Money laundering activities in the narrow and broad senses
The processing of criminal proceeds to disguise their illegal origin
The possession of criminal proceeds
The possession of the proceeds of
an administrative offence
E.g. income tax evasion
Hiding assets from a ruthless ruler who levies heavy taxes or tries to confiscate the assets
1. Al Capone, 1920–30s
2. Meyer Lansky, 1930–50s
3. Watergate Scandal, 1973
Some countries use this approach, therefore unlicensed taxi-cab drivers, private tutors, flea-market traders, etc. should be prosecuted for ML.
The origin of money laundering. Sterling Seagrave in his “Lords of the Rim” (1996) writes that in 2000 B.C. Chinese merchants banished their wealth by investing it in remote provinces or even outside the country.
1.2. The first stage: Al Capone tax evasion charges
Al Capone was born in 1899. By 1920 he became an influential lieutenant in the mob.
During prohibition (1920s) the mob started illegal brewing, distilling and distributing beer and liquor
The mob has acquired interests in legitimate business in the cleaning (a cash business) and dyeing field
Gangsters were earning huge sums of cash from bootlegging, racketeering, extortion, and sexual exploitation
Illicit earnings were mingled with receipts from the laundromat business and then paid back to the mobsters, making an impression of legitimate income
The evidence was insufficient to convict Al Capone for commission of predicate offences
The FBI agents obtained statements to the effect that Capone had attended race tracks in the Miami area, that he had made a plane trip to Bimini and a cruise to Nassau
The U.S. Treasury Department had been developing evidence on tax evasion charges
On October 18, 1931 Al Capone was convicted for tax evasion. Later he was sentenced to eleven years in federal prison, fined $50,000 and charged $7,692 for court costs. The back taxes amounted to $215,000 plus interest due.
The defense argued that the government cannot impose legal taxes on criminal proceeds
In 1939 Al Capone was released after having paid all fines and back taxes. During the confinement he deteriorated greatly from syphilis. Having the mentality of a 12-year-old child, Al Capone became incapable of returning to gangland politics, and died in 1947.
Al Capone’s expenditures were far beyond his legitimate income. The amount of money processed via the laundromat was insufficient to justify his income.
1.3. The subsequent stages: better hiding techniques
The second stage. Meyer Lansky was born in 1902. By 1930s he became the “Mob’s Accountant”.
Commission of predicate offences in the U.S. (drug trafficking, prostitution, blackmailing, etc.)
Proceeds from crime originated in Florida
A franchise for several gambling tables in the casino of Hotel National in Havana (Cuba)
A bank in Switzerland
Money is repatriated to the mafia’s accounts in the U.S. as legitimate earnings on investments abroad
The third stage. The Watergate Scandal, 1973.
$200 thousand illegal campaign contributions to U.S. President Richard Nixon
A company in Florida
It was Britain's Guardian newspaper that coined the term, referring to the process as “laundering.”
Meyer Lansky was fined only $2500. He died in 1983 in Miami Beach. The FBI believed he left behind over $300 million. They never found the money.
1.4. The appearance of “money laundering” expression in the legal context
1. U.S. Bank Secrecy Act (BSA, 1970).
Established requirements for recordkeeping and reporting by private individuals, banks and other financial institutions.
Designed to help identify the source, volume, and movement of currency and other monetary instruments transported or transmitted into or out of the U.S. or deposited in financial institutions.
Required banks to (1) report cash transactions over $10,000 using the currency transaction report (CTR); (2) properly identify persons conducting transactions; and (3) maintain a paper trail by keeping appropriate records of financial transactions.
2. The expression “money laundering” (ML) first appeared in a judicial or legal context in 1982 in the U.S.
3. U.S. Money Laundering Control Act (1986):
· established ML as a federal crime,
· prohibited structuring transactions to evade CTR filings,
· introduced civil and criminal forfeiture for BSA violations,
· directed banks to establish and maintain procedures to ensure and monitor compliance with the reporting and recordkeeping requirements of the BSA.
4. United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention, 1988).
The term “anti-money laundering” (AML) was not used in the Convention and it is limited in scope to single predicate offence “drug trafficking”. However the Parties to the Vienna Convention introduce the AML approach by declaring the awareness that illicit traffic generates large financial profits and wealth, enabling transnational criminal organizations to penetrate, contaminate and corrupt the structures of government, legitimate commercial and financial business, and society at all its levels. Therefore the governments are determined to:
· deprive persons engaged in illicit traffic of the proceeds of their criminal activities and thereby eliminate their main incentive for so doing,
· eliminate the root causes of the problem of abuse of narcotic drugs and psychotropic substances, including the illicit demand for such drugs and substances and the enormous profits derived from illicit traffic.
Establishment of the Financial Action Task Force on Money Laundering (FATF, 1989). Its goal was to set out AML measures.
Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime (Strasbourg Convention, 1990).
The FATF 40 Recommendations (1990, revised later) – the international standard for anti-money laundering, it sets out minimal requirements for a national AML/CFT regime.
1.5. Further development of the international AML/CFT standards.
Late 1990s to present time
The FATF Recommendations (2012) is a revised and integrated version of The FATF 40+9 Recommendations
Warsaw Convention – Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism (2005) – an upgrade of the Strasbourg Convention
United Nations Convention Against Corruption (Merida Convention, 2003)
The FATF 9 Special Recommendations (2001 and 2003) – the international standard for CFT
United Nations Convention Against Transnational Organized Crime (Palermo Convention, 2000)
The International Convention for the Suppression of the Financing of terrorism – Terrorist Financing Convention (signed in New York, 1999)
The United Nations Security Council Resolution 1267 (1999) and subsequent resolutions directed at countering the financing of terrorism