United Nations Global Programme against Money Laundering

    What Is the Global Programme against Money Laundering?
    What Are the International Instruments against Money Laundering?
    Questions, Answers and Facts about Money Laundering

     

    What Is Money Laundering?

    In today's global economy, organized criminals generate huge sums of money through drug trafficking, arms smuggling and financial crime. But "dirty" money is of little use to the sophisticated criminal because it raises the suspicions of law enforcement and leaves a trail of incriminating evidence.

     

    How do criminals "clean" their "dirty" profits? How do they disguise the billions of illegally hoarded dollars, deutsche mark or yen so they can be used without detection?

    Money laundering is a process which disguises illegal profits without compromising the criminals who wish to benefit from the proceeds. It is a dynamic three-stage process that requires: first, moving the funds from direct association with the crime; second, disguising the trail to foil pursuit; and third, making the money available to the criminal once again with the occupational and geographic origins hidden from view.

     

    Criminals are taking advantage of the globalization of the world economy by transferring funds quickly across international borders. The rapid developments in financial information, technology and communication allow money to move anywhere in the world with speed and ease. "Megabyte money" (in the form of symbols on a computer screen) operates 24 hours a day, seven days a week, and may be shifted dozens of times to prevent law enforcement officials from tracking it down.
    Since many of the world's financial centres have now established anti-money laundering measures, criminals seek out States where controls are weak or non-existent. The major money laundering cases that have been exposed in recent years share a common feature: criminal organizations are making wide use of the opportunities offered by financial havens and offshore centres to launder assets, thereby creating roadblocks to law-enforcement organizations.

     

    "The conversion or transfer of property, knowing that such property is derived form [an] offence..., for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such and offence ... to evade the legal consequences of his actions;
    - The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from and offence...;
    - The acquisition, possession, or use of property, knowing, at the time or receipt, that such property was derived from an offence..."

    ~The legal definition of money laundering from the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances

    Financial havens offer an extensive array of facilities to foreign investors unwilling to disclose the origin of their assets. This includes the registration of international business corporations (IBCs) or shell companies and the services of a number of offshore banks which are not subject to control by regulatory authorities. In many cases, financial havens enforce very strict financial secrecy, effectively shielding foreign investors from investigations and prosecutions in their home country. It is estimated that there are more than 1 million "anonymous" corporations worldwide.
    While bank secrecy and financial havens have both a legitimate purpose and a commercial justification, they can also offer unlimited protection to criminals who abuse their intent for the purpose of "doing business at any cost".
    When "dirty" money has sufficiently moved through a "laundry cycle", it is considered cleaned, and made available to the original criminals, with its occupational and geographic origins obscured.

    With their illicit proceeds, criminals can invest in sectors of the economy where the assets can later be used as laundering machines. This may take the form of investment in businesses involving high volumes of cash, such as restaurants, casinos, cinemas and even banks.

    The deeper "dirty" money gets into the international banking system, the more difficult it is to identify its origin. Due to the clandestine nature of money laundering, it is difficult to estimate the total amount of money which goes through the laundry cycle. Estimates of laundered money have ranged as high as $500 billion a year. Efforts are now under way by international organizations to more accurately gauge this amount.

    Wealthy criminal organizations can wreak devastating social consequences on society. Laundered money provides fuel for drug dealers, arms merchants and other criminals to operate and expand their enterprises. Left unchecked, money laundering can erode the integrity of a nation's financial institutions by changing the demand for cash, making interest and exchange rates more volatile, and by causing severe inflation in countries where criminal elements are doing business. The siphoning away of billions of dollars a year from normal economic growth poses a real danger at a time when the financial health of every country affects the stability of the global market.

    A Closer Look

    In July 1991, more than $12 billion in assets of the Bank of Credit and Commerce International (BCCI) was seized after regulators discovered evidence of widespread fraud. The action of the regulators and the abrupt end to the bank's activities sent shock waves through the global financial system. As the scope of fraud became known, BCCI developed into a case study in abuse of the global financial system.
    Although headquartered in Luxembourg, BCCI's global scope meant that it was not accountable to any particular jurisdiction or subject to one set of regulations. Using deceptive bookkeeping, BCCI claimed fictitious profits while steering clear of interference from Governments and regulators with the help of high-level political influence.

    The bank actively sought to provide financial services to the underworld profiteers of drug trafficking, terrorism, dictatorships, intelligence agencies and arms merchants by promoting itself as a safe haven. The notions of due diligence and "know your customer" were not part of BCCI's standard operating procedures.
    BCCI was able to commit or facilitate a variety of crimes through the skilful use of "shell" corporations, offshore financial centres, bank secrecy and the purposeful complex corporate structure of the bank.

    The Bank of Credit and Commerce International (BCCI): A Money Launderer's Dream Bank

    "[BCCI] was not an isolated phenomenon, but a recurrent problem that has grown along with the growth in the international financial community itself. Given the extraordinary magnitude of international financial transactions . . . the opportunities for fraud are huge, the rewards great, and the systems put in place to protect them, far from adequate".

    The BCCI Affair, a report to the Committee on
    Foreign Relations, U.S. Senate
    December 1992

    The bank created a maze of front companies located around the world, which helped suspected criminals move their assets and evade regulators. When BCCI was finally dissected by financial regulators and investigators in the early 1990s, one of the most striking revelations was that it had operated for such a long period of time and with such freedom despite numerous warning signs.

     

    What Is the Global Programme
    against Money Laundering?

    The General Assembly,
    "Recognizing that the problem of laundering of money derived from . . . serious crimes has expanded internationally to become such a global threat to the integrity, reliability and stability of financial and trade systems and even government structures as to require countermeasures by the international community as a whole in order to deny safe havens to criminals and their illicit proceeds, . . .
    3. Calls upon the United Nations Office for Drug Control and Crime Prevention to continue to work, within the framework of its global programme against money laundering, . . . to give effect to the above principles by providing training, advice and technical assistance to States upon request and where appropriate".

    The Action Plan against Money Laundering, adopted at the
    twentieth special session of the United Nations General Assembly
    devoted to countering the world drug problem, June 1998

    The UN Global Programme against Money Laundering (GPML) is a research and assistance project within the United Nations Office for Drug Control and Crime Prevention (ODCCP) which comprises the United Nations International Drug Control Programme (UNDCP) and the Centre For International Crime Prevention (CICP). Each organization is located in the Vienna International Centre in Austria.
    The Programme's goal is to increase the effectiveness of international action against money laundering by offering comprehensive technical expertise to requesting Member States.
    It focuses on three main areas of activity:

     
    The Vienna International Centre

     

    Promoting Cooperation: Training, Institution-building and Awareness raising

    The Global Programme:

    • Provides training to business, law enforcement and judicial professionals by sponsoring financial investigation workshops;
    • Assists in building stronger legal and institutional frameworks by delivering country-specific recommendations to counter money laundering, including groundwork for the creation of Financial Intelligence Units (FIUs);
    • Fosters awareness and advocacy of international anti-money laundering standards, in cooperation with other international organizations.

    "We agree that the major task during this period should be the establishment of a worldwide anti-money laundering network encompassing all continents and regions of the globe . . . We also recognize that action must not be confined to G-7 members and we emphasize that all countries should provide effective international and judicial cooperation."

    ~Final communiqué of the G-7
    Finance Ministers, Birmingham
    United Kingdom, May 1998

    Understanding the Money Laundering Phenomenon: Research and Analysis

    The Global Programme:

    • Researches the key issues by targeting such issues as bank secrecy, offshore financial centres, the impact of public policy on the money laundering strategies of criminal organizations, and reversed burden of proof in confiscation matters. In 1998, GPML published the study Financial Havens, Banking Secrecy and Money Laundering;
    • Publishes analysis and results from GPML headquarters in Vienna by producing periodic working papers on the complexities of the money laundering issue;
    • Provides electronic information . The Programme is developing Internet cooperation with the Financial Action Task Force (FATF), the Commonwealth Secretariat, Interpol, the Council of Europe, the Organization of American States/Inter-American Drug Abuse Control Commission (OAS/CICAD) and the International Money Laundering Information Network (IMoLIN). The Web site provides States and institutions secure access to an electronic database of anti-money laundering laws and regulations (AMLID).
      Go to: http://www.imolin.org .

    Raising the Effectiveness of Law Enforcement

    The Global Programme:

    • Supports the establishment of financial investigation services (FIS) . The Programme advises countries in the building and training of specialized FIS managers and staff on the money laundering issue;
    • Facilitates cooperation between national law enforcement agencies. The Programme provides technical advice and serves as a non-partisan intermediary.

    The UN Global Programme against Money Laundering is carried out in cooperation with other international, regional and national organizations, including: Asia Pacific Group on Money Laundering (APG), the Caribbean Financial Action Task Force (CFATF), Commonwealth Secretariat, the Council of Europe - MONEYVAL, the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), the EuroAsian Group (EAG), the Financial Action Task Force (FATF), Financial Action Task Force on Money Laundering in South America (GAFISUD), Interpol, and the Organization of American States (OAS/CICAD)

    A Closer Look

    GPML and Small States:
    Working Together to Break the Money Laundering Cycle

    Billions of dollars of laundered drug money flow through the international financial system each year. A significant amount of this illicit wealth transits financial centres in the Caribbean region. One State that is just beginning to have some experience with money laundering enforcement is Barbados, a small, closely knit society, where there is an opportunity to forge an effective alliance between police, prosecutors and those in the financial sector to break the money laundering cycle.

    The Royal Barbados Police Force recently established a Financial Crime Investigation Bureau devoted to cracking down on money laundering activities. At the request of the Government, experts from GPML are working with the new Bureau on specialized techniques to track and seize criminal proceeds.
    Meetings have already been held at the Regional Police Training Centre in Barbados covering state-of-the-art methods in finding, freezing and arranging for the forfeiture of criminally derived income and assets.

    "The international narcotic trade launders a minimum of $200 billion a year. A substantial portion of that money moves through bank secrecy. Law enforcement efforts in the best of years recover amounts in the range of $100-500 million. Although some participants in laundering schemes are arrested and convicted, the vast majority of professionals are not."

    ~ Financial Havens, Banking Secrecy 
    and Money Laundering, a report of the
    UN Global Programme against
    Money Laundering, June 1998

    Other specialized topics included: search, seizure, mutual legal assistance, management of seized property, net worth analysis, the role of bank and financial regulators, and suspicious transaction reporting.
    Barbados plays a leading role in police training activities in the Eastern Caribbean region and regularly trains cadets from neighbouring island States at its Regional Police Training Centre. A draft bill has been introduced in Parliament entitled the Money Laundering (Prevention and Control) Act, which will supplement existing crime legislation.
    GPML's work in Barbados is part of a larger technical assistance work programme in the Caribbean. Similar law enforcement training is planned for Jamaica and other Caribbean nations.

     

    What Are the International Instruments against Money Laundering?

    The international agreements or treaties which form the framework for cooperation in money laundering matters include:

    United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988; Statement of Principles on Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering of the Basel Committee on Banking Regulations and Supervisory Practices of December 1988, referred to as the Basel Statement; The 40 recommendations on money laundering of the Financial Action Task Force (FATF) of February 1990, as revised in June 1996, referred to as the FATF Recommendations;

    " A party shall not decline to render mutual legal assistance under this article on the ground of bank secrecy."

    Article 7, paragraph 5 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988

     

    The 19 recommendations of the Caribbean Financial Action Task Force (CFATF) of June 1990, referred to as the CFATF Recommendations; Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, opened for signature on 8 November 1990, referred to as the Strasbourg Convention; The Council of the European Communities (CEC) directive of 10 June 1991, on prevention of the use of the financial system for the purpose of money laundering (91/308/EEC), referred to as the CEC directive; Naples Political Declaration and Global Action Plan, adopted at the World Ministerial Conference on Organized Transnational Crime, Naples, 21-23 November 1994;

    The Ministerial Communiqué of the Summit of the Americas Conference concerning the Laundering of Proceeds and Instrumentalities of Crime, Buenos Aires, December 1995; Political Declaration and Action Plan against Money Laundering, adopted at the twentieth special session of the United Nations General Assembly devoted to countering the world drug problem, New York, 10 June 1998.

    "Drug trafficking has become a multi-billion-dollar industry, leaving no country untouched ... I strongly support the target date of 2003 for Member States to enact appropriate national legislation covering money laundering. Indeed, this is long overdue."

    United Nations Secretary-General
    Kofi Annan

    A Closer Look

    Political Declaration and Action Plan against Money Laundering, adopted at the twentieth special session of the United Nations General Assembly devoted to countering the world drug problem, New York, 10 June 1998

    Representatives from 185 nations, including 32 heads of State or Government, met in New York in June 1998 to adopt strategies to counter the world drug problem. They unanimously adopted a political declaration and six action plans, including one countering money laundering.

    The key provisions of the Action Plan against Money Laundering recommend the following:

    • Adoption of national legislation and programmes to counter money laundering by 2003;
    • Compliance with the anti-money laundering and related provisions of the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances;
    • Greater international and judicial cooperation in cases involving money laundering;
    • Inclusion of money laundering as a crime in mutual legal assistance agreements;
    • Establishment of an effective financial and regulatory regime to deny criminals and their illicit funds access to the global financial system;
    • Creation of customer identification and verification requirements applying the "know your customer" concept;
    • Removal of bank secrecy impediments preventing the investigation and punishment of money laundering;
      Continued assistance by GPML to institutions, organizations and bodies committed to countering money laundering by providing training, advice and technical assistance to States upon request and where appropriate.

     

     

    Questions, Answers and Facts about Money Laundering

    Q: What is money laundering and why do people do it?
    A: Today, enterprise criminals of every sort, from drug traffickers to stock fraudsters to corporate embezzlers and commodity smugglers, must
    launder money for two reasons. The first is that the money trail itself can become evidence; the second is that the money can be the target of investigation and seizure. The operational principles of money laundering are as follows: first, moving the funds from direct association with the crime; second, disguising the trail to foil pursuit; and, third, making the money available to the criminal once again with its origins hidden from view.

    Q: How much money is laundered every year and how much is recovered by law enforcement?
    A: Estimates have ranged as high as $300 billion to $500 billion a year. Law enforcement authorities recover about $500 million in a good year, roughly a quarter of 1 per cent.

    Q: What are the consequences of money laundering activities for national economies?
    A: Money laundering undermines international efforts towards free and competitive markets, and the development of national economies:

    • It distorts the functioning of markets: money laundering transactions can increase the demand for cash, create exchange rate volatility and generate unfair competition.
    • It damages credibility and therefore the stability of financial markets: bank collapses related to organized crime activities can have a domino effect on the financial system of individual countries or regions.
      Small States are particularly vulnerable to money laundering. The economic power generated by outlaw activities provides criminal organizations with leverage on small economies. The absence of appropriate controls, or of the capacity to enforce them, provides de facto impunity to criminals.
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    Q: How effective are the international instruments governing money laundering?
    A: The international community is not using all the tools at its disposal. The 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances obliges States to make money laundering illegal and assist investigations. Of the 148 signatories to the Convention, fewer than 30 are fully implementing its measures.

    Q: Is there an acceptable right to banking privacy?
    A: Yes, but acceptable levels of confidentiality must be clearly defined. There are legitimate commercial, legal or even human rights reasons for confidentiality. However, the abuse of bank secrecy must be countered.

    Q: What role does the Internet have in money laundering?
    A: Internet banking is a growing source of worry. It has already been proven that fraudulent banking business can be conducted via the Internet. For example, in one case an Internet bank was domiciled in an offshore centre, the server was in another country and the operational management was located in a third. When the owners of the bank stole the depositors' funds, it was impossible to pursue them through the three jurisdictions. Their actions were not even considered illegal in the jurisdiction where the bank was physically located.

    Q: What should the international community do?
    A: The members of the international community have agreed to comply with the existing international instruments currently governing money laundering by the year 2003. Of particular importance is adherence to the provisions of the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. But the international community needs to continue to question the way banks are defined. Should they be chartered by Governments in order to tighten controls? How should they be regulated? Should we allow companies to be formed in places where they have no apparent purpose connected with normal commercial activities, or whose owners may conceal their identity? An emphasis must be placed on systemic reforms, rather than specific tinkering with the odd regulation. The harmonization of regulatory regimes covering financial havens, trusts, shell companies and banks should be a main goal.

    Q: What can the UN Global Programme against Money Laundering (GPML) do to help?
    A: Developing countries, and those with economies in transition, are in particular need of technical assistance and training. Local law enforcement cannot crack down on complex financial crimes unless they know the tricks of the money launderer. The UN Global Programme against Money Laundering is ready to provide expert training, assistance, public awareness and research tools on the art of financial investigations,
    prosecutions, best banking practices and financial regulations for government, business, law enforcement and judicial professionals.


    To request assistance and additional information from the
    UN Global Programme against Money Laundering, please contact
    the United Nations directly at the following address:

    UN Office on Drugs and Crime
    Global Programme against Money Laundering
    P.O. Box 500, A-1400 Vienna, Austria
    Tel.: (43-1) 260 60 5762
    Fax: (43-1) 260 60 6878
    E-mail: gpml@unodc.org
    Web site: http://www.imolin.org

    Published by the United Nations Department of Public Information
    DPI/2010 - December 1998