-Caveat Lector- from: https://www.imolin.org/ <A HREF="https://www.imolin.org/">index</A> ----- Commonwealth Secretariat Council of Europe Financial Action Task Force Interpol FOPAC Organization of American States United Nations EnglishEspa�olFran�ais IMoLIN International Money Laundering Information Network Welcome to the International Money Laundering Information Network (IMoLIN), an Internet-based network assisting governments, organizations and individuals in the fight against money laundering. IMoLIN has been developed with the cooperation of the world�s leading anti-money laundering organizations. Included herein is a database on legislation and regulation throughout the world (AMLID), an electronic library, a calendar of events in the anti-money laundering field, and a news forum. Please be advised that certain aspects of IMoLIN are secured and th erefore not available for public use. ------------------------------------------------------------------------ If you should have any questions or comments on this network, please contact the administrator: United Nations Office for Drug Control and Crime Prevention Global Programme against Money Laundering P.O. Box 500, A-1400, Vienna, Austria tel: 431.26060.4293; fax: 431.26060.6878; e-mail: [EMAIL PROTECTED] ===== from: https://www.imolin.org/research.htm <A HREF="https://www.imolin.org/research.htm">research</A> ----- Research Control of the proceeds of crime. An overview of the problems associated with the proceeds of crime, examined from the perspective of Governments. The United Nations Economic and Social Council, Commission on Crime Prevention and Criminal Justice (Fifth Session, May 1996), Report of the Secretary-General. 3 April 1996. Countering Money Laundering. A comparative analysis of major international conventions against money laundering. Background paper prepared by the United Nations Secretariat for distribution at the second informal open-ended inter-sessional meeting (held in Vienna, 7-9 October 1997) in preparation for the General Assembly Special Session devoted to the fight against the illicit production, sale, demand, traffic and distribution of narcotic drugs and psychotropic substances and related activities. 15 August 1997. (Original: English). Estimates of the Extent of Money Laundering in and through Australia. Prepared for the Australian Transaction Reports and Analysis Centre by John Walker Consulting Services, September 1995. Evaluation of laws and systems in FATF members dealing with asset confiscation and provisional measures. An analysis of FATF members regarding laws and systems in relation to confiscation and provisional measures, both under their domestic systems and pursuant to international mutual legal assistance. Modified: 19 June 1998. Financial Crimes and Money Laundering. A global assessment of money laundering and other financial crimes. International Narcotics Control Strategy Report, 1996; Released by the Bureau for International Narcotics and Law Enforcement Affairs, U.S. Department of State, Washington, DC, March 1997. Financial havens, banking secrecy and money laundering. A study prepared on behalf of the United Nations under the auspices of the Global Programme against Money Laundering, Office for Drug Control and Crime Prevention; Vienna, Austria. Authored by Messrs. Jack A. Blum, Michael Levi, R. Thomas Naylor and Phil Williams; Final report printed December 1998. Money Laundering: the Importance of International Countermeasures. Brief summary of the macroeconomic impacts of money laundering and an overview of the IMF's related work. Address by Michel Camdessus, Managing Director of the International Monetary Fund, at the Plenary Meeting of the Financial Action Task Force on Money Laundering. Paris, 10 February 1998. Money Laundering: Muddying the Macroeconomy. "Money laundering can have devastating economic consequences. Fighting it should be a priority for all countries and is not incompatible with financial market liberalization." Article based on a 1996 study by the author, Peter J. Quirk, Macroeconomic Implications of Money Laundering, IMF Working Paper 96/66 (Washington: International Monetary Fund). Money Laundering Typologies. Analysis of trends in money laundering. 1997-1998 Report by the Financial Action Task Force on money laundering. 12 February 1998. Review of Financial Regulation in the Crown Dependencies. A report commissioned by the Home Secretary and prepared by Andrew Edwards in co-operation with the Island Authorities (including Jersey, Guernsey and the Isle of Man). The report includes a chapter on "Financial crime and money laundering, policy, legislation and achievements" (Chapter 14). October 1998. ===== from: http://www.state.gov/www/global/narcotics_law/1996_narc_report/money96.html <A HREF="http://www.state.gov/www/global/narcotics_law/1996_narc_report/money9 6.html">Intl Narcotics Control Strategy Report, 1996 - </A> ----- Just first part, total file 401K Om K ----- International Narcotics Control Strategy Report, 1996 Released by the Bureau for International Narcotics and Law Enforcement Affairs, U.S. Department of State Washington, DC, March 1997 FINANCIAL CRIMES AND MONEY LAUNDERING EXECUTIVE SUMMARY This chapter provides a global assessment of money laundering and other financial crimes; a review of actions taken and a listing of continuing concerns; a prescription for future action; and, subchapters on about 200 nations and territories, including comparative rankings in terms of their efforts to control/prevent money laundering. The latter include the annual priority rankings, which for 1997 contain a number of upgrades, reflecting our heightened concern about the flow of illicit money through a financial system and/or a government's failure to take the steps needed to remedy these problems. THE YEAR IN REVIEW There were a number of significant developments in the money laundering sphere in 1996: United States agencies began implementing the Presidential Decision Directive announced in October 1995. US agencies drew upon numerous data sources, including the INCSR, reports from investigative and regulatory agencies, and from posts abroad, to assess which money laundering and/or financial crime situations affected US national security interests �� including drug trafficking but also contraband smuggling, arms sales, terrorist financing, sanctions violations and sales of weapons of mass destruction. Where deemed necessary, teams of US officials visited governments to secure agreements on actions to be taken. There was demonstrable progress by several Western Hemisphere governments on actions taken in accord with the agreements on standards and objectives reached through the communique issued at the conclusion of the Summit of the Americas Ministerial Conference on Money Laundering in December 1995, which established an action plan for the 34 governments of this Hemisphere. There has been continued progress by the Financial Action Task Force (FATF), including the beginning of the second round of mutual evaluations of each of its 26 members. FATF also demonstrated the political will to admonish its own members for shortcomings, notably Turkey and Greece. FATF also approved proposals to update its universally�accepted 40 recommendations to reflect new typologies and methodologies. In addition, evaluations of members of the Caribbean FATF were begun; there was further enhancement of the Asian outreach program; a common forum for major international bankers and government policy makers was organized; and an international conference of financial intelligence units in 1995 led to the establishment of a significant number of such units around the world in 1996. In 1997, a potentially high�impact initiative external relations program begun by FATF in 1992�93 resulted in agreements with the Council of Europe, the Offshore Group of Banking Supervisors, as well as the CFATF, to secure evaluation by outside experts of many of the governments which FATF and these other groups had worked with to determine whether the majority of financial center countries were adhering to the international consensus on money laundering laws. The year saw increased cooperation with foreign governments on major money laundering cases; as well as an increase in asset sharing with cooperative governments and an increase in the number of governments with whom the US has mutual legal assistance agreements. As in 1995, additional financial center governments, adopted broad, new anti�money laundering policies and/or laws, while a number of governments were in the final stages of presenting/adopting new legislation. However, as discussed more fully in the section on New Concerns, there were negative aspects to 1996, including the further penetration of financial systems around the world by organized crime groups; the use of new drug transit routes across ever more remote countries, most of which have no or few anti�money laundering laws, which may attract crime proceeds to still more easily�manipulated financial systems; the differential between the levels of compliance with international anti�money laundering standards by Asia's rapidly expanding financial centers in non�FATF member countries, as well as in Latin America, compared to the financial centers in the USA, Canada and Western Europe; and the near�polarity of interests by banking/industrial groups and criminal money laundering groups in achieving the fastest possible system for the international transfers of payments. MONEY LAUNDERING: A CHANGING SCENARIO International banking continues to evolve, both in terms of the worldwide connections among banks, as well as the increasing sophistication of banking methods. The constant challenge is to ensure that every bank can account for its customers, that every government has laws which ensure the prosecution of financial crimes, and that every society sets a moral and ethical standard for the conduct of commerce. Many important financial centers have now adopted legislation to curb drug�related money laundering, and the number of governments which have ratified the 1988 UN Convention continued to increase in 1996. But, the race between criminals seeking new venues and oversight bodies seeking more widespread compliance still goes to the crooks. In 1987, when the first INCSR money laundering chapter was published, the priority concern was with twelve leading financial centers including the United States, United Kingdom, France, Germany, Italy, Switzerland, Hong Kong, Singapore, Panama, the Bahamas, the Cayman Islands, and Colombia. When FATF was founded in September 1989, the belief was that major relief could be achieved through a congruence of laws and policies among 15 major industrialized countries: the US, UK, Germany, France, Italy, Canada, Japan, Netherlands, Australia, Switzerland, Luxembourg, Spain, Sweden, Belgium and Austria. By 1991, FATF had expanded to include all 24 members of the Organization for Economic Cooperation and Development, as well as Hong Kong and Singapore. The 1988 INCSR noted that Cyprus, for example, was not a priority, while Mexico was treated marginally, Russia was still the heartland of the Soviet empire, and Israel, Turkey, Aruba, the Netherlands Antilles, Antigua and others did not appear on most money laundering maps. Yet, Russia, Turkey and the Netherlands Antilles were raised to High Priority in 1996, where Mexico and Aruba remain continuing concerns; Israel and Antigua are Medium�High priority and Cyprus has been raised to High Priority in 1997. Now, new trafficking routes in Africa and in the lower regions of the old Soviet regime pose the concern whether traffickers will soon take advantage of the minimally regulated banking systems along these routes. An ever�lengthening list of Low Priority governments include several which were of no concern as recently as two years ago. Moreover, too many priority financial centers have still not adopted needed legislation or ratified the Convention (the latter include Aruba, Colombia, Mexico, Netherlands Antilles, Nigeria, Singapore, Thailand, Turkey and Venezuela). There is also a substantial question whether the drug trafficking�oriented money laundering laws which many governments adopted in the earlier part of this decade are adequate, given recent developments in money laundering practices, the upswing in non�drug financial crimes, and the need to adapt to new technologies used in banking, as well as extending laws to include non�bank financial institutions. Organized crime groups are increasingly a factor in major money laundering schemes �� and the multiple sources of their proceeds compounds the difficulty of linking the monetary transaction to a unique predicate offense like drug trafficking. Moreover, criminal organizations have distinct patterns of operation which vary from one part of the globe to the next. Russian "mafiya" groups have enlarged their presence in the Western Hemisphere, and are becoming as much a concern as the traditional Italian/Sicilian "mafia", Colombian cartels or the Asian triads and yakuza. In its 1997 public report on typologies, the FATF noted that organized crime continues to be responsible for a large proportion of the illegal funds entering financial systems. FATF said organized crime groups in Italy, Japan, Colombia, Russia and Eastern Europe, Nigeria and the Far East (among others) were involved in a wide range of criminal activities, including drug trafficking, loan sharking, illegal gambling, fraud, embezzlement, extortion, prostitution, corruption, illegal trafficking in arms and human beings, organized motor car theft and other crimes. FATF also cited a trend in some countries where criminals who were once only engaged in drug trafficking were either broadening their activities to include other proceeds�generating criminal activities or had switched to other financial crimes carrying lower penalties. However, FATF analysts concluded that drug trafficking and financial crimes (bank fraud, credit card fraud, investment fraud, advance fee fraud, bankruptcy fraud, embezzlement etc) remain the most frequently cited sources of illegal proceeds, with drug trafficking continuing to be the principal generator of illegal funds. That scenario changes by regions and by countries within regions. Scandinavian experts believe their greater problem is financial crime. Contraband smuggling tends to dominate in some areas; cigarette smuggling, for example, is considered the primary generator of illegal funds in Albania. Meanwhile, an increasing number of drug traffickers do not directly manage the laundering or conversion of their proceeds, but rely predominantly on professional money brokers. Such brokers are increasingly crafting effective schemes to evade normal monitoring, detection and reporting devices. We are seeing a proliferation of financial crimes, not limited to drug money laundering. These include the more common types of financial frauds, but, they also include new variations, particularly the use of prime bank guarantees, phony or fictitious letters of credit, counterfeit and/or stolen bonds and other monetary instruments offered as surety for loans, and other scams. In just the last six months, we have detected a number of offers involving such schemes in this hemisphere. However, some of the more flagrant examples are occurring in Asia. In one instance, financial "fraudsters" obtained the secret telex codes which banks use for bank�to�bank transactions and were able to take $42 million in cash out of Hong Kong and Shanghai Bank in Jakarta. A number of other alleged scams have also involved the principals of Dragon Bank, which is chartered in Vanuatu but operates in Manila and elsewhere. It has now lost its license in Jakarta. In the wake of the Dragon Bank incident, Embassy officials in Jakarta, Hong Kong and other cities met with US banks, and learned that foreign and national banks in many Asian countries are being confronted on virtually a continuous basis by what are perceived to be financial frauds. One attempted transfer confirms that the world of banking is truly a world without horizons. We learned that one group proposed to transfer $1.3 billion from a bank in the Caribbean to Indonesia, which heightens the concern to us. These and other attempts are notable, not only for their variation, but because of their higher probability of success. The "fraudsters" use fake certificates of deposit drawn on other branches of an international bank, which can range from $10 million to $25 million. The "fraudsters" also use fund transfers, which involve real dollars, opening up small accounts into which they then pour millions of dollars. "Fraudsters" will also use counterfeit letters of agreement, drawn on bank letterheads, seemingly vouching for a client from another branch of that bank, or confirming a deal is been approved, etc. Many of these proposed frauds are easily detected. A request for a loan on a US bank for $36 billion was easily refused, as were telexes which omitted the needed secret codes or had the wrong codes. But all banks in every region have to be concerned that not all of these deals are illegitimate just because they are to be made in currency or the details are thinly documented. The problem, which creates a temptation to approve such transactions, is that these banks may be turning away legitimate business. Thus, there is concern that US banks operating overseas may be at a competitive disadvantage because they adhere to US standards for knowing your customer, identifying beneficial owners of transactions, refusing suspicious or unusual transactions etc. US banks have been advised informally that the answer is not to lower US standards, here or abroad, but to intensify efforts to ensure that all major financial centers operate within the limits of an international consensus on countermeasures. This problem is somewhat analogous to the dilemma challenging bankers in Western Europe. As FATF noted in its 1997 report on typologies of money laundering, many European countries report that significant amounts of cash and monetary instruments were being transferred from the former Soviet Union and Eastern European countries. Two difficulties were cited: determining whether the money was capital flight or stemmed from criminal activities, and, if the latter, determining the predicate offense. How Money Is Laundered. To understand money laundering as it is practiced today on a global basis, one has to appreciate money as a commodity. Professional money launderers differ little in this respect from corporate money managers. A corporate money manager enters the money markets of various countries where the corporation will need national currencies during the next year and buys/sells currencies in a constant effort to improve the manager's average position at the time of payment. Similarly money launderers use a bidding system to buy/sell drug proceeds, especially US dollars. Just as a sound investment portfolio will contain stocks, bonds and other monetary instruments, the money brokers vary their holdings. Like institutional investors who put a percentage of their money into hedge funds, money brokers and the drug traffickers and other criminals who employ them collaborate to minimize risk. The Cali Cartel, for example, minimizes risk by selling a substantial portion of the drug proceeds it earns from the sale of cocaine in the United States. Mexican traffickers in heroin, cocaine and marijuana do the same, often selling to the same money brokers on behalf of Cali or for their own account. These brokers will convert proceeds for a fee, or, they will buy the proceeds at a discount. Given the high profit margins of the drug trade, discounts of 7�10 percent or even higher, depending upon risk, are common. At the end of the day, Cali and other trafficking groups may own or control 50 per cent or less of the initial drug proceeds. The following hypothetical example illustrates the options available. Assume that the Cali Cartel is moving $100 million over the rather porous border from the United States to Mexico and operating on a 75 per cent profit margin (earnings minus costs). Just $25 million must reach Colombia to replenish the operating budget. Cali wants to net $60�65 million from the bulk of the cash, or $85�90 million in total. Brokers have a bid or discount range of 10�15 per cent. Cali agents will attempt to sell $25 million on the gray market �� supported by Latin and even US businessmen who want to convert pesos or other currencies into dollars �� and go into the gray market to avoid exchange rates, or avoid taxes, or, when profit margins are narrow on US goods which can be sold in their countries, to realize higher profits. These currencies, especially pesos, can be readily returned to Colombia. The amounts over which Cali or Mexican traffickers retain actual control will be influenced by prevailing discount rates, investment opportunities, current risk dynamics, and gray market demand, more than it will by the presence or absence of laws. At the same time, the need for fluidity and convertibility, influenced by the strength/weakness of the Mexican peso and the status of US investor confidence, among other factors, will leverage the rate at which Mexican banks will do business with brokers. Perhaps $25 million more will be "consigned" to allegedly licit importers who use various invoice schemes, at a discount, to legitimize the return of dollars to their countries. The textile trade is a typical cover. For example, a South American clothing manufacturer working with Cali will obtain a permit to export $20 million worth of suits to New York. The manufacturer actually ships $6 million worth of suits to the Aruba Free Zone, where they are repackaged and sent back to Colombia, and sold at discount. Meanwhile, the manufacturer's agent picks up $20 million in drug proceeds in New York and returns it to Colombia, covered by an export license. The bulk of the $100M will be deposited in Mexican banks, after which a number of schemes can be used. Commonly, the money will be wire�transferred to accounts in the United States. The Mexican banks will then issue checks drawn on its US accounts, payable to individuals or corporations. These checks can be batched for resale in Latin America, or deposited into foreign bank accounts. Enforcement officials believe that as much as $10 billion in Mexican bank drafts is laundered through such schemes each year in Panama alone. While some of the trade is in contraband goods, these checks, certificates of deposit, and other financial instruments have also been used to pay for legitimate shipments. Gold trade in the Aruba Free Zone amounts to more than $200 million a year. The Mexican banks will also issue their own dollar�denominated checks, up to a level which they think will not cause inquiries. Such brokers offer as much as $500 million to a bank or another broker at a point or two below the official exchange rate. The offer is probably not for a single transaction, but reflects the amount of money this broker has at his disposal. However, transactions are increasing in size. One recent transfer reportedly involved $78 million which went through a US bank in a single transaction. Why then don't US reports and economic indicators reflect this volume of money transfer? The answer is that these kinds of transactions are designed to fall outside the scope of Treasury and other reporting. For example, US banking law does not require reports on bank to bank transfers (nor are we suggesting it should), let alone transfers from one branch to another of the same bank. Transactions in bulk conducted outside traditional foreign exchange venues are probably escaping conventional monitoring systems. However, there is also a reverse flow of physical currency back to the US. Flows from Latin America, especially Panama, Paraguay and Mexico, to commercial banks in the US as well as dollars returned to Federal Reserve Banks are in fact in excess of the levels which can be explained by traditional commerce. Research is ongoing as to whether surplus currency at Federal Reserve Banks can be associated with illegal activities, such as money laundering. Currency surpluses in the US are not, in and of themselves, necessarily indicative of money laundering. However, currency does not have to leave a placement site physically. Banks are at least one generation or more beyond the period in which physical money was moved to settle accounts. Dollar settlements are accomplished through reciprocal balances. For example, a Mexican bank wires $50 million to a bank in New York, which gives the Mexican bank instant credit on the latter's New York account because the Mexican bank has simultaneously given the New York bank credit for $50 million at the latter's Mexican facility. Rather than moving physical cash to New York, the Mexican outlet is more likely to transfer physical cash south, as individual checks wind their way through various payment schemes. However, some cash does move back to the US in bulk, carried by Mexican transfer agents who are not required to declare currency when crossing the US border north. The US economy is one unintended beneficiary of the kinds of swaps and schemes carried out in Mexico. The gray market enables Latin businessmen to buy US goods and services here, or in a free zone like Colon, and pay for it in dollars (or dollars converted to checks and other monetary instruments) which originated in the US drug market. The use of non�bank financial institutions is not confined to the Western Hemisphere. The 1997 FATF report cited a continuing trend of money launderers moving away from banks to non�banks in many sections of the world. Yet, there has not yet been a parallel effort in many countries to subject these non�bank financial institutions to the same kinds of regulations as banks. In effect, when the money "hits" a bank, the money broker has already achieved first�stage placement, and is now in the process of layering his funds through banks and ultimately integrating his funds into legitimate businesses. Are the Laws Being Implemented? In the seven years since the 1988 UN Convention was adopted, and particularly since FATF issued its 40 money laundering recommendations in April 1990, dozens of governments have statutorily enacted various countermeasures, as indicated by the charts in this chapter. The pace of implementation of these laws, and the scope of their application varies. A review of results reported by key financial centers relative to the generation of suspicious transaction reports indicates that several such centers have reporting ratios which are disproportionately small, given the volume of financial activity and diversity of enterprises in their systems. Such minimal results could be an accurate reflection of a low level of suspicious activity, but, such results could also indicate a law which is drawn too narrowly or a banking system which is not giving a good faith compliance. In addition, it has been difficult to assess the degree to which newer electronic banking practices may render banks more or less vulnerable to money laundering. Few governments have control mechanisms adequate to identifying and tracing such transactions should they occur. Apart from financial institutions in which officials are complicit in the money laundering transaction, financial institutions are rendered most vulnerable by the combination of correspondent banking relations and electronic transfers. In 1995 the twin problems of regulating wire transfers and tracing wire transfers in pursuit of an investigation were on the threshold of some containment because FATF had reached agreement with the dominant system (SWIFT) and its key members on including in each message critical information needed to identify transmitters and receivers and especially beneficial owners of transactions. Recordkeeping may have improved, however, over the past year there has not appeared to be any diminution of electronic transfers of illicit proceeds. Control efforts are being sorely challenged by the creation of new, independent wire transfer services, some which service small clusters of banks. CHALLENGES POSED BY A CHANGING BANKING WORLD Four aspects of modern�day banking are particularly challenging to governments seeking to stop money laundering: correspondent banking, offshore banking, private banking and cybercurrency. Correspondent Banking. Regulators, money laundering investigators, and international policy making bodies like FATF are facing profound challenges from a banking world which not only knows no geographic horizons and is open 24 hours a day, but is increasingly inter�connected, as large multinational banks extend their reach not only through branch and subsidiary networks but through correspondent relationships that cross the globe. The concern is not with the growth or dominance of the largest banks, or the extension of their networks, but, whether standards of prudential supervision are met at every juncture in this web of correspondent banking. The emergence of active financial service industries in every jurisdiction capable of becoming active players on the electronic highway of super�banking, places ever more emphasis on vetting transactions at the bank of origin. There is not the confidence today that the scope of current know�your�customer policies are sufficient to actually cover most financial transactions at origination. The scope of international banking was made clear at the winter meeting in 1995 of the International Bank Security Association. The world's 12 major financial centers except Japan have one or more banks or financial institutions among IBSA's 52 voting members and six associate members, and these banks include many of the world's largest international banks. An IBSA survey showed that 27 of these 58 banks have headquarters offices and or branches in 146 countries. A separate survey showed that 19 of the 58 members own percentages (and sometimes controlling interest) in 144 other banking institutions. The actual "reach" of these big banks, both in terms of branches and holdings, is far greater as only 27 of the 58 responded to the surveys on branches. While FATF has conducted an extensive external relations program, which has engaged an estimated 65 governments outside its own 26�member roster, no single agency, not even the UNDCP, has accepted the responsibility for ensuring uniform standards of anti�money laundering enforcement, or bank regulation, among all nations and territories. Offshore Banking. An agreement of potentially far�reaching consequences on offshore and cross�border banking was made by banking supervisors from 140 countries at the June 1996 International Conference of Banking Supervisors. Their agreement, incorporated into a report by the Basle Committee on Banking Supervision, issued in October, contains 29 recommendations designed to strengthen the effectiveness of supervision by both home and host�country authorities of banks which operate outside their national boundaries. The report states that, as a starting point, home supervisors must be able to make an assessment of all significant aspects of their banks' operations, using whatever supervisory techniques are needed including on�site inspections. The paper proposes means by which home�country supervisors can obtain the information they need for effective consolidated supervision of an international banking group. The paper addresses impediments to effective consolidated supervision and suggest ways to overcome these barriers. The paper also contains guidelines for determining the effectiveness of home country supervision, for monitoring supervisory standards in host countries, and for dealing with corporate structures which create potential supervisory gaps. There are also guidelines for host country supervision. The supervisors recognized that some of the recommendations are in conflict with bank secrecy or similar legislation in certain countries. Where there is conflict, the supervisors have agreed to use best efforts to have the conflicting legislation amended. It was agreed that the compliance of individual countries with these recommendations would be reviewed prior to the next international meeting which is scheduled for October 1998. The Offshore Group of Banking Supervisors (OGBS) has reached agreement with FATF on a protocol for evaluating the effectiveness of the money laundering laws and policies of its members. This is a positive development but OGBS includes only about half of the known offshore banking centers among its members, and there is a continued belief that OGBS remains the best available vehicle for reaching out to these centers, hopefully with an expanded membership. However, there is also a concern about different kinds of charters for financial facilities being issued in various parts of the world, facilities which are structurally different from the banking houses represented by OGBS. These International Business Corporations, or IBCs, are being chartered with much the same kind of operational latitude enjoyed by offshore banks, but, in many instances, with even less regulatory oversight. Nowhere is the concern about IBCs more prevalent than in the Caribbean. The US has urged governments around the Caribbean Rim and elsewhere to apply more rigorous oversight to these non�bank financial institutions. Private Banking. Major national and international banks are engaged in fierce competition to attract wealthy individuals and companies as private banking clients. The very term implies that transactions will be confidential, and indeed that private banking customers will be treated differently. Private banking departments are also prepared to offer a seemingly wide range of personal services. The concern here is not that a major bank's officers might secure hard�to�get entertainment tickets, or facilitate high�ticket shopping; those kinds of services have long been traditional with advertising agencies, management consultant services, etc. The concern is that bank officers, who rely on private banking commissions for their income, will suspend the rules on transactions �� not just failing to report transactions as required by various banking and anti�money laundering laws, but, disregarding basic tenets of sound banking and thus negating the transparency which is essential to a bank's prudential supervision of its business. Cybercurrency. The use of microchip�based electronic money for financial transactions, via smart cards and the internet, has the potential to assume an important place in the future domestic and worldwide payments system. These chip�based electronic cyberpayments systems are emerging very rapidly. Currency��paper notes and metal coins��has always been of particular importance in payments involving illicit activities. Currency attributes include ease of use, wide acceptability, and most importantly from the standpoint of law enforcement � anonymity. A significant feature of the new cyberpayments systems is that some systems are being engineered to be an electronic emulation of paper currency. Cybercurrency includes the attributes of conventional currency: a store of value, a medium of exchange, a numeraire, potential anonymity and convenience. But there are added features: transfer velocity (almost instant electronic transfer from point to point) and substitution of electrons for paper currency and other physical means of payment. Obviously this is an innovative addition to the payments system, but it also requires close attention since the use of microchip and telecommunications technologies adds some significant new dimensions for law enforcement. Yet currency is not the only monetary instrument innovation. Cyberpayments also comprise other payment components. Already in use or design are cyberchecks, an emulation of paper checks, cybercredit, cyberdebit, etc. The common element is that these systems are designed to provide the transacting parties with immediate, convenient, secure and potentially anonymous means by which to transfer financial value. When fully implemented, this technology will impact users world�wide and provide readily apparent benefits to legitimate commerce; however, it may also have the potential to facilitate the international movement of illicit funds. Many issues are raised by this new technology, including the issue of whether such payments constitute legal tender and are therefore subject to monetary reporting and supervision measures. There is a question whether reporting regulations must be completely redesigned to include the reporting of currency in electronic form moving to other countries via the Internet or across the border in a smart card or electronic purse. Law enforcement issues likely to arise in this area include fraud, counterfeiting and computer hacking. Moreover, high speed, worldwide transfers that are a facet of the cyberpayment technology add complexity to law enforcement's ability to trace criminal activity and recover illicit proceeds. And there are important international jurisdictional issues. Some cyberpayments systems are being designed to operate internationally and use multiple currencies. Thus, one of the challenges facing law enforcement and the international community will be determing jurisdictional authority in a global economy. The current regulatory/law enforcement framework relies on defined financial and geographic borders. The diminishing of such borders makes enhanced cooperation and coordination among nations critical to ensure that there are consistent policies. All of these issues were the focus of a conference sponsored by the U.S. Department of the Treasury in September 1996. Addressing key public officials and representatives of the private sector, Secretary Robert Rubin announced the formation of a consumer electronic payments task force composed of the principal agencies in the federal government involved in payments. Continued Examination by the International Community The application of these new technologies is still in its infancy. How these systems develop and with what features will depend on the effectiveness and efficiency of these technologies, the market, and consumer acceptance. Therefore, while it may be premature to consider prescriptive solutions to theoretical problems, it is important and timely for governments and the private sector to continue to identify issues that need to be considered and perhaps implemented as markets and technologies mature. Many governments have come to recognize the need for greater and sustained cooperation to explore these issues. At its June 1996 plenary, the FATF adopted a new recommendation (#13) stating that "countries should pay special attention to money laundering threats inherent in new or developing technologies that might favor anonymity, and take measures, if needed, to prevent their use in money laundering schemes." At its October 1996 plenary, the FATF agreed to call on SWIFT (the international messaging system for financial transactions) to provide additional information on the originator of financial messages between legitimate financial institutions. In November 1996 in Paris, FATF, under the chairmanship of the United States, held its annual typologies exercise to identify recent trends in money laundering in FATF member countries as well as non�FATF regions. The meeting was attended by delegates from each of the 26 member nations as well as Interpol and the Organization of American States. This year, it was determined that a discussion of current technology developments in alternative payment methods would be beneficial and appropriate as many of the FATF 40 Recommendations could also apply to cyberpayment systems. This meeting served to continue a dialogue among FATF members and leading international developers and providers of electronic banking and cash payment systems. The meeting was an outgrowth of a FATF meeting held in January of 1996, called the Financial Services Forum, where representatives from governments and the private bank and nonbank sectors met to discuss anti�money laundering measures, in particular the issue of alternative payment systems. Private sector experts invited by the FATF at the typologies meeting presented an overview of the current technology developments in these payment systems and discussed the issues raised by law enforcement with respect to money laundering. The goals were to increase the knowledge of the FATF about the operations of these systems, advise the industry of law enforcement's potential concerns, and ascertain what steps FATF and the industry could take together to ensure the development of these systems while protecting them from abuse by criminals. Several other international organizations such as the Organization for Economic Cooperation and Development (OECD) which has recently issued Cryptography Guidelines, the Bank for International Settlements (BIS), the Basle Committee as well as others are involved in the study of cyberpayments. In addition, at the G�7 Summit in Lyon last June, Heads of States and Governments called for a cooperative study to investigate the implications of recent technological advances that make possible the creation of sophisticated methods for making retail electronic payments. In response the Group of Ten (G�10) countries deputies formed a Working Party in Autumn of 1996 to develop a broad understanding of the international dimensions of policy issues resulting from the development of electronic payment systems. Money Laundering Simulation Exercise FinCen is using an automated exercise�based approach to assess the implications of emerging Cyberpayment technologies. It is developing a simulation exercise which will serve to: (1) educate exercise participants on the nature and key characteristics of these emerging technologies; (2) raise general awareness regarding the potential vulnerabilities emerging Cyberpayment technologies to financial crime; (3) explore various avenues for potential criminal applications of these technologies: (4) generate and identify a draft set of potential response strategies for dealing with these key vulnerabilities and (5) consider potential legal, regulatory, and educational action plans associated with selected strategies. The exercise, which is tentatively planned for April of 1997, is to include participants from government, academia, and industry both domestically and abroad. Other Challenges. Other challenges include counterfeiting of currencies and other monetary instruments, especially bonds; the boom in contraband smuggling; the buying of banks and other financial institutions by suspected criminal groups; the resort by criminals to the use of smaller, less�monitored banks; and the sophisticated use of such new phenomena as direct access and pass�through banking, and electronic cash systems. There is continuing concern, given that financial crimes and money laundering are occurring with varying degrees of regularity in more than 125 jurisdictions, that some governments still have not criminalized all forms of money laundering. Some have not given sufficient regulatory authority to central banks and other institutions; many do not have adequate data systems to monitor trends and methods used in their territories; and many have not made adequate provision for mutual legal assistance. --much more-- ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance�not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credeence to Holocaust denial and nazi's need not apply. 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