is minimal, there remains an ongoing need to continue counter-terrorism efforts, which includes the gathering of financial intelligence. The following matters involve allegations of financing of terrorism or provision of support for terrorist organisations in addition to other alleged offences.

R v Joseph Terrence Thomas [2008] VSC 620

On 4 January 2003, Joseph (Jack) Terrence Thomas was apprehended attempting to leave Pakistan using a Qantas Airways ticket for Australia. At the time he was apprehended by Pakistani officials, it is alleged that he was in possession of an Australian passport which had been falsified, together with US$3,500 in cash which had allegedly been provided to him by Al Qaeda. He was arrested in November 2004 and charged with one count of receiving funds from a terrorist organisation (s 102.6(1)), two counts of providing resources to a terrorist organisation (s 102.7(1)) and one count of possessing a falsified Australian passport. Initially found guilty of receiving funds from a terrorist organisation in February 2006 and sentenced to five years’ imprisonment with a non-parole period of two years, his conviction was later quashed on appeal in August 2006 (R v Thomas [2006] VSCA 165).

The Commonwealth Director of Public Prosecutions (CDPP) successfully sought to have the case re-tried and Mr Thomas was convicted in October 2008 of the charge of possessing a falsified passport and sentenced to nine months’ imprisonment. All other counts were not proved (R v Thomas [2008] VSC 620).

R v Faheem Khalid Lodhi [2006] NSWSC 691

In 2003, Faheem Khalid Lodhi was the first person to be found guilty of planning a terrorist attack in Australia (Regina v Lodhi [2006] NSWSC 691). The circumstances of the matter arose in 2001 when a man named Willie Brigitte trained at a terrorist training camp in Pakistan called Lashkar-e-Taiba, a proscribed terrorist organisation. In May 2003, Brigitte arrived in Australia from France, a few days prior to which, Faheem Khalid Lodhi set up a mobile phone account in a false name. Two calls were made from Brigitte’s phone in France to Lodhi’s phone—one on 7 May 2003 and the second one on 13 May 2003, the day before Brigitte left France for Australia. Lodhi met Brigitte when he arrived in Australia and they spent most of that day together. In October 2003, French authorities notified Australian authorities that Brigitte had a substantial connection with terrorism. This led to his sudden detention and deportation to France. Just before Brigitte’s detention, Lohdi obtained maps of the electrical supply system in Sydney using false identification and requested a list of chemical prices by fax using a false company name.

Lodhi was arrested on 22 August 2004 and was charged with various terrorist-related offences. The Supreme Court of New South Wales was satisfied that Lodhi’s plans to bomb the electricity system had only reached a very early stage, but still convicted him of a number of offences as it was satisfied that he intended to use the maps and the list of chemicals in a plot to cause the detonation of an explosive or explosives to advance the cause of violent jihad and intimidate the government and the public. On 19 June 2006, Lodhi was sentenced to 20 years’ imprisonment, with a 15 year non-parole period. Mr Lodhi appealed both his conviction and sentence, but both were upheld by NSW CCA on 20 December 2007. Mr Lodhi made an application for special leave to appeal to the High Court, however, this was refused on 13 June 2008 (Regina v Lodhi [2006] NSWSC 691).

David Hicks

David Hicks was sentenced by a US Military Commission to seven years’ imprisonment after pleading guilty to the charge of providing material support for terrorism. All but nine months of this sentence was suspended by the Convening Authority in accordance with the sentence and the terms of a pre-trial agreement. Mr Hicks was released from the Yatala Labour Prison in Adelaide on 29 December 2007. An interim control order in relation to Mr Hicks was made by a Federal Magistrate on 21 December 2007. It was confirmed by a Federal Magistrate on 19 February 2008 (Jaggers 2008).

Mohamed Haneef

Dr Mohamed Haneef was charged on 14 July 2007 that ‘on or about the 25th of July 2006 in the United Kingdom, he intentionally provided resources, namely a subscriber information module (SIM) card to a terrorist organisation consisting of a group of persons including Sabeel Ahmed and Kafeel Ahmed, being reckless as to whether the organisation was a terrorist organisation’ (CDPP 2008: 51), contrary to s 102.7(2) of the Criminal Code. On Friday 27 July 2007, the Director of Public Prosecutions discontinued the prosecution of Dr Haneef for the alleged offences after the case was assessed in accordance with the Prosecution Policy of the Commonwealth (Coorey et al. 2007).

Aruran Vinayagamoorthy and Anor v DPP [2007] VSC 265

In 2009, three men—Aruran Vinayagamoorthy, Sivarajah Yathavan and Arumugan Rajeevan Tash—pleaded guilty to offences under the Charter of the United Nations Act 1945 (Cth) for making money available to an entity, the Liberation Tigers of Tamil Eelam (LTTE), proscribed for the purposes of that Act. It was the prosecution’s case that $1,030,259 was made available to the LTTE. Although the judge at sentencing found it was not possible to say precisely how much money was made available, he considered that they were large amounts. It was also the prosecution’s case that Mr Vinayagamoorthy made an estimated $97,000 worth of electronic components available to the LTTE over a period of about two years. The court accepted that the defendants were motivated partly by a desire to assist the Tamil community. The three were sentenced to terms of imprisonment, but released on good behaviour bonds (R v Vinayagamoorthy & Ors [2010] VSC 148, 31 March 2010).

R v ABN and others [2009] VSC 21

In November 2005, 10 men were arrested in Melbourne and charged with terrorism offences under Part 5.3 of the Criminal Code Act 1995 (Cth). A further three men were arrested in March 2006 and charged with similar and related offences. All 13 were alleged to have been members of a local unnamed terrorist organisation led by the defendant. It was alleged that the organisation was committed to preparing, planning, assisting in, or fostering the commission of terrorist acts in an effort to influence the Australian Government to withdraw its troops from Iraq and Afghanistan. Four of the 13 accused were acquitted, with the balance convicted following either pleas of guilty or a contested trial. Three of the accused were also convicted of attempting to make funds available to a terrorist organisation. The court found that they intended to do this by selling parts from stolen cars and using the proceeds of sale for the purposes of the organisation. The court accepted evidence that an amount probably in the order of $7,000 had been raised through other means. Seven of the convicted prisoners have appealed against their convictions. At the time of writing, the appeals had been heard but the decision was reserved (CDPP 2009).

R v Mohamed Ali Elomar and others [2010] NSWSC 10

In February 2010, five men were sentenced to lengthy terms of imprisonment for their participation in a conspiracy to commit acts in preparation for a terrorist act or acts involving the detonation of explosive devices and/or the use of firearms. The aim was to advance the cause of violent jihad so as to coerce, or influence by intimidation, the Australian Government to alter or abandon its policies of support for the United States and other western powers in the Middle East and other areas involving Muslims. The evidence of the financing of the proposed acts indicated that relatively small sums of money were involved and that these were self-funded. One offender paid $2,100 as a deposit on 10,000 rounds of ammunition. Another offender paid a $200 deposit for chemicals, while another paid $433 for more ammunition. Other finance was arranged using coded SMS text messaging, although the court found that it was unclear where the money had actually come from (Regina (Cth) v Elomar & Ors [2010] NSWSC 10).

United States

Definition of money laundering

The following two cases have addressed the definition of a money laundering offence. Each case has acted to narrow the definition of money laundering in the United States to a more specific offence from the broad definition initially pursued.

Regalado Cuellar v United States 06–1456 (2008)

In 2003, Cuellar was stopped by police in Texas and found with more than US$80,000 hidden in his car. Police suspected these were funds related to drug trafficking. Cuellar was charged and convicted of money laundering under the Bank Secrecy Act for attempting to smuggle the cash across the border. He appealed this decision on the grounds that in order to satisfy the components of ‘concealment’ in the statute, an activity needs to attempt to make the origins of the money appear legitimate, which he had not attempted to do. Cuellar argued that, at most, he was guilty of the lesser offence of cash smuggling. The conviction was overturned in a split decision, but later reviewed and upheld on the basis that there are different ways ‘concealment’ can be established and that the statute used the word in a broad sense.

The Supreme Court unanimously overturned this conviction. The Court found that the federal money laundering statute (18 USC s 1956(a)(2)(B)(i)) does not require proof that a defendant attempted to legitimise tainted funds, however, the government must demonstrate that a defendant did more than merely hide the money during its transport. This significance of this case is in establishing that money laundering is more than hiding illicit proceeds. It requires a further design to create the appearance of legitimate wealth.

United States v Santos et al 06–1005 (2008)

Santos and Diaz were convicted of money laundering under the Bank Secrecy Act for transactions they had performed using the funds generated by an illegal lottery. The defendants performed the transactions in the course of running an illegal lottery. The transactions included, among other items, paying the lottery winners. The convictions were based on interpreting the term ‘proceeds of crime’ in the federal money laundering statute (18 USC s 1956(a)(1)) to mean any funds generated illegally. The conviction was later quashed, based on an alternative interpretation of ‘proceeds’ which other legislation defines as either the profits of crime of the receipts of crime. The appeal judgement, that profits from crime were required for a money laundering offence, was confirmed by the Supreme Court in June 2008.

Definition of money laundering—conspiracy to commit money laundering

The following case de-limited the circumstances required for a conviction of conspiring to commit money laundering. Whitfield and Hall were co-petitioners in this case.

Whitfield v United States 03–1293 (2005) & Hall v United States 03–1294 (2005)

Whitfield was convicted on various charges, including mail fraud and money laundering in violation of 18 USC 1956(a)(1)(A)(i) as well as conspiracy to commit money laundering under the Bank Secrecy Act (18 USC 1956 (h)). Whitfield sought, in the first trial, to instruct the jury that in order to prove a conspiracy to commit money laundering, there needed to be proof of an overt act to further the conspiracy beyond reasonable doubt. This was denied and he appealed on this basis.

The appeal was not successful. The court held that 18 USC 1956 (h) does not require an overt act in order for a conviction of conspiring to commit money laundering and thus concluded that the jury had been correctly instructed. This section of the code specifies that

Any person who conspires to commit any offense defined in this section or section 1957 shall be subject to the same penalties as those prescribed for the offense the commission of which was the object of the conspiracy.

The conviction was again upheld in the Supreme Court, in January 2005, on the grounds that the text of the code did not specifically identify an overt act, nor could one be implied.

The financing of terrorism

Weiss v National Westminster Bank Plc 05–CV–4622 (2007)

The families of attack victims in Jerusalem launched a civil case against National Westminster Plc (NatWest). The plaintiffs argued that NatWest provided financial services for a group raising funds for HAMAS, the perpetrator of the attacks, after it was declared a terrorist organisation in 1995. The financial services were provided to Interpal, a British charity that the plaintiffs alleged had been identified as a fundraiser for HAMAS. The plaintiffs claimed that NatWest was aware of the association between Interpal and HAMAS and continued to provide financial services. NatWest claimed that an investigation into links between Interpal and HAMAS cleared Interpal of any wrongdoing.

NatWest motioned to have the case dismissed in 2006 and was partially successful. The motions to dismiss the claims of knowingly providing material support or resources to a foreign terrorist organisation in violation of 18 USC s 2339B and financing acts of terrorism, in violation of 18 USC s 2339C were denied. The outcome of the case has yet to be decided.

New York Branch of Arab Bank, New York

The Arab Bank, headquartered in Jordon, received civil penalties of US$24m from both FinCEN and the Office of the Comptroller of the Currency (OCC) for violations of the Bank Secrecy Act in 2005. Arab Bank’s fines were discharged in a single payment of US$24m to the United States Department of Treasury. Arab Bank’s anti-money laundering program was found to be inadequate, its risk management of US dollar transactions were inadequate and the bank lacked internal controls to manage money laundering and terrorism financing risks for transactions for beneficiaries and parties that were not account holders at Arab Bank.

Arab Bank, following on from the FinCEN assessment and the administrative fines, was sued by Linde (Linde et al. v Arab Bank Plc) and others (such as Litle et al. v Arab Bank Plc and Coulter et al. v Arab Bank Plc) for offences related to providing material support to terrorists. The outcome of this case has yet to be decided.

Stanley Boim and Joyce Boim v Holy Land Foundation for Relief and Development et al.

The plaintiffs’ son was killed in the West Bank in 2005 in a shooting conducted by gunmen believed to be acting on behalf of HAMAS. The Boims sued Arab and Muslim charities, and individuals, in the United States who were claimed to be making funds available to HAMAS under s 2333 of the US Criminal Code which allows for US nationals to recover damages suffered in acts of international terrorism. The Boims’ originally won damages in Boim v Quranic Literacy Inst 340 F Supp 2d 885 (ND Ill 2004) for US$52m which was later tripled to US$156m.

In December 2007, the Seventh Court of Appeals ordered a retrial of the case for multiple reasons, including:

  • The responsibility of HAMAS for the Boim’s son’s death had not been conclusively shown.
  • Evidence that the defendants had engaged in some act of helping HAMAS, even with the knowledge of its activities and a desire for those activities to succeed, does not mean that a defendant caused a particular injury. Causation is a distinct element requiring proof for liability to be shown.

United Kingdom

Failing to disclose suspicious activity

R v Griffiths and Patterson [2006] EWCA Crim 2155 (UK)

A United Kingdom solicitor, Phillip John Griffith, undertook the conveyance of property. The transaction was a property purchase by a long-time friend and business associate of Griffith from a seller with a criminal record, at a significant undervalue. Griffith was subsequently convicted for failing to disclose to authorities that he knew or suspected money laundering was taking place. Griffith was sentenced to 15 months imprisonment. The sentence was reduced to six months on appeal in 2006, on the grounds that the offence represented a lapse in judgement rather than a desire to benefit from criminal activity. The conviction brought an end to his professional life.

Arrangements

Bowman v Fels [2005] EWCA Civ 226

The Bowman v Fels Court of Appeal judgement arose out of a property dispute between ex-cohabiters. Prior to a county court hearing, Bowman’s legal advisors suspected Fels had included the costs of some work he had carried out on the property in question in his business and VAT lodgements. Bowman’s legal advisors filed a report of their suspicions to NCIS.

Bowman’s legal advisor believed POCA 2002 UK prevented disclosing to either the client, or to the defendant’s legal team, that a report had been filed. The solicitor sort to adjourn the property dispute proceedings out of concern that ‘appropriate consent’ regarding the matter would not be forthcoming by the hearing date. There was concern over whether the report would affect the court proceedings (Camp 2007; Law Society UK 2005).

The appeal questioned whether a legal practitioner acting for a client in legal proceedings must disclose suspicions of money laundering immediately in order to avoid being guilty of the criminal offence of being concerned in an arrangement which he knows or suspects facilitates criminal activity. The question in Bowman v Fels was whether the offence applied to a legal advisor who came to suspect the other party had engaged in money laundering. The secondary question was whether POCA 2002 UK was intended to override the issues underlying Legal Professional Privilege (LPP).

The Bowman v Fels case concluded that the offence in POCA 2002 UK s 328 was not intended to cover ordinary conduct of litigation and the legislator would not have thought those activities to constitute ‘being concerned in an arrangement’ which facilitates money laundering.

The Bowman v Fels case confirmed that POCA 2002 UK was not intended to override LPP. When deciding whether to make a disclosure to SOCA, legal practitioners need to consider whether the information on which the suspicion is based on is subject to LPP (Camp 2007; Law Society UK 2005). Prior to Bowman v Fels, case law on this subject had been drawn from P v P which was effectively overturned by the Bowman case.

K Ltd v National Westminster Bank Plc and ors [2006] EWCA Civ 1039

The case raised questions under s 328 of POCA 2002 UK concerning ‘arrangements’. NatWest claimed that to comply with a payment request from a customer would mean the bank became concerned in an arrangement it suspected would facilitate the use of criminal property. To avoid this, NatWest submitted a disclosure to obtain appropriate consent to conduct the transaction. Consent was not given within the seven day period, but was before the moratorium period of 31 days expired. During this time, as the bank did not process the transaction, the customer made a claim for an interim injunction to force the bank to comply with the customer’s instructions. The interim injunction was refused. The transaction was conducted after consent was given, although the customer then appealed the refusal to grant the interim injunction as legal costs were still an issue.

The customer claimed that the bank was breaching its contract by refusing to perform the transaction. The claim highlighted a conflict between NatWest’s actions to obey the law and their obligation to their client. The court found that ‘Parliament has laid down the relevant procedure with which the bank has lawfully and properly complied’ and the appeal was dismissed (K Ltd v National Westminster Bank Plc and ors [2006] EWCA Civ 1039: para 6).

Stephen Judge (City Index) (UK) 2006

Formerly the Money Laundering Reporting Officer (MLRO) for City Index, Stephen Judge was charged under s 327 of POCA 2002 UK for proceeding with a transaction totalling £30,787 prior to the seven day consent period expiring. Judge had made an SAR about the transaction but had not received consent to proceed before processing it. There was no suggestion of dishonesty on the part of Judge and he admitted to processing the transaction. Judge maintained the transaction was completed only to avoid tipping-off the customer to the report which would have been an offence in itself. The charges were controversial as it was viewed that the case was based on a technical breach of the law only. The charges were eventually dropped in August 2006 because it could not be proven that the transaction in question was tied to criminal property.

Squirrel Ltd v National Westminster [2005] EWHC 664 (Ch)

NatWest filed an SAR based on suspected tax evasion and froze the customer’s account while waiting for authorisation from the FIU. In line with tipping-off requirements, the bank provided no reasons to the customer as to why the account was frozen and the customer commenced legal action to unfreeze the account. The bank argued to either unfreeze the account or to disclose to the customer the reasons behind freezing the account would be an offence under POCA 2002 UK. The bank was found to have acted properly and the account remained frozen (Freshfields Bruckhaus Deringer 2005).

Suspicion

R v DaSilva [2006] EWCA Crim 1654

DaSilva was convicted of charges under s 93A(1)(a) of the Criminal Justice Act 1988 (UK) for

assisting another person to retain the benefit of criminal conduct knowing or suspecting that that other person was or had been engaged in criminal conduct.

DaSilva was also charged, alongside her husband, with obtaining money transfers by deception. DaSilva was acquitted of these additional charges while her husband was convicted.

DaSilva appealed the conviction on the grounds that the judge had given the jury a dictionary definition of the word ‘suspecting’ and then added gloss to the definition. DaSilva argued this made the term ‘suspicion’ too broad. The appeal decision found that the direction on the definition of ‘suspecting’ was misguided, it was insufficient to overturn the Supreme Court decision and the convictions were upheld.

While this case was prosecuted under previous legislation, it has provided some general guidance on the term ‘suspicion’, which remains a central element of the AML/CTF regime. The suspicion must be based on ‘a possibility, which is more than fanciful’ and ‘must extend beyond speculation’ (Law Society UK 2008: np).

Predicate offences

R v NW and others [2008] EWCA Crim 2

In January 2008, a prosecutor appealed a decision to dismiss the trial of four defendants facing multiple money laundering charges. The trial was dismissed as the prosecution had been unable to prove the type of predicate offences that generated the proceeds involved in the suspected money laundering activities.

The case centred on £100,000, transferred out of the United Kingdom that prosecutors alleged were the proceeds of NW’s criminal activity. The offence generating the money could not be determined. The case questioned whether the criminal conduct, or at least the type of criminal conduct, had to be determined in order to generate a conviction for money laundering under ss 327–328 of POCA 2002 UK. The appeal concluded that Parliament could not have intended for there to be no need to give particulars on the criminal conduct and dismissed the appeal.

Terrorism—asset freezing

A, K, M, Q & G v Her Majesty’s Treasury [2007] EWHC 869 (Admin)

A high court judgement in April 2008 ordered that measures for asset freezing and terrorism introduced under the Terrorism (United Nations Measures) Order 2006 and the Al Qaida and Taliban (United Nations Measures) Order 2006 be struck down as the UN orders had never passed through Parliament. The case A, K, M, Q & G v HM Treasury was an appeal on the asset freezing orders imposed by the UN orders above. The judge found the freezing orders to be unlawful and ordered these to be quashed. Due to the recent nature of this case the effect of the decision is yet to be determined.

Belgium

In November 2007, in a challenge to the anti-money laundering legislation, the Belgian Bar Association launched a second challenge to the implementation of the Second Money Laundering Directive. The decision reinforced that legal practitioners remained covered by the anti-money laundering provisions in Belgium. It also outlined the conditions which provide exemptions to an obligation to make a disclosure. Any information gathered by a lawyer in the process of providing legal advice was bound by secrecy and could not be disclosed to authorities.

Information gathered outside this provision and within the confines of financial, corporate or real estate matters outlined in legislation, must be disclosed the Bar to be passed onto the FIU. If any additional information was required of a lawyer once a disclosure has been made, contact must go through the Bar, rather than between parties directly.

France

A decision on 10 April 2008 in France’s highest administrative court, the Conseil d’Etat, found that EU member states are required to include the professional secrecy of legal practitioners within anti-money laundering legislation, rather than allowing the option to do so, as outlined in the Second Money Laundering Directive. The decision allows the widest meaning of ‘legal advice’. The court also ruled that the FIU should not have direct access to legal practitioners but would need to go through the bar or the senior executives of law firms. This decision is in line with the decision in Belgium outlined above.

Hong Kong

Predicate offences

HKSAR v Lee Wai-yiu, Fung Man-kwong, Mok Chang-wing [2007] CACC 100/2006

The three applicants and a fourth man were charged with an illegal gambling offence. Two of the defendants were convicted of that offence and all four were convicted of money laundering (s 25(1) and s 25(3) of OSCO). The defendants appealed the money laundering conviction. The money laundering convictions were based on the defendants’ knowledge that the funds passing through their accounts (from the illegal gambling business) were definitely the proceeds of crime as they had committed these crimes.

The defendants sought leave to appeal the money laundering convictions on the grounds that a conviction for knowing (rather than for suspecting) that funds were the proceeds of crime relies on the judge also finding that the funds in question were from an indictable offence. In this case, the judge did not find two of the defendants guilty of the indictable offence suspected to be the source of funds. The appeal asked the court to consider if a money laundering offence requires a conviction of a predicate crime. Leave to appeal was denied and the court reaffirmed that OSCO did not require a conviction of a predicate offence to convict an offender for money laundering.

Oei Hengky Wiryo v HKSAR [2007] FACC 4/2006

The circumstances of this case are similar to those of Lee, Fung and Mok and the question placed before the court on appeal was identical. Oei was convicted of illegal gambling, conspiracy and money laundering, also for dealing with the proceeds of his own crime. Oei, unlike Lee et al. was convicted of the offence generating the funds. The defendant appealed all three convictions, during which the Court considered the question of the necessity of a predicate offence, despite rejecting the appeal against the conviction of illegal gambling. The court reaffirmed that convictions under s 25(1) and s 25(3) were not reliant on proving a predicate crime.

Sentencing decisions

HKSAR v Jain Nikhil and anor [2006] CACC405/2006

Jain Nikhil and Jain Aman Kumar, nationals and residents of India, allegedly opened bank accounts in Hong Kong with business registration certificates in the name of the companies in which they wished to open an account and forged passports. These bank accounts were subsequently used to launder approximately HK$6.6m. The proceeds were generated from a variation of the Nigerian scam and victims included an American doctor working in Brazil and a French merchant working in the People’s Republic of China who remitted a total of US$561,000 and €209,339 to the account held by Jain Nikhil. The defendants later sought leave to appeal the sentences. The court upheld the sentences on appeal, stating that among other aspects, the amount of money involved in the case was a factor in determining the given sentence.

Comparison

What constitutes money laundering?

One common element of these cases is defining the actions that constitute a money laundering offence. This has been debated in these cases when defining what constitutes ‘structuring’, ‘concealing’, ‘profits’ of crime and ‘suspicion’. Each of these cases has attempted to define the scope of the money laundering offences in the respective countries.

The Australian case R v Narayanan addressed the definition of structuring under the FTR Act. The court defined ‘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, which had been subjected to structuring, could still collectively constitute a significant cash transaction.

The United States has recently decided two cases that narrowed the scope of money laundering offences in that country, 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’. It was found 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 it was found that it referred only to the profits generated.

Further cases defined actions that can constitute a conspiracy to commit money laundering. In Australia, A Ansari v R, H Ansari v R and R v RK defined the requirements for conspiracy to commit money laundering where the fault element of the offence is recklessness. Ansari allowed a broader interpretation of the offence as intent is not essential in the fault element. RK narrowed the circumstances where a conspiracy to commit a reckless action could be applied. In the United States, Whitfield (Whitfield v United States) and Hall (Hall v United States) argued it was not possible to conspire to commit money laundering without proof of an overt act, however, the courts ruled that conspiracy was enough and 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 tested by R v DaSilva. The case narrowed the definition slightly to require suspicion, which is more than fanciful, in order for an offence of money laundering, or assisting, to be upheld.

Cases have also questioned the need for a predicate offence to enable money laundering convictions. In Hong Kong, the cases of Oei Hengky Wiryo v HKSAR and HKSAR v Lee Wai-yiu, Fung Man-kwong, Mok Chang-wing demonstrated that a conviction for a predicate offence was not necessary in order to prove money laundering. A more detailed question was that in R v NW and others in the United Kingdom. The issue is this case was not whether the conviction must be obtained but whether the predicate offence must be identified. The finding in this case was that there was a need to identify at least what the predicate offence involved. Similarly, the decision to dismiss the case of Judge, the United Kingdom lawyer charged for processing a transaction without authorisation, was brought about because there was insufficient proof that the money involved in the transaction in question was indeed the proceeds of a crime.

Reporting requirements and legal practitioners

The application of AML/CTF legislation to legal practitioners has generated substantial debate. The cases outlined in this report demonstrate some of the issues at the centre of the contention. The most contested issue in the cases here is one of legal professional privilege and whether AML/CTF legislation was intended to override it. The recent decisions in the European Union and Bowman v Fels in the United Kingdom confirmed that this was not the case and legal practitioners are indeed exempt from reporting requirements if they are acting in the process of giving legal advice to a client. These decisions limit the ability to fully include legal practitioners in AML/CTF regulations and simultaneously highlight the difficulty in adopting identical legislation to cover professionals generally and legal practitioners specifically.

Further issues debated in these cases revolve around the offence of making an ‘arrangement’ for money laundering. In Bowman v Fels, the case questioned whether a legal practitioner could be involved in arrangements for money laundering if they do not immediately disclose any knowledge or suspicion. This case found that this section of POCA 2002 UK was not intended to cover legal practitioners in the context of legal advice or litigation and furthermore, it would not override legal private privilege.

Two additional cases involving financial institutions debated the role of regulated entities in money laundering and prevention when a SAR has been submitted to the FIU. In K v NatWest, the bank refused to complete a transaction before authorisation from the FIU and was subsequently sued by the customer for breaching contract. Likewise, in Squirrel v NatWest, the bank froze the account of a customer they had made a report on and refused to disclose why, for fear of committing a tipping-off offence under POCA 2002 UK. In both cases, the bank was found to be justified in freezing the accounts and in not disclosing the reason to the customer.

Where the situation has been reversed and a transaction has been processed before permission was granted, legal action was taken against the officer who processed the transaction. Stephen Judge was charged with being involved in money laundering arrangements after processing a transaction to avoid committing a tipping-off offence by default, which he argued would happen if the transaction was not allowed.

Conclusion

The regulatory regimes in the countries covered in this section are each based on the FATF-GAFI Recommendations and as such, they each share expected similarities in their coverage and implementation. The differences in the regimes relate to how the regulations and requirements are imposed, rather than in the underlying principles that inform them. Differences arise in how, and if, the countries in this report attempt to regulate the professional sector. This is of particular relevance to legal entities, who are bestowed confidentiality rights in the course of their core business. The ongoing case law in this area highlights the contention and difficulty in striking a balance between the apparently opposing needs of regulation and privacy.

With regard to the Australian regime, it was found that the systematic reporting requirements introduced under the AML/CTF Act exceed those enacted in most of the other countries covered in this report. While there were requirements in every country to submit a disclosure of suspicious financial activity in some form, Australia was the only country that required reports for each of the following—systematic report 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 analysis of regulatory regimes and case law in this section relating to terrorism financing show that considerable developments have been made to include it into legislation and regulations, but this highly controversial area remains mostly unsanctioned. The impending cases on this topic may have serious implications for the responsibilities of the regulated sector to identify their customers and the purposes of their financial transactions. The case of A, K, M, Q & G v Her Majesty’s Treasury in the United Kingdom demonstrates how a serious topic matter and the potentially high cost of a terrorist attack may lead to more punitive regulations than those imposed on less emotive offences.

It is important to remember that several of the countries in this report are currently amending legislation or regulations relating to anti-money laundering and counter-terrorism financing. Australia is debating the introduction of a second tranche of reforms and countries in the European Union are updating their requirements based on the Third Money Laundering Directive. The next 12 months should see substantial changes to regulated sectors in these countries. This will allow a more substantial evaluation of regulatory regimes as case law and legislation interpretation continue to develop and the evidence base around compliance grows as regulated entities attempt to comply with requirements. For a country such as Australia, where many of the AML/CTF requirements are relatively new, and the regulated sector is rapidly increasing, the experiences of these overseas sectors will allow for a valuable learning experience.