International and regional bodies that combat money laundering (Part A)
Money laundering is a global phenomenon that thrives parasitically on the world’s financial markets. It ignores national boundaries in much the same way that the financial market place does. It has been accepted that this problem requires both national and international countermeasures.
Economies built on the back of criminal activity are unstable and pose significant risks to neighbouring countries and those with close economic ties. The impetus for international governmental action against money laundering also stems from a fear of national or regional economic destabilisation resulting from over exposure to illegally derived funds.
The global financial market provides criminals with unlimited opportunities to launder money. Global efforts to prevent money laundering are only as strong as the weakest national AML framework. International initiatives have been designed to encourage national governments into taking or strengthening measures to prevent money from being laundered within their borders. Such initiatives come from international bodies like for example the Financial Action Task Force (FATF) and prompt regional action such as EU Directives, which in turn result in national legislation.
The criminalization of money laundering is a relatively recent legal development and all the international efforts to prevent money laundering are relatively young:
The first international initiative during the early 1980s focused on the prevention of the laundering of funds derived solely from drug trafficking.
Then the focus was expanded to include the prevention of the laundering of the proceeds of a wider range of criminal activity.
After the terrorist attacks in the US on 11 September 2001, the international community recognized the importance of preventing the financing of terrorism and international and regional bodies previously responsible for money laundering prevention expanded their remits to include the prevention of terrorist financing.
Some of the most influential international and regional bodies in the anti money laundering
A. The Bank for International Settlements (BIS)
The Bank for International Settlements was established on 17 May 1930. It is the world’s oldest international financial institution.
The head office is in Basel, Switzerland and there are two representative offices: in the Hong Kong Special Administrative Region of the People’s Republic of China and in Mexico City.
The BIS currently has 60 member central banks, all of which are entitled to be represented and vote in the General Meetings. Voting power is proportionate to the number of BIS shares issued in the country of each member represented at the meeting.
Board of the BIS
The Board of Directors of BIS may have up to 21 members, including six ex officio directors, comprising the Governors of the founding members (central banks of Belgium, France, Germany, Italy and the United Kingdom and the Chairman of the Board of Governors of the US Federal Reserve System). Each ex officio member may appoint another member of the same nationality. The Statutes also provide for the election to the Board of not more than nine Governors of other member central banks.
The Board of Directors elects a Chairman from among its members for a three-year term. The Board also elects a Vice-Chairman.
The mission of the Bank for International Settlements (BIS) is: (a) serve central banks in their pursuit of monetary and financial stability, (b) to foster international cooperation in those areas and (c) to act as a bank for central banks.
In broad outline, the BIS pursues its mission by:
promoting discussion and facilitating collaboration among central banks;
supporting dialogue with other authorities that are responsible for promoting financial stability;
conducting research on policy issues confronting central banks and financial supervisory authorities;
acting as a prime counterparty for central banks in their financial transactions;
serving as an agent or trustee in connection with international financial operations;
The BIS has no authority to make legally binding pronouncements but formulates broad supervisory standards and guidelines and recommends best practices. The most important of these for Money Laundering is called Basel Principles – Prevention of criminal use of the banking system for the purpose of money-laundering and has been issued in 1988.
The above Statement is a general statement of ethical principles which encourages banks’ management to put in place effective procedures to ensure that all persons conducting business with their institutions are properly identified; that transactions that do not appear legitimate are discouraged; and that cooperation with law enforcement agencies is achieved. The Statement is not a legal document and its implementation will depend on national practice and law.
The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding. At times, the Committee uses this common understanding to develop guidelines and supervisory standards in areas where they are considered desirable. In this regard, the Committee is best known for its international standards on capital adequacy; the Core Principles for Effective Banking Supervision; and the Concordat on cross-border banking supervision.
The Committee encourages contacts and cooperation among its members and other banking supervisory authorities. It circulates to supervisors throughout the world both published and unpublished papers providing guidance on banking supervisory matters. Contacts have been further strengthened by an International Conference of Banking Supervisors (ICBS) which takes place every two years
B. The International Monetary Fund (IMF)
The IMF was established in1945 as a specialized agency of the United Nations system within the framework of the Bretton Woods Accords.
It has now 188 member countries
The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed.
It was to do this by (a) providing a forum for cooperation on international monetary problems; (b) facilitating the growth of international trade, thus promoting job creation, economic growth, and poverty reduction; (c) promoting exchange rate stability and an open system of international payments; and (d) lending countries foreign exchange when needed, on a temporary basis and under adequate safeguards, to help them address balance of payments problems.
Over time, the IMF has concentrated more on surveillance of individual countries and providing technical assistance to them. It (a) monitors economic and financial developments in member countries; (b) gives policy advice on macro-economic policy, balance of payments, regulation and supervision of banks and other financial institutions and structural policies (such as labour market policies); and (c) provides training.
The IMF supports its membership by providing (a) policy advice to governments and central banks based on analysis of economic trends and cross-country experiences; (b) research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets; (c) loans to help countries overcome economic difficulties; (d) concessional loans to help fight poverty in developing countries; and (e) technical assistance and training to help countries improve the management of their economies.
In reviewing the prudential regulation of particular jurisdictions, the IMF analyses the role of regulatory and law enforcement bodies in the prevention of money laundering. Unlike FATF, the IMF does not seek to set international AML standards; instead it plays an important role in evaluating jurisdictional compliance with them.
C. United Nations Office on drugs and Crime (UNODC)
Set up by the United Nations in 1997 to implement the United Nations International Drug Control Programme (UNDCP) and the Crime Prevention and Criminal Justice Programme (CPCJP), both of which were established by resolutions of the UN General Assembly in 1991.
Its overall aims are to assist UN member states in the struggle against illicit drugs, crime and terrorism. It does this in three main ways: (a) research and analytical work; (b) helping countries and implementing treaties and drafting domestic legislation; and (c) field-based or on the ground assistance, which includes training judicial officials.
UNODC’s Global Programme Against Money Laundering (GPML) helps member states to:
Introduce legislation against money laundering and to develop and maintain strategies to combat money laundering
Encourage AML policy development
Raise public awareness about money laundering, and
Coordinate joint AML initiatives by the United Nations with other international organizations
It has developed, in collaboration with the UNDCP Legal Advisory Section, model laws for both common law and civil law legal systems to assist countries in setting up their AML legislation in full compliance with international legal instruments against money laundering.
D. The Commonwealth Secretariat
The Commonwealth Secretariat provides guidance on policy making, technical assistance and advisory services to Commonwealth member countries. It supports governments to help achieve sustainable, inclusive and equitable development.
Its work promotes democracy, rule of law, human rights, good governance and social and economic development. It is a voice for small states and a champion for youth empowerment.
Priority areas of work are agreed at Commonwealth Heads of Government Meetings, which occur every two years. The next summit is in Malta in 2015.
Established by Commonwealth heads of governments in 1965
The principal inter-governmental organization of the Commonwealth
In 1993 the Commonwealth Secretariat released an anti money laundering common law model, followed in 1996 by a set of Commonwealth Guidance Notes for the Financial Sector
In July 2000 it published an updated version of its guidance notes entitles A Model of Best Practice for Combating Money Laundering in the Financial Sector
In response of the UN resolution 1373, which followed 11 September 2001, the Commonwealth set up the Commonwealth Committee on Terrorism (CCT). That reported in 2002: the report provided drafting instructions for model counter terrorism legislation.
Both the Model Law on Money Laundering and the Model of Best Practice were reviewed in 2004.
E. The European Commission and Council
The role of the EU is important in the AML arena and provides an excellent example of the manner in which national governments have been required to implement legislation to forestall AML legislation in line with the expectations of a transnational organization. Both the Commission and the Council have introduced measures aimed at forestalling money laundering. The most recent of these is the third EU Directive and recently a revised draft Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime.
F. The organisation for Economic Development (OECD)
The Organisation for Economic Co-operation and Development (OECD) was officially born on 30 September 1961.
Other countries joined in, starting with Japan in 1964. Today, 34 OECD member countries worldwide regularly turn to one another to identify problems, discuss and analyse them, and promote policies to solve them. The track record is striking.
The mission of the Organisation for Economic Co-operation and Development (OECD) is to promote policies that will improve the economic and social well-being of people around the world.
OECD uses its wealth of information on a broad range of topics to help governments foster prosperity and fight poverty through economic growth and financial stability. It helps ensure the environmental implications of economic and social development are taken into account.
OECD’s work is based on continued monitoring of events in member countries as well as outside OECD area, and includes regular projections of short and medium-term economic developments. The OECD Secretariat collects and analyses data, after which committees discuss policy regarding this information, the Council makes decisions, and then governments implement recommendations.
Money laundering and harmful tax practices are two issues in which the OECD has taken a significant interest in recent years.
The OECD made a significant contribution to the global effort against money laundering by spawning the Financial action Task Force (FATF) at its economic summit in 1989.