THE UN ANTI-CORRUPTION CONVENTION AND MONEY LAUNDERING

Indira Carr

1 & Miriam Goldby

2

ABSTRACT

Corruption knows no boundaries and is not unique to developing countries, as the recent furore

over the alleged BAE (British Aerospace) slush fund and the Al Yamamah defence contracts

demonstrates. Furthermore, even where corruption takes place in developing countries, its

proceeds are likely to be laundered through the international financial system. Indeed corruption

is a crime which relies significantly on the laundering process, which is essential for the corrupt

to be able to enjoy the proceeds of crime. It is therefore trite to say that the involvement and

cooperation of western States in detecting and preventing the laundering of proceeds of

corruption is essential.

This paper explores the links between international measures to combat corruption, in particular

the United Nations Convention against Corruption (UNCAC), and international anti-money

laundering regimes. Most countries have national laws that address both corruption and money

laundering, albeit separately. However most national laws are by themselves unable to address a

problem that is international in character. In response, the international community has adopted

a number of regional and international measures. Amongst these, the UNCAC has attracted over

a hundred ratifications from both developed and developing countries.

The UNCAC is one of the most comprehensive anti-corruption instruments. It criminalises money

laundering (Article 23) and includes a range of preventive mechanisms as well as dealing with

the proceeds of corruption(Article 14). The aim of this paper is to examine these provisions and

assess it against the existing general framework of anti-money laundering measures, including

the Financial Action Task Force Recommendations, the Guidelines issued by the Basel

Committee on Banking Supervision and the Wolfsberg Principles on Money Laundering, with a

view to seeing how the current framework in dealing with the proceeds of corruption can be

improved further.

1 Professor of Law, University of Surrey; Honorary Visiting Professor, University of Exeter, Principal Investigator,

UK Arts & Humanities Research Funding Council (AHRC) funded project ‘Corruption in International Business:

Limitations of Law’. I would like to thank the AHRC for funding this project. 2 Lecturer in Law, University of Surrey.

INTRODUCTION

Economists and international institutions such as the World Bank3 have widely publicised the

detrimental effects of corruption on economic growth and global poverty.4 Their work on the

causes of corruption have helped in the formulation of a multi-faceted anti-corruption framework

regional and international anti-corruption conventions, adoption of voluntary codes of conduct by

multinationals, trade associations and chambers of commerce to awareness raising by non-

governmental organisations such as Transparency International.

The classic case of corruption is bribery,5 where the bribe giver promises or offers to the bribe

taker a benefit such as a gift, money or other advantage in exchange for an act or omission in the

performance of his or her official function. While it is commonly believed that bribe takers work

for the public sector it must be stressed that it occurs equally in the private sector.6

3 The World Bank is comprised of two development institutions – International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) - and three affiliate agencies – International

Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the

Settlement of Investment Disputes (ICSID). The WB was initially not concerned with corruption since it was seen as

a political matter. The exclusion of politics is clearly stated in Arts III (5)(b) and Art IV(10) of the IBRD Articles of

Agreement which read:

Art. III, Sec. 5 (b) The Bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for

which the loan was granted, with due attention to considerations of economy and efficiency and without regard to

political or other non-economic influences or considerations.

Art. IV, Sec. 10 The Bank and its officers shall not interfere in the political affairs if any member; nor shall they be influenced in

their decisions by the political character of the member or members concerned. Only economic considerations

shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the

purposes stated in Article 1.

However the World Bank’s apathy towards corruption changed with the arrival of James D Wolfensohn as its

President. Instead of focusing on whether the World Bank should engage or not engage with politics he decided to

redefine “the ‘C’ word [being corruption] not as a political issue but as something social and economic”. (See James

D Wolfensohn ‘Remarks at a Global Forum on Fighting Corruption’ February 24, 1999 available at

<http://web.worldbank.org >). Since then it has supported more than 600 anti-corruption programmes in member

states. It has sanctioned more than 300 firms and individuals for fraud and corruption. Its list of black listed firm is in

the public domain. See World Bank Historical Chronology 2004 and Helping Countries Combat Corruption: the

Role of the World Bank available at http://www.worldbank.org. 4 See Rose-Ackermann (1975); Bergstein & Elliott (eds) (1997); Gray & Kaufmann (1998).

5 Other forms of corruption include trading in influence (where a person offers to affect or influence the decision-

making of a person performing functions within the public sector or private sector in return for an advantage for him

or herself or another), embezzlement (misappropriation of property or funds entrusted legally to a person in their

formal capacity) and illicit enrichment (the significant increase in the assets of a person for which a reasonable

explanation cannot be given by the person concerned). 6 The organisation for Economic Co-operation and Development and Transparency International are currently

studying corruption within the private sector. Many of the anti-corruption conventions include the private sector. See

Corruption is prevalent both at the petty and at the grand level. Petty level corruption is likely to

be widespread in developing countries where ordinary citizens have to pay bribes in order to

obtain basic services such as passports and birth certificates from government departments.

Grand corruption, on the other hand, is likely to transcend borders and may involve a variety of

actors ranging from multinational corporations, local and foreign public officials to politicians.

This type of corruption where huge amounts of cash and expensive luxury items change hand in

return for ‘favours’ is by no means restricted to developing countries. The recent furore in the UK

over the alleged BAE (British Aerospace) slush fund and the Saudi Al Yamamah defence

contracts7 and the Siemens bribery case in Germany

8 are some recent illustrations.

The general aim of this paper is to explore the contribution that Anti-Money Laundering9 (AML)

regimes can make to the fight against corruption. Corruption is a crime which has as its ultimate

aim the enjoyment of ill-gotten proceeds. In instances of grand corruption some form of

laundering activity is likely to take place in an attempt to disguise the illegitimate source of

wealth. An effective AML regime will have in place measures aimed at identifying and

investigating such laundering activity and using the evidence obtained in bringing the person or

persons concerned to justice. It will also have in place measures aimed at preventing the

dissipation or loss of the proceeds of crime and recovering and/or confiscating them. An effective

AML regime can therefore make a significant contribution to the fight against corruption in at

least two main ways: (i) it could help uncover evidence of criminal activity through identification

for instance, Council of Europe Criminal Law Convention on Corruption 1999, the African Union Convention on

Preventing and Combating Corruption 2003, the United Nations Convention against Corruption, 2003. 7 The UK Serious Fraud Office dropped investigations into the BAE Saudi slush fund allegations on grounds of

national interest when Saudi Arabia threatened to withdraw terrorist related intelligence. The NGOs Corner House

and Campaign Against Arms Trade (CAAT) initiated judicial review and the High Court concluded the SFO

decision to was unlawful. On appeal, the House of Lords concluded that the SFO decision was lawful. See R (on

the application of Corner House Research and Others) (Respondents) v Director of the Serious Fraud Office

(Appellant) [2008] UKHL 60. For more on the national interest within the context of OECD Convention on

Combating Bribery of Foreign Public Officials in International Business Transactions 1997 (implemented by the UK

in the Anti-Terrorism, Crime and Security Act 2001) see Carr & Outhwaite (2008). 8 See Dougherty (2008) and Schäfer & Williamson (2008).

9 Money laundering is defined variously. For instance, it is defined “as a process that employs financial, accounting,

legal and other instruments in conjunction with an object that has either been used in, or derived from, unlawful

activity. The primary process is to create a veil of legal cleanliness around the object. This veil not only prevents the

object’s association with unlawful activity from being accurately traced and identified, but also enables the object to

be used in the legal economy with anonymity and without fear of criminal, civil or equitable sanction” (Hinterseer,

2002:11). See also Blum, J et al (1998).

of suspicious movements of financial assets, thus increasing the chances of a successful

prosecution of the perpetrator of the crime; (ii) it also enables the tracing of criminal proceeds to

facilitate their preservation, recovery and ultimate return to their rightful owner. In the case of

State assets which have been pilfered by corrupt officials, these may be returned to their rightful

use.

This potential contribution has been recognised in a number of regional and international

conventions on corruption, which, besides creating a number of criminal offences covering a

range of corrupt behaviour, also emphasise the importance of preventing the legitimatization of

illicitly obtained funds, that is, money laundering. This paper examines the money laundering

provisions in the United Nations Convention Against Corruption adopted in 200310

and assesses

them against the existing general framework of AML measures, including the Financial Action

Task Force Recommendations, the Guidelines issued by the Basel Committee on Banking

Supervision and the Wolfsberg Principles on Money Laundering, with a view to seeing how the

current framework dealing with the proceeds of corruption can be improved further. This paper

consists of three sections. Section I details the money laundering offences and the preventative

measures outlined by the United Nations Convention Against Corruption (UNCAC), Section II

deals with how international AML standards dovetail with and support the UNCAC provisions.

Section III provides in brief an overview of the limitations of current AML standards and

discusses the work that still needs to be done and emphasises the need for greater participation of

States, institutions and individuals to prevent money laundering.

The UNCAC is chosen for two reasons. First, it is the only international convention dealing with

corruption and has received ratifications from 140 states, both developing and developed.

Second, compared to other anti-corruption conventions the provisions on money laundering are

extensive. In the process of examining the UNCAC money laundering provisions comparisons

are also drawn with other anti-corruption conventions.

10

Came into force 14 December 2005. See Carr (2006) for a discussion of this Convention.

I. The United Nations Convention Against Corruption (UNCAC) and Prevention of Money

Laundering

A. Corruption and its proceeds under UNCAC and other instruments

The main purpose of UNCAC is to ensure that all Contracting States criminalise and put in place

measures against corruption. The UNCAC’s ambit is wide and it criminalizes a range of

activities, from those that fall squarely within the classical notions of corruption to those that

perhaps could be described as falling within other areas of criminal law such as fraud. The

activities criminalised are bribery of national and foreign public officials including officials of

public international organisations (Articles 15 & 16), embezzlement or misappropriation or other

diversion of property by a public official (Article 17); abuse of position by a public official for

obtaining undue advantage (Article 19), trading in influence (Article 18), illicit enrichment

(Article 20), bribery in the private sector and embezzlement of property in the private sector

(Articles 21 & 22).

Besides criminalizing these activities, UNCAC also criminalises the laundering of their proceeds

(Article 23).11

The criminalization of laundering of the proceeds of crime is further consolidated

with provisions on measures to prevent money laundering in Article 14.12

The UNCAC is not

alone in addressing issues relating to the proceeds of corruption. Some of the other regional

conventions that are in force13

have provisions that address the cycle of conversion processes

undertaken to clean illicitly obtained money in the course of engaging in corrupt activities. To

provide a complete picture and aid comparison with the UNCAC, the anti-money laundering

measures taken by the other anti-corruption conventions are listed below in tabular form for

11

See Appendix I, 12

Ibid. 13

The other conventions in force are:

- Organisation of American States Inter-American Convention Against Corruption 1996 (OAS Convention).

Came into force 6 March 1997.

- Organisation for Economic Co-operation and Development Convention on Convention on Combating Bribery of

Foreign Public Officials in International Business Transactions 1997 (OECD Convention). Came into force 15

February 1999.

- Council of Europe Criminal Law Convention on Corruption 1999 (COE Convention). Came into force 1 July

2002.

- African Union Convention of Preventing and Combating Corruption 2003 (AU Convention). Came into force 5

August 2006. See Carr (2007) for a critical discussion of this Convention.

brevity’s sake. Of the four listed below the AU Convention is the most extensive and will be

referred to whilst considering the UNCAC for purposes of comparison.

Convention Money Laundering Scope

OECD Convention

Article 6 Not extensive. Simply states that where parties have made bribery of a public official a predicate offence under national legislation this should be extended to include bribery of a foreign public official regardless of the place where the bribery occurred.

COE Convention

Article 13 Mandatory. All Contracting States to adopt legislative and other measures to establish as criminal offences under its domestic law conduct referred to in Article 6 paragraphs 1 & 2 of the COE Convention on Laundering, Search, Seizure and Confiscation of the Products from Crime, 1990.

14 Predicate offence consists of criminal offences

established in Articles 2-12 of the COE Convention. These include bribery on domestic public officials, foreign public officials, bribery on the private sector, and trading in influence.

AU Convention

Article 6 Mandatory. State parties required to adopt legislative and other measures necessary to establish as criminal offences conversion, transfer or disposal of property knowing that such property is the proceeds of corruption or related offences for the purpose of concealing or disguising the illicit origin of the property; the concealment or disguise of the true nature, source, location, disposition of property which is the proceeds of corruption or related offences, and the acquisition, possession or use of property with the knowledge at the time of receipt that such property is the proceeds of corruption or related offences.

B. Money Laundering as a Crime

The UNCAC criminal offences are not all of a mandatory nature since they impart a degree of

flexibility to the Contracting States. This, however, is not the case with the laundering offence.

The only degree of deviation allowed to the contracting state is that they may adapt it to fit with

the fundamental principles of their domestic law. The ambit of Article 23 is wide and not simply

restricted to laundering of money. Its focus instead is the conversion or transfer of property thus

14

This Convention came into force in 1993. For wording of Article 6 paragraphs 1 & 2 see Appendix 2.

affecting all manner of benefits from cash, company shares, luxury goods such as yachts and

jewellery to antiques. The offences created by Article 23, if implemented, should harmonise the

laws across the Contracting States to a large extent where the predicate offence is corruption.

Article 23 covers a number of situations in which the offence of laundering of proceeds would be

committed provided the intentionality and knowledge requirements are met. Firstly it covers the

person who converts or transfers property in illicitly obtained goods for the purposes of

disguising the illicit origin of the goods. Equally the person assisting the person who is involved

in the commission of a predicate offence is also covered in Article 23(a)(i). Thus persons who

knowingly assist in disguising the source of criminal proceeds would be liable for money

laundering in the same way as the criminal himself or herself. These persons can range from

family members to friends who allow criminal proceeds to be laundered through the opening of

bank accounts or the purchasing of immovable property in their names, to gatekeepers such as

accountants, lawyers and financial advisers who are aware of the actual source of their client’s

income. Article 23 (a)(ii) addresses the situation of concealment or true nature, source, location,

disposition or ownership of or rights with respect to property with knowledge that the property is

the proceeds of crime. This is closely related to the provision in sub-paragraph (i) and would

cover situations where, for example, complex corporate entities (including charities or trusts) are

set up in order to hide the true ownership of criminal property.

Under Article 23(b)(i) the acquisition, use or possession of property that is known at the time of

receipt to be the proceeds of crime is also made an offence. This would cover for instance the art

dealer who purchases a rare and expensive Monet painting who knew at the time of purchase that

the painting was acquired by the seller in a corrupt transaction.15

Finally, sub-paragraph (b)(ii)

of Article 23 covers all kinds of participation in the commission of the above mentioned offences

including association with, conspiracy or attempt to commit such offences and aiding, abetting,

facilitating and counselling the commission of such offences. This sub-paragraph makes Article

23 very far-reaching and means that, present the necessary evidence, it would also be possible to

15

Incidentally the way that the word ‘knowledge’ is interpreted here would have an effect on the scope of application

of this provision. For example if genuine designer goods are bought at an unlicensed place for a very low price the

purchaser is likely to suspect that they are of illicit origin but, unless he or she is actually told, would such a

suspicion amount to knowledge for the purposes of this provision?

prosecute and convict, for example, legal or financial advisers who give criminals advice about

methods in which the proceeds of their crimes can be laundered.

Article 23 is by and large similar to Article 6 of the AU Convention. However the UNCAC goes

further in addressing the measures that a State needs to take in order to prevent money

laundering. Article 14 sets these out and as will become apparent in the later sections seems to

reflect the developments, regulatory and voluntary, that have taken place at the international

level. Its provisions can be divided into two categories. The first includes those provisions that

impose requirements on banks and financial institutions as well as ‘other bodies particularly

susceptible to money-laundering’ and govern their involvement in the fight against money

laundering; the second consists of provisions relative to the State’s duties in setting up the

regime. It is important to note that paragraph 4 of Article 14 acknowledges directly the need of

referring to ‘the relevant initiatives of regional, interregional and multilateral organizations

against money laundering’ as a guideline when setting up an AML system. The manner in which

these dovetail with UNCAC will be discussed in Section II below.

C. Obligations of Regulated Bodies

Article 14(1)(a) obliges Contracting States to ‘institute a comprehensive domestic regulatory and

supervisory regime’ to be complied with by certain persons who deal with the transfer of funds,

including not just the traditional methods for money transfers such as banks and financial

institutions but all other channels used by natural and legal persons to effect transfers. These

include informal channels often termed ‘parallel banking’ which are commonly used by ethnic

communities. The system known as Hawala (in India)16

or Fie Ch’ieu (in China) is typically used

by migrant workers to transfer small amounts of money to relatives in villages lacking bank

accounts or access to banks, but it can also be abused by criminals.17

While this initiative to

include such informal mechanisms within the fold of supervisory regime is welcome, these

systems work differently from payment methods involving banks and much research still needs

16

Many villages are within walking distance of a post office and post offices do offer savings facilities.

Unfortunately, they are not to authorised to receive foreign remittances. There are plans to introduce this facility and

this is likely to lower the use of hawala. 17

See Lambert (2002).

to be done in order to design an effective regime for the regulation and supervision of such

informal networks.

Under Article 14(2), States are also required to implement feasible measures for detecting and

monitoring of the movement of cash and negotiable instruments. There is also an expectation that

individuals and businesses will report cross-border transfers. The AML standards discussed in

Section II focus heavily on the involvement of private persons, especially, but by no means

solely, banking and financial institutions, in the fight against money laundering, in particular

through the imposition of reporting requirements and the obligation to seek permission before

effecting certain transfers where assets are suspected to be the proceeds of crime.

Article 14(3)) requires States to consider implementing measures to ensure the inclusion of

accurate and meaningful information on the forms which are completed when money is remitted

or transferred electronically. Accurate and meaningful information is absolutely essential in order

to trace where the funds have originated from and many remitters tend to provide minimum and

meaningless information.18

The problem is more acute where money is transferred

electronically.19

UNCAC addresses this deficiency by requiring States to implement appropriate

and feasible measures to require financial institutions including money remitters to include and

maintain such information throughout the payment chain. This is significant because, as we shall

see in Section II below, heavy use is made of wire transfers as a method of transferring the

proceeds of corruption, and the maintaining of complete information regarding the origin and

destination of proceeds is essential both to the collection of hard evidence to be used in the

perpetrator’s trial as well as for the tracing, preservation and recovery of the proceeds of the

crime.

18

This problem has been receiving much attention in the past few years. For example the Basel Committee on

Banking Supervision has recently issued two documents on this subject. See Transparency in Payment Messages,

October 2007 and Due Diligence and Transparency regarding Cover Payment Messages Related to Cross-border

Wire Transfers, July 2008, both available at http://www.bis.org/list/bcbs/tid_32/index.htm (visited 26-08-2008). 19

See Schudelaro (2003).

D. Design of the Regime and International Collaboration

Paragraphs 1(b) and 5 emphasise the need for co-operation in exchange of information at all

levels, and across different bodies. This reflects the fact that laundering of money is highly likely

to involve some level of cross-border movement of funds and the UNCAC asserts the need for

cross border co-operation at all levels, among judicial, administrative, enforcement and other

authorities. This need for closer co-operation is re-asserted later in the Convention in a lengthy

provision on mutual legal assistance (Article 46). These provisions reflect current best practice as

enshrined in the international AML standards discussed in Section II.

A preliminary examination of Article 14 suggests that its focus is on money laundering methods

that make use of the financial system, in particular money transfers, rather than alternative

methods. The potential implications of this are discussed in Sections II and III below.

II. The Relationship between UNCAC provisions on AML and International AML

Standards

Having considered UNCAC’s provisions on the prevention of laundering of the proceeds of

corruption, and the obligations that are placed on Contracting States in this regard it is worth

examining how these provisions link up with international AML standards which States are also

encouraged (some would say pressurised)20

to adopt into their legal systems. In particular we

shall be discussing the 40 Recommendations on AML of the Financial Action Task Force

(FATF), which are addressed to States seeking to set up an effective AML regime, and which

have established themselves as the principal expression of best practice in this regard. The FATF

Recommendations come with a Methodology21

which is meant to assist countries in assessing

20

FATF maintains a list of Non-Cooperative Countries and Territories (NCCTs). See Annual Review of Non-

Cooperative Countries and Territories 2006-2007: Eighth NCCT Review, 12 October 2007, FATF available at

http://www.fatf-gafi.org/dataoecd/14/11/39552632.pdf (visited 26-08-2008) and monitors countries placed on this

list regularly. Regular compliance assessments are carried out on FATF member countries. See http://www.fatf-

gafi.org/document/60/0,3343,en_32250379_32236920_34039228_1_1_1_1,00.html (visited 26-08-2008).

The World Bank and other lending agencies also require borrower countries to engage in extensive legal reform

which include the adoption of anti-corruption and anti-money laundering legislation. 21

Methodology for Assessing Compliance with the FATF 40 Recommendations and the FATF 9 Special

Recommendations, Financial Action Task Force, 27th

February 2004 (Updated as of February 2008) (hereinafter

“Methodology”).

whether their AML Regime complies with Recommendations. This will also be referred to here.

In addition we shall also be referring to the AML standards developed by the Basel Committee

on Banking Supervision (BCBS)22

and the Principles issued by the Wolfsberg Group.23

It is important to note that, just as anti-corruption instruments refer directly to AML, so too AML

instruments do refer directly to the fight against corruption in places. For example, the FATF

Methodology indicates that

‘An effective AML … system also requires that certain structural elements, not covered

by the AML … assessment criteria, be in place…. These elements should include in

particular … (c) Appropriate measures to prevent and combat corruption, including

where information is available, laws and other relevant measures, the jurisdiction’s

participation in regional or international anti-corruption initiatives (such as the United

Nations Convention against Corruption) and the impact of these measures on the

jurisdictions AML … implementation.’24

Another example is the Wolfsberg Group’s Statement against Corruption,25

the issue of which

was ‘occasioned by a number of developments, including the UN Convention Against

Corruption’26

and was intended to express the commitment of the members of the Group to

participating in the fight against corruption.

22

‘The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory

matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking

supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and

techniques, with a view to promoting common understanding. At times, the Committee uses this common

understanding to develop guidelines and supervisory standards in areas where they are considered desirable.’ See

http://www.bis.org/bcbs/ (visited 26-08-2008). The Committee has developed certain standards to be complied with

by banks as part of their AML obligations. These are available at http://www.bis.org/list/bcbs/tid_32/index.htm

(visited 26-08-08) 23

‘The Wolfsberg Group is an association of eleven global banks, which aims to develop financial services industry

standards, and related products, for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing

policies.’ See http://www.wolfsberg-principles.com/index.html (visited 26-08-2008). The Wolfsberg Principles are

the result of a private initiative by a group of multinational banks, which was aimed at streamlining and unifying the

diversity of standards they had to comply with in the different jurisdictions where they operated. 24

Methodology, p.6, paragraph 7. 25

The Wolfsberg Statement against Corruption, The Wolfsberg Group, February 2007, available at

http://www.wolfsberg-principles.com/pdf/statement_against_corruption_02-2007.pdf (visited 22-08-2008). 26

Ibid, 1.

A. Proceeds of Criminal Activity

The main aims of AML processes are to identify and confiscate the proceeds of crime.27

A pre-

requisite for AML to contribute to the fight against corruption is that the corrupt activity needs to

be defined as a criminal activity for the purposes of the jurisdiction(s) involved. Those countries

which have implemented UNCAC will certainly have criminalised (subject to any discretions

they may have been allowed by the provisions that they have chosen to exercise) the activities

falling under Articles 15-22 of the Convention, mentioned in Section I above. Where the double

criminality rule applies, the corrupt activity in question must be criminalised both under the law

of the jurisdiction where it is taking place and that of the place where the money is being

laundered. In this regard, FATF Recommendation 1, provides as follows:

‘Predicate offences for money laundering should extend to conduct that occurred in

another country, which constitutes an offence in that country, and which would have

constituted a predicate offence had it occurred domestically.’

The Recommendation goes on to provide that instead of enforcing the double criminality rule,

‘[c]ountries may provide that the only prerequisite is that the conduct would have constituted a

predicate offence had it occurred domestically.’28

This is particularly useful in cases of grand

corruption since those who engage in grand corruption are likely to be persons of influence and,

as such, have the opportunity of ensuring that legislative changes are made to the criminal law in

their jurisdiction that would prevent their prosecution under their own laws. It is therefore one of

the tools that may be used to adapt AML regimes to be used in the fight against corruption.

Another important feature of AML in this regard is that while it seeks to identify and recover the

proceeds of crime, for confiscation of the proceeds of crime under these rules and procedures a

prior criminal conviction is not required. In other words, the accused need not necessarily be

27

See Article 5 of the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic

Substances, 1988, which enshrined the founding tenets of AML. See also the Financial Action Task Force (FATF)

Recommendations numbers 1, 2 and 3. The same principles are now reflected in the United Nations Convention

against Corruption (UNCAC) Articles 14 and 31. 28

The latter approach applies under English Law. See definition of “criminal conduct” under Proceeds of Crime Act

2002 Section 340(2).

convicted of that crime for the AML rules to kick into action. Indeed, the FATF

Recommendation 3 provides that:

‘Countries may consider adopting measures that allow such proceeds or

instrumentalities to be confiscated without requiring a criminal conviction, or which

require an offender to demonstrate the lawful origin of the property alleged to be liable

to confiscation, to the extent that such a requirement is consistent with the principles of

their domestic law.’

This is of great potential significance in a corruption case, where obtaining a conviction may be

problematic for various reasons: for example the corrupt person may have public immunity by

virtue of his office, the judiciary may be corrupt or there may be practical difficulties involving

evidence and proof. In addition where the trial does take place it is more than likely to be

significantly delayed because of the complexities of the case as well as the tactics of the

defendant’s legal representatives. The delays may be such as to permit the proceeds of the corrupt

activity to be dispersed or lost in the meantime. By making a prior conviction unnecessary, AML

procedures can be beneficial in ensuring that the freezing of assets is not delayed while waiting

for the result of a criminal trial, thus minimising the risk that the perpetrator has time to arrange

their concealment while awaiting trial or sentence.29

B. Money Laundering as a Crime

The laundering of the proceeds of crime, or assisting in such an activity, is itself a crime in many

jurisdictions. Indeed it is also criminalised under Article 23 UNCAC, discussed in Section I

above, which means that Contracting States would have the obligation of legislating so as to

criminalise money laundering within their jurisdictions. The FATF Recommendation 1 enshrines

the principle that States should criminalise money laundering ‘on the basis of the United Nations

Convention against Illicit Traffic in Narcotic Drugs and psychotropic Substances, 1988 and the

United Nations Convention against Transnational Organized Crime 2000.’ The provisions of

these Conventions deal with issues such as the intent and knowledge to prove the offence of

29

For a practical example see the account of the Abacha case in Daniel and Maton (2008).

money laundering and provide such mental state may be inferred from objective factual

circumstances. FATF Recommendation 2 encourages States to maintain consistency in this

regard. It also provides that sanctions should apply not just to individuals but also to legal

persons who practice money laundering.

The fact that money laundering is itself a crime ensures that those who, because of the nature of

their business, are liable to become involved in the laundering of the proceeds of corruption, are

deterred from providing knowing assistance to those who wish to disguise the source of their

wealth.30

As we saw in Section I, under Article 23 UNCAC Contracting States should have

criminalised such knowing involvement.

C. Obligations of Regulated Bodies

Besides being liable for the offence of money laundering where they are knowingly involved in

the laundering of proceeds of crime, depending on the nature of their business, third parties will

also be obliged by law to take the measures referred to in Article 14 of the Convention discussed

above. As we saw this provision makes reference to customer and beneficial owner

identification, record-keeping, monitoring of cash movements and reporting of suspicious

activities. These provisions of Article 14 are reflective of established AML standards laying

down customer due diligence31

(comprising Know Your Customer (KYC), and account

monitoring rules), reporting32

and record-keeping33

requirements which should be imposed on

certain persons by the law. Recent updates to the FATF standards34

have increased the

sophistication of customer due diligence, providing, for example, that enhanced levels of due

diligence should be applied to Politically Exposed Persons,35

and that regulated persons should

take reasonable measures to verify the identity of beneficial owners.36

30

See FATF Recommendation 17. This principle is reflected in UNCAC Article 23(1)(b)(ii), discussed above. 31

See FATF Recommendations 5-11. The BCBS created the foundation for customer due diligence standards in it

2001 document Customer Due Diligence for Banks, October 2001, as supplemented by General Guide to Account

Opening and Customer Identification, February 2003. Both are available at

http://www.bis.org/list/bcbs/tid_32/index.htm (visited 26-08-2008). 32

See FATF Recommendations 13-15. 33

See FATF Recommendation 10. 34

The most recent revisions of the standards took place on 20th June 2003 and 22

nd October 2004.

35 See Recommendation 6.

36 Recommendation 5(b).

A lot of emphasis has been made on imposing these requirements on banks and other financial

institutions in the past, and indeed as we saw under Section I, these institutions are the main

focus of Article 14 UNCAC, which also refers mainly to ‘cash and appropriate negotiable

instruments’. However, while much money laundering, especially in the case of the proceeds of

corruption, takes place by means of money transfers that are channelled through the world’s

financial systems,37

there are other methods in which the proceeds of corruption may be

laundered38

and it is important that a loud and clear message is sent out to those who knowingly

assist in these laundering activities. Thus in order for money laundering to make the utmost

contribution possible in this regard, it is important that KYC, record-keeping and reporting

requirements are enforced against all bodies likely to be used by money launderers to disguise

the source of assets, especially but not exclusively financial institutions. AML standards have

begun to acknowledge this. FATF Recommendations 12 and 16 extend the obligations that are

37

With regard to the notorious Charles Taylor case, see for example the most recent Report of the Panel of Experts

on Liberia to the United Nations Security Council (document S/2008/371) dated 12th

June 2008 available at

http://www.un.org/sc/committees/1521/liberiaPOE.shtml (visited 21-07-2008), para.99: “The Panel’s investigation

of the movement of assets of some of the individuals on the Security Council assets freeze list revealed that, as in

many similar cases, the funds generated through alleged criminal behaviour have been rapidly and frequently

distributed among a series of bank accounts. Much of this money has been transferred to non-Liberian locations.

Funds have also been channelled to shell companies, alter egos and aliases as well as successor entities.” As AML

procedures become more established, however, it is likely that different routes for laundering the proceeds of

corruption will start to emerge. See Stolen Asset Recover (StAR) Initiative: Challenges, Opportunities, and Action

Plan, June 2007, United Nations and World Bank, available at

http://siteresources.worldbank.org/NEWS/Resources/Star-rep-full.pdf (visited 21-07-2008), 14: “The FATF’s annual

typologies reports describe in detail the variety and “creativity” behind ML mechanisms. An interesting feature is

that different types of crime tend to rely on different types of laundering mechanisms. Using report from the FATF

and the Egmont Group, Reuter and Truman (2005) tabulate the laundering mechanisms employed by each particular

type of crime…. They … find that, while drug trafficking tends to use the full spectrum of alternatives, bribery and

corruption rely heavily on wire transfers and use significantly fewer typologies of laundering mechanisms. These

differences indicate that in order to reduce the frequency of crimes like bribery and corruption, special attention

should be given to wire transfers. [fn16] Although new mechanisms are likely to arise in response to counter-

measures!’ (emphasis added). 38

Examples of different methods which may begin to be used include new payment technologies e.g. prepaid cards,

internet payment systems, mobile payments, and digital precious metals (see FATF Report on New Payment

Methods, 13th

October 2006); corporate vehicles including trusts, foundations and partnerships (see FATF Report on

The Misuse Of Corporate Vehicles, Including Trust And Company Service Providers, 13 October 2006); the real

estate sector (see FATF report on Money Laundering & Terrorist Financing through the Real Estate Sector, 29 June

2007) and commercial websites and internet payment systems (see FATF report on Money Laundering & Terrorist

Financing Vulnerabilities of Commercial Websites and Internet Payment Systems, 18 June 2008). All reports are

available from http://www.fatf-gafi.org/pages/0,3417,en_32250379_32237277_1_1_1_1_1,00.html, visited 21-07-

2008. Other possible methods of laundering are through the purchase of luxury goods and auction lots using cash.

FATF Recommendation 16(b) (which provides “[d]ealers in precious metals and dealers in precious stones should be

required to report suspicious transactions when they engage in any cash transaction with a customer equal to or

above the applicable designated threshold…”) should be extended to these parties. See discussion in Section III.

applicable to banks and financial institutions also to ‘designated non-financial businesses and

professions’, subject to certain qualifications. These include casinos, real estate agents, dealers in

precious metals and dealers in precious stones, lawyers, notaries and other independent legal

professionals, accountants and trust and company service providers.39

This is extremely important as the more intensive the controls placed on transactions taking place

through banks and financial institutions the more likely it is that criminals will resort to other

methods to disguise the source of their wealth. The reference in Article 14(1)(a) UNCAC to

‘other bodies particularly susceptible to money-laundering’, as well as the reference to ‘relevant

initiatives of regional, interregional and multilateral organizations against money laundering’ in

paragraph (4) would seem to indicate that Contracting States would be expected to build these

developments into the AML Regimes that they set up in fulfilment of their obligations under

Article 14. In Section III we shall be discussing whether the FATF provisions are sufficiently far-

reaching in this regard.

D. International Cooperation

Because financial systems have become global, national boundaries are irrelevant to the

laundering of proceeds of crime, much of which takes place through financial institutions and the

links between them. In recent years intensive efforts have been made to internationalise the fight

against money laundering through the implementation at State level of international AML

standards. As we saw above, these standards envisage the collaboration of private entities (such

as banks and financial institutions) and persons (such as those working in the legal and

accountancy professions) with State bodies in identifying the proceeds of crime. They also

envisage the setting up and coordination between themselves of the Financial Intelligence Units

(FIUs) in different States.40

Procedures have developed for the collaboration between different

FIUs when they are working on the same case.41

The worldwide AML network therefore can

potentially make a significant contribution in locating assets which are the proceeds of

39

See FATF Recommendations 12 and 16 as well as the definition of ‘designated non-financial businesses and

professions’ in Annex 1 to the Methodology. 40

See FATF Recommendation 26. 41

See FATF Recommendations 36-40.

corruption, which is a first step towards their recovery. The records held by collaborating private

entities constitute a very significant contribution in the investigation of corruption cases and the

collection of evidence which will assist in bringing the criminal to justice and returning the

proceeds of corruption to the victim of the crime (usually the State).42

If the evidence collected through AML procedures is to make an effective contribution, the State

wishing to recover assets which are the proceeds of corrupt activities needs to be able to access it.

Furthermore, because the fight against corruption is likely to have both a criminal dimension and

a civil one (the victim State43

may want to sue the perpetrator in the civil courts for the return of

assets), AML can only make an effective contribution if methods are found of ensuring that

evidence collected is available to the victim State, whether it is requesting mutual legal assistance

or suing the corrupt in a civil court. In either case the victim State will have to navigate its way

through the procedures for accessing evidence in the different States where this evidence has

been collected,44

which is likely to require substantial resources, especially if a number of

different national legal systems are involved.45

Where these resources are not available it may be

practically impossible to recover assets, which places a significant limit on the contribution that

AML, one of whose aims is the recovery of proceeds of crime, can make to the fight against

corruption and its effects.46

International bodies such as the United Nations and the World Bank

are beginning to show awareness of this problem, and the recently instituted StAR initiative,47

one of the proposed actions of which consists in the development of ‘a pilot program aimed at

helping countries recover the stock of stolen assets by providing the needed legal and technical

42

Repatriation can then take place under Article 57 UNCAC. See Nicholls, Daniel, Poilane and Hatchard 2006:

paragraph 7.59. 43

The victim state in many cases are por countries who can ill afford the legal action and do not have the relevant

legal and investigatory experience. 44

The practical difficulties of doing this are discussed by Daniel and Maton (2008). 45

See Nicholls et al, 2006, paragraphs 7.61-7.63. The same commentators in paragraph 7.79, note that ‘[t]here is

nothing, except cost, to stop foreign claimants, usually governments, from seeking relief in the civil courts, and if

they really want to effect recoveries, that is still the route down which they have to go unless the [Assets Recovery

Agency under Part 5 of the Proceeds of Crime Act 2002] is prepared to take on the role that many, including many

foreign governments, would like to see it assume.’ For a practical example of the complexities involved see account

of the Abacha case in Daniel and Maton (2008). 46

See Nicholls et al, 2006: paragraphs 7.64-7.68. 47

Stolen Asset Recovery (StAR) Initiative: Challenges, Opportunities, and Action Plan, 2007.

assistance.’48

It remains to be seen how far the StAR initiative can go towards resolving these

practical issues.

III Limitations of AML as a tool to fight corruption

The international anti-corruption conventions and AML standards seem to be dovetailing to an

appreciable degree. But with regard to the potential contribution that AML could make to the

fight against corruption, it must be acknowledged that there are several areas where there are

limitations to AML’s powers. This section highlights some of these limitations. There is certainly

scope for AML regimes to develop so as to address some of these in future, though in certain

areas tools other than AML need to be used in the fight against corruption.

The first observation is that petty corruption works very differently from grand corruption, and it

is very difficult to imagine that AML will be effective in identifying the former even where the

financial system is being used to launder its proceeds, for example through retail banking. This is

recognised by the Woflsberg Committee. In the Appendix to its Statement against Corruption it

notes that:

‘The diversity of products and services offered through a retail banking operation results

in a huge variety of customers. This factor, together with the nature and scale of

transactions executed thorough retail banks means that it is virtually impossible to

identify specific transactions that may be linked to corrupt activities, particularly petty

corruption, unless such transactions are sufficiently unusual and are identified in the

course of monitoring designed to detect money laundering.’49

If laundering is taking place through alternative methods such as Hawala, discussed above, it is

likely to be even more difficult to identify.

48

Ibid, at 3. See also p, 34. 49

The Wolfsberg Statement against Corruption 2007 at 8.

Thus where petty corruption is concerned any anti-corruption framework will have to look

outside law to tackle the issue. To some extent the UNCAC is appreciative of this and puts

forward a number of suggestions for the prevention of corruption. It includes the education of the

public about the ill effects of corruption and envisages Non-Governmental Organisations to

convey this in an appropriate manner. Petty corruption for obtaining public services such as

passports and birth certificates, for instance, is commonplace in developing countries. A number

of non-governmental organisations in countries such as India, Uganda, and Nigeria have set up

anonymous citizens’ report card system so that victims of corruption can report the misuse of

power by public officials.

Even in cases of grand corruption the persons concerned may well be able to find ways round

AML controls put in place by banks, for example by using family members, friends or complex

corporate structures as agents or intermediaries for layering the proceeds of their misdeeds. The

Appendix to the Wolfsberg Statement50

notes that ‘intermediaries and/or agents are often difficult

to identify’ but it does indicate measures that could be taken if a such an identification is made, as

well as red flags that should raise suspicions that a private banking client is acting as such

intermediary and/or agent.

The question also arises as to the usefulness of AML in combating corruption where methods are

being used to launder the proceeds of corruption that do not involve either the financial system,

or what are under FATF ‘designated non-financial businesses and professions’. Examples of such

methods include the layering of proceeds by transacting with businesses such as dealers in luxury

goods, haute couture houses, auction houses or antiques dealers (none of which fall under

FATF’s definition of ‘designated non-financial businesses and professions’) or the requesting of

bribes in the form of ‘scholarships’ funding expensive university degrees for one’s family

members. Where such methods are used, the activity would still constitute money laundering

under Article 23 UNCAC, but the businesses or institutions in question would not be subject to

AML regimes and would therefore be far less likely than regulated bodies to apply KYC or report

suspicious transactions.

50

Ibid, 8-9.

Thus, while AML can be of great value in the fight against grand corruption (and indeed has

proved itself to be so in the past) its limitations must be recognised and it should be viewed as

only one of a number of tools which must be employed in the fight against corruption.

CONCLUSION

Corruption is a multi-faceted problem that requires a multi-faceted solution. A number of

different tools, both legal and non-legal need to be used to deter the commission of the offence in

the first place and, where the offence is committed, to prevent those who have committed it from

enjoying the proceeds of their crime. Though AML cannot put a stop to corruption, it can be very

effective in achieving the latter aim, especially in cases of grand corruption. AML can also play a

significant role in tracing and recovering the proceeds of corruption. Whenever this is done the

far-reaching negative effects and implications of corrupt behaviour, especially grand corruption,

may be assuaged.

BIBLIOGRAPHY

Books

Blum, J et al (1998) Financial Havens, Banking Secrecy and Money Laundering New York:

United Nations.

Hinterseer, K. (2002) Criminal Finance:The Political Economy of Money Laundering in a

Comparative Legal Context UK: Kluwer Law International.

Reuter, P. and Truman, E.M. (2005) Chasing Dirty Money: The Fight Against Money

Laundering US: Institute for International Economics.

Nicholls, C., Daniel, T., Poilane, M., and J Hatchard, J. (2006) Corruption and Misuse of Public

Office Oxford: OUP

Schudelaro, T (2003) Electronic Payment and Money Laundering Nijmegen: Wolf Legal

Publishers

Edited Volumes

Bergstein,F. & Elliott, K. (eds) (1997) Corruption in the World Economy Wasington DC: World

Bank.

Chapter in Edited Book

Daniel, and Maton, J (2008) ‘Recovering the Proceeds of Corruption: General Sani Abacha – a

nation’s thief’, in Pieth, M. (ed.) Recovering Stolen Assets, Basel: Basel Institute of Governance.

Reproduced at http://www.eapdlaw.com/64/s1039/newsstand/detail.aspx?news=1139 (visited 22-

08-2008).

Articles in Journals

Carr , I. (2006), ‘The United Nations Convention on corruption: Improving the Quality of Life of

Millions in the World? 2006 Manchester Journal of International Economic Law 3(3) pp. 3 – 44.

Carr, I. (2007) ‘Corruption in Africa: is the African Union Convention on Combating Corruption

the Answer?’ 2007 The Journal of Business Law March pp. 111-136.

Carr, I. & Outhwaite, O. (2008) ‘The OECD Anti-bribery Connvetion: Ten Years On’

Manchester Journal of International Economic Law 5(1) pp. 3-35.

Gray, C.W. & Kaufmann, D. (1998) ‘Corruption and Development’ Finance and Development

35(1) pp 7-16.

Lambert, L (2002) ‘Asian Underground Banking Scheme’ Journal of Contemporary Criminal

Justice 18(4) pp. 358 – 369.

Rose-Ackerman, S. (1975) ‘The Economics of Corruption’ Journal of Public Economics 4(2) pp

187-203.

Articles in Newspapers

Dougherty, C. (2008) ‘Siemens bribery case moves to trial in Germany’ May 26, available

http://www.iht.com (accessed 21-07-08)

Schäfer, D.(2008) ‘Executives feel fallout from siemens bribery case’ July 31, http://www.ft.com

(accessed 21-07-08).

Appendix 1

Articles 14 and 23 of the United Nations Convention Against Corruption

Article 14

Measures to prevent money-laundering

1. Each State Party shall:

(a) Institute a comprehensive domestic regulatory and supervisory regime for banks and non-

bank financial institutions, including natural or legal persons that provide formal or

informal services for the transmission of money or value and, where appropriate, other

bodies particularly susceptible to money-laundering, within its competence, in order to

deter and detect all forms of money-laundering, which regime shall emphasize

requirements for customer and, where appropriate, beneficial owner identification, record-

keeping and the reporting of suspicious transactions;

(b) Without prejudice to article 46 of this Convention, ensure that administrative, regulatory,

law enforcement and other authorities dedicated to combating money-laundering

(including, where appropriate under domestic law, judicial authorities) have the ability to

cooperate and exchange information at the national and international levels within the

conditions prescribed by its domestic law and, to that end, shall consider the

establishment of a financial intelligence unit to serve as a national centre for the

collection, analysis and dissemination of information regarding potential money-

laundering.

2. States Parties shall consider implementing feasible measures to detect and monitor the

movement of cash and appropriate negotiable instruments across their borders, subject to

safeguards to ensure proper use of information and without impeding in any way the movement

of legitimate capital. Such measures may include a requirement that individuals and businesses

report the cross-border transfer of substantial quantities of cash and appropriate negotiable

instruments.

3. States Parties shall consider implementing appropriate and feasible measures to require

financial institutions, including money remitters:

(a) To include on forms for the electronic transfer of funds and related messages accurate and

meaningful information on the originator;

(b) To maintain such information throughout the payment chain; and

(c) To apply enhanced scrutiny to transfers of funds that do not contain complete information

on the originator.

4. In establishing a domestic regulatory and supervisory regime under the terms of this article,

and without prejudice to any other article of this Convention, States Parties are called upon to use

as a guideline the relevant initiatives of regional, interregional and multilateral organizations

against money-laundering.

5. States Parties shall endeavour to develop and promote global, regional, subregional and

bilateral cooperation among judicial, law enforcement and financial regulatory authorities in

order to combat money-laundering.

Article 23

Laundering of proceeds of crime

1. Each State Party shall adopt, in accordance with fundamental principles of its domestic law,

such legislative and other measures as may be necessary to establish as criminal offences, when

committed intentionally:

(a) (i) The conversion or transfer of property, knowing that such property is the proceeds of

crime, for the purpose of concealing or disguising the illicit origin of the property or

of helping any person who is involved in the commission of the predicate offence to

evade the legal consequences of his or her action;

(ii) The concealment or disguise of the true nature, source, location, disposition,

movement or ownership of or rights with respect to property, knowing that such

property is the proceeds of crime;

(b) Subject to the basic concepts of its legal system:

(i) The acquisition, possession or use of property, knowing, at the time of receipt, that

such property is the proceeds of crime;

(ii) Participation in, association with or conspiracy to commit, attempts to commit and

aiding, abetting, facilitating and counselling the commission of any of the offences

established in accordance with this article.

2. For purposes of implementing or applying paragraph 1 of this article:

(a) Each State Party shall seek to apply paragraph 1 of this article to the widest range of

predicate offences;

(b) Each State Party shall include as predicate offences at a minimum a comprehensive range

of criminal offences established in accordance with this Convention;

(c) For the purposes of subparagraph (b) above, predicate offences shall include offences

committed both within and outside the jurisdiction of the State Party in question.

However, offences committed outside the jurisdiction of a State Party shall constitute

predicate offences only when the relevant conduct is a criminal offence under the

domestic law of the State where it is committed and would be a criminal offence under

the domestic law of the State Party implementing or applying this article had it been

committed there;

(d) Each State Party shall furnish copies of its laws that give effect to this article and of any

subsequent changes to such laws or a description thereof to the Secretary-General of the

United Nations;

(e) If required by fundamental principles of the domestic law of a State Party, it may be

provided that the offences set forth in paragraph 1 of this article do not apply to the

persons who committed the predicate offence.

Appendix 2 Article 6 paragraphs 1 & 2 of the COE Convention on Laundering, Search, Seizure and

Confiscation of the Products from Crime, 1990

1 Each Party shall adopt such legislative and other measures as may be necessary to establish as

offences under its domestic law, when committed intentionally:

(a) the conversion or transfer of property, knowing that such property is proceeds, for the

purpose of concealing or disguising the illicit origin of the property or of assisting any

person who is involved in the commission of the predicate offence to evade the legal

consequences of his actions;

(b) the concealment or disguise of the true nature, source, location, disposition, movement,

rights with respect to, or ownership of, property, knowing that such property is proceeds;

and, subject to its constitutional principles and the basic concepts of its legal system;

(c) the acquisition, possession or use of property, knowing, at the time of receipt, that such

property was proceeds;

(d) participation in, association or conspiracy to commit, attempts to commit and aiding,

abetting, facilitating and counselling the commission of any of the offences established in

accordance with this article.

2 For the purposes of implementing or applying paragraph 1 of this article:

(a) it shall not matter whether the predicate offence was subject to the criminal jurisdiction of

the Party;

(b) it may be provided that the offences set forth in that paragraph do not apply to the persons

who committed the predicate offence;

(c) knowledge, intent or purpose required as an element of an offence set forth in that

paragraph may be inferred from objective, factual circumstances.