Once both of these have been carried out and a photocopy of the document concerned has been placed on file the identity checking requirements have been met. However, it should be borne in mind that any crook who wants to launder money will have no difficulty at all in satisfying the requirement that they produce such documents. They will either fake or real documents in the name they are using. This is not a reason for being careless about checking identity, but it does not mean that possession of proof is not a reason for lower a firm's guard when it comes assessing the suspicious activity of a client.
However, Harjit Sandhu in his article The Global Detection and Deterrence of Money Laundering9 raises some problems with the international regulation of money laundering. He argues that too many countries have not criminalized all forms of money laundering, and that banks are not sufficiently regulated. It is also argued that too many countries still refuse to share information regarding financial transactions. This will certainly impede investigations into money laundering and hinder the tracing of the origins funds. Other matters of concern are underground Banking where some countries are being investigated by the government. This would obviously allow the money launderer to escape, as they would have prior warning. Voluntary reporting is also the norm in some banking systems. This is not sufficient to deter and help uncover cases of money laundering.
Under the current legislation, suspicious transaction reports are made where there is a requirement that a report be made. For instances, section 52 of the Drug Trafficking Act 1994 [now replaced by 2002 Act] makes it an offence to fail to report knowledge of all suspicions of drug money laundering gained in the case of a trade, profession, business or employment.10But it is a defence to a charge under section 50 of the same Act if one can prove that they did not know or suspect that the arrangement related to any persons proceeds of drug trafficking.
By virtue of the coverage of part vii of the P O C A 2002, possession of criminal assets is now a money laundering offence and sub sections 33012, 331, 332, 33313 and 336 introduce a negligence test for reporting money laundering suspicions. It is no longer a defence to claim that you were not suspicious; the question now is, should you have been? This will inevitably lead to defensive reporting. These provisions are intended to facilitate the denial of the commercial and commercial and banking system to would – be money launderers.
The basis tenet of all anti money laundering legislation and regulations the world over is the need for customer identification. In essence this means that at the beginning of any financial relationship, the accepting business must be satisfied that the new customer, client or business partner is who they say they are and there are grounds for suspecting any involvement in money laundering or criminal activities. Usually this system of control involves taking identification of some sort.Typically, documents such as the passport, identity cards and/or driving licence are suggested to be taken and the details contained on them recorded.
Applicable legislation always specifies what period of time internal documents and records must be kept for so that an audit trail of the dealings and involvement with any particular customer can be established. The Financial Action Task Force (FATF)14 recommends that records on customer identification account files and correspondence should be kept for a minimum of five years after the account is closed or the relationship ended. The importance of record keeping is twofold. Not only can transactions and relationship be reconstructed by official investigations but, and more importantly for the organisation, it can be show that they acted in a wholly legitimate fashion and there was no reason for authorities to be in any way suspicious.
Similarly, one of the major ways the authorities and financial institutions have tried to tackle money laundering on a domestic level is through the implementation of regulations for banks and other relevant financial institutions. These regulations are based on trying to make sure the banks know who they are dealing with and become aware of any suspicious money transfer that may take place. Making the banking system more open and accessible to checks is thought to be a crucial step in the fight against money laundering.
Many of the major regulations are to be found in the Proceeds of Crime Act 2002 and the Money Laundering Regulations1993, The legislation makes it an offence to conceal convert, transfer or remove criminal property from the jurisdiction. This means that the financial institutions are fully aware of the seriousness of money laundering, and know what actions will constitute offences. The Act also makes it an offence to not disclose to the authorities when someone suspects money laundering is in operation and involving their business. This part of the legislation will pose a treat to the money launderers because it will lead to an increase in reporting of suspicious activities, which in turn will result in more investigations and an increased chance of being caught.
Also financial institutions would be less likely to be corruptible in terms of turning a blind eye to potential money laundering, as they will be held accountable under the regulations for not exercising those due suspicions. As well as disclosing the information when a bank believes money laundering is going on, they must also make a report on the matter as soon as reasonably possible. It would be an offence not to do this.
The bank must also do nothing that may tip off the possible offences to the offenders or give them any suspicion that they are being investigated. The financial institutions must also carry out full identification procedure in certain circumstances such as when money transfer exceeds the given limit. This makes it more difficult for the money launderers as they will attract more attention to themselves when they attempt to launder their money, as it is almost always significicantly large amounts. Also in order to get items such as passport and driving licences, there will be a need for faked addresses and identities and further efforts to produce fake bills.
The varied legislation, regulation and best practice documents issued across the world on money laundering agree on one thing: the importance of training all managers and staff to identify and combat money laundering, above all the exercise that important suspicion and caution. The organisation can not expect and need employees to be suspicious if it does not explain to them what they must be suspicious of. Bad or ineffective training can cause havoc. The Royal Canadian Mounted Police booklet entitled Money laundering: a Preventive Guide for Small Business and Currency Exchanges in Canada is a good example of what can be used as basic training for business anywhere in the world. Effective written policies for all staff should be created, and effective briefing of staff on the reasons behind procedures undertaken.
There are also regulations given out by the Financial Services Authority (FSA), implemented in the Financial Services and Markets Act 2000.One of the major regulations imposed is that any financial institute must have a money laundering reporting officer who will oversee the operation of anti money laundering techniques used by financial institutions. This will impede money launderers because financial institutions will be more organised in respect of money laundering as they employ a person whose sole job, and professional responsibility, is to monitor aspects of the prevention of money laundering within their business.
These regulations also increase the responsibility on the financial institutions to properly and securely identify their customers. They must also be aware of how money laundering could be carried in their particular line of business so that any suspicious transactions are more readily identified and reported. This will make banks and other financial institutions more efficient in uncovering money laundering. The FSA regulations also require that reporting and record keeping be actively and accurately are done. Also it is for the financial institutions to make sure that their staff are fully trained, and aware of aspects concerning money laundering.
Brian Volkman in his article Six Steps to Better Know Your Customer Procedure15 lays out the steps that will allow a bank to better identify and know their customers. Step one is to supply the customer with a notice that their identity will be checked. Step two is to obtain an address from the customer that is a physical location, and not just a mailing address. Any person giving just a mailing address should perhaps be treated as risky.
Step three is to take any available and reliable government lists to check the identity of people or businesses, as for instance in the United States where a list of prohibited people or organizations is available. Step four is an intensive verification of identity procedure. Step Five is to ensure that the bank and all its employees are well prepared and ready should they encounter a suspicious customer. Therefore there will be no panic, as everyone will be aware of what to do in that situation. Also this will ensure that the correct procedures dealing with suspicious customers are adhered to. Step six is to keep detailed and accurate records, because monitoring customers' activities properly is impossible without accurate and up-to-date information.
More recommendations for banks come from the Basle Agreement that was formed by the Committee on Banking Regulations and Supervisory Practices. It states that banks should try, as far as is reasonably possible, to find out the true identity of all its customers. They are also required to make sure that they comply with the laws and regulations in their area and that all that banks co-operate will the enforcement authorities fighting money laundering.
Josephine Carr in her article How to Recognise a Money Launderer16 acknowledges the difficulties associated with the banks identifying customers who appear legitimate but who are actually criminals. She states a drug trafficker does not come in rags with his pockets stuffed with cocaine. He can afford the best in Saville Row suits, and his money looks just like any others. She argues that the banks are caught between their duty of confidentiality to their customer and doing their bit to uncover money launderers. The bank also may risk losing customers to banks who do not employ such rigorous checks. She also argues that the banks themselves do not see themselves as being investigators of money laundering.
Many of the world's banks have adopted a set of regulations and regulations with the aim of preventing money laundering practices in those organisations. These regulations were devised by a group of twelve of the world's leading banks that called themselves the Wolfsburg Group. The Wolfsburg Group was originally set up in 2000 at the Chateau Wolfsburg in Switzerland, and their principle were later published in October of that year. The major principles are based around identifying customers to a higher standard, recognising suspicious activity, identifying, monitoring and reporting it, and a high level of training and education of staff members.
Undoubtedly the Wolfsburg Principles make it more difficult to launder money in an institution that has adopted them. As financial institutions are at the core of money laundering attempts, increased application of these principles would be a bad sign for money launderers, as one of the major facilities in their scheme will be made harder to breach. With the existing regulations applied to banks through legislation, and the Wolfsburg principles on top of these, banks are becoming increasingly resilient to money launderers.
The disadvantages of the Wolfsburg principles are that they are not mandatory. Also some of the principles appear difficult to implement, particularly those which seek to identify the beneficial owner of all accounts. When an institution is involved in money laundering, it may well face civil proceedings in order to get back any money that has been taken from legitimate source. In order for such proceedings to occur, there needs to be away of linking the institution involved to the party wanting to get their money back. This is done through the doctrine of constructive trusts. This will therefore create liability and allow an action to follow.
Nicholas Clark discusses the implications of civil liability in his article The Impact of Recent Money laundering Legislation on Financial Intermediaries.17He states "Intermediaries are today caught on both sides; a rapidly developing but uncertain civil law obligation, labelled constructive trusteeship on one side and a plethora of wholly new criminal penalties on the other". Bell, in his article Prosecuting the Money Launderers Who Act for Organised Crime18 argues that the current legislation does not go far enough in prosecuting the people who carry out the laundering of the money. He argues that the vast majority of the prosecutions heve been minor ones, not involving or threatening the major players in the money laundering schemes. The highly detailed money laundering campaigns make investigations into them very difficult, with bank secrecy jurisdiction and shell banks or corporations at the heart of many of them. Another identified problem is that money from various criminal activities is often lumped together, and sometimes mixed with legitimate money.
This makes it hard to tell what property is from illegal funds and which is not. Also the fact that legislation differentiates between laundered funds coming from drug money and laundered money not coming from drugs make things more complicated. This makes prosecutions increasingly difficult, especially when trying to find the exact source of the funds and those responsible for the money-laundering schemes. It would appear that greater global co-operation is required in order to generate and more significant prosecution, alongside greater sophistication in the investigation of apparently respectable financial institutions and managements.
As society changes, new ways of laundering will evolve, which could give money launderers ways around the legislation and regulations. An example of this is the Internet. Jones and Keasey in their article Money Laundering and the Internet 19discussed how the Internet could be a successful tool for criminals in order to aid with laundering money. One of the main ways in which this could occur is through the development of 'digital cash'. Because e-commerce users are concerned over security, access to their systems will likely include encryption packages in order to increase security and alleviate the security fears surrounding e-commerce.
Another problem is the banks may find themselves not in full control of these type of payment systems, which will make it significantly harder to enforce the associated regulation on money trnasfers involving banks. Also 'smurfing' could potentially be more safety conducted over the internet. Smurfing is when a number of people make small deposits, so as not to alert the authorities to the large amounts of money being transferred. Due to the high volume of money transfer that could be produced, it could make it extremely difficult to follow the trail and find the source of the funds. If such developments were made in e-commerce they would pose difficult questions to current legislation and regulation.