Worldwide transactions using funds from illicit sources
By Dr. Jorge Marcos García Landa, Corporativo García Landa SC
What constitutes the offence of transactions using funds from illicit sources (known as money laundering)? The most accepted definition is the one approved by the 1988 United Nations Convention Against Illicit Worldwide Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention):
The conversion or transfer of assets, knowing that such assets are derived from an offence or offences of drug trafficking (or other offences), or from an act of participation in such offence or offences, for the purpose of concealing or disguising the illicit origin of the assets or of assisting any persons involved in the commission of such offence or offences to evade the legal consequences of their actions;
The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of assets, knowing that such assets are derived from an offence or offences or from an act of participation in such offence or offences; the acquisition, possession or use of assets in the knowledge that, at the time of receipt, such assets were derived from an offence or offences or from an act of participation in such offence or offences.
Is drug trafficking the only predicate offence to the offence of transactions using funds from illicit sources?
No, with regard to the predicate offences to transactions using funds from illicit sources, the Mexican legal framework has not drawn up a list detailing such offences and, therefore, a predicate offence can be considered to be any offence which generates illicit earnings (funds, rights or property of any kind) as a result of its commission. As stated in the 2008 Mutual Evaluation Report drawn up and approved by the Financial Action Task Force on Money Laundering (FATF) and the Financial Action Task Force in South America, Mexican legislation provides for all the categories of offences designated as predicate offences included in the FATF Recommendations.
Furthermore, in accordance with the international commitments resulting from the treaties entered into by Mexico, offences committed outside of Mexico are also considered to be predicate offences to the offence of transactions using funds from illicit sources.
How does money laundering affect the economy?
In accordance with the Referenc Guide to Anti-Money Laundering and Combating the Financing of Terrorism, published by the World Bank and the IMF, the introduction of illicit funds to the formal economy distorts free competition between the various persons and companies operating within it. For example, it is known that money launderers use companies which appear to be legitimate and which take part in legal transactions, but which are controlled by criminals. These criminals use such companies as a way of mixing illicit funds with lawful funds in order to conceal their illicit earnings.
Access by such companies to illicit funds enables them to alter the prices of the products they buy or sell below or above the value of identical or similar goods. Consequently, it is very difficult for legitimate companies to compete with these companies whose objective is not to make a profit, as a normal business’ objective would be, but rather to conceal its illicit funds with the resulting loss of productive projects that create jobs and boost economic growth.
How does money laundering affect the integrity of the financial system?
The Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism, published by the World Bank and the IMF, warns that money laundering can undermine the financial system’s main asset, which is trust. The loss of trust in financial institutions represents a risk to reputation, an operating risk and a legal risk, among others. If such risks become reality, the upshot is specific costs such as the loss of profitable businesses, liquidity problems caused by the massive withdrawal of funds, investigation costs and penalties, etc...
How many models of Financial Intelligence Units are there worldwide?
There are four:
1. The Administrative Model: agencies established within the Ministries of Finance or Central Banks. They act as intermediaries between the financial system, other agencies and bodies and the law enforcement authorities.
2. The Law Enforcement Model: an agency established within police forces with investigative powers.
3. The Judicial Model: an agency established within the competent prosecuting authorities (Attorney Generals’ Offices, Public Prosecutors’ Offices, etc.).
4. Hybrid Model: combines elements from at least 2 models, usually the Administrative Model and at least one of the other models mentioned.
What is the FATF?
The FATF (Financial Action Task Force on Money Laundering) is an intergovernmental body established by the G-7 Summit in 1989. Its main activities include the issuing of legal, regulatory and operating measures to combat money laundering and terrorist financing as well as other threats to the international financial system. The standards it issues are known as the “40 Recommendations”.
Mexico has been a member of the FATF since 2000, assuming the presidency of the Group for the period from July 2010 to June 2011. In addition to issuing the 40 Recommendations, the FATF implements assessment and monitoring procedures to verify the level of compliance with the Recommendations among its members. Using these procedures, it makes observations on the way in which a standard could be more effectively implemented. In its recommendations, the FATF stipulates that DNFBPs (Designated Non-Financial Businesses and Professions) must comply with the requirements relating to customer due diligence, the sending of reports on suspicious transactions, observance of confidentiality measures by their employees and the implementation of internal controls, in the following situations:
a) Casinos (including online casinos): When customers engage in financial transactions equal to or above 3,000 US dollars or euros.
b) Estate agents: When they are involved in transactions for clients regarding the buying and selling of real estate. This means that estate agents must comply with this requirement with respect to both the purchasers and vendors of property.
c) Dealers in precious metals and gemstones: When they engage in any cash transaction with a customer equal to or above 15,000 US dollars or euros. This limit applies to one or more combined transactions.
d) Lawyers, notaries, other independent legal professionals and accountants: When they prepare and carry out transactions for clients relating to the activities specified in the list.1
e) Trust and company service providers: When they prepare and carry out transactions for clients relating to the activities specified in the list.2
The FATF also stipulates that DNFBPs must be subject to regulatory and supervisory measures and that member countries must ensure that other categories of non-financial businesses and professions are subject to effective systems for monitoring and ensuring their compliance with the requirements to combat money laundering and terrorist financing, which must be carried out on the risk-sensitive basis for the country concerned.
1 The author of the document does not go on to list any activities.
2 Once again, the author of the document does not go on to list any activities.
Dr. Jorge Marcos García Landa
Corporativo García Landa SC, Mexico City, Mexico
published: May 2015