AML/CFT/CPF Overview - Compliance Commission

MONEY LAUNDERING:

Money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities. Its purpose is to allow them to maintain control over those proceeds and, ultimately, provide a legitimate cover for the source of their income. 

There is no one single method of laundering money. Methods range from the purchase and resale of real property and luxury items (e.g., cars or jewelry) to passing money through a complex international web of legitimate businesses and “shell” companies. Initially, however, in the case of drug trafficking and some other serious crimes, the proceeds usually take the form of cash, which needs to enter the financial system by some means.

Despite the variety of methods employed, the laundering process is accomplished in three stages, which may comprise numerous transactions, and which could alert a financial institution to criminal activity: These stages are:

• placement, which is the physical disposal of proceeds derived from illegal activity;
• layering, which involves the separation of illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity; and
• integration, which is the provision of apparent legitimacy to criminally derived wealth.  If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing as normal business funds.

The three basic steps may occur as separate and distinct phases; they may occur simultaneously or; more commonly, they may overlap.  How the basic steps are used depend on the available laundering mechanisms and the requirements of the criminal or his organization. 

TERRORISM FINANCING

While it is said, “no country is immune from terrorism and that all countries are at risk of being involved in the financing of terrorism”, the Commission is very cognizant of this fact and continues to emphasize the importance to its registrants to take effective action to prevent, detect and disrupt terrorist financing.

Unlike money laundering, which focuses on the origin of the funds in question, terrorism financing looks at the destination of the funds, which may in fact originate from a legitimate source.

Terrorism financing is the method by which “directly or indirectly, unlawfully and willfully, persons provide or collect funds with the intention that the funds should be used or in the knowledge that the funds are to be used, in full or in part, in order to carry out (a) an act which constitutes an offence within the scope of and as defined in one of the treaties listed in the Schedule to the Anti-Terrorism Act, 2018; or (b) any other act intended to cause death or serious bodily injuries to a civilian or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a  government or an international organization to do or to refrain from doing any act.”

PROLIFERATION & PROLIFERATION FINANCING

Proliferation financing is providing funds or financial services for the transfer and export of nuclear, chemical or biological weapons; their means of delivery and related materials.  It involves, in particular, the financing of trade in proliferation sensitive goods, but could also include other financial support to individuals or entities engaged in proliferation.

Countries, entities and terrorists, seeking to develop weapons of mass destruction (WMD), often try to conceal the fact that the goods, technology and knowledge being procured are intended for the production of weapons.

The United Nations (UN) under UNSCRs on WMD has also produced a list of designated persons, countries and entities known or suspected in connection with WMD. The Resolutions require countries to freeze without delay, the funds or other assets, and to ensure that no funds or other assets are made available, directly or indirectly, to or for the benefit of any person or entity designated by, or under the authority of the UNSC. This list is updated periodically and forwarded to the UN’s contact in each jurisdiction. Please see the Regulatory and Legal Framework tab and the UN Orders for details regarding how the UN’s designated watchlist is disseminated to the regulated entities.

The objectives of UNSCRs on proliferation of WMD concerning persons and entities designated is to ensure they are identified, deprived of economic resources and prevented from raising, moving and using funds or other assets for the financing or proliferation.

Registrants should immediately report to the Commission and relevant competent authorities any assets frozen and actions taken in compliance with the prohibition requirements of the relevant UNSCRs, including attempted transactions. 

Registrants must ensure facility holder(s) are not from a nation that is subject to sanctions by the UN or similar prohibition from any other official body that would prohibit the establishment of a facility or conduct a transaction.

OTHER IDENTIFIED RISKS

In addition to the above-mentioned predicate offences, other identified risks may include corruption, cyber-crime and human trafficking as outlined in Proceeds of Crime Act, 2018. Corruption refers to any criminal conduct related to bribery, extortion, or misconduct in public office committed by or on behalf of a public officer.  Cyber-crime poses a very significant risk to individuals and organizations as it involves the compromise of computer systems such as internet, emails, ransomware and mobile devices etc.  Other forms of cyber-crime include hacking, phishing, denial of service attacks, creating and distributing malware, unauthorized data access, corruption, deletion and interception of data and false advertising of products and services on victims’ computers. It is worth noting that cyber criminals are constantly working to find innovative and effective means to steal information, data and ultimately money by any means possible.  Therefore, an updated computer system and software to safeguard against these types of unauthorized access as well as awareness of online criminal threats and techniques are the best mitigation strategies.

Human trafficking means trafficking in persons as defined in the Trafficking in Persons (Prevention and Suppression) Act (Ch. 106).  According to the FATF report on financial flows from human trafficking published July 2018, it states that human trafficking is estimated to be one of the most profitable proceeds generating crime in the world, with the International Labour Organization estimating that forced labour generates US$150.2 billion per year. It is also stated that human trafficking is one of the fastest growing forms of international crimes.