Money Laundering

1. 1

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Objectives
• Define money laundering
• How AML supports anti-corruption

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“After foreign exchange and the
oil industry, the laundering of
dirty money is the world’s third-
largest business.”
Jeffrey Robinson,Jeffrey Robinson, The LaundrymenThe Laundrymen
How Much Is Laundered?How Much Is Laundered?
IMF ESTIMATE = 2-5% Global GDPIMF ESTIMATE = 2-5% Global GDP

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What is Money Laundering?
• Definition: The process of disguising the
proceeds of crime in an effort to conceal their illicit
origins and legitimize their future use.
• Objective: To conceal true ownership and origin of
the proceeds, a desire to maintain control, a need
to change the form of the proceeds.
• Techniques: They can be simple, diverse,
complex, subtle, but secret.
Proceeds = any economic advantage
derived directly or indirectly from criminal
offenses

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2.
PLACEMENT
3.
LAYERING
4.
INTEGRATION
• The last stage in the laundering
process.
• Occurs when the laundered
proceeds are distributed back to
the criminal.
• Creates appearance of
legitimate wealth.
• Involves distancing the money
from its criminal source:
• movements of $ into
different accounts
• movements of money to
different countries
• Increasingly difficult to detect
• Initial introduction of criminal
proceeds into the stream of
commerce
• Most vulnerable stage of money
laundering process
1.
Predicate Crimes
• Corruption and Bribery
• Fraud
• Organized crime
• Drug and human trafficking
• Environmental crime
• Terrorism
• Other serious crimes…
Money Laundering Cycle

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Money is laundered through…
Banks
Financial services
Brokerage firms
Other Examples: Insurance companies,
Money remitters,
Cash intensive businesses,
Brokerage firms,
Realtors
Crooked LAWYERS and ACCOUNTANTS

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Simple Bribe and Money Laundering Transaction
Company A
• Needs to generate
$1 million for bribe to
Finance Minister.
• Uses invoices from
company in Country
2
Country 1
Country 2
Company Bank Account
Country 3
Company owned by Minister’s cousin
Country 4
$500,000 - Purchase
of Real Estate
$500,000 - Purchase
of Bearer Share

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What Are The Benefits Of Money
Laundering Laws?
• Money Laundering is a separate offense which carries
additional jail time. Allows for seizure and confiscation of
proceeds of crime.
• Allows law enforcement access to bank and other financial
institution records.
• Requires financial institutions to file suspicious and sometimes
cash transaction reports, and to identify the beneficial owners of
legal entities.
• Requires establishment of Financial Intelligence Units which
receive reports from financial institutions and can provide new
channels for international exchange of information.

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Key Questions
• How does anti-money laundering
make it riskier for
corruptors/corruptees?
• How much can AML deter corruption?
• What are the measures that will
contribute to increase risk and
prevention of corruption?

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Incentives to Launder
• Large amount of proceeds from corruption
that need to be hidden
• Low confidence in the security of assets in
country
• Asset disclosure requirements
• Political instability or possible regime
change
• Greater risk for corruptors and corruptees of
investigation and prosecution

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Where are we in 2006?
• Tighter controls on AML globally
• Fewer secrecy havens
• Greater international cooperation and
pressure to adopt international standards
(FATF and FSAPS by IMF/WB)
• Private sector generally proactive in
monitoring their business relationships

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The Case of Switzerland
• Originally known for its extreme bank secrecy
• Evolution of reputational risk assessment of
Swiss financial sector. Began to freeze
assets.
• Recent Cases with Swiss Banks:
– Marcos: returned $700 million
– Abache: returned $200 million
– Montesinos: returned $77.5 million

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What are some of the
Challenges?
• Developing political will at senior levels of
government.
• Tighter AML can be costly and reduce resources
from other needs.
• Building capacity in developing countries for
investigation and prosecution.
• Knowing your client is not always easy. Knowing
your client’s client is difficult to impossible.
• Coordination among countries law enforcement,
financial intelligence units, regulators, and
judiciaries.
• Application of AML regime in a cash based
economy.

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Conclusion
• Results unkown—don’t know whether there
has been a reduction in corruption because
of AML (no database of Money Laundering
Cases)
• It is easier to prosecute AML even when
local jurisdictions are not able (i.e. ML is
usually multi-jurisdictional)
• AML is a compliment to anti-corruption
programs but it is not a silver bullet

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Thank You.