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The fight against illicit finance

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Dr Nicholas Ryder Commercial Law Research Unit University of the West of England * * * * * * * * * * * * The international profile of fraud has increased ... – PowerPoint PPT presentation

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Title: The fight against illicit finance


1
The fight against illicit finance a critical
review of the Labour governments policy
  • Dr Nicholas Ryder
  • Commercial Law Research Unit
  • University of the West of England

2
Introduction
  • What is financial crime?
  • Part 1
  • Money Laundering
  • Part 2
  • Fraud
  • Part 3
  • Terrorist Financing

3
What is financial crime?
  • there is no internationally accepted definition
    of financial crime and it interprets financial
    crime in a broad sense, as any non-violent crime
    resulting in a financial loss (International
    Monetary Fund, 2001)
  • Financial crime has also been referred to as
    white collar crime, a term first used by
    Professor Edwin Sutherland in 1939 which has
    since become synonymous with the full range of
    frauds committed by business and government
    professionals (FBI, 2009)

4
What is financial crime?
  • More recently the US Department of Treasury and
    HM Treasury have referred to financial crime as
    illicit finance
  • Financial crime is defined as any offence
    involving fraud or dishonesty misconduct in, or
    misuse of information relating to, a financial
    market or handling the proceeds of crime
    (Financial Services and Markets Act 2000, s.
    6(3)).

5
What is money laundering?
  • Processing of criminal proceeds to disguise their
    origin
  • Concealing
  • Disguising
  • Converting
  • Transferring or removing
  • Facilitates the acquisition
  • Retention
  • Use or control
  • Acquisition
  • Use
  • Possession
  • Above relate to proceeds of criminal activity

6
The Scale of Money Laundering
  • International Monetary Fund
  • Between 2 and 5 of Global GDP
  • 590 billion to 1.5 trillion
  • 20 to 50 billion (UK)
  • Financial Action Task Force
  • 500 billion

7
How is money laundered?
  • Three recognisable stages
  • Placement
  • Layering
  • Integration

8
United Kingdoms Anti-Money Laundering Policy
  • Criminalisation of money laundering
  • Regulated financial institutions are compelled to
    put in place systems to preclude and identify
    money laundering
  • Financial Intelligence

9
Criminalisation of money laundering
  • Drug Trafficking Offences Act (1986)
  • Criminal Justice Act (1993)
  • Money Laundering Regulations (1993)
  • Proceeds of Crime Act (2002)
  • Section 327
  • Section 328
  • Section 329

10
Regulated financial institutions
  • Financial Services Authority
  • Financial Services and Markets Act 2000
  • Section 6(3)
  • Risk based approach
  • Money Laundering Handbook
  • Senior Management Arrangements, Systems and
    Controls
  • Enforcement policy
  • R v Rollins 2010 UKSC 39

11
Financial Intelligence
  • Drug Trafficking Offences Act (1986)
  • Section 24(1)
  • Criminal Justice Act (1993)
  • Sections 93 (a-g)
  • Proceeds of Crime Act (2002)
  • Part 7
  • Suspicious Activity Reports
  • Defensive reporting
  • Compliance costs

12
Fraud
  • The modern thief can steal more with a computer
    than with a gun (Computer Science and
    Telecommunications Board, 1991)

13
What is fraud?
  • Persuading someone to part with something
    (Doig, 2006)
  • Deceit or an intention to deceive (Omerod and
    Williams (2007)
  • Act of deception intended for personal gain or
    to cause a loss to another party (Serious Fraud
    Office, 2006)
  • involves the perpetrator making personal gains
    (Financial Services Authority, n/d)

14
The Extent of Fraud
  • Norwich Union Report (2005)
  • 16 billion
  • Equivalent to 650 per household per annum
  • Association of Chief Police Officers (2007)
  • 15-17bn
  • National Fraud Authority (2010)
  • 30bn

15
The Extent of Fraud
  • Mortgage Fraud
  • 800m
  • Benefit Fraud
  • 8bn
  • Corporate Fraud
  • 72bn
  • It costs the US economy 400bn (Ryder, 2010).

16
Some classic frauds
  • Bank of Credit and Commerce International
  • Barings Bank
  • Enron
  • WorldCom
  • Bernard Madoff
  • Polly Peck (Azil Nadir),
  • Mirror Group Pension Scheme
  • Guinness
  • Barlow Clowes

17
The United Kingdoms Fraud Policy
  • Criminalisation of fraudulent activities
  • Regulatory agencies, and
  • Anti-fraud reporting requirements.

18
Criminalisation of Fraud
  • The Fraud Act 2006 creates a new general offence
    of fraud and introduces three possible ways of
    committing it (s 1).
  • Firstly, it makes it an offence to commit fraud
    by false representation (s 2).
  • Secondly, the Act makes it an offence to commit
    fraud by failing to disclose information to
    another person where there is a legal duty to
    disclose the information (s 3).
  • Thirdly, it makes it an offence to commit a fraud
    by dishonestly abusing one's position (s 4).

19
The Regulatory Agencies
  • There are several agencies that attempt to combat
    fraud
  • The Financial Services Authority
  • The Office of Fair Trading
  • HM Revenue and Customs
  • The Serious Fraud Office
  • The Serious Organised Crime Agency
  • National Fraud Authority
  • National Fraud Intelligence Bureau
  • Economic Crime Agency

20
Anti-fraud reporting requirements.
  • Proceeds of Crime Act (2002)
  • Senior Management Arrangements, Systems and
    Controls (FSA Hand Book)
  • Home Office Guidelines
  • Who reports?
  • Do all financial institutions report allegations
    of fraud?

21
The Costs of Terrorist Attacks
  • World Trade Centre bomb 1993 129
  • IRA bomb hoax Grand National 2p
  • The London tube and bus suicide bombings which
    killed 56 people costs between 100 and 200
  • The al-Qaeda bombing of the USS Cole which
    resulted in the death of 19 10,000
  • The al-Qaeda inspired train bombings in Madrid
    which killed 191 people cost approximately
    10,000
  • The Bali night club attack cost 74,000 and
    resulted in the murder of 202 people
  • The terrorist attacks of 9/11cost approximately
    500,000

22
The Impact of 9/11
  • International community was concerned with the
    illegal drugs trade, money laundering and fraud
  • Not prepared to tackle terrorist financing
  • UN Security Council Resolution 1373 kick started
    a new era (Whiner and Roule, 2002, 88).
  • It also acted as a Galvanising effect
    (Akindemowo, 2004, 289).

23
Terrorist Financing Policy
  • Criminalisation of terrorist financing
  • The freezing of terrorist assets, and
  • Financial Intelligence.

24
Criminalisation
  • Section 14 Terrorist Property
  • Section 15 Fund Raising
  • Section 16 Use and Possession
  • Section 17 Funding Arrangements
  • Section 18 Money Laundering
  • Section 19 Disclosure of Information

25
The freezing of terrorist assets, and
  • Anti-Terrorism Crime and Security Act (2001)
  • HM Treasury allowed to freeze the assets of
    overseas governments or residents
  • See
  • Case T-306/01, Ahmed Ali Yusuf and Al Barakaat
    International Foundation v Commission
  • Case T-315/01, Yassin Adbullah Kodi v Council and
    Commission
  • A v HM Treasury UKSC 2
  • Terrorist Asset-Freezing etc. Act (2010)

26
Financial Intelligence
  • Terrorism Act (2000)
  • Anti-terrorism, Crime and Security Act (2001)

27
Conclusions
  • Fraud
  • Money Laundering
  • Becoming the crime of choice for organised
    criminals and terrorists
  • Tougher sanctions
  • Cyber crime
  • Adverse impact on the economy
  • E-Fraud
  • Too many vulnerable governments have not
    criminalised all forms of money laundering
  • Too many governments place restrictions on AML
    measures
  • International cooperation not sufficient
  • The Internet
  • Laws and regulations fail to keep pace

28
Conclusions
  • Terrorist Financing
  • Cheap terrorism
  • 7th July 2005
  • Reporting requirements are redundant
  • Asset freezing provisions rethink
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