International legal framework to combat money laundering
Shah Md. Mushfiqur Rahman
The act of criminalizing 'money laundering' is not a matter of distant past, though the act of 'money laundering' itself has been there from time immemorial. In relatively recent years, it is recognized as one of the most serious financial crimes capable of weakening the economy of not only a particular country or region but also the entire globe. What is money laundering then?
The incident of money laundering constitutes through a series of financial transactions that are dedicated to make illegitimate money appear legitimate. Criminals earn money by way of numerous illegal means. But this 'hard-earned' money means little if they cannot spend it the way they like without raising any issue or triggering any law enforcement probe. One way of doing it is to give this 'black' money a 'white' appearance.
Say for example, a drug dealer can choose to put his money buying some property. But without any visible legal source of income he can easily bring the attention of tax or law enforcement authorities to him in so doing and end up in jail. And it would be pretty hard for him to explain where he has got the money from, if asked. So it would be better for him to get the money passed through a number of financial transactions so that when it comes to reap its benefit, the source of it would be hard to trail. Say, first up he deposits criminal proceeds in an offshore bank (a bank located in a place where regulatory regime is not strong enough). Then the money is transferred to another bank of another country through wire transfer wherefrom it is transferred to a third country by means of over invoicing. After such a long sequence of transactions that criminal proceeds return to the original owner. Now it would be really hard even for a seasoned law enforcer to track the criminal origin of this money.
Whenever considering the offence of money laundering, it must be borne in mind that this offence is to be differentiated from the primary crime that is the source of money to be laundered. Money laundering is an offence in itself independent of the primary crime and would be tried separately. Thus, persons unconnected with the primary crime but got involved in the process of money laundering would be punishable under the anti-money laundering law.
In the rise of mounting pressure put on the global financial system by money-laundering and its increasing nature of transcending national borders, the world leaders in 1989 G-7 Summit agreed to form a Task Force to work out the counter measures. Originally the Task Force on Money Laundering (FATF) was composed of 16 members: seven G-7 countries, the European Commission and eight other countries. This new international financial oversight body was charged with the responsibility of examining money laundering trends and techniques, setting out the counter measures in the fight against money laundering and reviewing effectiveness of the steps taken in that direction.
In an attempt to set a comprehensive action plan to encounter money laundering, the FATF came up with 40 recommendations in 1990. Revised twice in 1996 and 2003, these recommendations provide the global framework of anti-money laundering efforts on which countries all around the world invariably model their anti-money laundering programmes. Alongside keeping their recommendations up-to-date, the FATF also expanded its membership from time to time with 34 members today. Tracing new methods of money laundering and examining the anti-money laundering measures employed by member countries are two of its major functions. It has already completed two rounds of such mutual evaluations and a third round has started. In fact the revisions made to the Forty Recommendations are results of these examinations.
In the aftermath of 9/11, the FATF widened its scope of work so as to include fight against terrorist financing. Eight Special Recommendations were devoted to this purpose which came into being no later than in October 2001. A ninth Recommendation followed on October 2004. These nine Recommendations set out the basic framework in the global combat against financing of terrorism.
Among many others, the FATF does an intriguing function of maintaining a list populated by countries and jurisdictions which are not cooperative in their anti-money laundering endeavours. These “Non-Cooperative Countries or Territories”, unofficially known as FATF Blacklist, are considered to fall well short of global standard in this regard. Contrary to popular belief, well known “tax havens” and “off-shore” countries are not the only inclusions in the list rather the list contains name of countries lacking needed resources and infrastructures to mould its financial system in compliance with FACT requirements. One can find some names in the list much unknown e.g. Nauru, Niue, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Dominica etc. are some to mention. Bigger names include Israel, Lebanon, Philippines and Russia. It is rather an effective list as enlisted countries tend to get de-listed as early as possible. Once designated as a non-cooperative country in global fight against money laundering, a particular country has to do a lot to convince its counterparts or counterparties before executing any financial deal. Its stigma as "non-cooperative" in global anti-money laundering efforts takes the country longer time and greater cost in carrying out financial activities which is a definite turnoff for foreign investors. As a result, almost all the enlisted countries take some measures to address the FATF concerns so that they get de-listed soon.
Bangladesh is not a party to the FATF but has its membership in the 'Asia/Pacific Group on Money Laundering (APG)' which basically replicates the FATF model in this region. This Group was founded in Bangkok in 1997 and currently has 38 members. It works in close collaboration with many international organizations including the FATF, the World Bank, International Monetary Fund, the United Nations Office on Drugs and Crime, the Asian Development bank, the Egmont Group etc. The APG basically adheres to FATF recommendations in its effort to encounter money laundering and terrorist financing. It assists member jurisdictions in complying global anti-money laundering standards, technically and financially. Mutual evaluation is another way of sharing best practices, identifying loopholes in anti-money laundering measures in place and accordingly developing new strategies for member countries. The APG has Associate Membership status in the FATF which allows it to contribute to the policy development in the field of anti-money laundering at the global level.
“The Egmont Group of Financial Intelligence Units” is the most active functional international body on anti-money laundering that provides a common forum for Financial Intelligence Units worldwide. Financial Intelligence Units are governmental financial entities responsible to collect intelligence on suspicious money laundering activities. They can exist in different names in different countries e.g. Financial Investigation Agency, Anti-Money Laundering Authority, Money Laundering Prevention Unit, Money Laundering Reporting Authority, Financial Information Procession Unit etc. Irrespective of their names, job of these bodies are fundamentally similar. Different financial entities are required to report any suspicious activity to these Units. They process and analyze this information to detect and prevent any attempt to money laundering or terrorist financing. They are not really enforcers of law, rather work in conjunction with law enforcement agencies in their pursuit of thwarting money laundering. Though Bangladesh has a Financial Intelligence Unit working as a division of Bangladesh Bank, it is not a member of the Egmont Group.
The writer is advocate, member of Dhaka Bar Association.