INTRODUCTION: This paper seeks to integrate the efforts made by individual group activity members while studying and analysing the manifold directions of money laundering and terrorist financing. The topics assigned for the group activity basically highlighted the nature and cause of ML related crimes, its threats, and consequences on individuals and society. The studies further highlighted issues of compliance requirements, and instruments to deter the crime.
Many national, regional and international institutions are engaged against this fight.1 The individual, regional and international efforts are revolving around mutual assistance, harmonisation of cross border efforts to fight against the crimes while providing model laws, directives and convention to strengthen the national and international efforts to check the transnational crimes.2
Nature of crime Organised criminals, driven by profit, use the financial system to move money, and launder and disguise it in other types of assets. Terrorists move funds through the financial system to promote militant ideologies, train new members, pay operatives, acquire weapons, stage attacks and sometimes carry out ostensibly legitimate activities to provide a veil of legitimacy for essentially terrorist organisations.
The financial system provides a mechanism for legitimate trade and investment; however, it can be abused by organised criminals and terrorists for their own designs. Globalisation has created new opportunities for legitimate business though, yet it has created potential new risks as criminals and terrorists can, for example, move funds internationally more easily.
As criminals and terrorists have come to rely on the financial system, so the financial system and the information within it now provide a new opportunity to tackle these threats. Financial information is now one of the most powerful investigative and intelligence tools available, the true potential of which is now being realised. Thus the ability to deny access to the financial system to organised criminals and terrorists presents a new opportunity to weaken their networks.
Financial measures A set of financial measures from freezing assets of terror suspects to requirements to report suspicious flows of money exists today to:
-- Deter crime and terrorism;
-- Detect it when it happens; and
-- Disrupt those responsible and hold them to account for their actions.
Organised crime generates billions of dollars of social and economic harm around the globe. This represents the cost of prevention and insurance, and the cost of the impact of crime (such as theft or physical harm to victims) and the costs of the response, such as running the criminal justice system. This includes: Following are the examples of financial crimes committed by the criminals:
-- Illicit drug use, which carries with it costs associated with premature death; drug related crime; security expenditure; drug related violence; health and social care expenditure; criminal justice costs; and social security and sickness absence;
-- Human smuggling and trafficking, which takes place against a backdrop of fear and intimidation. The mental and physical harm associated with people smuggling, combined with its impact on the immigration service, costs the billions of dollars per year;
-- Tax smuggling, which causes harm to the revenues, not only in terms of lost revenue but by the lost profit due to businesses from an illegal market and the law enforcement costs of stopping it; and
-- Bogus tax refund claims.
In recent years international terrorism has developed as a major crime which seriously threatens security at home and abroad.
Since 9/11, there have been further significant attacks in predominantly Muslim countries such as Pakistan, Tunisia, Morocco, Qatar, Jordan, Egypt, Saudi Arabia, Yemen and Indonesia (including the bombing of a night-club in Bali in October 2002, in which over 190 people were killed) and Turkey. There have also been significant attacks in India and in Europe, including multiple attacks on the Madrid train network in March 2004 and attacks in the United Kingdom in July 2005, when synchronised explosions on the Underground network and a bus in London killed 52 innocent people and injured over 700 others.
Terrorist threat Many countries now face a severe terrorist threat that is:
-- Genuinely international, with perpetrators making maximum use of the freedoms and possibilities of modern life especially the ease of travel and the ease with which information and money flows across the world;
-- Derived from a mixture of groups, networks and individuals. These range from larger groups organised around clear hierarchic and bureaucratic structures, to much looser and smaller groups of like-minded individuals. These different elements often cooperate and assist each other, but often also pursue separate goals; and
-- Indiscriminate in seeking to cause mass casualties, regardless of the age, nationality, or religion of victims.
Link between terrorism and organised crime
The extent of links between terrorism and organised crime varies from country to country. In general they are distinct phenomena with differing drivers. But together they pose a serious and immediate threat to the societies. Both criminal and terrorist threats also share important common characteristics - in particular, a requirement to utilise and disguise money flows. Formulating a co-ordinated response to this common characteristic enables both phenomena to be tackled simultaneously using similar means.
Money provides both the basic motivation and the opportunity for acquisitive criminals. In relation to terrorism, while individual attacks can yield great damage at low financial cost, a significant financial infrastructure is required to sustain international terrorist networks and promote their goals. Funds are required to promote a militant ideology, pay operatives and their families, arrange for travel, train new members, forge documents, pay bribes, acquire weapons, and stage attacks. Often, a variety of higher cost services, including propaganda and ostensibly legitimate 'social' activities are needed to provide a veil of legitimacy for organisations that promote their objectives through terrorism.
For example, according to the United States Commission into 9/11, al Qaeda was assessed to have spent some $30 million per year prior to 9/11 on funding operations, maintaining its training and military apparatus, contributing to the Taliban and their high-level officials, and sporadically contributing to related terrorist organisations.3
Vulnerabilities Whilst finance is the lifeblood of criminal and terrorist networks, it is also one of their greatest vulnerabilities. In this regard objectives of the states are to use financial controls to:
-- Deter crime and terrorism in the first place - by increasing the risk and lowering the reward faced by perpetrators;
-- Detect the criminal or terrorist abuse of the financial system; and;
-- Disrupt criminal and terrorist activity - to save lives and hold the guilty to account.
Organising principles
In order to deliver these objectives successfully, action in this area must be underpinned by the three key organising principles namely;
-- Effectiveness4 - making maximum impact on the criminal and terrorist threat;
-- Proportionality - so that the benefits of intervention are justified and that they outweigh the costs; and
-- Engagement - so that all stakeholders in government and the private sector, at home and abroad, work collaboratively in partnership.
Creating risk for perpetrators
Financial measures deter crime and terrorism by increasing the risk to perpetrators of being caught and decreasing the reward they might expect to gain. For example:
-- Asset-recovery powers strip criminals and terrorists of funds and property so that they jeopardise not just their liberty but their financial lifeline as well.
Recovered funds are turned against the criminal - by being used to fund further action against money laundering and by compensating victims;5
---- Specific legal penalties are to be provided in law to handle illicit funds. This opens up new avenues for prosecution and targets the wider facilitation networks that make crime and terrorism possible;6
---- "Know your customer checks" and record keeping requirements on banks and other financial in institutions in key areas make it harder for perpetrators to disguise the financial audit trails they leave behind;7 and
---- Professionals firms that act as a gateway to the financial system (such as accountants, lawyers or banks) are required to stay vigilant against signs of suspicious financial activity and report these to the law enforcement specified in the domestic laws. Institutions such as Financial Intelligence Units can be very effective.8
Taken together, these measures and many others like them may create a hostile environment for criminals and terrorists and limit the use of funds available to them.
As money moves through the financial system, it leaves a verifiable trail that can indicate illicit activity, identify those responsible, and locate the proceeds of criminality that can then be recovered. As financial institutions and other firms are required to take steps to 'know their customer' and keep records, the importance of financial investigation has increased dramatically in recent years.9
Investigation techniques
Financial information is now routinely used as part of the evidential case to hold criminals and terrorists to account. It also has a key intelligence role - for example by allowing law enforcement to:
-- Look backwards, by piecing together how a criminal or terrorist conspiracy was developed and the timelines involved;
-- Look sideways, by identifying or confirming associations between individuals and activities linked to conspiracies, even if overseas - often opening up new avenues for enquiry; and
-- Look forward, by identifying the warning signs of criminal or terrorist activity in preparation.
Financial intelligence is particularly suited to these tasks, and can be processed easily by computing technology, which has low perished ability and can be accessed easily.
Financial measures decrease the rewards and increase the risks faced by criminals and terrorists. Money laundering and terrorist finance measures create new avenues for prosecution and investigation and introduce powers to deprive criminals and terrorists of their assets.10
Disruptive impact of measures
The disruptive impact of measures against illicit funds is wide ranging and can frustrate criminals' and terrorists' ability to operate in a variety of ways, for example by inducing:
-- Denial of opportunity - for example, by dismantling permissive financial institutions on which they rely;
-- Financial stress, for example by freezing or reclaiming illicit funds - limiting their ability to sustain their operations;
-- Attacks to morale; leadership and legitimacy within a network; and
-- Forcing targets to shift activity into areas where they are more vulnerable that they would otherwise avoid.
Financial measures allow law enforcement agencies to go beyond the stark choice between prosecutions or no action when dealing with serious crime and terrorist threats. They alter the incentive structure of criminals and terrorists by frustrating their ability to raise, move and use funds, driving their expected reward downwards and their likelihood of detection upwards.
(To be continued tomorrow)
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