Working Together
Chapter

3 Egmont Standards and Practices for Defenses Against Money Laundering and for Countering the Financing of Terrorism

Author(s):
International Monetary Fund
Published Date:
June 2007
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SHOBA KAMMULA

1. Background on Egmont Group of Financial Intelligence Units

  • 1.1. The Egmont Group is an informal network currently comprised of 94 financial intelligence units (FIUs). FIUs play an important role in cross-border information sharing.

  • 1.2. Egmont defines an FIU as follows:

    • A central, national agency responsible for receiving, (and as permitted, requesting), analysing and disseminating to the competent authorities, disclosures of financial information:

    • (i) concerning suspected proceeds of crime and potential financing of terrorism, or

    • (ii) required by national legislation or regulation, in order to combat money laundering and terrorism financing.”

  • 1.3. Recently, the Egmont Group added the combating of terrorism financing to the scope of the FIU’s functions.

  • 1.4. Membership in the Egmont Group is restricted to FIUs that satisfy the requirements of membership. The Egmont Group has formed an Outreach Working Group that approaches and works with potential candidates to prepare them for membership. Once the Outreach Working Group is satisfied that the candidate is performing the functions of an FIU, it recommends the FIU’s candidacy to the Legal Working Group. The role of the Legal Working Group is to ensure that there is an adequate legal basis for the FIU and its core functions. Once the Legal Working Group is satisfied that the candidate FIU has a proper legal basis, the candidate is referred to the heads of the Egmont FIUs, which vote on membership.

  • 1.5. Egmont members must agree to abide by Egmont’s Principles of Information Exchange. In sum, these principles provide that information requested from an Egmont member is to be used only for the purpose for which it was requested. At all times, the FIU providing the information maintains control over how the information will be used, because it must consent to how the information will be used and with whom it will be shared.

  • 1.6. Information exchange through the Egmont FIU network fosters two important concepts: trust and confidentiality. As explained later in this chapter, these are critical in encouraging speedy cross-border information exchange.

2. Benefits of Information Exchange Through the FIU Network

  • 2.1. As an informal network, Egmont FIUs are able to exchange information expeditiously, because the exchange is not subject to the more burdensome requirements of other forms of information exchange, such as mutual legal assistance treaties (MLATs). The FIU process, however, cannot replace the MLAT process, because these two processes serve very different and distinct purposes.

  • 2.2. While the MLAT is a vehicle for exchanging evidentiary material that can be used in formal court proceedings, the FIU network allows for the exchange of financial intelligence. Intelligence is used to develop an investigation but generally has no evidentiary weight. Thus, the FIU network is typically employed at the outset of an investigation, during the information-gathering process. The intelligence exchanged by FIUs consists primarily of suspicious transaction reports (STRs). In most countries, STRs have no evidentiary weight, because they are filed by financial institutions regarding possible or suspected money laundering. STRs are often referred to as “lead” information, because they may lead or direct law enforcement toward a potential financial trail that can be used to develop an investigation. Once the case is in the formal court-proceeding stage, law enforcement generally must use more formal channels, such as a court order or mutual legal assistance treaty, to obtain information that can be used in court. Because the STR generally cannot be used in court, law enforcement must obtain the underlying financial institution records about the particular customer or transactions that could be admitted in court.

  • 2.3. Although the FIU exchange is less burdensome and quicker than the more formal MLAT mechanism, it is still subject to important restrictions and controls on the dissemination of the intelligence. STRs constitute highly sensitive material not only because they involve financial information but also because they are based only on suspicions. For this reason, STRs are not made public, and the FIU providing the infor mation always retains control over how it is used, consistent with the Principles of Information Exchange. At the same time, the Principles of Information Exchange also encourage the free exchange of information and, accordingly, limit the extent to which such control will, in practice, be exercised in, for example, cases where dissemination would fall beyond the scope of application of the FIU’s anti-money laundering/combating the financing of terrorism (AML/CFT) provisions or could lead to impairment of a criminal investigation.

  • 2.4. Information exchange is also relatively quick within the Egmont Group, because FIUs are dealing with counterparts that they trust. All Egmont members have been vetted by the Egmont process and have agreed to abide by the Egmont Principles of Information Exchange. This allows information to be exchanged without fear that it will be disclosed inappropriately.

3. Obstacles to Information Exchange Between FIUs

  • 3.1. FIUs are each subject to a different set of legal, political, and historical factors. These differences can create obstacles to information exchange. Broadly speaking, there are two types of obstacles to information exchange between FIUs: legal and structural.

  • 3.2. Legal barriers to information exchange include differences in the laws governing each FIU. For example, the issue of what constitutes a crime, and therefore a predicate offense for money laundering, may differ depending on the law of each country. An FIU in one country may be seeking information related to an activity which the other FIU does not recognize as a criminal offense. Again, because the goal of the Egmont Group is to encourage the exchange of information, Egmont’s Statement of Best Practices notes that differences in the definition of offenses should not be an obstacle to the exchange of information among FIUs. This position is also consistent with FATF Recommendation 37, which encourages countries to avoid dual criminality requirements. Nevertheless, some FIUs are constrained by domestic law and cannot exchange information relating to offenses committed elsewhere that are not recognized in their own jurisdictions.

  • 3.3. Structural barriers to information exchange also occur because FIUs may perform their core functions differently as a result of how they are organized. For example, an FIU that is structured as a police unit may play more of an investigatory role than one that is structured as an administrative unit that serves to support law enforcement. As a result, when a police unit is seeking information from an administrative FIU, the police unit may be just as interested in receiving law-enforcement information as financial intelligence from its counterpart.

4. How Have FIUs Overcome These Barriers?

  • 4.1. Within Egmont, the experience has been that FIUs have demonstrated great flexibility in how they have interpreted and viewed requests for information so as to maximize information sharing. For example, in the aftermath of the terrorist attacks on the United States on September 11, 2001, the Financial Crimes Enforcement Network (FinCEN) received a strong response to its requests for information relating to the 9/11 suspects. Arguably, FinCEN’s requests could have been viewed narrowly and rejected by Egmont partners as requests that did not involve money laundering or the proceeds of criminal activity. Nonetheless, Egmont FIUs were willing to provide information to FinCEN. The informal nature of Egmont and the spirit of trust and confidentiality, combined with the knowledge that the information provided to FinCEN was intelligence that might ultimately develop into a traditional money-laundering case, provided Egmont partners with sufficient flexibility to respond to the requests for information.

  • 4.2. FIUs have been able to bridge the gaps created by their unique structural differences by becoming well integrated into the AML framework of their jurisdiction, establishing good relationships with law-enforcement and supervisory authorities. Thus, even if an FIU does not have direct access to specific types of information, it can nonetheless intermediate the request on behalf of the foreign FIU.

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