Terrorism financing

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Money_laundering

 

Main article: Terrorism

 

Terrorism financing is the provision of funds or providing financial support to individual terrorists or non-state actors.

Most countries have implemented measures to counter terrorism financing (CTF) often as part of their money laundering laws. Some countries and multinational organisations have created a list of organisations that they regard as terrorist organisations, though there is no consistency as to which organisations are designated as being terrorist by each country. The Financial Action Task Force on Money Laundering (FATF) has made recommendations to members relating to CTF. It has created a Blacklist and Greylist of countries that have not taken adequate CTF action. As of 24 October 2019, the FATF blacklist (Call for action nations) only listed two countries for terrorism financing: North Korea and Iran; while the FATF greylist (Other monitored jurisdictions) had 12 countries: Pakistan (see Pakistan and state-sponsored terrorism), Bahamas, Botswana, Cambodia, Ghana, Iceland, Mongolia, Panama, Syria, Trinidad and Tobago, Yemen, and Zimbabwe. In general, the supply of funds to designated terrorist organisations is outlawed, though the enforcement varies.

Initially the focus of CTF efforts was on non-profit organizations, unregistered money services businesses (MSBs) (including so called underground banking or ‘Hawalas’) and the criminalisation of the act itself.

History

After September 11 attacks

The United States Patriot Act, passed after the September 11 attacks in 2001, gives the US government anti-money laundering powers to monitor financial institutions. The Patriot Act has generated a great deal of controversy in the United States since its enactment. The United States has also collaborated with the United Nations and other countries to create the Terrorist Finance Tracking Program.

Many initiatives have stemmed from the USA PATRIOT Act such as the Financial Crimes Enforcement Network, which focuses specifically on money laundering and financial crimes.

United Nations Security Council Resolution 1373 is a counter-terrorism measure intended to deny financing to terrorist organisations and individuals.

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, also known as USA PATRIOT Act, was also enacted in 2001. In 2009 the act aided in blocking around $20 million and another $280 million that came from State Sponsors of Terrorism.

In 2020, Veit Buetterlin, who conducted investigations on-site in more than 20 countries and who was kidnapped in course of his work, explained in an interview with CNN that the fight against terrorism financing will be an ongoing challenge (“it’s actually impossible to defeat a concept”). He noted that the world’s top 10 terrorist organizations have an estimated annual budget of USD 3.6 billion.

Methods used for terrorism funding

A number of countries and multinational organisations maintain lists of organisations that they designate as terrorist organisations, though there is no consistency as to which organisations are so designated. In the United States, the Treasury Department's Office of Foreign Assets Control (OFAC) maintains such a list. Financial transactions that benefit the designated terrorist organisations are usually outlawed.

Designated terrorist organisations may adopt a variety of strategies to get past efforts to prevent such funding. For example, they may make multiple smaller-value transfers in an attempt to bypass scrutiny; or they may use people who have no criminal backgrounds to complete financial transactions to try to make fund transfers harder to track. These transactions may also be disguised as donations to charities or as gifts to family members. Countries are not able to combat terrorism on their own, as corporate actors are needed to scan financial transactions themselves. If corporate actors do not comply with the state then penalties or regulatory sanctions may be applied.

Terrorists and terrorist organizations often use any resource of money they can have access to in order to fund themselves. This can range from the distribution of narcotics, black market oil, having businesses such as car dealerships, taxi companies, etc. ISIS is known to use black market oil distribution as a means of funding their terrorist activity.

The internet is a growing modern form of terrorist finance as it is able to protect the anonymity that it can provide to the donor and recipient. Terrorist organizations use propaganda in order to rally up financial support from those who follow them. They are also able to find funds through criminal activity on the internet such as stealing online banking information from people who are not correlated to these terrorist organizations. Terrorist organizations also use the front of being a charity to finance themselves. Al- Qaeda is a known terrorist organization that has used the internet in order to finance their organization, as through this platform they are able to reach a wider audience.

Money laundering

Main article: Money laundering

Often linked in legislation and regulation, terrorism financing and money laundering are conceptual opposites. Money laundering is the process where cash raised from criminal activities is made to look legitimate for re-integration into the financial system, whereas terrorism financing cares little about the source of the funds, but it is what the funds are to be used for that defines its scope.

An in-depth study of the symbiotic relationship between organised crime and terrorist organizations detected within the United States and other countries referred to as crime-terror nexus points has been published in the forensic literature. The Perri, Lichtenwald and MacKenzie article emphasizes the importance of multi-agency working groups and the tools that can be used to identify, infiltrate, and dismantle organizations operating along the crime-terror nexus points.

Bulk cash smuggling and placement through cash-intensive businesses is one typology. They are now also moving monies through the new online payment systems. They also use trade linked schemes to launder monies. Nonetheless, the older systems have not given way. Terrorists also continue to move monies through MSBs/Hawalas, and through international ATM transactions. Charities also continue to be used in countries where controls are not so stringent.

Said and Cherif Kouachi, before the Charlie Hebdo shooting in Paris, France in 2015, used transaction laundering to fund their activities. Examples included reselling counterfeit goods and drugs.

"This chain of funding shows a clear correlation between transaction laundering and terrorism, using legitimate marketplaces to conduct illegal activity (in this case, selling counterfeit shoes) and then using the proceeds to launder money for terrorists."

Preventing the funding of terrorism

AML and CTF both carry the notion of Know Your Customer (KYC), this entails financial organizations to have in person identification and to observe the lawfulness of the transaction in question. Although this methodology is not favoured by banks, lawyers or other professionals who are able to see the transaction of money or legal aid occurring, because of the business and client relationship that can be hurt through the process of personal identification. This can damage relationships between long term clients who need to prove their identity, and respected members of society do not want to be asked for personal identification every time.

The FATF Blacklist (the Non-Cooperative Countries or Territories list) mechanism was used to coerce countries to bring about change.

Suspicious activity

Operation Green Quest, a US multi-agency task force established in October 2001 with the official purpose of countering terrorism financing considers the following patterns of activity as indicators of the collection and movement of funds that could be associated with terrorism financing:

• Account transactions that are inconsistent with past deposits or withdrawals such as cash, cheques, wire transfers, etc.
• Transactions involving a high volume of incoming or outgoing wire transfers, with no logical or apparent purpose that come from, go to, or transit through locations of concern, that is sanctioned countries, non-cooperative nations and sympathizer nations.
• Unexplainable clearing or negotiation of third party cheques and their deposits in foreign bank accounts.
• Structuring at multiple branches or the same branch with multiple activities.
• Corporate layering, transfers between bank accounts of related entities or charities for no apparent reasons.
• Wire transfers by charitable organisations to companies located in countries known to be bank or tax havens.
• Lack of apparent fund raising activity, for example a lack of small cheques or typical donations associated with charitable bank deposits.
• Using multiple accounts to collect funds that are then transferred to the same foreign beneficiaries
• Transactions with no logical economic purpose, that is, no link between the activity of the organization and other parties involved in the transaction.
• Overlapping corporate officers, bank signatories, or other identifiable similarities associated with addresses, references and financial activities.
• Cash debiting schemes in which deposits in the US correlate directly with ATM withdrawals in countries of concern. Reverse transactions of this nature are also suspicious.
• Issuing cheques, money orders or other financial instruments, often numbered sequentially, to the same person or business, or to a person or business whose name is spelled similarly.

It would be difficult to determine by such activity alone whether the particular act was related to terrorism or to organized crime. For this reason, these activities must be examined in context with other factors in order to determine a terrorism financing connection. Simple transactions can be found to be suspect and money laundering derived from terrorism will typically involve instances in which simple operations had been performed (retail foreign exchange operations, international transfer of funds) revealing links with other countries including FATF blacklisted countries. Some of the customers may have police records, particularly for trafficking in narcotics and weapons and may be linked with foreign terrorist groups. The funds may have moved through a state sponsor of terrorism or a country where there is a terrorism problem. A link with a Politically exposed person (PEP) may ultimately link up to a terrorism financing transaction. A charity may be a link in the transaction. Accounts (especially student) that only receive periodic deposits withdrawn via ATM over two months and are dormant at other periods could indicate that they are becoming active to prepare for an attack.

Nation specific actions

Pakistan

See also: The Establishment (Pakistan), Pakistan and state-sponsored terrorism, Inter-Services Intelligence activities in India, and Inter-Services Intelligence activities in Afghanistan

As at 24 October 2019, Pakistan was on the FATF greylist for terrorism financing and has met only 5 of 27 action items, and it has been given four months to comply with the remaining action points for the prevention of terror financing. As of 2022 Pakistan is compliant on most of the action plan but continues to be on the list.

Bahrain

Bahrain has been regularly accused of doing very little to prevent the flow of funds for the terrorism financing in other nations.

Qatar

Qatar interactions with militants includes financing Hamas.

Saudi Arabia

Saudi Arabia faces accusations of not doing enough to stop terrorism financing by private actors.

A recent report by FATF highlighted serious deficiencies in Saudi Arabia's efforts to counter terrorism. Terrorism financing budding in Saudi Arabia became an important source of funding for al-Qaeda and other terrorist organizations.

In a leaked classified memo, Hillary Clinton said that in 2009 the kingdom was a crucial source of funds to Sunni terrorist groups, including al-Qaeda, the Taliban and Lashkar-e-Taiba pointing to its intelligence incompetence.

In 2019, the European Commission added Saudi Arabia, along with several other countries, to its blacklist list of states that have failed to control money laundering and terrorism financing. Saudi Arabia has been accused of not making enough effort to control the huge amounts of money being transferred to Islamist extremists and terrorist groups.

United Arab Emirates

The United Arab Emirates had been accused of being a financial hub for terrorist organisations. The UAE banking system was found to be involved in the attacks on 11 September 2001 against the United States carried out by al-Qaeda. The 9/11 terrorists had bank accounts in the UAE. Executing the attack cost the terrorist group around $400,000–500,000, out of which $300,000 was transacted via one of the hijackers’ bank accounts in the US. The movement of funds took place with the help of both public banking systems and the Al Qaeda established Hawala networks.

According to the 9/11 Commission Report, in response to concerns that the UAE banking system had been used by 9/11 hijackers to launder funds, the UAE adopted legislation giving the Central Bank in 2002 the power to freeze suspect accounts for 7 days without prior legal authorisation. The report stated "banks have been advised to carefully monitor transactions passing through the UAE from Saudi Arabia and Pakistan and are now subject to more stringent transaction and client reporting requirements." The UAE government has since affirmed its stance and policy of zero tolerance towards terrorism financing.

Australia

Australian anti terrorism financing laws include:

• Criminal Code Act 1995 (Cth):
  • section 102.6 (getting funds to, from or for a terrorist organisation)
  • section 102.7 (providing support to a terrorist organisation)
  • section 103.1 (financing terrorism)
  • section 103.2 (financing a terrorist), and
  • section 119.4(5) (giving or receiving goods and services to promote the commission of a foreign incursion offence).

• Charter of the United Nations Act 1945 (Cth):
  • section 20 (dealing with freezable assets), and
  • section 21 (giving an asset to a proscribed person or entity).

These offences sanction persons and entities under Australian and international law. The responsibility of prosecuting these offences in Australia rests with the Australian Federal Police, State police forces and the Commonwealth Director of Public Prosecutions.

Germany

In July 2010, Germany outlawed the Internationale Humanitäre Hilfsorganisation (IHH), saying it has used donations to support projects in Gaza that are related to Hamas, which is considered by the European Union to be a terrorist organization, while presenting their activities to donors as humanitarian help. German Interior Minister Thomas de Maiziere said, "Donations to so-called social welfare groups belonging to Hamas, such as the millions given by IHH, actually support the terror organization Hamas as a whole."

According to a research conducted by the Abba Eban Institute as part of an initiative called Janus Initiative, Hezbollah is financed through non-profit organizations such as the “Orphans Project Lebanon”, a German-based charity for Lebanese orphans. It found that it had been donating portions of its contributions to a foundation which finances the families of Hezbollah members who commit suicide bombings. The European Foundation for Democracy published that the “Orphans Project Lebanon” organization directly channels financial donations from Germany to the Lebanese Al-Shahid Association, which is part of the Hezbollah network and promotes suicide bombings in Lebanon, particularly among children. In Germany, financial donations to the Orphans Project Lebanon are tax-deductible and thus subsidized by the German State's tax policy.

In 2018, an investigation by the U.S. Drug Enforcement Administration (DEA) called “Operation Cedar” led to the arrest of Hezbollah operatives involved in laundering millions of euros in South American drug money to Europe and Lebanon. One of the operatives arrested was Hassan Tarabolsi, a German citizen who manages a worldwide money laundering business. Tarabolsi represents the close connection between the criminal operation and the leaders of Hezbollah.

India

See also: Prevention of Money Laundering Act, 2002; Anti-money laundering actions by India; and Enforcement Directorate

India has been a victim of terrorism and has campaigned for linking of the IMF's macroprudential regulation and lending policies with key provisions of FATF's anti-money laundering (AML) and countering financing of terrorism (CFT) to significantly enhance its IMF member nation's compliance on these issues which cause a threat to the global economy. India also seeks to link these IMF policies with the secrecy jurisdictions, cyber-risks and tax havens.

Spain

In February 2019, the Spanish Treasury, through the Commission for the Prevention of Money Laundering and Monetary Offences (SEPBLAC), published their strategy for preventing the financing of terrorism.

United Kingdom

In the UK, the Prevention of Terrorism (Temporary Provisions) Act 1989, put in place in 1989, helped to prevent the financing of terrorism. This was more so to help shut down the funding of the Republican and Loyalist paramilitaries in Northern Ireland. Income sources for the Irish Republican and Loyalist paramilitaries came from gambling machines, cab companies and charitable donations in Northern Ireland, which provided the overwhelming bulk of revenue in the Troubles (1969–1998).

Republic of Ireland

The Offences against the State Acts 1939–1998 criminalises many actions deemed detrimental to the security of the Republic of Ireland. An organisation can be made subject to a suppression order under the act, after which being a member of or directing or fundraising the activities of such an unlawful organisation becomes an offence. During the Troubles (1969–1998), the Provisional Irish Republican Army (PIRA) and the Irish National Liberation Army (INLA) were proscribed under these measures.

However during the conflict, the Republic of Ireland was a primary source of funds, arms (mostly IEDs of Irish origin), training camps, bomb factories, and safe houses for the Irish Republican cause more than any other group or nation on earth in the conflict. Overseas donations, including $12 million in cash from Libyan leader Muammar Gaddafi and $3.6 million raised by NORAID in America for the Republican cause (but not necessarily directly to the IRA coffers), were often overexaggerated and actually really small. Most or nearly all of the revenue for the IRA came from legitimate and criminal activities within Ireland such as protection rackets, bank robberies, black taxies, fraud, and money laundering, all which contributed to the longevity of the conflict as it enabled the group to buy enough guns and explosives.

Supranational organizations

European Union

European Union has undertaken several actions against money laundering and terror funding. This includes production of following reports and implementation of their corresponding recommendations: Supranational Risk Assessment Report (SNRA), Report on publicly known anti-money laundering cases involving EU banks, Financial Intelligence Unit (FIU) report, interconnection of central bank account registries.

United Nations

Article 2.1 of the 1999 Terrorist Financing Convention defines the crime of terrorist financing as the offense committed by "any person" who "by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out" an act "intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act."

The UN Security Council adopted Resolution 1373 after the 9/11 attacks. This outlined that states were not allowed to provide financing to terrorist organizations, allow safe havens to them and that information regarding terrorist groups had to be shared with other governments.

A committee was formed in the United Nations that were in charge of gathering a list of organizations and people who had ties with terrorism or were suspected of terrorism whose financial accounts needed to be frozen and that no financial institutes would be able to do trade with them.

Evasive actions of terrorist organisations

Al-Qassam Brigades appealing for Bitcoin

In January 2019, the military wing of Hamas, known as the al-Qassam Brigades, began a campaign to get supporters to donate USD. Soon after announcing its intention to crowdfund through Bitcoin, the al-Qassam Brigades provided a Bitcoin address to which donors could send funds and posted infographics and tutorials about Bitcoin on social media.

Money laundering

 

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Money_laundering 

Placing "dirty" money in a service company, where it is layered with legitimate income and then integrated into the flow of money, is a common form of money laundering.

Money laundering is the process of illegally concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions with varying definitions. It is usually a key operation of organized crime.

In United States law, money laundering is the practice of engaging in financial transactions to conceal the identity, source, or destination of illegally gained money. In United Kingdom law, the common law definition is wider. The act is defined as "taking any action with property of any form which is either wholly or in part the proceeds of a crime that will disguise the fact that that property is the proceeds of a crime or obscure the beneficial ownership of said property".

In the past, the term "money laundering" was applied only to financial transactions related to organized crime. Today its definition is often expanded by government and international regulators such as the US Office of the Comptroller of the Currency to mean "any financial transaction which generates an asset or a value as the result of an illegal act," which may involve actions such as tax evasion or false accounting. In the UK, it does not need to involve money, but any economic good. Courts involve money laundering committed by private individuals, drug dealers, businesses, corrupt officials, members of criminal organizations such as the Mafia, and even states.

As financial crime has become more complex and financial intelligence more important to combating international crime and terrorism, money laundering has become a prominent political, economic, and legal debate. Money laundering is ipso facto illegal; the acts generating the money almost always are themselves criminal in some way (for if not, the money would not need to be laundered).

History

While existing laws were used to fight money laundering during the period of Prohibition in the United States during the 1930s, dedicated Anti-Money Laundering legislation only was implemented in the 1980s. Organized crime received a major boost from Prohibition and a large source of new funds that were obtained from illegal sales of alcohol. The successful prosecution of Al Capone on tax evasion brought in a new emphasis by the state and law enforcement agencies to track and confiscate money, but existing laws against tax evasion could not be used once gangsters started paying their taxes.

In the 1980s, the war on drugs led governments again to turn to money laundering rules in an attempt to track and seize the proceeds of drug crimes in order to catch the organizers and individuals running drug empires. It also had the benefit, from a law enforcement point of view, of turning rules of evidence "upside down". Law enforcers normally have to prove an individual is guilty to seize their property, but with money laundering laws money can be confiscated and it is up to the individual to prove that the source of funds is legitimate to get the money back. This makes it much easier for law enforcement agencies and provides for much lower burdens of proof. However, this process has been abused by some law enforcement agencies to take and keep money without strong evidence of related criminal activity, to be used to supplement their own budgets.

The September 11 attacks in 2001, which led to the Patriot Act in the U.S. and similar legislation worldwide, led to a new emphasis on money laundering laws to combat terrorism financing. The Group of Seven (G7) nations used the Financial Action Task Force on Money Laundering to put pressure on governments around the world to increase surveillance and monitoring of financial transactions and share this information between countries. Starting in 2002, governments around the world upgraded money laundering laws and surveillance and monitoring systems of financial transactions. Anti-money laundering regulations have become a much larger burden for financial institutions and enforcement has stepped up significantly.

During 2011–2015 a number of major banks faced ever-increasing fines for breaches of money laundering regulations. This included HSBC, which was fined $1.9 billion in December 2012, and BNP Paribas, which was fined $8.9 billion in July 2014 by the U.S. government. Many countries introduced or strengthened border controls on the amount of cash that can be carried and introduced central transaction reporting systems where all financial institutions have to report all financial transactions electronically. For example, in 2006, Australia set up the AUSTRAC system and required the reporting of all financial transactions.

Features

Definition

Money laundering is the conversion or transfer of property; the concealment or disguising of the nature of the proceeds; the acquisition, possession or use of property, knowing that these are derived from criminal acts; the participating in or assisting the movement of funds to make the proceeds appear legitimate.

Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, human trafficking, and illegal gambling is "dirty" and needs to be "cleaned" to appear to have been derived from legal activities, so that banks and other financial institutions will deal with it without suspicion. Money can be laundered by many methods that vary in complexity and sophistication.

Money laundering typically involves three steps: The first involves introducing cash into the financial system by some means ("placement"); the second involves carrying out complex financial transactions to camouflage the illegal source of the cash ("layering"); and finally, acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending upon the circumstances. For example, non-cash proceeds that are already in the financial system would not need to be placed.

According to the United States Treasury Department:

Money laundering is the process of making illegally-gained proceeds (i.e., "dirty money") appear legal (i.e., "clean"). Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean".

Methods

List of methods

Money laundering can take several forms, although most methodologies can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing".

• Structuring: Often known as smurfing, is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.
• Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, that offers greater bank secrecy or less rigorous money laundering enforcement.
• Cash-intensive businesses: In this method, a business typically expected to receive a large proportion of its revenue as cash uses its accounts to deposit criminally derived cash. This method of money laundering often causes organized crime and corporate crime to overlap. Such enterprises often operate openly and in doing so generate cash revenue from incidental legitimate business in addition to the illicit cash. In such cases the business will usually claim all cash received as legitimate earnings. Service businesses are best suited to this method, as such enterprises have little or no variable costs and/or a large ratio between revenue and variable costs, which makes it difficult to detect discrepancies between revenues and costs. Examples are parking structures, strip clubs, tanning salons, car washes, arcades, bars, restaurants, casinos, barber shops, DVD stores, movie theaters, and beach resorts.
• Trade-based laundering: This method is one of the newest and most complex forms of money laundering. This involves under- or over-valuing invoices to disguise the movement of money. For example, the art market has been accused of being an ideal vehicle for money laundering due to several unique aspects of art such as the subjective value of art works as well as the secrecy of auction houses about the identity of the buyer and seller.
• Shell companies and trusts: Trusts and shell companies disguise the true owners of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true owner. Sometimes referred to by the slang term rathole, though that term usually refers to a person acting as the fictitious owner rather than the business entity.
• Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant on this is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.
• Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.
• Invoice Fraud: An example is when a criminal contacts a company saying that the supplier payment details have changed. They then provide alternative, fraudulent details in order for you to pay them money.
• Casinos: In this method, an individual walks into a casino and buys chips with illicit cash. The individual will then play for a relatively short time. When the person cashes in the chips, they will expect to take payment in a check, or at least get a receipt so they can claim the proceeds as gambling winnings.
• Other gambling: Money is spent on gambling, preferably on high odds games. One way to minimize risk with this method is to bet on every possible outcome of some event that has many possible outcomes, so no outcome(s) have short odds, and the bettor will lose only the vigorish and will have one or more winning bets that can be shown as the source of money. The losing bets will remain hidden.
• Black salaries: A company may have unregistered employees without written contracts and pay them cash salaries. Dirty money might be used to pay them.
• Tax amnesties: For example, those that legalize unreported assets and cash in tax havens.
• Transaction Laundering: When a merchant unknowingly processes illicit credit card transactions for another business. It is a growing problem and recognised as distinct from traditional money laundering in using the payments ecosystem to hide that the transaction even occurred (e.g. the use of fake front websites). Also known as "undisclosed aggregation" or "factoring".
• Online job marketplaces such as Freelancer.com and Fiverr, which accept funds from clients and hold them in escrow to pay freelancers. A money launderer can post a token job on one of these sites, and send the money for the site to hold in escrow. The launderer (or his associate) can then sign on as a freelancer (using a different account and IP address), accept and complete the job, and be paid the funds.

Digital electronic money

See also: Cryptocurrency and crime

In theory, electronic money should provide as easy a method of transferring value without revealing identity as untracked banknotes, especially wire transfers involving anonymity-protecting numbered bank accounts. In practice, however, the record-keeping capabilities of Internet service providers and other network resource maintainers tend to frustrate that intention. While some cryptocurrencies under recent development have aimed to provide for more possibilities of transaction anonymity for various reasons, the degree to which they succeed — and, in consequence, the degree to which they offer benefits for money laundering efforts — is controversial. Solutions such as ZCash and Monero ― known as privacy coins ― are examples of cryptocurrencies that provide unlinkable anonymity via proofs and/or obfuscation of information (ring signatures). While not suitable for large-scaled crimes, privacy coins like Monero are suitable for laundering money made through small-scaled crimes.

Apart from traditional cryptocurrencies, Non-Fungible Tokens (NFTs) are also commonly used in connection with money laundering activities. NFTs are often used to perform Wash Trading by creating several different wallets for one individual, generating several fictitious sales and consequently selling the respective NFT to a third party. According to a report by Chainalysis these types of wash trades are becoming increasingly popular among money launderers especially due to the largely anonymous nature of transactions on NFT marketplaces. Auction platforms for NFT sales may face regulatory pressure to comply with anti-money laundering legislation.

Additionally, cryptocurrency mixers have been increasingly used by cybercriminals over the past decade to launder funds. A mixer blends the cryptocurrencies of many users together to obfuscate the origins and owners of funds, enabling a greater degree of privacy on public blockchains like Bitcoin and Ethereum. Although not explicitly illegal in many jurisdictions, the legality of mixers is controversial. The use of the mixer Tornado Cash in the laundering of funds by the Lazarus Group led the Office of Foreign Assets Control to sanction it, prompting some users to sue the Treasury Department. Proponents have argued mixers allow users to protect their privacy and that the government lacks the authority to restrict access to decentralized software. In the United States, FinCEN requires mixers to register as money service businesses.

In 2013, Jean-Loup Richet, a research fellow at ESSEC ISIS, surveyed new techniques that cybercriminals were using in a report written for the United Nations Office on Drugs and Crime. A common approach was to use a digital currency exchanger service which converted dollars into a digital currency called Liberty Reserve, and could be sent and received anonymously. The receiver could convert the Liberty Reserve currency back into cash for a small fee. In May 2013, the US authorities shut down Liberty Reserve charging its founder and various others with money laundering.

Another increasingly common way of laundering money is to use online gaming. In a growing number of online games, such as Second Life and World of Warcraft, it is possible to convert money into virtual goods, services, or virtual cash that can later be converted back into money.

To avoid the usage of decentralized digital money such as Bitcoin for the profit of crime and corruption, Australia is planning to strengthen the nation's anti-money laundering laws. The characteristics of Bitcoin—it is completely deterministic, protocol based and can be difficult to censor—make it possible to circumvent national laws using services like Tor to obfuscate transaction origins. Bitcoin relies completely on cryptography, not on a central entity running under a KYC framework. There are several cases in which criminals have cashed out a significant amount of Bitcoin after ransomware attacks, drug dealings, cyber fraud and gunrunning. However, many digital currency exchanges are now operating KYC programs under threat of regulation from the jurisdictions they operate in.

Reverse money laundering

See also: Hawala and crime

Reverse money laundering is a process that disguises a legitimate source of funds that are to be used for illegal purposes. It is usually perpetrated for the purpose of financing terrorism but can be also used by criminal organizations that have invested in legal businesses and would like to withdraw legitimate funds from official circulation. Unaccounted cash received via disguising financial transactions is not included in official financial reporting and could be used to evade taxes, hand in bribes and pay "under-the-table" salaries. For example, in an affidavit filed on 24 March 2014 in United States District Court, Northern California, San Francisco Division, FBI special agent Emmanuel V. Pascau alleged that several people associated with the Chee Kung Tong organization, and California State Senator Leland Yee, engaged in reverse money laundering activities.

The problem of such fraudulent encashment practices (obnalichka in Russian) has become acute in Russia and other countries of the former Soviet Union. The Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) reported that the Russian Federation, Ukraine, Turkey, Serbia, Kyrgyzstan, Uzbekistan, Armenia and Kazakhstan have encountered a substantial shrinkage of tax base and shifting money supply balance in favor of cash. These processes have complicated planning and management of the economy and contributed to the growth of the shadow economy.

Magnitude

Many regulatory and governmental authorities issue estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996, a spokesperson for the IMF estimated that 2–5% of the worldwide global economy involved laundered money. The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body set up to combat money laundering, stated, "Due to the illegal nature of the transactions, precise statistics are not available and it is therefore impossible to produce a definitive estimate of the amount of money that is globally laundered every year. The FATF therefore does not publish any figures in this regard." Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance. Various estimates of the scale of global money laundering are sometimes repeated often enough to make some people regard them as factual—but no researcher has overcome the inherent difficulty of measuring an actively concealed practice.

Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions of US dollars and poses a significant policy concern for governments. As a result, governments and international bodies have undertaken efforts to deter, prevent, and apprehend money launderers. Financial institutions have likewise undertaken efforts to prevent and detect transactions involving dirty money, both as a result of government requirements and to avoid the reputational risk involved. Issues relating to money laundering have existed as long as there have been large scale criminal enterprises. Modern anti-money laundering laws have developed along with the modern War on Drugs. In more recent times anti-money laundering legislation is seen as adjunct to the financial crime of terrorist financing in that both crimes usually involve the transmission of funds through the financial system (although money laundering relates to where the money has come from, and terrorist financing relating to where the money is going to).

Transaction laundering is a massive and growing problem. Finextra estimated that transaction laundering accounted for over $200 billion in the US in 2017 alone, with over $6 billion of these sales involving illicit goods or services, sold by nearly 335,000 unregistered merchants.

Notable cases

1998 investigation, United States Senate, Contribution Laundering/Third-Party Transfers. Includes investigation of Gandhi Memorial International Foundation.

• Bank of Credit and Commerce International: Unknown amount, estimated in billions, of criminal proceeds, including drug trafficking money, laundered during the mid-1980s.
• Bank of New York: US$7 billion of Russian capital flight laundered through accounts controlled by bank executives, late 1990s.
• BNP Paribas, in June 2014, pleaded guilty to falsifying business records and conspiracy, having violated U.S. sanctions against Cuba, Iran, and Sudan. It agreed to pay an $8.9 billion fine, the largest ever for violating U.S. sanctions.
• BSI Bank, in May 2017, was shut down by the Monetary Authority of Singapore for serious breaches of anti-money laundering requirements, poor management oversight of the bank's operations, and gross misconduct of some of the bank's staff.
• BTA Bank: $6 billion of bank funds embezzled or fraudulently loaned to shell companies and offshore holdings by the banks former chairman and CEO Mukhtar Ablyazov.
• Charter House Bank: Charter House Bank in Kenya was placed under statutory management in 2006 by the Central Bank of Kenya after it was discovered the bank was being used for money laundering activities by multiple accounts containing missing customer information. More than $1.5 billion had been laundered before the scam was uncovered.
• Danske Bank + Swedbank: $30 billion – $230 billion US dollars laundered through its Estonian branch. This was revealed on 19 September 2018. Investigations by Denmark, Estonia, the U.K. and the U.S. were joined by France in February 2019. On 19 February 2019, Danske Bank announced that it would cease operating in Russia and the Baltic States. This statement came shortly after Estonia's banking regulator Finantsinspektsioon announced that they would close the Estonian branch of Danske Bank. The investigation has grown to include Swedbank, which may have laundered $4.3 billion. More at Danske Bank money laundering scandal.
• Deutsche Bank was accused in a vast money laundering scheme, dubbed the Global Laundromat, involving secret Russian accounts that were transferred from European Union banks in Estonia, Latvia and Cyprus between 2010 and 2014. Newspaper sources estimated the total value of laundered currency to be as high as $80bn. The bank is also under investigation for its involvement in Europe's biggest banking scandal through Denmark's Danske Bank, which laundered €200bn, also from Russian sources.
• United Arab Emirates' Dubai Islamic Bank was accused of "knowingly and purposefully" providing "financial services and other forms of material support to al-Qaeda operatives" when the terrorist group was planning the execution of the September 11 attacks against the United States. In addition, the Sharjah branch of Standard Chartered Bank was also involved in opening the accounts of the terror operatives and allowing financial transactions to take place between them and Khalid Sheikh Mohammed, "the principal architect of the 9/11 attacks".
• FinCEN Files: On 21 September 2020, The International Consortium of Investigative Journalists (ICIJ) revealed FinCEN Files, about the involvement of about $2tn of transactions by some of the world's biggest banks. FinCEN files also revealed that Dubai-based Gunes General Trading, based in Dubai funneled Iranian state money via UAE's central banking system and processed $142 million in 2011 and 2012.
• Fortnite. In 2018 Cybersecurity firm Sixgill posed as customers and discovered that stolen credit card details may be used to purchase Fortnite's in-game currency (V-Bucks) then in-game purchases, to be sold for "clean" money. Epic Games, the makers of Fortnite, responded by urging customers to secure their accounts.
• HSBC, in December 2012, paid a record $1.9 Billion fines for money-laundering hundreds of millions of dollars for drug traffickers, terrorists and sanctioned governments such as Iran. The money-laundering occurred throughout the 2000s.
• Institute for the Works of Religion: Italian authorities investigated suspected money laundering transactions amounting to US$218 million made by the IOR to several Italian banks.
• Liberty Reserve, in May 2013, was seized by United States federal authorities for laundering $6 billion.
• Nauru: US$70 billion of Russian capital flight laundered through unregulated Nauru offshore shell banks, late 1990s
• Sani Abacha: US$2–5 billion of government assets laundered through banks in the UK, Luxembourg, Jersey (Channel Islands), and Switzerland, by the president of Nigeria.
• Standard Bank: Standard Bank South Africa London Branch – The Financial Conduct Authority (FCA) has fined Standard Bank PLC (Standard Bank) £7,640,400 for failings relating to its anti-money laundering (AML) policies and procedures over corporate and private bank customers connected to politically exposed persons (PEPs).
• Standard Chartered: paid $330 million in fines for money-laundering hundreds of billions of dollars for Iran. The money-laundering took place in the 2000s and occurred for "nearly a decade to hide 60,000 transactions worth $250 billion".
• Westpac: On 24 September 2020, Westpac and AUSTRAC agreed to a AUD $1.3 billion penalty over Westpac's breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 - the largest fine ever issued in Australian corporate history.

Individuals

Jose Franklin Jurado-Rodriguez, a Harvard College and Columbia University Graduate School of Arts and Sciences Economics Department alumnus, was convicted in Luxembourg in June 1990 "in what was one of the largest drug money laundering cases ever brought in Europe" and the US in 1996 of money laundering for the Cali Cartel kingpin Jose Santacruz Londono. Jurado-Rodriguez specialized in "smurfing".

Ng Lap Seng: The Chinese billionaire real estate developer from Macau was sentenced to four years in prison in May 2018 for bribing two diplomats, including former president of the United Nations General Assembly, John William Ashe, to help him build a conference center in Macau for the United Nations Office for South-South Cooperation (UNOSSC), headed by Director Yiping Zhou. The corruption case was the worst financial scandal for the United Nations since the abuse of the Iraqi oil-for-food program more than 20 years ago. Ng Lap Seng, 69, was convicted in Federal District Court in Manhattan on two counts of violating the Foreign Corrupt Practices Act, one count of paying bribes, one count of money laundering, and two counts of conspiracy.

Ferdinand Marcos: Unknown amount, estimated at US$10 billion of government assets laundered through banks and financial institutions in the United States, Liechtenstein, Austria, Panama, Netherlands Antilles, Cayman Islands, Vanuatu, Hong Kong, Singapore, Monaco, the Bahamas, the Vatican and Switzerland.

White-collar crime

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/White-collar_crime 

 

The term "white-collar crime" refers to financially motivated, nonviolent or non-directly violent crime committed by individuals, businesses and government professionals. It was first defined by the sociologist Edwin Sutherland in 1939 as "a crime committed by a person of respectability and high social status in the course of their occupation". Typical white-collar crimes could include wage theft, fraud, bribery, Ponzi schemes, insider trading, labor racketeering, embezzlement, cybercrime, copyright infringement, money laundering, identity theft, and forgery. White-collar crime overlaps with corporate crime.

Definitional issues

Modern criminology generally prefers to classify the type of crime and the topic:

• By the type of offense, e.g., property crime, economic crime, and other corporate crimes like environmental and health and safety law violations. Some crime is only possible because of the identity of the offender, e.g., transnational money laundering requires the participation of senior officers employed in banks. But the FBI has adopted the narrow approach, defining white-collar crime as "those illegal acts which are characterized by deceit, concealment, or violation of trust and which are not dependent upon the application or threat of physical force or violence" (1989, 3). While the true extent and cost of white-collar crime are unknown, the FBI and the Association of Certified Fraud Examiners estimate the annual cost to the United States to fall between $300 and $660 billion.
• By the type of offender, e.g., by social class or high socioeconomic status, the occupation of positions of trust or profession, or academic qualification, researching the motivations for criminal behavior, e.g., greed or fear of loss of face if economic difficulties become obvious. Shover and Wright point to the essential neutrality of a crime as enacted in a statute. It almost inevitably describes conduct in the abstract, not by reference to the character of the persons performing it. Thus, the only way that one crime differs from another is in the backgrounds and characteristics of its perpetrators.
• By organizational culture rather than the offender or offense which overlaps with organized crime. Appelbaum and Chambliss offer a twofold definition:
  • Occupational crime which occurs when crimes are committed to promote personal interests, say, by altering records and overcharging, or by the cheating of clients by professionals.
  • Organizational or corporate crime which occurs when corporate executives commit criminal acts to benefit their company by overcharging or price fixing, false advertising, etc.

Relationship to other types of crime

Blue-collar crime

Main article: Blue-collar crime

The types of crime committed are a function of what is available to the potential offender. Thus, those employed in relatively unskilled environments have fewer opportunities to exploit than those who work in situations where large financial transactions occur. Blue-collar crime tends to be more obvious and thus attracts more active police attention such as vandalism or shoplifting. In contrast, white-collar employees can incorporate legitimate and criminal behavior, thus making themselves less obvious when committing the crime. Therefore, blue-collar crime will more often use physical force, whereas in the corporate world, the identification of a victim is less obvious and the issue of reporting is complicated by a culture of commercial confidentiality to protect shareholder value. It is estimated that a great deal of white-collar crime is undetected or, if detected, it is not reported.

Corporate crime

Main article: Corporate crime

Corporate crime benefits the corporation (company or other type of business organization), rather than individuals. It may, however, result from decisions of high-ranking individuals within the corporation. Corporations are not, unlike individuals, litigated in criminal courts, which means the term "crime" does not really apply. Litigation usually takes place in civil courts or by institutions with jurisdiction over specific types of offences, such as the U.S. Securities and Exchange Commission that litigates violations of financial market and investment statutes.

State-corporate crime

Main article: State-corporate crime

State-corporate crime is “illegal or socially injurious actions that occur when one or more institutions or political governance pursue a goal in direct cooperation with one or more institutions of economic production and distribution.” The negotiation of agreements between a state and a corporation will be at a relatively senior level on both sides, this is almost exclusively a white-collar "situation" which offers the opportunity for crime. Although law enforcement claims to have prioritized white-collar crime, evidence shows that it continues to be a low priority.

When senior levels of a corporation engage in criminal activity using the company this is sometimes called control fraud.

Organized transnational crime

Organized transnational crime is organized criminal activity that takes place across national jurisdictions, and with advances in transportation and information technology, law enforcement officials and policymakers have needed to respond to this form of crime on a global scale. Some examples include human trafficking, money laundering, drug smuggling, illegal arms dealing, terrorism, and cybercrime. Although it is impossible to precisely gauge transnational crime, the Millennium Project, an international think tank, assembled statistics on several aspects of transnational crime in 2009:

• World illicit trade of almost $780 billion
• Counterfeiting and piracy of $300 billion to $1 trillion
• Global drug trade of $321 billion

Red Collar Crime

When a white collar criminal turns violent, it becomes red collar crime. This can take the form of killing a witness in a fraud trial to silence them, or murdering someone who exposed the fraud. Such as a journalist, detective or whistleblower, for example. Perri and Lichtenwald defined Red Collar Crime as:

“This sub-group is referred to as red-collar criminals because they straddle both the white-collar crime arena and, eventually, the violent crime arena. In circumstances where there is threat of detection, red-collar criminals commit brutal acts of violence to silence the people who have detected their fraud and to prevent further disclosure.”

According to a 2018 report by the Bureau of Labour Statistics, Homicide is the third highest cause of death in the American workplace. The Atlantic magazine reported that red collar criminals often have traits of narcissism and psychopathy, which ironically, are seen as desirable qualities in the recruitment process. Even though it puts a company at risk of employing a white collar criminal.

One investigator, Richard G. Brody, said that the murders might be difficult to detect, being mistaken for accidents or suicides:

“Whenever I read about high-profile executives who are found dead, I immediately think red-collar crime,” he said. “Lots of people are getting away with murder.”

Occupational crime

Occupational crime is “any act punishable by law that is committed through opportunity created on the course of an occupation that is legal.” Individuals may commit crime during employment or unemployment. The two most common forms are theft and fraud. Theft can be of varying degrees, from a pencil to furnishings to a car. Insider trading, the trading of stock by someone with access to publicly unavailable information, is a type of fraud.

Crimes related to national interests

The crimes related to the national interests consist mainly of treason. In the modern world, there are a lot of nations which divide the crimes into some laws. "Crimes Related to Inducement of Foreign Aggression" is the crime of communicating with aliens secretly to cause foreign aggression or menace. "Crimes Related to Foreign Aggression" is the treason of co-operating with foreign aggression positively regardless of the national inside and outside. "Crimes Related to Insurrection" is the internal treason. Depending on a country, criminal conspiracy is added to these. One example is Jho Low, a mega thief and traitor who stole billions in USA currency from a Malaysian government fund and is now on a run as a fugitive.

Demographics

According to a 2016 American study,

A considerable percentage of white-collar offenders are gainfully employed middle-aged Caucasian men who usually commit their first whitecollar offense sometime between their late thirties through their mid-forties and appear to have middle-class backgrounds. Most have some higher education, are married, and have moderate to strong ties to community, family, and religious organizations. Whitecollar offenders usually have a criminal history, including infractions that span the spectrum of illegality, but many do not overindulge in vice. Recent research examining the five-factor personality trait model determined that white-collar offenders tend to be more neurotic and less agreeable and conscientious than their non-criminal counterparts.

Punishment

In the United States, sentences for white-collar crimes may include a combination of imprisonment, fines, restitution, community service, disgorgement, probation, or other alternative punishment. These punishments grew harsher after the Jeffrey Skilling and Enron scandal, when the Sarbanes–Oxley Act of 2002 was passed by the United States Congress and signed into law by President George W. Bush, defining new crimes and increasing the penalties for crimes such as mail and wire fraud. Sometimes punishment for these crimes could be hard to determine due to the fact that convincing the courts that what the offender has done is challenging within itself. In other countries, such as China, white-collar criminals can be given the death penalty under aggravating circumstances, yet some countries have a maximum of 10–25 years imprisonment. Certain countries like Canada consider the relationship between the parties to be a significant feature on sentence when there is a breach of trust component involved. Questions about sentencing disparity in white-collar crime continue to be debated. The FBI, concerned with identifying this type of offense, collects statistical information on several different fraud offenses (swindles and cons, credit card or ATM fraud, impersonation, welfare fraud, and wire fraud), bribery, counterfeiting and forgery, and embezzlement.

In the United States, the longest sentences for white-collar crimes have been for the following: Sholam Weiss (845 years for racketeering, wire fraud and money laundering in connection with the collapse of National Heritage Life Insurance Company); Norman Schmidt and Charles Lewis (330 years and 30 years, respectively, for "high-yield investment" scheme); Bernard Madoff (150 years for $65 billion fraud scheme); Frederick Brandau (55 years for $117 million Ponzi scheme); Eduardo Masferrer (30 years for accounting fraud); Chalana McFarland (30 years for mortgage fraud scheme); Lance Poulsen (30 years for $2.9 billion fraud).

Theories

From the perspective of an offender, the easiest targets to entrap in "white collar" crime are those with certain degree of vulnerability or those with symbolic or emotional value to the offender. Examples of these people can be family members, clients, and close friends who are wrapped up in personal or business proceedings with the offender. The way that most criminal operations are conducted is through a series of different particular techniques. In this case, a technique is a certain way to complete a desired task. When one is committing a crime, whether it be shoplifting or tax fraud, it is always easier to successfully pull off the task with experience in the technique. Shoplifters who are experienced at stealing in plain sight are much more successful than those who do not know how to steal. The major difference between a shoplifter and someone committing a white collar crime is that the techniques used are not physical but instead consist of acts like talking on the phone, writing, and entering data.

Often these criminals utilize the "blame game theory", a theory in which certain strategies are utilized by an organization or business and its members in order to strategically shift blame by pushing responsibility to others or denying misconduct. This theory is particularly used in terms of organizations and indicates that offenders often do not take blame for their actions. Many members of organizations will try to absolve themselves of responsibility when things go wrong.

Forbes Magazine lays out four theories for what leads a criminal to commit a "white collar" crime. The first is that there are poorly designed job incentives for the criminal. Most finance professionals are given a certain type of compensation or reward for short-term mass profits. If a company incentivizes an employee to help commit a crime, such as assisting in a Ponzi Scheme, many employees will partake in order to receive the reward or compensation. Often, this compensation is given in the form of a cash "bonus" on top of their salaries. By doing a task in order to receive a reward, many employees feel as though they are not responsible for the crime, as they have not ordered it. The "blame game theory" comes into play as those being asked to carry out the illegal activities feel as though they can place the blame on their bosses instead of themselves. The second theory is that the company's management is very relaxed when it comes to enforcing ethics. If unethical practices are already a commonplace in the business, employees will see that as a "green light" to conduct unethical and unlawful business practices to further the business. This idea also ties into Forbes' third theory, that most stock traders see unethical practices as harmless. Many see white collar crime as a victimless crime, which is not necessarily true. Since many of these stock traders cannot see the victims of their crimes, it seems as if it hurts no one. The last theory is that many firms have unrealistic, large goals. They preach the mentality that employees should "do what it takes".