Regulation against money laundering and financing of terrorism

This article presents international benchmarks (I.), national reference regulation (II.) and particular aspects that can be covered (III.).

I. International benchmarks

When legislating to fight against money laundering and financing of terrorism, it is useful to take account of the benchmarks set-up by international organisations. We provide here a few links to that end, some of which contain reference regulation:

INT 1

INT 2 (for civil law systems) – English, French, Russian, Arabic

INT 3 (for common law systems)

II. National reference regulation

When presenting reference regulation in well-established sectors, we normally start with “light” regulation. However, in the field of fight against money laundering and financing of terrorism, we start with medium-detailed regulation. Really light regulation does not serve the purpose because it leaves too many doors open. Even the medium-detailed national regulation we present here partly falls behind the model regulation developed at international level (see above I.) and thus merits improvements.

1. The law of the Maldives contains quite comprehensive empowerments and penal provisions. Furthermore it is interesting in so far as it covers liability issues and international cooperation. A further useful element is that NGOs are subject to reporting obligations as well, because some charity organisations are abused for financing terrorism.

2. For readers who look for reference regulation in French, we can recommend the law of Algeria and of Monaco.

3. The law of Uganda contains excellent enforcement provisions including detailed empowerments for state action. The law is also quite performing regarding penal aspects and international cooperation.

4. New Zealand disposes of a fully recommendable basic act. But even this quite complete basic act needs to be complemented by more detailed regulation. See in particular Section 153 which contains comprehensive empowerments for such complementing regulation.

5. If these examples do not suffice the honourable reader, s/he might wish to study the law of Canada which is equally available in French, and of Australia. Australia has also adopted useful complementing rules.

III. Particular aspects

Canada has set-up special provisions on the inclusion of virtual currencies.Virtual currencies play an important role in the “dark net”.

Indonesia has foreseen extensive witness protection provisions in Articles 40 to 43 of its act.

Malaysia has foreseen provisions on the standard of proof to be applied in the verification of conditions for state action.

Panama has set-up an interesting provision which creates a mutual link between the corporate and the individual responsibility:

Article 63. Corporate Responsibility. For the sole purpose of sanctions and the regulations adopted in its development, the Laws and conduct of management, officers, executives, administration or operations of the Reporting Entities, are attributable to the Reporting Entities and persons exercising activities on whose behalf they act.

On the other hand, natural persons, perpetrators of such actings and behaviors are subject to civil and criminal liability under the terms provided in this Law and the Criminal Code.”

The law of Saint Kitts has established a duty of economic operators to appoint compliance and reporting officers. Panama establishes an obligation for authorities to provide training to officers of financial institutions.

One key question is: who has to report on suspicious activities? The Maldives and the Bermudas include charities. Israel includes insurances. Mexico has set-up a long list of businesses or activities covered. It has set-up various limit-values to avoid disproportionate information flows which is certainly a useful technique. But the best example in terms of scope is to be found in the law of Armenia. Armenia has established a comprehensive list of institutions covered by its law and thereby constitutes best practice in this regard:

4) Reporting entities:

a. banks;

b. credit organizations;

c. persons engaged in dealer-broker foreign currency trading, foreign currency trading;

d. licensed persons providing cash (money) transfers;

e. persons rendering investment services in accordance with the Republic of Armenia Law on

Securities Market ;

f. central depositary for regulated market securities in accordance with the Republic of Armenia

Law on Securities Market;

g. insurance (including reinsurance) companies and insurance (including reinsurance) brokers;

h. pawnshops;

i. realtors (real estate agents);

j. notaries;

k. attorneys, as well as independent lawyers and firms providing legal services;

l. independent accountants and accounting firms;

m. independent auditors and auditing firms;

n. dealers in precious metals;

o. dealers in precious stones;

p. dealers in artworks;

q. organizers of auctions;

r. persons and casinos organizing prize games and lotteries, including the persons organizing internet prize games;

s. trust and company service providers;

t. credit bureaus, to which this Law shall apply only in relation to the obligation to submit suspicious transaction reports prescribed by Part 1 (3) of Article 5 of the Law;

u. the Authorized Body responsible for maintaining the integrated state cadastre of real estate, to which this Law shall apply only in relation to the obligation to submit the reports prescribed by Articles 5-7 in the manner established by Part 2 of Article 5, as well as in relation to the obligation prescribed by Part 6 of Article 27 of the Law;

v. the state body performing registration of legal persons (the State Registry), to which this Law shall apply only in relation to the obligation to submit reports prescribed by Articles 5-7 in the manner established by Part 2 of Article 5, as well as in relation to Article 9, and the to the obligation prescribed by Part 6 of Article 27 of the Law;”.

IV. Miss regulatory techniques

As we dispose of a cross-sector perspective, we dare to suppose that certain regulatory techniques found in other sectors might prove to be useful in the sector of fight against money laundering and terrorism financing as well:

1. Whistle-blower mechanisms: As mentioned above, we have found one example for witness protection: Indonesia. However, witness protection should be preceded by whistle-blowing portals or hotlines and postboxes, whistle-blowing protection (against sanctions) and whistle-blowing incentives. Some examples for such mechanisms can be found in Section 7.11.2 of the Handbook “How to regulate?”.

2. Cooperative criminals: Another type of incentive might be given to natural or legal persons ending their illicit activity, provided that they help to dismantle criminal networks. Such mechanism have been very successful in anti-trust law in various jurisdictions. Brazil‘s law n. 12,846/2013 foresees at least leniency agreements which might be used to that end.

3. Responsibility of associated / controlling companies: As illicit activities are often outsourced to daughter or sister companies, it is important to create a legal basis for holding mother and other associated companies liable. See Section 7.18 of the Handbook “How to regulate?”.

4. Internet blocking: Empowerments to block certain webpage are particularly important. Sometimes they are the only operational sanction against non-compliant operators outside the respective jurisdiction. International cooperation in this matter can evidently increase the power of this tool.

V. Further links

You wish to investigate further regulation? Please check:

– this page on “New trends in Asia”: http://www.regulationasia.com/sector/anti-money-laundering;

– the section “Criminal law” on http://policy.mofcom.gov.cn/english/flaw.action.

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