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Extent of compliance and enforcement activity

The fourth section aims to compare the compliance of regulated businesses with the components of the preventative AML/CTF regimes in Australia, the United States, the United Kingdom and the selected countries in the European Union and Asia. Compliance activities and measures of compliance differ between these countries, reflecting the different regulatory requirements contained within each AML/CTF regime. This section compares compliance activity by measuring the volume of financial activity reports submitted by regulated entities and the volume of enforcement activity taken in each country against money laundering. Suspect transaction reporting and criminal money laundering prosecutions are common to all regimes but they remain proxy measures of compliance or enforcement activities within a single country.

This section also aims to compare the enforcement activity undertaken against the AML/CTF criminal provisions, an actions taken against regulated businesses for non-compliance, in those countries. The different approaches taken to criminal offences and regulatory compliance outlined in the second section make drawing conclusions from direct comparisons between countries problematic. The figures are better able to indicate changes over time within each country.

Australia

Compliance

The AML/CTF Act requires reporting entities to routinely submit three types of reports to AUSTRAC. These are significant cash reports (Threshold Transaction Reports), international funds transfer instructions reports (IFTIs) and reports of suspicious financial activity. Individuals entering or leaving Australia are required by the AML/CTF Act to submit reports of cross-border movements of physical currency and cross-border movements of bearer negotiable instruments. Combined, these totalled over 19 million reports in 2008–09. The volume of each type of report can be seen in Table 21.

Table 21: Reports submitted to AUSTRAC, 2008–09
Type of reportReports (n)
Suspicious financial activity 32,449
Reports of high-value cash transactions 3,373,280
Reports of international movements of cash 38,669
Reports of international movements of instruments of value 1,635
Reports of international electronic transactions 16,325,870
Total reports 19,771,903

Source: AUSTRAC 2009a

Suspicious matter reports (SMRs), required by the AML/CTF Act, may be filed by regulated businesses at any stage of providing, or proposing to provide, a service designated by the Act. Regulated businesses in Australia may file SMRs after providing a designated service or in the process of an enquiry about a service.

The number of SMRs submitted to AUSTRAC steadily increased between 2002–03 and 2005–06, with a one percent decrease in the number of reports submitted in 2006–07. The volume of reports increased once again in 2007–08 and 2008–09. The volume of reports was substantially higher in 2009 than in 2002. The trend in suspicious financial reports can be seen in Table 22.

Table 22: Suspicious financial activity reports submitted to AUSTRAC
YearReports (n)Change from previous financial year (%)
2008–09 32,449 11.6
2007–08 29,089 19.0
2006–07 24,440 –1.5
2005–06 24,801 44.1
2004–05 17,212 49.9
2003–04 11,484 42.5
2002–03 8,054 3.1

Sources: AUSTRAC 2009a, 2007

Enforcement

FATF-GAFI criticised the rate of Commonwealth-level prosecutions in Australia for money laundering in the 2005 mutual evaluation (FATF-GAFI 2005b). FATF-GAFI highlighted that only five convictions were obtained between 2003 and 2005 for money laundering under the Criminal Code. The volume of charges dealt with by the CDPP has increased since the mutual evaluation (CDPP 2007). Table 23 outlines the number of defendants dealt with by the CDPP for money laundering-related offences between 2002–03 and 30 April 2010. The CDPP dealt with 74 defendants under the AML/CTF Act between 2006–07 and 30 April 2010.

Table 23: Defendants dealt with for money laundering offences, 2002–03 to April 2010 (n)
Act2002–032003–042004–052005–062006–072007–082008–092009–10Total
POCA s 81, s 82 1 9 0 1 3 0 1 0 15
Criminal Code s 400 n/a 5 6 11 14 40 42 50 168
AML/CTF Act n/a n/a n/a n/a 16 37 9 12 74
FTR Act 131 168 79 76 53 23 19 17 566
Total 132 182 85 88 86 100 71 79 823

Source: CDPP personal communication 23 June 2010

The AML/CTF Act offers several types of penalties for non-compliance, such as criminal and civil penalties for contraventions and infringement notices for non-compliance with the reporting requirement for cross-border movements of instruments of value. Part 15 Division 5 of the Act allows AUSTRAC to give remedial directions to reporting entities, apply for injunctions and accept enforceable undertakings. AUSTRAC’s enforcement activity, as of December 2009, has resulted in four enforceable undertakings. AUSTRAC accepted the first two enforceable undertakings in July 2009, a third enforceable undertaking in November 2009 and a fourth enforceable undertaking in June 2010.

AUSTRAC may accept a voluntary undertaking from a person (or reporting entity) to comply with the AML/CTF Act, or Anti-Money Laundering and Counter-Terrorism Financing Rules, by taking or avoiding a specific action. The undertaking is usually accepted in lieu of pursuing criminal or civil penalties and is enforceable in court. It does not exclude the possibility of criminal, civil, or administrative action for any areas outside of the agreement or any areas of non-compliance identified once the undertaking has expired.

AUSTRAC may issue a remedial direction to reporting entities that have contravened a civil provision of the AML/CTF Act. The content of the direction aims to ensure the reporting entity no longer contravenes the civil provision and does not do so in the future. The remedial direction is enforceable in a court and contravening a remedial direction may result in a civil penalty. The AML/CTF Act allows the AUSTRAC Chief Executive Officer to require regulated businesses to appoint an external auditor, undertake an external audit of the business’ AML/CTF program or a specific aspect of the requirements and submit a report to AUSTRAC. AUSTRAC had issued seven written notices requiring an external audit by July 2010 (AUSTRAC 2010b).

Barclays Bank PLC—for its Australian branch, BarCap

AUSTRAC accepted an enforceable undertaking from Barclays Bank PLC, trading as BarCap in Australia, on 1 July 2009 (AUSTRAC 2009c). BarCap is licensed to operate a banking business and is a cash dealer under the FTR Act and a reporting entity under the AML/CTF Act. The enforceable undertaking stemmed from an onsite assessment conducted by AUSTRAC. AUSTRAC’s concerns covered the reporting requirements as well as risk assessments of BarCap’s customers, services, service delivery methods and dealings with higher risk countries, record-keeping requirements, customer identification procedures, correspondent banking procedures and the AML/CTF program (AUSTRAC 2009b). AUSTRAC also expressed some reservations about the legitimacy of assessing any of the services provided by an investment bank such as BarCap as low or medium-risk services (AUSTRAC 2009b).

The BarCap enforceable undertaking allows AUSTRAC to command documents to assess their compliance until the undertaking has expired. The enforceable undertaking required BarCap to commission an independent assessment of the company’s compliance with the AML/CTF Act each year between 2009 and 2011. The undertaking expires in December 2011 or if BarCap implements a remedial action plan before this date (AUSTRAC 2009b).

Mega International Commercial Bank Co Ltd

AUSTRAC also accepted an enforceable undertaking from Mega International Commercial Bank Co Ltd (Mega) on 1 July 2009. Mega is licensed to operate a banking business in Australia. Mega undertook to develop and implement an AML/CTF program and record-keeping and customer identification systems, and to develop and implement systems to meet the reporting obligations under the AML/CTF Act and the FTR Act. Mega was directed to review all transactions between January 2002 and December 2009 and file all appropriate financial transaction reports with AUSTRAC. Mega’s enforceable undertaking further required the bank to commission external reviews of its compliance with the requirements of the undertaking and with the AML/CTF Act, and subsequent regulation and rules to be submitted to AUSTRAC (AUSTRAC 2009d).

Paypal Australia Ltd

Paypal Australia Ltd (Paypal) entered into an enforceable undertaking in November 2009. Paypal holds an Australian Financial Services Licence and is an authorised deposit-taking institution for purchase payment facilities. Paypal is further licensed to provide online payment mechanisms for goods and services. Paypal has undertaken to complete a revised risk assessment of its business and to review and strengthen its risk management controls and AML/CTF program. Paypal, like BarCap and Mega, has also undertaken to engage an external consultant to conduct a review of aspects of its AML/CTF systems. Paypal’s enforceable undertaking expires on 31 December 2011 (AUSTRAC 2009e).

Little Persia

AUSTRAC determined that Little Persia, a remittance service provider, was non-compliant with s 81(1) of the AML/CTF Act by failing to implement an AML/CTF program. Little Persia received a remedial direction for non-compliance in November 2009. The remedial direction directed Little Persia to submit a written AML/CTF program to AUSTRAC within 28 days of issue (AUSTRAC 2009f).

Eastern and Allied Pty Ltd

Eastern and Allied Pty Ltd, trading as Hai Ha Money Transfer, entered into an enforceable undertaking with AUSTRAC to implement a compliant risk management system, identify and report any deficiencies in its AML/CTF program and rectify those deficiencies (AUSTRAC 2010a).

The US Office of Foreign Asset Control has issued fines to both the Australian and New Zealand Banking Group Ltd and the National Australia Bank Ltd for dealing with assets in contravention of United States sanctions. The Australian and New Zealand Banking Group Ltd agreed to pay US$5,750,000 for transacting in contravention of US sanctions against Cuba and Sudan (US Department of the Treasury 2009). The National Australia Bank Ltd paid a settlement of $US100,000 for violations against US sanctions against Burma, Sudan and Cuba (US Department of the Treasury 2007).

United States

Compliance

The United States requires regulated entities to submit reports of suspicious financial activity and reports of high-value cash transactions to FinCEN. In total, approximately 18 million reports were filed in the 2008 fiscal year and 16 million of those were high-value cash transaction reports (FinCEN 2008). The bulk of the remaining reports were Suspicious Activity Reports (SARs). Despite the difference in volume, SARs have overtaken the currency reports as the primary source of anti-money laundering information (Levi & Reuter 2006).

By 31 December 2008, over 6.7 million SARs had been filed with FinCEN since reporting began in the late 1990s (FinCEN 2009a) and the number of SARs filed annually has increased over the last 12 years. The numbers of SARs received by FinCEN, by year since 2002, are shown in Table 24. The increase in the number of reports between 2007 and 2008 was the smallest increase since 1996.

SARs tied to suspected terrorism financing increased in the months after the 11 September 2001 attacks. The volume of reports rose from just 27 in September 2001 to 1,342 in the following six months. These figures then decreased over the next year (Levi & Reuter 2006). FinCEN (2009a) reported a further 26 percent decrease in the number of SARs filed for suspected terrorism financing between 2007 and 2008.

Table 24: Suspicious financial activity reports filed with FinCEN (by fiscal year)
YearSARs to FinCEN (n)Change from previous year (%)
2008 1,290,590 3.21
2007 1,250,439 15.90
2006 1,078,894 17.37
2005 919,230 33.33
2004 689,414 35.92
2003 507,217 80.26
2002 281,373

Source: FinCEN 2009a

The majority of reports are historically filed by the financial sector. Deposit-taking institutions filed 56.76 percent of SARs in 2008, MSBs filed 41.20 percent, casinos and card clubs filed 0.86 percent, and securities and futures companies filed 1.17 percent of the SARs FinCEN received in 2008 (FinCEN 2009a). SARs filed by non deposit-taking institutions fell between 2007 and 2008.

Structuring and money laundering remained the most common suspected offences that triggered SARs filed by deposit-taking institutions in 2008. These two offences, and generic BSA activities, triggered 44 percent of reports. These activities, in previous years, generated 47 percent of reports.

Enforcement

The United States has an extensive history of enforcing Bank Secrecy Act violations and money laundering. Levi and Reuter (2006) estimated in 2006 that approximately 2,000 people were convicted of money laundering offences (as the primary offence or otherwise) each year in the United States between 1994 and 2001. The data reproduced in Table 25 illustrates that the proportion of money laundering charges that led to a conviction during that period ranged between 42 percent and 59 percent. Money laundering was one of the most serious charges laid against around 70 percent of those accused of a money laundering offence between 1994 and 2001.

Table 25: Money laundering charges and prosecutions in the United States, 1994–2001
YearMoney laundering charges (n)Money laundering convictions (n)Money laundering convictions (as % of charges)
2001 2,110 1,243 58.91
2000 2,503 1,329 53.10
1999 2,656 1,371 51.62
1998 2,719 1,199 44.10
1997 2,376 1,108 46.63
1996 1,994 1,080 54.16
1995 2,138 906 42.38
1994 1,907 933 48.93

Source: Levi & Reuter 2006

One of the requirements of financial institutions in the United States is to develop adequate anti-money laundering programs and there have been numerous cases of enforcement action for failing to comply with this requirement. Some of these cases are outlined below. Despite the extensive regulatory enforcement activity historically, or perhaps because of the enforcement activity, there has been a decrease in the number of financial institutions found by FinCEN to have failed to develop anti-money laundering programs in recent years. FinCEN found around five percent of all institutions had an insufficient program in 2007, a decrease from almost eight percent in 2005 (FinCEN 2007).

Nevertheless, in 2007, FinCEN processed 248 actions against financial institutions with significant Bank Secrecy Act violations or deficiencies. This number was slightly up from 241 in 2006 (FinCEN 2007, 2006).

US banks, under the Bank Secrecy Act and the PATRIOT Act, must have anti-money laundering programs that meet four requirements:

  • the development of internal policies and procedures;
  • the designation of a compliance officer;
  • an ongoing employee training program regarding AML/CTF issues; and
  • an independent audit.

The following cases demonstrate that US financial entities of all sizes struggle with the current requirements for AML/CTF programs contained in the Bank Secrecy Act and PATRIOT Act. Each of the cases discussed are compliance-related cases which were dealt with by issuing a Consent to the Assessment of Civil Money Penalty Order (Consent Order) rather than going to court. Here, the entity involved agrees to pay a civil penalty for compliance failures. As a result, the cases have not reinterpreted either legislation and instead show the application of the regulations in detail. The substantial fines applied for the violations in question do not consider the size of the entity involved.

Riggs Bank NA 2004

Riggs Bank entered into a Consent Order with FinCEN in 2004. FINCEN alleged that Riggs’ AML/CTF program was inadequate. With regard to the first criteria outlined above, FinCEN noted that the bank did not assess risk in a systematic way across its various operations and that customer due diligence was not always followed (particularly with regard to accounts with overseas countries and politically exposed persons). The bank did not file SARs in a timely fashion and sometimes failed to file them at all. With regard to the second criteria, although a Bank Secrecy Act officer had been appointed, the officer in question failed to establish a procedure for effectively monitoring day to day performance or suspicious activity. With regard to the third criteria, FinCEN held that there was inadequate training of staff on AML/CTF risks, particularly for new customers and MSBs, evidenced by the lack of awareness of Rigg’s staff on new MSB regulations. Finally, with regard to the final criteria, FINCEN held that the independent audit had not been timely or adequate and did not address key issues such as Bank Secrecy Act compliance, AML/CTF vulnerability, or the SAR process.

FinCEN determined that Riggs’ conduct had taken place over a number of years and that it was wilful as Riggs had demonstrated a reckless disregard for its statutory or regulatory obligations. Riggs was fined US$25m.

Beach Bank, Miami Florida 2006

Beach Bank, in Miami Beach, Florida and the Beach Bank Liquidating Trust (an institution-affiliated party of the bank) were subjected to a FDIC cease and desist order due to concerns that the bank’s management was not providing adequate guidance on compliance with the Bank Secrecy Act. The bank was a small state institution and the board was not experienced. The bank’s compliance activities were deficient in a number of areas, including monitoring of MSBs, inadequate audits and poor adherence to ‘know your customer’. Beach Bank and Liquidating Trust were fined US$400,000 each by FinCEN in 2006.

Union Bank of California NA 2007

The matter of Union Bank of California NA 2007 also concerned an inadequate AML/CTF program. The bank, in particular, did not have adequate internal systems for monitoring suspicious activity by high-risk customers, including a Mexican casas de cambio (a money exchange service). Though the bank had set up an internal financial intelligence unit in 2004, it failed to adequately resource this unit, resulting in many SARs being filed in an inadequate form, in a less than timely manner, or not filed at all. Union Bank was fined US$10m by FinCEN in 2007. The US Department of Justice further ordered Union Bank to forfeit US$21,600,000.

American Express Bank International, Miami, Florida 2007

FinCEN found issued civil penalties to American Express Bank International, Miami Florida and to American Express Travel Related Services Company Inc, Salt Lake City in 2007. FinCEN found that American Express Bank’s anti-money laundering program was inadequate in a number of ways. The program lacked adequate internal controls, an adequate independent audit and failed to designate compliance personnel. FinCEN noted that the organisation’s international profile made it more vulnerable than most companies to money laundering but that it nevertheless continued to operate without adequate safeguards. FinCEN found that the failure to comply with the Bank Secrecy Act were endemic to the bank’s procedures and that there had been inadequate SAR filing for over US$500m worth of suspicious transactions. FinCEN’s civil penalty for the compliance breaches of American Express Bank International was US$20m and a further US$5m for American Express Travel Related Services Company Inc. American Express Bank also forfeited US$55m.

United Bank for Africa PLC New York Branch, New York 2008

In 2008, the OCC found that the United Bank for Africa PLC New York Branch, New York (headquartered in Nigeria), had failed to institute an adequate anti-money laundering program. The OCC had issued the bank with a number of warnings about its shortcomings in this area. The OCC’s Consent Order noted the bank’s failure to establish arrangements for politically exposed persons, including senior politicians in Nigeria and Nigerian diplomats, as well as other high-risk organisations such as MSBs, jewellery and precious metal dealers, import-export businesses and offshore corporations. The bank also failed to effectively monitor routine transactions for signs of money laundering.

The OCC found that branch personnel were not sufficiently trained to recognise suspicious activity and that the bank’s compliance responsibilities were not clearly set out. The inadequate anti-money laundering program was assessed by an insufficient independent auditing system and the SAR activities of the bank were quite inadequate as 60 percent of the SARs filed from 2005 to 1 February 2008 were extremely late. The United Bank for Africa’s Consent Order was for US$15m.

Sigue Corporation and Sigue LLC, San Fernando, California 2008

Sigue provides money transmission services to Mexico and Latin America through 7,000 agent businesses in the United States. Sigue entered into a deferred prosecution agreement for criminal charges for violations of the Bank Secrecy Act. The company failed to identify broader patterns of money laundering including transactions conducted by federal agents using funds which were represented to be illicit. Between 2003 and 2005, more than $24.7m in suspicious transactions were processed by agents of Sigue. Some of Sigue’s agents were additionally found to be structuring transactions for their customers in order to avoid reporting requirements. FinCEN found that Sigue’s anti-money laundering program was deficient in all four major areas.

Sigue agreed to forfeit US$15m to the United States Government. FinCEN applied a civil penalty of US$12m for non-compliance with the Bank Secrecy Act, however, this amount was deemed to be satisfied as part of the forfeited sum.

UBS, AG, Zurich, Switzerland 2004

A foreign bank, UBS, AG from Switzerland, was issued a $100m civil money penalty from the Federal Reserve Board, the second largest penalty ever issued. The civil money penalty was issued for banknote transactions with counterparties in jurisdictions subject to sanctions under US law. These included Cuba, Libya, Iran and Yugoslavia. UBS, AG was contracted to hold US dollar currency and distribute as needed, the contract required the bank to abide by US laws concerning money laundering and US embargo provisions. UBS, AG was not permitted to transact with these countries as it was not permitted under US law to do so.

El Noa Noa Corporation, Florida 2008

El Noa Noa consented to a US$12,000 civil money penalty for failing to establish and implement a reasonably designed AML/CTF program (FinCEN 2008). In addition to these regulatory actions, the United States also has a program to share information between financial institutions and law enforcement agencies through FinCEN. Section 314(a) of the PATRIOT Act allows FinCEN to send and receive requests for information concerning transactions and accounts of individuals or entities suspected of participating in money laundering or terrorism financing activities. FinCEN receives requests from law enforcement and sends them to financial institutions every two weeks. The requests must be checked against accounts from the previous 12 months and transactions in the previous six months. The program began in 2002 and between that time and 2009, FinCEN processed 1,061 requests for information, with 741 for money laundering and 320 for terrorism financing. More than 10,000 persons of interest were identified in the requests for information (FinCEN 2008). By 2007, 6,180 suspects were identified, leading to 129 arrests, 16 convictions and $46,982,753.64 located (FinCEN 2007).

Terrorism-financing convictions

Between 2002 and February 2007, the United States prosecuted 262 individuals with criminal violations of the terrorism financing statutes as outlined in the second section. Of the 262 individuals prosecuted for terrorism financing, 176 were convicted (TRAC 2007).

United Kingdom

Compliance

The UK Financial Intelligence Unit (UKFIU) receives SARs from all of the reporting entities in the United Kingdom. The United Kingdom does not have any threshold transaction reports, therefore UKFIU processes intelligence from SARs only. SOCA took over responsibility for the regime in October 2006 (SOCA 2007). The volume of reports submitted annually has increased substantially from the earlier years of the regime. In 2008–09, SOCA received over 220,000 SARs. The figures for reporting, including the last three years under SOCA, are shown in Table 26.

Table 26: Suspicious activity reports submitted in the United Kingdom, 2002–09
YearSARs filed (n)Change from previous year (%)
Oct 2008– Sept 2009 228,834 8.70
Oct 2007– Sept 2008 210,524 -4.52
Oct 2006– Sept 2007a 220,484
2006 212,561 8.6
2005 195,702 26.6
2004 154,536 63.16
2003 94,718 69.07
2002 56,023 86.89

a: SOCA received SARs from October 2006

Sources: Harvey 2008; SOCA 2009b, 2007

The bulk of all SARs submitted in the United Kingdom are from banks. Banks submitted 69.71 percent of all SARs filed in 2007–08. The professional sectors (which include accountants, tax advisors, barristers, other legal professionals, solicitors, real estate agents, licensed conveyancers and high-value dealers) submitted 6.85 percent of SARs in 2008–09. Legal practitioners and accounting professionals submitted most of the SARs filed by the non-financial businesses. These two professions collectively filed 14,058 reports in 2008–09 (SOCA 2009a). The 14,058 reports from both profession combined represented a drop in the volume of reports from accountants and legal practitioners submitted in 2006–07. Accountants lodged 11,300 reports in 2006–07 and legal practitioners lodged 8,110 in the same year (SOCA 2007).

PricewaterhouseCoopers (2007) conducted 148 interviews with compliance professionals working in the financial sector in the United Kingdom on anti-money laundering topics. The survey results showed that most respondents indicated low levels of suspicious transactions within their business and submitted low numbers of SARs. Fifty-eight percent of the respondents reported fewer than six suspicious transactions per year. The figures are shown in Table 27. The implications of the findings are that the bulk of the reports received by UKFIU are submitted by a concentrated number of companies.

Table 27: Suspicious financial activity reports submitted by anti-money laundering survey respondents (n)
Suspicious reports per year (n)Respondents (%)
Less than 6 58
6–20 20
21–50 9
51–100 3
101–500 4
501–1,000 1
More than 1,000 3
Don’t know 2

Source: PricewaterhouseCoopers 2007

The UKFIU disseminated 956 SARs to the National Terrorist Finance Intelligence Unit in 2007–08. This figure fell to 703 in 2008–09 (SOCA 2009b).

Enforcement

Recent enforcement activity in the United Kingdom has resulted in 756 charges, 298 cases reaching the courts and 276 convictions recorded from information derived from SOCA intelligence (SOCA 2008b). In 2008–09, 67 people were charged with money laundering in SOCA cases (SOCA 2009a).

Table 28: Institutions found to have failed to apply anti-money laundering regulations in the United Kingdom
DateInstitutionReasonSanction
Oct 2008 Sindicatum Holdings Limited, MLRO Inadequate client identity controls £49,000; £17,500
Nov 2005 Investment Services UK Ltd Bond Broker Failure to control its business effectively in relation to anti-money laundering systems and controls £175,000
Sep 2004 Bank of Ireland Breaches of anti-money laundering requirements £375,000
Apr 2004 Raiffeisen Zentralbank Österreich Breach of money laundering rules £150,000
Jan 2004 Bank of Scotland (now HBOS) Breach of money laundering rules £1,250,000
Dec 2003 Abbey National PLC Breach of money laundering rules £2,000,000
Aug 2003 Northern Bank Limited Inadequate know your customer and identity verification £1,250,000
Dec 2002 Royal Bank of Scotland PLC Breaches of money laundering rules—inadequate know your customer requirements and record maintenance £750,000
May 2002 Northern Ireland Insurance Brokers Limited Involvement in financial crime including money laundering No longer able to carry out any form of regulated activity and closed down in May 2003
Aug 2001 Paine Webber International (UK) Limited Serious compliance failures including inadequate controls to prevent money laundering, know your customer requirements, record-keeping and staff training—imposed by SFA) £350,000

Sources: FSA 2008, 2005, 2004a, 2004b, 2004c, 2003a, 2003b, 2002, 2001

Table 29 below shows the volume of prosecutions and convictions for money laundering offences under each piece of legislation between 2001 and 2004. The distribution of prosecutions and convictions under each instrument differed between years, although the total under all legislation increased annually. Table 29 also shows an increase in the percentage of prosecutions that resulted in convictions.

Table 29: Money laundering prosecutions in the United Kingdom, 2001–04 (n)
LegislationNumbers2001200220032004
ss 49–53 Drug Trafficking Act 1994 (previously s 14 Criminal Justice (International Cooperation) Act 1990 (s 49) and ss 24 and 23A of Drug Trafficking Offences Act 1986) Prosecuted 91 129 80 43
Convicted 43 40 50 28
Conversion rate (%) 47.3 31.0 62.5 65.1
Criminal Justice Act 1988 (ss 93A–93D) as amended by the Criminal Justice Act 1993 (ss 29–32) Prosecuted 91 127 131 95
Convicted 32 46 58 49
Conversion rate (%) 35.2 36.2 44.3 51.6
Proceeds of Crime Act 2002 (ss 327–334) Prosecuted 87 409
Convicted 15 125
Conversion rate (%) 17.2 30.6
Total for all legislation Prosecutions 182 256 298 547
Convictions 75 86 123 202

Source: UK Government Home Office cited in Harvey 2008

SOCA (2006) indicated that £3.3m were seized using the UK asset recovery provisions in 2006–07. Table 30 outlines the increased asset recovery rates by SOCA since 2006–07.

Table 30: SOCA UK’s asset recovery, 2007–08 and 2008–09 (£m)
Type2007–082008–09
Cash seizures 8.0 9.2
Cash forfeitures 2.9 4.5
Restraint orders 46.8 128.8
Confiscation orders obtained 11.6 29.7
Confiscation orders enforced n/a 16.7

Source: SOCA 2009a

Belgium

Compliance

Belgium requires disclosures (of suspicious transactions) as the equivalent to STRs. Belgium does not use a list-based approach to reporting—where objective indicators lead to a report being made—instead, it requires reporting entities to do preliminary analysis themselves prior to submitting the report. This leads to a lower number of disclosures, but arguably a higher quality of information (CTIF-CFI 2006). The numbers of disclosures of suspicious financial activities are shown by year in Table 31.

Table 31: Disclosures of suspicious financial activity—by year
YearDisclosures (n)Change from previous year (%)
2008 15,554 21.23
2007 12,830 29.1
2006 9,938 -2.06
2005 10,148 -9.6
2004 11,234 12.9
2003 9,953 -24.1
2002 13,120

Sources: CTIF-CFI 2008, 2007, 2006

There was a 30 percent increase in the number of disclosures between 2006 and 2007, and an increase in the number of investigation files created by CTIF-CFI, which brought the number to 4,927. One explanation for this increase is a 2007 amendment to the legislation which altered the requirements for reporting transactions suspected to be linked to serious and organised tax fraud. Regulated entities are now obligated to submit a report of these matters as soon as any indicator of this activity emerged (CTIF-CFI 2007a). The increasing volume of reports submitted to CTIF-CFI continued in 2008 with a similar number of new investigation files opened as a result (CTIF-CFI 2008).

A high percentage of the disclosures received by CTIF-CFI are submitted to justice officials for prosecution. Between 2000 and 2003, 5,000 money laundering cases were submitted to Belgian justice officials, resulting in 800 convictions for money laundering during this period (FATF-GAFI 2005a). CTIF-CFI submitted 1,166 files to the public prosecutor in 2007. This was approximately 23.7 percent of the total number of investigation files opened. CTIF-CFI sent 937 files to prosecutors in 2008. An investigation file can be the result of several disclosures, meaning the total number of files is less than the total number of disclosures (CTIF-CFI 2007a).

The majority of files reported to the public prosecutor in Belgium represent funds identified in the layering stage of money laundering. Serious tax fraud was the most common suspected predicate offence (accounting for 23.7% of cases in 2008), followed by trafficking in goods and merchandise (20%) and misappropriating corporate assets (15.1%; CTIF-CFI 2008).

CTIF-CFI dealt with 175 investigation files for terrorism matters between 1993 and 2007 and 32 of these were in 2007 (CTIF-CFI 2007a). A total of 21 files tied to terrorism or terrorism financing in 2008 (CTIF-CFI 2008).

Enforcement

In 2003, 1,214 money laundering cases were dealt with in Belgium. The most recent estimate available on the forfeiture and confiscation of funds generated by organised crime was €102m in 2001 (FATF-GAFI 2005a). Belgium confiscated €747.5m in 2008 (CTIF-CFI 2008).

France

Compliance

TRACFIN received approximately 12,000 STRs in 2006 (Favarel-Garrigues, Godefroy & Lascoumes 2008). The IMF remarked in their evaluation of France that the level of reporting still appears low when considered in the context of the financial and economic market, despite the numbers of reports increasing between 2000 and 2005. The volume of reports nearly doubled from approximately 6,800 in 2002 to approximately 12,000 in 2006. The number of reports submitted between 2002 and 2006 are displayed in Table 32.

Table 32: Suspicious financial activity reports to TRACFIN
YearReports (n)Change from previous year (%)
2008 14,565 16.81
2007 12,469 3.38
2006 12,047 4.2
2005 11,553 6.55
2004 10,842 20.2
2003 9,019 3.4
2002 8,719

Sources: TRACFIN 2008, 2006

The increased volume of reporting was not necessarily matched by an increase in quality, as the number of reports forwarded onto judicial authorities remained limited. Approximately 10 percent (n=269) of the reports filed in 2003 were forwarded on (IMF 2005). By 2006, the figure had increased to approximately 400, representing just over three percent of the total number of reports (Favarel-Garrigues, Godefroy & Lascoumes 2008). TRACFIN referred 359 cases to judicial authorities in 2008 (TRACFIN 2008).

In France, the financial sector submits the largest proportion of STRs, although the volume of reports submitted by MSBs and non-financial business is increasing. Financial services businesses accounted for 98 percent of reports filed in 2005, 97 percent of reports filed in 2006, 88 percent of reports in 2007 and 86 percent of reports in 2008 (TRACFIN 2008, 2006). Banks generate the most STRs in France, accounting for about 80 percent in the years between 2005 and 2008 (TRACFIN 2008, 2006).

The levels of reporting by businesses outside of the banking sector (particularly from investment companies, casinos and high-value dealers) increased after 2000 (IMF 2005). By 2008, non-financial businesses accounted for a little over four percent of STRs, while MSBs submitted approximately 10 percent of reports (TRACFIN 2008).

IMF (2005) suggested that the low levels of reporting might be the result of inadequate supervision of these sectors. The exception to the trend of low reporting by non-financial businesses is the experience of notaries. Notaries were responsible for 56 percent of the reports filed by non-financial businesses in 2006 and 2008 (TRACFIN 2008, 2006).

Enforcement

The 359 cases TRACFIN referred to judicial authorities in 2008 included 179 cases for money laundering and, of these, 175 went before the courts. Table 33 outlines the volume of convictions for money laundering in France between 2004 and 2007. TRACFIN referred 410 cases to the judicial authority in 2007 (TRACFIN 2007).

Table 33: Money laundering convictions in France, 2004–07 (n)
YearOrdinary money launderingAggravated money launderingTotal
2007 80 62 142
2006 55 21 76
2005 32 90 122
2004 23 25 48

Source: TRACFIN 2008

In 2007, 17 of TRACFINs cases alleged terrorism financing and went to the prosecutor’s office (TRACFIN 2007). In 2008, five cases involving suspected terrorism financing were directed to the prosecutor’s office (TRACFIN 2008).

TRACFIN has been operational since 1991 and has powers to block or freeze transactions for 12 hours after receiving an STR about the proposed transaction. This procedure, however, had only been used on seven occasions up until 2005 (IMF 2005).

Germany

Compliance

The suspicious transaction reporting regime in Germany requires regulated businesses to combine transactions tied to one customer into a single report. The numbers of STRs filed by regulated entities in Germany declined in 2003 and did not reach the same levels of reporting seen in 2002 until 2006 (FIU Germany 2006). Reporting volumes fell in 2007 and again in 2008 (FIU Germany 2008). The number of reports received by FIU Germany between 2002 and 2008 appear in Table 34.

The reporting rate for financial services fell between 2007 and 2008, whereas the volume of reports from non-financial businesses increased slightly (FIU Germany 2008). More than 80 percent of STRs submitted in 2006 were filed by credit institutions. The number of reports filed by credit institutions fell by 22 percent in 2007 and a further 13 percent in 2008. Legal practitioners, notaries, auditors, tax consultants, asset managers and other businesses filed 32 reports in 2008. This was an increase on the 13 reports filed by these sectors in 2006 (FIU Germany 2008).

Reports can also be filed in Germany by individuals and entities outside the regulated sector. These can be filed by private citizens, tax authorities, law enforcement authorities, the German customs service and other government agencies. Persons and entities outside the regulated sector filed 530 reports in 2006 (FIU Germany 2006). German tax authorities filed 25 percent fewer reports in 2008 than in 2007 (FIU Germany 2008).

The most common reason or suspicion cited in the STRs in 2008 was fraud, followed by document forgery and tax evasion, with 1,566 listings (FIU Germany 2008). The volume of listings for document forgery, tax offences and insolvency offences rose in 2008.

Table 34: Suspicious financial activity reports filed in Germany, 2002–08
YearReports (n)Change from previous year (%)
2008 7,349 -23.55
2007 9,080 -9.66
2006 10,051 21.9
2005 8,241 2.2
2004 8,062 22.1
2003 6,602 -30.4
2002 8,612

Sources: FIU Germany 2008, 2006

Terrorism financing

Germany also publishes statistics on the volume of STRs linked to the financing of terrorism. Table 35 displays the number of reports filed between 2003 and 2008 documenting transactions suspected to be linked to terrorism financing. These accounted for between 0.6 percent and two percent of STRs. Prosecutors advised BKA on the outcome of 24 of the 65 reports filed in 2008 and each was discontinued due to insufficient suspicion (FIU Germany 2008).

Table 35: Suspicious financial activity reports relating to the financing of terrorism
YearReports (n)STRs (as a % of total)
2008 65 0.9
2007 90 0.9
2006 59 0.6
2005 104 1.3
2004 114 1.4
2003 127 2

Source: FIU Germany 2008, 2006

Enforcement

The public prosecutor’s office provided FIU Germany with 3,850 follow-up responses to suspect transaction reports in 2008, although the responses provided are not confined only to reports filed in 2008. Most (around 90%) noted that proceedings had been discontinued. The remaining responses reported that the reports had resulted in an indictment, penalty order, or judgement, or were relevant to other cases or pending investigations (FIU Germany 2008). The reported outcomes for 2007 and 2008 appear in Table 36. FIU Germany notes a correlation between the number of STRs filed in 2008 and the fall in each of the reported outcomes (FIU Germany 2008).

Table 36: Reported outcomes to financial intelligence unit Germany, 2007–08 (n)
Outcome 2007 2008
Indictment 58 42
Penalty order 130 138
Judgement 15 30
New investigation 118 99
Pending investigation 37 33

Source: FIU Germany 2008

The number of money laundering offences recorded under s 261 of the Penal Code more than doubled between 2002 and 2007, rising from 1,061 to 3,923. After a 40 percent decline in 2003, the number of recorded offences increased each year to 2007. These figures are displayed in Table 37. The clearance rate reflects the percentage of cases cleared up each year.

Table 37: Offences for money laundering, concealment of unlawfully acquired assets (s 261 Penal Code) in Germany, 2002–08
YearCases (n)Change from previous year (%)Clearance rate (%)
2008 2,582 -34.2 94.0
2007 3,923 30.9 94.9
2006 2,997 10.3 91.8
2005 2,023 160.6 80.8
2004 776 4.2 96.6
2003 745 -42.4 96.5
2002 1,061 20.9 95.6

Sources: BKA 2008a, 2007, 2006a, 2005, 2004a, 2003

BKA reported conducting 186 investigations into alleged money laundering in 2008 which led to filing 511 STRs tied to 92 cases (BKA 2008b). BKA seized €169.9m in assets in 2008. This is much higher than the provisional seizures made in 2003 (€69m) and 2004 (€68m; BKA 2004b). The elevated 2008 figure is the result of two seizures made in that year.

Singapore

Compliance

The volume of STRs submitted in Singapore increased each year between 2004 and 2008 (see Table 38). The largest increase occurred between 2006 and 2007, where the volume of reports submitted more than doubled. Report numbers showed a more modest increase of 68 percent between 2007 and 2008.

Table 38: Suspicious financial activity reports in Singapore, 2004–08
YearReports (n)Change from previous year (%)
2008 12,158 67.44
2007 7,261 120.7
2006 3,290 58.4
2005 2,076 16.36
2004 1,784

Source: STRO 2009

Singapore’s Commercial Affairs Department (CAD), housing the STRO, were receiving 90 percent of reports electronically by March 2009 (CAD 2009). CAD introduced the Web-based Intelligence aNalytical [sic] and Graphical Visualisation System in 2008 (CAD 2008). This system facilitates prioritising and analysing STRs and automatically processes and assigns cases for action.

Enforcement

Information gathered from STROs assisted CAD, directly or indirectly, to recover SGD$110m in assets between 2000 and 2007 (CAD 2007). Singapore convicted 41 people of money laundering between 2005 and 2008. FATF-GAFI (2008a) viewed the volume of money laundering convictions in Singapore as low for the size of Singapore’s financial sector at the time of the mutual evaluation and suggested that cases focused on predicate offences rather than money laundering prosecutions. In 2008, a vast increase was seen in the volume of total convictions and the number of convictions where the launderer was not dealing with the proceeds generated by their own crimes. The money laundering convictions in Singapore for each year appear in Table 39.

Table 39: Money laundering convictions in Singapore, 2005–08 (n)
YearThird-party money laundering convictionsTotal convictions
2008 19 24
2007 2 13
2006 Unknown 2
2005 Unknown 2

Source: CAD 2009

Hong Kong

Compliance

Hong Kong had a large increase in the volume of between 2004 and 2007. Financial services businesses submitted the majority of reports in that period (see Table 40) and the volume of reporting from these businesses remained steady in that time. Four banks, holding around 50 percent of customer deposits in 2007, submitted approximately 70 percent of STRs made to JFIUHK between 2003 (FATF-GAFI 2008b).

Table 41 provides more detail on the volume of reports submitted by each type of regulated business in Hong Kong. Remittance agents and money changers showed a substantial increase in reporting volumes in 2006 and 2007 from that of 2003. The increase may have been tied to education seminars hosted by JFIUHK and some prosecutions for non-compliance (FATF-GAFI 2008b).

The non-financial business regulated in Hong Kong submitted very few reports between 2003 and 2007. Legal practitioners made the most reports during this period, although this amounted to only 13 reports. No businesses in the precious metals and stones industry made a report during this period.

Table 40: Suspicious financial activity reports filed in Hong Kong, 2004–07 (n)
Business sector2004200520062007
Financial services 13,827 13,169 13,329 13,362
MSBs 132 268 1119 2001
Non-financial services 17 16 17 17
Total 13,976 13,453 14,465 15,380

Source: FATF-GAFI 2008b

Table 41: Suspicious transaction reports submitted in Hong Kong by sector, 2004–07 (n)
Business sectorBusiness2004200520062007
Financial services Banking 13,570 12,449 13,041 12,789
Insurance 144 560 132 311
Licensed money lenders 37 10 35 42
Securities and futures 76 150 121 220
Total financial services 13,827 13,169 13,329 13,362
MSBs Remittance agents and money changers 132 268 1,119 2,001
Total MSBs 132 268 1,119 2,001
Non-financial services Accountant 1 0 0 3
Lawyer 13 5 11 9
Trust and company 2 11 6 5
Real estate 1 0 0 0
Precious metals and stones 0 0 0 0
Othera 53 52 92 77
Total non-financial services 70 68 109 88
Total per year 14,029 13,521 14,557 15,468

a: Businesses or individuals that are not designated non-financial businesses or professions

Source: FATF-GAFI 2008b

A very small proportion of STRs filed between 2003 and 2007 were tied to the financing of terrorism. Table 42 shows that JFIUHK, in most years with the exception of 2003, received 20 or fewer reports outlining behaviour suspected to be tied to financing of terrorism. Some investigations stemming from reports made by businesses for other matters were later tied to suspected terrorism financing during the course of the investigation. These have also been counted in Table 42.

Hong Kong initiated 104 prosecutions against remittance agents and money changers between 2000 and 2007 for failing keep the required identification records for transactions of HK$8,000 or more. The maximum penalty handed down for these prosecutions was a fine of HK$100,000, one month’s imprisonment and suspending the licence to operate for one year (FATF-GAFI 2008b). Fines of HK$30,000 were imposed in 77 cases for failing to register the remittance or money changing business in the same period (FATF-GAFI 2008b).

The OCI sanctioned 22 insurance companies between 2004 and 2007 for failing to keep appropriate identification records. It issued eight oral warnings and 24 written warnings for non-compliance to these companies (FATF-GAFI 2008b).

The Securities and Futures Commission fined 14 companies for AML/CTF non-compliance between 2004 and 2007 and suspended a further 36 companies in the same period. It imposed fines between HK$30,000 and HK$700,000 for non-compliance and suspended licenses for between one month and two years and nine months (FATF-GAFI 2008b).

Table 42: Suspicious financial activity reports related to terrorism financing, 2003–07
YearReports (n)SARs (as a % of total)
2007 20 0.13
2006 19 0.13
2005 9 0.07
2004 14 0.10
2003 73 Unknown
Total 135

Source: FATF-GAFI 2008b

Enforcement

The number of individuals convicted for money laundering in Hong Kong began to increase substantially in 2004 (see Table 43), with the highest number of convictions recorded in 2008 (JFIUHK 2009). In 2008, Hong Kong convicted 248 people for money laundering from 364 prosecutions (DoJHK 2009).

Table 43: Persons convicted of money laundering in Hong Kong, 2004–09 (n)
YearPersons convicted of money laundering (n)Prosecutions for money laundering (n)
2009 232 Unknown
2008 248 364
2007 179 310
2006 92 116
2005 84 57
2004 49 40

Sources: DoJHK 2009, 2008, 2007, 2006, 2005; JFIUHK 2009

In 2008, Hong Kong issued 16 restraint orders, with a total value of HK$409.98m. Asset recovery orders issued under OSCO totalled HK$11.01 and HK$1.38m under the Drug Trafficking (Recovery of Proceeds) Ordinance. Hong Kong recovered a further HK$21.51m in assets in 2008.

In 2007, orders for confiscating HK$19.45m in cash and HK$2.11m in assets were sought under OSCO. Further, orders for confiscation under DTROP were valued at HK$377,000 for cash and HK$795,000 worth of assets (DoJHK 2008). In 2006, HK$4.447m of crime proceeds was confiscated. A further HK$40.003m was restrained pending court proceedings (DoJHK 2007). Table 44 outlines the proceeds of crime recovered in Hong Kong under OSCO between 2004 and 2008.

Table 44: Proceeds of crime confiscated in Hong Kong, 2004–08
YearOSCO (HK$m)DTROP (HK$m)Assets (value in HK$m)
2008 11.01 1.38 21.51
2007 19.45 0.38 2.90
2006 4.45 Unknown Unknown
2005 18.11 Unknown Unknown
2004 14.80 Unknown Unknown

Sources: DoJHK 2009, 2008, 2007, 2006, 2005

Republic of China (Taiwan)

Compliance

Taiwan requires regulated entities to submit both SARs and reports of high-value cash transactions. Table 45 lists the volume of SARs submitted to the Taiwan FIU between 2004 and 2007, and the proportion of those forwarded from the FIU to law enforcement units within the Investigation Bureau or to external police or other agencies. The volume of SARs submitted by regulated entities in 2005 decreased dramatically from the 2004 figure. The number of reports the FIU forwarded to the law enforcement community remained steady between those two years. The figures provided in Table 45 do not include any reports made by businesses from the precious metals and stones sector. The APG expressed serious doubts about the effectiveness of the requirement for these businesses to make reports, as the sector had not submitted SARs by 2007 (APG 2007).

Table 45: Suspicious transaction reports submitted in Taiwan, 2004–07
YearSTR volume (n)Sent to law enforcement (n)Total sent to law enforcement (%)
2007 1,741 383 22.00
2006 1,281 478 37.31
2005 1,034 239 23.11
2004 4,689 299 6.38

Source: MJIB 2008, 2007, 2006, 2005

Around 45 percent of SARs submitted in 2007 identified transactions of NT$1m (US$31,000) or less. Just under eight percent involved more than NT$30m (US$945,000; MJIB 2007).

Domestic banks submitted the largest proportion of SARs lodged in Taiwan between 2004 and 2007 (see Table 46). Postal services offering remittance transfers submitted 20 percent of the reports lodged to the FIU in 2007 but only filed eight SARs in 2006. The fall in the proportion of reports lodged by local banks in Taiwan, and the increase in the volume of reports lodged between 2006 and 2007, are both consequences of the increased levels of reporting by postal services businesses.

Table 46: Suspicious activity reports originating in local banks in Taiwan, 2004–07
YearTotal SARs (n)Local bank submissions (%)
2007 1,741 56
2006 1,281 75
2005 1,034 63
2004 4,689 97

Source: MJIB 2008, 2007, 2006, 2005

Enforcement

District prosecutors prosecuted 31 money laundering cases in 2007, a substantial decrease on the prosecutions undertaken in Taiwan in previous years (see Table 47). In 2007, the value of the money laundering proceeds from the cases prosecuted in Taiwan (including summary matters and deferred cases) was the highest for the period examined. The majority of money laundering cases each involved more than NT$30m in proceeds. The value of most cases in 2006 was less than NT$100,000 (MJIB 2007).

Table 47: Money laundering prosecutions and proceeds in Taiwan, 2004–07
YearMoney laundering prosecutions (n)Money laundering proceeds (NT$)
2007 31 69,103,390,744
2006 691 5,110,747,140
2005 1,171 7,709,658,074
2004 809 unknown

Source: MJIB 2008, 2007, 2006, 2005

Twenty-eight of the 31 money laundering cases prosecuted in Taiwan in 2007 involved financial institutions. Two cases involved alternative remittance services and one case involved purchasing real estate. The most common money laundering approach employed by defendants was to open a dummy account at a bank (MJIB 2008). This was also the case in 2005 and 2006. Table 48 shows the money laundering cases that have involved a business outside of the financial sector.

Table 48: Businesses allegedly used to launder money, 2005–07
InstitutionCases in 2007 (n)Cases in 2006 (n)Cases in 2005 (n)
Financial institutions
Banks 24 465 871
Postal services engaged in money transfers 2 213 287
Credit unions 1 4 6
Famers’ and fishermen’s credit associations 1 2 2
Securities companies 0 2 2
Subtotal 28 686 1,168
Non-financial institutions
Underground banking 2 2 2
Purchase of real estate 1 1 1
Purchase of precious metals 0 1 0
Other means 0 1 0
Grand total 31 691 1,171

Source: MJIB 2008, 2007, 2006, 2005

Comparative analysis

Compliance

Suspicious financial activity reports—reporting volume

The volume of reports submitted to authorities in Hong Kong, Singapore, France, the United Kingdom, the United States and Australia steadily increased over the period for which reporting data were available. The regulated sector in each country generally submitted far more reports in 2008 or 2008–09 than in the base year for which data were available. Singapore’s FIU experienced an increase in reports of more than 580 percent between 2004 and 2008. Report numbers in the United Kingdom and United States grew by 308 percent and 359 percent respectively. Singapore’s increased reporting volume between 2004 and 2008, unlike the European Union countries, was not accompanied by an increase in the number of businesses in the AML/CTF regime at that time.

Germany and Taiwan recorded a fall in the volume of reports over the period of available data. In 2007, Taiwan’s FIU received less than 40 percent of the reports filed in 2004. Germany’s FIU received 14 percent fewer reports in 2008 than in 2002.

Reports by sector

Businesses in the financial services sector submitted the largest proportion of reports for each of the countries considered in this report. This remains true even for countries where non-financial businesses constitute a large percentage of the regulated sector.

Financial service businesses submitted 57 percent of reports filed with the US FIU in 2008, 70 percent of those filed in the United Kingdom in 2007–08, 86 percent of those filed in France in 2008 and 87 percent of reports filed in Hong Kong in 2007. Foreign exchange offices and credit institutions initiated 80 percent of reports filed in Belgium in 2007.

Despite the monopoly that financial services businesses retain on reporting suspect transactions in each of the countries in this sample, these businesses account for only a small proportion of the businesses regulated for AML/CTF. This is particularly evident in the United Kingdom where over 60 percent of reports in 2006–07 came from the financial sector, which accounted for only 14 percent of regulated businesses in that year. Likewise, the United States saw more than half of the reports filed in 2008 lodged by deposit-taking institutions, which represented around 20 percent of businesses with AML/CTF obligations (see Table 49).

Table 49: Suspicious financial activity reports submitted from the financial sector based on proportion of that sector
CountryReports 2006–07a (n)Percentage from finance sector/banksFinance sector/banks proportion of regulated sector (%)b
Australia 24,440 Unknown 29.6
United States 1,157,468 51.9 20.0
United Kingdom 220,484 63.6 14.0
Belgium 12,830 79.6 Unknown
France 12,047 96.8 Unknown
Germany 10,051 80.0 Unknown
Singapore 7,261 Unknown 21.2
Hong Kong 15,363 Unknown 22.9
Taiwan n/a Unknown Unknown

a: Year periods may differ due to difference in Australian and international fiscal years. France and Germany have 2006 data only, Singapore and Hong Kong have 2007 data, data from Taiwan was not available

b: Estimate only based on figures available in the second section

Source: AIC analysis

The non-financial businesses in the countries considered in this report were still filing low numbers of reports in the last year for which data were available. Numbers of reports were low in volume or non-existent. Professions with reporting requirements in the United Kingdom were responsible for only eight percent of suspicious reports in 2007, with the majority of these submitted by solicitors and accountants. In 2007 in Belgium, less than two percent of reports originated from non-financial businesses (excluding notaries), with legal practitioners and real estate agents submitting only three and two disclosures respectively. In Taiwan, only high-value dealers are required to submit reports. No businesses in this industry had submitted a report prior by 2007. The United States was the only country in this report to show comparable levels of reporting between the different sectors, with 48 percent of suspicious financial transaction reports in 2007 submitted by businesses outside of the financial sector. These businesses, however, were MSBs and not non-financial businesses or professions. Gambling businesses, the only non-financial industry regulated for AML/CTF in the United States, filed less than one percent of the reports for 2008.

Report numbers

KPMG’s (2007) global AML survey of over 200 banks and executives showed that 72 percent of respondents reported some level of increase in the number of reports of suspicious activities in the three years prior to the survey. Respondents indicated that the increase could be attributed to improved reporting systems, such as electronic filing, and increased staff awareness.

KPMG’s findings suggest that the increased volume of reports does not reflect an increased volume of suspicious activity, at least as far as the financial industry is concerned, but rather an increased capacity to capture it. Amendments to the anti-money laundering regimes in each of the countries considered are also likely to have an impact on the volume of reports received, rather than increased levels of suspicious activities as such.

The way countries structure their reporting requirements will have a direct impact on the volume of reports lodged. The amount of in-house analysis that businesses are required to undertake prior to reporting a transaction will also reduce the number of reports. Countries such as Germany and Belgium require businesses to undertake some initial analysis of a reportable matter prior to submitting a report to authorities. This approach aims to systematically improve the quality of submitted reports but also to reduce the volume received. German reporting entities also combine suspect transactions tied to a single matter into one report. Countries such as Australia do not direct businesses to combine connected suspect matters into a single report and these countries will have higher report volumes, even if the portion of suspect matters remain the same. Each approach to submitting reports reveals different kinds of information. Report counting may indicate the volume of data received and potentially dealt with by the FIU and case counting may better indicate the number of individuals considered for assessment.

There are many factors that lie outside the amount of illicit activity taking place that may influence the overall volume of reports of suspect transactions in the countries considered in this report. The most direct influence on the volume of reports submitted in any particular country is the volume of transactions that might be illicit; the number of businesses that might be exposed to these transactions that are capable of reporting them; and the number of businesses that are likely to report them.

Countries with larger economies, and presumably with more businesses operating and more transactions taking place, should have larger numbers of reports even if the proportion of all transactions that are potentially illicit remain the same between nations. Economic growth within a single economy might also account for a portion of the increased volume of reported transactions even without any growth in the percentage of suspicious transactions. The international and regional importance of the financial services sector of a specific country may increase the volume of transactions, particularly transnational transactions, taking place through financial services businesses. The size and significance of the US economy is likely to have had an impact on the volume of reports submitted to FinCEN in 2008. An examination of the volume of reported suspect transactions as a proportion of the overall number of transactions would provide a more reasonable basis of comparison between countries such as Australia and the United States, but this information was not collected or reported for the timeframes under consideration in this report.

Extending the regulated sector to include more money service and non-financial businesses should increase the volume of suspect transaction reports as there are more businesses to monitor potentially illicit transactions from industries theoretically likely to be exposed to risks of money laundering. This is the basic premise for the FATF-GAFI’s inclusion of the designated non-financial businesses and professions in its Recommendations. The countries in the sample considered in this report, however, do not reflect the assumption that expanding the regulated sector would lead to reports from a larger range of businesses. Financial service businesses and non-financial businesses lodged disparate volumes of reports in every country.

Businesses that have been subject to AML/CTF regulations for longer periods of time are likely to be better placed to monitor transactions more effectively and to submit more reports even if the proportion of all transactions that might be illicit were to remain the same. The experience of Australian businesses included in the AML/CTF regime strongly suggests that capacity building within business sectors that are new to financial regulation is crucial to increase their ability to become compliant (Walters et al. forthcoming). The relationship between business sector—financial, money service and non-financial businesses—and lodging suspect transaction reports, however, is likely to be more complicated than a lack of capacity in some industries.

The low levels of reporting from businesses outside of the financial sector cast doubt on the effectiveness of the regime in reaching these industries. The IMF suggested that the inadequate supervision of non-financial industries in France is one explanation for the low numbers of reports by these industries (IMF 2005). The recent changes to regulatory regimes in several countries, including Australia and those in the European Union, means that it is too early to adequately evaluate the level of compliance in this area. Any change to AML/CTF legislation, such as expanding the requirements for each business or expanding the scope of regulated sector as occurred in Australia in 2006, is likely to influence compliance. Businesses are likely to take some time to grasp the new requirements, while regulators are likely to shift resources away from enforcement-orientated compliance monitoring to education and training. Awareness raising, education and training became focus areas for the Australian regulator, AUSTRAC, in 2009–10 (AUSTRAC 2009g).

The compliance strategies in the United States and Australia have, however, extended enforcement actions to businesses outside the financial services sector. This is more evident in the United States, where the existing AML/CTF regime pre-dated that of Australian legislation by a number of years. MSBs in the United States have been the subject of a number of enforcement actions and financial penalties which may have influenced the volume of reported transactions identified and filed by MSBs there.

The number of reported transactions, and other proxy measures of compliance, are also likely to be influenced by world events and international political will. The 11 September 2001 attacks acted as a significant prompt to change AML/CTF legislation in a number of countries, as the political will to focus on money laundering and the financing of terrorism altered with the perception of risk. The Mutual Evaluation process, a mark of international political will, prompted substantial changes to the Australian regime in 2006. A more sophisticated analysis of compliance with AML/CTF across different countries would be useful to plot any changes in report numbers against changes in the budgets of AML/CTF regulators and FIUs.

Enforcement

Effective reporting

In 2007, Belgium had one of the highest percentages of reports leading to cases being forwarded to prosecution officials. Belgium’s FIU received just over 12,000 reports and submitted 1,666 cases to the public prosecutor in that year. This represented 13 percent of all reports submitted and 23 percent of the total number of files opened. Taiwan’s FIU also passed on a large proportion of cases to law enforcement in 2007. The Taiwanese FIU received fewer than 2,000 reports in that year and sent more than 20 percent of these onto law enforcement agencies. France, by contrast, passed on approximately 400 reports to law enforcement which equalled three percent of the 12,000 reports received in 2007. The United Kingdom did not provide data on the number of files generated from reports of suspicious activity, but did file 766 charges which resulted in 276 convictions. This, however, was out of a total of over 220,000 reports.

The volume of money laundering prosecutions, case files, or other criminal sanctions is one of many proxy measures of the utility of suspect transaction and other financial intelligence reporting. Others not considered within the scope of this report might include the frequency with which law enforcement and other agencies access the data generated by AML/CTF regimes and its reported utility in investigations, and the feedback given to reporting businesses.

The utility of financial intelligence reporting may be dependent on the capacity of FIUs to adequately use the additional information generated each year in most countries. Insufficient resources or an inability to keep pace with the volume of reports means that authorities would be unlikely to gain any additional use from increased report numbers and may find generating useful information from the volume of data more difficult.

The problems of defensive reporting have been documented elsewhere (Harvey 2008) and show that in periods of intense regulation, entities may seek the appearance of compliance with the obligations in order to avoid punitive sanctions rather than from concern to reduce the risk of money laundering and terrorism financing offences. For AML/CTF regulation, this can result in a higher number of reports being submitted to the FIU, with no guarantees about the quality of the information. A sudden influx of reports to the FIU can place a burden on resources and limit the effectiveness of responses. The utility of reporting is also highly dependent on the quality of the reports lodged and some countries have acknowledged this as an existing concern.

Money laundering prosecutions

As with reporting levels for suspicious financial activity, the number of people charged or prosecuted for money laundering has also seen a general increase in the nine countries analysed in this report. The reporting of enforcement figures also varies between countries.

Prosecution data in the Australian statistics show the number of charges dealt with by the public prosecutor, Germany shows the number of offences, Taiwan measured prosecutions, while the United Kingdom showed convictions and formal cautions and Hong Kong recorded only convictions. Statistics were not able to be gathered from France, Belgium, Singapore and the United States. Nevertheless, some general trend data can be extracted for the countries that published information in this area.

Most countries reported yearly increases in the levels of enforcement activity in each country. Germany, however, reported a variation to this trend, with a 40 percent decrease in the number of offences between 2002 and 2003. The number of recorded offences in Germany increased between 2003 and 2007 where, between 2005 and 2006, Germany recorded an increase of more than 160 percent in the number of convictions.

The United Kingdom saw a dramatic increase from 16 offenders found guilty or cautioned in 2003 to 1,328 in 2006. Convictions in Hong Kong climbed from 49 convictions in 2004 to 179 in 2007. Despite an increase in charges in Australia, there only exists a small number of cases of money laundering compared with other countries in this report. The number of charges under division 400 of the Criminal Code in 2006–07 was just 23. In 2005, the FATF-GAFI highlighted the low levels of prosecutions in Australia as an area of concern. The volume of prosecutions in the United States did not dramatically increase between 1994 and 2001.

The volume of prosecutions for money laundering in each country in the sample is likely to be influenced by some of the same factors that drive changes in compliance or reported suspect transactions. The primary factor most likely to increase prosecutions is the capacity and willingness of the relevant law enforcement agencies to focus on pursuing money laundering offences. Reuter and Truman (2004) suggest that the law enforcement community in the United States pursued money laundering changes rather than drugs offences in the early 2000s because the money laundering offences carried harsher sentences.

The implementation of new legislation is one example of changes to AML/CTF regimes that are likely to impact regulatory action and law enforcement activities. Reporting entities are likely to take some time to implement the regulatory requirements that come with new legislation and the law enforcement community may find additional tools in new legislation provisions.

Identifying compliance and enforcement figures as low or high in a given country relies on an assumption of the underlying volume of money laundering or suspicious transactions. A country with few money laundering activities will have low reporting of suspicious transactions. Low reporting figures may also indicate a lack of compliance with legislation. Alternatively, large volumes of reports of suspicious transactions may indicate large volumes of suspicious activities or other issues such as a high incidence of businesses engaging in defensive reporting to avoid prosecution for non-compliance.