Working Group on Typologies

For Official Use FATF/WGTY(2008)10 Financial Action Task Force Groupe d Action Financière 06-Jun-2008 English - Or. English FATF/WGTY(2008)10 For Official Use Working Group on Typologies STRATEGIC SURVEILLANCE SURVEY ISSUES FOR 2008 Note by the Secretariat 16 June 2008, Queen Elizabeth II Conference Centre, London, United Kingdom FATF-XIX Please bring this document with you to the meeting, as no paper copies will be available at that time. English - Or. English Vincent SCHMOLL, Tel: +33 1 45 24 17 52; vincent.schmoll@fatf-gafi.org Rachelle BOYLE, Tel: +33 1 45 24 17 72; rachelle.boyle@fatf-gafi.org JT03247366

STRATEGIC SURVEILLANCE SURVEY ISSUES FOR 2008 Note by the Secretariat I. BACKGROUND 1. The objectives of the FATF strategic surveillance initiative are to: i) detect and share types of criminal or terrorist activities that pose an emerging threat to the financial system and ii) develop a more strategic and longer-term view of these threats. To meet these objectives, the strategic surveillance initiative is built on two discrete but complementary processes: i) a regular surveillance discussion and ii) the production of a global money laundering / terrorist financing threat assessment. This FATF strategic surveillance survey is an important underpinning for the surveillance discussion, which in turn will contribute to the global money laundering / terrorist financing threat assessment. This paper lays out the main finding of the first survey. 2. In March the FATF secretariat distributed the 2008 Strategic Surveillance Survey to all FATF members 1, and the secretariats of the FATF-style regional bodies distributed it to all of their members. Responses were received from 40 jurisdictions. Seventeen of the respondents were FATF members 2. The bulk of the information received came from jurisdictions in Europe (25), with seven responses received from Asia/Oceania and a further seven from jurisdictions in the Americas. These responses can be found on the Working Group on Typologies (WGTYP) secure website. 3. The following analysis of the survey responses identifies key issues for consideration by the WGTYP at its meeting of 16 June 2008 and beyond. II. MONEY LAUNDERING TECHNIQUES, METHODS AND TRENDS i) Sources of illegal proceeds and relative scale of problem Scale of the problem 4. All respondents noted the difficulty inherent in formulating a reliable estimate of the amount of proceeds of crime generated in and moved through their jurisdictions. Due to the varied types of statistics available and the varied time periods that the statistics relate to, it is often difficult to draw clear conclusions as to the amount of proceeds of crime. It is possible, however, that as the collection of statistics continues, thus giving greater detail and a longer time element to the information, this information will become increasingly useful. 5. That said, eight jurisdictions were able to provide estimates of the amount of proceeds of crime in their jurisdictions. For many of these jurisdictions the estimates are based on the amounts cited in 3 or the amounts noted in files reported to the authorities. All eight jurisdictions cited estimates of less than 0.01% of their gross domestic product as being proceeds of crime. 1 2 3 See Annex 1 for a copy of the Strategic Surveillance Survey 2008. For a list of respondents please see Annex 2. All references to in this document should be considered to refer equally to SARs. 2

Table 1: Estimated proceeds of crime Jurisdiction Year Amount of Proceeds (in millions of Euros) Australia 2004 2,764.9 Belgium 2007 623.7 Netherlands 2005 18,000.0 Peru 2007 131.0 Poland 2007 180.0 Slovenia 2007 256.0 United Kingdom 2007 19,015.9 Uruguay 2007* 2.1 * Indicates amount averaged over a period of time. 6. A further 27 jurisdictions, including three of those which estimated the amount of proceeds of crime, provided details on the amount of proceeds of crime frozen, seized or confiscated. While the sample size is small, these statistics indicated that over EUR 1 400 million was confiscated in 2007 and in addition more than EUR 1 190 million was frozen or seized. Table 2: Proceeds of crime frozen, seized or confiscated Jurisdiction Year Type of Action Amount (in millions of Euros) Andorra 2006-2007 Frozen 31.4 Armenia 2007 Seized 1.0 Aruba 2007 Seized 0.1 Australia 4 2007 Confiscated 13.5 Austria 2007 Frozen 113.9 Canada 2006 Seized 16.8 Czech Republic 2007 Frozen 28.3 Germany 2006 Seized 300 Hong Kong 2007 Confiscated 1.7 Japan 2007 Seized 1.5 Kyrgyzstan 2007 Confiscated 0.4 Latvia 2006 Frozen 8.3 Lithuania 2007 Suspended 9.9 Macau 2007 Seized 0.6 Malaysia 2006 Seized 31.1 Malta 2007 Seized 0.8 Mexico 2006* Seized 0.2 Moldova 2007 Seized 0.06 Monaco 2007 Seized 0.03 Netherlands 2007 Seized 23.6 Norway 2006 Confiscated 15.4 Romania 2006 Confiscated 0.3 5 4 Note that this only represents amount confiscated under Federal legislation and not the amounts confiscated under the various State provisions. 5 Plus a building (not valued). 3

Jurisdiction Year Type of Action Amount (in millions of Euros) Singapore 2007 Seized 60 Switzerland 2006-2007 Frozen 567.9 Ukraine 2007 Confiscated 2.4 United Kingdom 2006-2007 Confiscated 158.5 United States 2007 Confiscated 1,208.3 * Indicates amount averaged over a period of time. 7. Many, but not all, jurisdictions showed an increase in the amount seized in 2007 as compared to previous year. It is difficult to draw conclusions on this changes in these amounts, whether up or down. Increases or decreases in the amounts seized could also simply indicate a change in the amount detected rather than representing a reliable indicator of an increase or decrease in activity. 8. All thrity-nine survey respondents provided statistics on received and twenty-nine respondents were able to provide statistics on investigations, prosecutions and convictions. These jurisdictions alone were responsible for a total of 4 582 investigations, 5 195 prosecutions and 3 343 money laundering convictions in 2006. They were collectively responsible for 6 001 investigations, 2 949 prosecutions and 1 829 convictions for money laundering in 2007. Only a small proportion of respondents were able to determine how many of these investigations, prosecutions and convictions resulted from. It is necessary to remain cautious on drawing any conclusions based on these total figures. Further work would have to be done to examine them in comparison with the size and representativeness of the jurisdictions themselves before making any suggestions that the figures are representative of the full range of enforcement activity involving money laundering. Table 3: Number of received re money laundering and predicate offences Jurisdiction 2006 2007 Number / Proportion Re ML Number / Proportion Re ML Albania 14 2 748 20 Andorra 30 30 19 18 Armenia 26 26 27 27 Aruba 7 054 149 6 510 629 Australia 24 348 23 830 26 072 25 792 Austria 692 Most 1 085 Most Belarus 141 299 13 211 269 701 39 948 Belgium 9 938 3 809 12 830 4 501 Canada 39 036 in 2006-2007 Not known - - Chile 270 41 419 59 Czech Republic 10 051 6 945 9 080 6 755 France 12 047 Not known 12 469 Not known Germany 10 051 6 945 9 080 6 756 Hong Kong 14 557 14 557 15 457 15 437 Ireland 10 435 1 777 11 145 1 033 Japan 113 860-158 041-4

Jurisdiction 2006 2007 Number / Proportion Re ML FATF/WGTY(2008)10 Number / Proportion Re ML Kyrgyzstan 345 345 163 695 163 695 Latvia 13 974-18 704 - Lithuania 156 Most 153 Most Macau 559 28 725 64 Malaysia 4 225 - - - Malta 78 21 63 22 Mexico 56 659-77 363 285 (Jan July) Moldova 217 178 6 162 253 11 Monaco 395 395 381 381 Netherlands 172 865 Not known 214 040 Not known Norway 7 042-7 543 - Peru 1 179 27 1 554 54 Poland 1 898 1 890 1 920 1 915 Romania 3 190 841 2 574 1 179 Singapore 3 290 1 087 7 621 1 787 Slovak Republic - - 1 943 332 Slovenia 165 165 192 192 Sweden 6 353 6 053 6 040 5 495 Switzerland 611 599 789 781 Ukraine 841 589 207 876 1 022 859 264 688 United Kingdom 213 561 212 654 208 257 207 160 United States 567 080 302 818 649 176 347 458 Uruguay 94 94 174 174 5

Jurisdiction Table 4: Number of money laundering investigations, prosecutions and convictions 2006 2007 Investigations Prosecutions Convictions Investigations Prosecution s From Other From Other From Other From Other From Convictions Other From Other Albania - - 2 1 - - 5-2 - - - Andorra 30 18 4 1 - - 19 9 15 5 - - Armenia 1 1 1 1 0 0 0 1 0 1 0 0 Austria 61 14 3 - - - Belarus 647-79 - - - 1 635-289 - - - Belgium 1 611 6-61 - 46-1 923 7-83 - - - Chile 38 2 0 36 2 3 Czech Republic 137-11 - - 102-13 - 1 France - - 126 - - - Hong Kong - - 117 92 - - 310 179 Ireland - - 15 22 - - 11 5 Japan 1 143 231 233 5 179 239 279 Kyrgyzstan 2 0 0 0 0 0 12 3 0 0 0 0 Latvia - - - 48 25 30 Macau 22 2 0 27 3 0 Malaysia 26 5 1 82 14 0 Mexico 182 53 9 112 19 9 Moldova 182-6 - - - 243-11 - - 1 Monaco 395-17 - - - 381-13 - - - Netherlands 844 593 369 1 049 756 196 Peru 9 19 - - - - 19 16 - - - - Poland 287 54 58 296 82 36 Romania 336 113 11 608 37 1 Singapore 3 26-1 1 1 15 33 1 15 1 12 Slovak Republic 299 163 164 268 148 103 Slovenia 5 1 4 1 0 0 5 1 3 1 0 0 Ukraine - - - 520 40 25 United Kingdom - - 2,385 1,276 - - - - United States - - 1,347 934 - - 1,121 947 Uruguay 3 11 0 14 0 0 6 12 0 2 0 1 TOTAL 4 582 5 195 3 343 6 001 2 949 1,= 829 6 7 Number of case files under investigation in 2006 due to reports made by the FIU in previous years. Number of case files under investigation in 2007 due to reports made by the FIU in previous years. 6

Summary Estimates suggest that less than 0.01% of GDP is the proceeds of crime. In 2007, over EUR 1 400 million was confiscated and EUR 1 190 million frozen or seized (27 jurisdictions). 1 829 persons were convicted of money laundering in 2007 (30 jurisdictions). Primary sources of illegal proceeds 9. All but two of the designated categories of offences listed in the glossary of the FATF Recommendations appeared in survey responses as types of predicate criminal activity. Environmental crimes and piracy were not listed by respondents as known or suspected crimes which are major sources of proceeds in their jurisdictions. 10. From these responses, three areas of criminal activity stand out as the major sources of criminal proceeds: Fraud, corporate crimes, embezzlement, intellectual property crimes. Drug trafficking and narcotics related crimes. Taxation / excise evasion. 11. The first two of these sources were cited by a range of jurisdictions from Europe, the Americas and Asia/Oceania. The last, tax and excise evasion, was cited primarily by European jurisdictions. 12. The first of these - fraud and white collar crimes stood out as clearly the most important. It was cited by 31 of the 39 survey responses as a type of crime considered to be a major source of criminal proceeds. The area relating to drug trafficking and narcotics crimes was cited by 23 respondents, and taxation/excise crimes by 15. 13. Many respondents noted the difficulty in determining whether the proceeds in their jurisdictions related to domestic or foreign predicate offences. All of those which were able to provide an estimate noted that a proportion of the proceeds represented predicate criminal activity carried out overseas. Many noted that the proceeds of crime in their jurisdiction were primarily derived from domestic predicate offences. The minority of respondents that noted foreign predicate criminal activity as the primary source of proceeds of crime were predominantly European jurisdictions. 14. A similar picture emerges from the statistics on the criminal activity underlying money laundering convictions. The primary predicate offences believed to be involved were: Drug trafficking and narcotics related crimes (12 of the 39 responses). Fraud, corporate crimes, embezzlement and intellectual property crimes (nine of the 39 responses). Summary Environmental crimes and piracy are not known or suspected to be major sources of proceeds of crime. The major sources of criminal proceeds: o o o Fraud, corporate crimes, embezzlement, intellectual property crimes. Drug trafficking and narcotics related crimes. Taxation / excise evasion. 7

High risk factors 15. Fourteen high risk factors pertaining to the customer were identified from responses to the Strategic Surveillance Survey. The three most prevalent risk factors pertaining to the customers appear to arise when they: Are politically exposed persons. Are non-resident. Possess a criminal background (including membership of an organised crime group). 16. The survey respondents particularly noted risk factors relating to the types of businesses involved in the transactions. Seventeen such factors were identified. These risk factors did not indicate that the businesses themselves were knowingly involved in illicit activities. Rather, they were considered high risk because there are opportunities to abuse them for money laundering purposes. In terms of the businesses involved, respondents consistently highlighted the risks involved when transactions involve: Shell, shelf or front companies. Casinos or other gambling-related businesses. Real estate businesses. 17. A wide variety of risk factors were identified with respect to the transactions themselves. When the nature of the transactions themselves was considered, one element was clearly often highlighted the involvement of large amounts of cash. In addition, responses often cited transactions involving: Structuring (including through multiple cash deposits or withdrawals). Use of bearer negotiable instruments. 18. The nature of the geographic locations involved in the transaction was considered by many jurisdictions to be an important risk factor. Seventeen risk factors were identified of which three were consistently mentioned in survey responses: Offshore jurisdictions, particularly those with favourable tax systems. Jurisdictions which lack adequate AML/CFT systems. Known drug source or transit jurisdictions. High risk factors The customers: PEPs, non-residents and persons with criminal backgrounds. Nature of the businesses involved: shell/shelf/front companies, casinos and other gambling businesses and real estate businesses. The transactions: the involvement of large amounts of cash. Geographic: jurisdictions with favourable tax systems, weak AML/CFT systems or which are known drug source or transit jurisdictions. Trends in the sources or volume of proceeds of crime 19. An extremely broad range of trends was observed regarding the sources of criminal proceeds. Survey respondents identified 60 different trends, many of which were only noted by one jurisdiction each. Six jurisdictions noted that they have increasingly seen internet banking, internet payment systems, e-currency, phishing, internet-based frauds and other use of internet technologies in money laundering activities (Austria, Belarus, Belgium, Canada, Singapore and the Slovak Republic). This involvement of new technologies was also evident in the two respondents (Canada, Germany) who 8

noted an increasing involvement of prepaid cards, anonymous cards, travel cash/travel money cards in money laundering activities. 20. Five jurisdictions noted that they had increasingly seen money laundering related to fraud (Japan, Moldova, Norway, Sweden, Switzerland), and four jurisdictions noted that they had increasingly seen money laundering related to tax or excise evasion (Latvia, Moldova, Norway, Sweden). Interestingly, of the jurisdictions which noted an increase in money laundering related to fraud or tax fraud, only one was not from Europe. In addition, the involvement of businesses, business structures or professional advisers in money laundering activity was seen in a further five jurisdictions. 21. Most of the trends identified appeared to show increased detection of certain predicate criminal activity or increased involvement of certain types of individuals or businesses in the money laundering activity. Only three respondents noted decreasing trends; proceeds from drug trafficking, use of bank accounts and involvement of organised crime respectively. 22. Respondents were not able to detect trends in the volume of proceeds of crime, which is unsurprising considering the difficulties inherent in estimating the amount of proceeds of crime. Summary Involvement of new technologies Fraud and tax/excise evasion. Involvement of businesses, business structures or professional advisers. ii) New techniques or methods observed 23. The new techniques or methods observed reflected issues similar to those raised in regard to trends in the volume of proceeds of crime. The involvement of technology in money laundering activities was a consistent theme across many of the new techniques observed. This encompasses misuse of internet-based financial transactions, internet banking and remittance platforms (including those offering digital currency), misuse of new financial products such as pre-paid cards and misuse of online role-playing games. New technologies were also found to be a new means of perpetrating crimes such as dealing in illegal drugs over the internet and e-crimes, including phishing and internet auction frauds. Fifteen of the respondent jurisdictions, from a range of regions, highlighted involvement of new technologies in the new techniques or methods they have detected. 24. In terms of the financial sector, the most commonly cited technique was the use of the accounts of other persons and companies ( straw men ). While a wide range of techniques related to the financial transactions was noted by one or two jurisdictions, of interest was the mention by three respondents, all in Europe, of the recently observed use of insurance, securities and other non-banking financial products in money laundering activities (Armenia, Malta, Sweden). This has also been cited by the United States as a possible risk which they are currently looking into. 25. Some low-technology methods were however also cited as recently observed. In this category, the movement of proceeds into the real estate sector was clearly the most noted technique. Cash couriers continued to be indicated in a number of jurisdictions, including jurisdictions where involvement of cash couriers had not previously been seen. Other low-technology methods and trends recently uncovered by respondents included the use of casino chips as an underground currency, purchase of jewellery/bullion in one country and sale in another and involvement of cash-intensive businesses. 9

Summary Internet-based financial transactions, internet banking and remittance platforms. Insurance, securities and other non-banking financial products are being used in money laundering activities. The movement of proceeds into the real estate sector. iii) Significant changes observed in money laundering trends 26. Twenty-three jurisdictions were able to identify significant changes in money laundering trends. Of these, thirteen noted a significant increase in the complexity of the money laundering activity uncovered. The involvement of technology was a common theme, particularly use of internet banking, internet payment systems and electronic payment cards. Also noticed was significantly greater involvement of complex corporate structures, at times established wittingly or unwittingly by professional advisers. Regardless of the complexity of the overall money laundering activities, a number of respondents noted a significant increase in the use of third parties in order to obscure the actual persons involved, either as providers of bank accounts or as founders of registered companies used for placement or movement of illicit funds. Summary Significant increase in the complexity of money laundering activity, commonly involving internet technology and/or corporate structures. Use of accounts or business structures of third parties. iv) Other areas of concern relating to money laundering techniques, methods or trends. 27. In addition to the high risk factors and money laundering trends discussed previously, a small group of jurisdictions raised particular areas of concern in terms of money laundering techniques, methods and trends. Consistent with responses on high-risk factors and the prevalent money laundering techniques, some jurisdictions highlighted concerns over the use of alternative remittance systems 8. Also consistent with responses on the most prevalent money laundering techniques, some respondents here reinforced their concerns about the increasing placement of proceeds in and through the real estate sector. 28. While significant changes in money laundering trends and new techniques identified both pointed to increasing complexity of money laundering activity, including through use of the internet, some jurisdictions here raised concerns relating to cash and other instruments (such as casino chips) as means of storing and smuggling proceeds of crime. The difficulties of implementing effective AML/CFT measures, other than those with respect to detection of smuggling activities and detection of placement of large amounts of cash into the financial system, were also highlighted. 29. Of interest is the issue raised by one respondent Austria of the use by criminals of published red flag indicators, typologies and guidelines. While these are developed for those responsible for combating money laundering there are being used by some criminals to inform them of activities likely to be detected by authorities, activities which they then avoid. 8 Alternative remittance systems here is a collective term for remittance systems using the banking or proprietary systems and also transfer of value. 10

Summary The use of alternative remittance systems. Placement of proceeds in and through the real estate sector. Cash and other instruments (such as casino chips) as means of storing and smuggling proceeds of crime. The use by criminals of published red flag indicators, typologies and guidelines to inform them of activities likely to be detected by authorities. III. TERRORIST FINANCING TECHNIQUES, METHODS AND TRENDS a) Sources and relative scale of problem Scale of the problem 30. Most respondents noted that they have not uncovered any cases of terrorism and were unable to estimate the amount, if any, of funds linked to terrorism in their jurisdictions. Other respondents which have experienced some cases (even if they remain at the investigative stage) noted the difficulty inherent in formulating a reliable estimate of the amount of proceeds of crime generated in and moved through their jurisdictions. 31. Nine respondents were in a position to provide statistics of the amounts involved in terrorist financing cases. As the figures provided relate variously to the amount collected for terrorism, the amount blocked, the amount seized or the total amount of funding obtained by each terrorist group, they are not reliably comparable statistics. 32. From the information provided by the five jurisdictions which were able to provide information on the amount of money involved in their suspected cases of terrorism, an average amount can be derived of EUR 1 369 984.28 per case. While this large amount could be a reason why these particular cases have come to the attention of intelligence and enforcement agencies, it could also be seen to support the proposition that, in addition to the costs for terrorist acts themselves, maintaining a terrorist network or cell, providing for recruitment, planning, and procurement, presents a need for resources. 33. Sixteen respondents were able to provide statistics on received with respect to terrorist financing. In 2006 this totalled 1 810 terrorist financing and in 2007, 3 103 terrorist financing. A different group of sixteen jurisdictions 9 provided statistics on investigations, prosecutions and convictions conducted. These jurisdictions alone were responsible for a total of 155 investigations, 67 prosecutions and 5 terrorist financing convictions in 2006. They were collectively responsible for 215 investigations, 145 prosecutions and 30 convictions for terrorist financing in 2007. Only a small proportion of respondents were able to determine how many of these investigations, prosecutions and convictions resulted from. 9 This does not include those jurisdications which noted they have not had any investigations, prosecutions or convictions related to terrorist financing. 11

Table 5: Number of received re terrorist financing Jurisdiction 2006 2007 Australia 14 23 Austria 19 30 Andorra 0 1 Aruba 0 0 Czech Republic 5 6 Belgium 282 228 Germany 59 90 Hong Kong - 20 Ireland 503 590 Japan - 299 Kyrgyzstan 0 0 Macau - 5 Peru - 4 Poland - 5 Switzerland 8 6 Ukraine 13 12 United Kingdom 907 1,097 United States - 687 TOTAL 1 810 3 103 12

Jurisdiction Table 6: Number of terrorist financing investigations, prosecutions and convictions Investigation s From Other 2006 2007 Prosecutions Convictions Investigations Prosecutions Conviction s From Other From Other From Other From Other From Australia - 1 0-1 1 Austria 6 1 0 - - - Albania 1 - - - - - Andorra - - - 1 0 0 Chile 0 0 0 1 0 0 Czech Republic 1 0 0 0 0 0 0 2 0 0 0 0 Belgium 64 0 6 0 4 0 57 0 4 0 3 0 France 0 0 0 0 1 0 0 0 0 0 0 Germany 17 42 17 42 - - 16 92 16 92 0 0 Hong Kong 20 0 0 31 0 0 Kyrgyzstan 1 0 0 0 0 0 0 1 0 0 0 0 Macau 0 0 0 0 0 0 2 0 0 0 0 0 Malta 0 0 0 1 0 0 Norway 0 0 0 1 0 0 Peru 0 1 0 0 0 0 2 0 0 0 0 0 Romania 2 0 0 0 0 0 8 0 0 0 0 0 United States * - - - - 32 26 TOTAL 155 67 5 215 145 30 * Only includes statistics from responses where there were some investigations/prosecutions/convictions. Oth er 34. One respondent Australia provided useful statistics which showed how many of the received were submitted on the basis of matches to watchlists as compared to those submitted solely on the basis of a suspicion of terrorist financing. Summary An average amount of 1 369 984.28 Euro per case was involved in suspected cases of terrorism per case (5 respondents). 30 persons convicted of terrorist financing in 2007 (16 jurisdictions). Primary sources of financing for terrorism 35. In general, terrorist organisations may raise funds through legitimate or illicit activities and, from the responses provided, commonly through a mixture of both. The information provided suggests that a single terrorist group may use a number of different financing methods and that many of these methods are the same as used for money laundering. 13

36. Two forms of illicit activities stood out from the responses as the most prevalent illicit sources of funding for terrorism: sale/trafficking in illicit drugs and frauds, including welfare fraud, credit card fraud, telecom fraud, petroleum fraud. Also often cited were; human trafficking and illegal migration, diversion of funds from charities / non-profit organisations, robbery and pick-pocketing, and tax crimes. The last two of these sources (robbery and pick-pocketing, and tax crimes) were cited by jurisdictions in Europe (Austria, Belgium, Czech Republic, Germany, Norway, Sweden and Switzerland). In all other cases, the illicit activity was seen as a source of funds for terrorism in a range of geographic locations. 37. The picture was very clear when it comes to the licit sources of financing. Three types of licit activity were noted by almost all respondents: Fund raising / donations. Charities / non-profit organisations. Business / economic activity. 38. Also detected as licit sources of financing for terrorism were pre-approved bank loans and consumer credit, sales of phone cards, and self-funding. 39. Seven respondents were able to provide information on the means of moving the collected funds (Austria, Belgium, Canada, France, Norway, Poland and Switzerland). A fairly clear set of techniques was cited, primarily including: Alternative remittance systems. Cash couriers. Formal banking system (including by way of cash deposits wired overseas and through use of multiple accounts). Foreign exchange bureaus. Summary Illicit sources of funding for terrorism: o Sale/trafficking in illicit drugs. o Frauds, including welfare fraud, credit card fraud, telecom fraud, petroleum fraud. Licit sources of funding for terrorism: o Fund raising / donations. o Charities / non-profit organisations. o Business / economic activity. Movement of the collected funds involves: o Alternative remittance systems. o Cash couriers. o Formal banking system. o Foreign exchange bureaus. 40. These findings appear largely to confirm the conclusions in the FATF Terrorist Financing typologies report of February 2008. That study found that the most common illicit sources of financing for terrorism are drug trafficking, credit card and cheque frauds, and extortion. It also found that the most common licit sources of financing for terrorism were charities, legitimate business and selffunding. In terms of the means used to move the funds, that report concluded that there were three main methods by which terrorists move money or transfer value: through use of the financial system, 14

physical movement of money (for example, through the use of cash couriers) and through the international trade system. b) High risk factors 41. The responses to the strategic surveillance survey identified fewer high-risk factors for terrorist financing than for money laundering. In addition, the factors that related to terrorist financing were more general in nature. In a high proportion of cases, the risk factors observed were the same as those listed with respect to money laundering, which might suggest that in many ways terrorist financing involves the same techniques and methods as money laundering. 42. As the sources of funds for terrorism can be both legitimate and illicit and there is a large spectrum of possibilities for raising money, it appeared to be difficult for many jurisdictions to identify specific high-risk factors for terrorist financing. In addition, some respondents noted the flexibility and adaptability of those involved in financing terrorism and the difficulty therefore of identifying specific risk factors for terrorist financing activity when those involved in such activity have no established patterns of behaviour. 43. Eleven high risk factors pertaining to the customer were identified. Of these one was cited in the majority of responses: natural or legal persons from locations of concern for terrorism. 44. Only four risk factors pertaining to the nature of the businesses were identified, the two most often cited being: involvement of a non-profit organisation (NPO) or foundation, and involvement of cash-intensive businesses. This outcome was consistent with the conclusion of the FATF report cited above that charities / NPO may be a primary licit source of funding for terrorism. 45. A wide range of risk factors was identified with respect to the transactions themselves, with the involvement of a remittance dealer cited significantly more often than any other factor. 46. The most commonly cited risk factor pertaining to geographic location mirrors that for the customers themselves. A number of respondents noted that the involvement in the transaction of any geographic location of concern for terrorism raised a red flag for them. High risk factors The customers: natural or legal persons from locations of concern for terrorism. Nature of the businesses involved: NPOs and foundations, and cash-intensive businesses. The transactions: alternative remittance. Geographic: any geographic location of concern for terrorism. 47. In addition to these individual high risk factors, one respondent Australia provided three sets of factors which when present in combination were considered high risk with respect to terrorist financing: People allegedly associated with terrorist groups, or having an extremist ideology, in low paid employment and transferring large sums of money out of Australia to a suspect person or organisation or to a country where terrorist groups are known to be located. People allegedly associated with terrorist groups that are the owners of businesses (or the directors of companies) making unsustainable transfers (which can be disguised as commercial transfers) from Australia to unknown recipients in countries where terrorist groups are based. 15

Groups of people allegedly associated with terrorist groups structuring transfers (just under the significant cash transfer reporting limit of AUD 10 000) from their personal accounts to overseas bank accounts (on the same day or within days of each other) to the bank account of a person or organisation. c) New techniques or methods observed 48. A range of new techniques / methods was observed by respondent jurisdictions, with two quite different techniques being cited more often than others: new payment methods (including internetbased transfer systems, transfers via mobile phones, prepaid credit cards) and use ofalternative remittance systems. Identification of new payment methods here was consistent with the results of the survey with respect to money laundering where internet-based financial transactions, internet banking and remittance platforms were the most often identified new techniques observed. This finding was also consistent with input provided for the FATF Terrorist Financing report, that terrorist financing methods are often the same as methods employed to laundering money. Summary New payment methods. Alternative remittance systems. d) Significant changes observed in terrorist financing trends 49. A number of respondents described the difficult inherent in identifying significant changes in terrorist financing trends. In some jurisdictions relevant legislation has only relatively recently been introduced, and government strategies and capabilities to combat terrorist financing have not been implemented for long. As such some respondents felt they were able to begin identifying terrorist financing trends but were not yet ready to note significant changes in such trends. 50. Four respondents observed a total of eleven changes in terrorist financing trends (Belgium, Kyrgyzstan, Sweden and the United States). These observations were very diverse, with no clear theme. They ranged from increased use of alternative remittance systems and NPOs to increased involvement of the securities and futures industry. e) Other areas of concern relating to terrorist financing techniques, methods or trends. 51. No additional areas of concern were highlighted by respondents with respect to terrorist financing techniques, methods and trends. IV. REGIONAL AND GLOBAL MONEY LAUNDERING AND TERRORIST FINANCING TECHNIQUES, METHODS AND TRENDS Money laundering / terrorist financing techniques, methods and trends considered to be high risk 52. According the survey responses received, money laundering and terrorist financing continue to be predominantly cross-border or international activities, with criminals using a range of products and methodologies to conceal and move funds. Some respondents noted that the money being laundered is often moved overseas through various means and then ultimately returned to the initial location, properly integrated. 53. In terms of regional and international issues, respondents to the survey particularly highlighted the involvement in money laundering and terrorist financing of: 16

Foreign legal persons, trusts and corporate vehicles. Tax havens and jurisdictions with weak AML/CFT controls. Internet technologies, including internet payment systems. Purchase of real estate overseas. Money generated from tax evasion conducted overseas. Cash couriers and cash smuggling. Alternative remittance systems. 54. The results of this survey appeared to confirm the finding in other FATF typology reports 10 regarding the abuse of non-financial professionals, such as notaries, real estate agents, real estate valuers and lawyers. Interestingly, some respondents noted an increasing involvement in money laundering and terrorist financing by non-financial businesses and professionals based in a country other than the one in which they were providing advice. Related to this was the concern raised about involvement of on-line financial service providers that operate without a physical presence in the country where the service is accessible. 55. A limited number of clear regional trends could be seen in the observed techniques, methods and trends. A number of responses from jurisdictions in Asia noted that money laundering through casinos and other gambling establishments was an activity of concern. Money laundering from tax crimes and the use of Internet technologies, including internet payment systems, was primarily noted by jurisdictions in Europe. Impact 56. The money laundering / terrorist financing techniques, methods and trends described in the survey responses appeared consistently to have an impact in two principal areas: The financial system: In particular, this involves the loss of investor confidence in the industry or in the country s financial system. The numerous options presented for investors in terms of sectors and products which they could use to move or invest their money means avoidance of sectors or countries which are seen as high risk may be relatively easy. The business environment: In particular, this involves the reputational and financial impact on institutions, small businesses and charitable organisations when they are found to have been used by those who are laundering money or finance terrorism. V. CONCLUSION 57. A number of themes appear to be present in the responses to the 2008 strategic surveillance survey. The complexity of AML/CFT efforts was clearly highlighted. This is present in the commonly repeated observations that money laundering and terrorist financing activities are predominantly crossborder/international in nature, often involving more than two jurisdictions with movements and investment of criminal proceeds occurring rapidly. Some jurisdictions report that they face difficulties in determining whether proceeds of crime and funding for terrorism are primarily domestic or international in nature due to the movement of these monies through a number of jurisdictions. It is also clear from the observations made through the survey that an individual or group conducting money laundering or terrorist financing will use both formal and informal financial systems and will use more than one sector and multiple techniques. The complexity of AML/CFT efforts is further reinforced by the finding of many jurisdictions that the techniques and methods use for money 10 The Misuse of Corporate Vehicles (October 2006) and Money Laundering & Terrorist Financing Through the Real Estate Sector (June 2007) 17

laundering and the financing of terrorism appear to be in many ways identical. A clear example of this is the inter-relationship between drug trafficking and terrorism highlighted by some jurisdictions. Key Findings Overarching Themes => Increase in the sophistication of money laundering activity, commonly involving internet technology and/or complex corporate structures. => Money laundering and terrorist financing activities are predominantly global in nature, often involving more than two jurisdictions with rapid movements and investment of proceeds of crime. => An individual or group conducting money laundering or terrorist financing with use both formal and informal financial systems and will use many sectors and techniques. => The techniques and methods use for money laundering and the financing of terrorism are in many ways identical. => Sale/trafficking in illicit drugs. The Proceeds => Fraud, including welfare fraud, credit card fraud, telecom fraud, petroleum fraud. => Increased proceeds from tax/excise evasion, including from tax crimes committed overseas. => Generation of large amounts of cash. The Techniques / Methods => Involvement of foreign legal persons, trusts and corporate vehicles - layering. => Involvement of tax havens and jurisdictions with weak AML/CFT controls - layering. => Use of third parties accounts or business structures layering. => Involvement, witting or unwitting, of professional advisers layering. => Use of cash couriers and bulk cash smuggling - layering. => Abuse of charities / non-profit organisations and foundations - placement and layering. => Abuse of Internet systems and new payment methods - placement, layering and integration. => Abuse of alternative remittance systems - placement, layering and integration. => Placement of proceeds in and through the real estate sector, including real estate in other countries - placement, layering and integration. => Use of cash-intensive businesses - placement, layering and integration. 58. A number of these key findings have been explored directly by the FATF in focussed typologies reports in recent years 11. Some have been explored in less depth during typologies exercises or as matters for the FATF annual typologies reports published up until 2005. While many have been focussed upon in recent years, for a small number, the FATF work may now be somewhat dated. Following is a table showing where in its typologies reports the FATF has addressed each of the key findings of this strategic surveillance survey. Interestingly, five of the key findings have not yet been the subject of attention in the FATF s typologies work, though they may have been explored by one or more of the FATF-style regional bodies. These are: The global nature of money laundering and terrorist financing. Use of both formal and informal financial systems and use of many sectors and techniques by an individual or group conducting money laundering or terrorist financing. 11 See ML/TF Vulnerabilities of Commercial Websites and Internet Payment Systems report for approval by FATF plenary June 2008, Terrorist Financing report released in February 2008, Money Laundering and Terrorist Financing Through the Real Estate Sector, report released June 2007, and The Misuse of Corporate Vehicles report released October 2006. 18

Money laundering associated with fraud, including welfare fraud, credit card fraud, telecom fraud, petroleum fraud. Money laundering associated with tax/excise evasion, including from tax crimes committed overseas. Use of third parties accounts or third parties business structures. Table 7: Previous exploration by the FATF of the strategic surveillance survey key findings Key Findings When studied by the FATF Overarching Themes Increase in the sophistication of money laundering activity, commonly involving internet technology and/or complex corporate structures. Money laundering and terrorist financing activities are predominantly global in nature, often involving more than two jurisdictions with rapid movements and investment of proceeds of crime. An individual or group conducting money laundering or terrorist financing with use both formal and informal financial systems and will use many sectors and techniques. The techniques and methods use for money laundering and the financing of terrorism are in many ways identical. Internet / technology ML/TF Vulnerabilities of Commercial Websites and Internet Payment Systems, report for approval by FATF plenary June 2008. FATF Annual Typologies Report 2000-2001. FATF Annual Typologies Report 1999-2000. FATF Annual Typologies Report 1998-1999. FATF Annual Typologies Report 1997-1998. FATF Annual Typologies Report 1991-1992. Corporate structures The Misuse of Corporate Vehicles, including Trust and Company Service Providers, October 2006. FATF Annual Typologies Report 1997-1998. FATF Annual Typologies Report 1991-1992. Considered as an element, though not primary focus, in most FATF typologies reports. Considered as an element, though not a primary focus, in some FATF typologies reports. Terrorist Financing report, February 2008. FATF Annual Typologies Report 2000-2001. The Proceeds Sale/trafficking in illicit drugs. FATF Annual Typologies Report 1998-1999. FATF Annual Typologies Report 1992-1993. Fraud, including welfare fraud, credit card fraud, telecom fraud, petroleum fraud. Increased proceeds from tax/excise evasion, including from tax crimes committed overseas. Generation of large amounts of cash. Mentioned briefly, though not explored, in some FATF typologies reports. Mentioned briefly, though not explored, in some FATF typologies reports. Mentioned in some FATF typologies reports dealing with cash couriers. FATF Annual Typologies Report 1989-1990. The Techniques / Methods Involvement of foreign legal persons, trusts and corporate vehicles. The Misuse of Corporate Vehicles, including Trust and Company Service Providers, October 2006. FATF Annual Typologies Report 2000-2001. FATF Annual Typologies Report 1999-2000. FATF Annual Typologies Report 1997-1998. FATF Annual Typologies Report 1991-1992. 19

Key Findings Involvement of tax havens and jurisdictions with weak AML/CFT controls. Use of third parties accounts or business structures. Involvement, witting or unwitting, of professional advisers. Use of cash couriers and bulk cash smuggling. Abuse of charities / non-profit organisations and foundations. Abuse of Internet systems and new payment methods. Abuse of alternative remittance and underground banking systems. Placement of proceeds in and through the real estate sector, including real estate in other countries. Use of cash-intensive businesses. When studied by the FATF FATF Annual Typologies Report 1993-1994. Considered as an element, though not a primary focus, in some FATF typologies reports. FATF Annual Typologies Report 2003-2004. FATF Annual Typologies Report 2000-2001. FATF Annual Typologies Report 1999-2000. FATF Annual Typologies Report 1997-1998. FATF Annual Typologies Report 1996-1997. FATF Annual Typologies Report 1993-1994. FATF Annual Typologies Report 1991-1992. FATF Annual Typologies Report 2001-2002 (the Euro). FATF Annual Typologies Report 2000-2001. FATF Annual Typologies Report 1998-1999 (the Euro). FATF Annual Typologies Report 1992-1993. FATF Annual Typologies Report 1991-1992. FATF Annual Typologies Report 1998-1999. Terrorist Financing report, February 2008. FATF Annual Typologies Report 2003-2004. ML/TF Vulnerabilities of Commercial Websites and Internet Payment Systems, report for approval by FATF plenary June 2008. FATF Annual Typologies Report 2000-2001. FATF Annual Typologies Report 1999-2000. FATF Annual Typologies Report 1998-1999. FATF Annual Typologies Report 1997-1998. FATF Annual Typologies Report 1991-1992. FATF Annual Typologies Report 2004-2005. FATF Annual Typologies Report 1999-2000. Money Laundering and Terrorist Financing Through the Real Estate Sector, June 2007 Mentioned in some FATF typologies reports dealing with cash couriers. FATF Annual Typologies Report 1989-1990. 20

ANNEX 1: THE 2008 STRATEGIC SURVEILLANCE SURVEY RESPONSE TO THE 2008 FATF STRATEGIC SURVEILLANCE SURVEY BY [INSERT THE NAME OF YOUR JURISDICTION] Information should relate to 2007. If the information provided does not relate to the entire calendar year, its end date should be noted. Comparable data for previous years may also be included. I. MONEY LAUNDERING TECHNIQUES, METHODS AND TRENDS (i) Sources of illegal proceeds and relative scale of problem What is the estimated total amount of criminal proceeds in your jurisdiction? If no estimate is available, what is the amount of criminal proceeds frozen and the amount of criminal proceeds seized in your jurisdiction? What crimes or types of crime are considered to be the major sources of these criminal proceeds? What proportion of the proceeds derives from domestic as compared to foreign predicate offences? What are considered high risk factors? (Certain types of customers, businesses, transactions and geographic locations may lend themselves more readily than others to potential criminal activity.) What trends have been observed in the sources or volume of illegal proceeds? (ii) New techniques or methods observed Please indicate not only completely new methods or techniques but also those traditional ones that you might be detecting for the first time in your jurisdiction 12. (iii) Significant changes observed in money laundering trends Please indicate these changes as they have been observed in your jurisdiction. (iv) Statistics Number of suspicious transaction reports () 13 received and the proportion which related to money laundering and predicate offences to money laundering. Year Total number of Number or proportion related to ML 2007 2006 Suspected criminal activity underlying the. 12 13 Trends may be deduced from the filed and also from investigations and convictions. The term suspicious transaction report (STR) applies equally to suspicious activity report (SAR). 21

14 Estimated number or proportion of Year Suspected criminal activity (for each type of activity) 2007 2006 a. Participation in an organised crime group, racketeering. b. Terrorism, including terrorist financing. c. Trafficking in human beings, migrant smuggling. d. Illicit trafficking in narcotic drugs and psychotropic substances. e. Illicit arms trafficking. f. Smuggling and illicit trafficking in stolen and other goods. g. Corruption, bribery and extortion. h. Fraud, insider trading and market manipulation. i. Counterfeiting of currency, counterfeiting and piracy of products, forgery. j. Robbery or theft. k. Kidnapping, illegal restraint and hostage-taking, sexual exploitation, murder, grievous bodily injury. l. Environmental crime. m. Piracy Other (please specify) a. b. etc a. b. c. d. e. f. g. h. i. j. k. l. m. Other a. b. etc. Number of money laundering investigations, prosecutions and convictions. Year ML investigations ML prosecutions ML convictions 2007 a. From b. Other a. From b. Other a. From b. Other 2006 a. From b. Other a. From b. Other a. From b. Other Predicate criminal activity believed to be involved in the money laundering cases which resulted in conviction. Year Type of predicate criminal activity 15 Number of ML convictions 2007 a. Participation in an organised crime group, racketeering. b. Terrorism, including terrorist financing. c. Trafficking in human beings, migrant smuggling. d. Illicit trafficking in narcotic drugs and psychotropic substances. e. Illicit arms trafficking. f. Smuggling and illicit trafficking in stolen and other goods. g. Corruption, bribery and extortion. h. Fraud, insider trading and market manipulation. i. Counterfeiting of currency, counterfeiting and a. b. c. d. e. f. g. h. i. j. k. l. 14 15 Taken from the designated categories of offences listed in the glossary to the 40 Recommendations. Taken from the designated categories of offences listed in the glossary to the 40 Recommendations. 22

Year Type of predicate criminal activity 15 Number of ML convictions piracy of products, forgery. j. Robbery or theft. k. Kidnapping, illegal restraint and hostage-taking, sexual exploitation, murder, grievous bodily injury. l. Environmental crime. m. Piracy Other (please specify) m. Other 2006 a. b. etc. a. b. etc. (v) Other areas of concern relating to money laundering techniques, methods or trends. Please use this area to indicate any other areas of concern that may not have been addressed above. II. (i) TERRORIST FINANCING TECHNIQUES, METHODS AND TRENDS Sources and relative scale of problem. What is the estimated amount of finances in your jurisdictions which are linked to terrorism? What crimes or types of crime are considered to be sources of these finances? What legitimate activities are considered to be sources of these finances? Are the finances for terrorism of domestic or foreign origin? What are considered high risk factors? (e.g. types of customers, businesses, transactions and geographic locations). What trends been observed in the financing of terrorism? (ii) New techniques or methods observed. Please indicate not only completely new methods or techniques but also those traditional ones that you might be detecting for the first time in your jurisdiction. (iii) Significant changes observed in terrorist financing trends. Please indicate these changes as they have been observed in your jurisdiction. (iv) Statistics. Number of suspicious transaction reports received which related to terrorist financing. Number of terrorist financing investigations, prosecutions and convictions. Year TF investigations TF prosecutions TF convictions 2007 a. From b. Other a. From b. Other a. From b. Other 2006 a. From b. Other a. From b. Other a. From b. Other 23

(v) Other areas of concern relating to terrorist financing techniques, methods or trends. Please use this area to indicate any other areas of concern that may not have been addressed above. III. REGIONAL AND GLOBAL MONEY LAUNDERING AND TERRORIST FINANCING TECHNIQUES, METHODS AND TRENDS (i) (ii) Money laundering / terrorist financing techniques, methods and trends considered to be high risk. Impact on your jurisdiction / region. IV. ADDITIONAL INFORMATION Please provide any further information which may be of assistance for the strategic surveillance initiative. Existing reports (such as national threat assessments or reports by the FIU, law enforcement agencies, supervisors or academia on money laundering and terrorist financing techniques, methods and trends) may also be submitted along with the completed survey. 24

ANNEX 2: RESPONDENTS TO THE 2008 STRATEGIC SURVEILLANCE SURVEY Respondent Jurisdiction Albania Andorra Armenia Aruba Australia Austria Belarus Belgium Canada Chile Colombia Czech Republic France Germany Hong Kong Ireland Japan Kyrgyzstan Latvia Lithuania Macao Malaysia Malta Mexico Moldova Monaco The Netherlands Norway Peru Poland Romania FATF/FSRB Membership Moneyval Moneyval EAG, Moneyval CFATF, FATF 16, OGBS APG, FATF FATF EAG FATF APG, FATF GAFISUD GAFISUD Moneyval FATF, Moneyval FATF APG, FATF FATF APG, FATF EAG Moneyval EAG, Moneyval APG APG Moneyval FATF, GAFISUD EAG, Moneyval Moneyval FATF FATF GAFISUD Moneyval Moneyval 16 The Kingdom of the Netherlands (comprising Arbua, the Netherlands Antilles and the Netherlands) is a member of the FATF. 25

Respondent Jurisdiction FATF/FSRB Membership Singapore APG, FATF Slovak Republic Moneyval Slovenia Moneyval Sweden FATF Switzerland FATF UK FATF Ukraine EAG, Moneyval Uruguay GAFISUD USA APG, FATF TOTAL 40 26