countering money laundering: the fatf, the ......264 resource material series no. 58 3...

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117TH INTERNATIONAL SEMINARVISITING EXPERTS’ PAPERS

* Director General, International, European andCooperative Relations, Ministry of Justice,Portuguese Republic

1 According to Webster ’s, money laundering isdefined as “transferring illegally obtained moneyor investments through an outside party to concealthe true source”.

COUNTERING MONEY LAUNDERING:THE FATF, THE EUROPEAN UNION

AND THE PORTUGUESE EXPERIENCE, PAST AND CURRENT DEVELOPMENTS

Gil Galvão *

I. INTRODUCTION

A. What is Money Laundering?Money laundering is the processing of

the criminal proceeds to conceal theirillegal origin1. In popular terms, it consistsin “making dirty money look clean”: Theobjective of the launderer is to disguise,definitely, the il l icit origin of thesubstantial profits generated by thecriminal activity, so that such profits canbe used as if they were derived from alegitimate source. This is done byscreening the sources, changing the form,or moving the funds to less controlledplaces.

Three stages have been identified in thetraditional laundering procedure. The firstis the placement: the launderer gets rid ofthe cash originated by the criminal activityand introduces it in the financial system2.This is the choke point of the procedure,where the launderer is more vulnerableand the attempt to launder can more easilybe identified. The second stage is thelayering: the launderer executes, or ordersthe execution of, so many transactions, asneeded, in particular of international

nature, so that, definitely, the tracing of theorigin of the monies is lost. Finally, thethird stage is the integration: the money,now apparently of legal origin, is used forinvestment or for the acquisition of goodsand services.

Fighting money laundering is, thus, anattempt to depriving criminals from thepossibility of profiting from their criminalacts. The concept underlying the fightagainst the laundering of the proceeds of acriminal activity is therefore the following:if you cannot prevent the criminal activityitself from existing, you should at leastmake all the efforts to deprive the criminalsfrom the proceeds of their crimes! But thisis also the reason why any action againstmoney laundering can only be ancillary toany other action, preventive or repressive,taken against crime and criminal activityin general: it’s always a remedy - it comesat all times after an offence has beencommitted!

B. Why Should We Act AgainstMoney Laundering?

There are, of course, many good reasons- moral, social or political - to ground thewell-founded principle that the criminal

2 Usually it was only into the financial system thatthe cash was directly introduced. However, withthe anti-money laundering measures taken withregard to this sector, experience shows that cashis now tentatively introduced also through otherchannels.

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RESOURCE MATERIAL SERIES No. 58

3 “Macroeconomic implications of money laundering”- IMF Staff Statement - Meeting of the FinancialAction Task Force, Washington, D.C., June 26-28,1996.

should not profit from its criminal activity.In fact, no decent, legitimate, democraticsociety can be built based on ill-gottengains.

However, there have been identifiedsome macro-economic reasons which alsojustify that action is taken against moneylaundering. According to a Statement bythe Staff of the IMF, presented to theWashington Plenary of the Financial ActionTask Force in June 19963, “potentialmacroeconomic consequences of moneylaundering may be summarised as follows:

(i) Changes in the demand for moneythat seem unrelated to measuredchanges in fundamentals;

(ii) Volatility in exchange rates andinterest rates due to unanticipatedcross-border transfers of funds;

(iii) Increased instability of liabilitiesand heightened risks for assetquality for financial institutions,creating systemic risks for thestability of the financial sector andfor monetary developmentsgenerally;

(iv) Adverse effects on tax collectiona n d a l l o c a t i o n o f p u b l i cexpenditures due to misreportingof income and wealth;

(v) Contamination effects on legaltransactions as transactors becomeconcerned about possible criminalinvolvement;

(vi) O t h e r c o u n t r y - s p e c i f i cdistributional effects or asset pricebubbles due to disposition of “blackmoney.”

Nevertheless, there are not onlypotential macroeconomic effects of money

laundering. Also at the microeconomiclevel most pernicious consequences can befound. A total distortion of competition, andthe elimination of legitimate businesses bypeople linked to money launderers andother criminals, may derive from themoney laundering process. In fact, withthe huge margin of profit that the criminalactivities generate, it is possible in asystematic way, to bring legitimatebusinesses to bankruptcy, throughdumping and/or the monopoly of entiresectors of economic activity.

On the other hand, money launderingcan corrupt parts of the financial systemand undermine good governance offinancial authorities. The integrity offinancial markets, an essential element forthe prosperity of the economies, dependsheavily on the application of high legal,professional and ethical standards. Shouldproceeds of crime be laundered through afinancial institution, the reputation of suchan institution would be seriously damaged.This would affect the willingness ofcustomers and other institutions to dealwith that institution, and could affect themarket as a whole.

Finally, money laundering can lead tothe bribery of individuals, institutions andeven of governments. In the beginning,good and bad monies coexist, but in the end,Gresham’s law4 operates, and we run therisk of remaining only with the corruptentities. This can seriously weaken themoral and ethical standards of society andeven damage the principles underlyingdemocracy. For all these reasons, actionshould be taken against money laundering.

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C. Why Does Action Against MoneyLaundering Need To BeUniversal?

In a time of globalisation of financialmarkets, it is nevertheless not sufficientto ensure domestic measures to preventmoney laundering. On the contrary, it isparamount that action against moneylaundering and measures to prevent it areuniversally applied. It is widelyacknowledged that the strength of the anti-money laundering system depends of thestrength of its weakest link: if a countrydoes not participate in this battle, themoney being laundered will flow quicklythrough it and then return to the globalisedfinancial system. In such a situation,experience shows that detecting the illegalorigin of the amounts at stake becomesmuch more troublesome. This means that,although many efforts have been made toraise awareness of the problem and todevelop international co-operation in thisfield, actions must be developed to ensurethe co-operation in the fight against moneylaundering is widespread worldwide, andthat every jurisdiction is engaged in thefight against this plague.

D. How to Fight Money Laundering?Some arguments have been developed in

the sense that the fight against moneylaundering determines the abandon of theliberalisation of the financial markets andthe return to administrative controls offoreign exchange and of investment. It doesnot seem that there is a need to be so. Infact, the prevention of money laundering

depends of an adequate legislativeframework, o f the monitor ing o finformation and of international co-operation. The same occurs with theneeded supervision to ensure a smoothfunctioning of free and competitivefinancial markets - adequate legislation,timely and complete information andinternational co-operation.

This paper reports on three different butrelated experiences. Section I deals withthe FATF experience, and the strategy tobuild a worldwide anti-money launderingnetwork. Section II discusses thedevelopments of the European Union fightagainst money laundering, in particularthe Directive “on the prevention of the useof the financial system for the purpose ofmoney laundering”. Section III informs onthe Portuguese experience to fight moneylaundering. A short Conclusion tries tobring together some thoughts on the futureof the fight against money laundering.

II. THE FATF EXPERIENCE

A. Early InitiativesThe recent f ight against money

laundering had some precursors. In 1980,on June 27, the Council of Europe approvedits Recommendation No R (80) 10 onMeasures Against the Transfer andSafekeeping of Funds of Criminal Origin.This was the first call of attention on thepossible abuse of banks for the purpose ofconcealing illegally acquired funds, and itincluded a general recommendation on theidentification of clients.

In December 1988, the Basle Committeeon Banking Regulations and SupervisoryPractices adopted a Statement of Principleson the prevention of criminal use of thebanking system for the purpose of moneylaundering. The three main principlesrefer to customer identification - “knowyour customer”, compliance with laws and

4 According to this principle, which seems to havebeen known since at least Aristophanes, but isusually attributed to Thomas Gresham, “bad moneydrives out good money”. So, when we have two coinsof equal legal value in circulation, but one isintrinsically lower value than the other, the worsecoinage will drive the better out of circulation, sincethe better will be hoarded or melted down.

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co-operation with law enforcementagencies. The Statement encouragedbanks to put in practice measures to ensurethat all customers are properly identified,that transactions that do not appearlegitimate are discouraged and that co-operation with law enforcement agenciesis achieved.

Still in 1988, on the 19th of December,the United Nations Convention AgainstIllicit Traffic in Narcotic Drugs andPsychotropic Substances (the ViennaConvention) was adopted, and theincrimination of money laundering wasincluded in an international Treaty for thefirst time.

In 1989, in response to mounting concernover money laundering, namely over drugtrafficking money laundering, theFinancial Action Task Force on MoneyLaundering (FATF) was established by theG-7 Arche Summit that was held in Paris.The Task Force included representativesfrom the G-7 members, the EuropeanCommission and eight other countries. InApril 1990, the Task Force published areport containing forty Recommendationsto fight money laundering, which were tobecome the standard by which anti-moneylaundering measures should be judged.

Almost one year later, on the 11th ofNovember 1990, the Council of Europeopened for signature its Convention onLaundering, Search, Seizure andConfiscation of the Proceeds from Crime.This Convention is open for signature bythe member States of the Council of Europeand the non-member States which haveparticipated in its elaboration and foraccession by other non-member States. Itcriminalizes money laundering the way theVienna Convention had already done it.

F ina l l y, t o c l o se th i s cy c l e o finternational instruments, the Council of

the European Economic Communityapproved, on the 10th June 1991, theDirective 91/308/EEC “on the preventionof the use of the financial system for thepurpose of money laundering”.

B. Initial DevelopmentsThe Financial Action Task Force on

Money Laundering (FATF) was establishedas an inter-governmental body to developand promote policies, both at national andinternational levels, to combat moneylaundering. The Task Force is thus a“policy-making body”, aiming at improvingmeasures to combat money laundering.

The FATF does not have a tightly definedconstitution or an unlimited lifespan. Forthe time being, the Task Force has beenreviewing its work and mission every fiveyears, and it has been agreed to continueuntil 2004. Its future depends on theassessment made by the members’governments that the FATF is still neededand that its structure is the best and mostefficient way to carry on the missionassigned to it. However, due to its ownnature of a Task Force, there will be a pointin time where the question will be renewedon whether to conclude its work or tochange its nature.

The first five-year mandate of the FATFlasted from 1989 through 1994. Duringsuch period, the Task Force achievedconsiderable results. The report on themoney laundering situation was draftedand the Forty Recommendations wereestablished. The first substantialenlargement of the Group took place withall the at that time members of the OECDjoining the Group, together with Hong-Kong and Singapore, as well as the GulfCo-operation Council. The monitoring ofmembers’ progress in implementing anti-money laundering measures was launched.Self-assessments of the situation in eachmember were prepared. The first round of

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5 The FATF rounds (coinciding with each Presidency)run from July 1st through June 30th.

6 A full description of the stocktaking review of theForty Recommendations can be found at the FATFVII Annual Report, available at the FATF Internetsite: http://www.oecd.org/fatf/.

mutual evaluations of all Task Forcemembers, an essential tool to exercise the“peer pressure” that contributes to thedefinition of the nature of the Group, wasfinalised. The typologies exercises werestarted in order to give us an update ofmoney laundering trends and techniques,a n d p o s s i b l e c o u n t e r m e a s u r e s .In terpre ta t ive Notes on severa lRecommendations were drafted to clarifysome issues and provide additionalguidance. The Caribbean Financial ActionTask Force was launched.

The most important achievement of theperiod was undoubtedly the issuance of theForty Recommendations. They cover therole of the legal and financial systems inthe fight against money laundering, as wellas the area of international co-operation.They provide a complete set of measuresto build a coherent anti-money launderingsystem, and are intended for universalapplication. Nevertheless, they providesufficient flexibility to be followed andadopted by countries and jurisdictions withdifferent legal systems, in different regionsof the globe.

In April 1994, the London Plenarymeeting of the FATF approved thedocument FATF-V/PLEN7/REV1 on thefuture of the FATF, prepared by the UnitedKingdom Presidency. The Ministers of theFATF members later endorsed thisdocument, which set the FATF strategy forthe period 1994 through 1999. It was thendecided that the FATF should continue forfive years more, to monitor membersc o m p l i a n c e w i t h t h e F o r t yRecommendations, to revise and updatesuch Recommendations and to increase therole of external relations work of the FATF.

C. Consolidation and RecognitionThe second five-year mandate of the

FATF (1994-19995) was an importantperiod of consolidation of the work of the

Task Force and of recognition of its workfrom the outside world. The FATFimproved the l eve l o f i t s For tyRecommendations, monitored theimplementation of the Recommendationsin the member countries, continued todevelop the typologies exercises, andcontributed to the launching of the AsiaPacific Group on money laundering and ofthe Committee of the Council of Europe forcountries that are not FATF members- thePC-R-EV Committee.

1. The Forty RecommendationsDuring this second period of existence,

the FATF carried out the review of theForty Recommendations to keep them fullyup to date with existing trends and toanticipate future threats. This occurredunder the Us Presidency of the FATF, in1995/96. Additional consideration wasgiven to nine particular matters. SomeRecommendations were amended and newones were introduced. The major changeswere6:

(i) The extension of the moneylaundering predicate offencesbeyond narcotics trafficking, toinclude all serious crimes;

(ii) The mandatory reporting ofsuspicious transactions;

(iii) The application of the financialRecommendations to the bureauxde change and all other non-bankfinancial institutions;

(iv) The application of the financialRecommendations to the financialac t iv i t i es o f non- f inanc ia lbusinesses or professions;

(v) T h e e x p a n s i o n o f t h eRecommendation on customer

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identification, to take into accountp r o b l e m s r a i s e d b y t h eidentification of legal entities;

(vi) The particular attention requiredw h e n d e a l i n g w i t h s h e l lcorporations;

(vii) The need to pay special attentionto and if necessary take measuresto preclude the use of new ordeveloping technologies for moneylaundering purposes;

(viii) The encouragement of the use of“controlled deliveries” techniques;

(ix) The monitoring of cross-bordercash movements.

The FATF 40 Recommendations gainedworldwide recognition as the internationalstandards in this area during this period.They have been endorsed by the CaribbeanFinancial Action Task Force (CFATF), theCommonwealth Heads of Government andFinance Ministers, the Council of Europe,the Black Sea Economic Cooperation, theThree Baltic States (Riga Declaration) andthe Offshore Group of Banking Supervisors(OGBS). The revised terms of reference forthe Asia Pacific Group (APG), adopted inTokyo in March 1998, also recognised thatthe Forty Recommendations are acceptedinternational standards. Finally, on June10th, 1998, the Special Session of the UnitedNations General Assembly recalled that“the Forty Recommendations of theFinancial Action Task Force... remain thestandard by which anti-money launderingmeasures adopted by concerned statesshould be judged”. It also approved apolitical declaration recommending theStates that have not yet done so to adopt,by the year 2003, national anti-moneylaundering legislation and programmes inaccordance with the action plan againstmoney laundering.

The action plan, a document entitled“Countering Money Laundering” whosecontent derives directly from the Forty

Recommendations, offers an excellentpanoply of principles to be applied andmeasures to be taken. Essentially, it refersto the three FATF main levels ofintervention: the legislative, the financialand the law enforcement. At the legislativelevel States are urged to establish alegislative framework to criminalize moneylaundering from serious crimes and topermit prevention, investigation andprosecution of money laundering.Important tools: freezing, seizure andconfiscation of the proceeds of crime,international co-operation and legalmutual assistance. At the financial levelStates are urged to establish a regulatoryregime to deny criminals and their illicitfunds access to national and internationalfinancial systems. Main tools: customeridentification in accordance with the wellgrounded principle “know your customer”,record keeping, mandatory reporting ofsuspicious activity and removal of banksecrecy impediments. At the enforcementlevel, the main tools are: information-sharing mechanisms, extradit ionprocedures and other measures to providefor effective detection, investigation,prosecution and conviction of criminalsengaged in money laundering activities. Itcan be immediately recognised that thedocument incorporates the policiesestablished in the Forty Recommendations,and has therefore added weight to theapproach outlined therein.

F u r t h e r t o t h e r e v i e w o f t h eRecommendations, several other essentialFATF documents were produced from 1994through 1999, in particular on the policyfor expansion of the membership; on thepolicy for dealing with members not inc o m p l i a n c e w i t h t h e F o r t yRecommendations; on the participation ofinternational organisations in FATFmeetings, and on the assessment of theperformance of non-members.

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2. The Mutual EvaluationsThe Task Force continued to monitor the

implementation by its members of theForty Recommendations, namely throughself-assessment exercises, cross-countryreviews of measures referring to particularRecommendations and the conclusion ofthe second round of mutual evaluations ofall its members.

The mutual evaluation process has beena central pillar of the work of the FATF,and has led to important improvements inthe standard of anti-money launderingmeasures in all FATF members. This peerpressure system whereby countries openthemselves to independent scrutiny, andare evaluated and subject to criticism bytheir own peers, has been very successful.This success stems not just from theprocess that is used to produce the countryreport (questionnaire, on-site visit,discussion in the Plenary), but also fromthe capacity of the Group to follow up themeasures that are taken to rectify anydeficiencies found.

All FATF-style regional groups haveaccepted the mutual evaluation conceptand some groups have now completed asubstantial number of reports. Theadvantages for the country evaluated aresignificant:

(i) It receives an independent andobjective analysis of its moneylaundering system;

(ii) The review is a comprehensive one,which looks at all aspects of thesystem;

(iii) The evaluated country obtainsadvice on best practice elsewhereand on how its own system couldbe improved; and

(iv) The persons who participate asevaluators, and the countries theyrepresent, benefit by evaluatingthe system in another country.

The mutual evaluation process isenhanced by the FATF’s policy for dealingwith members not in compliance with theForty Recommendations. The measurescontained in this policy represent agraduated approach. There are five stepsin this policy. The first is a progress reportat plenary meetings. A letter by the FATFPresident and/or a high-level mission to thenon-complying country can follow it. Thencomes the application of Recommendation21, which requires financial institutions topay special attention to transactions withpersons, including companies and financialinstitutions in countries that do not ori n s u f f i c i e n t l y a p p l y t h e F o r t yRecommendations. As a final measure, theFATF membership of the country inquestion can be suspended. Steps takenin the year 2000 with regard to anonymouspassbooks by a FATF member are anexcel lent example of how mutualevaluations can lead to a more effectiveinternational anti-money launderingsystem.

3. Preparing the FutureDuring FATF-IX, under the Belgian

Presidency, the FATF conducted a reviewof its future. On April 28 1998, theMinisters of the FATF and the EuropeanCommissioner for Financial Servicesapproved the FATF’s strategy for the years1999 through 2004. In substance, the needfor continued action against moneylaundering was acknowledged, themembership strategy was defined and thefuture direction and objectives of the FATFwere considered. It was recognized that,although standards have improvedenormously in the past few years,particularly within the FATF membership,the challenge is to make those standardstruly global. The FATF’s strategy for thefuture there fore emphas ises theimportance of spreading the anti-moneylaundering message to all continents andregions of the globe. The other major tasks

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of the FATF are the improvement of thei m p l e m e n t a t i o n o f t h e F o r t yRecommendations in FATF members andthe strengthening of the review of moneylaundering trends and techniques.

This strategy intends to give atheoretical and practical answer to thepresent circumstances of the globalisation.In today’s open and global financial world,characterized by the strong mobility offunds and the rapid development of newpayment technologies, the need forinternational co-operation has increasedsubstantially. This strategy is deemed themost cost-efficient way of countering moneylaundering.

D. Opening to the World1. S p r e a d i n g t h e A n t i - M o n e y

Laundering MessageThe main objective of the FATF for the

period 1999/2004 is to create a worldwideanti-money laundering network. This isto be achieved by expanding the FATF to alimited number of strategically importantcountries; fostering the development ofcredible and effective FATF-style regionalbodies; improving the co-operation withrelevant international organisations, andsecuring the adoption of adequate anti-money laundering measures in non-member countries through the applicationof the FATF’s policy for assessing non-members.

As it was already mentioned, in thepresent circumstances of the worldeconomy, it is paramount that the fightagainst money laundering becomes trulyglobal. The strength of the anti-moneylaundering system relying on the strengthof its weakest link, we cannot afford to have“black holes” in the system whereby theefforts of all countries that are coherentlyfighting money laundering are jeopardizedby those countries who do not wish to doanything or who are doing little against the

money laundering threat. The FATF hastherefore, in 1999/2000, under thePortuguese Presidency, started thisambitious project of creating the worldwideanti-money laundering network.

(i) Expanding the FATF to a limitednumber of strategically importantcountries

In June 2000, it materialized the secondenlargement of the membership in thehistory of the FATF, by acceptingArgentina, Brazil and Mexico as new fullmembers7, after all three candidateshaving completed successfully a mutualevaluation exercise. The efforts are nowgeared to other regions of the globe wherethe Task Force is less represented, namelyAfrica, Asia and Eastern Europe.

(ii) Fostering the development ofcredible and effective FATF-styleregional bodies

The FATF external relations programmecontributed to raise awareness of themoney laundering problem throughout theworld. Under the current strategy, thesystematic development of existing FATF-s t y l e r e g i o n a l b o d i e s , a n d t h eencouragement to establish new ones isvigorously pursued. A regional group,committed to the Forty Recommendations,exerting peer pressure among its members;conducting mutual evaluations based on aFATF-endorsed procedure; carrying outself-assessment surveys and regionaltypologies exercises; having one or severalFATF members within their membershipand a secretariat which would liaiseregularly with FATF, is vital for thedevelopment of the strategy.

7 Argentina, Brazil and Mexico had joined the FATFas observer members, pending their mutualevaluation process, at the September 1999 Plenarymeeting in Porto, Portugal.

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8 Launched in Arusha, Tanzania, in August 1999.9 Its first meeting took place in Dakar, Senegal, in

November 2000.10 Launched on the 8th of December 2000, in

Cartagena de Indias, Columbia.

Therefore, the FATF continues tosupport the work of the already existingFATF-style regional bodies - the Asia/Pacific Group on Money Laundering (APG),the Caribbean Financial Action Task Force(CFATF), and the Council of Europe PC-.R-EV Committee, as well as the anti-money laundering initiatives of theOffshore Group of Banking Supervisors(OGBS). The worldwide anti-moneylaundering network requires, nevertheless,an entire coverage of all regions. This iswhy the policy of the FATF is to stronglysupport the establishment of new FATF-style regional bodies. These are theEastern and Southern Africa Anti-MoneyLaundering Group (ESAAMLG)8, theIntergovernmental Task Force againstMoney Laundering in Africa (ITFMLA)9,and the Financial Action Task Force inSouth America - GAFISUD10. Finally, it isenvisaged to promote the development offurther regional groups where none exists.

(iii) Improving the co-operation withr e l e v a n t i n t e r n a t i o n a lorganisations

A third element indispensable fordeveloping the worldwide network is theco-operation with relevant internationalorganisations. Indeed, the FATF does notact in a vacuum, and a number of otherinternational organisations or bodies (fromthe United Nations to the regionaldevelopment Banks) play a significant rolein the fight against money laundering.Being the world’s leading authority forsetting standards and monitoringcompliance in the anti-money launderingarea, the FATF’s policy is to strengthen co-operative l inks with al l relevant

international organisations, and inpart i cu lar with the Mult i latera lDevelopment Banks and the InternationalMonetary Fund.

(iv) Securing the Adoption of AdequateAnti-money Laundering Measuresin Non-member Countries throughthe application of the FATF’s policyfor assessing non-members

A last and essential component of thestrategy to counter money launderingworldwide relates to the situation in non-member countries. Taking into account theinterdependence and interrelation of anti-money laundering policies it is ofparamount importance to secure theadoption of adequate anti -moneylaundering measures in non-membercountries to prevent, detect and punishmoney laundering. In this context, the NonCo-operative Countries and Territories(NCCTs) exercise plays an irreplaceablerole to reduce the vulnerability of theinternational financial system to moneylaundering.

The FATF has therefore engaged in asignificant initiative to identify key anti-money laundering weaknesses injurisdictions inside and outside itsmembership. It started by setting uptwenty-five criteria, consistent with theForty Recommendations, to identifydetrimental rules and practices thatobstruct international co-operation againstmoney laundering. Main obstaclesidentified were loopholes in financialregulation, inadequate or no requirementsfor the registration of businesses and legalentities and the identification of theirbeneficial owners, lack of internationaladministrative and judicial cooperation,and inadequate resources for preventing,detec t ing and repress ing moneylaundering. Then, the FATF reviewed theanti-money laundering regimes of a

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number of jurisdictions against the above-mentioned twenty-five criteria. Thereviews involved the gathering andanalysis of all the relevant information. Adraft report was prepared and eachreviewed jurisdiction sent their commentson their respective draft reports. Thesecomments and the draft reports themselveswere discussed between the FATF and thejurisdictions concerned during a series offace-to-face meetings. Subsequently, theFATF Plenary discussed and approved thereports.

On the 22nd June 2000, the last FATFPlenary under the Portuguese Presidencymade public a “Report to identify Non-Co-operative Countries or Territories:Increasing the Worldwide Effectiveness ofAnti-Money Laundering Measures”11.Fifteen countries have been identified asNon-Co-operative in the fight againstmoney laundering: Bahamas, CaymanIslands, Cook Islands, Dominica, Israel,Lebanon, Liechtenstein, Marshall Islands,Nauru, Niue, Panama, Philippines, Russia,St. Kitts and Nevis, St. Vincent and theGrenadines. It is expected that this NCCTsexercise, along with the efforts of regionalanti-money laundering bodies, willcontribute for all jurisdictions to matchinternational standards in the global fightagainst money laundering, and to join theworldwide anti-money laundering network.

The FATF is continuing to review thesituation in the fifteen countries named asnon co-operative, as well as in othercountries that had not yet been subject tothe NCCT survey. As the NCCT list is anopen one, it is expected that some nameswill be deleted while some others could beadded. A particularly important issue isto guarantee fairness and transparencythroughout the whole process, the only way

to avoid undermining the credibility of theFATF, and to secure the possibility to dealconstruct ively with the reviewedjurisdiction in a pro-active manner toensure future co-operation. In fact, wecannot lose sight that the aim of theexercise is too bring all jurisdictions toapply the international standards in thefight against money laundering. The bestresult to be achieved by the NCCT exercisewould be to arrive at the conclusion thatthere are no countries to be listed.

2. Strengthening the Review ofMoney Laundering Trends andCountermeasures

Further to the spreading of the anti-money laundering message, another majortask to be accomplished by the FATFduring the years 1999/2004 is to strengthenthe review of money laundering trends andtechniques (the third consisting in theimprovement of the implementation of theForty Recommendations in the membercountries).

Deep knowledge of money launderingtrends and techniques is essential to findthe adequate countermeasures. Thetypologies meetings have generated themain source of expertise in this field, withlaw enforcement officials exchanging theirexperiences, annually. However, an effortto make discussions more interactiveshould be made . The increasedcontribution from FATF-style regionalbodies and other relevant observerinternational organisations, as well as theparticipation of law enforcement andregulatory delegates from non FATFmembers is an experience that has startedduring FATF XI and I hope it will continuein the future permitting to increase theinternational knowledge of the moneylaundering phenomenon. An extension ofthe geographical scope of the futuretypologies exercises is also in the agendafor the next meetings.

11 The full text of this report can be found at the FATFwebsite: http//www.oecd.org/fatf/

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The next years will be of crucialimportance for the fight against all formsof serious crime, in particular againstorganized crime, narcotics trafficking,corruption, terrorism, etc. The fightagainst money laundering can make animportant contribution to that purpose, asit may deprive criminals from the use ofthe profits of their criminal activity.However, it should be taken into accountthat no action against the laundering of theproceeds of serious crimes will, by itselfalone, achieve the goal of overcoming theproblems raised by organized crime. Amuch more comprehensive action isneeded, and any illusions on this point canonly give rise to future delusion!

III. THE EUROPEAN UNIONEXPERIENCE

A. The 1991 DirectiveThe European Commission was a

member of the Financial Action Task Forcesince 1989. However, the first legal text ofthe Economic Community (EEC) on moneylaundering was published only in June1991. The legal instrument chosen to setthe Community standards on the matterwas the Directive 91/308/EEC “on theprevention of the use of the financialsystem for the purpose of moneylaundering”12.

The Directive profited substantially fromthe work of the FATF, and most of the

solutions included in its text were alreadyc o n t e m p l a t e d i n t h e F o r t yRecommendations. Nevertheless, whilethe Forty Recommendations dealt with thelegal and financial systems, as well as withthe international co-operation, theDirective, in accordance with theCommunity rules then in force, had itsscope limited to the financial system. Asthe title indicated, the objective of theDirective was much more limited than theRecommendations: it sets the rules to“prevent the use of the financial system forthe purpose of money laundering”. Thereason for the introduction of the Directivewas mainly the protection of the financialsystem of the Community. On one hand,protection against the advantages thelaunderers could try to take of the existingfreedoms of capital movement and tosupply financial services; on the otherhand, protection of the single market, sincethe lack of Community action againstmoney laundering could lead MemberStates, to adopt measures which could beinconsistent with completion of suchmarket.

The Directive used a definition of moneylaundering taken from that adopted in theVienna Convention13, but admitted thepossibility for the Member States to extendthe predicate offences beyond drugtrafficking to any other criminal activitydesignated as such for the purposes of theDirective by each Member State.

1. Obligations Imposed to theMember States

The Direc t ive imposes severa lobligations on the Member States. The firstis the obligation to ensure that moneylaundering as defined in the Directive isprohibited. It is assumed that theprohibition will be made mainly by penalmeans, within the framework of the Viennaand Strasbourg Conventions. However, itis acknowledged that the penal approach

12 Under Community law, a directive sets the resultsthat have to be obtained and imposes the obligationon the Member States to achieve such results.However, it gives the Member States the libertyand flexibility to find the most adequate ways toaccomplish their task through the transposition ofthe directive into its internal law. The 1991Directive sets only minimum standards, and forthat reason, any Member State may adopt or retainin force stricter provisions in the field covered bythe Directive to prevent money laundering.

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should not be the only way to countermoney laundering and, therefore, severalobligations with regard to the financialsystem14 are imposed on the MemberStates.

Member States are required to ensurethat credit and financial institutionsidentify their customers by means ofsupporting evidence when entering intobusiness relations, particularly whenopening an account or savings accounts, orwhen offering safe custody facilities”(art ic le 3 ) . The most importantcontribution the financial system can giveto the fight against money laundering is

the help to detect and to trace illegal funds.Therefore, the Directive introduced severalother important obligations. The obligationto keep a copy or the references of thee v i d e n c e r e q u i r e d f o r c u s t o m e ridentification for a period of at least fiveyears after the relationship with theircustomer has ended, or in the case oftransactions, of the supporting evidenceand records for a period of at least five yearsfollowing execution of the transactions(Article 4). The obligation to examine withspecial attention any transaction whichfinancial institutions regard as particularlylikely, by its nature, to be related to moneylaundering (Article 5). The obligation ofthe financial institutions to cooperate fullywith the authorities responsible forcombating money laundering, by informingthose authorities, on their own initiative,of any fact which might be an indication ofmoney laundering, without alerting thecustomers concerned, and by furnishingthose authorities, at their request, with allnecessary information (Articles 6, 7 and 8).Lastly, the obligation for credit andfinancial institutions to establish adequateprocedures of internal control andcommunication in order to forestall andprevent operations related to moneylaundering, and to take appropriatemeasures so that their employees areaware of the provisions contained in theDirective.

The most striking contrast between theobligations created by the Directive and the1990 FATF Recommendations was themandatory nature of the reporting ofsuspicious transactions. In fact, while the1990 Recommendations admitted that thereport could be made only on a voluntarybasis, the Directive, from the verybeginning, established a mandatory regimeof suspicious transactions report. Theremaining obligations created by theDirective were equivalent to the measuressuggested in the FATF Recommendations.

13 “Money laundering means the following conductwhen committed intentionally:- the conversion or transfer of property, knowingthat such property is derived from criminal activityor from an act of participation in such activity, forthe purpose of concealing or disguising the illicitorigin of the property or of assisting any personwho is involved in the commission of such activityto evade the legal consequences of his action,- the concealment or disguise of the true nature,source, location, disposition, movement, rights withrespect to, or ownership of property, knowing thatsuch property is derived from criminal activity orfrom an act of participation in such activity,- the acquisition, possession or use of property,knowing, at the time of receipt, that such propertywas derived from criminal activity or from an actof participation in such activity,- participation in, association to commit, attemptsto commit and aiding, abetting, facilitating andcounselling the commission of any of the actionsmentioned in the foregoing paragraphs.Knowledge, intent or purpose required as anelement of the abovementioned activities may beinferred from objective factual circumstances”.

14 The Directive covers credit institutions andfinancial institutions, as well as insurancecompanies in so far as they carry out life insuranceactivities. It covers also branches located in theCommunity of all such institutions even if theirhead offices are situated outside the Community

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They constitute the basis for the co-operation of financial institutions and theirsupervisory author i t ies with theauthorities responsible for combatingmoney laundering.

2. The Lifting of the Banking SecrecyA major discussion took place in the late

eighties/first half of the nineties aroundbanking secrecy. Traditionally, therelations within the financial sector werebased on the confidentiality of therelationship between the banker and hiscustomer: the banker did not ask questions;the customer did not make disclosures. Thefight against money laundering, namelyagainst drug trafficking money laundering,introduced an entirely different approach.For the first time, it was said that thebankers should care about the origin oftheir customer’s money, co-operate withlaw enforcement agencies, and denouncesuspicious transactions of their customers,without alerting them to this fact. For thetradit ional banking system, thisconstituted a Copernican revolution.

To introduce this new concept in thefinancial sector was not an easy task. Acomplete change of mentalities both of thebank directors and employees, as well asof the supervisory authorities was needed.The idea met many resistances, and it wassaid that it could not succeed. Some sawbanking secrecy as the essential basis ofthe financial business. Nevertheless, theF o r t y R e c o m m e n d a t i o n s c l e a r l yestablished that “secrecy laws should bec o n c e i v e d s o a s n o t t o i n h i b i timplementation of the Recommendations”,and the Directive required Member Statesto lift the banking secrecy, either offinancial institutions or of supervisoryauthorities, whenever necessary, namelywhen a suspicion arises. The mandatoryreporting of suspicious transactions cameinto force for all EC Member States on the1st January 1993.

Ten years later the discussion, as far asthe financial system is concerned, seemsentirely outdated15. In fact, in particularafter the BCCI case, financial institutionsunderstood that it was in their interest toavoid being tainted by money laundering.The image and good reputation of afinancial institution depends heavily on theperception that high legal, professional andethical standards apply. Any suggestionthat an institution is deliberately ornegligently involved in a money launderingcase can only contribute to its discredit. Noserious institution can afford to see itsimage and reputation shaken by thesereasons.

B. The Amendment of the 1991Directive

1. The Amendment ProcessThe application of the 1991 Directive in

the Member States, accompanied by thework of a Contact Committee created tofollow up the developments of the fightagainst money laundering in theC o m m u n i t y, s h o w e d t h a t s o m eamendments to update the Directive, andto extend its scope were needed. TheEuropean Commission, came to theconclusion that the 1991 Directive, “as oneof the main international instruments inthe fight against money laundering, shouldbe updated in line with the conclusions ofthe Commission and the wishes expressedby the European Parliament and theMember States. In this way the Directiveshould not only reflect best internationalpractice in this area but should alsocontinue to set a high standard in protectingthe financial sector and other vulnerableactivities from the harmful effects of theproceeds of crime”. Having reached thisconclusion, the European Commission, whohas the r ight of init iat ive under

15 It restarted, however, with regard to the so-calledgatekeepers: lawyers and accountants.

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Community law, presented, in 1999, aProposal for a European Parliament andCouncil Directive amending CouncilDirective 91/308/EEC of 10 June 1991 onprevention of the use of the financialsystem for the purpose of moneylaundering. The proposal was ambitious.A c c o r d i n g t o t h e E x p l a n a t o r yMemorandum, “as the 1991 Directivemoved ahead of the original FATF 40Recommendations in requiring obligatorysuspicious transaction reporting, theEuropean Union should continue to imposea high standard on its Member States,giving effect to or even going beyond the1 9 9 6 u p d a t e o f t h e FAT F 4 0Recommendations. In particular, the EUcan show the way in seeking to involvecertain professions more actively in the fightagainst money laundering alongside thefinancial sector”. The main changesintroduced by the Proposal with regard tothe 1991 Directive were a widening of theprohibition of money laundering toembrace not only drugs trafficking but alsoall organized crime, and an extension of theobligations of the Directive to certain non-financial activities and professions.

According to the European Unionlegislative process, a Working Group of theCounci l 16 was set to analyse theCommission’s Proposal and the EuropeanParliament prepared its opinion. TheCouncil Working Group started to considerthe Proposal in late 1999, and concludedits work under the Portuguese Presidencyof the European Union during the firstsemester of the year 2000. The EuropeanParliament, after having considered theProposal in several different Committees,formally approved its opinion on July 5,2000. Taking into account the opinion ofthe European Parliament, as well as theopinion of the Economic and Social

Committee, a political agreement wasunanimously reached at the Council levelin September 2000 to adopt a Commonposition of the Council with a view to theadoption of the new Directive. TheEuropean Parliament has now to considerwhether it fully accepts the views of theCouncil or still suggests amendments. Ifthe Parliament accepts the CommonPosition of the Council, the Directive isimmediately adopted; if the Parliamentmakes new suggestions, there will be aconci l iat ion process between theParliament and the Council.

2. The Contents of the AmendmentsThe Commission’s proposal had the

intention to widen the predicate offencesand to extend the scope of the 1991Directive to several non-financialbusinesses and professions, since the wholefinancial sector (including non-bankfinancial institutions, such as bureaux dechange, financial leasing, brokers, dealers,etc.), was already covered. The mainchanges to the 1991 Directive resultingfrom the Council’s Common position, andcurrently under consideration by theEuropean Parliament, affect mainly thoseareas. However, there are also some otherminor changes to clarify some points.

The first clarification affects thedefinition of “financial institution” toensure that bureaux de change and moneytransmission/remittance offices, as well asbranches located in the Community offinancial institutions, whose head officesare inside or outside the Community comeexplicitly under the directive. It alsoincluded in the definition investment firmsand collective investment undertakingsmarketing its units or shares, and thusmade them subject to the obligationscontained in Directive.

One of the two major changes to the 1991Directive is the definition of criminal

16 The Council integrates Ministers from eachMember State.

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activity. Under the 1991 Directive,criminal activity means “a crime specifiedin Article 3 (1) (a) of the Vienna Conventionand any other criminal activity designatedas such for the purposes of this Directiveby each Member State”. This was a narrowdefinition, which was already left behindby the revision of the FATF FortyR e c o m m e n d a t i o n s , n a m e l yRecommendation 4, which refers to seriouscrimes. The new EU definition identifiescriminal activity with any kind of criminalinvolvement in the commission of a seriouscrime. It then defines serious crimes asbeing, at least, narcotics trafficking, theactivities of criminal organisations, fraudagainst the European Communities’financial interests; corruption and anyoffence which may generate substantialproceeds and which is punishable by asevere sentence of imprisonment inaccordance with the penal law of theMember State. Moreover, Member Statesagree that, before three years from theentry into force of the new directive, theywill revise the definition of predicateoffences to money laundering, (essentiallyto include all crimes punishable with morethan one year imprisonment)17. With thenew wording, two major causes of concerncome now explicitly under the definition ofcriminal activity: organized crime andcorruption.

In addition to the widening of the list ofpredicate offences, the second major changethe Common position introduces in relationto the 1991 Directive is the extension ofthe obligations imposed therein to severalnon-financial businesses and professions.According to the new Article 2a, MemberStates shall ensure that the obligations laiddown in the Directive are imposed onauditors, external accountants and taxadvisors; real estate agents; notaries andother independent legal professionals,dealers in high-value goods and casinos18.Thus, the European Union tries to give an

answer to the modern trends in moneylaundering. Actually, there is evidence thatthe tightening of controls in the financialsector has prompted money launderers toseek alternative methods for concealing theorigin of the proceeds of crime, with anincreased use of non-financial businesses.Further to accountants and lawyers, withwhom we will deal in particular in the nextsection, real estate agents, dealers in highvalue goods, whenever payment is madein cash, and in an amount of 15000 Euroor more, and casinos will now be requiredto comply with the Directive’s obligations.They will have to respect the rules oncustomer identification, record-keeping,increased diligence, co-operation with lawenforcement authorities and internalcontrol and training.

The new directive will also improve therules on customer identification, in

17 The full definition of serious crimes in the CommonPosition reads:

“Serious crimes are, at least:- any of the offences defined in Article 3(1)(a) of the

Vienna Convention;- the activities of criminal organisations as defined

in Article 1 of Joint Action 98/733/JHA;- fraud, at least serious, as defined in Article 1(1)

and Article 2 of the Convention on the protection ofthe European Communities’ financial interests;

- corruption;- an offence which may generate substantial proceeds

and which is punishable by a severe sentence ofimprisonment in accordance with the penal law ofthe Member State.”Member States shall before [three years from theentry into force of the Directive] amend the definitionprovided for in this indent in order to bring thisdefinition into line with the definition of seriousCrime of Joint Action 98/699/JHA. The Councilinvites the Commission to present before [...] aproposal for a Directive amending in that respectthis Directive.Member States may designate any other offence asa criminal activity for the purposes of this Directive”

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particular to deal with the increased riskcreated by new technologies, Internetbanking, direct banking and other types ofnon-face to face financial transactions. Anew Article 3 (10) has been agreed andrequires Member States to ensure thatspecific measures are taken to deal withthis problem19.

3. Lawyers and Accountants - theGatekeepers

The question of the submission oflawyers and accountants to anti-moneylaundering obligations has raisedcontroversy. During the last year or two, anew term has made its career in the anti-money laundering jargon: the gatekeeper.A gatekeeper can be defined as someonewho is responsible for allowing someoneelse access to a field, although he/she doesnot necessarily own the gate or the fieldhe/she allows you access to.

Gatekeepers are, according to the recentterminology, lawyers and accountants.They provide several services that mayopen “gates” to financial transactions.Such financial transactions may be usedfor laundering purposes. In fact, financialtransactions made for money launderingpurposes are no different in substance fromlegitimate financial transactions: the onlydifference being the origin of the fundsinvolved. Moreover, lawyers andaccountants have been found involved intomoney laundering schemes, and therefore

18 Article 2A of the Common position reads:“MemberStates shall ensure that the obligations laid downin this Directive are imposed on the followinginstitutions:1. credit institutions as defined in point A of Article

1;2. financial institutions as defined in point B of

Article 1;and on the following legal or natural personsacting in the exercise of their professionalactivities:

3. auditors, external accountants and tax advisors;4. real estate agents;5. notaries and other independent legal

professionals, when they participate, whether:(a) by assisting in the planning or execution of

transactions for their client concerning the(i) buying and selling of real property or

business entities;(ii) managing of client money, securities or

other assets;(iii) opening or management of bank, savings

or securities accounts;(iv) organisation of contributions necessary for

the creation, operation or management ofcompanies;

(v) creation, operation or management oftrusts, companies or similar structures;

(b) or by acting on behalf of and for their clientin any financial or real estate transaction;

6. dealers in high-value goods, such as preciousstones or metals, whenever payment is made incash, and in an amount of EUR 15000 or more;

7. casinos.”

19 Article 3 (10): “Member States shall, in any case,ensure that the institutions and persons subject tothis Directive take specific and adequate measuresnecessary to compensate for the greater risk ofmoney laundering which arises when establishingbusiness relations or entering into a transactionwith a customer who has not been physicallypresent for identification purposes (“non-face to faceoperations”). Such measures shall ensure that thecustomer’s identity is established, for example, byrequiring additional documentary evidence, orsupplementary measures to verify or certify thedocuments supplied, or confirmatory certificationby an institution subject to this Directive, or byrequiring that the first payment of the operationsis carried out through an account opened in thecustomer’s name with a credit institution subjectto this Directive. The internal control procedureslaid down in Article 11 (1) shall take specific accountof these measures.”

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attention has been brought to the role of“gatekeepers.

Gatekeepers may provide numerousservices, which can be misused for moneylaundering purposes: introduction to banksand other f inancia l inst i tut ions ,management of deposit, savings ors e c u r i t i e s a c c o u n t s , r e a l e s t a t etransactions, investment services,company formation, creation of trusts andfinancial and tax advice. However,lawyers, and in some cases accountants,have a special privileged relation with theirclients within the framework of thefundamental right of defence. Therefore,the imposition of the obligations laid downin the directive on lawyers and accountantsraises some difficult issues, namely on howto harmonize the requirements of theprofessional secrecy and the needs to fightorganized crime. A balanced solutionrequires a lot of good sense, and aparticular ability to find the adequateanswers to several questions, specificallywhen lawyers and accountants should besubject to anti -money launderingprovisions and when their activities shouldbe excluded from any such provisions.

After a deep debate, the Council decidedthat notaries and independent legalprofessionals, as defined by the MemberStates, should be made subject to theprovis ions of the Direct ive whenparticipating in certain financial orcorporate transactions, since in thesetransactions there is a greater risk of theirservices being misused for moneylaundering purposes. However, it isacknowledged that where independentlegal professionals are ascertaining thelegal position for a client or representing aclient in legal proceedings, there should bean exemption from any obligation to reportany information obtained in the course ofascertaining the legal position for a clientor before, during or after judicial

proceedings. The same kind of reasoningapplies to auditors, external accountantsand tax advisors who, in some MemberStates, may defend or represent a client inthe context of judicial proceedings orascertain a client’s legal position.

The new Article 2 A-5 (see footnote 18),subjects notaries and other independentlegal professionals to the obligations laiddown in the directive in two differentsituations: when they assist in the planningor execution of certain transactions fortheir clients or when they act on behalf oftheir clients in any financial or real estatetransaction. The rationale for this solutionis the idea that the privilege of professionalsecrecy was granted to the lawyer/customerrelationship to safeguard the fundamentalright of defence. The intervention infinancial transactions, namely in thetransactions referred to in the newdirective, cannot be construed as a typicalact of the lawyer’s profession, and thereforedoes not deserve that kind of protection.On the other hand, from the axiologicalpoint of view, the value of the fight againstserious criminality precedes, in these cases,other values.

Another issue that had to be solved inthe new directive was the question of theentity that should receive suspicioustransactions reports from notaries andother independent legal professionals. Thesolution found was that Member Statesshould be allowed, in order to take properaccount of these professionals’ duty ofdiscretion owed to their clients, to nominatethe bar association or other self-regulatorybodies for independent professionals as thebody to which reports on possible moneylaundering cases may be addressed bythese professionals. Thus, the new Article6 (3) states that “In the case of the notariesand independent legal professionalsreferred to in Article2a(5), Member Statesmay designate an appropriate self-

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regulatory body of the profession concernedas the authority to be informed of the factsreferred to in paragraph 1(a) and in suchcase shall lay down the appropriate formsof cooperation between that body and theauthorities responsible for combatingmoney laundering.

Member States shall not be obliged toapply the obligations laid down inparagraph 1 [obligation to report suspicionsand to provide the authorities with allnecessary information] to notaries,independent legal professionals, auditors,external accountants and tax advisors withregard to information they receive from orobtain on one of their clients, in the courseof ascertaining the legal position for theirclient or performing their task of defendingor representing that client in, or concerningjudicial proceedings, including advice oninstituting or avoiding proceedings,whether such information is received orobtained before, during or after suchproceedings”

This is the status of the discussions asfar as the European Union directive isconcerned. A final word, however, shouldbe said on other developments at the EUlevel. A Political agreement has beenreached on a framework decision on moneylaundering, the identification, tracing,freezing, seizing and confiscation ofinstrumentalities and the proceeds ofcrime, and also on the extension ofEuropol ’s mandate to launderingtransactions in general. A Decision hasbeen approved facilitating cooperation andinformation exchange between thefinancial intelligence units of the MemberStates. All these measures try to make thefight against financial crime more effective.

IV. THE PORTUGUESEEXPERIENCE

Portugal being a member of the FATFand of the European Union, the Portugueseexper ience fo l lows natural ly thedevelopment of the fight against moneylaundering in these “fora”. From this pointof view, more than repeating the contentsof all legislation, which materializes, andin some cases anticipates, the solutions ofthe Forty Recommendations and of the EUDirective, it might be more interesting todraw the attention to one particular aspectof the implementation of an anti-moneylaundering system: the need for co-operation. Co-operation needed, first,between the legislators and the financial,judicial and law enforcement sectors, and,after the entry into force of the legislation,among these sectors.

A. The Development of thePortuguese Anti-MoneyLaundering Legislation

The development of the Portugueselegislation against money launderingstarted with the implementation of therules of the 1988 United NationsConvention (the Vienna Convention).

In January 1993, a Decree-Law wasissued (Decree-Law nr. 15/93, dated 22-01-93), which incriminated autonomously themoney laundering conduct, i.e., created theoffence of drug money laundering. Thiswas a major change, since before the entryinto force of such law, money launderingwas punishable within the framework ofthe obstruction to justice offence, but therewere no cases under this legislation.

The first sign of the need for co-operationin this field arose during the drafting ofthe Decree-Law (actually during thedrafting of the Bill to be approved by theParliament authorising the Government tolegislate in this field, due to the exclusive

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competence of the Portuguese Parliamentto legislate on criminal matters underPortuguese constitutional law). In fact,that legislation was prepared by am u l t i d i s c i p l i n a r y g r o u p w i t hrepresentatives of the Ministry of Finance,Ministry of Justice, central Bank, Office oft h e A t t o r n e y - G e n e r a l , C r i m i n a lInvestigation Police, Customs Authorities(as well as Health and EducationMinistries, since we were dealing also withdrug trafficking).

This proved to be very interestingbecause, since the beginning, all Ministries,Departments and Agencies to be involvedin the fight against money laundering hadan opportunity to give their opinions andconsider each others’ issues in the draftingof the legislation itself. This method wasfollowed in the further developments of thePortuguese legislation, in particular in theimplementat ion o f the EuropeanC o m m u n i t y D i r e c t i v e o n m o n e ylaundering, and in the development of newinitiatives in the fight against moneylaundering.

The Directive was implemented throughDecree-Law nr. 313/93 (dated September15, 1993), which created a number ofobligations for all financial institutions(either bank or non-bank financialinstitutions, including currency exchangebusinesses - “bureaux de change”) and foroffshore branches. The obligations createdby the Decree-Law were our already knownobligations imposed by the Directive:customer identification, record keeping,special diligence, report of suspicioustransactions, and training and internalcontrol. The Decree-Law was also draftedby a task force with representatives fromall the already mentioned Ministries andAgencies, the only peculiarity being, in thiscase, the consultation made to thePortuguese Banking Association, whichhad almost all Portuguese Banks as

members.

Finally, this method of co-operationbetween legislators and ministries andagencies involved in the fight againstmoney laundering was also followed in thelast important development of thePortuguese legislation, which we may callstage III. With the co-operation of theMinistry of Commerce and of both theGeneral Inspectorate of Gambling and theGeneral Inspectorate of the EconomicActivities, as well as of the other entitiesalready mentioned, a new Decree-Law wasdrafted and published on December 2, 1995(Decree-Law nr. 325/95).

This Decree-Law anticipates almost allthe solutions that are now being discussedat the European Union level within theframework of the amendment of the 1991Directive. In fact, save for the issuesrelated to lawyers and accountants20, allother matters are already covered. Itextends the offence of money launderingbeyond drug proceeds to those arising fromall serious economic crimes and from othercrimes which generate important proceeds(terrorism, arms trafficking, extortion,kidnapping, pandering, corruption, etc.). Itextends some of the obligations imposed tothe financial institutions (customeridentification for cash transactions abovea given threshold, record keeping andsuspicious transaction reporting) to somenon-financial businesses. The entitiescovered by this Decree-Law are casinos,real estate agents, bookmakers and lotterydealers and traders in goods of highindividual value (precious stones andmetals, antiques, objects of art, aircrafts,boats and automobiles).

20 It should be said, however, that in the beginning ofthe nineties the intervention of Portuguese lawyersin financial transactions was much more reducedthan some years later.

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The first conclusion, that can be drawnfrom the fact that this legislation has beenapproved without opposition, is that theinvolvement in its drafting of the severalMinistries and Agencies anyhow relatedwith the fight against money launderinghas created a “consensus” not only aboutits need, but also about its content. Thepoint is particularly important since someof the solutions introduced by thelegislation were not quite orthodox. This,if nothing else, would be an importantreason to start the national co-operationagainst money laundering at the level ofthe drafting of the legislation.

B. The Legislative Solutions inPractice

Once entered into force, the legislationrequires the co-operation of the entitieswhich have to fulfil the obligations createdby the law (financial or non-financialinstitutions either privately or publiclyowned) and the different authorities withresponsibilities in the fight against moneylaundering (either judicial or supervisory).The system that the Portuguese legislationhas created is the following:

(i) The institutions covered by law (allfinancial institutions, including allnon-bank financial institutions,a n d s o m e n o n - f i n a n c i a linstitutions) have to comply withthe regulations and to fulfil acertain number of obligations, themost significant of which, by itsexterna l re levance , i s theobligation to report suspicioustransactions;

(ii) The supervisory authorities(including those that control theact iv i t i es o f non- f inanc ia linstitutions) are required to controlthe compliance of the supervisedor controlled entities and have thepower to apply administratives a n c t i o n s i n c a s e o f n o n -compliance. The administrative

sanctions are, in most cases,pecuniary, but, in the extremecases, can be either the suspensiono r t h e r e v o c a t i o n o f a n yauthorisation needed for the entityto carry on its business;

(iii) T h e r e p o r t o f s u s p i c i o u stransactions is made directly to theOffice of the Attorney-General,who commands both the competentPublic Attorney to open an inquiryand to start a procedure, and thespecial unit of the CriminalInvestigation Police, whichcentralises the reports (BIB-FIU),to carry on the investigations;

(iv) Should the investigations besuccessful, the competent PublicAttorney brings the case to courtfor judgement.

One issue has to be solved before andduring the course of the investigations: theproblem of bank secrecy. As far as banksecrecy is concerned, it must be said thatPortugal, due to historic reasons, whichhad their genesis in the years immediatelyafter the 1974 Revolution, has a strongbank secrecy regime. Only in very fewcases, namely in cases of judicialinvestigations of criminal activities, is banksecrecy overridden. However, in cases ofmoney laundering, the Portugueselegislation made it clear that there is noroom for bank secrecy. This is of vitalimportance for the development of the fightagainst money laundering. The existence,in some countries, of bank secrecy ruleswhich prevail, even in cases of criminalactivities such as money laundering, canbe held responsible for some of theunsuccessful cases in the fight againstmoney laundering at the internationallevel, and was one of the reasons that leadthe FATF to engage in the Non-cooperativeCountries and Territories exercise.

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The Portuguese system overrides thebank secrecy in cases of money launderingand the abrogation of the bank secrecyrules has two important consequences.The first is that any institution subject tobank secrecy rules (or other rules ofprofessional secrecy), which has to complywith the obligation to report suspicioustransactions, is exempted from any liabilitywhatsoever, provided that it has reportedin good faith. The disclosure of informationto the authorities, by its own initiative ofthe reporting entity, does not involve anybreach of any duty of secrecy or any liabilityprovided that, as mentioned, suchdisclosure is made in good faith (Article 13of Decree-Law nr. 313/93, dated September15, 1993, applicable to the non-financialsector by means of article 9 of Decree-Lawnr. 325/95, dated December 2, 1995). Thesecond consequence is that no entity canrefuse the disclosure of any informationrequested by the competent judicialauthority in cases of investigation of moneylaundering (article 60 of Decree-Law nr.15/93, dated January 22, 1993). Accordingto this rule the communication of anyrequested information, either manuallystocked or in a computer data-base, or thesurrender of requested documents may notbe refused by any entity, either public orprivate, the only peculiarity being the factthat, in the case of financial institutions,the request is made through the centralbank.

A system in action to fight moneylaundering requires a deep co-operation ofmany entities, institutions and authorities,but one clear conclusion that can be drawnfrom the Portuguese experience is thatthere cannot be any room for bank secrecyrules in the fight against the laundering ofthe proceeds of serious crimes.

Portugal has not created any specialbody to ensure co-operation between thedomestic authorities concerned. However,

the Portuguese delegation to the FATF,which includes representatives from theMinistries of Finance and Justice, from theSupervisory Authorities (central Bank,Insurance Institute and SecuritiesCommission), as well as from the Office ofthe Attorney General and the CriminalInvestigation Police, has been the forumto share experiences, co-ordinate actionsand suggest improvements either to thelegislation or to the practice. On the otherPortugal has, s ince 1991, a verycomprehensive domestic legislationgoverning international judicial co-operation. It provides for full mutual co-operation with the authorities of othercountries in the fields of extradition,transfer of criminal cases and execution ofsentences, as well as the transfer ofconvicted persons and assistance incriminal matters, including the detection,seizure and confiscation of the proceeds ofcriminal activities. These provisions werecontained in Decree-Law Nr. 43/91 of 22January, which has been substituted andreinforced by Decree-Law Nr. 144/99 of 31August, which entered into force on 1October 1999. This text is applicable whenthere is no treaty or convention with acountry, and is based on the principle ofreciprocity with respect to coercivemeasures. When there is an existing treatyor convention laying down the frameworkand terms of co-operation, this legislationstill applies, but it is limited to thesubsidiary role of defining co-operationprocedures and determining which entitiesimplement these procedures.

C. TrainingOne final word should be written about

training and the co-operation in this field.When fighting money laundering, it isnecessary to ensure that financialinstitutions know what are the needs of lawenforcement people and that lawenforcement people know how financialtransactions are carried on. It is also

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further needed that all are aware of howmoney launderers work and that everybodyis kept updated with the new technologiesused for money laundering purposes.Training, together with some form offeedback to the reporting institutions, isthus of paramount importance.

Considering this, in Portugal, a trainingprogramme was prepared, based on aProtocol signed between the CriminalInvestigation Police School of the Ministryof Justice and the Training Institute of thePortuguese Banking Assoc iat ion.According to this programme, seminarswere held for the staff of financialinstitutions with the presence of speakersfrom the School o f the Cr iminalInvestigations Police and, on the otherhand, senior staffs from financialinstitutions and from the supervisoryauthorities of financial institutions haveparticipated in sessions for the students ofthe Criminal Investigation Police School.

This co-operation has also proved to beof great importance, not only because itpermitted to share experiences betweenpeople with different backgrounds and notalways used to work together (police peopleand financial people), but also because ithelped to build the basis for an informalco-operation between the people involved.This informal co-operation has proved tobe, in some cases, the main key for successin the fight against money laundering.

The Portuguese legislation has hadduring the last years some other minoramendments in order to improve itseffectiveness. As it was acknowledgedduring FATF evaluations, the Portugueseauthorities have worked very hard toestablish a particularly comprehensiveanti-money laundering system. All players,in both the public and the private sector,have mobilised their forces to implementwide-ranging prevention measures. The

main task is now to ensure the correctapplication of the existing legislation inorder improve the effectiveness of the anti-money laundering system. This willdepend, however, not only of the domesticef forts , but also of the degree ofinternational co-operation.

V. CONCLUSION

A huge effort is being made worldwideto counter the laundering of the proceedsfrom serious crimes. The FATF, TheEuropean Union, and many countries andjurisdictions, as well as many internationalOrganisations are taking measures toeradicate this plague from the face ofEarth. The FATF strategy to create aworldwide anti-money laundering network,with the co-operation of FATF-styleregional bodies, the European Unionimprovement of the legislation of theirMember States, and the efforts of manyStates to introduce more effective measuresto fight financial crime are concurring tomake this objective achievable. The mostrecent United Nations Convention AgainstTransnational Organized Crime (PalermoConvention), open for signature on the 12th

of December 2000, will undoubtedlyrepresent a huge step forward and will givea further impulse to the current fight.

However, it should be retained that thebasis for success in this field is co-operation.Therefore, it is of paramount importanceto ensure that all the pending efforts toimprove the anti-money launderingsystems keep or increase a high degree ofco-operation. This applies to the FATFexercise on NCCT’s, as well as to the reviewof the Forty Recommendations, where co-operation with FATF-style regional bodieshas to be warranted. It applies to theEuropean Union efforts, where co-operation among Member States should beincreased. It applies at the domestic level,where co-operation between different

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agencies and different sectors is absolutelyneeded. Finally, it applies to the work ofrelevant international Organisations.

The fight against money launderingbecame somehow fashionable in the lastyears. Ten years ago, only a few pioneerswere engaged, in very difficult conditions,it must be said, in the dissemination of theanti-money laundering idea. Today, manyentities, bodies, organisations, evencommercial companies, have initiatives onthe fight against money laundering. Allthese entities have their own agendas andcoordination is sometimes very difficult.However, further to the co-operation thatis needed, an effort of coordination shouldbe made to avoid duplication and otherforms of wastefulness.

countering money laundering: the fatf, the ......264 resource material series no. 58 3...

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