The Nature of the FIU from the Perspective of International Standards

Alhosani, Waleed

doi:10.1057/978-1-137-59455-6_4

Waleed Alhosani⁵

Part of the book series: Palgrave Studies in Risk, Crime and Society ((PSRCS))

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Abstract

In this chapter I discuss the FIU from the perspective of international standards. The FATF is considered to be a global standard setter for counteracting ML. In section “The General Features of the FATF”, I examine the Forty FATF Recommendations, which set out the international standards for combating ML, and I assess whether these Recommendations are obligatory and therefore have to be implemented and adopted by national anti-money laundering laws (NAMLL) in member states. I scrutinise the international requirements which reporting entities, such as banks and other financial institutions, have to discharge in relation to AML. This includes CDD measures, record keeping and STRs requirements. These requirements are essential for reporting entities to identify an STR and to determine whether or not to send the STR to the national FIU. In addition, it will be discussed how the FATF mechanism assists in assessing whether provisions of NAMLL are compatible with the Recommendations.

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Notes

1.
And now also for counteracting TF and the proliferation of weapons of mass destruction.
2.
The seven leading industrial countries in the world are the USA, the UK, France, Germany, Canada, Italy and Japan.
3.
Eight other countries were invited to the summit as well, namely Australia, Austria, Belgium, Luxembourg, the Netherlands, Spain, Sweden and Switzerland. See William C. Gilmore, Dirty Money – The Evaluation of International Measures to Counter Money Laundering and the Financing of Terrorism (Fourth Edition, Council of Europe 2011), 91.
4.
Jackie Johnson, ‘Little enthusiasm for enhanced CDD of the politically connected’ (2008) 11 (4) Journal of Money Laundering Control 291, 297.
5.
H.E. Ping, ‘The measures on combating money laundering and terrorist financing in the PRC: from the perspective of financial action task force’ (2008) 11 (4) Journal of Money Laundering Control 320, 321.
6.
For the revised FATF Recommendations 1996 in detail, see William C. Gilmore (n 272) 101–105.
7.
Ali Shazeeda A., Money Laundering Control in the Caribbean (Kluwer Law International 2003), 62.
8.
Mark Simpson, ‘International initiatives’ in Mark Simpson, Nicole Smith and Arun Srivastava (eds), International Guide to Money Laundering Law and Practice (Third Edition, Bloomsbury Professional 2010), 193 at 222.
9.
Commonwealth Secretariat, Combating Money Laundering and Terrorist Financing: A Model of Best Practice for the Financial Sector, the Professions and other Designated Businesses (Second Edition, Commonwealth Secretariat 2006), 21.
10.
Mark Simpson (n 277) 222.
11.
Commonwealth Secretariat (n 278) 21.
12.
William C. Gilmore (n 272) 109.
13.
Commonwealth Secretariat (n 278) 21 and William C. Gilmore (n 272) 109.
14.
The FATF Forty Recommendations, ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation’, February 2012. Available online at: http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf (accessed on 15th May 2015).
15.
Ibid.
16.
Which are Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, India, Ireland, Italy, Japan, the Netherlands, Luxembourg, Mexico, New Zealand, Norway, Portugal, Republic of Korea, the Russian Federation, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the UK and the US.
17.
Which are the EU and the Gulf Cooperation Council (GCC).
The GCC encompasses six member countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
18.
These are the following minimum entry conditions for any country wanting to become a member of the FATF:
1. 1.
  It should, strategically speaking, be an important state.
2. 2.
  It has to apply the FATF Recommendations for at least three years.
3. 3.
  The country has to carry out annual self-evaluation exercises in addition to two mutual assessments rounds.
4. 4.
  It has to pledge politically that it will prohibit ML.
5. 5.
  The country concerned must make it a criminal offence to launder the proceeds of serious crimes.
6. 6.
  The relevant country has to oblige the banking sector and other financial institutions, in its jurisdiction, to identify their customers and to adopt STRs.
7. 7.
  It must be a vital member of the relevant FATF-Style Regional Bodies (FSRBs), where such exist, or be ready to build cooperation with the FATF or to initiate the setting up of such a regional entity.
Doug Hopton, Money Laundering, A Concise Guide for All Business (Second Edition, Gower Publishing Limited 2009), 19.
See also ‘FATF membership policy’, 29 February 2008, available on the FATF website at: www.fatf-gafi.org (accessed on 15th November 2014).
19.
‘FATF members and observers’, available online at: http://www.fatf-gafi.org/pages/aboutus/membersandobservers (accessed on 18th May 2015).
20.
The FSRBs are:
1. 1.
  Asia/Pacific Group on ML (APG), see http://www.apgml.org (accessed on 24th October 2014).
2. 2.
  Caribbean Financial Action Task Force (CFATF), see http://www.cfatf-gafic.org (accessed on 24th October 2014).
3. 3.
  Eurasian Group (EAG), see http://www.eurasiangroup.org (accessed on 24th October 2014).
4. 4.
  Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), see http://www.esaamlg.org (accessed on 24th October 2014).
5. 5.
  The Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), see www.coe.int/moneyval (accessed on 27th October 2014).
6. 6.
  The Financial Action Task Force on ML in South America (GAFISUD), see http://www.gafisud.info (accessed on 27th October 2014).
7. 7.
  Inter-Governmental Action Group against ML in West Africa (GIABA), see www.giaba.org (accessed on 27th October 2014).
8. 8.
  Middle East and North Africa Financial Action Task Force (MENAFATF), see www.menafatf.org (accessed on 27th October 2014).
9. 9.
  The Group of International Finance Centre Supervisors (GIFCS), formally the Offshore Group of Banking Supervisors (OGBS), see www.ogbs.net (accessed on 27th October 2014).
Moreover, the OGBS is one of the FATF observers and the rest of the FSRBs are FATF Associate Members. See ‘FATF members and observers’ (n 288).
21.
Alain Damais, ‘The Financial Action Task Force’ in Wouter H. Muller, Christian H. Kalin and John G. Goldsworth (eds), Anti-Money Laundering: International Law and Practice (John Wiley & Sons Ltd., Chichester 2007), 69 at 77.
22.
Abdullahi Y. Shehu, ‘Promoting financial sector stability through an effective AML/CFT regime’ (2010) 13 (2) Journal of Money Laundering Control 139, 142.
In addition to FSRBs, the FATF has built strong relations with international organisations, such as the IMF and the World Bank. The FATF Recommendations have also gained acceptance at the international level. The World Bank and the IMF have also offered training and support to facilitate enhanced implementation of the FATF standards. Moreover, in 2002, the Executive Board of these two institutions accepted the FATF principles for counteracting ML. Following this, in 2005, the United Nations (UN) Security Council adopted the Resolution S/RES/1617 (2005) on 29 July in order encourage all its member countries to adopt and apply the FATF Recommendations.
The Resolution: “strongly urges all Member States to implement the comprehensive, international standards embodied in the Financial Action Task Force’s (FATF) Forty Recommendations on Money Laundering and the FATF Nine Special Recommendations on Terrorist Financing.”
23.
The FATF is an independent entity; however, it is situated within the Organisation for Economic Co-operation and Development (OECD).
Norman Mugarura, ‘The institutional framework against money laundering and its underlying predicate crimes’ (2011) 19 (2) Journal of Financial Regulation and Compliance 174, 182.
24.
Norman Mugarura (n 292) 182.
25.
Nicholas Ryder, Financial Crime in the 21st Century: Law and Policy (Edward Elgar Publishing Limited 2011), 16.
See also ‘FATF revised mandate 2008–2012’, available on the FATF website at: www.fatf-gafi.org (accessed on 30th October 2014).
26.
‘An introduction to the FATF and its work’ 2010, available on the FATF website at: www.fatf-gafi.org (accessed on 30th October 2013).
27.
Robin Booth and others, Money Laundering Law and Regulation: A Practical Guide (First Published, Oxford University Press 2011), 7.
28.
Alain Damais (n 290) 72.
See also ‘Mandate for the Future of the FATF, September 2004–December 2012’ and ‘FATF Revised Mandate 2008–2012’, also available on the FATF website.
29.
For further information about the FATF mandate, see ‘Financial Action Task Force Mandate (2012–2020)’ 20 April 2012, 4, available on the FATF website.
30.
The FATF Recommendations, ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation’ 2012 (n 283) 9.
31.
The FATF Recommendations, ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation’ 2012 (n 283).
32.
Ibid.
33.
These sanctions should also be compatible with the United Nations Security Council Resolutions in this regard. The FATF Recommendation 7 states that:

Countries should implement targeted financial sanctions to comply with United Nations Security Council resolutions relating to the prevention, suppression and disruption of proliferation of weapons of mass destruction and its financing. These resolutions require countries to freeze without delay the funds or other assets of, and to ensure that no funds and other assets are made available, directly or indirectly, to or for the benefit of, any person or entity designated by, or under the authority of, the United Nations Security Council under Chapter VII of the Charter of the United Nations.
34.
The FATF Recommendations, ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation’ (n 283) 9.
35.
Ibid 8.
36.
In addition to the General Glossary to all Recommendations, some Interpretative Notes contain a Glossary of specific terms, which are used in particular Recommendations.
The General Glossary to the Forty Recommendations and the Interpretative Notes to the Forty Recommendations are available online at: http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf (accessed on 30th November 2015).
37.
These categories are:
1. A.
  Policies and coordination in relation to counteracting ML and FT.
2. B.
  ML and confiscation.
3. C.
  TF and financing of proliferation.
4. D.
  Preventive measures.
5. E.
  Transparency and beneficial ownership of legal persons and arrangements.
6. F.
  Powers and responsibilities of competent authorities and other institutional measures.
7. G.
  International cooperation.
The FATF Recommendations, ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation’ (n 283) 4 & 5.
38.
Financial institutions are any natural or legal person who conducts a business in relation to one or more of the activities or operations listed in the General Glossary for or on behalf of a customer. The General Glossary (n 308).
39.
DNFBPs comprise dealers in precious metals and stones, casinos, real estate agents and professionals, such as lawyers and accountants. For more details about DNFBPs, see the General Glossary (n 308).
40.
In addition, there are Recommendations which deal with methods to increase international cooperation. This category of the FATF Recommendations solely deals with international cooperation amongst countries for the purpose of combating ML. The Recommendations introduce three types of international cooperation: (1) FATF Recommendation 37 deals with mutual legal assistance; (2) FATF Recommendation 39 addresses extradition requests, for example ML is an extraditable offence which has to be respected by countries; and (3) FATF Recommendation 40 deals with information sharing between competent authorities and their foreign counterparts.
41.
FATF Recommendations 1 to 4.
42.
FATF Recommendation 1.
43.
The Interpretative Note to Recommendation 1 provides further detail in relation to RBAs.
44.
FATF Recommendation 2.
45.
Ibid.
Moreover, criminal law and criminal procedures have also to be brought in line. The FATF Recommendation 3 emphasises that countries have to criminalise ML, particularly following the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (The Vienna Convention) and the 2000 United Nations Convention against Transnational Organised Crime (The Palermo Convention).
46.
These approaches include:
1. 1.
  Using an all-offences basis, or
2. 2.
  Using the “threshold” approach which means a threshold is connected either to the punishment of imprisonment applicable to the predicate offence or to a group of serious offences, or
3. 3.
  Adopting a list of predicate offences, or
4. 4.
  Undertaking a combination of such systems.
For additional information, see the Interpretative Note to Recommendation 3.
47.
According to the General Glossary, the term “designated categories of offences” comprises 21 offences, such as participation in an organised criminal group and racketeering, fraud and illicit trafficking in narcotic drugs and psychotropic substances. There were 20 offences in the 2003 Forty Recommendations, and the revised Recommendations 2012 add the new offence of tax crimes (relating to direct or indirect taxes). For additional information, see the General Glossary (n 308).
Moreover, FATF Recommendation 4 requires countries to adopt the same procedures as set out in the 1988 and the 2000 UN Conventions in order to ensure that countries’ administrative and LEAs are able to identify the instrumentalities of crime and its proceeds, prevent illegal proceeds from escaping and ultimately to confiscate the proceeds.
Ann-Cheong Pang, ‘International Legal Sources III-FATF Recommendations’ in William Blair and Richard Brent (eds), Banks and Financial crime: the International Law of Tainted Money (Oxford University Press 2008), 87 at 92.
48.
FATF Recommendations 9 to 23, whilst Recommendations 5 to 8 deal with TF and the financing of proliferation.
49.
FATF Recommendation 9.
50.
Or Know Your Customer (KYC) procedure, which means that the complete profile of the customer is collected. KYC is narrower than the CDD procedure.
See Louis De Koker, ‘Money laundering control and suppression of financing of terrorism: some thoughts on the impact of customer due diligence measures on financial exclusion’ (2006) 13 (1) Journal of Financial Crime 26, 28.
51.
Or “beneficial owners” which have been defined in the General Glossary as the “natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.”
52.
These measures are detailed in Recommendation 10 and will be analysed in Chap. 7.
Most important is that financial institutions have to terminate the business relationship with a customer, refuse to open accounts or perform transactions in cases where they are unable to conduct CDD measures, as set forth in Recommendation 10.
53.
If the occasional transaction exceeds the designated threshold (USD/EUR15,000) or in cases of wire transfers set forth in the Interpretative Note to Recommendation 16.
54.
FATF Recommendation 10.
Pursuant to the General Glossary, the term “identification data” means documents, data or information which is reliable and constitutes an independent source.
55.
See FATF Recommendation 10 and its Interpretative Note.
56.
FATF Recommendation 12.
Foreign PEPs refer to “individuals who are or have been entrusted with prominent public functions by a foreign country, for example Heads of State or government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials,” whilst domestic PEPs refer to “individuals who are or have been entrusted domestically with prominent public functions, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials” and International organisation PEPs refer to “persons who are or have been entrusted with a prominent function by an international organisation refers to members of senior management, i.e. directors, deputy directors and members of the board or equivalent functions.” See the General Glossary (n 308).
57.
FATF Recommendation 13.
58.
The term “shell bank” means “a bank that has no physical presence in the country in which it is incorporated and licensed and which is unaffiliated with a regulated financial group that is subject to effective consolidated supervision. Physical presence means meaningful mind and management located within a country. The mere existence of a local agent or low level staff does not constitute physical presence,” see the General Glossary (n 308).
59.
Interpretative Note to FATF Recommendation 10.
For further details about the levels of CDD, see the first section of Chap. 7.
60.
MVTS are “financial services that involve the acceptance of cash, cheques, other monetary instruments or other stores of value and the payment of a corresponding sum in cash or other form to a beneficiary by means of a communication, message, transfer, or through a clearing network to which the MVTS provider belongs. Transactions performed by such services can involve one or more intermediaries and a final payment to a third party, and may include any new payment methods. Sometimes these services have ties to particular geographic regions and are described using a variety of specific terms, including hawala, hundi, and fei-chen,” see the General Glossary (n 308).
61.
FATF Recommendation 14 and its Interpretative Note.
62.
FATF Recommendation 15.
63.
FATF Recommendation 16 and its Interpretative Note.
64.
FATF Recommendation 19.
65.
Examples of such countermeasures have been provided in the Interpretative Note to FATF Recommendation 19.
66.
Such as copies of driving licences, identity cards and passports.
67.
FATF Recommendation 11.
68.
For the meaning of “suspicion” and “reasonable grounds for suspicion,” see Chaps. 7 and 8.
69.
Or TF, FATF Recommendation 20.
70.
FATF Recommendation 20.
71.
This will be analysed in section “The Function of the FIU in Counteracting the ML Process” below.
72.
FATF Recommendation 21(a) provides that financial institutions, which divulge information about the STR to the FIU, so long as done in good faith, should be immune from any criminal/civil liability, including breach of contract, legislation, regulation or any other administrative provision.
73.
FATF Recommendation 18.
74.
FATF Recommendation 18 and its Interpretative Note.
75.
FATF Recommendation 21(b).
Tipping off offences will be analysed in Chaps. 5 and 8.
Under FATF Recommendations 22 and 23, DNFBPs have also to adopt CDD measures, comply with record keeping procedures and STRs requirements. Additionally, regulatory and supervisory entities should ensure that financial institutions implement the FATF Recommendations dealing with CDD measures, record keeping procedures and STRs. The regulatory and supervisory measures have also to be imposed on DNFBPs. See FATF Recommendations 26 and 28 along with their Interpretative Notes.
76.
FATF Recommendations 24 to 35.
77.
FATF Recommendation 29; the FIU will be critically analysed in detail in section “The Function of the FIU in Counteracting the ML Process” below.
78.
The term “supervisors” is defined in the General Glossary as “the designated competent authorities or non-public bodies with responsibilities aimed at ensuring compliance by financial institutions (financial supervisors) and/or DNFBPs with requirements to combat money laundering and terrorist financing. Non-public bodies (which could include certain types of SRBs) should have the power to supervise and sanction financial institutions or DNFBPs in relation to the AML/CFT requirements. These non-public bodies should also be empowered by law to exercise the functions they perform, and be supervised by a competent authority in relation to such functions.”
79.
FATF Recommendation 27.
80.
Interpretative Note to Recommendation 26.
81.
FATF Recommendations 30 & 31.
82.
In relation to investigations, competent authorities must be aware of investigative techniques so that they can access computer systems, conduct undercover operations and intercept communications. Most importantly, competent authorities have to able to identify particular assets without the owner being informed. FATF Recommendation 31.
83.
FATF Recommendation 33.
Moreover, pursuant to Recommendations 24 and 25, countries are required to adopt preventive measures to preclude money launderers from exploiting “legal persons” and/or “legal arrangements.”
For the meaning of “legal persons” and “legal arrangements,” see the General Glossary (n 308).
84.
In addition, a variety of effective and dissuasive criminal, civil or administrative sanctions can be employed by all countries and imposed upon legal and natural persons who fail to fulfil AML requirements. These sanctions do not have to be limited to financial institutions and DNFBPs, but can also be extended to their directors and senior management. FATF Recommendations 35.
85.
James Thuo Gathii, ‘The Financial Action Task Force and Global Administrative Law’ [2010] Paper No. 10-10 Journal of the Professional Lawyer, Forthcoming; Albany Law School Research 1. Available online at: http://ssrn.com/abstract=1621877 (accessed on 26th October 2014).
86.
Neil Jensen and Png-Cheong Ann, ‘Implementation of the FATF 40 + 9 Recommendations: a perspective from developing countries’ (2011) 14 (2) Journal of Money Laundering Control 110, 113.
87.
Barbara Crutchfield George and Kathleen A. Lacey, ‘Crackdown on Money Laundering: A Comparative Analysis of the Feasibility and Effectiveness of Domestic and Multilateral Policy Reforms’ (January 1, 2003) 23 (2) Northwestern Journal of International Law & Business 1, 54.
88.
Pursuant to FATF Recommendation 19, see (n 338).
This occurred in the case of Turkey in 1996. For more details, see Norman Mugarura (n 292) 185.
89.
For additional information about this case, see Mark Simpson (n 277) 224.
See also Norman Mugarura (n 292) 185.
90.
Namely, Iran and the Democratic People’s Republic of Korea (DPRK).
The other jurisdictions with strategic AML/CFT deficiencies are Algeria, Ecuador, Ethiopia, Indonesia, Kenya, Myanmar, Pakistan, Syria, Tanzania, Turkey and Yemen.
See FATF Public Statement, ‘High-risk and non-cooperative jurisdictions, jurisdictions for which an FATF call for action applies’ published by the FATF on 18 October 2013, available online at: http://www.fatf-gafi.org/topics/high-riskandnon-cooperativejurisdictions/documents/fatf-public-statement-oct-2013.html (accessed on 2nd November 2014).
91.
Paul Hynes, Nathaniel Rudolf and Richard Furlong, International Money Laundering and Terrorist Financing: A UK Perspective (First Edition, Sweet & Maxwell/Thomson Reuters 2009), 461.
92.
Philip J. Ruce, ‘The Bank Secrecy Act: Considerations for Continuing Banking Relationships After the Filing of a Suspicious Activity Report’ (December 5, 2011) 30 (1) Quinnipiac Law Review 43, 65 & 66. Available at SSRN: http://ssrn.com/abstract=1968413 (accessed on 16th December 2013).
93.
Where the FATF conducts MERs for its members and each FSRB conducts MERs for its members.
94.
In addition to combating TF.
95.
Mark Simpson (n 277) 223.
96.
The FATF observers are listed on the FATF website and have a specific AML mission and other functions. For more detail, see www.fatf-gafi.org (accessed on 29th October 2014).
To become an FATF observer, see ‘FATF policy on observers’, June 2008, available on the FATF website at: www.fatf-gafi.org (accessed on 29th October 2013).
See also Laurel S. Terry, ‘An Introduction to the Financial Action Task Force and its 2008 Lawyer Guidance’ [2010] Journal of the Professional Lawyer 3, 8.
Available at SSRN: http://ssrn.com/abstract=1680555 (accessed on 29th October 2014).
97.
The assessor team usually visits and meets with the officials in the examined country for two weeks and then issues its draft MER. For further details, see David Chaikin, ‘How effective are suspicious transaction reporting systems?’ (2009) 12 (3) Journal of Money Laundering Control 238, 242.
98.
Which are Compliant (C), Largely Compliant (LC), Partially Compliant (PC), Non-Compliant (NC) and Not applicable (NA). For further details regarding compliance ratings, see FATF Reference Document, ‘Methodology for Assessing Compliance with the FATF 40 Recommendations and FATF 9 Special Recommendations’ 27 February 2004 (updated as of February 2009).
See also FATF Reference Document, ‘Methodology for assessing technical compliance with the FATF Recommendations and the Effectiveness of AML/CFT systems’ February 2013. Available on the FATF website at: www.fatf-gafi.org (accessed on 19th February 2015).
99.
As it becomes available on the FATF or the relevant FSRB website.
100.
FATF Reference Document, ‘Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations’ October 2013, 19, available online at: www.fatf-gafi.org/media/fatf/…/FATF-4th-Round-Procedures.pdf (accessed on 29th March 2015).
101.
A regular follow-up is the default mechanism to realise an ongoing monitoring system and all members are subjected to this mechanism. In addition, the plenary may decide to subject a country to an enhanced follow-up and in such an instance a country has to report back more frequently. The decision to subject a country to an enhanced follow-up depends on the following elements:
“(a) After the discussion of the MER: a country will be placed immediately into enhanced follow-up if any one of the following applies:
1. (i)
  it has 8 or more NC/PC ratings for technical compliance, or
2. (ii)
  it is rated NC/PC on any one or more of R.3, 5, 10, 11 and 20, or
3. (iii)
  it has a low or moderate level of effectiveness for 7 or more of the 11 effectiveness outcomes, or
4. (iv)
  it has a low level of effectiveness for 4 or more of the 11 effectiveness outcomes.
(b) After the discussion of a follow-up report: the Plenary could decide to place the country into enhanced follow-up at any stage in the regular follow-up process, if a significant number of priority actions have not been adequately addressed on a timely basis.”
However, a follow-up assessment about its MER takes place after five years, irrespective of whether it has been placed under a regular or enhanced follow-up.
For further details about the procedures of regular/enhanced follow-ups and follow-up assessments, see FATF Reference Document, ‘Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations’ (n 374) 18–21.
102.
As happened with the UK’s ME. Its MER was published on 29 June 2007 and its follow-up report was published on 16 October 2009. The UK’s MER and its follow-up report are available on the FATF website at: www.fatf-gafi.org (accessed on 20th September 2014).
103.
David Chaikin (n 371) 243.
104.
Jensen Neil and Ann Png-Cheong (n 360) 111.
105.
(N 372).
106.
April 2009, available on the FATF website at: www.fatf-gafi.org (accessed on 20th September 2014).
107.
Ann-Cheong Pang (n 320) 90.
108.
As occurred with the UAE ME 2008, where the evaluation was firstly conducted by the IMF, and was then discussed and adopted as a MER in the MENAFATF and FATF plenary meeting. The UAE MER will be analysed in the following chapter.
109.
This goes back more than 20 years. For further details, see Kilian Strauss, ‘The Situation of Financial Intelligence Units in Central and Eastern Europe and the Former Soviet Union’ [November 2010] Working Paper Series No 09 Basel Institute on Governance, 6. Available online at: http://unpan1.un.org/intradoc/groups/public/documents/UN-DPADM/UNPAN044510.pdf (accessed on 18th March 2015).
110.
International Monetary Fund Handbook, Financial Intelligence Units: An Overview (International Monetary Fund 2004), available online at: http://www.imf.org/external/pubs/ft/fiu/fiu.pdf (accessed on 7th November 2014).
111.
Comprising representatives from the countries of Australia, Austria, Belgium, Canada, France, Finland, Germany, Italy, Japan, Monaco, the Netherlands, New Zealand, Slovenia, Sweden, the UK and the US and the observers from a number of international organisations, such as the EC and the FATF.
See Andrew Clark and Matthew Russell, ‘Reporting Regimes’ in Andrew Clark and Peter Burrell (eds), A Practitioner’s Guide to International Money Laundering Law and Regulation (City & Financial Publishing 2003), 115 at 116.
112.
See www.egmontgroup.org (accessed on 24th November 2014).
113.
Ibid.
114.
Currently, there are 156 FIU members in the Egmont Group. The UK and the UAE FIUs are members.
See Appendix A for the list of Egmont Group members in ‘The Egmont Group Annual Report (2012–2013)’, available online at: www.egmontgroup.org/library/download/314 (accessed on 22nd March 2015).
115.
And counteracting TF.
116.
Egmont Group, ‘Information Paper on Financial Intelligence Units and the Egmont Group’, (September 2004), 3, available online at the Egmont Group website mentioned above.
117.
H. Freis James, ‘Global Markets and Global Vulnerabilities: Fighting Transnational Crime Through Financial Intelligence’ (April 25, 2008) Financial Crimes Enforcement Networks U.S. Department of the Treasury 1, 11. Available online at: http://www.fincen.gov/news_room/speech/html/20080425.html (accessed on 8th November 2014).
118.
The Egmont Group defines an FIU as:
A central, national agency responsible for receiving (and as permitted, requesting), analysing and disseminating to the competent authorities, disclosures of financial information:
1. (i)
  concerning suspected proceeds of crime and potential financing of terrorism, or
2. (ii)
  required by national legislation or regulation,
in order to combat money laundering and terrorism financing. See “Interpretive Note Concerning the Egmont Definition of a Financial Intelligence Unit” (undated), 1 & 2, available online at the Egmont Group website mentioned above.
It should be noted that the Egmont Group adopted the definition of an FIU in 1996 and amended it in June 2004 to illustrate the role of the FIU in counteracting TF. Moreover, such definition has been agreed by the Palermo Convention 2000 and the 2005 UN Convention against Corruption. See (n. 25 & 26) of Chap. 1.
The UK ratified Palermo Convention 2000 in 2006 and the UAE in 2007. In addition, the UK and the UAE ratified the UN Convention against Corruption in 2006.
119.
The Egmont Group has also published various documents, for example, “Principles for Information Exchange” and “Best Practices for the Exchange of Information” in order to foster information exchange amongst FIUs and to promulgate exchange of information guidelines. All of these documents and others, such as (Statement of Purpose: Guernsey, 23rd June 2004), are available online at the Egmont Group website mentioned above. Within the Egmont Group, there are five working groups, which deal with overcoming global AML obstacles: the Legal Working Group (LWG), the Outreach Working Group (OWG), the Training Working Group (TWG), the Operational Working Group (OpWG) and the IT Working Group (ITWG).
Wouter Muller, ‘The Egmont Group’ in Wouter H. Muller, Christian H. Kalin and John G. Goldsworth (eds), Anti-Money Laundering: International Law and Practice (John Wiley & Sons Ltd., Chichester 2007), 83 at 89 & 90.
See also Egmont Group, “Information Paper on Financial Intelligence Units and the Egmont Group” (n 390) 3 & 4.
In addition, such working groups meet on a periodical basis and report to the Heads of FIUs about their functions. See “The Egmont Group Annual Report (June 2009–July 2010),” 19, available online at: www.egmontgroup.org/library/download/99 (accessed on 8th November 2014).
120.
It is worth noting that the name of FIU could be different from one country to another, for example the name in the UAE is AMLSCU within the Central Bank, in the UK it is FIU and is within the NCA, as will be analysed in Chaps. 5, 6 and 9.
121.
It should be mentioned that some jurisdictions, such as the UK, adopt the term “SARs” and other jurisdictions, such as the UAE, adopt the term “STRs.” In fact, the term “transaction” is slightly narrower than the term “activity,” especially because suspicious transactions do not include suspicious activities; in contrast, the latter include suspicious transactions, as well as other conditions which increase suspicion regarding illicit activities. Nevertheless, such a difference could be resolved, especially when a number of countries require that the reporting institutions have to report unexecuted transactions for suspicious reasons. See International Monetary Fund Handbook (n 384) 42.
See also Philip J. Ruce, ‘The Bank Secrecy Act: The Not-so-Safe Harbor Provision and the Whitney Rule’s Double Standard for SAR Supporting Documentation’ (July/August 2011) 3 (7) Financial Fraud Law Report 608, 612, available online at: http://ssrn.com/abstract=1866455 (accessed on 11th December 2014).
122.
DNFBPs are identified according to the national legislation of a country.
123.
The notion of “knowledge” will be discussed in Chap. 7.
124.
The notion of “suspicion” and “reasonable grounds to suspect” will be analysed in Chaps. 7 and 8.
125.
Which are predicate offences for the purpose of ML. These predicate offences are usually listed in the national legislation of an individual country.
126.
Paul Allan Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism (Second Edition and Supplement on Special Recommendation IX, 2006 The World Bank), VI-21.
127.
Besides receiving the STRs, there is a cash transactions reporting systemfor when a transaction exceeds a fixed amount. The requirements of this system are subjected to the national legislation of a country. This will be illustrated later in the present chapter.
128.
Such as the UAE, where Article 20 of the FLMLC 2002 provides immunity, as illustrated in (n 623) of Chap. 5. The UK’s AML system also grants immunity, as analysed in Chap. 8.
129.
Abdullahi Y. Shehu (n 291) 146.
130.
In accordance with the internal criteria of the particular FIU. International Monetary Fund Handbook (n 384) 56.
131.
Ibid 56 & 57.
132.
H. Freis James (n 391) 15.
133.
Richard K. Gordon, ‘Losing the War Against Dirty Money: Rethinking Global Standards on Preventing Money Laundering and Terrorism Financing’ [May 4, 2010] Paper No. 2010–20 Case Legal Studies Research 1, 43. Available online at SSRN: http://ssrn.com/abstract=1600348 (accessed on 10th November 2014).
134.
Such as a former STR.
135.
Such as company status, accounting bodies and audit companies.
136.
Like police records, tax records and vehicle registries.
137.
International Monetary Fund Handbook (n 384) 58.
138.
Richard K. Gordon (n 407) 43.
139.
Jayesh D’Souza, Terrorist financing, money laundering and tax evasion – Examining the performance of Financial Intelligence Unit (Taylor & Francis Group, LLC 2012), Xiv.
140.
International Monetary Fund Handbook (n 384) 89.
141.
Jayesh D’Souza (n 413) Xiv.
142.
Richard K. Gordon (n 407) 48.
143.
Jayesh D’Souza (n 413) Xiv.
144.
International Monetary Fund Handbook (n 384) 89.
145.
It should be noted that when the FIU transmits the STR file to the competent authority, the original/initial STR, which was provided by the reporting entity, could constitute a small part of the whole STR file. International Monetary Fund Handbook (n 384) 57.
146.
Ibid 60 & 61.
147.
Paul Allan Schott (n 400) VII-8.
148.
Such as customs and tax authorities. Jayesh D’Souza (n 413) Xv.
149.
This is according to the national legislations of an individual country.
150.
Jayesh D’Souza (n 413) Xv.
151.
Paul Allan Schott (n 400) VII-9.
152.
See (n 393).
153.
Paul Allan Schott (n 400) VII-17.
154.
International Monetary Fund Handbook (n 384) 79 & 80.
155.
Paul Allan Schott (n 400) VII-23.
156.
Richard K. Gordon (n 407) 48.
157.
Ibid.
158.
This is according to the national legislations of an individual country. See International Monetary Fund Handbook (n 384) 70–81.
159.
There is no internationally clear and accepted definition for the term “financial crime”; however, the IMF has noted that the term includes any crime which results in a financial loss, such as financial fraud and non-violent illegal activities, such as ML and tax evasion. International Monetary Fund, Financial System Abuse, Financial Crime and Money Laundering – Background Paper, (International Monetary Fund 2001), 3. Available online at: http://www.imf.org/external/np/ml/2001/eng/021201.pdf (accessed on 16th November 2014).
160.
International Monetary Fund Handbook (n 384) 29.
161.
For further details, see Andrew Clark and Matthew Russell (n 385) 127–129.
162.
As in the case of the FIU in Slovenia which is called the Office for Money Laundering Prevention (OMLP). For further information on OMLP, see http://www.uppd.gov.si/en/about_the_office/ (accessed on 13th May 2015).
163.
As in the case of the UAE FIU which will be critically analysed in Chap. 5.
164.
International Monetary Fund Handbook (n 384) 11.
165.
‘The Egmont Group Annual Report (June 2009–July 2010)’ (n 393) 15.
166.
International Monetary Fund Handbook (n 384) 11.
167.
Ibid.
168.
Andrew Clark and Matthew Russell (n 385) 125.
169.
International Monetary Fund Handbook (n 384) 10–11.
170.
Jayesh D’Souza (n 413) Xi.
171.
International Monetary Fund Handbook (n 384) 12.
172.
Ibid 11.
173.
As in the case of the UAE FIU, see Chap. 5.
174.
International Monetary Fund Handbook (n 384) 11.
175.
Jayesh D’Souza (n 413) Xi.
176.
Ibid.
177.
The UAE FIU will be critically analysed in Chap. 5.
178.
Paul Allan Schott (n 400) VII-12.
179.
Andrew Clark and Matthew Russell (n 385) 124.
180.
In this case, the judicial supervision will be applied in the same manner as to LEAs in the concerned country. See International Monetary Fund Handbook (n 384) 14.
181.
Ibid.
182.
Paul Allan Schott (n 400) VII-12.
183.
Andrew Clark and Matthew Russell (n 385) 124.
184.
Other than ML or TF. Jayesh D’Souza (n 413) Xi.
185.
Paul Allan Schott (n 400) VII-12.
186.
International Monetary Fund Handbook (n 384) 14.
187.
Ibid.
188.
The UK FIU will be assessed in Chap. 9.
189.
Jayesh D’Souza (n 413) Xii.
190.
Andrew Clark and Matthew Russell (n 385) 123 & 124.
191.
Luxembourg and Cyprus adopt the prosecutorial model FIU. Paul Allan Schott (n 400) VII-14.
192.
International Monetary Fund Handbook (n 384) 60.
193.
Andrew Clark and Matthew Russell (n 385) 123.
194.
International Monetary Fund Handbook (n 384) 16.
195.
Ibid.
196.
Namely the FIU often has limited powers for gathering evidence, ibid.
197.
Ibid.
198.
‘The Egmont Group Annual Report (June 2009–July 2010)’ (n 393) 17.
199.
Andrew Clark and Matthew Russell (n 385) 126.
200.
Ibid.
201.
International Monetary Fund Handbook (n 384) 17.
202.
Andrew Clark and Matthew Russell (n 385) 126.
203.
International Monetary Fund Handbook (n 384) 17.
It is worth noting that 80 member states of the Egmont Group have adopted the administrative FIU model, whilst 28 have adopted the law enforcement FIU model. In addition, eight member states have adopted the hybrid FIU model and just four have adopted the judicial/prosecutorial FIU model. See ‘The Egmont Group Annual Report (June 2009–July 2010)’ (n 393) 18.
204.
‘The Egmont Group Annual Report (June 2009–July 2010)’ (n 393) 18.
205.
As is the case with the UAE FIU, which does not have the power to freeze transactions, though the Central Bank has this power, as analysed in Chap. 5.
206.
As in the case with the UAE FIU, where the vast majority of STRs are analysed by Central Bank employees, who are located outside the UAE FIU, as critically analysed in Chaps. 5 and 6.
207.
“The Egmont Group Annual Report (June 2009–July 2010)” (n 393) 18.
208.
As in the case of the UK FIU, which can freeze transactions, as analysed in Chap. 8.
209.
As in the case of the UK FIU, which provides general/specific feedback to the reporting entities, as evaluated in Chap. 9.
210.
As in the case with the UK FIU, which will be evaluated in Chap. 9.
211.
For instance, in the UAE, there are some cities which have their own judicial and police system and are not governed by the federal one; see Chap. 6.
212.
‘The Egmont Group Annual Report (June 2009–July 2010)’ (n 393) 18.
213.
International Monetary Fund Handbook (n 384) 17.
Furthermore, in the context of issuing the 2001 FATF Special Recommendations, the Special Recommendation IV extended the authority of the “competent authorities” from receiving suspicious transactions on ML to receiving suspicious transactions on TF.
214.
The General Glossary states that the term “competent authorities” refers to “all public authorities with designated responsibilities for combating money laundering and/or terrorist financing. In particular, this includes the FIU; the authorities that have the function of investigating and/or prosecuting money laundering, associated predicate offences and terrorist financing, and seizing/freezing and confiscating criminal assets; authorities receiving reports on cross-border transportation of currency & BNIs; and authorities that have AML/CFT supervisory or monitoring responsibilities aimed at ensuring compliance by financial institutions and DNFBPs with AML/CFT requirements. SRBs are not to be regarded as a competent authorities.” The General Glossary to the Forty Recommendations (n 308).
215.
Recommendation 26 of the 2003 revision mentioned the term “FIU” and its authorities in relation to STRs on ML and stated that:

Countries should establish a FIU that serves as a national centre for the receiving (and, as permitted, requesting), analysis and dissemination of STR and other information regarding potential money laundering or terrorist financing. The FIU should have access, directly or indirectly, on a timely basis to the financial, administrative and law enforcement information that it requires to properly undertake its functions, including the analysis of STR.
216.
(N 392).
217.
An electronic link between the entities is therefore essential.
218.
The Interpretative Note to the FATF Recommendation 26 (the 2003 FATF Recommendations revision) only states that:

Where a country has created a FIU, it should consider applying for membership in the Egmont Group. Countries should have regard to the Egmont Group Statement of Purpose, and its Principles for Information Exchange between Financial Intelligence Units for Money Laundering Cases. These documents set out important guidance concerning the role and functions of FIUs, and the mechanisms for exchanging information between FIU.

The Interpretative Note only emphasised the international cooperation aspects, for example the “Egmont Group Statement of Purpose” information exchange between the FIUs. The Interpretative Note did not add any useful information about the core or additional FIU functions or the types of the FIUs.
219.
As is the case in the UAE where the FIU is within the Central Bank. This will be critically analysed in Chap. 5.
220.
FATF Reference Document, ‘Methodology for assessing technical compliance with the FATF Recommendations and the Effectiveness of AML/CFT systems’ (n 372) 74.
221.
Ibid 80.
222.
The FIU should have “authority and capacity to carry out its functions freely, including the autonomous decision to analyse, request and/or forward or disseminate specific information.” FATF Reference Document, ‘Methodology for assessing technical compliance with the FATF Recommendations and the Effectiveness of AML/CFT systems’ (n 372) 74.
223.
‘Methodology for Assessing Compliance with the FATF 40 Recommendations and FATF 9 Special Recommendations’ (n 372) 34.
224.
Which were discussed above.
FATF Recommendations 32 and its Interpretative Note require all countries to adopt a “declaration system” and/or “disclosure system” in order to address three issues, namely (1) detect physical cross-border transportation of currency and BNIs; (2) prevent, restrain or confiscate currency and BNIs in suspicious cases which are associated with ML; and (3) stop or restrain currency or BNIs in cases of false declaration or disclosure and impose appropriate sanctions in these cases. Moreover, according to the Glossary of specific terms, false declaration means: “a misrepresentation of the value of currency or BNIs being transported, or a misrepresentation of other relevant data which is required for submission in the declaration or otherwise requested by the authorities. This includes failing to make a declaration as required,” and false disclosure means: “a misrepresentation of the value of currency or BNIs being transported, or a misrepresentation of other relevant data which is asked for upon request in the disclosure or otherwise requested by the authorities. This includes failing to make a disclosure as required.”
The term “declaration system” means that any person has to submit a truthful declaration to the designated competent authorities if he or she made a physical cross-border transportation of currency or BNIs of a value which is over the maximum threshold of USD/EUR15,000. The “disclosure system” means that a traveller is obliged to give the authorities a truthful answer when being request to do so. The declaration could be either through a written system or an oral system. The written system could apply to all travellers or to travellers who carry an amount of currency or BNIs, which exceed the threshold. See the Interpretative Note to FATF Recommendation 32.
225.
For example statistics about ML investigations and convictions. FATF Recommendation 33.
226.
Ann-Cheong Pang (n 320) 95.
227.
FATF Recommendation 34.
228.
General feedback may comprise:
1. 1.
  Clear ML activity cases.
2. 2.
  The numbers of STRs in relation to ML and the results of analysing the STRs, for example, what total percentage of STRs were received in a year and how many have been disseminated to the competent authority for investigation or prosecution.
3. 3.
  Current trends, techniques and patterns in relation to ML.
Specific or case by case feedback could encompass:
1. 1.
  The result of analysing individual STRs and the decisions of the FIU on whether to disseminate it to the competent authority or the decision that there was no suspicious ML activity involved in the particular transaction.
2. 2.
  Illustrating any deficiencies about the reported STR.
See FATF Reference Document, ‘Methodology for Assessing Compliance with the FATF 40 Recommendations and the FATF 9 Special Recommendations’ (n 372) 33.
229.
Paul Allan Schott (n 400) VII-23.
230.
FATF Recommendation 2.
231.
FATF Recommendation 40.
At the international level, the methodology adds that national FIUs should be legally entitled on behalf of foreign FIUs to undertake the following tasks:
1. 1.
  Search its own databases, notably for information about STRs.
2. 2.
  With direct or indirect access, search other databases, such as public databases, law enforcement databases and commercially available databases.
FATF Reference Document, ‘Methodology for Assessing Compliance with the FATF 40 Recommendations and the FATF 9 Special Recommendations’ (n 372) 46.
See also FATF Reference Document, ‘Methodology for assessing technical compliance with the FATF Recommendations and the Effectiveness of AML/CFT systems’ (n 372) 86–89.
232.
International Monetary Fund Handbook (n 384) 91.
233.
FATF Recommendation 29.
234.
It is worth noting that the CCA 2013 explicitly requires the NCA to store STRs received from the reporting entities, as analysed in Chap. 9. This is unlike the UAE AML system, which does not require that the AMLSCU stores the STRs.
235.
Interpretative Note to FATF Recommendation 29.
236.
Interpretative Note to FATF Recommendation 29.
237.
If it is concluded that there is no suspicion of ML activity involved in the particular STR.
238.
FATF Recommendation 31.
239.
This is unlike the AMLSCU in the UAE, which does not have the legal authority to request additional information, as critically analysed in Chaps. 5 and 6.
240.
Interpretative Note to FATF Recommendation 29.
241.
Ibid.
242.
In addition, the Interpretative Note emphasises the importance of international cooperation, for example the “Egmont Group Statement of Purpose^” and also the information exchange between FIUs at the international level. The Interpretative Notes also call FIUs to apply for membership in the Egmont Group.
243.
Paul Allan Schott (n 400) VI-24 & VI-25.
244.
Interpretative Note to FATF Recommendation 18.

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Dubai Public Prosecution, SHARJAH, UAE
Dr. Waleed Alhosani (Assistant Chief Prosecutor)

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Alhosani, W. (2016). The Nature of the FIU from the Perspective of International Standards. In: Anti-Money Laundering. Palgrave Studies in Risk, Crime and Society. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-59455-6_4

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DOI: https://doi.org/10.1057/978-1-137-59455-6_4
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