Impact of crimes
The workshop was divided into three panels. The first, introduced and moderated by IMF General Counsel Françis Gianviti, included Rick McDonell of the Asia/Pacific Group on Money Laundering; Judge Jean Françis Thony of the Court of Appeals of Versailles, France; and Jack Blum of the Washington, DC, law firm of Lobel, Novins & Lamont. The panel members drew particular attention to underlying crimes that had potentially adverse economic effects on countries, such as corruption by public officials. This form of financial abuse, they noted, can seriously retard economic development by raising costs to business, inhibiting foreign investment, and reducing government resources. The panelists also discussed organized crime, whose effects are similar to those of public corruption. Both activities can be severely destabilizing politically, they observed, and both activities often have their proceeds laundered offshore, including through major financial centers like New York and London.
Link between financial crimes
Policies designed to combat money laundering, according to the panelists, may also prevent and uncover other financial sector crimes. In particular, they said, financial intelligence units originally designed to uncover money laundering by examining data from banks and other financial institutions can also play an important role in detecting such crimes as check, credit card, and advance fee fraud. The panel members noted that financial intelligence units from different jurisdictions can also expose patterns of crime across borders by sharing information among themselves.
The second panel, also introduced and moderated by Gianviti, consisted of José María Roldán Alegre, President of the Financial Action Task Force (FATF) of the Organization for Economic Cooperation and Development, and Timothy Lemay of the United Nations Office for Drug Control and Crime Prevention (ODCCP). They discussed the FATF’s efforts to identify “noncooperative countries or territories” whose efforts to control money laundering have been inadequate. Of the 15 jurisdictions it has identified as noncooperative, most, according to the panelists, have made progress in passing laws or regulations to address deficiencies. At the June FATF plenary meeting, they said, 7 of the 15 jurisdictions will probably be removed from the noncooperating list.
Panel members also stressed the importance of bolstering the fight against crime by attacking the laundering of proceeds from crime. The largest amount of laundered proceeds arises from narcotics trafficking, prostitution, and terrorism. Policies to deter and prosecute these underlying crimes, they cautioned, cannot be divorced from efforts to prevent and uncover the laundering of the criminal profits.
Panelists also focused on the importance of providing technical assistance to jurisdictions in designing and implementing effective anti–money laundering policies and observed that both FATF member countries and the ODCCP are playing a central role in providing such assistance. The IMF and the World Bank, the panel members noted, may have an important role to play in providing additional technical assistance in this area.
Adequacy of control environment
The third panel, introduced and moderated by Hassanali Mehran of the IMF’s Monetary and Exchange Affairs Department, included Stephen M. Hoffman, Jr., of the U.S. Federal Reserve Board’s Division of Banking Supervision and Regulation and John Kitchen, formerly of Coutts & Co. They provided an overview of risk-focused supervision, which gives special emphasis to the adequacy of the control environment. Financial institutions, especially in a global financial system, must maintain the value of their business franchise, which, in the context of financial abuse and money laundering, means paying attention to their reputation and to the legal risks inherent in their banking business.
The panelists also voiced a number of concerns. First, while there is no physical limit to the policies, procedures, and compliance measures that a regulator could force on an institution to control any risk, there is a point at which the costs incurred in controlling the risk will outweigh the benefits. Therefore, if institutions are required to meet standards of financial reporting and record keeping to guard against money laundering, fraud, or other crimes, the requirements and risks need to be properly balanced.
A second concern is that bank supervisors are increasingly expected to contribute to domestic and international law enforcement efforts–whether for money laundering, organized crime, or tax evasion. In time, these investigative or law enforcement functions could change the tone of the dialogue that supervisors have with the banks they oversee. One potential danger, they noted, is that such a change in the relationship could affect supervisors’ ability to discharge their broader legal mandate to ensure the safety and soundness of the banking system.
Panelists also discussed the important role of offshore financial centers in the global financial system. They noted that the offshore industry emerged in the late 1960s in response to changes in U.S. tax law that levied withholding tax on certain interest payments. The result was the offshore euro capital markets, which are now a valuable component of the international financial system. A similar development, it was noted, occurred in the insurance industry. However, panelists pointed out that many of these offshore banks and insurance companies evolved into fully staffed offices providing a broad range of services.
Other objectives served by offshore centers, they observed, include tax mitigation for U.S. multinational corporations through the use of offshore foreign international sales corporations. Funds management and the shipping industry were also objectives.
In closing remarks, Gianviti and Manuel Conthe, Vice President of Financial Sector Operations at the World Bank, noted that panelists had raised a number of issues that were important in the fight against financial crime and that also related to the role of the IMF and the Bank in such a fight. They drew attention to several obstacles that hindered effective international anti–money laundering efforts, including diverse views among countries as to what constituted a predicate, or underlying, crime to money laundering and the difficulty of coordinating law enforcement responses among countries. They also noted that the adverse effects of money laundering could vary greatly among countries, especially between the country where the underlying crime is committed and the country where the proceeds are laundered. However, they suggested that the adverse economic effects of serious crimes—including, in particular, organized crime and crimes against financial institutions—required a firm response from the international community.