The fight against illicit finance

1
The fight against illicit finance a critical
review of the Labour governments policy

• Dr Nicholas Ryder
• Commercial Law Research Unit
• University of the West of England

2
Introduction

• What is financial crime?
• Part 1
• Money Laundering
• Part 2
• Fraud
• Part 3
• Terrorist Financing

3
What is financial crime?

• there is no internationally accepted definition
  of financial crime and it interprets financial
  crime in a broad sense, as any non-violent crime
  resulting in a financial loss (International
  Monetary Fund, 2001)
• Financial crime has also been referred to as
  white collar crime, a term first used by
  Professor Edwin Sutherland in 1939 which has
  since become synonymous with the full range of
  frauds committed by business and government
  professionals (FBI, 2009)

4
What is financial crime?

• More recently the US Department of Treasury and
  HM Treasury have referred to financial crime as
  illicit finance
• Financial crime is defined as any offence
  involving fraud or dishonesty misconduct in, or
  misuse of information relating to, a financial
  market or handling the proceeds of crime
  (Financial Services and Markets Act 2000, s.
  6(3)).

5
What is money laundering?

• Processing of criminal proceeds to disguise their
  origin
• Concealing
• Disguising
• Converting
• Transferring or removing
• Facilitates the acquisition

• Retention
• Use or control
• Acquisition
• Use
• Possession
• Above relate to proceeds of criminal activity

6
The Scale of Money Laundering

• International Monetary Fund
• Between 2 and 5 of Global GDP
• 590 billion to 1.5 trillion
• 20 to 50 billion (UK)
• Financial Action Task Force
• 500 billion

7
How is money laundered?

• Three recognisable stages
• Placement
• Layering
• Integration

8
United Kingdoms Anti-Money Laundering Policy

• Criminalisation of money laundering
• Regulated financial institutions are compelled to
  put in place systems to preclude and identify
  money laundering
• Financial Intelligence

9
Criminalisation of money laundering

• Drug Trafficking Offences Act (1986)
• Criminal Justice Act (1993)
• Money Laundering Regulations (1993)
• Proceeds of Crime Act (2002)
• Section 327
• Section 328
• Section 329

10
Regulated financial institutions

• Financial Services Authority
• Financial Services and Markets Act 2000
• Section 6(3)
• Risk based approach
• Money Laundering Handbook
• Senior Management Arrangements, Systems and
  Controls
• Enforcement policy
• R v Rollins 2010 UKSC 39

11
Financial Intelligence

• Drug Trafficking Offences Act (1986)
• Section 24(1)
• Criminal Justice Act (1993)
• Sections 93 (a-g)
• Proceeds of Crime Act (2002)
• Part 7
• Suspicious Activity Reports
• Defensive reporting
• Compliance costs

12
Fraud

• The modern thief can steal more with a computer
  than with a gun (Computer Science and
  Telecommunications Board, 1991)

13
What is fraud?

• Persuading someone to part with something
  (Doig, 2006)
• Deceit or an intention to deceive (Omerod and
  Williams (2007)
• Act of deception intended for personal gain or
  to cause a loss to another party (Serious Fraud
  Office, 2006)
• involves the perpetrator making personal gains
  (Financial Services Authority, n/d)

14
The Extent of Fraud

• Norwich Union Report (2005)
• 16 billion
• Equivalent to 650 per household per annum
• Association of Chief Police Officers (2007)
• 15-17bn
• National Fraud Authority (2010)
• 30bn

15
The Extent of Fraud

• Mortgage Fraud
• 800m
• Benefit Fraud
• 8bn
• Corporate Fraud
• 72bn
• It costs the US economy 400bn (Ryder, 2010).

16
Some classic frauds

• Bank of Credit and Commerce International
• Barings Bank
• Enron
• WorldCom
• Bernard Madoff

• Polly Peck (Azil Nadir),
• Mirror Group Pension Scheme
• Guinness
• Barlow Clowes

17
The United Kingdoms Fraud Policy

• Criminalisation of fraudulent activities
• Regulatory agencies, and
• Anti-fraud reporting requirements.

18
Criminalisation of Fraud

• The Fraud Act 2006 creates a new general offence
  of fraud and introduces three possible ways of
  committing it (s 1).
• Firstly, it makes it an offence to commit fraud
  by false representation (s 2).
• Secondly, the Act makes it an offence to commit
  fraud by failing to disclose information to
  another person where there is a legal duty to
  disclose the information (s 3).
• Thirdly, it makes it an offence to commit a fraud
  by dishonestly abusing one's position (s 4).

19
The Regulatory Agencies

• There are several agencies that attempt to combat
  fraud
• The Financial Services Authority
• The Office of Fair Trading
• HM Revenue and Customs
• The Serious Fraud Office
• The Serious Organised Crime Agency
• National Fraud Authority
• National Fraud Intelligence Bureau
• Economic Crime Agency

20
Anti-fraud reporting requirements.

• Proceeds of Crime Act (2002)
• Senior Management Arrangements, Systems and
  Controls (FSA Hand Book)
• Home Office Guidelines
• Who reports?
• Do all financial institutions report allegations
  of fraud?

21
The Costs of Terrorist Attacks

• World Trade Centre bomb 1993 129
• IRA bomb hoax Grand National 2p
• The London tube and bus suicide bombings which
  killed 56 people costs between 100 and 200
• The al-Qaeda bombing of the USS Cole which
  resulted in the death of 19 10,000

• The al-Qaeda inspired train bombings in Madrid
  which killed 191 people cost approximately
  10,000
• The Bali night club attack cost 74,000 and
  resulted in the murder of 202 people
• The terrorist attacks of 9/11cost approximately
  500,000

22
The Impact of 9/11

• International community was concerned with the
  illegal drugs trade, money laundering and fraud
• Not prepared to tackle terrorist financing
• UN Security Council Resolution 1373 kick started
  a new era (Whiner and Roule, 2002, 88).
• It also acted as a Galvanising effect
  (Akindemowo, 2004, 289).

23
Terrorist Financing Policy

• Criminalisation of terrorist financing
• The freezing of terrorist assets, and
• Financial Intelligence.

24
Criminalisation

• Section 14 Terrorist Property
• Section 15 Fund Raising
• Section 16 Use and Possession
• Section 17 Funding Arrangements
• Section 18 Money Laundering
• Section 19 Disclosure of Information

25
The freezing of terrorist assets, and

• Anti-Terrorism Crime and Security Act (2001)
• HM Treasury allowed to freeze the assets of
  overseas governments or residents
• See
• Case T-306/01, Ahmed Ali Yusuf and Al Barakaat
  International Foundation v Commission
• Case T-315/01, Yassin Adbullah Kodi v Council and
  Commission
• A v HM Treasury UKSC 2
• Terrorist Asset-Freezing etc. Act (2010)

26
Financial Intelligence

• Terrorism Act (2000)
• Anti-terrorism, Crime and Security Act (2001)

27
Conclusions

• Fraud

• Money Laundering

• Becoming the crime of choice for organised
  criminals and terrorists
• Tougher sanctions
• Cyber crime
• Adverse impact on the economy
• E-Fraud

• Too many vulnerable governments have not
  criminalised all forms of money laundering
• Too many governments place restrictions on AML
  measures
• International cooperation not sufficient
• The Internet
• Laws and regulations fail to keep pace

28
Conclusions

• Terrorist Financing
• Cheap terrorism
• 7th July 2005
• Reporting requirements are redundant
• Asset freezing provisions rethink