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Money Laundering and

Corruption

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Objectives
Define money laundering
How AML supports anti-corruption

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After foreign exchange and the
oil industry, the laundering of
dirty money is the worlds third-
largest business.
Jeffrey Robinson, The Laundrymen

How Much Is Laundered?


IMF ESTIMATE = 2-5% Global GDP

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What is Money Laundering?
Definition: The process of disguising the
proceeds of crime in an effort to conceal their illicit
origins and legitimize their future use.
Objective: To conceal true ownership and origin of
the proceeds, a desire to maintain control, a need
to change the form of the proceeds.
Techniques: They can be simple, diverse,
complex, subtle, but secret.
Proceeds = any economic advantage
derived directly or indirectly from criminal
offenses

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Money Laundering Cycle 1.
Predicate Crimes
Corruption and Bribery
Fraud
Organized crime
Drug and human trafficking
Environmental crime
Terrorism
Other serious crimes

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INTEGRATION PLACEMENT
The last stage in the laundering
Initial introduction of criminal
process.
proceeds into the stream of
Occurs when the laundered
commerce
proceeds are distributed back to
Most vulnerable stage of money
the criminal.
laundering process
Creates appearance of
legitimate wealth.

3.
LAYERING
Involves distancing the money
from its criminal source:
movements of $ into
different accounts
movements of money to
different countries
Increasingly difficult to detect

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Money is laundered through

Banks
Financial services
Brokerage firms

Other Examples: Insurance companies,


Money remitters,
Cash intensive businesses,
Brokerage firms,
Realtors
Crooked LAWYERS and ACCOUNTANTS
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Simple Bribe and Money Laundering Transaction
Country 3
Country 1

Company owned by Ministers cousin


Company A
Needs to generate
$1 million for bribe to
Finance Minister.
Uses invoices from
company in Country
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Company Bank Account $500,000 - Purchase $500,000 - Purchase


of Real Estate of Bearer Share

Country 4
Country 2
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What Are The Benefits Of Money
Laundering Laws?
Money Laundering is a separate offense which carries
additional jail time. Allows for seizure and confiscation of
proceeds of crime.
Allows law enforcement access to bank and other financial
institution records.
Requires financial institutions to file suspicious and sometimes
cash transaction reports, and to identify the beneficial owners of
legal entities.
Requires establishment of Financial Intelligence Units which
receive reports from financial institutions and can provide new
channels for international exchange of information.

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Key Questions
How does anti-money laundering
make it riskier for
corruptors/corruptees?
How much can AML deter corruption?
What are the measures that will
contribute to increase risk and
prevention of corruption?

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Incentives to Launder
Large amount of proceeds from corruption
that need to be hidden
Low confidence in the security of assets in
country
Asset disclosure requirements
Political instability or possible regime
change
Greater risk for corruptors and corruptees of
investigation and prosecution

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Where are we in 2006?
Tighter controls on AML globally
Fewer secrecy havens
Greater international cooperation and
pressure to adopt international standards
(FATF and FSAPS by IMF/WB)
Private sector generally proactive in
monitoring their business relationships

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The Case of Switzerland
Originally known for its extreme bank secrecy

Evolution of reputational risk assessment of


Swiss financial sector. Began to freeze
assets.

Recent Cases with Swiss Banks:


Marcos: returned $700 million
Abache: returned $200 million
Montesinos: returned $77.5 million

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What are some of the
Challenges?
Developing political will at senior levels of
government.
Tighter AML can be costly and reduce resources
from other needs.
Building capacity in developing countries for
investigation and prosecution.
Knowing your client is not always easy. Knowing
your clients client is difficult to impossible.
Coordination among countries law enforcement,
financial intelligence units, regulators, and
judiciaries.
Application of AML regime in a cash based
economy.
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Conclusion
Results unkowndont know whether there
has been a reduction in corruption because
of AML (no database of Money Laundering
Cases)
It is easier to prosecute AML even when
local jurisdictions are not able (i.e. ML is
usually multi-jurisdictional)
AML is a compliment to anti-corruption
programs but it is not a silver bullet

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Thank You.

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Examples Of What Countries
Can Do?
1. Enact and implement AML regime including
creating Financial Intelligence Units, suspicious
transaction reporting, enhanced due diligence on
financial transactions regarding politically exposed
persons and civil/criminal forfeiture.
2. Build clear and efficient internal mechanisms to
share information by and between regulators and
law enforcement agencies.
3. Join regional anti-money laundering group to help
enhance regional and international cooperation
opportunities.
4. Build capacity of investigators, prosecutors and
judges to handle financial investigations.

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How does the Bank help?
Effective AML/CFT WB technical assistance:
regime:
Understanding of ML & Awareness raising
TF amongst workshops/ Global Dialogues
stakeholders Legislative drafting
Legal framework FIU capacity building
Functioning FIU Capacity building for
Supervision of AML regulators/ supervisors
Law enforcement Capacity building for law
capacity enforcement

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Money laundering, why do we
care?
Is a global threat; Economic:
Is fuel to expand criminal Deters private investment
enterprise; Destroys competition
Helps hide corrupt Revenue impact
payments; Financial:
Uneven playing field for Perpetuates corruption,
honest business; obstructs good
Risks for financial systems & governance
institutions-erodes integrity Erodes confidence
Regulatory Destabilizes financial
Reputational, credit and institutions
operational risk.
Market risk.

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Money laundering is any
transaction which seeks to
conceal or disguise proceeds
from illegal activities.

Proceeds = any economic advantage


derived directly or indirectly from criminal
offenses.

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Money laundering, why do we
care?
Is a global threat; Economic:
Is fuel to expand criminal Deters private investment
enterprise; Destroys competition
Helps hide corrupt Revenue impact
payments; Financial:
Uneven playing field for Perpetuates corruption,
honest business; obstructs good
Risks for financial systems & governance
institutions-erodes integrity Erodes confidence
Regulatory Destabilizes financial
Reputational, credit and institutions
operational risk.
Market risk.

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