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Issues
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Financial Surveillance Data and Data Retention The goal of setting international standards led the FATF in 1990 to create forty detailed recommendations (full text, summary) governing financial and relevant non-financial institutions and their practices. The Forty Recommendations (which were revised in 1996 and updated again in 2003) have had an enormous influence in the sphere of financial surveillance. The FATF's Forty Recommendations place a strong emphasis on "customer due diligence" and record keeping. Recommendation 5 requires identifying and verifying the identity of the customer when establishing business relations and also when transactions are above the applicable designated threshold; when there is a suspicion of money laundering or terrorist financing and when there are doubts as to the adequacy of previously obtained data. When these circumstances exist, the FATF requires that
Additionally, ongoing due diligence and scrutiny of transactions must be maintained including ensuring the transactions are consistent with the institution's knowledge of the customer, their business and risk profile and where necessary, the source of funds. Where (a) to (c) cannot be conducted, the financial institution should not commence business relations or perform the transaction and should consider terminating relations and making a suspicious transactions report. When dealing with politically exposed persons, the financial institution must take reasonable measures to establish the source of wealth and the source of funds and to conduct enhanced ongoing monitoring of the account (Recommendation 6). Recommendations 5 and 6 also apply, in defined circumstances, to casinos, real estate agents, precious metal/stone dealers, lawyers and accountants and trust and company service providers (Recommendation 12). Recommendation 10 requires that all records of transactions for five years and any identification data, account files and business correspondence for at least five years after the business relationship has terminated. The identification data and transaction records should be available to domestic competent authorities upon appropriate authority. Any unusual transactions should be
investigated, recorded in writing, and made available to the competent authorities upon request
(Recommendation 11). Suspicious Transaction Reporting Where a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of criminal activity or are related to terrorist financing, they must be required either by law or regulation to report these suspicions promptly to the Financial Intelligence Unit (FIU) (Recommendation 13). The employees of the Financial Institution are prohibited from disclosing the fact that a suspicious transaction report (STR) has been made (Recommendation 14). Recommendations 13 and 14 also apply to legal professionals and accountants, precious metal/stone dealers and trust/company service providers in the same circumstances as defined in Recommendation 12. Recommendation IV of the Nine Special Guidelines reiterates suspicious transaction reporting by financial institutions or other business subject to money laundering legislation where they suspect or have reasonable grounds to suspect that funds are linked to or related to, or are to be used for terrorism, terrorist acts or by a terrorist organization. Recommendation 18 advises member state consideration of a national central agency with a computerized database so that financial institutions and other intermediaries can report currency transactions over a certain amount; which would also be accessible to competent authorities. Each state should enable the creation of
an FIU (Recommendation 26) which will serve as a national centre for
the dissemination and analysis of any financial information. Ensuring Compliance with the Financial Surveillance Scheme In the event of non-compliance by a financial institution or a designated non-financial business or profession, Recommendation 17 requires that states must have effective sanctions, whether criminal, civil or administrative, to ensure compliance occurs. Recommendations 23 and 24 require the supervision and regulation of the financial sector and designated non-financial institutions or professions to ensure they are implementing the 40 Guidelines. Regulation to ensure compliance implies the application of sanctions in the event of a certain institute or business not complying or insufficiently complying with the relevant guidelines. The use and consequences of the NCCT list
coerce states to comply with the guidelines due to a degree of scrutiny
and alienation in the international community and the consequences for
persons and businesses from that country in their relations with
foreign financial institutions. Security Cooperation The Forty FATF guidelines affect legal enforcement systems in two ways. 1. Conditioning the Criminalization of Money Laundering Section A of the Forty guidelines sets minimum standards to which criminal legislation or regulation in each of the member states must adhere. Recommendation 1 outlines how the offence of money laundering is to be administered: either attached to a defined list of predicate offences (e.g. serious offences) or to offences carrying a minimum term of imprisonment of one year. It also requires that each state extends its jurisdiction in this matter to cover acts committed in other countries provided they are an offence domestically. Recommendation 2 sets standards affecting the "knowledge element" or mens rea of an offence, requiring that the definition of the respective money laundering/terrorist financing offence adheres to the UN Vienna and Palermo Conventions, "including the concept that such mental state may be inferred from objective factual circumstances." Recommendation 28 touches on the legal issues of seizing property and conducting searches. It requires that the competent authorities have the power to use compulsory measures for the production of records held by financial institutions and other persons, for the search of persons and premises, and for the seizure and obtaining evidence. Recommendation 29 requires that "supervisors" should be authorized to compel production of any information from financial institutions that is relevant to monitoring their compliance with the FATF guidelines and to be able to impose administrative sanctions in the event of non-failure. The information that could be required to assess compliance is not defined. Recommendation 38 requires that states have the mechanisms in place to enable them to respond expeditiously to requests by foreign jurisdictions to identify, freeze, seize and confiscate property or money laundered and proceeds of crime etc. The 'expeditious' element of this offence is undoubtedly going to have some impact on the quality and existence of evidence used to make such decisions. The Nine Special Guidelines also
influence legislative policy in similar areas. Recommendation III
concerns the freezing and confiscating of terrorist assets -- each
country should implement measures to freeze without delay funds or
other assets of terrorists, those who finance terrorism and terrorist
organizations. Each country should also adopt and implement measures
which would enable the competent authorities to seize and confiscate
property that is the proceeds of or used in or intended for use in
terrorism, terrorist acts or by terrorist organizations. 2. Mutual Legal Assistance Recommendation 36 requires that countries provide the widest possible range of mutual legal assistance in relation to money laundering and terrorist financing, investigations, prosecutions and related proceedings. In addition it recommends that countries consider employing the compulsory powers of search and seizure mandated by Recommendation 28 for requests made by foreign jurisdictions, and if possible via a direct request from a foreign law enforcement authority. Recommendation 37 reiterates that it is not essential that offences committed abroad be an offence both domestically and in the foreign jurisdiction, merely that it is a domestic offence. If states require this "dual criminality" for actions undertaken abroad, the Recommendation instructs that the offences need not be in the same category of offence or described with the same terminology. Recommendation 39 concerns extradition. States are required to either extradite their own nationals or prosecute the individual for the offences for which the requesting country was seeking extradition. Countries may consider simplifying their extradition rules by allowing direct transmission of extradition requests between appropriate ministries and extraditing persons based only on warrants of arrest or judgments. Recommendation 40 requires states to ensure their competent authorities are provide the widest possible range of international co-operation to their foreign counterparts, either spontaneously or on request. Recommendation V reiterates the need for international co-operation to ensure the greatest possible measure of assistance in connection with criminal, civil enforcement and administrative investigations, inquiries and proceedings relating to the financing of terrorism, terrorist acts and terrorist organizations. Countries are also requested to ensure that they do not provide safe havens for individuals charged with the financing of terrorism or terrorist acts or terrorist organizations and should have in place rules to extradite such individuals. The Recommendations do not describe a process for allocating jurisdiction over an individual case or whether restrictions as to the destination exist. This should also be read in conjunction with Recommendation 39 which discusses 'simplifying extradition', which is ambiguous and likely to constitute bypassing judicial overview in some cases. |