Post on 21-Jan-2015
description
The International Environment of
Anti-Money Laundering
Dr David Chaikin Barrister, Phd in Law (Cambridge), LLM (Yale), LLB/B Com (UNSW)
Associate Professor, University of Sydney School of Business
david.chaikin@sydney.edu.au
Presentation at Anti-Money Laundering 2014
Radisson Blu Plaza Hotel, Sydney
12th September 2014
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About me …
International practising investigatory lawyer since 1980s
Specialisation : transnational asset recovery investigations and litigation
At the University of Sydney since 2006
Banking and Finance Law, International Financial Crime, Law of Asset Protection
Selected publications
An Alternative Australian Trusts Act : Empirical and Implementation Perspectives
Financial Crime Risks, Globalisation and the Professions
Money Laundering, Tax Evasion and Tax Havens
Former Senior Assistant Secretary & Head of the International Criminal Law Enforcement & Security Branch , Australian Attorney-General’s Department
Former Senior Legal Officer, Commercial Crime Unit the Commonwealth Secretariat(London -based intergovernmental diplomatic body)
Statistics – Do they Matter?
Growth of financial crime as percentage of growth of GDP?
$1.6T bribes/year, Africa loses $250B or 25% GDP (World Bank)
1/3 of poorest people (1B) live in corrupt countries with huge natural
resources (Professor Collier)
Australian companies do business in highly corrupt countries –implications?
National priority for Australian to increase export of financial services
through private banking, asset and wealth management
2013 global private wealth $152T/highest growth in Asia/Pacific (BC)
challenge :close connection between government and business in Asia/Pacific
Only 3.5% of funds under management in Australia is foreign sourced
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Illicit Network Relationships
Corruption is the biggest single obstacle to development
Trillions of dollars arising from corruption must be laundered
But how do we explain the “Chinese puzzle”?
Money laundering is at the heart of profit-driven crime
Corruption undermines effectiveness of AML & CFT strategies
Tax evasion is an element of corruption & money laundering
Public officials that are corrupt will inevitable engage in tax crimes
Money laundering techniques are used to conceal corruption
National and international financial crimes can only be
adequately combated through international co-operation
Marcos Case Study:
Conjugal Dictatorship 1965-1986
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How Did the Philippines Find Some
Swiss Bank Accounts?
Marcos left documents behind at his Palace, and so to protect
himself, he requested Credit Suisse (client for 25 years) to
transfer $213M to Austria (Operation Blue Bird)
Credit Suisse was worried about its reputation so it asked for
advice from Swiss government
Swiss Federal Council orders freeze – $356M held in 5
corporate entities at two Swiss banks (Credit Suisse, Swiss
Banking Corporation)
Original discovery and freezing formed basis for litigation
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William
Saunders
Jane
Ryan
MALER
EST Swiss
Bank
Corporation
MALER
Foundation Swiss
Bank Corp
$356,000,000
Funds
Transfer
Established
June 1971Established
March 1970
Renamed
Aug.1978
Dissolved
June 1981
Funds Transfer March
1981
Renamed
Aug.1978
Funds
Transfer May
1981
Funds
Transfer
March 1981
Established Dec 1971
Renamed
Dec.1974
Renamed
Aug.1978
Dissolved
June 1981
Funds
Transfer
March 1981Funds
Transfer
March 1981
Established
Aug. 1970
Established March 1971
Established
June 1973
Dissolved
March 1981
Dissolved
March 1981
Dissolved
Funds
Transfer
March 1981
A/C opened March 1968 A/C opened March 1968
Established
May 1981
A/C opened
Sept. 1981
Established
May 1981
A/C opened
Sept. 1981
Established May 1981 A/C opened Sept. 1981
A/C opened
Sept. 1981
Established
May 1981
$231,367,070 Cat CAR
$8,647,190 Cat NES Dec.
1989$3,597,544Dec. 1989
$17,214,432Dec. 1989 $80,556,483
June. 1991Sfr.25,278,825J
une. 1991
OSER
OMAL
DIDO
Bank Hoffman
Fides Trust
account
AZIO
Foundation
Credit Suisse
ZANDY
Foundation
Credit Suisse
VERSO
Foundation
Credit Suisse
WINTHROP
Foundation
Credit Suisse
CHARIS
Foundation
Credit Suisse
SCOLARI
Foundation
Credit Suisse
VALAMO
Foundation
Credit Suisse
TRINIDAD
Foundation
Credit Suisse
RAYBY
Foundation
Credit Suisse
ROSALYS
Foundation
Swiss Bank Co
VIBUR Foundation
Credit Suisse
PALMY
Foundation
Credit Suisse
AVERTINA
Foundation
Credit Suisse
SPINUS
Foundation
Credit Suisse
AGUAMINA Inc
Swiss Bank Corp
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Money Laundering Techniques
Advisors to Marcos dynamic responses to changes in Swiss law
Layering techniques: liquidate corporate entities in which accounts
are held; transfer monies to a holding company (eg subsidiary of
the bank) & retransfer monies to a new corporate entity
Bank accounts: false names, coded instructions, 3 level security
protection, revolving account numbers
Beneficial ownership concealed & changed (role of lawyers, agents,
trustees, cronies/friends, business associates)
Operate under a front of legitimacy
Executive orders to justify decisions
Documentation supported by legal opinion, financial advice
Immunities – presidential, diplomatic
Rights 9
Recovery of Illicit Monies
10 years Marcos litigation in Switzerland to recover $356 M
(plus interest) = $657M
“Illicit enrichment” basis for recovery
Little Swiss assistance in recovering hidden monies
Hundreds of millions of dollars removed from accounts
(retrospectively) prior to freezing
$5-13.2 Bn hidden, little gold accounts (Operation Domino)
Over past 25 years only $4-5Bn recovered internationally out of
corruption pool of $20-30Bn – less than 1% (World Bank)
Australian record : $100M frozen by Confiscation Task Force
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Corruption Dimension
PEP Categories & Verification
Are these PEPs?
De Factos : 95% of Chinese officials investigated for
corruption have mistresses (Wu Changchen)
Sub-National Political Figures eg Party head Bo Xilai (China),
Mayor Maluf (Brazil)
Charitable foundations set up by PEPs
Verification of PEPs through private data bases
Implications if you get it wrong eg entertainment expenses by
investment banks
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Prevention Dimension
Risk-Based Approach
Risks - legal, regulatory & reputation
Fines, civil penalties, criminal convictions, banned from access
to financial markets, loss of license
Risk aversion leading to perverse outcomes
Enhanced Due Diligence on PEPs
Verification of client information
Failure of ongoing IT AML monitoring systems
PEP cases reported in few countries (except Switzerland)
Ex post facto judgments by government
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Tax Dimension
Massive leakage of confidential financial information (Swiss &
Liechtenstein Banks, Corporate Services Providers [Offshore
Leaks project – 100K companies, 2.5 M records, 2.5M emails]
Offshore Voluntary Disclosure
Multilateral support for automatic exchange of tax information
US Foreign Account Tax Compliance Act (FATCA)
Foreign financial institutions to disclose US taxpayers or face draconian
penalties (30% withholding tax)
78 countries, include Australia signed up (not Russia or China)
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US Dimension Increased enforcement by US against foreign financial institutions in
sanctions, terrorist financing, corruption & money laundering cases
Largest-ever terrorism-related civil forfeiture ($800M+ NY building
owned by Iranian Gov’t, $5Bn judgment claims)
FCPA deferred prosecution agreements – only 3% returned to “victim
country” (Zagaris)
Is US experience replicable in Australia?
US constitutional rights appear to be greater but Australian courts
have set limits on ML prosecutions
Extensive reliance on paid informers & whistleblowers in US
Many US money laundering cases are “sting operations” which might
be judged illegal entrapment amounting to an abuse of process in
Australia
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China Dimension
41 M private businesses (cf 140K 1978 ); 2nd highest no of
millionaires (2.4M), 3rd highest UHNWI (983)
Wealthy diversifying risk by moving funds out of China
China strict currency control laws is obstacle
Chinese underground banking centred on HK
Between 2000 and 2011 the Chinese economy lost $3.79T in
“illicit financial flows” ($3.2T invoicing trade fraud) (GFI)
“Offshore leaks” data: BVI, HK preferred destinations
Increased enforcement against corruption in China
Corrupt monies moving out of China
Growth of shadow banking in China
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Money Laundering Trends?
Concealment through Secrecy Structures
IBCs ( BVI, Panama ) Anglo/American trusts
Deception/Layering of Financial Transactions
False or Disguised Documentation
Minimum controls over opening “government accounts”
Use of national security as a cover for money laundering
Trade-based money laundering
Casinos, sports betting
Free Trade areas
Underground banking /Shadow banking
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Trends in the Law: Transparency except
Australia, US ...
The Australian Crime Commission identified exploitation of business
structures as key enabler of organised crime
Misuse of structures is connected to AML regulation of lawyers, accountants
and trust & company service providers
“For too long a small minority have hidden their business dealings behind a
complicated web of shell companies, and this cloak of secrecy has fuelled all manners
of questionable practice and downright illegality” (UK Prime Minister Cameron)
70% of cases investigated by UK Serious Organised Crime Agency
(SOCA) and more than 70% of the civil recovery cases by the Serious
Fraud Office (SFO) raised beneficial ownership issues
EU plan changes to law to oblige companies to disclose up front beneficial
ownership to national corporate registrars
Australia: Tranche 2 & effective beneficial ownership rules
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