This ties in with two other problem areas:
• the lack of intelligence made available to financial institutions; and
• the issue of defining predicate crime.
I will deal with the second issue first.
The USA has preferred the practice of listing predicate crimes for money laundering purposes. It has to be recognised that the USA opposed suspicion based reporting and only introduced it in the mid 1990s under pressure from the Financial Action Task Force. When it did so, it did so in as narrow a manner as possible. It has been criticised by both the IMF and the FATF for failing to meet the standards set under the FATF 40 Recommendations but brazened it out.
Even now, after the USA PATRIOT Act, the USA remains some ten years behind the EU in application to certain business areas.
The reality is that the USA is not a good model for counter-money laundering laws and systems and it is even less good when it comes to counter-terrorist financing systems. For example, although the USA had signed the UN Convention on Countering Terrorist Financing, it took no steps to implement the convention until after 11 September. And then the USA went to the UN and cherry picked those parts of the Convention that it wanted all countries to comply with, but did not seek those parts that the USA felt would damage its economic advantages in relation to the vast amount of money that enters the USA and is invested there, generally on or via Wall Street.
But even US negotiators at the FATF have said, privately, that if they knew then what they know now, they would not have created a list of predicate crime. Unfortunately, the USA has been sending its envoys to countries all across the world, including many to this region, and they have preached the gospel of lists of predicate crime.
The use of lists, in my opinion, is a bad idea. The European model, which is now the accepted FATF model, is that predicate offences should be defined not with regard to a list but with but with regard to the minimum sentence. Generally this is seen as being one year in jail.
The advantages of this system are two fold:
• new offences do not need to be added to the list so avoiding a long and costly and often argumentative process;
• staff in financial institutions do not need to question what offence they are suspicious of. This is, in my view, vitally important because different staff see different conduct in a different light.
Staff do not go to work to combat money laundering or terrorist financing. They go to work to earn a living. Front line staff in financial institutions are not following a vocation, they are not developing a professional career – they are modern day cannon fodder in the way that factory workers are. The fact they handle money or papers does not make them in some way different to the man who screws on gear-knobs in a car manufacturing plant.
But in telling the bank clerk that he has to identify proceeds of crime or money on its way to commit an offence we are placing an extraordinary burden on him. And we are then complicating it by telling him that he need be suspicious in only a limited number of cases.
It’s my view that this is not only unfair to the member of staff but that it is unlikely to result in an effective policy to detect and deter money laundering or the funding of future crime.
The cashier is not going to keep a list of maybe 200 offences in his head; he is not going to keep them in the top of his cash drawer; he works at a different teller’s window every day so he is not going to keep a copy in the same place in every workstation, in part because someone else will have a different idea of where it should be kept. He is not going to leave his window to go and look at a list kept on the wall by the water cooler. So he is going to take the line of least resistance and decide that he is not suspicious.
I have to say that our advice to financial institutions in countries where the list approach is adopted is that, at staff level, the staff are not told to think about which crime may be a predicate crime but to have them make a report about everything and leave it to the compliance / money laundering officer to make that decision. Whilst this has the effect of increasing false positives, in most cases this increase is very small, especially where the number of offences listed is large.