Dr Nicholas RyderCommercial Law Research Unit

University of the West of England

IntroductionWhat is financial crime?Part 1

Money LaunderingPart 2

FraudPart 3

Terrorist Financing

What is financial crime?“there is no internationally accepted definition of

financial crime” and it “interprets financial crime in a broad sense, as any non-violent crime resulting in a financial loss” (International Monetary Fund, 2001)

Financial crime has also been referred to as ‘white collar crime’, a term first used by Professor Edwin Sutherland in 1939 which has since “become synonymous with the full range of frauds committed by business and government professionals” (FBI, 2009)

What is financial crime?More recently the US Department of

Treasury and HM Treasury have referred to financial crime as ‘illicit finance’

Financial crime is defined as “any offence involving fraud or dishonesty; misconduct in, or misuse of information relating to, a financial market; or handling the proceeds of crime” (Financial Services and Markets Act 2000, s. 6(3)).

What is money laundering?Processing of criminal

proceeds to disguise their origin

Concealing DisguisingConvertingTransferring or

removingFacilitates the

acquisition

RetentionUse or controlAcquisitionUsePossession

Above relate to proceeds of criminal activity

The Scale of Money LaunderingInternational Monetary Fund

Between 2 and 5 % of Global GDP$590 billion to $1.5 trillion£20 to £50 billion (UK)

Financial Action Task Force$500 billion

How is money laundered?Three recognisable stages:

Placement

Layering

Integration

United Kingdom’s Anti-Money Laundering PolicyCriminalisation of money laundering

Regulated financial institutions are compelled to put in place systems to preclude and identify money laundering

Financial Intelligence

Criminalisation of money launderingDrug Trafficking Offences Act (1986)Criminal Justice Act (1993)Money Laundering Regulations (1993)Proceeds of Crime Act (2002)

Section 327Section 328Section 329

Financial Services AuthorityFinancial Services and Markets Act 2000

Section 6(3)Risk based approachMoney Laundering HandbookSenior Management Arrangements, Systems

and ControlsEnforcement policy

R v Rollins [2010] UKSC 39

Regulated financial institutions

Financial IntelligenceDrug Trafficking Offences Act (1986)

Section 24(1)Criminal Justice Act (1993)

Sections 93 (a-g)Proceeds of Crime Act (2002)

Part 7Suspicious Activity Reports

Defensive reportingCompliance costs

Fraud

“The modern thief can steal more with a computer than with a gun” (Computer Science and Telecommunications Board, 1991)

What is fraud?“Persuading someone to part with

something” (Doig, 2006)“Deceit or an intention to deceive” (Omerod

and Williams (2007)“Act of deception intended for personal gain

or to cause a loss to another party” (Serious Fraud Office, 2006)

“involves the perpetrator making personal gains” (Financial Services Authority, n/d)

The Extent of FraudNorwich Union Report (2005)

£16 billionEquivalent to £650 per household per annum

Association of Chief Police Officers (2007)£15-17bn

National Fraud Authority (2010)£30bn

The Extent of FraudMortgage Fraud

£800mBenefit Fraud

£8bnCorporate Fraud

£72bnIt costs the US economy $400bn (Ryder,

2010).

Some classic fraudsBank of Credit and

Commerce International

Barings BankEnronWorldCom Bernard Madoff

Polly Peck (Azil Nadir),

Mirror Group Pension Scheme

GuinnessBarlow Clowes

The United Kingdom’s Fraud PolicyCriminalisation of fraudulent activities;

Regulatory agencies, and

Anti-fraud reporting requirements.

Criminalisation of FraudThe Fraud Act 2006 creates a new general

offence of fraud and introduces three possible ways of committing it (s 1). Firstly, it makes it an offence to commit fraud

by false representation (s 2). Secondly, the Act makes it an offence to

commit fraud by failing to disclose information to another person where there is a legal duty to disclose the information (s 3).

Thirdly, it makes it an offence to commit a fraud by dishonestly abusing one's position (s 4).

The Regulatory AgenciesThere are several agencies that attempt to

combat fraud:The Financial Services AuthorityThe Office of Fair TradingHM Revenue and CustomsThe Serious Fraud OfficeThe Serious Organised Crime AgencyNational Fraud AuthorityNational Fraud Intelligence BureauEconomic Crime Agency

Anti-fraud reporting requirements.Proceeds of Crime Act (2002)Senior Management Arrangements, Systems and

Controls (FSA Hand Book)Home Office GuidelinesWho reports?Do all financial institutions report allegations

of fraud?

The Costs of Terrorist Attacks World Trade Centre

bomb 1993 $129IRA bomb hoax Grand

National 2pThe London tube and bus

suicide bombings which killed 56 people costs between £100 and £200

The al-Qaeda bombing of the USS Cole which resulted in the death of 19 $10,000

The al-Qaeda inspired train bombings in Madrid which killed 191 people cost approximately $10,000;

The Bali night club attack cost $74,000 and resulted in the murder of 202 people

The terrorist attacks of 9/11cost approximately $500,000

The Impact of 9/11International community was

concerned with the illegal drugs trade, money laundering and fraud

Not prepared to tackle terrorist financing

UN Security Council Resolution 1373 “kick started a new era” (Whiner and Roule, 2002, 88).

It also acted as a Galvanising effect (Akindemowo, 2004, 289).

Terrorist Financing PolicyCriminalisation of terrorist financing;

The freezing of terrorist assets, and

Financial Intelligence.

CriminalisationSection 14 Terrorist PropertySection 15 Fund RaisingSection 16 Use and PossessionSection 17 Funding ArrangementsSection 18 Money LaunderingSection 19 Disclosure of Information

The freezing of terrorist assets, and Anti-Terrorism Crime and Security Act

(2001)HM Treasury allowed to “freeze the assets of

overseas governments or residents”See:

Case T-306/01, Ahmed Ali Yusuf and Al Barakaat International Foundation v Commission

Case T-315/01, Yassin Adbullah Kodi v Council and Commission

A v HM Treasury UKSC 2Terrorist Asset-Freezing etc. Act (2010)

Financial IntelligenceTerrorism Act (2000)Anti-terrorism, Crime and Security Act

(2001)

ConclusionsFraud Money LaunderingBecoming the crime of

choice for organised criminals and terrorists

Tougher sanctionsCyber crimeAdverse impact on the

economyE-Fraud

Too many vulnerable governments have not criminalised all forms of money laundering

Too many governments place restrictions on AML measures

International cooperation not sufficient

The InternetLaws and regulations fail

to keep pace

ConclusionsTerrorist Financing

Cheap terrorism7th July 2005Reporting requirements are redundantAsset freezing provisions rethink