Chapter 15 Anti-Money-Laundering Policies—Selected Legal, Political, and Economic Issues
- International Monetary Fund
- Published Date:
- August 1999
Efforts by governments to control cross-border money laundering have intensified in recent years. Over the past decade, a broad political consensus appears to have arisen in favor of the implementation of effective anti-money-laundering policies, at least in most developing countries. However, the question has also arisen of whether, in some instances, the war against money laundering may be going too far. For example, a 1998 Wall Street Journal article entitled “How Money Laundering Hit a Wealthy Family”1 related the story of how $54 million—virtually the entire financial assets of a Chilean extended family—were effectively frozen by the U.S. Government under U.S. anti-money-laundering and civil forfeiture legislation.2 The family, formerly prized Citibank customers who held their wealth legitimately, lost control over their U.S.-based assets because the federal government asserted that they had helped to launder money for a Mexican drug lord.
According to the Article, the money-laundering transaction occurred when a bank owned by the Chilean family cashed $400,000 in travelers checks. At first blush this would seem to be a large amount of money that naturally would arouse the suspicions of the bank. Indeed, the size of the cash transactions did trigger some questions. The customer insisted that he needed the cash to buy a house, which turned out to be true, and what was at least a cursory inquiry into the identity of customer raised no red flags. It turned out, however, that the customer was a suspected drug lord operating under an alias. In ordering the seizure of $54 million in assets, U.S. investigators had not proven that the Chilean bank had not exercised reasonable effort to ascertain the bona fides of their Mexican customer. However, because the costs to the bank of even a temporary seizure of its American assets were so substantial, they agreed to settle the case by paying over the entire value of the traveler’s check transaction to the United States.
A number of relevant facts should be noted. There were no allegations that the traveler’s checks themselves were stolen from U.S. citizens, or in some other way represented a fraud upon a U.S. citizen, only that they may have been purchased using the proceeds (profits) of a criminal activity. That criminal activity was largely the production and sale of illegal narcotics. Much of the profits came from the voluntary purchase of such narcotics by U.S. residents, an activity that the U.S. government, including law enforcement agents, was unable to prevent. There were no serious allegations that the bank was knowingly participating or somehow conspiring with the alleged Mexican drug lord in furthering his criminal enterprise, at least as such terms are normally understood. Therefore, one way to interpret what had happened was that the U.S. government was forcing a Chilean bank to take responsibility to enforce U.S. narcotics laws when the United States could not, or would not, do so itself.3
The attorney who represented the Chilean family called U.S. money laundering laws “draconian.” However, U.S. laws are less draconian than many. Could it be that the pursuit of ever more effective anti-money-laundering laws may be going too far? If this is the case, why? And, more specifically, should anti-money-laundering policies be a matter that international financial institutions, especially the IMF, should make central to their operations?
This paper seeks to raise some questions about the way in which the international community has advanced the anti-money-laundering crusade. It starts by looking at the history of anti-money-laundering efforts and what their purposes have been, which is essentially to fight the underlying or “predicate” crime. The paper then examines some recent arguments that suggest that there are other purposes as well, purposes involving macroeconomics and, in some cases, the international financial system. The paper then questions whether some anti-money-laundering laws may have gone too far. Finally, given this analysis, it raises some questions over the role of international financial institutions, particularly the IMF, in the fight against money laundering.
The Origins of Anti-Money-Laundering Policies
Sustained interest in what has come to be known as money laundering began in the early 1980s, primarily within the context of concern over the growing problem of drug abuse, and particularly of international drug trafficking by organized crime. Existing efforts to reduce the availability of drugs, including the arrest of both users and producers, the destruction of drug manufacturing facilities, and the interception of drugs at the border, appeared insufficient to national leaders. Although their scope was to expand beyond narcodollars, anti-money-laundering policies began largely as an additional weapon in the armory against the international drug trade.4
Over the past 25 years, international drug trafficking has become an enormous business, generating huge domestic and international cash flows. However, criminal sanctions against narcotics trafficking could include long prison sentences and the seizure of both the receipts and working capital of the enterprise. In order to protect both their property from forfeiture and themselves from prison, narcotics traffickers needed to disguise the illegal origins of what came to be known generically as narcodollars. This process of disguising became known as “money laundering,” because it “washes away” the “stain” of illegality. The first anti-money-laundering laws were drafted primarily as a way of attacking this process. Also, the net profits from narcotics vastly exceeded the amount necessary for additional investment in drug trafficking, and new investment opportunities were needed. Therefore, in addition to hiding money for personal consumption and for reinvestment in the drug trade, money laundering was designed to free up cash to invest in legitimate business.
By and large, the drug trade was based in a number of Latin American and East and Central Asian countries, where most of the poppies, cocoa, and cannabis were grown and processed into narcotics, primarily but not exclusively for export to industrial countries. Narcodollars from this trade, realized in both the countries of production and the countries of consumption, were laundered through a number of financial centers, often those with strong bank secrecy laws. The laundered funds were then invested throughout the world, in both developed and emerging markets.
The United States became one of the first countries to enact effective anti-money-laundering laws. However, not every important money laundering center implemented effective anti-money-laundering policies. Countries like the United States took the lead in pressing for what became the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention).5 This was the first major international agreement to encourage all nations to reduce the international narcotics trade by enacting uniform anti-money-laundering laws. The Vienna Convention requires every member nation to enact legislation providing for the identification and confiscation of laundered drug money. It also sets out procedures for mutual legal assistance in countering drug trafficking and money laundering, including both criminal process and information sharing. In July 1989, as anti-drug rhetoric continued to increase, most particularly in the developed world, the Group of Seven set up the Financial Action Task Force on Money Laundering (FATF).6 The declaration setting up the FATF stressed the importance of developing more effective ways of tackling the financial aspects of drug trafficking.
A key to the Vienna Convention and FATF Recommendations is that they are intended to reduce not only crimes that occur domestically but that occur abroad as well. The fact that money laundering often takes place outside the jurisdiction where drugs are grown, processed, or sold, resulted in the international effort to enact anti-money-laundering legislation.
While the impetus for most early anti-money-laundering legislation, and for the adoption of the Vienna Convention and the FATF’s first set of 40 recommendations,7 came as part of a broad anti-narcotics strategy, the scope of at least some national anti-money-laundering legislation was not always limited to drug trafficking per se. During the late 1980s, while attention was still largely focused on the problem of narcotics, both national and international anti-crime organizations noted that international organized crime was involved not only in narcotics, but in other forms of illegal activities, including gambling, extortion, prostitution, counterfeiting, and arms trafficking. They also noted that other forms of illegal activities, such as industrial espionage and intellectual property theft, though not typically carried out by traditional organized crime, were also producing considerable sums of money in need of laundering. It was argued that anti-money-laundering legislation did not need to be limited to narcodollars.
Although the Vienna Convention was concerned only with drug trafficking, the 1990 Council of the European Convention on the Laundering, Search, Seizure, and Confiscation of the Proceeds of Crime (European Convention) accepted the logic that anti-money-laundering laws need not be restricted to narcotics proceeds.8 The Preamble of the European Convention states that it is directed against “serious crime,” while the definition of what crimes are covered is left to the enacting state. The FATF’s 1990 Report (FATF Report) stressed that while most laundered money came from drug profits, each country should consider “extending the offense of drug money laundering to any other crimes for which there is a link to narcotics; an alternative approach is to criminalize money laundering based on all serious offenses ….” The European Convention Directive stated that “since money laundering occurs not only in relation to the proceeds of drug-related offenses but also in relation to the proceeds of other criminal activities (such as organized crime and terrorism), the Member States should, within the meaning of their legislation, extend the effects of the Directive to include the proceeds of such activities .…”9
The purpose of anti-money-laundering laws and treaties is to suppress certain criminal behavior, most importantly, though certainly not always, narcotics trafficking. This behavior is often, though again not always, undertaken in various jurisdictions. At least, this is the general purpose for which anti-money-laundering treaties, and the FATF’s recommendations, were concluded. Anti-money-laundering rules work by reducing the profitability of criminal enterprises, by either making it harder to consume or invest profits, and by making it easier to prosecute the criminals.
The focus of anti-money-laundering policies has grown from narcotics trafficking to other serious crimes, the most important of which are financial crimes. The FATF’s 1997–98 Report on Money Laundering Typologies10 noted that several members cited increased cigarette and alcohol smuggling as the main origin of capital for laundering. Others cited usury, investment and VAT fraud, and false invoicing.
Money Laundering and the International Financial System
While the prevention of the underlying or predicate crimes was the goal of anti-money-laundering legislation, recent commentators have suggested other purposes.11 Each attempts to attribute to laundered money adverse macroeconomic effects. Those adverse effects include
inaccuracies in macroeconomic data, which can result in less effective fiscal policy;
investment decisions based on ease of money laundering rather than rate of return, which can result in an international misallocation of capital;
erosion of confidence in financial markets, which can result in unpredictable international capital movements and which can weaken financial institutions;
tax evasion, which can cause national budget deficits; and
increase in underlying criminal activities (predicate offenses resulting in dirty money), which can result in the promotion of private economic over social welfare.
An implicit, although not expressly stated, ancillary argument appears to be that these macroeconomic effects justify the involvement of international financial institutions in promoting anti-money-laundering policies among its members. This is because such institutions do not include in their mandates Interpol-like mandates against crime in general. However, such institutions have recently given increased attention to the issue of money laundering, and their staff have attended meetings of the anti-money-laundering Financial Action Task Force.
Questions have been raised as to whether these arguments suggesting adverse macroeconomic effects of money laundering are in fact convincing. These questions are not surprising, given that anti-money-laundering policies are fundamentally the tools of crime prevention, while the motivation behind such policies is one of morality, not of macroeconomics. No domestic legislation or international treaty apparently suggests otherwise. Some of the issues are the following.
1. Inaccuracies in macroeconomic data may result in less effective fiscal policy.
The argument that the secrecy involved in money laundering results in inaccurate macroeconomic data is based less on the effects of money laundering than it is on the effects of crime in general. To the extent that anti-money-laundering policies reduce predicate crimes, one can argue that there would be less “black” money in the economy. This would make anti-money-laundering policies no more of a macroeconomic tool than any other anti-crime policy, including interdiction, drug education, methadone maintenance therapy, policing, incarceration, probation supervision, and a host of other activities recommended by criminologists to reduce the incidence of crime, most especially drug abuse.
With regard to money laundering itself, the case is far less strongly made. The purpose of money laundering is to disguise the ownership or illegal origins of property, and to invest the profits of illegal activities in legitimate business. It is not generally to hide the existence of profits or property. In fact, it is the operation of money laundering that brings “black” money into the formal economy, and that makes it subject to macroeconomic reporting. Probably most money laundering activities are undertaken through formal financial institutions, often by using unnamed bank accounts and bearer instruments. Although the illegal origins or actual ownership of such property may be disguised, the act of money laundering makes the existence of the property known to the formal economy. One might even argue that anti-money-laundering policies, by forcing criminals to launder their proceeds outside of the formal economy, make macroeconomic data even less accurate.
2. Investment decisions based on ease of money laundering and not rates of return may result in an international misallocation of capital.
The argument is not very convincing that criminal proceeds in the form of investment capital are directed not by the highest rate of return but by the ease with which money can be laundered. It would be difficult to argue with a conclusion that criminal proceeds are directed for laundering to financial centers with relatively lax anti-money-laundering measures. However, this by no means suggests that laundered proceeds are then invested in those jurisdictions. Capital that is properly laundered can be invested in a legitimate (or, for that matter, illegitimate) enterprise anywhere. This is, after all, the principal reason for engaging in laundering in the first place. In fact, it can be argued more easily that money laundering facilitates the reinvestment of criminal proceeds into legitimate business, thereby allowing such proceeds to seek the highest rate of return.
As with (1) above, one could argue that money laundering facilitates underlying crimes and that underlying crimes misallocate capital. However, also as with (1), this would make anti-money-laundering activities no more of a macroeconomic tool than any other anti-crime policy.
3. Erosion of confidence in financial markets may result in unpredictable international capital movements and a weakness in financial institutions.
The argument that money laundering erodes confidence in financial markets is based on two suppositions: first, markets handling the proceeds of crime are somehow generally suspect by investors and, second, specific financial institutions engaging in laundering are less sound. The first supposition maintains that criminal proceeds are invested on a more short-term basis than are other types of capital, and are therefore more susceptible to faster, more unpredictable movements. However, to my knowledge there is no empirical evidence to this effect, nor is there a convincing theoretical argument that this might be so. Effectively laundered money should be no more nor less short term than any other type of capital. It can be used for short-term indirect or long-term direct investment.
The second supposition is that markets and institutions engaged in money laundering are less sound because the funds might be subject to seizure or the institutions to sanctions under anti-money-laundering policies. This argument states in essence that the anti-money-laundering policies have negative macroeconomic implications, not the money laundering itself. A corollary would be that an absence of anti-money-laundering policies protects the integrity of markets and financial institutions that handle large sums of illegal proceeds.12
It also might reasonably be argued that not all jurisdictions have adopted or are likely to adopt truly effective anti-money-laundering policies. Established markets in jurisdictions with effective investor protection and prudential regulation are most likely to be subject to anti-money-laundering policies. As a result, it is more likely that illegal proceeds will be increasingly shifted to relatively unestablished markets with little investor protection or prudential regulation. Therefore, the spread of anti-money-laundering policies is likely to subject ever greater amounts of capital to the risks of untried and unregulated markets and financial institutions.
4. Tax evasion.
The purpose of money laundering is to conceal the ownership or origins of the proceeds of crime. In many jurisdictions, evaded taxes have come to be included as criminal proceeds. So, to the extent that anti-money-laundering policies make it easier to collect these taxes, one can reasonably argue that they would have a positive effect on budgets, and therefore on macroeconomics. However, it should be noted that anti-money-laundering policies may have a counterbalancing effect as well. By making it more difficult to launder criminal proceeds, anti-money-laundering policies would make it more difficult to invest criminal profits in legitimate, taxpaying business. Also, any jurisdiction that loses business to nonresident financial institutions as a result of its anti-money-laundering policies would also lose tax revenues on that financial business.
5. Increase in underlying criminal activities can result in promotion of private economic over social welfare.
The argument that less crime is good for the economy, and that anti-money-laundering policies reduce crime, is the most straightforward of all those presented. However, this conclusion may not always hold true. As discussed above, anti-money-laundering policies are directed not only to predicate crimes committed domestically but to predicate crimes committed abroad. In fact, this latter effect is the main focus of international anti-money-laundering policies. Two jurisdictions, however, may not necessarily bear equally the costs of a crime committed only within one. For example, a country that grows and processes narcotics may not consume them in significant quantities, but may instead sell them abroad, promoting its own economic welfare and an improved balance of payments. Only the importing countries may suffer a decline in social welfare. In such an instance, it would be counterproductive, at least from a macroeconomic perspective, for the producing country to pursue anti-money-laundering policies. It would also be counterproductive, again from a macroeconomic perspective, for the producing countries if the importing countries were to pursue such policies.
Another problem arises from there being no international congruency as to what constitutes a serious crime. As a result, the anti-laundering policies of some countries could actually infringe upon both the economic and social welfare of others. While trafficking in the strongest narcotics is a serious crime in most if not all jurisdictions, this is not the case with the weaker narcotics. For example, in some jurisdictions enforcing strict Islamic law the manufacture, sale, or ingestion of alcohol is often a very serious crime. Under an anti-money-laundering statute similar to those found in many developed country jurisdictions, the production and sale of alcoholic beverages would give rise to criminal proceeds. However, in many other countries the manufacture of alcoholic beverages is not only legal, but constitutes a major industry contributing substantially to employment. In fact, in some countries, such as Britain, France, Canada, and the United States, the export of alcoholic beverages has played a material role in improving balance of payments. As a result, any anti-money-laundering law that helped an Islamic country could have at least some adverse economic and social consequences for a country where the manufacture and sale of alcohol is permitted.13
The point of this discussion is not to suggest that some jurisdictions have either more stringent or more lax social standards, or that some behavior is more or less benign. Jurisdictions with different social, religious, and moral traditions view behavior differently. However, even in those instances where one can categorically agree that the predicate crime damages social welfare, anti-money-laundering activities would be no more of a macroeconomic tool than would any other anti-crime policy. This point is significant when one considers anti-money-laundering polices and the mandates of international financial institutions.
The Severity of Money-Laundering Laws
It can be reasonably argued that anti-money-laundering rules are not designed to protect the international financial system, but to reduce the incidence of the predicate crime. In effect, anti-money-laundering rules are designed to accomplish what the laws prohibiting the predicate crime themselves cannot alone accomplish. They are, in effect, an attempt to plug a hole. If one cannot, for example, prevent drug abuse directly, the theory goes, one must do it indirectly, through anti-money-laundering rules. If one cannot stop the drugs from crossing borders, one can try and stop the cash.
Such a strategy itself may be flawed. Certainly, there is no reason not to augment a partially successful strategy with new techniques. However, relying too heavily on anti-money-laundering rules to play this role in the control of international crimes may not be wise. To begin with, it may, as suggested above, involve a country “exporting” its problems overseas. If, for example, the government of an illegal drug-consuming country is incapable of convincing its own people to stop using illegal drugs, or is unable to protect its own borders, or—more likely—refuses to spend the necessary public funds to accomplish either of these goals, it may wish to turn the problem into a money-laundering issue. It then becomes the duty of private parties at home and abroad to stop the flow of drugs by stopping the flow of profits.
One of the problems with this approach may be an incentive, and perhaps even a tendency, for countries to create ever more draconian anti-money-laundering laws. It may be less expensive (and can, thanks to civil forfeiture, actually even be profitable) to use these laws than to attack the underlying problem directly.
As suggested by the incident reported in the Wall Street Journal, anti-money-laundering laws can turn out to be exceptionally harsh, although they need not be. The basic elements of anti-money-laundering legislation are organized around three basic themes. First, the act of money laundering is made illegal, criminal and civil penalties are provided, and laundered money, as well as profits generated by such money, is made forfeitable to the government. Second, designated legal and physical persons who are likely to be used to launder money are required to exercise a high degree of vigilance in the lookout for laundering and are required to report serious suspicions to an anti-money-laundering authority. This is often referred to as the “know your customer” requirement. Failure to do so is also made illegal, and civil and criminal penalties are provided for. Third, provisions for cooperation with foreign jurisdictions are outlined.14
However, these general “themes” can be implemented in different ways, some of which can be extremely onerous. One example15 defines money laundering as “engaging, directly or indirectly, in a transaction that involves property that is proceeds of crime .…” It should be noted that in this definition there is no requirement that there be any act or attempted act actually to launder criminal proceeds, i.e., to hide the ownership of proceeds or to make proceeds appear to be legitimate. Commerce in a free society requires the ability to engage in arm’s-length transactions of goods and services. Outside traditional money-laundering legislation, market-based economies protect such commerce by requiring that, for a crime involving criminal proceeds to take place, a person (i) must himself be involved in the predicate offense (i.e., he is a principal or conspirator to that offense), or (ii) must engage in a transaction involving stolen goods for the purpose of depriving a rightful owner of his property (i.e., he is receiving stolen property). Stolen property is only one subset of criminal proceeds, in that a person may well have proper title to property that is otherwise the proceeds of crime. But as can be seen from the above example, neither of these elements is required. A person could be guilty of the crime of money laundering simply by purchasing, for adequate consideration and from a completely unrelated party, property to which the seller had proper title. It should be recalled that this would not only make the purchaser liable to criminal prosecution, but would subject the property to confiscation.
Another example allows a person to be found guilty of money laundering if he intentionally engaged in hiding the origins or ownership of the proceeds of crime, even if he did not actually know that the money was tainted. This example also deems a person guilty of the crime of money laundering if he “acted in an official capacity” for an organization that engages in money laundering, again without requiring any criminal intent. It is true that sometimes, as an evidentiary matter, intent can be inferred from the facts and circumstances. For example, criminal intent on the part of an officer or director of an organization can usually be inferred if the official knew that the organization was involved in criminal activity. In addition, most national anti-money-laundering laws include, in some very limited cases (e.g., officers of financial institutions), an affirmative duty to make reasonable efforts to determine if the financial institution is engaged in money laundering. However, absent such special cases, to be guilty of money laundering, an official of an organization would have to have knowledge of such money laundering activities. The above example, however, goes much further. If a volunteer at a local Red Cross blood bank is involved in laundering drug money, all of the directors and officers of the International Red Cross could also be guilty.
In yet another example, the “proceeds of crime” subject to forfeiture includes any property that “is mingled with” proceeds of crime. Such a provision would authorize the confiscation of property that is not actually the proceeds of crime. For example, if a criminal added a single dollar of the proceeds of a crime to a person’s bank account, even an innocent person’s bank account, the entire account might be deemed “proceeds” of a crime and could be seized.
Money Laundering and International Financial Institutions
Given that anti-money-laundering rules are primarily tools to help governments prevent underlying crimes and are not typically concerned with macroeconomic or financial matters, and given that such rules can be quite draconian in nature, some questions should naturally be raised as to the proper role of international financial institutions in money-laundering issues. Perhaps such institutions should concentrate on anti-money-laundering policies only to the extent that the underlying crime gives rise to problems with which they are otherwise concerned. Even then, perhaps they should only do so with great care so as to ensure that in the zeal to prevent money laundering, broadly accepted international principles of civil and political rights are not abridged. In the case of the IMF, for example, what crimes might these be?
Narcotics consumption has not appeared regularly as a concern in Article IV16 staff reports or in documents relating to IMF-supported programs, at least not in those that are publicly available. However, the presence of narco-terrorists in certain producing countries can have serious adverse economic effects in those countries. Therefore, one could argue that consumption of narcotics contributes to such ill effects, and that therefore anti-narcotics policies should be of concern to the IMF. Of course, others will argue that narco-terrorism is a result not of narcotics consumption, but of pressure brought by governments of consuming countries to stop production and sale by using any means. Some might suggest that such efforts, including enforcing anti-money-laundering rules, would better be spent on anti-drug education or to treat addicts in the consuming country. If macroeconomics is the issue, these questions probably should be addressed. In fact, much the same can be said for prostitution, as well as other crimes.
Financial crime, one might think, would be of greater importance to a country’s macroeconomic health than would drug abuse. Again, however, a perusal of Article IV staff reports and other documents publicly available suggests that general, private-sector financial crime has not always been a central concern of IMF economists. However, one type of financial crime, the theft of state resources by corrupt government officials, has been cited by IMF staff as being of concern, as has most recently the financial crimes known as “crony capitalism.” Working to prevent the laundering of proceeds from these crimes would logically flow from the IMF’s concern with the crimes themselves.
How are the proceeds of government corruption and crony capitalism “laundered”? In some cases, it means sending the money abroad into secret bank accounts, or purchasing foreign real estate by shell corporations. But often, the “proceeds” are “laundered” simply by acquiring interests in legitimate domestic businesses. While it might be difficult for the IMF to address this type of “laundering,” particularly in the context of IMF conditionality, it might not be impossible.
For example, assume that a government official, or a member of his family, bequeaths certain government benefits to a domestic business enterprise, in exchange for which he acquires an interest in that business. The country then experiences a foreign exchange crisis, in part because of the corrupt nature of business dealings between this government official and business, in other words, because of crony capitalism. In fact, one could say that the government official has “laundered” the proceeds of crime (the profits of crony capitalism) by using them to purchase interests in legitimate business. The IMF could then agree to support a program in that country based on the implementation of certain conditions, including that laws be changed to reduce or eliminate such crony capitalism. The IMF could also require as a condition for access to IMF resources that the government official or his family give back what they got as a result of corruption. As a result, the IMF, through the provision of financial support, allows the country’s economy to recover, while requiring the officials to make restitution. In fact, if the IMF did not, could someone argue that the IMF had helped to “legitimate” the “proceeds of crime?” Would that be money laundering?
To pose another question, should the IMF exercise a certain diligence (“know its customer”) with respect to the source of its members’ financial transactions with it?
Of course, the IMF is neither a policeman nor a private bank, and must consider many different issues, including the health of the international financial system in general. But these examples may serve as a warning as to a number of matters, ranging from the definition of what constitutes money laundering (including such questions as “intent” and “the proceeds of crime”), to what issues with which the IMF should concern itself.
It is not the intent of this paper to argue that governments should give up using anti-money-laundering legislation to fight underlying crimes, nor to suggest that international cooperation cannot assist in this process. In fact, it would appear that international financial institutions like the IMF may have a relevant role to play in this process. However, this paper does intend to raise a number of questions about this process, and suggest that the issues may not be as obvious as some may think. Careful consideration of these questions is required before adequate answers can be given.
Wall St. J., May 6 1998, at A19. Further information regarding the case was provided to the author on a “not for attribution” basis.
See 18 U. S. C. § 981(a)(1)(A) (1994), which provides that “[a]ny property … involved in a transaction or attempted transaction in violation of” section 1956 (laundering of monetary instruments) “is subject to forfeiture to the United States”; and 21 U. S. C. § 881(a)(6) (1994), which provides for the forfeiture of (i) “[a]ll … things of value furnished or intended to be furnished by any person in exchange for” illegal drugs, (ii) “all proceeds traceable to such an exchange,” and (iii) “all moneys, negotiable instruments, and securities used or intended to be used to facilitate” a federal drug felony. Key U.S. anti-money-laundering laws include the Money Laundering Control Act of 1986, Pub. L. 99–570, Stat. 3207–18 to 3207–39 (1986), the Money Laundering Prosecution Improvements Act of 1988, Pub. L. 100–690, 102 Stat. 4354 to 4358 (1988) and the Money Laundering Suppression Act of 1994, Pub. L. 103–325, 108 Stat. 2243 to 2255 (1994). For a general discussion of the scope and application of the original act, including responsibility of bankers to know their customers, see Charles T. Plombeck, Confidentiality and Disclosure: The Money Laundering Control Act of 1986 and Banking Secrecy, 22 Int’l Law 69 (1988).
Drug enforcement regimes based on international efforts to control trafficking, rather than on domestic education and treatment programs, have also been criticized. See, e.g., John Donnelley, The United Nations Drug Control Regime, in Drug Policy in the Americas, at 282 (P.H. Smith ed., 1991).
See generally, President’s Committee on Organized Crime, Interim Report to the President and the Attorney General, The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering 3 (1984); Charles Intriago, International Money Laundering 3 (1991).
Dec. 20, 1988, 28 I.L.M. 493, 26 U.N.T.S. 3 (1992) [hereinafter Vienna Convention]. This was originally adopted in 1988, and as of November 1998 had 130 signatories. It should be noted that efforts at international cooperation in curbing illicit narcotics trafficking have a long history, dating back to 1912 and the International Opium Convention. For a brief history, see generally, M. Cherif Bassiouni, The International Narcotics Control Scheme in International Criminal Law 507-24 (M. Cherif Bassiouni ed., 1986).
For a discussion of the Financial Action Task Force’s origins, see Directorate for Financial, Fiscal and Enterprise Affairs, Organization for Economic Cooperation and Development, Financial Action Task Force on Money Laundering Report at Introduction II (B) (1990).
See id. at III (B).
Council Directive 91/308, 1991 O.J. (L 166) 77.
Directorate for Financial, Fiscal and Enterprise Affairs, Organization for Economic Cooperation and Development, Financial Action Task Force on Money Laundering Report, Report on Money Laundering Typologies 1997–98, annex 3 (1997).
See, e.g., Peter Quirk, Macroeconomic Implications of Money Laundering (Monetary and Exchange Affairs Department, International Monetary Fund, 1996).
It has also been argued that anti-money-laundering policies as applied to financial institutions are a type of prudential regulation. They are not. A financial institution’s soundness depends upon its capitalization and appropriate risk discounting of its investments (including arm’s length lending, diversification, etc.). Concealing the ownership or origins of a depositor’s funds is unrelated to these issues. The past soundness of the Swiss banking sector is an excellent example of this point.
On the other hand, U.S. laws prohibit the production and sale of cannabis, and the proceeds of the cannabis trade are among the most important targets of U.S. anti-money-laundering policies. However, Dutch laws, while prohibiting the sale of cannabis, do not prohibit consumption. Other examples of incongruity as to what constitutes a serious crime, from polygamy and prostitution to alcohol consumption, blasphemy, and interfaith marriage, exist among IMF members.
For a description of these main points, as well as their origins, see generally, William Gilmore, Dirty Money: The Evolution of Money Laundering Countermeasures 23 (1995).
These examples are taken from a draft model anti-money-laundering law provided the author by an international organization.
See International Monetary Fund Articles of Agreement (April 1993), Art. IV.