Archive for March, 2007

Egmont Group

Friday, March 30th, 2007

The Egmont Group has already been briefly described previously. It has been discussed that, on July 7, 2006, Canadian officials announced establishing the permanent base of Egmont Group in Toronto (International Anti-money Laundering Organization will be Based in Toronto).

To describe the Egmont Group, to say that it is an international organization dealing with anti-money laundering and counter-terrorist financing is to say nothing. To describe the Egmont Group in more details, it should be mentioned that it the Egmont Group of Financial Intelligence Units is an informal international gathering of financial intelligence units.

The Egmont Group was established in 1995, and was named after the palace in Brussels where the 1st meeting took place. 101 countries have created FIUs as their national centers in order to collect information on suspicious or unusual financial activity from the financial industry and other entities required to report transactions that might be related with money laundering or terrorism financing.

The Egmont Group has many financial intelligence units (FIUs) as its counterparts. Normally, FIUs are not law enforcement agencies, they analyze and process the information received. These are such FIU’s as AUSTRAC (Australia) (FATF criticizes Australia), FINTRAC (Canada) (Suspicious USD 5 billion in Canada), Serious Organised Crime Agency (SOCA) (UK), Financial Crimes Enforcement Network (FinCEN) (USA), Gibraltar Co-ordinating Centre for Criminal Intelligence and Drugs/Gibraltar Financial Intelligence Unit (GCID GFIU) (Gibraltar), Federal Service for Financial Monitoring (FSFM) (Russia), Joint Financial Intelligence Unit (JFIU) (Hong Kong), Financial Investigation Agency (BVI) and others. All in all, the Group encompasses 101 countries and jurisdictions.

So, the Egmont Group provides a center for information exchange on suspicious activity.

World Bank and IMF Initiatives to fight Money Laundering and Terrorist Financing

Monday, March 26th, 2007

Despite the fact that the World Bank and the International Monetary Fund (IMF) have different missions, they have united to work jointly to fight money laundering and terrorist financing.

The co-operation of the World Bank and the IMFÂ started in April 2001, when the two Boards of Executive Directots of the World Bank and the International Monetary Fund realized that money laundering has become a global problem that affects both smaller and major financial markets. The World Bank recognized that, taking into consideration devastating economic, social and political potential of money laundering, it could impose big costs upon developing countries. The IMF recognized that money laundering could cause destructing macroeconomic consequences such as unpredictable changes in currency demand and vulnerability of international capital flow.

After the events of 9/11, both organizations adopted action plans to enhance their efforts for anti-money laundering and terrorist financing.

In 2002, the organizations recognized the 40 Recommendations on Money Laundering and Special Recommendations on Terrorist Financing issued by the FATF as the relevant international standards.

In November 2002, the World Bank and the IMF started a 12-month pilot program to conduct assessments in 33 jurisdictions, and FATF and FATF-style regional bodies conducted assessments in 8 jurisdictions. The outcome of the pilot program was reviewed in March 2004.

Following the successful pilot program, the organization decided to include anti-money laundering and combating terrorrist financing in their permanent activities, to continue co-operating with the FATF and to develop and revise standards and methodology of this matter.

Money Laundering in USA? You know, it’s so easy…

Thursday, March 22nd, 2007

A peculiar project has revealed that money in the USA is easy to launder.

How much does it take? Well, about a month. How much does it cost? Well, about USD 4 000.

To demonstrate how easy it is for tax evaders, money launderers or terrorists to hide behind secretive domestic companies, 2 retired IRS agents, Michael McDonald and Steven Smith, formed anonymously owned companies in New York, Florida and Panama and after that wired money among the companies’ bank accounts. As a result, it became obvious to anyone that it takes no painful and hard efforts to move money in and out without a trace using US companies.

Alert Global Media began this research project in the beginning of 2006 for a presentation at a money-laundering conference that opened on March 19, 2007 in Florida.

Michael McDonald and Steven Smith refused to name a firm that registered Greenlink Ventures in New York and Franklin Grant & Associates Management in Florida and advised to use Internet banks for corporate accounts. Throughout the process, Smith used his real name and obeyed laws. However, using the Nevada firm, he created the companies and got an IRS identification number without revealing his Social Security number. When asked to list an alternate company contact in case of an emergency, he provided the name Bange Mason.

Then, Smith and McDonald created Grupo Griffin Internacional in Panama and then opened an account there. The Panama bank required notarized copies of the 1st page of his passport and both sides of his driver’s license. Smith found surprising that it was more difficult to open an account in Panama than it was in the USA.

After the registration process was completed, the retired agents wired USD 9 000 from the Florida company to Grupo Griffin’s Panama bank and then wired the funds to the Internet bank account of the New York company. The agents said that the transactions were nearly impossible to trace.

McDonald made a conclusion that while the USA beats up on small island jurisdictions, it is not having adequate controls inside the country.

Money laundering & Terrorist financing. Risks for financial institutions

Monday, March 19th, 2007

Money laundering and terrorist financing make harm to financial systems and weaken and even endanger financial institutions. The destructive impact of money laundering and terrorist financing on overall economic development is obvious. As to consequences to financial institutions like banks, insurance companies and investment management firms in more particular terms, they can be generally described as 4 types of risks.

The risks to financial institutions caused by money laundering and terrorist financing can be classified as reputational, operational, legal and concentration. However, it is often quite difficult to exemplify and distinguish them, as these risks are largely interrelated.

Reputational risk is the potential to adverse publicity as regards financial institution’s practices and result in a loss of confidence in the integrity of the institution. If institution’s reputation has been damaged by suspicions, rumours or allegations of money laundering or terrorist financing, borrowers, depositors and investors quit doing business with it. This, in its turn, increases the risk of the overall loan portfolio.

Operational risk is the potential for loss, which is a result of inadequate or failed internal processes or external events. Such losses take place when financial institutions incur reduced, terminated or increased costs for inter-bank or correspondent banking services. Increased borrowing or funding costs also belong to this type of losses.

Legal risk is the potential for law suits, adverse judgments, fines and penalties generating losses, unenforceable contracts, increased expenses for an institution or even closure of it. As a result, legitimate customers may become victims of a financial crime and sue the institution for losing money. It goes without saying that investigations also cost money and they may involve penalties and fines.

Concentration risk is the potential for loss, which is a result of too much credit or loan exposure to a single borrower. lacking knowledge about a customer and his/her business can expose a financial institution to risk.

To conclude, due diligence procedure is what helps financial institutions to understand and identify customers and to protect themselves.

Brazilian politician faces money laundering charges

Thursday, March 15th, 2007

In New York, prosecutors have brought charges on corruption and money laundering against a leading Brazilian political figure. A prominent Brazilian congressman, former Governor and and mayor of Sao Paulo state and municipality Pualo Maluf has been charged with moving millions of dollars, which was the stolen public money, through a Manhattan bank into offshore bank accounts of BVI shell companies and Channel Islands.

Also, Maluf is accused of having stolen more than SD 11.6 million out of the public account of a USD 140 million given for a local highway project in Brazil. The money was stolen by means of inflated invoices and kickbacks transferred through several shell accounts.

Through Safra National Bank in New York the money was transferred to accounts held by 4 British Virgin Islands companies purportedly controlled by Maluf. These are Durant International Corp., Sun Diamond Ltd., Kildare Finance Ltd. and Macdoel Investments Ltd. Local authorities in Jersey have frozen USD 26 million kept on Jersey’s bank accounts.

The USA and Brazil are working jointly to investigate the trail of more than USD 19 million in funds illegally exported through different money laundering efforts. The two governments are exchanging information. The USA is trying to return some of the money stolen from the Brazilian government back to Brazil.

Britain falls upon money laundering

Monday, March 12th, 2007

As struggling with money laundering and terrorist finance is a very painstaking and continuous fight, countries are launching ever new plans regarding this problem. The plans, actions, measures and legislation changes of China, Hong Kong, Switzerland, Indonesia, Cayman and South Africa, and other countries have been discussed previously. Now, it is Britain’s turn to take new measures.

On February 28, 2007, Britain has launched a new plan aimed at combating money laundering and terrorist financing.

According to the plan, law enforcement agencies, policy departments and the private sector will cooperate in setting up key priorities for the future and new measures. The measures will be designed to increase the the financial sector’ role of a weapon against international crime and terrorism.

Home Office Minister, Tony McNulty stated that all terrorist activities are underpinned by money, so “the disruption of terrorist financing is a key element of the government’s overall fight against terrorism”.

Director-general of an organized crime agency, Stephen Lander said that tackling criminal finances and profits is a primary effort to disrupt organized crime.

The proposed measures for combating money laundering and terrorist finance include consultation with charities to keep them safe from terrorist, exploitation and use of asset freezing powers, upgrading data-sharing between the public and private sectors, simplifying identification checks among others, etc.

Money Laundering & Terrorist Financing Impact on overall Economic Development

Thursday, March 8th, 2007

It has already been discussed that money laundering and terrorist financing have significant consequences influencing both on individuals and on the population globally. Here we come to even more global scale – money laundering and terrorist financing has a direct negative effect on overall economic development.

Money laundering and terrorist financing negatively affect economic growth as they divert resources to less productive activities. Laundered illegal funds choose to follow not the same path as legal funds. They are not placed in productive channels aimed at further development. Illegal funds are often placed into so-called sterile investments in order to preserve their value as well as to be at one’s disposal as easily transferable. Such investments are real estate, jewelry, antiques, art, luxury automobiles, etc. The above-mentioned investments are not as productive as they could be. The sterile investments do not generate additional productivity for the economy.

However, the situation could be even worse if productive enterprises that provide their input for economic development are transformed into sterile investments by criminal organisations because they are operated primarily for money laundering, and just secondly for profit generation.

It is obvious that investments must be driven by productive purposes, and if resources are dedicated to sterile investments, the overall economy of a country reduces. So, the war proclaimed to money laundering and terrorist financing is also the war for responding to consumer demand and stimulating the productivity of the overall economy.

96-Year-Old Mobster arrested but likely to avoid imprisonment

Monday, March 5th, 2007

On February 28, 2007, a 96-year-old mobster, Albert “The Old Man” Facchiano accused of overseeing robberies, money laundering and bank fraud for the Genovese crime family pleaded guilty to racketeering conspiracy. However, because of his age Facchiano is unlikely to be sent to prison.

The arrest record of this mobster dates back 75 years.

In court, he used a cane and needed a special headset to hear the questions from U.S. District Judge James Cohn. According ti his attorney, he sees a doctor 4 times a week for arthritis, back pain and other ailments.

“The Old Man” pleaded guilty to a Florida charge of racketeering conspiracy as well as a New York charge of conspiracy to tamper with a witness. From 2000 to 2003 at least, he supervised people committing money laundering, bank fraud, extortion and robberies. A maximum sentence for him is 30 years in prison and USD 500 000 in fines, however, prosecutors recommended that the mobster served house arrest.

Sentencing was scheduled for May 25, 2007.

Facchiano will be 97 on March 10. It is an exceptional case when a person that age is found involved in crimes committed so recently.

5th Offshore Alert Due Diligence Conference to fight financial crime and due diligence

Thursday, March 1st, 2007

The Offshore Alert Financial Due Diligence Conference has already been described previously. As the 5th conference event is under way, more details on it are being revealed.

On April 24-25, 2007, at the 5th Offshore Alert Financial Due Diligence Conference will be open. It will stage more than 40 speakers from the British Virgin Islands, Cayman Islands, Bahamas, Barbados, Bermuda, Canada, St Kitts & Nevis, UK and US who will represent both the public and private sectors.

The onshore regulatory side will be represented by speakers from the US Securities and Exchange Commission, the US Department of Justice, the US Department of Homeland Security and US Senate.

As to offshore regulatory side, its speakers include representatives of CIMA, the British Virgin Islands Financial Services Commission and the Securities Commission of the Bahamas. It is revealed that the Chairman of the Cayman Islands Monetary Authority (CIMA) Timothy Ridley, Deloitte (Cayman) partner Stuart Sybersma, and Bodden Corporate Services compliance officer Nancy Saur will join respectable speakers from the USA and offshore jurisdictions.

The conference sessions will take a closer look on Bank Compliance, Offshore Financial Centers, Hedge Funds, Offshore Insurance, Asset Recovery, Class Action Lawsuits and Russian Clients.