Anti-Money Laundering and Countering the Financing of Terrorism ("AML/CFT")
What is Money Laundering?
In general terms, money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of criminal activities. If successful, the property can lose its criminal identity and appear legitimate, meaning that criminals can benefit from their crimes without the fear of being caught by tracing their property back to a crime.
Illegal arms sales, smuggling, and the activities of organised crime, including for example, drug trafficking and prostitution, can generate huge sums. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to "legitimise" the ill-gotten gains through money laundering. When a criminal activity generates substantial profits, the individual or group involved must find a way to control the property without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the property to a place where it is less likely to attract attention.
Money laundering will often involve a complex series of transactions, traditionally considered as representing three separate phases:
Placement: Where the proceeds of crime are placed in the financial system.
Layering: Where funds are converted from one form to another, e.g. moved between various accounts and/or jurisdictions to disguise the audit trail and the illegitimate source of the funds.
Integration: Where funds that now appear legitimate re-enter the economy for what would appear to be normal business or personal transactions.
This is the “traditional” model, there are more “modern” methods of money laundering now beginning to emerge. Rather than getting caught up in trying to establish whether activity relates to a particular phase of the traditional model, the relevant person should ask themselves – “do I know, suspect or have reasonable ground to suspect that the property in question is criminal property?”
What is Terrorist Financing?
In general terms, the financing of terrorism is the financial support, in any form, of terrorism or those who encourage, plan or engage in terrorism. Terrorist financing differs from money laundering in that the source of funds can either be legitimate, such as an individual’s salary, or illegitimate, often the proceeds of crimes such as selling pirate DVDs, fraud or drug trafficking.
Usually, the focus of scrutiny for potential terrorist financing activity will be the end beneficiary and intended use of the money or assets. A terrorist financier may only need to disguise the origin of the property if it was generated from criminal activity but in the vast majority of cases they will seek to disguise the intended use i.e. the act of terrorism.
Terrorist financing often involves a complex series of transactions, generally considered as representing three separate phases.
Collection: Funds are often acquired through seeking donations, carrying out criminal acts or diverting funds from genuine charities.
Transmission: Where funds are pooled and transferred to a terrorist or terrorist group.
Use: Where the funds are used to finance terrorist acts, training, propaganda etc.
Like the traditional three phase model for money laundering, this model is rather simplistic and outdated. Rather than getting caught up in trying to establish whether activity relates to a particular phase of the traditional model, the relevant person should ask themselves – “do I know, suspect or have reasonable cause to suspect that the property in question is terrorist property or being used to fund terrorist activity?”
The United Nations 1999 International Convention for the Suppression of the Financing of Terrorism explains terrorist financing in the following way: ""Any person commits an offence within the meaning of this Convention if that person by any means, directly or indirectly, unlawfully and wilfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out" (a) An act which constitutes an offence within the scope of and as defined in one of the treaties listed in the annex (see 1-9 below); or (b) Any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act."
The Convention also indicates that a person still commits an offence even if:
- the funds are not used to carry out an offence in (a) and (b) above;
- a person attempts to commit an offence as described above;
- a person participates as an accomplice in an offence as above; and
- a person organises or directs others to commit an offence as above, or contributes to the commission of one or more offences as above by a group of persons acting with a common purpose, where the contribution is intentional and is made with the aim of furthering the criminal activity or criminal purpose of the group, where such activity involves the commission of an offence as above, or is made in the knowledge of the intention of the group to commit an offence as above.
What is the Proliferation of Weapons of Mass Destruction?
Proliferation of weapons of mass destruction (“WMDs”) can be in many forms, but ultimately involves the transfer or export of technology, goods, software, services or expertise that can be used in programmes involving nuclear, biological or chemical weapons, and their delivery systems (such as long range missiles). It poses a significant threat to global security. If appropriate safeguards are not established, maintained and enforced for sensitive materials, technology, services and expertise, they can:
- become accessible to individuals and entities seeking to profit from acquiring and selling them on;
- be used in WMD programmes; or
- find their way into the hands of terrorists.
Financial support provided to terrorist organisations that want to acquire and/or use WMD is also by its nature contributing to the proliferation of WMDs.
Proliferation of WMD financing is an important element and, as with international criminal networks, proliferation support networks use the international financial system to carry out transactions and business deals. Unscrupulous persons may also take advantage of the potential profits to be made by facilitating the movements of sensitive materials, goods, technology and expertise, providing seemingly legitimate front organisations or acting as representatives or middlemen. It is important to note that proliferation of WMDs is illegal regardless of the destination receiving or the intended target of the weapons.