UNIT 1 - ML & TF risks that must be managed Flashcards
Describe ‘the three-staged approach’ definition of the money laundering process and outline its limitations in terms of identifying money laundering activity.
The traditional three-staged approach encompasses Placement, Layering and Integration stages.
While it is useful in terms of introducing the basic concepts of AML, the definition is somewhat limited. This is primarily because it assumes that all money laundering activity will follow these three defined stages, and that the only property to be laundered is criminally derived cash.
In reality, any proceeds or benefit derived from a criminal act can be caught within the sphere of money laundering – it does not have to be cash received from crimes such as drug deals. Furthermore, the three-staged approach does not always apply; for example, if the crime takes place with funds already within the financial system, there is no need for placement.
What is meant by the term ‘predicate offence’ and can you name some that are ‘hot topics’ in your jurisdiction with supporting case studies to support your examination notes?
The term predicate offence refers to the first crime or illicit act. Examples include bribery, corruption, fraud, theft and tax evasion.
What are some of the main differences and similarities between money laundering and terrorist financing?
Differences include that the offence of money laundering cannot be committed without involving the proceeds of a criminal act, and the process is therefore designed to hide and disguise the source of the property involved. Terrorist financing can be funded by entirely legal means. In this case, it is the ultimate recipient(s) of the property and the purpose for which they will be used that must be hidden.
Some similarities include the motives of the criminal professional money launderer and the terrorist financier. Both the criminals and the terrorists will wish to benefit from the conduct, disguise their involvement and beneficial ownership but retain an element of control, and both may choose to use the funds to continue to finance their operations and further criminal acts. They will both therefore wish to keep these channels of finance open once they are well established.
Who are the primary international financial sanction setting regimes and authorities?
UN Sanctions Regime – the UN Security Council sets international sanctions under Chapter 7 of the UN Charter and these must be complied with by all UN Member States
EU Sanctions Regime – applicable to all EU member states. The Commission makes proposals for Regulations imposing restrictive measures that fall within the scope of Community competence, to be adopted by the Council.
UK HM Treasury – publishes the HMT Consolidated Sanctions List on behalf of the UK government and includes EU and UK designations.
US Office of Foreign Asset Control – issues designations that are applicable to all ‘US Persons’, including therefore US companies, anyone physically present in the USA, any US dollar transaction that is performed anywhere in the world and it also applies to US nationals wherever they may be domiciled and working.
Other local jurisdiction authorities will also need to be considered as part of the hierarchical structure of sanction regulations that apply to firms internationally.
What are the potential risks of non-compliance with international sanctions laws and regulations, and what are some of the measures adopted by sanctions evaders when trying to obtain finance or resources?
The penalty for non-compliance with sanctions can be serious. In the first instance we must of course consider that designated individual, entities and states who obtain finance or resources are likely to then use these gains to support their illicit activities. Furthermore, a firm or individual that does not comply may face some or all of the following additional consequences (not intended to be exhaustive):
- Criminal prosecution
- Civil liability and financial fines
- Regulatory enforcement action leading to fines, withdrawal of license to conduct some or all regulated activities and reputational damage from being named and shamed by the regulator
- Legal risk
- Commercial loss due to customers who choose not to deal with the firm
Operational costs due to new technology, staffing and processes that are required to be implemented to remediate non-compliance issues
Sanctions evaders are aware of their listing due to the very public way in which designations are announced, therefore they may undertake to disguise their identity when making payments or conducting trade and international finance. FATF, APG and various other local regulatory authorities have all shared updates and information on how evaders may use intermediaries, front companies and professional ‘gatekeepers’ to disguise the ultimate beneficiary of these transactions and activities. Increasingly, the use and misuse of corporate service providers and complex layering of a firms’ ownership are recognised as key typologies.
