“Stop Money Laundering!” Conference - 26th February 2002, London

STOP Money Laundering

• Money Laundering – the benefits of using these two provisions as a strategic approach, and
• The Profits – ensuring those that commit crime do not benefit, and I will describe how we address that.

Before I start the main theme of my talk I would like to take a few moments to explain who Customs are and, more importantly why we are involved in money laundering.
Since starting my current job some 8 months ago I have been asked on a number of occasions why Customs are interested or involved in money laundering. Well, the main reason, as I will show, is that money laundering offences are assigned matters and I hope to show, that by using money laundering provisions as a strategic approach, not only in relation to drugs but to commercial fraud as well, we can, as law enforcement agencies make a significant impact.

Main areas

• Detection and seizure of crime-related cash crossing borders
• Financial investigation of assets in order to secure confiscation of orders following criminal convictions
• Investigation and prosecution of money laundering offences
  

LEGISLATIVE BACKGROUND

• Most financial crime (also drugs) legislation owned by the Home Office (Interior Minister)
• Home Office lead on developing policy, but Customs and other enforcement agencies have a major input
• Legislation specifies that Customs & Excise are a competent authority to investigate assets, seek confiscation orders and prosecute money laundering offences
  

Customs and Excise are an independent prosecuting authority of the Crown.

WHY ATTACK CRIMINAL FINANCES

• To reduce crime
• Supports drugs and tobacco strategies by removing monies which may be used to support a criminal lifestyle or purchase further illicit goods
• Assists in addressing social problems, especially those associated with drugs
• Attacks the profit motive which underlies most crime and makes the activity uneconomic
• Addresses public concern over people who live on criminal proceeds
• Preventing money laundering is necessary for the economic well-being of the country
• Strong action against financial crime enhances economic prospects by demonstrating resolve to deal with money laundering and underlying crime
• Consistent with recent international developments e.g. UN Convention Against Transnational Organised Crime, WCO (draft)
  

Recommendation on strengthening customs role in tackling money laundering and recovering criminal proceeds

I would also like to describe some improvements to the provisions we currently have including the seizure of cash inland that we hope will be in force this time next year when the Proceeds of Crime Bill, currently going through Parliament is fully implemented.

CROSS BORDER CASH SEIZURE (CURRENT POSITION)

• Customs have power to seize amounts of ?10,000 or more if suspected of being proceeds of, or intended for use in, drug trafficking
• Court order required within 48hrs for continued detention while investigations continue
• When investigations concluded, we seek a forfeiture order from the court
• This is a civil action against the money, not criminal action against the person
• Civil seizure of cash often leads to criminal investigation for money laundering
  

No UK requirement to declare cash being imported or exported: we rely on intelligence and risk assessment to detect criminal

CROSS BORDER CASH SEIZURE (FUTURE POSITION)

• Extension to money which is the proceeds of, or intended for use in, all crime, not just drug trafficking
• Extension to non-cash monetary instruments (e.g. bankers’ drafts, travellers’ cheques, bearer bonds)
• Extension of seizure power inland-not just frontiers
  

So why use money laundering?
Crime is committed for profit, whether that be drugs or commercial fraud. That profit has invariably got to be re-cycled to either:

1. Pay for further consignments, or
2. Create a lifestyle desired by those committing the crime
   

It is the re-cycling that becomes the laundering. The tendency for criminals when committing crime is to cover their tracks as best they can but, they often do not do that so well when it comes to laundering or removing the profits, what I might describe as their Achilles heel.

Two main aspects of Customs work is in relation to Drugs and Tobacco smuggling, both cash based enterprises and, on the whole, they stay that way from the last point of sale – dealer to addict/buyer of a single packet of cigarettes – right up to paying for the supply in the source or intermediary country.

You do not see too many addicts or even dealers paying by cheque or even get credit.

Customs have a policy of disruption, which includes prosecution but we also look to see what impact we have in the actions we take and we fully believe – as do others – that disrupting the flows of cash can cause more harm to the smuggling organisations than intercepting the commodity.

An example of this lies in the drugs arena;

If we look at what a kilo of class A drugs can sell for on the streets – say ?60k of cocaine, we can compare that to the wholesale price that they have to pay at source or even intermediary supplier. That ?60k would buy something like 8 – 10 kilos so, by intercepting that cash, we could reasonably say that we could have a bigger impact on the organisations.

Our intelligence shows that it takes the organisations longer to recover from losing cash than it does when we intercept the commodity. They find it very difficult to get the money together again to re supply. One of the simplest forms of laundering used at present is through Bureau de Change. What we would call street cash, that cash as described earlier, is collected as it goes up the supply chain and is taken into Bureau where it is exchanged for other currencies. The favoured currencies at present are US$ and Euros but prior to January it had been guilders and DM’s. Basically the preference is high denomination notes that create a smaller package and are therefore easier to conceal. That money when exchanged is invariably smuggled out of the country by couriers or, on some occasions, when the Bureau are willing, by electronic transfer. New legislation was brought in last year to regulate the likes of bureau and this is a task laid to Customs. We are currently in registration process and by June this year any business not registered with a valid registration number will not be able to obtain money from other currency dealers. There will be a trader education and visiting programme building on our current information visits but those businesses will need to keep records and be very careful about who they do business with – the ‘know your customer’ principle will be extremely important.

Another area of concern to Customs is VAT fraud. ?m’s lost every year to a variety of frauds most common being what we call carrousel frauds or missing trader frauds. Those committing those offences expect to be visited or questioned in relation to their trading activity often being quite up front about it to give the impression of being legitimate, that is until they go missing, but also trying to show that they have what they suggest are genuine suppliers. They are well prepared, producing receipts and invoices and elaborate cover stories believing that is what we want to see or hear about. Our experience shows that that what they are not prepared for is explaining the financial flows or how and why accounts have been set up as well as by whom (often the same people under other guises). Recent cases in this area when tackled on the financial, rather than predicate offence, have proved to be successful, they just can’t support their story.

Now in fairness, what I described up to now are not elaborate money laundering operations, what I hoped to show is that we don’t have to look for the elaborate or believe that money laundering must be elaborate to make an impact against the perpetrators of the crimes.

The new provisions we hope to have to assist in this area will make law enforcement staff much more effective.

MONEY LAUNDERING OFFENCES (CURRENT POSITION)

• Offence provisions appear in different legislation according to whether predicate offence is drug trafficking or other
• Creates difficulties because of need to demonstrate that laundered money derives from a particular crime
• Offence of ‘failure to report suspicion of money laundering’ only applies if money derives from drug trafficking
  

MONEY LAUNDERING OFFENCES (FUTURE)

• No further distinction on the types of money laundering offences
• New offence of failure to report – regulated sector these along with investigatory powers
  

INVESTIGATORY POWERS (FUTURE)

• Customer information orders, requiring banks etc to identify accounts of people under investigation
• Account monitoring orders, requiring banks etc to provide transaction information on a suspect account for a specific period
• Compulsory disclosure orders, requiring people to answer questions and/or produce documents relevant to an investigation
• These three powers are new and will be obtainable from Circuit judges
  

These will give the investigator a better chance of identifying money laundering offences.

Moving on to the second aspect. I could say that what I have described so far is only half the story. In my opinion, there is very little point in taking offence action unless we make sure that those perpetrating the crime do not ultimately benefit from it.

Customs are committed to removing the profits by identifying the assets and seeking confiscation orders against those convicted of the crimes we prosecute.

CONFISCATION

• Investigation of criminal proceeds alongside investigation of primary offences (e.g. drug trafficking, tobacco smuggling)
• Seek restraint orders from High Court when criminal charges are about to be laid to prevent dissipation of assets
• Following conviction for primary offence, we present prosecutor’s statement to court seeking a confiscation order
  • - we allege the benefit from the crime and after argument with defence lawyers the Judge determines and grants a confiscation order up to that amount but usually limited to the amount of realisable assets identified-
• Additional prison sentence imposed if confiscation order is not paid
  

CONFISCATION (FUTURE)

• Customs and other prosecutors will be able to challenge confiscation orders which appear too low
• Restraint orders can be obtained from Regional Crown courts as well as from the High Court
• Restraint orders available at beginning of investigation, not just when criminal charges about to be laid
• No difference between drugs and non-drugs confiscation procedures, so less opportunity for criminals to exploit (e.g. pleading to less serious Criminal Justice Act Charges)
  

All investigations, predicate offences or money laundering, carried out must have a financial profile which, in identifying assets gained can actually also assist the core investigation. We are in a process of change seeking to improve and build upon what is a very successful unit based in London.

The team of financial investigators under my command trace the assets and provide the financial information required for a confiscation order to be made, assessing the benefits accrued from the crime or crimes alongside the identification of assets for which we would hope the confiscation order can ultimately be met. They will also be involved in any restraint or freezing orders.

If I may dwell on results for a moment, the increased emphasis on using financial powers has resulted in significant improvements in the results of teams under my command. The value of realisable assets has more than doubled from the annual figure of about ?15 million two years ago. This is real money available for confiscation by the courts on successful conviction of the perpetrators of the crimes. Meanwhile, the value of confiscation orders granted by judges in our cases has trebled from the figure of ?3 million over two years ago. It is impossible to relate figures to each other within a given financial year because of the on-going and cyclical nature of investigations. For example, it can take over three years from initial investigation to arrest, trial, conviction, sentencing and confiscation in a given case and my teams may have between 40 and 60 cases on hand at various stages of that cycle.

By setting the financial investigators up in this way we allow other investigators to concentrate on their prime function, gathering evidence to prove the crime. To have them as part of the investigation team investigating the offence tends to detract from the financial aspect, they tend to be sucked in to the prime investigation which tends to take precedence and leaves little time or desire to carry out the necessary financial aspects. They do however need to work closely, hand in glove so to speak, but what we have seen is an increase in expertise and trust by the investigators who realise that they can get on with what they are best at.

The future:

There is no doubt that al law enforcement agencies in the UK will be taking a keener interest in the financial aspects. The proceeds of Crime Bill in giving additional powers will also mean that we will be asked to show what we can deliver so the pressure will be on. Continuous improvement in all aspects of the finances in any current investigation as well as past investigations where we have just started a re-visit programme looking at cases where confiscation orders have been granted but not realised to see if we can re-identify the assets originally seen as well as hidden assets we might not have known about.

Crime is not one dimensional so why tackle it that way? There are other ways and tackling the finances is certainly one.

Thank you for your time and the opportunity to be here.