Anti-money laundering, anti-terrorist financing, and the global banking system three anomalies.
| Author | Loughlin, Walter P. |
Introduction
It has become commonplace to regard the anti-money laundering laws and regulations imposed on banks as an important weapon in the campaign against terrorist financing. While terrorist exploitation of the international banking system is well-known, and the elements of the anti-money laundering and anti-terrorist financing regime are familiar, this article focuses on three issues which can fairly be characterized as anomalous consequences of the development, implementation, and expansion of anti-money laundering and anti-terrorist financing laws and regulations.
* The reliance on a novel legal fiction to justify the seizure in the U.S. of funds deposited in non-U.S. banks.
* Claims against banks that they are liable for harm caused to persons injured or killed by terrorist violence on the ground that, even though the banks did not know their customers were using the banks to support terrorist groups, they should have known by virtue of their obligation to conduct due diligence on customers and to monitor account activity.
* The strict application of anti-money laundering and anti-terrorist financing regulations threatens to exclude from the banking and financial system legitimate businesses and individuals, especially low income and undocumented groups in developing and developed countries, thereby limiting unduly the scope of the legal and regulatory protections against money laundering and terrorist financing.
Definitions
At its core, money laundering refers to activities aimed at concealing or disguising the origins of the proceeds of crime. 18 U.S.C. [section] 1956(a)(2)(B)(i); Cuellar v. United States, 128 S. Ct. 1994 (2008); United States v. Santos, 128 S. Ct. 2020 (2008). (1) Terrorism financing involves the raising and processing of funds to supply terrorists with resources to commit violence. According to the UN International Convention for the Suppression of Financing Terrorism, a person commits the crime of financing terrorism "if that person by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out" an offense within the scope of the Convention, including conduct "intended to cause death or serious bodily injury to a civilian" who is not taking part in hostilities or armed conflict, with the purpose to "intimidate a population or to compel a government or an international organization to do or abstain from doing any act." (2)
In other words, while money laundering involves the concealment of the illicit origin of proceeds of crimes, terrorist financing is the collection or provision of funds for terrorist purposes. In the case of money laundering, the source of funds is always unlawful, such as from narcotics distribution or organized crime. In the case of terrorist financing, funds can be derived from both legal and illicit sources. The primary goal of individuals or entities involved in the financing of terrorism is therefore not necessarily to conceal the source of the money but to conceal the intended purpose of the funds.
Both money laundering and the financing of terrorism involve the illegitimate use of the financial sector. The strategies against terrorist financing and money laundering are the same--to attack the criminal or terrorist organization through its financial activities and to follow the paper or electronic trail to identify criminals or terrorists.
Essential Elements of Anti-Money Laundering and Anti-Terrorist Financing Procedures
The twin pillars of anti-money laundering and anti-terrorist financing regulations are customer due diligence ("know your customer") and account monitoring. To meet the "know your customer" and accounting monitoring requirements, a bank verifies the identity of the customer, understands the types of banking services the customer intends to use, monitors the customer's account for unusual patterns of transactions, and reports suspicious account activity to the relevant banking regulator.
These procedures have been part of U.S. law for over 40 years, at least since the 1970 passage of the Bank Secrecy Act. They were strengthened in the Patriot Act enacted by Congress following the September 11, 2001 attacks. (3) The U.S. law is consistent with international norms. The Financial Action Task Force, established in 1989 at the G-7 Summit Meeting in Paris, is comprised of 36 member jurisdictions. The Task Force has issued successive recommendations of legal, regulatory and operational standards for combating money laundering, terrorist financing, and other threats to and abuses of the international financial system, with the expectation that each member state will seek to make these standards part of its domestic law. See, e.g., "International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: The FATF Recommendations" (Feb. 2012), available at www.fatf-gafi.org. (4)
The "know your customer" and account monitoring process may be necessary but not sufficient to address the exploitation of the global banking system by terrorists. Consider the September 11 attacks. The FBI's investigation of the bank accounts of the 19 suspected September 11 terrorists led it to conclude that the entire operation cost $303,672. That amount would be very difficult to detect in a global banking system where many billions of dollars change hands every day--no matter how elaborate and effective an anti-terrorist financing system may be. (5)
The First Anomaly: The Seizure of Funds Deposited in the United States By Deeming Them to be Deposited in Foreign Bank Accounts
In 1977, Congress enacted the International Emergency Economic Powers Act, 50 U.S.C. [section] 1701-1706, which authorizes the President to impose sanctions in response to circumstances found to present an "unusual and extraordinary threat" to the national security, foreign policy, or the economy of the United States. Pursuant to this power, asset-blocking orders and other measures have been instituted against a number of countries, including Iran, Libya, Panama, Iraq, Cuba, and Sudan. (6) These executive orders have been limited in their reach to property within the United States. They typically refer to "all property and interests in property that are in the United States or that hereafter came within the United States, or that are or hereafter came within the possession or control of a United States person." In short, such orders have no extraterritorial effect beyond the borders of the United States.
All of this changed with the events of September 11, 2001. On October 26, 2001, Congress enacted the Patriot Act, an acronym for Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act. (8) Title III of the Patriot Act revised previous anti-money laundering statutes, strengthened the anti-money laundering and anti-terrorism regime in the United States, and for the first time, extended the seizure and forfeiture power to deposits held outside the United States in foreign banks. 18 U.S.C. [section] 981(k). Specifically, Section 319(a) of the Patriot Act, codified at 18 U.S.C. [section] 981k, authorizes the U.S. government to seize and forfeit funds from a foreign bank that has an interbank account in the United States. It provides, in pertinent part:
"if funds are deposited into an account at a foreign bank, and that foreign bank has an interbank...
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