About Money Laundering and Terrorist Financing

Transcription

1 Anti-Money Laundering & Terrorist Financing Training (AMLTF) Course Module: One About Money Laundering and Terrorist Financing

2 Learning Objectives: Upon completion of this module, you will be able to: Define money laundering and terrorist financing Explain the three stages associated with money laundering State the three common sources of terrorist financing Differentiate between the methods used by criminals and terrorists when laundering funds. 2

3 Part 1: Money Laundering 3

4 Money Laundering: What Is It? Definition: Money laundering (proceeds of crime) is the method by which dirty money received from criminal activities is processed through legitimate businesses, such as real estate companies, and converted into clean money. Once cleaned, the money cannot be easily traced to the person originating the transaction or to the criminal origin of the funds. Hence, the criminal can now do what they want with their money! 4

5 Three Stages of Money Laundering: The money laundering cycle takes place in three stages: 1 Placement Entry of illegal funds into the financial system 2 Layering 3 Integration Hiding the origin of the funds through multiple transactions Exit of clean funds from the financial system without attracting suspicion 5

6 1 Placement: What Is It? Purpose of the stage: Placement is the initial entry of the proceeds of crime into the financial system. This stage serves two purposes: 1. Relieves the criminal of holding and guarding their dirty money; AND 2. Places the money in the legal financial system 6

7 1 Placement: Use of Smurfs Many money launders use individuals, or smurfs, to help place their proceeds of crime into the legitimate financial system. Criminals may use one or more smurfs to assist with their laundering activities, depending on the size of their illegal operation. Smurfs usually place small, inconspicuous sums of cash into a bank account or purchase a monetary instrument, such as a bank draft or traveler's cheque. These monetary instruments are then given to the criminal and the monies in the bank account are transferred into the criminal s own account using an electronic funds transfer. 7

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9 1 Placement: Some Common Methods Buying a House Currency Smuggling Currency Exchanges Blending Funds Direct Deposit Purchaser is a drug dealer and makes a deposit using cash generated from illegal drug sales The physical movement of illegal currency or monetary instruments over the border Purchasing foreign money with illegal funds through foreign currency exchanges Using a legitimate cash focused business to co-mingle dirty funds with the day s legitimate sales receipts Deposit illegal funds directly into a beneficiary s bank account under the name of a fictitious or third-party account holder 9

10 2 Layering: What Is It? Purpose of the stage: The purpose of the layering stage is to further separate the dirty money from its source by structuring different types of financial transactions to hide the money trail and disguise any link with the original crime that generated the dirty money; and if necessary the owner of the illegal funds. For example: International wire transfers Money is deposited into an account (placement) and is then wired across the border to another account (layering). 10

11 2 Layering: Some Common Methods Purchase of monetary instruments Once the illegal proceeds of crime are successfully placed within the financial system, they can be changed into an easily transportable bank draft or traveler's cheque Assets bought, then sold Assets bought with illegal funds and then resold either locally or internationally (e.g., stocks, commodities or real estate) International wire transfers Money is deposited into an account (placement) and is then wired across the border to another account 11

12 3 Integration: What Is It? Purpose of the stage: The purpose of the integration stage is to return the illegal funds to the criminal in what appears to be a legitimate format. The criminal proceeds have been fully integrated into the financial system and can usually be used at this point without attracting undue attention or concern. For example: Transfer of Funds Transferring of funds to a foreign jurisdiction to purchase a hotel. 12

13 3 Integration: Some Common Methods Property sales The sale of property that was originally bought by a shell company to integrate laundered money back into the economy. Front companies and false loans Mortgages Criminals incorporate a front company in a country with secrecy laws (true ownership of the front company is then protected). They then give the front company illegal funds, in the guise of a loan, making the funds appear legitimate. Criminal uses proceeds for down payment on a house. The mortgage for the balance is provided by a financial institution and then the mortgage is paid off quickly (within 12 months) by wire transfers. 13

14 Money Laundering Cycle 14

15 Common Examples of Money Laundering in Real Estate Proceeds of crime enters the real estate market in a number of forms, including cash, various types of monetary instruments, wire transfers, account transfers, and mortgages. When attempting to detect a suspicious transaction, a real estate professional should generally focus on how the property is financed. For example, look for: Large amounts of cash (often in small denominations); Unusually large cash and non-cash personal equity financing by the purchaser; Suspicious or unknown sources of personal equity or mortgage financing; The use of a number of monetary instruments (in small denominations) to personally finance the purchase of real property; and Funding drawn from a bank account in a tax haven country. 15

16 A Real Case: Example One Real estate represents one of the most common destinations of the proceeds of crime. The proceeds of crime generally enter the real estate market in the form of a mortgage, loan, cash, a monetary instrument such as cheques and bank drafts, or wire transfers. A condominium located in the prairies was purchased for $100, in the name of the spouse of a farmer (the accused) who was involved in smuggling large quantities of liquor and cigarettes from the United States into Canada. Of the total purchase price amount, $48,985 was paid through mortgage financing, while the remaining amount was being financed by the purchaser ($51,673.00). This personal financing included $24,434 in cash. A law firm representing the spouse in the purchase of the condominium accepted various forms of payments of cash and monetary instruments to finance the purchase of the home. 16

17 continued Records seized from the law office showed deposits of cash, cheques, and postal money orders into the law firm s trust account. In addition $7,200 in cash was given to the law firm, plus monetary instruments provided by the spouse to the law firm included cheques drawn on the couple s bank account, third party cheques, cheques payable to the couple drawn on one of their own accounts, and 6 postal money orders payable to the couple totalling $4,174. Each money order was for $750. All of the postal money orders, with exception of two, showed the sender as the spouse. The sender of the other two postal money orders was shown as the brother of the spouse. In a six month-period, 29 deposits totalling $90, were made into the law firm s trust account on behalf of the spouse of the accused. 17

18 A Real Case: Example Two Police identified at least 11 homes in the Greater Toronto Area that were associated with members of a criminal organization, which specialized in large scale drug smuggling and money laundering. Of the 11 homes, two were registered in the names of active members of the criminal organization, two were registered in the names of numbered companies belonging to members, and seven were registered in the names of wives or daughters of members or associates of the criminal group. Of these latter seven properties, three had private mortgage financing by members or associates of this crime group. These three mortgages were provided on top of existing mortgages, registered by reputable schedule 1 banks at the time the property was purchased. The three properties were purchased for a total of $1,150, The total value of the mortgage financing provided by banking institutions at the original time of purchase was $750,

19 continued The total value of the additional private mortgages provided by the crime group members or associates was $359,000. In all three of these real property transfers, the same lawyer represented the purchaser in the title transfer and/or in preparation of mortgages. In addition, the lawyer also represented the purchasers in two of the original bank mortgage financing for one property and the mortgage for a third property. 19

20 Part 2: Terrorist Financing 20

21 the FATF (Financial Action Task Force) agreed to and issued new international standards to combat terrorist financing, which it calls on all countries to adopt and implement. Implementing these Special Recommendations will deny terrorists and their supporters access to the international financial system Financial Action Task Force 21

22 Terrorist Financing: What Is It? Definition: Terrorist financing (proceeds for crime) is the process by which funds are provided for terrorist activity. A terrorist, or terrorist group, is one that has a purpose or activity to facilitate or carry out any terrorist action, and can involve: Individuals; Groups; Trusts; Partnerships; and Organizations. Suspected or known terrorists or terrorist groups or listed persons: In Canada, known or suspected terrorists or terrorist groups are monitored by the Office of the Superintendent of Financial Institutions (OSFI). Lists of these offenders or suspects are posted on both the OSFI and the United Nations web sites and should be consulted regularly by reporting entities. 22

23 The need for money: To be effective in intimidating and coercing a population or government, terrorists need money. However, unlike criminal organizations, the amount of money terrorists want to acquire, and therefore launder, is not generally as large. As shown in the following case study it costs as little as an estimated $300,000 in total to fund the September 11 th hijackers, the imperative to watch out for any suspicious transactions, no matter how small, becomes clear. The London Times After September 11, All Banking Transactions are Suspect August 29,

24 Terrorist Financing: How Does It Happen? There are three common sources of terrorist financing: I. State Sponsored Terrorism II. Criminal Revenue Generated Support III. Legal Sources The following pages will review each source. 24

25 I. State Sponsored Terrorism: This occurs when a terrorist or terrorist group in another country that is experiencing political and/or cultural unrest is sponsored by: another country a legally wealthy dissonant individual 25

26 II. Criminal Revenue Generated Support: It is not uncommon for organized crime groups to sponsor terrorists or terrorist groups in their homeland or neighbouring jurisdictions. In these cases, a portion of the money generated from the organized crime group s traditional illegal activities are laundered into the accounts of the terrorists. Traditional criminal activities include: selling illegal drugs smuggling prostitution gambling kidnapping 26

27 III. Legal Sources: Many terrorist groups are culturally based. As such, they are able to develop strong foundations of financial support across communities, countries, and in some cases the world. On the community level, immigrants generally set up and give donations or pay membership fees to local associations and religious groups, which replicate those of their homeland and assist in protecting their heritage. Through the legal acquisition of the funds, and the legal financial transactions of the association or religious group (such as sending wire transfers home and setting up accounts at home), the capacity to place terrorist-destined funds into another country s economy often comes with relative ease. 27

28 Terrorist Financing vs. Money Laundering - Indicators to Watch For: Although both criminals and terrorists launder money to obscure its origin, there are differences in methodology. Specifically: Terrorists are not usually constrained by time, whereas criminals generally want access to their money as soon as possible. Terrorists generally have a large number of smurfs and/or associates who deposit small amounts of money to ensure they are well under the reporting threshold. Criminals tend to take more risks by depositing larger amounts of money in an effort to get the money into and through the legitimate economic system faster. Amounts laundered by terrorists are usually very small and often under $300 per transaction. These amounts are sent frequently, for example 10 or 12 times every two months. Both criminals and terrorists may use smurfs. 28

29 I m done Module 1: About Money Laundering and Terrorist Financing, what do I do now? Congratulations! You can proceed to Module 2: The Players. Good Luck! 29