Part 2

We will discuss the effects of money laundering on people, the environment, and the economy in my next article. Here I respond to requests that I should go into more detail on two terms that we have been using, i.e., Money Laundering, (ML), and Financing of Terrorism, (FT). We will also mention Proliferation Financing, (PF). These constitute the three types of financial crime.

Three Types of Financial Crime

Money laundering (ML) is the process by which illegally obtained funds are disguised to make it appear as if they have been legally obtained. ML begins with the execution of an illegal act, like human trafficking, corruption, embezzlement, fraud, theft, drug trafficking, tax crimes or other predicate offences, which results in ill-gotten financial gains to the perpetrator. Money Laundering is not a single act but a cyclical process where the criminal’s goal is, at the end of the laundering process, to get back funds that have now become legitimate. He does this by getting his illegitimate funds into the financial system where they can then be accessed “legitimately”. This cyclical process usually involves the following three stages: Placement, Layering and Integration. These are outlined in the following table:

The first column (above) focusses on the various sources of “income” that can be generated from criminal activity. The perpetrator is anxious to dispose of the cash or other assets illegitimately derived, and so introduces the “income” into the formal financial system, (i.e., banks, money transfer businesses, etc.), casinos, or other legitimate businesses, as per the examples provided in column 2, (Placement). The second stage, “layering”, in column 3, advances the laundering process by creating complex transactions that aim to obscure the source and ownership of the funds. The third stage of the process, (column 4), is called “integration” and entails using the laundered proceeds in transactions that appear normal. This is the stage at which the illegitimate funds re-enter the economy.

Readers may remember Allen Stanford of the Stanford International Bank (SIB), and his investment fraud (Ponzi) scheme, (“income source”), in which he misappropriated $7 billion USD from SIB to finance his personal businesses. This is a perfect example of a predicate offence where money laundering only occurs after the perpetration of certain prior crimes such as in Sanford’s case, an investment fraud scheme. In other words, Sanford would have needed to spend his ill-gotten gains on “legitimate” purchases by way of seeking to funnel those proceeds back into the legitimate economy. We know that large amounts from the misappropriated funds were spent on lavish items – six private planes, yachts, gambling trips, etc., (“integration”).

In addition to these lavish expenditures, in his attempt to disguise the fraudulent proceeds, he was found to have placed approximately $330 million in 29 financial accounts located overseas, (“placement” and “layering”). Incidentally, Sanford allegedly had help in perpetuating his crime, from his bank’s auditors and also from the then Director of Antigua and Barbuda’s Financial Services Regulatory Commission. It is alleged that they both received bribes from Stanford – who is currently serving a 110-year jail sentence in Texas.

Financing of Terrorism (FT) is the provision of funds or financial support to individual terrorists or groups. Terrorist activities tend to pursue political, religious, or ideological objectives, and are carried out through violence or the threat of violence against civilian or military groups, or governments. Terrorism financing relies on multiple revenue sources that could be legal, such as donations directly from individuals, donations funnelled through charitable organizations, and state sponsorship. The sources could also be illegal, such as kidnapping for ransom, extortion, and drug trafficking. Unlike ML, Terrorism Financing follows a linear pattern — raising funds, transferring funds (to a terrorist network), and spending the funds.

Just to place terrorism in a Caribbean context, there is a really interesting case involving Trinidad and Tobago nationals and ISIS. In September 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) “designated” two Trinidadians as ISIS financiers or facilitators, providing support to terrorists or acts of terrorism, and assisting ISIS in “accessing the international financial system”. As a result of the “designation”, these two Trinidadians were sanctioned, and all property and interests in property of these persons were blocked.

“Emraan Ali (Ali) was designated for acting for or on behalf of ISIS. Syria-based, dual U.S. and Trinidadian national, Ali has been involved in money transfers from Trinidad and Tobago to Syria in support of ISIS. As of January 2017, Ali would receive and provide funds to Trinidadian ISIS fighters. For several years, a number of citizens of Trinidad and Tobago in Syria received money transfers through Ali. In the summer of 2015, Ali lived at an ISIS guest house in Syria and had been assigned to Raqqah, Syria.”i

In 2017 and 2018, another Trinidadian ISIS supporter, Eddie Aleong, was apparently involved in money transfers to Emraan Ali, who would then provide the funds to Trinidadian ISIS fighters in Syria.

Shane Crawford (now deceased) “was identified as a Specially Designated Global Terrorist (SDGT) by the US State Department and listed as a citizen of Trinidad and Tobago who is believed to be fighting with terror group ISIS in Syria since 2011. Crawford, who also goes by the name Abu Sa’d at Trinidadi, appeared in an ISIS recruitment video … where he called for Muslims in Trinidad to commit acts of violence against “non-believers”.

Contrary to what many may believe, Terrorism Financing does have Caribbean relevance, and the Trinidadian case cited above is an eye-opener. It helps to illustrate how intertwined terrorism and money laundering can be.

Proliferation Financing (PF) is similar to Terrorism Financing, except that it tends to focus more specifically on the provision of financing for the manufacture of, and transactions in nuclear, chemical, or biological weapons. Thus, proliferation financing can target human life through these various means, including the use of Weapons of Mass Destruction (WMD).

Thus, Money Laundering, Terrorism Financing and Proliferation Financing are all financial crimes that affect the stability of a country’s financial sector and therefore the entire economy in various ways, as we will discuss in Part III.

The motivation for ML is profits, for TF it is usually ideological (to include religious and political ideologies), and PF focusses on the acquisition of WMD. While the funding for TF can come from both legitimate and illegitimate sources, the funding source for ML is always illegitimate. PF sources are usually state-sponsored. The ML transaction amounts are generally large and often structured to avoid detection and are usually more complex, TF on the other hand are small amounts usually below reporting thresholds, using formal (banks) and informal networks. PF transaction amounts tend to be moderate and the transactions generally appear to look like normal commercial activity.

The Financial System and Financial Services Providers

The Financial System and Financial Services Providers are pivotal to the cycle of Money Laundering, Terrorism Financing and Proliferation Financing, with the first of these being the plague that most affects countries like Dominica.

Financial service providers include banks, (including offshore banks), money transfer businesses, credit unions, and insurance companies but also include services such as courier services, lawyers and accountants (when they carry out specified transactional activities), real estate businesses, gaming houses, car dealerships, casinos, etc. In fact, Dominica’s money laundering legislation identifies approximately 30 “financial transactions” provided by the Financial Service Providers that it governs.

The financial services sector, in particular banks, provides an entry point for laundered money into the financial system. Under AML/CFT /CPF policies, all financial service providers have certain responsibilities, prescribed by law, to ensure that they combat this scourge. The role of the financial service provider is key therefore to combatting money laundering, terrorist financing and proliferation financing.

About the author:

Annette Severin-Lestrade, BA MBA AICB, is a former banker, having served for over 30 years in Dominica and other Caribbean countries. She is a certified anti-money laundering specialist (CAMS) and certified financial crimes specialist (CFCS), and through her company 767Compliance and Business Services, provides training and advisory services in AML/ CFT and customer service, and other business services.

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