Introduction to AML Nov 2014 Compatibility Mode

Thinking about Crime the money laundering consultancy Introduction to anti-money laundering Presented in partnership with the Gibraltar Association of Compliance Officers November 2014 Today’s agenda Introduction to money laundering Gibraltar’s AML legislation World AML bodies and their influence Why CDD is the key to it all Source of funds and source of wealth How do I know when I am suspicious? Record-keeping Colourful case studies Money laundering bingo What is money laundering? Money laundering is the process by which criminals attempt to conceal the origin of the proceeds of their illegal activities If successful, laundering: o allows criminals to maintain control over their criminal “earnings” o provides a legitimate cover for their source of income The three traditional stages of money laundering Placement Layering Integration The three traditional stages of money laundering Placement : moving criminal cash into the non-cash economy Layering : carrying out numerous transactions, in order to muddy the audit trail and make investigation difficult Integration : infiltrating the money into the legitimate economy in such a way that no-one will suspect (or be able to prove) its criminal origins Why do criminals launder money? To spend it safely To avoid suspicion To avoid detection To avoid forfeiture To evade tax o although smart criminals will always pay some tax To fund further criminal activity Why is money laundering wrong? Laundered money is transient – it is no basis on which to build a business or an economy It ruins the reputation of the financial institution and sector It gives criminals entry to legitimate institutions and enables them to take control It enables criminals to corrupt individuals at all levels of industry and government, giving them undue influence on decisions at the highest levels Ultimately, it can destabilise entire economies – e.g. Peru, Nigeria How big a problem is it? The IMF estimates that criminal funds account for 3.6% of the world’s GDP o that’s US$2,100,000,000,000 a year… o …. or over $67,000 [£43,000] a second Latest UK laundering figure is £57 billion per year Laundering is the world’s third largest industry by turnover, after agriculture and oil Why target Gibraltar? You are an active financial centre o wide range of useful services o big numbers (of clients and transactions) to hide in You occupy a handy geographical position between continents You speak the world’s business language You deal in two major world currencies You have good international relations o it is easy to move money into and out of Gibraltar You are easy to get to – and a very nice place to visit! Neighbours… Between Spain and Morocco o smuggling of people, drugs and cash (and now pre- paid cards) o ships in the bay for refuelling and bunkering Spain o major drug entry point for cocaine, heroin and hashish o Marbella dominated by Eastern European organised crime groups (prostitution, kidnapping, extortion, etc.) Morocco o growing of hashish o people smuggling into Europe o Al Qaeda cells operating in Morocco have been linked to the 9/11 attacks in the US and the bombings in Madrid What is terrorist financing? The movement of terrorist property, which is: o money or other property likely to be used for the purposes of terrorism o proceeds from acts of terrorism Things to remember: o the amounts of money involved are generally small o terrorists make money in all sorts of ways – drugs, counterfeiting, arms trafficking, people smuggling, credit card fraud o there are several stages, e.g. make the money, gather it, move it and distribute it Gibraltar’s anti-money laundering legislation Individual money laundering offences Crime (Money Laundering and Proceeds) Act 2007, as amended o Concealing or transferring o Assisting o Failure to disclose o Acquisition, possession or use o Tipping-off Concealing or transferring the proceeds of criminal conduct Committed if you know or have reasonable grounds to know or suspect that property – either your own or someone else’s – is or represents the proceeds of criminal conduct And then you conceal , disguise , convert , transfer or remove the property from the jurisdiction Objective test of suspicion o “know or suspect, or have reasonable grounds for knowing or suspecting” o should have been suspicious Defence: o made a disclosure or intended to make a disclosure (but delayed for good reason) 14 years’ imprisonment or a fine or both Assisting another to retain the benefit of criminal conduct Committed if you know or suspect that another person is engaged in or has benefited from criminal conduct and then you : o facilitate retention or control of the proceeds of crime or of terrorist property by concealment , removal from the jurisdiction, transfer to nominees or otherwise o use the criminal proceeds to put funds at the criminal’s disposal or make investments on his behalf Defences: o did not know or suspect that it was criminal proceeds o made a disclosure or intended to make a disclosure (but delayed for good reason) 14 years’ imprisonment or a fine or both Failure to disclose (part of assisting) Committed if you o know, suspect or have reasonable grounds to suspect that someone is laundering, or is attempting to launder, money o you find out about this at work, and o you fail to disclose your knowledge or suspicion of money laundering Defences: o had reasonable excuse for not disclosing o privileged circumstances apply (notaries, independent legal professionals, auditors, external accountants and tax advisers only) “Good faith” provision 14 years’ imprisonment or a fine or both Acquisition, possession or use Committed if you acquire , possess or use property, knowing it to be, wholly or in part, directly or indirectly, the proceeds of criminal conduct Defences: o adequate consideration was paid for the property o disclosure has been made or was intended (but delayed for good reason) 14 years’ imprisonment or a fine or both Tipping-off Committed if you disclose that o a money laundering suspicion report has been made, or o a money laundering investigation is underway or contemplated Defences: o trying to dissuade a client from engaging in crime o privileged circumstances apply (notaries, independent legal professionals, auditors, external accountants and tax advisers only) 5 years’ imprisonment or a fine or both Remember the Martini principle All offences apply to the proceeds of: o any crime o whoever committed it o whenever they committed it o wherever it took place (as long as it would have been a crime had it occurred in Gibraltar) Conviction 1: The Smiths Salford couple Richard and Lisa Smith aimed for a “premiership lifestyle” o they owned luxury cars, went on numerous holidays and spa breaks and had a £20,000 wedding in 2009 Richard was initially arrested in May 2010 on suspicion of involvement in a fire at a vehicle recovery yard o escaped from a security van outside court o arrested in Spain and extradited to the UK During their enquiries, police found that Richard earned only £15,000 a year and Lisa was claiming benefits When they viewed a DVD of the couple’s lavish wedding, they recognised a large number of local criminals among the guests…. Jailed on 23 December 2011 o Richard for eleven years (money laundering, arson and escaping from lawful custody) o Lisa for eighteen months (money laundering) Conviction 2: The taxi gang A gang of thirty-three was found guilty in January 2011 of laundering £100 million of drug money through a black cab rental and repair firm in Paddington o the money came from criminal gangs in Colombia, Spain, Israel, India, Dubai, Morocco and other north African states as well as the UK Ringleader was Eyad Iktilat, who drove a Ferrari and a Bentley with vanity plates “Money mules” brought bags of up to £500,000 cash to the taxi company for it to be converted into 500 euro notes via Euro Foreign Exchange (EFX), a corrupt currency exchange company in Paddington o EFX manager Jean-Claude Frigieri bought hundreds of thousands of pounds-worth of 500 euro notes from a banknote wholesaler Sentences: o Eyad Iktilat – 21 years, increased to 30 on appeal o Jean-Claude Frigieri – ten years o Maythen Al Ansari (the “banker”) – three years Institutional AML obligations Applies to those in charge of firms covered by the legislation Crime (Money Laundering and Proceeds) Act 2007, as amended o customer due diligence – identifying customer and any beneficial owner, and getting information on the purpose and nature of the business relationship o ongoing monitoring o record-keeping o training o reporting Failure to do so carries a penalty of two years’ imprisonment, an unlimited fine or both Guidance Notes Issued by the FSC under powers granted by the Financial Services Commission Act 2007 o last updated in January 2012 Two level guidance o contains “Requirements” and “Expectations” Apply only to those sectors supervised by the FSC There is “Supplementary Guidance for the Auditing Profession” There are separate Guidance Notes for high value dealers World AML bodies The birth of AML legislation “Prevention of Criminal Use of the Banking System for the Purpose of Money-Laundering” (the “Basel Principles”) – December 1988 o advised banks to “make reasonable efforts to determine the true identity of all customers” UN “Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances” (the “Vienna Convention”) – came into force on 11 November 1990 o criminalised the laundering of the proceeds

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