5 Cooperation Standards and Practices in Defenses Against Money Laundering and in Countering Terrorist Financing
- International Monetary Fund
- Published Date:
- June 2007
1.1. This chapter discusses the key elements that have to be in place to allow effective cooperation and mutual assistance between law-enforcement agencies in different countries in the fight against money laundering and the financing of terrorism.
1.2. In order to be able to cooperate with foreign authorities and to provide assistance, it is first essential that all authorities be empowered by having the necessary domestic legislation in place. Legislative measures are necessary at the national level to enable judicial authorities to criminalize offenses related to money laundering (ML) and terrorist financing (TF). Local laws should permit law-enforcement authorities to freeze, seize, and confiscate assets derived from ML offenses (such as drug sales, manufacturing, processing, and trade) or intended to finance terrorist acts or provide support for terrorist operations, which are considered a threat to international peace and security.
1.3. Domestic legislative measures, while necessary, are not sufficient. The current state of technology offers money launderers the appropriate tools to transfer money, in the layering1 process, into a series of accounts at various banks across the globe. For example, money launderers are using shell and front companies to hide their operations behind seemingly legitimate businesses while also creating a tedious and confusing path for investigators to follow. Sometimes the offense committed takes place in one jurisdiction and the funds resulting from the commission of the offense are rapidly transferred or couriered to another financial center. Since investigators are restricted to their own jurisdictions, and because funds move like water, which follows the path of least resistance, it is necessary for law-enforcement and investigative authorities to cooperate not only at the local level with concerned agencies but also with foreign counterparts. As a result, laws should be in place to allow law-enforcement agencies to communicate and assist their foreign counterparts in fighting offenses related to ML/TF. The chapter discusses the details of the required assistance.
1.4. Countries should cooperate with one another and provide—on the basis of treaty, agreement, arrangement, or other mechanisms (including assistance provided on an ad hoc basis with no prior agreement in place)—the greatest measure of assistance in connection with criminal and civil investigations, inquiries, and extradition proceedings, in respect of the offenses set out in their laws. Cross-border cooperation and information sharing permits law-enforcement authorities to exchange and obtain information from foreign counterparts to deter, detect, and prosecute money laundering and terrorist financing. It also enables them to take practical actions, such as seizing and freezing assets at the request of foreign authorities, taking statements from witnesses, and acquiring documents and other evidence.
2. Essential Elements for Information Exchange
2.1. Effective cross-border cooperation and information exchange among law-enforcement agencies depends heavily on five essential elements. First, all parties involved, both domestically and internationally, should be committed to fighting ML/TF. Second, laws and regulations should allow authorities to enter into agreements among themselves for the purpose of sharing financial information related to ML/TF offenses. Such agreements will often be in the form of memoranda of understanding (MoUs). Third, there should be a central unit that meets the Egmont definition of a financial intelligence unit (FIU) and is charged with facilitating the rapid exchange of information between the local authorities and their foreign counterparts. Fourth, national authorities should coordinate among themselves to gather, in a timely and convenient manner, the necessary information specified in the request for assistance. Fifth, and finally, the requested FIU should be able to gather the information requested as rapidly as possible. This process must include the ability to acquire documents and other materials from persons within the jurisdiction of the requested FIU and the ability to take statements from witnesses. The FIU must be able to process such information safely and securely, and supply it to the requesting FIU to allow it to take the necessary steps, which might include freezing suspects’ accounts (after identifying all the main players) and forwarding the case to the prosecuting authorities. If necessary, the requested FIU should also be in a position rapidly to freeze or seize assets within its own jurisdiction, at the request of the foreign FIU. In those countries where it is considered necessary to follow a judicial process before the assets of citizens who have not been convicted of offenses can be frozen or seized by the state (whether or not at the request of a foreign jurisdiction), it is essential that the judicial process can be made effective equally rapidly.
3. International Standards
3.1. International organizations such as the Financial Action Task Force (FATF), the World Bank, the International Monetary Fund (IMF), the United Nations, the Egmont Group, and the regulatory standard-setting bodies2 are taking a leading role in promoting the international exchange of information among relevant authorities. FATF Recommendation 40 calls upon countries to ensure that their competent authorities provide the widest possible range of international cooperation to their foreign counterparts. In the course of its initiative concerning noncooperating countries and territories, the FATF has defined criteria for identifying such countries. One of these criteria is the existence of secrecy provisions applying to financial institutions and professions that can be invoked against, but not lifted by, either administrative authorities in the context of inquiries into ML or judicial authorities in criminal investigations. The IMF and the World Bank, when conducting reviews of standards and codes in particular jurisdictions (usually conducted as part of Financial Sector Assessment Programs (FSAPs)) review adherence to the FATF recommendations according to a methodology drawn up in agreement with the FATF. This methodology requires an assessment of whether an FIU is authorized to share financial information with its foreign counterparts, either on its own initiative or upon receipt of a request for assistance. Simultaneously, the methodology requires an assessment of whether the FIU keeps and provides statistics on the number of requests for assistance received from foreign authorities, as well as the number of responses forwarded to the requesting authorities.
3.2. By the same token, the Egmont Group has developed a model MoU for FIU-to-FIU information sharing, created a secure website to facilitate information exchange, and set specific conditions for the exchange of information. MoUs set out the terms and conditions under which FIUs share financial intelligence and financial information with each other. A typical MoU identifies the parties, type, limits on the use, and restrictions on the dissemination of the shared information. In addition, the Egmont Group recognizes that it is necessary to identify and take steps to resolve issues with uncooperative FIUs. A draft paper on internal procedures concerning compliance with Egmont Group standards, including redress procedures with respect to noncompliant FIUs, has been circulated among Egmont members for a decision. The paper covers, among other things, four criteria: (a) noncompliance with the Egmont Admission; (b) breach of confidentiality; (c) detrimental practices in operational exchanges; and (d) misuse of the Egmont documents or the Egmont Secure Web. Noncompliant FIUs will be subject to redress procedures, which may, in extreme cases, result in their suspension or removal from Egmont membership.
4. FIU Network
4.1. Even where legislation provides for cooperation in accordance with the standards and recommendations of the international organizations, bureaucracy and complex legal systems can create serious additional impediments to the process of sharing information. Illicit proceeds from serious offenses—as was described earlier—travel at a relatively high speed from one country to another in the layering process. Therefore, to overcome these difficulties and obstacles, it is very important to pursue effective and reliable routes of communication, such as the FIU-to-FIU network, in order to be able to track the flow of money and to identify all the players involved. This network facilitates the rapid exchange of financial intelligence across borders, a process that usually occurs faster through FIUs than through other government information-sharing channels, for the following reasons:
4.1.1. Most FIUs share information on the basis of a bilateral agreement in the form of an MoU.
4.1.2. FIUs are usually separate units, not placed under the supervision of a ministry or administrative unit within the government and, hence, are autonomous in taking any decision (and not subject to delays that may occur between government agencies as the necessary approvals are sought) as long as the FIU does not contravene local laws and regulations as well as secrecy provisions and policies on data protection.
4.1.3. Exchange of ML/FT information among FIUs is one of the primary purposes of FIUs.
4.1.4. As Egmont members, FIUs have access to a secure web through which information is forwarded very rapidly to the recipient.
4.1.5. Because FIUs are not authorized to utilize the information which they receive from their foreign counterparts before any judicial or administrative authority unless they receive the written consent of the sending FIU, specifying the terms and conditions under which they may use and disseminate the information contained in the report, this obviates the need to carry out the normal judicial proceedings designed, in most countries, to protect citizens’ civil rights before allowing confidential information to be obtained, transmitted to another country, and used against that citizen.
4.2. Requesting financial intelligence from an FIU involves four steps. First, the foreign FIU makes a request for assistance to another FIU for financial information to support a case involving ML/TF or other related crimes. Second, the requested FIU searches its database and seeks information from other government agencies and, if necessary, from financial institutions and others to respond to the request. Third, the FIU analyzes the gathered information and prepares a report to share the information with the requesting FIU. Finally, the requested FIU forwards an investigation report to the requesting FIU.
4.3. For FIUs to work effectively, it is important that their staffs have unquestioned integrity and sufficient competence to carry out their tasks. A shortage of such staff may hinder the investigation and jeopardize the information exchange. It is important that FIUs take measures and set criteria for employment, which might include:
4.3.1. skills and experience commensurate with the intended operations;
4.3.2. the presence of a well-defined continuing professional education program (CPE) at the FIU, through which staff are continuously updated on the issues;
4.3.3. background checks or police reports taking into account their financial status and integrity, as well as precise evaluations of their net worth.
4.4. Hence, the FIU-to-FIU network is another channel through which information relating to ML/FT offenses is exchanged between two counterparts, whose ultimate objective is to bring gathered intelligence before the administrative and judicial authorities. Such intelligence will, in some cases, enable the administrative and judicial authorities to take action or to issue an order that allows them to take control of specified funds or assets or issue an order specifying that ownership be transferred to the state. This is usually the case when there is a criminal conviction and a court decision whereby the property is believed to have been derived from proceeds relating to ML/FT offenses. Therefore, the FIU-to-FIU network assists other government channels in the fight against ML/FT, contributing to achievement of successful results.
5. Other Communication Channels
5.1. The preceding should not be construed, however, as a belief that the FIU-to-FIU network is the only channel available to bring offenders to court and deprive them of their illicit gains. It is noteworthy to mention here that there exist, alongside this channel, other reliable and active channels, such as Interpol, that play an important role in cross-border investigations. This network facilitates the exchange of information among various investigatory bodies and law authorities, which, in connection with criminal investigations across borders, can result in an effective cross-border investigation. In addition, Interpol has broad authority to access remote geographical areas to obtain records, thereby obtaining evidence not easily accessed by other authorities or through other channels of communication. Highly secured and fast methods of communication at the disposal of Interpol enable it to obtain evidence and execute search warrants or arrest warrants.
6. Lebanon SIC
6.1. A case in point concerning cross-border cooperation and information exchange is the experience of Lebanon and my own experience at the Special Investigation Commission (SIC)—Lebanon’s FIU—which is considered the centerpiece of the country’s anti-money laundering/combating the financing of terrorism (AML/CFT) regime. The SIC is renowned for its active and proactive international cooperation.
6.2. Throughout our work, the SIC’s staff use the “4Cs” motto—which constitutes a good recipe for a successful cross-border cooperation and information exchange—as follows:
6.2.1. Commitment to combat money laundering and terrorist financing. Such commitment is covered by the governing AML Law 318, which was promulgated in April 2001. Equally, our commitment is demonstrated through several venues of international cooperation, both bilateral (that is, FIU-to-FIU) and multilateral (through the Egmont Group of FIUs).
6.2.2. Coordination among components of the AML/CFT regime. We consider such coordination essential in achieving the desired objectives.
6.2.3. Cooperation with foreign FIUs and other competent authorities. This helps develop and resolve cases through information sharing.
6.2.4. Combining FIUs’ know-how and expertise through workshops, seminars, exchange programs, and in other ways. With this collaborative effort of the concerned international community, the fight against money laundering and the financing of terrorism will advance.
6.3. The Lebanese law clearly provides for information exchange with the concerned agencies, both locally and internationally. Since its inception in April 2001, the SIC has been proactively engaged in working closely with many FIUs on investigation cases. Cases coming from foreign sources were dealt with by the SIC, and information was exchanged, where applicable, in line with the prevailing law and the standards set by the Egmont Group.
6.4. Realizing the importance of fostering interagency cooperation, the SIC has been instrumental in furthering the AML/CFT regime in Lebanon. The government, acting at the initiative of the SIC, has set up a national committee in charge of coordinating policies among concerned agencies involved in AML/CFT. The government has also authorized the creation of two special AML units in the police and customs authorities, respectively. Simultaneously, the SIC has built an effective system that connects the concerned agencies through a software application system that facilitates the exchange of information among them in a secure and swift fashion. In this respect, the Lebanese authorities are required to immediately respond to any information request by the SIC, because Law 318 empowers its chairman to communicate with any Lebanese or foreign judicial, administrative, financial, or security authority in order to request information or obtain the details of previous investigations that are linked or related to ongoing investigations by the commission. As such, there are no legal restrictions on the ability of the Lebanese authorities to pass confidential personal information to the SIC.
6.5. The SIC is also keen to upgrade the professional level at concerned agencies, and, as such, has been extremely active in conducting and arranging conferences and seminars on AML/CFT.
6.6. Moreover, in addition to its proactive stance in terms of international cooperation and information exchange, the SIC enjoys broad powers: it is the sole authority able to lift banking secrecy in cases relating to money laundering and terrorist financing. Based on the evidence or circumstantial evidence surrounding the suspicious transaction report, the SIC may decide to lift banking secrecy and, in many instances, to freeze related bank accounts. Over the past years, the SIC has lifted banking secrecy and/or frozen related bank accounts in connection with cases coming from internal and external sources.
6.7. The low-level, complex legal structure adds value in this regard. The SIC’s commitment to international cooperation is illustrated in the key role it has played in creating the Middle East North Africa FATF (MENAFATF), which is the seventh FATF-style regional body. This body was launched on November 30, 2004 in Manama, Bahrain, which is the seat of the secretariat. It was established by 14 Arab countries from the Middle East and North Africa region, following four informal discussions that started in October 2003. The SIC secretary, Mr. Muhammad Baasiri, was unanimously elected as president for the first year.
7. Overcoming Barriers to Cooperation
7.1. In this writer’s opinion, there are several barriers and impediments to effective cross-border cooperation and exchange of information among countries and their respective agencies, including FIUs. Some of those reasons are the following:
7.1.1. a lack of clear political commitment to cooperate internationally;
7.1.2. the absence of adequate AML/CFT legislation and regulations covering domestic powers and their use on behalf of foreign authorities;
7.1.3. inadequate staffing and lack of professional standing of FIUs;
7.1.4. complex legal systems; and
7.2. What can the international community do to alleviate and address the issues and concerns that hinder meaningful cooperation and help achieve a better system of information dissemination among countries and concerned authorities, particularly their FIUs? I would like to offer the following suggestions as examples of what international organizations (such as the IMF, the World Bank, the FATF, the United Nations, the Egmont Group, and the regulatory standard-setting bodies) could provide that may help improve the exchange of information:
7.2.1. create an awareness of the need for cross-border cooperation and information exchange;
7.2.2. encourage countries to promote and enact flexible regulations, especially with respect to information sharing, both locally and internationally;
7.2.3. promote the Egmont-MoU model for information exchange;
7.2.4. support the setup of FATF-style regional bodies;
7.2.5. support the creation of staff exchange programs among FIUs and other concerned agencies;
7.2.6. sponsor and actively participate in regional and international training and seminars;
7.2.7. take a lead role in promoting international cooperation and providing technical assistance; and
7.2.8. consider setting up an international central database to be accessible to contributing FIUs, where possible.
7.3. In conclusion, I would like to underscore the importance of forging a partnership among the world’s countries and, in particular, between the international organizations, on the one hand, and the concerned professional agencies of the respective countries, on the other hand. This effort should aim at building a proper mechanism whereby all concerned find mutual benefit by recognizing and acting to meet the need for information sharing, thereby enhancing the financial and social stability of individual countries and the international community as a whole. In the process of forming such a partnership, however, they should always bear in mind the need to avoid red tape and unnecessary political complexities.
Layering is the use of several financial transactions to distance laundered money from its origins.
The Basel Committee on Banking Supervision, the International Organization of Securities Commissions, and the International Association of Insurance Supervisors.