A Fair Cop

A simple guide to money laundering, confiscation and corruption

Every year hundreds of thousands of people in the worldwide financial sector generate information about money they suspect to be the proceeds of crime, they do this so that law enforcement can identify and recover it. Every year they assume that courts confiscate at least some of the money. The courts could do this, in most countries, but they don’t.

The World Economic Forum noted that fraud and financial crime was a trillion-dollar industry, reporting that private companies spent approximately $8.2 billion on anti–money laundering (AML) controls alone in 2017. Source.

This year the Financial Action Task Force, the global guardian of the AML regime, is undertaking a strategic review. The time is right to take a look at the endgame of the AML regime, the confiscation of the proceeds of crime. Critics say that not enough is confiscated from criminals compared to the amount of suspect money in circulation. This article says the problem is far worse than that, the regime has no clear idea of what confiscation even is. Subsequent articles will examine why confiscation is perceived to be difficult, how these difficulties have been overcome and how to measure its impact on crime.


Confiscation in the UK

In the olden days, by which I mean before 2003, all convicted criminals in the UK kept the proceeds of their crimes. It was no wonder that crime was out of control. There was virtually no financial investigation and the amount recovered by the police was so small that they didn’t even bother measuring it. Then, after 31st December 2002, there was a dramatic increase in asset recovery triggered by the Proceeds of Crime Act, this coincided with substantial falls in the crime rate .

But across the world, crime still pays. Ordinary people assume (quite reasonably), just like the British before 2003, that courts confiscate assets from convicted criminals. With a few exceptions, they just don’t.

By examining what happened in the UK, we may better understand both what confiscation is and how it can be promulgated in other jurisdictions and thereby make the AML regime work better.

Components of success

The UK started from a low base in 2002. It had few financial investigators, no multi-agency teams, a poor record of international cooperation in confiscation and a history of failed confiscation laws.

On the plus side it had a well-paid, professional police force with excellent intelligence structures, well-educated staff and managers. The Prosecution service proved to be equally professional and adaptable and a coordinating committee enjoyed Prime Ministerial support. Underpinning the regime were tens of thousands of Suspicious Activity Reports about criminal assets at the (police-led) Financial Intelligence Unit. Law enforcement agencies could add these to existing casework and, much more rarely, to initiate a new asset recovery case. These related, typically, to predicate crimes, such as drug and human trafficking, fraud, robbery and other acquisitive crimes.

For the UK, asset recovery was the end-game of the Anti-Money Laundering regime. Without asset recovery, the deterrent effect on criminals of the whole regime is lost.

In the ten years before an effective AML regime in 2002, the UK (exclluding Scotland) recovered an annual average of just GBP 15m; over the next ten years the annual average was GBP 130m p.a., later rising to GBP 206m p.a.

Immediately after the enabling of the Proceeds of Crime Act, 2002, the rate of recovery was doubling every eighteen months.


Legal Evolution

Legal methods to recover assets from criminals are now very diverse, particularly in the UK, which has been formally evaluated as having the best system in the world[1]. The diversity has created some jargon, for a quick guide click here . The legal evolution in the UK allows us to see clearly the different levels of asset recovery and this could be used to assess regimes according to their attainment of the different levels. That is not to say the UK regime could not improve further, its legal evolution is just easier to see, because of the volume and diversity of its casework.

Since 1990 when the Financial Action Task Force first made global recommendations asset recovery has been developed by individual jurisdictions and a complex picture has emerged, making comparisons with other countries very difficult indeed. Thus, just at the time when a consistent global approach is most needed, setting standards based on comparative success is increasingly difficult to do. Although the legal procedures may differ, the end result is the same, money (or money’s worth) is recovered from people and both can be counted. However, when judging effectiveness, the origins of the money matter. Assessing the assets recovered at different levels of asset recovery is a way to compare effectiveness across legal systems. Defining levels of asset recovery has been tried before[2] but there is no agreed system. Without an agreed system, the present risk is that crude and misleading comparisons between jurisdictions are made, based simply on the total value of assets recovered. This weakens the impact of justified criticism of ineffective jurisdictions by civil society, the financial sector and international watchdogs.

Levels of asset recovery

Below, four different levels of asset recovery are set out. These are based on what the laws address, rather than how they work. The levels are similar, but not identical to, Mr Stessens’ suggestion of a dozen years ago.


[1] The Financial Action Task Force is the global standard-setter in AML/CFT The FATF 2018 Mutual Evaluation Report of the UK recorded the highest grades, across the board, of any country thus far evaluated.

[2] Stessens, G. (2008), Money Laundering: A New International Law Enforcement Model (Cambridge Studies in International and Comparative Law), 1st ed., Cambridge University Press.

Level Zero

The lowest level, the ‘ground zero’ of asset recovery, is the disposal of evidence after a criminal case, that happens to have a monetary value. All the world’s criminal justice systems have effective laws and procedures to do this as a matter of routine, because the purpose of seizing the asset is to provide evidence of the crime, its value is incidental. There are just two categories, instruments used to commit the crime and the object of the crime itself.  For example, asset recovery from a recent bank robbery might include the gun and the getaway car used at the time, plus the cash that was stolen. Assets from street drug dealing will include the drugs and the cash found on the defendant on arrest.

Level 1

The next level is recovery of the proceeds of a specific crime after conviction. For example, tangible assets such as cars or jewellery that have been purchased with the cash gained from a robbery or drug dealing. This is difficult to prove of course, but there are some cases where the evidential connection can be made. Where the money has been used to buy non-tangible goods or everyday expenses, many jurisdictions can recover the value of the proceeds of the crime. Few jurisdictions, however, do the investigations necessary to enable asset recovery. It is simply not a priority for most justice systems.

Level 2

The next level is recovery of the proceeds of multiple crimes, not all of which have been proved. The most obvious example would be the conviction of a wealthy career drug dealer, who is found to be responsible for years of individual drug sales too numerous to count. This is still conviction-based asset recovery but it allows a court to make assumptions based on the type of crime committed. In the UK, Section 75 of the Proceeds of Crime Act defines ‘being a criminal’ , and if the criteria are met, the court can assume that all the defendant’s assets are the proceeds of crime, without specifying which crimes. This pragmatic approach was developed because of the difficulty of connecting particular crimes to particular assets in court. In other countries, this level is theoretically achieved by prosecuting people for the crime of ‘Unjustified Wealth’. This level has been routinely achieved in the UK, but rarely elsewhere.

Level 3

The highest level is non-conviction based asset recovery. This exists in many countries but is seldom used and rarely applied as an instrument of policy. Included in this level are: undeclared cash forfeitures at the frontier; cash forfeitures inland in the course of law enforcement investigations; tax assessments following law enforcement agency investigations; in rem forfeitures following law enforcement agency investigations. The common thread at this level is that the assets being recovered are probably the proceeds of crime and the law allows forfeiture without a conviction. This level has been widely criticised in the USA and widely praised in the Northern Ireland, the Republic of Ireland and mainland UK; elsewhere it is hardly used. The reason to describe this as the highest level of asset recovery is twofold. Firstly, in the UK there is a statutory hierarchy meaning the conviction-based asset recovery tools should be used first. Secondly, criminal justice is simply not meeting the needs of modern society to address egregious cases of unexplained or unjustified wealth that have been identified across the world. In this area of social progress, as in every other area, the law lags behind societal norms. Non-conviction-based confiscation appears to be the next step in this evolution. The jargon of asset recovery is explained here.

Levels of Asset Recovery.

LevelCategoryGeographic spread & application
0Conviction-based asset recovery of the instrumentalities used in, or the object of, a crime or crimes  Available worldwide & routinely applied  
1Conviction-based asset recovery of the proceeds of a specific crime or crimesAvailable worldwide but 80% of countries do not use this power, because the evidence is rarely available.  
2Conviction-based asset recovery of the proceeds of multiple unspecified crimesAvailable in a minority of countries. Routinely used in the UK, and several English-speaking countries. Recently introduced in a few EU countries.  
3Non-conviction based asset recovery of multiple unspecified crimesAvailable in a minority of countries. Routinely used in the UK, Ireland, South Africa & the USA. Cash controls exist at most frontiers, worldwide, but are seldom used.  

What Levels of Asset Recovery tell us

The levels explain what a jurisdiction is attempting to do. A regime that only recovers large amounts of assets at Level Zero does not have an effective AML regime at all. It is literally coincidental to the normal court process and probably describes a country where crime is so out of control, that criminals can afford to lose cash and valuable assets as the routine cost of running their businesses.

Jurisdictions operating at Level 1 are at least trying to investigate and recover the proceeds of crime, but their competent authorities are greatly hampered by only being able to address a few exceptional cases where the link between crime and its proceeds is blindingly obvious. It describes a country with very few financial investigators or experienced confiscation prosecutors or judges; after all, what would be the point of having skilled staff without laws they can use?

Level 2 countries would include the jurisdictions like UK, Ireland, South Africa, which have enjoyed political will that established viable legislation that can be used as an instrument of policy. There are quite a few jurisdictions that operate at Level 2, but it would be presumptuous for the author to attempt to identify them without the benefit of the FATF Mutual Evaluation process, or something similar.

Countries operating at Level 3 as a matter of stated policy are very few, but they are at the cutting edge of asset recovery. This does not mean that Level 3 should be operated instead of the lower levels. A jurisdiction with the full gamut of levels just has the flexibility to address more types of crime than those operating only at the lower levels.

The ability to operate at Level 3 is different from being “operationally effective”. A jurisdiction may choose not to use its legal powers or not to resource them adequately, according to the government priorities.

Summary

Most jurisdictions do not recover assets from their criminals.

Laws permitting asset recovery are just not used. In the author’s personal experience of dozens of regimes, few regimes get above Level Zero (see above). This is borne out by detailed examination of FATF Mutual Evaluation Reports (and similar assessments). Most regimes do not permanently recover assets in more than half a dozen cases per year. Many regimes announce that they have frozen or seized large amounts of assets which are then quietly returned months or years later, because the local criminal justice system simply doesn’t deliver a final confiscation order, as it is supposed to. It is, on a global scale, the elephant in the room. Crime pays at all levels all over the world.

The global AML regime delivers SARs information to the proper authorities in order to recover the proceeds of crime. But the authorities don’t do it.

It doesn’t have to be this way.

The levels of asset recovery set out above could be used to gather meaningful data for jurisdictions to better understand their own achievements within their own unique crime contexts. Comparative data would help the FATF, international regulators and commentators to make fairer assessments of operational effectiveness.

The FATF Evaluations have exposed wide gaps in asset recovery. In effect, there is a blank sheet of paper which is being partially completed by the MERs. There is an opportunity to build a consistent, robust measure of operational effectiveness, which can be read across different legal systems and procedures. It will not be easy, but it could be done.

2 thoughts on “As COVID-19 resets our world, it’s time to reset our AML toolbox

  1. This should be required reading for police and MLROs, Tristan – and politicians, if any of them bothered with learning and understanding, rather than simply electioneering and soundbites. Many thanks.

    Like

  2. Thank you Sue, and thank you for sharing my stuff to your readers. Maybe one day it will be required reading, but for now I am just happy to get it down on paper (or whatever we say in these paperless days).

    Like

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