those involved in the commission of financially motivated crime
have traditionally been concerned with the need to create the
perception of legitimacy of the source and ownership of the resulting
wealth and property, international efforts to counter such practices
are of relatively recent origin. The initial impetus for co-ordinated
international action against money laundering arose in the 1980s
within the context of efforts to combat the problem of drug trafficking
when a high priority was afforded to law enforcement strategies
designed to disrupt the organisation and management and break
the economic power of major trafficking networks. The practical
importance of so doing was emphasised by the UN General Assembly
when meeting in special session in early 1990. It noted that "the
large financial profits derived from illicit drug trafficking
and related criminal activities enable transnational criminal
organisations to penetrate, contaminate and corrupt the structure
of governments, legitimate commercial activities and societies
at all levels, thereby vitiating economic and social development,
distorting the process of law and undermining the foundations
value of a law enforcement strategy in which the confiscation
of the proceeds of crime is utilised both as a deterrent and as
a form of punishment has been increasingly realised of late as
other aspects of the perceived threat from transnational criminality
have become issues of major public concern and have been propelled
to a position of prominence on the international political agenda.
A number of these activities yield high profits to those involved.
is extremely difficult to estimate with any precision the magnitude
of the sums in question and all such efforts must be treated with
caution. That said all of the indications are that the amounts
are very substantial. By way of illustration, in a February 1998
speech in Paris the Managing Director of the International Monetary
Fund (IMF) underlined the magnitude of criminal profits in these
words: "While we cannot guarantee the accuracy of our figures
. . . the estimates of the present scale of money laundering transactions
are almost beyond imagination - 2% to 5% of global GDP would probably
be a consensus range". While many different forms of criminal
activity contribute to such estimates, there is some level of
consensus as to the principal sources of illegal proceeds. As
a June 1996 expert report put it:
trafficking and financial crime (bank fraud, credit card fraud,
investment fraud, advance fee fraud, embezzlement and the like)
remain the most frequently mentioned sources of illegal proceeds.
On the whole, drug trafficking is still considered the largest
single generator of tainted funds, but the scale of laundering
linked to financial crime is growing rapidly. .....Organised crime
continues to be responsible for a large proportion of the dirty
money flowing through financial channels.
should be noted at this juncture that the financing of international
terrorist activity, though now an issue of considerable political
importance, is not believed to involve sums of the same magnitude
as those derived from such orthodox profit generating offences.
further significant factor contributing to increased activity
against the laundering of the proceeds of crime has been the enhanced
appreciation of the negative impact which significant flows of
'dirty money' can have on the credit and financial institutions
through which they pass or in which they are deposited or invested
in the course of laundering operations.
initial governmental pre-occupation, and much of the public concern,
was with the banking sector, it soon became apparent that a wide
variety of business enterprises were being used for money laundering
purposes. As Tom Sherman, the then President of the Financial
Action Task Force (FATF), stated in May 1993: "experience
shows that money launderers will utilise almost any form of corporate
and trust activity to launder their profits. The mainstream and
underground financial systems in all their varieties are susceptible.
Accordingly, anti-money laundering measures have to be directed,
in addition to the banking system, to currency exchange houses,
insurance companies, building societies and other lending institutions
as well as betting agencies". More recently attention has
been increasingly focused on how best to: address the involvement
of professionals, such as lawyers and accountants, in money laundering;
deter the use of "corporate vehicles" for such purposes;
and limit the attraction of certain non-financial institutions,
such as dealers in high value goods, which are deemed to be particularly
vulnerable to abuse by launderers.
the above a consensus quickly emerged in governmental circles
that any strategy to combat money laundering would, in addition
to reliance on traditional criminal justice measures, have to
incorporate in an unprecedented way participants in financial
and other private sector activity. In relation to both elements
of this strategy, however, it was also clear that national initiatives
on their own would be insufficient. As was pointed out in a note
prepared for the UN Secretary General in March 1992: "since
obfuscating any evidentiary paper or money trail is a precondition
to successful money laundering, such activity will invariably
involve trans-border operations, often including many border crossings
in the course of a laundering 'transaction'". It is thus
critical that efforts to combat this practice effectively make
provision for a significant degree of international co-operation.
counter measures and initiatives
initiatives in this area have been many and varied over the last
decade or more. However, it is widely recognised that pride of
place must be afforded to the work of the Paris based Financial
Action Task Force (FATF). It will be recalled that the FATF is
an ad hoc grouping of 29 OECD, financial sector, and strategically
selected jurisdictions (including Mexico, Brazil and Argentina)
which focuses exclusively on the promotion of international action
to combat money laundering and to facilitate the confiscation
of the proceeds of crime. Established by G-7 Heads of State and
Government at the 1989 Paris Summit it is best known for its wide
ranging package of 40 Recommendations. First issued in 1990 and
revised in 1996 these are widely viewed as setting the international
minimum standard in this sphere in spite of the fact that they
are not embodied in any legally binding instrument.
grouping of countries has traditionally focussed on three priorities:
the implementation by FATF members of the 40 Recommendations;
track of developments in money laundering methods and examining
appropriate counter-measures; and,
out its external relations programme to promote world wide action
against money laundering.
To these has
been added, since the tragic events of 11 September 2001, action
against terrorist finances.
a detailed review of the work of the FATF will not be attempted
here several important features are deserving of comment in the
present context. First, in seeking to encourage and monitor the
implementation of its programme of action by its own members it
has developed an innovative system of "multilateral surveillance
and peer review". This centres around an annual self-assessment
exercise complemented by "a more detailed mutual evaluation
process under which each member is subject to an on-site examination".
The success of these evaluation procedures has resulted in their
introduction elsewhere. Not only is mutual evaluation a characteristic
of the growing number of FATF-style regional anti-money laundering
bodies (see further below) but variants of it have been introduced
into the procedures of, inter alia, the OECD and Council of Europe
in their efforts to combat corruption and, on a broader front,
into the justice and home affairs activities of the European Union
the FATF has sought to remain sensitive to the dynamic nature
of this form of criminal activity. It has thus attempted to recognise
and respond to the fact that money laundering techniques are constantly
evolving. In particular it was recognised from the beginning that
its package of counter-measures, reflected in the 1990 Recommendations,
would require periodic adjustment. A major review was conducted
in the mid-1990s and several significant amendments were agreed
to which became effective in June 1966. A similar exercise is
decision to embark on a further stocktaking review was not a surprising
one. Indeed, in the course of 1997-1998 it was accepted by the
FATF that such an exercise might prove to be necessary. Subsequent
developments served to highlight the need for such an initiative.
By way of illustration, in their July 2000 report to G-7 Heads
of State and Government, meeting in Okinawa, Finance Ministers
called upon the FATF to consider the scope for revising its Recommendations
in four areas:
to the international financial system (i.e., professionals such
as lawyers and accountants);
international payments system (especially the inclusion of originator
identification in international wire transfers);
"vehicles" (with particular reference to the obtaining
and sharing of information on the beneficial ownership and control
of such "vehicles"); and,
state assets (in particular enhancing international co-operation
to address this issue).
The need for
a further updating of the 1996 package of measures has since been
reinforced by the priority afforded to increasing the effectiveness
of action against the financing of terrorism in the wake of the
events of 11 September 2001.
order to facilitate progress three working groups have been created
to deal with: a) customer identification and suspicious transaction
reporting; b) corporate vehicles; and c) gatekeepers. A special
Plenary meeting of the Task Force took place in May 2002 in an
effort to accelerate the pace of progress.
FATF participants have adopted the view throughout that effective
action to counter modern and sophisticated money laundering would
have to extend well beyond the confines of its own limited membership.
Ideally compliance with its package of counter-measures should
be global in reach. Working in collaboration with other interested
international bodies it has established an ambitious external
relations programme which seeks both to increase awareness of,
and to obtain commitments to implement, its anti-laundering strategy.
in meeting these goals has been impressive. This is nowhere more
evident than in the creation of an ever increasing number of FATF-style
regional bodies. Of these the best known and longest established
is the Caribbean Financial Action Task Force (CFATF), which has
a small secretariat located in Port-of-Spain, Trinidad. Within
its membership of 25 states from the Caribbean basin region one
finds substantial Latin American participation (including the
Dominican Republic, Nicaragua, Costa Rica, Panama, and Venezuela).
Importantly, for present purposes a South American regional task
force was launched at a meeting in Colombia in December 2000.
GAFISUD (Grupo de Acción Financiera de Sudamérica
Contra el lavado de Activos) has among its primary objectives
to recognise and apply the 40 Recommendations and any others that
the new body may adopt in the light of regional realities and
sensitivities. As is common in bodies of this kind it will utilise
both self assessment and mutual evaluation to monitor the compliance
of its members with the requirements and expectations reflected
in these anti-money laundering measures (the nine founder members
were Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Peru,
Paraguay and Uruguay).
Developments: Terrorist Finances and 'Gatekeepers'
the process of evolution of anti-money laundering standards continues
to be a dynamic one is particularly well illustrated by two recent
developments. The first concerns efforts of the FATF to target
the finances of terrorist groups. Prior to the events of 11 September
this matter had not assumed a position of any prominence in the
activities of the FATF. However, in its, immediate aftermath the
15 EU members called for the mandate of that body to be broadened
to specifically embrace this subject. Similarly, on 6 October
2001 G-7 Finance Ministers called upon the FATF to issue special
Recommendations on this matter and to include specific treatment
of terrorist funding in the current revision of the 40 Recommendations.
They also called upon it to issue focused guidance to financial
institutions, to develop a process to identify countries that
facilitate terrorist financing, and to propose a course of action
to achieve co-operation from such jurisdictions.
these ends an emergency Plenary meeting of the FATF was held in
Washington, D.C. on 29 and 30 October 2001. There agreement was
reached on a set of terrorist specific Recommendations. In the
words of a FATF Press Release of 31 October these commit members
Take immediate steps to ratify and implement the relevant United
· Criminalise the financing of terrorism, terrorist acts
and terrorist organisations.
· Freeze and confiscate terrorist assets.
· Report suspicious transactions linked to terrorism.
· Provide the widest possible range of assistance to other
countries' law enforcement and regulatory authorities for terrorist
· Impose anti-money laundering requirements on alternative
· Strengthen customer identification measures in international
and domestic wire transfers.
· Ensure that entities, in particular non-profit organisations,
cannot be misused to finance terrorism.
the same time the mandate for the remainder of the Hong Kong Presidency
of the FATF was revised in order to permit the early implementation
of these supplementary Recommendations. Progress recorded by FATF
members is being monitored through a special self assessment exercise.
This has, in turn, been extended to non-members on a worldwide
basis. As requested by G-7 Finance Ministers, a process is being
put in place to identify jurisdictions which have failed to take
appropriate steps to counter terrorist financing. The eventual
imposition of "counter-measures" against delinquent
states and territories is specifically contemplated.
pace at which these developments have taken place since 11 September
is, from an international criminal justice perspective, unprecedented.
Similarly there can be little doubt that (at least in the short
and medium term) the effort to disrupt international terrorist
activity by undermining its financial base will be a key concern
at the intergovernmental level. Given the nature and scope of
the challenges involved, however, success is likely to be but
slow and partial.
second development, and one which is ongoing, concerns the treatment
of so-called 'gatekeepers' in the international strategy to prevent
the laundering of the proceeds of crime. As was noted earlier,
this issue is central to the current discussions on amending the
40 FATF Recommendations.
"gatekeepers" is meant those professionals (especially
lawyers and accountants) whose specialised expertise needs to
be accessed by money launderers in order to create certain complex
laundering schemes designed to minimise the possibilities of detection.
As a 1 February 2001 report of the FATF has stated: "If one
looks at the types of assistance that these professions may provide,
it is apparent that some of these functions are the gateway through
which the launderer must pass to achieve his goals. Thus the legal
and accounting professions serve as a sort of 'gatekeeper' since
they have the ability to furnish access (knowingly or unwittingly)
to the various functions that might help the criminal with funds
to move or conceal". Of course not all of the services provided
by such professionals are relevant in this context. Those most
useful to would be money launderers are said to include:
Creation of corporate vehicles or other complex legal arrangements
(trusts, for example). Such constructions may serve to confuse
the links between the proceeds of a crime and the perpetrator.
· Buying or selling property. Property transfers serve
as either the cover for transfers of illegal funds (layering stage)
or else they represent the final investment of these proceeds
after their having passed through the laundering process (integration
· Performing financial transactions. Sometimes these professionals
may carry out various financial operations on behalf of the client
(for example, cash deposits or withdrawals on accounts, retail
foreign exchange operations, issuing and cashing cheques, purchase
and sale of stock, sending and receiving international funds transfers,
· Financial and tax advice. Criminals with a large amount
of money to invest may pose as individuals hoping to minimise
their tax liabilities.
· Gaining introductions to financial institutions.
these reasons, among others, several FATF members have included
lawyers and other legal professionals within the scope of their
anti-money laundering regimes. Various approaches have been take.
However, in each case it has been necessary to make special provision
in order to preserve the fundamental concept of legal professional
way of illustration, the European Communities Directive on prevention
of money laundering of 4 December 2001 applies central obligations
such as customer identification, record keeping, and the reporting
of suspicious transactions to independent legal professionals
(including notaries) when they participate whether (in the words
of Article 2a(5)):
(a) by assisting
in the planning or execution of transactions for their client
and selling of real property or business entities;
of client money, securities or other assets;
or management of bank, savings or securities accounts;
of contributions necessary for the creation, operation or management
operation or management of trusts, companies or similar structures;
(b) or by
acting on behalf of and for their client in any financial or real
It was, however, recognised that the nature of the relationship
between lawyers and their clients required special treatment particularly
in the context of the operation of the obligation to report suspicious
transactions to and otherwise co-operate with the authorities.
The relevant exemptions are mainly contained in the new version
of Article 6 of the Directive in which the principal safeguard
is worded thus:
States shall not be obliged to apply the obligations laid down
in paragraph 1 [co-operation with the authorities] to notaries,
independent legal professionals, auditors, external accountants
and tax advisors with regard to information they receive from
or obtain on one of their clients, in the course of ascertaining
the legal position for their client or performing their task of
defending or representing that client in, or concerning judicial
proceedings, including advice on instituting or avoiding proceedings,
whether such information is received or obtained before, during
or after such proceedings.
a further concession to the sensitivities of the profession it
is also provided that individual member states of the European
Union may opt to permit lawyers to file reports of suspicious
transactions with the appropriate self regulatory body rather
than directly with the Financial Intelligence Unit or other competent
approach agreed by the 15 members of the European Union is one
of the options currently under consideration by the FATF which,
in May 2002, published a consultation paper on this and other
possible amendments to the 40 Recommendations (available at: <www.fatf-gafi.org>).
Though no final decisions have yet been taken it is widely expected
that the revised standards will include specific treatment of
the course of the last decade major strides have been taken to
target the financial base of organised crime groups and others
involved in profit generating criminal offences. As a consequence
of international initiatives, including the work of the FATF,
co-operation between states has been strengthened, domestic criminal
laws have been amended to embrace new concepts such as money laundering,
and a strategy of prevention has been put in place which imposes
significant obligations on a range of private sector actors. As
has been seen, this latter aspect of the strategy is in the process
of being expanded to include new target groups. Members of the
legal profession, in Latin America as elsewhere, should follow
these developments with care.