Money laundering and the financing of Terrorism is an international problem which serves to compromise the efficiency and stability of a country’s financial system. The events of September 11, 2001 have heightened international concern especially with regard to the financing of terrorism.
The International Monetary Fund has stated that the aggregate size of money laundering in the world could be somewhere between 2% and 5% of the world’s gross domestic product, that is US 590 billion to US 1.5 trillion dollars. Right now between US 300 and US 430 billion dollars is spinning around the globe in the laundering cycle.
Money Laundering can basically be defined as “the conversion of proceeds of criminal conduct into legitimate funds”. The Financial Action Task Force (FATF) on Money Laundering which is the recognized international standard setter for anti-money laundering efforts defines money laundering as “the processing of criminal proceeds to disguise their illegal origin in order to legitimize the ill gotten gains of crime”.
These criminal proceeds are usually derived from such crimes as drug trafficking, prostitution, embezzlement and other serious offences.
There are various techniques used to launder money and these techniques or methods are essentially the same as those used to conceal the sources of terrorist financing the funds for which may be derived from both legitimate sources and or criminal activities.
There are three stages of money laundering. In the initial stage of the process, placement, the launderer places criminally derived cash proceeds into the financial system or disposes of them through currency smuggling. Some of the more common forms of placement include asset or monetary instrument purchase e.g. buying cars, boats, real estate, jewelry or monetary instruments such as money orders, postal orders travelers cheques, securities, etc.
In the second stage of the money laundering process, layering, the launderer attempts to separate criminally derived proceeds from their illicit origin by moving funds through a complex series of financial transactions. Wire or electronic funds transfer is probably the most important technique for layering.
In the third and final stage in the money laundering process, integration, the launderer creates a justification or explanation for the criminally derived profits which appears legitimate. A “shell company” is a company that only exists on paper and does not participate in actual commerce. The launderer may represent money from illegal activity as profits from a shell company.
Perhaps the greatest advantage the money launderer enjoys is that he has the opportunity to study at leisure the Government’s regulatory efforts to detect him and can plan the time, place and method of his crime. There are many conditions the existence of which can inure to a launderer’s advantage for example where money laundering is not criminalized as part of serious crime or is linked to only one, such as drug trafficking. This gives the launderer an opportunity to commingle funds and obscure their origin. Other conditions include financial systems that lack record keeping requirements for large cash transactions or lack reporting requirements for suspicious transactions.
The Financial Action Task Force (FATF) on money laundering and its regional counterpart the Caribbean Financial Action Task Force (CFATF) (an organization established by States of the Caribbean basin which have agreed to implement common counter measures against money laundering) have made recommendations urging member countries to impose measures on financial institutions requiring them to maintain records on the identities of their clients and their transactions as well as to report suspicious activities.
This information may be used to reconstruct transactions in order to establish links between individual clients and a particular business to provide the “state of mind” of an offense and to identify the role of a person in a criminal or terrorist financing enterprise.
On the 10th of October, 1996 Saint Lucia signed the Caribbean Financial Action Task Force Memorandum of Understanding which subscribes to the FATF’s 40 recommendations and the CFATF’s 19 recommendations.
Saint Lucia has also implemented legislation geared towards detecting, preventing and prosecuting money laundering and other serious crimes as well as confiscating the proceeds of crime. These legislative measures are reflective of international best practice and take into account the recommendations of the FATF and CFATF.
The relevant laws include the Money Laundering (Prevention) Act, No. 27 of 2003 (MLPA) and the Proceeds of Crime Act, No. 10 of 1993.
Section 18 of the MLPA created the offence of money laundering and states that:
Persons who engage in money laundering also stand to have property derived from criminal proceeds frozen or forfeited by the Court upon application by the Director of Public Prosecutions
One of the main features of the MLPA is the establishment of the Financial Intelligence Authority which is the agency responsible for collecting, receiving and analyzing reports submitted to the Authority by financial institutions and businesses of a financial nature in accordance with the MLPA and the Proceeds of Crime Act, in an effort to counter money laundering.
The establishment and functions of a Financial Intelligence Authority or a Financial Intelligence Unit as it is referred to in other countries, are consistent with the concepts utilized by the FATF and CFATF.
The MLPA requires financial institutions (banks, credit unions, insurance companies, etc) and other businesses (real estate, car dealerships, courier services and jewelry businesses) to comply with a number of obligations including the reporting of suspicious transactions to the Financial Intelligence Authority, which may involve the proceeds of certain prescribed criminal offences as defined in the First Schedule of the Act.
Financial institutions are therefore under a legal obligation to carry out customer due diligence and to take measures to satisfy themselves of the true identity of a person seeking to enter into transactions with them and to report any transaction where the identity of the person involved in the transaction gives an employee of the institution or business reasonable grounds to believe that the transaction involves the proceeds of a prescribed criminal offence. These prescribed offences include drug trafficking, fraud, prostitution, embezzlement, counterfeiting, robbery, stealing, gambling and terrorism.
Money laundering and the financing of terrorism can be detrimental to the soundness of a country’s financial sector in a number of ways. Investors may cease or refuse to do business with an institution whose reputation has been damaged by suspicions of money laundering and countries, especially developing nations with lax anti money laundering and terrorism financing enforcement systems, are less likely to receive or qualify for foreign aid.
The financial institutions in Saint Lucia therefore, have a major role to play in the fight against money laundering and terrorism financing and in helping to maintain the integrity of the financial system in order to create an environment which is conducive to investment.
FINANCIAL INTELLIGENCE AUTHORITY
The Caribbean Financial Action Task Force (CFATF) is a Financial Action Task Force (FATF) Styled Regional Body (FSRB) with a membership of twenty-five (25) Caribbean and South…