Anti-Money Laundering is an endeavour in the fight against criminal activity to prevent dirty money from being converted into clean money, a process referred to as money laundering. This is essentially a process whereby the proceeds of criminal activity, which can generate vast sums of money, are converted into seemingly legitimate funds or other property. The aim of the money launderer is to conceal the illegality these funds and to ‘legitimise’ them by placing the proceeds of illegal behaviour into the financial and business system without arousing suspicion. This is done by disguising the sources, changing the form, or moving the illegal funds to a place where they are less likely to attract attention.
Terrorist financing is the processing of funds with the aim of subsidising or aiding terrorist activity. Terrorist activity is financed through legal and illegal funds, with persons involved being sometimes unaware of the intended destination of such funds. As FIDIS explains, terrorist financing investigation differs slightly from money laundering investigation because “In terrorist financing …. the investigation is done in order to prevent individuals [from] gain[ing] access to funds that could finance future criminal activity and, therefore, it is done in order to prevent a crime from happening. The monitoring of financial transactions with the purpose of identifying terrorist financers, therefore, must take into account the intentions of those engaging in the financial transactions observed”.
Due to strict anti-money laundering legislation which regulates the banking and financial services sector in many jurisdictions, large, unaccounted-for sums of cash can no longer be deposited into banks and other financial services without raising suspicion. Thus, money laundering occurs through other sectors and through retail businesses which could allow the concealment and subsequent use of illegally obtained funds. For this reason, anti-money laundering regulation must be applied to other sectors for the purpose of detecting attempted ‘legitimisation’ of illegal funds.
The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is to set standards and to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing, the financing of the proliferation of weapons of mass destruction and other related threats to the integrity of the international financial system. It also works to identify vulnerabilities at national level with the aim of protecting the international financial system from misuse. FATF issues recommendations on anti-money laundering and combating terrorist financing. The recommendations set out a framework of measures which member countries should implement in order to combat money laundering and terrorist financing. They are endorsed by over 180 countries and are recognised as the international standard for anti-money laundering and combating the financing of terrorism.
The latest FATF Recommendations were published in February 2012. They set out the essential measures that countries should have in place to:
- identify the risks, develop policies and provide domestic coordination;
- pursue money laundering, terrorist financing and the financing of proliferation;
- apply preventative measures for the financial and other designated sectors;
- establish powers and responsibilities for competent authorities (investigative, law enforcement and supervisory authorities) and implement other institutional measures;
- enhance the transparency and availability of beneficial ownership information of legal persons and arrangements;
- facilitate international cooperation.
FATF encourages countries to tailor these measures to their particular circumstances, taking into account their financial systems and legal, administrative and operational frameworks.
The EU E-Communications Privacy Directive deals with the right to privacy in the electronic communications sector, namely the protection given to data which is being transmitted over electronic communication networks. Consequently, it regulates matters such as when surveillance of telephone and Internet traffic can occur, treatment of location data and content data, the circumstances in which unsolicited direct marketing communications (otherwise known as ‘SPAM’) can be sent and the insertion of ‘cookies’ onto an end-user’s equipment.
This directive also makes provision for issues such as caller line identification (or “Caller ID”), itemised billing and directories for electronic communications services (e.g. the choice of a user as to whether he wants to be included in a public directory).
Unlike the Data Protection Directive, which specifically protects only individuals’ data, the E-Privacy Directive protects legal persons; therefore even a company can make a complaint if it has been affected by a breach of the E-Privacy Directive (or the laws transposing it).
Money laundering is regulated primarily by means of the Prevention of Money Laundering Act (Chapter 373 of the Laws of Malta) (“PMLA”) which refers to all types of proceeds obtained through illegal means. Drug-related money laundering is additionally criminalized through the Dangerous Drugs Ordinance (Chapter 101 of the Laws of Malta) and the Medical and Kindred Professions Ordinance (Chapter 31 of the Laws of Malta). The PMLA also establishes the Financial Intelligence Analysis Unit (“FIAU”), a government agency responsible for the collection, collation, processing, analysis and dissemination of information with a view to combating money laundering and the funding of terrorism. The FIAU is also responsible for monitoring compliance with the relevant legislative provisions. The Prevention of Money Laundering and Funding of Terrorism Regulations (LN 180/2008) (the “PMLFTR”) implement the provisions of the EU Directive. The regulations contain detailed provisions on the measures and procedures to be maintained and applied by ‘obliged entities’, including customer due diligence measures, record keeping procedures and reporting procedures, and identify the obliged entities to whom such measures and procedures are applicable. The PMLFTR are supplemented by various Implementing Procedures issued by the FIAU (the “Implementing Procedures”). The Implementing Procedures provide an interpretation of the regulations and their purpose is to guide and assist obliged entities in understanding and fulfilling their obligations under the regulations, thus ensuring effective implementation thereof. The Implementing Procedures are binding on obliged entities and failure to comply is subject to an administrative penalty.
Equinox can assist in assessing, reviewing, updating or drafting the internal systems, controls and policies required in order to ensure that you are complaint with current legislation and in line with best practices and recommendations. Our services will be customised to suit your specific needs and include any of the following:
- Review of current policies with the aim of providing a detailed gap analysis report and recommendations on any identified gaps;
- Updating current policies to reflect changes in legislation, recommendations and/or trends in best practice;
- Drafting of policies from scratch in line with current obligations;
- Ensuring that AML policies and procedures are customer-friendly and not a hindrance to customer on-boarding;
- Ensuring that AML policies and procedures are easily understood by employees;
- Advice on dealing with specific situations;
- Advice on addressing issues which have arisen in the past;
Ensuring that all policies, procedures and activities are properly documented and easily available in the event of a regulatory inspection.