Anti Money Laundering Blog

Regional efforts to fight money laundering and terrorist financing in Tanzania failed when the government prevented approval of a report that showed it in a bad light.

On August 20, 2009, in Maseru, a meeting of finance ministers tabled for adoption assessments of the efforts by Tanzania and South Africa to fight money laundering and terrorist financing. These reports had been already approved by officials of the regional body co-ordinating the fight against the illegal practices. So, they were to be adopted at ministerial level. So, South Africa put its report forward, while Tanzania did not.

Paul Vlaanderen, president of the Paris-based the Financial Action Task Force (FATF) said that postponement of the approval by the council of ministers was unexpected as approving the Tanzania report was on the ministers’ agenda.

A representative of the Eastern and Southern Africa Anti-Money Laundering Group said that not approving the report “may raise perceptions of higher risk from a money-laundering control perspective of the region and institutions that have correspondent relations with Tanzanian financial institutions”.

The officials of South Africa declined to comment.

The extent of the laundered money is not known, but in 1996 the International Monetary Fund (IMF) put it at 2-5% of the world’s GDP.

With a view to renegotiate anti-abuse provisions, India is revising its double taxation avoidance treaties, especially those concluded before 2004.

Also, the latest Finance Act will allow new double tax treaties to be negotiated with non-sovereign territories.

A particular India’s concern regards the double tax treaty with Mauritius as it provides for exemption of capital gains tax on sales of shares. Amendments to this treaty were planned in order to “prevent its misuse for avoiding taxes and enhance exchange of information, including banking information.”

The government of India believes that other treaties that came into force before 2004 are also weak in their anti-abuse provisions. These include treaties with the US, Cyprus, the Netherlands, and Australia. It was noted in the parliamentary written answer that 60% of Indian foreign investments in 2008 involved countries listed as “tax havens”, the main ones mentioned there were Cyprus, Singapore, and Mauritius.

Foreign direct investment (FDI) into India is largely routed through jurisdictions such as Mauritius and Bermuda, and the reasons for this is attributed to tax optimisation. Bermuda is one of the non-sovereign jurisdictions for which double tax treaty was impossible until the present Finance Act. The main aim of the new treaties will be to provide tax information exchange. The new treaties are to include the Cayman Islands, Hong Kong, and Macau.

On August 10, Police in south China announced that had broken up a money laundering gang that illegally transferred USD 1.46 billion abroad, mainly to Vietnam.

According to the official Xinhua News Agency, 11 members (8 of them are Vietnamese) of the alleged gang were arrested by police in south China’s Guangxi region in May. However, for some reason, police didn’t announce the arrests earlier.

A Chinese national named Ruan Zhizhong, one of the main suspects, allegedly opened 77 accounts and illegally transferred USD 1.05 billion through more than 10 000 transactions over a 4-year period that ended in March 2008.

During a raid of the gang’s headquarters in Guangxi’s Fangchenggang city, police seized 70 deposit books, 590 bank cards, 2 cars, 6 computers and USD 99 400 in cash. Also, 327 related bank accounts were frozen, but they gave no details.

Multibillion dollar drugs trade in Afghanistan is not a secret to anyone. According to the UN, in 2006 Afghanistan supplies about 92% of the world’s supply of opium, which is used to make heroin. Some estimates are provided in The Spoils of War: Afghanistan’s Multibillion Dollar Heroin Trade by Michel Chossudovsky. According to The Independent, in 2003 drug trafficking was the 3rd biggest global commodity in cash terms after oil and the arms trade. The IMF estimated global money laundering to be between USD 590 billion and 1.5 trillion a year, which represents 2-5% of global GDP. And it is worth remembering that a large share of global money laundering is related to the drugs trade.

However, tt appeared lately that there have been no convictions in Afghanistan against those who make hundreds of millions of USD at the top of Afghanistan’s drugs pyramid. According to Western counter-drugs officials, even in Western countries building such cases takes years. In Afghanistan, drugs industry is estimated at USD 3.4 billion, but it is suposed to have a corrupting influence on the government, therefore fighting drugs in Afghanistan is much harder. For example, President Karzai of Afghanistan recently pardoned 5 persons sentenced to 16-18 years for moving 120kg of heroin, and one of the released men was the nephew of the campaign manager to Mr Karzai’s election campaign. So, the Afghan drug mafia benefits from political protection. It is also suported by Afghanistan’s lawlessness and lack of infrastructure.

The drug-money trail is difficult to discover because of the hawala system of local money changers widely used by the drug mafia in preference to Western electronic banking. This system is based on trust. In this system, the only evidence of money transfer may be a phone call between 2 hawala dealers in different cities/countries who agree to settle the money transfer. This system is widely used across the Middle East.

Counter-drugs officials tried to arrest the 3 biggest hawala dealers in the province of Nangarhar 2 years ago, which brought the economy of the province to a halt and, as a result, the 3 criminals had to be released.

Currently, a construction boom may be seen in the capital, Kabul, which is the evidence of money laundering - laundering of drug billions into legitimate business.

The government of Liechtenstein has agreed a tax deal with UK. This treaty will help London uncover untaxed fortunes hidden away in Liechtenstein by British taxpayers.

According to Britain’s taxman, there are up to 5 000 British investors with an estimated GBP 2-3 billion in secret Liechtenstein accounts.

Dave Hartnett, a permanent secretary at Revenue and Customs, said that those who have been evading Britain’s tax on assets held in Liechtenstein banks must now settle with us. In accordance with the agreement, from September 1, 2009 to March 31, 2015 Britons will declare their assets in Liechtenstein and they will receive favorable treatment in paying the taxes they owe.

On August 11, Liechtenstein’s government said in a statement that the tax treaty provided special conditions between 2010 and 2015 in order to encourage clients with British tax arrears to declare themselves. The new agreemtn applies not only to existing clients but also to new clients. Klaus Tschuetscher, the prime minister of Liechtenstein, said that with this tax deal a stable and reliable regulatory framework is created and the client now has the possibility to make use of an attractive option.

It should be noted  that lately Liechtenstein has come under heavy pressure as regards revealing which foreign nationals have bank accounts and anonymous trusts in the jurisdiction. Earlier this year the government of Liechtenstein agreed to cooperate with other countries in tax matters. Since then, it has signed tax deals with the US and Germany.

It also is worth reminding that the OECD removed Liechtenstein from its blacklist earlier this year.

In the end of July 2009, Hong Kong’s Securities and Futures Commission (SFC) announced that it is awaiting public views on the framework of a legislative proposal regarding the anti-money laundering regulatory regime for the financial sector.

The legislative proposal on anti-money laundering is aimed to address issues identified by the Financial Action Task Force (FATF) in 2008 during the SAR’s anti-money laundering regime evaluation.

The consultation document includes details of the financial institutions subjected to the proposed legislation, the customer due diligence and record-keeping obligations to be met, the regulatory authorities’ powers in supervising compliance, criminal and supervisory sanctions for breaches of the obligations, and a proposed licensing system for anti-money laundering regulatory purposes.

The bill is expected to be presented to the Legislative Council in Quarter 2 of 2010.

Ireland moves towards implementing the European Union’s 3rd Anti-Money Laundering Directive, which it failed to implement earlier, with the publication of a new bill by the Minister of Justice. The draft legislation implements the requirements of the EU 3rd Anti-Money Laundering Directive, and has the purpose to integrate it into the Irish law.

Actually, the new document significantly changes anti money laundering regulations order in Ireland. It increases the obligations on financial institutions, lawyers, accountants and state agencies to monitor and report any suspicious activities. Also, all relevant bodies would have to implement specific anti-money laundering procedures and report suspicious transactions.

Sinead Ovenden, Director of Compliance and Regulation of Deloitte, said that the new anti-money laundering legislation has been much anticipated. In his opinion, the change to existing AML requirements means that financial services institutions can reduce the level of customer due diligence on a risk sensitive basis. The new approach will redirect resources within financial institutions to areas of higher risk.

A move towards a risk based approach to the prevention of money laundering is one of the most important changes in the Directive, which is not characteristic yet for the Irish money laundering regime.

However some specialists say that financial services institutions, particularly smaller enterprises, face a challenge if they are to implement the necessary changes before the bill is passed into law. The most controversial issue of the Directive is already named, and it is the obligation to make enhanced due diligence for politically exposed persons (PEPs).

Most banks and other financial institutions will be required to adopt the legislation once passed. This is expected to happen in the autumn. The Financial Regulator will supervise Financial Services entities under the new legislation.