C Explanatory memorandum
by Ms Thorhildur Sunna Ævarsdóttir, rapporteur
1 Introduction
1. On 9 October 2018, the motion
for a resolution on “Urgent need to strengthen Financial Intelligence
Units – Sharper tools needed to improve confiscation of illegal
assets” (
Doc. 14638) was tabled by the Committee on Legal Affairs and Human
Rights (the committee) and referred to the committee for report
on 23 November 2018. The committee appointed me as rapporteur at
its meeting in Berlin on 15 November 2019, following the departure
from the Parliamentary Assembly of the former rapporteur, Mr Mart
van de Ven (Netherlands, ALDE).
2. The Assembly previously invited all Council of Europe member
States to “step up international co-operation in the fight against
corruption, [by] co-operating more efficiently in following the
‘money trail’ left by electronic transfers of funds, with a view
to helping each other recuperate funds generated by corrupt practices”.
Note In
the face of the staggering extent of money laundering and other
financial crime in Europe, confiscation of illegal assets has potentially
huge benefits as it strengthens the Council of Europe member States’
means of action and weakens the ever-growing “financial firepower”
of organised crime and corrupt individuals to subvert democracy
and the rule of law.
3. The present report is part of a “trilogy” of reports submitted
by the Committee on Legal Affairs and Human Rights (“the committee”)
concerning the fight against money-laundering and terrorism finance
by the confiscation of illegal assets. The first contribution in
this context was the report by Mr van de Ven on “Fighting organised
crime by facilitating the confiscation of illegal assets”, which
focused on promoting non conviction-based confiscation and the reversal
of the burden of proof, following in particular the Irish and Italian
models.
Note Our colleague Mr André Vallini
(France, SOC) is currently working on what would be the logical
sequel to Mr van de Ven’s report, as it focuses on “How to put confiscated
assets to good use”.
Note The issues covered in the present
report – aimed at strengthening Financial Intelligence Units (FIUs)
– are in a way “upstream” of the two other reports: strong FIUs
help increase the amount of successfully confiscated illegal assets,
especially when confiscation is aided by the reversal of the burden
of proof regarding the legitimacy of the assets targeted for confiscation;
and increased confiscations will in turn boost the assets available
for the good uses being explored by Mr Vallini.
4. The motion for a resolution underlying this report describes
FIUs as essential authorities in the general anti-money laundering
and countering the financing of terrorism (AML/CFT) apparatus of
member States. Their work may lead to the confiscation of illegal
assets, but also serious criminals being brought to justice, and, finally,
to the protection of the systemic integrity of the financial sector
and the global economy as a whole. FIUs deserve to be strengthened
and this report will seek to make concrete recommendations for improvements.
5. At the committee’s (online) meeting on 9 September 2020, three
experts
Note gave detailed insights
into the functioning of their respective FIUs (Poland, Armenia and
Latvia). Based on their own institutions’ experience and that accumulated
by the Committee of Experts of the Council of Europe on the Evaluation
of Anti-Money Laundering Measures and the Financing of Terrorism
(Moneyval), they provided me with some useful input for the preliminary
draft resolution and recommendation.
6. The numerous FinCEN (the United States’ FIU)The
Financial Crimes Enforcement Network (FinCEN) is a bureau of the
United States Department of the Treasury. documents recently
disclosed show once again the enormity of the problem. Over two
trillion US$ in suspicious transactions were revealed in the disclosed documents
alone. The leaked documents show the limited effectiveness of the
existing AML/CFT framework in the face of the lack of compliance
of major banks and the lack of a speedy and effective reaction of
many FIUs when they do receive the suspicious transactions or activity
reports (STR/SAR) banks and other private sector actors are required
to file.
7. The fight against money-laundering and terrorism financing
is also negatively impacted by so-called “golden passports” programmes
involving the grant of citizenship in return for the investment
of a large sum of money in the country concerned. These programmes,
offered by Cyprus and Malta, in particular, have given rise to numerous
abuses that have recently prompted the European Commission to launch
infringement proceedings against the two countries.
Note Such
practices, strikingly illustrated by a recent scandal in Cyprus
Noteare problematic also from an AML/CFT
perspective, because the European Union (EU) passports they purchase enable
dangerous criminals from third countries to “fly under the radar”
of EU AML/CFT measures that foresee more intensive controls vis-à-vis
nationals of certain third countries that have notoriously weak
law enforcement and a high level of corruption.
2 Role of Financial Intelligence Units
and recent developments
2.1 Role
of Financial Intelligence Units
8. FIUs are essential parts of
effective AML/CFT frameworks in member States and worldwide. Their
core mandate aims to create a connection or “buffer” between the
private sector (financial and non-financial institutions
Note)
and law enforcement authorities (namely the police, security services,
prosecutors’ office). Their main functions are to receive, analyse
and disseminate suspicious transaction or activity reports (STRs/SAR
Notes),
filed by private sector actors (“reporting entities”) fulfilling
their reporting obligations under AML/CFT legislation
Note. They also collect and analyse
other information relevant to money laundering, associated predicate
offences (including corruption, cybercrime and organised crime)
Note and terrorist
financing. FIUs have at their disposal a broad range of tools which
can be used to collect and assess information on suspicious transactions.
9. FIUs may have additional powers such as the power to postpone
transactions, supervisory functions of the implementation of the
AML/CFT obligations by reporting entities, issuance of guidance
and provision of training on AML/CFT matters; as well as, given
its role as the main player in the AML/CFT field, co-ordinating national
initiatives at policy level.
10. The power to postpone a transaction is foreseen in Articles
14 (for domestic purposes) and 47 (at the request of a foreign FIU)
of the Council of Europe’s Convention on Laundering, Search, Seizure
and Confiscation of the Proceeds from Crime and on the Financing
of Terrorism (CETS No. 198, Warsaw Convention). But this power is
(regrettably, see paragraph 25 below) not yet included in the standards
set by the
Financial
Action Task Force (FATF).
11. FIUs are established on the basis of financial, criminal and
other policy considerations specific to each country, in accordance
with their national legal and institutional framework. The structure
of FIUs, their activities, working practices and methods of recording
and analysing information vary considerably across member States.
FIUs can be set up according to various models: administrative,
law enforcement, judicial or hybrid.
Note The
“administrative model” involves a centralised, independent, administrative
authority, which receives and processes information from the private
sector and transmits relevant information to law enforcement authorities
Note for
investigation and prosecution. In addition to their core functions,
the “law enforcement model” grants FIUs law enforcement powers with
regard to AML/CFT issues and often also investigative competencies.
The “judicial model” involves additional judicial powers including
the powers to seize funds, freeze accounts, conduct interrogations,
detain suspects, conduct searches, etc. Finally, the “hybrid model”
serves as a disclosure intermediary and a link to both judicial
and law enforcement authorities. It combines elements of at least
two of the FIU models.
Note
2.2 International
standards and co-operation
12. Given the international character
of financial and other organised crime, international cooperation
is essential, in particular in the development of international
standards for the establishment and functioning of FIUs as well
as the facilitation of international exchange of information. It
is essential that FIUs act quickly in the context of a dynamic globalised
criminal and corruption scene.
13. To counter the money laundering/terrorist financing threats,
in 2005, the Council of Europe adopted the the Warsaw Convention
which calls on “each Party to adopt such legislative and other measures
as may be necessary to establish an FIU” as defined in the text.
Relevant international AML/CFT standards include in particular those
set up by the FATF, an inter-governmental body established in 1989
to promote effective implementation of legal, regulatory and operational
AML/CFT measures.
Note The FATF has developed a series of
recommendations including one specifically directed at FIUs (see Recommendation
29 and its related Interpretive Note). The European Union
Directive 2015/849 on the Prevention of the Use of the Financial System
for the Purposes of Money Laundering or Terrorist Financing (Fourth
EU AML/CFT Directive) contains provisions dealing with FIUs in European
Union member States. Amendments to this Directive are also contained
in the EU Directive
2018/843.
14. In addition, co-operation between FIUs is defined by the Warsaw
Convention which states that “Parties shall ensure that FIUs […]
shall cooperate for the purpose of combating money laundering […]”
(Article 46). The 2003 United Nations Convention Against Corruption
(UNCAC) and the 2000 United Nations Convention against Transnational
Organized Crime (UNTOC) both urge countries to “ensure that their
administrative, regulatory, law enforcement, and other [competent]
authorities have the ability to cooperate and exchange information
at the national and international levels within the conditions prescribed
by [their] domestic laws and, to that end, […] consider [establishing
FIUs].” The FATF Recommendation 40 also states that “countries should ensure
that their competent authorities can rapidly, constructively and
effectively provide the widest range of international cooperation
in relation to money laundering, associated predicate offences and
terrorist financing”.
Note
15. Furthermore, in 1995, the
Egmont Group of Financial
Intelligence Units (Egmont Group) was established in order to enhance the
exchange of intelligence between jurisdictions. The Egmont Group
is one of the main contributors and promoters of technical standards
for member States. For instance, the Egmont Group
Charter and its
Principles
for Information Exchange set out important guidance concerning the role and functions
of FIUs, and the mechanisms for exchanging information between FIUs,
including a secure platform for the rapid exchange of information
between participating FIUs.
Note The Egmont Group, headquartered
in Toronto, Canada, also organises trainings and staff exchanges
as part of its capacity building efforts.
2.3 Some
issues requiring special attention
17. FIUs receive hundreds of thousands
of STRs from financial and non-financial institutions complying
with relevant regulations, under threat of heavy penalties. However,
recent reports conclude that whilst the number of STRs increases,
only a very small percentage of those result in successful asset
recovery. For example, in 2014, FIUs in the European Union received
altogether almost one million STRs, among which 65% were reports
sent to the FIUs in the United Kingdom and the Netherlands. On average,
just 10% of STRs to FIUs in the European Union led to further investigations
(figure unchanged since 2006), and only 1% of criminal proceeds
were successfully confiscated.
Note
18. Common issues include:
- Concerning
the receipt of STR: uneven quality and large quantityNote of
reports filed by the reporting entities, the release of assets (namely
conducting transactions) by reporting entities before they have
a feedback from the FIU, lack of knowledge on money laundering/terrorist
financing typologies by reporting entities as well as lack of effective
feedback, guidance and training for reporting entities; the recent
FinCEN disclosures seem to indicate that reporting entities, including
large banks, continue serving clients and carrying out activities
that they had themselves reported as being suspicious. This shows
the importance of rapid feedback from FIUs to the reporting entities
– presuming that there is no ill intent on their side.
- Concerning the analysis and dissemination of STRs: the
lack of autonomy and independence of certain FIUs, understaffing
as well as insufficient material resources (IT equipment and tools,
archiving and data management and exchange systems) or inadequate
technical capacities in the context of new challenges (growing demand
for online services and related internet payment systems, fintechNote) and the complex nature
of criminal schemes and money-laundering paths (including cybercrime),
inadequate human and technical resources to conduct operational
and strategic analysis (including development of typologies), inadequate
use of their suspension powers if they have such capacity;
- Concerning the use of the disseminated information by
the law enforcement authorities: inability to take prompt actions
to ensure the assets are frozen and/or seized while conducting an
investigation, inability to provide timely feedback to the FIU about
the quality of the disseminated information and the actions taken
(launch of an investigation or conclusion that the report does not
provide sufficient grounds for investigation).
19. These issues have been identified by regular national assessments
conducted by the FATF, Moneyval and other relevant bodies that are
part of the global AML/CFT network. Evaluation reports are produced
on the basis of the FATF
“Methodology for assessing technical compliance with the FATF recommendations
and the effectiveness of AML/CFT systems” (updated in October 2019).
Evaluations are conducted on the basis of set goals (“Immediate
Outcomes”). Of particular interest to this report, Immediate Outcome
6 (IO6) aims for “Financial intelligence and all other relevant
information [to be] appropriately used by competent authorities
for money laundering and terrorist financing investigations.” The
information gathered in Appendix I to the methodology provides extracts
of the country-specific evaluations, which list issues and rate
member States’ level of effectiveness in achieving set goals. For
instance, only two Council of Europe member States (Spain and the
Russian Federation) and one Observer State (Israel) have convinced
the FATF and/or Moneyval of having reached a high level of effectiveness
for IO6. One member State (Austria) was rated as having a low level
of effectiveness. 11 member States have a substantial level of effectiveness
and 15 States have a moderate level. The Appendix also compiles
ratings related to the technical compliance with FATF Recommendation
29 directly aimed at FIUs. The United Kingdom and one Observer State
(Canada) received the lowest ratings among States (namely partially
compliant). 16 member States were rated compliant and 12 member
States largely compliant.
Note
3 Measures
to strengthen Financial Intelligence Units
3.1 Strengthening
operational autonomy and independence
20. In
Resolution 2130 (2016) “Lessons from the ‘Panama Papers’ to ensure fiscal and
social justice”, the Assembly recommended that member States “ensure
the existence of effective and independent national FIUs, which
are free of any political interference in their operational decision
making.” The presence of an FIU as an autonomous central, national
agency allows for the impartial assessment and dissemination of
financial information and protection of confidential information.
Note
21. These principles are described in the Interpretative note
for FATF’s Recommendation 29: “the FIU should be operationally independent
and autonomous, meaning that the FIU should have the authority and capacity
to carry out its functions freely […]”. Indeed, the FIU should be
able to disseminate, spontaneously and upon request, information
and the results of its analysis to relevant competent authorities.
In addition, “if the FIU is located within the existing structure
of another authority, the FIU’s core functions should be distinct from
those of the other authority”. It “should be provided with adequate
financial, human and technical resources, in a manner that […] allows
it to conduct its mandate effectively”. FIUs should be protected
from “any undue political, government or industry influence or interference,
which might compromise its operational independence”.
22. Independence is also essential in the context of international
co-operation. The FATF states that “the FIU should be able to make
arrangements or engage independently with other domestic competent
authorities or foreign counterparts on the exchange of information.”
This includes adequate powers to sign memoranda of understanding
with foreign counterparts, and powers to collect and analyse information
on behalf of the foreign counterpart.
3.2 Strengthening
the capabilities of national authorities
23. Member States are encouraged
to “adopt such legislative and other measures as may be necessary
to institute a comprehensive domestic regulatory and supervisory
or monitoring regime to prevent money laundering and shall take
due account of applicable international standards, including in
particular the recommendations adopted by the FATF”.
Note Further immaterial and material
assets must be considered to strengthen the capabilities and efficiency
of FIUs.
24. Adequate resources and skill sets must be ensured for FIUs
to conduct both operational and strategic analysis. Operational
analysis shall identify specific targets, to follow the trail of
particular activities or transactions and to determine links between
those targets and crime. Strategic analysis must identify trends and
patterns but also threats and risks involved in the current AML/CFT
context. Strategic analysis may also help establish policies and
goals for the FIUs, or more broadly for other entities within the
AML/CFT regime. FIUs and their staff are therefore also required
to have a sound knowledge of analytical software to process the
information efficiently and establish typologies, schemes and relevant
links. Solid training in this highly technical area is essential
to strengthen the capabilities of FIUs and cope with time-pressured
needs.
25. Timely access to relevant information is essential for FIUs
to undertake their functions properly. When needed, they should
be able to obtain additional information from reporting entities
as well as financial, administrative, law enforcement and other
sources. Direct access to various databases (namely personal records,
travel data, real estate information, vehicle registers and others)
should be encouraged as much as the right to privacy allows. A reasonable
balance must be found with tightening data-protection laws, information
security and confidentiality rules. The FATF recalls that “information
received, processed, held or disseminated by an FIU must be securely
protected, exchanged and used only in accordance with agreed procedures,
policies and applicable laws and regulations”. For instance, “FIUs
must ensure that staff members have the necessary security clearance
levels and understanding of their responsibilities in handling and disseminating
sensitive and confidential information. The FIU should ensure that
there is limited access to its facilities and information, including
information technology systems” (Interpretative Note to FATF Recommendation
29). To this view, adequate resources must be dedicated to help
FIUs cope with increasingly complex and constantly evolving IT systems.
26. As mentioned above (paragraph 9), the power to postpone domestic
suspicious transactions is held by many FIUs, but not all. Article
14 of the Warsaw Convention states that it is necessary to permit
urgent action to be taken by the FIU or, as appropriate, by any
other competent authorities or body. This power helps prevent the
flight of suspect funds or assets beyond the reach of national law
enforcement and prosecutorial authorities during the time it takes
for those national authorities to seek and obtain a freezing or
seizing order from the judicial or other competent authorities.
The Convention indicates that the “maximum duration of any suspension
or withholding of consent to a transaction shall be subject to any
relevant provisions in national law.” The Convention (Article 47)
also requires Parties to adopt such legislative or other measures
to permit urgent action to be initiated by a FIU, at the request
of a foreign FIU, to suspend or withhold consent to a transaction
going ahead for such periods and depending on the same conditions
that apply in its domestic law with respect to the postponement
of transactions.
Note But this power is not yet
included in the standards set by the FATF. According to experts
I have consulted, it would be a big step forward if this power would
be granted to all FIUs. If a suspicious transaction is not held
up, even for a short time pending further inquiries or until a judicial
freezing order can be obtained, the funds in question simply “disappear”.
3.3 Evaluation
of effectiveness
27. The assessment of FIUs’ effectiveness
is based on the evaluation of their performance and results. More precisely,
for an anti-money laundering and terrorism financing system to be
effective, it should ensure that relevant financial intelligence
and other information is collected, analysed and disseminated in
a form and quality that can be used by the competent law enforcement
authorities to investigate and prosecute money laundering, associated
predicate offences and terrorist financing. The following questions
arise: Are the FIU’s efforts properly targeted to successfully tackle
the prevailing money laundering and terrorism financing risks in a
given country? To what extent is FIU analysis and dissemination
supporting the operational needs of the competent authorities? Are
the resources distributed in line with the FIUs’ core functions?
Note
28. The rate of success in transforming STRs into actionable evidence
for purposes of confiscating illegal assets and prosecuting relevant
crimes has been described as the “conversion rate”. The “conversion
rate” will depend first and foremost on the qualities of STRs, which
must include promptness, comprehensiveness, accuracy of analysis
conducted and reflected in the report by the reporting entity. In
turn, the quality of the FIU’s analysis will depend on good overall
financial intelligence, which must be reliable, timely, accurate,
relevant, and up to date. The level of the conversion rate will
depend on the close co-operation and co-ordination of the FIU with
relevant entities – namely reporting entities and law enforcement
authorities. The objective is to avoid a gap between those receiving
and analysing financial information and those mandated to conduct investigations
and prosecutions. In many jurisdictions, co-operation between FIUs
and law enforcement authorities could be much improved by ensuring
that law enforcement authorities have the resources and skills to
use the information and analysis provided by FIUs. The information
received should support the law enforcement authorities’ own analysis
and investigations so that they can identify and trace suspect assets, and
take any necessary action.
Note Indeed,
FIUs have greater chances of ensuring a high conversion rate if
they reach out and cooperate both with the reporting entities and
with the law enforcement authorities. Such dialogue includes, as
appropriate, individual feedback, guidance on AML/CFT typologies
or training programmes, to improve both the quality of STRs which
the FIUs receive from the reporting entities and the usefulness
of information the FIUs pass on to law enforcement.
Note
29. Statistics on the effectiveness of FIUs and the “conversion
rate” of STRs are scarce. Indeed, the effectiveness of the STR regime
is difficult to measure as there are many factors to take into consideration
(for instance, the initial quality of the STR received from reporting
entities, formal and informal cooperation mechanisms between relevant
entities, law enforcement authorities’ capacities to conduct investigations following
an STR, among others). Data collection is still not standardised,
which makes information from different countries difficult to compare
and the effectiveness of the broader European AML/CFT framework more
difficult to assess.
3.4 Improving
cross-border co-operation
30. One of the key elements in
the functioning of FIUs is their ability to co-operate effectively
with their foreign counterparts and competent international bodies.
Effective information exchange between FIUs helps them anticipate
emerging challenges, including rapidly growing cross-border cybercrime,
the use of new technologies such as anonymisation tools which frustrate
the identification of beneficial owners, fintech and monetary instruments
such as crypto-currencies at the disposal of criminal and terrorist
groups and other actors whose
modus operandi can
change rapidly.
Note Bilateral and multilateral
cross-border co-operation allows FIUs to develop and share technical
expertise.
31. In
Resolution 2218
(2018) “Fighting organised crime by facilitating the confiscation
of illegal assets”, the Assembly noted that “effective international
co-operation in tracking, freezing and confiscating criminal assets depends
on an appropriate legal framework that ensures sufficient harmonisation
of procedures while allowing for different national approaches,
without discrimination”. The different national approaches must
be interoperable. This should be feasible in practice, provided
that mutual trust is built over time and that the principles of
interdependence (the recognition that AML/CFT cannot be done without
collaboration), fairness, and reciprocity with respect to the sharing
of financial information, are recognised and upheld everywhere.
I should like to add that fair distribution, agreed in advance,
of the confiscated proceeds of crime among the States whose FIUs
and other investigative bodies are involved in tracking the funds
through different jurisdictions could incentivise more energetic
international co-operation. Considerable investigative resources must
be mobilised to dismantle a sophisticated international money-laundering
operation in all jurisdictions through which the funds have passed.
It would therefore would not be fair (and not motivating for the
others) if the country of final destination were to keep all the
confiscated assets.
32. The Warsaw Convention is an important legal instrument to
promote international co-operation in the AML/FT field. It has been
signed and ratified by most, but still not all member States of
the Council of Europe.
Note The following countries have not
yet signed it: Andorra, the Czech Republic, Ireland, Norway and
Switzerland. The following have signed, but not yet ratified it:
Estonia, Finland and my own country, Iceland.
33. Several forums have proved to be successful in facilitating
the adherence to common international standards and sharing expertise
regarding FIUs. Such collaborative, proactive networks can identify weaknesses
and deficiencies in the functioning of FIUs and methods they may
use. For instance, the above-mentioned Egmont Group endeavours to
ensure that over 160 member FIUs respect a number of key standards
in order to enable maximum co-operation between them. To enhance
the quality of their performance, namely their capacity to interact,
co-operate and exchange information effectively, the Egmont Group
has also put in place the Egmont Secure Web, which is a secure channel
widely used for the exchange of information between members of the
Group. In a longer term, it aims to develop an operational database that
would be accessible to all members (ECOFEL programme) and facilitate
multilateral exchange of information. It also aims to develop new
partnerships. Whether through the
Wolfsberg Group or via other channels, the Egmont Group works towards
expanding dialogue with private sector institutions. The Egmont Group
also closely monitors decisions taken by international political
bodies such the G20 Anti-Corruption Working Group established in
2010, and their implications for its operations.
34. The Council of Europe’s Economic Crime and Cooperation Division
is responsible for European and neighbourhood co-operation and assistance
activities and reforms concerning, among others, good governance,
corruption, money laundering, asset recovery, terrorist financing,
organised crime and mutual legal assistance in criminal matters.
It has developed a variety of tools, methodologies and guidance
on implementation of standards and recommendations by involving
in house expertise and utilising a broad database. For example,
a joint EU/Council of Europe project (Controlling Corruption through
Law Enforcement and Prevention) helped the Republic of Moldova improve
anti-corruption, anti-money laundering and asset recovery procedures,
while strengthening key institutions, including the FIU and the
newly established Asset Recovery Office and facilitating interagency
co-operation between them. Furthermore, the project supported the
Moldovan FIU in drafting a new AML/CFT Strategy.
Note
35. Europol is also well positioned to see how financial intelligence,
in particular relating to cross border criminal activity, assists
investigators across Europe in dismantling organised criminal groups.
It hosts the permanent secretariat of the Anti-Money Laundering
Operational Network (AMON). FIU.net, a decentralised computer network
of the EU member States’ FIUs, has been operational since 2002
Note and
is embedded in Europol since 2016. This platform works in co-operation
with the European Counter Terrorism Centre (ECTC) and complements
other key Europol tools such as Terrorist Finance Tracking Program,
the Focal Point Sustrans (support to anti-money laundering investigations)
and the network of the EU Asset Recovery Offices (AROs). Furthermore,
the European Commission set up an Expert Group which functions as
an “FIU Platform” for EU Member States to provide operational advice
and expertise and facilitate co-operation between national FIUs.
Issues covered include effective international FIU co-operation,
the identification of suspicious transactions with a cross-border
dimension, the standardisation of reporting formats through the
FIU.net network or its successor and the joint analysis of cross-border
cases as well as trends and factors relevant to assessing AML/CFT
risks both on the national and supranational level.
Note
4 Conclusions
36. Fighting money laundering and
terrorist financing is a complex endeavour at both national and
global levels. FIUs, and the international networks of peer support
and peer review platforms they are associated with, have confirmed
that these authorities are key actors in the AML/CFT framework.
However, this framework needs to be better exploited so as to ensure
FIUs provide a meaningful contribution to the fight against money laundering,
associated predicate offences (including corruption, cybercrime
and organised crime) and terrorist financing.
37. The recently disclosed FinCEN
Notedocuments
demonstrate that the existing framework is still far too weak. The
documents show that even large, globally operating banks defied
the rules and continued working on a massive scale with clients
about whose activities they had themselves sent STRs or SARs.
Note One of the best-known European
experts in the field, Mr Daniel Thelesklaf, former chair of Moneyval
and until recently head of the Swiss Money Laundering Reporting
Office (MROS), recently blew the whistle on the weakness of the
Swiss AML system.
Note Mr Thelesklaf dared clearly
name the most important problem, namely the lack of political will.
In Switzerland, the 60 MROS staffers were hopelessly overwhelmed
with huge numbers of SAR/STRs, often presented in bulk, on paper,
requiring much manpower just to seize the data in the software.
He pointed out that Swiss law enforcement depended on mutual legal
assistance (MLA) from the countries of origin of the funds. But
as long as the suspects had not fallen out of grace with the corrupt
regimes of these countries (as had been the case in a recent case
concerning the daughter of an ex-President of Uzbekistan), such
MLA was never forthcoming, as in the cases of billions of Venezuelan
funds channelled to Switzerland by corrupt officials enjoying the
protection of the regime. The only realistic solution, in Mr Thelesklaf’s
opinion, would be a reversal of the burden of proof, enabling the
confiscation of funds except when the account holder can prove their
legitimate origin. I should like to recall that this solution was
strongly endorsed by the Assembly in
Resolution 2218 (2018). But Mr Thelesklaf was pessimistic as to the chances
of such legislation to be passed in Switzerland. In his view, AML/CFT
regulations in Switzerland were only introduced under international pressure
and limited to the minimum required to escape criticism.
38. I suspect that the lack of political will is a problem in
many jurisdictions. Our Latvian expert, at the committee hearing,
eloquently described the recent improvements in her country’s AML/CFT
system. But these were introduced only after several high-profile
scandals
Note, under American
and European Union pressure. Interestingly, the FinCEN leaks reveal
that the competent German authorities had assessed the Latvian set-up in
2005 (just before the above-mentioned scandals) and found that it
was “beyond the standards applied in Germany”.
Note Ironically, this may even have been
a correct assessment, as the German FIU has been notoriously inefficient,
reportedly turning Germany into,
inter alia,
the Italian mafia’s favourite money-laundering venue.
Note
39. National legislation and regulations must protect the operational
autonomy and independence of FIUs and encourage a culture of communication
among competent bodies. FIUs still lack adequate resources and training
on operational and strategic analysis and fintech and high-technological
trends to be fully effective. Work on facilitating adherence to
international standards and relevant expertise needs to be stepped
up. Furthermore, AML/CFT regimes are slowly opening up to wider
international co-operation and adjusting to the reality, including
its threats and risks, of what has become a global issue.
40. According to the World Bank, the world-wide proceeds of organised
crime and high-level corruption amount to several trillions of US
dollars – each year. Only a tiny fraction is successfully confiscated
by law enforcement. The remainder, accumulating in the hands of
organised criminals, corrupt public officials and terrorists, represents
a huge threat for democracy, the rule of law and national security
in all member States. At the same time, successful confiscation
of illegal assets represents a huge opportunity for States to generate resources
needed to address the social problems caused by organised crime,
corruption and terrorism. Urgent action to step up the tracking
and confiscation of the proceeds of crime is therefore both necessary
and potentially highly rewarding, in the literal sense of the word.
This should help us with generating the necessary political will
in all our countries to finally get serious about fighting money-laundering
and confiscating illegal assets on a far larger scale. The longer
we wait, the more urgent it becomes to question the reasons behind this
evident lack of political will.
