EXPOSITOR:

CURRICULUM VITAE
NAME: Dr William C Gilmore
ADDRESS: Faculty of Law
University of Edinburgh
Old College
South Bridge
EDINBURGH
EH8 9YL
United Kingdom
TELEPHONE NO.: +44-(0)131-650-2050
FAX NO.: +44-(0)131-650-9094
E-MAIL ADDRESS: bill.gilmore@ed.ac.uk

NATIONALITIES: United Kingdom/Bahamas/Canada

DATE AND PLACE OF BIRTH: 31st March 1951; Nassau, Bahamas

ACADEMIC QUALIFICATIONS: Ph.D. (University of London, 1985)
M.A. (Carleton University, 1980)
LL.M. (University of London, 1972)
LL.B. (University of Edinburgh, 1971)

PRESENT POST: Professor of International Criminal Law,
Faculty of Law, University of Edinburgh,
Scotland

PREVIOUSLY: Head, Crime Unit and Assistant Director,
Legal Division, Commonwealth Secretariat, London (1991-1993)

Dr William C Gilmore
SELECTED PUBLICATIONS:* I Books:

Dirty Money: The Evolution of Money Laundering Counter Measures (2nd ed.1999:
Council of Europe Press, Strasbourg)

Commentary on the United Nations Convention
against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances 1988 (1998: United Nations, New York) [with J D McClean and others]

Crime sans Frontières: International and European Legal Approaches (1998: Edinburgh University Press, Edinburgh). [edited with P Cullen]

Drug Trafficking and the Chemical Industry (1996: Edinburgh University Press, Edinburgh)
[edited with A N Brown]

Policing the European Union (1995: Clarendon Press, Oxford) [with M Anderson and others]

Mutual Assistance in Criminal and Business Regulatory Matters (1995: Cambridge University Press, Cambridge).

International Efforts to Combat Money Laundering (1992: Cambridge University Press, Cambridge).

II Articles

"The OECD, Harmful Tax Competition and Tax Havens: Towards an Understanding of the International Legal Context" In R. Biswas. (ed) International Tax Competition: Globalisation and Fiscal Sovereignty (2002: Commonwealth Secretariat, London), pp. 289-317.

"Money Laundering and International Tax Co-operation: Exploring the Interface", in Tax Competition: Broadening the Debate
(2000: European Financial Forum, London)


"Drug Trafficking at Sea: The case of R v Charrington and Others", (2000) 49International and Comparative Law Quarterly
"Counter-Drug Operations at Sea: Developments and Prospects", (1999) 25 Commonwealth Law Bulletin

"The International Perspective to Money Laundering", in M Ashe and B Rider (eds), International Tracing of Assets (1997: Sweet and Maxwell, London)

"Narcotics interdiction at sea: The 1995 Council of Europe Agreement", (1996) 20 Marine Policy

"Hot Pursuit: The Case of R v Mills and Others", (1995) 44 International and Comparative Law Quarterly
"Drug Trafficking by Sea: The 1988 UN Convention", (1991) 15 Marine Policy

ONGOING OUTSIDE
COMMITMENTS: Scientific Expert (Legal), Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (PC-R-EV), Council of Europe (1996-present)


Member, Reflection Group on the advisability of drawing up an additional protocol to the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (PC-S-ML), Council of Europe (2001-present)

Secretary, International Law Association (British Branch) Committee on International Criminal Assistance (1999-present).`

*A complete listing of publications is available upon request.


 

Prevention of Money Laundering:
The International Legal Framework

Professor William C. Gilmore


1. Introduction

Although 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 of states".

The 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.

It 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:

Drug 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.

It 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.

A 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.

Although 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.

Given 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.

2. International counter measures and initiatives

International 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.

This important grouping of countries has traditionally focussed on three priorities:

(i) monitoring the implementation by FATF members of the 40 Recommendations;

(ii) keeping track of developments in money laundering methods and examining appropriate counter-measures; and,

(iii) carrying 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.

While 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 (EU).

Second, 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 now underway.

The 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:

· "Gatekeepers" to the international financial system (i.e., professionals such as lawyers and accountants);

· The international payments system (especially the inclusion of originator identification in international wire transfers);

· Corporate "vehicles" (with particular reference to the obtaining and sharing of information on the beneficial ownership and control of such "vehicles"); and,

· Stolen 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.

In 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.

Third, 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.

Progress 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).

3. Recent Developments: Terrorist Finances and 'Gatekeepers'

That 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.

To 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 to:

· Take immediate steps to ratify and implement the relevant United Nations instruments.
· 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 financing investigations.
· Impose anti-money laundering requirements on alternative remittance systems.
· Strengthen customer identification measures in international and domestic wire transfers.
· Ensure that entities, in particular non-profit organisations, cannot be misused to finance terrorism.

At 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.

The 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.

The 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.

By "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 stage).
· 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, etc).
· 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.

For 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 privilege.

By 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 concerning the

(i) buying and selling of real property or business entities;

(ii) managing of client money, securities or other assets;

(iii) opening or management of bank, savings or securities accounts;

(iv) organisation of contributions necessary for the creation, operation or management of companies;

(v) creation, 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 estate transaction;


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:

Member 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.

In 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 national authority.

The 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 this matter.

CONCLUSION

In 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.

Federación Interamericana de Abogados © Derechos Reservados 2002