CHALLENGES FOR FINANCIAL TRANSNATIONAL CORPORATIONS FROM DEVELOPING COUNTRIES

A textbook in tables and diagrams

Moscow

MEPhi Publishing House

Annotation

The book generalizes approaches to setting up the international standards on anti-money laundering and countering the financing of terrorism (AML/CFT). It covers the evolution of AML measures against organized crime, contemporary sources of international AML/CFT legislature, and the institutional bases of the relevant global framework. AML/CFT requirements for private sector entities, as well as methods of competent authorities operations, are covered.

Designed for university students taking the course on the international AML/CFT framework in English as a foreign language. Visualization materials may be used as reference or training materials by professors and scientists, as well as by staff of financial intelligence units, law enforcement, supervisory agencies, or relevant private entities.

CONTENTS

Abbreviations and acronyms

Introduction

1. The evolution of money laundering and AML/CFT measures

1) A brief history of money laundering

2) The first stage: Al Capone tax evasion charges

3) The subsequent stages: better hiding techniques

4) The appearance of “money laundering” expression in the legal context

5) Further development of the international AML/CFT standards

2. An overview of money laundering and AML regime goals

1) Basic concept of money laundering

2) Predicate offences: the scope and methods of description

3) Definition of money laundering in the narrow sense

4) Definition of money laundering in the broad sense

5) Anti-money laundering measures of combating organized crime

6) The process of money laundering

3. Applying a risk-based approach to a model AML/CFT regime

1) Key institutions of a national AML/CFT regime

2) Methodology bases of a risk-based approach and national coordination

3) Financial institutions: general definition and their activities and operations related to managing clients’ assets

4) Financial institutions: other activities and operations

5) Definition of designated non-financial businesses and professions

6) Risk-assessment obligations and decisions for countries

4. Legal requirements for a national AML/CFT regime

1) An extension liability for money laundering to the predicate offence perpetrator: the adverse implications for the economy

2) Dual criminality for offences committed internationally

3) “State of mind” connected with a money laundering offence

4) Confiscation and provisional measures

5) Non-conviction based confiscation and corporate liability

5. Explanations of terrorism and the financing of terrorism

1) Social and economic origins of terrorism

2) Basic concept of terrorist financing

3) Legal definition of terrorism and terrorist financing

4) Characteristics of the terrorist financing offence

5) Targeted financial sanctions related to terrorism, terrorist financing and proliferation

6. Institutional bases of the international AML/CFT framework

1) The United Nations bodies of the international AML/CFT framework

2) The United Nations organizations of the international AML/CFT framework

3) Main functions of the Financial Action Taskforce

4) The FATF observers and FATF-style regional bodies

5) The Egmont Group and international standard setters in banking, securities, and insurance sectors

6) The Wolfsberg group of banks and its documents

7. Customer due diligence measures undertaken by financial institutions

1) General requirements for AML/CFT programs of financial institutions and groups of financial institutions

2) Methodology approach to customer due diligence

3) Additional features of the customer due diligence

4) Customer due diligence measures for legal persons and their arrangements

5) Actions of financial institutions in case of inability to comply with customer due diligence requirements

6) Record-keeping requirements for financial institutions

8. Risk-based approach pursued by financial institutions in customer due diligence

1) Reliance on customer due diligence information received from third parties

2) Potentially higher-risk situations for enhanced customer due diligence measures

3) Lower-risk situations for simplified customer due diligence measures

4) Enhanced customer due diligence measures

5) Simplified customer due diligence measures

9. Additional AML/CFT measures for specific activities of financial institutions

1) AML/CFT requirements for cross-border correspondent banking relationships

2) Definition of wire transfers and activities of involved parties

3) The scope of applying AMC/CFT measures to wire transfers

4) AML/CFT measures of information gathering related to wire transfers

5) AML/CFT responsibilities of financial institutions performing wire transfers

6) AML/CFT obligations for persons that provide money or value transfer services

10. Additional measures for specific customers, entities, and professions

1) Definition of politically exposed persons

2) Additional measures for politically exposed persons

3) AML/CFT requirements for financial institutions with foreign operations.

4) Customer due diligence and record-keeping requirements for designated non-financial businesses and professions

5) Other AML/CFT requirements for designated non-financial businesses and professions

6)

ABBREVIATIONS AND ACRONYMS

INTRODUCTION

The comprehensive national regime on anti-money laundering and combating the financing of terrorism (AML/ CFT) has to be based on universally accepted approaches to legal definition of relative offences, establishment of preventive and institutional measures, and methods of interaction with foreign counterparts. It is vital to know that these approaches, partially summarized by the Financial Action Task Force (FATF) in its documents, are subject to swift changes, because the international community has to respond to emerging threats of transnational organized crime and terrorist networks, that try to exploit the internationalization of finance and trade. Over the past decade developing countries have achieved a lot in setting up national AML/CFT regimes, yet ongoing reforms and instability in the world economy still pose threats to local financial intermediaries. An important goal of developing countries is to eliminate the abuse of the financial system which will allow their transnational corporations (TNCs) to achieve better results in foreign market expansion.

Training of staff for AML/CFT-related organizations is an important prerequisite for achieving effectiveness in combating organized financial crime and terrorism. Sources of information and documents in English are frequently used in this field, therefore it is of crucial importance for a university student to receive an advanced linguistic training. The curriculum should also include taking courses on AML/CFT in English.

Despite the availability of writings on AML/CFT in the English language, it is often quite difficult for a student to understand complicated logical links in the text. This does not only arise from limited knowledge of the foreign language itself, but is also related to concise presentation of text and the lack of structuring intended for educational purposes. One such example is the FATF Recommendations, which were greatly improved after the changes of February 2012, yet require additional visual study materials for better understating. International organizations have published some AML/CFT textbooks in English, but they have not been primarily designed to be used by foreign-speaking students.

The Institute of Financial and Economic Security at the National Research Nuclear University MEPhI is the only Russian university that offers a major in AML/CFT. Advanced linguistic studies and teaching of fundamental courses in English is an important part of the curriculum. The university has direct links with the Rosfinmonitoring, the Russian financial intelligence unit (FIU), where students can get on-the-job training and seek employment.

This textbook is comprised of educational materials used in teaching the course on the international AML/CFT framework in English. The author has attempted to visualize logical links between terms and categories and to compile a list of key works and key questions to be used for intermediate and final tests. Readers are strongly advised to use this book along with information from trusted sources on the Internet. In particular, the sources of information include sites of studied international organizations, where one can find extensive information on history and activities of these bodies. Full texts of official documents and other relevant recommendations, principles, and guidelines should also be studied.

The author expresses appreciation to Sherry Brock and Wane Brock for their support and advice. Their encouragement and motivation has helped to facilitate all aspects of this book.

Lecture 1. The evolution of money laundering and AML/CFT measures

Key words

· Al Capone

· Meyer Lansky

· Watergate Scandal

· criminal offence

· administrative offence

· tax evasion

· bootlegging

· racketeering

· extortion

· laundromat

· mob

· predicate offence

· gambling

· U.S. Bank Secrecy Act

· U.S. Money Laundering Control Act

· international convention

· international organization

· Warsaw Convention

· FATF Recommendations

· Financial Action Task Force (FATF)

· money laundering (ML)

· anti-money laundering (AML)

Key Questions

· When did activities indirectly related to money laundering first appear?

· List the three main stages of money laundering evolution.

· What is the difference between possessing proceeds of a criminal or an administrative offence?

· How did Al Capone become an influential mobster?

· What did Al Capone do during prohibition?

· Why was it not possible to convict Al Capone for bootlegging, racketeering, extortion, and sexual exploitation?

· Is Al Capone’s commingling of funds in the laundromat business a fictitious story?

· What was Al Capone convicted of?

· What arguments did Al Capone’s defense use during the trial?

· How did Meyer Lansky become the “Mob’s Accountant”?

· When did Meyer Lansky acquire a gambling franchise in Cuba?

· Why did Meyer Lansky use a bank in Switzerland to channel his money?

· What was Meyer Lansky convicted of, and how was he penalized?

· What was the purpose of transferring funds to Mexico during the Watergate Scandal?

· When did the term “laundering”, with reference to money, first appear?

· What was the first national law to limit bank secrecy? What were the banks required to do under it?

· When did the term “money laundering” first appear in judicial context?

· When and where was the first AML law passed?

· What was the first international convention to cover issues related to money laundering? What was the purpose of the convention?

· Name the first convention to set up AML measures.

· When did the first international AML standards appear?

· Which body passed the first international AML standards?

· Which international conventions dealt with issues of transnational organized crime and corruption?

· When did the first sources of the international law, related to countering the financing of terrorism, appear?

· What is the Warsaw Convention, and why was it adopted?

· When were the FATF Recommendations last revised?

· How were the FATF Recommendations were last restructured?

· What was the reason for the latest revision of the FATF Recommendation?

Date: 2015-01-29; view: 2073