Sciurba Anti-Money Laundering State Mechanisms

International Experiences, Current Issues and Future Challenges
1. Auflage 2018
ISBN: 978-3-945400-62-3
Verlag: Edition Faust
Format: EPUB
Kopierschutz: 6 - ePub Watermark

E-Book, Englisch, 160 Seiten

Reihe: Edition Faust Academic

This monograph offers a comprehensive analysis of the implementation of global anti-money laundering and counter-terrorism financing (AML/CTF) regulations in the United States and the European Union. It provides academics, legal professionals and interested readers with a deep understanding of the developments of the AML/CTF legal framework and guides them into the dimension of its most difficult relation with international and European human rights law. The implementation of global anti-money laundering regulations in the United Stated and the European Union has essentially led to the suspension of laws governing privacy and bank secrecy. Banks and other financial institutions now operate as an extension of law enforcement. The current Anti-Money Laundering regime jeopardises the fundamental achievements of the constitutional state. The increasing centralisation and cooperation of the competent authorities in the exchange of personal data information creates a security architecture that leads to a considerable risk of freedom restriction. In particular, the extension of the authorities´ power of intervention granting them access to citizens´ personal data without the need for initial suspicion underlines that a substantial part of the constitutional state is at risk. Furthermore, banks appear to use these policies as an instrument to clear legitimate but less profitable customers, in particular those with a migration background. Consequently, the implementation of the AML/CTF legal framework appears to follow a discriminatory path and clearly discloses incompatibility features with respect to the European Convention on Human Rights and Article 21 of the Charter of Fundamental Human Rights of the European Union. This monograph further explores factors contributing to the inefficiency of AML/CTF regulatory and legislative measures. Such factors are identified in inconsistent rules, which make the cooperation among national investigative authorities within the EU and at an international level more challenging. As a result, this work acknowledges regulatory and legislative harmonisation with respect to AML/CTF regimes as a central tool to successfully improve the effectiveness of AML/CTF regimes, while preserving the individual right to privacy, due process and civil rights.

Dr. Michele Sciurba, born 1968 in Palermo, Italy, studied Common and International Law at the University of Liverpool and Administrative Law at the Interregional Academy of Personnel Management in Kyiv. He was a member of the European Industrial Relations Observatory (EIRO) and worked as a lecturer for industrial and operating policies. During his career, he advised various government organisations concerning economic development issues (2008 e.g. he participated in the High Level Conference on World Food Security of the Food and Agriculture Organisation (FAO) in Rome). Sciurba is active for NGOs in the field of international law and human rights issues as a caseworker. Since 1999, he is managing director of the Frankfurt-based think tank GMVV & Co. GmbH. Besides, Michele Sciurba is a journalist for national and international media, including the 'Journal Frankfurt' and the Ukrainian Newspaper 'Kyiv Post'. He is also a columnist for the international magazine 'Impakter' and published various essays on legal and socio-political issues. Dr. Michele Sciurba studierte Philosophie in Frankfurt und Rom. Im European Industrial Relations Observatory (EIRO) wirkte er u.a. als Dozent für Industrie- und Betriebspolitik. Seit 1999 arbeitet er als strategischer Berater bei Cross-Border-Transaktionen im Energiesektor. Außerdem berät er Regierungsorganisationen bei ökonomischen Entwicklungsfragen und betätigt sich zunehmend in Zusammenarbeit mit verschiedenen NGOs im Bereich völker- und menschenrechtlicher Fragen. Von 2005-2013 arbeitete er als Diplomat in Rom und Brüssel. Absolviert derzeit einen Masterstudiengang in International Law an der University of Liverpool. 2010 gründete Michele Sciurba die Galerie Art Virus Ltd. in Frankfurt am Main, in der über die Galeriearbeit hinaus regelmäßig non-profit-orientierte Kunst gefördert wird. 2014 gründete er gemeinsam mit Werner Ost den Verlag Edition Faust.

Autoren/Hrsg.

Sciurba, Michele

Leseproben

I.

Theoretical and Methodological Aspects of Anti-Money Laundering State Regulation: The US Experience

I.1 Brief History of Combating Money Laundering

The purpose of money laundering (ML) is to circulate money originating from a criminal offence back into the regular money cycle in order to legalise it. The history of fighting against ML began in the United States (US) in the 1920s. Probably the best-known money launderer was gangster boss Alphonse Gabriel “Al” Capone. Although Capone laundered income from illegal bootlegging and contract killings through various fictitious companies and fake transactions, the US investigative authorities could not produce adequate proof that he was engaged in money laundering. The US Federal Government, however, was able to charge Capone with tax evasion.1 In 2, which was a precedent for Capone’s prosecution, the Supreme Court had ruled that illegal income must be taxed. In the end, Al Capone was sentenced for tax evasion in 1931 based on the fact that he failed to submit tax declarations in 1928 and 1929.3 The fight against money laundering and organised crime has ultimately become a key issue for law enforcement. The Bank Secrecy Act of 1970 (BSA)4 requires financial institutions to have compliance mechanisms in place to monitor and report daily aggregates surpassing USD 10,000 in order to counteract organised crime and prevent money laundering.5 At the same time, however, the BSA greatly reduces banking secrecy and the privacy of bank customers, which was previously protected, so that the government can receive information about customers banking operations. The adoption of the Right to Financial Privacy Act (Privacy Act)6 in 1978 initially served as a counterbalance to this legislation.

The basic three-tier model of money laundering includes: (1) the laundering of money obtained from illicit activities, such as drug trafficking or insider trading, (2) via sham businesses, such as restaurant chains, (3) in order to integrate the seemingly legal “dirty” money into the normal banking system.7 The fight against money laundering has been connected to the fight against organised crime and international drug trafficking from the beginning. In the 1970s, the “war on drugs” was the starting point for developing international Anti-Money Laundering (AML) regulations, such as the United Nations (UN) Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances8 in 1988.9 In addition, the leading industrial nations decided to take joint action in order to curb the criminal misuse of the financial system for the purpose of laundering drug money at the G7 summit in Italy in 1987, which resulted in the creation of the Financial Action Task Force on Money Laundering (FATF) in 1989, an intergovernmental body commissioned with setting global AML standards.

In 1990, the FATF issued 40 recommendations that served as AML standards for financial institutions. In addition, the FATF created a blacklist of non-cooperative countries and territories (NCCT) faced with severe restrictions in terms of international financial market participation.10 This list illustrates the FATF’s major global influence notwithstanding its lack of legislative status. After the September 11 attacks fundamentally changed the world’s security situation, the FATF published nine specific recommendations on the fight against terrorist financing (TF). Taking into account this new focal point, the UK adopted the Proceeds of Crime Act (POCA) 200211 in addition to the Terrorism Act 200012 and the Anti-terrorism, Crime and Security Act 200113. The European Union (EU) implemented the Second Anti-Money Laundering Directive (2nd AMLD)14 in December 2001, through which the FATF Recommendations first applied in the European Community.

In the wake of rising national and international security concerns, banks are exposed to severe sanctions and bear legal liability if they fail to comply with AML and Counter-Terrorism Financing (CTF) legislation. As a result, banks have implemented de-risking policies. These policies, however, undermine the confidential nature of the relationship between banks and their customers and disregard the central importance of the duties of loyalty and confidentiality. Based on the risk profiles of their customers, banks try to limit their own risks preventively, for example, by denying accounts or terminating existing accounts of legitimate customers. The risk-profiling policies animate banks to dismiss less profitable customers, discriminate against specific customer groups and justify this conduct with the need to mitigate risks. Using this approach, banks not only act as extensions of law enforcement, but also raise civic and human rights concerns by disregarding the private relationship to their customers. The competent authorities have created a security structure with a significant risk of a restriction of freedom through the increasing cooperation in the centralisation and exchange of personal data. Today, the authorities’ extended power of intervention allows them access to the personal data of any citizen without reasonable suspicion of wrongdoing. The current Anti-Money Laundering regime has evolved into a system that puts the constitutional state at risk and essentially jeopardises the achievements of the state under the rule of law.

I.2 The Bank Secrecy Act 1970: A Model for Modern AML Regimes

In 1970, the US adopted the BSA which, for the first time, required financial institutions to report deposits, withdrawals, exchanges of currency, or transfers exceeding USD 10,000. In order to meet the BSA’s requirements, the financial institutions had to install corresponding internal controlling and monitoring systems. Compliance officers now monitored the daily activities and trained the bank personnel to meet the new demands under the BSA.15 In addition, the Money Laundering Control Act16 of 1986 defined ML as a serious crime punishable with a fine of up to USD 500,000 or up to 20 years of imprisonment.17 In the late 1980s, the UN and EU added the issue of global cross-border activities of organised crime to their agenda.18

One of the BSA’s main tasks is to impede money laundering while helping US banks to be less vulnerable to ML activities. In order to integrate AML programs into financial institutions, designed to uncover and stop financial crimes, the BSA has authorised the Secretary of the U.S. Department of the Treasury to adopt regulations appropriate for the implementation of the Act and require implementation from banks and financial institutions.19 Organised crime responded to the new measures under the BSA by dividing transfers of “dirty” money into amounts below USD 10,000 to avoid potential monitoring. In response to this behaviour, the supervisory authorities tightened the reporting requirements for suspicious transactions to amounts exceeding USD 5,000.20 The BSA regime placed different requirements on individual financial institutions and intermediaries. Western Union, for example, has to report transactions exceeding USD 3,000. All things considered, the BSA represents a starting point in two respects. First, it marks the beginning of modern AML legislation for combating organised crime. Notably, similar AML legislation has been implemented globally based on the BSA model. Second, the BSA began a creeping erosion of banking secrecy, abandoning the protection of bank customer privacy. In the entire Western world today, virtually any bank customer can become the subject of a money laundering investigation without reasonable suspicion or grounds.21

I.3 The Current AML Regime in the US

The establishment of the BSA in 1970 marks the beginning of AML legislation in the US and has been an integral part of the fight against money laundering and organised crime, especially in relation to drug trafficking. Subsequently, the Money Laundering Control Act created the legal basis for severe penalties for money laundering offences in the 1980s22 and the 1990s23.24 The founding of the Financial Crimes Enforcement Network (FinCEN) in 1990 put a strong emphasis on cross-border tax evasion under the BSA.25 Yet, after 9/11, the fight against terrorist financing became a central part of AML legislation in the US. For this reason, the USA Patriot Act 200126 contains several AML provisions27, despite the focus of the Act on the fight against international terrorism. This includes the obligation of financial institutions to establish AML programs in section 352.28 In 2003, the U.S. Treasury delegated the administration and enforcement of the BSA’s provisions to the Director of the FinCEN based on the Treasury Order 180-0129 in the course of the inclusion of CTF into AML objectives. Today, the board of directors of individual financial institutions is in charge of maintaining an effective AML control structure in line with BSA requirements for the monitoring and reporting of suspicious activities. The internal control mechanisms...

Über Autor(innen)

Dr. Michele Sciurba, born 1968 in Palermo, Italy, studied Common and International Law at the University of Liverpool and Administrative Law at the Interregional Academy of Personnel Management in Kyiv. He was a member of the European Industrial Relations Observatory (EIRO) and worked as a lecturer for industrial and operating policies. During his career, he advised various government organisations concerning economic development issues (2008 e.g. he participated in the High Level Conference on World Food Security of the Food and Agriculture Organisation (FAO) in Rome). Sciurba is active for NGOs in the field of international law and human rights issues as a caseworker. Since 1999, he is managing director of the Frankfurt-based think tank GMVV & Co. GmbH.
Besides, Michele Sciurba is a journalist for national and international media, including the “Journal Frankfurt” and the Ukrainian Newspaper “Kyiv Post”. He is also a columnist for the international magazine “Impakter” and published various essays on legal and socio-political issues.

Dr. Michele Sciurba studierte Philosophie in Frankfurt und Rom. Im European Industrial Relations Observatory (EIRO) wirkte er u.a. als Dozent für Industrie- und Betriebspolitik. Seit 1999 arbeitet er als strategischer Berater bei Cross-Border-Transaktionen im Energiesektor. Außerdem berät er Regierungsorganisationen bei ökonomischen Entwicklungsfragen und betätigt sich zunehmend in Zusammenarbeit mit verschiedenen NGOs im Bereich völker- und menschenrechtlicher Fragen. Von 2005-2013 arbeitete er als Diplomat in Rom und Brüssel. Absolviert derzeit einen Masterstudiengang in International Law an der University of Liverpool.
2010 gründete Michele Sciurba die Galerie Art Virus Ltd. in Frankfurt am Main, in der über die Galeriearbeit hinaus regelmäßig non-profit-orientierte Kunst gefördert wird. 2014 gründete er gemeinsam mit Werner Ost den Verlag Edition Faust.