Lecture 4. Legal requirements for a national AML/CFT regime

Nuclear University “MEPhI”
Department of Financial Monitoring
Moscow – March 25, 2013
Andrey

Leonidovich Sapuntsov,
Candidate of Sciences in Economics,
Associate Professor
andrew@sapuntsov.ru

perpetrator: the adverse implications for the economy
Dual criminality for offences

committed internationally
“State of mind” connected with a money laundering offence
Confiscation and provisional measures
Non-conviction based confiscation and corporate liability

offence perpetrator: the adverse implications for the economy
Commission of a

predicate offence

The same person launders the ill-gotten proceeds (self-laundering)

I. The perpetrator of the predicate offence is not held liable for laundering the proceeds

II. The perpetrator of the predicate offence is held liable for laundering the proceeds

What should an attorney do when he defends the accused in a trial and takes a fee paid with proceeds from crime?

liable for laundering the proceeds
Rationale: multiple punishments for a single

criminal offence

II. The perpetrator of the predicate offence is held liable for laundering the proceeds

Rationale: money laundering is a separate offence with its adverse implications for the economy

Adverse macroeconomic implications

Risks and damage to entities and professionals involuntarily involved in money laundering

involved in money laundering
Distortion of economic data
Misleading monetary data because

money demand shifts from one country to another
High interest and exchange rate volatility
The income distribution effect (from high savers to low savers, from sound investments to risky)
Dominance of riskier but higher-yielding investments in the small business sector where tax evasion is prevalent
Erosion of confidence in markets by widespread insider trading, fraud and embezzlement
Difficulties in managing government economic policy
Legal transactions involving foreign participants become less desirable due to association with money laundering (the contamination effect)

The risks:
reputational
operational
legal
concentration risks

defending the accused at trial.
If a lawyer has knowledge that

his or her fees were derived from a criminal activity, he should observe the integrity standards not blindly accept laundered money, especially if he or she is also rendering other services to the client besides defending the accused in a trial.

Predicate offences for money laundering should extend to conduct that

occurred in another country, which constitutes an offence in that country, and which would have constituted a predicate offence had it occurred domestically (R. 3, IN).

Proceeds from the crime are laundered in Alpha

An offence is committed

Country Alpha

Country Beta

In Beta this conduct is a predicate offence for money laundering

In Alpha this conduct is not a predicate offence for money laundering

“Dual criminality” test requires the conduct to be a predicate offence both in the other country and domestically (in countries Alpha and Beta). It would allow for prosecution on ML charges in Alpha based upon the fact that in Beta such conduct is a predicate offence to money laundering.

The money launderer will be prosecuted in Alpha

provide that the only prerequisite is that the conduct would

have constituted a predicate offence had it occurred domestically.

Proceeds from the crime are laundered in Alpha

An offence is committed

Country Alpha

Country Beta

In Beta this conduct is not a predicate offence for money laundering

In Alpha this conduct is a predicate offence for money laundering

This approach would allow for prosecution where the proceeds were generated by conduct that was not a predicate offense in the country where the conduct was committed, but was an offense in the country where the proceeds were laundered.

The money launderer will be prosecuted in Beta

and knowledge required to prove the offence of money laundering

is consistent with the standards set forth in the Vienna and Palermo Conventions, including the concept that such mental state may be inferred from objective factual circumstances

from

Convention, Art. 9.2.b
Purpose

to have assumed that the property was proceeds
Warsaw Convention, Art.

9.3.a

Warsaw Convention, Art. 9.3.b

those set forth in the Vienna Convention, the Palermo Convention,

and the Terrorist Financing Convention, including legislative measures, to enable their competent authorities to freeze or seize and confiscate the following, without prejudicing the rights of bona fide third parties: (a) property laundered, (b) proceeds from, or instrumentalities used in or intended for use in money laundering or predicate offences, (c) property that is the proceeds of, or used in, or intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organizations, or (d) property of corresponding value (R. 4 and its IN).

enable competent authorities to
Mechanisms to effectively manage and, when necessary,

dispose of property

parties
Used in
Intended for use in
Money laundering
Predicate offences
Instrumentalities
Property that is
Property of

corresponding value

Proceeds of

Used in

Financing of

Terrorism

Terrorist acts

Terrorist organizations

Intended for use in

Allocated for use in

has to demonstrate
Lawful origin of property
Otherwise

(due to fundamental principles of domestic law), civil or administrative

liability and sanctions, should apply to legal persons. This should not preclude parallel criminal, civil, or administrative proceedings with respect to legal persons in countries in which more than one form of liability is available. Such measures should be without prejudice to the criminal liability of natural persons. (R. 3, IN).

Natural persons

Legal persons

Criminal liability

Administrative liability

Civil liability

Countries with a tradition of civil law

Countries with a common law tradition

Legal persons

Natural persons

Natural persons

A criminal verdict bears severe reputational risks by distracting investors and customers; it stands in-between measures of administrative liability (a fine which will not be noticed) and a closure of a company (a capital punishment)

All sanctions should be:
effective
proportionate and
dissuasive

of a money launderer
knowledge
intent
purpose
aim
agreement
perpetrator
self-laundering
confiscation
provisional measures
bona fide third parties

freezing
seizure
non-conviction based confiscation
corporate

liability
lawful origin of property
criminal conviction
civil liability
criminal liability
administrative liability
common law tradition
civil law tradition
contamination effect