“Stop Money Laundering!” Conference - 26th February 2002, London
It is a privilege to be here at this conference. I think there are some old
friends in the audience! I apologise for not having heard yesterday’s proceedings,
and hope that I don’t repeat what you’ve already heard.
Can I begin by making some general observations? But, first, I should make it quite clear that these are my own personal reflections based on my own observations and experiences in the last few years and do not necessarily reflect the views of the Director of PP, for whom I work, or indeed the UK authorities generally. Many of the points I will make however have appeared in public documentation about the evaluation process with which I have been involved.
Noting that the title of this conference is “Stop Money Laundering”, we should first perhaps ask ourselves “why should we fight dirty money?”
I would suggest, and I am sure previous speakers have emphasised, that Money Laundering matters both socially and economically.
In Europe, since the collapse of the Berlin Wall, we have all seen increasingly ruthless national and transnational organised crime groups emerge in most, if not all, of the states in transition. Successful money laundering schemes enable organised crime to keep its profits. They act as incentives for them to commit more crimes. Indeed some have described Money laundering as their lifeblood, their oxygen. It is said to provide them with their cash flow and with investment capital. It is also said that money laundering enables criminal organisations to consolidate their economic power base, so that in some countries they can seriously penetrate the legitimate economy. The Mafia is reputed to earn more income from its “legitimate business” interests than from criminal activities.
Moreover, when organised crime invests in legitimate business, there is evidence that it will try to dominate that market, and maximise its profits by whatever means it can. And the rest of the business world and the consumers are the losers.
There is also a real danger, particularly in countries where new structures and institutions are developing, that organised crime may try to become the dominant players in a country’s economy. And what are the likely consequences of this? A concentration of economic power by organised crime could all too easily infect the political process. There are therefore great risks for the rule of law and fledgling democracy in some parts of the world involved in not attacking the power of organised crime by fighting Money laundering.
Turning from the threat from organised crime for a moment, money laundering is the same process by which any criminal (whether organised or a sole trader) distances himself from his crimes and is enabled to live off the proceeds. Therefore money laundering incentivises crime generally, by making it profitable. Thus fighting money laundering fights one of the main causes of crime – human greed. If you can take the profit motive out of acquisitive crime, then that is a positive way of tackling criminality generally.
Money laundering also matters economically. I’m not an economist and won’t begin to explain the more technical issues of the distortions that money laundering causes to world markets. But as a simple criminal lawyer, I do understand the money laundering threatens a country’s financial institutions. Financial systems, both domestic and international depend on confidence. If financial institutions become known to be associated, however inadvertently, with criminal money they are vulnerable: confidence can be undermined, leading in the worst case to collapse with multiple losses to investors.
With the global financial system becoming ever more integrated one collapse in the financial system in one part of the world, could, it is argued, have a domino effect throughout the whole international financial system.
In the UK, the 2000 PIU Report highlighted the damage money laundering does to individual business and the economy.
So What?
But, you may say, we’ve known all this for years. That may be true. But not everyone has got the message. During the time I was fully involved in anti money laundering initiatives the stakes were progressively raised for those countries which fail to comply with international A.M.L. standards: peer pressure through the FAFF & FATF style regional groups: blacklisting, through the “non co-operative countries” exercise, and latterly by the threat of counter measures by the major industrialised states.
But even with this “ratcheting up” of the pressure there were still jurisdictions, and many sophisticated individuals within them, who simply did not get the message – that the laundering of criminal proceeds ultimately can pose real and direct threats to countries’ citizens and to democratic freedoms, and who still saw money laundering as just another form of white collar crime.
One positive outcome of September 11 is that the message that money laundering matters has been tragically reinforced. I think September 11 has galvanised many more people worldwide to face up to the consequences that flow where there still remain hiding places and safe havens for criminal proceeds.
So countries need robust preventative systems to stop dirty money getting into the financial system. The FATF has set the standards for this. In Europe we have the EC Directive (and its revisions) which will focus also on the non-banking financial sector – the so-called gatekeepers, like lawyers and accountants etc. And this is all progress.
But my thesis this morning is that to be truly effective in fighting money laundering countries need to have robust criminal structures to back this up: regimes involving the criminal process, which are clear, and capable of being effectively used in practice in appropriate cases, subject, of course, to the usual prosecutorial tests. Such regimes need also to be actively used in appropriate cases, to ensure that sufficient prosecutions and significant criminal confiscation orders can be achieved to send clear messages to those who, despite the preventive regimes, can be proved to be involved in money laundering. The message that is sent by one successful prosecution and significant confiscation order is that the authorities in a jurisdiction do take money laundering very seriously.
As everyone here knows, many countries, my own included, have experienced many difficulties in achieving finalised money laundering investigations and successful money laundering prosecutions, and also in obtaining, enforcing, and realising significant confiscation orders in these cases.
Why the problems?
I think, firstly, people underestimate the real difficulties in prosecuting money laundering cases. US Supreme Court Justice Kennedy commented in a recent case: “Money laundering is, by its very nature, difficult to prove, for if the money launderers have done their job, the money appears to be clean”.
In my experience many countries around the world, often for understandable reasons (such as trying to incorporate in part the language of international texts) have complex criminal legislation, which can present real challenges to law enforcement and prosecutors as to meaning and interpretation. And uncertainties as to legislative interpretation may, in some countries, act as a deterrent to investigators and prosecutors, starting enquiries or bringing prosecutions. I’ll look at some of the common legal complexities in a moment. But what I would say is that all countries need regularly to examine their criminal legislation in this area to see if it creates unnecessary complexity, over-high burdens and tests which can be simplified.
Equally, where there may be doubts as to how courts will interpret the legislation, I suggest that prosecutors should, within the proper exercise of prosecutorial discretion, seek to test the legislation wherever possible.
Secondly, I would argue that, globally, the concept of modern financial investigation, as a routine part of the investigation of major acquisitive crime, is still very much in its infancy.
In many countries police investigation is primarily directed towards the investigation of the underlying criminality: During trafficking or whatever. It is still, globally speaking, I think, comparatively rare for investigators, as a routine part of the investigation of major proceeds-generating offences, to “follow the money” and establish what happened to the proceeds. Such investigations undoubtedly need resources, time and often effective international co-operation. But investigating the proceeds can and does often lead to the money launderers – whether they are the criminals involved in the original offence themselves or others acting on their behalf. Many commentators would argue that, where the culture does not already exist, states should seriously consider building an investigative culture, where in major proceeds-generating offences it gradually becomes a routine part of the investigation process to “follow the money”, and identify its sources so that substantial confiscation orders can be considered in appropriate cases, and the money launderers prosecuted.
And thirdly – as I have already alluded to - sophisticated money laundering schemes frequently involve complex webs of transactions across the globe. These often will require banking evidence from foreign jurisdictions. And here the trail can go cold either because the processes of international co-operation are slow, or the states from which the evidence is required show an obvious unwillingness to respond to requests, or indeed the evidence is buried in those states where bank secrecy still obtains. International efforts, through the FATF Non co-operative countries exercise and peer evaluation, is putting pressure on those states which still have structures in place which inhibit international assistance. But even where a country is willing to assist, international co-operation procedures can be cumbersome and slow and are not always geared to the world we now live in - of truly borderless crime.
Lastly, no one should underestimate the difficulties in investigating money laundering in some parts of the world – particularly in those countries where it is alleged that high government officials are laundering the proceeds of their own crimes, often involving corruption and in some cases theft from the national revenue.
Set against these realities, I would suggest that, so far as convictions are concerned for money laundering globally, we should occasionally take time to celebrate the successes that we are having. When you read of money laundering prosecutions being brought against high officials in certain parts of the world, which until recently suffered totalitarian regimes, you can you see how far we are moving. But there is much more to do.
Here in the UK, Parliament is currently in the process of revising our money laundering legislation and confiscation procedures. And more resources are being made available for financial investigation. The Government wants to see more money laundering prosecutions and greater emphasis on confiscation to take the profit out of crime. And I would suggest that, in this global fight, all countries need that lead from the top.
Some Issues in money laundering Prosecution
I now turn to some of the problems thrown up by some money laundering criminal legislation I have encountered.
In my view some national legislation can be too narrow or over-complex, creating uncertainties and difficulties for investigators and prosecutors.
The first problem is often the width of the money laundering offence. Is money laundering in fact a crime for all serious offences within a jurisdiction? Here there are different international standards. The Strasbourg Convention clearly favours an “all crimes” approach to underlying criminality, but allows countries also to criminalise money laundering on a “list” basis. In some countries the lists are very short and much money laundering is automatically excluded from criminalisation.
The current FATF Recommendations refer to criminalising money laundering offences related to Drug Trafficking and calls on countries to extend the offence of drug money laundering to one based on serious offences but leaves it to the countries to determine what is a serious crime. A similar approach is taken under the current EC Directive.
In the EU we are moving to a situation where all crimes that carry a maximum penalty of at least 1 year or a minimum sentence of more than 6 months should covered, which indicates the breadth of offences that the EU is contemplating among its members. For those countries still with short lists of offences this may be indicative of where international standards are headed.
It is a truism that the wider the range of offences that money laundering can embrace the more effective the domestic criminal regime will be. Moreover the wider the range of predicate offences domestically, the more likely it is that a country will be able to afford international co-operation effectively without falling foul of the dual criminality principle.
One other practical objection to short lists of predicate offences relates to the mental element the prosecution may have to prove. In some countries the prosecution must show that D knew the money or property came from a precise incident of the particular crime. This is particularly seen as a problem where countries have short, closed lists of predicate offences. However, with a wider all-crimes approach, courts may be prepared to accept that the prosecution only has to show to the necessary standards that the proceeds came from crime generally and not a specific instance of a particular crime.
Secondly, proving the underlying criminality, to the satisfaction of a court, in money laundering prosecutions can be a problem.
It is a mandatory requirement of the Strasbourg Convention that it shall not matter whether the predicate offence was committed outside the country where the laundering is alleged to have place taken place.
That said, many domestic laws, even among countries that have ratified the Strasbourg Convention, are unclear on this point. It may be argued that this is implied in national law, but the point is often untested. And while it is untested this may inhibit prosecutors bringing proceedings. This is an important practical issue for small jurisdictions (like offshore centres) where any laundering activity is likely to be undertaken in respect of crimes committed abroad. Thus it may be important that national legislation in some jurisdictions makes this matter clear.
Whether the underlying crime is domestic or foreign, I have seen and heard disagreements in several countries about the level of proof required to establish the predicate offence in a money laundering prosecution. It may not be a problem where you are prosecuting for both the predicate offence and the money laundering in the same proceedings. But where money laundering is being prosecuted on its own this is a very live issue.
The solution in some countries is to specify clearly in the legislation that a conviction for money laundering is possible in the absence of a judicial finding of guilt. This approach may commend itself to other countries.
Proving the mental element of the offence can cause real problems for investigators and prosecutors. In many countries a very high level of evidence is thought to be necessary to prove the mental element.
Knowledge that property is proceeds can be interpreted to mean actual knowledge of the particular crime from which the money came, as I indicated earlier. This is a very high burden for prosecutors to overcome.
The international standards refer to knowledge, but make it clear that knowledge should be capable of being inferred by objective factual circumstances and that wilful blindness should be covered.
But in many countries there remain doubts about whether the general criminal law of intent covers the concept of ‘wilful blindness’. Wilful blindness is perhaps another way of saying “strong suspicion”. It may therefore be helpful if countries consider in their criminal legislation going beyond the present international standards, and embracing an alternative mental element in the money laundering offences, that covers suspicion that property is the proceeds of crime, with, of course, the ability to impose lesser sentences than where actual knowledge can be proved.
This is controversial in many countries.
The negligence standard is not currently part of FATF Recommendations though the Strasbourg Convention encourages consideration of a negligence standard. In this country parliament is considering an offence of failure to report suspicious transactions by negligence for the Regulated Sector and failure to report terrorist property offences by negligence is already a criminal offence for the Regulated Sector.
More countries may wish to consider such standards in their domestic systems.
What about criminal sanctions generally to underpin the preventive regime? In many countries the preventive regime is underpinned by administrative sanctions only – and sometimes not very dissuasive ones at that, when you consider the profits of financial institutions. At present there is not, as I understand it, an international standard which recommends criminal sanctions for failure to report, but the evaluations with which I was involved, showed a clear preference among examiners for criminal sanctions to underpin the money laundering preventative laws. It certainly does tighten the regime. It is not for nothing that designated compliance officers in the UK are sometimes known as “designated inmates”. Experience in several countries seems to show that criminal liability does concentrate the minds of financial institutions on their Anti money laundering obligations.
Lastly, perhaps a word about confiscation. The UK record on obtaining and realising criminal confiscation orders can be improved upon. This is recognised, and current legislative proposals will make restraint of proceeds available much earlier in investigations before assets can be salted away to avoid confiscation orders.
Our legislation will continue to ensure property which is the proceeds of crime (whether directly or indirectly) can be confiscated. Similarly when the property is gone courts need to be in a position to make value confiscation orders in lieu of the property.
In many countries I have visited the confiscation legislation is complicated and uncertain and often underused or ignored by the practitioners. Some countries in parts of Europe have confiscation system which appear to date back to previous regimes and do not really cater for the confiscation of criminal proceeds, in the wide sense this is understood in the main international treaties.
I suggest that it is incumbent on states to satisfy themselves that they have modern confiscation systems in place, perhaps borrowing from the experiences which have worked in other jurisdictions, such as reversal of the onus of proof (after a defendant has been convicted) to place the burden on him, in appropriate cases, to prove that property in his possession did not come from crime. Such an approach in the UK has not fallen foul of the European Court of Human Rights (see the judgement in Phillips v UK in July of 2001).
Equally a critical indicator of the effectiveness of a country’s international co-operation regime is its ability to take provisional measures and enforce confiscation orders on behalf of foreign states. Ratification of major international treaties should make this possible, but in reviewing domestic laws, countries need to be sure that their courts really can enforce confiscation orders when the confiscation order in the requesting country is based on different concepts to orders in the requested country.
The criminal dimension in deterring money laundering is just as important as the preventative regime.
Sometimes the obstacles in some domestic systems that need to be overcome to mount successful prosecutions and obtain major confiscation orders seem insurmountable. I remember one judge in one country I visited saying
“It’s like chasing a train that left the station six weeks ago”.
But I think that after September 11th more states are realising that their financial systems must not provide havens for tainted money, and that their criminal regimes need to be more effective, both to cover traditional money laundering from crimes that have already been committed and the financing of terrorist crimes that may take place in the future. This process may require:
So I think there is some cause for optimism that we will have more success as the months go by and that the message of no hiding places for criminal money will get through. Never forget the deterrent effect that one or two major confiscation orders send to those who commit these crimes.
I think also that, since September 11, more people no longer see Money laundering as just another form of white collar crime, but see “cause and effect”: Between Launderers and terrorists; between launderers and the scourge of drugs; cause and effect between launderers and organised crime engaging in extortion and people trafficking. Because make no mistake - in my view Money laundering, in its way, arguably presents as great a threat to our societies as the more obvious threats, understood by all, which are presented by serial killers, sexual offenders, paedophiles and all other criminal public enemies.
Thank you.
“Stop Money Laundering!” Conference - 26th February 2002, London