Money Laundering Around the World
Money laundering, both at the country and multilateral levels, remains a significant crime issue despite robust, multifaceted efforts to address it. While arriving at a precise figure for the amount of criminal proceeds laundered is impossible, some studies by relevant international organizations estimate it may constitute 2-5 percent of global GDP. It is a seemingly ubiquitous criminal phenomenon: money laundering facilitates many other crimes and has become an indispensable tool of drug traffickers, transnational criminal organizations, and terrorist groups around the world. Its nefarious impact is considerable: it contributes to the breakdown of the rule of law, corruption of public officials, and destabilization of economies, and it threatens political stability, democracy, and free markets around the globe.
For these reasons, the development and implementation of effective AML regimes consistent with international standards and the ability to meet evolving challenges is clearly vital to the maintenance of solvent, secure, and reliable financial, commercial, and trade systems. Reducing money laundering’s threat to U.S. interests is a national security priority reflected in the 2018 National Security Strategy and the 2017 Executive Order 13773, Enforcing Federal Law with Respect to Transnational Criminal Organizations and Preventing International Trafficking. To that end, the United States, a founding member of FATF, has worked within the organization, and with partner countries and FATF-style regional bodies, to promote compliance with the 49 Recommendations. It has also supported, through technical assistance and other means, the development and implementation of robust national-level AML regimes in jurisdictions around the world.
The 2019 edition of the Congressionally-mandated International Narcotics Control Strategy Report, Volume II: Money Laundering focuses on the exposure to this threat – in the specific context of narcotics-related money laundering – of jurisdictions around the world. As with past reports, it provides a review of the AML legal and institutional infrastructure of each jurisdiction, highlights the most significant steps each has taken to improve its AML regime, describes key vulnerabilities, and identifies each jurisdiction’s capacity to share information and cooperate in international investigations. The report also highlights the United States government’s provision of AML-related technical assistance.
In view of the experience of jurisdictions included in the 2019 report, identification and reporting of suspicious transactions, identification of the true beneficial owners of legal entities and transactions, and frameworks and practices for international cooperation on money laundering investigations and prosecutions remain as germane today as when the FATF was created.
As new technologies come into use, various crimes, including money laundering, continue to evolve and pose new challenges for societies, governments, and law enforcement. New technologies create opportunities for exploitation by criminals and terrorists. For example, in Africa, South Asia, and some other parts of the world, use of mobile telephony to send and receive money or credit has outstripped owning a bank account. The rapid growth of global mobile payments (m-payments) and virtual currencies demands particular attention in the AML sphere. The risk that criminal and terrorist organizations will co-opt m-payment services is real, particularly as the services can manifest less than optimal financial transparency. Similarly, virtual currencies are growing in popularity and expanding their reach. For example, key MSBs are exploring how to incorporate virtual or crypto currency (blockchain platform) payments to expedite remittances to locations around the world. Regulators and law enforcement are beginning, in some jurisdictions, to respond to the use of such anonymous e-payment methodologies, but their rapid development poses challenges on the policy, legal, and enforcement levels. Mexico and China have added virtual currency platforms and dealers as covered entities for AML supervision purposes, while Cayman Islands is among the jurisdictions taking action to develop legislation to address their use, and the British Virgin Islands issued a public advisory regarding the risk of investing in virtual currencies. Although virtual currencies are currently illegal in India, the government is exploring a regulatory regime for their use.
Corruption is both a significant by-product and a facilitating crime of the international drug trade and transnational organized crime. While corruption risks occur in any country, the risks are particularly high in countries where political will may be weak, institutions ineffective, or the country’s AML infrastructure deficient. Encouragingly, the 2019 Report again highlights action several governments are taking to more effectively address corruption and its links to money laundering. As with money laundering, while legislative and institutional reforms are an important foundation, robust and consistent enforcement is also key, though often lacking. Jamaica, Senegal, Serbia, and Uzbekistan all enacted legislation to address corruption and/or PEPs. Sint Maarten charged a member of parliament with bribery, tax evasion, and money laundering. Argentina and Ecuador continue to investigate and prosecute corruption cases. Malaysia’s new government has taken action to prosecute a number of former government officials, including a former prime minister, who allegedly were involved in misappropriations from the state-owned development fund.
The transparency of beneficial ownership remains a central focus for AML, arising in the discussions of multilateral fora such as FATF as well as in coverage of some recent high-level corruption allegations. Shell companies are used by drug traffickers, organized criminal organizations, corrupt officials, and some regimes to launder money and evade sanctions. “Off-the shelf” IBCs, purchased via the internet, remain a significant concern, by creating a vehicle through which nominee directors from a different country may effectively provide anonymity to the true beneficial owners. While the 2019 Report reflects that beneficial ownership transparency remains a vulnerability in many jurisdictions, the report also highlights significant steps taken by various jurisdictions on the issue. Cyprus issued circulars to banking, credit, payment, and virtual money institutions advising them to be extra vigilant against shell companies and to avoid doing business with them. To increase the transparency of company ownership, Peru enacted legislation to mandate the disclosure of beneficial ownership. Cyprus and Serbia have new laws addressing centralized records of beneficial owners. Additionally, in an effort to increase transparency, increasing numbers of jurisdictions, such as Argentina and Curacao, are concluding tax information sharing agreements. Others, such as Pakistan, Panama, and Russia are beginning to share financial information under the OECD’s Multilateral Competent Authority Agreement. Here in the United States, on May 11, 2018, a new Treasury Department rule on beneficial ownership went into effect, requiring covered entities to identify and verify the identities of beneficial owners of legal entities.
The year 2018 saw increasing scrutiny at the international level of economic citizenship programs, which are also vulnerable to money laundering activity and must be closely monitored and regulated to prevent their abuse by criminals. U.S. law enforcement remains highly concerned about the expansion of these programs due to the visa-free travel and ability to open bank accounts accorded to participating individuals; other vulnerabilities, as well as good practices in countermeasures, have been analyzed in the various 2018 studies and publications on the issue. While Turkey eased its requirements for economic citizenship, St. Kitts and Nevis now uses a regional central clearing house under the auspices of the Caribbean Community to properly vet candidates. Antigua and Barbuda and St. Lucia have established their own vetting units.
Although new technologies are gaining popularity, money launderers continue to use offshore centers, FTZs, and gaming enterprises to launder illicit funds. These sectors can offer convenience and, often, anonymity to those wishing to hide or launder the proceeds of narcotics trafficking and other serious crimes. While the appeal of these institutions translates into their continued appearance across many of the jurisdictions that appear in the 2019 INCSR, many jurisdictions are taking measures to reduce vulnerabilities. In recent years, Dominica revoked the licenses of eight offshore banks. Macau is taking a more stringent approach toward the licensing and supervision of gaming junket promoters. Bahamian gaming authorities can observe operations, including account transactions, in real time from remote locations. In its second criminal prosecution involving money laundering charges, Vietnam prosecuted over 90 defendants associated with a prohibited online gaming enterprise.
To help address these issues, in 2018, the United States continued to mobilize government experts from relevant agencies to deliver a range of training programs, mentoring, and other capacity building support. U.S. government agencies also, in many cases, provided financial support to other entities to engage in complementary capacity-building activities, leveraging those organizations’ unique expertise and reach. These U.S.-supported efforts build capacity to fight not only money laundering but also other crimes facilitated by money laundering, including narcotics trafficking, in partner jurisdictions. Depending on the jurisdiction, supervisory, law enforcement, prosecutorial, customs, FIU personnel, and private sector entities benefitted from the U.S.-supported programs. As the 2019 INCSR reflects, these efforts are resulting in an increase in investigations, prosecutions, and convictions, more robust institutions, and stronger compliance with international standards, in addition to raising awareness of cutting edge, emerging issues, such as abuse of new technologies, and sharing good practices to address them.
Looking ahead, FATF’s recent focus on the identification of the methodologies currently used by human trafficking networks and terrorist financing and recruiting efforts will likely lead members of FATF and the FATF style-regional bodies to emphasize their endeavors in these areas. FATF notes the continued use of bulk cash smuggling and MVTS transactions in these areas, while crowdfunding is a new source of funding for small terrorist cells or lone wolves.
While the 2019 INCSR reflects the continued vulnerability to narcotics trafficking-related money laundering around the world, including in the United States, it also demonstrates the seriousness with which many jurisdictions are tackling the issue and the significant efforts many have undertaken. Though the impact of the aforementioned efforts manifests through increased enforcement, there is much more to be done in that regard – the gap between de jure progress and implementation and enforcement in some jurisdictions is one of the most concerning observations of the report. The Department of State, working with our U.S. and international partners, will continue to support foreign assistance activities, diplomatic engagement, and law enforcement partnerships to promote compliance with international norms and strengthen capacity to combat money laundering, drug trafficking, and transnational organized crime.
During 2018, U.S. law enforcement and regulatory agencies provided training and technical assistance on money laundering countermeasures, financial investigations, and related issues to their counterparts around the globe. The programs provided the necessary tools to recognize, investigate, and prosecute money laundering, financial crimes, terrorist financing, and related criminal activity. U.S. agencies supported courses in the United States as well as in the jurisdictions of the program beneficiaries. Depending on circumstances, U.S. agencies provided instruction directly or through other agencies or implementing partners, unilaterally or in collaboration with foreign counterparts, and with either a bilateral recipient or in multijurisdictional training exercises. The following is a representative, but not necessarily exhaustive, overview of the capacity building provided and organized by sponsoring agencies.
Board of Governors of the Federal Reserve System (FRB)
The FRB conducts a Bank Secrecy Act (BSA) and OFAC compliance program review as part of its regular safety-and-soundness examination. These examinations are an important component in the United States’ efforts to detect and deter money laundering and terrorist financing. The FRB monitors its supervised financial institutions’ conduct for BSA and OFAC compliance.
Internationally, during 2018, the FRB conducted training and provided technical assistance to banking supervisors on AML topics during four seminars: one in Sao Paulo, Brazil; one in Cairo, Egypt; one in Washington, D.C.; and one in Abuja, Nigeria. Countries participating in these FRB initiatives were Armenia, Brazil, Cote d’Ivoire, Egypt, Ghana, Hong Kong, India, Kenya, Korea, Lebanon, Lesotho, Liechtenstein, Mexico, Mongolia, Nigeria, Pakistan, Singapore, Sri Lanka, Sudan, Uganda, and Zimbabwe.
Department of Homeland Security Customs and Border Patrol (CBP)
The Trade and Cargo Academy provided two hours of money laundering training to 69 graduates of Basic Import Specialist Training in calendar year 2018. At the Border Patrol Academy, the Office of Chief Counsel taught a one-hour block on currency and monetary instrument reporting violations and unlicensed money transmitters. CBP conducted a bulk cash smuggling program in Peru in December 2018.
U.S. Immigration and Customs Enforcement
In Fiscal Year 2018, the ICE Homeland Security Investigations Illicit Finance and Proceeds of Crime Unit (IFPCU) conducted AML trainings focused on typologies, methodologies, and approaches to combat illicit finance. IFPCU provided technical training and presentations to representatives from the following foreign law enforcement partners: Canada, Colombia, France, Germany, South Korea, Europol, INTERPOL, the World Customs Organization, the Five Eyes Law Enforcement Group, and the FATF. In an effort to support the anticorruption efforts of the Government of Ecuador, in December 2018, ICE provided anticorruption training to members of the Ecuadorian National Police, Attorney General’s Office, and the Ecuadorian Customs Service.
Trade Transparency Units (TTU)
The TTU, housed within the ICE National Targeting Center, provides critical exchange of trade data with numerous countries. The TTU has information sharing agreements with 14 countries to facilitate the identification of transnational criminal organizations utilizing TBML schemes to repatriate proceeds generated from multiple illegal activities, including drug and human smuggling, customs fraud, and intellectual property rights violations. The TTU methodology, which provides U.S. law enforcement and international partners with subject matter expertise, training, and investigative tools to combat TBML and third-party money launderers, is internationally recognized as a best practice to address TBML.
ICE continues to expand the network of operational TTUs, which now includes Argentina, Australia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, France, Guatemala, Mexico, Panama, Paraguay, Peru, Philippines, UK, and Uruguay. The U.S. TTU is actively engaged with several countries in Asia and Southeast Asia regarding MOU discussions to establish a TTU.
Drug Enforcement Administration (DEA)
The Office of Global Enforcement, Financial Investigations Section (OGF) at DEA Headquarters serves as DEA’s lead body for coordinating DEA’s efforts across domestic and foreign offices with respect to the targeting of the financial aspects of drug trafficking organizations (DTO). OGF works in conjunction with DEA field offices, foreign counterparts, and the interagency community to provide guidance and to support a variety of investigative tools, as well as to provide oversight on DEA’s undercover financial investigations. OGF facilitates cooperation between countries, resulting in the identification and prosecution of money laundering organizations operating on behalf of DTOs, as well as the seizure of assets and denial of revenue around the world. OGF regularly briefs and educates United States government officials and diplomats, foreign government officials, and military and law enforcement counterparts regarding the latest trends in money laundering, narcoterrorism financing, international banking, offshore corporations, international wire transfer of funds, and financial investigative tools.
In conjunction with the DEA Office of International Training, OGF conducts training for DEA field offices, as well as foreign counterparts, in order to share strategic ideas and promote effective techniques in financial investigations. During 2018, OGF participated in and led a number of workshops and strategy sessions focused on money laundering trends, engagement with financial institutions, guidance and overview on undercover money laundering operations, virtual currency, and investigative case coordination.
DEA has prioritized a financial component in its investigations and has made this component a key element of Priority Target Operations, the Domestic Cartel Initiative, and Organized Crime Drug Enforcement Task Force investigations. DEA has dedicated financial investigative teams across its domestic offices as well as foreign-based DEA teams in Mexico, Peru, and Colombia that have conducted local training programs. For example, in 2018, DEA offered a one-day money laundering course for Ecuadorian National Police officers/commanders, prosecutors, and personnel from the FIU.
Federal Bureau of Investigation (FBI)
The Federal Bureau of Investigation (FBI) provides training and/or technical assistance to national law enforcement personnel globally. Training and technical assistance programs enhance host country law enforcement’s capacity to investigate and prosecute narcotics-related money laundering crimes. The FBI has provided workshops introducing high-level money laundering techniques used by criminal and terrorist organizations. The training may focus on topics such as a foundational understanding of drug trafficking investigative and analytical techniques and tactics, money laundering and public corruption, or terrorism financing crimes and their relationship to drug trafficking as a support for terrorism activities.