Money laundering, 21st century-style, part 2 of 2

 Businesses "go global" by satisfying needs that unite cultures. However, money launderers do it by exploiting legal and knowledge gaps between jurisdictions. To deter them, governments and industries around the world must collaborate. But persuading busy and cash-strapped clients to pitch in isn't easy. So CFEs advising them must have a comprehensive understanding of international money laundering techniques. The profession's collective intelligence is a rich source of such insight. To that end, here are money laundering reports from CFEs on six continents.

LATIN AMERICA: THE BIGGEST AND NEWEST THREATS 

Juan Manuel Portal Martinez, CFE, CIA, CPA, is auditor general of Mexico and president of the Mexico City ACFE Chapter.

"Most money laundering (ML) in Latin America serves the illegal drug trade," Portal says. "But regardless of the source of their illicit income, criminals in this region favor certain techniques. These include schemes that disguise illegitimate funds as surcharges on otherwise lawful commercial transactions or conceal criminal profits in legal payments sent home by Latin Americans working abroad."

Yet even as regional nations grapple with these challenges, Portal says, new frauds emerge. In one, ostensibly genuine religious organizations — acting on behalf of criminal groups — deposit large quantities of cash in their bank accounts, alleging the funds are worshipers' donations. In another scheme, debit and prepaid cards help money launderers move enormous sums — broken into countless small amounts — across international borders without triggering financial controls that monitor larger transactions.

Regional improvements 
Criminals launder anywhere from US$100 billion to US$250 billion (2 percent to 5 percent of Latin America's US$5 trillion GDP) each year.

In response, countries have increased their AML efforts. But, Portal says, they can further mitigate risks by: 

• Strengthening AML laws. 
• Training justice system personnel in ML prevention, detection, investigation and prosecution. 
• Heightening awareness among financial and nonfinancial institutions of the need to accurately identify clients and their operations, verify the information they provide and report irregular or suspicious activities. 
• Increasing supervision of institutions that money launderers target. 
• Expanding FIU powers and promoting international agreements that enable them to exchange information and develop joint strategies. 

Progress in Mexico
"Each level of government — federal, state and municipal — has great potential to fight ML more effectively," Portal says. "For example, there are no municipal mechanisms to deter or detect financial entities aiding organized crime groups, even though 
municipalities maintain real estate purchase and sale records and issue certificates of incorporation."

Likewise, he says, at the state level in Mexico, vehicle ownership transfers, transactions conducted through notaries public and tax payments all generate data useful in detecting and preventing ML. Yet, rarely is this information systematized to identify illegal financial activities. In fact, state officials aren't trained to detect ML or the flow of capital from illegal activities, and there are virtually no specialized financial or asset detection units in the state attorney offices. Criminals therefore engage in ML and corruption without fear of prosecution or sanctions.

"The federal government maintains fiscal databases and financial information," Portal says. "But because states and municipalities provide no such data, the federal government has only a fraction of the information necessary to identify, investigate and prosecute ML cases." 

A bill pending in Mexico's Congress would mandate the recording of many transactions by non-financial parties, such as notaries, lawyers, vehicle and jewelry sellers and realtors; it also would require Know Your Customer (KYC) policies and reporting to the FIUs. 

"Private industry — mainly the financial sector — follows some federal AML protocols," Portal says. "But because they earn fees from ML, they have little incentive to report suspicious transactions. If the pending legislation passes, that and other things will change."

THE MIDDLE EAST: PUTTING LAWS INTO PRACTICE   

Tania Fabiani, CFE, CAMS, CFA, is president of the United Arab Emirates (UAE) ACFE Chapter and a partner of PricewaterhouseCoopers in Abu Dhabi, where she leads its Middle East Fraud Risk Assurance practice. 
"Middle Eastern nations have significantly improved their AML regulatory frameworks," Fabiani says. "But the ultimate measure of their success will be how well they enforce those rules. Meaningful progress will require better-funded FIUs and deeper intra-regional cooperation. It also will depend on private industry's more active participation in AML."

Thus far, increased regional compliance with Financial Action Task Force (FATF) AML guidelines has begun to mitigate risks, Fabiani says. [The Group of Seven (G-7) nations established FATF in 1989 to fight international money laundering.] These measures include, for example, criminalizing money laundering, articulating FIU roles and responsibilities and requiring that financial institutions report suspicious transactions. The initiation of information-sharing arrangements among area FIUs also has reduced risks.

 

To address an important ML vulnerability, the UAE and other nations are strengthening their oversight of money exchange houses and "hawala" — an alternative remittance system widely used in the Middle East and parts of Africa and Asia.