Archive for May, 2006

EU & Adoption of Anti-Money Laundering Directive

Tuesday, May 30th, 2006

The expansion of the European Union and the emergement of the Single Market gives many benefits to some legitimate businesses, however, it gives the opportunities also for financial crime and money laundering that often go hand-in-hand.

Therefore, European legislation aims at protecting the European financial system.

Adoption of Anti-Money Laundering Directive was adopted by the EU in May 2005 in order to prevent using the financial system for the purposes of money laundering or terrorist financing.

This is the 3rd Anti-Money Laundering Directive built on the existing EU legislation. It is applicable to the financial sector as such and to notaries, lawyers, accountants, casinos, real estate agents, trust and company service providers as well as all providers of goods having payments in excess of €15.000 in cash.

Persons subjected to the Directive have to identify and verify their customers’ and beneficial owners’ identities, to monitor business relationship between the customers and beneficial owners’; to report on suspicions of money laundering or terrorist financing to the public authorities; to take appropriate measures.

The Anti-Money Laundering Directive will be implemented by EU Member States within two years after its official publication – accordingly, towards the end of 2007.

Jacob the Jeweler Arrested for Money Laundering

Friday, May 26th, 2006

In the middle of June 2006, Jacob Arabov, better known as Jacob the Jeweler or King of Bling, was arrested for violating federal drug laws and money laundering of 270,000,000 USD.

His name was revealed regarding a 2005 indictment of an alleged cocaine trafficking ring led by two native Detroit residents of the so-called Black Mafia Family: brothers Demetrius Flenory and Terry Lee Flenory. Officials claim that the drug ring was dealing with distribution of hundreds of kilos of cocaine and laundering hundreds of millions US dollars in illegal drug operations since the beginning of the 1990s. Jacob Arabov is claimed to receive large amounts of cash, money orders and cheques from the Flenory brothers and not file required currency reporting forms with the government.

Arabov’s lawyer, Benjamin Brafman says this indictment is a result of some misunderstanding. Arabov was released after immediately paying 100,000 USD.

Jacob Arabov is a 41-year old Uzbek immigrant and New York City jeweler who designs products under his brand, JACOB & Co. and sells diamonds, posh watches and other “bling” to such celebrities as Sir Elton John, David Beckham, Madonna, Bono, Justin Timberlake, Naomi Campbell, Brittney Spears and many hip hop stars.

Risk Assessment in Anti-Money Laundering

Monday, May 15th, 2006

As it comes to anti-money laundering, risk assessment is vitally important. In short, risk assessment is a thorough examination of what can potentially harm somebody. It is evaluating whether precautions are good enough and harm prevention is obvious.

Last year, Michelle L. Neufeld (Vice President & Assistant General Counsel, Legal and Compliance Department, JP Morgan Chase & Co.) made the presentation on risk assessment at SIA Anti-Money Laundering Conference on the 17th of March, 2005.

The list of high risk client types indicated by Michelle L. Neufeld was of a particular interest. In accordance with the presentation materials, high risk clients are as follows:

international correspondent banks,

shell banks,

investment advisors/brokers,

personal investment companies/ personal holding companies/ offshore trusts

other money service businesses

money transmitters,

foreign currency exchanges,

check cashers,

import/ export companies,

casinos and gambling establishments,

travel agencies,

deposit brokers,

traders, agents and auctioneers in luxury goods,

jewel, gem and precious metal dealers,

professional service providers (lawyers, notaries, accountants, company services),

bank note traders,

loan and credit agents,

phone card companies,

car, plane and boat dealerships/ operators,

leather goods stores,

pawn brokers,

ship, bus and plane operators,


embassies, missions, consulates

hedge funds,

coupon redemption businesses/ coupon clipping houses,

ATM vendors/ providers,

salvage businesses,

private banking entity,

special purpose vehicles,

charities, societies, clubs,

brokers/ dealers,

cash intensive businesses.

So, the above is quite an impressive list, perhaps, however, not exhaustive. Of course, this is just one aspect of risk assessment. The others to follow soon.

Anti-Money Laundering: Is it worth it? OR How much is the fish?

Friday, May 12th, 2006

It is obvious that anti-money laundering requires many resources, therefore, it is relevant to raise the question “Is it worth it at all?”. Logically, the next question is on the estimated amounts of “dirty” money laundering.

Each year, money laundering estimated amounts count more than $500 billion worldwide. Some sources say that money laundered globally in just one is even up to $1 trillion. By any calculation, this amount is crucial and extremely dangerous to the financial systems of the world.

So, money laundering is a gigantic problem that should and must be countered by international authorities.

Offshore Tax Havens & Money Laundering. When (and whether) 2 Become 1

Tuesday, May 9th, 2006

When discussing offshore tax havens, one’s immediate associations could be about money laundering. On the other hand, when discussing money laundering, one could think of… offshore tax havens again.

So, are offshore tax havens laundering “dirty” money? And, is money laundering possible because of the existence of offshore tax havens? Well, could be, but a competent person would definitely answer “No”.

Unfortunately, it often happens that offshore tax havens are used as shelters to promote money laundering and aiding various criminal activities not being detected by national authorities. “Dirty” money obtained by means of drug dealing, counterfeiting, illegal arms sales, smuggling, protection rackets, computer fraud etc. come either in cash or cheque. There’s nearly nothing to do about cash. Large amounts of cash paid by cheque require the payee’s bank account. If “dirty money” is accepted by a financial institution, this, by all means, is money laundering. So, criminals look for the place to make this with a minimal risk – and they would often choose tax havens. Their number is, of course, countable, still, quite big. Just some of them are Gibraltar, the Seychelles, the British Virgin Islands, the Cayman Islands, Anguilla, Bermuda, etc.

But one should not forget that there are many legitimate uses of tax havens. The first (and just one of them) is minimizing or avoiding high taxes in home country. So, there can be legitimate tax avoidance and illegal tax evasion.

But let us not generalize and let us be realistic – it goes without saying that money laundering can occur anywhere in the world. So, sometimes offshore tax havens and money laundering go hand-in-hand and these two can become one. On the other hand, many businessmen going offshore do their legitimate businesses and can never be blamed in money laundering because of choosing offshore. Accordingly, offshore tax havens and money laundering must not be taken as a whole (the criminal “whole”).

SIA Anti-Money Laundering Compliance Conference

Friday, May 5th, 2006

The Securities Industry Association established in 1972 through the merger of the Investment Banker’s Association and the Association of Stock Exchange Firms protects the common interests to reach common goals of more than 600 securities firms.

The Securities Industry Association (SIA) aims at creating and maintaining public trust and confidence in the securities markets. Its members are investment banks, broker-dealers and mutual fund companies both in US and international markets.

To meet the needs of its members, SIA holds many activities. One of those is organizing conferences on anti-money laundering on an annual basis. The exchange of information and experience related to this is mutually advantageous for all the members of the Securities Industry Association.

On the 29th of March, 2006, the 6th Annual SIA’s Anti-Money Laundering Compliance Conference took place having brought together over 500 participants and having introduced the experts from the related companies and organizations. The discussions of the most topical developments and essential requirements in anti-money laundering laws were held by the leading experts of this field. The program included representatives from the US Department of the Treasury, Securities and Exchange Commission, Financial Crimes Enforcement Network, Department of Justice, OFAC, New York Stock Exchange, NASD and Department of Homeland Security.