RESOURCE MATERIALSERIES No. 58

UNAFEI
Fuchu, Tokyo, Japan

December 20011

Mikinao Kitada
Director
Asia and Far East Institutefor the Prevention of Crime andthe Treatment of Offenders(UNAFEI)
1-26, Harumi-cho, Fuchu, Tokyo 183-0057, Japan

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CONTENTS
INTRODUCTORY NOTE ...................................................................... 1
PART ONEWORK PRODUCT OF THE 116TH INTERNATIONAL TRAINING
COURSE“EFFECTIVE METHODS TO COMBAT TRANSNATIONALORGANIZED CRIME IN CRIMINAL JUSTICE PROCESSES”
Visiting Experts’ Papers• Components of an Effective Anti-Money Laundering Regime
by Peter Yam Tat-wing (Hong Kong) ............................................ 5• Fighting Hong Kong’s Organized Crime, the Organized & Serious
Crime Ordinanceby Peter Yam Tat-wing (Hong Kong) .......................................... 14• Triads
by Peter Yam Tat-wing (Hong Kong) .......................................... 27• Effective Methods to Combat Transnational Organized Crime in
Criminal Justice Processes
by Bruce G. Ohr (United States of America) .............................. 40• Transnational Organized Crime and the Countermeasures inKorea
by Yong Kwan Park (Republic of Korea) .................................... 61• Controlled Delivery
by Johan Peter Wilhelm Hilger (Germany) ................................ 79• Measures of Investigations in Cases of Organized Crime in the
Criminal Process of Germany
by Johan Peter Wilhelm Hilger (Germany) ................................ 82• Organized Crime / Witness Protection in Germany
by Johan Peter Wilhelm Hilger (Germany) ................................ 99• Principal Witness Regulations to Suppress Organized Crime inGermany
by Johan Peter Wilhelm Hilger (Germany) .............................. 106iii

• Effective Methods to Combat Transnational Organized Crime in
Criminal Justice Processes
by Franco Roberti (Italy)........................................................... 112
Participants’ Papers• Effective Methods to Combat Transnational Organized Crime in
Criminal Justice Processes
by Ruy Gomes Silva (Brazil) .................................................... 160• Effective Methods to Combat Transnational Organized Crime in
Criminal Justice Processes: The Nigerian Perspective
by Awunah Donald NgorNgor (Nigeria) .................................. 171• Country Paper on Effective Methods to Combat Transnational
Organized Crime in Criminal Justice Processes
by Ricardo Tiuseco Pamintuan (Philippines) .......................... 183• Crime in India
by Sanjiv Kumar Upadhyay (India) ........................................ 197
Reports of the Course• Analysis of Current Situation on Illicit Drug Trafficking
by Group 1 Phase 1 .................................................................. 208• Current Situation of Illegal Firearms Trafficking and Human(Women, Children, and Migrants) Trafficking
by Group 2 Phase 1 .................................................................. 216• Current Situation of Organized Crimes in Trafficking Stolen
Vehicles, Card Fraud, Money Laundering and Major Transnational
Organized Criminal Groups
by Group 3 Phase 1 .................................................................. 222• Special Investigative Tools to Combat Transnational Organized
Crime (TOC)by Group 1 Phase 2 .................................................................. 228• Methods for Obtaining the Cooperation of Witnesses to Punish
Organized Criminals: the Immunity System and Witness
Protection Programmes
by Group 2 Phase 2 .................................................................. 240

iv

• Components and Legal Frameworks for Combating Transnational
Organized Crime. Criminalization of Participation in Organized
Criminal Groups/Conspiracy; Anti-Money Laundering System;
Asset Forfeiture System (for Assets Derived from Organized
Crimes)by Group 3 Phase 2 .................................................................. 251
PART TWOWORK PRODUCT OF THE 117TH INTERNATIONAL SEMINAR“CURRENT SITUATION AND COUNTERMEASURES AGAINSTMONEY LAUNDERING”
Visiting Experts’ Papers• Countering Money Laundering: the FATF, the European Union and
the Portuguese Experience, Past and Current Developments
by Gil Galvão (Portuguese Republic) ....................................... 263• Canada’s Anti-Money Laundering Regime
by Daniel P. Murphy (Canada) ................................................. 286• The Impact of the Digital Age on Money Laundering Investigations
by Daniel P. Murphy (Canada) ................................................ 303• Current Situation and Countermeasures against Money
Laundering - A German and European Perspective
by Peter H. Wilkitzki ................................................................. 315• The Fight against Money Laundering: the U.S. Perspective
by Susan L. Smith (U. S. A.) .................................................... 327• Current Situation and Countermeasures against Money
Laundering: Focusing on the Experience and Legal Policies of the
Republic of Korea
by Chae, Jung-Sug (Republic of Korea) ................................... 352• Current Situation and Countermeasures against Money
Laundering : Hong Kongby Sin Kam-wah (Hong Kong) .................................................. 380
Participants’ Papers• Current Situation and Countermeasures against Money
Launderingby Kevueli Tunidau (Fiji) .......................................................... 399v

• The Suspicious Transaction Reporting System and Its Effective
Use
by Tatsuo Ueda (Japan) ............................................................ 411• Current Situation and Countermeasures against Money
Laundering in South Africa
by Ronel Van Wyk (South Africa) ............................................. 419• Current Situation and Countermeasures against Money
Laundering: Tanzania’s Experience
by Saidi Ally Mwema (Tanzania) ............................................. 428• Current Situation and Countermeasures against Money
Laundering in Thailand
by Pisan Mookjang (Thailand) ................................................. 437
Reports of the Course• Methods for Obtaining Intelligence for Investigation of Money
Laundering
by Group1 .................................................................................. 446• Components and Legal Framework for Combating Money
Laundering, Current Situation, Problems and Solutions for Asset
Confiscation System
by Group2 .................................................................................. 458• Current Situation, Problems and Solutions for Special
Investigative Tools in Combating Money Laundering
by Group3 .................................................................................. 466
APPENDIX .......................................................................................... 477

vi114TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERSINTRODUCTORY NOTE
It is with pride that the Asia and Far East Institute for the Preventionof Crime and the Treatment of Offenders (UNAFEI) offers to theinternational community the Resource Material Series No. 58.
This contains the work produced in two UNAFEI international training
programmes: the 116th International Training Course (conducted from
28 August to 15 November 2000) and the 117th International Seminar(conducted from 15 January to 16 February 2001). The main themes ofthese training programmes were “Effective Methods to Combat
Transnational Organized Crime in Criminal Justice Processes”, and“Current Situation and Countermeasures against Money Laundering”,
respectively.
Bearing in mind that transnational organized crime is a serious problem
in various countries of the world, and that the United Nations Convention
against Transnational Organized Crime was adopted by the UN General
Assembly in November 2000, UNAFEI has decided to undertake a seriesof training programmes in the coming years under the general subject of“transnational organized crime”. The above-mentioned training
programmes were part of UNAFEI’s continuing commitment to thisinternationally important theme. The 116th International Training
Course explored the ways and means of strengthening and improving
investigative methods in the fight against transnational organized crime.
The 117th International Seminar tried to develop more effective
countermeasures against money laundering, an activity which isperpetrated under the influence of transnational organized crime.
In this issue, papers contributed by visiting experts selected individual
presentation papers from among the Course and Seminar participants,
and the reports of the Course and Seminar are published. I regret that
not all the papers submitted by the Course and Seminar participants
could be published. Also, I must request the understanding of the selectedauthors for not having sufficient time to refer the manuscripts back tothem before publication.

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RESOURCE MATERIAL SERIES No. 58

I would like to pay tribute to the contributions of the Government ofJapan, particularly the Ministry of Justice and the Japan International
Cooperation Agency, and the Asia Crime Prevention Foundation forproviding indispensable and unwavering support to UNAFEI
international training programmes.
Finally, I would like to express my heartfelt gratitude to all who sounselfishly assisted in the publication of this series; in particular, theeditors of Resource Material Series No. 58, Mr. Hiroshi Iitsuka (Chief ofTraining Division) and Ms. Rebecca Findlay-Debeck (Linguistic Adviser),who so tirelessly dedicated themselves to this series.
December 2001

Mikinao Kitada
Director of UNAFEI

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PART ONERESOURCE MATERIAL SERIES
No. 58Work Product of the 116th International Training Course“EFFECTIVE METHODS TO COMBAT TRANSNATIONAL ORGANIZED CRIME IN
CRIMINAL JUSTICE PROCESSES”

UNAFEI

116TH INTERNATIONAL TRAINING COURSE
VISITING
EXPERTS’
PAPERSVISITING
EXPERTS’ PAPERSCOMPONENTS OF AN EFFECTIVE
ANTI-MONEY LAUNDERING REGIMEPeter Yam Tat-wing *I. INTRODUCTION
Organized crime cannot be tackled
effectively unless there is an efficient andeffective partnership between the different
bodies within a jurisdiction tasked with law
enforcement - in its widest sense. Once theorganized crime becomes transnational innature, this partnership becomes bothmore important and more complex,
necessitating co-operation not only
between different law enforcement bodies
but also between different jurisdictions.
This is particularly so in perhaps the mosttransnational of all crimes today - money
laundering.
This paper examines the individualcomponents necessary to provide ajurisdiction with an effective money
laundering regime. Effective, in thiscontext, means a regime which allows forthe confiscation of the proceeds of crime
and the prosecution of those criminals who
undertake money laundering, whether forthemselves or on behalf of other criminals.
The paper will draw heavily on theexperience gained by law enforcement
bodies in the Hong Kong Special
Administrative Region. Hong Kong passed
its first anti-money laundering legislationin 1989, making it one of the firstjurisdictions in Asia to do so. Since thattime, the legislation has been continuallydeveloping as practical experience reveals
its deficiencies. Both prosecutors andpolice in Hong Kong have gained* Assistant Commissioner (Crime), Hong Kong Police
Force Headquarters, Hong Kong

experience, not only in enforcing the law
and dealing with their overseas
counterparts, but in dealing with privatebodies and Government regulators whichhave a no less important role to play. Using
this background, the paper will draw out
some of the best practices which have been
identified in both Hong Kong and otherjurisdictions. Other practices will offer acontrast in approaches to certain problems.
The best method to combat so called
underground banks, for example, is still
being debated and a number of different
approaches have been or are being tried invarious jurisdictions around the world.
To this end, the paper will examine thefollowing areas:• Legislation• The role of a financial intelligence unit
• The role of regulators• International co-operation• Investigation of money laundering
Before examining any of these areas,
however, it is necessary to look briefly at
the size of the problem - how much money
is being laundered and where is it coming
from?
II. ESTIMATING THE MAGNITUDE
OF MONEY LAUNDERING
It is almost impossible to put an accurate
figure on the amount of money being
laundered each year; criminals, after all,do not publish accounts. Estimates of therevenue generated from narcotics
trafficking in the USA alone range from
US$40 billion to US$100 billion1.

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RESOURCE MATERIAL SERIES No. 58
The Financial Action Task Force (FATF)
estimates that narcotics trafficking is the
single largest source of criminal proceeds,
followed by the various types of fraud 2.
Smuggling, gambling and, increasingly
nowadays, trafficking in human beings also
generate significant amounts of criminal
proceeds. Often overlooked, however, is thehuge amounts of money generated by tax
evasion. Many people do not think of tax
evasion as being a source of criminal
proceeds; indeed, in some jurisdictions tax
evasion is not a crime per se. However one
only has to consider the huge industry
which has grown up around so called tax
havens, or off-shore financial centres, torealise that tax evasion - and its legallyambiguous sibling, tax avoidance - is big
business.
In summary, therefore, whilst it is notpossible to accurately quantify the amountof money laundering going on in any one
country or region, it is possible to conclude
that the amount of money being launderedis huge.
III. REQUIREMENTS FOR
EFFECTIVE LEGISLATION
Effective anti-money laundering
legislation must address a number ofpoints. The following are regarded as
essential:• Money laundering must be a criminal
offence;• The law must allow for theconfiscation of a criminal’s assets,
and must allow for terms ofimprisonment to be imposed whereassets have been placed beyond thereach of the courts;
1

Financial Action Task Force Annual Report 19992000
2 Financial Action Task Force Annual Report 19992000

6• Jurisdictions must be able to apply
for the confiscation of assets held
abroad and to reciprocate on similar
requests from abroad;• There must be some provision madefor asset sharing between
jurisdictions where there has been a
successful joint prosecution andconfiscation;• There must be a system in place forthe reporting of financialtransactions, whether suspicion or
threshold-based, to a financial
intelligence unit (FIU);• There must be regulation of financial
service providers commonly used formoney laundering such as banks,
securities brokerages, remittanceagents and company formation
agents.
In addition to these, legislation may beconsidered to allow for the civil confiscationof assets.
A. The Money Laundering Offence
The money laundering offence should
ideally consist of two elements - firstly,some form of dealing with the proceeds ofcrime and, secondly, the criminal intent
with which it is done. It must also list thepredicate offences which generate theproceeds of crime.
Money laundering can be viewed in two
ways. What may be termed the ‘traditional’
definition of money laundering involves
some form of complicated and sophisticatedprocess by which the proceeds of crime arehidden, disguised or made to appear as if
they were generated by legitimate means.
Using this definition in law, however, would
cause immense problems in trying to provethe criminal’s intent to, say, disguise theproceeds; if police subsequently find theproceeds, would that then mean that they
were not disguised and therefore theoffence was not committed? Obviously this116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
possibility must be avoided.
The ‘legal’ definition of money
laundering used in Hong Kong is far wider
and simpler than the ‘traditional’
definition. It means, simply, anytransaction involving the proceeds of crime.
This is inclusive of both the ‘traditional’
definition and also of any transaction
involving the proceeds of crime in which
there has been no attempt to hide or
disguise its source. Thus the drug dealer
who receives money and deposits it in his/her own bank account is money laundering,as he/she is carrying out transactions
knowing they involve the proceeds of crime.
Experience in Hong Kong has shownthat the most difficult part of a money
laundering case is in proving the criminal
intent of the money launderer. Clearly, aperson who deals with the proceeds of crime
without knowing, or at least suspecting, theillegal origin of those proceeds should not
be guilty of an offence. Setting the level ofcriminal intent at too high a level, however,can cause problems for the investigator.
For example, a law that requires proof thatthe money launderer knew the property
with which he/she was dealing was theproceeds of crime will result in very few
prosecutions as evidence of such knowledge
is difficult to come by in the absence of aconfession. It can be argued that there isvery little point in having a law which isalmost impossible to use in practice. The
net result is that the criminals continue
money laundering as the law is unable toprosecute them or even act as a deterrent.
The relevant section of the Hong Kong law
is worded as follows:”...a person commits an offence if,
knowing or having reasonablegrounds to believe that any property,
in whole or in part directly or
indirectly represents any person’s
proceeds of an indictable offence, hedeals with that property. 3 [italics
added]
Judicial decisions on this section of thelaw have construed having reasonablegrounds to believe as meaning that areasonable person, knowing thecircumstances which the defendant knew,
would have believed that the property was
the proceeds of crime. This is an advanceon having to prove the defendant’s actual
knowledge or belief as it allows for theprosecution of someone who had turned awilful blind eye to the possible origins of
the property in question.
It has been proposed that a further
offence be created under Hong Kong law
to deal with those people who deal with theproceeds of crime, suspecting them to besuch but falling short of having areasonable person’s belief. If the proposal
is passed into law, this lower mental
element would be reflected by a lower
sentence than that imposed on those withreasonable grounds to believe.
A final consideration when drafting aneffective money laundering law is the needfor the law to apply to as wide a range ofpredicate offences as possible. Obviously
the law must apply to all serious crimes
such as drug trafficking, fraud, kidnapping
etc., which generate substantial criminal
proceeds. Additionally, in recent years
there has been a growing awareness thattax evasion should be included as apredicate offence. If it is not included, theproblem then arises of money launderers
claiming that they handled crime proceedsin the belief that they were dealing in theproceeds of tax evasion - and are therefore
not guilty of the offence of money
laundering.

3

S.25A, Organized & Serious Crimes Ordinance,
Chapter 455, Laws of Hong Kong

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RESOURCE MATERIAL SERIES No. 58
B. Restraint & Confiscation ofAssetsIn addition to a money laundering
offence, effective legislation must also
provide for the restraint and confiscationof a criminal’s assets. The provisions for
restraining assets must allow for restraint
without the suspect becoming aware of it in the common law system, this is done by
way of an ex parte application, without thepresence of a defence representative. This
allows for the restraint order to be served
on financial institutions as soon as theinvestigation turns overt, thus depriving
the suspect or his associates of an
opportunity to dispose of the assets.
Knowingly failing to comply with arestraint order should be a criminal offence.
The provisions for confiscating assets
should ideally allow not just for theconfiscation of the assets whichinvestigators find, but also those assets
which the defendant may have successfully
hidden. Thus a defendant with only US$2
million in located assets, but whom it canbe proved has benefited from crime by over
US$10 million, can be ordered to pay backthe full amount of his/her profits. If thebalance is not subsequently paid, the law
should allow for a custodial sentence to be
imposed in lieu of payment.
C. Overseas Confiscation Orders
The trans-national nature of organizedcrime is reflected in the fact that criminals
will often keep their assets in different
countries. It is essential, therefore, thatlegislation provides for this by allowing for
confiscation orders issued in overseas
jurisdictions to be enforced domestically. In
this regard, the FATF recommends:“There should be authority to take
expeditious action in response torequests by foreign countries to
identify, freeze, seize and confiscateproceeds or other property of

8corresponding value to such proceeds,
based on money laundering or thecrimes underlying the laundering
activity.”4
D. Asset Sharing
Once an overseas confiscation order isenforced domestically, fairness dictatesthat the overseas jurisdiction be allowed
to share the confiscated assets. Provisionmust therefore be made, both by law andby policy, for assets to be shared between
jurisdictions. This may not always bepracticable where only a small amount ofproperty has been confiscated, as theadministrative costs involved would
outweigh the value of the assets to beshared. Government policy, therefore,should set a realistic threshold over andabove which foreign governments may beallowed to apply for and receive a share of
the assets commensurate with the work
done by each side in that particular case.
E. Reporting of Financial
Transactions
Most jurisdictions which have enacted
money laundering legislation haveincorporated a requirement for some formof reporting of financial transactions to acentral body - usually a financial
intelligence unit (see Part IV below). The
reporting requirement can take one of threeforms:• Mandatory reporting of certaintransactions over a particular value
threshold - for example, cashtransactions and international
remittances over US10,000;• Suspicious transaction reporting;• Both threshold and suspicioustransaction reporting.
Both threshold and suspicion based
reporting have pros and cons; the former
4

FATF Recommendation No. 38

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
picks up a wealth of detail about anindividual’s spending habits which can be
useful to an investigator conducting afinancial profile or asset tracing on asuspect. It also, however, results in a great
many reports which, because of the sheer
volume, are rarely examined in any detailand present administrative problems dueto the large numbers received. Suspicioustransaction reporting does not provide thevast database of financial transactions
which threshold reporting provides but canallow investigators to better concentrate
their resources on genuinely suspicious
activity.
Another factor to consider are thecategories of people or institutions which
are required to report financialtransactions. Reporting of transactions
over a certain threshold would entail all
businesses being required to make suchreports if their customers exceed thethreshold. Suspicious transaction
reporting can be more selective - although
Hong Kong law requires all persons toreport suspicious transactions, otherjurisdictions require only banks and otherfinancial institutions to make such reports.
F. Regulation of Financial Services
Providers
An effective law must also provide forthe regulation of those companies which
provide financial services to the public.
Most jurisdictions will have comprehensive
laws and regulations to govern theoperation of financial institutions such as
banks, insurance companies and stock
brokers. Less well regulated, but equallyimportant in the battle against money
laundering, are what may be termedintermediaries.
An ‘intermediary’ is a person or company
which introduces a third party’s money tothe regulated financial system. The mostwidely recognised form of intermediary is

the company formation agency, which willallow a customer to purchase a ‘shell’ or‘shelf ’ company and will then operate thecompany - and, more importantly, its bankaccount - on the customer’s behalf. Often
the identity of the beneficial owner of the
shelf company is not disclosed to the bankand, as the signatories to the shelfcompany’s bank account are the staff of thecompany formation agency, the bank has
no record of the real owner of the banka c c o u n t . N o t s u r p r i s i n g l y, t h i sarrangement has proved attractive tomoney launderers the world over as itallows for effective anonymity on the partof the beneficial owner of the shelf company
and its bank account.
Some of the more responsible off-shore
tax havens, where the bulk of company
formation agents operate, are considering
legislation to regulate the activities of suchagents. Usually this legislation takes theform of a licensing regime under which
company formation agents are only allowed
to operate if they demonstrate that they
apply basic anti-money laundering
measures to their business practices.
Another form of intermediary is theremittance agent - also known as
underground banks. Different jurisdictions
around the world have approached the
problem of remittance agents in different
ways. In some jurisdictions their activities
are completely illegal; in others they areleft completely unregulated. Hong Kong
has recently passed legislation requiring
remittance agents to register with theGovernment, verify the identity of certain
customers and make and retain records ofcertain transactions. It is hoped that the
new law will, at the least, ensure that
remittance agents will keep records which
will allow investigators to trace an audit
trail and identify the persons involved. The
new law is also expected to act as adeterrent as it will make the remittance9

RESOURCE MATERIAL SERIES No. 58
sector less attractive to money launderers.
G. Civil Confiscation of Assets
The confiscation of assets describedabove concerns the assets of convictedcriminals. Some jurisdictions, however,
have also incorporated a form of civil
confiscation into their legislation. Civil
confiscation allows for the confiscation ofproperty where it can be shown on thebalance of probabilities, that is, a lesser
standard of proof than the criminal
standard of beyond reasonable doubt, thatthe property was the proceeds of, or wasused in connection with, or was intended
to be used in connection with, a crime.
Confiscation is not dependant upon anyone
being convicted of any crime.
IV. THE ROLE OF A FINANCIALINTELLIGENCE UNIT
Financial Intelligence Units (FIUs) canbe part of a police force or customs agency,
a separate Government agency or a
department of a central bank. Whichever
form they take, their role should at least
include the following:• Collection, collation anddissemination of transaction reports(whether they be threshold or
suspicion based);• Provision of feedback and training tomakers of suspicious transactions
reports.
Collection, collation and disseminationof reports can be done in a number ofdifferent ways and will not be discussed
here.
The provision of feedback and training
is an often overlooked, but vital, part of an
FIU’s duties. The effectiveness of a
suspicious transaction reporting systemrelies on both the quantity and quality of
the reports made. This in turn depends on

10

how well staff of financial institutions(which in practice make the vast majorityof reports) can identify transactions which
are genuinely suspicious. Without proper
training, both the quantity and quality of
the reports will remain at a low level.
Although banks and other financial
institutions provide basic training to theirstaff, input from the FIU is vital if they
are to be kept up to date on the latest trends
and methodologies for laundering money.
The following practices can be consideredwhen planning training and feedback:• Lectures to bank compliance officers
and front line staff;• Provision of training material or
vetting of a bank’s training material
to ensure it is up to date and covers
all relevant legislation;• Provision of real life sanitised cases
to illustrate particular methods ofmoney laundering and highlightsuspicious activity indicators;• Wo r k i n g g r o u p s c o n s i s t i n g o fmembers of both financial
institutions and the FIU to highlight
best practices;• An FIU web site to increase publicawareness of the legal requirements
to report suspicious transactions;• Qualitative and quantitative
analyses of suspicious transaction
reports made by individual
institutions.
In addition, makers of suspicioustransaction reports should be informed,
whenever practical, of the progress andultimate outcome of the investigation
generated by their report, particularly
where the report has led to a successful
case.
V. THE ROLE OF REGULATORS
Banks and other financial institutions
recognise the dangers which money

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
laundering can present to the financial
system. More importantly, they are awareof the damage which could be caused totheir reputations if they were to be foundlaundering money due to their own
negligence or lax procedures; the recent
Bank of New York scandal illustrates thispoint. Whilst most financial institutions
are very responsible, not all of them devote
sufficient time, effort or resources tocombating money laundering. This iswhere regulators of financial institutions
have a vital role to play.
The role of a regulator, in an anti-money
laundering context, is three-fold. Firstly,
to draw up anti-money laundering
guidelines for financial institutions tofollow. These guidelines should include
such matters as establishing the true
identity of account holders, record keeping,training and reporting of suspicioustransactions (if required by law). Secondly,
the regulator should ensure that thefinancial institutions have appropriate
policies and practices in place which
conform with the guidelines. Thirdly, theregulator should check that the guidelines
are being adhered to through regular visits
to the financial institutions and spot
checks. Prior to visiting a financial
institution, the regulator should also liaise
with the financial intelligence unit to checkthat the institution’s rate of suspicioustransaction reporting is in line withexpectations, bearing in mind the type andsize of the financial institution.
A range of measures should be available
to the regulator to sanction those financial
institutions which fail to comply fully withthe regulator’s guidelines.
VI. INTERNATIONAL COOPERATIONInternational co-operation, in the formof enforcement of external confiscation

orders and asset sharing, has already been
touched upon in Part III above. This formof co-operation relates to cases where asuspect has already been arrested and hisor her assets restrained. Equally, if not
more important, is international cooperation during the investigation phase.
FATF Recommendation no. 32 states:“Each country should make efforts toimprove a spontaneous or “uponrequest” international informationexchange relating to suspicioustransactions, persons andcorporations involved in thosetransactions between competentauthorities”.
Recommendation No. 37 goes on to state:“There should be procedures formutual assistance in criminal mattersregarding the use of compulsory
measures including the production ofrecords by financial institutions andother persons, the search of persons
and premises, seizure and obtainingof evidence for use in money
laundering investigations andprosecutions and in related actions inforeign jurisdictions.”
There is a distinction to be made here
between the exchange of intelligence inmoney laundering matters and therendering of assistance to anotherjurisdiction in obtaining evidence. The
swift exchange of intelligence between
enforcement agencies and FIU’s of different
jurisdictions at the investigation phase isvital if trans-national money laundering is
to be tackled effectively. Treaties governing
mutual legal assistance in criminal matters
are designed primarily for collecting
evidence for use in a court of law, not theswift exchange of intelligence.

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RESOURCE MATERIAL SERIES No. 58
VII. INVESTIGATION OF MONEY
LAUNDERING
Experience in Hong Kong has shownthat whilst confiscating the assets of acriminal is usually a relatively
straightforward, albeit time consuming
process, proving a case of money
laundering is a good deal harder. Although
the exact wording of money laundering
laws varies from jurisdiction to jurisdiction,
there will generally be two elements to theoffence which have to be proved:• Dealing in property;• Knowing or believing the property to
be the proceeds of crime.
The first element, dealing in property,
is normally the easiest to prove, although
investigators should be aware that justbecause someone’s bank account is being
used does not mean that person isconducting the transactions - a ‘stooge’ is aperson paid to open an account and thenhand over the account books to a second
person for their use. This MO is common
in loan sharking syndicates. ATM cards
and telephone banking are other examplesof banking facilities which can be used bypersons who are not the account holder.
It is, however, the second element,
knowing or believing, that presents mostproblems. A money launderer will seldom
admit that he or she knows or believes theproperty was the proceeds of crime.
However, skilful investigation and the useof circumstantial evidence can negate adefence of ignorance as to the illicit originof the property.
A. Investigation Techniques
1. Surveillance
Surveillance can be useful to prove thata suspect had no apparent legitimate
source of income. For example, he/she wasnever seen going to work in a company,

12

factory, etc. Surveillance can also be usefulin identifying where a suspect keeps his/her assets - financial transactions that thesuspect performs whilst undersurveillance, such as visiting a bank or an
ATM, may identify which bank the suspect
has an account with.
2. Telephone Intercepts
Lawfully obtained telephone intercepts
which can be used in evidence can provide
invaluable assistance to the investigator inproving that a suspect was aware of thecriminal nature of the funds with which
he/she was dealing.
3. Undercover Operations
As with telephone intercepts, use ofundercover agents can provide direct
evidence of a suspect’s knowledge or belief
as to the illicit source of the money. These
operations can be relatively simple ones,
targeting remittance agents or company
formation agents, or they can be as
sophisticated as setting up a ‘shop front’operation to launder money on behalf ofcriminals.
4. Controlled Deliveries
The use of controlled deliveries in drug
operations, whereby a drug shipment isdelivered from one country to another
under the control of the authorities, is awell established tactic. Controlled
deliveries of money is less common but canbe similarly effective when combined withother resources such as surveillance andtelephone intercepts.
B. Circumstantial Evidence
Circumstantial evidence, whereby proofof guilt can be inferred from indirect
evidence, can also be crucial in proving amoney laundering case. The investigator
may be able to show, for example, that adefendant had no legitimate income, thathe/she often performed his/her transactions
using cash, that his/her banking habits

116TH INTERNATIONAL TRAINING COURSE
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were not those to be expected from a normal
person and that he/she was associated withpeople he/she knew to be criminals. Noneof these facts on their own would be enoughto establish guilt, but if they are put
together and presented to a court, the jury
may feel that the inescapable inference isthat the defendant was guilty of money
laundering.
VIII. CONCLUSION
Tackling money laundering will never be
easy. The ease with which money can be
moved around the world, the ingenuity ofmoney launderers in finding new ways to
disguise their ill gotten gains, theprevalence of tax havens and shelfcompanies and the excessive secrecy of
certain jurisdictions all combine to ensurethat tracing the flow of dirty money andprosecuting the money launderer willremain one of the hardest tasks in criminal
investigation. This task will be madesomewhat easier, however, if the various
anti-money laundering components
mentioned above are welded together toform a cohesive anti-money laundering
strategy. A workable and comprehensive
law, close international co-operation, an
effective FIU and strong regulation of thefinancial sector, combined with imaginative
and thorough investigation, are vital ifmoney laundering and its inherent dangers
to society are to be effectively combated.

13

RESOURCE MATERIAL SERIES No. 58

FIGHTING HONG KONG’S ORGANIZED CRIME,THE ORGANIZED & SERIOUS CRIME ORDINANCE
Peter Yam Tat-wing *I. BACKGROUND
Historically Hong Kong’s organizedcrime were often seen to be associated withactivities of triad societies active in the
territory. It was therefore no surprise thatapart from the array of criminal offences
under its Common Law Jurisdiction which
dealt with specific acts of the crime, Hong
Kong’s legal arsenal against triad andorganized crime was only to be found in its
Societies Ordinance which dealt with thethreat of triad societies by declaring themunlawful and outlawing their activities;
thus targeting the problem from anorganizational perspective.
The Societies Ordinance has beeneffective in suppressing the growth of triad
societies in Hong Kong. Whilst it is widely
acknowledged that our triad threats havebeen contained, the recent decades haveseen criminals transcending the traditionalboundary of triad societies, forming
themselves into organized crime groups.
Whereas some members of these organizedcrime groups may be triads themselves,
triad membership is no longer a prerequisite for joining such criminal
enterprise. To effectively deal with theseorganized crime groups, a new law wasneeded. Hong Kong first started working
on the new legislation by publishing a
discussion document in 1986 seeking public
views on how to deal with the threats posedby these organized crime groups. A further
discussion document on organized crime
was published in 1989. The two formed* Assistant Commissioner (Crime), Hong Kong Police
Force Headquarters, Hong Kong

14

the basis of the public consultation
exercise. These culminated in the
introduction of the Organized Crime Billin 1991 and the revised Organized andSerious Crimes Bill in 1992.
October 1994 marked the enactment of
the Organized and Serious Crimes
Ordinance in Hong Kong after lengthy
discussion and some 70 amendments.
Nevertheless, this provided the police with
the new weapon which it needed to deal
with these newly emerged organized crimegroups which could not otherwise be dealt
with effectively under the Societies
Ordinance. The Ordinance came into full
effect in 1995.
II. THE ORDINANCE AT A GLANCE
In the absence of any applicableinternational protocol or convention, theOrdinance was modeled upon our earlier
Drug Trafficking (Recovery of Proceeds)
Ordinance enacted in 1989 and othersimilar legislations available in countries
having also Common Law Jurisdiction tofacilitate harmonization. It was enacted
to :
(i)

Create new powers ofinvestigation;(ii) Provide for confiscation of proceedsof crime;(iii) Enhance sentencing of certain
offenders; and(iv) Create new offences of dealing withproceeds of crime.
It created a schedule of offences(Schedule 1) which would become

116TH INTERNATIONAL TRAINING COURSE
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organized crime, once they were linked tothe activities of triad societies, as well asother organized crime groups which set out
to commit such offences in repetition andothers which otherwise planned toendanger life, to inflict serious injury or toinflict serious loss of liberty.
The net casted by the Organized andSerious Crimes Ordinance is much wider
and the powers provided are much more
extensive than the earlier legislations.
Dedicated units in the Police and theDepartment of Justice work together toensure that this Ordinance is used correctly
and effectively in the fight againstorganized crime.

order which requires a person in possession
or control of material, in Hong Kong oroverseas, to produce that material to Policeor Customs & Excise officers forinvestigation of an organized crime;
proceeds of an organized crime; andproceeds of specified offence included in
Schedule 2 of the Ordinance. The creationof Schedule 2 specified offences extends thescope of this investigative power beyond
what is defined as organized crime and istherefore a very useful piece of legislation.
This is the most widely used Section andhas been used in a broad range of offences- from typical triad related offences tomoney laundering, to tax evasion on totally
342 occasions since the implementation of
the Ordinance.

III. THE INVESTIGATIVE POWER
A. Section 3 - Witness Order
This Section permits the Attorney
General to apply to High Court for an orderwhich compels a person to provide
information to Police or Customs & Excise
officers conducting an investigation of anorganized crime. Non-compliance with theorder is an offence and is punishable witha fine of up to $500,000.- and 3 years
imprisonment. Effectively, this section
removes a person’s right of silence and istherefore an exceptional power. Elaborate
procedures are in place to guard against
abuse. This Section has only been used on
24 occasions by the Police and in the mostneeded cases since the implementation of
the Ordinance. Of note is its recent
application in the investigation of a numberof Loco-London Gold fraud cases whereby
directors of bogus Loco-London Goldtrading companies are compelled to provide
information on the running of thesecompanies.
B. Section 4 - Production Order
This section permits the Attorney
General, the Police or Customs & Excise
to apply to the High Court for a production

C. Section 5 - Search Warrant
This Section permits the High Court orDistrict Court to issue search warrants forthe same types of investigations as foundin Section 4 on application by Police or
Customs & Excise officers. This Section
has since been used on 69 occasions. The
offence for unauthorized disclosure of
information and for prejudicing theinvestigation under Section 7 provides
Section 3, 4, 5 with additional clout which
is not normally found in other legislations.
The maximum penalty under Section 7 isa fine of $500,000.- and imprisonment for
7 years.
D. Section 6 - Disclosure ofInformation
The Organized and Serious Crime
Ordinance is designed to deal withorganized crime at both a national andtransnational level. Section 6 of theOrdinance permits disclosure of
information obtained under Section 3 to 5
to other investigative authorities both inHong Kong and overseas, thus allowing thesharing of information in the fight againstorganized crime.

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RESOURCE MATERIAL SERIES No. 58
IV. CONFISCATION OF PROCEEDSOF CRIME
A. Section 8 - Confiscation Order
Section 8 permits the High Court orDistrict Court where a person has been
convicted of a specified offence defined
under this Ordinance including both
Schedule 1 and 2 offence, to make aconfiscation order in relation to the person’s
proceeds of that specified offence where theproceeds exceed $100,000.-. This thresholdbeing in place to disable the use of suchprovision in lesser offence. By including
Schedule 2 offences this covers most serious
crimes as well as organized crime.
If a person is convicted of an organizedcrime and the proceeds from that offence
exceed $100,000.-, then the court can orderthe confiscation of the value for all the
person’s proceeds from organized crime, theamount is not limited to the proceeds of theactual crime with which the person ischarged. There are statutory assumptions
under Section 9 for assessing the proceedsof crime which can go back 6 years fromthe date the person is charged. There isalso Restraint Order under Section 15 andCharging Order under Section 16 to help
ensure that the criminal charged or to be
charged with the specified offences are notable to dispose of their realizable property
and that any earnings from these property
are paid to the Government before any
applications for Confiscation Orders are
determined. Since implementation, around$10 million have been confiscated; $107
million have been restrained/charged; and$24 million discharged subsequently infavour of victims.
B. Section 13 - Enforcing
Confiscation Orders
Whenever the High Court or the District
Court makes a confiscation order it will also
make an order fixing a term of
imprisonment which the defendant is to16

serve if any of the amount which he is liable
to pay under the confiscation order is notduly paid or recovered. Depending on theamount the additional sentence can range
from 12 months to 10 years. This provides
a strong incentive for the defendants tohandover their proceeds of crime. There
has only been 1 instance since theintroduction of the Ordinance where thedefendant refused to pay up, the proceeds
having been transferred overseas. He
served an additional sentence of 3 years as
a result.
V. ENHANCED SENTENCING
Section 27 permits prosecuting counsel
to present information in the High Court
or District Court in respect of a person
convicted of a specified offence for the
purpose of having the court impose agreater sentence than would otherwise
have been imposed. The information may
relate to such matters as it being anorganized crime; it being triad related; its
prevalence; its impact upon the victim or
the community; or otherwise its pecuniary
significance. The additional sentence
imposed can be as much as one third of theusual tariff. At the same time that there
are provision in the Ordinance to deal withproceeds of crime, this provision provide
further deterrence to would be criminals.
Since its implementation, the police has
secured enhancing sentencing in 25 cases
involving 68 defendants.
VI. DEALING WITH PROCEEDS OF
CRIMESection 25 makes it an offence for a
person to deal with another person’s
proceeds of an indictable offence. Thisfurther expands the scope of the Ordinancebeyond organized crime and specified
offence, creating the offence of money
laundering as long as the property
represent proceeds of an indictable offence.
Section 25A further makes disclosure of

116TH INTERNATIONAL TRAINING COURSE
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knowledge or suspicions that property
represent proceeds of indictable offence
mandatory and creates an offence forprejudicing the investigation. To protect
the confidentiality of such disclosures,
Section 26 provides restriction on revealing
disclosures under Section 25A in both civil
and criminal proceedings. The maximum
penalty for money laundering under
Section 25 is a fine of $5 million andimprisonment for 14 years. A total of 35
defendants in 30 cases have since been
convicted of money laundering offences.
VII. OVERALL EVALUATIONThe Organized and Serious Crime
Ordinance has provided law enforcement
officers in Hong Kong with the powers todeal with organized crime of both anational and transnational nature. The
Police investigative capability to combat
triads and organized crime groups has beenenhanced by these new provisions. The
power to compel the production of
documents and statements from victims
and witness has been particularly usefulin breaking through ‘the wall of silence’
which hitherto has hampered the Police
efforts in their investigations. The
confiscation of proceeds of crime from thesecriminals not only served to restore justice
but also crippled the operation of thesecriminal fraternities which could otherwise
continue to thrive on their wealth.
Enhanced sentences for those criminals
convicted in connection with triad andorganized crime offences not only removed
them from the streets for much longer
periods, but also act as a deterrent to those
who would otherwise follow in theirfootsteps.

VIII. CONCLUSION
Whilst Hong Kong accumulates its
experience in the use of this newlegislation, there are lessons which we havelearned from drafting the legislation to
implementing the provisions. The many
amendments to the Ordinance since its
enactment is testimony to this learning
process. There are still other amendments
which we will introduce to the legislaturenext year in order to enhance theeffectiveness of this very importantlegislation. It is the wish of the author thatsuch valuable experience are shared andthat this paper has taken the matter one
step further in the right direction.

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RESOURCE MATERIAL SERIES No. 58
Appendix A
ORGANIZED AND SERIOUS CRIMES ORDINANCESCHEDULE 1 OFFENCES
Common law offences
1.
2.
3.
4.

murderkidnapping
false imprisonment
conspiracy to pervert the course of justiceStatutory offences
Offence

Description

5.

Import and Export Ordinance (Cap. 60)
section 6A
import and export of strategic commodities
section 6C
import of certain prohibited articles
section 6D(1) and (2)export of certain articles in Hong Kong
section 6E
carriage, etc. of prescribed articles in Hong
Kong waters
section 18
importing or exporting unmanifested cargo

6.

Immigration Ordinance (Cap. 115)
section 37D(1)section 38(4)section 42(1) and (2)arrange passage to Hong Kong ofunauthorized entrants
carrying an illegal immigrant
false statements, forgery of documents anduse and possession of forged documents

7.

Dangerous Drugs Ordinance (Cap. 134)
section 4(1)trafficking in dangerous drugs
section 4A(1)trafficking in purported dangerous drugs
section 6(1)manufacturing a dangerous drug

8.

Gambling Ordinance (Cap. 148)
section 5
section 7(1)18

operating, managing or controlling
gambling establishment
bookmaking

116TH INTERNATIONAL TRAINING COURSE
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Appendix A
9.

Societies Ordinance (Cap. 151)
section 19
section 21
section 22

10. Money Lenders Ordinance (Cap. 163)
section 24(1)penalties on an office-bearer, etc. of an
unlawful society
allowing a meeting of an unlawful society
to be held on premises
inciting etc., a person to become a memberof an unlawful society

lending money at an excessive interest rate

11. Crimes Ordinance (Cap. 200)
section 24
section 25
section 53
section 54

section 55
section 60
section 61
section 71
section 75(1)section 98(1)section 100(1)section 105
section 118
section 119
section 120
section 129
section 130
section 131
section 134
section 137
section 139

threatening a person with intent
assaulting with intent to cause certain acts
to be done or omitted
causing explosion likely to endanger life orproperty
attempt to cause explosion, or making or
keeping explosive with intent to endanger
life or property
making or possession of explosive
destroying or damaging property
threats to destroy or damage property
forgery
possessing a false instrument with intent
counterfeiting notes and coins with intent
custody or control of counterfeit notes andcoins with intent
importation and exportation of counterfeit
notes and coinsrape
procurement of person by threats
procurement of person by false pretencestrafficking to or from Hong Kong in persons
control over person for purpose of unlawful
sexual act or prostitution
causing prostitution of person
detention of person for unlawful sexual act
or in vice establishment
living on earnings of prostitution
keeping a vice establishment

19

RESOURCE MATERIAL SERIES No. 58
Appendix A
12. Theft Ordinance (Cap. 210)section 9
section 10
section 11(1)section 16(A)section 17
section 18
section 18D
section 19
section 23(1) and (4)section 24 (1)theftrobbery
burglaryfraudobtaining property by deception
obtaining a pecuniary advantage bydeception
procuring false entry in certain records
false accounting
blackmailhandling stolen goods

13. Offences against the Person Ordinance (Cap. 212)
section 17
shooting or attempting to shoot, orwounding or striking with intent to dogrievous bodily harm
14. Firearms and Ammunition Ordinance (Cap. 238)
section 13
possession of arms or ammunition without
licencesection 14
dealing in arms or ammunition without alicence20

116TH INTERNATIONAL TRAINING COURSE
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Appendix A
14A. Trade Descriptions Ordinance (Cap. 362)
offences in respect of infringement of trade
section 9(1) and (2)mark rights
import or export of goods bearing forged
trade marksection 12(provided that for the purpose of thisOrdinance, an offence under section
1 2 o f t h e Tr a d e D e s c r i p t i o n s
Ordinance does not include an offence
relating only to false tradedescription)section 22(provided that for the purpose of thisOrdinance, ‘offence under thisOrdinance’ referred to in section 22 of
the Trade Descriptions Ordinanceonly means an offence under (a) section 9(1) or (2) of that
Ordinance;or(b) section 12 of that Ordinance,
excluding any offence relating only tofalse trade description)

being accessory to certain offences
committed outside Hong Kong

15. Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405)
section 25(1)assisting another to retain the benefit ofdrug trafficking
16. Organized and Serious Crimes Ordinance (Cap. 455)
section 25(1)assisting a person to retain proceeds ofindictable offence
17. Weapons of Mass Destruction (Control of Provision of Services) Ordinance (Cap.
526)
section 4
providing services that assist thedevelopment, production, acquisition or
stockpiling of weapons of mass destruction

21

RESOURCE MATERIAL SERIES No. 58
Appendix A
18. Copyright Ordinance (Cap. 528)
section 118(1), (4) and (8)(provided that for the purpose of thisOrdinance, ‘infringing copy’ referred
to in section 118(1) and (4) of the
Copyright Ordinance does not include
a copy of a work which is an infringing
copy by virtue only of section 35(3) ofthat Ordinance)
section 120(1), (2), (3) and (4)(provided that for the purpose of thisOrdinance, ‘infringing copy’ Referred
to in section 120(1) and (3) of the
Copyright Ordinance does not include
a copy of a work which is an infringing
copy by virtue only of section 35(3) ofthat Ordinance)

22

offences relating to making or dealing withinfringing copies

offences relating to making infringing
copies outside Hong Kong

116TH INTERNATIONAL TRAINING COURSE
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Appendix B
ORGANIZED AND SERIOUS CRIMES ORDINANCESCHEDULE 2 OFFENCES
Common law offences1.
2.

manslaughter
conspiracy to defraud

Statutory offences
Offence3.

Import and Export Ordinancesection 14
section 14A
section 18A
section 35A

4.

Description

Immigration Ordinance (Cap. 115)
section 37DA(1)(Cap. 60)
alteration of vessels, aircraft or vehicles forthe purpose of smuggling
construction, etc., of vessels for the purposeof smuggling
assisting, etc., in export of unmanifested
cargoassisting, etc., in carriage of prohibited,etc., articles

assisting unauthorized entrant to remain

5.

Dangerous Drugs Ordinance (Cap. 134)
supplying or procuring a dangerous drug
section 5 (1)to or for unauthorized persons
offence relating to cannabis plant or opium
section 9(1), (2) and (3)poppykeeping or managing a divan for the taking
section 35(1)of dangerous drugs
section 37(1)permitting premises to be used for unlawful
trafficking, manufacturing or storage of
dangerous drugs

6.

Gambling Ordinance (Cap. 148)
section 14
section 15(1)providing money for unlawful gambling or
for an unlawful lottery
permitting premises to be used as gambling
establishment

23

RESOURCE MATERIAL SERIES No. 58
Appendix B
7.

Registration of Persons Ordinance (Cap. 177)
section 7A

8.

Crimes Ordinance (Cap. 200)
section 72
section 73
section 74
section 76
section 99(1)section 101

9.

possession of forged identity cards

copying a false instrument
using a false instrument
using a copy of a false instrument
making or possessing equipment formaking a false instrument
passing, etc., counterfeit notes and coins
making or custody or control ofcounterfeiting materials and implements

Prevention of Bribery Ordinance (Cap. 201)
section 4(1)section 5(1)section 6(1)section 9(2)bribery of public servant
bribery for giving assistance, etc., in regard
to contracts
bribery for procuring withdrawal of tenders
bribery of agent

10. Theft Ordinance (Cap. 210)section 12(1)section 18A

aggravated burglary
obtaining services by deception

11. Offences against the Person Ordinance (Cap. 212)
section 19
wounding or inflicting grievous bodily
harm
12. Criminal Procedure Ordinance (Cap. 221)
section 90(1)24

doing an act with intent to impede
apprehension or prosecution of offender116TH INTERNATIONAL TRAINING COURSE
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Appendix C
ORGANIZED & SERIOUS CRIME ORDINANCE
INTERPRETATION
1. “organized crime” means a Schedule I offence that (a) is connected with the activities of a particular triad society;(b) is related to the activities of 2 or more persons associated together solely or
partly for the purpose of committing 2 or more acts, each of which is a Schedule
1 offence and involves substantial planning and organization; or(c) is committed by 2 or more persons, involves substantial planning andorganization and involves (i) loss of the life of any person, or a substantial risk for such a loss;(ii) serious bodily or psychological harm to any person, or a substantial riskof such harm; or(iii) serious loss of liberty of any person.
2. “Schedule 1 offence” means (a) any of the offences specified in Schedule 1;(b) conspiracy to commit any of those offences;(c) inciting another to commit any of those offences;(d) attempting to commit any of those offences;(e) aiding, abetting, counselling or procuring the commission of any of those
offences.
3. “specified offence” means (a) any of the offences specified in Schedule 1 or Schedule 2;(b) conspiracy to commit any of those offences;(c) inciting another to commit any of those offences;(d) attempting to commit any of those offences.
(e) aiding, abetting, counselling or procuring the commission of any of those
offences;
4. “triad society” includes any society which (a) uses any ritual commonly used by triad societies, any ritual closely resembling
any such ritual or any par of any such ritual; or(b) adopts or makes use of any triad title or nomenclature.

25

RESOURCE MATERIAL SERIES No. 58
Appendix D
MILESTONE OF THE ORGANIZED & SERIOUS CRIMES ORDINANCE
21 October 1994

OSCO enacted

2 December 1994

Provisions relating to money laundering and enhanced
sentencing came into force

28 April 1995

Other provisions relating to investigative powers andconfiscation of crime proceeds took effect

27 July 1995

Organized and Serious Crimes (Amendment) Ordinance 1995
which improves the confiscation and money laundering
provisions of the OSCO was passed by the Legislative Council

1 September 1995

Organized and Serious Crimes (Amendment) Ordinance 1995
brought into operation

27 June 1997

Offence under S.4 of the Weapons of Mass Destruction(Control of Provision of Services) Ordinance [Cap. 525] wereadded into Schedule 1 of OSCO following the enactment ofCap. 525

16 July 1999

‘Fraud’ under S. 16(A) of the Theft Ordinance was added into
Schedule 1 of OSCO following the amendment of the Theft
Ordinance

12 January 2000

Offences under the Trade Descriptions Ordinance [Cap. 362]
and Copyright Ordinance [Cap. 528] were added into
Schedule 1 of OSCO

27 January 2000

Organized and Serious Crimes (Amendment) Ordinance 2000
which requires any person or company involved in remitting
money into or out of Hong Kong to be registered with police
and to keep proper records of all transactions for the amountover HK$ 20,000 was passed by the Legislative Council

1 June 2000

Organized and Serious Crimes (Amendment) Ordinance 2000
came into force

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116TH INTERNATIONAL TRAINING COURSE
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TRIADSPeter Yam Tat-wing *I. INTRODUCTION
Tr i a d s o c i e t i e s a r e c r i m i n a lorganisations and are unlawful under theLaws of Hong Kong. Triads have become amatter of concern not only in Hong Kong,
but also in other places where there is asizable Chinese community. Triads areoften described as organized secretsocieties or Chinese Mafia, but these aresimplistic and inaccurate descriptions.
Nowadays, triads can more accurately bedescribed as criminal gangs who resort to
triad myth to promote illegal activities.
For more than one hundred years triad
activities have been noted in the official law
and police reports of Hong Kong. We havea long history of special Ordinances andrelated legislation to deal with the problem.
The first anti-triad legislation was enacted
in 1845. The Hong Kong Special
Administrative Region (HKSAR) has, byfar, the longest history, amongst otherjurisdictions, in tackling the problem of
triads and is the only jurisdiction in theworld where specific anti-triad law exists.
It must be pointed out that legal
enactments alone cannot solve the problem.
This has to be supplemented by effective
police enforcement action, proper educationand publicity campaigns to remind peopleof the undesirable consequences ofassociating with triads and the importanceof coming forward to report triad-related
crimes and more importantly to testify incourts.

* Assistant Commissioner (Crime), Hong Kong Police
Force Headquarters, Hong Kong

This paper will draw heavily on theexperience gained by law enforcement
bodies in the HKSAR in tackling the triad
problem. Emphasis will be placed on antitriad law and Police enforcement tactics.
Background knowledge on the structure,
beliefs and rituals practised by the triads
is important in order to gain anunderstanding of the spread of triads andhow triads promote illegal activities byresorting to triad myth. With this in mind
the paper will examine the following issues:
•
•
•
•
•
•
•
•
•

History and Development of Triads
Triad Hierarchy and Structure
Characteristics of Triads
Differences between Triads, Mafia
and Yakuza
Common Crimes Committed by
TriadsCurrent Triad Situation in Hong
Kong
Anti-triad Laws in Hong Kong
Police Enforcement Strategy
International Cooperation

II. HISTORY AND DEVELOPMENT
OF TRIADS
The term “Triad” is a relatively modern
English word describing the sacred symbolof the secret societies, a triangle enclosing
a secret sign derived from the Chinesecharacter HUNG (洪) depicting a union ofheaven, earth and man. The origin of
triads is unclear, being a mixture of facts
and myth. It is generally believed that int h e m i d - 1 7 t h c e n t u r y, w h e n t h eManchurians from the northern part ofChina conquered the whole of China,
overthrowing the Ming Dynasty andestablishing the Ching Dynasty, some27

RESOURCE MATERIAL SERIES No. 58
supporters of the former Ming Dynasty
formed politically motivated secretsocieties with a declared goal to overthrow
the ruling Manchurians who wereconsidered as “foreigners” by the Hanpeople. One of these societies was the
HUNG League (洪門), which is now
regarded as the original triad society, fromwhich today’s triad societies haveoriginated.
Over the years the original society has
fragmented into numerous separate
societies. With the political developments
in China, the original political objectives
have long been lost and these once
“patriotic” secret societies havedegenerated into present day criminal
gangs. Nowadays, triad societies exist only
for the pursuit of criminal activity formonetary gain. A common modern term “Dark Society” or “Dark Association” ( 社會) is used to describe all triads, andrepresents the public feeling that triads are
sinister and evil rather than a mystic
brotherhood.
III. TRIAD HIERARCHY AND
STRUCTURE

each triad society is generally presided overby the Chairman and Treasurer who areoften elected for a fixed term, normally two
years, by a group of senior members and/or area leaders of that triad society.
Usually, the most influential area boss, who
has the largest group of followers or themost wealth, is elected. In some triad
societies, the same person holds both posts.
It must however be emphasized that thesedays the Chairman and Treasurer are
honorary positions without actual power.
Appendix C shows the present day
structure of a typical triad society in Hong
Kong.
IV. CHARACTERISTICS OF TRIADS
Contrary to what the movies may
portray, triad societies are in fact acollection of loose-knit groups or gangs who
operate independently. They are mainly
local area gangs, each active in certain
areas and activities. Their disputes
sometimes result in fighting and it is notuncommon that gangs within the same
triad society often fight with each otherover a disputed interest or territory.

The traditional triad societies adopted
a military style and had a well-organized
rank structure, not dissimilar to present
day guerrilla organizations. They had arigid rank structure of members andofficials, called “office bearers”. Each rank
had specific responsibilities. Many of the
traditional rank terms are still used today.
As well as a title, an office bearer would
h a v e a n a u s p i c i o u s n u m b e r. T h e
traditional rank structure of a triad society
can be seen at Appendix A.

Despite the fact that today’s triad
members do not belong to one organization,some of them continue to use triad jargon,rank structure etc. This is to convince a
new recruit that he has indeed joined anelite and is used to instil fear into membersof the public. Cooperation between triad
groups in criminal activities is normallybased on personal acquaintance andmutual interest. The chairpersons do not
usually direct gang members’ criminal
activities but are only ‘ceremonial heads’
and ‘mediators’ of disputes.

To enhance efficiency, increase flexibility
and to avoid police detection, the present
day triad societies in Hong Kong haveadopted a flattened organizational
structure. Apart from a few exceptions,

There is a recognized Chinese triad
presence in a number of countries. These
overseas groups may bear the same triad
names as those in Hong Kong but apartfrom that, they have no connection and28

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
little in common. Although there have beenoccasions when overseas triad members
perpetrated crimes together with triads inHong Kong, the triad membership wasmerely incidental. When an opportunity
arises to make a profit, criminals will
establish a joint venture.
Triad identity is not a pre-requisite toestablish a criminal joint venture except
to serve as a reference to the criminal
background of that person. It is thus agross simplification to associate organizedcrimes in Hong Kong with triad societies.
Drug trafficking and smuggling are typicalexamples of organized crimes. However,triad membership is not a prerequisite forjoining a drug syndicate. It is experience,expertise, contacts or money that count.
Whilst it may be true that many drugtraffickers have triad connections, triad
membership does not enhance one’s
position in a drug organization. The same
applies to other organized crime groups,
which specialise in such activities as illegal
gambling, prostitution, loan sharking andfraud. It is not uncommon to find majororganized crime syndicates with members
from several different triad societies
working together.

V. DIFFERENCES BETWEEN TRIADS, MAFIA AND YAKUZAThe table below depicts the major differences between Triads, the Mafia and Japanese
Yakuza.
Triads
Mafia / Japanese Yakuza• Loose-knit group (gangs)• Monolithic criminal organization• Independent power base
• Power diffused from a central core
• Horizontal organization• Rigid chain of command• Chairperson - limited influence,• Chairperson - the ‘Godfather’ post
honorary post
• Full autonomy• Central leadership• Profit belongs to individual gangs• Profit goes to organization• Disputes settled through negotiations• Disputes adjudicated by coreand fights
leadership• Made up of criminal fraternities• A criminal enterprise
VI. COMMON CRIMESCOMMITTED BY TRIADS
Triad gang activities are mainly
territorial and fall into one or more of thefollowing categories:• Extortion and protection
racketeering;• Monopoly of certain business andservices;• Street-level drug trafficking;• Illegal gambling activities;• Prostitution and pornography;• Loan sharking and debt collection;and,• Other opportunistic crimes, such as
selling of pirated and contraband
goods, smuggling, dealing incounterfeit currency and credit cards.
Experience in Hong Kong, however has
shown that triads are extremely adaptive
and versatile. They will make use of every
opportunity to make money, whether legal
or illegal. In tackling current and future
triad activities, there is a need to be vigilantof emerging trends.

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RESOURCE MATERIAL SERIES No. 58
Over the years, some of the criminalgroups have established legitimate fronts
so as to cover their criminal activities.
More sophisticated triad members, referred
to as second or third generation triads,
have received the best education paid forby money generated through illegal means.
Many of them are trained as professionals
such as lawyers and accountants. They arealso involved in legitimate business andpart of the profit from legitimate sources
can be used to fund triad activities so as tocreate an environment favourable for theirbusiness. They may present themselves
as reputable entrepreneurs and mix with
reputable socialites. Since they rarely
involve themselves in crimes, they are
becoming known as the “untouchables”.
Such a practice is typical in thedevelopment of organized crime. Control
of and investigation into their activities
becomes increasingly difficult.
At the lower level, triads are shiftingfrom hardcore criminals to service
providers. Their services include thesupply of bouncers to entertainment
businesses, car jockeys for valet parking,debt collectors and regulators to ward offbusiness competitors. Those at thereceiving end of the service are willinghirers, which may include reputablecommercial corporations, making attempts
to shrink the income of triads difficult oreven futile.
VII. CURRENT TRIAD SITUATIONIN HONG KONG
In 1999, there were 76,771 crimes
reported and the crime rate (the numberof crimes per 100,000 of the population) was
1,121.9. As a result of sustained police
efforts in Hong Kong the ratio of triad
involvement in overall crimes, in the past
few years, has been contained at below 4%.
Appendix D contains charts showing thetotal number of reported crimes, the total

30

number of reported triad-related crimes
and the percentage of triad-related crimes
in total reported crimes between 1990 and1999.
At present there are around 50 known
triad societies in Hong Kong, of which
about 15 regularly come to Police attention
through overt criminal activities. This does
not mean that the remaining societies areinactive, but possibly only that theiractivities go unreported for a variety ofreasons. The clandestine nature of triad
activity precludes an accurate assessmentof the triad membership. The accumulated
number of people convicted for triad
membership since 1936, including
recidivists, is about 32,000 and accounts
for 5% of all convicts. It serves as a roughindication of the size of triad population.
San Yee On, 14K, Wo Shing Wo, Wo Hop
To and Wo On Lok are the five most active
triad societies and they together accountfor the majority of triad-related crimes inHong Kong.
VIII. ANTI-TRIAD STRATEGY IN
HONG KONG
In Hong Kong, we adopt a four-pronged
approach to tackle triad activities, namely:(a) Legislation(b) Enforcement(c) Education(d) Rehabilitation
A. Legislation
Hong Kong is determined to combat
triad activities. The first anti-triad
legislation dates back to 1845. Relevant
anti-triad laws were consolidated
subsequently under Societies Ordinance,
which was enacted in 1949. Hong Kong
has the most effective and strictest
legislation aimed at tackling triad
activities:

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
1. The Societies Ordinance
Under the Societies Ordinance, Cap 151,
Laws of Hong Kong, and its subsequent
amendments, all triad societies are deemed
to be unlawful societies in Hong Kong. It
includes a series of criminal offences
relating to triad membership, recruitment
and activities. Any person convicted ofprofessing or claiming to be an office-bearer
or managing or assisting in the
management of a triad society is liable toa maximum fine of HK$1 million and to
imprisonment for 15 years. A person
convicted as a triad member may be fineda maximum of HK$250,000 and jailed for
7 years.
The courts usually regard a charge of
Triad membership alone as not being
particularly serious and accordingly thepenalties awarded range from being ‘BoundOver ’ to being placed on probation.
However, in respect of recruitment andoffice bearer offences, a more serious viewis taken and up to one year’s imprisonment
is not uncommon. In addition, most courts
are less inclined to leniency if other offencessuch as blackmail, wounding or
intimidation are involved. In a recent trial
an officer bearer was convicted of theoffence of managing a triad society andsome other related offences under theSocieties Ordinance. He was sentenced tothree and a half years’ imprisonment.
The enactment of the Societies
Ordinance has to a great extent assisted
us in the fight against triads in the last
couple of decades. However, the greatestdifficulty faced by Police in combating triad
activity is the reluctance of victims andwitnesses to report crimes and to testify insubsequent trials. This has largely
stemmed from the perceived fear of triads
and possible triad revenge. In addition, inmany triad crimes, there are simply no“victims” because they have become“satisfied customers”. Typical examples

are Public Light Bus drivers engaging
triads to monopolize profitable routes anddecoration contractors using triads to driveout competitors in the Public Housing
decoration sector. Victim reassurance istherefore important to encourage people tocome forward and report triad activities.
Additionally, coercive power is required toenhance the police’s ability to uncoverevidence of triad criminal activities.
2. The Organized and Serious Crimes
Ordinance (OSCO)The OSCO was enacted in 1994.
“Organized Crime” is defined as any one ofa wide range of criminal offences listed in
Schedule I of the Ordinance and includes
those, which are connected with theactivities of a particular triad society.
The objectives of the Ordinance are
fourfold:(i)
To provide powers under sections
3, 4 and 5 to investigate organizedcrimes and the proceeds fromorganized crimes or serious
offences, including the power tocompel a person to attend aninterview, to supply information or
to produce material for inspection.
The person is deprived of his rightof silence though his admission
cannot be used against him;(ii) To provide for confiscation ofproceeds of crimes;(iii) To create a general “money
laundering” offence under section
25 to cover those who deal withproperty, knowingly or having
reasonable ground to believe thatit represents proceeds of an
indictable offence; and,(iv) To enable the prosecution tosubmit to the courts, information
concerning the nature and impactof serious crimes and for the courts
to impose more stringent sentencesin appropriate cases under section

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RESOURCE MATERIAL SERIES No. 58
27.
It is assessed that the police force’s
investigative capability to combat triads
and organized crime syndicates has beenenhanced by these new provisions. The
power to compel the production of
documents and statements from victims
and witnesses has been particularly usefulin breaking through “the wall of silence”
which effectively hampered police efforts
to fight this scourge of society.
The creation of a money laundering
offence is a step forward in tracking andcracking down on the financial source ofthe triads. Through the successful
application of this new provision, thelaundering of dirty money by triads can be
stopped, preventing its use for funding
further triad activities.
It is also notable that the enhanced
sentences for those convicted in connection
with triad and organized crime not only
remove more criminals from the streets formuch longer periods, but also act as adeterrent to those who would otherwise
follow in their footsteps.
By far the most powerful and effective
elements of the Ordnance are theconfiscation provisions, which empower the
court to restrain criminal assets whilst
under police investigation and also to orderits forfeiture upon conviction of theoffender. Depriving the criminal of his illgotten gains is the greatest hurt that canbe done to him and also stops the moneyfrom being used to corrupt officers as well
as for rebuilding the criminal enterpriseupon the discharge of the triad member
from prison.
3. Witness Protection Ordinance
As mentioned earlier, the greatestdifficulty faced by Police in combating triad
activity is the reluctance of victims and32

witnesses to report crimes and testify insubsequent trials. The Witness Protection
Ordinance was passed in June 2000. It
provides a legal framework for the Witness
Protection Programme, which has been
operating since 1992. It reassureswitnesses, especially accomplice witnesses,of their own and their family members’safety, such as giving a new personal
identity after trial.
B. Police Enforcement Strategy
1. Three-Tier Structure
The fight against triads and organizedcrimes in Hong Kong is spearheaded by athree-tier structure within the Hong Kong
Police Force. The Hong Kong Police has
dedicated units at headquarters level (e.g.
Organized Crime and Triad Bureau,
Criminal Intelligence Bureau) to collate
intelligence and to take proactive action
against the triads, such as using
undercover agents to infiltrate into thetriads, as well as the establishment of a
Witness Protection Unit to provide support
and protection to vulnerable witnesses andfamily members.
There are also designated crime units
at the Regional and District levels tointerdict those mid-level and street-level
triad personalities and activities. They aresupported by Intelligence Sections in the
Regions and Districts.
In each Police District, there is a school
liaison team to deal with the triad activities
amongst school children. Criminal
investigation units at all levels also
investigate criminal activities involving
triads.
2. Intelligence Gathering and Undercover
Infiltration
Given that vulnerable victims are
reluctant to report triad-related crimes andtestify at court because of the fear ofrevenge, the deployment of police officers

116TH INTERNATIONAL TRAINING COURSE
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to infiltrate triad groups to gather
intelligence and to collect evidence forprosecution purposes has proved aneffective tactic.
Many successful Police anti-triad
operations were the result of proactive
undercover infiltration actions. There havebeen successful deployments of undercoverpolice officers in schools, resulting in thearrest of triad elements that intimidate andrecruit students to join triad societies.
3. High Profile Operations
Apart from investigation andintelligence, operations are mounted fromtime to time at various levels of the Hong
Kong Police Force, to suppress andneutralise triad activities, particularly attheir source of income.
Triads prosper from the threats andfears that they instil in their victims. It isvery important therefore that, in successfulpolice operations, every opportunity should
be taken to publicise arrests, in order toremove the fear that the public may haveof triads.

witnesses to triad related crimes, to reportto the police in the first instance. The
identity of complainants is protected.
Anonymous complaints are also handledexpeditiously.
5. Triad Research and Triad Experts
The clandestine and mythical nature of
triad activities has made a general
understanding of the triads difficult. A lotof their activities including their structure,rituals, ceremonies, hand signs andinsignia are unknown to members of the
public. A thorough understanding of triads
is vital both in detecting triad activities andin the subsequent prosecution in the courts.
The Hong Kong Police have set up a
research unit, specializing in triad
research. The research unit is responsible
for conducting research into triad activities
and training the Force Triad Expert Cadre.
The Triad Expert Cadre assists, both in theinvestigation of triad-related crimes and in
the giving of expert evidence in court trials.
Regular seminars are held to keep the
Triad Experts abreast of current trends.

4. Witness Reassurance/Protection
Support from members of the public isvital in our fight against crime. A lot ofChinese however are reluctant to reportcrimes either because they thought it was
not their business, or because of the fear ofrevenge. The Hong Kong Police has madeefforts to assure witness protection in many
ways, such as allowing witnesses to live insafe houses, omitting addresses in witness
statements etc. Recently, new legislation
has been passed to further enhance witness
protection - The Witness Protection
Ordinance.

C. Education
There is no doubt that public support
and awareness are essential in combating
triad activity. The Junior Police Call (JPC)
is a scheme administered by the Police,
which apart from providing recreational
activities, also serves as a well-establishednetwork for disseminating anti-triad
messages to youngsters. Regular schooltalks are conducted on the adverse effectsof triad membership. As portrayed in themovies and television, there is always anover-glorification of triads. The JPC
Scheme develops a better understandingof the police by the youngsters and fosters
youth values to make them more resistant
to triad influence.

A police hotline for reporting triad
activities has also been set up. The purposeof the hotline is to encourage members of
the public who might be victims of, orMore importantly, through various
publicity campaigns we continue to strive
to show the public that triad societies are
simply criminals, not legitimate problem

33

RESOURCE MATERIAL SERIES No. 58
solvers or business people, and certainly
not role models for our youth.
The continuous and sustained effort by
the Hong Kong Government througheducation and publicity campaigns in thepast decades has witnessed a change in
people’s attitudes towards triads in recent
years. People come forward more than they
did in the 60’s and 70’s. Yet there is noroom for complacency because triads still
exist and that our method of dealing withthese groups should be continually
evolving.
D. Rehabilitation
In Hong Kong, outreach social workers
have been employed to counsel vulnerable
youngsters to stay away from triad
personalities and activities. A legally
sanctioned warning system administeredby a senior police officer can be used insteadof a young person attending court. Afterbeing warned, the young person will beadvised by police officers as to follow-ups
for their rehabilitation. Following prison
release, triad offenders like other criminals
will be supervised by after-care services by
the Correctional Services Department.
IX. INTERNATIONAL COOPERATION
Since 1995, the Triad Course forOverseas Law Enforcement Officers has
been conducted annually by the Hong Kong
Police Force. Apart from sharing
knowledge of triads and experience intackling triad crimes, the participants areable to build up an intelligence networkthat fosters future exchange of information
on triad activities. Apart from that we alsoorganize Triad Courses in other countries.
Two such courses were organized in
Canada before and two will be organizedin Australia later this year.

34

The Hong Kong Police Forceundoubtedly enjoys the close andproductive relationship with many
Overseas Law Enforcement Agencies,
especially those with liaison officers posted
to Hong Kong, such as National Police
Agency of Japan, FBI, DEA, INS, Customs
Service, Secret Service and Internal
Revenue Service of the US, RCMP of
Canada, AFP of Australia, the Korean
National Police and the UK Customs.
From time to time Japanese delegatesvisit the Hong Kong Police Force. During
the visit topics of common interest are
discussed and experiences in combating
crimes shared. Since the beginning of thisyear, two such visits have been arranged.
The Hong Kong Police Force willcontinue to be committed in forging closer
cooperation with our counterparts,
exchanging intelligence, mounting joint
operations, sharing experience, returning
fugitives where Mutual Legal Assistanceis applicable and attending international
conferences.
X. CONCLUSION
While Hong Kong has enacted special
laws to deal with the triad menace, as has
been explained earlier, triad-related crime
is no different from any organized crimeand can be effectively tackled by legislation
targeting the latter activities. Anti-money
laundering and asset forfeiture laws, forexample, are considered effective measures
to tackle triad activities.
However, a good working knowledge ofwhat triads are, their structure andmethods of operation are essential.
Equally important is an understanding of
the Chinese culture and establishing aneffective means of communication with thelocal Chinese community so as to encourage
the reporting of triad activities.

116TH INTERNATIONAL TRAINING COURSE
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As in the case of organized crime, it is
not expected that triads could be totally
eradicated even with the rigorous
application of enforcement and judicial
measures. Hong Kong has been tackling
the triad problem for many years and weare more than willing to share ourexperience with the other law enforcement
agencies.

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RESOURCE MATERIAL SERIES No. 58
Appendix A
TRADITIONAL STRUCTURE OF A TRIAD SOCIETY
Leader of the Society(Shan Chu 山主)
489* Vanguard or
Ceremony Assistant(Sin Fung 先鋒)
438* Deputy Leader(Fu shan Chu 副山主)
438

* Incense Master orCeremony Master(Heung Chu 香主)
438

Advisor(White Paper Fan
Pak Tze Sin 白紙扇)
415

Fighter(Red Pole
Hung Kwan 洪棍)
426

Liaison officer(Straw Sandal
Cho Ha 草鞋)
432

Ordinary
Member49** Temporary Member(Hanging Blue Lanternor Lam Tang Lung
掛藍燈籠)

Note: A fuller explanation of the roles and numerical figures can be found at Appendix B1* = In the smaller triad societies all the 438 posts are filled by one individual** = A member that has not been initiated36

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
Appendix B
EXPLANATION OF THE ROLES AND NUMERICAL FIGURES(a) 489 - The Leader of the Society is generally known as the First Route Marshal or
Dragon Head. He is also referred to as the Shan Chu, the literal meaning is‘Mountain Master’ 山主.
(b) 438 - The Deputy Leader is generally known as the Second Route Marshal or Fu
Shan Chu 副山主.
This title of 438 can also be awarded to the office bearers officiating as ‘Incense
Master’ or Heung Chu 香主 or Vanguard 先鋒 in a triad ceremony.
(c) 415 - An official generally known as Pak Tsz Sin 白紙扇 (meaning White Paper Fan)
whose duty is to advise generally on the organization, administration andfinance of the Branch.
In other words he is the Counselor or the Chief of Staff.
(d) 426 - An official generally known as the Hung Kwan 洪棍 (meaning Red Pole) whose
duty is to take charge of the fighting section of the Branch and play the leadingrole in fights against rival groups.
This official is also responsible for the Society or Branch membership.
(e) 432 - An official generally known as the Choi Hai 草鞋 (meaning Straw Sandal) is
the liaison officer as well as the chief messenger of the Branch and throughwhom messages from the Branch concerning meetings, manpower, rallying
for settlement talks or gang fights are passed on to other members of the
Branch.
(f) 49 -An ordinary member of a Triad Society who is normally the protégé of aparticular junior office bearer.

(g) Blue Lantern Member or Hanging Blue Lantern Member 掛藍燈籠
A member who has undertaken an oath of allegiance to a Triad Society or to a Triad
Society member without having been initiated through a Hung Mun ritual. His
allegiance may have been shown by having paid a fee, or by the adoption of Triadtitle or Triad slang, or by verbal recognition of joining the Society or by becoming afollower of a Triad member or an Office Bearer (known to be a protector).
Depending on the Triad Society, some Blue Lantern members may undergo initiation
rites later.

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RESOURCE MATERIAL SERIES No. 58
Appendix C
CURRENT (SIMPLIFIED) STRUCTURE OF A TRIAD SOCIETY
Chairman(Cho Kwun 坐 )Treasurer(Cha So 數)

Public Relations Officer(Kau Chai 交際)

Group Leader

Ordinary Member
49* Any Office bearer of 426, 415 or 432 rank** A member that has not yet been initiated38** Temporary Member(Hanging Blue Lanternor Lam Tang Lung
掛藍燈籠)

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
Appendix D
THE TOTAL NUMBER OF REPORTED CRIMES, 1990-1999
95000
90000
85000
80000
75000
70000
65000

91886

87804

88300 88659
84056

82564

79050
76771
71962

67367
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

THE TOTAL NUMBER OF TRIAD-RELATED CRIMES, 1990-1999
4500
4000
3500
3000

4015

3959

3487

3746
3126

3487

3340

2599

2500
2000

2872
2623

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

THE PERCENTAGE OF TRIAD-RELATED CRIMES TO TOTALREPORTED CRIMES, 1990-1999
5.00%

4.78%

4.50%
4.00%

4.22%

3.95%

4.27%

4.31%

3.95%

3.77%

3.50%

3.86%

3.64%

3.74%

3.00%
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

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RESOURCE MATERIAL SERIES No. 58

EFFECTIVE METHODS TO COMBAT TRANSNATIONALORGANIZED CRIME IN CRIMINAL JUSTICE PROCESSES
Bruce G. Ohr *I. INTRODUCTION
One of the most serious unintended
consequences of the globalization that wehave been experiencing for the last few
years has been the rapid rise oftransnational organized crime groups.
There are several reasons for this,including the following.
First, the increasing ease ofinternational communications brings theworld to each individual more directly andpotentially more dangerously than everbefore. The internet allows the individual
to access information, do business with andcommunicate instantly with persons inevery nation, but at the same time it allows
criminals to perpetrate confidence schemes
and stock market manipulations, run
illegal gambling operations and peddle
child pornography across the globe.
Second, the growth of internationalcommerce and the staggering number ofinternational banking transactions
performed every day by major banks
provide vital benefits to the world’s
economies, but they also present ample
opportunity for fraud and theft and allow
international money launderers to easily
hide their ill-gotten gains.
Third, the fall of Communism in theSoviet Union and Eastern Europe hasbrought freedom and democracy tomillions, but has also resulted in massive* Chief, Organized Crime and Racketeering Section,
Criminal Division, United States Department ofJustice, United States of America

40

economic upheavals in those countries andan often-violent free-for-all among
businessmen for the rich natural resourcesof those regions. These changes have not
only spawned new criminal enterprises
within the area of former Soviet
domination, but have led directly to money
laundering and other crimes in the rest of
the world as well.
Finally, the international traffic in illegal
commodities, chiefly narcotics and wouldbe immigrants to wealthy nations, showsno signs of abating. Organized criminals
have already shown themselves to bemasters of these illegal markets. Given
these developments, it is easy to see whythese are boom times for transnationalorganized crime.
The growing threat of transnationalorganized crime is forcing radical changes
in traditional methods of law enforcement.
Law enforcement has historically been amatter primarily of domestic concern. In
the United States, for example, we havetraditionally focused our anti-organizedcrime efforts solely on the American Mafia,
or La Cosa Nostra. We, and our colleagues
in other countries, have therefore beencaught unprepared by the sudden rise intransnational organized crime activities.
We are not used to criminals who might
reside in country A and travel to country B
in order to commit a crime that takes placein countries C, D and E. Our organizedcrime investigators and prosecutors are notused to obtaining evidence from othercountries and conducting joint
investigations with law enforcement
officials of other countries. Indeed, in many

116TH INTERNATIONAL TRAINING COURSE
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instances our laws and procedures slow us
down instead of aiding us in theseendeavors. And we have not spent enoughtime studying the new organized crimegroups, learning their faces, theirorganizations, their ways of doing business.
We are now working energetically toclose the gaps in our knowledge and to
expand cooperation with other countries onlaw enforcement matters. This work is
being done on several fronts. First, ourprosecutors and investigators are working
hard to improve their understanding oftransnational organized crime groups.
With the help of the Justice Department’s
Office of International Affairs, they are
investigating new cases in which they arelearning to work more closely with theirforeign counterparts. Second, the US.
Government is stationing more law
enforcement personnel in other countries.
The FBI has legal attaches in over 20
countries and is planning to open more
offices as well. The Justice Department’s
Office of International Affairs has judicial
attaches in London, Rome and Mexico City,and is trying to arrange for a person to be
assigned to Moscow as well. Other U.S.
law enforcement agencies such as the Drug
Enforcement Administration, the Customs
Service, and the Immigration andNaturalization Service are also expanding
their overseas presence. Finally, weapplaud the efforts of forums such as
UNAFEI which provide us with thevaluable opportunity to meet directly withour colleagues for other countries. These
forums are extremely important forstrengthening mutual understanding ofeach others’ legal systems and for giving
us the chance to improve cooperation on
specific matters.
I will first briefly discuss the current
situation with respect to transnationalorganized crime in the United States. I willthen cover in somewhat more detail someof the most important methods that we use
for fighting transnational organized crime- electronic surveillance, undercover
operations, accomplice testimony and the
RICO statute. Finally, I will discuss ingeneral terms some of the challenges that
we face in improving law enforcement
cooperation between countries ontransnational organized crime cases.
II. TRANSNATIONAL ORGANIZEDCRIME IN THE UNITED STATESThe Organized Crime and Racketeering
Section is responsible for overseeing theJustice Department’s programme for thefight against organized crime in the UnitedStates. As I mentioned, the Section’s workand the work of its 24 Organized Crime
Strike Forces across the country hashistorically focused on the activities of La
Cosa Nostra, the American Mafia. In
recent years, the Attorney General has also
directed the Section and its Strike Forces
to attack the growing presence of Russianand Asian organized crime groups in the
United States. As a result, the Section now
supervises investigations into all threemajor areas of organized crime activity in
our country - LCN, Asian and Russian. I
should mention that, for operational
reasons, the South American narcotics
trafficking groups are generally
investigated and prosecuted by other partsof the Department of Justice, and theOrganized Crime and Racketeering Section
does not supervise these prosecutions
unless they also involve one of our groups.
In addition, while we also see some signsof organized criminal activity from Africanand South Asian groups, they have not yet
reached a serious enough level to demand
the attention of our Strike Forces. I will
therefore limit my comments to the two
major kinds of international organizedcrime groups within the Section’s area ofactivity - first the Asian, then Russian andEast European.

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RESOURCE MATERIAL SERIES No. 58
A. Asian Criminal Enterprises
As you are all aware, criminal
enterprises have existed in Asian countries
for centuries. However, we have so far
found little evidence that the traditional
Asian criminal groups have been able toset up extensive networks in the UnitedStates. Asian immigrant communities in
the United States have suffered from thepredations of gangs and organized crimegroups, but in most instances these arehome-grown groups, without formal ties toorganized criminal groups in Asian
countries. Furthermore, in contrast to La
Cosa Nostra, the Asian Criminal
Enterprises found in the United States
tend to be loosely structured and often lacka formal organization.
Nevertheless, Asian Criminal
Enterprises pose a significant crime
problem in the United States. These
groups commit traditional organizedcrimes within various Asian communities,
such as extortion, murder, kidnaping,illegal gambling, prostitution, and loansharking. Additionally, Asian Criminal
Enterprises have engaged in internationalc r i m i n a l a c t i v i t y, i n c l u d i n g a l i e nsmuggling, drug trafficking, financial
fraud, theft of automobiles and computer
chips, counterfeiting and money
laundering.
1. Chinese Criminal Enterprises
Chinese criminal enterprises operatingin the United States often bear names
familiar to students of the traditional Hong
Kong or Taiwan triads, such as 14 K, Sun
Yee On, Wo Hop To, or Hung Mun.
However, while these groups may indeed
have some links to the traditional Hong
Kong or Taiwan triads, the U.S.-based
groups usually operate independently of
the parent organizations. For example, theTung On Gang was a major criminalorganization operating in New York andother cities on the east coast of the United

42

States. Its former leader was a Red Poleof the Sun Yee On Triad, but the Tung On
Gang’s only connection to the Sun Yee On
was for the purpose of importing Southeast
Asian heroin into the United States.
Otherwise, the Tung On Gang engaged inlocal criminal activities in the UnitedStates such as extortion, murder, illegal
gambling and money laundering without
taking direction from Hong Kong.
The range of Chinese criminal groups in
the U.S. runs from simple street gangs,
such as the Flying Dragons and Ghost
Shadows of New York’s Chinatown, toquasi-legitimate businessmen, sometimes
associated with criminally-influenced
Tongs, engaged in complex frauds.
Currently, the principal criminal Tongs in
the United States are the Hip Shing Tong,
located in New York and on the West coast,principally in San Francisco, and the On
Leong Tong, located predominately in New
York, Chicago, Houston, Detroit, andAtlanta. These Tongs mainly operateillegal gambling, prostitution, aliensmuggling and stolen property activities
along with narcotics trafficking.
Chinese criminal groups in the UnitedStates traditionally preyed almost
exclusively on residents of Chinese
communities in American cities. Morerecently, however, these groups have
expanded the scope of their activities toattacks on other U.S. companies andinstitutions and to international crimes
such as alien smuggling, drug trafficking,credit card fraud, theft of automobiles andcomputer equipment, counterfeiting,money laundering, and piracy ofintellectual property.
Chinese criminal enterprises have
proven themselves to be flexible andsophisticated, capable of engaging incomplex crimes requiring a considerable
amount of planning and/or coordination

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
with individuals overseas. Different
groups may pool their resources whennecessary to complete an ambitious
criminal scheme. Furthermore, the loose
structures of their organizations makes it
difficult for law enforcement to identify andtarget key individuals.
One of the most dramatic cases ofChinese organized crime in the last coupleof years was the so-called “Bites Dust”
operation, centered in San Francisco, in
which a Chinese criminal group engaged
in robberies of computer chips fromwarehouses and sold them on the black
market. Carefully planning theiroperations, the robbers had arranged inadvance with buyers exactly what kind ofcomputer chips to steal. As with manyother Chinese criminal enterprises in the
U.S., the gang committing the robberies
was loosely organized and not affiliatedwith a specific triad or tong.
2. Vietnamese Criminal Enterprises
Vietnamese criminal enterprises are themajor Asian organized crime problem insome parts of the United States such as
Texas, Louisiana and the Washington, D.C.
area. Currently, more than 750,000
Vietnamese have settled in various partsof the United States, with California
housing a large majority.
Compared to other Asian groups,
Vietnamese criminal groups are the mostflexible groups in terms of cooperating withcriminals of other ethnic and racial
backgrounds. U.S. law enforcement
agencies face not only traditional organizedcrime problems within various Vietnamese
communities such as extortion, murder,
kidnaping, illegal gambling, prostitution,home invasion robbery, illegal weaponstrafficking, and loan-sharking, but also
national and international organized crime
problems including alien smuggling, drugtrafficking, credit card, check and foodstamp fraud, white collar crime, theft ofautomobiles and computer chips/
equipment, counterfeiting of monetary
instruments, money laundering and piracy
of intellectual property.
Although the crime problem generated
from Vietnamese criminal enterprises in
the United States has been in existence fora little more than a decade, their violence
and their proliferated criminal activities
have generated grave concerns to law
enforcement agencies and the public.
Vietnamese criminal enterprises are thefastest growing Asian crime group in the
United States. Not only have they
established a foothold in various newer
Asian communities, they are challenging
the established crime groups in older Asian
communities. For the moment, they are
not as sophisticated as other moreestablished Asian crime groups, such as
Chinese, Japanese and Korean, and do nothave the same level of financial backing,but this is changing.
Recently our Houston Strike Forceprosecuted a Vietnamese group engaged inhealth care fraud. The defendants, who
ran four health clinics, would stage auto
accidents and then submit false medical
bills for reimbursement by theGovernment. Enlist an attorney to assist
them in the scheme, the defendants
mastered complicated paperwork to obtain$ 4 million dollars within a three year
period.
3. Korean Criminal Enterprises
As with the Chinese criminal groups,
Korean criminal enterprises in the UnitedStates have ties to Korean criminal groups
in Korea and Japan, but they are
independent entities. While Koreancriminal enterprises are generally lesssophisticated and less organized thanChinese criminal enterprises and Japanese
Boryokudan, they are best known for and43

RESOURCE MATERIAL SERIES No. 58
are extremely proficient in criminal
activities related to the trafficking of
crystal methamphetamine and Southeast
Asian heroin, extortion, illegal gambling,alien smuggling, prostitution, public
corruption, and money laundering.
Many of the criminal activities of the
Korean groups require an extensive
national and/or international network of
criminal contacts. Adapting to the
expanding international economy, Korean
traditional criminal organizations arelinking up with organized crime groups
abroad, including Japanese and Russiangroups, to form business joint ventures andto learn new methods of committing crimes.
Since Korean immigrants in the UnitedStates are often reluctant to report crimes
to law enforcement agencies, the activityof Korean criminal enterprises often
remains undetected by law enforcement
organizations in the United States. As aresult, these groups have flourished in thepast decade. They have gained a strong
foothold in various prosperous Korean
communities, have controlled a large shareof methamphetamine trade in Hawaii andthe U.S. West Coast, and have had a
network of prostitution/alien smuggling
operations that span the nation. Koreancriminal enterprises have the potential to
become “entrenched organized crimegroups” within the United States, similar
to their counterpart criminal groups in
Korea.
4. Japanese Criminal Enterprises
Japanese criminal enterprises, theBoryokudan, also known as Yakuza, can be
categorized as traditional criminal
enterprises. Japanese criminals based inother countries with Asian communities,
such as the United States, Australia, andBrazil, are either associates of theJapanese Boryokudan, Boryokudan
members, or Japanese delinquents

44(chimpira) who are would-be Boryokudan.
The primary activities of the
Boryokudan in the U.S. are money
laundering, drug trafficking, handgun
trafficking, monopoly of the Japanese
tourist trade, and manipulation of the realestate market. The most aggressive
Boryokudan groups in the U.S. include
Yamaguchi-gumi, Sumiyoshi-rengo-kai,
Inagawa-kai, and Toa Yuai Jigyo Kumiai.
The Boryokudan’s main activity ismoney laundering, a very difficult
operation for law enforcement to detect.
Japanese victims are usually reluctant toreport crimes to law enforcement for fearof retaliation. Boryokudan members andtheir associates have also invested in highvolume cash businesses, such as
restaurants, bars, gift shops, and hotels,
and in other legitimate businesses, such as
construction companies, oil companies,
banks, casinos, golf courses, and U.S.
securities.
Nevertheless, recent investigations haveindicated a decline of the Boryokudan’s
activities in the United States. It has been
speculated that this could be related toJapan experiencing a long period of
economic downturn, providing anabundance of opportunities in Japan for the
Boryokudan to take over ailing businesses
and profit from them.1 Still, theBoryokudan pose a significant threat to theUnited States through their financial
resources, their ability to launder large
amounts of money, their ability to infiltratelegitimate businesses in the United States,
and their international connections withhigh-level political, financial and criminal
figures.

1

See Mary Jordan and Kevin Sullivan, A New Mob
Mentality in Japan, WASH. POST, April 11, 1999,
at A1.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
Although the Boryokudan groups haveformed alliances with various internationalorganized crime groups, such as Chinese,
Korean, Taiwanese, Russian, and Italian,
they remain the most closed ethnic crimegroup. Only Japanese or Japanese-related
individuals are included in theirorganizations. They have establishedthemselves to some extent in Hawaii andSouthern California. United States law
enforcement organizations are focusing
more attention to the Boryokudan because
they fear that the Boryokudan will becomea truly entrenched criminal organization
similar to the La Cosa Nostra crime family.
However, evidence thus far does notindicate that they possess a substantial
threat in the U.S.
B. Russian and Other Eurasian
Organized Crime
The U.S. Justice Department uses theterms “Russian Organized Crime” and“Eurasian Organized Crime”
interchangeably to refer not only toorganized crime groups operating in
Russia, but also those groups operating inor headquartered in countries in Eastern
Europe and Asia that were formerly partof the Soviet bloc, such as Poland, Hungary,Georgia, Armenia, Kazakhstan, Ukraine
and others. Eurasian Organized Crime has
become prominent in the West only in thepast ten years, since the collapse of theSoviet bloc.
As I mentioned earlier, the dissolutionof the Soviet Union in 1991 led towidespread economic upheaval across theformer Soviet bloc countries. The economy
of Russia and other former Soviet countries
shrunk drastically as unprofitable state
enterprises lost their state funding andshut down. The considerable natural
resources of these countries became theprizes in a fierce struggle between
competing businessmen who often allied
themselves with organized crime elements,

resulting in dozens of murders and othercrimes as the contestants vied for control.
Criminals who managed to gain access tothese resources sought to cash in on theirsuccess, selling oil and other resources
overseas in violation of Russian laws andconcealing the profits in a series of offshorebank accounts. Finally, the criminals
sought to use the proceeds of their crimes
to purchase real estate and other assets in
the United States and others westerncountries.
At the same time the loosening of travel
restrictions from the former Soviet Union
allowed many individuals to emigrate to
the United States and other westerncountries. Among these immigrants werea few criminals who took advantage of the
new environment to set up new criminalorganizations which preyed on their fellow
immigrants. Thus, in the United States,
we have seen the growth of organizedcriminal groups in places such as theBrighton Beach neighborhood of New York,
where their members practice extortion on
local businesses and commit excise tax andhealth care frauds, drug trafficking andvisa and immigration fraud. The Brighton
Beach groups show particular flexibility inworking with other established criminalgroups such as La Cosa Nostra. In one
particularly egregious example, Russian
mobsters in New Jersey combined with La
Cosa Nostra members in a scheme to cheatstate authorities of millions of dollars inexcise taxes on the sale of gasoline.
So far we have identified roughly twenty
large Russian Organized Crime groups
operating worldwide. Over the last decade,these groups have expanded theiroperations into more than 55 countries,
including the former Soviet Union, Europe
and North America. The most prominentof these groups are:(i) the Ivankov group, also known as
the “Organizatsiya,” based in

45

RESOURCE MATERIAL SERIES No. 58
Vladivostok and Moscow, with
influence in New York, Miami,
Boston, and Los Angeles;(ii) t h e S e m i o n M o g i l e v i c hOrganization, based in Budapest
and Moscow and located in
Philadelphia, Miami, Los Angeles,
New York and Boston;(iii) the Izmailovskaya Organization,
which operates in Moscow, Tel Aviv,
Paris, Toronto, Miami and New
York City; and(iv) the Solntsevskaya Organization,
which is based in Moscow andBudapest, and has moved into
Florida, Southern California, andChicago. These groups are
involved in a variety of crimes
including business frauds,
especially excise tax frauds ongasoline, money laundering,
health care fraud, drug trafficking,extortion and visa andimmigration fraud.
The transnational aspects of Eurasian
Organized Crime, as practiced by the larger
criminal groups, pose a particularly acutethreat to the societies of the West. Our law
enforcement bodies face great difficulties
in attempting to investigate large scalefinancial fraud and money laundering
schemes emanating from the former Soviet
Union. Often the only part of the crime
taking place within western jurisdictions
is the movement of millions, or evenbillions, of dollars through western bankaccounts. Obtaining a clear picture of thepossibly criminal activities linked to thismoney requires the close cooperation of
authorities from Russia, other members of
the Commonwealth of Independent Statesand many other countries. Suchcooperation is extremely difficult to obtainin a timely manner, particularly whenmany different countries are involved. As
a result, it is often impossible to investigate
these cases as thoroughly as they deserve,

46

and the criminals gain the ability to hideand make use of their ill-gotten assets inthe west.
I don’t have to tell you that it is a very
dangerous situation when organizedcriminals have access to large amounts ofmoney in your country. In the UnitedStates, La Cosa Nostra historically used its
control of the pension funds of certain large
labor unions to fund its criminal activities
and further the power of the Mafia,
including in the political arena. If we failto check the ability of these criminals to
make use of the billions of dollars they have
moved out of Russia, you will find theinfluence of Eurasian Organized Crime
spreading to other sectors of the economy
and the political life of western countries.
III. METHODS OF COMBATING
TRANSNATIONAL ORGANIZEDCRIME - DOMESTIC RESPONSES
United States international law
enforcement has increased its ability tocombat transnational criminals.
Prosecutors have worked out thetechniques for acquiring evidence fromabroad, while extradition and mutual legal
assistance treaties have proliferated andbecome more inclusive.2 Many domestic
legal obstacles to effective internationallaw enforcement have largely been reduced
or eliminated by the actions of Congress
and the federal courts. Additionally,
foreign governments and law enforcement
agencies have worked with U.S. officials
towards reducing the frictions created bytheir own criminal justice systems.3 While
much work remains to be done, we feel that
our law enforcement bodies are graduallyacquiring the necessary tools to do the job.
2

Ethan A. Nadelmann, Cops Across Borders: The
Internationalization of U.S. Criminal Law
Enforcement 467-468 (1993)
3 Id. at 468.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
Our fight against transnationalorganized crime will, however, rely firstand foremost on the investigativetechniques and prosecutive tools developedin our long struggles against the American
Mafia. I would therefore like to begin by
discussing with you some of the mostimportant law enforcement tools in ourarsenal. I will begin with three techniques
used by our investigative agencies with theassistance and under the oversight ofprosecutors: electronic surveillance,
undercover operations and the use ofconfidential informants.
A. Electronic SurveillanceElectronic Surveillance represents the
single most important law enforcement
weapon against organized crime. There isnothing as effective as proving a crime
through the defendant’s own words.
Electronic Surveillance evidence provides
reliable, objective evidence of crimes
through the statements of the participants
themselves. Additionally, electronic
surveillance enables law enforcement tolearn of conspirators’ plans to commit
crimes before they are carried out. This
allows them to survey the criminal
activities, such as delivery of contraband
and conspiratorial meetings, or to disrupt
and abort the criminal activities whereappropriate, making electronic
surveillance particularly helpful inpreventing the occurrence of violent crimes.
Additionally, electronic surveillance isparticularly helpful in transnational
crimes because it enables law enforcement
to intercept conspirators in the UnitedStates discussing crimes with theircriminal associates in countries outside theUnited States. Electronic surveillance
gives United States law enforcement
evidence of conspiratorial planning against
co-conspirators operating outside of theUnited States that would otherwise be very
difficult to obtain.

While electronic surveillance isextremely valuable, it is also a very
sensitive technique because of legitimate
concerns for a person’s privacy interests.
These concerns impose significant
restrictions on electronic surveillance. For
example, electronic surveillance can only
be used to obtain evidence of some specificserious offenses listed in the governing
statute.4 If an agent or governing attorney
wishes to secure electronic surveillance, heor she must submit an affidavit to a UnitedStates district court judge containing
specific facts establishing probable cause
to believe that the subjects of the electronic
surveillance are committing certain
specified offenses and that it is likely that
relevant evidence of such crimes will beobtained by the electronic surveillance.5
Thus, the government must receive theapproval of a neutral independent judge to
be authorized to conduct electronic
surveillance. Additionally, before electronic
surveillance is permissible, the government
must establish probable cause to believethat other investigative techniques havebeen tried and failed to obtain the sought
evidence, or establish why otherinvestigative techniques appear to beunlikely to succeed if tried, or establish why
other techniques would be too dangerous
to try.
In executing the electronic surveillance,
the government must minimize theinterception of innocent conversations,taking reasonable steps to assure that only
conversations relevant to the crime underinvestigation are intercepted.6 In practice,the monitors are required to turn off
recording machines when conversations
are not discussing matters relevant to thecrimes under investigation.

4

See 18 U.S.C.A. § 2516 (West Supp. 2000).
See 18 U.S.C.A. § 2518 (West Supp. 2000).
6 See 18 U.S.C.A. §§ 2511, 2518 (West Supp. 2000).
547

RESOURCE MATERIAL SERIES No. 58
Once the electronic surveillance begins,
the government must submit regular
reports to inform the court of theinformation obtained through thesurveillance. In these so-called “10-day
reports” the prosecutor lists the number ofintercepted calls, the number of calls
containing criminal conversations,summarizes of those conversations, anddescribes any unusual events thattranspired in connection with thesurveillance. This constant report writing
is part of what makes electronic
surveillance so labor-intensive for theprosecutor.
Electronic surveillance is also restricted
in terms of its duration. Court-authorized
electronic surveillance is limited to thirty
days.7 This may be extended for additional
thirty-day intervals, provided that all therequirements are met every thirty days andapproved by the judge.8 Althoughsubstantially useful in law enforcement, it
is evident that there are considerable
restrictions on electronic surveillance
designed to protect individuals’ privacy
interests.
B. Undercover Operations
As far as organized crime control goes,
undercover operations are second only toelectronic surveillance, often working
hand-in-hand with each other. An
undercover investigation may be of very
short duration, lasting only a few hours,
or may be quite lengthy, lasting a few years.
It may be directed at only a single criminal
incident, or a long term criminal enterprise.
In some instances, the undercover
operation may involve merely the purchaseof contraband, such as illegal drugs, stolen
property, or illegal firearms, or it may
involve the operation of an undercoverbusiness, such as a tavern or other7
8

See 18 U.S.C.A. § 2518 (West Supp. 2000).
See 18 U.S.C.A. § 2519 (West Supp. 2000).

48

operation, where criminals meet anddiscuss their activities with undercover
officers or informers. Through such
undercover operations, law enforcement
agents are able to infiltrate the highest
levels of organized crime groups by posing
as criminals when real criminals discuss
their plans and seek assistance incommitting crimes.
Agents often are able to gain theconfidence of criminals, inducing them toreveal their past criminal activities as well
as plotting with the agents to engage in
additional, ongoing criminal activities. In
conjunction with electronic surveillance,
the undercover approach provides
comprehensive coverage of the targets’
daily activities. However, undercover
operations are extremely sensitive andpose the danger of luring otherwise
innocent people into criminal activity.
Because this technique carries thepotential for problems, it requires
exceptional preparation.
For example, the physical safety of theundercover agent must always be
considered. To prevent the premature
disclosure of his or her identity, the agent
must be provided with a fully substantiatedpast history, referred to as “backstopping,”
and careful briefings of the targets’ modus
operandi. Every conceivable scenario that
may induce suspicion of, or hostility
towards the agent must be considered inadvance. Additionally, the undercoveragent must undergo careful testing, often
including psychological profiling, to ensurethat he or she possesses the intangible
qualities to ensure that he will “fit”
comfortably into the new identity.
In the United States, before anundercover investigation may occur, theconsent of agency supervisors andprosecutors is required. The level at which
the activity is reviewed increases as more

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
sensitive circumstances are involved in theinvestigation. To balance the concerns andavoid harm to the public, the Departmentof Justice has set up Undercover Review
Committees, comprising senior prosecutors
and investigators. These Undercover
Review Committees are responsible forreviewing, approving, and controlling allsensitive undercover operations. To beapproved, an undercover proposal must be
in writing, contain a full factual descriptionof the suspected criminal activity and theparticipants therein, set out, in detail, theproposed undercover scenario, theexpertise of the undercover team, theduration of the project, the anticipatedlegal issues, and it must evaluate the risk
to the agents and the public.
If the undercover activity is of relatively
short duration, such as a one time purchaseof narcotics or other contraband, a first line
investigative agency supervisor and firstline prosecutor must approve the activity
after having been advised of all the factsof the matter. If the undercover activity isof a longer duration, with an undercoveragent and informant engaging in what
would otherwise be ordinary violations of
the law on a repeated basis, then theapproval of a higher level supervisor, suchas a local lead investigative agent, and asupervisory prosecutor must be informedof all the facts and give his or her approvalto the activity. These long-term undercover
operations are essential to assist ininfiltrating organized crime groups that
continue their illegal activities over many
years. Finally, if there are sensitive
circumstances involved, such as a risk that
innocent third parties might be affected by
the activity, or there is extensive andongoing criminal activity of a serious
nature, then the activity must be reviewed
and approved at the headquarters of theinvestigative agencies and by Washingtonbased Department of Justice prosecutors.

Whenever an undercover operation
reveals that a crime of violence is about totake place, law enforcement authorities are
required to take necessary steps to preventthe violence from occurring. This may
include warning the potential victim,
arresting the subjects who pose a threat,or ending the undercover operation
altogether.
C. Informants
Another critical law enforcement
technique involves the use of confidential
informants. When United States law
enforcement uses the term confidential
informant, we refer to an individual who
is not willing to testify but who provides
information or assistance to the authorities
in return for a promise that we will try tokeep his identity confidential. We cannot
absolutely guarantee such confidentiality
because in relatively rare circumstances
courts may conclude that due process, orconcerns of fundamental fairness, requirethat a confidential informant’s identity bedisclosed to a defendant charged with acrime where the informant can provide
evidence that could exculpate thedefendant. Absent such a rare case, we areable in most cases to keep an informant’s
identity confidential.
Confidential informants are typicallymotivated to provide information to theauthorities in exchange for money orlenient treatment regarding charges
pending against them or likely to bebrought against them. In many cases
confidential informants are themselves
engaged in criminal activities whichenables them to provide valuable direct
evidence of criminal activities by theircriminal associates. Confidential
informants frequently provide theinformation that enables law enforcement
officials to obtain judicial warrants
authorizing electronic surveillance. Many
successful prosecutions of the LCN

49

RESOURCE MATERIAL SERIES No. 58
leadership have involved information
supplied by confidential informants who
provided information for many years about
the leadership of the LCN; indeed some of
the informants have been “made members”
of the LCN. Incriminating evidence by
informants who deal directly with the LCN
leadership is simply invaluable to breakthrough the layers of insulation that theleadership uses to conceal their activities.
However, there are high risks associatedwith the use of informants. Sometimes,
informants do not fully disclose their own
criminal activities, or they falsely implicate
their enemies in crimes, or they engage inunauthorized criminal activities. In thatlatter respect, under United States law, law
enforcement may authorize informants toparticipate in some forms of non-violent
criminal behavior that would otherwise beillegal, if they were not acting as
informants with authority to engage in theactivities. For example, depending on thecircumstances, in order to protect aninformant’s cover and to enable him to be
in a position to obtain incriminating
evidence against others, informants may
be authorized to participate in illegal
gambling, trafficking in stolen property,
and other non-violent crimes. Therefore,
it is important for law enforcement toclosely monitor the activities of informants
to minimize the danger that the informant
would use his association with law
enforcement to shield his own
unauthorized criminal activities.
On balance, however, experience teaches
us that as a general rule, the benefits fromthe use of informants greatly outweigh therisks. But, we must be ever vigilant of therisks.
These three techniques, electronic
surveillance, undercover operations, anduse of informants are the most important
techniques that have assisted the50

investigative agencies to combat organizedcrime and transnational crimes. Next, I
will discuss the weapons available to thefederal prosecutors in the United States tocombat organized crime and transnational
crimes.
D. Racketeer Influenced andCorrupt Organizations Statute(RICO)
In every organized crime case, the goal
is to convict the highest levels of a crimeorganization. To accomplish this,prosecutors must be equipped with theproper tools. One particularly valuable tool
is a law which singles out the activity ofongoing criminal organizations. In the
United States, the most important law of
this sort is the Racketeer Influenced andCorrupt Organizations Statute (RICO). In
general, RICO provides heavy penalties,
including life imprisonment in certain
circumstances, when a defendant conducts,
or conspires to conduct, the affairs of anenterprise through a pattern of specified
acts, known as predicate crimes. An
enterprise can include anything from a
corporation, to a labor union, to a group ofindividuals working together to commit
crime, such as the Asian and Russianorganized crime groups discussed above.
Interestingly, the RICO statute did notactually create a new crime, as the crimesof murder, arson, and extortion, to name afew of the 46 predicate offenses in RICO,
were all made criminal long before RICO’senaction in 1970. However, RICO was stilla dramatic legislative initiative because it
permitted many of these genericallydifferent crimes to be charged in a single
indictment. After RICO, these different
crimes could even be charged in a single
count against a defendant, so long as thecrimes were part of the defendant’s patternof acts that related to the enterprise. In
essence, RICO made it a crime to be in thebusiness of being a criminal.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
RICO is particularly effective inorganized crime cases, as it allows aprosecutor to demonstrate the full rangeof criminal activity of an individual or agroup of criminals. For example, RICO hasa reach-back feature that enables a
prosecutor to show a pattern of
racketeering activity. As long as one of thepredicate crimes alleged against adefendant occurred within the five yearsof when the indictment is brought, the next
previous crime in the pattern of
racketeering need only be within ten yearsof the most recent crime. Similarly, thethird most recent crime need only haveoccurred within ten years of the second act.
This reach-back feature enables thisprocess to continue, possibly extending
twenty years or longer into the past.
Ordinarily, the evidence of past criminal
activity that may be presented under RICO
is outside the period for which a person
could be prosecuted, as indictments in the
United States generally cannot allege
crimes that occurred more than five years
prior to the date of the indictment. This
makes RICO particularly useful inorganized crime cases.

RICO allows the government toprosecute criminal activity on a systematic
basis, enabling them to punish themembers of an organized crime group forthe criminal activities each has engaged inon behalf of that group. In an ordinary
RICO prosecution, often six or more
racketeers are charged with perhaps adozen or more predicate crimes extending
over a decade. In each of the allegedpredicate crimes, usually only some of the
defendants are named. There have beencases where RICO indictments havecharged several defendants withcommitting over fifty offenses as part of apattern of racketeering activity!

Additionally, RICO’s reach is very broad,as the predicate crimes that qualify as
RICO predicates span all forms of criminal
actions. Without RICO, most United Statesjudges would prohibit the prosecution ofsuch diverse crimes in a single case andwould be more likely to break it up into a
series of smaller trials, especially if
numerous defendants were being charged.
Organized crime groups prefer dividing up
a prosecution because no one jury gets tosee the entire picture. Organized crime iscomposed of many crimes, all linked by asingle chain-of-command to the same
enterprise. Thus, any effective prosecutionof a crime family requires proof of many
crimes in a single trial. RICO allows this,enabling the jury to see an entire patternof crimes.

As powerful as RICO is, there were only
a few RICO prosecutions brought againstorganized crime in its first fifteen years.
That was primarily because it took Federal
prosecutors that long to feel comfortableenough with the complicated instrument
to make it the centerpiece of organizedcrime prosecutions. Another reason wasthat the investigative techniques necessary
to build a suitable RICO case, such as
electronic surveillance and undercover
operations, were not routinely used againstorganized crime bosses in the 1970’s.

Furthermore, RICO also allows thepresentation of evidence of criminal
activity that has been the subject of earlier
prosecutions. Ordinarily, this would not
be allowed in the United States because of
constitutional rules against successive
prosecutions for the same conduct.
Nevertheless, this is also permitted under
RICO. RICO has proven to be an extremely
important tool assisting in the preventionof organized crime in the United States.

Currently, it is evident that control oforganized crime in the United States would
be inconceivable without RICO. Beyond
organized crime, RICO cases have also
been brought against hundreds of police

51

RESOURCE MATERIAL SERIES No. 58
officers, judges, and public officials forofficial misconduct, and against terroristgroups, radical hate groups, street gangs,
stock manipulators, and drug cartels.
However, like any powerful tool, RICO has
the capability of being abused. To protect
against potential abuses, the Organized
Crime and Racketeering Section has a
special unit of attorneys who carefully
review all proposed RICO indictments forlegal and factual sufficiency. This unit
ensures that RICO is used only when it isnecessary, disapproving of a RICO charge
when less powerful statutes would be justas effective.
E. Organized Crime Strike ForceUnits
As I previously stated, the LCN is thenumber one organized crime problem in the
United States. The LCN is an extensive
nationwide criminal organization.
Therefore, it was essential to attack the
LCN and other organized crime groups
through a closely coordinated nationwide
effort. However, law enforcement is very
fragmented and decentralized in the
United States. The United States
Department of Justice at the federal levelis divided into 94 different United States
Attorneys offices throughout the country
that operate with considerable
independence of the main JusticeDepartment located in Washington, DC. In
addition, there are literally hundreds,
perhaps over 1,000 state, county and city
prosecutors’ offices and police departmentsthat have criminal jurisdictions that are
totally independent of the federal
Department of Justice. This fragmented
prosecutorial authority makes nationwide
coordination difficult. These difficulties are
made even greater when you factor in thelarge territorial size of the United Statesand its relatively large population of over
260 million people.

52

To improve coordination of federal efforts
to attack organized crime, in the late 1960s
the Department of Justice created 24
specialized prosecutive units called
Organized Crime Strike Forces located in
the cities where the 24 LCN families weremost active. These Strike Force Units werestaffed by career prosecutors who wereexperienced in electronic surveillance,
undercover operations, and long term
proactive investigations. Moreover, these
prosecutors are only allowed to work onorganized crime matters. To assure thatthey work only on organized crime mattersand to assure that the Strike Force cases
are properly coordinated from a national
perspective, supervising prosecutors inWashington, DC must approve every
investigation, every indictment, every
wiretap and every other principal activity
that each Strike Force Unit undertakes.
Through such oversight, the supervising
attorneys in Washington, DC are able tomaintain the focus of efforts againstorganized crime groups and to see to it that
relevant information developed by one
Strike Force office gets to another office inanother part of the country that may needit.
Moreover, because the supervisors inWashington, DC, are aware of all LCN
investigations and prosecutions in the
United States, they are able to reduce
duplication of efforts and coordinate
investigations and prosecutions conductedby more than one office.
The creation of these Strike Force Units
proved to be invaluable. Over the past 25
years, the vast majority of all the major
convictions of LCN bosses and members
were obtained by these Strike Force Units.
Although the LCN remains strong in themetropolitan New York City area whereroughly 80% of the LCN members operate,the LCN has been substantially weakened
in other parts of the United States -116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
particularly in San Francisco, Los Angeles,
Kansas City, Milwaukee, St. Louis, andother cities.
Although the Strike Force Units were
initially created to combat the LCN, their
mission was expanded in 1990 to combat
Asian and Russian organized crime groups.
In 1990, the Attorney General of the UnitedStates adopted a national strategy tocoordinate the federal attack against thennewly emerging organized crime groups
operating in the United States. The Strike
Force approach became the centerpiece ofthat national strategy since it had been so
successful against the LCN. The Strike
Force Units were well equipped to handle
the new challenges because of theirexperience, and also because the Strike
Force Units were already located in thecities where the Russian and Asian
organized crime groups were most active.
Not surprisingly, the Russian and Asian
organized crime groups are active in thesame large cities as the LCN.
To implement this national strategy, theAttorney General created the Attorney
General’s Organized Crime Council, themembers of which are the heads of theFederal Bureau of Investigation, the Drug
Enforcement Administration (DEA), theDivision of Enforcement of the Securities
and Exchange Commission, the Secret
Service, the Marshals Service, the Customs
Service, the Postal Inspectors, and theInternal Revenue Service. The Council
meets as necessary to set the official
priorities of the Federal Government’sorganized crime programme, whichcurrently are LCN, Asian, and Russianorganized crime. In order to set thesepriorities, each agency and the country’s
94 top Federal prosecutors (called UnitedStates Attorneys) are required each year
to file written plans assessing the problems
posed by organized crime groups in theirdistricts and for attacking organized crimegroups in their districts. The Departmento f J u s t i c e ’s O r g a n i z e d C r i m e a n d
Racketeering Section then reports its
analyses of these plans to the Council. The
most important feature of this system iscontrol: It obligates the regional
prosecutors and agents to keep constantpressure on La Cosa Nostra and Asian andRussian crime groups, and prevent themfrom succumbing to periodic temptations
to assign prosecutors and agents to nonorganized crime cases.
Implementing this national strategy has
enabled the Federal Government tocoordinate its nationwide efforts againstorganized crime groups and to keep thepressure on them to prevent them fromexpanding their corrupt influences onsociety.
F. Immunity System
Another valuable tool used byprosecutors in organized crime cases is thepower to grant immunity under certain
conditions in return for a witness’s
testimony. Every individual in our country
has a right under Fifth Amendment of ourconstitution to refuse to testify against
himself. The immunity system allows thegovernment to force an individual to testify
in return for a promise that the testimony
may not be used against the witness in any
subsequent criminal case.9
Until 1970, there were numerous federal
immunity statutes providing transactional
immunity, protecting people testifying
under these laws against prosecution or
penalty on account of any transaction,
matter, or thing relating to their testimony
or production of evidence. Therefore, undertransactional immunity, the witness
received immunization from a subsequent9

See 18 U.S.C.A § 6002 (West Supp. 2000); Kastigar
v. United States, 406 U.S. 441 (1972).

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RESOURCE MATERIAL SERIES No. 58
prosecution as to any matters about which
he or she testified.
Today, however, transactional immunity
no longer exists in the federal system. It
was replaced by what is referred to as “useimmunity.”10 In 1970, the United States
Congress enacted the so-called “useimmunity” statutes that explicitly
proscribe the use in any criminal case of
testimony compelled under the order
granting immunity. In essence, use
immunity only provides that the witness’
testimony itself will not be used against
him or her; he or she may still be
prosecuted using other evidence. Although
use immunity is not considered as broad aprotection to the individual astransactional immunity, it is neverthelessconsistent with the proscriptions of theFifth Amendment because it “prohibits theprosecutorial authorities from using thecompelled testimony in any respect, and it
therefore insures that the testimony cannot
lead to the infliction of criminal penalties
on the witness.”11
The United States attorney, with theapproval of the Attorney General, theDeputy Attorney General, or a designatedassistant attorney general is empowered
to seek a court order granting use
immunity when, in the judgment of thegovernment, the testimony or otherinformation is necessary to the public
interest and the individual has asserted or
is likely to assert his or her privilege
against self-incrimination. In 1999, theDepartment of Justice authorized 2,059
requests for witness immunity, and 1,444of those requests were granted to the
Criminal Division.

In addition to the Immunity system,
there is also the “Crown Witness” system
which, although it is not codified in the
United States Code, is a widespread andapproved practice in obtaining witnesses.
Under the “Crown Witness” system, there
are two types of agreements that theUnited States can enter into withwitnesses, non-prosecution agreements
and cooperation agreements.
Non-prosecution agreements, are mainly
used for situations where a witness’s
involvement in a criminal act is minimal.12
These agreements grant immunity fromprosecution in connection with that casein return for full, truthful cooperation.
Although non-prosecution agreements areavailable, they are rarely used.
Cooperation agreements, on the other
hand, are the most commonly used
instrument to compel testimony. These
agreements require the defendant to incursome type of liability for his or her criminal
conduct. In a cooperation agreement, thedefendant agrees to plead guilty to certain
agreed-upon charges, to fully andtruthfully cooperate with prosecution, andto testify in any court proceeding
concerning all matters asked of him or her.
I n e x c h a n g e f o r t h e d e f e n d a n t ’s
cooperation, the government agrees to filea motion pursuant to Federal Sentencing
Guideline § 5K1.1.13 This motion gives ajudge discretion with respect to thedefendant’s sentence, something he or she
ordinarily would not possess. Upon receipt
of such a motion, the sentencing judge willusually decide to reduce the sentence. This
creates a powerful incentive forcooperation, and is a particularly valuable
tool in the prosecution of organized crime

10 See: 18 U.S.C.A §§ 6001, 6002, 6003 (West Supp.

2000); Kastigar v. United States, 406 U.S. 441(1972).
11 See: Kastigar, 406 U.S. at 453.

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12 US Dep’t of Justice, United States Attorney’s

Manual, ch.9, § 27.600(B)(1)(c) (1997).
13 US Sentencing Guidelines Manual, § 5K1.1 (1998).

116TH INTERNATIONAL TRAINING COURSE
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groups.
G. Witness Protection Programs
Another valuable asset that aids theprosecution of organized crime groups isthe federal Witness Security Programme.
Because of the often violent nature oforganized crime, witness intimidation canbe a significant obstacle in the way of a
successful prosecution. To address thatproblem, the Department of Justice createdthe Federal Witness Security Programme
in 1970. Requests for protection of
witnesses must be made as soon as it is
k n o w n t h a t t h e Wi t n e s s S e c u r i t y
Programme candidate will be a significant
and essential witness, and will need
relocation due to proximity to a “danger
area.” Naturally, because of the security
concerns regarding the witness and his or
her family, a witness’s pending and actual
participation in the Programme is notdisclosed unless under the authorizationof the Office of Enforcement Operations(OEO). This allows the United States
Marshals Service (USMS) time to conduct
preliminary interviews, psychologicaltesting, and appropriate review, thereby
minimizing the disruption to both thewitness and the concerned government
agencies.
A witness is admitted into theProgramme when he or she is able tosupply significant evidence in important
cases, and there is a perceived threat tohis or her security. Once in the programme,
the witness and his or her family are given
new identities, relocated to another partof the United States where the danger totheir security is decreased, and are given
financial assistance until the witness isable to secure employment.
The Witness Security Programme is very
costly. Since the beginning of theProgramme, over 6,800 witnesses havebeen admitted, along with an additionalroughly 9,000 family members. The
average cost is $75,000 per witness, peryear, and $125,000 per family, per year.
Despite these numbers, the results derived
from the Programme have made it worth
the cost. Since its inception in 1970, over
10,000 defendants have been convicted
through the testimony of witnesses in the
Programme.
The vast majority of protected witnesses,
about 97 percent, have criminal records.
However, the recidivist rate for witnesses
in the programme is 21 percent, which ishalf the rate of those released from prisonin the United States. Overall, the Witness
Security Programme has proven to be
extremely beneficial and effective in theprosecution against organized crimegroups.
H. Forfeiture
It cannot be overstated that making
money is the primary goal of organizedcrime and transnational criminal activities.
Therefore, it is imperative to take the profit
out of crime. Strong forfeiture laws do justthat. Forfeiture is a criminal penalty formany offenses in the United States.
Generally speaking, upon conviction for an
offense that carries forfeiture as a penalty,
a defendant may be ordered to forfeit all
profits or proceeds derived from thecriminal activity, any property, real or
personnel, involved in the offense, orproperty traceable to the offense such as
property acquired with proceeds of criminal
activity. For example, if a defendant uses
a residence or car to distribute drugs, thatproperty is subject to forfeiture. Thus, aconvicted defendant may be ordered toforfeit all proceeds of his criminal activity
including money and other forms ofproperty.
In addition to criminal forfeiture, civil
forfeiture laws also allow the government
to obtain property used in criminal

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RESOURCE MATERIAL SERIES No. 58
activities. The principal difference between
criminal and civil forfeiture is that criminal
forfeiture is limited to a convicted
defendant’s personal interest in property
subject to forfeiture, whereas civil
forfeiture focuses on the property itself.
For example, suppose a defendantrepeatedly used a house to sell drugs, but
he did not have an ownership interest in
the house. If he is convicted of drug
dealing, that house is not subject tocriminal forfeiture because the defendant
did not own the house. However, a civil
forfeiture law suit could be brought against
the house itself as a defendant, even if theowner of the house was not engaged incriminal activity. The house, nonetheless,is subject to civil forfeiture because it was
repeatedly used to facilitate criminal
activities, and the owner did not takeadequate steps to prevent his house frombeing used for criminal activities.
There are various defenses to such civil
forfeiture, such as the “innocent owner
defense”, but I do not want to digress into
the complexity of United States forfeiturelaw. To some extent I have generalized andoversimplified United States forfeiture law
which is complex so as not to detract ourattention from the main point I am trying
to make. That is, that criminal and civil
forfeiture laws are powerful weapons in theprosecutors’ arsenal to take the profit outof crime.
I. Money Laundering
Strong money laundering laws go handin-hand with forfeiture laws as powerfulweapons against criminal activities. Under
United States money laundering laws, it
is a crime to knowingly conduct a financialtransaction with the proceeds of certain
specified unlawful activity set forth in thestatute with either the intent to promote
the specified unlawful activity or with theintent to conceal the specified unlawful

56

activity. The term transaction is broadly
defined to include “a purchase, sale, loan,pledge, gift, transfer, delivery, or otherdisposition” and “with respect to a financial
institution includes a deposit, withdrawal,
transfer between accounts, exchange ofcurrency, loan, extension of credit,
purchase or sale of any stock, bond,certificate of deposit, or other monetary
instrument, use of a safe deposit box, or
any other payment, transfer, or delivery by,through, or to a financial institution, bywhatever means effected.”
As you can see, the money laundering
statute covers nearly every imaginable typeof transaction. Moreover, the penalties formoney laundering include forfeiture which
greatly enhances law enforcement’s efforts
to take to profit out of crime.
For example, in one recent case in
Boston, defendants were convicted oflaundering $136 million in drug proceeds
for Colombian drug traffickers. The
defendants received the cash drug
proceeds, and used it to buy money orders,cashiers’ checks, or gold to conceal theillegal source of the cash; this constituted
money laundering. The defendants argued
that they should only be required to forfeit
the 5% laundering fee (or roughly $7
million) that they charged the drugtraffickers since the $136 million belonged
to the drug traffickers. The court rejected
this argument and held that thedefendants were liable for forfeiture of theentire $136 million that they laundered.
Other examples of money laundering
illustrate the breadth of the statute. For
example, proceeds of fraud that are
deposited in bank accounts or otherfinancial institutions which is commingledwith legitimate money in accounts under
the names of nominees constitutes money
laundering subjecting, under somecircumstances, the entire amounts in the

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
accounts to forfeiture, including the money
obtained legally as well as the crime
proceeds.
In many cases, not just organized crime
cases, money laundering violations coupledwith forfeiture have proven to be powerfulweapons to take the profit out of crime.
J. Sentences
Finally, I would like to briefly discuss
United States sentencing laws. Fairpunishment upon conviction is obviously
the ultimate goal of all prosecutions.
Perhaps most important is the protection
afforded by incapacitating the convictedcriminal through incarceration. To be sure,
imprisonment substantially reduces, butdoes not totally eliminate, opportunities forcriminals to continue their illegal activities.
In 1987, the United States Federal
Government adopted a comprehensivechange in its sentencing laws to makepunishment more definite and more
uniform throughout the federal system.
First, federal parole was abolished.
Therefore, a sentence of 10 years in jailmeans a defendant will not be paroled at ashorter time and the defendant will
actually serve 10 years in jail, with somemodest reduction for good time behavior
while in jail. Other changes involved
substantial restrictions on the discretionof judges in imposing sentences. Pursuant
to the changes, sentences are now
determined by application of a complex
numerical weighing system. Under theformula, specific numbers are assigned to
relevant factors such as the type of offense,
the nature of the underlying
circumstances, the defendant’s role in theoffense and the defendant’s criminal
history. The numbers are added up andthe defendant is generally sentenced to a
guideline range according to the resulting
number. Again, I am oversimplifying
complex legal provisions.

Most prosecutors and police in the
United States would argue that the longer
prison sentences under the Federal
Sentencing Guidelines and similar state
guidelines are in part responsible for thelarge decrease in the rate of serious crimein the United States over the last ten years.
Others may take the contrary view andpoint to some cases in which the
Guidelines, and the mandatory minimum
sentences associated with certain drug
crimes, lead to harsh results in individual
cases. I take no view on this debate, except
to argue that for the most serious criminals,
especially high-ranking members oforganized crime groups, the Guidelines andmandatory minimum sentences haveensured that the most serious criminal
conduct will be matched with a serious
punishment. The certainty of longsentences for criminal convictions also
tends to convince defendants that theywould be better served by cooperating with
the Government and testifying against
their bosses, rather than hope that a judge
will be swayed by their lawyers’ arguments
into giving them a light sentence. In thisway the Guidelines help our cases bymaking it more likely that defendants will
choose to “flip” and testify for our side.
IV. METHODS FOR COMBATING
TRANSNATIONAL ORGANIZEDCRIME - INTERNATIONALRESPONSES
I would now like to turn my discussion
from the principal aspects of the UnitedStates domestic responses to transnational
crimes and organized crime to what we aredoing together with other countries in theinternational arena to combat suchcriminal activities.
A. Extradition
It is imperative that international
criminals be denied a safe haven.

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RESOURCE MATERIAL SERIES No. 58
International extradition treaties remain
the most effective legal mechanism toobtain the return of international fugitives.
In 1990, the United States sought theextradition of 1,672 accused or convictedcriminals. By 1996, that number had
jumped to more than 2,894, including
numerous fugitives wanted for murder,
major drug trafficking offenses, money
laundering, multi-million dollar financial
scams, and other serious crimes committed
against the United States.

countries. These MLATs are invaluable insetting out clear procedures by which
prosecutors can gain evidence from othercountries. However, MLATs do not execute
themselves. In some ways the MLAT isonly the first step. Prosecutors in bothcountries have to work hard to prepare
requests that will be understood by thereceiving country, and have to work equally
hard in preparing responses to incoming
requests that will be useful to therequesting country.

The United States is currently party toover 110 such extradition treaties. The
United States Departments of State andJustice, with appropriate input from otherlaw enforcement agencies, are involved inan active programme to negotiate modern
treaties in order to replace old, outdated
instruments, to create extradition treaties
where none previously existed, and toensure that new crimes are covered byextradition treaties. We encourage theinternational community to work together
to deny safe havens to international
criminals through procedures consistent
with domestic and international law.

In the United States Department ofJustice, the Office of International Affairs
is responsible for coordinating bothincoming and outgoing requests for legal
assistance with other countries. The
Office’s attorneys become experts in the lawof their assigned countries and are able toprovide assistance and advice both to US
prosecutors seeking evidence from abroad
as well as foreign countries seeking
evidence from the United States. They
confront all manner of problems andmisunderstandings that arise between
different legal systems, where even similarterms like “judge” and “indictment” havevery different legal meanings and effects.
In the years to come, the Office ofInternational Affairs and its counterpartsin other countries will be called upon toplay a larger and larger role in ourorganized crime investigations.

B. Mutual Legal Assistance Treaties(MLATS)
In light of the international nature oftransnational and organized crime
activities, it is also essential to be able toobtain, in a timely way, the testimony of
witnesses, bank records, other financial
records and other evidence from foreigncountries, and in some cases from several
different countries, and for the UnitedStates to give similar assistance to othercountries. Therefore, Mutual Legal
Assistance Treaties have become important
tools to address international criminal
activities.
Barely 20 years ago, the United Statesentered into its first MLAT. Today, there
are the United States has MLATs with 36

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Even where there is no MLAT in force,
the United States is hopeful that law
enforcement agencies will be able toexchange information and provide mutual
assistance in ways that are fully consistent
with the laws of the countries involved.
Such cooperation is essential to effectively
combat the international criminal
activities of sophisticated criminals whoseek to exploit the difficulties inherent ininternational investigations.

116TH INTERNATIONAL TRAINING COURSE
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C. Expanding the Presence ofUnited States Law Enforcement
Agents Abroad
Tough United States laws that protect
United States citizens and interests abroad
will be of little value if the United States
does not establish an investigative and law
enforcement infrastructure to pursue
violations of these laws. United States law
enforcement officials stationed abroad
work shoulder to shoulder with theirforeign counterparts to investigate crimes
against United States nationals committed
overseas. Where offenders are identified,these officials also work to locate,apprehend, and return the perpetrators ofsuch crimes through extradition, expulsion
or other lawful means. They also facilitate
the arrest and extradition of international
fugitives located in the United States andwanted abroad.
The United States would like to expand
its law enforcement presence in othercountries to work with the host countries
to respond to this growing need. For
example, the FBI currently has FBI offices
in 44 other countries and is looking to
expand further. Similar expansions arebeing planned by the Customs Service andDrug Enforcement Administration. These
expansions will bolster United States law
enforcement abilities to arrest and punish
fugitives who have committed crimes
against the United States, to dismantle
international organized crime rings, andto strengthen law enforcement and judicial
systems around the globe. I have been
fortunate enough to work with FBI Legal
Attaches in many foreign countries, and I
have found their advice to be absolutely
essential to our work. I strongly encourageprosecutors and police officials of every
country to make and maintain close contact
with the nearest FBI Legal Attache if you
have any kind of investigation that touches
both your country and the United States,
or if you want any kind of investigative

assistance from the United States.
One particularly bold step taken earlier
this year was the creation of a joint FBIHungarian National Police Unit based in
Budapest that investigates organized crime
cases. This advance was made possible
because the Hungarian government
recognized that transnational organizedcriminals based in Budapest werecommitting crimes that affected manydifferent countries, including the UnitedStates. The Hungarians and theAmericans agreed that a joint police unit
would be better able to pursue
transnational investigations that would
result in prosecutions in Hungarian orAmerican courts. This unit has alreadymade a big difference in the operating
environment for criminals in Budapest,
and we are open to considering similar
initiatives with other countries.
To complement the increasing numberof United States law enforcement
personnel overseas, mutual legal
assistance is greatly enhanced by the
Department of Justice’s cadre of overseas
attorneys. Their role includes facilitating
requests for extradition and mutual legal
assistance, providing substantive legal
guidance on international law enforcement
and treaty matters, and increasing
cooperation between United States andforeign prosecutors. Currently, theDepartment of Justice has prosecutors inBrussels, Mexico City, Paris, London,
Geneva, and Rome. This summer we also
had a prosecutor stationed in our embassyin Moscow, a position that we hope to makepermanent. These attorneys do work
similar to that of their Office ofInternational Affairs colleagues in
Washington, D.C., but are even more
effective because they are on the spot. They
have also proved vital for building the longterm working relationships that we hopeto establish with our overseas colleagues.

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RESOURCE MATERIAL SERIES No. 58
If it were not for budget constraints, I
would gladly see these positions expanded
to a dozen other countries.
V. CONCLUSION
Transnational organized crime is a
rapidly growing problem. The criminals
have showed that they can adapt instantly
to new technologies, to exploiting
opportunities created by the increasing
globalization of the world’s economies.
They know how to use borders to their best
advantage to protect themselves, but do not
let problems of national sovereignty,
ethnicity, or language get in their way when
they see an illegal way to make money. We
members of law enforcement, by contrast,
must obey not only our own rules, with all
their technicalities, but must scrupulously
obey each others’ rules whenever weventure into another country. In the
eternal battle between policeman andcrook, the criminals threaten today as
never before to gain the upper hand on a
global scale.
The measures which I have outlined
above are at most partial solutions. They
will have at best only a limited effect until
we undergo a more fundamental shift in
our attitudes toward the difficult andfrustrating process of international
investigations. We all have heavy demands
on our time, more cases than we know what
to do with, and many leads to follow which
will always seem more promising or moreurgent than a foreign bank accountnumber, or a telephone call by a criminalthat goes overseas. These foreign leads,
we feel, are unlikely to amount to anything,and even if they did lead to a case it would
be a long and difficult one. My argument
to you today is that we have to overcome
this reluctance, we have to be willing totake the plunge and reach out for a foreigncolleague who may be looking at the otherend of the same case that you are puzzling

60

over. It is only when we learn to work
effectively across borders that we will beable to mount an effective attack ontransnational organized crime.

116TH INTERNATIONAL TRAINING COURSE
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TRANSNATIONAL ORGANIZED CRIME AND THE
COUNTERMEASURES IN KOREA
Yong Kwan Park *I. CHARACTERISTICS ANDHISTORY OF ORGANIZED CRIMESIN KOREA
Korea has a unique history concerningorganized crime. As mordernization of
Korea began in 1800s, Korea’s population
increased dramatically and concentrated tourban cities. On the other hand, there were
not enough job opportunities for theincreasing number of young people. Young
men who had the energy to work, but who
could not find jobs, banded together andidled about city streets. They worked atplaces like bars, gambling houses andconstruction sites, and some of themearned easy money by getting involved insmall but lucrative businesses. Some
called them ‘Keondal’, it mens scamps or
libertine. The terms Keondal scamp andlibertine did not have only bad meanings.
Actually, they were not considered as
criminals or criminal groups. They had
conflicts over some lucrative businesses,
but did not cause major harm or damage
to ordinary citizens. They honored loyalty
and faithfulness, and they would
sometimes help the weak and the poor.
Even now, the lives of scamps are an
attractive source of movies, which picture
them as heroic or romantic. Young men
who are not satisfied with their jobs are
admiring the lives of scamps. Movies andTV dramas featuring the lives of scamps
are sometimes very popular with viewers.
Many people were surprised when in a
recent survey, some teenagers said that
* Director, 1st Prosecution Division, Prosecution
Bureau, Ministry of Justice, Republic of Korea

they wish to be scamps or libertines when
they grow up. Similarly, in Japan,
organizations like the Yakuza wereconsidered by some as groups of people whoknow what loyalty really is.
Korean scamps did not use weapons tofight. They used their bodies, their hands,
feet and heads. Naturally, their fights
rarely resulted in deaths or severe injuries.
This owes much to the Korean tradition inwhich civilians were prohibited fromarming themselves. In today’s Korea, arms
such as guns and swords are still strictly
restricted and controlled. Carrying a gun
or a long knife or sword constitutes anoffense in itself.
But, as Korea became moreindustrialized and urbanized, Korean
scamps began to change as well. In the
1960’s when Korea was undergoingmodernization processes, organized crimegroups emerged as an influential power inentertainment districts. They soon became
associated with some politicians. They
guarded the politicians from danger, andinterrupted the political rallies ofcompeting politicians by using violence.
These groups were the so-called politicalgangs or henchmen.
The military regime which wasestablished in 1960 accused these crimegroups as being mainly responsible for thesocial disorder. The military governmentarrested 13,000 members of such crimegroups.
Korean criminal groups, up until thispoint, were merely groups of scamps who

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RESOURCE MATERIAL SERIES No. 58
did not use arms. Moreover, the Korean
military government conducted raids onthese crime groups, pointing them out as asocial evil. As the result of such raids, thecrime groups almost vanished in thisperiod.
Things began to change in the 1970’s,
as crime groups armed with Japanese
knives and iron bars dominated the busy
streets of the Myongdong area in downtown
Seoul. They were no longer the romantic
libertines of old times, but were vicious
crime groups, formed with the aim ofobtaining illegal profits by using violence.
It is from this point that Korean crimegroups were organized in the form offamilies. Families had fights with eachother, which often involved cruel killings
and murders. As time went on, thesefamilies became bigger, and developed intolarge businesses.
In the 1980’s, when Korea madeeconomic progress and became more open
to foreign countries, organized crimegroups developed into nationwide
organizations, and some of them evenextended their activities to foreigncountries, by associating with crime groups
in Japan and the United States. These
crime groups in Japan and the US were
mostly groups formed by ethnic Koreansliving in those countries.
On October 13, 1990, the Korean
government declared “the war against
crime”, and initiated comprehensive raids
on various crimes, including organizedcrimes. The arrested members of crimegroups were punished for forming or
joining criminal organizations. At thistime, the Korean government started a newsupervision programme for professional
criminals. Under this programme,
criminals were subjected to care andcustody for on additional seven to ten years

62

at rehabilitation facilities, after serving theimposed sentence of imprisonment. As theresult of the raids, most of the leaders ofthe major families were arrested and someof them fled to foreign countries.
In the early 1990’s, in Korea, habitual
pickpockets were subjected to harshpunishment, and were made to serve
additional terms of care and custody after
finishing their sentence in prison. To evadesuch harsh punishment, they fled to nearby
Japan, and continued to commit crimes
there.
In 1993, I dealt with mutual legal
assistance affairs while I worked at the
Korean Embassy in Tokyo. At that time,
Korean pickpockets traveling to Japan tocommit crimes became a hot issue. At theassistance of the International Division of
the Japanese Justice Ministry, I obtained
investigative materials for the Korean
pickpockets arrested in Tokyo and otherJapanese cities, and forwarded them to
Korean prosecutorial authorities (100 such
persons were arrested in Japan.) Koreanprosecutors started investigations based on
the provided materials, and arrested andpunished those pickpockets in Korea
according to Korean criminal law (theKorean Criminal Code provides that if aperson has already been punished in aforeign country for a crime, that person canbe also punished for that crime in Korea
by Korean law. In such cases, thepunishment in Korea may be mitigated or
remitted. The specific article for thisprovision is Article 7 of the Korean
Criminal Code). Korean pickpockets
traveling to Japan began to realize thateven if they are not arrested in Japan, they
could be arrested in Korea when they goback home, and would be punished severely
under Korean law. Accordingly, Korean
pickpockets vanished from Japanesestreets.

116TH INTERNATIONAL TRAINING COURSE
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II. RECENT TRENDS IN KOREAN
ORGANIZED CRIME
A. Overview
Security and order is fairly wellmaintained on the streets of Korea. You
can walk the Korean streets at night witha sense of safety. Korea’s traditional policy
strictly prohibited civilians from carrying
guns, swords, gunpowder, gas jet guns andbows and arrows. To possess guns or otherweapons for the purpose of hunting or forother sports, it is necessary to obtain police
authorization. For this reason, we haverarely seen such incidents in Korea where
criminals fire at people on the streets, or
criminal groups fight with each other withguns and knives.
The Korean prosecutorial authorit not
only initiates investigations on its own, butalso supervises investigations initiated by
the police. The prosecutors have exclusive
authority to investigate and prosecute allkinds of offenses. To efficiently deal withorganized crime, the Supreme Prosecutor’s
Office established the Violent Crime
Department within itself and within major
prosecutor’s offices, thereby establishing anationwide chain for the investigation oforganized crime.
The continual and strenuous efforts of
the Korean prosecutors to combat
organized crime has made substantial
achievements. The Violent Crime
Department at the Supreme Prosecutor’s
Office has collected comprehensive
information about most criminalorganizations in Korea, and has grasped
the overall picture of such criminalorganizations.
T h e Vi o l e n t C r i m e D e p a r t m e n t
evaluates whether the prosecutorial
authority has been doing a good job insuppressing organized crimes, with arelatively small number of officials (there

are about 114 prosecutors in Korea who are
entirely responsible for investigating
violent crimes).
However, the situation took a bad turnin the late 1990’s. The former bosses andleading members of crime groups who had
been arrested during “the war against
crime”, completed serving their sentences
and were released from prison. Recently,
criminal families of the past have beenreestablished and many new ones haveemerged in major cities. Moreover, themembers of the new criminal families aremainly composed of teenagers.
As of January 2000, the prosecutor’s
offices have estimated that there are 11,500
members in 404 families or groups. We
keep special surveillance on 647 membersin 117 families or groups. According to theanalysis of the prosecutor’s offices, during
the period between 1998 and 1999, theaverage number of members in one
criminal organization was 35. The numberof members of each criminal organization
ranged from the minimum of 10 members
and the maximum of 88.
B. Transnational Organized Crime
in KoreaIn the 1990’s, the cold war came to an
end and Korea became more open andinternationalized. With the economic
growth and globalization trend, organizedcrimes in Korea are becoming larger inscale and wider in the field of operation.
In the past, groups were primarily involvedin violent crimes such as blackmailing bars
and stores in entertainment districts, using
violence and threat. Recently, they are
engaging in any business, if it is profitable,
regardless of whether it is legal or illegal.
Businesses that are usually operated bycriminal organizations are: drugtrafficking, prostitution, gambling,
smuggling of persons, entertainment

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RESOURCE MATERIAL SERIES No. 58
businesses, underground financial
businesses like private loan businesses andcredit card discounts, construction
contracts, real estate dealings, fraud suchas counterfeiting credit cards, waste
disposal, smuggling, insurance fraud, andthe export of used cars. These arebusinesses that make big money very
easily.
Criminal organizations accumulate
funds through these businesses and invest
these funds into lawful businesses.
Eventually, it becomes more and moredifficult to distinguish between thebusinesses of criminal organizations andbusinesses operated by other legitimate
entities.
Members of criminalorganizations are transforming intobusinessmen with smart appearance andability.
As the passage of persons and trade with
China and Russia has become freer,
criminal organizations are engaged in theexport of labor and the smuggling of
persons. In addition, the export of usedcars to these countries is increasing. Car
theft is dramatically increasing in Korea
and it is believed that a great number ofstolen cars are being exported to foreigncountries by criminal organizations. In
July of this year, a criminal organization
was prosecuted for stealing new and
expensive vehicles and dump trucks, andexporting these stolen vehicles to China,
Russia and South East Asia. In August,
11 organized crime members were arrested
for stealing about 700 motocycles whichwere exported to South East Asia.
Meanwhile, Russian Mafia, Chinese
Triads and Japanese Yakuza are trying toextend their businesses in Korea, taking
advantage of the reform and liberalization
policy in Russia and China. There are some
reported cases where those foreignorganizations are involved in drug

64

trafficking in connection with Koreancriminal organizations.
Japanese Yakuza, Thai Kunsa andColombian drug cartels are trading large
portions of drugs such as
methamphetamine, cocaine, heroin, etc(with Korean criminal organizations). Oneof the facts that we should take notice of isthat a triangle of methamphetamine
manufacture and sales has been
established in this part of the world.
Korean manufacturers are making large
quantities of methamphetamine in Taiwan,
China and South East Asia, with the funds
provided by Japanese criminalorganizations. They then bring the
products into Japan and Korea for sale.
Also, there are suspicions thatmethamphetamine produced in North
Korea is being brought into Japan and
Korea through China or sea routes.
C. Cases in Korea
1. Crime Related to Drugs
Before the 1990’s, most drugs producedin Korea were smuggled into othercountries such as Japan or sometimes theUS, due to the severe punishments andsocial stigma attached to drug use in Korea.
Recently, however, there has been an
increasing consumption of drugs in Korea.
For instance, the number of drug users
increased by 26.8% from 8,350 in 1998 to
10,589 in 1999.
Provoked by the government’s strong
control over drug production and the riseof drug production costs, Korean criminalorganizations have moved drug factories toother countries, for instance, Taiwan and
China. Korean criminal organizations
have kept increasing their influence on
drug businesses in Asia. However Korea
is now a drug transit country to Japan andother countries. Some drug crime cases
related to transnational criminal

116TH INTERNATIONAL TRAINING COURSE
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organizations which were successfullyprosecuted by Korean prosecutors are:(i)
In November 1994, 300 kilogramsof the raw material ofmethamphetamine - hydrochloric
ephedrine - were smuggled out ofChina into Korea by a Korean gangmember. The raw material was
brought into Pusan, Korea througha sea route.
(ii) In July 1995, the United States
drug control agency informed the
Korean prosecutor ’s office that
6,000 kilograms of hashish
produced in Uganda was shipped
and being delivered to the seaportof Pusan, Korea, via Singapore andTaiwan. All of the shipped hashish
was confiscated.
(iii) In October 1995, the head memberof a Japanese organization
contracted the manufacture of 6
kilograms of methamphetaminewith a Korean manufacturer who
was staying in China. Both ofthem were arrested in Korea.
(iv) In May 1997, members of the Thai
drug organization “Kunsa”
smuggled 500 grams of heroin into
Korea and attempted to sell it.
(v) In October 1998, a housekeeper
working at a foreign embassy in
Korea was arrested for smuggling
60 kilograms of heroin from thePhilippines into Korea andforwarding it to the United States.
(vi) In April 1999, a Korean criminalorganization (Shinsangsapa) and aJapanese organization (Sumiyosikumi) bought 100 kilograms of
methamphetamine from North
Korea and smuggled it into Japan.
(vii) In September 1999, a member of a
Colombian drug cartel and abusinessman of a Korean trading
company smuggled 22 tons ofpotassium permanganate, rawmaterial of cocaine, into Colombia.

2. Trafficking in Human Beings
Russian and Korean-Chinese criminalorganizations are involved in trafficking
women and migrant workers. The Russian
Mafia provides job opportunities asentertainers to young Russian women andassists them in obtaining Korean tourist
visas. In this process, the Russian Mafia
receives commissions from the applicants.
The women who apply are sent to Korea towork in entertainment businesses as
dancers or bar maids (so-called“hostesses”). They usually end up as
prostitutes.
If we look at their former occupations,
1,133 had been students, 430 had beenclerks and 1,703 had been unemployed.
Twenty-nine percent were in their twenties
or thirties. Despite the fact that there are
not enough employment opportunities foryoung foreign women in Korea, many
young Russian females came to Korea lastyear. From this fact, we can speculate thatmany of them have illegal jobs in Korea
and consequently involve themselves inprostitution. In December 1999, theRussian “Sakhalin” Mafia supplied 60
Russian prostitutes to some undergroundprostitution businesses in Korea.
Regarding labor migrations, KoreanChinese criminal organizations are
involved in illegal job placements in Korea.
According to research on migrant workers
in Korea, there were 139,480 illegal
residents in 1997. Among them, 17,368
were either Chinese or Korean-Chinese
workers. In order to procure jobs in Korea,
they spend, on average, their annual
income as commissions to labor-exporting
agencies in China. The Korean law
enforcement authorities presume thatsome of those labor-exporting agencies aremanaged by Korean-Chinese criminalorganizations.

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RESOURCE MATERIAL SERIES No. 58
3. Money laundering
Money laundering by transnational
criminal organizations is not widespreadin Korea. There are about eight to ninemoney laundering cases every year.
According to research on the annual
estimate of the money laundered, theminimum is US $450 million, and the
maximum is US $1.4 billion. Most money
laundering cases in Korea were committed
by self-employed business owners and/or
business managers. Only a few money
laundering cases were associated withtransnational organizations, there include:
(i)

(ii)

In September 1995, a Koreancriminal organization establisheda shell company dealing withjewelry and gold. Through thisc o m p a n y, t h e o r g a n i z a t i o nsmuggled 2.6 tons of gold into
Korea and laundered US $7.9
million by using bank accounts inborrowed names. The organization
sent the money to Hong Kong.
In December 1998, a Colombian
and an Italian conspired to launder
US $30 million of drug money andtransferred the money to the bankaccount of a Korean shell company
which was connected with a
Korean criminal organization.

4. Other Cases Related toTransnational Criminal
Organizations(i)
In September 1995, a member of
the Chinese-Americanorganization “Waching”, based in
Los Angeles, was hired by a Koreancriminal organization to murder amember of another criminalorganization in Seoul.
(ii) In February 1996, members of theHong Kong Triads manufactured
and distributed illegal
pornographic and music CDs in
Korea.

66(iii) In December 1996, some Korean
organized criminals and a memberof a Japanese organization
attempted to withdraw cash in
Seoul by using fake credit cards
produced by American gangmembers.
(iv) In September 1999, the Russiancriminal organization“Shatendoveskaya” was hired tosolve a loan business between
Russian and Korean international
trade businessmen in Korea.
III. COUNTERMEASURES BY THE
GOVERNMENT
The measures of Korean government tocombat organized crime can be classified
into two types: short-term strategies andlong-term strategies. The short-term
strategy is similar to “the war against
crime” conducted by the Korean
government in the past. It aims at isolating
criminal organizations from society
through investigation and prosecution.
This is analogous to a surgeon’s operation,
which cuts out the affected part. Regarding
the long-term strategy, measures to deal
with delinquent juveniles (who are thehuman resources of criminalorganizations), Korean laws criminalizingorganized crime, and the Koreang o v e r n m e n t ’s e f f o r t t o s t r e n g t h e n
cooperation with foreign countries incombating organized crime are explained
below.
A. Delinquent Juveniles: Potential
Members of Criminal
Organizations
The number of delinquent juveniles(below age 20) in Korea is approximately
100,000 each year. This number does notinclude trivial violations of traffic
regulations. Among them, about 50,000 are
charged with infliction of bodily injury,
assault or extortion, and about 40,000 are

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
charged with theft, fraud and handling ofstolen property. Moreover, as many as
4,000 juveniles are charged with murder,
robbery, rape and arson each year.
Table 1Juvenile Delinquency in Korea(1998)
Violence (assault, infliction of
bodily injury, extortion, etc.)
Violent crimes (murder,
robbery, rape, arson)
Theft
Property crimes (handling ofstolen property, fraud, embezzlement, breach of trust)
Violation of special criminal
laws (Violation of the Road
Traffic Act, the Noxious
Chemical Substance Control
Act, etc.)* Among them, violations of
the Road Traffic Act are
33,644
OthersTotal

50,987
4,355
37,981
4,814

48,946iii)

Education and rehabilitation ofdelinquent juveniles.

As for the effort to deter juvenile
delinquency, there is the Initiative for theCampaign of Crime Free and Safe Schools,
which was started under the leadership of
the prosecutor’s offices in 1991. This
campaign is now headed by citizens, withthe support of the prosecutor’s offices.
The Juvenile Delinquency Departmentin the Seoul District Prosecutor’s Office is
responsible for the enforcement activities
against juvenile delinquency. The
Department, composed of 7 prosecutors,
conducts investigation of crimes related tojuveniles, or supervises such investigations
conducted by the police. In each local
prosecutor’s office there is a prosecutor
entirely responsible for juvenile
delinquency.

Most juveniles in Korea are enrolled inschool. The number of students fromelementary school to college is about 6.7
million. Some of them, who quit school forcommitting delinquency, form their owngroups, and commit crimes like assault,
extortion, theft, etc. They are growing into
potential members of criminalorganizations. These teenage criminals are
more cruel and dangerous than theirpredecessors.

The education and rehabilitation ofdelinquent juveniles is making remarkableachievement as the education programs injuvenile prisons and reformatory schools
have been changed significantly. All
reformatory schools for delinquentjuveniles have been renamed as middle
schools or high schools. If a person finishes
all courses at such reformatory schools, it
is regarded as the same as graduating froma regular school. The courses that thesefacilities provide include computer-related
skills and English, which meets the needsof the young generation. Because of suchnew courses, reformatory schools fordelinquent juveniles provide an even better
environment for education than mostordinary schools.

Korea is putting considerable effort into
the three-step strategy for dealing withjuvenile delinquency:i)
Deterrence,ii)
Law enforcement against crimes,
andRecently, about 120 inmates who wereabout to be released after completing aperiod of service at the reformatory school
refused the release and requested
permission to stay at the school to continue
the in education. Special permission was

1,475
148,558

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RESOURCE MATERIAL SERIES No. 58
given to these students to continue theirstudy in areas like computer skills.
Korea has a unique system in dealing
with cases of juvenile delinquency. On thecondition that the charged juvenile receive
the guidance of a counselor (who is avolunteer) for six to twelve months, theprosecutor suspends the prosecution of thecharged juvenile. This system has been
enforced for twenty years, and is evaluatedas very effective in facilitating the returnof delinquent juveniles to society.
These various measures undertaken by
the Korean government aims to prevent
delinquent juveniles from growing into
professional criminals, or members ofcriminal organizations.
B. Korean Legal Provisions on
Organized Crime
The formation of or participation in acriminal organization is criminalized under
Article 114 of the Korean Criminal Code.
Article 114 provides that if a person forms
an organization which aims to commit
crime, or participates in such organization,that person shall be punished for that crime
which the organization aims to commit.
Under this provision, a person who forms
or joins a criminal organization ispunishable regardless of whether or not theintended crime was actually performed.
For instance, the person who forms orparticipates in a criminal organization
aimed at committing robbery will bepunished for the crime of robbery, and theformation of or participation in a criminalorganization aimed at prostitution will bepunished for the crime of prostitution.
Furthermore, the Act on the AggravatedPunishment of Violence, a special criminalact, provides punishment for those persons
forming or joining organizations aimed atcommitting violent crimes such assault,

68

infliction of injury, threatening, extortion,robbery etc. This Act provides:
i)death penalty, life imprisonment or
imprisonment of not less than ten
years for the boss of suchorganization;ii)
life imprisonment or imprisonmentof not less than seven years for theassistant leaders;iii) imprisonment of not less than two
years for ordinary members; andiv) imprisonment of not less than
three years for those persons whocollected or provided funds for suchan organization.
According to the case law, the elementsof a criminal organization are:i)that the organization be composedof specified members of plural
number;ii)
that the organization have thepurpose of committing a certain
crime or crimes;iii) t h a t t h e m e m b e r s o f t h eorganization act in concert for aperiod of time; andiv) that the organization have ahierarchical structure.
The court’s interpretation of theprovision on the formation of a criminalorganization is very strict. Although the
Korean laws criminalize the formation ofa criminal organization, it is still very
difficult to investigate and prosecutecriminal organizations. Because it is a
tough to substantiate the existence of ahierarchical structure in an organization,
it is sometimes very difficult to apply theprovisions on the formation of a criminalorganization.
In Korea, an average of 2,000 membersof criminal organizations are arrested eachyear. However, only an average of 700 are
punished for the formation of a criminalorganization, and the rest are punished forthe individual offenses they actually

116TH INTERNATIONAL TRAINING COURSE
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committed, like assault, extortion and drugtrafficking.
Table 2Arrest of Persons for Organized Crimes
Year
Number of arrestees
Number of persons punished forformation of or participation in acriminal organization

1995
1,763
575

1996
1,928
578

1997
2,691
779

1998
2,303
750

1999
2,750
653

Total
11,435
3,335**Between January and July of 2000, the number of arrestees was 1,736, and among them, the number of
persons punished for formation of and participation in a criminal organizations was 283.

C. International Cooperation
As we step into the new millennium,
there is a rapid increase in the exchangeof persons and properties among nations.
The Iron Curtain that separated the Eastand the West is no more. Traditionalreligion is losing its significance.
Traditional morals and ethical views arechanging. All these provide on an ideal
breeding ground for transnationalorganized crime.
The coordination of measures to combat
organized crime is a slow and laborious
process, because of the differences between
domestic legal systems and the excessiveemphasis laid on sovereignty. Criminals
can use the differences in domestic criminal
laws to their own advantage. Organizedcrime is speedy and flexible. But thecriminal justice authorities are slow andrigid because they have to adhere to lawfulprocesses. If we are to effectively cope withtransnational organized crime, we need,
above all, to foster and strengtheninternational cooperation.
1. Mutual Legal Assistance andExtradition of Criminals
To d e v e l o p t h e f r a m e w o r k f o rinternational cooperation, we need tonegotiate and conclude new bilateral andmultilateral agreements on mutual legal
assistance and extradition, thereby
creating a seamless web of agreements
among countries. Recognizing this need,
the Korean government has signed twelve
bilateral extradition treaties and ninebilateral MLATs, and is continuing its
negotiation with other countries, such as
China, Russia, and Hong Kong to expand
this treaty web.

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RESOURCE MATERIAL SERIES No. 58
Table 3
Countries with which Korea has Signed an Extradition Treaty
Country
Australia
Philippines
Spain
CanadaChile
Argentina
BrazilParaguay
MexicoUnited States of America
ThailandMongolia

Date of Signature
September 5, 1990
May 24, 1993
January 17, 1994
April 15, 1994
November 21, 1994
August 30, 1995
September 1, 1995
July 9, 1996
November 29, 1996
June 10, 1998
April 16, 1999
May 31, 1999

The treaty of mutual legal assistance on
criminal matters that was signed with
China is especially significant to Korea.
Ever since the two countries normalized
diplomatic relations in 1992, there has beena surge of exchange in persons andcommodities in many areas. Moreover,
several hundreds of thousands of people

Date of Effectuation
January 16, 1991
November 30, 1996
February 15, 1995
January 20, 1995
October 1, 1997
Not in effect yet
Not in effect yet
December 29, 1996
December 27, 1997
December 20, 1999
Not in effect yet
January 27, 2000

from each country have made visits to theother country. In 1998, half a million
Koreans visited China and ninety
thousand Chinese visited Korea. As suchexchange increases, crimes that arecommitted by each country’s citizens in
the other country are more likely to occur.

Table 4
Countries with which Korea has Signed Mutual Legal Assistance Treaties
in Criminal Matters
Country
Australia
United States of America
CanadaFranceChina
Hong Kong
RussiaMongolia
New Zealand

Date of Signature
August 26, 1992
November 23, 1993
April 15, 1994
March 2, 1995
November 12, 1998
November 17, 1999
May 28, 1999
May 31, 1999
September 15, 1999

However, the traditional system ofmutual legal assistance and extradition,
which requires considerable documents
and formalities, is sometimes inadequate
to effectively cope with the new aspects of70

Date of Effectuation
December 19, 1993
May 23, 1997
February 1, 1995
March 8, 1997
March 24, 2000
February 25, 2000
Not in effect yet
January 27, 2000
March 30, 2000

crime in the 21st century, such as cybercrimes. We should study how to streamline
the procedures of mutual legal assistanceand extradition.

116TH INTERNATIONAL TRAINING COURSE
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2. International Cooperation among
Law Enforcement Agencies
The Korean government is committed toenhancing international efforts forcombating drug crimes. Since 1997, theMinistry of Jusitice has annually hosted
the International Training Course on
Crime Prevention and Criminal Justice,inviting senior members from various
criminal justice agencies in Asian
countries, including judges, prosecutors,
police officers and correctional offiers. For
three weeks, the participants have in-depth
discussions about new trends in drug
syndicates and organized crime groups,
and about effective joint countermeasuresagainst the internationalization of regional
crime. In doing so, the participants get toknow each other better, and naturally form
human networks for international
cooperation.
In April of this year, the Korean Ministryof Justice hosted the Second Organized
Crime Regional Initiative in the Asia/
Pacific Region in Seoul, jointly with the
Korean Supreme Public Prosecutor’s Officeand the Asia Foundation. The conference
was attended by thirty representatives
from five countries in the Asia Pacificregion. They are the United States, Japan,
China, Russia and Mongolia. At theconference, the participants discussed therealities of organized crime and drug
crimes in each country and thecountermeasures employed by eachcountry. At the close of the conference, theparticipants proposed measures forinternational cooperation to combat
organized crime in the region.
In detail, the participating countries
have talked about an informal network
composed of key working level members of
the international law enforcement
community dealing with organized crimes.
For this purpose, each country will makeavailable to each country, a contact list,

including the relevant contact names,
telephone and facsimile numbers, and email addresses, of its officials dealing withorganized crimes. Each participating
country will provide as much information
as is legally permissible, regarding laws orprocedures relevant to extradition ororganized crime, upon receiving an
informal request from an otherparticipating country via telephone,facsimile or e-mail. The participating
countries are now working together toestablish an informal network to combat
organized crime, as discossed.
The Korean prosecutor’s offices no longer
confine the scope of their function to purely
domestic affairs. In 1994 the Supreme
Public Prosecutor’s Office of Korea began
to exchange visits with the Supreme
People’s Procuratorate of China. On
September 6, 1999, the two agencies signed
an agreement to establish the frameworkfor strengthening cooperation between theprosecutor’s offices of the two countries.
Under the agreement, the two countries
now have active exchange and cooperation
at the level of local the prosecutor’s offices.
Korea and Japan established, as early
as in the 1980’s, a regular committee formutual cooperation in combating drug
crimes. The committee, which meetsannually, consists of officials from therespective Foreign Ministries, Justice
Ministries, National Police Agencies,
Customs Offices, and Ministries of Healthand Wealth. The regular meetings of thiscommittee provide a network of
information exchange for broad cooperationin the process of investigation and trial
proceedings, as well as opportunities fordiscussion on measures to reduce drug
demands. It is viewed that throughmeetings like this, Korea and Japan havesuccessfully intercepted the illicit
trafficking of methamphetamine between
the two countries.

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RESOURCE MATERIAL SERIES No. 58
meetings at the regional level.
The Narcotics Division of the Supreme
Public Prosecutor’s Office in Korea, which
is charged with drug crimes, has held
ADLOMICO’s (Anti-Drug Liaison Officials’
Meeting for International Cooperation)quarterly meeting of drug enforcement
liaison officials, since April 1989 (theSupreme Public Prosecutor ’s Office isplanning to expand the present Narcotics
Division into the Narcotics Investigation
Department within this year). The
ADLOMICO meeting is aimed atenhancing cooperation among countries ina broader region than just those countries
directly neighboring Korea. Particularly,
the June ADLOMICO is an extensive
meeting participated in by experts from themember countries’ own law enforcement
agencies, as well as the UNDCP (United
Nations International Drug Control
Programme) and the ICPO (International
Criminal Police Organization) Bangkok
office.
In June of this year, the eleventh
ADLOMICO was successfully held in
Busan, participated by 122 persons from17 countries and 2 internationalorganizations. The participants exchanged
information on the current issues of drug
crimes in each country, and discussed
effective measure to intercept illicit drug
supply and to cut down on drug demand.
They also discussed measures for theexchange of information, and forcooperation in investigation.
In this session, the participants reached
at a consensus that cooperation should be
not only be made formally throughdiplomatic channels and internationalorganizations, but also be made informallyand directly among working-level officials.
The participants noted that to facilitatesuch informal and direct cooperation, it isimportant to promote direct contact ofworking-level officials through regular72

The Korean Customs, anothercomponent in enforcement against drug
crimes, have taken initiatives to combat
drug crimes. The Korean Customs Agency
have concluded agreements for mutual
assistance in criminal matters with 16
countries, thereby providing a legal
framework for cooperation with foreign
customs services. Based on theagreements, the Korean Customs Agency
actively exchanges information andassistance in customs affairs with foreigncountries.
In order to build on the cooperative
relationship with foreign customs agencies,
the Korean Customs has hosted andparticipated in an annual Customs
Cooperation Conference with the 16 parties
to the customs mutual assistanceagreements. There were 8 sessions in 1997,
3 sessions in 1998, 7 sessions in 1999 andthis year, there were 6 sessions. In eachsession, measures to enhance mutual
cooperation for effective drug control is
discussed as an important agenda item of
the Conference.
The Korea Customs, in order to provide
a basis for closer cooperation with theirneighbor country, Japan, concluded, inJune this year the MOU (Memorandum ofUnderstanding) with the Japanesecustoms authority on the joint projectagainst the smuggling of illicit drugs. As ameasure to effectively intercept thesmuggling of illicit drugs from one country
to the other, the two parties have agreed
to designate officials in charge, to exchange
information on the smuggling of illicit
drugs, mainly through these officials, andto provide each other with trend analysis
reports on illicit smuggling.
We cannot emphasize enough theimportance of international cooperation to116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
combat organized crime. As we are agreed
on this point, it is time that we moved on
to discover specific practical measures forinternational cooperation, and implement
them into action. In this respect, I believethat the Korean Government’s efforts forinternational cooperation could set a good
example for the international community.
We believe that when it comes to drug
problems, no country could or should be an
isolated island. Without close cooperation,
sacrifice and solidarity, international
cooperation in the true sense of the word
will not be achieved, and without genuine
cooperation, we can not eradicate drug
crimes. In this regard, each government
should do its best to provide an adequate
basis for international cooperation. The
Korean Government will take an active
part in this motion of the international
community to promote cooperation.
3. International Support by the
Korean Police
The Korean National Police Agency
joined the International Criminal Police
Organization (Interpol) in 1964 andestablished the National Central Bureau
in 1996. As of December 1999, the total
number of cases investigated with thesupport of international cooperation
reached 2,141. Among them, the KoreanInterpol made requests for 807 cases andreceived requests from foreign Interpols for
1,334 cases.
The region with which the KoreanInterpol has most frequently cooperated ininvestigations is North America, and otherregions on the frequently requested list are
Asia, Europe, Central and South America
and Oceania, in the order of frequency.

73

74

Europe

50
253

North
America
290
286

30

124

InterpolHeadquarter

131

Central& SouthAmerica95
111

78

Oceania

91

73

13
47

Japan

Africa

1,334

807

64
61

Total

China

* “Requests made” is the number of wanted criminals that Korean Interpol has made requests in regard of to the Interpolsof other countries.
**“Requests received” is the number of wanted criminals that Interpols of other countries have made requests in regardof to the Korean Interpol.

Requests
madeRequests
received

Continents/
Countries

Table 5International Cooperation of
Korean National Central Bureau

RESOURCE MATERIAL SERIES No. 58

116TH INTERNATIONAL TRAINING COURSE
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Some cases of how two police force works
through international cooperation are as
follows:
(i)

(ii)

(iii)

In July 1998, a thirty-nine year
old Japanese male robbed a bankclerk who was carrying 5.5 million
Yen in cash (equivalent to US$500,000), at a parking lot
adjacent to the bank. The
Japanese male threatened theclerk with a gun. Shortly after,
the offender fled to Korea using a
fake passport. A team of several
Korean detectives arrested him at
his residence in Korea, and theoffender was deported.
In January 1999, a Korean maleworking in Hong Kong embezzled
US $4.4 million in company funds,
and illegally transferred themoney to another country. When
Hong Kong’s law enforcement
authorities blocked thewithdrawal, the offender fled
Hong Kong via Paris to
Switzerland. A Hong Kong police
agent persuaded him tovoluntarily surrender. He wasarrested at the Kimpo Airport inSeoul, Korea.
In April 1999, a Korean banker
who embezzled US $220,000, fromthe bank for which he had worked,
fled to Australia. When he enteredFiji by using a fake passport on
his way to New Zealand, he wasarrested and deported to Korea.

D. Witness and Victim Protection
Programs
Korea enacted the Witness and Victim
Protection Law on August 31, 1999, which
entered into force on June 1, 2000. The
purpose of this law is to protect thewitnesses and victims of certain crimes, sothat they can safely support and assist thecriminal proceedings.

In Korea, there was a shocking casewhere a victim of a crime was stabbed todeath by a member of a criminalorganization, when he was walking out of
the court building after giving testimony
at the trial. There are many cases where
victims and witnesses find it difficult togive assistance to the criminal trial becauseof the intimidation of the offender. This is
not restricted only to organized crimes, but
includes ordinary criminal cases.
The Witness and Victim Protection Law
applies to witnesses and victims relatedwith certain crimes, and their families.
Certain crimes include:i) the formation of and participation incriminal organization, and crimes
committed by criminal organization;ii) violent crimes such as murder,
robbery, rape and kidnapping, andiii) drug-related crimes.
If there is a possibility of retaliation on
witness, the name of the witness will be
kept secret, and the trial can also be heldin secret. If the prosecutor judges that
there is a possibility of retaliation on awitness, the prosecutor will direct theemployees of the prosecutor’s office or thepolice to protect the witness.
When the witness or the victim sustains
financial loss, the government may give
relief money for the loss, and if it isnecessary for the witness or the victim tochange homes or jobs for safety reasons,the government may bear the cost. The
Law also provides that if a person reports
to authorities a crime in which she/he isinvolved, that person may be exempt frompunishment or be subject to mitigatedpunishment for that crime. The Law
thereby protects the whistleblower orinside reporter.

75

RESOURCE MATERIAL SERIES No. 58
IV. CONCLUSION
When we talk about organized crime, thefirst word that comes to our minds is“mafia”. The term ‘mafia’ is used as asynonym for both international anddomestic criminal organizations. We talkabout the Italian Mafia, Russian Mafia andPolish Mafia. In Asia, the Japanese Yakuza
and Chinese Triads are known to besynonymous for criminal organizations.
But, no one really knows about the Mafia,
Yakuza or Triads or about their scale andbusinesses.
The formation of Mafia, Yakuza andTriads is not the subject of investigation in
itself. Only when the crimes of themembers of these organizations aredetected do the investigative authorities
begin investigation. The investigative
authorities try to reveal how the members
and leaders of a criminal organization areassociated with each other, but in manycases, these efforts are not profitable. Thisis because criminal organizations mobilize
funds illegally, and they invest them into
lawful businesses. They do hiding
activities behind legal fronts.
These criminal organizations ensuresufficient welfare, care and remuneration
for their members, whereas cruelpunishment or retaliation awaits betrayal
or disobedience. Through these means,
criminal organizations successfully preventthe in members from walking out of theorganizations. They dress like smartlooking businessmen and act like such.
They hire lawyers to defend them, and win
over politicians or public officials withbribes. In Korea, there were times when
the boss of a criminal organization would
approach the prosecutor or police official
newly coming to the office, to bribe themby hosting welcome party. In doing so, thebosses would pretend as if they were
influential persons in the community.

76

I would like to talk about four problems
in the investigation of organized crime in
Korea. First, it is almost impossible to start
an investigation of the criminalorganization itself. This is also true inJapan. You can’t begin to investigate anorganization, just because it is reported to
be organized. Such an investigation of anorganization can be subject to the criticism
that this investigate an violates freedomof association under the Constitution. If
the suspected organization has a religious
element, it is even more difficult toinvestigate. It is because freedom of
religion and the right to free association to
pursue religion is more strongly protectedunder the Constitution. This explains why
there were only a few criminalorganizations that were investigated andprosecuted in Korea, although the Criminal
Code clearly criminalizes the offense of theformation and participation of a criminalorganization.
Second, it is becoming more and moredifficult to investigate and confiscate thefunds of a criminal organization. Even if
we have a suspicion that the criminalorganization launders money by
establishing legitimate companies andfalsely cleaining the money transactions forthe operation of those companies, it is noteasy to trace the flow of money. Banks try
to protect the secrets of their customers.
The trend in the legislation of mostcountries is to protect the the secrecy ofaccount owners.
Korea has implemented the so-called
real name transaction protection systemsince 1993. In 1997, the Real NameTransaction and Protection of Secrecy Act
was enacted. As you can see from the nameof this law, the law focuses on the protectionof the secrecy of bank transactions.
Therefore, for investigative authorities tobegin tracing the flow of funds, mere
suspicion is not enough. They must have

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
proof for certain violations, and present awarrant issued by the court. As the process
for the issue of a warrant by the court isslow and laborious, the investigative
authorities sometimes give up
investigation. It is equally as difficult toobtain materials other than financial
materials. Data protection laws haveconsiderably restricted the ability ofinvestigative authorities to collect andanalyze information.
To effectively address money laundering,
Korea is preparing legislation for the
introduction of an FIU (Financial
Intelligence Unit) system. Under thissystem, the financial institutions should
promptly report to the FIU those suspicioustransactions indicatiny money laundering,
and when the FIU determines that thetransaction is related to a crime, it could
provide information on the transaction to
the investigative authorities. This system
will allow us to get fast information ontransactions that are suspected of being
associated with organized crimes, thebribery of public officials, tax evasion andthe smuggling of funds. In this regard, thissystem will be of great assistance in theinvestigation of transnational organizedcrime. Currently, a task force including aprosecutor has been established for theestablishment of FIU in Korea. We areworking to finalize the draft law for theestablishment of FIU within this year.
Along with the FIU law, we are also
working on anti-money laundering law.
This law would criminalize money
laundering, and provide measures toconfiscate the illegal proceeds obtained
through the commission of crime. The
scope of crimes subject to confiscation will
include 57 types of crimes includingorganized crime, tax evasion, bribery andthe smuggling of funds. The confiscationof illegal proceeds obtained from drugrelated offenses is made possible by adifferent law, the Special Act against Illicit
Trafficking of Narcotic Drugs andPsychotropic Substances.
If both of the FIU law and the antimoney laundering law are finally enacted,
the investigation of suspicious financialtransactions will be conducted based on
information provided under the FIU law,and the illegal proceeds identified throughthe investigation will be confiscated under
the anti-money laundering law.
The third problem in organized crime
investigation is that it is becoming
increasingly difficult to monitor theactivities of criminal organizations bymeans of wiretapping. In Korea, thewiretapping issue recently gave rise toheated discussions. It even stirred politicaldisputes, and the public suffered anxiety
for fear of being monitored throughwiretapping. As a result, wiretapping byinvestigative authorities has been
restricted severely, and this is making
investigation a tougher job.
The fourth problem is that the arrest,
prosecution and punishment of membersof criminal organizations is becoming moredifficult, because they are able to hire goodlawyers with adequate funds. They also
make good use of the loopholes in the law.
The Korean Criminal Procedure Codeprovides a very complicated procedure forthe pre-trial confinement of criminals,
more complicated than any other criminal
procedure law in the world. The police canarrest a suspect only under the supervisionof a prosecutor, except in urgent situations.
The arrested suspect can apply for a reviewof the legality of the arrest. In order toplace the arrested suspect underconfinement, the prosecutor should request
the issue of a warrant of confinement
within 48 hours of the arrest (the Koreansystem distinguishes between the arrest

77

RESOURCE MATERIAL SERIES No. 58
and the confinement, unlike the US
system. The Korean system is similar to
the Japanese system). The judge issues
the warrant of confinement, after holdinga hearing where the arrested suspect ispresent (Article 201bis of the Criminal
Procedure Code). This procedure is called
the review for a warrant of confinement.
It has been implemented since Decemberof 1997. Through this procedure, about
15% of the arrested suspects get released.
After the suspects are placed underconfinement, they can apply for a reviewof the legality of confinement. At this stage,a number of suspects get released (Article
214bis of the Criminal Procedure Code).
After indictmeny, a person is allowed apply
for bail. At this stage, a number of people
are released on bail. The release is also
possible before the indictment, if bailmoney is deposited. The convicted person
can be released on probation at the end of
the first trial.
From the arrest to the conclusion of thefirst trial, there are 6 stages including:i) Arrest;ii) Review of the legality of arrest;iii) Pre-confinement hearing on thesuspect;iv) Confinement;v) Review of the legality of confinement,or pre-confinement bail; andvi) Post-confinement bail.
The suspect may choose to give up
certain stages. As we can see in these four
problems, it is becoming more difficult toinvestigate crime, as criminals become
more organized and intelligent. For more
efficient investigation of organized crime
or transnational organized crime, there aresome things that we should attend to.
Mutual understanding and cooperationprompt cooperation-among countries isessential for efficient investigation of78

transnational organized crime. To
facilitate cooperation among countries, itis necessary to enact anti-money
laundering laws, and to make theprocedures of extradition and mutual legal
assistance more expeditious and lesscomplicated. The current system of
extradition and mutual legal assistance is
too laborious and tedious.
Domestically, we need to enforce crime
deterrence measures, especially measuresagainst delinquent juveniles who are very
likely to end up in criminal organizations
as adults. We can call them ‘reserve troops’
of organized crime.
We need to make sufficient use ofscientific techniques in investigation,
which do not exclude wiretapping and the
tracing of funds. In using these techniques
in investigation, we should also keep inmind to protect the rights, property andsecrecy of our citizens.
Criminals and criminal organizations
should be subject to strict punishment
according to law. Illegal proceeds obtained
through drug trafficking, prostitution,
gambling, fraud, extortion and theft should
be confiscated thoroughly. We should work
to promote that sound citizenship cannot
be bought with illegal money. Finally, we
should go on to apply administrative andeconomic sanctions against businesses
operated by criminal organizations. Thereis no hope in such a society where corrupt
politicians or public officials cooperate withor remain silent about the businesses ofcriminal organizations.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERSCONTROLLED DELIVERYJohan Peter Wilhelm Hilger *I. INTRODUCTION
Controlled delivery is a tool employed by
the criminal prosecution authorities whichis indispensable to effectively detect
international organized crime. In
Germany, we understand by this controlled
importation, controlled exportation andcontrolled transit.
Controlled delivery is not governed bylaw in Germany. In practice, it is subject
to the tactical discretion of the criminal
prosecution authorities. Individual
provisions can be found in guidelines issued
to the criminal prosecution office, which isthe authority in charge of the investigation
proceedings. The police must follow the
instructions of the office (sections 161 and163 of the Code of Criminal Procedure[StPO]). This has worked smoothly inpractice in Germany for years; this also
applies to cooperation with the police
authorities in the neighbouring European
states. The success of the investigations isfrequently spectacular.
II. PRINCIPLES AND FRAMEWORKThe principle of mandatory prosecution
applies in Germany, which is derived fromthe rule of law principle (sections 152, 161
and 163 of the Code of Criminal Procedure).
Accordingly, the criminal prosecution
authorities are obliged to initiate themeasures necessary for prosecution
without delay, in particular to solve thecrime, when they gain knowledge or forma suspicion of the commission of a criminal* Former Head of Division of Judicial System,
Federal Ministry of Justice, Germany

offence. This means that they have nodiscretion as to whether to initiate criminal
proceedings; they are obliged to take thenecessary investigative measures.
Furthermore, the duty to act ‘within areasonable time’, as prescribed in Article 6para 1 of the European Human Rights
Convention, applies in Germany. Thismeans that the necessary criminal
prosecution measures are to be taken
without delay.
It is however not possible to deduce fromthese principles an instruction to intervene
immediately in the sense of, for instance,
search or seizure, or indeed apprehension
without delay. Rather, the publicprosecution office has tactical discretion as
to which measure to take at what point intime to solve a crime; the highest principle
is only that rapid detection may not suffer
as a result of this tactical discretion.
The principle of mandatory prosecution
does not entail a duty to take a specificinvestigation and intervention measureunless a specific danger otherwise existsthat the criminal prosecution would suffer
were this measure not to be taken, and thatin particular items of evidence would be
lost.
There is also no statutory requirementin Germany that the offender is to bebrought before a court in Germany. It issufficient to ensure that the offender issentenced at all. On the whole, this means:
The principle of mandatory prosecution,
the principle of acting within a reasonable
time and controlled delivery do notcontradict but complement one another in

79

RESOURCE MATERIAL SERIES No. 58
a harmonious manner. This becomes clear
if one realises that too early, too rapid or
too intensive intervention, too early seizure
or too early apprehension may be
detrimental to the investigative
proceedings in individual cases because it
restricts the possibilities available fordetection. This would mean in practice that
it would contradict a correctly understood
principle of mandatory prosecution if depending on the facts of the individual
case - controlled delivery were not to be
used, but one were to intervene too early.
The principle followed is: too earlyintervention is just as detrimental as thecriminal prosecution authorities
intervening too late, because it would
reduce the potential success of theinvestigations.
There are naturally cases in which theprinciple of mandatory prosecution and theprinciple of acting within a reasonable timeforce one to reject or abort controlled
delivery. Such a case is, for instance, where
the implementation of controlled delivery
would be too dangerous for the officers
involved. Another case in which controlled
delivery is not implemented or must be
aborted is that of endangerment to thegoods being transported, as is the case withtrafficking in human beings.
III. INDIVIDUAL QUESTIONS
On the basis of these considerations,Nos. 29 a to 29 d of the guidelines on
criminal proceedings stipulate thefollowing, in the main:
A. 29 aControlled delivery is the illegaltransportation of narcotics, arms, stolen
goods and property, etc., from a foreigncountry through domestic territory to athird country, monitored by the criminal
prosecution authorities; controlledexportation is illegal transportation from80

domestic territory to a foreign country;
controlled importation is monitored illegaltransportation from a foreign country todomestic territory.
B. 29 bSuch controlled transportation can only
be considered if the ringleaders cannot
otherwise be identified or distribution
channels uncovered. Monitoring is to be
carried out such that it is ensured that theoffenders and items involved in the offence
can be accessed at all times.
Moreover, the following declarations by
the foreign states must be provided fordelivery and exportation:(i)
assurance to monitor
transportation continuously;(ii) assurance to strive to investigate
couriers, ringleaders and buyers,
to seize the narcotics, arms, stolen
goods and property and the like,and to attempt to convict theoffenders and execute theirsentences; and(iii) assurance that the Germancriminal prosecution authorities
will be continually informed of therespective state of the proceedings.
C. 29 cWith controlled delivery, if as yet there
are no investigative proceedings pending
with a German public prosecution office inrespect of the offence, the public prosecutor
is on principle responsible for theproceedings who is responsible for theborder crossing via which the items related
to the offence are brought onto domestic
territory. This also applies to controlled
importation. With controlled exportation,
the proceedings are on principle operated
by the public prosecutor from whose district
the transportation is initiated.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
D. 29 dThe decision as to the permissibility ofcontrolled transportation is taken by the
responsible public prosecutor. He/she
informs the public prosecutor from whose
district the transportation is likely to leavedomestic territory. The public prosecutor
responsible for the place of importation is
also to be informed if another than this one
is operating the proceedings.
The authorities and officers of the policeand customs service on principle approach
the responsible public prosecutor if theyneed decisions and information.
These relatively strict guidelines, which
are binding on the public prosecution officeand the police, ensure that controlled
delivery is only employed if it is expedient.
They also ensure that, in accordance withthe principle of mandatory prosecution andthe principle of acting within a reasonable
time, the offenders will be sentenced athome or abroad without delay.

become. It is also made more difficult if
organized crime becomes less accessible.
Here, controlled delivery overlaps withother investigation methods, such as theuse of undercover investigators. These are
frequently involved in controlled delivery.
If organized crime becomes even lessaccessible, it will become more and moredifficult to infiltrate organisations with
undercover investigators. However, if thisbecomes more difficult, it will also become
more difficult to identify illegaltransportation of criminal goods at theoutset and to take early measuresnecessary for controlled delivery. I only
wish to touch on this problem here. We
can perhaps discuss this later.

IV. OUTLOOKI stressed at the beginning that
controlled delivery in Germany is acontinually functioning practice with good
detection rates. My information has, I
hope, also demonstrated that no statutory
provision is needed.
It is an unmistakable fact that controlled
delivery is gaining ever greater significanceas internationally operating organizedcrime increasingly expands trade channels
over the world. Effective detection is only
possible if controlled delivery is possible
and practised the world over in a network
formation.
One should also not overlook the factthat controlled delivery becomes all themore complicated the more complex thelinks and trade channels of organized crime81

RESOURCE MATERIAL SERIES No. 58

MEASURES OF INVESTIGATIONS IN CASES OF ORGANIZEDCRIME IN THE CRIMINAL PROCESS OF GERMANY
Johan Peter Wilhelm Hilger *I. INTRODUCTION
The aim of my paper is to give you some
information on measures of investigationin the criminal process of Germany, which
can be used for the persecution of cases oforganized crime. I shall explain ,in criticalterms as well, the most importantmeasures for which provision has been
made in the Criminal Procedure Code(StPO). In conclusion I shall indicate whichof the demands addressed to Parliament
have not been taken up, and I shall also
indicate the areas where -perhaps- is aneed for further action.
II. CURRENT POSITION
A. Analysis
Organized crime has also become achallenge to state and society in Germany.
Because of its legal system, of its
prospering economy and its stable currency,
its infrastructure and its geographicalposition, the Federal Republic of Germany
faces special danger from organized crime.
This type of crime is concentrated in certain
offence spheres guaranteeing high criminaI
profits where, at the same time, the-riskof detection is reduced because there are
either no immediate victims or the victims
are not willing to lay a criminal charge andto make a statement to the prosecuting
authorities.
In the first place, the development oforganized crime over the past years wasmarked by an alarming increase in drugtrafficking offences. Internationally* Former Head of Division of Judicial System,
Federal Ministry of Justice, Germany

82

organized drug syndicates brought drugs
into the Federal Republic of Germany bymeans of couriers , builded up marketingorganisations and took steps to launder andrecycle the money earned from drugtrafficking. Money earned from illegal drugtrafficking was quite often transferred toother lines of criminal activity yielding
particularly high profits, for instance in thefield of money and cheque forgery or as
regards the ‘red-light’ crime which islargely impermeable (pimp rings, operationof illegal gambling casinos).
Drug crime is only one part of organizedcrime - even if this part is particularly
important and must be combated withspecial urgency. Also, in other spheres ofcrime we can see the development of a
substantive qualitative change: theincreasingly organized mode ofcommission. To a growing extent, criminalorganisations are coming to the fore in
special spheres of crime such ascounterfeiting money, gang theft and theftby burgling, with handling rings waitingin the background, and particularly as
regards removal of high grade assets toforeign countries, illegal arms trafficking,‘red-light’ crime connected withprostitution and ‘night business’, andextorting protection money. As far as
possible, the activities of suchorganisations are arranged so that themain figures do not stand out
conspicuously. It is usually only the crimesof peripheral figures that can be cleared
up with traditional means of investigation,ie.- of figures lacking insight into thestructure and composition of theorganisation as a whole. These peripheral

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
offenders are interchangeable andreplaceable at will, with the result that
their arrest does not really disturb thecriminal activities of the organisation.
Persons who inevitably know of the crimes
committed are restrained from making
statements by hush money, by orders not
to talk, by threats and by intimidation.
Where a lone offender is caught, theorganisation quite often renders material
support to the members of that person’sfamily and assures responsibility for
defence costs so as to obtain compliance andto prevent disclosure of information
concerning the organisation. Altogether,
the crimes committed show that criminal
offenders - who are usually interconnectedon the international level - exploit personaland business connections with enormous
criminal energy and financial strength inorder to make large illegal profits.
Conspiratorial preparation and executionof criminal offences make the fight against
crime more difficult. Its success depends
on the extent to which the people acting
behind the scenes and the organisersconcerned are convicted of committing
criminal offences and are deprived of thefinancial resources for committing further
crimes.
B. Consequences
Therefore traditional methods ofinvestigation are often inadequate becauseof the special structures found in Organized
Crime and in the light of the progressive
professionalism of the offenders operatingin this sphere. Necessary are instruments
of investigation which are adequate to thestructure and the methods of organizedcrime and which enable the prosecuting
authorities to penetrate the core of criminalorganisations. Furthermore, provisionmust be made for regulations andmeasures for a better guarantee of thesafety of informers, particularly witnesses.
Only when the safety of imperilled
informers is effectively ensured will it bepossible to expect statements from them,with the aid of which those operating
behind the scenes and pulling the stringsin criminal organisations can be brought
to trial and convicted.
III. THE MEANS OF THE GERMANCRIMINAL PROCEDURE CODE
A. General Principles
The German Parliament has taken
appropriate action in the last years and it
has brought in the provisions of thenecessary measures . While the bill was
being discussed before Parliament
individual proposals in the bills were thesubject of fierce controversy. There was lessdoubt about the fundamental need forlegislative measures. However, individual
proposals were criticised for being
constitutionally objectionable, notnecessary or - on the contrary - inadequate.
At least the proposals of the provisions of
the necessary measures of investigation
became law. Demands for more farreaching measures are now being discussed
rarely.
B. General Conditions
In selecting and structuring thestatutory provisions desirable forcombating Organized Crime Parliament
does not have unrestricted freedom of
manoeuvre. First of all, the constitution
sets limits. Provisions allowing
substantive or proceduraI encroachment,
under the criminal law, on basic rights
protected by the constitution 1 are only
admissible if, and to the extent that, a
restriction of basic rights protection ispermissible under the constitution in1

See eg. Article (Art.) 1 (protection of humandignity), 2 (safeguarding the general right ofpersonality), 1o (protection of the privacy oftelecommunications), 13 (inviolability of the home)
14 (guaranteeing property ) Grundgesetz /GG (Basic
Law).

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RESOURCE MATERIAL SERIES No. 58
Germany, the Basic Law, thus making
encroaching provisions possible; moreover,such provisions are only admissible to theextent that they are absolutely necessary
in the preponderant state interest. Finally,
the general principle of proportionality
must also be complied with.
In addition, any provisions being
planned must fit into existing criminal andprocedural law without there being
inconsistency. In particular, the preexisting standard and system of regulationof the original legislation already in force
must be adhered to.
These conditions made the legislative
work much harder. Provisions demandedfrom the police point of view for criminal
prosecution measures were not feasible, or
not as comprehensively as called for.
Complicated and detailed wording had tobe found for some of the provisions, thecontent and consequences of which are now
only comprehensible to, and capable ofinterpretation by, specialists.
C. Definition of Organized Crime
The Criminal Procedure Code does not
actually define what Organized Crime is.
Also, it does not make the admissibility ofits measures depend on this definition. The
reason for this is that no-one has managed
to develop a formula of words (definition)that is sufficiently accurate, precisely
circumscribed, and yet short enough to be
fit for a statutory definition. This will
become apparent from the following. A
working party comprising representatives
from the police and the judicial- system
worked out in 1990 the following
description of organized crime after
intensive discussions: 2‘The planned commission of criminal
offences, inspired by the pursuit of profit
2

For details see BT - Dr 13/4942.

84

or power, constitutes organized crimewhere such offences are of substantial
importance either individually or as awhole and if more than two participants
collaborate within a division of labour overa longer or indefinite period of time:(a) by using commercial or business-type
structures;(b) by using force or other means suited
to intimidate; or(c) by exerting influence on politics, themedia, public administration, thejustice system or the economy.
This definition does not include criminal
offences of terrorism.
The working party then went on to state
that:“The manifestations of Organized
Crime are multifarious. Besides
structured, hierarchically developed
forms of organisation (often also
underpinned by ethnic solidarity,
language, customs, social and family
background), there are links - basedon a system of criminally exploitablepersonal.and businesss connections between criminal offenders withvarying degrees of commitment
among themselves, whereby it is theparticular criminal interests
concerned that determine the actual
moulding of such links.”
Organized crime is predominantly
observed in the following spheres of crime:(i)drug trafficking and smuggling(ii) arms trafficking and smuggling(iii) crimes linked with night life (above
all procuring, prostitution, slave
trafficking, illegal gambling andcheating)(iv) extorting protection money(v) illegaI smuggling of aliens into thecountry(vi) smuggling(vii) forgery and misuse of means of

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
non-cash payment(viii) manufacturing and disseminating
counterfeit money(ix) illicit removal particularly of highquality motorcars, and of lorry,
container and ship’s freight .
In addition to these spheres of crime
there are also signs of organized crime in
the area of illegal waste management andof illegal technology transfer. This all goesto show : the phenomen of organized crime
cannot be defined in such a way that thedefinition itself would be suitable forinclusion in a statute.
The criminal procedure law therefore
links its provisions to particular groups ofoffences and offence spheres whereexperience has shown them to be preferredfields of activity for organized crime. 3
Furthermore, it falls back on certain types
and forms of commission that have longsince been formulated in criminal and incriminal procedure law and which aretaken to be typical manifestations oforganized crime4.
D. The most important measures ofinvestigation in the Criminal
Procedure Code(i)electronic data matching(ii) telephone tapping(iii) longer-term observation(iv) u s e o f t e c h n i c a l a i d s f o r
surveillance purposes(v) undercover investigators(vi) notification for police surveillance
In the discussions of the parliament thedifficulties referred to in the section on
3

Apart from drug crime, particular account must be
taken here of counterfeiting money, theft andhandling stolen property, illicit gambling , extortion,
slave trafficking and illegal arms trafficking.
4 Particularly commission on a gang and on abusiness basis.

“General conditions” were especiallyencountered in this sphere of regulation.
Understandable demands for practiceoriented provisions and corresponding
solutions for increasing the effectiviness ofcriminal-prosecution must be balanced
against the demand and need for the lowest
possible degree of basic right limitation,
particularly as regards the protection of
personality and of data, and against thedemand for far-reaching measures tosafeguard criminal proceedings and thedemand that defence effectiveness should
by no means be impaired.
How often, in which cases ,with which
results these measures are used byprosecutor and police - we don’t know
exactly in Germany; for we have no or no
detailed statistics for the most of themeasures5.
1. Search by Screening
98a and 98b StPO are the special
statutory basis for so-called screening
searches . It is an automated (machine)
comparison (matching) of personal datacollected for purposes other thanprosecuting purposes and in data files kept
by agencie’s other than the prosecuting
authorities. Matching occurs by using
criminalistic (offender type) checking
criteria specific to the case concerned(screening).
A screening search is only admissible inregard to serious criminal offences set out
in a generalising catalogue (section.98a.I
1) (Such offences are, for instance, criminal
offences of substantial importance in thesphere of illicit trafficking in drugs or inarms, or against life or limb, or committed
by the member of a gang). For a screening
order it will suffice if there is an initialsuspicion (section 152 II) that such an
offence has been committed. The
5

See BT-Dr 13/4437.

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RESOURCE MATERIAL SERIES No. 58
automated matching of data6 is permissible
as regards persons who fulfil checking
criteria that - depending on the stage
investigations have reached in the case are likely to apply to the offender. The aim
is to filter out, from this mass of non
participants in the offence, those persons
who largely have the “suspect profile” inthe case - which may be founded on
criminalistic experience or on the outcomeof preceding investigations. The method
is to eliminate persons who, althoughfulfilling criteria applying to the offender,
cannot be considered as possible offenders(negative screening search ) in the light of
their other data, or to filter out those
persons in respect of whom criteria
typically applying to the offender are to befound cumulatively (positive screening
search ).7
All private or public agency storing thedata needed for matching, which typifies
screening searches, are under a duty tofilter these data out of its inventory andtransmit them for screening to theprosecuting authorities.

transmission are the subject of a judicial
order. Knowledge based on a screening
search can be used for the purposes ofcriminal prosecution to a limited extent
only, ie. as evidence in the prosecution ofanother criminal offence only when suchoffence is likewise a catalogue offence
under section 98a. In practice today thismeasure is used rarely.
2. Telephone Surveillance
It has been permissible since as long ago
as 1968 to monitor telephone calls in thedetection of serious criminal offences(section 100 a). This measure is only
permissible in the case of a restricted listof serious criminal offences (e.g. in casesof trafficking in human beings,
counterfeiting money, murder, gang theft,robbery, holding to ransom, handling stolen
property on a commercial basis, money
laundering, criminal offences in accordancewith the Firearms Act [Waffengesetz] or the
Narcotics Act [Betäubungsmittelgesetz]).
Furthermore, it is only allowed insubsidiary terms when it would be
7

The admissibillity of the measure islimited by a subsidiarity clause. According
to this clause a prognosis has to be madein terms of success and difficulty in clearing
up the case. If this prognosis shows thatfull clarification of the criminal case byusing other investigatory measures could
nowhere near be achieved with the samemeasure of success as would seem possible
with a screening search, the latter may beundertaken.
Section 98b contains proceduralprovisions relating to screening searches.
In principle, matching and data
6

Name, address, other personal criteria specific to
the individual case, eg.ownership of a particularvehicle, modes of conduct, eg. that payments are
made in cash.

86

Example : if it is suspectet that a criminal offender
was driving a red Toyota motor car, built in 1985,
model X, while escaping after committing theoffence and that the car may have been from thetown Y because the official registration number ofthe vehicle began - according to the observations of
witnesses - with the letters of the town Y , it will bepossible, with the aid of the motor vehicle licensing
authorithy’s data files, to find out which persons in
Y are the owners of such a vehicle. If , moreover, it
is known (eg. by observations of witnesses) that theoffender pays his bills using a certain credit-card,
the data of these vehicle owners (name, address,etc) can be compared by machine with the custemer
data of the credit card company, thus “screeningout” that only very few of the owners concerned are
the same time holders of this credit card.
Traditional criminal procedure methods can thanbe used for further inverstigation of the latter
persons to see wether they come into question as
possible offenders.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
impossible or much more difficult toascertain the facts or to locate the accusedby other means, in other words using only
other measures. Monitoring concerns theaccused and/or so-called messengers, i.e.
individuals who accept telephone messages
for the accused, pass on his/her messagesby telephone or individuals whose
telephone connection the accused uses.
As a rule, the measure must be ordered
by a judge. Information which could also
be significant for another set of criminal
proceedings may only be used in this otherset of proceedings for evidentiary purposes
if it is also concerned with the detection ofa listed offence. Finally, the documents areto be destroyed when they are no longer
required for criminal prosecution.
Telephone surveillance has been thesubject of constant criticism for years, inparticular in the sphere of legal policy andby data protection specialists. Whilst notdenying the need for such measures, they
do allege that it is being used too frequently.
Indeed, the number of surveillance orders
has grown to more than 8,000 per year overthe past few years.8 This does not mean,
however, that more than 8,000 were setsof criminal proceedings or that more than
8,000 were accused persons. There is also
no information as to how many sets ofproceedings related to the criminal offencesof organized crime.
3. Longer-term Observation
Section 163 f permits longer-term
observation of accused persons and contact
persons. Longer-term observation isobservation planned to last more than 24
consecutive hours or to take place on morethan two days. The measure, which is infact a standard investigatory procedure incases of serious crime, is permissible inrespect of all criminal offences of
8

See BT- Dr 14/1522.

considerable significance, but only if othermeasures which would encroach less on the
person concerned are much less promisingor would lead to a considerable hindrance.
As a rule, the measure is ordered by the
public prosecutor and is then limited in
duration to a maximum of one month. An
extension may only be ordered by a judge.
4. Use of Technical Means ofSurveillance
These provisions (section 100c) were thesubject of great controversy among
politicians, legal scientists and the publicboth before and during the parliamentary
discussions. The main reason for this was
the fact that such measures may constitutea deep invasion of the personal sphere,
particularly the intimate sphere, of thoseaffected. The latter may not only be theaccused themselves but also others who
may be affected by such a measure (contact
persons or those affected by chance).
These provisions9 regulate the following:(i)
production of photographs andvisual recordings during
surveillance ,(ii) use of other technical devices forsurveillance purposes, and(iii) t e c h n i c a l m o n i t o r i n g a n drecording, outside and /or inside adwelling, of words not spoken in
public.
Section 100c regulates which technicalmeans may be used, against whom they
may be used and under what conditions.
(i)9

P h o t o g r a p h s a n d Vi s u a l

The use of mere visual aids like binoculars, therecording of words spoken in public and the mere
monitoring of words not spoken in public, do not
fall under these limiting provisions since they are
permissible without restriction pursuant to §§161,163. Also preserving traces of an offence does
not fall within the sphere of § 100 c.

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RESOURCE MATERIAL SERIES No. 58
Recordings (section 100c I no. 1a
StPO)Such pictures may be taken of theaccused outside a dwelling without his
knowledge. This applies to criminal
offences of all kinds, and also allways tothe police without prior-permission fromthe public prosecution office being needed.
The precondition for taking such pictures
is that any other way of trying to find out
the facts or where the offender is would beless likely to succeed or more difficult toachieve. Practically speaking, this means
general admissibility, limited only by thegeneral principle of proportionality. As
regards persons other than the accused,admissibility is limited only by a strict
subsidiarity clause (much less likely to
succeed or much more difficult toachieve)(section lOOc II 2 ).

(ii)

Other Technical Means Specially
Intended for Surveillance Purposes(section lOOc I no.1b StPO)

They may be used for trying to find out
the facts or where the offender is when acriminal offense of substantial importanceis the subject of the investigation. Suchmeans are homing devices, mobile alarm
units, motion detectors, the use of the“Global Positioning System10” etc.- in otherwords, devices that do not record
conversations.
The use of such means is likewise linked
to a subsidiarity clause with a low
threshold, namely that finding out the facts
or where the offender is residing would beless likely to succeed or more difficult toachieve if some other means were used.
Linking the use of these special
surveillance devices to a “criminal offence
10 OLG Düsseldorf JR 1999 , 255.

88

of material importance” gives those
involved in practice the indispensable
flexibility needed for an effective criminal
prosecution even if certain difficulties do
not seem to be excluded because of thisconcept being really indefinite. It would
not be proper to link use to a catalogue ofparticular crimes because the use of suchmeans must be possible - with a view topractical prosecution needs - in a large
variety of offences. Apart from this aspect,
the concept has become established inlegislation on police matters; otherwise,
there is no alternative of a form of generalclause - with no alternative. It is madeamply clear that the use of such technicalmeans, in a manner consistent with theprinciple of proportionality, should only beallowed in relation to offences above thethreshold of petty crime. In each case anindividual assessment will be necessary
taking into account the general principle
of proportionality.
As for third persons, the measure is only
admissible if it is to be assumed that theformer are connected with the offender orthat such a connection is being set up(contact persons), that the measure willlead to finding out the facts or where theoffender is residing, and that using someother means would be futile or be much
more difficult (section lOOc II 3 )(iii) Monitoring and Recording ofWords Spoken outside a Dwelling,
but not Spoken in Public, byTechnical Means (section lOOc I no.
2)
This provision on the monitoring andrecording of the spoken word is much more
restrictive, and it is modelled in large
measure on the provisions on telephone
tapping (section lOOa, lOOb). The
monitoring and recording, outside adwelling, of words spoken by the accused,
but not in public, is admissible with

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
technical means (eg. using directional
microphones), but only when certain facts
establish a suspicion that one of the serious
offences (eg. murder, kidnapping, hostagetaking, extortion, robbery, gang theft, arms
or drug trafficking), listed in the catalogueof criminal offences in section lOOa
(telephone tapping), has been committed.
A further requirement is that any othermeans of finding out the facts or where theoffender is residing would be futile or bemuch more difficult. Hence, this provision
closely follows section lOOa. In practicethe identical subsidiarity clauses mightlead to difficulties if for instance, telephone
tapping is being planned but it cannot beestablished that clarification by some othermeans would be futile because monitoring
itself might not be entirely unsuccessful.
But usually in such cases it can be said thatclarification would be much more difficult
without the simultaneous use of bothmeasures, for if only one of the two
measures were used clarification would
probably take much longer.
Monitoring the words spoken outside adwelling by a third person who is not theaccused and who is not speaking in public,is only admissible, under even stricter
conditions, in respect of contact persons
from whose surveillance important
indications are (or may be) expected for the
purpose of clarification. Monitoring may
be ordered in respect of nonaccused persons
only if it is to be assumed on the basis ofcertain facts that they are connected withthe offender or that such a connection is
being set up, that the measure will lead tofinding out the facts or where the offenderis residing, and that using some othermeans would be futile or be much moredifficult (section lOOc II 3 ). These threerequirements are cumulative. The higher
threshold of action and the subsidiarity
clause correspond to the provision made insection lOOa (telephone tapping). The
wording is intended to make it clear thatthe mere possibility of contact, or of theestablishment of contact, and of successful
clarification will not be enough; rather,certain facts must indicate a higher
likelihood of there actually being aconnection between the offender and thecontact person, or of such a connection
existing in future, and that successful
clarification is not only seen to be apossibility but is to be expected in allprobability.
Section lOOc III makes it clear thatthese measures may also be applied whenthird persons are inevitably going to beaffected by them. Here it is ensured that
there is no need for such measures to bedispensed with when a person who is not
actually the target of the measure but only
the partner of a target person or a nonparticipant affected by chance is includedin pictures or films or when conversations
are being monitored.
Section lOOd deals with important partsof the proceedings. Monitoring and soundrecording equipment can only be used if a
judge so orders, or where danger isimminent the order may be given by apublic prosecutor or by his auxiliary
officials. In the event of an order by way of
emergency power, an application forjudicial confirmation must be madewithout delay. If confirmation is notforthcoming within three days the orderceases to have effect. The order must be
made in writing, must contain the nameand address of the person against whom
the order is directed and it must also state
the nature, extent and duration of themeasure. The order shall be limited tothree months at the most, and an extension
may be obtained for not more than threemonths at a time so far as the conditions
for an order, as set out in section lOOc I
no.2 , are fulfilled. If these conditions are
no longer fulfilled, the measures must be
stopped immediately. The judge must be

89

RESOURCE MATERIAL SERIES No. 58
informed of this termination. Documents
acquired by virtue of the measure are to
be destroyed without delay under thesupervision of the public prosecution office
if they are no longer needed for the purposeof public prosecution ; a record must be
made of the destruction in question.
Subsection 2 provides - just as in the caseof a search by screening - that knowledge
got by monitoring measures may be usedin other criminal cases to a limited degree
only11.
The measure was used until now only
very seldom.12(iv)

Surveillance and Recording withTechnical means of the Spoken
Word not Spoken Publicly within
Dwellings (section 100 c I no. 3 )Of particular significance, indeed
controversy, at least in discussions on legal
policy, and for those affected by such ameasure, is the surveillance and recordingwith technical means of the spoken word
not spoken publicly within dwellings (e.g.
using directional microphones or so-called“bugs”). This measure differs from
telephone surveillance in qualitative terms
because it is not a telephone call which ismonitored, which leaves the dwelling bytelephony, but a conversation carried out
within a dwelling and intended to remain
there, in other words one which is intended
only for those in the dwelling. Here, those
speaking may well trust in the English
saying: “my home is my castle”. For thisreason, particularly strict restrictions
apply here. It is only permissible tomonitor a conversation taking place in adwelling, but not to take pictures or make11 In § 101 there is regulation of the cases where andwhen affectet persons have to be informed of themeasures.
12 See BT -Dr 14/1522.

90

a video of what is happening in thedwelling.
So-called acoustic monitoring ofdwellings is permissible only if specificfacts give rise to a suspicion of particularly
serious criminal offences. Such criminal
offences include, for instance, grievous
trafficking in human beings, criminal
offences against personal freedom, crimes
committed on a gang basis, handling stolen
property on a commercial basis, money
laundering, accepting and offering bribes,
crimes in accordance with the Firearms Act
and the Foreign Trade and Payments Act(Außenwirtschaftsgesetz), criminal
offences in accordance with the Narcotics
Act and the criminal offence of forming acriminal or terrorist association.
This measure may only be carried out if
ascertaining the facts by other means
would be disproportionately difficult or
impossible. It is to be limited in duration
to a maximum period of four weeks, andon principle is only permissible in thedwelling of the accused. It is only
permissible to monitor the dwellings ofother persons if it can be presumed on thebasis of specific facts that the accused is inthese dwellings, that the measure in thedwelling of the accused by itself isinsufficient to research the facts or to locate
the offender, and that this would be madedisproportionately difficult or impossible byother means.
The order must be issued by three judges
of a national security panel at the Regional
Court and confirmed by the presiding judgeof this panel in the event of an urgent
decision.
All individuals concerned by acoustic
monitoring must on principle be informedof the measure (as soon as this is possible
without endangering the purpose of theinvestigation, for instance).

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS

The protection of the confidential
conversations of an accused person with aperson entitled to refuse to give evidence
is provided for in particular. There is anexpress prohibition to take evidence inrelation to confidential conversations
between an accused person and aclergyman, Member of Parliament, his/her
defence counsel and, for instance, withlawyers, tax advisors, doctors or journalists
who are entitled to refuse to give evidence.
Knowledge gained from monitored
conversations with relatives who areentitled to refuse to give evidence may only
be used as evidence if, taking account of
the significance of the basic relationshipof trust, this is not disproportionate to theinterest in ascertaining the facts. If, inother respects, it is to be expected that allknowledge obtainable from the measure is
subjected to a prohibition to use theinformation, monitoring is not permissible
from the outset, i.e. it is prohibited to takeevidence in such cases.
In addition, the statute governs thepermissibility of using the information
gained by virtue of monitoring in other setsof proceedings, such as the usability of
information gained by coincidence in othersets of criminal proceedings.
Finally, the accused or the owner of thedwelling may apply for a court to examine
the lawfulness of the order and the natureof its execution once the measure has been
carried out.
In the political debate, amongst otherthings the accusation has been made that
this statutory regulation constitutes amajor step towards the ‘big brother state’.
Against this, it should be stated that
Parliament has done its utmost in legallypermitting this monitoring tool, which isnecessary to suppress organized crime, but
admittedly highly problematic, while

contriving also to protect the freedom of thecitizen from the state, without placing
either interest in jeopardy. The measure
has also only been ordered very rarely, in
only nine sets of criminal proceedings in
1998.13
Finally, it is important to note that theFederal Government is obliged by law to
inform Parliament, i.e. the Deutscher
Bundestag, every year of incidences where
acoustic monitoring of dwellings was
carried out.
5. Use of Undercover Investigators
Sections 110a to 110e StPO regulate theuse of undercover investigators. In afundamental sense there is noconstitutional objection. This measure is
not often 14 used. Its implementation isaccompanied by considerable difficulties.
But it is indispensable in the sphere ofOrganized Crime. The provisions arelargely oriented towards current
operational practice15.
Undercover investigators (legal
definition in section ll0a II 1 StPO) areinvestigating police officers who have a newand lasting identity conferred on them (a“legend”, in particular with a new name, a
new address and a new occupation/
profession). In other words, they
investigate using a false name without
disclosing their status as police officers or
the fact that they are investigating.
Relevant documents can be drawn up,
altered and used for the purpose of building
up and maintaining the legend (section
110a III ). Undercover investigators areallowed to take part in legal transactions
using their legend (section 110a II 2 ), eg.
13 See BT- Dr 14/2452.
14 See BT - Dr 12/1255 ; BT - Dr 14/1522.
15 The statutory provisions are supplemented by

guidelines of the Ministers of Justice and Ministersof the Interior.

91

RESOURCE MATERIAL SERIES No. 58
they may also enter into contracts andfound undertakings. Using their legend
they may also enter dwellings whenallowed to do so by the person with a rightof entry (section 110c ); but any pretence ofa right of entry going beyond this isinadmissible. In certain circumstances theidentity of an undercover investigator canalso be kept secret in the relevant criminal
proceedings (section 110b III, section 110dII ). Acting as an undercover investigatoris not a ground justifying their commissionof criminal offences oneself.
Pursuant to section llOa I StPO the useof undercover investigators is alreadyadmissible where there is an initialsuspicion (section 152 II StPO), but only
in respect of certain criminal offences in a
general catalogue. These are offences ofsubstantial weight in the sphere of drug orarms trafficking, of forging money or trade
marks, of state security, or those offencesthat have been committed on a business or
habitual basis, by the member of a gang or
in some other organized way, as well as
those offences where there is a definite riskof repetition. Here the subsidiarity clauseapplies, ie. that trying to find out the facts
using some other means would be futile or
be much more difficult. In the case ofserious crimes committed without risk ofrepetition, being crimes that are not partof the general catalogue, the use ofundercover investigators is admissible
where the offence is of great significanceand other investigatory measures would be
futile. All in all, the catalogue of offencesin respect of which this measure isadmissible is not fully identical to thecatalogue of other measures.
The use of undercover investigators is
also admissible in a search for a person
accused of a catalogue offence. Further, it
is admissible for an undercoverinvestigator to carry out several mandates
at once, eg. in several criminal cases, or92

repressive mandates in addition topreventive ones in each case the relevant
requirements for applying the measuremust be fulfilled, and in the case last
mentioned the restrictive provisions of the
StPO must be complied with also when
they are stricter than police law. The
carrying out of a mandate is not to suffer
on account of such multifunctional activity.
During operative action the undercoverinvestigator has all powers generally at thedisposal of police officers under the StPOor other statutes16. In practice the use ofundercover investigators is increasingly
running into difficulties. Groups ofcriminals into which undercoverinvestigators are supposed to be infiltrated
are increasingly cutting themselves offfrom “strangers” (as new members).
Moreover new members of the group haveto undergo unlawful “tests of innocence”.
Undercover investigators then fail the test
because as a matter of principle they are
not allowed to commit any criminal
offences.
Section 110a III provides that documents
may be drawn up, altered and used for.an
undercover investigator ’s operational
activities if this is indispensable forbuilding up or maintaining his legend (eg.
passports, driving licence,school.certificates, etc.). This authorisation
to draw up the necessary documents does
not, however, mean that changes can bemade in public books and registers.
Section 110b I, II deals with questionsof competence in respect of operations. On
principle, an operation is only admissible
with the consent of the public prosecution
office. Only where there is imminent
danger and the public prosecutor’s decision
16 Knowledge acquired by an undercover invest. may

be used in other criminal proceedings to a limited
degree only- § 110e.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
cannot be obtained in time may theoperation be ordered by the police. The
public prosecutor’s consent then has to beobtained without delay. The operation is
to be stopped if the public prosecution officedoes not give its consent within three days.
Pursuant to section 110b II a judge’s
consent will be required if the undercoverinvestigator is not only on the “scene” toclear up the circumstances of an offence orto get information on an offender whose
identity is still unknown but is alsodeliberately operating against a specificaccused person- whether by finding out thefacts or where he is residing; the same
applies if, during an operation, theundercover investigator enters a dwellingto which there is no general access. Only
where there is imminent danger will the
public prosecutor’s consent suffice. If thelatter’s consent cannot be obtained in time,
the police may approve the operation
although they have to obtain the publicprosecutor ’s consent without delay.
Furthermore, the public prosecutor has toobtain the judge’s consent, and if he does
not give his consent within three days, themeasure has to be stopped.
Consent by the public prosecutor and thejudge must be given in writing and for alimited period. No provision has been madefor a maximum period. The period will begoverned by the circumstances of theindividual case. An extension is possible
so long as there is fulfilment of thepreconditions for the operation.
Section lI0b III deals with individualquestions concerning the secrecy of anundercover investigator ’s identity,
particularly in criminal proceedings. The
principle that applies is that theundercover investigator’s identity can be
kept secret after the operation has been
stopped. What is meant here is true
identity, ie. his real name and otherpersonal particulars, including the fact that
he was (is) an undercover investigator. He
can continue to act in legal transactions
using his legend. The decision on secrecy
is at the discretion of the police. The publicprosecutor and the judge who areresponsible for the decision on consent to
the operation may, however, demand thatthe undercover investigator’s true identity
be disclosed to them. Moreover, in acriminal case, ie. in an operation or in othercriminal proceedings where the undercoverinvestigator is due to appear - eg. as awitness, his true identity must on principle
be disclosed at the main court hearing.
Keeping a true identity secret is only
possible in accordance with section 96
StPO, ie. when it is to be feared that
disclosure would threaten life, limb orliberty of the undercover investigator orsome other person, or that it would
jeopardise continued use of the undercoverinvestigator. The decision on secrecy istaken by the highest service authority
having due regard to all the circumstancesof the individual case. Sweeping generalsecrecy is not allowed since every instanceof secret identity and its relevant treatmentin the files might reduce the legal
protection of the person affected. When thedecision is being made the legal interests
at variance must be carefully weighed andthe facts of the case assessed as a whole.
Where facts requiring secrecy so permit,
the criminal court shall be informed at thetime the prohibition is declared - for the
court must be able to examine thelawfulness of the prohibition at least as
regards manifest errors. Reasons for theprohibition must be explained to the courtso that it can work actively to eliminate
any barriers and provide the best evidence
possible.
If the true identity of the undercoverinvestigator is not protected, pursuant tosection 96 StPO, by a decision of the highests e r v i c e a u t h o r i t y, t h e u n d e r c o v e r

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RESOURCE MATERIAL SERIES No. 58
investigator must, on principle, testify as
a witness in criminal proceedings using hisreal name. If necessary, he can be afforded
protection by the provisions on the generalprotection of witnesses . If his true identity
is kept secret during the criminal
proceedings, the undercover investigator
will generally testify as a witness using his
legend. If this is not enough to eliminate
danger, the undercover investigator can beprohibited from taking part altogether byanalogy to section 96 StP0.
6. Police Surveillance
Finally, section 163e regulates police
surveillance for the inconspicuous
ascertainment and collection of facts for the
purpose of drawing up a (selective) pictureof movements on the part of the person,
being kept under surveillance. As a rule,the object is to identify connections andcross links within a group of criminals.
This measure is applied as follows : thepersonal particulars of persons undersurveillance are noted during police checks
that have already been ordered and are inforce for other reasons and where thechecking of personal particulars ispermitted (eg. border or airport controls).
The data thus collected are then evaluated,giving a picture of place-to-placemovements by the person undersurveillance, particularly as regards thejourneys undertaken by that person.
Surveillance of an accused person isadmissible in respect of all criminal
offences of material importance wherefinding out the facts using some othermeans would be much less likely to succeed
or be much more difficult. By virtue of thesame subsidiarity clause other persons may
also be covered if it is to be assumed thatthey are linked with the offender or are
setting up such a link and that police
surveillance would also be qualified bysuccess. Vehicle registration plates may

94

also be covered for surveillance purposes.
The data of accompanying persons may
also be reported (section 163e III ). The
judge is responsible for making the order,
and in emergency cases the publicprosecutor; in the latter case, the order willcease to have effect if not confirmed by ajudge within three days.
IV. FURTHER DEMANDSADDRESSED TO PARLIAMENT;FURTHER NEED FOR ACTION
A. Conduct Appropriate to theMilieuIn the last years there were also calls
for a statutory provision allowing
undercover investigators to commit
criminal, offences where this is indispensable in connection with theiroperations. Here consideration was given
to the possibility of, for instance, allowing
them to take part in illicit games of chanceor to commit other criminal offences not
encroaching on the protected legal interestsof other persons.
This demand was not followed up. An
important argument here was that a statebased on the Rule of Law should notdescend to the level of crime not even forthe sake of fighting Organized Crime. In
any case, a provision of this kind would nothave solved the problems concerned for
genuine ‘tests of innocence’ with the objectof testing whether a new gang member isan undercover investigator (eg. bydemanding that he commit a rape or inflict
bodily harm on persons who are not
involved) would not be hindered by this.
B. Informers
There was also discussion whether - asin the similar case of.undercoverinvestigators - a statutory provision mightalso be necessary to allow the use of
informers to help clear up serious criminalcases. Informers are persons who are not

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
on the staff of a prosecuting authority but
who are nonetheless willing to assist theprosecuting authorities, on a confidential
basis and for sometime in clearing up
criminal cases; their identity should
generally be kept secret.
The Procedure Code has no statutory
provisions on this. This is - so I believe not necessary, and indeed it would bewrong. Informers are simply normal
witnesses no more and no less. They haveno special powers. What they know has tobe used by the prosecuting authorities justlike the knowledge of other witnesses.
Special protection is possible for informers
in terms of the provisions relating to theprotection of witnesses.
C. Precursory Investigations
Sometimes there is a discussion of thequestion whether clearing up cases ofOrganized Crime might be intensified byso-called precursory investigations.
According to section 152 II StPO criminal
investigations begin only when there is an
initial suspicion, ie. when there aresufficient factual indications. The latter
will be given if , on the strength of concrete
factual circumstances, there is a certain
probability, being at least a slightprobability, that a criminal offence might
have been committed. This probability
must go byond the general theoreticalpossibility of crimes having beingcommitted.
And this is the very point where the callfor admissible precursory investigations
crystallises. This demand is aimed at“acquiring” suspicion, ie. at firstestablishing an initial suspicion. Here one
has terrain in mind where, on pastexperience, the commission of crimes or thedetection of an initial suspicion is to be
expected, eg. in big insurance companies
where indications of insurance fraud might
be found through examining a large

number of files, or in large industrial
enterprises where cases of criminal breachof trust might come to light when a large
number of files are studied; for want ofrelevant experience or of the necessary
expertise, the undertakings in question
would not have discovered these cases atall.
I have fundamental legal policy
misgivings about a statutory provisionpermitting such precursory investigations
below the threshold of an initial suspicion,
for the limiting function of an initialsuspicion in terms of section 152 II StPO
is of material importance in a state basedon the Rule of Law. It protects an
individual against being made the objectof exploratory enquiry for no reason.
Investigations below the threshold of an
initial suspicion would derogate from thecitizen’s rights of personal liberty.
Furthermore, regulation, under criminal
procedure, of precursory investigations
would entail numerous problems of detailrequiring solution in the Criminal
Procedure Code.
D. International Co-operation
International co-operation is just as
important. It cannot be confined to mutual(bilateral) legal assistance between states.
What is important is that there should bea multilateral exchange of experience anddata, and especially that common
strategies should be evolved to fightOrganized Crime.
INTERPOL and EUROPOL could be
helpful here. Very important is especiallythe international co-ordination oftransfrontier suppression. Numerous
problems emerge in this connection
problems concerning data protection,difficulties over sovereign rights, problems
resulting from differences of system as well
as from differences in the legal standard
found in the various countries. But I am

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RESOURCE MATERIAL SERIES No. 58
confident that these problems may besolved.
V. FINAL REMARKS
I would like to conclude by proposing
several ideas for discussion:(i)
In the suppression of organizedcrime, Parliament is faced with atension - ultimately irresolvable between two opposing interests,
typified by the classical wordingof the Federal Court of Justice: “Itis not a principle of the Code of
Criminal Procedure that the truth
must be found at any price” on the
one hand, and on the other, by theaccurate claim that a state
governed by the rule of law is
obliged to protect its citizens
against wrongdoing.
(ii)
It is a part of the essence ofcriminal and criminal procedure
law that criminal prosecution isthereby set limits as a kind of“Criminal’s Magna Charta”. Thisis a restriction placed on the state
powers of punishment. It isessential to an open, pluralistic
society that there should be adebate on where these restrictions
should be drawn. It is just as
frequent for their inviolability to
be rashly claimed as the contrary.
(iii) Organized crime is not merely aphantom, it is a socially-damaging
manifestation of crime whichmust be taken seriously. The
extent of the threat that it posesis evaluated differently in thelegal and criminal policy
discussions, as is the priority
given to the preventive measures.
There is, and can be, no doubtingthat society must defend itself
against organized crime by all
appropriate means.
(iv) To this extent, the repressive

96

approach pursued by criminal andcriminal procedure law must be
supplemented by a preventive
approach, to which the samepriority must be attached, and theshortcomings in execution must be
remedied.
(v)
Organized crime cannot becovered by elements of criminal
offences, but only described from
criminological and criminalistic
points of view. Indications ofspecific shortcomings may result
from such a description, in both
criminal and criminal procedurelaw.
(vi) The Federal Republic of Germany
has already made available thenecessary legal provisions, byvirtue of the statutes alreadyenacted, for those measures,
which are needed to suppress
organized crime in Germany. The
concessionary nature - and in partalso the complexity - of theregulations is also a consequenceof the basically irresolvabletension between ensuring
individual freedom and fighting
crime effectively.
(vii) In criminal procedure law, theincreased permissibility ofundercover investigation
measures is directed against theconspiratory nature of organizedcrime. Witness protection, which
gives the preventive component
greater priority, is geared towards
the aspect of threat andintimidation, which is inherent inorganized crime.
(viii) In an overall evaluation, therepressive concept developed by
Parliament so far appears to be
self-consistent. Its measurestarget the right problem areas.
Whether or not it is sufficient inquantitative terms is the subject

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERSof debate in terms of legal andsocial policy.
(ix) P a r l i a m e n t h a s t o d a t esatisfactorily balanced the
opposing interests of safeguarding
freedom whilst at the same timefighting crime. The statutes haveneither made of the criminal
prosecution authorities a toothlesstiger, nor has the rule of law
protected itself to an excessive
degree. This however does not
rule out individual criticism,corrections or additions after acareful analysis has been carriedout.
(x)
It is, however, difficult to discuss
this issue predominantly from thepoint of view of mere effectivenessand with the dominance of therepressive approach to criminaland criminal procedure law.
(xi) The danger ascribed to the abilityof organized crime to destabilise
the free social order is two-fold. It
consists not merely of Mafia
structures infiltrating society. It
may also lie in the fact that an
exaggerated set of defence tools
calls into question our personal
freedom.
(xii) It is now a matter of intensifying
the work of the criminal
prosecution authorities on thebasis of the clear preconditions forstatutory permissibility, and ofusing all permissible tools toeffectively suppress organizedcrime.
(xiii) Time will tell whether further
statutory regulations arenecessary to facilitate additional
measures. In order to evaluate
this question, reports from thecriminal prosecution authorities,
describing successes anddifficulties encountered inpractice, are indispensable.

Experience reports from foreign
criminal prosecution authorities
and knowledge based on legal
comparisons should be included in
the assessment wherever possible.
(xiv) One should bear in mind in
performing this assessment thatthe previous statutory provisions
and the tools permissible inaccordance with them do impose
limits on what is possible andfeasible in a state based on therule of law. Effective criminal
prosecution is also restrained by
the rule of law. It is not enough toensure criminal prosecution, no
matter what the price, even whenprosecuting organized crime.
Human rights, freedom, generalrights of privacy, including dataprotection and other basic civilrights, must be respected. These
core rights may not be violated
l i g h t l y.
H o w e v e r, w h e r eParliament may restrict theserights, such restrictions are also
to be limited in scope to the degree
indispensable for effective
suppression of organized crime.
(xv) It is now a priority to examine how
and in which areas - taking
account of the above idea international cooperation to
suppress organized crime can be
expanded and intensified.
Effective international
cooperation is, ultimately, more
important than respecting
national sovereignty rights.
Within the framework ofinternational cooperation, one
should strive to optimise theinternational coordination ofcross-border suppression oforganized crime. One should also
strive - whilst respecting theabove principles - towards a
uniformity of procedures,

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RESOURCE MATERIAL SERIES No. 58
standards and techniques tosuppress organized crime.
However, where the national legal
standard is higher, it should not
be significantly reduced throughcompromises in favour ofinternational standardisation,
cooperation and coordination.

98

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERSORGANIZED CRIME / WITNESS PROTECTION IN GERMANY
Johan Peter Wilhelm Hilger *I. INTRODUCTION
As we are aware, organized crimedemands the use of particularly effective
investigation methods for its detection andsuppression, as well as particularly
effective measures to protect witnesses.
Organized crime has the lack of scruple andthe special power to use its considerable
financial resources and connections tointerfere with detection, in particular to
intimidate witnesses and even, where
necessary, to silence them. Detection must,of necessity, remain insufficient, andindeed fail, if witness protection does notwork1.
In Germany, there are no specific legal
provisions to protect witnesses againstorganized crime. There is however a large
number of regulations aimed to protect
witnesses - largely independently of thenature of the offence committed; such
regulations are, for instance, also
applicable to terrorist crimes or offences
against sexual self-determination, and they
can be applied in respect of the criminal
offences of organized crime. In overallterms, there is a need here to distinguishbetween B. Regulations in criminal
proceedings and C: Regulations in very
general terms to avert danger.
II. PROVISIONS IN CRIMINALPROCEDURE LAW
The provisions for the protection of
witnesses in criminal proceedings permit* Former Head of Division of Judicial System,
Federal Ministry of Jstice, Germany
1 Government of FRG BT-Dr 13/8156.

the investigation authorities and courts toproceed in several stages2. They depend
upon the gravity of the threat to or
endangerment of the witness and the needfor a particular intensity of protection.
A. Section 68 of the Code of
Criminal Procedure (StPO)In accordance with section 68 subsection
1 second sentence, witnesses who havemade their observations in an official
capacity (such as police officers on duty)
are always entitled (but not obliged) tostate their place of work instead of theirplace of residence3.
Independently of this provision, any
witnesses may be permitted by the person
leading the questioning to state theirbusiness or workplace instead of their placeof residence, or another address where asummons may be served, if it is to be feared
that, otherwise, he/she or anotherindividual is threatened in relation to any
protected legal interest. Under the same
preconditions, the witness may bepermitted to refrain from giving
information as to where he/she can bereached (section 68 subsection 2 of the Codeof Criminal Procedure).
In accordance with section 68 subsection
3 of the Code of Criminal Procedure, theidentity of a witness (i.e. at most all

2

Renzikowski JZ 1999, 605 ; Griesbaum NStZ 1998,
433.
3 The same applies as well to all other office-holders,
but not in cases where notice is taken of a matterin a business context ; here ,if need be, recourse
may be had to section 68 II 1 StPO99

RESOURCE MATERIAL SERIES No. 58
personal information) 4 may be kept
confidential if there is reason to fear (thewording of the statute does not require aparticularly high probability) that
disclosure will place at risk the life, limb
or freedom of the witness or of anotherindividual. The documents relating to
identity are kept at the public prosecution
office, in other words they are not initiallysubmitted to the court - and for this period
there is also no inspection of the
documents. They are not to be added to
the file until the threat has ceased to apply.
If witnesses are listed in the written charge
or in a subsequent summons whose identity
is not fully disclosed, this circumstance is
to be stated.
An exemption from stating one’s identity
does not release one from the duty to statein the main trial5, when asked, in what
capacity the observations were made. Thisis aimed at undercover investigators inparticular6.
B. Section 68b of the Code of
Criminal Procedure
This provision brings about an
improvement in witness protection in thatlegal counsel may be appointed to thewitness ex officio and at the expense of thestate if the witness is unable to exercise
his/her rights in person during questioning.
In the case of witnesses to major crimes orto criminal offences committed on a4

Where a wittness at risk has been given a “newidentity” it may be sufficient - and therefore
necessary in terms of the proportionality principle- for only the new identity to be kept secret.
5 This duty does not apply to interrogations during
investigation proceedings.
6 As regards those questions to which the accused’s
right to put questions also applies , the fact thatthe prosecuting authorities used under coverinvestigators may be revealed during the main
court hearing. If this is to be definitely avoided
such witnesses will have to be dispensed with.

100

commercial or gang basis, i.e. offences oforganized crime, such counsel for thewitness is appointed as a rule. Counsel isto ensure in particular that the witness isable to assert his/her rights of defence andprotection, and must try to ensure that theprocedural measures available under thelaw as it stands to protect witnesses areapplied to the necessary degree.
C. Section 223 of the Code of
Criminal Procedure
In accordance with this provision, if
there is an insuperable obstacle to awitness appearing in the main trial for alonger period or indefinitely, the court mayorder the witness to be questioned by anappointed judge. However, the defence
counsel and the accused are entitled toattend such questioning. Having said that,
it is permissible for the accused to be
temporarily removed from questioning inaccordance with section 247 of the Code of
Criminal Procedure. Counsel for the
defence may not be removed fromquestioning under any circumstances, noteven for reasons of an endangerment to thewitness.
It is also permissible for the witness tobe questioned by the appointed judge using
video technology in accordance with section
247 a. This video recording may be usedlater during the main trial.7
D. Section 247 of the Code of
Criminal Procedure
In accordance with this provision, thecourt can order the accused to be removed
from the courtroom during questioning if
the fear exists that a co-accused or awitness will not tell the truth if questioned
in the presence of the accused. The
presiding judge of the court must informthe accused of the main content of what
was testified in his/her absence once he/7

Kleinknecht/Meyer-Goßner § 223, 20.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
she has returned.
It should be pointed out in this context
that the court may also hold theproceedings in camera in accordance withsection 172 of the Courts Constitution Act(Gerichtsverfassungsgesetz) if there is fearof a danger to state security or to publicorder or to the life, limb or freedom of awitness or of another person.
The court is under a duty to safeguard
witnesses. The witness must be protectedagainst a danger to life or limb to which
he/she may be subjected as a result ofparticipating in the court proceedings8.
E. Section 96 of the Code of
Criminal Procedure.
In accordance with section 96, the court
may not require an authority to submit files
or information if the highest service
authority states that the disclosure of thecontent of the files would bedisadvantageous to the state. In similar
application of this provision, it is also
possible to refuse to provide to the court
information on the name and address of
witnesses who are being kept secret by
authorities. Thus, a witness who cannot
be otherwise protected, for instancebecause of an unusual danger, can bebarred from the main trial by the police
and the public prosecution office inapplication of section 96 of the Code of
Criminal Procedure. This means that his/
her identity and address are kept secretby the criminal prosecution authorities sothat he/she cannot be summoned to themain trial - instead, the individuals (police,
public prosecutor, judge) who havequestioned this witness in the investigation
proceedings are questioned as hearsay
witnesses. Furthermore, in the event ofsuch a bar, the reports of the questioningof the witness may be read out at the main
8

BVerfGE 57 , 250 , 284.

trial (section 251 of the Code of Criminal
Procedure). Witness protection by meansof this provision is most often applicablein the case of police officers, and undercoverinvestigators in particular.
Furthermore, the court must examine at
all times and on its own responsibility
whether it should dispense withquestioning a witness not barred inaccordance with section 96 of the Code of
Criminal Procedure because of a particularrisk to this witness, for instance becauseof a danger to life or limb9.
F. Sections 110 b and 110 d
In particular the identity of undercoverinvestigators who are working under anassumed name, i.e. a new cover, may be
kept secret even after their deployment hascome to an end. Only the publicprosecution office and the judge responsiblefor deciding on deployment may demand
the real identity to be revealed to them.
Otherwise, it is permissible to keep theidentity secret in criminal proceedings, inaccordance with the abovementioned
section 96 of the Code of Criminal
Procedure, in particular when there isreason to fear that disclosing the real
identity might place at risk the life, limb
or freedom of the undercover investigator,
or of another person, or reduce thepossibility to deploy the undercoverinvestigator in the future. Decisions anddocuments relating to the deployment ofan undercover investigator are not inserted
into the criminal files, but are kept by the
public prosecution office. These documents
are only to be included in the files if this ispossible without endangering the purposeof the investigation or public security, andwithout placing at risk the life or limb of aperson, or the possibility to deploy theundercover investigator again.

9

BGHSt 39 , 141 ; BGH NStZ 1984 , 31.

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RESOURCE MATERIAL SERIES No. 58
G. Witness Protection Act(Zeugenschutzgesetz)10 sections
58 a, 168 e, 247 a and 255 a
In accordance with these provisions,witnesses may be questioned by a judge
separately from the other persons
concerned by the proceedings as early asin the investigation proceedings. In themain trial, witnesses do not always haveto appear in the courtroom for questioning.
In both cases, the testimony of the witness
may be transmitted simultaneously via apermanent video connection and recorded
on a picture and sound carrier if thestatutory preconditions are met. It is also
possible to record questioning by the policeand public prosecutors.
The recording of questioning and its
subsequent use as a substitute forquestioning allows, in particular, witnesses
to organized crime who are in serious
danger to be released from appearing at
the main trial and to submit their
testimony to the main trial using the video
questioning procedure. In detail:
(i)

(ii)

10 BGBl.

102

In accordance with section 58 a of
the Code of Criminal Procedure,
any witness questioning may berecorded at any stage of theproceedings. It must be recorded
if there is reason to fear that thewitnesses cannot be questioned in
the main trial and that therecording is required in order toascertain the truth.
Section 168 e of the Code of
Criminal Procedure stipulates thatthe judge is to carry out
questioning separately from theother persons involved in theproceedings, during theinvestigation proceedings, in theevent of a serious danger to the1998 I , 820 .

well-being of a witness whichcannot otherwise be averted.
Pictures and sound of thequestioning are to be transmitted
to the other persons involved in theproceedings simultaneously. The
judge remains contactable bytelephone or radio. It is thus
ensured that defence counsel inparticular is able to intervene in
the questioning at any time withinterjectory questions.
Questioning may be recorded inorder to avoid repeat questioning.
(iii) Under the same preconditions,section 247 a of the Code of
Criminal Procedure governs video
questioning of a witness who is ina different location to thecourtroom. The witness cantherefore be in an adjacent roomin the court building or in a safe
place at home or abroad, forinstance if it would be too
dangerous for him/her to appear incourt.
(iv) P l a y i n g t h e v i d e o w h i c hsubstitutes questioning isgoverned by section 255 a of theCode of Criminal Procedure. The
videotape may be played in all
instances in which it would bepermissible to read out a report of
the questioning.
The following aspects are particularly
significant:(i)With video questioning, forinstance with optical transmissionof the questioning of the witness
during the main trial, where thewitness is not in the courtroom but
in a secret location, no opticalbarrier is permissible, such as
distortion of the monitor picture ora bar over the face of the witness11.
If video questioning of the witness
where face of the witness remains

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
recognisable does not sufficiently
reduce or remedy the risk, thewitness must be barred altogether
in accordance with section 96 of theCode of Criminal Procedure.
(ii) Several protective measures may
be linked: It is for instanceconceivable to apply for video
questioning of the witness in the
courtroom, to hold the proceedings
in camera during questioning andto permit the witness to refuse togive personal details in accordancewith section 68 subsection 3 of theCode of Criminal Procedure.
(iii) In its decision as to which witness
protection measure to implement,
the court has to take into accountseveral criteria and to balance
their significance in accordancewith the facts of the individual
case, namely:(a) the duty to effectively detect thecriminal offence in a manner inline with the principles of justice,(b) the respect for the interests of
the accused to have theopportunity to defend him/
herself effectively, which is also
necessary under the rule of law,in particular to be able to ask
witnesses comprehensive
questions,(c) the duty to protect the witness,where necessary, such as becauseof a serious personal danger or
because of state interests whichtake priority.
Therefore, a more comprehensive
witness protection measure may
only be ordered if a milder
measure, which would prove lessdetrimental to detection or to
11 BGHSt 32 , 221 ; Renzikowski JZ 1999 , 605 ;Kleinknecht/ Meyer-Goßner § 68 , 18 - all with morereferences.

(iv)

defence, would not be sufficient.12
There is no questioning the factthat measures to protect witnesses
who are in danger may have aconsiderable impact in individual
cases on the potential for
ascertaining the truth and on theinterests of the defence. They must
therefore be applied with great
caution. The evaluation of theevidence by the court, in particularin the case of indirect evidence,must take this danger into
account, and the principle“innocent until proved guilty” (Art.
6 II of the Convention forProtection of Human Rights andFundamental Freedoms) may takeon outstanding significance inindividual cases.13

III. REGULATIONS UNDERPOLICE LAW
The potential for protection provided bycriminal procedural law is insufficient.
Such protection is only effective during thecriminal proceedings, but not outside theproceedings or for the subsequent period.
However, a danger to witnesses may
remain, or even increase, once the criminal
proceedings have been concluded. During
the criminal proceedings, and afterwards,
the witness protection regulations ofpreventive law, i.e. of police law, also apply.
Such measures may be, for instance:(i)
Psychological care of the witnesses
and advice on conduct;(ii) The witness is provided with police
protection for a longer period, in
12 Renzikowsky JZ 1999 , 605.
13 Perhaps where the evidencee is doubtful and where

the defence`s chances of examining the sources ofevidence and the evidence itself, eg by conducting
their own enquiries, have been restricted becauseof the need to protect witnesses.

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RESOURCE MATERIAL SERIES No. 58
other words monitoring and escortby police officers working openly or
under cover;(iii) The witness is given a new identity,
in other words a new name andnew identity documents, a newhome, a new job, perhaps inanother state or abroad;(iv) He/she receives assistance andmoney for a temporary period tobuild a new life, in particular a new
profession.
The regulations contained in police law
supplement criminal procedure law during
the criminal proceedings; the police mustalso respect the control of the proceedings
to be exercised by the public prosecution
office and the court. Such police law
protection arrangements are important, forinstance, in the case of organized crime inthe shape of trafficking in human beingsand prostitution.
In Germany at present, studies are in
progress to determine whether a statute isnecessary to govern this and similar
measures in greater detail than waspreviously the case and to supplement
them. The police laws 14 have as yet
frequently only contained general clauses
on which measures can be based inindividual cases when the time comes.
IV. PRACTICE

the witness protection programme. As far
as is known, there have as yet not been any
serious problems, neither was theascertainment of the truth or the defenceof the accused seriously affected, nor were
the witness protection measuresinsufficient.
V. FINAL REMARKS
Effective witness protection isindispensable to detect and suppress
organized crime, but must not lead toserious difficulties in ascertaining thetruth, or pose a detriment to the possibilityof defence of the accused to a degree which
is objectionable or indeed unjustifiable interms of the rule of law. On the other hand,
it is not a matter of ascertaining the truthat any price, and especially not at theexpense of endangering the life or limb ofa witness. In this difficult area, criminal
prosecution authorities, courts and thepreventive police, if possible in cooperation
with counsel for the defence, must findviable compromises which are justifiable
for all interests.
Witness protection is a task not solely
for the judiciary and the police, but forsociety as a whole, in particular for all statebodies, which need to accept and support
the witness protection measures
implemented by the judiciary and thepolice.

The police and judiciary have built up a“witness protection programme” which isapplied to endangered witnesses.
Accordingly, there are special witness
protection agencies with experience inwitness protection, as well as joint
guidelines15 by the Ministers of Justice andthe Interior which provide greater detailfor and govern the application of thestatutory provisions. In Germany, roughly
650 witnesses per year are provided for by

In practice, effective witness protection
requires from all involved a high degree ofsensitivity, mutual consideration andunderstanding for the interests of the stateand of all concerned, as well as courage and,in particular, trust in the state measureson the part of witnesses, as well as
imagination and discernment in selecting
the right measures; money should not playa major role here!

14 See §§ 6 , 26 BKAG.

15 Griesbaum NStZ 1988 , 433.

104

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
The statutory provisions in Germany
may be in need of improvement, but they
are currently sufficient if properly applied
to meet all the interests which need to betaken into account.

105

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PRINCIPAL WITNESS REGULATIONS TO SUPPRESSORGANIZED CRIME IN GERMANY
Johan Peter Wilhelm Hilger *I. INTRODUCTION
The history of the principal witness
regulation in Germany is turbulent from alegal policy point of view, but notexcessively long. I will start by explaining
to you what principal witness regulations
have previously existed, and which remain
today. In doing so, because of the context
of the regulations, I will also touch briefly
on the principal witness regulation relating
to terrorism. Following that, I will briefly
explain the factual and political discussionin Germany.
II. THE INDIVIDUALREGULATIONS
A. Section 129 of the Criminal Code
(StGB)
Section 129 of the Criminal Code governs
the punishability of the formation of
criminal organisations and membershiptherein.
“Whoever forms an organisation, theobjectives or activity of which are directed
towards the commission of crimes, or
whoever participates in such anorganisation as a member, recruits for it or
supports it, shall be punished withimprisonment for not more than five years
or a fine.”
This criminal offence is an offence
relating to membership of proscribedorganisations. In accordance with thisprovision, a (criminal) organisation is anorganisational union for a certain duration* Former Head of Division of Judicial System,
Federal Ministry of Justice, Germany

106

of at least three individuals who, whilst
subsuming the will of the individual to thatof the whole, pursue common goals(commission of criminal offences) and arelinked such that they feel themselves toconstitute a unit together. This goal
distinguishes such an organisation frommere complicity. Furthermore, anorganisation is dependent on a minimum
degree of permanent organisation; a meregang does not fulfil this precondition as arule.
Subsection 6 of this provision contains a“minor principal witness regulation”, or to
put it better, a contribution by the offender
towards prevention of an offence. The court
may mitigate the punishment at its
discretion or dispense with punishment inaccordance with section 129 if the offender(1.) voluntarily and earnestly attempts toprevent the continued existence of theorganisation or the commission of acriminal offence consistent with its goals,or (2.) voluntarily discloses his/her
knowledge to a competent agency in goodtime that further criminal offences, where
he/she is aware of their planning, may still
be prevented.
This provision was and is relatively
unattractive. It is restricted to the criminal
offence defined by section 129, andretroactive assistance in detecting offences
already committed may not be rewarded.
The provision has therefore not assumed
any major significance in practice.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
B. Section 31 of the Narcotics Act(BtMG)In accordance with this provision, thecourt may, at its discretion, mitigate ordispense with punishment in respect ofspecific narcotics-related criminal offences
if the offender
(i)

(ii)

by voluntary disclosure of his/her
knowledge has substantiallycontributed to the offence being
detected beyond his/her own
contribution to the offence, orvoluntarily discloses his/her
knowledge of planned offences to
a competent agency so timely thatspecific narcotics-related criminal
offences, where he/she is aware of
their planning, may still be
prevented.

This provision, which entered into force
in 1981, was the subject of muchcontroversy at the time. Its aim is toprovide special privileges to narcotics
offenders in the non-organized crime area
who, beyond the confession of their own
offences, disclose their knowledge of clientsand criminal organisations. The fear that
this principal witness regulation, which is
restricted to narcotics-related crime, mightprove detrimental to the principle ofmandatory prosecution and lead toundesirable trading between criminal
prosecution authorities and accused
persons was at that time put aside infavour of the expectation that one would
be able to break up internationalorganisations effectively trafficking in
narcotics through granting privileges tooffenders willing to testify and cooperate(“detection helpers”) and to convict major
dealers.
The provision finds particularly
inflationary application in Germany today.
The provision makes it possible to provide
comprehensive information on a part of the

drug scene and to apprehend offenders
dealer by dealer until the thread of thedetection assistance breaks. The provisionpermits an unusually high success rate indetection, particularly in the area oforganized narcotics crime. Of decisive
significance for the overall success is that,at the outset, a central gang member iswilling to testify, and that there is initiallyno outside knowledge of theircomprehensive, detailed statement. If a
special commission of the police is then able
to collect evidence on a large number of thedealers described without being noticed
and in separate sets of proceedings, and toapprehend these suspects in a raid, thepersons apprehended as a rule compete
against one another with theircomprehensive confessions. If a special
commission has the staff to also evaluate
these statements quickly and in relation
to persons, and to convict the suspects,
there is a chain reaction of confessions,which unravel the links between the
dealers like running balls of wool and open
up a part of the drug scene like a net. The
information provided by the detection
helpers directly after their apprehension
is as a rule much more reliable than after
a long period of detention, when they have
had time to brood and imagine alleged
backgrounds and supporters of theorganisations. Detection helpers may, forinstance, be able to give a detailed
description of procedures in the drug sceneusing seized address books and photographalbums. In cities in particular, detection
helpers have in individual cases blown the
covers on 20, 50 and more suspects. The
provision also encourages dealers who havebeen frequently apprehended, and who
expect a severe sentence, to disclose to theinvestigating authorities their narcotics
stashes and deposits which have not yet
been discovered. No one is now thinking
about rescinding this provision in light ofthis experience.

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C. Art. 5 of the Principal Witness
Act (Kronzeugengesetz)
The actual principal witness regulation
to detect and suppress organized crime wasgoverned by Art. 5 of the Principal Witness
Act. The provision was introduced in 19941
and ceased to apply on 31 December 1999.
It read as follows: “Article 4 sections 1
to 5 (of this Act) shall apply mutatis
mutandis to disclosing by an offender orparticipant in a criminal offence inaccordance with section 129 of the Criminal
Code or of an offence related to such offence
in respect of which time-limited
imprisonment of at least one year is
imposable if the objectives or activity of theorganisation are directed towards thecommission of offences in respect of which
extended forfeiture (section 73 d of the
Criminal Code) may be ordered. In
accordance with Article 4 sections 1 and 2
second sentence, the public prosecution
office and the court are responsible which
would be responsible for the main trial.”
Article 4 sections 1 to 5, to which theprovision refers, was the principal witness
regulation for terrorist offences. It read as
follows:“If the offender or participant in aterrorist criminal offence (section 129
a of the Criminal Code) or in acriminal offence related to such offence
him/herself or through the mediationof a third party discloses his/her
knowledge of facts to a criminal
prosecution authority which is likely(1) to prevent the commission ofsuch a criminal offence,(2) to promote the detection of sucha criminal offence, if he/she wasinvolved therein, beyond his/her own contribution to the1

Verbrechensbekämpfungsgesetz vom 28.10.1994 BGBl. I S.3186.

108

offence, or(3) to lead to the apprehension of an
offender or participant in sucha criminal offence,
the Federal Public Prosecutor General,with the agreement of the Criminal
Panel of the Federal Court of Justice,
may dispense with prosecution if thesignificance of what the offender orparticipant disclosed, in particular inconnection with the prevention of
future offences, justifies this in relation
to that individual’s offence.”
Once the charge had been filed, the court
was able in such cases to dispense with asentence in the judgment, or to mitigate
the punishment at its discretion; in doingso, it was able to exhaust the minimum
statutory punishment to be ordered, or to
impose a criminal fine in place ofimprisonment. Furthermore, the court once the charge had been filed, but prior to
the initiation of the main trial - was able
to discontinue the proceedings with thepermission of the Federal Public Prosecutor
General.2
If one applies these provisions mutatis
mutandis to specific criminal offences oforganized crime - as stated in Article 5 this means:“If the offender or participant in acriminal offence in accordance withsection 129 of the Criminal Code(membership of a criminalorganisation) or the offender/
participant in a major crime connectedwith this offence, if the objectives or
activity of the organisation are
directed towards the commission of
offences in respect of which extended
forfeiture may be ordered, he/herself
or through the mediation of a third
2

Restrictions in § 3.

116TH INTERNATIONAL TRAINING COURSE
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directed towards the commission ofsuch major crimes, in other words tooffences in respect of which aminimum prison sentence of one year
is imposable, where, additionally,
extended forfeiture may be ordered inaccordance with section 73 d of the
Criminal Code.
These arecounterfeiting money in accordancewith sections 146 and 152 a of the
Criminal Code, grievous trafficking inhuman beings in accordance withsection 181 of the Criminal Code,grievous gang theft in accordance withsection 244 a of the Criminal Code,blackmail resembling robbery inaccordance with section 255 of the
Criminal Code, handling stolen
property on a commercial and gangbasis in accordance with section 260
a of the Criminal Code, as well as
specific narcotics-related offences,
commercial and gang smuggling ofaliens, commercial and gang
incitement to file wrongful asylum
applications, offences in accordancewith the Act Governing Control of
W e a p o n s
o f
W a r
(Kriegswaffenkontrollgesetz), in
accordance with the Firearms Act(Waffengesetz) and in accordance with
the Foreign Trade and Payments Act(Außenwirtschaftsgesetz). The
intention here is to apply this principal
witness regulation, in addition to the
suppression of serious narcoticsrelated crimes which are regarded as
typical of organized crime, to also
suppress holding to ransom,
smuggling of human beings, illegalarms trade and technology transfer.”party discloses his/her knowledge offacts to a criminal prosecution
authority which is likely,(1) to prevent the commission ofsuch an offence,(2) to promote detection, or(3) to lead to the apprehension of an
offender of such an offence,thecompetent public prosecution
office, with the agreement of thecompetent court, may
discontinue the proceedings
before a charge has been filed
and if the charge has been filed, thecourt may discontinue the proceedings
prior to the main trial, or mitigate thesentence by judgment or dispense withpunishment.”
The aim3 of this provision, which wasinserted by the 1994 Act on the Suppressionof Crime, is to prevent the continued
existence of a criminal organisation, or atleast to prevent the commission of offences
consistent with its goals. By linking tosection 129 of the Criminal Code, thecriminal offence of forming a criminalorganisation, it has been made possible torestrict the provision to participants incriminal offences which are or are to becommitted by organisations. Here, afurther restriction applies by virtue oflimiting to specific serious criminal
offences.
The individual preconditions:“An offence in accordance with section
129 of the Criminal Code, or a major
crime linked to such an offence, must
be disclosed by a member of thecriminal organisation. The
application of the provision is however
restricted to organisations theobjectives or activity of which are“Corruption crimes” are not covered.
Whilst there were calls in theparliamentary debate on the Act to Combat
43

BT-Dr 12/6853, S.119 ff.

5

BGBl. I S. 2038..
Korte NStZ 1997, S.513.

109

RESOURCE MATERIAL SERIES No. 58
Corruption of 13 August 1997 4 for a
principal witness regulation for corruptionrelated crimes5, it was rejected because oflegal policy reservations.
In contrast to the situation with theprincipal witness regulation for terrorist
offences, it is not the Federal Public
Prosecutor General and the Federal Courtof Justice who are responsible for taking
the necessary decisions, but the publicprosecution office and the court withrespective competence. This therefore
means, as a rule, a Great Criminal Panelof the Regional Court.
Whether the provision is used is at thediscretion of the public prosecution officeand the court. In deciding, the degree andsignificance of the disclosed knowledge
must be balanced against the nature andsignificance of the legal interests whichhave been injured 6 . In this process,application of the regulation will be deemed
to be particularly suitable if thecontribution made towards detection
makes it possible to prevent thecommission of another criminal offence oforganized crime. In other respects, theprinciple applies that assistance indetection must be all the greater the more
serious the offence of the “principal
witness” is. Granting a privilege ishowever not dependent, in personal terms,
on a hierarchical relationship and, from afactual point of view, on a difference in theseverity of wrongdoing. It is therefore notnecessary for the accomplice who has been
betrayed to be more important or at least
as important as the principal witness andfor the offence in respect of which freedom
from punishment is granted to be lessserious than the offence disclosed.

If the public prosecution office wishedto avail itself of the provision, it would have
two possibilities: either to discontinue theproceedings if the contribution towards
detection were to justify such an action onweighing up all relevant circumstances, orfiling a charge and applying for mitigationof punishment by the court in the main
trial. In its judgment, the court could
dispense with punishment or could
mitigate the punishment at its discretion,and exhaust the statutory minimum of theimposable punishment, or impose acriminal fine instead of imprisonment.
Discontinuation by the publicprosecution office was not final andbinding, so that the office could resume its
investigations at any time. The decisionof the court by virtue of a judgment, on theother hand, was final and led to exhaustionof the available criminal action. The
principal witness regulation was the
subject of much controversy in Germany
from both factual and political points ofview.
From a factual point of view, it gave riseto problems, for instance, because in theory
several principal witness regulations
existed in proximity and might apply to thesame case. Furthermore, disagreement
existed as to the list of crimes covered,corruption, for instance, not being covered.7
Politically, the following in the main8 was
levied at the principal witness regulation:
(i)

(ii)
7
6

Bernsmann NStZ 1989, S.46o ; Hilger NJW 1989,
S. 2377.

110

8

It violates the principle of equality(Art. 3 of the Basic Law [GG]), theprinciple of the rule of law (Art. 20
III of the Basic Law), is notcompatible with the principle ofmandatory prosecution.
It is detrimental to the citizen’s

Korte NStZ 1997 ,S. 513.
Kleinknecht / Meyer- Goßner , Kronz.G. ,Vorb. Rn
5. Pro :Schlüchter ZRP 1997, S.65.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
confidence in the inviolability of
the law and of the judiciary.
(iii) In particular, it weakens thecitizen’s willingness to abide by thelaw if he/she sees that the state
allows itself to buy witnesses bytrading with serious criminals.
(iv) It is prone to abuse by virtue of thediscretion provided.
(v) It reduces the significance of themain trial and makes things moredifficult for the defence. The truthof the statement of the detection
helpers is dubious.
(vi) I t i s q u e s t i o n a b l e f r o m acriminological point of view
because, on the one hand, serious
doubts must arise as to theplausibility of information
provided by a principal witness
who hopes to buy considerable
advantages through his/herstatement, and for another, theentire regulation may be
counterproductive in that thedanger of betrayal tends to bring
the group together rather than todivide it, and that the failure of theregulation could be regarded as a
success by large organized crimeorganisations.

It is being examined in Germany atpresent whether a new, different principal
witness regulation should be created,which for instance could be inserted into
the Criminal Code (among sections 46 etseqq. as a regulation on assessment ofpunishment). The examination is howeverstill very much in its initial stages, and noconclusion is to be expected in theimmediate future.

The expectations linked to the regulation
appear not to have been fully met inGermany. No significant improvement in
detecting and suppressing organized crime
is visible. It cannot be ruled out that theregulation has been useful in individual
cases.
III. OUTLOOKThe application of the principal witness
regulation was time-limited from the outset- it was in other words a temporary statute.
By statute of 19 January 1996 9 , its
application was extended to 31 December
1999, and has hence expired.

9

BGBl. I , S 58.

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RESOURCE MATERIAL SERIES No. 58

EFFECTIVE METHODS TO COMBAT TRANSNATIONALORGANIZED CRIME IN CRIMINAL JUSTICE PROCESSESFranco Roberti *I. A COMMON DEFINITION FOR“ORGANIZED CRIME”
A study on the phenomenon of organizedcrime aimed to a common understanding without claiming to be exhaustive - must
start from a definition of the concept oforganized crime. Such a concept, indeed,
logically precedes the explanation of thesituation relevant to the various types ofillicit activity, an explanation which I will
make with respect to the Italianexperience, given that any single activity
necessarily implies the existence of anorganisational structure.
An example can be made with regard to
the international trafficking of drugs andto the laundering of the money thereof, i.e.
criminal activities which need to be carriedout in an associated way. By saying that, I
do not intend to establish an equation
between the monopoly of drugs trade andthe spread of organized crime. Such an
idea would be unfounded. Although drugs
have provided - and still provide - criminalorganisations with extraordinary
possibility for enrichment, they arecertainly not their one and only source ofprofit and, maybe, neither the mostimportant one. On the contrary, the mostdeveloped criminal associations
increasingly tend to direct and diversify
their interests towards equally profitableillicit activities which they consider to beless risky because they are morally
regarded as less disgusting or because they
* Deputy Prosecutor, Direzione Nazionale Antimafia(National Anti-Mafia Bureau), Office of theProsecutor General, Italy

112

are subjected to less heavy penalties andless investigation or because it is moredifficult to find them since the finding
would require the victims’ co-operation
which is not easy to obtain (extortion,
control of public works’ contracts,
exploitation of prostitution, smuggling,
frauds, trafficking of human beings,
gambling, etc.).
According to the European Union
Situation Report on organized crimedelivered in Brussels on November 6 th,
1998, “Organized crime groups are known
to be exploring and exploiting new areas ofcrime with a vigour not unlike that oflegitimate business exploring andexploiting new commercial markets.
Currently the trend in organized crime
activity includes increased involvement inthose criminal activities that generate highprofits and at the same time lower risks toinvolved criminals in terms of lower
detection rates by law enforcement - partly
due to the complexity and costs of long term
investigations - and/or imposed penalties.
Crimes that present relatively low risks toorganized crime are the smuggling andtrafficking of human beings, and othereconomic crimes including frauds andecological crimes. Economic crimes are
therefore expected to remain on the increase
both in volume and magnitude”.
This manifest remark should suffice todestroy the argument - supported by the
advocates of liberalization and legalizationof drugs - according to which these would
be useful to combat organized crime since
this latter would be deprived of a source ofenrichment. On the contrary, it is clear

116TH INTERNATIONAL TRAINING COURSE
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that, should the drug trafficking proceeds
run out, the other illicit activities would
carry on and be strengthened. Moreover,within a free market of drugs, criminalorganisations currently managing it in amonopolistic system, would debar
competition through such well-known
discouraging methods as threats andviolence, as they already do in formally licit
economic sectors. For these reasons, we
can no longer apply an international
approach to fight organized crimeconsidering the main types of criminal
activities without attempting to define theconcept of transnational organized crime.
This need is mostly felt in Italy where
Cosa Nostra and the other Mafia-type
associations - unlike the other criminalorganisations - tend to be mixed in thesociety by means of apparently lawful
business undertakings and apparently licit
investments which necessarily require thecontrol of the territory and of any licit andillicit activity carried out herein.
While the Mafia economy is taking
increasingly developed and dangerous
forms, the awareness that the developmentof criminal economy has a dreadful andirreversible impact on the legal economy
has hardly spread: an impact which
corrupts the financial and banking circuits,
distort the markets’ trend, and - resorting
to instruments which are alien to the lawful
entrepreneurial world - feeds the black
economy and steals money to the tax
revenue.
What is worse, the criminal economy
brings about a kind of sharing of interests
which seems to make the border between
the criminal world and the society fade,establishing a steady collusive network of
relations other than the traditional one
linking criminals and the victims of theoffence.

The breaking of the border between the“attacker” and the “victim” clearly appears,
for instance, with respect to the unlawful
relations between organized crime andenterprises obtaining public works’contracts; these unlawful relations were
found following to various inquiries which
led to know that, in many cases, the legal
enterprises themselves asked the Mafia
groups for funds to expand their markets.
The Mafia is focussing its interests on
the public works’ contracts which require due to the afore-mentioned reasons - a close
control of the territory, yet at the same time
it would tend to act within the integrated
criminal system more frequently as a
“network” and less frequently as astructure linked to the territory: such anargument may appear as contradictory, at
a superficial analysis. Actually, these twothings are not incompatible, but they
represent two complementary andindissolubly linked aspects of the Mafia
action.
Mafia organisations will increasingly act
on a transnational scale, in agreement orin competition with other international
criminal organisations, namely with the
new Mafias which have been operating alsoin Italy for a long time. Yet theirestablishment on the territory will still be
the requirement for the control of themarkets and, thus, for their existence as
steady criminal structures.
Italian law four types of organized crime
can be identified as a result of the whole
set of criminal rules, both substantive andprocedural ones:(i)

Association for the purposes ofcommitting offences (simple
organized crime conspiracy article 416 penal code);1(ii)

Association for the purposes of113

RESOURCE MATERIAL SERIES No. 58
terrorism or subversion(subversive organized crime article 270-bis penal code);2(iii) Mafia-type association (Mafia-typeorganized crime art. 416-bis penalcode);3(iv)

Association for the purposes ofillicit trafficking of narcotic or
psychotropic substances (Art. 74 of
Presidential Decree N.o 309/
1990).4

The differences between membership ofa Mafia-type organisation and simple
criminal conspiracy are summed up below.

1Art. 416 penal code (association for the purposesof commiting of fences)“1. When three or more persons form anassociation for the purpose of committing morethan one offence, whoever promotes, establishes,
manages, organises the assoiation shall be liable,
for that only, to imprisonment for a term of
between three and seven years.
2. For the simple fact of taking part to theassociation, the penalty of the imprisonment
shall be a term of between one and five years.
3. The bosses shall be liable to the same
imprisonment settled for the promoters.
4. If the associates are armed, the shall be for aterm of between five and fifteen years
5. Sntence shall be increased if the organisationconsists of ten or more.
2 article 270-bis penal code (association for the
purposes of terrorism or subversion)“1. Whoever promotes, establishies, organises ormanages associations for the purposes ofcommitting acts of violence aimed to thesubversion of the democratic order shall be liable
to imprisonment fot a term of between seven andfifteen years.
2. For the simple fact of taking part in theassociation, the penalty of the imprisonment
shall be for a term of between four and eight
years.

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3

Art. 416 - bis penal code (membership of a Mafiatype organisation)
1. Persons belonging to a Mafia-type organisationof three or more persons shall be liable toimprisonment for a term of between three andsix years.
2. Persons who further the activities of or manage
the organisation shall be liable to imprisonment
for a term of between four and nine years for that
offence alone.
3. A Mafia-type organisation is an organisation
whose members use the power of intimidation
deriving from the bonds of membership and theatmosphere of coercion and conspiracy of silence
that it engenders to commit offences, to acquire
direct or indirect control of economic activities,
licences, authorisations, public procurement
contracts and services or to obtain unjustified
profits or advantages for itself or others, or toprevent or obstruct the free exercise of the rightto vote, or to procure votes for itself or others at
elections.
4. If the organisation is armed, members shallbe liable to imprisonment for a term of between
four and ten years in the circumstances describedin the first subsection and between five andfifteen years in the circumstances described in
the second subsection.
5. The organisation shall be deemed to be armed
if its members have access to weapons or
explosives for the purposes of furthering the aimsof the organisation, even if hidden or stored.
6. If the economic activities which the members
intend to acquire or maintain control over are
financed in whole or in part by the proceeds ofcrime, the penalties set out above shall be
increased by between a third and a half.
7. In the event of a conviction, articles which wereused or intended to be used to commit the offence
and the proceeds thereof shall be forfeited.
8. The provisions of this section are also
applicable to the Camorra and any otherorganisations, whatever their names, that makeuse of the power of intimidation deriving fromthe bonds of membership to pursue goals typicalof Mafia-type organisations.”

116TH INTERNATIONAL TRAINING COURSE
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While simple conspiracy only requires
the creation of a stable organisation,
however rudimentary, for the purposes ofcommitting an indeterminate number ofoffences, membership of a Mafia-typeorganisation additionally requires theorganisation to have acquired a genuine
capacity for intimidation in their area. The
members of the organisation must also
exploit this power to coerce third parties
4

Art. 76 of Presidental Decree N.o 309/ 1990
(association for the purposes of illicit trafficking of
narcotic or psychotropic substances)
1. When three or more persons from anassociation for the purposes of committing morethan one offence under section 73, whoever
promotes, establishes, manages, organises orfinances the association shall be liable toimprisonment for a term of not less than twenty
years for this offence alone.
2. Any persons taking part in the activities of theorganisations hall be liable to imprisonment fora term of not less than ten year.
3. The sentence shall be increased if theorganisation consists of ten or more members or
if any of the members are addicted to narcotic or
psychotropic substances.
4. If the organisation is armed, in thecircumstances described in subsections 1 and 3
above, the sentence may not be less than twentyfour years’ imprisonment and twelve years’
imprisonment in the case in subsection two
above. The organisation shall be deemed to bearmed if its members have access to weapons or
explosives, even if hidden or stored.
5. The sentence shall be increased in thecircumstances specified in section 80(1)(e).
6. If the organisation has been established tocommit offences under subsection 5 of section 73,
the first and second subsections of Section 416
of the Criminal Code shall apply.
7. The penalties provided for by subsections 1 to
6 shall be reduced by a half to two thirds if theperson in question has acted effectively to obtainevidence concerning the offence of has deprived
the organisation of vital resources for thecommission of offences.

with whom the organisation enters into
relations and oblige them to enter into a
conspiracy of silence.
Intimidation may take various forms,
from simply exploiting an atmosphere of
intimidation already created by thecriminal organisation to committing fresh
acts of violence or making threats thatreinforce the previously acquired capacity
for intimidation.
The “Mafia method” (or rather, the whole
gamut of instruments on which it is based)is therefore identified under criminal law
by means of three characteristics (“powers
of intimidation deriving from the bonds ofthe organisation”, “coercion” and“conspiracy of silence”) and all three are
essential and necessary aspects of thisconspiracy offence.
In terms of aims, whereas a simple
conspiracy aims to commit acts defined as
criminal offences in law, a Mafia conspiracy
can also be organized with the aim ofobtaining direct or indirect control of
economic activities, authorisations, public
procurement contracts and services or
profits or other unjustified advantages forthe organisation or others or to prevent or
obstruct the free exercise of the right to voteor to procure votes for itself or others at
elections.
The aim of committing crimes, while
inherent in Mafia-type organisations andan aspect of their structure since theorganisations are characterised by the useof violence, is not, however, the final andsole aim of the organisation. In fact, theindividual offences committed, such as“settling accounts” or acts against
representatives of public institutions, arepart of a broader strategy that seeks toacquire, increase and consolidate economic
power as part of an entrepreneurial visionthat makes no distinction between the115

RESOURCE MATERIAL SERIES No. 58
proceeds of criminal activities andlegitimate profit and considers
intimidation and violence to be normal
tools of its trade.
This is why Mafia-type organisationsattempt to acquire control of significant
areas of legitimate activity as well as
criminal activities, such as drugs or arms
trafficking. It is important to stress thatthe legitimate activities are not conductedsimply as a consequence of and a front for
criminal activities. They are a natural
outlet for criminal activities in the context
of the Mafia mind-set. Crime is therefore
a means to acquire economic and politicalpower and it leads to an overall logic ofcontinually expanding into areas oflegitimate power.
This has all been clearly recognised by
the legislature, which has defined theoffence of membership of a Mafia-typeorganisation in such a way that, even if aseries of offences have not been committed,
it is still an offence for the organisation tointend to exploit Mafia methods to acquirea monopoly position, for electoral orpolitical gains or to obtain an unjustified
advantage.
The term organized crime was first usedin Italy in the mid ‘70s when, upon theoutbreak of kidnappings for ransom andthe onset of terrorism, laws were amended
as a result of the increasing awareness ofthe difference between offences committed
by individuals and “organized” offences.
Then, the distinction was based on two
main features: the number of people
involved and the steady and skilled natureof the organized criminal activity comparedwith the contingent and accidental natureof individual crime.
A couple of decades after those first
analysis, criminal geography hascompletely changed. Individual crime

116

hardly exists. The organisation forcefully
broke in the criminal world and by now any
criminal activity has its own structured
shape ranging from the exploitation of
prostitution to the illegal immigration,
trafficking of arms, illegal waste disposal,
industrial or financial espionage, computeroffences.
This updated notion of organized crime
includes those criminal associations whoseorganisational structure is not only aimed
at implementing the group’s criminal plan,but it further reflects a global purpose
which goes beyond the criminal activity
and aims to achieve more power. In thisrespect, their common basis is founded
upon the business logic of profit-gaining,of enrichment and of the illegal markets
with the resulting (firm-like) highly
developed organization. In this respect, theMafia type conspiracy is regarded as
prejudicial to the economic public policy.
It is known that the operational featuresof today’s organized crime - Mafia type or
not - have developed as a result of the
globalization of both legal and illegal
markets and of the abatement of frontiers
according to a pattern based upon two
guidelines:
(i)

(ii)

the first one includes the increasei n a s s e t a n d c a p i t a l i n t e rexchanges due to the developmentof computer science and themobility of offenders on territories;
the second one marked byinterconnections among criminal
aggregates which in the past wereseparated and unrelated.

Such a reality leads analysts to refer toan integrated criminal systemcharacterised by a transnational natureand by its heterogeneous elements.

116TH INTERNATIONAL TRAINING COURSE
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The transnationality of organized crime
is a feature other than its internationality.
By the latter term, in fact, we mean thefact of a criminal group operating not only
on the territory of the country where it
arose and performing its activity alsoabroad. The former, instead, refers to the
co-operation established by criminal groups
among themselves so as to manage somecriminal markets more profitably.
The international scientific community
proposed various patterns to achieve adefinition of the organized crime notion
which may be agreed upon and accepted.
A phrase was used, for instance - more asociological than a legal one andexceedingly restrictive - identifying
organized crime “ as the group of people
steadily devoted to the commission of
offences against property or of offences
affecting the economy and provided with acomplex organisation in which costs,
profits, re-uses, investments are planned ina manager-like prospective so as to allow
these groups to achieve advantages within
the illegal market” (World conference ofministries of justice on internationalorganized crime, 1995).
By the way, I believe it is meaningful toremark that, at a European level, a
discussion is still under way on this issue,
i.e. the definition of a common notion oforganized crime and the resulting
identification of the behaviours expressedby it - an issue being indeed crucial withrespect to the path towards the
harmonisation of E.U. rules.
In fact, along with Mafia-type
criminality and often intertwined with thislatter, two more types of criminal activity
work on a large scale, spread out in nearly
all Member States, whose organisation ispossibly more efficient than the Mafia’sitself and also more capable to interact withgovernmental sectors and to affect the legal

economy: i.e. political - governmental
corruption and the illegal lobbying. Thereis a widespread opinion that the entangled
mingling of licit affairs, illicit affairs andcriminal affairs is the fully-fledged element
distorting the legal economy.
The first need highlighted by the Action
Plan against organized crime, adopted by
the European Council on April 28th 1997 i.e. to make membership of a criminalorganisation prosecutable in the legal
system of each Member State - wassatisfied by the adoption of a Joint Action(December 21st 1998) thanks to the efforts
made by the High Level Group establishedwithin the Council General Secretariat toprovide technical support with regard to
the implementation of the Plan’s politicalcontents. The Joint Action provides adefinition of criminal organisation andcompels Member State to make it acriminal offence to participate in thecriminal organisation ensuring that one orboth of the types of conduct are punishable,
i.e. the Italian-like pattern of participationand the common law “conspiracy” pattern.
According to the European Union
situation report on organized crime,
presented in Brussels on November 6 th
1998, the term “organized crime” stands for“a wide range of phenomena with manydifferentiations in types of activities,
markets, people involved, crimes
committed, levels of organisations and otheraspects”. This make it difficult, if not
impossible - according to the Report - todepart from a definition of organized crimethat is commonly accepted and covering all
its relevant manifestations.
The economic aspect, and generally thedrive to accrue resources by any means, isthe key aim, not to say the only one, which
explains the strategic and tactical choices
made by any kind of criminal organisation.
Yet the possibility to make profits is not

117

RESOURCE MATERIAL SERIES No. 58
enough by itself; it needs to be supported
by a favourable environmental situation
which can be defined a governmental andeconomic - financial vulnerability.
Economic and financial vulnerability islinked to low competitiveness andefficiency. Governmental vulnerability
arises when the country’s economic
competitiveness and development are notensured by the institutions andgovernment bodies responsible for thesafeguard of citizens’ rights, the settlementof disputes and, in general, the compliancewith laws.
In this respect, criminality paves theway for imposing its own non-economic andillegal instruments in the sectors of
production and exchanges. Thus, theenvironmental vulnerability becomes arequirement to establish and spread out
various criminal activities.
The illegal economy is on the increase,meaning by that all the exchanges andproductions whose relations are disciplined
by rules other than - and often opposed to the institutional ones. The illegal economy
due to the organized crime is made up by
those illegal exchanges where either of thetwo players belongs to a criminalorganisation. The illegal economy can takevarious aspects and concern both the“trading” and the “financial” part of thesystem: for instance, drugs manufacturing
and trade, illicit trafficking of goods andpeople, loan-sharking, unauthorised credit,
money laundering.
The action of the organized crime insome sectors of trading and financial
economy results in the increasing
distortion of the economic milieu and,inevitably, of the society and public life as
well. A wicked situation is thus started:the environmental vulnerability helps the
distortion caused by the organized crime

118

which in turn further impairs theenvironmental context.
In the light of the economic analysis, theequation “economic development = legality”
proved to be out-of-date and erroneous
since the ratio is to be definitively reversed:
there can be no economic development
without legality. Criminality, indeed,
prevents the development of a healthyb u s i n e s s a n d i n v e s t m e n t a c t i v i t y.
Conversely, where private and public
investments are not supported by a legal
background, the risk is high for the flow ofresources to be ineffective and to even feed
the activities carried out by a spreading
criminality. The economic principle has
recently stressed the key role played by
security and trust with a view to the growth
and the good operation of the market
economy regarded as a set of rules andprocesses allowing an efficient productionand exchange of resources within adeveloped and democratic society.
Transactors’ security and trust are based
upon the belief that there exist complex
standards ensured and monitored bygovernmental institutions (the judicial one
mainly) which guide the behaviours, settle
the conflicts of interest, and sanction unfair
conducts. A threat to the ordinary
development of economy is posed by thequantity, but mainly the quality of the illicit
and criminal actions committed in thisfield. Indeed, the rejection by single
individuals or complex organisations of therules of legal economy implies two different
layers of dangerousness: the mere
infringement of laws; the replacement oflegal processes by other illegal rules andprocesses which wrongdoers provide toautonomously sanction if they are notcomplied with.
Unfortunately, to explain (micro andmacro) criminal phenomena, thesociological-criminological approach has

116TH INTERNATIONAL TRAINING COURSE
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always prevailed over the economic
approach (or at least it was useful to makeit prevail), the former basically connecting
the deviating behaviour to psychological or
physiological features so as to blame either
the single individual or the society.
The economic analysis of crime, instead,takes account of individual tendencies andexplains that anyone can commit a wrong
on the basis of a reasonable cost-benefit
assessment. The person who infringes thelaw expects a clear benefit out of his action.
The offence (think of corruption, forinstance) turns to be almost physiologicaland related not to genetic anomalies,
personal or environmental situations, but
to a range of variables outlining theopportunities and the ties upon which one
decides to commit licit or illicit actions,according to convenience. These variables
can be grouped in two main sets
respectively connected to:
(i)
(ii)

efficiency of governmental
institutions, namely justice;efficiency and equity with regard
to the production and allotment of
resources and market
transparency.

Governmental institutions therefore
have the responsibility to ensure citizens
the competitiveness of goods and services
markets, the transparency of capital andemployment, the efficiency of criminal
jurisdiction in the fight against the offences
pertaining to the economic organized crime
and to the public administration, theefficiency of civil jurisdiction, the safeguardof rights and the settlement of disputes
with special reference to company andbankruptcy law. Consequently the legal
system’s inefficiency is a cause of denial ofjustice, but it also hampers thedevelopment and poses considerable
problems with a view to the European
integration.

II. DRUG TRAFFICKING: MAIN
PLAYERS AND ROUTESThe considerable availability of data on
drugs trafficking allows the developmentof a complex discussion which makes it
easier to understand the profitability ofdrugs production and trade and, as a result,
the reasons for its spreading and steadyincrease. From 1980 to 1996, seizures of
opiates have increased five times as muchwhilst the seizures of cocaine ten times asmuch (Data are drawn from the report of
the International Narcotic Control Board INCB - of the United Nations and they referto 1996).
Experts generally believe that seizures
affect 10% of the trafficking at best,
meaning that in fifteen years the
production, the trafficking and, supposedly,
the abuse have increased proportionally.
Three widespread types of drugs can be
identified: cannabis, cocaine, heroin.
A. Cannabis
Mexico is the leading source country
with 7000 tons of marijuana per year
followed by the USA (3000 tons per year;
huge quantities of the most valued quality- the sensimilla - are produced in
California), Canada, Colombia and otherminor countries. It is also grown in many
African countries with a massive
concentration in Morocco.
The retail cost of “soft” drugs in Italy
ranges from 7 - 10,000 Lire per gram ofmarijuana to 12 - 15,000 for some goodquality hashish. It can be reasonably
inferred that the wholesale cost is about
two million lire per kilo in the
Mediterranean market. Thus, theinvestment’s return is low: about 9 times
the initial investment.
Morocco is a major supplier of cannabis
resin to the Member States. Pakistan is119

RESOURCE MATERIAL SERIES No. 58
another source country. Albania isdeveloping into a major source country ofherbal cannabis for Hellas and Italy.
Smuggling takes place in lorries, vans andcampers and by sea in trawlers and yachts.
Central and Eastern Europe is a transit
region for cannabis destined for theMember States due, to a certain extent, tothe use of the Balkan routes for cannabis
trafficking from Turkey.
Over 90% of cannabis resin seized in
Spain in 1997 originated from Morocco andmost was in transit to other Member
States. Groups from various Member
States have set up bases in Spain tofacilitate trafficking towards theircountries and in 1997 the Spanish
authorities identified criminal groups fromthe United Kingdom, Germany, Italy,
France, the Netherlands, Belgium,
Sweden, Denmark, and Austria operating
within Spain.
B. Cocaine:
Main producers are Peru, Bolivia,
Colombia (main producer of cocaine
destined for the Member States; here thenational plans to reduce the cocacultivation have not been very successful),Brazil and Ecuador covering 90% of theworld exportation.
In Italy, recent data on the organisations
involved in the international drugs
trafficking show substantial returns, about
611 times its purchase value. This is also
due to the processing of the pure substanceallowing to triple the quantity of the goods(failing to comply with such a limit, theproduct’s yield would decrease). Fivehundred kilos of leaves are needed to obtain
one kilo of cocaine.
To the traditional routes used for the
trafficking of these drugs (such as that of
the Caribbean: Bahamas - Caribs - Florida;
the European route through the120

Netherlands) many others have been addedin progress of time towards Europe: Brazil,
Argentina, Venezuela, Morocco, Tunisia,
Algeria, Ghana, Nigeria.
The trend is to traffic small quantities
rather than many-ton cargos although thisdid not result in a decrease of the cocaine
seized. The transit role of Central andEastern Europe is increasing. Colombian
groups co-ordinate and monitor the arrivalof cocaine in the region and the subsequenttransport overland to the European Union.
This has led to the tendency to either“bypass” ports in the Member States or to
use them only for transit purposes with aview to unloading the drugs in ports within
Central and Eastern Europe. These ports
often lack qualified staff and technicalequipment to carry out assessments on the
cargo. Analysis shows that increasingly
non-existent Central and Eastern
European companies are registered asconsignee of the cargo.
The Iberian peninsula is also a gateway
for the transport of cocaine to the Member
States. In terms of quantity most cocaine
is smuggled by sea although planes are themost frequently used means of transport.
There is a major difference, largely due tohistoric and linguistic ties, between the roleof the southern part of the European Unionand its Nordic Member States in respectof cocaine trafficking. Whereas the amountof cocaine seized in 1997 in the Iberian
Peninsula was 21,581 kilos, the total
quantity in Denmark, Sweden and Finland
was only 92 kilos.
C. Heroin
Opium production has increased in the“Golden Triangle” (Myanmar, Laos andThailand) and in the “Golden Crescent”(Afghanistan, Pakistan, Iran) as well as in
Lebanon and Mexico. To the traditionalroutes (Bangkok - USA - Europe - Oceania;
Hong Kong, Nigeria, Turkey, Greece, Italy

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS- the so-called “Balkan route” i.e. former
Yugoslavia and Albania) others have to be
added: the Baltic route made up by someEastern Europe countries; the Africanroute for the transit of heroin flows
originated from Asia and directed toEurope and northern America.
The profitability is exceedingly high:about 1700 times its initial value. One kilo
of pure substance produces up to 15 kilos
made up by 50 mg doses which are sold in
Italy between 30,000 and 50,000 Lire.
About 80% of all heroin seized in theEuropean Union originates from SouthWest Asia. Afghanistan is one of the world’s
leading opium-producing countries with anestimated volume of 1265 tons in 1997
resulting in 134 tons of heroin. Opium
production in Colombia is some 66 tons
resulting in 6 tons of heroin.
Morphine base is transported fromAfghanistan via Iran to Turkey forprocessing into heroin which is thensmuggled - by sea and overland - into theMember States increasingly throughAlbanian traffickers putting a great dealof emphasis on Austria as a country of entry
into the European Union.
D. Synthetic Drugs
As to synthetic drugs, their abuse has
increased faster than any other drug andthe European Union is one of the world’s
major production regions of amphetamineand ecstasy type stimulants, with largescale production being controlled bycriminal groups.
Most amphetamine seized in theMember States originates from theNetherlands, Belgium, the United
Kingdom and Germany whilst the Czech
Republic, Poland, Bulgaria and the Baltic
States are major source countries fromoutside the European Union. Productionin Central and Eastern Europe is partly

destined for the European Union, withGermany often being used as a transit
country in particular for the northern
Member States.
Long-term strategic alliances between
criminal organisations create a bridge to
new markets, undermine the position ofcompetitive groups and reduce the costs forinvestment, as well as the risks. Also theyguarantee a constant supply of criminal
goods to those who already have access tothe market. Some alliances such as theones between Colombia criminal groups
and the Italian Mafia, and between the
Italian Mafia and Russian groups, havebeen known for years. However, more
recently a Colombian-Russian strategic
alliance was identified. Colombia groups
have forged links with Russian groups
which supply military equipment including
AK-47 assault rifles and shoulder-fired
missiles in exchange for cocaine which isallegedly transported to Russia and to
Member States.
One characteristic of the higher echelonsof organized crime, including those
involved in international organized drugtrafficking, is the level of sophistication
used. Criminal groups have developed, andto a large extent depend on, expertise incomputer technology, financial techniques,money laundering activities and otherforms of economic crime and they havegained a prominent position throughmaintaining a sophisticated high-techglobal communication and logistics
network, whilst at the same time making
use of legal and financial experts.
As it results from the findings ofinvestigations, the use of experts by thesmuggling organisations is also prominent.
Trafficking of cocaine towards theEuropean Union is dominated by a small
number of criminal groups from Colombia,
although Bolivian criminal groups, due to121

RESOURCE MATERIAL SERIES No. 58
the increased production of cocaine in the
country itself, are expanding theiractivities. In cases of the trafficking oflarge amounts of drugs the groups operate
in a temporary “joint venture” construction.
This enables them to set up logistic andtransport facilities, to spread the risk andto guarantee an appropriate infrastructure
for large-scale cocaine distribution. The
groups have created a network of cells inseveral Member States which are closelyinter-linked and engaged in the
distribution of cocaine once the drug hasentered the European Union. The cells
maintain firm links with indigenous groups
who are engaged in the further
distribution.
The splintering of traditional large scalegroups and the use of “sub-contractors” notwithstanding the spreading of the risk
- means a certain loss of control and coupledwith more people being involved makesorganized crime groups more vulnerable tolaw enforcement activity.
Transportation of drugs has always
proved to be a problem to organized crimegroups. Routes are ever changing recently
and the cessation of the Yugoslav civil wars
has allowed increased activity along the
traditional “Balkan route”. The close
proximity of places of production ofsynthetic drugs to the consumer markets
eases distribution problems. This allows
organized crime to limit investments inresources needed to set up complex routes.
There is an emerging trend of “subcontractors”, in which criminal groups
hand over part of their activities to otherswith a view to spreading the risks.
Independent groups offer their services toany criminal group. Others who own a fleetof ships offer transport facilities,
irrespective of the type of drug and countryof origin or destination.

122

Organized crime in the countries of theformer Soviet Union (the so-called Russian
Mafia) is constituted by a myriad ofcriminal groups (over 8000) of different
origins and not always linked among them.
It is characterised by the urge to prevailover the countries of the Eastern Europe(Bulgaria, Hungary, Czeck Republic andPoland). Some recent investigations, yet,
led to the existence of a body standing
above the small groups.
The criminal organisations of the former
Soviet Union have huge finances mainly
acquired by means of the “privatizations”
followed to the change in the domestic
political scenario. Currently, the so-called
Russian Mafia controls over 50% of thebanks of the former Soviet Union (thethirty bankers murdered in the latest years
are a clear symptom). Criminal actionscommitted in Italy by citizens of the former
Soviet Union - which have been found attrial - are characterised by (information
source: Mafia Investigations Bureau,
November 1998):(i)availability of outstanding
finances;(ii) seeming lack of contacts with
Italian criminal organisations;(iii) average young age of people
involved.
Links between traditional Mafia typecriminal associations and the Russian
Mafia were found. Namely, with reference
to purchases on the black market, membersof the ‘Ndrangheta and Camorra and Mafia
gangs purchased exceeding quantities ofroubles turned into a different currency on
the international markets with a view to
re-investing them in the purchase of realestate and companies in Russia.
Turkish criminal groups have engaged
Central and Eastern Europe groups in the
trafficking of heroin towards the European

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
Union, Cape Verdians in intra-EU
trafficking and domestic groups in the
distribution at wholesale or street level.
Turkish organized crime remains an active
force in the trafficking of heroin throughout
most of the European Union and has been
identified as operating in twelve Member
States. The groups have developed strong
relationships with indigenous criminal
networks and the distribution of heroin isoften achieved through local groups. Thisvariance illustrates the ability of Turkish
criminals to adapt to local circumstancesand requirements.
The proximity to traditional opium
source countries (Iran, Pakistan,
Afghanistan) and the bridge position
between the Christian Western world andthe Islamic East marked the role played
by Turkey in progress of time as a transit
country in the heroin trafficking directed
to Europe (to Germany, Holland, France,
Austria, Belgium, the United Kingdom,
Sweden, and Italy as well).
The so-called Turkish Mafia has no
pyramid-like structure. It is constituted
by several criminal groups, each with ahigh number of associates belonging to a
family-based structure. Some “families”
are made up by persons of Kurdish ethnic
groups (Turkish, mostly Iranian, Iraqi and
Syrian) and are also involved in the drugs
trafficking whose proceeds are mainly used
for the so-called Kurdish cause, that is theliberation of Kurdistan. Prosecutor ’s
Offices in several towns, mainly inn o r t h e r n I t a l y, c o n d u c t e d m a n yinvestigations which stressed the unsteady
operational links between the Turkish
Mafia and Italian Mafia type criminalorganisations among which the ones
named “Cosa Nostra” and “Camorra”.
A special focus must be placed on thevarious Slav ethnic groups scatteredthroughout the national territory andresponsible for the distribution of heroin
originated from Turkey and Eastern Asiaand helped by an extensive availability offellow countrymen illegally immigrated.
The trend of this new threat can also beassessed through a compared analysis of
the experiences in other European
countries: actually, in Germany, Austria,
Slovenia, Hungary and Romania thesituation seemingly outlines some patterns
which can be found in northern Italy since
the storage of the heroin directed to central
Europe in Hungarian, Romanian,
Bulgarian and Slovack cities is managed
by Albanians in close connection with
Turkish people and fellow-citizens
responsible for the trafficking also in thedestination site.
In this respect, Albanians originatedfrom Kosovo manage and control the
Balkan route, on behalf of the Turkish yet
increasingly autonomously, in all steps ofthe trafficking. Albanian Kosovarorganisations play an ever-growing role inthe distribution of drugs in Italy,
Switzerland, Germany and in the UnitedStates. They are also becoming establishedin London where about 6000 of them canbe found. It is a successful criminal
network which has recently prevailed overany other criminal form by peacefully
settling along with indigenous traditionalgroups step by step, and assisting them onan equal basis.
Although these criminals adopt a
predator-like approach - since they are
simultaneously involved in drugs
trafficking, burglaries and prostitution the primitive and unusual nature of theirattitude makes them dangerous,
unforeseeable and aggressive. Moreover,
the religious factor amounts to an
unprecedented uniting element among
Albanian associations and between thema n d t h e Tu r k i s h o n e s , t h i s l a t t e r

123

RESOURCE MATERIAL SERIES No. 58
strategically controlling the interests
connected to heroin.
On the one hand, the drugs trafficking
is fed by the spreading of the Indian hemp
cultivation in Albania yet, on the other
hand, the strong links with other criminal
entities in the Balkan area and in Middle
East make it increasingly dangerous.
Bulgaria is a punctual example. Thiscountry has attracted internationaltraffickers of heroin and arms who benefit
from a mild legislation brought about by arecessive economic situation.
The recent upheavals in the former
Yugoslavia also contributed to bring aboutchanges in the heroin routes and in thelabour used by smugglers. A frequently
used route departs from Sofia to Skopje(MKD), hence it carries on towards Tirana.
From Albania, the drugs reach Italy
through the fast motorboats also used in
the cigarette smuggling which cross the
Adriatic sea in a few hours and with low
risks.
With a view to assessing the skills of the
Albanian criminal organisation and theircapability to establish connections with
Apulian organisations operating inMontenegro, it is important to consider anagreement reached by them. According tothis agreement, Albanian ships carrying
illegal immigrants and women destined toprostitution, as well as marijuana andarms, dock along the Apulian coast southof Brindisi in order to avoid interferencewith the cigarette smugglers who exploit
the area north of Brindisi for ships comingfrom Montenegro and to avoid thestrengthening of police controls and theresulting damage to the detriment of that
trafficking.
Albanian organisations also traffic inhome-made marijuana. In southern
Albania, indeed, the cannabis indica

124

cultivation is a mass phenomenon and it is
not subjected to any control. Greenhouses
have been arranged where Indian hemp
ripens remarkably so obtaining a very highactive principle. This production achieved
an “epidemic” size, to quote the words usedby the Prosecutor General of Albania in asurvey on the situation.
Some investigations led to findtrafficking of Albanian marijuana directedto Holland in exchange for cocaine meant
for the Italian market. A few years ago thiscircuit had a low impact, yet today the typeand volume of the illicit trafficking
involving single individuals and Albaniancriminal groups (drugs and arms
trafficking, exploitation of prostitution,
kidnappings for ransom, thefts androbberies, smuggling of tobaccos processedabroad, forgeries) allow us to affirm that
the Albanian organized crime can be
included among the prominent criminal
phenomena, also due to its international
connections with partner organisations
operating in Italy.
In Italy, the Colombian cartels of Caliand Medellin - which have the availabilityof appreciable financial resources - havelogistical centres which carry out drugs
businesses with Italian organisations andattempt to implement the ultimate stepsof refining on our territory.
With a view to a comprehensive analysisof this phenomenon, two levels of drugs
trafficking must be distinguished. When
big quantities are at stake, the Colombian
cartels usually perform a drugs collecting
function also in other source countries
dealing with the management until therequesting market. The Mafia families
based on those territories ensure theperformance of business operations.
The cocaine shipments basically takeplace by sea, along routes used for a long

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
time: some of them reach the United States,
Canada and part of northern Europe,
namely Belgium and the Netherlands,
hence the goods are distributed in the restof Europe. Other shipments originate fromharbours in Venezuela mainly directed toSpain, which is the preferred country due
to the linguistic and cultural proximity andto the existence of well-rooted criminalbases where significant quantities are
stored while persons living there provide
to ship them overland.
As to lower quantities, the Mafia
families are not interested in the mediation
because of the commercial travellers - i.e.
Colombian citizens belonging to structuresother than the cartels - who ensure an
immediate supply. In such cases, small
quantities are transported from theoriginating countries to Italy by plane andthere is an increasing use of Nigerian
persons as couriers; these persons arearranging real structures located in Italy
and connected to their accomplices basedin Latin-American countries.

criminal organisations originating fromother countries or that they were lowprofile players in a pushing activity selfmanaged or controlled by local traffickers.
Then a reversal of trend was recorded andother African people were increasingly
arrested because Nigerians - who had
developed their importance and theirbusiness volume - had started to use themas couriers in their place so as to lead thecontrols astray.
The impact of this new criminality on
drugs trafficking was the focus of aworrisome discussion held in Abuja(Nigeria) from 18 to 22 May 1992 during
the meeting of the representatives of theAfrican drugs services (HONLEA) who
were aware that the inadequate law
enforcement system of local police forces
had a negative impact on the international
community.

In some cases, subject to the principlesof the micro-market, cocaine is barteredwith heroin or arms depending on theneeds of consumers. With regard to theactivities carried out by the Nigerian
criminality in the drugs field, theirorganisational framework and theirspreading in Italy lead us to affirm that
Nigerians have no hierarchical structure,
yet they amount to a set of groups madeup by cells connected among them.

Nigerian organisations are mainly madeup of persons of Ibo or Yoruba ethnic groups
and they are involved in the heroin andcocaine trafficking; their wide scope
extends to various countries: consumer
countries such as Germany, Spain,
Portugal, Belgium, Romania, United
Kingdom, Austria, the USA, Croatia,
Slovenia, Czech Republic, Hungary,
Ukraine, Poland and Russia; source
countries (Pakistan and Thailand) ortransit countries (Turkey, India andBrazil). In Italy, the areas mostly affected
are Naples, the coasts of Campania and thearea around Rome.

On an international scale, only in themid ‘80s’ did Nigeria show the firstalarming forms of organized crime. Since
the first arrest - which goes back to 1987 the interception of Nigerian couriers
carrying drugs consignments has been
dramatically increasing up to 1990.
Consequently, Police forces were convincedthat they worked as low-cost labour for

Another foreign organisation active in
Italy - although with a different degree of
integration with domestic crime - is the
Chinese one. The Triads, operating into
the Chinese settlements in Tuscany and
Lombardia, control the illegal immigrationand some economic activities such as
restaurants, leather and textiles
processing. Chinese communities are

125

RESOURCE MATERIAL SERIES No. 58
family-based organisations and therefore
they prove to be resistant to external
infiltration and dominated by the law ofsilence so much so that any possible control
by the police is hardly feasible.
Data relevant to immigration show thatin Italy the Chinese community is mainly
constituted by citizens of the People’s
Republic, whilst Taiwanese and citizens ofHong Kong and Macao can be hardly found.
Yet their limited number must not lead tounder-evaluate their dangerousness due tothe fact that some of the strongest “Triads”
are based in Hong Kong, Taiwan andMacao. A kind of expertise in theinternational drugs trafficking by citizens
of Hong Kong has been repeatedly
reported, here the Triads have a strong
presence. Reportedly, these organisations
are connected to the “Golden Triangle” andhave a growing influence in the southernChinese provinces. In the Member States,
Chinese ethnic groups are involved in the
production of ecstasy and in the drugs
trafficking towards the south east of Asia.
In the light of the aforesaid, there exist
grounds to affirm the co-operation and/or
the existence of business relations between
them and the Chinese criminal groups in
Italy. The action of the traditional criminalorganisations (Mafia, Camorra,‘Ndrangheta, Apulian crime) is limited - asto the distribution in Italy - to big
quantities upon the importation as
mediators in the import-export activity.
In the most recent years, the mediationrole played by Italian criminal groups inrespect of the drugs trafficking favoured a
sharp increase in the relations with similar
foreign organisations skilled in the
production and distribution of drugs andin the laundering of illicit proceeds. This
was also brought about by theintercontinental scope of arms and drugs
markets: the need to transfer outstanding

126

sums of money abroad in settlement of theillicit consignments. In many foreigncountries, significant communities of
migrants have been keeping close
relationships with the originating families
in progress of time which gave momentum
to the management of the various Mafia
interests.
Investigation conducted as of 1991
identified and affected some company-likestructured organisations, mainly fromCalabria, which had the availability of the
primary supply channels and skilfully led- together with the producing Colombian
cartels and the mediation of other Mafia
groups - the import, transport, clearance
through Customs and distribution by
exploiting an extensive network ofcomplicity while carrying out skilledtransactions to launder the proceeds
through the banks.
Recent inquiries conducted by theDistrict Antimafia Prosecutor’s Office in
Naples found that the Camorra groups
which traffic the drugs are the same as
those which traffic trade mark-forgedclothes (the so-called “magliari”) by meansof the same distribution channels,
especially towards Germany and theEastern European countries.
Apulia is the natural destination for thesea traffic originating from the Balkans
and the Middle East and can be regarded
as a meeting point of the Mafias due to its
traditional willingness to provide criminal
services to the benefit of non-regional andnon-national Mafia organisations - itfrequently was a reference point for illicit
trades among Serbia, Albania, Macedonia
and Montenegro aimed at by-passing theembargo ordered to the detriment ofSerbia.
The Apulian coasts, the core function
performed in respect of the routes of the

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
trafficking of drugs and arms originatedfrom Eastern Europe, the mediation
between the Italian and the Albanian crime- which by now have established interactive
and systematic contacts - led to a fastdevelopment of the Apulian crime
according to a pattern which include
gangster-like and Mafia features.
Mafia’s estimated all-embracing
capability throughout our territory
undoubtedly delayed a full awareness ofthe problem related to the infiltration in
Italy by foreign criminal groups (Slavs,
Turks, Colombians, Nigerians). Actally, inthe originating areas, the traditional Mafia
organisations still keep a full control of theterritory and there is no room for others,
save for co-operative and subordinate roles.
Yet in northern Italy, namely in
Lombardia and Piedmont - major centres
for illegal activities on a national andinternational scale, mainly in respect of thedrugs trafficking and the resulting
laundering of the proceeds - the integrated
criminal pattern I was referring to isasserting itself. A pattern in which thevarious Mafia groupings peacefully sharecommon interests and prefer economic
interests to the traditional control of theterritory and lay the foundations to hostnon-national organisations.
At first the Slav, Turk, Colombian and
Nigerian logistical centres was aimed at an
operational agreement with the Italiangroups for the drugs trafficking, yet by now
it represents the embryo of a more rationaland systematic penetration into the Italianillegal market. The strong criminal
repression implemented in the latest years
to the detriment of Sicilian and Calabrianorganisations - this latter detaining anearly monopolistic power on the drugs
trafficking - left unexpected room to foreigngroups which in the past were restricted
in a subordinate position. The overall

outline is therefore exceedingly unstable.
The competitiveness to conquer new spaces
brings about steady unrest among criminalgroups resulting in uninterrupted clashes,slaughters and new alliances.
III. INSTRUMENTS AND
COUNTER-MESURESThe seriousness of the criminal
phenomenon of the international drugtrafficking poses the priority need for aneffective unitary international strategy
divided into five areas of action alreadyclearly indicated by the Convention ofVienna of 1998 as supplementary andindispensable:(i)action against the production
sources and the first rings of theorganized crime chain running thistrafficking;(ii) fight to the smuggling of the socalled “precursors”, i.e. those
substances needed in the chemical
processes to manufacture drugs;(iii) a c t i o n a g a i n s t r e t a i l e r
consumption;(iv) i n t e r n a t i o n a l m u t u a l l e g a l
assistance(v) fight to the money laundering of
the drug trafficking proceeds.
In Italy the debate on the drug problem
is hot, namely with reference to thetreatment of the consumer (swinging from
repression to rehabilitation) and to thepossible amendments of the current legal
system. Italy is one of the leading countries
in the pursuit of such unitary international
strategy which is unfortunately a long way
from being implemented notwithstanding
the efforts and the steady contacts among
judges, prosecutors and judicial personnel.
I will focus my discussion on the criminal
repressive system regarding the offencesof drug manufacturing and trafficking and127

RESOURCE MATERIAL SERIES No. 58
I will leave out the current regulation of
the consumer treatment. Following to arepealing referendum held in 1993, drug
possession for personal use is no longer acriminal offence, it is a wrong punished byadministrative sanctions applied by theprefect (suspension of driving licence, oflicence to carry firearms, of passport, etc.).
Notwithstanding the repeal of 1993 which partly resumes the principle ofdifferentiated strategy which characterised
the old law of 1975 based upon the
distinction between trafficker, petty pusher
and consumer - the current legislation
mainly referring to the D.P.R. no. 309/90
has strongly repressive features. The baseprinciple in force after the referendum of
1993 is the following: irrespective of thequantity, drug possession for the purposesof pushing is a criminal offence whilst drug
possession for personal use is anadministrative wrong.
Criminal repression of drugs can bedivided into two major crime categories:
(i)
(ii)

the offences of drugs
manufacturing and trade;the offences of assistance orincitement to drugs use.

The system is made up by two criminal
categories distinguished by the individual
nature (article 73 D.P.R. 309/90) or theconspiracy nature (art. 74 D.P.R. 309/90)
of the criminal conducts. Each of these subgroups provides for different sanctions
based upon the nature of the controlled
substance depending on whether it is aheavy drug or a soft drug (thisdifferentiation had been previously
identified by the law-maker in appropriate
tables attached to the law which can beamended or supplemented in progress oftime). Sanctions punishing the conducts
pertaining to the heavy drugs are
considerably more severe.

128

Within the individual category, two typesof criminal conducts can be listed:
(i)

(ii)

the activity of drugs
manufacturing and trade without
governmental authorisation;
the same activity performed
having obtained the governmental
authorisation but infringing its
provisions.

The core rule set out under article 73
DPR 309/90 covers the individual conducts
liable to criminal sanctions under a single
provision. They pertain to alternative
criminal model situations and thus toautonomous offences possibly committed incomplicity and possibly linked bycontinuation (the pursuit of the same
criminal design). The law provides for thefollowing unlawful conducts:
(i)
(ii)

growing
production, manufacturing,extraction, refining(iii) offer or placement on sale (themere affirmation to be able toprocure drugs is punished)(iv) giving or sale (as to the former, aconsignment for free is punished)(v) distribution(vi) trade(vii) procuring to others (mediation)(viii) import and export(ix) passing or shipping in transit(x) possession, not for personal use ofcourse (material availability).
Such sanctionative provision
operates as a common element
within the repressive system.

In applying this law, a special problem
is posed by a common behaviour that is thegroup use of drugs. Prevailing court
decisions held, in such cases, the complicityof all participants in the action ofpossessing the drugs purchased by eitherof them. Recently, yet, court decisions have

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
held that the personal use of the quantityof drug consumed by each of them amounts
to a mere administrative wrong save forthe criminal liability of the person who
procured the drugs for the common orgroup consumption.
Article 74 of DPR 309/90 sanctions theconspiracy for the purposes of drugtrafficking. Within the framework of thevaried approach arranged by the Italian
law-maker in order to adjust penalties tothe various degrees of seriousness of theoffences involved, the conspiracy ranks at
the highest level (promoters are liable to aterm of imprisonment not less than twenty
years; participants are liable to a term of
imprisonment not less than ten years).

(v)

person who works for the purposeof laundering illicit proceeds witha stable position within theorganisation;
participant (generic membership).

Sanctions do not take into account thetype of drugs involved in the trafficking
operated by the criminal organisation andtherefore it is the same with respect to both“heavy” drugs and “soft” ones. An
extenuating circumstance is merely
provided for in the - unlikely - case thatthe association is directed to commit“unimportant” actions. Special
aggravating circumstances are provided
when:
(i)

Such sanction was made mandatory for
Member States by the Convention ofVienna of 1988, it covers any kind of
conspiracy and is meant to repress any
form of intervention and participation in
the drug trafficking. It proved to beparticularly effective with regard to therepression of the drugs production andtrade, mainly to the detriment of criminalorganisations operating at international
level and it is frequently combined to othercrimes such as the Mafia type conspiracy
set out under article 416 bis of the Italian
Criminal Code.
Within this association the following
roles can be distinguished:(i)promoter (initiates the criminal
association);(ii) e s t a b l i s h e r o r f o u n d e r(participates in the setting up);(iii) arranger (co-ordinates the activityof associates and ensures theoperation of the structure);(iv) backer (invests capitals in thecriminal association); this role isconsidered similar to theinvestment counsel and to thethe association is made up by 10
or more persons;(ii) p e r s o n s a b u s i n g d r u g s o r
psychotropic substances
participate in it;(iii) availability of arms;(iv) adulterated or dangerously cut
drugs are involved in the illegal
trafficking.
A special extenuating circumstancebears significance rewarding the one who
made efforts to avoid that the criminal
action results in further consequences or
to provide evidence of the offence. This
provision is meant to encourage the person
to repent after the commission of theoffence and it can be applied to the conducts
listed under article 73 as well as to theconspiracy under article 74. According to
the law-maker’s intent, such extenuating
circumstance is directed to obtain a greater
effectiveness in the repression of theactivities connected to the drug trafficking
and assumes that a considerable reductionof penalty may favour a helpful cooperation so undermining the structure of
the criminal organisation which is difficult
to attack from outside.

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RESOURCE MATERIAL SERIES No. 58
Implementation practices relevant to theoffence of conspiracy for the purposes ofdrugs trafficking posed a significant
problem in the identification of the court
having local jurisdiction. The choice madeby the law-maker to connect the local
jurisdiction on uninterrupted offences(such as the conspiracy ones) to the location
where the commission of the offence wasinitiated seemingly creates problems withregard to the association offences. In suchcases the identification of the jurisdiction
is no easy task due to the operational
structure - which is not always restricted
to a limited territory, but it frequently
branches across various territories - anddue to the “open” nature of theseassociations, always ready to receive newcontributions and memberships.
In the search of ways to reduce the riskof different interpretation by judges, court
decisions have seemingly disregarded the
traditional standpoint according to which
the commission of the conspiracy offence
initiated when the agreement among theparticipants was reached, the achievementof the association purpose being
unnecessary.
By now, court decisions have steadily
held to favour the location of where theestablished structure is deeply rooted - thesite where each offence committed inpursuance of the association’s criminal
design being unimportant - and the location
where the association’s strengthening anddevelopment was achieved. Thesearguments are certainly valid with regard
to the Mafia type conspiracy - which isstrongly linked to the territory - but they
are hardly useful with regard to theconspiracy set out under article 74 of DPR
309/90. Here the decisions of the courts
vary significantly.
On this point, it is worth considering a
judgement recently pronounced by the130

Italian Supreme Court with reference to aprominent organisation involved in drugs
and arms trafficking at international level
whose leaders always met in different
countries to arrange their criminal
strategy, neither location prevailing over
the others as main site for the association’s
activities. The Supreme Court held theprinciple according to which - where acriminal organisation is made up by
various groups operating on a wide
domestic and foreign territory whose
connections to achieve the association’s
purposes are not related to the territory the main rule providing “the location where
the commission was initiated” and if
necessary the one referring to the “deeply
rooted activity” shall be disregarded.
Instead the supplementary rules set out
under article 9 of the Italian Code of
Criminal Procedure shall be considered(the ultimate site where part of the action
occurred, the defendant’s residence ordomicile, the venue of the prosecutor’s
office which initiated the investigation).
IV. UNDERCOVER OPERATIONS IN
RESPECT OF DRUGS AND ARMS
TRAFFICKING AND MONEY
LAUNDERING
Along with the substantive criminal
legislation, the law-maker also provided a
set of procedural provisions on drugs
offences capable to enhance theeffectiveness of prevention and repressionof the illicit activities connected to thedrugs trafficking. Such provisions concern
the investigative activity of law
enforcement forces, namely the law
enforcement national services (State
Police, Carabinieri, Guardia di Finanza,
Mafia Investigations Bureau) responsible
for carrying out co-ordinated inquiries onorganized crime.
Article 97 of DPR 309/90 introduces in
our legal system the undercover agent so

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
allowing law enforcement forces to secretly
infiltrate inside the illicit circuit and also
provides the possibility of a simulated
drugs purchase in order to obtain evidence
as to the drugs offences without being liable
to criminal sanctions. This provision waslater extended -in 1992- to include
investigations on money laundering andthe result was a new legal excuse in respectof the undercover agent to facilitate thefinding at trial of money laundering and of
the re-investment of illicit capitals; with aview to this, the undercover agent favours,
if needed, the replacement and re-use ofmoney or other illicitly obtained goods or
benefits and is involved in the sale of arms,
ammunitions and explosives also in thecapacity of middleman.
The execution of such activities shall be
immediately reported to the competentprosecutor who - by way of a groundeddecision - is entitled to postpone the seizureof the money, property or other benefits orof the arms, ammunitions and explosives
as long as the investigation is completed
also issuing orders to keep them, if needed.
For the same investigative and evidential
purposes, article 98 of DPR 309/90 provides
the possibility to delay or forbear suchactions as the apprehension, arrest or
seizure so as to facilitate the identificationof the drugs trafficking main units. The
lawmaker took account of the great
obstacles faced in the investigations aimed
at finding this type of offences andidentifying their authors.
An active role of the law enforcement
forces has been cautiously provided in
respect of the functioning of specificoperations on matter of drugs and arms
trafficking and money laundering with aview to acuire evidence. In substance, law
enforcement officers are allowed not tointerfere with the traffickers cleaiming tobe purchasers, until the illicit transaction
has been materially executed.

This situation cannot be included in thescope of the undercover agent although thisbehaviour - which is not liable topunishment - has some common featureswith it. After lots of uncertainties, Italian
court decisions adapted to this matter thegeneral principles adopted on the issue ofthe undercover agent. Under the former
principles on the agent provocateur, theundercover agent’s exception of criminal
liability would require that he should not
go so far as to causally contribute by his
behaviour to the commission of thecriminal action which should not be causedby him and should be conceived andexecuted by the will of the trafficker or thelaunderer.
The role played by the undercover agent,yet, cannot be limited to an activity ofcontrol, surveillance and restraint of theillicit action of others; it must necessarily
involve the infiltration in a criminalorganisation, the enticement to sell and, if
necessary for the purposes of the successful
operation, in a range of other illicit
activities aimed at gaining the trust of thecriminal organisation and closely
connected to the trafficking for which theinfiltration is allowed. Therefore, thepurchase of drugs and arms as well as theuse of forged cover documents or the
carrying of unlawful arms cannot bepunished.
Because the introduction into theunlawful drugs and arms market and thecontact with the people involved imply
many risks - in terms of the agent’s possible
involvement and of his safety - the law
provides for a range of precautionary
requirements. The lack of either of theserequirements results in the loss of the legal
excuse.
First of all, agents are required to behighly and specifically trained. The
undercover investigation shall concern

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RESOURCE MATERIAL SERIES No. 58
offences listed by the law. In case of
concurrence of crimes, of course, theoperation can legitimately take placeprovided that the offences which are beingcommitted include a violation of law on
drugs, arms or money laundering.
In respect of money laundering
operations, the responsible officers areallowed to receive and replace money, goods
or other benefits originated from Mafia
crimes as well as to act in such a way as tohamper the identification of their origin or
as to allow their use.
The power to order the delay in theexecution of apprehensions, arrests or
seizures falls into the jurisdiction of theprosecutor who co-ordinates the inquiries
and who authorized the undercover
operation. This provision can be applied
to the drugs and arms trafficking as wellas to the action against money laundering.
In urgent cases, this decision can be takenby the police officers involved who shallgive immediate notice, also by phone, to theprosecutor - who can validate the decisionor take different measures - and send him
a grounded report within 48 hours. In
respect of drugs, similar notice shall be sent
to the Direzione Centrale Servizi Antidroga(National Drugs Services Bureau) which is
responsible for the co-ordination ofoperations with police bodies from othercountries interested in the trafficking.
The two notices have different purposes.
The information sent to the prosecutor
ensures an immediate control on theoperation and can result in the adoption ofdifferent measures, if any, also in
connection with other prosecutors. In fact,
the prosecutor responsible for thesupervision on the operation shall givenotice to his partners of the measures
adopted by him, in respect of the in-coming
and transit sites on the domestic territoryand of the site where the operation is132

expected to be carried out so that they may
be able to control and take action in theirturn.
The information sent to the National
Drugs Services Bureau allows the adoptionof co-ordination measures among theactivities of the various bodies responsible
for control and investigation. These
activities are absolutely necessary, above
all in case of transnational controlled
delivery operations. The controlled
delivery was introduced in international
legislation by article 11 of the UN
Convention on drugs trafficking adopted in
Vienna on 20 December 1988, ratified in
Italy in 19905.
The judicial acts which can be delayed
are rigorously indicated by the law andinclude the apprehension, the arrest, theseizure of the corpus delicti and of thethings pertaining to the offence. The
reason for this postponement lies in theneed to acquire significant evidence or to
identify and apprehend the authors of theoffence. The reference to the need andsignificance of evidence highlights the
exceptional nature of this provision, whichshall be applied only when any otherinvestigative activity already carried out
proved to be unsuccessful or insufficient.
Moreover, the law allows police officers
to forbear or delay judicial acts falling into
their own jurisdiction other than the
5With regard to the exact notion of “controlled
delivery”, reference must be made to the definition
included in the Convention of Vienna (art. 1 G)
where it is indicated that the expression means “thetechnique of allowing illicit or suspect consignmentsof narcotic drugs, psychotropic substances to passout of, through or into the territory of one or morecountries, with the knowledge and under thesupervision of their competent authorities, with aview to identifying persons involved in thecommission of offences”

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
apprehension and the arrest - i.e. searches- provided that immediate notice be sent
to the prosecutor. This power is also vested
in the Customs authorities that play amajor role in the control of theinternational illicit trafficking at frontiers,
ports and airports.
While the execution of such measures asapprehensions, arrests or seizures canmerely be delayed, in the cases listed above
the “forbearance” is also provided for. The
difference is explained by the fact that
judicial acts are necessary procedural
activities which can only be delayed, whilst
some police or customs acts can be forborne
without prejudice to the procedure.
Article 99 of DPR 309/90 regulates thesearch and apprehension of ships andaircrafts suspected to be used in drugs
trafficking. Under this rule, the Italianwarship or patrol boat crossing in
territorial waters or on the high seas adomestic ship (even a pleasure craft)suspected to carry drugs is allowed to stopit, visit and search its cargo, apprehend andlead it to an Italian harbour or to the closest
foreign harbour where a consular authority
can be found. The same powers can be
exercised on board non-national ships interritorial waters and, in compliance with
the international law regulation, also
outside the territorial waters. The
provision concerns aircrafts as well. The
reason for this significant enhancement of
the controlling powers vested in the law
enforcement forces lies in the fact that Italy
imports drugs and that vessels andaircrafts are the most frequently usedmeans of transport in this illicit trafficking.
Article 103 of DPR 309/90 extends to theGuardia di Finanza the power to control
and inspect in the premises subjected tocustoms control, a power which at first was
only vested in the customs authority;
moreover, it entrusts any law enforcement

force with outstanding powers to control,
inspect and search with respect to theactivities for the prevention and repressionof illicit drug trafficking also outside thecustoms areas. These provisions
undoubtedly increase the powers vested in
the law enforcement forces as to theprevention activity aimed at the detectionof drugs quantities.
Along with these specific provisions,with regard to the drugs offences – and tothe other organized crime offences alike the rules contained in the code of criminal
procedure provide more extensive
limitations as to the admissibility and theduration of telephone or computer tappingand electronic surveillance; it also provides
longer time-limits in the conduct of pretrial investigations and in the enforcementof precautionary measures on the person,
if compared with other offences.
In respect of procedural instruments,
moreover, it is worth noting the provisions
directed to enhance the prosecutor ’s
investigating powers. The Italian legal
system entrusts the prosecutor withautonomous investigative powers
combined to those of law enforcement in
the search of the report of offence as wellas the power to direct law enforcement
forces in the investigations. A special
propelling activity as to the intelligenceand investigations in the field of the fightagainst international drugs trafficking is
performed by the Procura Nazionale
Antimafia (National Antimafia Bureau).
Starting from information on the arrestof Italian citizens in foreign countries on
account of drugs offences, this Bureau
acquires any possible information relevantto the investigations under way in theforeign countries where the arrests havebeen made in order to take the appropriate
steps to propel and co-ordinate theinquiries in Italy on the persons arrested

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RESOURCE MATERIAL SERIES No. 58
and on the criminal organisations they
belong to, if any. In this respect, the Bureau
acquires the records originated in theforeign authority on the basis of which
reports had been made.

established by the Council of the European
Union through the Joint Action of 29 June
1998 in order to promote the judicial cooperation among Member States
V. CORRECTIONAL MEASURESOn the basis of these records, theNational Antimafia Bureau first makes asurvey of the overall information available
so as to obtain a comprehensive outline of
the facts and then possibly undertakes topropel and co-ordinate the investigation in
Italy. Investigations are specially initiatedto find out:(i)whether the person is currently incustody or has been released;(ii) which is the prosecuting foreign
judicial authority or law
enforcement office;(iii) which is the object and the stageof the relevant proceedings;(iv) whether there exist documents
already obtained as to the facts;(v) whether some features can bedetected being directly or
indirectly connected to money
laundering;(vi) any useful datum on the person
arrested.
Information obtained are entered into
the databank of the National Antimafia
Bureau and a control is simultaneously
made to find whether the reported persons
can already be found in the judicial records
previously entered into the computer
system so as to obtain a comprehensive
outline pertaining to each person.
This undertaking is bound to beenhanced since the Direzione Nazionale
Antimafia - which plays a leading role inthe co-ordination of investigations andprosecutions in the Italian proceduralsystem - has been identified by the Ministryof Justice as the central point of contact
within the European Judicial Network

134

Subject to the sacred rights of the person
who is in custody, the Italian experience
shows the importance of the legislation
relevant to the correctional field with aview to the fight against organized crime.
In the last decade, this system has
undergone multi-functional changes, adistinction has been made between
ordinary in-mates and in-mates linked toorganized crime and, within them, between
those who cut such ties (possibly cooperating with justice) and those who still
keep them.
Briefly, the Italian correctional system
is currently based upon three principles
corresponding to the three purposes of thesentence: punishment, re-education,
benefits. This multi-faceted system allows
a strategic approach in view of the needsin the fight against organized crime basedon a standard implying theindividualisation of the sentence dependingon the specific personal conditions of inmates.
It is necessary to prevent the mostdangerous people from keeping on directing
and managing the illicit activities also fromthe jail by way of contacts with the outside
criminal environment. In this respect, in
1992 - following to the Mafia massacres - arule was introduced into the Italiancorrectional system - Article 41 bis of thePenitentiary Law - aimed at efficiently
marking the differentiation among inmates referred to above.

116TH INTERNATIONAL TRAINING COURSE
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A class of special in-mates wasintroduced, in respect of whom the law
allows to discontinue the ordinary
standards of treatment (periodical talks
with relatives, “social” activities inside thejail, contacts with other in-mates) due toserious public order and safety reasons
allegedly connectable to a close link
between those in-mates and the criminalorganisations they belong to.
Yet, the enforcement of this separate
treatment - which has a six-month durationand can be extended - is not left to thediscretion of the Correctional department
and therefore requires a necessary
computer-based co-ordination between the
Ministry of Justice and the prosecutors sothat the measures enforcing the special
correctional regime be adopted on groundsof established and adequately justified
reasons.
One of the typical traits of a Mafia typeconspiracy is the persistence of theassociation bonds even under custody.
Indeed, the subject under custody still
keeps the role played within theorganisation. This factual element was
unanimously and indisputably reported byany co-operating witness and highlightsthat - failing a clear choice to opt out of theconspiracy - the in-mate’s decision-making
power on the organisation’s action remains
unchanged. Moreover, when some of thein-mate’s tasks are temporarily assigned
to a person who is free to move, this isanyhow insignificant since the in-mate isconstantly informed of what happens
outside the prison and can fully andactively resume his role whenever he isallowed to by external conditions.
Indeed, it is proved that these links havean operational nature and, vis-à-vis theheads of the criminal association who arein custody, they constitute a necessary
requirement to keep the control over theillicit activities and, often, to preserve thecriminal structure itself. To the memberof the Camorra organisation, keeping
contacts with the outside criminal world isa rule which has no exceptions, a rule
applied on the occasion of meetings atrecreation times as well as during the talks
with relatives; they also use other in-mates’
talks with a view to a faster exchange of
information from the inside to the outsideof the prison.
Providing the grounds for the initial
proposal to apply the special detention
regime is undoubtedly simpler thanproviding the grounds to extend it: this isbecause, for the purposes of the first
application of the special custodial regime,
an adequate indication of the charges,
precautionary measures and convictions
imposed is sufficient since these measures
usually mention the role played by the inmate which shows his present social
dangerousness and the one he could
possibly exert inside the prison. For the
purposes of the special regime
effectiveness, it shall be restricted to thefollowing categories of in-mates:(i)heads, arrangers, promoters,
heads of the organisations set out
under article 416 bis of the Italian
Criminal Code and article 74 of
DPR 309/90;(ii) principals, arrangers, financiers in
respect of murders, massacres, etc.
committed by the use of theassociation bond;(iii) arrangers of the offences set out
under article 630 Criminal Code,aggravated extortion;(vi) authors of the above-mentioned
crimes when such a role is played
uninterruptedly and in a
professional way;(v) l i a s o n m e m b e r s w i t hgovernmental corrupted areas,
masonry, subversive or terrorist

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RESOURCE MATERIAL SERIES No. 58(vi)organisations, with foreign
military or political groupings
involved in subversive or terrorist
activities;
subjects involved in theinternational laundering of illicit
proceeds at high-ranking levels or
playing prominent roles.

The grounds provided to justify therequests and opinions on the extension of
the regimes already applied shallundoubtedly be stricter because the more
the need for the persistence of the special
custody regime is stressed, the stricter the
grounds accompanying such a request.
In these cases, in addition to theelements listed above, other different
elements shall also be indicated notdepending on the former. Mention shallbe made about these latter, an indication
which shall not be comprehensive yet
useful as an explanation. Namely, thefollowing criteria shall be stressed:(i)carrying on of the criminal
activities, the control of thet e r r i t o r y, t h e o p e r a t i o n a lconnections by the organisation
the subject belongs to (which canbe inferred from police
investigations);(ii) presence of prominent fugitives
belonging to the said organisation,with the resulting danger of
exchange of messages andinformation between theassociated members inside theprison and those outside;(iii) persistence of leading roles, or
anyhow outstanding roles, within
the organisations also following tothe onset of custody (which can beinferred from co-operating
witnesses’ statements, from theleading role played and/or
acknowledged at trials in courts);

136

(iv)

carrying on of supporting activity
also inside the prison which can beinferred from new affiliation
ceremonies, promotions, etc (asresulting from co-operating
witnesses’ statements, electronic
surveillance even inside prisons,and so on);(v) established activity of tamperingof evidence or attempts;(vi) any pending criminal proceedings
versus the in-mate and, if this is
the case, the court venues dealing
with them so as to verify thepossibility of transfer from acorrectional institution to anotherwith the consequent possibility tohave contacts with other in-matesin custody in other places or withthe external environment;(vii) the occurrence of facts outside theprison (Mafia murders or
massacres, kidnappings forransom, tampering of evidence,etc) from which it can be inferred,
also on the basis of circumstantial
evidence, that they were orderedby in-mates.
These elements, of course, shall notalways bear a real evidential worth - sincein this case we would be faced with thefinding of criminal events - the mere proofs,
even simple ones, are sufficient andadequate to ground administrative
measures.
In-mates still linked to organized crime- yet not subjected to any special custody
regime - receive a correctional treatment
whose function is to severely punish by
restricting personal freedom, compared tothe one envisaged for ordinary in-mates,
whose function is to re-educate and sociallyrehabilitate them.
Finally, an exception to this strict regime
is only provided in respect of in-mates that

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
co-operate with justice, a circumstance that- by itself - shows that the previous links
with the criminal organisations have been
overcome. Prisoner witnesses benefit froma rewarding treatment mainly constituted
by “softer” prisons and by non-custodial
punishments which are usually granted toordinary in-mates (external employment,
reward leaves, placement under thesupervision of a social worker, probation).
The worsening of the correctional regime
in respect of the hard-liners, and thesimultaneous extension of the ordinary
benefit regime to co-operating witnesses,
produced remarkable positive effects withregard to the safety and order inside andoutside prisons (prohibition to the exercise
of power by the most dangerous in-mates
inside prison and in the external criminal
environment) and with regard to theinvestigative and procedural aspects(increased co-operation with justice).
Furthermore, a special extenuating
circumstance (reduction by a half to twothirds of the penalty) bears significancerewarding the one who made efforts toavoid that the criminal action results infurther consequences or to provide evidenceof the offence. This provision is meant toencourage the person to repent after thecommission of the offence and it can beapplied to the conducts to a Mafia-typeorganization or expressive of organizedcrime. According to the law-maker’s intent,such extenuating circumstance is directed
to obtain a greater effectiveness in the
repression of serious offences and assumes
that a considerable reduction of penalty
may favour a helpful co-operation soundermining the structure of the criminalorganisation which is difficult to attackfrom outside.

VI. THE IMMUNITY SYSTEM AND
THE WITNESS PROTECTION
PROGRAMME
The matter of co-operating witness isreputedly exposed to tension and diverse
assessments. Some of them are connectedto the protection system and, in thisrespect, there is concern that it mightcollapse due to the significant number ofsubjects protected. Other ones can be
related to the procedural aspects of thestatements made by these subjects and,namely, to the nature of the checks thatshall corroborate them and to theiroutcome, in case they are made during thestage of pre-trial investigations and cannot
be verified during the examination at trial.
Witnesses who co-operate with justiceconstitute a necessary and irreplaceable
tool in respect of organized crime
proceedings. Their contribution has been
precious with a view to the knowledge ofthe deep Mafia world and mainly to thefinal conviction of countless organizedcrime members.
In Italy, the use of the statements madeby a co-operating co-defendant at trial goesback to thirty years ago, yet only in 1991
was the need to arrange a protection
programme for these persons - as well as
for non-criminal witnesses - regulated bya legislation at the very same time when
the procedural system was reformed on thewake of the adversary system in force incommon law.
The new procedure, indeed, stressed theneed for a serious protection and assistanceprogramme in respect of co-operating
witnesses considering that the basic
principle at its foundations is that evidence
is formed in a contentious proceeding
between opposing parties. Thus, theaccusing statements made during the pretrial investigations have no evidential
value if they are not confirmed at trial.

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Hence, the need to protect and assist those
who make significant statements for the
purposes of the investigation and thefollowing trial in result of which they - andtheir relatives as well - are exposed to aserious and present danger of violence orthreats aimed at preventing them from
witnessing at trial or compelling them towithdraw the charges.
The responsibility to subject a person(and his family members) to the protection
programme - and to keep them as long as
it is necessary and possible - is vested by
the law in a range of bodies and authorities
including the Chief Prosecutors or the
Head of the Police (who have the power torecommend and propose); the National
Commission of the Ministry of the Interiors
which adopts the measures related to thespecial protection programme; the National
Protection Service which deals with thespecial programs decided by theCommission and manages the material
execution of the programme by its own
branches - the Protection Operational
Units - throughout the domestic territory.
Prior to any recognition of the cooperating witness status, the statements
are deeply analysed (or at least they shouldbe) and immediately subjected to a firstcheck including the interactive comparison
between the judicial information and theoverall data owned by the police forces andthe National Antimafia Prosecutor. Thissystem has been in force for a decade (thelaw on co-operating witnesses goes back to1991) and I could talk for many hours ofcountless experiences I made. Yet, I believe
it is more useful to draw some lessons withreference to the most urgent problems
relevant to this system which is going tobe dramatically amended very soon.
Sensibility and legality shall be always
applied in respect of the system’s
implementation practice on the basis of138

four chief guidelines: 1) personal safety of
the co-operating witness; 2) psychologicalsafety of the co-operating witness; 3)
security of investigations; 4) third-party
position in the management of thecollaboration, which is essential to prevent
an instance where the police may suggest
the answers to the suspect (principle ofseparation between protection andinvestigative agencies).
The physical safety of the one who
declares to be willing to co-operate withjustice shall be safeguarded, as a rule, byrestricting the person in suitablecorrectional institutions purposely
identified and equipped by the Correctional
Department; non-correctional institutions
should only be used in those cases where
this is absolutely impossible and there exist
serious, urgent and grounded safety
reasons.
In conditions of “differentiated” custodyin jail, the co-operating witness shall be
granted the best possible conditions toensure the psychological safety necessary
to carry on the co-operation. In thisframework, the safeguard and assistance also on an economic level - of the family
are essential, although exceeding requests- compared to the objectives and limits ofthe protection -shall not be granted.
The certainty of the investigations may
actually originate from these two
requirements since the gathering ofstatements and the necessary checks will
be possibly carried out in due course,
resulting in a positive evaluation of thecollaboration’s truthfulness and reliability,
which is the necessary requirement for theapplication of the special protection
programme. Such an approach, finally,
implies a total third-party position in the
management of the co-operating witness
and separates the protection responsibility
from the investigation responsibility right116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
from the beginning, to the benefit of either
one and of a correct exercise of jurisdiction.
The reform of the legislation on cooperating witnesses’ protection andpunishment - which is going to be passedby the Italian Parliament - introduces
significant amendments without radicallychanging the major role played by cooperating witnesses in the fight againstorganized crime and aims at a moresensible protection system, on the basis of
the said guidelines, and of operational
needs felt by the practice for a long time.
In short, the new legislation is founded
upon the following further principles:(i)security of the co-operating
witness;(ii) guarantee for the accused;(iii) truthfulness of evidence;(iv) separation between the protection
and the benefit;(v) different treatment for witnesses
in respect of subjects originatingfrom the criminal milieu.
The first aspect radically affected by thebill involves the admission to protection.
This is limited to subjects making
statements on terrorist or Mafia offences.
The new law outlines the quality aspect of
the co-operation more precisely than it doesin the current legislation.
The co-operation shall be marked by its
significant importance in respect of thestage of pre-trial investigations and thetrial stage. The concept of significant
importance is linked to the inner featuresof the statements made, which shall be
reliable and comprehensive. For the
purposes of the assessment of the dangers
run by the person, the law-maker also
indicated such standards, as the worth ofthe collaboration and the intimidation
capacity at local level of the criminal groups
accused.

From this point of view, a kind of “twoway” protection measure is introduced.
The special protection system is basicallygranted in those cases where thestatements made are indispensable forinvestigations on the functioning,strategies and branches of Mafia type orterrorist-subversive criminalorganisations, as well as on theirequipment and properties.
In other cases, reinforced common
measures are applied which ensure the cooperating witnesses’ safety and provide, if
necessary, to support them although they
do not amount to a real “life style” as in
the case of the special protection
programme. The latter is linked to its
original nature of exceptional legal
protection tool which, in addition to the cooperating witness protection, promotes his
prospective social rehabilitation by meansof a set of administrative and financial
measures.
The “reinforced” common ordinary
measures should consist of temporary
safeguard services in respect of the cooperating witness and the family members.
They are not disciplined in detail by thebill since it is understood that this function
might be accomplished by a later
regulation. This regulation shall beabsolutely necessary if we consider that thecrisis of the current system was indeed
brought about by the malfunctioning of theordinary protection measures which
determined the remarkable increase in thenumber of special protection programs.
The entry into force of the new legislation
should allow a stricter selection ofcollaborations and the special programme(whose implementation starts a complex
mechanism) would only be applied to cases
which cannot be dealt with differently.
The second aspect, dramatically affectedby the bill, is the procedural and beneficial

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treatment of co-operating witnesses. The
bill is based on the principle according towhich the entitlement to the special
protection programme does not
automatically bring about the granting ofpunishment benefits - as it occurs today which instead shall be linked to the
conduct.
In the past years, the admission to thespecial programme and the granting of thebenefits were marked by a nearly
automatic cause and effect relation. This
trend may bring about a malfunction in thelegal safeguard mechanism due to two
factors. The first one includes thesubmission of proposals for admission into
the protection programme aimed at
obtaining non custodial punishments
which, in respect of co-operating witnesses,
are granted in derogation to the current
provisions on the limits of sentence; thesecond one includes the increasing
difficulty in the surveillance of the cooperating defendants admitted to the said
non-custodial measures, as a result of the
camouflage mechanisms adopted to protect
them (today the system does not even allow
the prosecutor or the judge to knowwhether the co-operating witness has had
contacts with other co-operating witnesses,
when the protection takes place outsideprisons).
The bill is aimed at diminishing suchrisks by clearly separating the admission
to the protection programme from thebenefits. This latter can be granted after
service of at least one-fourth of the sentence
imposed or after 10 years in case of life
imprisonment. This provision favours thelargely felt need that the liability forserious offences should not be annulled dueto the collaboration and the need to grant
benefits exclusively to those subjects whose
collaboration is validated by judgements.

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The new law also subordinates thepossible withdrawal of pre-trial custody injail to the lack of current connections with
the Mafia or terrorist organisation, to thecompliance with the engagements madeupon the subscription of the special
protection programme and to thesignificance of the co-operation. The bill
purposely provides that the co-operating
witness shall undertake not to makestatements relevant to the facts covered in
the proceedings where he has co-operated
to bodies other than the judicial authority,
the police forces and his own defence
counsel and not to meet or contact otherpeople who co-operate or are involved incrime.
The stricter admission to non-custodial
punishment is counterbalanced by theprovision under which co-operating
witnesses in custody shall be restricted inadequate units inside the correctional
institutions depending on different
approaches which may favour the social
rehabilitation. This differentiated regimeof custody in jail shall be arranged so as tohamper the statements agreed upon bymore co-operating witnesses or suggested
by external people. Such a solution - if it
is approved - would result in the balooningof the number of co-operating witnesses
subjected to pre-trial custody in jail andthus would require the arrangement ofadequate equipment.
Under the condition of a “differentiated”
custody in jail, the best possible conditions
to ensure the statements’ truthfulness shallbe guaranteed. In this respect, an adequate
provision exists under which the in-mate
is not allowed to have investigative talks
with police bodies - at least until the recordof the co-operation is drawn up - andneither is he allowed to meet other cooperating witnesses and receive or send
mail outside, save for purposes connected
to protection needs. The withdrawal of the

116TH INTERNATIONAL TRAINING COURSE
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pre-trial custody in jail or the replacementby house arrests shall be possibly granted
only after a first instance judgement andonly after the significant importance of thecollaboration has been found by thejudgement. In any case, the co-operating
witness shall serve at least one third of thesentence in jail.
One more innovation introduced by thebill is the identification and acquisition ofproperties illicitly obtained by co-operating
witnesses. Co-operating witnesses shalldeclare in the record - which shall be drawn
within six months from its beginning - all
the properties owned or managed, evenindirectly, and shall undertake, upon theadmission to the protection system, to handover the money and transfer the assets
illicitly obtained, even if they own them
indirectly.
The reform which is going to be passed
also regulates the destination of properties
transferred by co-operating witnesses or
anyhow forfeited. For the sake ofaccountability, the regulation on theforfeiture of Mafia members’ properties was
also extended to properties forfeited to cooperating witnesses with no reductions or
exclusions. A quota of the properties seized
and forfeited - identified by separate interministerial decrees - shall be destined tothe implementation of special preventive
measures as well as to a Solidarity Fundfor the victims of offences.
The bill also focused on the complex issueof the social rehabilitation of protected
people. In this respect, some interministerial shall be purposely issued andthey will indicate ways to keep the
employment or the transfer to other venue,
specific measures for the assistance andsocial rehabilitation of minors andwitnesses included in the programme.

The current system does not separate
the position of persons originating from thecriminal world and the position of those
who do not belong to that world and are
merely victims, witnesses or persons
informed about criminal facts. This
deficiency heavily contributes to refrainfrom collaboration, mainly in those social
contexts where the law of silence has amajor impact.
Needless to say, major progress in thefight against organized crime might beobtained by attacking the settlement ofcriminal groups on the territory. In thisrespect, a significant approach would imply
encouraging citizens to report intimidation
exerted by delinquent groups to the law
enforcement authorities, mainly thosegroups involved in extortion and drugs
trafficking also by means of an economic
support, as I will mention later withreference to the Solidarity Fund for theVictims of Extortion and Usury.
The reform of the system provides that
protection measures to the benefit ofwitnesses be applied even in cases when
their statements do not amount tosignificant importance and are not referred
to terrorist or Mafia offences provided thatthey expose the person making thestatement to a serious and present danger.
The National Commission - which is the
body responsible for the admission toprotection programs - shall ensure
witnesses such economic support as toguarantee an adequate way of life. The
Commission shall also favour the
rehabilitation of these persons into theeconomic system by indicating ways andnecessary funds.
A special provision deals with remotehearings with co-operating witnesses
through audio-visual equipment (the socalled video conference), which is regulatedby the recent law no. 11 of 7 January 1998.

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The text extends the use of thevideoconference to all depositions by cooperating witnesses on the presumption
that, being a tool directed to protect thewitness, it shall be increasingly used in
respect of people exposed to exceptionallyserious danger.
Finally, amendments to the code of
criminal procedure are envisaged withreference to the defence counsel’s
incompatibility. Specifically a rule will
provide the incompatibility of a common
defence for more defendants who madestatements concerning the liability of
another defendant in the same criminal
proceedings or in other connected
proceeding. These provisions are clearly
intended to ensure the truthfulness ofstatements and to avoid undue influence
by a common defence counsel - as it occurs
sometimes.
Under the legislation in force - and also
under the provisions contained in the billcurrently under consideration by the
Parliament - the National Antimafia
Prosecutor has the responsibility to express
opinions as to the admission of a person to
the protection programme, as to thediscontinuance or modification.
The large number of co-operating
witnesses - and their family members protected, the range of measuresconcerning them, as well as the exceptional
confidentiality of the matter, led the
National Antimafia Prosecutor to establish
a Department equipped with a computer
system so as to list and easily retrieve all
the records relevant to a subject. Upon
expressing the opinion, he acquires all thepossible information on the criminal facts
referred by the person, the reliability
judgement issued by prosecutors as to thestatements, as well as the path followedby the co-operating witness after theadmission to the protection programme.

142

My Bureau is also involved in ananalysis aimed at detecting the mostcommon violations of the programme rules
and identifying the “sanctions” which shallbe proposed to the Ministerial Commission
upon expressing the opinion so as to avoid
inequalities. The establishment of the
Department is therefore aimed at pursuingthis target.
VII. TECHNICAL INVESTIGATIONS- ELECTRONIC MONITORING
Co-operating witnesses remain afundamental tool in the fight againstorganized crime, as it was recognised byprosecutors and law enforcement officersof E.U. Member States during a meeting
recently held in Rome upon the initiativeof the ministries of Justice and Interiors.
Yet, on the one hand, it is absolutely
necessary to identify adequate checks forthe statements and, on the other hand,prosecutors are fully aware that thecorroboration can be also obtained bytechnical investigations and that this lattercan provide, by themselves, evidence ofguilt in respect of serious offences.
General complaints arise due to theinsufficient tools in the availability ofprosecutors and police forces, tools which
are necessary to carry out this type ofinvestigation. For instance, this occurs in
respect of wiretapping operations, due tothe communication companies’ inability to
execute all the requests made by the
judicial authorities. In this sector, theNational Antimafia Bureau performs a
regulating function establishing priorities
more connected to the urgency of requests
than to the chronological order - for thisreason, dangerous fugitives have been
recently apprehended and authors ofheinous crimes have been discovered
immediately after the fact.

116TH INTERNATIONAL TRAINING COURSE
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The shortage of equipment for expert
technical operations led the district
prosecutor offices to turn to privatecompanies (acting as advisors) which own
such equipment resulting in a dramaticincrease of expenses. The issue oftechnology yet affects a more general
problem. Today technology provides thecriminal world with a wide range of tools
in respect of communications, of the
movement of money flows, of money
laundering as well as in respect ofpaedophilia (ex. Internet). Technologicalprogress cannot be arrested, of course, yet
it takes licit or illicit forms depending on
the uses.
Yet, while criminal groups - assisted byexperts in various sectors - are always
ready to use new technologies for theircriminal purposes, the State cannot
promptly identify the technical tools tofight the misuse of new developments,
which is quite discouraging. Hence, theidea that the Ministry of Justice might set
up a technical and scientific pool withhighly qualified bodies capable to foresee
the technological developments in therelevant fields and arrange the adequate“defences”.
One of the most serious and urgent
problems we are faced with concerns
telephone interceptions. A widespread
investigative tool is the wiretapping ofinternational calls from unidentified phone
numbers in Italy to a foreign identified
phone number or to a whole district abroad,i.e. to foreign phone numbers identified by
the first figures which are the same in thewhole number (so-called re-routing).
Wiretapping operations are carried out by
Italian phone companies which act as
carriers of communications originated in
Italy to foreign countries.
On the matter of interception, the E.U.
Convention on mutual assistance signed by

the fifteen Member States on 29 May which has obviously not been ratified by
Italy yet - contains a rule (art. 20) on whose
heading is the “Interception of
telecommunications without the technicalassistance of another Member State” which
provides that “where thetelecommunication address of the subject
specified in the interception order is being
used on the territory of another Member
State”, the intercepting Member State shallinform the other Member State before
executing it (save for the case in which it
is not aware that the intercepted person isabroad; in this case it shall inform the otherState as soon as he knows it). The rule
has apparently been conceived with regard
to satellite interceptions and of electronic
surveillance in cars, yet it might be applied
to the re-routing as well.
If we agree that the Convention does
indeed regulate the case of re-routing, we
support the argument according to which irrespective of the ratification - this kindof interception does not fall into thedomestic jurisdiction. Then the point is toestimate the risk that re-routinginterceptions may not be used and thepossibility to immediately turn to the legal
assistance. Secondly, to assess whether thelegal assistance should be provided by wayof rogatory letters or by the far simpler
form indicated by the European
Convention, yet to be ratified. The
Convention, of course, only concerns the
EU countries and thus the rogatory letterswould still be necessary in respect of therest of the world.
No doubt exists as to the value to be
attached to the privacy which affects thearea of the person’s character. Yet, thesafeguard of privacy shall becounterbalanced by the safeguard of theeffectiveness and confidentiality ofinvestigations and the protection of thecommunity from crime. I can quote an

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example relevant to the situation in Italy
where the two opposing needs clash inrespect of the debate on the apparently
opposed needs to relieve the correctional
system by decreasing the number of inmates, without waiving to the principle ofthe sentence enforceability, on the one
hand, and the heavy demand of securityby the society, on the other hand.
Needles to say, a multi-function
correctional system which requires benefits
for good behaviour in-mates is
indispensable. Controls are needed which,for obvious reasons, cannot be exerted
directly, but through electronic means. Yet
this is not enough. A deterrent is alsoneeded to punish those who escapecontrols: for instance, an increase of thesentence and the ban to obtain otherbenefits.
This form of electronic monitoring is no
violation of the in-mate’s privacy. This
assessment would be erroneous. Actuallyanyone should not feel free in a cellaccommodating eight persons, yet would
rather stay at his own place wearing adevice which neither intercepts one’s voice
nor “sees” what one is doing but only
monitors one’s movements.
The home-detention bracelet, whichallows to remotely monitor a person
subjected to correctional regime, is a very
simple instrument: a transmitter, inserted
in a box as big as a cigarette packet, isfastened to the in-mate’s ankle by a plastic
band. The device sends signals to acomputer connected to a phone line. If thein-mates leaves the surveillance area, an
alarm received by the monitoring centre
immediately goes off. The same if the“virtual prisoner” tries to tear off the plastic
band. The system works thanks to a oneyear battery. The costs amount to an
average 10,000 lire a day and in the UnitedStates, for instance, they are supported by144

the in-mates themselves who choose toafford their conditional release.
In all countries where the “electronicmonitoring” has already been tested, its use
has been restricted to final convicts. As apoint in fact, this measure is deemed s too“harmful” to be applied to pre-trial custodyin jail, that is in respect of a person forwhom the presumption of innocence still
exists.
In Italy the monitoring through homedetention bracelet should be tested in awhile since it has already been approvedby the Ministry of Justice. The project
should be referred to two categories ofsentence enforcement:
(i)

(ii)

as an alternative to short
sentences restricting personal
freedom (today in Italy in respectof terms of imprisonment less than
three years, it is already possible
to challenge the warrant of arrestand benefit from house arrest
pending alternative measures);in the late stage of execution before
the release from jail (for up to six
months).

The sanction consists in the restrictionof the freedom of movement; the convict is
assigned to his/her own abode and isallowed to leave it only at certain times
fixed by the decision agreed with the body
responsible for the execution.
When the terms set by the execution
programme are not complied with or themonitoring system has been dodged,
sanctions shall be adopted the most seriousof which being the withdrawal of thebenefit and the re-enforcement of thecustodial sentence. o be entitled to benefit
from this new way to serve the sentence,the convict shall:

116TH INTERNATIONAL TRAINING COURSE
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(i)
(ii)

express his/her consent;
have an accommodation equippedwith a fixed phone line;(iii) obtain the agreement of any adults
who live with him/her;(iv) be included in a working, training
or voluntary activity keeping him/
her busy for at least 50% of his/hertime;(v) be subjected to a social service
programme covering various needs(ex. regular controls for drugs or
alcohol abuse);(vi) c o n t r i b u t e t o t h e e x e c u t i o nexpenses to a daily percentage
extent.
Once the principle according to which
the house-detention bracelet does notundermine the privacy at all - and that it
is to be preferred to the pre-trail custodyin jail - is accepted, this tool might beapplied also as a non-custodial
precautionary measure to subjects underhouse arrests. This solution would allow
to pursue a two-fold objective: to thin out
prisons and, at the same time, ensure astricter control on the execution of housearrests which - as it occurs in Italy - isentrusted to the occasional control by thepolice forces spread out on the territory andis too easily exposed to be avoided.
VIII. ECONOMIC ORGANIZEDCRIME AND MEASURES ON
PROPERTY
A general forward on the relationshipbetween entrepreneurs and crime isnecessary. It is useful to stress that therelationship between organized crime andthe crisis of legal enterprise is a three-stage
process. In the first stage, the enterpriseis in difficulty when the crime works as anegative external (or environmental) factor,
systematically destroying profits throughextortion and through serious distortionsof competitive mechanisms, resulting informs of unfair competition, which may go
through the illicit financing and thecorruption. Faced with such distorting
instruments, the entrepreneurs’ attitude isconflicting or passive. However it is notcollaborative.
In the second stage, the legal enterprise- already on the wane or in liquidity crisis- is definitively undermined when its
corporate finance policies undergo theaction of criminal financiers (usury).
Under this point of view, usury exerted bycriminal organisations to the detriment ofenterprises allows to clearly perceive thedistinction between usury credit and legal
credit. This latter is conceived so as tomaximise the probability for the return ofthe credit whilst the usury contract isconceived in order to minimise such aprobability, so as to take possession of theguarantee or to re-negotiate the credit at
higher rates.
In the third stage, criminality brings
about the enterprise insolvency when it
alters the structure of ownership andcontrols and becomes an inner factor ofcrisis. This phenomenon is usually based
upon the interaction between concealed
criminal owners and straw executives orentrepreneurs and it can follow two paths
leading from the criminal intervention to
the crisis.
On the one hand, the contaminatedenterprise may be more vulnerable since
its target is not oriented to maximise
profits, yet it is altered and exploited inorder to conceal and re-introduce flows ofillicit liquidity into the legal system (money
laundering). On the other hand, thecontaminated enterprise can be profitoriented yet its vulnerability grows because
its activity can be discontinued due to apreventive or repressive intervention bycourts. In this case, the straw
entrepreneurs or executives are likely to

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have a co-operative or collusive attitude to
the benefit of the real criminal owners.
For a correct construction of the overall
framework which can be drawn frominvestigations conducted in Italy, it isnecessary to make some previous remarks
relevant to understand the mutual
convenience of a relationship where boththe subject apparently alien to the criminalorganisation, and the organisation itself,
take advantages from the mutualinteraction, specific advantages which theywould not acquire otherwise.
The three subjects listed above (theMafia, politics, the enterprise) sharecommon criminal interests where thefeatures and the power of either of themprovide the alliance with more benefits
than their individual action would havepermitted. The existence of real business
committees constituted by politicians,
entrepreneurs, owners of engineering
offices and representatives of Mafia
organisations has been found, a kind of
mutual contract bound to be perpetuatedin progress of time and aimed at exercising
the power and acquiring huge illicit
proceeds.
Basically, through the help of criminalgroups, those politicians secured forthemselves the control on elections
throughout a wide area and in respect ofan extremely high number of votes whilst,
through the enterprises, they obtained anuninterrupted flow of funds for personalneeds and for the expenses of the politicalmachinery. The Mafia group in turnobtained:(i)

146

significant funds from enterprises(not only as percentages on
procurements, but also in terms of
the agreement in the managementof sub-contracts and theestablishment of slush funds,

which is the core of the common
business system between theenterprise and the criminal group);(ii) the subsequent, systematic controlof the domestic economic activities,
the possibility to offer jobs andmarginal quota of corporate profits
and, thus, a wide social consensus
up to the open legitimisation;(iii) through the politicians, thenecessary governmental covers
were secured, namely in terms ofpolice forces, as well as the possible
intervention on judicial processes,
if any.
F i n a l l y, d u e t o t h i s a g r e e m e n t ,entrepreneurs steadily acquired asignificant quota of the government
contracts market, distorting themechanism of competition and obtained:(i)the security of building sites
scattered on the territory;(ii) no litigation with trade unions;(iii) t o o l s t o e s t a b l i s h s l u s haccountancy whose target was not
tax evasion, yet the availability of
unaccounted funds to pay
kickbacks to politicians and Mafia
members involved and, in somecases, to afford transactions in
Italy and abroad.
In this context, extortion and usury to
the detriment of entrepreneurs
undoubtedly constitute the most worrisomedevelopment of the criminal emergency
because thanks to them a vital part of theeconomy, that is the minor and mediumsized business concern, risks to be wipedout.
The integration of these two offences canbe found in the Law no. 44 of 23 February
1999 containing provisions on thesolidarity fund for the victims of extortionand usury. In the light of the relationshipbetween the enterprise and the criminalorganisation, it can be easily understood116TH INTERNATIONAL TRAINING COURSE
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the importance of disrupting the collusive
relation between the victim of the extortionand the usurer from the beginning, at its
initial stage.
This objective is pursued by the law bymeans of provisions aimed at showing
victims that it is more convenient cooperating with justice than yielding toblackmail and thus:
(i)

(ii)

on the one hand, to encourage thevictim to report the illicit pressuresby ensuring the anonymity in the
pre-trial investigation stage andproviding adequate financial
support;on the other hand, to fix strict andclear terms with regard to theaccess to the allotments and to thematerial destination of these funds
to entrepreneurial activities so as
to, at least, hamper any criminal
manoeuvre.

Yet, there is a manifest need for a coordination among bodies responsible for
implementing the law in order to make it
apt to the preventive and repressive action.
For this reason, the law contains someprovisions aimed at the speediness andconfidentiality of the administrative
procedures involving the allotment of funds
to the benefit of the victim.
These provisions, in fact, compel all thebodies and subjects performing somefunctions within the procedures to abideby the classified information in order toensure their confidentiality and alsoprescribes that similar caution shall be
used also in the transmission of documents
and in the notices sent to the persons
involved.
Another rule provides the suspension of
the time limit fixed to submit theapplication for the allotment of funds incase the prosecutor - due to the existenceof a present and material danger ofretaliation acts - orders adequate measures
to ensure that the identity of the person
who declares to be a victim of extortion
shall be kept confidential. Article 416- bisco. 7 penal code prescribes that:”In the event of a conviction, articles
which were used or intended to be used
to commit the offence and the proceeds
thereof shall be forfeited”.
Furthermore, another basic instrument
to counteract the accumulation of illicit
profits is the provision - airticle 12 - sexiesof the Law N. 356 of 1992 - that extend
compulsory forfeiture of properties owned
by convicts on charges of Mafia crimes,
which turn out disproportionate incomparison with the legal income of theowner and this one cannot justify.
The list of offences which - when they
are found - constitute the requirement for
the enforcement of forfeiture includes all
the conspiracy offences or those offences
marked by a Mafia character and most of
the offences considered as instrumental toorganized crime. In particular, I refer tothe Mafia type conspiracy (article 416 bisof the Italian Criminal Code), the offences
committed exploiting the conditions set out
under article 416 bis Criminal Code or inorder to favour the activity of Mafia typeassociations, the conspiracy offences
specifically dealing with drugs production
and trafficking, extortion, kidnapping for
ransom, usury, aggravated smuggling,
fraudulent transfer of valuables, handlingstolen property, money laundering and reuse of illicit capitals.
Finally, the Law No 646 of 13 September
1982 applies to person suspected to belong
to a Mafia-type organization compulsory
forfeiture of its goods, which turn out
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legal income and cannot be justified (socalled patrimonial measures of prevention).
According to the Italian jurisprudence,
there is in such cases a sharing of theburden of roof : the prosecution has to firstprove that the assets are effectively owned
directly or indirectly by the convicted or thesuspect (who usually use figureheads or
straw men), and than that the assets are
disproportionate to the income of theconvicted or suspect. The convicted orsuspect thereafter must prove the lawful
origin of the assets.
The regulation on the management andutilisation of properties forfeited to Mafia
members, introduced by Law no. 109/96,
is based upon the distinction between
personal movable property owned by thedangerous subject (bound to be paid),
immovable property and businesses.
Immovable property forfeited - when they
are included in the State’s assets, that iswhen they are not sold - shall be destinedfor aims relevant to justice, public order,
safety in case of hazards, schools and they
are likely to be destined to theMunicipalities for institutional or social
aims.
Businesses can be leased to public or
private companies or to workers’ cooperatives where there exist foundedpossibilities to carry on or resume theproductive activity. Sums of money
obtained from sales or leases shall go to afund established at the prefetture (local
governmental authorities) and they shallbe used for public interest activities among
which one of the most important is theintervention in schools for education
courses focusing on legality, culturalactivities and entrepreneurial activities for
unemployed young people.
The political significance of this new law
is very clear in that it assigns a “visible”
function in the fight against organized148

crime not only to forfeiture, but mostimportantly to the specific destination ofproperties forfeited. The EU Commission,
through a Group of experts purposely
established at the General Directorate for
Justice and Home Affairs, started an indepth analysis on the issue of therelationship between organized crime andgovernment contracts.
In compliance with the objectives set by
the Action Plan of 1997 - namely, by
Recommendations 6 and 7 aimed at
reducing the risk of penetration byorganized crime into government
procurement contracts, public works and,thus , into the community legal economy the works intend to favour an increasing
integration among existing legal systems
in Member States on this matter and thecentralisation and circulation of
information pertaining to businesses
competing among the various governments
in EU countries.
Special focus is placed on the need toharmonise the rules establishing the terms
to admit to or exclude businesses fromtenders and to favour the circulation of
information within any State and among
Member States. The Directive n.93/37/
EEC - confirming the contents of Directive
89/440/EEC - establishes that theparticipation in tenders can be ruled out
in respect of any entrepreneur who is insuch situations as bankruptcy, winding-up,s u s p e n s i o n o f a c t i v i t y, l i t i g a t i o n ,composition with creditors or other similar
situation; in respect of any entrepreneur
versus whom either of the said procedures
has been initiated; any entrepreneur who
has been convicted with final judgement
on account of any offence affecting his/her
professional ethics; who has committed aserious professional error found by anymeans of evidence produced by theadministration granting the contract, who
has not complied with obligations relevant

116TH INTERNATIONAL TRAINING COURSE
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to the payment of duties and taxes; who
was guilty of false declarations in providing
information which may be requested by theadministration granting the contract.
The Group shall provide the Commission
any useful information to establish new
standards to be introduced as amendments
to the existing Directives and shall also
identify joint guidelines for action within
the Third Pillar (collection and exchange
of information among the different
authorities, possible complementarymeasures in the judicial field, in the market
sector, etc.). Significant differences among
the various legislation still exist. And thepolitical will to counteract the phenomenonof criminal infiltration into public contracts
does not seem to be strong.
A crucial issue in the path towards the
harmonisation of community rules still
remains on the background: the definitionof a common concept of “organized crime”
and the resulting identification of the
conducts expressed by it. The question isstill open because the European
Commission is apparently oriented to
specify in its prospective Directives theillicit conducts “manifesting organizedcrime” which should be the common
platform of standards to exclude businesses
from public tenders in Member States.
The issue under consideration concerns
all government contracts; yet, althoughmany cases of criminal infiltration into
government contracts for services, thisphenomenon mainly affects the public
works sector which - since it has always
been a milestone within the development
policies in our country - is the traditional
enrichment source for Mafia type criminalorganisation and the main channel in thesystem of parties’ illicit financing.
A watchdog authority on public works
has been working also in Italy for sometime. The National Antimafia Prosecutor
has already contacted this Authority toacquire - for the purposes of co-ordinationand investigative impulse - information oncontracting and sub-contracting
businesses, on bids of tender and on theawarding procedures, with specific mention
as to the reasons why competitors havebeen excluded.
IX. THE BANKING AND FINANCIAL
CIRCUIT AND THE SEIZURE OFILLICIT CAPITALS
The volume of criminal proceeds
transferred yearly on the economic andfinancial circuits has not been precisely
estimated yet. To give an idea, theInternational Monetary Fund estimated in
1996 the yearly income of criminalorganisations at 500 billion dollars of which
at least 400 billion are supposed to beoriginated from the drugs trafficking. Yet
this is likely to be an underestimate since
it takes account of the turnover connectedto the drugs trafficking only. To theseproceeds, those originated from othertrafficking directly run by organized crimeshould be added (arms, tobacco smuggling,
noble metals and clothes and, recently,
harmful or radioactive waste trafficking)as well as those originated from theirreinvestment in other illicit activities inturn resulting in huge proceeds (such as
usury and unauthorised financing andcredit whose turnover is an estimated
10,000 billion Italian lire).
The overall figure leads to estimate a
global turnover equal to about 1000 billion
dollars per year. The EU Report reads:
Criminal activities run by organizedcrime generate an immense amountof money, a significant part of whichneeds to be laundered in order to be
re-invested in legal activities orentities or to be used by criminals as

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RESOURCE MATERIAL SERIES No. 58
their own income. The International
Monetary Fund (IMF) has estimatedthat about 2% of the global economy
involves drug trafficking. Even
though drug trafficking certainly
ranks amongst the most lucrative
criminal activities, it gives an idea
about the fact that the sum of allcrime related money is an importantpart of the overall economy.
The Action Plan against organizedcrime, adopted by the European Council on
28 April 1997, provides interesting binding
indications to Member States among
which:(i)the urgent need to tackle the issueof money laundering on theInternet and through theelectronic payment instruments(the digital cash which risks tomake the existing money out-ofdate) and the new technologies;
moreover, the need to require
electronic transfers to mention thedetails of the payer and the payee;(ii) the need to link investigations onmoney laundering to those on tax
evasion and frauds: the channels
whereby money escaped fromdomestic tax and currency
authorities is laundered often
proved to be particularly apt toshelter and provide anonymity to
the criminal proceeds to beconcealed;(iii) the need to enlarge the scope ofsubjects falling into the scope ofmoney laundering provisions also
increasing Europol’s investigative
function in this field;(iv) the need to enforce new rules
allowing to forfeit illicit proceeds
also in case of the criminal’s death(it is the origin of Mafia property
which makes it dangerous andcontaminating to the economy,

150

(v)

(vi)

irrespective of the owner);
the need to enlarge the scope ofsubjects falling into the scope ofmoney laundering also to thenegligent conduct of the agent (yetthis hypothesis was firmly rejectedby the EU Parliament in its
resolution of 1997);
the expectation to extend the duty
to report “suspicious” transactions- with the relevant sanctions incase of non-compliance - toprofessions other than thefinancial brokerage.

Among the countries which took thehard line against money laundering, Italy
has progressively adjusted its own legal
system to the EU directives starting fromthe Law no. 197/91 regulating themechanism of the report of suspicioustransactions. The new legislation and the
new effort in the international co-operation
are expected to strengthen the criminal
repression against money laundering andthe use of illicitly obtained properties.
Therefore it should be easier to obtain thenecessary evidence to attain a number oftrials, convictions and forfeitures
proportionate to the magnitude of thecriminal phenomenon6.
There exist many surveys and reform
proposals on the issue. Under this point ofview, a significant reform - recommended
by the Community - is expected to
introduce a fresh institution into our legal
system: the criminal and administrative
liability of companies for offences
committed by its own corporate bodies.
The following legislative decree no. 153/
97, issued to supplement the enforcementof the EEC Directive no. 308/91, radicallychanged the law no. 197/91. In particular,
it provided more confidentiality guarantees
to safeguard brokers bound to report thetransactions deemed as “suspicious” on the

116TH INTERNATIONAL TRAINING COURSE
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6In Italy, the criminalization of the laundering ofproceed of crime is embodie in the following
provision.

Article 648-bis penal code (Money Laundering)Except in cases of participation in the [predicate]offence, any person substituting or transferringmoney, goods or assets obtained by means ofintentional criminal offences, or any person seeking
to conceal the fact that the said money, goods or
assets are the proceeds of such offences, shall be
liable to imprisonment of 4 to 12 years and to afine of LIT 2 to LIT 30 million.
The penalty shal be increased when the offence iscommitted in the course of a professional activity.
The penalty shall be decreased if the money, goods
or assets are the proceeds of a criminal offence forwhich the penalty is imprisonment of up to 5 years.
The final paragraph of article 648 shall apply.
Article 648-ter penal code (Use of money, goods or
assets of unlawful origin)
Except in cases of paricipation in the [predicate]offence and in the cases provided for in articles 648
and 648-bis, any person using for economic or
financial activities money, goods or assets obteinedby means of a criminal offence, shall be liable toimprisonment of 4 to 12 years and to a fine of LIT 2
to LIT 30 million.
The penalty shall be increased when the offence iscommitted in the course of a professional acrivity.
The penalty shall be decreased pursuant toparagraph 2 of article 648.
The final paragraph of article 648 shall apply.
Article 12-quinquies Decree-law n.306/1992(fraudolent transfer of valuables)
Any person fraudulently transferring to otherpersons the ownership or availability of money,
goods or other assets with a view to avoiding
compliance with the provisions of the law
concerning the prevention of smuggling andoffences against property, or to facilitate committing
any of the offences referred to in articles 648, 648bis and 648-tar of the Penal Code, shall be liable toimprisonment of 2 to 6 years, unless the offence ismore serious.

basis of the standards identified by the
Bank of Italy as of 1993; it assigned the
Ufficio Italiano Cambi (Italian Exchange
Bureau) the role of an “anti-money
laundering agency” responsible to receive
the suspicious transactions reports and toanalyse and process them - also by meansof the accounts and deposits register
provided for by the Law no. 423/91; canimmediatly order the suspension i thetransaction and informs the Currency
Police Special Unit of the Guardia diFinanza.
It also established the duty to inform the
National Antimafia Prosecutor - in relation
to the specific functions of co-ordinationand impulse vested on him by article 371
bis of the Italian Code of Criminal
Procedure - as to the reports resulting to
be linked to organized crime.
To enforce this provision, the Suspicious
Transactions Department was establishedat the National Antimafia Bureau,
constituted by three prosecutors, in orderto analyse and deal with this information.
The activity performed by this Department
involves various aspects: the analysis andfocus on the main interpretation issues
resulting from the legislation in force;steady and systematic contacts withgovernmental bodies involved in the sameactivity (Italian Exchange Bureau,
Antimafia Investigations Office, Currency
Police Special Unit) identified by this law;
analysis of information received; focus andarrangement of operational patterns apt tomake the action against money laundering
uniform and effective. In case that suspect
turn out to be grounded, all informationcollected and processed are reported to thecompetent Prosecutor for the pre-trail
investigation.
Awaiting to verify the effectiveness of the
new legislation in view of the fight againstorganized crime, it must be noted that the151

RESOURCE MATERIAL SERIES No. 58
banking system - especially in somesouthern regions - is still one of the most
preferred channels for money laundering
operations, often intertwined to usury andunauthorised financing and credit
operations. In these areas, evenirrespective of any inner complicity, banks
are often used in criminal actions wheremoney laundering and unauthorised credit
are mutually strengthened, due to theheavy demand of unauthorised credit
brought about by the malfunctioning ofcredit institutions themselves.
I already said that the management of
the payment system and credit - also dueto the recent technological developments
within the globalisation of economic
relations - is particularly exposed to money
laundering irrespective of the operators’
awareness. Moreover, the control of thebrokers is perfectly inserted into thecriminal logic including the control ofterritory and of the economic activities
carried out therein even - and maybe above
all - through information owned by banks.
This information allow criminalorganisations to maximise profits byattacking without any risk the mostprofitable economic subjects (by way of
extortion or usury financing or the two
alike, depending on the case).
There exist one more fundamental
aspect in the counteracting approach which
we must focus on. The Directive of 1991
was enforced by EU Member States invarious degrees and it led illicit capitals
towards forms of non financial money
laundering, therefore the current
suspicious transactions report regime
affects only some of the flows of dirty
money. And maybe neither the mostsignificant one.
The quantity of reports is on theincrease. Yet this is no positive factor since
the issue is the quality of reported

152

transactions, that is we still wonder how
effective they are in terms of usefulness of
information collected. The situation is
uninterruptedly developing because money
launderers are increasingly skilled andthey always seek new concealing
techniques capable to dodge investigations
and because the only border to thepossibilities of money laundering is theinventiveness of money launderers.
The need to address a non-criminal
financial or credit broker to perform
activities which do not seem suspicious anddo not draw the attention of the monitoring
authorities urges the money launderer toaccomplish layering operations before
inserting the money into the legal circuit.
Hence, the need already called for by theEuropean Council to urge EU governments- probably through a new Directive - togenerally extend the duty to reportsuspicious transactions to persons andcompanies operating outside the financial
sector.
A first response is the new legislative
decree no. 374 of 25 September 1999 whichmarks one more step forward towards thetotal enforcement of the Directive 308/91/
EEC on the prevention of the use of thefinancial system for the purposes of thelaundering of criminal proceeds. Many
investigations were conducted in the latest
years on persons and companies operating
outside the financial sector and many cases
mainly concern gambling house, valuable
items outlets, that is economic subjects
who, out of convenience, accept to shield
the launderer by concealing the origin of
the dirty money behind their apparently
licit activity.
The legislative decree no. 374/1999
affects this sector, yet the duties imposedby the new legislation are not the same forall the subjects involved. The law-makertook account of the nature of the activities

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
involved and distinguished two
professional categories to which theconfidentiality duty, set out under article
3 bis of Law no. 197/91, and the sanctions
provided for by the same law in case of noncompliance shall be extended.
The first category is supposed to include
the most exposed activities and pinpoints
the subjects compelled to identify, register,and report the suspicious transactions:those involved in debt recovery on behalfof third parties; guardians and carriers ofcash and securities or valuables throughspecial watchmen; carriers of cash,
securities or valuables without special
watchmen (road haulage of items on behalfof third parties); estate brokerage agencies;
dealers in gold; managers of gamblinghouses.
The same duties are imposed upon thefinancial activities agencies listed underarticle 3 of the new legislative decree. They
are financial brokers whose activity inrespect of the public is restricted to thesubjects registered in a list set up at the
Italian Exchange Bureau. The reporting
duty was extended to the financial
promoters, that is to the subjects used by
the authorised financial brokers for offpremises offers. In this case, reports ofsuspicious transactions shall be sent by thepromoter to the broker for whom he acts
who will forward the report to the Italian
Exchange Bureau.
The second category includes subjects
compelled to identify and registercustomers accomplishing transactions
worth of over 20 million lire: dealers in
antiques, auction houses or art galleries
managers, manufacturers of and dealers
in valuables, craftsmen manufacturing
valuables. This regulation, still, does notextend the reporting duty to independent
professionals and audit companies, twocategories which should be dealt with by

the next European Directive.
In this respect, EU bodies had alreadyfocused their attention on independent
professionals and, namely, on legal
professionals (lawyers, notaries,
accountants and audits). In particular, thepossibility had been verified to separate theactivity providing legal advice, legal
defence and court representation fromother trade activities - such as the estate
brokerage - related to the same professional
subjects.
A useful suggestion in order to preventthat these professions be exploited formoney laundering purposes is included in
the Action Plan against organized crime
which provides the enforcement of
measures aimed at safeguarding some
professions exposed to criminal influence,for instance by way of codes of conduct.
With regard to auditing companies, in
Italy, the increased need for a regulation
which impose the duty to report suspicioustransactions is due to the fact that - while
under the previous law the board ofauditors were also responsible for auditingof listed companies - pursuant to thelegislative decree no. 58/98 such activity is
exclusively vested in audit companies.
X. EUROPEAN MONETARY UNION
AND MONEY LAUNDERING IN THE
AGE OF INTERNET
The onset of the European Monetary
Union might have a multi-faceted impact
on monetary and financial flows linked tothe development illegal and criminal
economic activities. This impact brings
about unprecedented issues relevant toeconomic policy and then to criminal policy.
For instance, one of the effects that the
EMU (Economic and Monetary Union)
should bring about, through different

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channels, is the reduction in thetransactions costs which hamper thedevelopment of illegal economy. If a
reduction of the transactions costs should
be welcomed, with a view to thedevelopment of legal economy, it must be
considered that, lacking adequate
measures, it would also favour the illicit
economy.

everywhere in the EU or easily exchanged
when the European currency will circulate
in the international markets.
There are also concerns of thepossibilities offered in the next future bymodern technologies such as the Internet
and electronic banking cards, even though
up to now investigations give no evidence
related to these issues.”

The National Antimafia Bureau,
together with the “Bocconi” university in
Milan, undertook a survey on theforeseeable impact that the entry into forceof the single currency - both in the stage of
conversion of domestic currencies and in
the following one of intra-community andextra-community circulation of Euro - will
have on money laundering strategies also
taking into account the different levels of
surveillance still existing, notwithstanding
the uniform community standards, among
the eleven EMU countries, in particular
due to the different tax and bank secrecy
regulations.

As a result, Member States have two setsof objectives: a) identification of special
monetary, banking and financial channels
which by EMU might decrease thetransactions costs for the illegal economy;b) implementing adequate measures toregulate and monitor the system of
payments and the banking industry to findbalanced solutions in the relation between
the defence of the system from the criminal
economy distortions and the boost to theefficiency and the development of legal
markets.

The target of the DNA - Bocconi survey
is to build analysis patterns allowing to
identify the conditions in which - in respectof the monetary, banking, financial andcomputer science sectors - the EMU might
increase the possibilities for money
laundering and, thus, the criminalorganisations’ capacity to corrupt markets
and the legal economy. In this respect, theE.U. Report remarks:“Several esteemed experts are debatingthat the next introduction of Euro as asingle EU currency can provide further good
opportunities for money laundering, for thefundamental reason that there will be noneed to change the money earned from one
currency into another, when it is moved
within other Member States. The futureEuro bills with the denomination of 100,
200 and 500 could be an attractive option
to the US dollar and can be spent

154

Monetary aspects must be separated
from banking and financial ones. On themonetary level, the Euro is seemingly
bound to become a significant reserve
currency in international exchanges, both
legal and illegal ones. A recent survey
presented at the last meeting of the Italian
Economists’ Association analysed theeffects that might be brought about if theEuro becomes the currency used to settle
the exchanges made in order to laundercash originated from illegal markets.
This analysis results in interesting
indications for domestic law-makers.
Basically, the more effective the legislation
against illegal and criminal activities
generating profits is, the more the pressure
on the monetary, banking and financial
markets increases. The more thelaundering techniques use cash, the morethis pressure affects the demand of Euro,
mainly in big denominations.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
Wi t h t h e s i n g l e c u r r e n c y a n dincreasingly integrated banking andfinancial markets, we must notoverestimate the effectiveness of monetarymeasures against money laundering suchas the limits to the issue of Euro in big
denominations. The demand for money
laundering might be simply affected by areplacement so favouring camouflaging
and laundering techniques deemed as safer
through banking and financial channels.
Turning to the credit and financial
aspects, the EMU will expectedly result in
an increasing integration of the agents’
activities and the European markets.
Illegal and criminal capital flows might
benefit from this integration. The
simultaneous existence of integrated credit
and financing markets, with the incomplete
harmonisation of the regulation andsurveillance schemes, favours the illegal
financial flows.
Interesting remarks can be found in the
Final Report of the project “Euroshore.
Protecting the EU financial system from the
exploitation of financial centres andoffshore facilities by organized crime”
financed in 1998 by the E. U. Commission’s
Falcone Programme published on 25
February 2000. They can be summarised
as follows: the distinction between offshore
and onshore is losing many of its
conventional meanings, i.e. opacity andtransparency.
Some offshore jurisdictions movetowards the adoption of better criminal
laws and better forms of international cooperation resulting in an acceptable levelof transparency (Group 1: European
financial centres and offshore jurisdictions;Group 2: Economies in transition).
(i)others (Group 3: offshore
jurisdictions outside the EU) keep
all the opacity features of theirregulation systems which createdthe commonly perceived
correspondence between theconcept of offshore and the opacity
one. Meanwhile, onshore countries
which have a long-standing
tradition of financial centres andare located in Europe havetransparency levels equal to or
lower than those of the countries
officially defined as “offshore”
centres.
(ii) association agreements work:countries which applied to enter
the EU are amending theircriminal legislation andintroducing financial regulations
directed to an increasedtransparency.
(iii) t h e p o l i t i c a l a n d e c o n o m i c
proximity works: the closer theoffshore jurisdictions are to the EU
and the less they stray away fromthe accountability standards fixedby the international communityand by the EU ones.
(iv) the European financial systemshould become more transparent
before asking the same to othercountries. In particular, in respectof company law - which has a major
importance to the transparency of
any financial system - EU Member
States have opacity problems,
although less than other countries,
and they had better solve them
before asking other countries to doit.
(v) company law exerts a chain effecton the opacity of other sectors of
regulation: financial law andbanking law. If company law - dueto efficiency reasons - tends
towards anonymity, it carries thetwo other sectors of regulation with
it resulting in the inevitable failureof investigative and judicial cooperation in respect of criminal

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organisations which exploit thiscompany anonymity as a shield.
The said differences in the regulationsof “strict” countries - the moreindustrialised and thus stronger countries,
yet for this reason more exposed to criminal
aggression - and “lax” countries - thetraditional tax havens and, more generally,
those countries having weak economic
structures and lacking resources to spend
on the international markets - results inthe frustration of the action against money
laundering.
The choice between strict and lax policies
depends on a range of structural factors
being difficult to overcome in the medium
and in the long run; yet a stricter attitude,at least at the European level, willundoubtedly allow and maybe impose
stricter domestic policies. On the contrary,a low level in common rules might evendrive potentially strict domestic systems
towards lax attitudes.
In other words, the competition in
regulation shall be fully considered by theEuropean anti-money laundering front
since a two-fold order of rules would widen
the gap and so contribute to strengthen thetransnational criminal organisations who
would be left free to exploit diversities towiden their scope and frustrate the efforts
made by the most strict countries.
The solution to this issue willundoubtedly imply long-range efforts andit needs to be applied on an internationaland global scale as in the current
community prospective. In view of theintroduction of the single currency, the EU
Commission warned with concern thatcounteracting measures implemented by
the European Union - albeit strict - will beeasily jeopardised within the globalisationof markets by the legislative voids still
existing in too many EU countries.

156

The special European Council, held on
15 and 16 October 1999 in Tampere
regarding the implementation of an areaof freedom, security and justice within theEuropean Union re-launched the specificaction against money laundering definedin the final document as “the very heart”
of organized crime and urged the adoptionof a new anti money laundering directive
which may promote the balance between
the system’s global defence from thedistortion of organized crime (money
laundering, corruption, Eurocounterfeiting) and the safeguard of therights of persons and economic operators.
At this point, two specifications arenecessary:
The concept of e-money goes back to thelate ‘60s with the first electronic funds
transfers (EFT) initially developed to allow
the transfer of deposits stored by banks inthe central bank and later extended toinclude transactions of significant unitaryamount. Yet, while substantial transfersof conventional currency were developing,through the electronic networks run bytelecommunication companies and by
outstanding holdings, the very concept ofe-money (or e-cash) has been changing,unrelated to the traditional deposits.
Currently, the means of payment named
e-money can be identified with the so-called“virtual money” which requires somenecessary conditions: it is generated andtransformed by computers; it is notdependent on the currency forms controlled
by governments and on bank deposits, it isalien to the current monetary aggregates;
it is not regulated by the watch-dog
authority monitoring the financial
markets; it can take various forms, of which
only some are offered by banks.
When I talk about the “new financial
subjects originated from Internet”, I referto the trading on line phenomenon and to116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
the asset management, both dramaticallyon the increase on Internet. Trading online means the possibility to deal insecurities, mainly shares, but also bonds
or similar instruments, on the Internet
which offers customers the possibility tointeract with a dealing broker (and throughthis person with the market) exclusively
using the Web so disregarding any form
implying further interactions with thebroker to complete the execution of theorder. This phenomenon might be simply
regarded as a development in the
distribution process of a product - thesecurities - which banks and stock
brokerage companies have always offered.
Actually, analysing such markets as the US
one - which have seen the development of
the trading on line for a few years - it canbe proved that we are not faced with a mere
appendix of traditional dealing ways. Thisphenomenon, instead, is likely to radicallychange markets’ organisation and brokers’
and investors’ behaviours, to bring about
the onset of a new type of brokers marked
by “low costs and efficient and adjustable
service” but mainly by anonymity.
As to the Italian experience, decades ofoperators by now are able to offer tradingon line services - with all the possible
options listed above - which haveincreasingly spread in a few months.
According to estimates on the overallmarket, the commissions amount to about150-200 billion lire for the year 2000 andthe number of on line investors in Italy isestimated to reach over 300.000 in three
years.
As all the sectors within the financial
brokerage, asset management also started
to exploit the possibilities offered by theInternet and first appeared in Italy in 1999.
The most varied services are offered on the
Web ranging from the presentation of one’s
own products with the relevant costs to thepossibility to subscribe funds quota andmanage switches from one fund to theother, and the management of the“education” unit which is a kind of financial
primary school where basic information,
researches on financial markets and helps
for the planning of one’s own savings canbe found.
As to these issues, the European
Commission submitted proposals for
directives to the EU Parliament speciallyaimed at:
(i)

(ii)

ensuring the financial
accountability of non-banking
institutions which issue e-money
without hampering thedevelopment of the e-money within
the Community;
ensuring a high standard ofsafeguard of general interest
targets, such as the protection ofminors and of the human dignity,
the protection of the consumer andof public health.

Yet we still have a long way to walktowards a legislation which cannot but beco-ordinated at international level in a field
which was correctly defined as “no one’sland”. Meanwhile, investigations led tofind - not simply suppose - many cases
where the Web has been exploited bycriminals for such heinous uses, as thevideotape e-commerce for paedophiles
between Russia and Italy recently
discovered in Naples, which shows theexistence of an international trafficking ofminors who are the victims in these
disgusting tortures until they die. These
problems are faced in the draft Convention
on Cyber-crime adopted by the European
Committee on Crime Problems (CDPC) of
the Council of Europe on 2 Octover 2000.7

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XI. INTERNATIONAL COOPERATION
The theme of judicial co-operation withregard to transnational crime refers firstly
to structures and secondly to criminal caseand evidence. Further, the preconditions
for effective judicial co-operetion are
knowledge of the fact and coordination of
investigation, that are both ensured in
I t a l y, i n c o n f o r m i t y w i t h t h e
Recommendation n.2 of the Action Plan of
1997, by the National Antimafia Prosecutor
Bureau, central point of contact within theEuropean Judicial Network established by
the EU Council in order to promote thejudicial co-operation among Member
States.
The criminal judicial co-operation at
European level against organized crimemade significant efforts and marked amilestone with the Action Plan adopted by
the European Council on 28 April 1997.
Among the Recommendations contained in
Chapter VI of the Plan - entirely dealing
with the issue of the relationship between
organized crime and money - I believe it isworth mentioning the ones from 26 to 30
focusing on the various types of connections
among criminality, capital accumulations
and economic circuits, with specialreference to the issues of money
laundering, corruption, tax frauds and theso-called “forfeiture of worth”.

7

The most meaningful topics of the EC Draft
Convention are: 1) measures to be taken at thenational level abaut offences against theconfidentiality, integrity and availability ofcomputer data and system; 2) principle of corporate
liability for those criminal offences committed fortheir benefit by any natural person; 3) binding
principles relating to international co-operation(extradition; mutual assistance, also regarding
provisional measures and coercive and investigative
powers).

158

The first need highlighted - that is tomake membership of a criminalorganisation a criminal offence in the legal
system of any Member State - was satisfied
by the adoption of the Joint Action of 21
December 1998 which provides a definitionof criminal organisation and compels
Member State to make it a criminal offence
to participate in the criminal organisation
ensuring that one or both of the types ofconduct are punishable, i.e. the Italianlike pattern of participation and thecommon law “conspiracy” pattern.
The Plan was further implemented by
the Joint Action of 3 December 1998 on
money laundering, detection, seizure andconfiscation of criminal proceeds whichaims at eliminating or at least reducing thereservations which can be opposed to theConvention of Strasbourg of 1990 on money
laundering and confiscation. The
Convention compels to introduce indomestic legal systems the “confiscation ofworth”, that is confiscation throughpayment of a sum of money corresponding
to the worth of the price, of the product, orof the proceeds of a crime (this institution
has already been introduced in our legal
system - art. 735 bis code of criminal
procedure - when the Convention ofStrasbourg was ratified in 1993, yet it isrestricted to provide assistance in relation
to the execution of foreign confiscation
measures).
I still have to mention the Joint Action
adopted by the Council of the European
Union on 22 April 1996 which entrusts theliason officers with functions directed tofavour and accelerate any form of judicial
co-operation in criminal matters and, if
necessary, in civil matters with a view toincrease speediness and effectivenessnamely through direct contacts with thecompetent services and with the judicial
authorities of the destination State.

116TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
On the wake of the Convention ofStrasbourg, we have to welcome the draft
Convention of the United Nations againstorganized crime which is going to beapproved and signed next December in
Italy and focuses on the issue of the fightagainst money laundering, speciallyfollowing to the liberalisation of financial
and trade movements after the opening to
the Eastern European countries.

My opinion on the actual possibility thatthe international community may
adequately and soon succeed incounteracting such criminal phenomena isthat such a possibility does exist provided
that governments are aware of the need ofan effective and loyal co-operation, leaving
aside the ambiguities and hypocrisies
which marked the choices and policies in
too many countries.

Moreover, the UN General Assembly
called a Special Session (New York, 9-11
June 1998) on the fight against drugs at
global level which was attended by nearly
all the countries in the world.
Notwithstanding the divergences
expressed during the works, they resulted
in three Resolutions. The first one contains
a declaration of political commitment, thesecond one concerns the guidelines with aview to the decrease of drugs demand, thethird one involves measures to strengthen
the international co-operation to counteract
the illicit trafficking, the criminal
phenomena which support them and thelaundering of criminal proceeds. Thislatter provision pays special heed to thecontrol of precursors and the necessaryinternational co-operation in thedestruction of the illicit sources of natural
drugs.

In conclusion, transnational organizedcrime is a serious threat for the economy
and the security of the international
community. But - as used to say myunforgettable colleague and master
Giovanni Falcone, victim of Mafia in 1992
- Mafia and other similar criminalorganizations are human phenomenon and,like any human phenomenon, they had
beginning and they will have an end.
Therefore it’s up to us, members of law
enforcement, to the international cooperation, but also to the worthy leaguesof citizens who exercise the social contral
against crme, the responsibility to support,
and if possible accelerate, this process
toward a civil society’s development inlegality and in peace.

Following to these Resolutions, on 6
October 1998 the European Parliament
approved the Recommendation A4-0211/98
on the policies that Member States are
urged to implement in the fight against
drugs. In brief, the United Nations are also
accepting the idea that the economy is the
new frontier of the fight against
transnational organized crime and that a
successful action against drugs trafficking
and money laundering requires the coordination of domestic legislation and shallbe connected to the development of
payment means at international levels.

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EFFECTIVE METHODS TO COMBATTRANSNATIONAL ORGANIZED CRIME IN CRIMINALJUSTICE PROCESSES
Ruy Gomes Silva *I. OVERVIEW OF THE SITUATION
OF TRANSNATIONAL ORGANIZEDCRIMEA. Illicit Drug Trafficking
The current situation of the illicit drugtrafficking in Brazil in relation totransnational organized crime haspresented itself in two different aspects.
Firstly by the export of relatively small
quantities of drugs by criminalorganizations via the international airportsof Brazil. The drugs are taken out inseveral differents forms, by one or more
persons. The second aspect, the export oflarge quantities of drugs by these criminalorganizations generally by sea, in medium
or large ships. Sometimes these large
quantities are moved by air.
In the trade of illicit drugs traffic insmall amounts, there are two groups oftransnational organized crime that
constantly sponsor this illegal commercein Brazil. The mafia from Nigeria is agroup that develops ample and routine likeactivity in the illicit traffic of drugs from
Brazil (export of substances, basicallycocaine). Their methodology consists ofseveral phases. Initially there is one groupof about ten thousand Nigerians
established in the largest city of thecountry, São Paulo. They are involved inseveral common activities, but reallyrender any type of service to thisorganization.

* Officer of Interpol at Bahia State, Federal Police
Agent, Federal Police Department, Brazil

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Several leaders of the organization inSão Paulo acquire the cocaine in thefrontier areas, by land or by air. Many
Africans are trained in good manners,
attire, etc and are sent to Brazil to serveas “mules” for the group. Sometimes, thesepeople enter Brazil as tourits and spendsome time working in simple services to getused to the people and the Portuguese
language. In a few cases, the organization
uses Brazilians for the traffic of the drugs.
For the transportation of cocaine, drug
dealers use several forms of camouflage,
from carrying the drug in the internalorgans of the body (as well as bellow theirclothes); inside utilities; in false
compartments in their suitcases, etc. The
quantities always vary between half a kilo
to three kilos. The routes used by the drug
dealers vary depending on the activities ofthe police rediscovering them. When the“mules” are arrested, the organization
provides them assistance with a lawyer
until the last interrogation by the judge.
Other criminal organizations, such as
the Italian mafia, deal with the illicit trafficof small amounts of drugs in Brazil bypurchasing cocaine in neighboring
countries. They adopt simple measures forthe export of the drug from international
airports. The drugs are then transported
in a distilled form by the “mules”. The
majority of the “mules” are Europeans.

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
In relation to the illicit traffic of drugsin large amounts in Brazil, done by groupsof transnational organized criminals, wehave noticed a change in relation to theaction of the South-American mafia in the
drug traffic trade within Brazilian
territory. This is due to the fact thatnational organized groups are starting to
act in a very specific form, in certain stagesof the trafficking.
Brazil has always been a passageway for
drugs, especially cocaine and heroine,
coming from Colombia, Peru, Bolívia anddestined primarily to European and NorthAmerican consumer markets. Brazilian
criminal organizations are responsible forthe transportation, storing, packaging andexport of the drug to its destination, eventhough these organizations are not theowners of these drugs.
We also have the occurrence of theplantation refining laboratories for cocaine
in the Brazilian Amazon. Able to hide in
the demographically empty areas of that
region, they avoid the problem of exportingthe chemical products that are necessary
for the processing of coca paste intohydrochloride.
B. Illegal Firearms Trafficking
The illicit traffic of firearms is, at the
moment, one of the main activities of somefrontier smugglers of Brazil. Firearms are
the main product and their introduction
into the national territory serves to supply
the black market or to give support to any
illegal activity that exists in the country.
Organized crime, that is acting
nowadays in the country, uses firearms to
arm their members. These members arein charge of the security of the organization
and use the firearms to commit crimes of
threat and murder. These activities are
inherent to the criminal organizations.
During the last few months, organizedcrime groups that traffic in illegal drugs in
Brazil, have exchanged firearms for cocaine
with terrorist groups from neighboring
countries. There have also been
investigations regarding the importation ofillicit arms in the country through the portsof Rio de Janeiro and Santos in São Paulo.
The Russian mafia, has sponsored these
activities.
In the frontier region of Brazil (withParaguay) there are families that began
smuggling activities. With the growth oftheir activities, they gained structures likethe international mafia, keeping due
proportion. These families began to acquirepolitical power and influence in certain
regions of Paraguay. They can easily
develop any type of commercial activity
between the two countries.
These families have started to act inother illicit acitvities such as the illegal
traffic of firearms at the transnational
level, only from that area. They mainly
participate in relation to the illegal trafficof firearms because of the opportunity they
have as buyers. Their most constantdeliveries are for the groups of drug dealers
in the slums of Rio de Janeiro.
In summary, refering to illicit firearms
traffic, we can say that in Brazil there is
only one focal area in the frontier region of
the southwest. We do not currently havedata regarding the existence of groups ofother transnational organized crime groups
with illegal arms trafficking as their basic
operation or with any large volume ofactivity in this regard.
C. Human (Women and Children)
Trafficking
The traffic of women in Brazil has
intensified in the last years motivated by
the socio-economic difficulties of thecountry. Unemployment has very highindices. Misery has become so widespread

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RESOURCE MATERIAL SERIES No. 58
in the Brazilian population that thepathway to prostitution for women andadolescents is a fact. As a result, thecriminal organizations acting in Brazil take
women to Europe and Asia, many times
under the guise of giving them good jobs
and with promises of a life with moresecurity.
The most usual practice used by women
trafickers in Brazilian territory is that of
the selection of women with different
proposals. These proposals may be of threedifferent types: that of a good job in a
regular company; that of work in a dancegroup or show house; or an explicit one ofworking in a prostitution house or striaptease show. After the women are chosen
the contractor pays all their travel
expenses. They receive information about
any questions they may have to answer tothe immigration authorities of thecountries of destination.
Many denunciations are made to the
Police from the parents, relatives or friendsof the women. They themselves propose toleave the country in such an adventure.
The police can hardly prohibit this type ofaction due to the demands of the Brazilian
criminal law that it be proven that theobjective of leaving the country, by the
woman, is for the practice of prostitution.
This is a fact that these women never admit
or it is difficult to prove. Several times thepolice have tried to use the testimony ofmany women who return to Brazil after
having been obliged to work as prostitutes.
Their aim has been to identify the person
or criminal group that practised this action.
These women, when they are in brazilian
territory, do not want to admit what has
occurred because of the situation with theirfamilies and society. We cannot state withconcrete evidence, but due to the incidenceof cases where women leave the country to
go to Europe, the Spanish mafia must be
acting in the illicit traffic of women.

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In relation to the traffic of children in
Brazil, we have noticed the action of several
groups of people who work for legal
adoption by couples in Europe, mainly
Italy. Nevertheless it is difficult to statethat there is participation of organizedcrime in this activity in Brazil.
Some years ago people involved withfacilitating adoptions acted in a way thatnecessary legal procedure and thelegalization of the act would not be
followed. In this way, the European couples
took Brazilian children abroad with legal
adoptions but with consent full of
irregularities. These irregularities include
the non-obeyance of the period of
adoptation by the adopting couple with thechild to be adopted. All of the irregularities
were originating from acts practiced by
officers of the judiciary being covered upby the judges of the district who sign the
final order for the adoption.
Another routine action from the people
involved in facilitating adoptions was togive money or goods to the parents of theneedy children for them to give away theirchildren to be adopted by foreign couples
and provide them a way to live in adeveloped country. After the disseminationof information about these adoptions by the
media, showing some situations of children
taken for adoption, but against the will of
their parents, the judiciary started todemand that the specific laws should beobeyed for the adoption of Brazilianchildren by foreign couples. These laws
were specially based on the Haia
Convention, which is in force. At present,children that are adopted are chosen in
institutions that are formally registered for
adoption, which are under the control of
the government.
At this time, we cannot be certain about
the existence of the traffic of children in
Brazil. We must take into account the fact

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
that many Brazilian children are leaving
the country and being adopted by people
from other countries without a formal
process.
D. Trafficking in Stolen Vehicles
The vehicles that are stolen in Brazil
have been done with two motivations: tocommit other crimes, such as robbery,
kidnapping, etc.; or to remove their partsand components. In the first case,generally the vehicles are recovered. A
minority suffer some type of adulterationof documents to continue in circulation. In
the second case, the majority have no
possibility of being found, as a result of thedismantling process.
The organizations that are stealing
vehicles in Brazil aim at meeting the needsof the domestic market. The majority ofvehicles made in Brazil are not well
accepted in neighboring countries due tothe lack of spare parts. This creates
dangers and difficulties for them to crossborders. Still there are occurrences of thedelivery of stolen vehicles in Paraguay andBolivia, mainly to exchange them for illicit
drugs, with a much smaller number in
relation to those that stay in the country.
In Brazil the presence of thetransnational organized crime is notdefined in the traffic of stolen vehicles. This
crime is under the jurisdiction of the statepolice.
E. Card Fraud
A major problem that currently exists in
Brazil is credit card fraud. The fraud isperpetrated by the cloning of credit cards,
both at the national and international
level. The cloning of these cards is done
more easily abroad, where the machinesthat are used to do it, are sold without
resctrictions in specialized shops. In
Brazil, the sale of these machines isforbidden in the open market.

Credit card fraud in Brazil is classified
by the Penal Code as the crime of taking
illicit advantage of another person bymeans of fraud. In this particular case, thefraud causes losses to a common person,
and therefore falls under the jurisdictionof the state police.
F. Money Laundering
In the last few years it has become
obvious in Brazil that there isn’t a sufficient
structure by which the public and thelegislative branches can combat organizedcrime. The occurrence of large-scale casesof public corruption, the illicit movementof capital, improper usage of public monies
and funds from campaigns has becomefrequent.
The insufficiency of norms, represented
by the lack of specific types of penality,
favor impunity. It was because of this thatLaw 9613 was passed in 1998, aiming at
specific punishment for the activity of“laundering money”. Along with thislegislation came the inauguration of awhole system to control the financial
operations and the fiscalization of the
movement of capital.
W i t h t h i s n e w l a w, c r i m i n a linvestigations began to detect the methods
for laundering money in Brazil. Processes
to verify this crime are ongoing in the
country, without having gotten to their
final stage for decision by a Justice. In
some Brazilian states, the investigations
are making it evident that there is thepresence of money from international
mafias on behalf of ‘ghosts’, false
beneficiaries, front companies, fictitious
companies, etc for the purpose of acquiring
goods and valuables, and for the movementof money in the Exchange Bureau.
According to the public authorities
involved in the processes of verification of
the laundering of money in Brazil, it is still163

RESOURCE MATERIAL SERIES No. 58
too early to talk about the results of thisspecial legislation and of the prevention
agencies that were created i.e, The Council
for the Control of Financial Activities, theDivision of Organized Crime and Special
Enquiries of the Federal Police Department
and the Department of Combat to Financial
and Exchange Illicit Acts of the Central
Bank of Brazil.
G. The Traffic of Wild Animals
Nowadays, according to theEnvironmental Investigation Agency, thesmmuggling of wild animals runs to 10
billion dollars per year. Our country, with
its incommensurable natural resources, isundoubtedly one of the most plundered bythis proftible criminal activity. According
to an estimation of the Brazilian
Environmental National Council - 12
million wild animal are taken away fromour forests, and 30% of them (3,6 million)
are destined overseas.
It must be registered that the traffic ofendangered species frequently occurs inconnection with the illegal trade of others
products or substances such as drugs,
weapons, alcohol, precious stones andothers. Sometimes the animals are used
as a hiding place for these merchandise.
For instance: a Boa Constrictor was
discovered with plastic bags of cocaine
hidden inside its stomach; and an
automatic rifles’ load was detected inside
wooden boxes containing poisonous snakes.
Some kinds of wild animals, by virtue of
their exuberance and consequent demand,
are subject to intense traffic, such as
psittacidae (parrots and macaws), eagles,
toucans, turtles, crocodiles (for leather),primates amd Felidae (felines). We mustobserve that the main buyers of live wild
animals are laboratories, colectors, zoos,
animal shops and circuses.

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Wild animal traffic has similarities withits “cousin”, drugs and weapons traffic. In
the same manner, it is born in the interior,in the forest, where modest and poor people
happen to be used to capture birds and wild
animals in exchange for scraps. The
catcher, a modest simple minded person,
earns little or almost nothing for theservice, just like the backwoodsmen during
the planting of EPADU. In the end of thischain, toucans, macaws, pumas andspotted leopard are sold for thousands ofdollars in consumption markets of the firstworld.
From the Amazon jungle to a golden cagein New York, from the Pantanal (a kind of
Brazilian savanna) in Mato Grosso do Sul
State to a madam’s coat in Paris, the trafficof animals has particularities which we will
analyze. Just as others illicit activities, thetraffic of animals can certainly be
countered by a net of inspectors ans
employees in strategic positions, in ports,
airports and frontiers, regimented tofacilitate embarking/disembarking legal
channels for exportation. We will also findairline companies’ employees involved in
the perpetration of these offenses; the ones
reponsible for air cargoes and crew
members as well.
Another singular detail, alreadyobserved in the international wildlife
traffic, is the “laundry”. Such acitivity is
operated by the international traffikers,
when there is a frontier country with“flabby” environmental legislation, incomparison to the others.
A real example would be the case ofanimals captured in Brazil (which has rigid
legislation concerning fauna exportation)and smuggled, via land, to Argentina,
whose legislation is considered
complaisant. In Argentina the animals
suffer the “laundry”, i.e., they have their
documentation altered, as if they were116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
captured in that country and, this way, are“legally” exported to the USA and Europe.
The animal is not returned to Brazil,
modality known as “re-enter”, where
documentation fraud occurs with the helpof nurseries placed in foreign lands.
Another traffic modality presently usedis the transport of tropical birds’ eggs. The
criminals are smugglings the eggs ofmacaws, parrots and toucans, concealed in
executive suitcases which are portableincubators. Up to sixty eggs can be placed
inside these suitcases.
We know that some rare Psittacidae areworth up to a hundred thousand dollars in
European and North America markets. It
is not difficult to conclude that inside only
one suitcase can be transporting“merchandise” that can reach, in thosemarket, a total of six millions dollars.
According to this explanation, the trafficof wildlife is as profitable an activity as theillegal trafficking of drugs and firearms.
Thus we must say that it is a transnationalorganized crime acitivity, though we havenot proven any links to organized groups
for a while.
H. Major Transnational Organized
Criminal Groups
Without a shadow of doubt, in Brazil,organized crime is evolving. Until a few
years ago, Brazil was only a route for the
traffic of drugs, and even continuing to beso, other criminal activities have expanded:groups are involved in stealing and robbingcars, stealing loads from trucks; large
intensive drug traffic; public corruption,
fiscal frauds, etc. Still, in relation to theissue of transnational organized crime, it
is still too early to speak about the existencein Brazil with important nationalorganizations. In spite of the existence ofsmall groups that are active in the area ofthe frontier with Paraguay and Bolivia -just as a matter of opportunity - theNigerian, Italian, and Colombian mafia,
which are the main groups of represented
in transnational organized crime, operatein Brazil, but without headquarters here.
Finally, according what was stated. It
is time for a question: Will Brazil beprepared to face this menace? The
Brazilian strategy against organized crime
supports itself in four important points:
legislative modernization; coorperation
between police organizations; thestrengthening of the Federal Police
Department and the Highway Federal
Police; and increace in international
cooperation.
II. TOOLS FACILITATING THE
INVESTIGATION OF
TRANSNATIONAL ORGANIZEDCRIMEA. Current Situation, and Problems
in the Utilization of andSolutions for Controlled Delivery
In spite of the principles of theConstitution of Brazil (1988) and theBrazilian process and penal laws, in effectfor sixty years, with provisions that avoid
the usage of controlled delivery due to whatis established as: the duty of the police toarrest any person caught in the act ofcommitting a crime or who is foundattempting to commit; comitting or rightafter committing the crime; and, if it is notdone immediately, the police will commit acrime for not practicing an act in thefulfillment of their obligation, controlled
delivery was admitted in Brazil only tocombat organized crime according to the
new Law 9034 from 1995.
With juridical justification of this newlaw, to stop unconstitutionality, criminal
association in cases of macro-criminality
would be a permanent passive offense, andthose persons would be subject to165

RESOURCE MATERIAL SERIES No. 58
imprisonment at any moment, as long as
the police are permanently following theircriminal actions.
Still, this new law does not make itpossible to make use of controlled delivery
in Brazil by the police departments, due tothe lack of detailed norms relating to some
aspects, such as:(i) establishment of which authority isin charge of this control: the judge,
the prosecuting attorney, or thepolice itself;(ii) modernization of the procedures ofthe police proceedings, to beadequate for controlled delivery;(iii) regulation of the procedures ofcontrolled delivery in secretive
normative instructions;(iv) to begin to use controllled delivery
within the norms for it’s functioning
and the modernization of the
judiciary and procedures to beadequate to facilitate investigationsof the transnational organizedcrime.
B. Electronic Surveillance (WireTapping, Communications
Interception etc)
Presently in Brazil, Law 9296 is in effectand since 1996, it authorizes, based on theFederal Constitution of Brazil, only the
telephone interception of communications.
So, this tool for electronic control is being
used by the Brazilian police for criminal
investigation and penal process
instruction, on request from the police
authority or prosecuting attorney to thejudge in charge, whenever there isreasonable evidence of authorship, the factthat is being investigated constituting
crime of high relevance - illicit traffic ofdrugs, kidnapping, laundering of money,
etc - and the proof cannot be provided byanother means available. According to thislaw, the judge must decide on the request
for the telephone interception in a period

166

of twenty four hours and, in case it isauthorized, the period will be for fifteendays (that can be extended for fifteen moredays).
The Brazilian police and prosecuting
attorneys have used telephone interception
to solve many cases, when authorized.
Mainly, due to dissemination (by the media)
of the usage of this tool by the authorities,
the criminal organizations have become
more and more organized in order to avoid
it. As well, some programs and systems
for mobile phones nowadays make it
dificult to breach the secrecy of theirtelephone calls. The Brazilian police
agencies also have several difficulties inusing the telephone listening device. The
most constant problems are the following:(i) resistance on part of the judges togrant authorization for the
telephone interception, because
these judges think that the police
are able to get the proof they needby means of old methods, and are
not accustomed yet to thetechnological developments in theworld;(ii) interrupted service in the telephonecompanies to attend to the judicial
authorization for telephoneinterception during the weekends,
holidays and night shifts; and(iii) the legal term for the period ofeavesdropping of fifteen days, which
can be extended for fifteen moredays, is not sufficient in most of thecases, mainly when it has to do withtransnational organized crime.
It would be a great achievement for thesolution of these problems in telephoneinterception if the Brazilian judges (whoare (at present) starting their careers being
less than thirty years old) had more life
experience and more factual participationin police work. The government could alsoestablish norms obliging the telephone

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
companies to attend quickly to these types
of authorization, when it is related totransnational organized crime. Anothersolution would be the on-line connection of
the data from the telephone companies
with the police terminals, with theactivation of the system being underjudicial order.
With the difficulties already found by theBrazilian police and prosecuting attorneys
in the instruction of criminal investigations
using telephone interception, it is evident
that room listening devices or hidden
microphones would be very valuable tocombat transnational organized crime.
Under the Brazilian Constitution this isconsidered illegal at present.
C. Undercover Operations
Operations of infiltration of police incriminal organizations in Brazil are notpossible yet because there is no exception
to the rules of the Brazilian Penal Codewhich establishes: “whoever may
contribute to a crime is subject to the
sanctions established”. Brazilian law lists
as basic principles of the role of the police
the prevention of crime before therepression of crime.
Therefore participation of the police inany stage of the crime, whether it is in the
preparation or execution, makes it
impossible to commit the crime, and theauthor will be exempt of sanction.
Certainly the solution for this problem
would be the reformulation of our sixtyyear-old Penal Code. There is already aCommittee which has been working forsome years to present a bill to this effect.
D. Best Practice in and Weak Pointsof Conventional Investigative
Techniques
In the investigation of transnationalorganized crime in Brazil traditional
techniques are extensively used andconstitute proof in the criminal process(with equal value, depending on thecontext). The gathering of material proof
in a search and seizure which occurred
during police investigation (by judicial
order), with indications of authorship,combined with declarations from witnesses
and police reports from surveillance/
observations, are the best points of
conventional investigation. The
questioning of suspects will either confirm
all the proof already evident, or will leadto formal contradiction in the process.
In the questioning of suspects andinterviews with witnesses, there isdifficulty as to the hearing, because in
Brazil the statements of these people mustbe formal (at a predetermined place andtime), by delivery of written information
or notification at least two days before.
Suspects also have the right to appear with
their lawyers. As a result, these hearings
generally take a long time to occur, as thesesuspects and witnesses must receive thedocument personally by going to police
headquarters. Sometimes it takes longtime for the police to find their addresses.
Additionally, there is the fact that only after
the third legal notice or invitation, formallydelivered and not attended, can the suspect
or witness be taken as soon as he/she isfound to the police station to provide
information about the case underinvestigation.
Regarding search and seizure, problems
originate in obtaining orders and in the
delay (on the part of the judges) in issuing
the judicial order. The judges always senda requisition for an order of search andsizure, to be done by the police, to verify
the position of the Department of Justice.
Another problem occurs at the moment ofsearch in the houses, companies, etc. of thesuspect, when it is necessary (due to an actof law) to have the presence of two
witnesses that are preferably not

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policeofficers. People refuse to collaborate
under several pretexts, above all, due tofear of reprisal in the future, as they haveno guarantee that the police will provide
effective and lasting security.
In shadowing and observations, the mostcommon problems are generated by thelack of integration and trust between the
different police groups in Brazil - Federal
Police, Federal Highways Police, Military
Police and Civil Police. Due to the fact that
there is no hierarchy and because ofproblems of internal corruption, they do notreceive communications from each otherabout ongoing work.
Thus, in the development of surveillance
operations, the population always
denounces the presence of suspicious
people to the Military Police, whichapproach the suspect, i.e the police at workin the area, as if they were criminals. Thisis commonplace due to the high rate ofurban violence that exists in the country,
and many times they compromise thesecrecy of the operation.
III. METHODS FOR OBTAINING
COOPERATION WITH WITNESSESTO PUNISH ORGANIZEDCRIMINALS
A. Immunity
According to Brazilian law for combatingorganized crime, there is only the potentialthat the penalty will be reduced to one or
two thirds, when the spontaneous
collaboration of the author will lead toclarifying the penal infractions and theirauthorship. There is not any precept of
immunity.
In relation to this spontaneous
collaboration, it can be said that it does nothave practical effect in Brazil, as thisbenefit was created ten years ago in the
Law of Violent Crimes and, up to the168

moment, in practice has had no effect,
rarely being applied. Delinquents knowthat when they betray their accomplices
they will not have a long life in jail. And
the Brazilian State is in such a bad
financial situation that it will not build
special prisons for criminals who
collaborate with justice officials. The
horizon is not a very promising one, unless
the State can search for more
encompassing solutions for the problem
than the simple legislative insertion of suchmeasures.
The Programme for the Protection ofVictims and Witnesses constitutes the only
existing method in Brazil to obtain thecooperation of people, aimed at thepunishment of individuals connected toorganized crime. Nevertheless, it is
impossible to assure the security of people
in Brazil.
B. Witness and Victim Protection
Programmes
The national programme for theprotection of victims and witnesses who
have been threatened, was created byFederal law in July 1999. The programmecame into effect in August of that year, andthe people who are entitled to theprotection programme are those without
decreed imprisonment and their relatives
who have lived with them habitually. The
protection can be requested by the witness
him/herself, or by the victim, theDepartment of Justice, the police, the judge
who is responsible for the criminal process,or by public agencies and entities for the
defense of the human rights.
The programs are funded with moneyfrom the State and Federal governments
and executed by non-governmentalorganizations (NGOs). They have thefollowing measures:(i)Transference of residence;(ii) Monthly financial aid per person;

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS(iii) The supply of food and clothing;(iv) Safety when they go from one place
to another;(v) Help to find a job in the work
market;(vi) Removal of public employees
without any loss of renumeration;(vii) Social, psychological and medical
assistance;(viii) Change of identity.
IV. COMPONENTS AND LEGALFRAMEWORKS FOR COMBATING
TRANSNATIONAL ORGANIZEDCRIME
A. Criminalization of Participationin an Organized Criminal Group
According to the Brazilian legislation,
the punishment of criminals from groupsof organized crime is done according to the
sanctions foreseen for each crime. No
special circumstance exists due to the factthat the offender has committed a crime
or crimes when he/she was participating
in a organized crime group.
The criterion for the punishment of thoseparticipating in groups of organized crime,
according to what is established in theBrazilian Penal Code, are the examples
below:(i) when the accusation is for only one
crime, the suspect will becondemned to the sanctions of thatpenal type;(ii) when the charge is for two or morecrimes, by means of more than one
action, that is, more than one act orommission, the sanction will beapplied in a cumulative way, that is,they are arithmetically added; and(iii) when the accusation is for comitting
two or more crimes by means of only
one action, then there is theapplication of the most severe
sanction that is applicable, but
increased from one sixth to one half.

B. Anti- Money Laundering Systems
According to what is demonstrated byinternational experience, one of the mostimportant aspects for the prevention of theoffense of money laundering is perfectionof the administrative system and financial
controls.
As a result, the law for the prevention
and combat of money laundering in Brazil
was created in 1998, along with a criminal
policy aimed at this objective. This gave
rise to a system against money laundering
which initially appears in the law itself,with the criminalization of the behavior ofmoney laundering. From then on we had
a special law considering the launderingof money as a crime, beyond our old Penal
Code. Also came the creation of the Councilof Financial Activities (COAF), which
aimed at discipline, applying
administrative sanctions, receiving,examining and identifying suspectoccurrences of illicit activities related to thelaundering of money. It’s aim was also tocoordinate and propose mechanisms for thecooperation and exchange of informationthat could provide quick and efficientactions in the combat, cover-up or
dissimulation of goods, rights and values.
The COAF is comprised of public employees
from several federal agencies, such as thepolice, auditors, etc. We also created, at
the Central Bank of Brazil, the Department
for the Combat of Financial and Exchange
Illicit Acts. This department was
designated to be in charge of the generalmonitoring of the financial market, and is
the main agency to receive allegations
made by the COAF in relation to thefinancial system.
At the Federal Police Department was
created the Division for the Repression ofInternational Organized Crime, with
headquarters in the capital of the country,
but with police trained for investigations
throughout Brazil. This department is in

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charge of the ascertaining information ontransnational organized crime activities.

to let them go free (after they receive somebribe).

C. Asset Forfeiture System (forAssets Derived from Organized
Crimes)For goods and merchandise or real
property acquired as product of crime, even
if these have already been registered in thename of person or persons without any
connection with the crime, the Brazilian
procedural law has only one instituteavailable, which is for the seizure of goods.
For seizure it is necessary that there arestrong indications of the illicit origin of thegoods. Brazil does not have an asset
forfeiture system that is specifically appliedin cases of organized crime.

In our country, in order to perform thee x t r a d i c t i o n c o r r e c t l y, a f t e r t h eidentification and confirmation of the place
where the person, who is searched for isstaying, and after the extradiction by theCentral National Office of the Interpol andthe issuing of a Warrant of Arrest by thehighest court of Brazil, the Federal
Supreme Court, the person who is searched
is generally arrested by the Brazilian
Federal Police. The Supreme Court ofBrazil has determined that people arrested
for extradiction remain under custody inthe jail of the Federal Police Department,in order to avoid escape, as this always
occurs when these people remain incommon prisons.

V. BEST PRACTICE IN
EXERCISING INTERNATIONAL
COOPERATION IN CRIMINAL
MATTERS (EXTRADICTION AND
MUTUAL LEGAL ASSISTANCE) TO
TACKLE TRANSNATIONALORGANIZED CRIME
In the case of existing treaties or theformalization of reciprocity agreements for
extradition, the best way to practiceinternational cooperation in relation totransnational organized crime is theguarantee of the imprisonment and handover of the person to be extradicted to thecountry that is making the request, after
the adoption of the appropriate legal
orders.
Due to its large extension, Brazil has
always received a large number ofmembers from international organizedcrime groups, which have remained in the
country by using several tactics which
include the corruption of public authorities
and police for safe and incognito
permanence. Regularly these criminals
use their financial powers to convince somepoorly paid civil, military and state police170

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERSEFFECTIVE METHODS TO COMBATTRANSNATIONAL ORGANIZED CRIME IN CRIMINALJUSITICE PROCESSES:
THE NIGERIAN PERSPECTIVE
Awunah Donald NgorNgor *I. PREAMBLE
At the dawn of the 20th century, crimeand criminality have metamophorsed frominternational to transnational. This
globalization of crime has necessitatednations to seek and explore the effective
ways and means to curb transnational
crime through the vehicle of criminal
justice processes. The technologicaladvancements witnessed in the preceding
millennium in all facets of human endeavor
have inadvertedly, or simply put, aided andcreated a seemingly enabling global
environment for transnational crime tothrive.
The world is becoming smaller andinterrelated every day. The advances madein technology have facilitated trade, travel,
movement of persons and services. In thesame vein international criminal activity
has tremendously benefited from theseadvances. The complicity and extent oftransnational organized crime, and thenegative influence these criminals exert
through the stupendous wealth that theyacquire make it imperative for thecooperation of all nations and regions of theworld to effectively combat this menace.
The stakes are enormous, as international
criminal organized groups jeopardise theglobal trend toward peace and freedom, sap

the strength from developing countries andthreatened all efforts to build a safe, more
prosperous worlds.
The political, economic, social andsecurity frameworks of many nations havebeen gravely weakened, undermined andcorrupted by the unwholesome activities oforganized criminal groups operating in a
sophisticated impregnable network.
In this presentation, however, attempts
will be made to critically analyse theNigerian model in tackling, controlling andmanaging transnational organized crime
within the ambit of the Nigerian Criminal
Justice System and International
Cooperation.
II. AN OVERVIEW OF
TRANSNATIONAL CRIME
Transnational organized crime suggests
in simple terms the movement of persons,
goods and services across sovereign
national jurisdiction in a manner devoidof acceptable norms and standards. The
increasing trend of transnational crime
could be best appreciated against the
backdrop of internationalization of crime.
These phenomena of globalization of crime
could be traceable to some contending
reasons:* Detective Superintendent of Police, D Department
Force Criminal Investigation Department, Nigeria
Police Force, Nigeria

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RESOURCE MATERIAL SERIES No. 58(i) Emergence of Regional Cooperation
and removal of trade barriers;(ii) Huge profit can be made by meeting
demand in one country for an illegal
product which is only available from
elsewhere, e.g. cocaine, heroine or
prostitution;(iii) Criminals are making increasinguse of the international system andare particularly attracted tojurisdictions which help to disguisetheir activities, such as countries
which entrench banking andcorporate security;(iv) Criminals exploit weakness in theprovision of products or services inanother country, for instance, theroving international banking
frauds, which have emerged inrecent years.
(v) The forging of international lettersof credit or bearer bonds, which canbe presented at a series of financial
institutions around the world in aneffort to exploit the tax internal
checking procedure.
There are major factors largely
responsible for the preponderance oftransnational crime, namely:(i) The development of global markets;(ii) A d v a n c e m e n t i n t e c h n o l o g y,efficient communication andtransport which have accelerated
the movement of people, products,
money and of course criminals;(iii) The deregulation of the financial
systems of many developed
economies whereby manybottlenecks in international tradeand commerce are removed;(iv) Political developments, especiallythe demise of old totalitarianregimes of East and Central Europe
and the emergence of new markets
oriented democracies, causing
existing international criminalorganisations to seek new frontiers;

172(v) The increased volume complexity ofinternational transactions which
help to disguise criminal activity;and(vi) The depressed economy of mostdeveloping countries which createsthe conducive fertile ground for thegestation of crime networks andoperation.
Transnational organized crime is ahighly sophisticated and syndicatedcriminal activity which surpass theprimary concern of a particular single
nation. It demands a conceptualinternational cooperation to tackle. Someof these crimes that have transnational
characteristics are:(i)illicit drug trafficking(ii) illegal firearms trafficking(iii) human (women and children)
trafficking(iv) trafficking stolen vehicles(v) card fraud(vi) money laundering(vii) smuggling(viii) trafficking in stolen work of arts(ix) Advance fee fraud (a.k.a. 419)
amongst others.
III. THE NIGERIAN SITUATION
It has been argued that organized crime
weakens the very foundation of democracy,
as there can be no-good governance without
rule of law. This observation is quite apt
for the situation in Nigeria! As the nation
faces the challenges of nurturing a stabledemocracy, after many years of military
dictatorship, organized crime poses a great
threat to the survival of the country.
It is a truism that for every six black men
in the world, four are Nigerians. Therefore,
Nigeria has a dominant role to play in theinternational effort to curtail transnationalorganized crime. The participation of

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
Nigerians in organized crime whether as
passive members of the group or active
main stream members must be seen within
the context of Nigeria as the most populous
black nation in the world. At the local level,
the sophistry of organized groups can bebest described as rudimentary. However,with international linkages, theoperational base of organized crime in
Nigeria has widened beyond immediate
frontiers which is a source of great concern
to government. The Nigerian government
has mapped out policies and strategies todeal decisively with crimes that aretransnational in nature and scope.
A. Illicit Drug Trafficking
Drug trafficking undoubtedly features
prominently among international crimes
that respect no national boundaries.
Nigeria is neither a producer nor consumer
nation in the illicit drug trade. It serves
as a transit route. Most persons with
Nigerian International Passport that arearrested, prosecuted and convicted inconnection with drug trafficking arecouriers working for drug barons in othercountries.

concealment in women’s reproductive
organ (vagina), disguised as talcum
powder, packaged in small molded balls
and swallowed, engraved in cultural
artifacts to many ingenious unimaginable
methods. The drugs are transported acrossthe globe by land, air and sea.
However, be that as it may, since theestablishment of National Drug Law
Enforcement Agency (NDLEA) by the
Nigerian government in 1989, the hitherto
upsurge in drug trafficking has reduced
considerably. Added to this, is thepromulgation of National Drug Law
Enforcement Agency Act. The Act seeks to
enforce laws against the cultivation,
processing, sale, trafficking and use of harddrugs and to empower the Agency toinvestigate persons suspected to havedealings in drugs and other related
matters. The NDLEA with the cooperationof other international agencies has
relatively fought the war against drugtrafficking to a reasonable level.

Of all transnational criminal activities
prevalent in Nigeria, the drug trade hasbrought the country much more woes andinternational pariah status than any otherhas. Drug trafficking came to official
prominence between 1983 - 1984 in Nigeria
following public execution of someconvicted drug traffickers.

B. Illegal Firearms Trafficking
Proliferation of firearms is a threat tointernational security. Illegal firearms
trafficking constituted a major componentof transnational organized crime. The everincreasing armed conflicts in many regionsof the world account for huge trafficking
in firearms. Similarly, constant politicalinstability and internal power tussle
amongst third world countries precipitatearms trafficking.

The violence associated with illicit drugtrade in some parts of the world is yet tobe witnessed in Nigeria due to the fact that
Nigeria is a stop over routes between the
producers on one hand and consumers on
the other. The couriers are mostly youths
within the age bracket of 18 - 40 years. The
methods of peddling in drugs varied from
simple concealment in personal effects,
lining of clothing, animals (pets),

The Nigerian fratricidal civil war
between 1967 - 1970 exposed the country
to influx of firearms. Also, the participationof Nigeria in Peace Keeping Operations allover the world and particularly Nigeria’s
dominant role in Economic Commission ofWest African States Monitoring Group(ECOMOG) Operations in the sub-region
serves as a likely source of illegal firearms
into the country. Apparently, the major

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RESOURCE MATERIAL SERIES No. 58
route of illegal firearms being brought into
Nigeria is through the seemingly porous
borders of neighbouring countries in the
sub-region.
Illegal firearms trafficking have
undisputedly fueled ethnic/religious armed
conflicts and armed robbery in Nigeria
which has resulted to monumental
negative consequences. Armed robbery
remains one of the major crimes in Nigeria
which is perpetrated by holders of illicit
arms.
Strategies for arms control have been
put in place by Nigerian government.
These include:(i) intensive international boundary
control(ii) cancellation of Firearms (Dealers)
Import Licence(iii) w i t h d r a w a l o f a r m s f r o mindividuals(iv) periodic check of arms on charge ina public armoury(v) Continuous recovery of arms andammunition by the Police fromarmed robbers and other criminals.
On the international sphere, under the
auspices of United Nations Regional
Centre for Peace Disarmerment in Africa
and the programme of Coordination andAssistance for Security and Development(PCASED), Nigerian governmentorganized a sub-regional workshop on the
Importation, Exportation and Manufactureof Light Weapons in West Africa. The
workshop was designed to enable theChiefs of Police, Customs and Gendarmerieof ECOWAS member states initiate aprocess of establishing an informationexchange network and strategy for thecontrol of the proliferation of light weapons
in the sub-region.

174

Under the relevant Nigerian laws, arms
trade generally is under control by theGovernment of Nigeria. It is controlled by
the issuance of relevant licenses whichindicate the types and categories of arms
and ammunition that can be traded uponby individuals and corporate organisations.
The general control and acquisition of
personal firearms in Nigeria is theprerogative of the Inspector-General of
Police in the exercise of his function as theChief Security Officer.
Any arms procured through any illegal
way is a crime. The illicit trade in arms isbeing carried out nefariously by dubious
businessmen whose identities remained
masked. It is extremely difficult todetermine the quantity of arms andammunition illegally possessed in Nigeria.
This poses a great danger to internal
security.
It is however pertinent to assert that the
Nigeria Police Force and other security
agencies as well as the government are
doing everything possible to check theactivities of these unpatriotic Nigerians
and their foreign collaborators engaged insuch criminal activities, which from allindication constitute serious threat to thesecurity of Nigeria in particular and theinternational community at large.
C. Human (Woman and Child)
Trafficking
In the recent past, the trafficking inhumans, particularly women and children
has assumed an alarming proportion
globally. Trafficking in persons has becomea big menace internationally because of its
attendant illegality and evil. Victims ofhuman trafficking are often recruited into
prostitution or child-labour or outrightslavery. The traffickers and victims are
seduced into the illicit trade by theapparent economic benefits and sermonsof success stories by those who are engaged

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
in the illicit trade.
Nigeria is a leading nation in humantrafficking in Africa. Young Nigerian girlsof the average age of 14 years are lured
into this illegal business by syndicates
operating within and outside Nigeria. The
entire business is shrouded in secrecy andsome of the victims are transported outside
Nigeria in the guise to pursue educationand gainful employment. The traffickers
employ subtle force, coercion, fraud andoutright deceit to accomplish theirobjectives.
Generally, the trafficking gravitates
towards Central Europe especially Italy
through various detected and undetectedroutes. Despite existing laws against
trafficking in human beings and related
crimes, the illegal business has continued
unabated and the government of Nigeria
is making tremendous effort to stem thetide. Recently, there has been intensive
enlightenment and educational
programmes on the dangers of humantrafficking which is linked to prostitution,
child labour and slavery. To this end,
deported Nigerians from Europe are
rehabilitated and offered alternative
employment by government.
In the same direction, the Nigeria Police
Force will be hosting international
workshop on trafficking in human beingsin November, 2000. In an effort to have anational focus on the issue, the InspectorGeneral of Police set up a National
Committee on Human Trafficking in 1995.
Similarly, a National Working Committeeon Human Trafficking was inaugurated in
December, 1999. The Head of Force
Criminal Investigation Department (FCID)
Mrs. A. J. Ojomo, fwc, Assistant InspectorGeneral of Police, as the coordinator of the
National Working Committee is piloting
the crusade against trafficking in humanbeings.

An NGO, Women Trafficking Child
Labour Eradication Foundation(WOTCLEF) pioneered by the wife of theVice President of Nigeria is sponsoring a
private Bill to the National Assembly on
the issue of women trafficking. WOTCLEF
is fighting the scourge from a moralistic
point of view. The Police is engaged inpreventive surveillance patrol, information
gathering and sporadic raids on syndicatedtraffickers.
Prostitution is said to be the world’s
oldest profession. It is a global phenomena
and a complex worldwide web. Essentially,
trafficking in humans, particularly inwomen and children, is to serve theinternational prostitution ring. The worldcommunity therefore, must amend
respective existing laws against trafficking
in human beings and adopt measures tocurtail human trafficking.
D. Advance Fee Fraud : A.k.a 419
The concept of Advance Fee Fraud ispredicated on payment of some sort of fees,tax, kick-back or brokerage on the pretencethat such is required as part of officialtransaction in existing business deals. The
Nigerian Criminal Code section 419
describes it as obtaining by false pretences.
It is an organized syndicated criminal
venture between dubious, unscrupulous
Nigerians on one hand and unsuspecting
foreigners to illegally transfer abroad non
existing funds belonging to the governmentof Nigeria or a corporate organisation in
Nigeria to an account of such gullible/
greedy foreign collaborator. Scam lettersand forged documents are mostly used inperpetuating this crime. Its most common
form is a letter to an identified foreignbusinessman who is told enticing stories
about huge profits to be made in Nigeria’s
oil, defence, banking or solid mineral sector
by the provision of an account where somemoney from a deal would be paid. The
letter is written in such a way as to attract

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RESOURCE MATERIAL SERIES No. 58
an equally dubious foreign businessman
who usually buys the scam. He is duped
after paying a certain amount of money
demanded for bribing officials responsible
for releasing the huge some of money.
The trans-global dimension this crime
has assumed is a source of concern toNigeria because of its negative
consequences on the country’s economy,
credibility, and image. The Nigerianinternational image has so much being
battered that most business proposal from
Nigeria are seen as deceptive andfraudulent. Between 1998 - July 2000, thefollowing nationals were complainants in
Advance Fee Fraud related case in Nigeria:* Germany 24* Italy 5* United States of America 16* Canada 5* India 5* South Africa 2* Japan 6* Iran 5* Australia 2* Egypt 2* New Zealand 2* Syria 1* Philippines 1* Portugal 1* Saudi Arabia 1* Israel 1* Korea 1* Taiwan 1* Nigeria 113.
(Source: Special Fraud Unit Section, Nigeria Police
Force)

This clearly shows the international
dimension of the crime. The above quoted
figure represent recorded reported cases toForce Criminal Investigation Departmentof Nigeria Police Force. Obviously, similarcases might have been reported to othersecurity agencies. Besides, most victimsof Advance Fee Fraud in Nigeria are
reluctant to report the matter officially tosecurity agencies because the victim(s) andsuspect(s) are mostly engaged in illegal
process.
Conversely, the Nigerian government
through security agencies especially the
Police, have waged unending war against
this crime. In this sense, the government

176

in 1995 promulgated Advance Fee Fraud
and other fraud related offences Decree.
Similarly, the Nigeria Police established aSpecial Fraud Unit (SFU) principally totake charge of heinous crimes of thisnature. The Nigerian law enforcement
agencies work hand-in-hand with otherinternational agencies in joint operationand investigation of the various crimes
especially the Advance Fee Fraud. The best
way of preventing advance fee fraud is
public enlightenment on the crime.
E. Trafficking in Artifacts
Works of Arts are rare and expensive
commodities in the international market.
Trafficking in stolen works of arts
constitute one of the major illicit trade that
has international connection.
International syndicates in collaboration
with their local counterparts graduallyplunder the nation’s cultural heritage.
Nigerian cherished work of arts are foundin international art galleries throughillegal routes which remain shrouded insecrecy. This unwholesome act ofinternational pillage deny Nigeria the
expected foreign earnings. The Nigerian
government views this illicit trade with a
lot of concerns. It needs some combined
efforts of Nigeria and international security
agencies to effectively control trafficking inworks of arts
F. Trafficking in Stolen Vehicles
In Nigeria, like most West Africancountries, sales of second-hand cars islucrative business. Due to general global
economic recession and harsh economic
conditions prevalent in Nigeria, hardly
could individuals affords brand new
vehicles because of the prohibitive cost.
Hence, fairly used vehicles are smuggled
into the country from the western world.
Businessmen involved in this trafficking
employ all forms of intrigues to circumvent
payment of customs duties and tariff. In
fact, most of the cars are stolen from US

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
and other European countries. These cars
find their ways to Nigeria through theinternational borders of neigbouring West
African countries with the connivance andconspiracy of international con
businessmen. In most cases, accompanying
documents to the vehicles are expertly
forged. This transnational organizedtrafficking is a disturbing trend not only
to Nigeria but most countries of the world.
International initiative must be put inplace to track stolen vehicles all over theworld and punish perpetrators accordingly.
G. Money Laundering
Money laundering has a linkage toattempts by organized and unorganised
criminal syndicates to legitimise theproceeds of their criminal activities byconcealing their true origin and ownershipin order to enable them employ such fund
for further activities.
These organized criminal groups, forexample, drug trafficking, repatriatemoney from abroad by direct purchase andre-sale of luxury items like cars andjewelry. Similarly, dirty monies are equally
passed through complex international
system of legitimate business. Professional
launderers employ various methods andtechniques to accomplish theirunwholesome activity. These include overinvoicing of goods, usage of high value andusing laundered money to capitalize apublic quoted company.
The Nigerian government is deeply
concern about the distablizing impact of thenumerous financial crimes on the nationand have articulated bold measures to fightthe menace. Prominent among thesemeasures are setting up of :(i) Money Laundering Surveillance
Unit in Central Bank of Nigeria(ii) The promulgation of the Money
Laundering Decree 1995

(iii) Public awareness campaigns
against drug trafficking, money
laundering and advance fee fraud
locally and internationally.
H. Credit Card Fraud
The use of Credit Card is not well
pronounced in Nigeria. However, dubious
Nigerian nationals home and abroad are
involved in counterfeiting and theft ofCredit Cards. The government incollaboration with other international
agencies are tackling the menace posed by
the activities of international fraudsters.
However, international remedy must be
found urgently to curb this disturbing
trend.
IV. LEGISLATION AGAINSTTRANSNATIONAL ORGANIZEDCRIMEThe Nigeria government has over theyears enacted far-reaching laws aimed at
checkmating transnational organizedcrime and punishing the perpetrators ofthese crimes. These laws include among
others:(i)
Penal Code and Criminal CodeActs. The substantive criminal
codes that cover criminal offencesin the Northern and Southern
Nigeria respectively. In relation to
prostitution and trafficking in
women, the Penal Code, codified
laws of Northern Nigeria provides:(a) Procuration of Minor Girls(section 275)
“ w h o e v e r, b y a n y m e a n s
whatsoever, induces any girlunder the age of eighteen years
to go from place or to do any act
with infant that such girls may
be, or knowing that it is likelythat she will be, forced or seduced
to illicit intercourse with anotherperson shall be punished withimprisonment which may extend

177

RESOURCE MATERIAL SERIES No. 58
to ten years and shall also be
liable to fine”.
(b) I m p o r t a t i o n o f G i r l s f r o m
Foreign Country (section 276)
“whoever imports into Northern
Nigeria from any country outside
Nigeria any girl under the age oftwenty-one years with intent that
she may be, or knowing it to be
likely that she will be forced or
seduced to illicit intercourse withanother person shall be punishedwith imprisonment which may
extend to ten years and shall also
be liable to fine”.
(c) Traffick in Women (section 281)
whoever, in order to gratify thepassions of another person,
procures, entices or leads away,even with her consent, a woman
or girl for immoral purpose shallbe punished with imprisonment
which may extend to seven years
and shall also be liable to fine”.
The Criminal Code, thecodified laws for Southern
Nigeria, provides in section 419,
regarding Advance Fee Fraud
thus:“Any person who by any false
pretence and with intent to
defraud, obtains from any otherperson anything capable of being,or induces any other person todeliver to any person anything
capable of being stolen is guilty
of a felony, and is liable toimprisonment for three years”. If
the thing is of the value of one
thousand naira upwards, he isliable to imprisonment for sevenyears.”(ii) National Drug Law Enforcement
Agency - established to enforce
laws against drug trafficking.
As a deterrent to drug trafficking,
NDLEA Act in Part II, Section 10
stipulates:

178“Any person who without lawfulauthority (a) I m p o r t s , m a n u f a c t u r e s ,produces, processes, plants orgrows the drugs popularly
known as cocaine, LSD, heroineor any other similar drug shallbe guilty of an offence and liable
on conviction to be sentenced to
imprisonment for life; or(b) Exports, transports or otherwise
traffics in the drugs popularly
known as cocaine, LSD, heroineor any other similar drugs shallbe guilty of an offence and liable
on conviction to be sentenced to
imprisonment for life; or(c) Sells, buys, exposes or offers forsale or otherwise deals in or withthe drugs popularly known ascocaine, LSD, heroine or any
other similar drugs shall be
guilty of an offence and liable onconviction to be sentenced to
imprisonment for life; or(d) Knowingly possesses or use thedrugs popularly known ascocaine, LSD, heroine or any
other similar drugs by smoking,inhaling or injecting the said
drugs shall be guilty of an
offence and liable on conviction
to imprisonment for a term notless than fifteen years but notexceeding twenty-five years:(iii) Advance Fee Fraud and otherrelated offences Decree 1999 - Law
promulgated to check sharp
practices of unscrupulous local andinternational businessmen:“Besides, penalties under thisDecree, section 11 of the Decree
moreover, provides for restitution
for the victims of false pretence.
Section 11(I) provides, in addition
to any other penalty prescribedunder this Decree, the Tribunal
shall order a person convicted of an

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS(iv)

offence under this Decree to makerestitution to the victim of the false
pretence or fraud by directing that
person to do the following
a. Where the property involved ismoney, to pay to the victim, anamount equivalent to the loss
sustained by the victim, andb. In any other case;i. To return the property to thevictim or to a person
designated by him orii. To pay an amount equal tothe value of the property,
where the return of theproperty is impossible or
impracticable.”
Money Laundering Decree 1995 Law enacted for prevention of
Money Laundering.
“Section 14 of the Decree stipulates
what constituted offences under the
Decree. It provides thus: a person
who:a. Converts or transfers resources
or property derived directly or
indirectly from illicit traffic innarcotic drugs or psychotropic
substances, with the aim ofeither concealing or disguising
the illicit origin of theresources or property, or aiding
any person involved in theillicit traffic of narcotic drugs
or psychotropic substances toevade the legal consequences of
his action orb. Collaborates in concealing or
disguising the genuine nature,
origin, location, disposition,
movement or ownership of theresources, property or rights
thereto derived directly or
indirectly from illicit traffic innarcotic drugs or psychotropic
substancesc. Is guilty of an offence under thesection and liable onconviction to imprisonment fora term of not less than 15 years
or not more than 25 years.”(v) Special Tribunal (Miscellaneous
Offences) Act - An Act in respect of
miscellaneous offences with stiff
penalties and to establish a Special
Tribunal for the trial of suchoffender.
(vi) Firearms Act 1959 - An Act to makeprovision for regulating thepossession of and dealing infirearms and ammunition
including muzzle loading infirearms, and for matters ancillary
thereto(vii) Anti Corruption Act 2000 - A law
enacted to fight corruption in all
its ramifications.
(viii) Mutual Assistance in Criminal
Matters
withintheCommonwealth Enactment andEnforcement Act - An Act to makelegislative provision to give theForce of law to the scheme formutual assistance in criminal
matters
withintheCommonwealth.
(ix) Extradition Act - A law to enable
extradition of fugitive offenders
within the Commonwealth.
The aforementioned laws and many
administrative instructions are bold andarticulated legislative steps to make thecommission of transnational and related
crimes unattractive.
V. PROBLEMS
Combating transnational crime isfraught with teething problems. The
marvelous advancement in technology willdefinitely enhance the planning andexecution of transnational crime.
Criminals will advance from therudimentary modes of communication likeordinary mail, telephone to more179

RESOURCE MATERIAL SERIES No. 58
sophisticated E-Mail and Internet satellite
communication facilities, thereby creating
identification and investigation problems.
Computer revolution has given birth toa new crime trend known as cyberterrorism. The detection of counterfeits andforged documents is made tedious by the
introduction of hi-tech computer scam,forgeries and advanced colour processing
techniques which render distinction
between copied document and their
originals difficult.
Internet technological knowledge has
become a familiar and householdcommodity in almost all advanced anddeveloped countries with the exception of
African countries. Consequently, African
law enforcement agencies do not possess
the technological know how to burst cybercrimes.
The proliferation in the number andcomplexity of transnational crimes will
make law enforcement capital intensive
and cumbersome. Developing countries
with their poor economic base andcompetitive development needs will hardly
cope with the responsibilities of modern
policing required in this regard. The
Criminal Justice system can only respondto the extent that it has capability torespond. The amount of money being
invested fighting crime is so small indeveloping countries in comparison toadvanced nations.
Lack of political will on the part of somecountries may pose obstacle to law
enforcement cooperation in combatingtransnational crime. It is clear that forpolitical, economic, religious and cultural
reasons, some countries are unwilling toenter into bilateral or multilateral
cooperation agreement on matters of crime
control which they assumed as
unwarranted interference with their legal

180

sovereignty. Complex and varied, theproblems militating against the effective
combating of transnational organizedcrime may be, they are certainly notinsurmountable.
VI. PROSPECTS
The attendant negative impact oftransnational organized crime on world
economies can not be overemphasised.
Therefore, to effectively combat
transnational organized crime, its
structural characteristics and operational
methods should be taken into account indevising strategies, policies, legislation andother measures designated to combat it.
A critical analysis of transnational crime
revealed an organisation which exists tocommit crimes; has hierarchical links
which enable its kingpins to control theorganisation, use of violence, intimidationand corruption to acquire wealth andcontrol territory and market, and launders
the proceeds in furtherance of infiltrationof legitimate economics. Organized crimegroups have potential for territorial
expansion beyond national borders andlinks with other criminal organisations. It
is apparent therefore, that any stratagem
aimed at combating organized crime must
be the product of the knowledge of theseorganisations and their dynamics,
statistics and information should, at every
given opportunity, be collated, analysed
and appropriately disseminated for use by
law enforcement agencies.
On the domestic sphere, to effectively
curb transnational organized crime, thefollowing methods should be addressedamong others in accordance with various
UNO resolutions on the matter:(i)Legislation penalisingparticipation in criminal
associations or conspiracies, andimposing criminal liability on

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
corporate bodies is necessary as ameans of strengthening preventive
capabilities;(ii) Reliable evidence gathering
techniques, such as electronic
surveillance, undercover
operations and controlled delivery
should be considered in national
law;(iii) Encouraging the cooperation andtestimony of members of organizedcriminal gangs by limiting thedisclosure of the address andidentity of witnesses, andprotection programme of witnesses
and their formation;(iv) Defeating the economic power ofcriminal organisation throughcriminal law measures withappropriate sanctions andsentences and regulatory
mechanisms. The laundering of
criminal proceeds must be
criminalised;(v) L e g i s l a t i v e a n d r e g u l a t o r ymeasure that limit financial
security, ensure adequate record
keeping and impose an obligation
for the identification and reportingof suspicious financialtransactions;(vi) Strengthening of the supervisionof passport issuance and theendorsement of protection of
passports against tampering andcounterfeiting; and(vii) Promotion through mass media
campaigns that stimulate publicawareness of the evils of organizedcrime; the need for public
participation in its prevention andthe promotion of public security.
Added to the above, and mostimportantly on the domestic front, shouldbe the establishment and management ofcourageous, incorruptible law enforcement
agencies to arrest, investigate andprosecute culprits of transnationalorganized crime to a logical conclusion.
Currently in Nigeria, the government is reorganising, re-modernizing her security
agencies especially the Police Force tosquarely face the challenges of the new
trends in the transnationalization of crime.
Transnational organized crime is aninternational activity that calls for nation
states to poll their resources to collectively
enhance peaceful, economic, social growthand development for the mutual benefit ofall. Consequently, there should be in place
workable global strategies to effectively
combat transnational organized crime
within the framework of criminal justiceprocesses. To this end, special courts withgeneral international application should becreated to deal squarely with transnationalorganized crime.
Significantly, the United Nations has
spearheaded counter-measures against
transnational organized crime. The planof action adopted during the 7th United
Nation Congress on the Prevention of
Crime and the Treatment of Offenders,
held in Milan in 1988 and the adoption ofModel Treaty on Extradition and Model
Treaty on Mutual Assistance in Criminal
Matters in 1990, in accordance with the 8th
Congress held in Havana are pointers inthis direction.
In order to eliminate the destructive
aftermath of organized crime, international
cooperation in criminal matters should be
hinged on the following forms:(i)
Extradition;(ii) Mutual Legal Assistance;(iii) Transfer of Criminal Proceedings;(iv) Regulations and enforcement offoreign criminal judgements andsentences which may include:(a) Transfer of prisoners;(b) Transfer of supervision of
persons conditionally sentenced

181

RESOURCE MATERIAL SERIES No. 58
or released;(c) Enforcement of other sanctions:• Search, seizure andconfiscation of criminal
proceeds of crime;• Special investigation
techniques;• Exchange of information andtraining.
Furthermore, internationalorganisations such as ICPO-INTERPOL,
the World Customs Organisation, theUnited Nations Commission on Crime
Prevention and Criminal Justice, theUniversal Postal Union should be used tofull advantage in global law enforcement.
Tr a n s n a t i o n a l o r g a n i z e d c r i m i n a lorganisations are not only sophisticatedbut also heavily financed, there is need forharmonization of relevant laws, equallynations should make adequate andsufficient budgetary allocation to crime
prevention and detection.
The negative consequences oftransnational organized crime transcend
government, public and private sector.
Therefore, the burden should not be left togovernment alone to bear. The public andprivate sector should be encouraged to fundlaw enforcement cooperation programmes
aimed at eradicating organized crime. The
civil groups have comprehensive reservoirof information and knowledge on thesecriminal syndicates.
V. CONCLUSION
Undoubtedly, no effort propelled to stem
the tide of transnational crime with its
monumental and disastrous consequenceson the world order will be too great. Theinternational community will to her peril
neglect to face the challenges of modern
crime and criminality. A political systemthat allows criminals free reign will not
attract the much needed foreign182

investment necessary for all-rounddevelopment.
To ensure peace, tranquility and a
globally secured life, the modern worldmust take the issue of transnational crime,and international cooperation in combatingit, very seriously.

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS

COUNTRY PAPER ON
EFFECTIVE METHODS TO COMBAT TRANSNATIONALORGANIZED CRIME IN CRIMINAL JUSTICE PROCESSES(PHILIPPINES)
Ricardo Tiuseco Pamintuan *,**
I. FACTUAL SETTING
Transnational organized crime (TOC) isa serious global menace that has evolved
into a sophisticated and even legitimate
means of perpetuating criminal activities
and dynasties. It continues to threaten the
future, the very existence, of every man,woman, and child because of its innate
voraciousness. No one is spared, not theAmericas, not the European Community,
especially not the developing countries andemerging democracies in Asia and Africa.
It destabilizes economies and creates afaçade of stability and progress to conceal
the erosion of the moral fabric of modern
society on which it feeds. Globalization andthe growing popularity and application of
the internet has made it possible fortransnational organized crime groups(TOCGs) to expand their activities at an
alarming rate under a cloak of legitimacy
and to establish bases of operations beyond
their normal and traditional confines.
States with high poverty levels are
particularly vulnerable to such incursions
because of the staggering amounts thesegroups are willing to invest in employing
offshore managers and in gaining the
goodwill of local law enforcers and officials.
* Court Attorney VI, Supreme Court of thePhilippines, Philippines**Submitted in partial compliance with therequirements of the 116 th International Group
Training Course on Crime Prevention (The
Administration of Criminal Justice) under the aegis
of the Japanese Government, 21 August-17
November, 2000, UNAFEI, Tokyo, Japan.

The Philippines, which has not attained
genuine economic growth in the past,certainly fits this profile. Additionally, its
location and thousands of mostly
unsecured islands, with rugged coastlines
and friendly townsfolk, facilitate
infiltration and provide strategic and ideal
drop-off and transshipment points for
TOCGs.
II. TRANSNATIONAL ORGANIZEDCRIME IN THE PHILIPPINES
A. The Current Situation
TOC has not been given much attention
by past administrations due in large
measure to preoccupation with domestic
problems still evident to this day, among
them, uneven distribution of wealth, tradeimbalance, and the protracted thoughisolated insurgency in the south. This has
been compounded by the traditional notionthat crime prevention lies within thepurview of domestic law enforcement.
Thus, international covenants
notwithstanding, TOCs have not been as
seriously addressed in the Philippines asin other countries. As a member of theUnited Nations, the Philippines has
participated in the various conventions of
the UN Congress on the Prevention of
Crime and the Treatment of Offenders, andhas become party to such positive measures
as the Milan Plan of Action, the Caracas
Declaration, and the Guiding Principles for
Crime Prevention and Criminal Justice in
the Context of Development and a New
International Economic Order.

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RESOURCE MATERIAL SERIES No. 58
For some time, Philippine leaders havebeen aware of the guidelines and policies
on the prevention and control of organizedcrime, judicial independence, extradition,
mutual assistance, transfer of proceedings,
and treatment of prisoners, among othermatters. Unfortunately, there has been adearth of relevant local legislation on thesesubjects, and the ones enacted have been
fairly conservative.
Existing criminal laws, however, may bemade applicable against TOCGs as long as
the crime involved or any of its components
falls within the definition of any criminal
statute and meets the requirements ofPhilippine principles on territoriality. The
Revised Penal Code (RPC), the main sourceof criminal law in the Philippines since1
January 1932, enumerates specific felonies
that may be committed by any person.
Similarly, special laws on specific crimes
not identified or defined in the RPC, suchas laws on narcotics, 1 graft and corrupt
practices,2 illegal possession or
manufacture of firearms and explosives,3illegal gambling,4 illegal fishing,5 illegal
logging, 6 piracy and highway robbery, 7hijacking,8 car theft,9 and white slavery,10
may also be committed, directly or
indirectly, by members of TOCGs. With
1

Republic Act No. 6425. (Henceforth, any reference
to Republic Acts shall be indicated as “R.A.”).
2 R.A. No. 3019.
3 Presidential Decree No. 1866. (Henceforth, anyreference to Presidential Decrees shall be indicatedas “P.D.”).
4 R.A. No. 3063 (on horse racing); P.D. No. 449 (oncockfighting); P.D. No. 483 (on game fixing); P.D.
No. 510 (on slot machines); and P.D. No. 1306 (onjai alai).
5 P.D. No. 704.
6 P.D. No. 330.
7 P.D. No. 532.
8 R.A. No. 6235
9 R.A. No. 6538.
10 Batas Pambansa Blg. 186.

184

such wide coverage, they can accordingly
be charged, tried and penalized underPhilippine laws, as long as no question of
territorial jurisdiction or diplomatic
immunity is raised. Still, the Philippines
is wanting in legislation on some forms of
TOC like money laundering 11, humantrafficking, environmental crimes,12 cardfraud, computer-related crimes,13 stolen
auto and auto parts trafficking, maritime
piracy, and violations of intellectual
property rights. The latter, described in
1995 by the FBI as the “crime of the 21stCentury,” is itself a tool for money
laundering,14 but there is no existing local
legal mechanism for making suchdetermination or dealing with a given
identified situation.
Without belaboring the obvious, the fact
is, even the terms “transnational organizedcrime” and “transnational organized crimegroups” have no exact definition under
existing Philippine laws. The only known
definition of TOC is found in a paper by apolice senior superintendent who declaredthat “there is an emerging consensus
defining transnational crime as an offensethat has an international dimension andinvolves (the) crossing of at least one border
before, during and after the fact. Therefore,
11 Although the Philippines is not a member of the

Financial Action Task Force (FATF) on Money
Laundering, it is enjoined to adopt the “Forty
Recommendations” of the FATF drawn up on 1990
and revised in 1996.
12 For instance, in the case of the Philippines, how toprotect biodiversity, how to deal with theunauthorized dumping of toxic wastes, how toensure the safe use of chemicals on food products
and raw materials, or how to police marine
sanctuaries within Philippine waters.
13 The efficacy of the recently enacted E-Commerce
Law (R.A. No. 8792) is yet to be determined.
14 Organized Crime and Product Counterfeiting,<http://www.ari.net/iacc/economic.html> 20 May
2000.

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
it is a mutual concern of at least two
affected countries that they must jointly
address.” 15 This definition begs thequestion, to say the least. To fully
understand the nature of TOC and TOCGs,
a resort to other sources is inevitable. The
INTERPOL defines TOCG as: “Anyenterprise or group of persons engaged ina continuing illegal activity which has asits primary purpose the generation of
profits, irrespective of nationalboundaries.”16 This definition, criticized by
Italy, Spain, and Germany for leaving out
the requirement of an organized command
structure, and by the U.S. and Canada foromitting the requirement of using violence
to attain the group’s goals, was later altered
to read, “Any group having a corporate
structure whose primary objective is toobtain money through illegal activities,
often surviving on fear and corruption.”17
B. Legal Frameworks for Combating
Transnational Organized Crime18
1. The Early Experiments
Early attempts to combat TOC were
mostly of local application and, in more
ways than one, required further legislation
to be effective. In 1979, at the height ofmartial law, former President Ferdinand
E. Marcos established a National
Committee on Anti-Organized Crime(NACAC) to formulate government plans,
implement actions, and control all
activities “relative to the five pillar
approach to the National Criminal Justice
System, particularly on organized
15 Lucas V. Cauton, Jr., Transnational Crime: The New

Challenge to Law Enforcement, Transnational
Crime Bulletin, Vol. 1, No. 1, 2000, p. 86.
16 First International Symposium on Organized
Crime, St. Cloud, France, May 1988.
17 Transnational Organized Crime , <http://
www.alternatives.com/crime/define.html> 20 May
2000.
18 See Appendix A for the Timeline of the Philippines’
Battle Against Transnational Organized Crime.

crimes.”19 Two years later, Marcos createdthe Peace and Order Council (POC), 20
whose functions and responsibilities
duplicated those of the NACAC. Becauseof this, E.O. No. 829 was passed on 11
September 1982, abolishing the NACAC
with the POC absorbing its functions,duties, and responsibilities. The National
Law Enforcement Coordinating Committee(NALECC) was also constituted tocoordinate the activities of various law
enforcement agencies. In such seminal
form, however, the POC and the NALECC
were nothing more than toothlessorganizations that posed no significant
threat to the scattered TOCGs operatingin the country.
From that time until the ascent to thepresidency by Fidel V. Ramos, Marcos’
cousin and former police chief, there wasabsolutely no forward movement in thebattle against TOC. Within his first year
in office, Ramos reorganized the NALECC
twice. In 1999, the NALECC would
undergo yet another organizational shift
as the government intensified its TOC
programme. Meanwhile, Ramos issued
E.O. No. 246 on 18 May 1995,
reconstituting the National Action
Committee on Anti-Hijacking as the
National Committee on Anti-Hijacking andAnti-Terrorism (NACAHT).
Realizing that the task of preventing or
eradicating TOC on its own was going tobe very difficult, the Philippines sought tofight this war in alliance with its neighbors.
In a grand show of regional solidarity, nine
Ministers of Interior/Home Affairs andRepresentatives of ASEAN Member
Countries 21 converged in Manila, on 20
December 1997 for the 1 st ASEAN
Conference on Transnational Crime andsigned the ASEAN Declaration on
19 Letter of Instruction No. 824 s-79.
20 E.O.

No. 727 s-81.

185

RESOURCE MATERIAL SERIES No. 58
Transnational Crime. The conference
marked the culmination of a series ofactivities beginning with the adoption of
the Naples Political Declaration and Global
Plan of Action of 23 November 1994. The
Baguio Communique, reached during the
1st International Conference on Terrorism
held at Baguio City, Philippines, from 1821 February 1996, led to the 29th ASEAN
Ministerial Meeting (AMM) and the 1 stInformal ASEAN Summit, both held at
Jakarta, in July and November 1996. The
following year, the 30th AMM and the 2nd
Informal ASEAN Summit were held at
Kuala Lumpur, in July and December,respectively. The signatories to the ASEAN
Declaration resolved to confront
transnational crime by, among othermeasures, strengthening each nation’scommitment to cooperate in combating
TOC, encouraging them to assign police
attachés and/or liaison officers in eachother’s capitals to facilitate cooperation,
urging the networking of relevant law
enforcement agencies in the member
countries, and expanding the scope ofefforts against TOC.
2. The Creation of the Philippine Center
on Transnational Crime
To this end, President Joseph E. Estrada
signed E.O. No. 62 on 15 January 1999,
creating the Philippine Center on
Transnational Crime (PCTC). Estrada,
who as Vice-President headed the defunct
Presidential Anti-Crime Commission(PACC)22, considered the establishment of
the PCTC necessary after determining,among other things, that (a) TOC has

21 Brunei Darussalam, Republic of Indonesia, Lao

People’s Democratic Republic, Malaysia, Union of
Myanmar, Republic of the Philippines, Republic ofSingapore, Kingdom of Thailand, and the Socialist
Republic of Vietnam.
22 The PACC’s successor was the Presidential AntiOrganized Crime Task Force (PAOCTF).

186

adversely affected the political, economic,
and socio-cultural stability and security of
the Philippines; (b) the functions andresponsibilities of various law enforcement
and related agencies need to be linked,
coordinated, and complemented toeffectively combat TOC; and (c) the growing
sophistication of TOC demands a
concerted, synchronized, and focused effort
from these agencies.
As so created, the PCTC has thefollowing powers and functions:(i)
To establish, through the use ofmodern information andtelecommunications technology, ashared central database among
government agencies for
information on criminals,
methodologies, arrests andconvictions on the following
transnational crime:(a) illicit trafficking of narcotic
drugs and psychotropic
substances;(b) money laundering;(c) terrorism;(d) arms smuggling;(e) trafficking in persons;(f) piracy; and(g) other crimes that have an impact
on the stability and security of
the country;(ii) To supervise and control (the)conduct of anti-transnational
crime operations of all government
agencies and instrumentalities;(iii) To establish a central database on
national as well as international
legislation and jurisprudence ontransnational crime, with the end
in view of recommending measures
to strengthen responses andprovide immediate intervention forthe prevention, detection andapprehension of criminals
operating in the country;(iv) To establish a center for strategic

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
research on the structure anddynamics of transnationalorganized crime in all its forms,
predict trends and analyze
relationships of given factors forthe formulation of individual andcollective strategies for theprevention and detection oftransnational organized crime andfor the apprehension of criminal
elements involved;(v) To d e s i g n p r o g r a m m e s a n d
projects aimed at enhancing
national capacity-building incombating transnational crime, as
well as supporting the related
programmes and projects of other
ASEAN and international centers;(vi) To e x p l o r e a n d c o o r d i n a t e
information exchanges andtraining with other government
agencies, foreign countries andinternational organizations
involved in the combat against
transnational crime;(vii) To select personnel from within the
NAPOLCOM, PNP and othergovernment agencies for detailwith the PCTC;(viii) To enlist the assistance of any
department, bureau, office, agency
or instrumentality of thegovernment, including
government-owned or controlled
corporations, to carry out its
functions, including the use of theirrespective personnel, facilities andresources; and(ix) To perform such functions andcarry out such activities as may bedirected by the President.23
E.O. No. 62 also mandates24 that the
PCTC shall be supported and assisted in
the performance of its tasks by the
23 E.O.

No. 62, § 3.

24 Ibid., § 5.

following government agencies andinstrumentalities:
(i)
(ii)

Philippine National Police (PNP);
National Bureau of Investigation(NBI);(iii) National Action Committee on
Anti-Hijacking and Anti-Terrorism(NACAHT);(iv) Presidential Anti-Organized Crime
Task Force (PAOCTF);(v) Presidential Anti-Smuggling Task
Force (PASTF);(vi) National Police Commission(NAPOLCOM);(vii) Department of the Interior andLocal Government (DILG);(viii) Department of Justice (DOJ)(ix) Department of Finance (DOF);(x) Department of Transportation andCommunication (DOTC);(xi) Dangerous Drugs Board (DDB);(xii) National Prosecution Service(NPS);(xiii) Bureau of Immigration andDeportation (BID);(xiv) Bureau of Internal Revenue (BIR);(xv) E c o n o m i c I n t e l l i g e n c e a n dInvestigation Bureau (EIIB);(xvi) Bureau of Customs (BOC);(xvii) National Intelligence Coordinating
Agency (NICA);(xviii)Armed Forces of the Philippines(AFP);(xix) Land Transportation Office (LTO);(xx) National Telecommunications
Commission (NTC);(xxi) National Statistics and Census
Office (NSCO); and(xxii) Other government agencies which
the PCTC may find necessary to
implement its mandate.
Although the PCTC is under the Officeof the President, general supervision andcontrol are exercised by the NAPOLCOM.
The Executive Director of the PCTC, whoreports to the President through the187

RESOURCE MATERIAL SERIES No. 58
Secretary of Interior and Local
Government or Chairman of the
NAPOLCOM, has immediate supervisionand control over all PCTC units, with thepower to assign the respective duties andresponsibilities of all officers and personnelof the PCTC. In this effort, he is assisted
by a Deputy Executive Director and Chief
Directorial Staff. The latter, in turn,oversees the seven directorates comprising
the PCTC offices, namely, Administration
and Finance, Research, Operations,Technology Management, Plans andPrograms, Legal Affairs, and Detection and
Investigation.25
From the time it was established in
1999, the PCTC has evolved into theoperational contact agency of the United
Nations Office for Drug Control and Crime
Prevention (UNODCCP), the Asia-PacificGroup (APG) on money laundering, theASEAN on the proposed ASEAN Center for
Combating Transnational Crime; the US
Counter-Narcotics and Crime Center(USCCC); the National Crime Authority(NCA) of Australia; and Japan’s National
Police Agency (NPA) and JICA. In thisregard, the PCTC has gone beyond its
stated mission, that is, “To formulate andimplement a concerted programme ofaction (for) all law enforcement,
intelligence and other agencies for theprevention and control of transnational
crime,” but held fast to its belief “in a unitedand coordinated approach, both domestic
and international, to safeguard national
security and interest against the menaceof transnational crime.”26
Sensing the growing importance of the
PCTC, former PNP Chief Roberto C.
Lastimoso issued Resolution 99-03 dated
30 April 1999, assimilating the National
Drug Law Enforcement and Prevention
25 Id., § 6.
26 PCTC Briefing Manuscript, July 2000, p. 6.

188

Coordinating Center (NDLEPCC) and the
PCTC as regular members of the NALECC.
A week later, in further affirmation of thismove, Estrada issued E.O. No. 100,strengthening the operational,
administrative and information support
system of the PCTC by placing under its
general supervision and control the Loop
Center of the NACAHT, the INTERPOLNational Central Bureau for thePhilippines, the police attachés of the PNP,
as well as the DILG’s political attachés/counselors for security matters.
Current PCTC efforts are concentratingon human trafficking. According to Police
Chief Inspector Camilo PP Cascolan, Chiefof the Special Research Division of the
PCTC Directorate for Research, theupward trend in the trafficking of persons,most of whom are women and children, is
alarming not only because it reduces
human beings into mere commodities, butalso because it breeds such other crimes
as those involving drugs, firearms,
smuggling, illegal recruitment, andcorruption of public officials.27 In whiteslavery cases, for example, methods ofprocuring women range from harmless andseemingly unrelated activities (like foreign
training or internship, adoption, family
tours, religious pilgrimage, cultural
exchange/promotion, sports events, andescort service), to cultural (marriage
matchmaking or selling of a woman by her
family), economic (job promises by illegal
recruiters), and even criminal(abduction).28

27 Interview, 29 June 2000.
28 RP-Europe Concerns on Trafficking in Persons, The

Philippine Experience, Directorate for Research,
PCTC, 2000, pp. 6-7. See also Youngik Yoon’s
International Sexual Slavery, <http://
www.alternatives.com/crime/PART7.HTML> 20
May 2000.

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
In spite of the tremendous support of the
Chief Executive for the PCTC, E.O. No. 62
has been criticized in some quarters for its
overly restrictive enumeration of TOCs
falling within the jurisdiction of the PCTC.
What, for instance, should be done about
the smuggling of cultural artifacts? In a
paper by a researcher from the Institute ofInternational Legal Studies of the
University of the Philippines Law Center,
the writer lamented that “the amount ofmoney that changes hands worldwide in
respect of illegal trade in cultural property
comes third after those of prohibited drugs
and armaments. Unlike the latter two
objects of commerce, whose destruction issought by many because of their pernicious
implications for the safety and, oftentimes,
the lives of the people, the preservation ofcultural artifacts, especially in situ, issought as their removal from their originalsite, and possible damage thereto, and even
eventual loss, can produce untold harm for
mankind in general, and for a culture, inparticular.”29
III. BATTLING TOC IN THE
PHILIPPINES
A. Problems
1. In General
There is no doubt that the fight against
TOC in the Philippines cannot be waged
by a single entity. All components of thePhilippine Criminal Justice System - law
enforcement, prosecution, judicial process,correction, and the community - must act
together in pursuit of the common goal oferadicating or at least emasculating TOC.
The paper has shown that existingmechanisms for battling TOC primarily
consist of legislation creating coordinate
bodies that are mandated to channel theefforts of a slew of law enforcement andrelated agencies. Hence, the first real

obstacle in the Philippines’ struggle toliberate itself from the stranglehold of
TOCGs is the lack of a bona fide
government agency exclusively assigned totackle cases involving TOCs and TOCGs.
Penal statutes that may be used in theprosecution of individual members of
TOCGs are abundant, but theirenforcement remains lax due to a host offactors. There is also great difficulty inprosecuting criminals, a problem that has
as much to do with deficiencies on the partof law enforcers who either lackinvestigative skills or do not wish to beburdened with complex legal procedures,
as with the people’s penchant for soliciting
or offering political patronage.
Of course, lack of funds is a nagging
issue. Every department of government ishaunted by this problem. Even if
meaningful and viable projects weredevised, if they are not backed by sufficientfunding, the rate of failure would remainhigh. To cite an example, the judiciary’s
budget has steadily declined in the last two
years. In 1999, it was allotted a 1.20%
share of the national budget, which was cut
by .13% this year. A further 2-billion peso
reduction is being contemplated by thelegislature for fiscal year 2001. The
Supreme Court recently submitted aM e d i u m - Te r m P u b l i c I n v e s t m e n t
Programme (MTPIP) to the NationalE c o n o m i c D e v e l o p m e n t A u t h o r i t y,enumerating the projects it intends topursue in the next three years. With ashrinking budget, the judiciary is
experiencing difficulty in raising thesalaries of judges and other court
employees - a measure designed to reducegraft and corruption in the institution. It
would, however, require great political will,
sacrifice, and a unified judiciary to
implement the identified projects.

29 Joseph Sedfrey S. Santiago, Smuggling of Cultural

Artifacts, TCB, Vol. 1, No. 1, 2000, p. 43.

189

RESOURCE MATERIAL SERIES No. 58
Another factor to be considered is theinability of each administration to fill theneeds of certain sectors of society. The
soaring cost of auto parts, for instance, hasgreatly contributed to the continuous
smuggling of this commodity. “Newbusiness” for crime is created when any
human desire is stifled by the State.30 In
the given example, the human desire
satisfied by the entry of smuggled, yetcheaper, auto parts is the desire to
maximize or stretch the purchasing powerof the local currency.
One area of concern, which has been
overlooked by and is receiving meager
attention from government, is how tocontrol or minimize health and safety risks
associated with seemingly innocuous TOCs
like counterfeiting of such mass-based
products as baby formulas, foodstuff, drugs,
cosmetics, toys, apparels, and auto andaviation parts.31 The pernicious effects ofpassing off substandard imitations as
genuine articles cannot simply be ignoredby the State in this era of massconsumption.
2. In Detection and Investigation
As intimated earlier, one major problem
area in the detection and investigation of
TOCs in the Philippines is the lack of funds
to meet the demands of modern law
enforcement. The compensation of regularmembers of the police force and otherrelated agencies is simply notcommensurate with the perils of their job.
TOCGs, on the other hand, with their vastfinancial resources, can hire the best teamof consultants and lawyers, eventuallyemploying corporate management skills intheir global operations, thus, making the
30 W h y

be Concerned Now? <http://
www.alternatives.com/crime/crime6.html> 20 May
2000.
31 Health and Safety Risks, <http://www.ari.net/iacc/
health.safety.html> 20 May 2000.

190

fight even more lopsided in their favor. And
while their army of followers, their“families,” grow and flourish, young andimpressionable Filipinos tend to eschew acareer in law enforcement for reasons
ranging from low wages vis-à-vis work
hazards, to negative public image andexposure to corruption. The resultant
manpower shortage is more than enoughto embolden even the lowliest lackey in the
TOC hierarchy.
The dubious distinction of law
enforcement is imputable not only to the
popular notion that corruption permeates
its ranks, but also to the emerging opinion
that agents of the law do not possess thenecessary skills to properly perform theirduties and functions. The lack of modern
and appropriate forensic tools, anotheroffshoot of fund scarcity, is compounded by
the impression that local forensics
practitioners are not endowed with theability necessary to fully utilize availablet e c h n o l o g y. A n d t o h u m a n r i g h t s
advocates, documented cases of violationby the police of basic individual liberties,
especially during arrests, searches andseizures, and custodial interrogation,
constitute a virtual abandonment by thelatter of their sworn obligation to upholdthe law. Ironically, this situation
sometimes arises out of the very desire oflaw enforcers, their eagerness, to send to
jail in earnest a known criminal instead ofgoing through the tedious process ofobtaining warrants and supporting an
indictment in court where there is apossibility that the accused may be
acquitted.
Aside from a negative image, a recent
study on the Philippine criminal justicesystem has revealed other problems
involving the police which are connectedwith the administration of justice, to namea few inadequate investigation training,lack of coordination among police officers

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
and agencies, and failure of law enforcers
to effect arrests by non-service of
warrants.32
3. In Prosecution
Every criminal charge is filed in andadmitted by Philippine trial courts on thebasis of evidence submitted by the police
and those discovered by the prosecutors.
During the trial, the case continues to beconsidered on the basis of physical,
testimonial, and documentary proof. As in
any jurisdiction, it is clear that evidence
plays a crucial role in every successfulconviction. In this regard, success isequated with confirmation of the judgment
on appeal. This is one area of concern, formany crimes go unpunished because of
mishandling of evidence - from the moment
the crime scene is secured to the time thepieces of evidence gathered are actuallyplaced under the care and custody of thepolice. The prosecutor is placed in adilemma: Should the case be filed even if
it is weak due to lack of evidence or
inadmissibility of those actually found? Orshould it be dismissed at the risk of letting
loose into society someone who mightcommit more crimes? Law enforcers
sometimes conduct arrests, searches andseizures, and custodial investigation
without following procedure expressly
stated in the Constitution, as well as in theRules of Court. This gives rise to asituation where a case that is otherwise
strong suddenly becomes infirm because ofmatters beyond the prosecutor’s control.
Another scourge in the prosecutorialservice is the reluctance or unwillingnessof witnesses to testify, usually for fear of
reprisal and not so unusually for pecuniary
gain. Members of TOCGs who are on thebrink of being placed within the Philippine
32 Myrna S. Feliciano and Alberto T.

Muyot, The
Philippine Criminal Justice System, 17 July 2000,
p. 49.

judicial process may find an ally in awitness whose silence can be bought or
coerced. The lure of money is sometimes
combined with subtle threats to produce
the desired results.
As with law enforcers, many prosecutors
lack basic and advanced advocacy skills
due in large measure to inadequate
continuing legal education. 33 The goodlawyers are usually found in private
practice, either alone, with others, or witha firm, preferring the trappings of wealthand power that come with a successful
practice over the selfless notion of serving
the public or defending a common criminal.
Because of this reality, or as a result of it,
critics of government have accused justice,particularly the legal profession, of being
pro-rich or anti-poor. While this allegation
is not totally accurate, it is not entirely false
either. No statistical data is necessary toconclude that there are more people in thelower bracket of society who are in need ofprofessional legal assistance, the kind of
aid that most times can be availed of onlyby the moneyed class. Unfortunately,
TOCGs belong to the latter class.
4. In Punishment
Criminal law in the Philippines is oneof the legacies of Spain, a vestige of its
colonial past. For three hundred years,
Roman law principles on crime andpunishment were applied in writing lawsand deciding cases. A century after the
Spaniards were ousted from the country,
the Philippines continues to use these legal
precepts, even enhancing them to suitpresent situations. But the race against
the evolving face of crime, including therelatively new genre of TOC, seems to be afutile effort. Crime, as in other parts of
the world, is always one or two steps ahead.
To cite an example, in the Philippines, theprohibited stimulant drug known locally as
33 Ibid., p. 57.

191

RESOURCE MATERIAL SERIES No. 58“Ecstasy” had been widely andindiscriminately sold to mostly young users
for years before somebody even filed a billin Congress to bring the distribution andsale of that drug within the purview of theDangerous Drugs Act. Lows onenvironmental crimes and productcounterfeiting are also archaic, making
them top areas of concern for internationalorganizations willing to extend financial or
technical assistance to the country.
Another major obstacle to punishing
TOC in the Philippines is judicial restraint.
For TOCGs, the physical boundaries ofnations do not exist. In dealing with them,
there is bound to be a conflict between
national or municipal laws andinternational laws governing controversies
between or among states. The other factor
to be considered is the effectiveness ofinternational conventions vis-à-vis
domestic laws. “In view of thejurisdictional and political weaknesses ofinternational tribunals, are national courts
the more promising avenue in certain fields
for the growth of a body of law regulatingstate conduct?”34 Two principles of judicial
restraint must first be considered. Even if
the doctrine of sovereign immunity and theact of state doctrine are similar in that they
prevent “courts from becoming involved in
disputes which might lead to friction
between a foreign nation and their own . .
. . sovereign immunity applies only wherea foreign state or its instrumentality issought to be made a party to litigation orwhere its property is involved. On theother hand, the act of state doctrine focusesentirely on the action taken by that state,
and may be applicable to litigation between
two private parties to which that action isrelevant. It determines not whether a court
34 Henry J. Steiner and Detlev F. Vagts, Transnational

Legal Problems (Materials and Text), New York: The
Foundation Press, Inc., 1976, p. 637.
35 Ibid., pp. 672-673.

192

can assert (or must relinquish) jurisdiction
over a party but whether it can fully
examine and decide certain claims on the
merits, even when such claims rest on theasserted illegality of foreign governmental
conduct.”35 Without clear rules on conflictsof laws, problems may arise in executing
judgments of conviction against foreign
nationals.
If no such conflict exists, or if they are
resolved without raising any diplomaticquestion, the next crimp to be ironed out
are prison concerns. As in other countries,
the Philippine correctional system suffersfrom such common problems as
overcrowding, understaffing, dismal prison
conditions, poor security, staff unrest or
stress, and low budgetary allocation. 36
Crowded and substandard prison facilities
breed diseases and discontent among
inmates.37 This is a direct consequence ofthe low budget allocation for the corrections
system, a situation that practicallyforestalls the government from taking or
continuing contingency measures aimed at
decongesting prison facilities.38 Budget, ofcourse, includes salaries, which, in the caseof law enforcement, is dismally low, hence,
resulting in vacancies. Prison officials andemployees are also members of thePhilippine National Police so they suffer
the same problems being experienced bylaw enforcers. As a result, penitentiaries
are understaffed and security is lax. Prison
breaks, especially in the provinces, are notuncommon.
But no issue has received as muchattention from the three branches ofgovernment, the clergy, and mass media as
36 Michael Cavadino and James Dignan, The Penal

System, An Introduction, 2d, SAGE Publications,London: 1997, p. 10.
37 Feliciano and Muyot, p. 86.
38 Philippine Corrections Today, 28 Philippine
Panorama (no. 41, 24 October 1999), 13-17.

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
the death penalty. Suspended under the
1987 Constitution, the death penalty was
revived on 1 January 1994 via Republic Act
No. 7659. Despite its resurgence, there isno sign that the death penalty has
effectively deterred people from committing
crimes. It is just a matter of time before
an innocent person is executed. A life
sentence without parole could become astrong incapacitative, retributive
punishment. “But the death penalty willremain and perhaps even flourish because
it represents the supreme quick fix for theviolent crime rate.”39 Critics would continue
to question the efficacy of the death penalty
as the ultimate form of social retribution,
but its deterrent power would still be
another issue.
B. Possible Solutions
With such a diverse set of obstacles
confronting the Philippines in its battle
against TOC, no single solution is in thehorizon. Varying responses to eachproblem, given on a case-to-case basis, may
be the only way to beat the growing threatof TOC.
Old laws must be updated so that theywould be more responsive to present andemerging crisis situations involving TOC
and TOCGs. To complement this, newforensic investigation techniques must be
explored, like DNA testing. In thePhilippines, the admissibility of DNA
evidence is quite novel. It would have beentested during the trial of a celebrated rapemurder case,40 but the defense, perhaps
realizing that the results would be
incriminating, challenged the admissibilityof any evidence that would be obtained
39 John Klofas and Stan Stojkovic, editors, Crime andJustice in the Year 2010, USA: Wadsworth
Publishing Company, 1995, pp. 263-264.
40 The case of People of the Philippines v. HubertWebb, et al., dubbed by the local media as the
Visconde Massacre.

therefrom. In any event, the trial court
convicted the accused and the case iscurrently being reviewed by the Supreme
Court. This turn of events prompted a law
professor at the University of thePhilippines to say that, “The novelty of thescientific method for DNA testing should
not be a ground for exclusion of evidence
under (Philippine) rules. Neither should
degradation of the specimen be invokedagainst admission, since this goes merely
into the weight, rather than admissibility,of the evidence.”41
The development of pilot programs toenhance inter-institutional coordination
can be initiated by agencies such as the
PCTC. This can be supplemented bytraining modules on skills enhancement for
enforcers (especially in handling evidence
and securing crime scenes), prosecutors,
and judges. In the case of judges, theprogramme has begun with the creation of
the Philippine Judicial Academy, thetraining arm of the Supreme Court, andthe launching of the Pre-Judicature
Programme for future and present
magistrates.
In the prosecutorial services, theincumbent Justice Secretary, Artemio G.
Tuquero, has proposed some reforms suchas, but not limited to, the following:
strengthening of the support staff andupgrading of equipment; providing a morecompetitive compensation package toattract better and morally upright lawyers
to join the service; setting up a national
prosecution academy to undertake acomprehensive professional and careerdevelopment programme for prosecutors;
stricter enforcement of disciplinary
measures against errant prosecutors; and41 Pacifico Agabin, “Admissibility of DNA Evidence inPhilippine Courts,” lecture given at the 7th National
Convention-Seminar and General Meeting of thePhilippine Women Judges Association.

193

RESOURCE MATERIAL SERIES No. 58
close coordination with law enforcement
agencies and the community in evidencegathering..42
Similarly, the correctional system is far
from being perfect, but things could bebetter if only there would be a shift ingovernment policy, from stressing
imprisonment and punishment toencouraging rehabilitation and correction.
This would not only decongest the
penitentiaries but would also give
prisoners a more positive goal, a humanpurpose that would nourish any potential
for improvement.
There is also a need to strengthen the
country’s witness protection programme.
Witnesses in TOCs would be motivated tocome out in the open and give
unadulterated statements if their safety
against possible retribution from TOCGs
could be assured. As an additional
incentive, they could be given rewards fortheir efforts. At the moment, there are laws
specifically allowing the release of funds
as reward to state witnesses 43 andinformers.44 A former public official at the
Department of Justice even opined that he“cannot discount altogether the usefulnessof the reward system in the campaign
against organized crimes.”45
In cases where extradition is proper,
calling for mutual legal assistance inconnection with a criminal investigation or
execution of a prison sentence, extradition
treaties may be resorted to, in accordance
42 Feliciano and Muyot, pp.

59-60.
Nos. 1731 and 1732.
44 P.D. No. 749, in relation to Articles 210, 211, and212 of the Revised Penal Code; R.A. No. 3019; §345 of the National Internal Revenue Code; and §3604 of the Tariff and Customs Code.
45 Catalino Macaraig, in DOJ Opinion No. 157, s.
1978, 2nd Indorsement, 6 October 1978.
46 P.D. No. 1069.
43 P.D.

194

with the Philippine Extradition Law.46
For its part, the Supreme Court hasembarked on a Judicial Reform
Programme (SC-JRP) 47 designed toenhance the skills of judges and court
employees, as well as improve court
facilities and services all over the country.
An integral component of the SC-JRP is toaddress all issues relevant to theadministration and dispensation of justice.
The MTPIP mentioned in III-A(1) on page
13 is a product of consultations with thevarious stakeholders in the justice system.
It enumerates the projects identified by the
Court itself based on studies commissioned
for that purpose on the following areas of
substance: past judicial reform efforts, thecriminal justice system, strengthening of
the communication system of the Supreme
Court, a review of the barangay justicesystem to de-clog court dockets, alternative
dispute resolution, formulation ofadministrative reforms, case decongestion,and impact of judicial education.
IV. CONCLUSION AND
RECOMMENDATIONSThe TOC menace is precisely that - amenace. In a country like the Philippines,
where all forms of wealth are in the handsof a handful of people - the same people
who control government, directly orotherwise - TOCGs can wreak havoc inevery Filipino’s life by providing a placebo
for society’s ills. Using illegally generated
money, TOCGs are able to set up bases ofoperation wherever they are welcome. Like
legitimate corporations, they “invest”
heavily in foreign shores, and local officials
are all too willing to embrace their presence
because of necessity. It is this necessity on
which TOCGs feast. How can anyone avert
the spread of a disease such as TOC?
47 The author is a member of the ProgrammeManagement Office of the SC-JRP.

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
The answer lies in community vigilance.
Community participation in law
enforcement, in the prosecution of TOCs,
in court proceedings, and in the
rehabilitation of members of TOCGs cannot
simply be ignored. This is the reason why
the community is at the heart of thecriminal justice system. After all, defeating
TOC would ultimately redound to thebenefit of every member of the community.
Their alertness and active participation,
therefore, are not only desirable but evennecessary. The smallest political unit in
the Philippines, the barangay, is composedof members living within a specified zone
or geographical area. Tribal in origin andclannish in nature, the barangay perfectly
demonstrates how an indigenous entity
could aid the CJS by the simple expedientof maintaining an active community-watch
programme. As former President Ramos
declared while calling attention to theincursion of drug syndicates in the country,“(The government) will never be able to rootout the drug menace unless the citizenry
lend a strong hand, especially the media,
the church, the schools, the civic groups,
the business sector and the local
community leaders.”48

officers with members of the barangay inresponding to crimes committed in thebarangay. “The programme relies heavily
on the barangay officials having expert
knowledge of the situation and physicallayout of their respective jurisdictions.
M o r e s i g n i f i c a n t l y, t h o s e w h oconceptualized this programme werecounting on the high degree of trust thatthe barangay officials command of theirconstituents that the information andmanpower support that the latter would
ordinarily withhold from the police would
now be more freely extended by virtue ofthe presence of their barangay officials.”50
Anywhere around the world, if membersof the same community would only watch
after the welfare of their neighbors, bothmaterially and emotionally, there would be
no opportunity for TOCGs to penetrate
their closed group and perpetratevenalities. And is this not the way it shouldbe?

Positive steps have already been madein this direction. In 1997, the PNP
mobilized anti-crime civic organizations as
a pipeline between kidnap victims andtheir relatives. “This was formulated toaddress the particular dilemma concerning
the people’s fear and distrust of the police
which often results in very few reports ofcrime incidents being brought before thelaw enforcement offices.”49 In the later partof 1999, the PNP also launched a
programme involving barangay officials.
Patterned after the Hong Kong police, the“buddy system” sought to pair off police
48 Ramos Urges People: Join Fight versus Crime,

Philippine Daily Inquirer (12 August 1997), 2.
90.

49 Feliciano and Muyot, p.

50 Ibid.

195

RESOURCE MATERIAL SERIES No. 58
APPENDIX ATIMELINE OF THE PHILIPINES’ BATTLE AGAINSTTRANSNATIONAL ORGANIZED CRIMEWHATLOI No. 824 s-79, establishment the National Committee
on Anti-Organized Crime (NACAC)
E.O. No. 727 s-81, creating the Peace and Order Council(POC)
E.O. No. 829, creating the National Law Enforcement
Coordinating Committee (NALECC), abolishing the
NACAC, transferring its functions, duties, and responsibilities to the POC
E.O. No. 41, amending E.O. No. 829
E.O. No. 41-A, amending E.O. No. 41
Adoption of the Naples Political Declaration and Global
Plan of Action
E.O. No. 246, reconstituting the National Action Committee on Anti-Hijacking as the National Committee on AntiHijacking and Anti-Terrorism (NACAHT)
1st International Conference on Terrorism (Baguio City)
29th ASEAN Ministerial Meeting (Jakarta)
1st Informal ASEAN Summit (Jakarta)
30th ASEAN Ministerial Meeting (Kuala Lumpur)
2nd Informal ASEAN Summit (Kuala Lumpur)
Signing of the ASEAN Declaration on Transnational Crime
during the 1st ASEAN Conference on Transnational Crime(Manila)E.O. No. 62, creating the Philippine Center on
Transnational Crime (PCTC)
E.O. No. 100, strengthening the operational, administrative, and information support system of the PCTC
Res. No. 99-03, assimilating the National Drug Law Enforcement and Prevention Coordinating Center and the
PCTC as regular members of the NALECC.

196

WHEN

1979
1981

11 September 1982
9 December 1992
1 February 1993
23 November 1994
18 May 1995
18-21 February 1996
July 1996
November 1996
July 1997
December 1997
20 December 199715 January 1999
7 May 1999
30 April 1999

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERSCRIME IN INDIA
Sanjiv Kumar Upadhyay *I. CRIME IN INDIA
A. General
There were 61.8 million criminal cases
reported in 1998 with a rate of 6366 per
million population. 77.8% of cases
investigated were chargesheeted in a courtof law. There were 5.7 million cases
pending in courts of which trail wascompleted in 15.8% of cases and of these,
37.4% cases ended in conviction. There are
41.6 police personnel per sq. kilometers and1360 per million population. 634 police
personnel were killed on duty during 1998.
B. Organized Crime
In India, organized crime is at its worst
in the commercial capital of India, the cityof Mumbai. The first well-known organizedgang to emerge was that of Varadharaj
Mudaliar in the early sixties. His illegal
activities included illicit liquor, gold
smuggling, gambling, extortion andcontract murders. Three other gangs
emerged shortly thereafter namely, Haji
Mastan, Yusuf Patel and Karim Lala. Haji
Mastan and Yusuf Patel resorted to gold
smuggling whereas Karim Lala operated
in drugs. During Emergency in 1975 when
there was crackdown on the Mafia, newgangs emerged. Dawood Ibrahim, the mostsuccessful, came in conflict with the Pathan
gangs of Alamzeb and Amirzada which led
to bitter internecine gang warfare. The
Pathan gangs were liquidated to leave thefield free for Dawood Ibrahim. In 1985,
there was increased police pressure which
made Dawood Ibrahim to flee. In March
1993, Dawood Ibrahim was behind theserial bomb blasts in Mumbai in which 257
persons died and 713 were maimed. Public
and private property worth several millions
of rupees was destroyed. Investigation
revealed transnational character of theconspiracy the objective of which was tocripple the economy, create communal
divide and spread terror in the commercial
capital of India. Dawood Ibrahim, Tiger
Memon and Mohammed Dosa areoperating from Dubai. Their field ofactivity is to extort money from builders
and film producers, mediate in monetarydisputes, and undertake contract (Supari)
killings. There have been instances ofinvestment of the dirty money in businesswith the result that unsuspecting
businessmen have fallen prey to the Mafia
warfare. The killings of Thaquiuddin
Wahid of East West Airlines in 1996, Sunil
Khatau of Khatau Mills in 1994, Om
Prakash Kukreja of Kukreja Builders in1995 and Ramnath Payyade, a prominent
hotelier in 1995 are grim reminders of
Mafia in Mumbai.
The other gangs of Mumbai indulging
in organized crime are those of Chhota
Rajan (Drug Trafficking and Contract
Killings), Arun Gawli (Contract Killings
and Protection Money), Late Amar Naik
(Protection Money) and Chhota Shakeel.
State of Maharashtra has enacted
Maharashtra Control of Organized Crime
Act, 1999.Other forms of organized crime
in India are kidnappings for ransom, gunrunning, illicit trafficking in women andchildren, money laundering etc.

* Joint Director, Anti-Corruption Headquarters,
Central Bureau of Investigation, India

197

RESOURCE MATERIAL SERIES No. 58
Organized crime exists in other cities
too, though not to the same extent as in
Mumbai. Ahmedabad city has been thehotbed of liquor mafia because ofProhibition policy (Banning of liquor). The
Mafia became synonymous with the nameof Latif who started in mid seventies as asmall time bootlegger and grew up to set
up a 200 strong gang after eliminating
rivals with intimidation, extortion,
kidnappings and murders. He won
municipal elections from five different
constituencies with strong political
patronage. He was killed by police in an
encounter in 1997.
There are several gangs operating in
Delhi from neighbouring State of Uttar
Pradesh indulging in kidnapping for
ransom. The going rate was around Rupees
10-50 millions. Land Mafia has politicalconnections and indulges in land grabbing,intimidation, forcible vacation etc. Of late,
the ganglords of Mumbai have started
using Delhi as a place for hiding andtransit. Chhota Rajan group isstrengthening its base in Delhi.
Boom in construction activities in
Bangalore city has provided fertile
breeding for the underworld. Builders areused for laundering black money. Forcible
vacation of old disputed buildings is a
popular side business for the underworld.
The local gangsters in the State of
Karnataka have connections with theunderworld of Mumbai. One of the
Mumbai gang operating here is the Chhota
Rajan gang.
II. ILLICIT DRUG TRAFFICKING
India is geographically situated between
the countries of Golden Triangle andGolden Crescent and is a transit point fornarcotic drugs produced in these regions
to the West. In India opium is grown under
official control of Narcotics Commissioner

198

in three states namely Uttar Pradesh,Rajasthan and Madhya Pradesh. It is
exported to foreign countries for medicinal
purposes. Indian opium is considered bestin world. Turkey & Australia are the otherlicit opium growing countries in the world.
A part of the licit opium enters the illicit
market in different forms. Besides, there
is illicit cultivation of opium in the hill
tracks of some states. There is amoderately sized chemical industry
producing precursor materials for lawful
purposes. The illicit cultivation of opium
as well as the precursor chemicals can beused for manufacture of heroin. However,there is a great price differential between
India and the West. A Kilogram of Herointhat goes for a hundred thousand Rupees
in India may fetch Rupees ten million in
the international market. Illicit drug tradein India has centered around five major
substances, namely heroin, hashish,
opium, herbal cannabis and methaqualone.
The Indo-Pak border has traditionally been
most vulnerable to drug trafficking. Drugs
trafficking through India consists ofHashish and Heroin from Pakistan,
Hashish from Nepal, White Heroin from
Myanmar and Heroin from Bangladesh. In
the early eighties, the Border State of
Punjab became affected with
narcoterrorism with the smuggling of
narcotic drugs and arms from across theborder. This was also the time when drug
Mafia emerged in Golden Crescentcountries. There were a number of seizuresof a mixed consignment of narcotic drugs
and arms in Punjab. In 1996, 64 % of theheroin seized was from the Golden
Crescent. Although opium production isstrictly under Goverment control in India,
illicit poppy plantations have been reported
in some places.
Drug addiction in India has not assumed
such a serious magnitude as in some of thewestern countries, but there are no grounds
for complacency. There have been reports

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERSof drug use among the students ofuniversities in Delhi, Mumbai, Calcutta
and Chandigarh. The society does notagitate too much with consumption of
Bhang, crushed leaves of the cannabis
plant. It is customary in some places to
consume Bhang on the popular festival of
Holi. There is no such tolerance for charas
or ganja which are derived from the samecannabis plant.
The Narcotic Drugs and Psychotropic
Substances Act, 1985 deals with theoffences of Drug trafficking. Section 21 is
the penal provision which stipulates that
whoever manufactures, possesses, sells,
purchases, transports, imports inter-state,exports inter-state or uses any
manufactured drug shall be punishable
with Rigorous Imprisonment for a term
which shall not be less than ten years but
which may extend to twenty years andshall also be liable to fine. In repeat
offences, there is provision for death
penalty too.
The Prevention of Illicit Traffic in
Narcotic Drugs and Psychotropic
Substances Act, 1988 provides for detentionof persons connected with illicit drugtrafficking upto two years. An officer ofthe rank of Joint Secretary to theGovernment, specially empowered underthe Act, can issue orders for detention of
the any person (including a foreigner) witha view to preventing him from engaging in
illicit traffic of narcotic drugs andpsychotropic substances. On an average
about 50 persons are detained under the
Act every year.
There were 18273 cases registered under
the NDPS Act in 1998 which was anincrease of 31.8 % over 1988, but a decreaseof 4.2 % over the quinquennial average of
1993-1997. 21386 persons were arrested
under the NDPS Act of which major work
was done by Narcotics Control Bureau, acentral agency for dealing with cases ofdrug trafficking. It has registered 11330
cases in 1998 of which 5809 cases were for
Ganja, 2713 were for Heroin and 1771 cases
were for Hashish. 62591 kgs of Ganja, 8478
kgs of Hashish and 597 kgs of Heroin wereseized. During 1998, 12601 persons werearrested by Narcotics Control Bureau,
which included 95 foreigners. 11612
persons were prosecuted in a court of law,2782 persons were convicted and 5712
persons were acquitted. 16.9 % of drugcases pending in trial were disposed by the
courts during 1998. Property worth Rupees
23.85 million was forfeited and worth
Rupees 30.64 million was frozen. In a
recent case, the Government of Orissa(State Government) confiscated property
worth over Rupees thirty million of drug
lord Mohammed Azad Parvez of Balasore,
Orissa which included an ice factory, a saw
mill, a market complex, a cloth store, threeresidential buildings and three acres ofland. The accused was apprehended by
Narcotics Control Bureau in 1998 on
charge of heroin trafficking alongwith hiswife and associates. Financial
investigation was conducted by the agency
into the movable and immovable properties
under Chapter V-A of the NDPS Act, which
led to confiscation.
India is signatory to three UN
Conventions on Narcotics Drugs andPsychotropic Substances held in 1961, 1971
and 1988. India is a party to the United
Nations Convention against Illicit Trafficin Narcotic Drugs and Psychotropic
Substances Act, 1988. Government of India
has entered into bilateral agreement andMemorandum of Understanding with anumber of countries. The countries withwhich India has signed bilateral agreementfor drug control are USA, UK, Afghanistan,
Mauritius, Russian Federation, Myanmar,
Zambia, UAE, Iran, Egypt, Bulgaria,
Romania, Mauritius. India has also signed
a special bilateral agreement with199

RESOURCE MATERIAL SERIES No. 58
Pakistan in this regard.
III. ILLEGAL FIREARMS
TRAFFICKING
Small arms used in guerilla warfare insome parts of the world are now available
at cheap cost in other parts of the world.
According to an estimate, there could be
750 million small weapons for such arms
trafficking. India has a long coastline ofabout 7500 kms. and a long border withPakistan, Nepal, Bhutan, China, Myanmar
and Bangladesh. Border Security Force
guards the borders, but it is not possible tohave presence across each and every inchof the border. Customs Department has
also seized illicit arms in significant
quantities.
In India, states of Punjab and Jammu& Kashmir have been particularly
vulnerable to arms trafficking across theborder. More than 7500 pistols andrevolvers, 2500 magazines and 28000
rounds of ammunition have been seizedfrom the state of Jammu and Kashmir.
During 1997, the Border Security Force
seized several AK series rifles, 7 heavymachine guns, 204 pistols/revolvers, 18
rocket launchers, 54 other type of rifles andammunition from Punjab and Jammu &Kashmir.
On 17th February 1996, Delhi police
recovered 361 pistols of 0.30 caliber with
the inscription “Made in China by Norinco”,
728 magazines and 3738 live rounds in acavity in the undercarriage of a caravanbus. A Swiss national and an Iranian living
in Pakistan since 1981 were detained.
Investigation disclosed that this infact was
the second consignment, the first one
having been successfully transported in
1995. 22 persons including five foreign
nationals have been prosecuted in the courtof law in this case.

200

Delhi Police caught five fugitive
members of the Chhota Rajan gang
including an Assam Rifles jawan and two
Nepali nationals who were planning to set
up a major arms and money distribution
base in Delhi.
In 1993, a consignment of AK-56 rifles,
magazines, live rounds and hand grenades
were sent from a Gulf country to land at
the coast of Dighi Jetti in the State ofGujarat. Subsequently huge quantity ofarms, ammunition and explosives (RDX)
were smuggled by sea route at Shekhadi
in District Raigad. These were used for
Bomb blasts in Mumbai on 12th March
1993, which caused terror, widespread
damage, and loss of 257 lives and maimingof 713 persons. During investigation, someof the arms recovered included 62 AK-56
rifles with 280 magazines and 38,888
rounds, 479 hand grenades, 12 pistols of 9mm make with ammunition, 1100 electric
detonators, 2313 kgs. of RDX and manyother weapons. In the state of Madhya
Pradesh in central India, 24 AK-56 rifles,
5250 cartridges, 81 magazines and 27 hand
grenades were recovered by police on 4th
November 1995.
Hijacking of an Indian Airlines flight on
the 24th December 1999 in Kandahar was
the latest incident of the use of illegal
weapons in the hands of terrorists. Afterinvestigation, the CBI filed a chargesheet
in the court of law against five hijackers
and their accomplices.
A sensational case called Purulia arms
drop case was an example of illicit arms
trafficking by air. On 17th December 1996,
an Antonov 26 aircraft dropped over 300
AK 47/56 rifles and 20,545 rounds ofammunition, dragnov sniper weapons,
rocket launchers and night vision devices
in Purulia village in West Bengal. The
aircraft was bought from Latvia for US$2
million and chartered by a Hong Kong

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
registered company Carol Airlines.
Payments were made mostly from foreignbank accounts. The aircraft picked up
consignment of arms from Bulgaria using
end-users certificate issued by aneighbouring country. The arms were
airdropped over Purulia in the state of West
Bengal.
This case was investigated by theCentral Bureau of Investigation andchargesheeted in the City Sessions Court,
Calcutta. After trial, the court found theaccused persons guilty of offences under
Indian Penal Code, Explosive Substances
Act, Arms Act, Explosives Act, and theAircraft Act and sentenced Mr. Peter James
Gifran Van Kalkstein Bleach (British
National), Mr. Alexander Klichine, Mr. Igor
Moskvitine, Oleg Gaidash, Evgueni
Antimenko, Mr. Igor Timmerman (allLatvian nationals) and Vinay Kumar Singh(Indian national) to various terms ofrigorous imprisonment on 2nd February
2000. The five Latvians were released on
22nd July 2000 when their sentences werecommuted by the President of India.
Illicit trafficking in arms is punishable
under Arms Act, 1959. The incidence of
the Arms Act cases showed an increase of
20.8 % over the decade 1988-1998. In 1998,
63518 cases were reported which showeda decrease of 4.2% over the quinquennial
average of 1993-1997 and 14.3 % over 1997.
66868 persons were arrested for violationof the Arms Act. 19.3 % of cases pending
trial were disposed by the courts in 1998.
IV. HUMAN (WOMEN AND
CHILDREN TRAFFICKING)
Commercial sex in India is a 400000
million Rupees annual business. Thirty
percent of the sex workers are children who
earn about Rupees 110000 million every
year. There could be about 0.3 million childsex workers in India of which 0.1 million

could be less than 18 years of age. 15% of
the sex workers are in the six metropolitan
cities of Mumbai, Calcutta, Delhi, Chennai,
Bangalore and Hyderabad. Delhi receives
sex workers from 70 districts, Mumbai from40, Bangalore from 10 and Calcutta from
11 districts. Some sex workers have alsocome from Nepal and Bangladesh.
Mumbai and Goa have had incidence ofpaedophilic offences too. These places draw
a number of foreign tourists. Fear of AIDS
has contributed to the involvement ofminor girls in the business because demandfor virgins has increased exponentiallywith the fear of infection. There is also amyth that young girls in their pre-puberty
can not be infested with AIDS. A numberof young girls from southern India havebeen sent to the Arab countries. There
have also been reports that India hasserved as a transit point for trafficking ofyoung virgins from Nepal, Myanmar and
Bangladesh to the Middle East, mostly
Dubai.
Suppression of Immoral Traffic in
Women and Girls Act, 1956 was the main
Act to deal with these offences. This Act
was amended in 1978 and was reenacted
under the name of ‘Immoral Traffic(Prevention) Act in 1986’ to rectify somelacunae in the older Act. Punishment could
be imprisonment for a period of 7-10 years
or for life. Indian Penal Code stipulates
that sexual intercourse with or without her
consent with a girl less than 16 years ofage amounts to rape punishable withimprisonment for life.
National Commission for Women is abody that reviews laws, conducts inquiries
for redressal of complaints, undertakes
promotional research for policies, advises
the Government and ensures custodial
justice for women. Section 10 (4) of
National Commission for Women Act, 1992
gives the Commission powers of a Civil
Court. The National Commission for201

RESOURCE MATERIAL SERIES No. 58
Women has formed an Expert Committee
and has formulated a ten year National
Plan of Action (1997-2006) to co-ordinate
with the ninth and tenth Indian Five Year
Plans.There were 8695 cases reported
under the Immoral Traffic (Prevention) Act
in 1998.
The number of cases showed a steadily
declining trend upto 1996 but increased by
4.5 % over 1997. 15363 cases of kidnappingof women and girls were reported in 1998,
which were up by 4.8 % over the previous
year. 146 cases of importation of girls werereported in 1998 compared to 78 cases in
the previous year showing an increase of
87.2 %. 171 cases of procuration of minor
girls were reported in 1998 as against 87
in 1997 but 206 in 1994. 11 cases of sellingof minor girls for prostitution, 13 cases ofbuying minor girls for prostitution and 699
cases of kidnapping of minor girls werereported. 17247 male and 1217 female
offenders were arrested for kidnapping andabduction of women and girls. 12879
persons ( 11617 males and 1262 females )were arrested under the Immoral Traffic(Prevention) Act.

V. CARD FRAUD
Some of the popular credit cards in India are as given below:
Card nameType

American Express Gold
Bank of Baroda
Citibank Silver/ Classic
Stanchart/ Gold
HSBC Gold
Stan Chart/ Executive
ANZ Grindlays / GoldSBI Card

International
Domestic
International
International
Domestic
International
International
Domestic

There are 8000 million Rupees worth ofMaster Cards, 7000 million Rupees worthof VISA cards in circulation. Merchant/
service establishments are about 95000. In
India, credit card fraud losses haveoccurred as per the following categories:(i)Counterfeit
32%(ii) Lost cards
30%(iii) Stolen cards
20%(iv) Multiple imprint
5%(v) Mail/Tele orders
4%(vi) Others
9%
VI. MONEY LAUNDERINGIn India, money laundering is indulged
in mainly by corporate houses to evadetaxes unlike in some other countries where

202

AnnualFee
Rs. 2400
100
750
2000
1500
1200
2000
500

Interest
Rate
2.50 %
3.00 %
2.50 %
2.50 %
2.50 %
2.50 %
2.9 %
2.50 %

Max.Credit
51 days51 days
45 days
52 days
48 days
50 days
45 days
50 days

it is mostly related to illicit drug trafficking.
Non-resident Indians have been given
some special banking facilities. Thesefacilities are misused to bring back themoney as white money. For example, aportfolio account is opened in a foreigncountry and the money is laundered backto be invested in the stock markets.
Another modus operandi is to launder themoney through bogus exports. The
conversion of black money is done by overinvoicing of the products to countries like
Russia and the former Soviet Republiccountries. Some shell companies are set
up to issue bill or invoices accompanied bybogus transport receipts in order to obtainfunds against these documents from bank/financial institutions and then divert major

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
part of such proceeds by issue of chequesin the names of non-existent front
companies of cheque discounters. The
cheque discounters then handover cash
immediately to the party after deductionof their commission. The chequediscounters are generally associated with
commodities market where faketransactions in commodities can largely gounnoticed. The cheque discounters also
issue fake Letters of Credit and false bills.
The cheque discounters file income tax
returns in which the commission is shownas taxable income.
In India, tackling problem of laundered
money is correlated with the problem oftackling black money. There is a wide gap
between the number of persons withtaxable income and the numbers who
actually pay income tax. This is despite
the requirement of compulsory filing ofincome tax returns by any one having
taxable income. Benami Transactions(Prohibition) Act makes the pseudo owner
the real owner of the benami property. Tax
raids and seizures, penalties andprosecution have been some of themeasures to check black money. However,success has not been satisfactory. Certain
special measures such as Voluntary
Disclosure Scheme under which the evader
discloses income on promise of concessional
rates and immunity from penalties andprosecution. There have been otherschemes like issue of Special Bearer Bonds,
Special Levy on deposits in the National
Housing Bank, waiver of penalty andinterest, Foreign Remittance Scheme in
1991-92, India Development Bonds, andGold Bond Scheme of 1992.
Money laundering had so far been dealt
with under the Foreign Exchange
Regulation Act, 1973, but with effect from
June, 2000, FERA has been replaced byForeign Exchange Maintenance Act and aBill to enact money laundering law to be

named The Prevention of Money
Laundering Bill has been introduced in the
Parliament by the Government of India.
Money laundering has been proposed to bea cognizable crime punishable withrigorous imprisonment of 3-7 years which
could be extended to 10 years and a fine
upto Rupees 0.5 million. The acquisition,possession or owning of money, movableand immovable assets, from crime,
especially drugs and narcotics crimes,
would tantamount to money laundering.
Concealment of information on proceeds orgains from crime made within India orabroad is an offence too. An adjudicating
authority is proposed which would havepowers to confiscate properties of money
launderers. An administrator may be
appointed to manage the confiscatedassets. An appellate tribunal is proposed
to be set up with three members to hearappeals from the orders of the adjudicating
authority. The rulings of the adjudicating
authority are thus not contestable in thelocal courts. Financial institutions are
expected to maintain transaction records
and furnish these to the adjudicating
authority. Failure to do so is punishable
too.
The alternative remittance systemthrough non-banking channels is called
Hawala in India. It is based on trust inwhich the remitter pays the Hawala dealer
in foreign country and the associate of the
Hawala dealer pays the receiver in thehome country. Since Hawala dealings areillegal, the transactions take place throughword of mouth or other non-conventional
means of communication. Since there is
no audit, no control and no check,anonymity of the customers is maintained.
There are hawala dealers in India andwherever people from Indian sub-continent
are settled. Hawala routes are used bothby ordinary people as well as drugtraffickers, terrorists and unscrupulous
businessmen.

203

RESOURCE MATERIAL SERIES No. 58
In one of the cases of money laundering
dealt with by the Central Bureau of
Investigation, an organized group of the
Hawala dealers operating from London andDubai used to receive remittances fromforeign banks for transferring to India. A
telephonic message in coded words would
be passed to agents in India to pay money
in Indian rupees. The remittances soreceived by the above mentioned persons
in dollars or Pound Sterling at London andDubai were used for purchase of gold,
drugs, arms, ammunitions and explosives
through the underworld. The arms,
ammunitions and explosives were used tobe smuggled into India and sold to various
criminal/terrorist groups while the drug
used to be distributed to the traffickers.
Electronic Payment Technologies arecoming to India and these are going to posenew challenges to Law Enforcement
Agencies. The anonymity in transactions
is bound to promote money laundering andother offences. The money launderer finds
the electronic money easy to convert andtransfer, and safe to store. The format oflegal framework, code of conduct ofbusiness and self-regulation regarding ecommerce is under examination.
VII. MAJOR TRANSNATIONALORGANIZED CRIMINAL GROUPS
A. Dawood Ibrahim Gang
Dawood Ibrahim group is the mostdreaded mafia gang with countrywide
network and foreign connections. He has
stationed himself in Dubai since 1985 andhas indulged in drug and arms trafficking,smuggling, extortion and contract killings.
His brother Anees Ibrahim looks after
smuggling, drugs and contract killings;
Noora looks after film financing andextortion; and Iqbal is incharge of thelegitimate business which includes stockbroking in Hong Kong. Anees is inlegitimate business too managing Mohd.

204

Anees Trading Company in Dubai. His
business interests in India are shopping
centres, hotels, airlines and travel agencies
in Mumbai with an annual turnover ofabout Rupees 20000 million. Extraditionof offenders from Dubai has not beenpossible since there is no extradition treaty
with Dubai. Moreover, some of theseoffenders have strong social links with
politicians and other top personalities in
Dubai.
B. Chhota Rajan Gang
Chhota Rajan was a member of Dawood
gang but parted company after the 1993
serial bomb blasts in Mumbai. He raised
his own gang in 1994-95 which is reported
to have a membership of 800 persons today.
Chhota Rajan himself is in a foreigncountry to avoid elimination from Dawood
gang. His gang indulges in drug trafficking
and contract killings. In collaboration withanother local gang, he organized killing ofa trusted leader of Dawood Ibrahim gang,
Mr. Sunil Samant, in Dubai in 1995.
C. Babloo Shrivastava Gang
“Om Prakash Shrivastava @ Babloo
Shrivastava” is facing 41 cases of murder,
kidnappings for ransom etc. He wasarrested in Singapore in April 1995 on thebasis of a Red Corner Notice issued by
INTERPOL and extradited to India in
August 1995. He has since been in jail but
his gang has continued to indulge inorganized kidnappings and killings. The
ransom amount is received by them inforeign countries through hawala(alternative non-banking remittancechannel). The power of this gang has
dwindled after his arrest.
VIII. ELECTRONICSURVEILLANCEThe Government of India has made alegal provision in the licensing conditions
formulated alongwith the cellular

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
operators to make it mandatory on the partof the cellular companies to provide parallel
monitoring facilities for allcommunications being received andemanating from a particular mobile set.
Cellular operators operating in four
metropolitan cities of Mumabi, Calcutta,
Delhi and Chennai have made this facility
available whereas others are bound toprovide this facility within three years of
the initiation of the mobile network.

Act but laid down certain guidelines
prescribing that the order will be issued
by the Home Secretaries at the Centre andin the States. A copy of the order should
be sent to the Review Committee within aweek. The order will cease to have an effectafter two months unless renewed. The
Review Committee will review the order
passed by the authority concerned within
two months of the passing of the order. The
total period shall not exceed six months.

Interception of messages, transmitted or
received by any telegraph is covered undersub-section 2 of section 5 of the Indian
Telegraphic Act - 1885 (13/85) which states:“On occurrence of any public
emergency, or in the interest of the
public safety, the Central Government
or a State Government or any officer
specially authorised in this behalf by
the Central Government or a State
Government may, if satisfied that it isnecessary or expedient so to do in theinterests of the sovereignty andintegrity of India, the security of theState, friendly relations with foreign
States of public order or for preventing
incitement to commission of an offence,for reasons to be recorded in writing,by order, direct that any message orclass of messages to or from any person
or class of persons, or relating to any
particular subject, brought fortransmission by or transmitted or
received buy any telegraph, shall not
be transmitted, or shall be interceptedor detained, or shall be disclosed to theGovernment making the order or an
officer thereof mentioned in the order.”IX. IMMUNITY

The issue of the constitutional validityof this section came under scrutiny of theSupreme Court of India in a writ petition
filed by the People’s Union for Civil
Liberties. The Supreme Court passed a
judgement on 18th December, 1996,
upholding the constitutional validity of the

There is provision in Section 306 of the
Criminal Procedure Code to obtainevidence of an accomplice by tender ofpardon subject to his making full and true
disclosure of facts and circumstances
concerning an offence. This provision isapplicable in offences punishable withimprisonment of seven years or more.
X. WITNESS AND VICTIMPROTECTION PROGRAMME
There is no legislation at present forprotection of witnesses and the membersof their families. Section 171 of the
Criminal Procedure Code prohibits thepolice officers to carry the complainant or
witness to court. The intention of such
legislation appears to be to ensure
independence of evidence given by thewitnesses without any influence of police.
In cases where it is important to keep
the trial proceedings away from publicgaze, resort could be made to the provisionsof in-camera trial at the desire of theparties concerned or the court itself. Incamera trial is permitted under section
237(2) of Criminal Procedure Code. Itsvalidity has been upheld by the Supreme
Court of India in the so-called Kartar Singh
case.

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RESOURCE MATERIAL SERIES No. 58
XII. ASSET FORFEITURE SYSTEM
The following provisions for forfeiture ofproceeds of crime exist:(i)
Criminal Law Amendment
Ordinance (1944)(ii) Sections 111 and 112 of Customs
Act (1964)(iii) Foreign Exchange MaintenanceAct(iv) Smugglers and Foreign Exchange
Manipulators (Forfeiture of
Property) Act (1976): “This Act
applies to persons convicted under
the Sea Customs Act 1878, Custom
Act 1962 or detained underConservation of Foreign Exchange
and Prevention of Smuggling Act.
The main purpose of the Act is toforfeit the illegally acquired
properties of such smugglers andforeign exchange manipulators in
whosoever’s name these may havebeen kept. It shall not be lawful
for any person to whom the Act
applies to hold any illegallyacquired property either by himself
or through any other person on hisbehalf. Any property so held isliable to be forfeited to the Central
Government. Section 6 provides forissuance of show cause notice of
forfeiture and section 7 provides forpassing of final orders of forfeiture.
Under section 8, burden of provingthat any property specified in thenotice is not illegally acquired
property shall be on the person
affected and under section 11,transfer of properties specified in
the notice can be declared null andvoid.”(v) Section 68 of Narcotic Drugs andPsychotropic Substances Act(1985)(vi) Sections 102 and 452 of Criminal
Procedure Code206

XIII. INTERNATIONAL
COOPERATION IN CRIMINAL
MATTERS
India has entered into Mutual Legal
Assistance Agreements / Treaties incriminal matters with United Kingdom(1992) (Agreement concerning theinvestigation and prosecution of crime andthe tracing, restraint and confiscation of
the proceeds and instrument of crime,
including currency transfers and terrorist
funds), Canada (1994), France (1998),
Russia (1993), Kyrgyzstan, Kazakhstan (allMutual Legal Assistance Agreements in
Criminal Matters), Egypt, China,
Romania, Bulgaria and Oman. Mutual
L e g a l A s s i s t a n c e Tr e a t y h a s b e e nnegotiated with United Arab Emirates but
is yet to be ratified. Negotiations are goingon for signing of treaty on Mutual Legal
Assistance in Criminal Matters withcountries such as Australia, Norway,
Mongolia, Turkmenistan, Bulgaria, Hong
Ling, Ukraine, Uzbekistan and Azerbaijan.
India has extradition treaty with Nepal,
Belgium, Canada, Netherlands, United
Kingdom, United States of America,
Switzerland, Bhutan and Hong Kong.
Extradition Treaty is in various stages with
R u s s i a , G e r m a n y, U A E , B u l g a r i a ,Thailand, France, Ukraine, Romania,
Oman, Spain, Kazhakastan, Greece, Egypt,
Malaysia and Mauritius. India has
extradition arrangements with Sweden,
Tanzania, Australia, Singapore, Sri Lanka,
Papua New Guinea, Fiji and Thailand.
Section 166 Criminal Procedure Codedeals with reciprocal arrangements
regarding processes. A court in India cansend summons or warrants in duplicate toa court in a foreign country for service or
execution and the said foreign court willcause the service or execution. Section 166A of Criminal Procedure Code deals withletter of request to the competent authority

116TH INTERNATIONAL TRAINING COURSEPARTICIPANTS’ PAPERS
for investigation in foreign country. A
criminal court in India may issue a letterof request to a court or a competentauthority to examine orally any person
supposed to be acquainted with facts andcircumstances of the case, to record hisstatement made in the course of suchexamination and also to require such
person or any other person to produce any
document or thing. Section 166-B deals
with letter of request from a country orplace outside India to a court or an
authority for investigation in India. Under
its provision, the Central Government may
forward a letter of request received from aforeign country to a magistrate who may
summon such person and record hisstatement. The Central Government canalso send the letter to a police officer who
will investigate into the offence.

indiscriminate violence involving death orserious injury, or serious damage toproperty.

Extradition Act, 1962 deals withextradition of fugitive criminals.
Extradition can be made if the offence isan extradition offence i.e. an offence
provided for in the extradition treaty witha State which is a treaty state and for othercountries, an offence which is specified
under the Second Schedule. Under thisschedule, there are 18 types of offences.
India is a signatory to the South Asia
Association for Regional Cooperation(SAARC) Convention for Suppression ofTerrorism. SAARC countries consist ofIndia, Pakistan, Bangladesh, Nepal, Sri
Lanka, Maldives and Bhutan. Pursuant
to the SAARC Convention, India enacted
the SAARC Convention (Suppression ofTerrorism) Act. Extraditable crimes
include unlawful seizure of aircraft;unlawful acts against the safety of civil
aviation; crimes against internationallyprotected persons; common law offences
like murder, kidnapping, hostage taking;and offences relating to firearms, weapons,
explosives and dangerous substances etc.
when used as a means to perpetrate

207

REPORTS
OF THECOURSERESOURCE MATERIALSERIES
No. 58
GROUP 1PHASE 1ANALYSIS OF CURRENT SITUATION ON ILLICIT DRUG
TRAFFICKLNG
Chairperson
Co-Chairperson
Rapporteurs
Co-Rapporteurs
Members

Advisors

Mr. Mustafa Abdullah
Mr. Ruy Gomes Silva
Mr. Kamya John
Mr. Satomi Kouno
Mr. Wang Xue Qin
Mr. Genot Hariyanto
Mr. Yoshihiko Hatanaka
Mr. Masashi Shibata
Mr. Tetsuji Tamagoshi
Prof. Chikara Satou
Prof. Hiroshi Tsutomi
Prof. Mikiko Kakihara

I. INTRODUCTION
Crime is increasing in scope, intensity
and sophistication. It threatens the safetyof citizens around the world and hampers
countries in their social, economic andcultural development. Globalization has
provided the environment for a growinginternationalization of criminal activities.
Multinational organized criminal
syndicates have significantly broadened
the range of their illegal operations andillicit drug trafficking in particular, figuresvery prominently in transnationalorganized crime (TOC). In most countries,
despite years of drug suppression andprevention efforts, the cycle of the drugtrafficking and drug abuse continues. If
allowed to remain unabated, the drug
menace will considerably destroy thequality of life of the people. The cost to theworld community due to this menace
includes not only lost billions of dollars, Iostof life and physical injuries, but also entails
substantial public corruption. The
combined effect of these adverse
consequences tends to undermine the208(Malaysia)(Brazil)(Uganda)(Japan)( China)(Indonesia)(Japan)(Japan)(Japan)(UNAFEI)(UNAFEI)(UNAFEI)

security and stability of governments
themselves.
Drug trafficking and abuse are serious
issues confronting both developing anddeveloped nations. The large consumption
and demand for drugs worldwide has givena wide opportunity for traffickers to carryout their illegal activities which give thema lucrative returns. According to 1994
report of United Nation International Drug
Control Programme (UNDCP), it isestimated that out of one trillion dollars
worldwide profits of organized crimeannually, US$500 billion comes from drugtrade. In USA alone, in 1995, theAmericans spent approximately US$57
billion on drugs including US$38 billion topurchase cocaine and US$10 billion on
heroin from overseas sources. Meanwhile
in Pakistan where average per capita
income is only about US$500 annually, theamount of consumer expenditure on heroin
alone is estimated US$1.2 billion per year.
This scenario points towards theheinousness of the situation, which is

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
becoming worst with everyday passing.
This paper attempts to analyze thegeneral trend of the drug trafficking
worldwide which includes production,
trade and consumption of illicit drugs. It
will also address related issues such as
modus operandi, seizures and organizedmafia drug trafficking groups.
II. TYPES OF DRUG AND SOURCECOUNTRIES
Though there are several types of drugs
produced all over the world each type ofdrugs has the prominent producing areas.
Such source countries are those which have
either weak political systems or unstable
governments. Recently, the productionlevels of particular types of drugs show
fluctuation, whereas others remain
constant. According to the “Global Illicit
Drug Trend 2000 (DRAFT)” edited by
UNDCP, the situations of each type ofdrugs are as follows:
A. Opiates (Opium, Morphine andHeroin)
The well known opium poppy producing
areas are the “Golden Triangle (Myanmar,
Laos and Thailand), the “Golden Crescent”(stretching from the Pakistan Afghanistanboarder to northern part of Iran), Central
and South America such as Mexico andColombia. However, Myanmar andAfghanistan are by far the largest countriesof those.
Myanmar which used to be top ranking
country in the cultivation of opium poppy
has declined since 1999. The cultivation
went down from 130,300 kilograms in 1998
to 89,500 Idlograms in 1999. On thecontrary, the production in Afghanistan has
increased considerably by about 41%, from63,674 kilograms in 1998 to 90,983
kilograms in 1999. There was also. a
considerable shift of opium production fromSouth East to South West Asia in 1999. In
Laos, Pakistan and Thailand, thecultivation of poppy has declined. However,globally opium production has increased by
one-third in 1999 although opium poppy
cultivation on the whole decreased by
20,000 hectares.
B. Cocaine
The South American region especially
Colombia, Peru and Bolivia are the leading
cocaine producing countries in the world.
However, Columbia is still leading among
the three. In 1999 there was reported
decline in coca bush cultivation in Bolivia(43%) and Peru (24%) respectively,
resulting in lower coca leaf and potential
cocaine production. On the other hand,
20% increase in coca bush cultivation in
Colombia had been reported by the USA
Government.
Although the total world output of
cocaine declined in 1999 as a result of theabove, the UNDCP still contends that there
is no significant effect because cocaine
consumption had an overall increaseduring the last few years.
C. Cannabis
There are 120 countries having reported
illicit cultivation of cannabis all over theworld. The INTERPOL has listed Morocco,
South Africa, Nigeria, Afghanistan,
Pakistan, Mexico. Colombia and Jamaica
as the “primary” source countries forcannabis in its “Cannabis World Report
1999”.
D. Amphetamine-Type Stimulants(ATS) such as Methamphetamine,
Ecstasy, LSD etc
Generally the main ATS manufactureareas are also the main ATS consumption
areas such as East and South-East Asia,
North America and Western Europe,
reflecting the fact that transit trade is lessimportant for ATS than for other drugs

209

RESOURCE MATERIAL SERIES No. 58
such as heroin or cocaine. As for Asia,
Thailand emerged as the country of largest
seizures of ATS worldwide, reflecting its
role as a major center of illicit productionof ATS in South-East Asia. In the areas of
the “Golden Triangle” where at one time
was exclusively being used for the refiningof heroin are now being used for
manufacturing of methamphetamine aswell. Myanmar has emerged as anotherimportant location for illicit
methamphetamine manufacture in theregion.
III. CONSUMPTION
The consumption of drug worldwide hasreached alarming level that if allowed tocontinue unabated, the consequences to theworld community can be more severe. In
the US for example about 13 million people(6.1% of the total population) used drug ona casual or a monthly basis in the year
1996. In 1995, there were approximately
3.3 million chronic users of cocaine and 0.5
million people addicted to heroin. Estimate
indicates that 5 million Americans have
tried methamphetamine in their life time,
an illicit drug associated with particularly
violent behavior. This therefore indicatesthat the USA has suffered a serious
problem of drug use.
Disturbing enough is the fact that othercountries are also experiencing an increasein the drug abuse. In Pakistan for example,
the number of people addicted to heroin is
estimated to be 1.52 million people in 1995.
It is estimated that 20% of total European
population is affected by drugs in one way
or another. Cocaine consumption is mostwidespread in Spain, UK, Netherlands andGermany. Switzerland and Italy also seemto have rather high level of cocaine
consumption. One recent survey in
Switzerland revealed that 2-3%of the 1545 years age-group had consumed cocaine
in 1998. Abuse of cocaine is also reported

210

to spread more widely in Australia,
Western and Southern Africa.
In South East Asia, the abuse of drug
like cannabis and heroin still remains high.
In Malaysia for example, the number ofdrug addicts recorded in 1999 is 191,097(0.9% of the total population of 22 million),out of which 64% are heroin addicts. Oflate the use of ATS like ecstasy and shabu
has gain much ground in this region.
These three types of drugs are also
widely used in Thailand Indonesia thePhilippines and Laos. Other countries like
China, India, Pakistan and Japan are also
abused such drugs. Out of the total drug
users, heroin users in China recorded 60%,
India 53.5% and Pakistan 99.7%. Whilein Brazil and Nigeria, Cocaine is more
popular.
According to UNDCP report in 1998,
Laos has the highest or second highest rateof opium abuse world wide among thepeople of 15 years of age and above. Besides
consuming, countries such as China,
Thailand, Malaysia, Singapore, Pakistan,Laos, India, Indonesia and Brazil are also
known to be major transit countries usedby the drug traffickers. This is because
those countries are closer to the main drug
resource regions. It is disturbing to notethat some other drug transiting countries
have also been turning into consuming
ones.
IV. MODUS OPERANDI AND
ROUTES
Illicit drug trafficking has been the mostprofitable illegal activity in the world.
According to 1999 report of the Financial
Action Task Force (FATF), between US$40-100 billion is earned from illegal drug peryear in the USA alone. The drug traffickers
have also spread their activities throughout
the world and they resort to use all sort of

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
modus operandi to evade detection by theauthorities. Though modus operandi usedby drug traffickers differs from country tocountry, internationally detected modes ofconcealment employed are generally as
follows:(i)
Ingestion, leg casts and body wrap;(ii) Use of false bottoms of luggage,concealment in imported packages
such as electronic equipment,
foods, false cavities of furniture
etc...
(iii) C o n c e a l m e n t m s p e c i a lcompartments in vehicles andships, containers and air freights.
(iv) Delivery by courier services;
In Japan, apart from the above modus
operandi, the drug traffickers also usedmethods such as soaking cloth in drug
solution and melting drugs in whisky.
Cargo container equipped with Global
Positioning System (GPS) also being used
to ferry in large amount ofmethamphetimine. The routes are often
by air, sea and land, depending on
geographical location of the country
concerned.
In Brazil, several routes are used to both
import and export drugs but usually large
amounts are carrying by sea through someof the five Brazilian ports and by air
through international airports placed in
Sao Paulo, Rio de Janeiro, Salvador, Recife,
Fortaleza and Manaus to USA/Europe. In
Japan, due to its long seacoast, it is facing
the problem of trafficking of drug in andout of the country by sea and air. While, in
Laos, China, Pakistan, India, land and airroutes are usually the choice by the drugtraffickers because of the geographicalvicinity to the Golden Triangle and theGolden Crescent.
The drug rings who are engaged in illicit
smuggling of heroin from the Golden
Triangle to USA, Australia and Europe

more often are using the Philippines,
Malaysia and Singapore as theirtransshipment points.
V. DRUG TRAFFICKING MAFIA
Due to the large profits gained fromtrafficking, big criminal organizations are
deeply involved in drug trafficking in theworld, from smuggling to illegal sales up
t o e n d u s e r. J a p a n e s e c r i m i n a lorganization called “Boryokudan” continue
to be deeply involved in illicit drugtrafficking, especially methamphetamines/
amphetamine-type stimulants. The
Boryokudan groups have conspired withforeign Mafia such as Chinese Mafia,
Russian Mafia, Taiwan Mafia, Cocaine
Cartel and so forth. Over 500 kg
methamphetamines were confiscated in
October 1999 along shoreline of Japan and
9 Chinese/Taiwanese and a Japanese werearrested. In this particular case, theBoryokudan groups were involved inplotting drug trafficking from the Korean
Peninsular into Japan with the conspiracy
of a known criminal organization based in
Hong Kong. In recent year, drug-related
offences in Japan involving Iranianorganized drug trafficking groups arerising sharply. Arrests have been made on
charges of possessing illicit drugs forcommercial purposes and/or transiting
them. The Boryokudan groups arereported to have connection with thembehind the scenes.
The Hong Kong-based Triad is a criminalgroup which has come into being as anoffshoot of China’s traditional secretsociety. Triad activities are carried out
mainly within its territory and/or Triadcontrol loose organization in Mainland
China to operate drug trafficking.
However, Triads have become a matter ofconcern not only in Hong Kong, but also inother places where there is a sizable
Chinese community all over the world.

211

RESOURCE MATERIAL SERIES No. 58
Dawood Ibrahim group is the mostdreaded mafia in India with countrywide
networks and foreign connections. Dawood
Ibrahim has stationed himself in Dubai
since 1995 and has indulged in drugtrafficking in conspiracy with his family
who are pretending to be transacting
legitimate business.
The Colombian Cocaine Cartels are still
the main drug trafficking mafia in South
Anlerican States. However, Nigerian and
Italian groups began to rise in the field of
drug trafficking in Brazil.
Myanmar’s ethnic militia organizationsuch as Kachin Independent Army (KIA),New Democratic Army (NDA), Wa Army
(WA) and Shan Independent Army (SIA)
are carrying out drug trafficking in theGolden Triangle where it extends over
Myanmar, Laos Thailand and China. In
Colombia, it is widely known that the Force
Armed Revolution Columbia (FARC) iscontrolling territorial position and using it
for drug related activities.
VI. DRUG SEIZURES
The data on seizure of illicit drugs is anavailable indicator for underlying
production, trafficking and consumption
trends. The United Nations have compiled
a comparative list of countries regarding
seizure figures alone with the several top
ranking countries in respect of different
drugs.(See Appendix D). As for opium,among 18 countries in 1998, 7 were locatedin Asia region. As for heroin, 6 counties
were located in Asia region. Almost 18
countries reported high seizure of cocaine
were located in the American region. Thisdata shows that some countries in andaround illicit production areas known as
the Golden Triangle and the Golden
Crescent and cocaine production area areexposed to the menace of drug trafficking.
Furthermore, transit countries have212

developed into consumption countries.
In view of the global situation, it ispointed out that ATS has the potential to
become a major drug problem of thetwenty-first century. In fact, the moststriking feature in Asia region was theincreasing level of trafficking in countries
of East and South Asia. While this area
accounted for just 22% of global seizure of
ATS in 1990, its share in global seizure
almost doubled to reach 41% in 1998,
reflecting increasing levels of production,
trafficking and consumption in the region.
The other region with similar growth rates
was Western Europe. ATS seizure inWestern Europe rose from 20% of global
seizure in 1990 to 38% in 1998. ATS seizure
in North America accounted for 18% of
global ATS seizure in 1998, up from 14%
in 1990. Among the 30 countries thatreported the highest seizure, 11 werelocated in South-East Asia, 11 in Western
Europe and 3 in North America. The sevencountries i.e. United Kingdom, Thailand,
USA, China, Netherlands, the Philippines
and Japan, accounted for more than 80%
of global ATS seizure. Thailand emerged
as the country reporting the largest ATS
seizure worldwide, reflecting its role as amajor center of illicit production in SouthEast Asia. From 1997 to 1998 ATS seizurerose in Thailand by 30%, in China by 20%
and tripled in Japan. Furthermore, in
1999, 1.9 tons of methamphetamin wasseized in Japan, which was the highest
amount in the past year. Seizure in
Myanmar tripled, also exceeding those of
the Philippines, and indirectly reflecting
the increasing role of Myanmar as anotherimportant location for illicit
methamphetamine manufacture in theregion.
Several factors contributed to the surgein ATS abuse. On the supply side.
economic incentive were powerful. In somecountries, clandestine manufacture of

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
methamphetamine could lead to profit ofnearly 3,000 percent of the cost of raw
materials. Such profitability derived fromthe following: the accessibility andabundance of precursors, which suggested
that clandestine manufacture could be
carried out by non-specialist and close to
the point of final consumption: fewer stages
in the chain of distribution with the
involvement of fewer individual; andshorter distances from production area toconsumption area, reducing the scope for
effective interdiction. In addition, detailed
information on the manufacture of ATS
were widely available to the public at large
through the Internet and other suchnetwork.

menace if we are to have a safer worldcommunity.

VII. CONCLUSION
There is no doubt that the foregoinganalysis indicates a very big threat that
drug pose to the world economies andcountries. The problem is even morecompounded by the existence of strongorganized criminal groups and mafia thatengaged in this trade, scattered around theworld and earning big amount of moneythat makes their financial position stronger
than economies of some independent
states, yet their trade negatively affectworld economies and destroys right ofindividual.
The analysis further shows that formerlytransit countries are progressively
graduating into consuming countries. The
modus operandi of transporting these drug
is changing day after day both in scope andcomplexity that it often requires devising
new method of detection. The figures ofseized drugs are so overwhelming thatindicates that much more drug may be
produced, trafficked and abused without hedetection of law enforcement, agencies. It
is therefore prudent that an international
consorted effort is required to fight this213

RESOURCE MATERIAL SERIES No. 58
Appendix A
DRUG SEIZURES
Opium
China
India
Indonesia
Japan
Laos
Malaysia
Pakistan
Tanzania
Thailand

(Kg)
1993
3,354
2,908
12.8
369
11.5
4,500
7u
2,530

1994
1,178
2,256
2.6
33.7
293
69.0
14,663
0.15
606

1995
1,110
1,349
0.03
32.8
695
155.1
109,420
0.13
927

1996
l,745
2,876
0.03
31.1
199
2.6
7,423
No Report
381

1997
1,880
3,316
39.0
200
150
7,300
1,150

HeroinBrazilChina
India
Indonesia
Japan
Laos
Malaysia
Nigeria
Pakistan
Philipine
Tanzania
Thailand
Uganda(Kg)
1993
No Report
4,459
1,071
41.2
15.2
6.0
216
288
4,000
17.4
1.9
2,537
1.3

1994
12.8
4,086
1,011
42.8
10.2
44.9
212
91.6
6,444
23.0
1.3
1,295
2.8

1995
0.006
2,375
1,681
1.7
7.7
49.7
119
30.3
10,760
2.8
518
1.5

1996
4,347
1,257
1.7
3.9
16.2
241
19.4
5,872
1.5
No Report
598
2.7

1997
5,477
1,332
20.4
5.9
72.3
276
10.5
6,156
30.0
4.8
323
No Report

Cocaine
1993
Brazil
6,608
India
Indonesia Japan
25.9
Nigeria
1,309
Philippine 8.1
Tanzania 2.2
Thailand 3.2

214

1998
1,215
2,031
l 9.8
No Report
32.7
5,202
1,631

1998
0.95
7,358
655
27.8
3.9
No Report
289
5.8
3,363
1.7
2.7
508
1.3
(Kg)

1994
12,028
1.6
4.4
19.9
90.8
9.4
No Report

1995
5,815
40.0
0.1
36.6
15.2
1.4
No Report

1996
4,070
3.0
0.4
37.1
6.2
1.6
No Report
No Report

1997
4,309
24.0
3.3
25.5
31.9
1.0
0.2
2.4

1998
6,560
1.0
4.7
20.8
9.3
1.1
3.6

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
Cannabis Herb

(Kg)

1993
1994
1995
1996
BrazilNo Report 18,836
11,731
22,430China
No Report No Report 466
4,876
Fiji
No Report 5.0
16.9
6.9
India
94,964
187,896
12,87362,992Indonesia 5,785
1,331
444
444
Japan
612
665
208
173
Laos
3,217
115
5,197
l,896
Malasia
962
717
15.9
1,425
Nigeria
7,461
19,732
15,25818,600
Pakistan No Report 20,087
No Report No Report
Philippine 4,638
10,8442,213
2,045
Tanzania 4,012
No Report
Thailand 31,484
8,890
19,88016,720UgandaNo Report 7,910
No Report 259
Papua New Guinea has only a few drug cases.

1997
31,8282,408
No Report
80,866
716
155
7,026
3,889
15,905
No Report
2,227
82,5399,142
No Report

Cannabis Resin

(Kg)

1993
1994
BrazilNo Report 1.4
India
7,979
Indonesia Japan
29.7
96.9
Malasia
No Report No Report
Pakistan 189,000
189,252
Philippine 3.8
126.0
Tanzania Thailand No Report 6,925
UgandaNo Report No Report

1995
6.3
3,629
0.5
130.7
965
357,690
5.8
No Report
No Report

1996
8.5
6,520
2.1
145.1
No Report
192,837
0.03
No report
No report

1997
12.1
3,281
197.4
107,000
0.28
42.2
45.2
No Report

Stimulants
Indonesia
Japan
Malaysia
Nigeria
Philipine
Thailand

1998
28,982
5.079
No Report
68,221l,071
120
No Report
l,781
16,170
No Report
No Report
4,618
5,582
5,530

1998
10, 106
0.7
214.6
69,909No Report
20.6
25

(Kg)
1993
96.9
No Report
1.8
160.7
1,289.7

1994
25u
315
71,841u
94.3
114.6
812

1995
89.2
45.0
207.6
561

1996
0.33
652.2
No Report
10.6
767.5
442

1997
5.6
173
2.0
309.5
694.5
2,135.9

1998
549.7
No Report
77.8
2,827.9

215

RESOURCE MATERIAL SERIES No. 58

GROUP 2
PHASE 1CURRENT SITUATION OF ILLEGAL FIREARMS
TRAFFICKING AND HUMAN (WOMEN, CHILDREN, AND
MIGRANTS) TRAFFICKING
Chairperson
Co-Chairperson
Rapporteur
Co-Rapporteur
Members

Advisors

Mr. Ramend Hem Raj
Mr. Toshihiro Fukushi
Mr. Ricardo Tiuseco Pamintuan
Ms. Keiko Hoshi
Mr. Hiroyoshi Amamoto
Mr. Shuichi Inoue
Mr. Sengsouvanh
Chanthalounnavong
Mr. Hubert Sareke
Mr. Suwit Savaengthong.
Prof. Hiroshi Iitsuka
Prof. Shinya Watanabe

I. INTRODUCTION
The presence of transnational organizedcriminal groups in almost all corners of theworld seems to signify that every State isfighting a losing battle against this scourgeof the modern world. Problems arisingfrom the activities of these syndicates in
the commission of so-called “hard crimes”
such as the trafficking of narcotics andpsychotropic substances, firearms, andhumans, as well as the newly-emerging“high-tech crimes” of money laundering,product counterfeiting, card fraud, andcomputer-related offenses, are shared bymost countries. This report will attempt
to show the current situation of the illegal
trafficking of firearms and humans from a
global perspective, with the end in view ofarriving at a solution founded not only on
individual but also, and more importantly,
on international multilateral efforts.

216(Fiji)(Japan)(Philippines)(Japan)(Japan)(Japan)(Laos)(PNG)(Thailand)(UNAFEI)(UNAFEI)

II. ILLEGAL FIREARMS
TRAFFICKING
Guns are manufactured and distributed
to serve the various needs of different
groups of people. On the supply end,
firearms are generally trafficked for profit:
since their underground sale isunregulated, the suppliers have absolutecontrol over their prices. There are times,
however, when they are used as currency
to purchase narcotics. Brazilian drugtraffickers trade firearms for cocaine withterrorist groups from neighboring
countries. Some guns in Papua New
Guinea are also exchanged for drugs, andthis is where transnational organizedcriminal groups make their presence felt.
Civil strife and a strong militarypresence likewise greatly contribute to theaccumulation of firearms and ammunitionin certain places. The proliferation of
firearms in Nigeria is due largely to armed
conflicts in that region. The first wave

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
occurred in the wake of the civil war of
1967-1970, while the second wave cameduring the Peacekeeping Operations,particularly in the Economic Commissionof West African States Monitoring GroupOperations (ECOMOG). And while Nigeria
used to be merely a transit nation, it has
since been transformed into a primary user.
There is, however, no relevant data linking
illicit firearms to any particulartransnational organized crime group.
In similar fashion, gun trafficking is very
rampant in Tanzania due to civil wars in
the neighboring states of Rwanda,
Burundi, Uganda, the Democratic Republicof Congo, Mozambique, and Somalia,
through Kenya. Between 1997 and 1999,
some 1,716 people have been arrested inrelation to firearms, 1,313 guns and 7,113
ammunition were seized, leading to thefiling of 1,223 cases of firearms trafficking
involving sub-machine guns,
semiautomatic rifles, pistols, shotguns, AK47s, and muzzle loading guns.
At other times, soldiers in countries thathave experienced much internal conflict orwars find themselves with no meaningfulemployment and no use for guns at thecessation of hostilities Cambodia andVietnam had a surplus of guns after the
warin that region. The military had guns,
but they needed money, so they sold theirguns at the Thai border, thus, creatingproblems for the Thai authorities. Only
strict border checks controlled its spread,
thereby drastically reducing Thailand’s
firearms problem.
From the demand end, guns support theillegal activities of organized criminalgroups in countries like Brazil, Japan,
Papua New Guinea, Tanzania, andUganda. They are also used in terrorist or
guerilla warfare, as what is happening in
the Indian states of Punjab, Jammu, andKashmir, and in Muslim Mindanao in thePhilippines. In fact, even Nomadic tribes
in Karimojong, Uganda, have 200,000
guns, mostly from Somalia and Sudan.
Two organized crime groups, the Allied
Democratic Force and the Lords ResistanceArmy, also possess a large number offirearms. And if money is not enough, there
are times when kidnapped children are
traded for guns.
How, then, are firearms being traffickedaround the globe? In Brazil, this is themain activity of frontier smugglers, mostly
at the Brazil-Paraguay area, where
firearms enter the black market. The
Russian mafia, on the other hand, sponsors
the importation of illicit arms to Brazil
through the ports of Rio de Janeiro andSantos in São Paulo. In Papua New
Guinea, firearms enter the communityfrom Australia, Indonesia, and the Solomon
Islands in container cargo vessels, lightaircraft, fishing trawlers, and by individual
couriers or through parcel ports. As an
importer, the Philippines gets its guns
mainly from the United States, and as amanufacturer, moves imported as well as
locally crafted handguns to Taiwan, Japan
Malaysia, and other Asian countries. Thisis done either by misdeclaring the contents
of cargo containers and sending them to a
fictitious consignee, or by smuggling thefirearms into non-commercial ports.
In regional trafficking of firearms,
transnational organized criminal groups
make full use of the unguarded borders ofsuch countries as India, Malaysia, Nigeria,
and Pakistan. India’s long and porous
border poses a major problem in monitoring
and controlling movement of illegal
firearms. And yet, firearms aretransported not only by land but also by
sea and air. Gun trafficking in India
continues despite the existence of the Arms
Act of 1959.

217

RESOURCE MATERIAL SERIES No. 58
As in India, it is through penetrable
borders where firearms find their way into
Malaysia. The problem, though notserious, is compounded by the lack ofcontrol at the borders, making it ideal forarms smugglers. Because of the proximityof Muslim Mindanao in the Philippines, it
is believed that illegal firearms aretrafficked between these two countries bysea. Statistics show that in 1999, 247
pistols, revolvers, and shotguns wereseized, with 250 people arrested. In 1999,
Sabah police arrested 116 people and shot
15 others. The involvement oftransnational organized criminals,
however, has not been established. Somecountries, like Laos and Nigeria, aremerely transit points for the trafficking of
firearms so that the long hand oftransnational organized crime neveractuary touches them.
The Japanese public is fortunate enoughto be shielded from the influx of firearms,
illegal or otherwise, by its firearms control
system, as well as by the non-necessity ofprocuring firearms because of the lack ofinternal conflicts. Arid while guns werepreviously used only against criminal
elements, in recent times, even ordinary
and innocent citizens have been victimized.
The boryokudan however, has no monopolyof firearms. Even the notorious Aum Shinri
Cult, which was responsible for the fatalsarin gas incident in 1994, is involved in
the illicit manufacture of firearms, such as
AK-47s. Some of their firearms arereportedly smuggled from the Philippines.
III. HUMAN TRAFFICKING
Human trafficking, especially the
trafficking of women and children, haslately been receiving much attention
because of its human rights implications.
But trafficking in humans is of two types:
the first is initiated by the victim and is,therefore, voluntary, while the second is218

totally involuntary.
The Chinese experience explains it best.
Because of economic hardships or, perhaps,
due to government policy, many Chinesewant to leave the country in search of abetter life. Some of them are able to gain
lawful employment overseas. The problem
begins when the authorized period of stayor employment expires and they opt to stayon as illegal migrants. The second
situation, though rarer, involves, to a large
extent, human smuggling. This occurs
when prospective migrants who try but failto obtain legitimate travel documents seek
the help of triad societies and organizedcrime syndicates or “snakeheads” who arewilling to provide them with forged travel
documents for a very high fee. To pay thesefees, they sometimes resort to drugtrafficking, weapons smuggling,
kidnapping, murder, robbery, blackmail orextortion, and even terrorism: They
normally travel on long and unusualroutes, under inhuman conditions, just toreach their destination, which is usually a
progressive country like the U.S., France,
U.K., Italy, Australia, or Japan. China,
being a developed nation in its own right,
also attracts illegal migrants. At present,
however, China has no specific law onillegal migration or human smuggling.
Similarly, the problem of Japan is more
on illegal immigration rather than humantrafficking. There are instances whenpeople seeking gainful employment inJapan but cannot do so legally solicit thehelp of transnational organized criminalgroups to secure forged travel documents,
find work, and enter Japan. In 1992, forexample, among the persons deported by
the Immigration Bureau, the number of
persons who entered Japan illegally, thatis, without a valid passport, was 3,459.
Thereafter, the annual figure remained
fairly constant until 1996, when illegal
immigrants started to enter the country by

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
sea. Thus, by 1999, the number of illegal
immigrants has swelled to 9,337, with
6,281 individuals entering Japan by air the
rest by sea This shifting trend may be dueto the difficulty in getting into the country
through regular landing procedures.
Among those who opt to enter Japan by sea,more ingenious methods have recently
been uncovered, such as transferring from
Chinese to Korean fishing vessels,
traveling with forged documents aboard
vessels of legal registry, hiding in the ship’s
secret compartments, and disembarking at
non-commercial ports along the Japanese
coast. Illegal immigration, particularly by
Chinese nationals, is usually carried out
with the assistance of the triad or “snake
heads” in cooperation with the boryokudan.
In the past few years, there has also beena marked increase in the number of illegal
migrants to Fiji, mostly women and young
girls of Chinese origin. Investigations
reveal that criminal organizations are
responsible for transporting these illegal
migrants to Fiji, with assistance from theirFijian counterparts and some corrupt
Fijian authorities. Many of them initiallyenter Fiji on fishing vessels, jump into thewater, before being picked up andtransferred to smaller boats, as prearranged.
Personal economic gain also appears tobe the common reason behind thetrafficking of women from Brazil, Nigeria,
the Philippines, Thailand, and Uganda.
Trafficking of women in Brazil has
intensified in the past few years, spurredby the socio-economic difficulties in the
country. The high rate of unemployment
is actually forcing women and adolescents
into prostitution. Criminal organizationsin Brazil take women to Europe and Asia,
usually under the guise of giving them goodjobs in a regular company, or in a dancegroup or show house, and/or in a
prostitution house or striptease show.

Organized crime syndicates in Nigeria
employ various tactics in humantrafficking. They use education, gainful
employment, or success stories to attract
victims. At other times, they employ force,
coercion, fraud, or deceit. In the end, thehapless victim is forced into prostitution,
child labor, or even slavery. The averageage of women trafficked into prostitution
or slavery is 14 years.
Following global trends, there is a steadyincrease in the rate of trafficking of persons
in the Philippines. The usual methods
employed by transnational organizedcriminal groups are illegal recruitment andmail-order bride scheme, including cybermatchmaking (e.g., advertisements
seeking marriage proposals from foreign
males). These could only be perpetrated
by local syndicates working with the helpof foreign organized crime groups.
Women and children are the usual
victims of human trafficking in Uganda.
There is evidence that Ugandan children
are abducted by Sudanese rebels, brought
to Sudan and used not only in combat but
are also sold into slavery to Sudanese Arabs
or exchanged for guns. Through the years,
over 10,000 children have been abducted
and even as some of them have reportedly
been released, around 6,000 are still
missing. On the other hand, many women
who leave Uganda for promised jobs in
Europe or the Middle East end up being
sold into sex slavery. To this day, some ofthese women attempt to return home but
are unable to do so because they have nomoney and, therefore, cannot procure
proper travel documents.
On a slightly different mode, India,
Pakistan, and Thailand are similarly
situated in that the main thrust of humantraffickers in these countries is on sexual
trafficking. The commercial sex trade in
India is undoubtedly profitable. Fear of219

RESOURCE MATERIAL SERIES No. 58
AIDS is forcing syndicates to look foryounger girls, with demands for virgins
rising exponentially in the last few years.
Thus, incidents of kidnapping of womenand children in India as well as in othercountries have steadily increased in recent
times. The victims end up working as
prostitutes. either in India or in othercountries, notably in Arab countries.
Trafficking in women into and from
Pakistan is now more prevalent and isactually getting worse. It used to involve
mostly foreigners, but the internaltrafficking of Pakistani women is on therise, although there is insufficient proof ofthis. The prostitution of poor young girls
has always been around, with very few
being able to escape their fate even if theywant to.
On the other hand. Thailand’s problems
in human trafficking take on many forms.
Legal as well as economic reasons
contribute to the problem. In desperate
search of jobs abroad, young Thai womenresort to small groups of illegal humantraffickers with international connections.
The high demand for prostitutes accounts
for the continued profitability of thebusiness. Some countries, like Laos andMalaysia, serve only as transit points for
trafficking women en route to a third
country for prostitution or forced labor.
IV. ANALYSIS
A perusal of the foregoing facts instantly
reveals a uniformity in the reasons orcauses surrounding the illicit trafficking of
firearms and humans, as well as in themodus operandi employed by transnationalorganized criminal groups to consummate
their acts. For some countries, such as
India, Nigeria, Pakistan, Tanzania, andUganda, and to some extent, Papua New
Guinea and the Philippines, the use of
firearms is integral to armed struggle,

220

thereby feeding the fire of internal strife
or regional conflict. Transnational criminalorganizations engaged in the distributionof firearms benefit the most from situations
like these because of the ensuing
breakdown of the social order. Less
government restrictions mean more
freedom for them to operate with impunity.
In Brazil and Papua New Guinea,
firearms are also exchanged for illegal
drugs. The symbiotic relationship between
arms and narcotics dealers is all too evident
that their activities often overlap, thus,
creating a very deadly combination.
Firearms are also the weapons of choice ofterrorists. In India and the Philippines,
terrorists are getting bolder as theirfirearms become more sophisticated thanstandard government-issued firearms.
As regards human trafficking, the mostcommon reason for voluntarily venturing
to a foreign land is the desire to simply earna living. It must be noted that the favorite
destinations of illegal migrants are thedeveloped or highly industrialized nations
like the U.S., Japan, Canada, Germany,
France, and the U.K. Most womenoriginating from Brazil, India, Nigeria,
Pakistan, the Philippines, Thailand, andUganda usually wind up as sex workers,
servants, or abused homemakers.
Criminal elements prowling the globe forlikely victims are becoming more and morecreative, making it more difficult for theproper authorities, and the public at large,
to detect their true intentions. They devise
sterling success stories that would convinceeven the most skeptical foreign
employment aspirant.
Others make use of a mail-order bride
scheme to lure young women who wish to
fasttrack their dream of living in anothercountry. Many young and educatedFilipino women have fallen prey to this116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
system. And if subtle persuasion fails, they
can always resort to deception, coercion,
and abduction.
IV. CONCLUSION
Illegal firearms trafficking and thetrafficking of humans continue to be
carried out in spite of intensified efforts byindividual States to eradicate them. The
methods utilized by transnationalorganized criminal groups to carry out such
illicit activities are still evolving both insophistication and in virulence. One of thebest solutions in sight is the relentlessdevelopment of equally innovative if not
outright crafty countermeasures
enforceable at the domestic as well as at
the global level. The unwaveringcommitment of all members of theinternational community to assist andcooperate with each other will not only
prove to be ideal but also indispensable.
The United Nations has beenendeavoring to fight and eradicate
transnational organized crime and, in fact,
has been campaigning for the adoption of
the three related Protocols on firearms,
smuggling of migrants, and trafficking inpersons for the establishment of aneffective legal framework against
transnational organized crime. A UN
Global Programme Against Trafficking in
Human Beings is also being launchedworldwide. The target year of the Vienna
Declaration on Crime and Justice: Meeting
the Challenges of the Twenty-first Century“for achieving a significant decrease in theincidence of illegal firearms and humantrafficking is 2005. None of us is bound by
this period. If the balance between crime
and law enforcement at the transnational
level could tilt in favor of the law muchsooner, then, for once, we would be one stepahead of organized crime.

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RESOURCE MATERIAL SERIES No. 58

GROUP 3
PHASE 1CURRENT SITUATION OF ORGANIZED CRIMES IN
TRAFFICKING STOLEN VEHICLES, CARD FRAUD, MONEY
LAUNDERING AND MAJOR TRANSNATIONAL ORGANIZEDCRIMINAL GROUPS
ChairmanCo- chairman
Rapporteur
Co-Rapporteur
Members

Advisors

Mr. Sanjiv Kumar Upadhyay
Mr. Takeshi Miyamoto
Mr.Zafar lqbal Gondal
Mr. Tomoyuki Yokokawa
Mr. Awunah Donald NgorNgor
Mr. Iddi Saidi King’wai
Ms.Mitsuyo Inada
Prof. Keiichi Aizawa
Prof. Yuichiro Tachi
Prof. Akihiro Nosaka

I. INTRODUCTION
In furtherance to the realisation of thecentral objective of 116th International
Training Course with the main theme‘Effective Methods to Combat
Transnational Organized Crime in
Criminal Justice Processes’, our Group was
assigned to analyse the current situationof the following topics:(i)Trafficking in Stolen Vehicles(ii) Card Fraud(iii) Money Laundering(iv) Major Transnational OrganizedGroupsIn the Course of our discussion, we relied
extensively on the country reports of theparticipants, course reference material,and facts emanating from our group
discussions. The scope of our deliberation
was centred on general overview of our
subject matter with particular reference tothe undermentioned countries:
(i)
Japan
(ii) India(iii) Nigeria

222

(iv)
(v)

(India)(Japan)(Pakistan)(Japan)(Nigeria)(Tanzania)(Japan)(UNAFEI)(UNAFEI)(UNAFEI)

Pakistan
Tanzania

The Transnational Organized Crime has
assumed serious dimensions to engage thecollective attention of the international
community at large. Various United
Nations agencies and other world bodies
have deliberated on the issue of tacklingtransnational Organized crime, and theTransnational Criminal Organisations andhave come out with far reaching resolutions
and recommendations.
II. TRAFFICKING STOLENVEHICLES
A. Current situation
Over the past decade the rate of vehicle
ownership has risen considerably in all
countries and the incidence of illicit
trafficking of stolen vehicles has increased
correspondingly. The transnationalorganized criminal groups are playing amajor role in trafficking of vehicles. Thereis rapid growth and geographical expansionof this problem in Europe, America, Asia

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
and Africa. The method of trafficking
varies from country to country. Threemethods have come to notice in the illicit
trafficking of stolen vehicles, namely,
stealing vehicles by duplicate keys,
diverting rental cars to foreign countries
and outright robbery of vehicles at
gunpoint. The stolen vehicles recovered in
African countries are of European,
American or Japanese origin. The
organized groups in the countries from
where the vehicles are trafficked have links
with the syndicates in the Africancountries. The vehicle trafficking is usuallyconducted using forged documents andshipping them as second hand vehicles,
where they are disposed for profit.
Similarly, illicit trafficking is also prevalent
within the African countries where thevehicles are stolen in one country anddriven across the border into anothercountry. In West: African sub-region, there
is a protocol for free movement of persons
and goods under the auspices of Economic
Community of West African States(ECOWAS). Criminals take undue
advantage of this policy to indulge intrafficking in stolen vehicles. On accountof harsh economic conditions in the West
African countries, most of the people can
not afford brand new vehicles and therefore
the sale of second-hand cars is a lucrative
business. Hence, fairly used vehicles are
smuggled into these countries from thewestern world. In Nigeria, these cars findtheir way into the country through theinternational borders of neigbouring West
African States.
Trafficking in stolen vehicles is also amajor problem in Bast African countries
where the modus operandi is similar.
Motor vehicles robbed from Tanzania andother countries of Great Lake Region andSouthern African Region have been
recovered in Uganda. In the same vien,
vehicles robbed in Uganda have been
recovered in other countries of the region.

In the year 1 999, a total number of 32
vehicles robbed from neighboring countries
were recovered from Uganda and 18
Ugandan registered vehicles wererecovered from neighboring countries.
In India, there is incidence of trafficking
of stolen vehicles to Nepal. However, there
is no such trafficking across the Indo-Pak
border, as the border control is strict. In
Pakistan, theft of vehicle is on the rise but
there is no significant problem oftransnational trafficking of stolen vehicles.
In Japan, the Boryokudan groups,
Myanmar nationals and Vietnamese are
involved in trafficking of stolen vehicles.
Boryokudans steal expensive vehicle andsmuggle them to Russia by sea route.
Myanmar nationals in Japan also adopt thesame method for smuggling vehicles to
Myanmar and Bangladesh. Besides, stolen
vehicles are being trafficked by Myanmargroup who also have a legitimate car export
business. The Vietnamese group in Japanis engaged in stealing Honda two wheelers
for trafficking to Vietnam.
III. CARD FRAUD
Credit cards have come a long way since
inception in mid sixties, and so have thefraudulent activities in credit cards. The
identifying features are laminated on aplastic material with logo and name of theissuing bank, identification number of the
cardholder, dates of issue and expiry, of the
cardholder and other essential features.
The forgerers have not found it too
daunting to counterfeit such a card nor
have the hackers found it impossible togenerate valid credit card accountnumbers. Multiple imprints of the credit
cards have been made to commit frauds.
Stolen or lost credit cards have been used
to enter into a transaction. There havebeen reports of a high-tech crime ring thatused a single computer chip to obtain credit

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RESOURCE MATERIAL SERIES No. 58
card numbers and personal information of
cardholders in Taiwan. Losses of $30.96
million in 1999 were 30% higher than in
the previous year in Taiwan. The easy
availability of the card-number generator
software makes it a popular modus
operandi for the hackers. With online
business transactions on the rise, the law
enforcement agencies have a daunting task
on hand in all countries in the next few
years. The credit card market has grown
fast in Asian countries in recent years. In
India where the average person is notcredit card friendly, the annual card
spending has grown to Rupees 70,000
million. Withe-commerce set to gainincreasing popularity, credit cards will
become centerpiece of banking andpersonal financial relationship. The losses
due to fraud in credit cards have occurredby the following categories:(i)Counterfeit
32%(ii) Lost cards
30%(iii) Stolen cards
20%(iv) Multiple imprint 5%(v) Mail/Tele orders
4%(vi) Others
9%
In Brazil, credit card fraud has becomea major problem. The fraud is mainly
perpetrated by cloning of credit cards. The
cloning is mostly done abroad where
equipment is freely available, whereas in
Brazil the sale of such equipment isprohibited.
In Malaysia, the modus operandi usedin credit card frauds is by using card
number generators, skimming, mail/telephone order and using fictitious
identity. Criminal groups have used Credit
Master and Credit Wizard Software toobtain credit card numbers using
computers and have produced forged credit
cards with identical bank identification
numbers. In the method of skimming,
skimmer machine has been used to extract
encoded data from a genuine card’s

224

magnetic strip for making a counterfeit
card. In commission of fraud through Mail/
Telephone Order, counterfeit cards havebeen used for ordering goods/services via
telephone or mail at boarding houses,
vacant premises or motels. Sometimes,
credit card is obtained by using fictitious
identity and on receipt of the card, thefraudulent cardholders would embark on
a shopping spree. In 1998, there were 104
cases of card fraud involving RM1.49
million while in l999, there were 72 cases
involving losses of RM624,480.
The use of Credit Card is not well
pronounced in Nigeria, Tanzania andUganda at present. However, some
unscrupulous Nigerians, home and abroad,have been found to be involved incounterfeiting and theft of Credit Cards.
In the Philippines, there are Syndicateswith intricate knowledge of computers andit is not much difficult for them to hackbank transactions, manufacture
counterfeit credit cards or forge signatures.
There have been reported cases ofinternational gang operating in the fieldof credit card fraud. The Philippines PNPIntelligence Group was able to crack down
on credit card scamsters in a well
publicized case in 1997 with thecooperation of US Secret Service and
INTBRPOL. The syndicate had
successfully operated in the United States,
United Kingdom, Hong Kong and Thailand
earlier. The methods employed for cardfraud apart from skimming are as given
below:(i)
Courier-Interception Method: The
courier of the cards is bribed andthe data is extracted for
duplication of the cards.
(ii) Cardholder access: The cardholder
himself is bribed for permittingcloning of the cards.
(iii) Merchant Access: The personnel ofthe business company are bribed116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
to reveal information about theaccount numbers of the clients.
The account numbers are cloned
and operated by using fake
identification documents.
In Japan, credit card fraud throughcounterfeiting, theft and misuse is
becoming a serious problem. Organizedcriminal groups of Malaysian Chinese,
Boryokudans and Hong Kong nationals
have been found involved in credit cardfraud. Hong Kong and Chinese groups
possess a remarkable expertise in reading
secret security numbers and counterfeiting
cards within Japan. Besides, Iranians arereported to have indulged in Telephonecard fraud.
Evidently, advent of e-commerce andonline financial transactions has resulted
in increased propensity on part ofOrganized criminal groups to commit credit
card fraud as it provides anonymity andease in operation.
IV. MONEY LAUNDERING
Money laundering is an integral part ofTransnational Organized Crime. The
Transnational Criminal Organisations
have resorted to money laundering indifferent countries in an effort to legitimise
the proceeds of crime. The extent of money
laundering is difficult to estimate since it
is an illegal trade for which no statistics isavailable. A rough estimate is that about
2-5% of the global GDP is the dirty moneythat enters the capital market every year.
Experience in various countries shows thatthe general techniques to launder moneyare:(i)investing the dirty money m thelegitimate business either throughshell companies or throughgenuine companies in pseudo
name;(ii) acquisition of assets by paying therequisite taxes;(iii) deposit of money in banks in noncooperative countries andremittances through banking
channels to the host country;(iv) use of non-banking channels intransfer of money;(v) o v e r i n v o i c i n g o f g o o d s i nseemingly normal business
transactions;(vi) routing of money through tax
haven countries.
One of the popular methods ofremittance among the Asian communities
settled abroad who have to send money
back home is hundi or hawala, analternative non-banking remittancechannel. The money is deposited with thelocal agent, who sends instructions to his
counterpart in the native country to pay
the money to the recipient. This is a fastand convenient method for transfer ofmoney. This method is in vogue for anumber of years. It has also been used bymoney launderers since there is no audit
or accounting as the system works on trust.
For example, in China, Triads have used
this system and in India, Organizedcriminal gangs have used this system tolaunder their drug and illicit arms
proceeds.
In Brazil, international Mafia have usedghosts beneficiaries, front and fictitious
companies for money laundering. In India,
money laundering is indulged in bycorporate houses to evade taxes as well as
by the Organized criminal groups tolaunder dirty money. Money laundering
techniques include smurfing,establishment of front companies,
acquisition of commercial andnoncommercial properties, remittances
through Hawala (Non-banking channel),over-invoicing and double invoicing,legitimate business and foreign
remittances.

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RESOURCE MATERIAL SERIES No. 58
Furthermore, in Nigeria, money
laundering has correlation with attempt tolegitimise the proceeds of crime byconcealing their true origin and ownership.
The Organized criminal groups involved in
drug trafficking repatriate money fromabroad by direct purchase and re-sale ofluxury items like cars and jewelry. The
other methods include over invoicing ofgoods and trading in stocks and shares.
In Pakistan, money laundering has
linkage with drug trafficking, smuggling,tax evasion and corruption. The methods
adopted, amongst others, include hawala,investment in real estate, over invoicing ofexports and under invoicing of imports.
There have been about ten cases ofmoney laundering in Japan since 1992
when the law on money laundering wasenacted. An Iranian group was reported
to have remitted proceeds of drugtrafficking to Middle East through banking
channels. Boryokudans have also indulged
in laundering of the proceeds of sale ofstimulant drugs. Chinese ’Snakeheads’
have used underground banks in their
human trafficking activities in Japan formoney laundering.
Undeniably, money laundering is an
essential financial activity of Transnational
Criminal Organisations to evade detectionand enjoy the proceeds of theirunwholesome activities. Therefore, the roleof authorities in pursuing the money trail
is becoming increasingly cumbersome.
V. MAJOR TRANSNATIONALORGANIZED CRIMINAL GROUPS
Transnational Organized crime has
spread its tentacles world wide
endangering the foundations of theinternational civilised society andcorrupting the political, social andeconomic systems. With rise of a global

226

market for illicit drugs and firearms.
Transnational Criminal Organisations
have blossomed forning new alliances tothwart the efforts of the international
community to mount a crackdown on them.
Chinese Triads, Russian Mafia, Colombian
cartels, Japanese Boryokudans, Sicilian
Mafia, Nigerian Criminal Groups andTurkish drug traffickers have continued toremain out of reach of the law enforcement
authorities in different countries.
There are a few groups of Organizedcriminals that indulge in illicit drugtrafficking in Brazil. The Nigerian group
has developed a wide network of drugtraffickers who have operations in all partsof the world. They have close relationshipwith the Colombian cartels. The group getscocaine from neighbouring countries using
Nigerians as couriers. Italian Mafia too
indulges in drug trafficking using
Europeans as couriers.
Snakeheads are Chinese Mafia
indulging in illicit trafficking of humanbeings. They are operating in countries
wherever there are Chinese settlers. Someof the major transnational organized crimegroups operating in India are Dawood
Ibrahim Group, Chhota Rajan Group andBabloo Shrivastava Group. The mostdreaded group is the Dawood Ibrahimgroup, which has countrywide network andforeign connections. The group has
indulged in all types of Organized crime
like drug trafficking, firearms trafficking,money laundering, contract killings,
smuggling and extortion. The group has
acquired legitimate business activities inIndia, Hong Kong, Dubai and a few othercountries.
Another group is the Chhota Rajan, arenegade group of Dawood gang, whichparted ways after the 1993 serial bomb
blasts in Mumibai. The group is reported
to have a membership of about 800 persons.

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
The major source of income of the gang isfrom drug trafficking and contract killings.
The third prominent group is the Babloo
Shrivastava gang, which indulges inkidnapping for ransom and contract
killings. They receive the ransom amountin foreign countries through hawala
channels. Although there may not be any
Nigerian criminal groups operating within
Nigeria, but the Nigerians are reported tobe members of Organized crime groups
abroad. The main activities are drugtrafficking, human trafficking and money
laundering. In Nigeria, the groups areloosely Organized syndicates but havecohesive characteristics.

about 83100 members. Their main
activities are ’protection money’, drugtrafficking, gambling and book making.
The Chinese Triads are indulging in drugtrafficking, firearms trafficking, humantrafficking and robbery. They have alliancewith Boryokudans in carrying out some of
their illegal activities. Chinese
Snakeheads are engaged in humansmuggling using forged documents.
Transnational criminal organisations
are invariably the canopy that nurturesand provides protection for theperpetrators of crime that havetransnational character and scope.
VI. CONCLUSION

There are a dozen of identified
transnational crme groups in thePhilippines namely, Alfred Trionko.
Lawrence Wang, Relly Barbon Gang, Solido
Group, Paracale gangs, Andres Manambit
Group, Chen Ling Tun, Chen Chi Chuing,
Wein Kuen Keung, Wong, Kuen Alan Tong,
Choo Yeh Leong and Yan Po Weng. Theirillegal activities include trafficking in
women and firearms and they haveconnections with Japanese Yakuza.

In summation, the phenomenal upsurge
in the international community of
trafficking in stolen vehicle, card fraud,money laundering coupled with the
emergence of transnational criminalorganizations across the globe demands
galvanized international effort to stem thetrend.

In Tanzania, Uganda and neighbouring
countries, criminals do not function in an
Organized pattern at present and crime ismostly perpetrated on individual basis.
In Thailand, criminal networks are
involved in trafficking in women. There
are at least seven families in Bangkok who
recruit, sell and smuggle Asian women for
prostitution throughout the world. Theyuse forged travel documents for suchtrafficking to U.S.A, Japan, Canada andAustralia.
The main Organized criminal groups
operating in Japan are Boryokudans,Chinese Triads and Chinese Snakeheads.
Boryokudans have 2500 organisations with227

RESOURCE MATERIAL SERIES No. 58

GROUP 1PHASE 2
SPECIAL INVESTIGATIVE TOOLS TO COMBATTRANSNATIONAL ORGANIZED CRIME (TOC)
Chairperson
Co-Chairperson
Rapporteur
Co-Rapporteur
Members

Visiting Expert
Advisors

Mr. Mustafa Abdullah
Mr. Ruy Gomes Silva
Mr. John Kamya
Mr. Satomi Konno
Mr. Xue Qin Wang
Mr. Genot Hariyanto
Mr. Yoshihiko Hatanaka
Mr. Masashi Shibata
Mr. Tetsuji Tamagoshi
Mr. Bruce G. Ohr
Prof. Chikara Satou
Prof. Hiroshi Tsutomi
Prof. Mikiko Kakihara

I. INTRODUCTION
Transnational Organized Crime (TOC)
has become a great concern to the worldcommunity as it poses a threat to the safety
and security of sovereign states. It has
manifested itself in many ways, prominent
amongst which are drug trafficking, money
laundering, trafficking in women andchildren, illicit manufacturing of andtrafficking of firearms, the smuggling of
migrants etc. The result of the above isthe emergence of serious problems invarious countries of the world.
The use of traditional investigative
methods to combat TOC has proved to bevery difficult and ineffective. This state ofaffairs therefore calls for the use of special
investigative tools such as controlled
delivery, undercover operations andelectronic surveillance (wiretapping,
communications interception etc) by law
enforcement agencies to effectively control
TOC.

228

(Malaysia)(Brazil)(Uganda)(Japan)(China)(Indonesia)(Japan)(Japan)(Japan)(USA)(UNAFEI)(UNAFEI)(UNAFEI)

H o w e v e r, t h e r e i s c o n t r o v e r s ysurrounding the use of these techniques
and thus, to a certain extent, discouraging
the law enforcement agencies to utilize
them. Their use potentially undermines
the rule of law, may lead to infringementon human rights and involves government
agencies in the use of deceitful means.
There is a fear that governments may use
them to oppress citizens under the guise ofnational interest. Their use therefore often
spark off politically sensitive debates.
The biggest question therefore is how to
use these techniques consistent with therule of law and respect of human rights.
The answer to this cannot be universallyobtained and this will depend on the legal
system, practice and culture of eachcountry. There is a need therefore, to strikean agreement as to what extent the privacy
rights of individuals can be respected at
the same time keeping them (people) safe
from the effects of TOC.

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSEIn that vein, this paper seeks to analyze
these tools with emphasis on the current
situation, common issues and problems aswell as proposed solutions. It will also
analyze the legal framework existing incountries of focus and the trial
admissibility of evidence obtained using
the above-mentioned investigative tools.
II. CONTROLLED DELIVERY
A. Current Situation
Controlled delivery is recognized to be
one of the most effective investigative tools
in fighting TOC, particularly illicit drugtrafficking. It is defined as the techniqueof allowing illicit or suspect consignments
to pass out of, through or into the territoryof one or more states, with the knowledge
and under the supervision of theircompetent authorities, with a view to theinvestigation of an offence and theidentification of persons involved in thecommission of the offence.1
Under the controlled delivery system,
the shipments of such goods are monitored
closely by law enforcement officers and may
delay arrests in order to identify as manymembers of a trafficking network as
possible and to arrest them at a point
where legal proof is most readily available.
This innovative technique of investigation
can be very effective in trapping themanagers of crime syndicates. However
the methods employed may not be
acceptable to many countries in view ofconsiderations of their domestic laws,
because it produces offences which could
be otherwise prevented.
Since the endorsement of its application
vide Article 11 of the 1988 UN Convention
against Illicit Traffic in Narcotic Drugs andPsychotropic Substances (herein after
1

Article 2 (i), The Draft UN Convention against
Transnational Organized Crime (A/AC. 254/36).

called the 1988 UN Convention), thisinvestigative technique has beenfrequently utilized by law enforcement
agencies in dealing with drug offences, bothd o m e s t i c a l l y a n d i n t e r n a t i o n a l l y.
Obviously this tool has become one of themost effective weapons in combating illicit
drug trafficking as it enables the law
enforcement agencies to specifically
identify, arrest and prosecute not only the
carriers and couriers but also theprincipals, organizers and financiers ofsuch illicit activities. Apart from drugtrafficking, the usage of this technique has
been extended to other type of organizedcrimes such as trafficking of firearms,
trafficking of stolen vehicles etc...
In reality, almost all the participating
countries have adopted the tactics ofcontrolled delivery in tackling mainly
drugs and firearms trafficking. Three ofthese i.e. Italy, Japan and Pakistan, havesome special laws or regulations pertaining
to conducting controlled delivery whileothers have conducted the operation basedon discretion of the law enforcement
agencies in accordance with the regulations
or some departmental guidelines of
relevant authorities such as police,prosecution, customs etc... In countries
where this investigative tool has beenutilized, evidence collected during
investigations is admissible upon court
decisions in accordance with the existing
criminal laws of respective countries.
However, in Brazil, despite of the techniquebeing provided under the Organized Crime
Law, the tool has not been utilized by thelaw enforcement agencies because the legal
provisions are found to be insufficient.
Efforts are underway to strengthen the law
to this effect.
In Italy, the provisions of some laws
allow controlled delivery operations in
respect of illicit drug trafficking, money
laundering and illicit trafficking of firearms

229

RESOURCE MATERIAL SERIES No. 58
and explosives. However, this technique
is only to be applied when any otherinvestigative methods are proven to be
unsuccessful or insufficient. The same lawsalso call for delayed action by theenforcement officers in respect of arrestsand seizures during such operations.2
In Japan, since the enactment of the Law
on Special Provisions for Narcotics3 in 1992
until October 2000, about 160 operationsof controlled delivery were conducted by theJapanese law enforcement agencies.4
B. Common Issues and Problems
The use of controlled delivery usually
becomes a very pertinent issue especiallywhen the laws of a particular country do
not explicitly provide for its use. How thencould an agency apply it? On this question,
it was felt that the laws of most countries
do not specifically designate the use of thistechnique as illegal. It is often just foundout that such a method as a means ofinvestigation and detection of criminal
activity had not been considered when thelaws were promulgated. It can therefore
be presumed that while this methodology
is not explicitly sanctioned by law, it cannot
be said to be unlawful. Controlled delivery
is often a mean to an end and a good
method of catching the sender and receiverof illicit consignments. The question is
however whether it is really effective?
Whether it is worthwhile employing? What
its merits and demerits are - Is it aneffective tool from investigative point ofview? Can it lead to arrests? What are2

Article 97 & 98 of Republic President Decree (DPR)
309/90 and Article 12-4 DPR 306/92.
3 Law Concerning Special Provisions for the
Narcotics and Psychotropics Control Law, etc, andother Matters for the Prevention of Activities
Encouraging Illicit Conducts and Other Activities
Involving Controlled Substances ThroughInternational Cooperation.
4 Isamu Ikenoue, UNAFEI lecture, 2 October 2000.

230

the legal provisions and what is thesentencing policy?
While discussing all these issues, it was
found that controlled delivery has bothadvantages and disadvantages. On thepositive side, it is the most effective methodof arresting a whole network of a particular
illicit trafficking syndicate, not just thesender and the receiver. On the negativeside, it is very dangerous because if it fails,
the illegal goods or substances enter themarket.
In practice, the operation of controlled
delivery is very difficult and complicated,particularly when it involves many
countries. Worse still when there is adifference in legal systems and practicesof the countries concerned, as well as thelack of cooperation and coordination among
various law enforcement agencies.
In utilizing this tool, enforcement
agencies are often haunted by fears thatthe illicit consignments may end up lost in
the process. Even worse, is the case of
firearms, their loss is directly linked withdanger. In Japan therefore, the law
accordingly provides that controlled
delivery of firearms should be conducted
only under clean controlled delivery (CCD)
operations.
C. Proposed Solutions
In regard to the solutions for these
problems, we can derive our lessons fromsuccessful precedents. One classic example
was the case of successful CCD operation
conducted jointly by 3 countries i.e. the US
Republic of Korea - Japan in 1998 whereby
6 kg of “fake-cocaine” was ferried from theUnited States to Japan via Republic ofKorea resulting in an arrest of a receiverin Japan.5 In this particular case, the Drug
Enforcement Administration (DEA) had
5

Mune Ohno, UNAFEI lecture, 2 October 2000.

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
decided to change the real cocaine with fakeone because of security reasons and thereceiver was indicted in accordance withJapanese law. The success of this operation
was as a result of proper planning, close
cooperation and coordination between
countries concerned.

function of acting as a contact
point. This contact point should
promote communication with thecountry concerned m
accomplishing international
controlled delivery.
(ii)

We can draw several lessons from thisparticular experience:(i)
The establishment of close contact
and cooperation with countries inrelation to controlled delivery
operation leads to successful
results. In this vein, law
enforcement agencies in eachcountry should establish andmaintain intelligence andinformation exchange mechanisms
and networks, so as to get timely
and accurate information, both atthe domestic and international
level. Legislation or policy
designed to promote international
cooperation and harmonization inaccordance with the 1988 UN
Convention forms the basis ofestablishing smooth informationexchange mechanisms. Needlessto say, the success of controlled
delivery hinges upon domesticcooperation and coordination
among law enforcement agencies,
as well as international
coordination and cooperation.
Each law enforcement agency ineach country has to set up a systemof exchanging intelligence andinformation and these intelligenceand information units should beclosely linked and cooperating witheach other. Then, a multi-agency
task force may be organizedwhenever deemed necessary. In
case of practical law enforcement
on international mutual
assistance, these intelligence andinformation units shall fulfill theControlled delivery carried out inconjunction with the undercover
operation produces good results inthat the fear of losing
consignments and the escape ofsuspects will diminish with timely
gathering of accurate information.
(iii) It is necessary to develop newtechnologies to re-enforce the useof this tool, such as sophisticatedmonitoring devices (tracing
transmitters, response senders
and receivers, thermo imaging
cameras etc).
It is expected that thesecountermeasures may lead to solving the
problems mentroned above m thecontrolled delivery operations.
In order to overcome the fear that CCD
may weaken the court case, we need a law
or regulations to conduct CCD. In Japan,
the Law on Special Provisions for Narcotics
approves judicial authorities to punish
violators who with intent to commit any
offence, import, export, transfer, receive or
possess any drug or other article as acontrolled substance. Japanese law
enforcement officers can invoke this law toengage in CCD.
In addition to these measures, effective
application of the controlled delivery toolin any country requires policies andcountermeasures that are fast, flexible,
easy to adapt to new situations and bothtechnically and conceptuallycommensurate with the ever-growing
complexity of the evolving global TOC
problems. There might also be a need for231

RESOURCE MATERIAL SERIES No. 58
interdisciplinary research andconceptualization, experimentation withentirely new concepts and approaches andincreased international cooperation. In
that context, the establishment of theinformation network system would also
produce good results so that many
countries could share among themselves
their knowledge, expertise, and develop
information on the various available
approaches to solving the problems incontrolled delivery operations. There is no
doubt that an approach which is successful
in one country may not always be
successful in another, because the idea ofthe law and the criminal procedure
depends upon the social, cultural andhistorical background of each country andtheir policies. Therefore, the measure
should be suitable and in conformity withthe situation in any country, and exact
measures should be selected out of
information available, with given regard to
the fundamental idea that we have tocombat TOC.
It is therefore clear that controlled
delivery, though a simple concept, it
demands a high level of skill andprofessionalism, teamwork andcooperation between agencies. How
successful the operation of controlled
delivery will thus depend on how close thecooperation, coordination and monitoringis between the involved agencies, both
domestically and internationally. It is also
expected that accomplishing the controlled
delivery as part of the international
cooperation against trafficking of illicit
consignments other than drugs will havea great impact on combating TOC.
III. UNDERCOVER OPERATIONS
A. Current Situation.
Undercover operation is anothereffective investigate tool against TOC andin many cases, it is employed hand-in-hand232

with controlled delivery. The law
enforcement agencies in some countries
employ undercover agents to gather
information and collect evidence about
criminal gangs, study their modus operandi
and evaluate their future plans andstrategies. This information is used bothfor preventive and investigative purposes.
This technique inherently involves anelement of deception and may require
cooperation with persons whose motivationand conduct are open to question, and soshould b e carefully considered andmonitored.
Undercover operation means aninvestigation involving a series of related
undercover activities (investigative
activities involving the use of an assumed
name or cover identity) by an undercoveremployee (agent) over a period of time.6 It
may be of very short duration, lasting only
a few hours, or may be quite lengthy,
lasting a few years. It may be directed atonly a single crime incident, or a long term
criminal enterprise. Through such
undercover operations, law enforcement
agents are able to infiltrate the highest
levels of organized crime groups by posing
as criminals when real criminals discuss
their plans and seek assistance incommitting crimes.7
Undercover operations are extremely
sensitive and pose the danger of luringotherwise innocent people into criminal
activity. Because this technique carries thepotential for problems, it requires
exceptional preparation. In most drugcases, the undercover agents are officers
from law enforcement agencies where they
act as buyers of drugs. This method ofinvestigation is very dangerous as it puts
the life of the law enforcement officer at
6

US Attorney General Guidelines on FBI UndercoverOperations Revised 11/13/92
7 Bruce G. Ohr, UNAFEI lecture, 24 October 2000.

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
risk if he is identified by the syndicates andas such it has’ to be carefully planned, byusing officers who have some experiencein conducting such investigations.
All the participating countries except
Brazil and India have employed thetechnique of undercover operation forinvestigating crimes which includes drug
and firearms trafficking, money
laundering, stolen properties trafficking,woman trafficking, etc, of which 6
countries; China, Germany, Italy, Japan(for narcotics and firearms traffickingonly), Malaysia and, Pakistan have somespecial laws or regulations pertaining toconducting undercover operation whileother countries have conducted theoperation according to the guidelines
formulated by the relevant authorities. In
these countries, some sort of consent or
permission to conduct the operation isrequired, for example, the consent of aprosecutor and judge in Germany, theconsent of agency supervisor andprosecutor in the United States, authorityof a prosecutor in Italy, and in case ofJapan, and authority of the Minister of
Health and Welfare for drug trafficking andby the Prefectural Public Safety
Commission for firearms trafficking
respectively.
The use of this investigative tool has
proven to be very effective in combating
TOC. It is evident in the undercover
operations carried out m most countries
which employed the tool. The classic
examples are the Operation Dinero (1994)
and Operation Green Ice II (1995) in the
United States, whereby DEA undercoveragents set up front business that offeredmoney laundering services to drugtraffickers. Both operations were hugely
successful and disabled sophisticated drugtrafficking organizations. Operation
Dinero resulted in the seizure of threevaluable paintings and US$90 million andthe arrest of 116 suspects in the UnitedStates, Spain, Italy and Canada. Whereas
Operation Green Ice II, which involved over
200 agents from 27 different law
enforcement agencies, resulted in over 80
indictments. Another most successful
undercover operation by DEA is Operations
Pipeline and Convoy which were conductedsince 1984 in New Mexico and New Jersey,
resulting in seizures of Marijuana(1,199,855 kg), Cocaine (133,419 kg), Crack
Cocaine (896 kg), Heroin (487 kg),
Methamphetamine (4,617 kg) and currency
US$604 million between the period of L
January 1986 to September 2000.8
In Thailand, recently the Thai policeannounced that they seized 2 million
methamphetamine tablets in early October2000 from a 28-year-old man trying to sellthem to an undercover agent.9
B. Common Issues and Problems
The justification of an undercover
operation demands establishment ofcriminal liability of the action of theaccused person, failure of which often
raises issues challenging the legality of theoperation. In the USA for example, for theundercover operation not to give rise to
successful claims of entrapment or related
defenses, all law enforcement officers must
consider the following three points before
conducting undercover operation: First,
while reasonable suspicion is not legally
necessary to initiate an undercover
operation, officers should nonetheless be
prepared to articulate a legitimate law
enforcement purpose for beginning such as
investigation. Secondly, law enforcement
officers should, to the extent possible, avoid
using persistent or coercive teclmiques, and
8

US Department of Justice, Drug Enforcement
Administration, Internet Site <www.usdoj.gov/dea/
programs/money.htm&www.usdoj.gov/dea/
programs/pipecon.htm as at 10/19/00>.
9 The Daily Yomiuri, 11 October 2000.

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RESOURCE MATERIAL SERIES No. 58
instead, merely create an opportunity orprovide the facilities for the targetedcriminal to commit the crime. Thirdly,
officers should document and be prepared
to articulate the factors demonstrating thata defendant was disposed to commit thecriminal act prior to Government contact.
Such factors also include a prior arrest
record, evidence of prior criminal activity,
a defendant’s familiarity with thecircumstances surrounding a particularcriminal event, and a defendant’s
eagerness to engage in the criminal
activity. The most convincing evidence ofpredisposition will typically occur during
the initial Government contacts, which
officers should carefully document tosuccessfully defeat the entrapment
defense. In Japan, some judicial
precedents by courts 10 point out thefollowing as justification for carrying out
the undercover operation:(i)
Due to the complexity of cases
involving drug trafficking anddifficulty in their investigation,
employment of the tool is legally
acceptable.
(ii) The general guiding principle touse this tool should be consonantwith public interest, order andmorals. A law enforcement officer
should not induce a person who has
no prior intention of commission ofcrime to commit an illegal act.

official and the suspect, and to preserve
them in good condition, for evidence.
Meanwhile, in employing the undercover
operation, there are a few underlying
common problems:(i) The risk of disclosure of the true
identity of an undercover agent
puts his life at considerable danger.
The physical safety of the agent
must therefore be considered.
(ii) At times new members of thegroups have to undergo unlawful“tests of innocence” by being
required to commit criminal acts
such as abuse of illicit drugs,
homicide, stealing, causing injury
etc yet, as a matter of principle, theagents are not allowed to commit
any criminal offences.
(iii) The work of an undercover agent
is stressful, demands a full-time
pretence and often expose totemptation of committing crimes.
Thus, it requires a closemonitoring by controlling officers
and back-up crews to support theoperation.
(iv) Sometimes countries refuse tocooperate in the use of thisinvestigative tool. This prevents
undercover agent from operating
i n m o r e t h a n o n e c o u n t r y,especially if a crime is of atransnational in nature.

It is obvious that such a principle inJapan and the United States lies at thebasis of the undercover operation so thatthe operation is not legally approved unlessthe principle is secured. It is accordingly
essential to conduct a conclusive preinvestigation and keep a detailed record
with regard to words spoken between the

C. Proposed Solutions
To prevent the disclosure of his/her
identity, the undercover agent must:(a) B e p r o v i d e d w i t h a f u l l y
substantiated past history, referred
to as “backstopping” and careful
briefing concerning the criminal
targets.
(b) C o n s i d e r i n a d v a n c e e v e r yconceivable scenario that may induce
suspicion of, or hostility towards theagents.
(c) Undergo careful testing, often

10 Supreme Court, 1st Petty Bench, 5 March 1953, 7

Sai-han Keishu 3-482, Tokyo High Court, 3 April
1997, Koken Sokuho 3065-37 & Tokyo High Court,
16 March 1953, 3 To-ko-jiho 3-120.

234

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
including psychological profiling, toensure that he/she possesses theintangible qualities to ensure that he/
she will “fit” comfortably into the new
identity.
With respect of the use of undercover
operation in a serious case, to balanceCommittee consisting of prosecutors andinvestigators exists in the United themerits and demerits to the agent and the
public, The Undercover Review States. The
committee is responsible for reviewing,
approving, and controlling all sensitive
undercover operations. To be approved, an
undercover proposal must be in writing,containing a full factual description of thesuspected criminal activity and theparticipants therein, set out, in detail, theproposed undercover scenario, theexpertise of the undercover team, theduration of the project, the anticipatedlegal issues, and it must evaluate the risk
to the agents and the public.
Establishment of such a committee may be
a useful measure.
In an event where undercover agentswere required to commit any violent act,
the operation may be stopped immediately.
In the United States, whenever anundercover operation reveals that a crimeof violence is about to take place, law
enforcement authorities are required totake necessary steps to prevent the violencefrom occurring. This may include warning
the potential victim, arresting the subjects
who pose a threat, or ending the undercover
operation altogether. There is also a need.
for decriminalization of participation in thecommission of crimes to a certain extent,
by undercover agents. In considering this,the officer who has skills of dealing withany unexpected contingency should beselected and permitted to engage in theundercover operation. Acquiring training
and experience is the first principle forundercover agents.

It is important that countries which havesucceeded in using this tool should share
their experiences and expertise with others
in close international cooperation.
Cooperation at the regional and subregional level is the most importantbecause to be effective undercover
operations must often involve more than
one country in the region. Such cooperation
is often hampered by a lack ofunderstanding between countries.
IV. ELECTRONIC SURVEILLANCE
A. Current Situation
The use of electronic surveillance suchas wiretapping, communications
interception etc. is a very sensitive issue
and the topic is commonly surrounded bycontroversies. Questions of theconstitutionality and violation of humanrights expressed by rights activists havein many jurisdictions restricted or aborted
the use of this investigative tool because itis generally an illegal practice. However,the law often comes in to legalize its
application under given circumstances so
as to protect the rights of other people frombeing violated by criminals. In order toharmonize its application and respect theright to privacy, several conditions must be
followed depending on the requirement ofeach country concerned. These always
include obtaining permissions fromcompetent authorities (judge, prosecutor,
minister etc), making effort not to interferewith the private affairs/conversations,making progressive reports, close
supervision of the tapping etc. However,this method should only be applied if othermeans have failed, are impracticable orinsufficient.
Electronic surveillance represents the
single most important law enforcement
weapon against organized crime. There isnothing as effective as proving a crime
through the defendant’s own words. Its

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RESOURCE MATERIAL SERIES No. 58
evidence provides reliable, objective
evidence of crimes through the statementsof the participants themselves.
Additionally, electronic surveillanceenables law enforcement agencies to learnof conspirators’ plans to commit crimes
before they are carried out. This allows
them to survey the criminal activities, suchas delivery of contraband andconspiratorial meetings, or to disrupt andabort the criminal activities, whereappropriate, making electronic
surveillance particularly helpful inpreventing the occurrence of violent
crimes.11
Telephone interception and monitoringof all electronic communications are themost controversial aspects of electronic
surveillance, yet very useful in assisting
law enforcement agencies in combating
T O C . Wi r e t a p p i n g o r t e l e p h o n einterception is defined simply as theinterception of a telephone conversation
between parties without their knowledge,
using equipment that is inserted into theelectronic circuit between the transmitterand receiver. It is meant for obtaining
information and intelligence on various
illegal activities, and only a handful ofagencies are authorized to use this facility.
A screening process is normally carried out
before permission to intercept is granted.
This means that the agency has to justify
the action by placing for scrutiny before thecompetent authority the reasons why
tapping of a particular number is required,and also the antecedents and activities ofthe suspect. It requires handling in a very
professional manner.
Wiretapping can be effective against
crimes such as drug trafficking, money
laundering, prostitution, gambling,
kidnapping etc committed by the organizedcriminal groups which frequently employ
11 Bruce G. Ohr, UNAFEI lecture, 24 October 2000.

236

the use of telephone to perpetrate theoffence. For example, if an order of drugs
is received from a buyer, whereby theparties designate a secret rendezvous forthe transfer of drug to be carried out. Only
the parties to the telephone conversation
know the transfer point. Therefore, it isvery difficult for investigating authorities
to obtain pertinent information which willassist in their investigation and clarify thesubstance of the crime committed, except
through tapping the communication.
Wiretapping has been used to locate or
trace the movement of the drugs in order
to arrest the trafficker whilst in possessionof such drug’s. By employing such amethod, not only the carrier of the drugs
can be apprehended but also most of themembers of the syndicate, resulting in theextermination of the syndicate.
In an attempt to analyze the situationof electronic surveillance among theparticipating countries, two categories
were identified: countries which have nolegal provisions allowing the use of thetechnique and those which have. Amongcountries with no legislation are Fiji, Laos,
Nigeria, Papua New Guinea, Tanzania andThailand. It is, however, noted that someof these countries go ahead to employ thewiretapping technique under guidelines
internally issued by the relevant
authorities for purposes of intelligencegathering instead of court evidence.
On the other hand, Hong Kong,
Indonesia, Pakistan and Uganda have legal
provisions allowing the employment of thetool, and the power granting authority is
the police head. In India, the Telegraph
Act of 1885 permits communicationinterception in case of public emergency,
and so Pakistan’ s Telecommunication (Reorganization) Ordinance of 1996 and the
Wireless Telegraphy Act of 1933 underwhich the authorizing power belongs to the

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSEInterior Minister. In Malaysia, theDangerous Drug Act 1952, the Dangerous
Drugs (Forfeiture of Properties) Act 1988,
the Anti-Corruption Act 1997 and the
Kidnapping Act 1951 all provide for the useof telecommunication interception under
the authority of the public prosecutor.
There are countries, however, whichhave legal provisions for the employmentof the technique, after obtaining a warrant
from a court judge. These include Brazil,
China, Germany, Italy, Japan, thePhilippines and the US. In most of thesecountries, the offences, where the tool canbe used is as prescribed by the law, must
be serious in nature, and only if it can beshown that other investigative techniques
are either impractical or insufficient. The
proposal for interception in the US Passes
through a stringent procedure before
approval by the judge, via the publicprosecutors office and after approval fromthe department of Justice in Washington.
However, there is a provision that allows
wiretapping without the judge’s approval,
in case of emergency, but approval must
be sought within 48 hours of the tapping.
Even after permission is granted,
submission of periodic progress reports tothe courts is required. In 1998, a total
number of 1329 cases of wire, oral andelectronic communications interception
were authorized by the courts in the US12.
In Japan, the law authorizing the use of
the tool was enacted in 1999 and came into
effect on August 15,2000, whereas inGermany, the 1968 Code of Criminal
Procedure permits the use of wiretapping.
B. Common Issues and Problems
The main issues and problems in the useof this investigative tool are as follows:(i)
The main problem hampering the
12 Administrative Office of the U.S. Court, 1988

Wiretap Report.

use of this technique is lack oflegislation allowing it to apply inmany countries. Even where
legislation exists, it often imposes
stringent conditions such as
limited time of communicationinterception, time consuming
approval procedures and sorting ofprivate conversations from crime
related ones. In cases where
authority have been obtained tointercept communication related toa particular crime, it has often
become an issue whether tapping
should continue when thecriminals are discussing a newcrime that is not contained in thewarrant. The question always iswhether the tapping authority
should go ahead and tap thecircumstantial crime or stop thetapping until a new approval is
granted. In Italy, basically all
crimes which are punishable byminimum imprisonment of 4 years
under Criminal Procedure Code,can be wiretapped after obtaining
a warrant. However, in the case ofserious crimes which include
Mafia-related crimes, wiretapping
can be continued even if such acrime is not listed in the original
warrant. In Japan on the other
hand, even though wiretapping isauthorized for only 4 categories ofcrime (drug related cases,
trafficking of firearms, illegal
immigrants trafficking andorganized homicide), the tapping
can be allowed to continue if theinformation being discussed
relates to a crime punishable by aminimum imprisonment of 1 year.
Similarly in the US and Germany,
the laws give some leeway in thecontinuation of wiretapping
related to other crimes but
authority should be sought

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RESOURCE MATERIAL SERIES No. 58
immediately after the tapping.
Lack of funds to purchase the rightequipment, which is often very
expensive.
(iii) The persistent public debates andcontroversies surrounding thepeople’s right to privacy vis-a-vis
telecommunications interception.
(iv) Persistent lack of voice experts toprove in courts of law that thevoices tapped are of the accused
persons.
(v) The emergence of new technologies
e.g. mobile phones, pre-paid
phones, internet communications,
etc which are often difficult tointercept or to tie to a particularowner.
(vi) There is often a problem of
telephone companies/vendors
refusing to cooperate with theinvestigating agencies in carrying
out wiretapping, giving various
reasons such as protection ofconfidentiality and privacy of theircustomers etc.
(vii) It is noted that in some instances
there are countries which refuse tocooperate m carrying out the useof this tool, especially during
investigation of TOC.

related matters.

(ii)

C. Proposed Solutions
To overcome the above problems, there
should be enabling laws that make the useof the tool practicable and useful. Suchlaws should provide ample time forcarrying out the surveillance or applying
the interception, reduce the time
consuming procedure of obtaining
permission to use the tool, cover a wide
range of electronic surveillance methods
such as telephone and oral communicationinterceptions etc so as to effectively fightTOC. In countries where it is not possible
to enact an independent law on electronic
surveillance, the provisions should beembedded in other laws that address TOC

238

Secondly, the laws should compel thetelephone vendor/companies to cooperatewith investigating agencies in the use ofthis tool. Thirdly, there is a need forcountries to strike a balance in the use of
the tool so as to effectively overcome thedifferences existing in relation to which
type of crimes the tool should be used.
Lastly, there should be international
cooperation in the use of this tool. Thisshould be accompanied with exchange ofexpertise between countries that havesucceeded in using the tool with those thathave not.
V. CONCLUSION
In conclusion, employment of the newinvestigative tools is highly necessary tofight against the ever growing threat of
TOC. Undercover operations, controlled
delivery and electronic surveillance standout as the most effective investigative tools
against TOC given the fact that where they
have been used, they have exhibited a highlevel of ability to deliver good results.
However, like all new innovations, the useof these tools have to overcome a lot of
problems, ranging from lack of or
ineffective legislation, lack of trained
manpower, challenges from civil society
and admissibility of evidence obtained
through their application.
The ultimate solution for the success of
the use of these tools lies in avoiding themisuse of these tools. Governments andenforcement agencies therefore need toestablish proper guidelines and controls on
their application by agents to avoid abuse.
International cooperation and recognitionof the effects of TOC and the sharing ofexperience and support between nations inusing the tools to fight TOC are equallyimportant. Regional police bodies such as“ASEANAPOL” in ASEAN “EUROPOL” in116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
Europe and “EAPCCO” in Eastern Africa
to re-enforce ICPO/INTERPOL cancontribute greatly to strengthening thenecessary level of cooperation.

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GROUP 2
PHASE 2METHODS FOR OBTAINING THE COOPERATION OF
WITNESSES TO PUNISH ORGANIZED CRIMINALS: THE
IMMUNITY SYSTEM AND WITNESS PROTECTION
PROGRAMMESChairperson
Co- Chairperson
Rapporteur
Co-Rapporteur
Members

Visiting Expert
Advisers

Mr. Ramend Hem Raj(Fiji)
Mr. Tosihiro Fukushi(Japan)Mr. Ricardo Tiuseco Pamintuan(Philippines)
Ms. Keiko Hoshi(Japan)Mr. Hiroyoshi Amamoto(Japan)Mr. Shuichi Inoue(Japan)Mr. Sengsouvanh Chanthalounnavong (Laos)
Mr. Hubert Sareke(Papua New Guinea)
Mr. Suwits Savaengthong(Thailand)
Dr. Johan Peter Wilhelm Hilger(Germany)
Prof. Hiroshi Iitsuka(UNAFEI)
Prof. Shinya Watanabe(UNAFEI)

I. INTRODUCTION
In battling transnational organizedcrime (TOC), early detection and effective
law enforcement must be complemented bysuccessful prosecution. To prevent TOC or
to convict members of criminalorganizations who have committed them,the essential factor that must always be
considered is evidence. Vital documents
as well as the fruits of the crime, such as
illicit drugs or firearms, constitute physicalevidence. Still, it is often ideal to present
the testimony of certain persons - like police
officers, undercover agents, informants,
civilian witness, the victims, and, if
necessary, some of the defendants
themselves - in order to link the physicalevidence to the accused or suspect. In cases
involving TOC, the personal safety of
witness for the prosecution, as well as thatof the members of their families, may beplaced in jeopardy due to the ferociousnessof criminal syndicates and the vast power
and influence that they possess. Thus,

240

there is a need for all nations to consider afeasible immunity system, as well as acomprehensive witness and victim
protection programme, or to strengthen
those which are already in existence,
There are countries which already haveboth of these mechanisms in place. Somehave one or the other, while others haveneither. Some are equipped with highly
advanced systems, even as others are stillin the formative or experimental stage.
Additionally, as a rule, these laws do not
specifically apply to TOC, but they may,nevertheless, be effectively used in cases
involving TOC. The aim of this paper is topresent some of the existing legal
structures on immunity system and on
witness and victim protection in order toshare the information with nations whichhave yet to integrate them into theirrespective bodies of laws.

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
II. IMMUNITY SYSTEM
A. Scope
Immunity generally refers to the process
of exempting from prosecution a person
accused of a crime. This is particularly
encouraged under Article 26 of the Draft
United Nations Convention on
Transnational Organized Crime, which
deals with measures to enhancecooperation with law enforcement
authorities. 1 As used in this paper,
however, and in order to maximize thepotential of witness cooperation as a toolfor combating TOC, immunity will also be
considered, in a limited sense, as a
mitigation of sentence for suspects or
accused persons who cooperate in acriminal investigation.
B. Objectives
There are various reasons why
immunity is sought or suggested.
Principally, the testimony of a person who
is party to a crime is very reliable becauseof his relationship with his co-accused. Anystatement obtained from him, assuming it
has passed the twin evidentiary tests ofcredibility and materiality, in can always
strengthen a case or actually build one.
At the investigation stage, a Statewitness can reveal the identity of othersuspects, eventually leading to furtherarrests. At times, his statements can also
assist the police in locating the victim of acrime. Still, in other cases, he may pointout the corpus delicti or the body of thecrime. This is precisely the situation in
Brazil, where, although no specificimmunity system is in place, a criminal’s
sentence may be mitigated if his
cooperation results in any of these three.
Granting immunity from prosecution
has actually led to the solving of many1

See Annex A for the full text of this article.

serious crimes, as in the Fiji Islands andThailand. And as far as organized crimes
are concerned, Italy with its age-old
problem with the mafia, came up with a
Witness Security and Benefit Programme
in 1991, which provides immunity to people
who are willing to testify against the mafia
dons. Although this law is in the processof amendment, the use of an immunity
system is perceived to be a very effective
tool in prosecuting terrorists or membersof the families in Italy. If ordinary
witnesses are reluctant to come forwardwith information that may help in solvingorganized crimes, people who have actuallyparticipated in such crimes are even morehesitant of downright unwilling to
implicate the mob, whose reputation for
immediate retaliation has sown terror intowns controlled by the mafia.
Still, in other countries like India, Korea,
Nigeria, Pakistan, and Uganda, immunity
may be granted so that the prosecution ofa certain case may find more success using
the evidence that the State witness may
provide. Stretching the definition of
immunity further, the Philippines enacted
a law 2 providing immunity to givers ofbribes in graft and corruption cases, a pieceof legislation intended to eliminate thereluctance of such bribe-givers fromcooperating in the investigation for fear ofprosecution.
C. Procedural Requirements
The most common requisite in availingof immunity from prosecution is that an
accused-witness must cooperate with thegovernment by voluntarily making a full
disclosure of facts and circumstances
relevant to an offense for which he andother persons are being charged orinvestigated.3 Some countries have more
stringent requirements, including theabsolute necessity of the testimony and the2

Presidential Decree No. 749.

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RESOURCE MATERIAL SERIES No. 58
possibility of corroborating its material
points using other evidence. In such case,the accused must not appear to be the mostguilty among two or more accused persons,and he must never have been convicted ofany crime where his integrity was placedin doubt. 4
The grant of immunity is purely
discretionary, so it can be withdrawn atanytime by the grantor if the grantee fails
to fulfill his obligations under the terms
and conditions of his immunity. 5
At this point, it may be expedient todescribe in more detail the immunity
systems in two of the countries that haveextensively dealt with organized crime andhow they are utilizing this method in theirfight against TOC.
In Italy, statements by a cooperating
defendant have been used for 30 years, but,
as stated earlier, it was only in 1991 that awitness security and benefit programme
was formally adopted. There is now a bill
pending in the Italian Parliament for theamendment of this law. The bill limits thescope of the cooperating defendant’s
testimony to cases involving terrorism or
Mafia offenses and gives more emphasisto the quality of the cooperation than theoriginal law. Furthermore, it prohibits
such defendant from making statements
relevant to the facts covered in theproceedings where he has cooperated, tobodies other than those who are involvedin the immunity process, namely , thejudicial authority, the police forces, and his
3#306 Criminal Procedure Code (India); Witness
Security Benefit Act of 1991 (Italy); Witness andVictim Protection Law (Republic of Korea); #9 Rule
11 9 , 1 9 8 5 R u l e s o f C r i m i n a l P r o c e d u r e(Philippines). The same is true for Fiji, Nigeria,
Pakistan, Thailand, Uganda, and the USA.
4 See note 3 (Philippines).
5 #337-339, Criminal Procedure Code (Pakistan).

242

own defense counsel. Thus, while indetention, he is not allowed to engage inconversation with the police handling theinvestigation of the case, at least until therecord of the cooperation is drawn up, inorder to avoid any suspicion that his
testimony was contrived by theinvestigators. Neither is he allowed tomeet other cooperating defendants nor
receive or send mail outside, save forpurposes connected to protection needs. As
a consequence of his collaboration, he may
be spared from pre-trial detention or simply
placed on house arrest after judgment if
his contribution has been substantial orsignificant.6
But while the Italian government iseagerly awaiting the passage of this law
which would, in effect, allow theprosecutorial service to take full advantageof the immunity system, the Americans
have been successfully using it for decades.
The United States of America used to have“transactional immunity,” which gave total
immunity to the witness from prosecution
for an offense to which his testimony
specifically related. By 1970, however,these had been replaced by “useimmunity.”7 In essence, “use immunity”
only provides that a witness’ testimony will
not be used against him/her, but he/she
may still be prosecuted using otherevidence.8 The system ensures that thetestimony will not lead to the infliction of
criminal penalties on the witness.
To utilize “use immunity,” the testimony
or other information must be necessary to
the public interest and the witness musthave asserted or will likely assert his/herright against self-incrimination. The
6

Franco Roberti, UNAFEI lecture, 24 October 2000.
18 U.S.C., #6001-6005.
8 The same system is being used by Tanzania under
its Economic and Organized Crime Control Act of
1984, #53.
7

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
United States Attorney, with the approvalof the Attorney General or the designatedAttorney General, is the one who shallapply with the court for an order granting
use immunity.9
In addition to these codified immunity
systems, there are two other types of
immunity system which are not codified,namely, non-prosecution agreements andcooperation agreements. Non-prosecutionagreements, which are mainly used where
the involvement of a witness in a criminal
act is minimal, grant immunity fromprosecution in connection with that casein return for full and truthful cooperation,
but these are rarely used.
Cooperation agreements, on the other
hand, are utilized more frequently and areconsidered very valuable in the prosecutionof organized crime groups. In a cooperationagreement, the government agrees to filea motion which would, in effect, give a
judge the discretion to reduce the sentence
in exchange for the defendant’s complete
and truthful cooperation. And upon receipt
of such motion, the sentencing judge willusually reduce the penalty.10
D. Alternatives
Some countries have adopted systems
which do not squarely fall within theconcept of immunity discussed above.
China, for example, grants immunity or
mitigation of sentence to returning Chinese
nationals who have committed a crime
abroad for which they have already beenpunished.11 Germany used to have a law
on Principal Witness Regulations Against
Organizsed Crime, but this ceased to be
operative on 31 December 1999.12 Section

31 of the Narcotics Act, however, which has
been in force since 1981, has been
unusually successful in the detection oforganized narcotics crime.13
On the other hand, there is a way ofgetting the testimony of a person otherthan through immunity. Hong Kong’s
Organized and Serious Crimes Ordinanceof 1994 allows the Attorney General toapply to the High Court for a “witnessorder”, which compels a person to provide
information to the police or other officers
conducting an investigation of an organizedcrime. Defiance of such order is apunishable offense.
E. Assessment
There are many countries which have an
immunity system, sophisticated orotherwise, because it is internationallyrecognized as an effective measure incombating TOC. This prerogative,
however, must always be exercised withutmost caution. Others, like the US, havean advanced and evolving immunity
system, a fact that may be attributable totheir long experience with crime detection
and prevention, their need to reconcile
effective law enforcement and prosecution
with the individual’s right against selfincrimination, as well as on changes in theattitude of the general public toward crimeand punishment. It must be noted that, inrecent years, the trend in the USA has been
toward granting less immunity tocooperating criminal, for basically the same
arguments against immunity.
Some countries, however, do not havesuch a system. The reasons vary from one
State to another, based on one or more of
the following issues: (a) it violates the9

In 1999, 1,444 out of 2,059 requests for immunity
were granted by US courts.
10 Bruce G.Ohr, UNAFEI lecture, 24 October 2000,
citing Federal Sentencing Guideline § 5K1.1.
11 § 1, Article 10, Criminal Law.

12 A summary of the pertinent law is provided in

Annex B.
13 A summary of the provision is provided in Annex

C.

243

RESOURCE MATERIAL SERIES No. 58
principle of equality and rule of law; (b) it
is incompatible with the principle ofmandatory prosecution; (c) it is prone toabuse by authorities; (d) it is detrimental
to the citizen’s confidence in the judiciaryand in the inviolability of the law; (e) it
breeds a negative public perception that
the State is dealing with criminals; (f) it
makes the defense more difficult; (g) it
makes the trial and prosecution depend on
the dubious statement of a criminal who
wishes to escape liability; (h) the danger ofbetrayal tends to unite rather than divide
crime groups14; and (i) in some countries,
there is a culture of justice where the people
cannot accept the exoneration of a criminalby testifying against his co-accused.15
Therefore, the absence or existence of an
immunity system depends as much on eachnation’s culture, history, and national
sentiment, as on their body of laws. Thisdifference, in turn, poses one of the main
obstacles in enforcing the immunity systemprovision of the Draft UN Convention
Against TOC, which would bind all States
Parties to consider the adoption of such asystem.
III. WITNESS AND VICTIMPROTECTION PROGRAMS
A. Scope Objectives
Keeping in mind the provisions of the
Draft UN Convention Against TOC,
specifically Articles 23-24,16 the passage of
which before the end of 2000 is very likely,
the nations of the world are thereby
encouraged to adopt measures which will
guarantee the protection of witnesses fromthreats, intimidation, corruption, or bodily
injury in relation to testimony given in a
14 Issues (a) to (h) are actually the reasons that led tothe collapse of the immunity system in Germany.
15 This seems to be the main reason why there is no

immunity system in Japan.
16 See Annex A for the full text of these three articles.

244

case involving TOC.
In order to get the cooperation of people
in the fight against TOC, they must be
assured that in doing so, their life orproperty, or that of their family’s, would besafe from the criminal organizations they
are challenging. Depending on the degreeof cooperation and the type of witness, thisprotection may be given before, during and/or after the judicial proceeding. A witness
may either be the accused who is granted
immunity, the victim, or a third party.
Even as the inquiry is done before thepolice, the public prosecutor, or the court,
protection must be considered as long as
there is a possibility that the suspect/accused or other individual aims to preventthe witness from testifying against said
suspect/accused or to force such witness tomake a false testimony, by threatening or
actually hurting the witness or any
member of his/her family.
Some countries have specific witness
protection programs, while others haveincorporated witness protection provisions
in their criminal or criminal procedurecodes. Either way, if adequate protection
can be given to witnesses, the law would
have served its purpose.
B. Modes of Protection
1. Witness and Victim Protection in
GeneralIn Brazil, the national programme forthe protection of victims and witnesses tookeffect in August 1999. The persons who
may benefit from this programme are those
without decreed imprisonment and theirrelatives who habitually live with them.
The programme includes the following
measures:(i)
Transferring the residence of thewitness;(ii) Monthly financial aid for each
witness;(iii) Supply of food and clothing;

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
(iv)
(v)

Police protection when traveling;
Helping the witness find a job in
the work market;(vi) Retention of benefits by a public
employee who is removed from theservice;(vii) Social, psychological and medical
assistance; and(viii) Change of identity.
Under the Criminal Procedure Law and
Police Law of Germany, there are witness
protection measures that can be taken inseveral steps depending on the gravity ofthe danger. The concurrent utilization ofseveral means is possible. The simplest
though no less effective measure, is byprotecting the address of the witness.
However, the best way to protect a witness
is by totally concealing his/her identity andperson.17
Hong Kong’s Witness Protection
Ordinance of 2000 assures the safety of
witnesses, specifically accomplices, andtheir families by allowing them to live insafehouses, omitting their address fromtheir statements, and giving them a new
identity after the trial. In addition, theHong Kong Police has set up a hotline
which may be used bay the public to report
the activities of criminal organizations in
the first instance. In such a case, theidentity of the reporter shall also beprotected.
The 1991 witness protection programmeof Italy covers cooperating defendants aswell as non-criminal witnesss. 18 In
implementing the programme, thefollowing are observed:(a) the personal safety of the cooperating
witness;(b) their psychological safety;(c) security of investigation; and17 Johan peter Wilhelm Hilger, NAFEI lecture, 17

October 2000.

(d) t h i r d - p a r t y p o s i t i o n i n t h emanagement of the collaboration,
which is essential to prevent an
instance where the police may
suggest the answer to the suspect(otherwise known as the principle ofseparation between protection andinvestigation agencies).
Where the statement are indispensable
for investigations on Mafia-type orterrorist-subversive
criminalorganizations, reinforced common
measures - such as temporary police
protection for the cooperating witness andhis family members - may be applied toensure the latter ’s safety. Financial
support is usually given, although theamount is not substantial.
Moreover, the witness may be exempt
from pre-trial custody if:(a) s/he has no current connections with
the Mafia or terrorist organization;(b) s/he complies with the conditions of
the programme; and(c) their cooperation is significant.
Witnesses who are, however, already incustody may be placed in appropriate andadequate correctional units. The law(Article 8, Law Dectree No. 52 of 1991) also
provides as incentive for the collaboration,a special extenuating circumstance, thatis, the reduction of the penalty by one-thirdin case of conviction.
The Republic of Korea enacted its
Witness and Victim protection Law on 31

18 The responsibility to protect a person and his family

members, as long as it is necessary and possible, isvested by the law in a range of bodies andauthorities, including the Chief Prosecutors or the
Head of the Police, the National Commission of the
Ministry of the Interior, and the National Protection
Service.

245

RESOURCE MATERIAL SERIES No. 58
August 1999, which came into effect onJune 2000. The law covers not only thevictim or the witness, but also extends
protection to their families. If there is apossibility that a witness may be the targetof retaliatory action, his name may be kept
confidential and he may be given police
protection. When the witness or victim
sustains financial loss as a result of thecrime or the investigation, he may be
granted relief money for the loss suffered.
And in the event there is a need for such
witness to transfer his residence or secure
new employment, he may be furnishedsome assistance at government expense.
In Laos, during investigation of a case,the police may provide protection to awitness whose personal safety isthreatened. The investigation can be donein the office of the police investigator or theprosecutor, and the statement secured
during the investigation can be presented
and accepted as evidence at the court’s
discretion. The witness and victim
protection programme of Nigeria, which iscovered by regulations and not by any
specific provision in the Criminal Code, isaimed at protecting witnesses who fear for
their life or personal safety in the event
they agree to testify against the accused.
This programme includes keeping thename of the witness confidential.
I n t h e P h i l i p p i n e s , t h e Wi t n e s s
Protection, Security and Benefit Act19 wasenacted on 21 April 1991, with the
Department of Justice as the lead
implementing agency. As a result ofadmission into the Witness Protection and
Benefit Programme, which has asubstantial budgetary allocation, 20 thewitness shall enjoy the following benefits:

19 Republic Act No. 6981.
20 The latest available figure is 35,000,000, Philippine

currency, for the year 1996.

246

(i)

Secure housing facility until he has
testified or until the threat,
intimidation or harassment
disappears or is reduced to a
manageable or tolerable level;(ii) Relocation, if the circumstances sowarrant;(iii) F i n a n c i a l a n d e m p l o y m e n t
assistance;(iv) Retention of employment benefits;(v) Travel expenses and subsistence
allowance during the inquiry;(vi) M e d i c a ltreatment,
hospitalization, and medication incase of injury;(vii) Burial benefits, in case of death
due to his participation in the
WPP; and(viii) Free education to children, fromprimary to college level in any
State or private school, college oruniversity, if the witness dies or
becomes permanently
incapacitated to work.
For its part, Section 52 of Tanzania’s
Economic and Organized Crime Control
Act of 1984 allows the Inspector-Generalof Police, on his own motion or after
consultation with the Director of Public
Prosecutions, to arrange for the securityof the witness or potential witness and, if
necessary, his/her family, where there isdanger or real possibility of threat or harm
to such witness or potential witness.
In the USA, the federal witness security
programme to aid the prosecution oforganized crime groups was created by the
Department of Justice in 1970. Because of
security concerns regarding the witness
and his/her family, the pending and actual
participation of such witness in the
programme shall not be disclosed except
under the authorization of the Office ofEnforcement Operation. This set-up gives
the United States Marshal Service time to
conduct preliminary interviews,

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
court to deny bail to the accused if
there is danger that he may goafter the witness. It bail isgranted, however, the judge may
set as conditions that the accusedmust not leave his home nor talkto any of the prosecution witnesses.
Moreover, he is placed under police
surveillance and is required toreport to court once a week. But
during the trial, there is no legal
mechanism for the protection of
witnesses, except police escort
during the hearings.

psychological testing and appropriate
review, thereby minimizing the disruption
to both the witness and the concerned
government agencies. Once admitted into
the programme, the witness and his/herfamily are given new identities, relocatedto another part of the US, and given
financial assistance until the witness isable to secure employment. The witness
security programme, although rarely usedand very costly, 21 has proven to be
extremely beneficial and effective in theprosecution of organized crime groups.
2. Court Systems for Witness and Victim
Protection
Japan has evolved a comprehensive
witness protection programme under its
Code of Criminal Procedure (CCP), which
was amended on 18 August 1999 and 19
May 2000. For the purpose of this paper,
the Japanese model will be utilized as apoint reference for the following discussion
on the various court systems adopted bydifferent countries to ensure the protectionof witness.
(i)

Denial of Bail
Under Section 96.1 (4) in relation
to Section 89 (5) of the CCP ofJapan, an accused may be denied
bail if there is reasonable groundto believe that he may threaten toor actually injure the body or
damage the property of a witness,whether such witness be the victim
or some other person who has
knowledge of the case, or a relativeof said witness. Likewise, in Papua
New Guinea, when the suspect ina serious crime is in custody, theprosecution may file a motion in(ii)

Attendants, Screen, and Video
Link
With the recent amendment ofJapan’s CCP, an attendant of thewitness may be allowed in thecourse of examination, and ascreen may be set up between thewitness and accused. One of theinnovations introduced is theallowance of video link
examination (to take effect inNovember 2001) where thewitness, being out of thecourtroom, answers the questionsof the public prosecutor or the
defense counsel who are in the
courtroom.22
Similarly, some countries haverules of procedure which allow
psychologist, social worker, publicprosecutor, or other person toaccompany a child victim undereighteen years of age during theinquiry and trial of the case, or theuse of audio-video equipment torecord the victim’s statement (asin the case of Thailand),23 or allow

21 Since the beginning of the programme, over 6,800

witnesses have been admitted, along with some
9,000 family members. The average cost is $75,000
per witness, per year, and $ 125,000 per family, peryear.

22 CCP, #157-2 to 157-4.
23 The 1999 amendment of Thailand’s Criminal

Procedure Code only applies to victims who arechildren under 18 years old.

247

RESOURCE MATERIAL SERIES No. 58
during the examination of thewitness. This is the same practicein Laos and Pakistan, where an
accused may be ordered to leave
the courtroom when the witness is
testifying, whether in an ordinarycase or in a case involving TOC.

the use of screens when thewitness is a juvenile (as in the caseof Fiji). In practice, the samemodes of protection can beextended to witnesses in cases
involving TOC, such as the
trafficking of children.
By the same token, Italy’s Law No.
11 of 7 January 1998 provides thebases for allowing the use of audiovisual equipment (videoconference) to cover the depositionof cooperating witnesses whose
lives may be in serious danger asa result of, or in connection with, acase involving TOC. In Germany,
it is possible to interrogate thewitness in another place, theproceedings therein recorded onvideotape, and such tape brought
to court as evidence. The witness
need not be physically present incourt, as long as the questioning
is monitored via video link.
Article 164 of Pakistan’s Qanun-eShahadat allows any evidence
which may become available due
to modern devices. Thus, the court
can resort to video link evidence,
although such facility is not yet
available in Pakistan.
(iii) Isolation of the Witness
Under the CCP of Japan, tomaintain order in the court,24 orwhen the judge believes a witness
will be unable to fully testify due
to the presence of the accused25 orof spectators,26 the court may ordersuch accused or spectators towithdraw from the courtroom(iv)

Out-of-court Examination
Under certain circumstances,
Japan’s CCP also permits the court
to order the examination of awitness at any place other than the
court, 27 or on dates other thanthose fixed for public trial,28 even
before the first fixed trial date.29 In
the latter case, the accused/suspect
and the defense counsel may
attend the examination only when
the judge believes their presence
will not interfere with the criminal
investigation,30 and the statement
obtained thereby may-as an
exception to the hearsay rule-beadmitted in evidence during thetrial even without presenting thedeclarant.31
Similarly, the laws of India,
Malaysia, Nigeria, and Uganda
allow in-chamber trials to be
conducted if it is important to keep
the public away from theproceedings. 32 For its part, awitness in Pakistan may be
examined in his home by the court
itself, or by a commissioner
appointed by the court for that
purpose. The defense counsel canalso examine the witness, but the
court may stop him or his clientfrom asking questions which may

27 Id., #158.1.
24 CCP, #288.2; See also Court Organization Law, #28 Id., $281.

71-2.125 Ibid., #304-2.
26 Id., #202.

29 Id., #227.1

248

30 Id., #228.2
31 Id., #321.1(1).

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
cause fear or embarrassment to, or
threaten, the witness.33(v)

Non-Disclosure of Personal
Information About the Witness
In Japan, if there is danger thatthe witness might be injured or his/her property damaged, the court
may limit questions by which the
domicile or other personal
circumstances of the witness may
be known by the defendant.
During the disclosure of evidence,the prosecution may also request
the other party’s consideration inprotecting the security of some
witnesses.34 The same is true inPakistan, where it is theprosecution’s prerogative whether
to keep the address and name ofsuch witness confidential.

3. Criminalization of Certain Acts toProtect Witnesses
While China has no specific law on
witness and victim protection, Article 307
of its Criminal Law penalizes with animprisonment of not more than three years,or, in severe cases, three to seven years,
any person who (a) prevents with violence,
threat, bribe, and other methods, a witness
from testifying, or (b)instigates others tomake false testimony. Article 308, on theother hand, punishes with the same
penalty any person who resorts topersecution or retaliation against awitness. In Fiji, interfering with thewitness is punishable under Section 131,
Penal Code Cap.17. The offense carries a
penalty of imprisonment of two years. This
32 #237(2), Criminal Procedure Code of India; #7,

Criminal Procedure Code of Malaysia (Similar
provisions are reflected in #101, Subordinate Court
Act of 1998, and #15, Judicature Act of 1997);
Uganda’s Children State of 1996.
33 Criminal Procedure Code of 1898.
34 CCP, #295.2 and 299-2.

law, however, does not always protect awitness because it does not cover witnesses
identified at the investigation stage.
On the other hand, Section 105.2 of thePenal Code of Japan punishes any person
who intimidates a witness in connection
with such person’s or another person’s case.
Under Section 10 of the 1991 Witness
Protection, Security and Benefit Act of thePhilippines, accused persons discharged to
be State witness under Sections 9 and 10,
Rule 119 of the 1985 Rules of Criminal
Procedure may also avail of the benefits
under the witness protection programme.
Furthermore, Section 17 penalizes any
person who shall harass a witness andthereby hinder, delay, prevent, or dissuade
such witness from otherwise cooperatingwith the prosecution.
C. Assessment
The breadth and coverage of TOC
countermeasures differ from one State toanother. An effective witness protection
programme is just one of suchcountermeasures.
The Draft UN
Convention on TOC included witness
protection precisely because of thealarming growth of TOC worldwide. Thisis obviously a recognition of the fact that,
although some countries currently have noserious problems with TOC, this state ofaffairs may drastically worsen in view of
the rapid and continuing spread of TOC.
In other words, countries which have notyet felt the full impact of TOC might
eventually feel it in the near future.
It has been observed that many
countries do not have witness protection
programs that specifically apply to cases
involving TOC. A number of States,
however, have programs that are generally
used in ordinary crimes, programs that
may also be effective in fighting TOC, inaddition to legal provisions that do not form
part of any witness protection scheme.

249

RESOURCE MATERIAL SERIES No. 58
This does not mean that all countries
should adopt a uniform plan for witness
protection. For one, as suggested earlier,different countries are not similarly
situated as far as their exposure to TOC isconcerned. There is also a divergence ofexperience in witness protection, especiallywith regard to TOC. For example,
Germany has a sophisticated programme
for giving a witness a new identity, but thisfacility is rarely used because their TOC
problem is not serious enough to warrant
the use of such a programme. Secondly,
the details of each programme may varyfor each country, depending on the peculiar
circumstances present in their jurisdiction.
Some countries, for instance, do not haveadequate programs, or may have them but
are not using them wisely. One of thereasons is financial. With inadequate
funds, it may be difficult to devise a witness
protection programme, or even to
implement it. The other reason is that itis difficult to define the scope of witness
protection. Should the protection be limited
to the witness, or should it include hisfamily, and if so, to what degree? Should
the witness and/or his family receive
protection or assistance only during thetime of trial, or should it continue
indefinitely as long as the threat exists?
How much should financial assistance be?
Unfortunately, there is no available datathat would answer these questions. Somecountries, on the other hand, haverelatively new programs, so their efficacy
cannot yet be gauged. Because each legal
system is distinct from one another, thesetting of standards for witness protection
will inevitably have to made on a countryto-country basis.
IV. CONCLUSION
The battle against transnationalorganized crime is fought in two major
arenas. One is in the field of law
enforcement, the other in a court of law.

250

To secure a victory, the system of justicemust succeed in both. An element common
to these two is evidence. Without sufficientmaterial proof, no indictment will everprosper. A key factor in evidence gathering
is finding witnesses who have adequate
information regarding a crime which isunder investigation or one which is about
to be committed. It makes no difference
whether the witness be the victim, or adisinterested third party, or even an
accomplice. If their testimony will lead toan arrest or a conviction, they must be
persuaded to come to court and testify
against a member of a TOC group. Since
the most common reason why witnesses
will refuse to testify is that their life orlimb, or that of their families, may beplaced in peril if they divulge what theyknow, their cooperation can be gained byoffering them protection and other benefits,or, in the case of co-defendants, by granting
them immunity from prosecution or a
mitigation of sentence.
These strategies are strongly endorsedby the United Nations. Upon passage of
the UN Convention on TOC before the endof this year, States Parties may have todevise feasible immunity programs, adopt
legislation specially designed for theprotection of witness and victims, orotherwise enhance existing systems so thatthey will conform to international
standards and best practices. Intercountry cooperation in this regard will be
more attainable if the necessary domestic
laws are already in place.

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSEGROUP 3
PHASE 2COMPONENTS AND LEGAL FRAMEWORKS FOR COMBATING
TRANSNATIONAL ORGANIZED CRIME.
CRIMINALIZATION OF PARTICIPATION IN ORGANIZEDCRIMINAL GROUPS/CONSPIRACY; ANTI-MONEY
LAUNDERING SYSTEM; ASSET FORFEITURE SYSTEM (FORASSETS DERIVED FROM ORGANIZED CRIMES)
Chairman
Co-chairman
Rapporteur
Co-Rapporteur
Members

Visiting Expert
Advisors

Mr. Iddi Saidi King’wai
Mr. Sanjiv Kumar Upadhyay
Mr. Donald NgorNgor Awunah
Ms. Mitsuyo Inada
Mr. Zafar Iqbal Gondal
Mr. Takeshi Miyamoto
Mr. Tomoyuki Yokokawa
Mr. Franco Roberti
Prof. Keiichi Aizawa
Prof. Yuichiro Tachi
Prof. Akihiro Nosaka

I. INTRODUCTION
The monumental negative effects oftransnational organized crime on theeconomic, political and social spectrum ofnations cannot be over-emphasized.
Transnational organized crime undermines
the very foundations of world economies.
It tends to weaken and destroy
governmental machinery and institutions.
The sophistry in which members oforganized criminal groups perpetuate theirnefarious activities certainly has becomea great source of concern to governments
and law enforcement agencies all over theworld. The concerted efforts of various
countries within the ambit of the United
Nations to curtail the negative
consequences of transnational organizedcrime is indicative of the fact thattransnational organized crime poses great
danger to peace and tranquility of theworld.

(Tanzania)(India)(Nigeria)(Japan)(Pakistan)(Japan)(Japan)(Italy)(UNAFEI)(UNAFEI)(UNAFEI)The increasing bottlenecks in tackling
TOC both on domestic and international
levels can be attributed to the complex
nature of transnational organized criminalgroups. There is a dichotomy between theindividual criminal and the organizedcriminal group. The arrest, prosecution
and conviction of a member of any
organized criminal group does notnecessarily lead to the demise of the group.
Organized criminal group are stratified
into different levels. Every level requires
to play a particular role in the entire
criminal enterprise.
Consequently, criminalization ofparticipation in organized criminal groups,
developing anti-money laundering system
and articulating asset forfeiture systemthat enables law and enforcement agencies
worldwide to deprive criminals of theirproceeds becomes imperative.

251

RESOURCE MATERIAL SERIES No. 58
In this paper, however, attempt will bemade to analyze the components and legal
frameworks for combating transnationalorganized crime within context ofcriminalization of participation inorganized criminal group, anti-money
laundering system and asset forfeituresystem (for assets derived from organizedcrimes).
II. CRIMINALIZATION OF
PARTICIPATION IN ORGANIZEDCRIMINAL GROUPS/CONSPIRACY
A. Draft UN Convention Proposal
Previous efforts notwithstanding, thetenth United Nations Congress on thePrevention of Crime and the Treatment of
Offenders, Vienna, Austria, 10-17 April,2000 set in motion instrument “to alignnational laws in criminalizing acts
committed by organized criminal groups”.
The Ad Hoc Committee on the Elaborationof a Convention against Transnational
Organized Crime came out with a draft UN
Convention against TOC, in July, 2000.
The draft Convention proposes tocriminalize participation and conspiracy inregard to organized criminal groups.
Article 5 seeks to criminalize such activities
as agreeing to commit a serious crime,
participation in criminal activities oforganized criminal group, and organizing,
directing etc. the commission of serious
crimes.
B. Criminalization of Participation
Experience in various countries has
shown that the existing penal provisions
are not sufficient to deal with serious
crimes perpetrated by members oforganized criminal groups which came into
existence in such countries. Provisions
were therefore made in the penal laws to
include criminalization of participation bysuch criminal activities as organizing,
directing, facilitating, counselingcommission of serious crimes or taking part252

in the criminal and certain other activitiesof the organized criminal group as a specificcriminal offence.
One of such countries is Italy which
incorporated these provisions in its laws.
In a wider perspective, the Italian law
characterizes participation in an organizedcriminal group into four types, namely;(i)
association for purposes ofcommitting offences (simple
organized crime or conspiracy article 416 penal code),(ii) association for the purposes ofterrorism or subversion(subversive organized crime article 270 - bis penal code),(iii) Mafia - type association (Mafia type organized crime - article 416
bis penal code); and(iv) association for the purposes ofillicit trafficking of narcotic or
psychotropic substances - (Article
74 of Presidential Decree No. 309/
1990).
The difference between membership ofMafia-type organization and the otherthree associations is that while the latter
only require the creation of a stableorganization for the purposes of committing
indeterminate number of offences,membership of Mafia-type organization
additionally require the organizations tohave acquired genuine capacity for
intimidation in their area. The membersof the organizations must also exploit thispower to coerce third party with whom theorganizations enter into relations andoblige them to enter into a conspiracy ofsilence (Mafia method).
In China, the Criminal Law wasamended in 1997. Article 294 stipulates
that anyone who organizes, leads andactively joins any organization having
characteristics of underworld society which
by violation, menace or other methods

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
c o m m i t s c r i m e s o r g a n i z a t i o n a l l y,domineers in locality, makes hostileattacks, forces and harms masses cruelly,
and infringes gravely upon economic andsocial order, will be punishable withimprisonment of 3 to 10 years.
In Japan, however, law regarding
participation in an organized criminalgroup has not found favour with theauthorities as it may not be compatible
with the constitutional provision of freedomof association. To this end, if a common
provision were to be introduced regarding
definition of organized criminal group, it
may perhaps pose a great difficult toinclude certain organization while keeping
others out of its purview. There has been
noticeable strong feeling among certain
sections of the Japanese society against
introducing an omnibus legislation
criminalizing participation in an
organization. In view of such obvious
technical issues and perceived opposition,it has become a herculean task to arrive ata definite conclusion for crimmalization ofparticipation in organized criminal groups
in Japan.
In India, the existing laws were foundsufficient to deal with organized crime, butwith the organized groups forming a Mafia
type of organization, sometimes operatingfrom foreign countries, the laws have beenfound wanting in many respects. The
offence of criminal conspiracy which could
cover all the conspiring members could nolonger cover the top echelons of theorganized criminal groups who sometimes
were not taking part in day-to-day criminal
conspiracies to commit offences. However,they were running the criminal empire
from a distant position and were the
kingpins of all criminal activities of thegroup. With such inadequacies in view, thestate Government of Maharashtra enacted
Maharashtra Control of Organized Crime
Act in 1999. A central Act is howeverneeded to deal with this problem in otherparts of India, and therefore, theGovernment is already engaged in making
a draft legislation to be introduced in the
Parliament.
C. Conspiracy
Article 5(1)(a)(i) of the draft UN
Convention proposes that agreeing with
one or more persons to commit a serious
crime should be a penal offence. A similar
provision already exists in many countries
like Fiji, India, Indonesia, Laos, Malaysia,
Nigeria, Pakistan, Papua New Guinea,
Philippines, Tanzania, Thailand andUganda where conspiracy is a distinct
offence. The offence of conspiracy generally
states that when two or more persons agree
to do, or cause to be done an illegal act, theact is designated as a criminal conspiracy.
In Japan, the penal code, Chapter XI,
Articles 60 - 65 deal extensively withcomplicity among co-principals, instigators,
and accessories. However, a mere
agreement to commit a crime is not an
offence except in some cases likeinsurrection. The United States Code
( A n n o t a t e d ) Ti t l e 1 8 , C h a p t e r 1 9
categorizes conspiracy into three sections.
Section 371 deals with conspiracy tocommit offence or to defraud United States;
section 372 deals with conspiracy to impede
or injure officer; and section 373,
solicitation to commit a crime of violence.
D. Recommendation
From the foregoing, undoubtedly, many
countries do not criminalize participationin organized criminal group or the laws are
not all embracing. In some countries, thescope of the offence of conspiracy is limited.
There may be necessity in some countries
like Japan (for groups such as Boryokudan)
to expand the concepts of complicity orconspiracy to agreeing with others tocommit serious offences. There is apparent
need in accordance with draft UN

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RESOURCE MATERIAL SERIES No. 58
Convention to criminalize participation inorganized criminal group, both in theactivities of the group as well as in agreeing
to commit serious crime. If such provision
is not incorporated, it may be possible for
an offender accused of participation in an
organized criminal group to find refuge ina country where there is no such law andin that event, his extradition may not be
possible as the requirement of dual
criminality will not be fulfilled. The draft
convention is all encompassing, gives
guidelines and the concrete basis on whichstates can enact comprehensive domestic
laws for criminalization of participation inorganized criminal group. Once the draft
convention becomes applicable it would
provide a bold legal framework in
combating organized crime. Whileratifying the convention, States may dowell to provide a concise definition of theorganized criminal group and make acriminal offence of participation in an
organized criminal group, at the same time,ensuring that both the types of conduct arepunishable, i.e. participation (as in Italy)
and conspiracy (as in common law
countries).
III. ANTI MONEY-LAUNDERINGSYSTEMS
Money laundering has a direct linkage
to crimes that are organized in character,scope and content. According to thedefinition adopted by the international
criminal police organization (ICPO/INTERPOL), “money laundering denotes
any act or attempted act to conceal or
disguise the identity of illegally obtained
proceeds so that they appear to haveoriginated from legitimate sources”.
Money laundering typifies a deliberate,complicated and sophisticated process bywhich the proceeds of crime are
camouflaged, disguised or made to appear
as if they were earned by legitimate means.

254

Money laundering can be categorized intoa three-stage process. Firstly, severing any
direct link between the money and thepredicate crime generating it, secondly,
obscuring the money trail to foil pursuit,and thirdly, re-investing the crime proceeds
in furtherance to commit more crimes.
The major thrust of Vienna Declaration
on Crime and Justice: Meeting the
Challengers of the Twenty-first Century
and the Naples Political Declaration and
Global Action Plan against Transnational
Crime was to initiate procedure to develop
legal framework for Anti money-launderingsystem. The draft UN Convention against
transnational organized crime, Articles 6
and 7 aptly provide for criminalization of
the laundering of proceeds of crime andmeasures to combat money-launderingrespectively. Considering the draft UN
Convention as an index to articulatecomprehensive legal framework for
combating money laundering, indeed,
many countries run short of the draft
Convention expectations .
Japan has legislation against money
laundering though reported cases of money
laundering are relatively low. In 1992, Law
Concerning Special Provisions for the
Narcotics and Psychotropic Control Law
etc. and other Matters for the Preventionof Activities Involving Controlled
Substances through International
Cooperation, commonly known as“Narcotics Special Provision Law”, wasenacted. Under this special law there areprovisions against concealment of crime
proceeds, receipt of crime proceeds andpresumption of illicit proceeds.
In the same direction, in 1999, Law for
Punishment of Organized Crimes, Controlof Crime Proceeds and other matters,commonly known as “Organized Crime
Punishment Law”, was enacted. This law
is designed to enable Japan to effectively

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
cope with transnational organized crime.
Chapter V, Articles 54 - 58 of this law
provide for report of suspicioustransactions.
In Italy, the legal instruments to deal
with money laundering are embodied in
Article 648 bis and 648 ter of the Penal
Code, let alone Article 12 quinquies of
Decree-Law n.306/1992 (fraudulent
transfer of valuables). Article 648 bis
stipulates, “Except in cases of participationin the (predicate) offence, any person
substituting or transferring money, goods
or assets obtained by means of intentional
criminal offences, or any person seeking toconceal the fact that the said money, goods
or assets or the proceeds of such offences
shall be liable to imprisonment of 4 - 12
years and to a fine of Lit 2 to Lit 30 million”.
Article 648 ter punish, with the same
penalty, the use of money, goods or assetsof unlawful origin for economic or financial
activities, In accordance with EU
directives, Italy enacted Law N0.197/91
and made subsequent modifications
regulating the mechanism of the report ofsuspicious transactions to Italian
Exchange Bureau.
Suspicious
Transactions Service was also establishedin Italy’s National Anti-Mafia Bureau. Thissystem, of banks and other financial
institutions reporting suspicioustransactions is an essential ingredient tocontrol and detect laundered money.
Pakistan enacted The Control of
Narcotic Substances Act in 1997. This Act
has substantial provisions to deal withillegal proceeds derived from drugtrafficking. The National Accountability
Bureau Ordinance 1999, coupled withother administrative regulations, has acomprehensive scheme against illegal
proceeds derived from other crimes. In
neighbouring India, law on money
laundering is in a draft stage.

In the wake of an upsurge of drugtrafficking and other related offences in
Nigeria, the government promulgatedMoney Laundering Decree 1995, Section 14of which provides :”A person who:(a) converts or transfers resources orproperty derived directly or indirectlyfrom illicit trafficking in narcotic
drugs or psychotropic substances, withthe aim of either concealing or
disguising the illicit origin of theresources or property; or aiding any
person involved in the illicit traffic ofnarcotic drugs or psychotropic
substances to evade the legal
consequences of his action or;(b) collaborates in concealing or
disguising the genuine nature, origin,location, disposition, movement orownership of the resources, property...
(c) is guilty of an offence...”Added to the promulgation of money
laundering decree, there wasestablishment of Money Laundering
Surveillance Unit in Central Bank ofNigeria.
In an effort to stem money laundering,Brazil in 1998 enacted law for combating
money laundering. This law was followedby the establishment of Council of
Financial Activities (COAF), a Council thatis responsible for identifying illicit
activities related to money laundering.
In China, Article 191 of the Criminal
Law deals with money laundering which
stipulates that whoever knowing clearly
that illegally gotten wealth and its profits
are coming from drug crimes, or organizedcrimes, smuggling, in order to hide andconceal its origin and nature by various
methods will be sentenced up to 5 years
imprisonment and deprived of all ill-gotten
wealth and its profits.

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RESOURCE MATERIAL SERIES No. 58
Thailand enacted the Money Laundering
Control Act in 1999 as the existing laws
were not able to cope with the problems.
Therefore, Money Laundering Control
Board was established to deal with themoney laundering problems, andTransaction Committee was set up to
examine and audit transactions andproperties related to criminal or predicate
offences. The law requires financial
institutions to report the excessive cash
deposits, the over valued properties andsuspicious transactions as stipulated by
Ministerial Regulations.
While Tanzania and Uganda have notdeveloped any substantive anti money
laundering legal frameworks, they haveformed National Anti Money laundering
Committees in line with principles of theEast and Southern Africa Anti Money
Laundering Group (EASAALMLG). In
Philippines, there is no specific legislation
criminalizing money laundering and theanti money laundering regulations havebeen found wanting especially in respectof such basic features as customer
identification, record keeping and excessivebank secrecy provisions.
In its annual report for 1999-2000, FATF
estimated that revenue generated fromnarcotics trafficking in the USA alone
ranged from US$ 40 billion to US$ 100
billion. However, under United Statesmoney laundering laws, it is a crime toknowingly conduct a financial transaction
with the proceeds of certain specified
unlawful activity set forth in the statutewith either the intent to promote or toconceal the specified unlawful activity.
A. Recommendations
Money laundering is an integral part oforganized crime. Evidently, there are still
yawning gaps in legal frameworks of many
countries to effectively tackle this problem.
The draft UN Convention seeks to include

256

in the predicate offences, offences describedin Article 6 (criminalisation of money
laundering), Article 8 (criminalization ofcorruption), Article 23 (criminalization of
obstruction of justice) and a comprehensive
range of offences associated with organizedcriminal groups. There are certain
countries whose bank secrecy laws makeit attractive to deposit money without easy
identification while there are others whose
procedures do not effectively deter openingof fictitious bank accounts. There are anumber of countries whose company laws
make it easy to register offshore companies
on payment of a small fee with the resultthat there is no proper auditing of financial
accounts. Such facilities tend to promotemoney laundering. In this respect, thedraft UN convention recommends
adequate record keeping and reporting of
suspicious transactions which may requirea basic change in the policy regardingbanks, non-banking financial companies,and company registration and accounts.
Furthermore, a Financial Intelligence Unit
is proposed to be established in member
countries to collect, analyze anddisseminate information about potential
money laundering.
As long as the difference between the
countries with strict anti money launderingsystems and with the lax ones remains, it
is not possible to have an effective global
anti money laundering programme. In
other words, the difference in the rules ofthe strict and lax countries contribute to
the transnational criminal organizations to
exploit the diversities to frustrateinternational efforts against money
laundering. It therefore becomes
imperative for all member countries toincorporate the draft UN Convention into
their domestic laws. In addition to suchincorporation, it may be necessary for all
member countries to adopt a more strict
attitude against money laundering.

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
IV. ASSET FORFEITURE SYSTEM
The overriding objective of members oforganized criminal groups is to acquire
enormous economic power and amass
wealth in area of property acquisition andhuge bank accounts. Organized criminalgroups have consistently developed newtechniques to conceal substantial crime
proceeds from the jurisdiction where such
illicit wealth was generated. Assetforfeiture system is a veritable tool for law
enforcement and judicial criminal process
to deprive criminals of illegally acquired
proceeds, and plough back such proceeds
to the community for the greater good of
the society.
The draft United Nations Convention
against Transnational Organized Crime,
Article 12, provides legal framework to
weaken financial empire of transnationalorganized groups. This article deals withconfiscation and seizure. Article 13 lays
down the framework for international
cooperation for purposes of confiscation.
Article 14 enumerates the methodology andprocedure for disposal of confiscatedproceeds of crime or property. The central
idea of Articles 12-14 is generally to maketransnational organized crime unattractive
and unproductive.
The legal provisions regarding asset
forfeiture system differ from country tocountry. In countries like Nigeria,
Tanzania and Uganda, there are no
discernible laws relating to asset forfeiture.
However, in Nigeria, Advance Fee Fraud
and other related offences Decree and the
Money Laundering Decree have provisions
that allow for seizure and confiscation ofproceeds of crime but with limited scope.
Similarly, in Malaysia, Dangerous Drugs(forfeiture of property) Act was enacted in1988 for forfeiture of assets.

In Indonesia, Part Four (Articles 38-46)of the Code of Criminal Procedure provides
for confiscation of proceeds of crime. Suchgoods (proceeds of crime) in confiscation
because of a civil case or bankruptcy canalso be confiscated in the interest of theinvestigation, prosecution and trial of acriminal case. In Laos, Aricle 32 of Penal
Code provides for seizure and confiscationof properties. Seizure of properties may
be sentenced only in case of serious cases
mentioned in the Penal Code.
The legal framework for asset forfeiture,
confiscation, attachment or seizure in India
is contained in Criminal law Amendment
Ordinance (1944), sections 111 and 112 ofCustoms Act (1964), Smugglers andForeign Exchange Manipulators (forfeitureof property) Act (1976), chapter V-A(sections 68A-68Y) of Narcotic Drugs andPsychotropic substances Act (1985) andsections 102 and 452 of Criminal Procedure
Code.
While Brazil does not have an asset
forfeiture system specific to the cases oforganized crime, Pakistan Criminal
Procedure Code provides for seizure bypolice and forfeiture by court of illegal
proceeds of crimes. Sections 516A and 517
fully empower the courts to dispose ofproperty used or resulting from a crime.
Similarly, Custom Act, 1969 provides forseizure and confiscation of illegal goods.
The Narcotics Control Substances Act,
1997 and NAB Ordinance, 1999 fulfill therequirements of UN Convention 1988 and
UN Convention on TOC.
In China, Section 8, Article 59 of the
Criminal Law provides for confiscation ofproceeds of crime partially or totally. If
proceeds are to be totally confiscated,
provision should be made leaving enoughamount for meeting the daily expenditure
to sustain the family life. In Thailand,
there is provision for forfeiture under the257

RESOURCE MATERIAL SERIES No. 58
Money Laundering Control Act, 1999.
The Japanese asset forfeiture system fororganized crime is embedded in Organized
Crime Punishment Law, 1999. In this law,
the system of securance of confiscation andsecurance of collection of equivalent value
is provided, which is helpful for asset
forfeiture system. There is also provision
for asset forfeiture in drug related offencesin Narcotics Special Provision Law, 1992.
In this law, there is presumption of illicit
proceed relation to property obtained by theparties during engagement in drug related
offences, if the value is deemed
unreasonably large and such property orequivalent thereof is liable to be
confiscated.
The United States has two forfeituresystems in operation, the civil and thecriminal forfeiture system. The basic
distinction between criminal and civil
forfeiture is that criminal forfeiture islimited to a convicted defendant’s personal
interest in property subject to forfeiture,
whereas civil forfeiture focuses on theproperty itself. A criminal, upon conviction,
may be ordered to forfeit all profits orproceeds derived from criminal activity or
any property, real or personal, involved in
the offence, or property traceable to theoffence such as property acquired withproceeds of criminal activity.
In Hong Kong, Section 8 of theConfiscation Order permits the High court
or District court where a person has been
convicted of a specified offence defined
under this ordinance including bothschedule 1 and 2 offence, to make aconfiscation order in relation to the person’s
proceeds of that specified offence.
The Italian Penal Code, Article 416 bisco.7, prescribes that “In the event ofconviction, articles which were used orintended to be used to commit the offence

258

and the proceeds thereof shall be forfeited”.
Furthermore, Law No. 356 of 1992 provides
for compulsory forfeiture of properties
owned by convicts on charges of Mafia
crimes, which turn out disproportionate incomparison with the legal income of theowner; and Law No. 646 of 1982 provides
for compulsory forfeiture of goods of
persons suspected to belong to Mafia typeorganization which are disproportionate to
the legal income. According to the Italianjurisprudence, there is a sharing of theburden of proof in respect of the assets
which, being disproportionate incomparison with the legal income, areliable to be confiscated. In such cases, theprosecution has to first prove that theassets are effectively owned directly or
indirectly by the suspect (who usually use
figureheads or strawmen), and then thatthe assets are disproportionate to theincome of the suspect. The suspect
thereafter must prove the lawful origin of
the assets.
A. Recommendations
The draft UN Convention proposes thatthe offender has to demonstrate the lawful
origin of the alleged proceeds of crime orother properties liable to confiscation if
permissible as per the domestic laws.
However, there is no provision like the
Italian one whereby disproportionate
assets could be forfeited. It therefore may
be desirable to incorporate such provisions
if permissible as per the domestic laws ofvarious countries.
There is need for international
cooperation in freezing, seizure, forfeitureand confiscation of proceeds of crime.
When the proceeds of crime are derived in
one country but moved to other countries
with different laws, difficulties are facedby the authorities in securing them for the
purpose of judicial and other proceedings.
Letters of request are usually sent to theforeign authorities to make the proceeds

116TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
of crime available. In cases where thesuspect is convicted, the trial judge may
have to order confiscation to return theproceeds of crime to the victim. In thisrespect, it is necessary that bilateral or
multilateral agreements should be enteredinto by various countries to facilitate easytransfer of such proceeds to the requesting
country. However, in certain situations, it
may become expedient to share assets on
case-to-case basis, especially in offenceswhere there is no rightful owner of theproceeds, such as proceeds out of drugtrafficking from one country to another.
There should be provision in the mutual
assistance agreements in this regard.

this UN sponsored global action against
them. The international community will
have to mobilize far more effective
countermeasures to fight the battle against
transnational organized criminal groups.
The success, however, will greatly hinge
upon the overall capacity of various nations
to remain united, rising above minor
differences that might crop up while
initiating and executing requests for legal
assistance. Given the world wide support
extended to the UN efforts so far, nations
can hope to provide their citizens a more
safe and secure world in the twenty first
century.

In order to accomplish the objective of
the Tenth United Nations Congress on thePrevention of Crime and the Treatment of
Offenders, the asset forfeiture systems ofsignatory countries have to be morecomprehensive.
V. CONCLUSION
In conclusion, against the backdrop of
globalization of crime, the most appropriate
measure to check the negative trend oftransnational organized crime with its
attendant characteristics is for nations toborrow a leaf from the draft UN Convention
against organized crime by criminalizing
participation in organized criminal groups,
criminalization of the laundering of theproceeds of crime and ensuring thatproceeds of crime are forfeited on domestic
and international levels. The Convention
provides a framework which can be utilized
by the member countries to enact or amend
their own laws keeping sanctity of
constitutional, legal and social structure inmind. Such laws will work as a common
thread running through diverse legal
systems paving way for smoothinternational cooperation. It may, however,be naive to expect that transnational
criminal organizations will surrender to259

RESOURCE MATERIAL SERIES No. 58

260

PART TWORESOURCE MATERIAL SERIES
No. 58Work Product of the 117th International Seminar“CURRENT SITUATION AND COUNTERMEASURES AGAINSTMONEY LAUNDERING”

UNAFEI

117TH INTERNATIONALSEMINAR
VISITING
EXPERTS’
PAPERSVISITING EXPERTS’ PAPERS

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 consists
in “making dirty money look clean”: The
objective of the launderer is to disguise,
definitely, the illicit 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 controlled
places.
Three stages have been identified in the
traditional laundering procedure. The firstis the placement: the launderer gets rid of
the cash originated by the criminal activity
and introduces it in the financial system2.
This is the choke point of the procedure,
where the launderer is more vulnerable
and the attempt to launder can more easily
be identified. The second stage is thelayering: the launderer executes, or orders
the execution of, so many transactions, as
needed, in particular of international* 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 conceal
the true source”.

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 goods
and 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 activity
itself from existing, you should at least
make all the efforts to deprive the criminals
from the proceeds of their crimes! But thisis also the reason why any action againstmoney laundering can only be ancillary to
any other action, preventive or repressive,taken against crime and criminal activity
in general: it’s always a remedy - it comesat all times after an offence has beencommitted!
B. Why Should We Act Against
Money 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 cash
is now tentatively introduced also through otherchannels.

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RESOURCE MATERIAL SERIES No. 58
should not profit from its criminal activity.
In fact, no decent, legitimate, democraticsociety can be built based on ill-gotten
gains.
However, there have been identified
some macro-economic reasons which also
justify that action is taken against money
laundering. According to a Statement by
the Staff of the IMF, presented to the
Washington Plenary of the Financial Action
Task Force in June 1996 3 , “potential
macroeconomic consequences of money
laundering 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 liabilities
and heightened risks for asset
quality for financial institutions,creating systemic risks for thestability of the financial sector andfor monetary developments
generally;(iv) Adverse effects on tax collection
and allocation of public
expenditures due to misreportingof income and wealth;(v) Contamination effects on legaltransactions as transactors become
concerned about possible criminal
involvement;(vi) O t h e r c o u n t r y - s p e c i f i c
distributional effects or asset pricebubbles due to disposition of “blackmoney.”
Nevertheless, there are not only
potential macroeconomic effects of money

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

264

laundering. Also at the microeconomic
level 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 criminal
activities generate, it is possible in asystematic way, to bring legitimate
businesses to bankruptcy, throughdumping and/or the monopoly of entire
sectors of economic activity.
On the other hand, money laundering
can corrupt parts of the financial system
and undermine good governance offinancial authorities. The integrity offinancial markets, an essential element forthe prosperity of the economies, depends
heavily on the application of high legal,
professional and ethical standards. Should
proceeds 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 deal
with 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 corrupt
entities. This can seriously weaken the
moral and ethical standards of society andeven damage the principles underlying
democracy. For all these reasons, action
should be taken against money laundering.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
C. Why Does Action Against Money
Laundering Need To Be
Universal?
In a time of globalisation of financial
markets, it is nevertheless not sufficient
to ensure domestic measures to preventmoney laundering. On the contrary, it isparamount that action against money
laundering and measures to prevent it are
universally applied. It is widely
acknowledged that the strength of the antimoney laundering system depends of thestrength of its weakest link: if a country
does not participate in this battle, themoney being laundered will flow quickly
through it and then return to the globalised
financial system. In such a situation,
experience shows that detecting the illegal
origin 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 ensure
the co-operation in the fight against money
laundering 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 money
laundering determines the abandon of theliberalisation of the financial markets andthe return to administrative controls of
foreign exchange and of investment. It does
not seem that there is a need to be so. In
fact, the prevention of money laundering

4

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

depends of an adequate legislative
framework, of the monitoring of
information and of international cooperation. The same occurs with theneeded supervision to ensure a smoothfunctioning of free and competitive
financial markets - adequate legislation,
timely and complete information andinternational co-operation.
This paper reports on three different but
related experiences. Section I deals with
the FATF experience, and the strategy tobuild a worldwide anti-money laundering
network. Section II discusses thedevelopments of the European Union fightagainst money laundering, in particular
the Directive “on the prevention of the useof the financial system for the purpose ofmoney laundering”. Section III informs on
the Portuguese experience to fight money
laundering. A short Conclusion tries tobring together some thoughts on the futureof the fight against money laundering.
II. THE FATF EXPERIENCE
A. Early Initiatives
The recent fight against money
laundering had some precursors. In 1980,
on June 27, the Council of Europe approved
its Recommendation No R (80) 10 on
Measures 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 it
included a general recommendation on theidentification of clients.
In December 1988, the Basle Committeeon Banking Regulations and Supervisory
Practices adopted a Statement of Principles
on the prevention of criminal use of thebanking system for the purpose of money
laundering. The three main principles
refer to customer identification - “knowyour customer”, compliance with laws and265

RESOURCE MATERIAL SERIES No. 58
co-operation with law enforcement
agencies. The Statement encouragedbanks to put in practice measures to ensurethat all customers are properly identified,that transactions that do not appear
legitimate are discouraged and that cooperation with law enforcement agencies
is achieved.
Still in 1988, on the 19th of December,the United Nations Convention Against
Illicit Traffic in Narcotic Drugs andPsychotropic Substances (the Vienna
Convention) was adopted, and theincrimination of money laundering was
included in an international Treaty for the
first time.
In 1989, in response to mounting concern
over money laundering, namely over drugtrafficking money laundering, theFinancial Action Task Force on Money
Laundering (FATF) was established by theG-7 Arche Summit that was held in Paris.
The Task Force included representatives
from the G-7 members, the European
Commission and eight other countries. In
April 1990, the Task Force published areport containing forty Recommendations
to fight money laundering, which were to
become the standard by which anti-money
laundering measures should be judged.
Almost one year later, on the 11 th ofNovember 1990, the Council of Europe
opened for signature its Convention on
Laundering, Search, Seizure andConfiscation of the Proceeds from Crime.
This Convention is open for signature by
the member States of the Council of Europe
and the non-member States which haveparticipated in its elaboration and foraccession by other non-member States. It
criminalizes money laundering the way the
Vienna Convention had already done it.
F i n a l l y, t o c l o s e t h i s c y c l e o finternational instruments, the Council of266

the European Economic Community
approved, on the 10 th June 1991, theDirective 91/308/EEC “on the preventionof the use of the financial system for the
purpose of money laundering”.
B. Initial Developments
The Financial Action Task Force on
Money Laundering (FATF) was established
as an inter-governmental body to develop
and promote policies, both at national andinternational levels, to combat money
laundering. The Task Force is thus a“policy-making body”, aiming at improving
measures to combat money laundering.
The FATF does not have a tightly definedconstitution or an unlimited lifespan. For
the time being, the Task Force has beenreviewing its work and mission every five
years, and it has been agreed to continue
until 2004. Its future depends on theassessment made by the members’
governments that the FATF is still needed
and that its structure is the best and mostefficient way to carry on the mission
assigned to it. However, due to its own
nature of a Task Force, there will be a point
in time where the question will be renewed
on whether to conclude its work or tochange its nature.
The first five-year mandate of the FATF
lasted from 1989 through 1994. During
such period, the Task Force achieved
considerable results. The report on themoney laundering situation was drafted
and the Forty Recommendations were
established. The first substantial
enlargement of the Group took place withall the at that time members of the OECDjoining the Group, together with HongKong and Singapore, as well as the Gulf
Co-operation Council. The monitoring ofmembers’ progress in implementing antimoney laundering measures was launched.
Self-assessments of the situation in eachmember were prepared. The first round of

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
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,and possible countermeasures.
Interpretative Notes on several
Recommendations were drafted to clarify
some issues and provide additional
guidance. The Caribbean Financial Action
Task Force was launched.
The most important achievement of theperiod was undoubtedly the issuance of the
Forty Recommendations. They cover therole of the legal and financial systems in
the fight against money laundering, as wellas the area of international co-operation.
They provide a complete set of measures
to build a coherent anti-money launderingsystem, and are intended for universal
application. Nevertheless, they provide
sufficient flexibility to be followed andadopted by countries and jurisdictions withdifferent legal systems, in different regionsof the globe.
In April 1994, the London Plenary
meeting of the FATF approved the
document FATF-V/PLEN7/REV1 on the
future of the FATF, prepared by the United
Kingdom Presidency. The Ministers of the
FATF 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 members
compliance with the Forty
Recommendations, to revise and updatesuch Recommendations and to increase therole of external relations work of the FATF.
C. Consolidation and Recognition
The second five-year mandate of the
FATF (1994-1999 5) was an important
period of consolidation of the work of the

Task Force and of recognition of its workfrom the outside world. The FATF
improved the level of its Forty
Recommendations, monitored theimplementation of the Recommendationsin the member countries, continued todevelop the typologies exercises, andcontributed to the launching of the Asia
Pacific Group on money laundering and of
the Committee of the Council of Europe forcountries that are not FATF members- thePC-R-EV Committee.
1. The Forty Recommendations
During this second period of existence,
the FATF carried out the review of the
Forty Recommendations to keep them fully
up to date with existing trends and to
anticipate future threats. This occurredunder the Us Presidency of the FATF, in
1995/96. Additional consideration wasgiven to nine particular matters. Some
Recommendations were amended and newones were introduced. The major changes
were6:(i)
The extension of the money
laundering predicate offences
beyond narcotics trafficking, toinclude all serious crimes;(ii) The mandatory reporting of
suspicious transactions;(iii) The application of the financial
Recommendations to the bureauxde change and all other non-bankfinancial institutions;(iv) The application of the financial
Recommendations to the financial
activities of non-financial
businesses or professions;(v) T h e e x p a n s i o n o f t h e
Recommendation on customer
5

The FATF rounds (coinciding with each Presidency)
run from July 1st through June 30th.
6 A full description of the stocktaking review of the
Forty Recommendations can be found at the FATF
VII Annual Report, available at the FATF Internet
site: http://www.oecd.org/fatf/.

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RESOURCE MATERIAL SERIES No. 58
identification, to take into accountproblems raised by theidentification of legal entities;(vi) The particular attention required
when dealing with shell
corporations;(vii) The need to pay special attention
to and if necessary take measures
to preclude the use of new ordeveloping technologies for money
laundering purposes;(viii) The encouragement of the use of“controlled deliveries” techniques;(ix) The monitoring of cross-bordercash movements.
The FATF 40 Recommendations gained
worldwide recognition as the international
standards in this area during this period.
They have been endorsed by the Caribbean
Financial Action Task Force (CFATF), theCommonwealth Heads of Government and
Finance 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 for
the Asia Pacific Group (APG), adopted inTokyo in March 1998, also recognised that
the Forty Recommendations are acceptedinternational standards. Finally, on June
10th, 1998, the Special Session of the United
Nations General Assembly recalled that“the Forty Recommendations of the
Financial Action Task Force... remain thestandard by which anti-money laundering
measures 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-money
laundering legislation and programmes inaccordance with the action plan againstmoney laundering.
The action plan, a document entitled“Countering Money Laundering” whose
content derives directly from the Forty

268

Recommendations, offers an excellent
panoply of principles to be applied andmeasures to be taken. Essentially, it referst o t h e t h r e e FAT F m a i n l e v e l s o fintervention: the legislative, the financial
and the law enforcement. At the legislative
level States are urged to establish a
legislative framework to criminalize money
laundering 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 legal
mutual assistance. At the financial level
States are urged to establish a regulatory
regime to deny criminals and their illicit
funds access to national and international
financial systems. Main tools: customer
identification in accordance with the wellgrounded principle “know your customer”,
record keeping, mandatory reporting of
suspicious activity and removal of banksecrecy impediments. At the enforcementlevel, the main tools are: informationsharing mechanisms, extradition
procedures and other measures to provide
for effective detection, investigation,prosecution and conviction of criminals
engaged in money laundering activities. It
can be immediately recognised that the
document incorporates the policies
established in the Forty Recommendations,and has therefore added weight to theapproach outlined therein.
Further to the review of the
Recommendations, several other essential
FATF documents were produced from 1994
through 1999, in particular on the policy
for expansion of the membership; on thepolicy for dealing with members not incompliance with the Forty
Recommendations; on the participation ofinternational organisations in FATF
meetings, and on the assessment of theperformance of non-members.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
2. The Mutual Evaluations
The Task Force continued to monitor the
implementation by its members of the
Forty Recommendations, namely throughself-assessment exercises, cross-country
reviews of measures referring to particular
Recommendations and the conclusion of
the second round of mutual evaluations of
all its members.
The mutual evaluation process has been
a central pillar of the work of the FATF,
and has led to important improvements inthe standard of anti-money laundering
measures in all FATF members. This peerpressure system whereby countries open
themselves to independent scrutiny, andare evaluated and subject to criticism by
their own peers, has been very successful.
This success stems not just from theprocess that is used to produce the country
report (questionnaire, on-site visit,
discussion in the Plenary), but also fromthe capacity of the Group to follow up themeasures that are taken to rectify any
deficiencies found.
All FATF-style regional groups haveaccepted the mutual evaluation concept
and some groups have now completed a
substantial number of reports. The
advantages for the country evaluated are
significant:(i)
It receives an independent andobjective analysis of its money
laundering system;(ii) The review is a comprehensive one,which looks at all aspects of thesystem;(iii) The evaluated country obtains
advice on best practice elsewhere
and on how its own system could
be improved; and(iv) The persons who participate as
evaluators, and the countries they
represent, benefit by evaluating
the system in another country.

The mutual evaluation process isenhanced by the FATF’s policy for dealing
with members not in compliance with the
Forty Recommendations. The measurescontained in this policy represent a
graduated approach. There are five steps
in this policy. The first is a progress reportat plenary meetings. A letter by the FATF
President and/or a high-level mission to thenon-complying country can follow it. Then
comes the application of Recommendation
21, which requires financial institutions to
pay special attention to transactions withpersons, including companies and financial
institutions in countries that do not orinsufficiently apply the Forty
Recommendations. As a final measure, theFATF membership of the country inquestion can be suspended. Steps takenin the year 2000 with regard to anonymous
passbooks by a FATF member are an
excellent example of how mutual
evaluations can lead to a more effective
international anti-money launderingsystem.
3. Preparing the Future
During FATF-IX, under the Belgian
Presidency, the FATF conducted a review
of its future. On April 28 1998, theMinisters of the FATF and the European
Commissioner for Financial Services
approved the FATF’s strategy for the years
1999 through 2004. In substance, the needfor continued action against money
laundering was acknowledged, themembership strategy was defined and thefuture direction and objectives of the FATF
were considered. It was recognized that,
although standards have improved
enormously in the past few years,
particularly within the FATF membership,
the challenge is to make those standards
truly global. The FATF’s strategy for the
future therefore emphasises theimportance of spreading the anti-money
laundering message to all continents andregions of the globe. The other major tasks

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RESOURCE MATERIAL SERIES No. 58
of the FATF are the improvement of theimplementation of the Forty
Recommendations in FATF members andthe strengthening of the review of money
laundering 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 new
payment technologies, the need forinternational co-operation has increased
substantially. This strategy is deemed themost cost-efficient way of countering money
laundering.
D. Opening to the World
1. S p r e a d i n g t h e A n t i - M o n e yLaundering Message
The main objective of the FATF for theperiod 1999/2004 is to create a worldwide
anti-money laundering network. This is
to be achieved by expanding the FATF to alimited number of strategically important
countries; fostering the development ofcredible and effective FATF-style regional
bodies; improving the co-operation with
relevant international organisations, andsecuring the adoption of adequate antimoney laundering measures in nonmember countries through the applicationof the FATF’s policy for assessing nonmembers.
As it was already mentioned, in thepresent circumstances of the world
economy, it is paramount that the fightagainst money laundering becomes truly
global. The strength of the anti-money
laundering 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 coherently
fighting money laundering are jeopardized
by those countries who do not wish to do
anything or who are doing little against the270

money laundering threat. The FATF hastherefore, in 1999/2000, under thePortuguese Presidency, started thisambitious project of creating the worldwide
anti-money laundering network.
(i)

Expanding the FATF to a limited
number of strategically important
countries

In June 2000, it materialized the second
enlargement of the membership in thehistory of the FATF, by accepting
Argentina, Brazil and Mexico as new full
members 7 , after all three candidates
having completed successfully a mutual
evaluation exercise. The efforts are now
geared to other regions of the globe where
the Task Force is less represented, namely
Africa, Asia and Eastern Europe.
(ii)

Fostering the development ofcredible and effective FATF-style
regional bodies

The FATF external relations programme
contributed to raise awareness of themoney laundering problem throughout theworld. Under the current strategy, thesystematic development of existing FATFstyle regional bodies, and theencouragement 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 a
FATF-endorsed procedure; carrying out
self-assessment surveys and regional
typologies exercises; having one or several
FATF members within their membershipand a secretariat which would liaise
regularly with FATF, is vital for thedevelopment of the strategy.
7

Argentina, Brazil and Mexico had joined the FATF
as observer members, pending their mutual
evaluation process, at the September 1999 Plenary
meeting in Porto, Portugal.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
Therefore, the FATF continues tosupport the work of the already existing
FATF-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 antimoney laundering initiatives of the
Offshore Group of Banking Supervisors(OGBS). The worldwide anti-money
laundering network requires, nevertheless,an entire coverage of all regions. This is
why the policy of the FATF is to strongly
support the establishment of new FATFstyle regional bodies. These are theEastern and Southern Africa Anti-Money
Laundering Group (ESAAMLG) 8 , theIntergovernmental Task Force against
Money 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 with
relevant internationalorganisations
A third element indispensable fordeveloping the worldwide network is the
co-operation with relevant internationalorganisations. Indeed, the FATF does not
act in a vacuum, and a number of otherinternational organisations or bodies (fromthe United Nations to the regional
development Banks) play a significant rolein the fight against money laundering.
Being the world’s leading authority for
setting standards and monitoring
compliance in the anti-money launderingarea, the FATF’s policy is to strengthen cooperative links with all relevant
8

Launched in Arusha, Tanzania, in August 1999.
Its first meeting took place in Dakar, Senegal, in
November 2000.
10 Launched on the 8th of December 2000, in
Cartagena de Indias, Columbia.
9international organisations, and inparticular with the MultilateralDevelopment Banks and the International
Monetary Fund.
(iv)

Securing the Adoption of Adequate
Anti-money Laundering Measuresin Non-member Countries throughthe application of the FATF’s policy
for assessing non-members

A last and essential component of thestrategy to counter money laundering
worldwide relates to the situation in nonmember countries. Taking into account theinterdependence and interrelation of antimoney laundering policies it is ofparamount importance to secure theadoption of adequate anti-money
laundering measures in non-member
countries to prevent, detect and punish
money laundering. In this context, the Non
Co-operative Countries and Territories(NCCTs) exercise plays an irreplaceablerole to reduce the vulnerability of theinternational financial system to money
laundering.
The FATF has therefore engaged in asignificant initiative to identify key antimoney laundering weaknesses injurisdictions inside and outside its
membership. It started by setting up
twenty-five criteria, consistent with the
Forty Recommendations, to identify
detrimental rules and practices that
obstruct international co-operation againstmoney laundering. Main obstacles
identified were loopholes in financial
regulation, inadequate or no requirements
for the registration of businesses and legal
entities and the identification of theirbeneficial owners, lack of international
administrative and judicial cooperation,and inadequate resources for preventing,detecting and repressing money
laundering. Then, the FATF reviewed theanti-money laundering regimes of a271

RESOURCE MATERIAL SERIES No. 58
number of jurisdictions against the abovementioned twenty-five criteria. The
reviews involved the gathering andanalysis of all the relevant information. A
draft report was prepared and eachreviewed jurisdiction sent their commentson their respective draft reports. These
comments and the draft reports themselves
were 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 FATF
Plenary under the Portuguese Presidency
made public a “Report to identify Non-Cooperative Countries or Territories:
Increasing the Worldwide Effectiveness of
Anti-Money Laundering Measures” 11 .
Fifteen countries have been identified as
Non-Co-operative in the fight againstmoney laundering: Bahamas, Cayman
Islands, Cook Islands, Dominica, Israel,
Lebanon, Liechtenstein, Marshall Islands,
Nauru, Niue, Panama, Philippines, Russia,
St. Kitts and Nevis, St. Vincent and the
Grenadines. It is expected that this NCCTs
exercise, 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 as
non co-operative, as well as in othercountries that had not yet been subject to
the NCCT survey. As the NCCT list is an
open one, it is expected that some names
will be deleted while some others could be
added. A particularly important issue isto guarantee fairness and transparency
throughout the whole process, the only way
11 The full text of this report can be found at the FATF

website: http//www.oecd.org/fatf/272

to avoid undermining the credibility of the
FATF, and to secure the possibility to deal
constructively with the reviewed
jurisdiction 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 best
result to be achieved by the NCCT exercise
would be to arrive at the conclusion that
there are no countries to be listed.
2. Strengthening the Review ofMoney Laundering Trends andCountermeasures
Further to the spreading of the antimoney laundering message, another majortask to be accomplished by the FATF
during the years 1999/2004 is to strengthen
the review of money laundering trends andtechniques (the third consisting in the
improvement of the implementation of the
Forty Recommendations in the member
countries).
Deep knowledge of money laundering
trends and techniques is essential to findthe adequate countermeasures. The
typologies meetings have generated themain source of expertise in this field, withlaw enforcement officials exchanging theirexperiences, annually. However, an effort
to make discussions more interactive
should be made. The increased
contribution from FATF-style regional
bodies and other relevant observerinternational organisations, as well as theparticipation of law enforcement andregulatory delegates from non FATF
members is an experience that has started
during FATF XI and I hope it will continue
in the future permitting to increase theinternational knowledge of the money
laundering phenomenon. An extension of
the geographical scope of the futuretypologies exercises is also in the agenda
for the next meetings.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
The next years will be of crucial
importance for the fight against all forms
of serious crime, in particular againstorganized crime, narcotics trafficking,corruption, terrorism, etc. The fightagainst money laundering can make animportant contribution to that purpose, as
it may deprive criminals from the use of
the profits of their criminal activity.
However, it should be taken into accountthat no action against the laundering of theproceeds of serious crimes will, by itself
alone, achieve the goal of overcoming the
problems raised by organized crime. A
much more comprehensive action isneeded, and any illusions on this point can
only give rise to future delusion!
III. THE EUROPEAN UNIONEXPERIENCE
A. The 1991 Directive
The European Commission was amember of the Financial Action Task Forcesince 1989. However, the first legal text of
the Economic Community (EEC) on money
laundering was published only in June
1991. The legal instrument chosen to set
the Community standards on the matter
was the Directive 91/308/EEC “on theprevention of the use of the financial
system for the purpose of money
laundering”12.
The Directive profited substantially fromthe work of the FATF, and most of the
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 liberty
and flexibility to find the most adequate ways toaccomplish their task through the transposition of
the directive into its internal law. The 1991
Directive sets only minimum standards, and forthat reason, any Member State may adopt or retainin force stricter provisions in the field covered by
the Directive to prevent money laundering.

solutions included in its text were alreadycontemplated in the Forty
Recommendations. Nevertheless, while
the Forty Recommendations dealt with thelegal and financial systems, as well as with
the international co-operation, theDirective, in accordance with theCommunity rules then in force, had its
scope limited to the financial system. As
the title indicated, the objective of the
Directive was much more limited than the
Recommendations: it sets the rules to“prevent the use of the financial system forthe purpose of money laundering”. The
reason for the introduction of the Directive
was mainly the protection of the financial
system of the Community. On one hand,protection against the advantages thelaunderers could try to take of the existing
freedoms of capital movement and to
supply financial services; on the other
hand, protection of the single market, since
the lack of Community action againstmoney laundering could lead Member
States, to adopt measures which could beinconsistent with completion of suchmarket.
The Directive used a definition of money
laundering taken from that adopted in the
Vienna Convention 13, but admitted thepossibility for the Member States to extend
the predicate offences beyond drugtrafficking to any other criminal activity
designated as such for the purposes of the
Directive by each Member State.
1. O b l i g a t i o n s I m p o s e d t o t h eMember States
The Directive imposes several
obligations on the Member States. The firstis the obligation to ensure that money
laundering as defined in the Directive is
prohibited. It is assumed that theprohibition will be made mainly by penalmeans, within the framework of the Vienna
and Strasbourg Conventions. However, itis acknowledged that the penal approach

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RESOURCE MATERIAL SERIES No. 58
should not be the only way to countermoney laundering and, therefore, several
obligations with regard to the financial
system 14 are imposed on the Member
States.
Member States are required to ensurethat credit and financial institutions
identify their customers by means ofsupporting evidence when entering intobusiness relations, particularly when
opening an account or savings accounts, orwhen offering safe custody facilities”(article 3). The most important
contribution the financial system can giveto the fight against money laundering is
13 “Money laundering means the following conduct

when committed intentionally:- the conversion or transfer of property, knowingthat such property is derived from criminal activity
or from an act of participation in such activity, forthe purpose of concealing or disguising the illicit
origin of the property or of assisting any person
who is involved in the commission of such activity
to 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 property
was derived from criminal activity or from an actof participation in such activity,- participation in, association to commit, attempts
to commit and aiding, abetting, facilitating andcounselling the commission of any of the actions
mentioned 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 insurance
activities. It covers also branches located in theCommunity of all such institutions even if theirhead offices are situated outside the Community274

the help to detect and to trace illegal funds.
Therefore, the Directive introduced several
other important obligations. The obligation
to keep a copy or the references of theevidence required for customer
identification for a period of at least five
years after the relationship with theircustomer has ended, or in the case oftransactions, of the supporting evidence
and records for a period of at least five years
following execution of the transactions(Article 4). The obligation to examine withspecial attention any transaction which
financial institutions regard as particularly
likely, by its nature, to be related to money
laundering (Article 5). The obligation of
the financial institutions to cooperate fully
with the authorities responsible forcombating money laundering, by informing
those 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 adequate
procedures of internal control andcommunication in order to forestall andprevent operations related to money
laundering, and to take appropriate
measures so that their employees areaware of the provisions contained in the
Directive.
The most striking contrast between the
obligations created by the Directive and the1990 FATF Recommendations was the
mandatory nature of the reporting of
suspicious transactions. In fact, while the1990 Recommendations admitted that thereport could be made only on a voluntarybasis, the Directive, from the very
beginning, established a mandatory regimeof suspicious transactions report. The
remaining obligations created by the
Directive were equivalent to the measuressuggested in the FATF Recommendations.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
They constitute the basis for the cooperation of financial institutions and theirsupervisory authorities with theauthorities responsible for combating
money laundering.
2. The Lifting of the Banking Secrecy
A major discussion took place in the lateeighties/first half of the nineties aroundbanking secrecy. Traditionally, therelations within the financial sector werebased on the confidentiality of therelationship between the banker and his
customer: the banker did not ask questions;the customer did not make disclosures. The
fight against money laundering, namely
against drug trafficking money laundering,
introduced an entirely different approach.
For the first time, it was said that thebankers should care about the origin of
their customer’s money, co-operate withlaw enforcement agencies, and denouncesuspicious transactions of their customers,
without alerting them to this fact. For the
traditional banking system, thisconstituted a Copernican revolution.
To introduce this new concept in thefinancial sector was not an easy task. A
complete 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 saw
banking secrecy as the essential basis of
the financial business. Nevertheless, theForty Recommendations clearly
established that “secrecy laws should beconceived so as not to inhibit
implementation of the Recommendations”,
and the Directive required Member States
to lift the banking secrecy, either offinancial institutions or of supervisory
authorities, whenever necessary, namely
when a suspicion arises. The mandatory
reporting of suspicious transactions cameinto force for all EC Member States on the
1st January 1993.

Ten years later the discussion, as far as
the financial system is concerned, seems
entirely outdated15. In fact, in particularafter the BCCI case, financial institutions
understood that it was in their interest to
avoid 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 or
negligently involved in a money launderingcase can only contribute to its discredit. No
serious institution can afford to see its
image and reputation shaken by thesereasons.
B. The Amendment of the 1991
Directive
1. The Amendment Process
The 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 the
C 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. The
European Commission, came to theconclusion that the 1991 Directive, “as oneof the main international instruments inthe fight against money laundering, should
be updated in line with the conclusions of
the Commission and the wishes expressedby the European Parliament and theMember States. In this way the Directive
should not only reflect best international
practice in this area but should also
continue to set a high standard in protecting
the financial sector and other vulnerable
activities from the harmful effects of theproceeds of crime”. Having reached thisconclusion, the European Commission, who
has the right of initiative under
15 It restarted, however, with regard to the so-called

gatekeepers: lawyers and accountants.

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RESOURCE MATERIAL SERIES No. 58
Community law, presented, in 1999, a
Proposal for a European Parliament andCouncil Directive amending Council
Directive 91/308/EEC of 10 June 1991 on
prevention of the use of the financial
system for the purpose of money
laundering. The proposal was ambitious.
According to the Explanatory
Memorandum, “as the 1991 Directive
moved ahead of the original FATF 40
Recommendations in requiring obligatory
suspicious transaction reporting, theEuropean Union should continue to impose
a 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 0
Recommendations. In particular, the EU
can show the way in seeking to involvecertain professions more actively in the fightagainst money laundering alongside thefinancial sector”. The main changes
introduced by the Proposal with regard to
the 1991 Directive were a widening of theprohibition of money laundering toembrace not only drugs trafficking but also
all organized crime, and an extension of theobligations of the Directive to certain nonfinancial activities and professions.
According to the European Union
legislative process, a Working Group of theC o u n c i l 16 w a s s e t t o a n a l y s e t h eCommission’s Proposal and the European
Parliament prepared its opinion. The
Council Working Group started to consider
the Proposal in late 1999, and concluded
its work under the Portuguese Presidencyof the European Union during the firstsemester of the year 2000. The European
Parliament, after having considered the
Proposal in several different Committees,
formally approved its opinion on July 5,
2000. Taking into account the opinion of
the European Parliament, as well as theopinion of the Economic and Social
16 The Council integrates Ministers from each

Member State.

276

Committee, a political agreement was
unanimously reached at the Council levelin September 2000 to adopt a Common
position of the Council with a view to theadoption of the new Directive. The
European Parliament has now to consider
whether it fully accepts the views of theCouncil or still suggests amendments. If
the Parliament accepts the Common
Position of the Council, the Directive isimmediately adopted; if the Parliament
makes new suggestions, there will be aconciliation process between the
Parliament and the Council.
2. The Contents of the Amendments
The Commission’s proposal had theintention to widen the predicate offences
and to extend the scope of the 1991
Directive to several non-financial
businesses 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 resulting
from 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 as
branches located in the Community offinancial institutions, whose head offices
are inside or outside the Community come
explicitly under the directive. It also
included in the definition investment firms
and collective investment undertakings
marketing its units or shares, and thus
made them subject to the obligations
contained in Directive.
One of the two major changes to the 1991
Directive is the definition of criminal

117TH INTERNATIONAL SEMINAR
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activity. Under the 1991 Directive,
criminal activity means “a crime specified
in Article 3 (1) (a) of the Vienna Convention
and any other criminal activity designatedas such for the purposes of this Directiveby each Member State”. This was a narrow
definition, which was already left behindby the revision of the FATF Forty
Recommendations, namely
Recommendation 4, which refers to serious
crimes. The new EU definition identifies
criminal activity with any kind of criminal
involvement in the commission of a serious
crime. It then defines serious crimes as
being, at least, narcotics trafficking, theactivities of criminal organisations, fraud
against the European Communities’
financial interests; corruption and any
offence which may generate substantial
proceeds 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, they
will revise the definition of predicate
offences to money laundering, (essentiallyto include all crimes punishable with morethan one year imprisonment)17. With the
new wording, two major causes of concern
come now explicitly under the definition of
criminal activity: organized crime andcorruption.
In addition to the widening of the list ofpredicate offences, the second major change
the Common position introduces in relation
to the 1991 Directive is the extension of
the obligations imposed therein to several
non-financial businesses and professions.
According to the new Article 2a, Member
States shall ensure that the obligations laid
down in the Directive are imposed on
auditors, external accountants and tax
advisors; real estate agents; notaries andother independent legal professionals,
dealers in high-value goods and casinos18.
Thus, the European Union tries to give ananswer to the modern trends in money
laundering. Actually, there is evidence thatthe tightening of controls in the financial
sector 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 next
section, 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 required
to comply with the Directive’s obligations.
They will have to respect the rules oncustomer identification, record-keeping,increased diligence, co-operation with law
enforcement authorities and internal
control and training.
The new directive will also improve therules on customer identification, in
17 The full definition of serious crimes in the Common

Position reads:“Serious crimes are, at least:- any of the offences defined in Article 3(1)(a) of theVienna Convention;- the activities of criminal organisations as definedin 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 of
the 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 of
the Member State.”
Member States shall before [three years from theentry into force of the Directive] amend the definition
provided for in this indent in order to bring thisdefinition into line with the definition of serious
Crime of Joint Action 98/699/JHA. The Council
invites the Commission to present before [...] aproposal for a Directive amending in that respect
this 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, Internet
banking, direct banking and other types of
non-face to face financial transactions. A
new 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-money
laundering obligations has raised
controversy. During the last year or two, a
new term has made its career in the antimoney laundering jargon: the gatekeeper.
A gatekeeper can be defined as someone
who is responsible for allowing someone
else access to a field, although he/she does
not necessarily own the gate or the fieldhe/she allows you access to.

18 Article 2A of the Common position reads:“Member

Gatekeepers are, according to the recent
terminology, lawyers and accountants.
They provide several services that may
open “gates” to financial transactions.
Such financial transactions may be used
for laundering purposes. In fact, financialtransactions made for money laundering
purposes are no different in substance fromlegitimate financial transactions: the only
difference being the origin of the funds
i n v o l v e d . M o r e o v e r, l a w y e r s a n d
accountants have been found involved intomoney laundering schemes, and therefore

States shall ensure that the obligations laid downin this Directive are imposed on the following
institutions:
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 persons
acting in the exercise of their professional
activities:
3. auditors, external accountants and tax advisors;
4. real estate agents;
5. n o t a r i e s a n d o t h e r i n d e p e n d e n t l e g a lprofessionals, when they participate, whether:(a) by assisting in the planning or execution oftransactions for their client concerning the(i) buying and selling of real property or
business entities;(ii) managing of client money, securities orother assets;(iii) opening or management of bank, savingsor securities accounts;(iv) organisation of contributions necessary forthe 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 precious
stones or metals, whenever payment is made in
cash, and in an amount of EUR 15000 or more;
7. casinos.”278

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 transaction
with a customer who has not been physicallypresent for identification purposes (“non-face to face
operations”). Such measures shall ensure that thecustomer’s identity is established, for example, by
requiring additional documentary evidence, or
supplementary measures to verify or certify the
documents supplied, or confirmatory certification
by an institution subject to this Directive, or byrequiring that the first payment of the operations
is carried out through an account opened in thecustomer’s name with a credit institution subject
to this Directive. The internal control procedures
laid down in Article 11 (1) shall take specific accountof these measures.”117TH INTERNATIONAL SEMINAR
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attention has been brought to the role of“gatekeepers.
Gatekeepers may provide numerous
services, which can be misused for money
laundering purposes: introduction to banks
and other financial institutions,management of deposit, savings or
securities accounts, real estatetransactions, 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 accountants
raises some difficult issues, namely on how
to harmonize the requirements of theprofessional secrecy and the needs to fightorganized crime. A balanced solution
requires a lot of good sense, and aparticular ability to find the adequateanswers to several questions, specificallywhen lawyers and accountants should be
subject to anti-money laundering
provisions and when their activities should
be excluded from any such provisions.
After a deep debate, the Council decided
that notaries and independent legal
professionals, as defined by the Member
States, should be made subject to theprovisions of the Directive whenparticipating in certain financial or
corporate transactions, since in thesetransactions there is a greater risk of theirservices being misused for money
laundering purposes. However, it isacknowledged that where independent
legal professionals are ascertaining thelegal position for a client or representing aclient in legal proceedings, there should be
an 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 reasoning
applies to auditors, external accountants
and tax advisors who, in some Member
States, may defend or represent a client in
the context of judicial proceedings orascertain a client’s legal position.
The new Article 2 A-5 (see footnote 18),
subjects notaries and other independent
legal professionals to the obligations laid
down in the directive in two different
situations: when they assist in the planningor execution of certain transactions fortheir clients or when they act on behalf of
their clients in any financial or real estatetransaction. The rationale for this solution
is the idea that the privilege of professionalsecrecy was granted to the lawyer/customer
relationship to safeguard the fundamental
right of defence. The intervention in
financial transactions, namely in thetransactions referred to in the new
directive, cannot be construed as a typicalact of the lawyer’s profession, and therefore
does not deserve that kind of protection.
On the other hand, from the axiologicalpoint of view, the value of the fight against
serious criminality precedes, in these cases,
other values.
Another issue that had to be solved in
the new directive was the question of theentity that should receive suspicioustransactions reports from notaries andother independent legal professionals. The
solution found was that Member Statesshould be allowed, in order to take properaccount of these professionals’ duty of
discretion owed to their clients, to nominate
the bar association or other self-regulatory
bodies for independent professionals as the
body to which reports on possible money
laundering cases may be addressed bythese professionals. Thus, the new Article
6 (3) states that “In the case of the notaries
and independent legal professionals
referred to in Article2a(5), Member States
may designate an appropriate self-

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RESOURCE MATERIAL SERIES No. 58
regulatory body of the profession concerned
as the authority to be informed of the facts
referred to in paragraph 1(a) and in suchcase shall lay down the appropriate formsof cooperation between that body and theauthorities responsible for combating
money laundering.
Member States shall not be obliged toapply the obligations laid down inparagraph 1 [obligation to report suspicions
and to provide the authorities with allnecessary information] to notaries,
independent legal professionals, auditors,
external accountants and tax advisors withregard to information they receive from or
obtain 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 concerning
judicial proceedings, including advice on
instituting or avoiding proceedings,
whether such information is received or
obtained before, during or after suchproceedings”
This is the status of the discussions as
far as the European Union directive isconcerned. A final word, however, should
be said on other developments at the EU
level. A Political agreement has beenreached on a framework decision on money
laundering, the identification, tracing,
freezing, seizing and confiscation of
instrumentalities and the proceeds ofcrime, and also on the extension ofE u r o p o l ’s m a n d a t e t o l a u n d e r i n gtransactions in general. A Decision has
been approved facilitating cooperation andinformation exchange between thefinancial intelligence units of the Member
States. All these measures try to make thefight against financial crime more effective.

280

IV. THE PORTUGUESE
EXPERIENCE
Portugal being a member of the FATF
and of the European Union, the Portuguese
experience follows naturally thedevelopment of the fight against money
laundering in these “fora”. From this pointof view, more than repeating the contentsof all legislation, which materializes, andin some cases anticipates, the solutions of
the Forty Recommendations and of the EU
Directive, it might be more interesting to
draw the attention to one particular aspectof the implementation of an anti-money
laundering system: the need for cooperation. 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-Money
Laundering Legislation
The development of the Portuguese
legislation against money laundering
started with the implementation of therules of the 1988 United Nations
Convention (the Vienna Convention).
In January 1993, a Decree-Law wasissued (Decree-Law nr. 15/93, dated 22-0193), which incriminated autonomously themoney laundering conduct, i.e., created theoffence of drug money laundering. This
was a major change, since before the entry
into force of such law, money laundering
was punishable within the framework of
the obstruction to justice offence, but there
were no cases under this legislation.
The first sign of the need for co-operationin this field arose during the drafting of
the Decree-Law (actually during thedrafting of the Bill to be approved by the
Parliament authorising the Government tolegislate in this field, due to the exclusive

117TH INTERNATIONAL SEMINAR
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competence of the Portuguese Parliament
to legislate on criminal matters underPortuguese constitutional law). In fact,that legislation was prepared by amultidisciplinary group withrepresentatives of the Ministry of Finance,
Ministry of Justice, central Bank, Office of
the Attorney-General, Criminal
Investigation Police, Customs Authorities(as well as Health and Education
Ministries, since we were dealing also withdrug trafficking).
This proved to be very interesting
because, since the beginning, all Ministries,
Departments and Agencies to be involvedin the fight against money laundering had
an opportunity to give their opinions andconsider each others’ issues in the draftingof the legislation itself. This method was
followed in the further developments of thePortuguese legislation, in particular in theimplementation of the European
Community Directive on money
laundering, and in the development of new
initiatives in the fight against money
laundering.
The Directive was implemented throughDecree-Law nr. 313/93 (dated September
15, 1993), which created a number ofobligations for all financial institutions(either bank or non-bank financial
institutions, including currency exchange
businesses - “bureaux de change”) and foroffshore branches. The obligations createdby the Decree-Law were our already known
obligations imposed by the Directive:
customer identification, record keeping,
special diligence, report of suspicioustransactions, and training and internal
control. 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, which
had almost all Portuguese Banks asmembers.
Finally, this method of co-operation
between 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 the
Ministry of Commerce and of both the
General Inspectorate of Gambling and theGeneral Inspectorate of the Economic
Activities, as well as of the other entities
already mentioned, a new Decree-Law wasdrafted and published on December 2, 1995
(Decree-Law nr. 325/95).
This Decree-Law anticipates almost all
the solutions that are now being discussed
at the European Union level within theframework of the amendment of the 1991
Directive. In fact, save for the issues
related to lawyers and accountants20, allother matters are already covered. It
extends the offence of money laundering
beyond drug proceeds to those arising fromall serious economic crimes and from othercrimes which generate important proceeds(terrorism, arms trafficking, extortion,
kidnapping, pandering, corruption, etc.). It
extends some of the obligations imposed to
the financial institutions (customer
identification for cash transactions above
a given threshold, record keeping andsuspicious transaction reporting) to some
non-financial businesses. The entities
covered by this Decree-Law are casinos,
real estate agents, bookmakers and lottery
dealers 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 of

the nineties the intervention of Portuguese lawyers
in financial transactions was much more reduced
than some years later.

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The first conclusion, that can be drawn
from the fact that this legislation has been
approved without opposition, is that the
involvement in its drafting of the several
Ministries and Agencies anyhow relatedwith the fight against money laundering
has created a “consensus” not only about
its need, but also about its content. The
point 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-operation
against money laundering at the level ofthe drafting of the legislation.
B. The Legislative Solutions inPractice
Once entered into force, the legislation
requires the co-operation of the entities
which have to fulfil the obligations createdby the law (financial or non-financial
institutions either privately or publicly
owned) and the different authorities withresponsibilities in the fight against money
laundering (either judicial or supervisory).
The system that the Portuguese legislation
has created is the following:(i)
The institutions covered by law (allfinancial institutions, including all
non-bank financial institutions,and some non-financial
institutions) have to comply withthe regulations and to fulfil acertain number of obligations, themost significant of which, by its
external relevance, is theobligation to report suspicioustransactions;(ii) The supervisory authorities(including those that control theactivities of non-financial
institutions) are required to control
the compliance of the supervisedor controlled entities and have thepower to apply administrative
sanctions in case of noncompliance. The administrative282

sanctions are, in most cases,
pecuniary, but, in the extreme
cases, can be either the suspension
or the revocation of any
authorisation needed for the entity
to 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 the
Office of the Attorney-General,
who commands both the competent
Public Attorney to open an inquiry
and to start a procedure, and thespecial unit of the Criminal
Investigation Police, whichcentralises the reports (BIB-FIU),
to carry on the investigations;(iv) Should the investigations be
successful, the competent Public
Attorney brings the case to court
for 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 that
Portugal, due to historic reasons, which
had their genesis in the years immediately
after the 1974 Revolution, has a strongbank secrecy regime. Only in very few
cases, namely in cases of judicial
investigations of criminal activities, is banksecrecy overridden. However, in cases ofmoney laundering, the Portuguese
legislation made it clear that there is noroom for bank secrecy. This is of vital
importance for the development of the fightagainst money laundering. The existence,in some countries, of bank secrecy rules
which prevail, even in cases of criminal
activities such as money laundering, canbe held responsible for some of theunsuccessful cases in the fight againstmoney laundering at the international
level, and was one of the reasons that lead
the FATF to engage in the Non-cooperative
Countries and Territories exercise.

117TH INTERNATIONAL SEMINAR
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The Portuguese system overrides thebank secrecy in cases of money launderingand the abrogation of the bank secrecy
rules has two important consequences.
The first is that any institution subject tobank secrecy rules (or other rules ofprofessional secrecy), which has to comply
with the obligation to report suspicioustransactions, is exempted from any liability
whatsoever, provided that it has reported
in good faith. The disclosure of information
to the authorities, by its own initiative of
the reporting entity, does not involve any
breach of any duty of secrecy or any liability
provided that, as mentioned, suchdisclosure is made in good faith (Article 13
of Decree-Law nr. 313/93, dated September
15, 1993, applicable to the non-financial
sector by means of article 9 of Decree-Law
nr. 325/95, dated December 2, 1995). The
second consequence is that no entity canrefuse the disclosure of any information
requested by the competent judicial
authority in cases of investigation of money
laundering (article 60 of Decree-Law nr.
15/93, dated January 22, 1993). According
to this rule the communication of any
requested information, either manuallystocked or in a computer data-base, or thesurrender of requested documents may not
be refused by any entity, either public or
private, the only peculiarity being the fact
that, in the case of financial institutions,the request is made through the centralbank.
A system in action to fight money
laundering requires a deep co-operation ofmany entities, institutions and authorities,
but one clear conclusion that can be drawn
from the Portuguese experience is that
there cannot be any room for bank secrecy
rules in the fight against the laundering of
the proceeds of serious crimes.
Portugal has not created any special
body to ensure co-operation between thedomestic authorities concerned. However,the Portuguese delegation to the FATF,
which includes representatives from the
Ministries of Finance and Justice, from theSupervisory Authorities (central Bank,
Insurance Institute and Securities
Commission), as well as from the Office of
the Attorney General and the Criminal
Investigation Police, has been the forum
to share experiences, co-ordinate actions
and suggest improvements either to thelegislation or to the practice. On the other
Portugal has, since 1991, a very
comprehensive domestic legislation
governing international judicial cooperation. It provides for full mutual cooperation 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 were
contained in Decree-Law Nr. 43/91 of 22
January, which has been substituted andreinforced by Decree-Law Nr. 144/99 of 31
August, which entered into force on 1
October 1999. This text is applicable when
there is no treaty or convention with acountry, and is based on the principle ofreciprocity with respect to coercive
measures. When there is an existing treaty
or convention laying down the frameworkand terms of co-operation, this legislation
still applies, but it is limited to thesubsidiary role of defining co-operation
procedures and determining which entities
implement these procedures.
C. Training
One final word should be written about
training and the co-operation in this field.
When fighting money laundering, it isnecessary to ensure that financial
institutions know what are the needs of law
enforcement people and that law
enforcement people know how financialtransactions are carried on. It is also

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RESOURCE MATERIAL SERIES No. 58
further needed that all are aware of howmoney launderers work and that everybody
is kept updated with the new technologies
used for money laundering purposes.
Training, together with some form of
feedback to the reporting institutions, isthus of paramount importance.

main task is now to ensure the correct
application of the existing legislation inorder improve the effectiveness of the antimoney laundering system. This will
depend, however, not only of the domestic
efforts, but also of the degree ofinternational co-operation.

Considering this, in Portugal, a training
programme was prepared, based on a
Protocol signed between the Criminal
Investigation Police School of the Ministryof Justice and the Training Institute of thePortuguese Banking Association.
According to this programme, seminars
were held for the staff of financial
institutions with the presence of speakers
from the School of the Criminal
Investigations Police and, on the other
hand, senior staffs from financial
institutions and from the supervisory
authorities of financial institutions haveparticipated in sessions for the students of
the Criminal Investigation Police School.

V. CONCLUSION

This co-operation has also proved to beof great importance, not only because it
permitted to share experiences between
people with different backgrounds and notalways used to work together (police people
and financial people), but also because it
helped to build the basis for an informal
co-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 had
during the last years some other minor
amendments in order to improve its
effectiveness. As it was acknowledged
during FATF evaluations, the Portuguese
authorities have worked very hard to
establish a particularly comprehensive
anti-money laundering system. All players,
in both the public and the private sector,
have mobilised their forces to implement
wide-ranging prevention measures. The

284

A huge effort is being made worldwide
to counter the laundering of the proceedsfrom serious crimes. The FATF, The
European Union, and many countries andjurisdictions, as well as many international
Organisations 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-style
regional bodies, the European Union
improvement of the legislation of their
Member States, and the efforts of many
States to introduce more effective measures
to fight financial crime are concurring to
make this objective achievable. The mostrecent United Nations Convention Against
Transnational Organized Crime (Palermo
Convention), open for signature on the 12thof December 2000, will undoubtedly
represent 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 of
co-operation. This applies to the FATF
exercise on NCCT’s, as well as to the reviewof the Forty Recommendations, where cooperation with FATF-style regional bodies
has to be warranted. It applies to theEuropean Union efforts, where cooperation among Member States should be
increased. It applies at the domestic level,
where co-operation between different

117TH INTERNATIONAL SEMINAR
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agencies and different sectors is absolutely
needed. Finally, it applies to the work of
relevant international Organisations.
The fight against money laundering
became somehow fashionable in the lastyears. Ten years ago, only a few pioneers
were engaged, in very difficult conditions,
it must be said, in the dissemination of theanti-money laundering idea. Today, many
entities, bodies, organisations, evencommercial companies, have initiatives on
the fight against money laundering. All
these entities have their own agendas andcoordination is sometimes very difficult.
However, further to the co-operation thatis needed, an effort of coordination should
be made to avoid duplication and otherforms of wastefulness.

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CANADA’S ANTI-MONEY LAUNDERING REGIME
Daniel P. Murphy *I. INTRODUCTION
Canada enacted criminal law which,inter alia, criminalized money launderingin 1989. Part XII.2 of the Criminal Codeof Canada1 contains a money laundering
offence2. This Part also establishes all theessential provisions required to seize,
restrain and ultimately forfeit “proceeds ofcrime” 3. That Part is the proceduralfoundation for most money laundering
investigations in Canada. The provisions
in the Part go on to limit the crimes forwhich special search, restraint andforfeitures orders are available to a number* Senior Counsel, Strategic Prosecution, Policy
Section, Justice Canada, Canada
1 Revised Statutes of Canada, 1985, Party XII.2, as
amended. This can be accessed, over the internet,
at http://canada.justice.gc.ca/en/laws/C-46/
36036.html#rid-36081
2 Section 462.31. An identical money laundering
offence was included in the relevant drug law.
Subsequently, money laundering offences were
included in the new Controlled Drugs andSubstances Act, the Customs Act, and the new
Corruption of Foreign Public Officials Act. As
appropriate, money laundering offences areincluded in other federal laws.
3 The Code creates an expansive definition ofproceeds. It includes proceeds from Canadian andforeign offences. The definition reads as follows :“proceeds of crime” means any property, benefit
or advantage, within or outside Canada, obtainedor derived directly or indirectly as a result of(a) the commission in Canada of an enterprisecrime offence or a designated substanceoffence, or(b) an act or omission anywhere that, if it had
occurred in Canada, would haveconstituted an enterprise crime offence ora designated substance offence.

286

of predicate offences, which Canadian law
describes as “enterprise crime offences”4.
There is some thought of a revision to
the existing provisions so that proceeds of
all crimes would be covered by the Part
XII.2 scheme.5 The problem with a law that
attempts to list crimes, which may resultin forfeitures, is that individuals frequently
migrate to non-listed crimes for profit.
They can avoid the loss of their criminal
profits and, ultimately, they become more
successful criminals.6
In the last decade there has been aconcerted effort to estimate the magnitudeof the money laundering problem. In
UNAFEI’s 117 th International Senior
Seminar Rationale and Objectives
document the magnitude of the laundering
phenomenon is described in the seminarrationale. I was impressed with that
document’s references to US$300 to $500
billion in money laundering from the drugtrade alone. I was as impressed with thereference to the Bank of Credit andCommerce International (BCCI) affair andthe seizure of US$12 Billion in assets.
In spite of those figures, I always asked
myself why we should be concerned withthe magnitude question. The magnitudeof a problem is important if you areconsidering the issue ab initio. You may
also need to understand the magnitude of
the problem if you have to determine the4Section 462.3 sets out the list of relevant offences.
Currently, the predicate offences include 48 broadclasses where the common element is that theoffence could generate profits (i.e. “proceeds ofcrime”).

117TH INTERNATIONAL SEMINAR
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amount of investigative and prosecution
resources you propose to put against theissue. It should not become an overarchingissue since such figures are impossible toprove and as difficult to justify. The simple
fact is that criminals launder their profits
of crime to defeat a state’s attempt to seize
those profits. I suggest that the magnitude
issue is less relevant to a better
appreciation of the approaches States cantake to the money laundering problem.
Naturally, this assumes that countries
agree that money laundering is a criminal
justice issue.

There have been numerous studies on
the harm to national economies and theglobal financial system as a result of money
laundering.7 I do not intend to discuss themagnitude of money laundering issue. I
take the phenomenon as a truism and themagnitude issue is less important than theability to investigate and prosecute (civilly
or criminally). In Canada’s case we haveelected to investigate and prosecute money
laundering under our criminal law. 8
Criminals will move their criminal profits,
abuse the financial system and ignore
national laws because they are criminals.
Anyone who sells deadly drugs, illegally,

5

would determine which serious crimes would bedesignated as money laundering predicate offences.
6 In 1892 Canada abolished the common law’s
historic ability to forfeit upon conviction for a felony.
The 1892 Code prohibited “any attaindre or
corruption of blood, or any forfeiture or escheat”
but it retained the ability to forfeit as part of asentence. Until 1989 forfeitures were reserved to
specified things (e.g. guns, explosives) and offences.
The new provisions implemented the 1988 Vienna
Conventions requirements, expanded the concept
to the listed enterprise crimes and created acriminal offence of money laundering.
7 The Basel Committee on Banking Supervision (seehttp://www.bis.org/ ) developed the “Core Principles
for Effective Banking Supervision” (see: http://
www.bis.org/publ/bcbs30a.pdf ). In addition, theBasel Committee’s study on “Prevention of Criminal
Use of the Banking System for the purpose of MoneyLaundering” (see: http://www.oecd.org/fatf/pdf/
basle1988_en.pdf ) illustrates the financial
community’s concern with money laundering.
Similar concerns can be seen in the securities andinvestment sector (see the International
Organisation of Securities Commissions’ Core
Principles, at http://risk.ifci.ch/144440.htm), andthe insurance sector, where various principles andstandards of the International Association of
Insurance Supervisors (IAIS) and the Offshore
Group of Insurance Supervisors consider money
laundering issues

The initial impetus for criminal forfeitures, at theinternational level, can be found in the 1988 Vienna
Convention against Illicit Traffic in Narcotic Drugs
and Psychotropic Substances. Pressure to expand
beyond a drug based attack against criminal profits
developed in the 1985 Milan Plan of Action (i.e. a
Plan adopted by the Seventh United Nations
Congress on the Prevention of Crime and theTreatment of Offenders) and the 1994 Naples
Political Declaration and Global Action Plan. The
Naples meeting was the precursor to the very recent
United Nations Convention against Transnational
Organized Crime.
The Financial Action Task Force [(see: http://
www.oecd.org/fatf/index.htm), an international
body that emerged from an initiative of the 1989
G7 Summit, as well as the growth of regional FATF
type bodies (such as the Asia/Pacific Group on
Money Laundering (APG) (see: http://www.oecd.org/
fatf/Ctry-orgpages/org-apg_en.htm) and the
Caribbean Financial Action Task Force (CFATF)(see: http://www.oecd.org/fatf/Ctry-orgpages/orgcfatf_en.htm)] advocated a broadly based money
laundering provision. This is the clear intent of
the FATF’s Recommendation 4. It reads as follows:
Each country should take such measures as may
be necessary, including legislative ones, to enable
it to criminalise money laundering as set forthin the Vienna Convention. Each country should
extend the offence of drug money laundering to
one based on serious offences. Each country287

RESOURCE MATERIAL SERIES No. 58
for profit does not care that they may haveto bribe a banker or corrupt a government
official. That type of activity is a cost of
doing business. I expect that other experts
at the Seminar will be better able to fully
discuss the magnitude of the money
laundering phenomenon.9 I leave that issue
to those experts.
The more interesting issue is how acountry approaches money laundering
problems. What are the lessons, if any, it
has learned? What are its roadblocks toeffective money laundering investigations
and prosecutions? How can nations
combine their sovereignties to react tocriminals who use territorial sovereignty
to shelter their profits or hinder
investigations? These are all valid
questions. In this paper I will try andanswer some questions that develop from
Canada’s anti-money laundering regime.
In a second discussion I will examine theemerging development of privacy laws,
electronic cash and similar issues in theanti-money laundering context.
II. INVESTIGATIVE AND
FORFEITURE’S ROLE IN CANADA’SPROCEEDS OF CRIME REGIME
The 1989 revision to Canada’s Criminal
Code built upon earlier work. In 1973 theoffence of possession of property obtainedby crime was added to the Canadian
8

On December 5, 2000 the Province of Ontario tabled
the Remedies for Organized Crime and Other
Unlawful Activities Bill, a new civil forfeiture ofproceeds of crime law. (See Bill 155, at http://
gateway.ontla.on.ca/library/bills/155371.htm). It is
an interesting option but investigative andlitigation results will be the final arbiter of thesuccess of that approach.
9 If this assumption is incorrect the FATF publishes
reports from its annual money laundering trends
and typologies meetings. (see http://www.oecd.org/
fatf/FATDocs_en.htm#Trends)

288

criminal law.10 The possession offence was
not generally used. In the early 1980 the
RCMP established an anti-drugprofiteering unit to attack the property
obtained by drug traffickers. They targeteda bank account but the courts ultimately
overturned their search warrant. That
warrant purported to seize the money held
on deposit in the bank and the court heldthat a warrant could only seize tangibles
while the money on deposit was anintangible.11
The inability of the police to freeze theassets in the Montreal bank accountcreated added impetus for the subsequentmajor proceeds of crime amendments. The
Part XII.2 scheme created an ability to
trace and freeze proceeds of crime at theinvestigative stage, long before charges
were laid.12 Once property is seized or
retrained further provisions apply to theproperty. The court has jurisdiction toaccept applications to challenge the seizureor restraint orders. A person effected by
the seizure, (i.e. the person in possession
or a person having a valid interest in thething) can seek to overturn the order or,
10 S.C., 1972, C.13, s.27.

The provision is now foundin subsection 354(1). It creates an offence
punishable by two years, whenever anyone
possesses property obtained from the commissionsof an indictable offence. The subsections states:
354. (1) Every one commits an offence who has
in his possession any property or thing or
any proceeds of any property or thingknowing that all or part of the property or
thing or of the proceeds was obtained by orderived directly or indirectly from(a) the commission in Canada of an offence
punishable by indictment; or(b) an act or omission anywhere that, if it
had occurred in Canada, would haveconstituted an offence punishable byindictment.
11 Royal Bank v. Bourque (Sub nom. Quebec A.G. v.
Royal Bank) (1985) 18 C.C.C. 98

117TH INTERNATIONAL SEMINAR
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alternatively, seek payments from thetargeted assets to cover reasonable living
business and legal expenses.13
Any proceeds investigation can proceed
simultaneously with the investigation of apredicate offence. It can follow thepredicate offence or it can be a stand-alone
investigation. This is because thepossession offence is itself a predicate
charge. The Canadian system is flexible.
A criminal could be charged and convictedof the single predicate offence and all of her
proceeds of crime could be forfeited. This
forfeiture must occur at the time ofsentence for the offence. The onus on theprosecutor is to establish that the property
is proceeds from the offence charged, on abalance of probabilities standard of proof.14
Alternatively, the offender could have
served their time on the principal charge
and subsequently face a possession ofproceeds of crime charge that allows forforfeiture. They could also be charged witha money laundering offence. In thosescenarios the forfeiture options continue.
Independent money launders, not involvedin the underlying offences that gave riseto the proceeds of crime, could also be
investigated and charged with that offence.
Forfeiture is available. In addition,
Canadian law, for any drug or organizedcrime offence, provided that “offence
related property”, sometimes referred to as
an instrumentality, can be seized,
restrained and subsequently forfeited upon
12 Sections 462.32 and 33 of the Criminal Code allow

applications to the court with evidence that
supports a reasonable belief that the targeted
property may be forfeited. Subsection 462.35
provides that the seizure or restraint is in force forsix months. It is renewed once charges are laidbut it can be extended if the investigation iscontinuing.
13 Section 462.34
14 Section 462.37(1)conviction.
III. MONEY LAUNDERING,
TRANSACTION REPORTING AND A
FINANCIAL INTELLIGENCE UNIT,
CANADA’S REGIME
In 1991 Canada enacted a Proceeds ofCrime (money laundering) Act.15 This Act’s
declared object, as provided in section 2,
specified that:
The two referenced sections are
Canada’s money laundering offences at thetime the Act was drafted. This object was
accomplished by a regulatory package16.
The regulations established financial
sector account creation; customer
identification; record keeping; and related
record requirements. The regulations cameinto force on March 26, 1993 and the result
partially satisfied international
expectations. It created a paper trail formoney laundering investigations andprosecutions. It did not oblige effectedbusinesses to actually report suspicioustransactions.
There was no specific bank secrecy law
in Canada when the Act became law.
Financial institutions and other effectedbusiness could “voluntarily report”
suspicious transactions. 17 Subsequentdevelopments resulted in the new Proceeds
15 Statutes of Canada 1991,c.26, in R.S.C 1985, C. P-

24.5 as amended. (see http://canada2.justice.gc.ca/
en/laws/P-24.5/79312.html )“(T)he object of this Act is to establish recordkeeping requirements in the financial field in orderto facilitate the investigation and prosecution of
offences under subsection 462.31(1) of the Criminal
Code and subsection 9(1) of the Controlled Drugs
and Substances Act.
16 Proceeds of Crime (Money Laundering) Regulations,as amended, SOR/93-75 (see http://
canada2.justice.gc.ca/en/laws/P-24.5/75/
145024.html )289

RESOURCE MATERIAL SERIES No. 58
of Crime (Money Laundering) Act18. This
new law is now being implemented over a
suitable transition period. Prior to
examining these new provisions it isimportant to consider other legal
developments.

Subsequently, the courts have adopted an
expansive interpretation of an individual’sreasonable expectation of privacy.19 Thisdevelopment evolved as courts interpreted
the scope of s. 8 of the Charter in various
cases.

IV. INCREASED PRIVACYEXPECTATIONS

Concomitantly, privacy expectations
became the banner for significant changes
as a result of the explosive growth of theInternet and the need to protect electroniccommerce. This led to a new law that has
a direct impact on every business in
Canada. The Personal Information
Protection and Electronic Documents Act20.
It came into force on January 1, 2001. It
specifically covers banks; other federally
regulated financial institutions; and otherfederal business organizations.
Transitional provisions provide that all

Privacy expectations of Canadians havesignificantly evolved since 1993 when thefirst Proceeds of Crime (money laundering)
Act came into force. The precursor toincreased privacy expectation is seen in
constitutional protections in Canada’s 1984
Charter of Rights and Freedoms.
17 The common law established an expectation ofconfidentiality between a financial institution andits client. A reporting concept was a voluntary
obligation in light of the confidentiality relationshipbetween a financial institution and its client.
Section 462.47 of the Criminal Code (see http://
canada.justice.gc.ca/en/laws/C-46/36036.html#rid36081) developed the voluntary reporting theory
by providing as follows :“For greater certainty but subject to section 241of the Income Tax Act, a person is justified indisclosing to a peace officer or the Attorney
General any facts on the basis of which that
person reasonably suspects that any property isproceeds of crime or that any person has
committed or is about to commit an enterprisecrime offence or a designated substance offence.”
18 The most important development was thesignificant revision to the FATF’s Recommendation
15. Its predecessor called upon States to consider
a requirement to report suspicious transactions tocompetent authorities. Canada’s voluntary
reporting regime could be said to comply with theearlier recommendation. It did not comply withthe revised recommendation which states, as
follows:
15. If financial institutions suspect that funds
stem from a criminal activity, they should be
required to report promptly their suspicions tothe competent authorities.

290

19 For many years the leading case on bank secrecy

was the Tournier v. National Provincial Bank ofEngland, [1924] 1 K.B. 461 (C.A.). See also
Canadian Imperial Bank of Commerce v. Sayani[1994] 2 W.W.R. 260 (B.C.C.A.). In a 1993 case, R.
v. Plant (http://www.canlii.org/ca/cas/scc/1993/
1993scc96.html), the Supreme Court of Canada
held that s. 8 of the Charter protected abiographical core of personal information
maintained by a commercial enterprise in certain
scenarios. In Plant the police obtained hydroconsumption records from a city utility company
without a search warrant. Justice Sopinka, for the
majority, opined on the issue of access to commercial
information as follows :“The United States Supreme Court has limited
application of the Fourth Amendment (the rightagainst unreasonable search and seizure)protection afforded by the United States
Constitution to situations in which theinformation sought by state authorities is
personal and confidential in nature: UnitedStates v. Miller, 425 U.S. 435 (1976). That casedetermined that the accused’s cheques,
subpoenaed for evidence from a commercial bank,were not subject to Fourth Amendment
protection. While I do not wish to be taken

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
other Canadian businesses will become
subject to that law within three years. Thislaw controls the business collection of
personal information and the subsequent
use and disclosure of such information. I
will address the investigative impact of thisinitiative in another paper but, for thepresent, it is sufficient to indicate that acustomer’s personal information held by
any business in Canada now has greater
protection than ever.
V. THE NEW PROCEEDS OF CRIME(MONEY LAUNDERING) ACT
The development of an increased privacy
concern for personal information held bycommercial businesses is crucial to any
appreciation of the evolution of Canada’s
new Proceeds of Crime (Money Laundering)
Act. This law received assent on June 29,2000 Canada’s but it is, as yet, not fully inforce. Part III was quickly proclaimed in
as adopting the position that commercial records
such as cancelled cheques are not subject to s. 8
protection, I do agree with that aspect of theMiller decision which would suggest that in orderfor constitutional protection to be extended, theinformation seized must be of a “personal andconfidential” nature. In fostering the underlying
values of dignity, integrity and autonomy, it isfitting that s. 8 of the Charter should seek toprotect a biographical core of personal
information which individuals in a free anddemocratic society would wish to maintain andcontrol from dissemination to the state. This
would include information which tends to reveal
intimate details of the lifestyle and personal
choices of the individual. The computer records
investigated in the case at bar while revealing
the pattern of electricity consumption in theresidence cannot reasonably be said to reveal
intimate details of the appellant’s life sinceelectricity consumption reveals very little about
the personal lifestyle or private decisions of theoccupant of the residence.”
20 S.C., 2000, C.5

force on July 5, 2000. That Part was
implemented to provide sufficient
opportunity to establish and equip
Canada’s new Financial Transactions andReports Analysis Centre. The remainderof the Act will come into force with acomplete regulatory package, after theCentre is ready for business.
All businesses covered under thepredecessor Act will remain covered in the
new law. The new Act allows additional
sectors to be added by regulation. The Act
and Regulations will also create a crossborder currency regime. Individuals andbusinesses that conduct cross-bordertransfers of large amounts of money will
be required to report these transfers to
Canada Customs. Again, regulations will
be developed to allow effective customs
reporting and forfeiture provisions. The
Act further provides that unreported cash
at the border can be forfeited and available,
in appropriate cases, for sharing21.
The new, independent, financial
intelligence unit, known as the Financial
Transactions and Reports Analysis Centreof Canada (the Centre), was established tooperate as the competent authority for the
purposes of the FATF’s Recommendation
15. This Centre will receive and administer
the information transmitted to it inaccordance with the Act. It will analyse
the information in all filed reports anddisclose designated information to an
appropriate police force, when specified
conditions are met.
The establishment of a suspicioustransaction-reporting centre in Canada isa novel development in Canada’s law. The
concept has been widely accepted
throughout the world 22. Internationalpressure to establish a financial
intelligence unit must be considered in
21 S.C. 2000, C. 17, s. 22

291

RESOURCE MATERIAL SERIES No. 58
light of Canada’s constitutional frameworkand its Charter. Our Charter normallyrequires a prior judicial authorization
before an agent of the state, such as the
new Centre, obtains information.23 This
had a significant impact upon the drafters
as the new law developed. The RCMP, asa law enforcement agency, could not hostthe Centre without creating a Charter risk.
Essentially, if a law enforcement agency,
directly or through a subsidiary part of theenforcement agency, obtained personal
information without a warrant. It operates
under a significant section 8 Charter risk.
The solution was to establish a new
independent agency.
This new Centre was deliberately
established without investigative powers.
The law also placed significant restrictions
on the amount of data that the Centre could
divulge to investigators.24 Otherwise, theCentre’s information collection activity
activities would be challenged. Its
22 This is best seen in the work of the Egmont Group.)
23 The seminal Supreme Court of Canada’s decisionon point is R. v. Hunter and Southam [1984] 2 S.C.R
145
24 Section 55 first states that the Centre may notdisclose the information it collects, other than under
the provisions set out in subsection 55(3), (4) and(5). Those subsections provide, as follows :(3) If the Centre, on the basis of its analysis andassessment under paragraph 54(c), hasreasonable grounds to suspect that designatedinformation would be relevant to investigatingor prosecuting a money laundering offence, theCentre shall disclose the information to(a) the appropriate police force;(b) the Canada Customs and Revenue Agency,
if the Centre also determines that the
information is relevant to an offence ofevading or attempting to evade paying taxes
or duties imposed under an Act ofParliament administered by the Minister of
National Revenue;292

authority to collect suspicious or proscribedtransaction reports may have been seen asa backdoor device for law enforcement. The
Charter required law enforcement to use
search warrants and similar priorauthorizations. The new Centre was adeliberate choice in the Proceeds of Crime(Money Laundering) Act as a suitable
compromise to undertake a regulatory andanalysis function, rather than a law
enforcement function.
When fully implemented, the Act repeals
its predecessor. Structurally, the Act
consists of five parts. Part I contains
specific objects25 which define the purposes
for the legislation. This Part obliges adesignated business to make and maintainrecords; report either questionable (i.e.
suspicious) or prescribed financialtransactions 26 to the new Centre. The
record keeping and maintenance provisions
will continue to facilitate an investigative
paper trail. Law enforcement will have to(c)the Canadian Security Intelligence Service,
if the Centre also determines that the
information is relevant to threats to thesecurity of Canada within the meaning ofsection 2 of the Canadian Security
Intelligence Service Act; and(d) the Department of Citizenship andImmigration, if the Centre also determinesthat the information would promote theobjective set out in paragraph 3(j) of the
Immigration Act and is relevant todetermining whether a person is a person
described in subsection 19(1) or (2) or section
27 of that Act or to an offence under section
94.1, 94.2, 94.4, 94.5 or 94.6 of that Act.
(4) The Centre may disclose designatedinformation to an institution or agency of aforeign state or of an international organization
established by the governments of foreign statesthat has powers and duties similar to those of
the Centre if(a) the Centre has reasonable grounds to117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
use search warrants or voluntary
disclosures to access that trail. On theother hand, the Centre will have significant
financial information for its purposes
Part II creates cross border currency andmonetary instrument reporting
obligations. Persons must report tosuspect that the information would be
relevant to the investigation or prosecutionof a money laundering offence or asubstantially similar offence; and(b) the Minister has, in accordance withsubsection 56(1), entered into an agreement
or arrangement with that foreign state orinternational organization regarding theexchange of such information.
(5) The Centre may disclose designatedinformation to an institution or agency of aforeign state that has powers and duties similar
to those of the Centre if(a) the Centre has reasonable grounds tosuspect that the information would be
relevant to the investigation or prosecutionof a money laundering offence or asubstantially similar offence; and(b) the Centre has, in accordance withsubsection 56(2), entered into an agreement
or arrangement with that institution or
agency regarding the exchange of suchinformation.
25 The objects are found in s. 3 and state :The object of this Act is(a) to implement specific measures to detect anddeter money laundering and to facilitate theinvestigation and prosecution of money
laundering offences, including(i) establishing record keeping and client
identification requirements for financial
services providers and other persons thatengage in businesses, professions or activities
that are susceptible to being used for money
laundering,(ii) requiring the reporting of suspicious
financial transactions and of cross-border
movements of currency and monetary

Canada’s Customs and Revenue Agency27.
Persons will be obliged to report theimportation or exportation of proscribedcurrency or monetary instruments. Part
III establishes the Centre to collect,analyse, assess and disclose designatedinformation in order to assist in thedetection, prevention and deterrence of
instruments, and(iii) establishing an agency that is responsiblefor dealing with reported and otherinformation;(b) to respond to the threat posed by organizedcrime by providing law enforcement officials with
the information they need to deprive criminalsof the proceeds of their criminal activities, while
ensuring that appropriate safeguards are put inplace to protect the privacy of persons withrespect to personal information about
themselves; and(c) to assist in fulfilling Canada’s international
commitments to participate in the fight against
transnational crime, particularly money
laundering.
26 Two sections are relevant. The first, section 7, deals
with suspicious transaction reporting; the second,section 9, deals with proscribed transaction
reporting. Section 7 provides, as follows:
7. In addition to the requirements referred to in
subsection 9(1), every person or entity shallreport to the Centre, in the prescribed form andmanner, every financial transaction that occurs
in the course of their activities and in respect ofwhich there are reasonable grounds to suspectthat the transaction is related to the commissionof a money laundering offence.:
Section 9 provides for proscribed transaction
reporting, as follows:
9. (1) Every person or entity shall report to theCentre, in the prescribed form and manner, everyprescribed financial transaction that occurs in
the course of their activities.
The Act specifies that something is proscribed byregulations. Therefore, the subsequent regulatory
package will establish when specific transactions,293

RESOURCE MATERIAL SERIES No. 58
laundering the proceeds of crime. The
Centre is also responsible for ensuring
compliance with Part I of the Act. Part IV
authorises the Governor in Council to makeregulations. Part V creates offences,including the failure to report suspicious
financial transactions and the prohibiteduse of information under the control of theCentre.28

as opposed to suspicious transactions, will have tobe reported to the Centre.
27 This will comply with the FATF’s Recommendations
22. The Act establishes a cross border reporting
regime as follows:
12. (1) Every person or entity referred to in
subsection (3) shall report to an officer, in
accordance with the regulations, the importation
or exportation of currency or monetary
instruments of a value greater than theprescribed amount.
(2) A person or entity is not required to make areport under subsection (1) in respect of anactivity if the prescribed conditions are met inrespect of the person, entity or activity, and if
the person or entity satisfies an officer that thoseconditions have been met.
(3) Currency or monetary instruments shall bereported under subsection (1)(a) in the case of currency or monetary
instruments in the actual possession of aperson arriving in or departing from Canada,orthat form part of their baggage if they and theirbaggage are being carried on board the same
conveyance, by that person;(b) in the case of currency or monetary
instruments imported into Canada by courieror as mail, by the exporter of the currency ormonetary instruments or, on receiving noticeunder subsection 14(2), by the importer;(c) in the case of currency or monetary
instruments exported from Canada by courieror as mail, by the exporter of the currency or

294

VI. CURRENT MONEY
LAUNDERING INVESTIGATIVESITUATION IN CANADAThe Royal Canadian Mounted Police(RCMP), within its federal policing
portfolio, operate the national proceeds ofcrime programme.29 They have developed
thirteen Integrated Proceeds of Crime(IPOC) Units tasked with investigative
responsibility for proceeds of crime. These
units include peace officers (RCMP
members and seconded officers from local
monetary instruments;(d) in the case of currency or monetary
instruments, other than those referred to inparagraph (a) or imported or exported as mail,that are on board a conveyance arriving in or
departing from Canada, by the person in
charge of the conveyance; and(e) in any other case, by the person on whose
behalf the currency or monetary instruments
are imported or exported.
(4) If a report is made in respect of currency ormonetary instruments, the person arriving in or
departing from Canada with the currency ormonetary instruments shall(a) answer truthfully any questions that theofficer asks with respect to the information
required to be contained in the report; and(b) on request of an officer, present the currency
or monetary instruments that they arecarrying or transporting, unload any
conveyance or part of a conveyance or baggage
and open or unpack any package or containerthat the officer wishes to examine.
(5) Officers shall send the reports they receive
under subsection (1) to the Centre.
Once again, the regulations will flesh out thereporting requirements.
28 Sections 74 to 80 of the Act create a number ofoffences where persons or entities (e.g.
corporations) criminally fail to comply with the Act.
The penalties vary with the relevant offences but
they include incarceration for up to five years andfines up to $2 million dollars.

117TH INTERNATIONAL SEMINAR
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police departments), tax and customs
officers, forensic accountants, and legal
counsel (i.e. prosecutors and advisors). In
addition the Federal Prosecution Service,
the prosecution arm of the Canadian
Department of Justice, has thirteen
regional offices and branch offices oragents, throughout Canada, who routinely
prosecute proceeds of crime cases
investigated by the RCMP and the major
police forces in Canada.
It should also be appreciated that there
is only one source for criminal law in
Canada. The federal government has thesole authority to enact criminal law andlaws of criminal procedure. This is why
Part XII.2 of the Criminal Code applies toany proceeds of crime criminal
investigation and prosecution.
Various prosecutors can undertake
criminal prosecutions. Federal
prosecutions routinely involve nonCriminal Code money launderingprosecutions, unless a provincial Attorney
General agrees that a federal prosecution
can include a Code “enterprise crime
offence”.30 On the other hand, provincial
Attorneys General and local law
enforcement can investigate and enforce
the criminal law in Canada. The dual
ability of federal and provincial Attorneys
General to prosecute is a novel feature of
the Canadian criminal justice system.

29 The RCMP acts as a contract police force for all but

two provinces (Ontario and Quebec). It also is asignificant player in many municipal police
contracts. It is the major proceeds of crime
investigative authority in Canada. You can accessfurther information on this particular aspect of
their work on the Internet, at http://www.rcmpgrc.gc.ca/frames/rcmp-grc1.htm . The RCMP
currently maintains thirteen Integrated Proceedsof Crime (IPOC) units across Canada in the major
cities and regions.

VII. CANADA’S APPROACH TO
CRIMINAL ORGANIZATIONS
Recently, the money laundering debate
has been intermixed with the issue oftransnational organized criminal groups.
Canada has joined in that debate. There
was a very recent significant modification
to the Canadian criminal law. In 1996 thepublic’s perception of a problem withcriminal organisations resulted in asignificant expansion of the criminal law
and investigative powers in Canada.31 The
RCMP re-focused investigative priorities todeal with the organized crime issue. Theirearlier approach to proceeds of crime
investigations has now become an
integrated approach where proceeds andcriminal organizations are dealt with intandem32.
The two issues are easily related. Any
effective attack against organized crimemust consider the profits from that crime.
Canada and the various Provincial
governments have collectively undertaken
an expanded organized crime programme
as a national initiative. It is primarily
directed against organizations that are
involved in a violent turf war (e.g. outlaw
motorcycle gangs) and others involved intransnational organized crime. Obviously,
30 Section 2 of the Criminal Code defines and controls

the case prosecutor in Canada. Broadly speaking
anyone can institute most criminal charges andprosecute a case. The Code allows the Attorney
General, as defined in s. 2, to intervene and takeover a private prosecution. In addition, only counsel
for the Attorney General can make various proceedsof crime applications, such as applications for
special search warrants and restraint orders
against proceeds of crime and all forfeitureapplications. It is therefore important to ascertain
which Attorney General is conducting aprosecution. Equally, any forfeiture goes to the
Attorney General who made the forfeitureapplication. (See s. 462.37 of the Code)295

RESOURCE MATERIAL SERIES No. 58
this initiative targets groups of individuals.
After all, an organization, by definition,must include five or more persons. This
creates increased investigative costs andsystemic issues for the criminal justicesystem33.
There are proceeds of crime and money
laundering ramifications in any criminalorganization investigation. Collectively,
the organization should realise morecriminal activity. A criminal organization
targets profitable crimes. This justifies
more intensive investigative resources.
Does this mean that states should only
concentrate on organizations? I believethat such a decision would be a mistake.
31 Section 467.1 created a new participation in acriminal organization offence with a maximum
punishment of fourteen years. Section 2 of the Codedefined a criminal organization in the following
manner :“criminal organization” means any group,
association or other body consisting of five or
more persons, whether formally or informallyorganized,(a) having as one of its primary activities thecommission of an indictable offence under thisor any other Act of Parliament for which the
maximum punishment is imprisonment for five
years or more, and(b) any or all of the members of which engage inor have, within the preceding five years, engaged
in the commission of a series of such offences;
The Code’s wiretap provisions were also modified(e.g. A one year wiretap authorization could beobtained) and other related amendments weremade.
32 In February 2000 the RCMP announced a major

new organized crime initiative. See http://
www.rcmp-grc.gc.ca/frames/rcmp-grc1.htm.
33 The system must adapt to larger trials. The
evidence is much more complex. Year long wiretap
investigations, multiple defendants and increased
legal aid costs are some of the problems in thisinitiative.

296

Any organized criminal or criminalorganization, and I intentionallydistinguish between the two concepts,
launders to protect their profits. The
activity of either requires that criminal
profits be laundered. Any money
laundering has a serious negative effectupon financial systems. It involves thesame issues and creates demands for thesame limited investigative resources. The
individual “organized” criminal andcriminal organizations, in general equallyharm societal interests. The scale of thecriminal activities and profits is the only
significant difference.
The fact is criminal profits can be used
to buy financial and other advice. Theinternational financial system is available
for a rich individual criminal or a criminalorganization. Either type of criminal must
use the same techniques to launder theircriminal profits. Indeed, with the evolutionof the global financial system, any
criminal’s laundering difficulties are easier.
Apart from exceptional investigative
authority 34 available in a criminalorganization offence, the investigative
effort is the same.
The problem is that criminalorganizations are merging to takeadvantage of expertise available in anotherorganization. Why compete when a mergedorganization is more efficient? The merged
groups work off each other’s strengths.
They do not compete for the media’s
attention. They do not have to worry what
they next year’s budget allocation will be
and how their manpower needs will be
resolved. The reality is that organizedcrime groups are sometimes more efficient
34 Section 186.1 of the Criminal Code permits a one

year wiretap authorization when the underlying
investigation is committed for the benefit of, at thedirection of or in association with a criminalorganization.

117TH INTERNATIONAL SEMINAR
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than law enforcement. National selfinterest and laws are irrelevant to acriminal organization!
In order that nations respond to thisreality their law enforcement agencies
must do their investigations more
effectively. States and law enforcement
must co-operate or recognise that criminalorganizations will continue on the basisthat laws and the police are minor
inconveniences. This means that newforms of international co-operation must be
developed. Time and space restraints limit
a discussion of this issue.
I can raise at least one investigativetechnique to illustrate this fact. Moneylaundering creates a need to develop proactive investigative techniques. The police
can not wait at their station for aremorseful criminal to walk in andconfess35. One effective technique can beseen in a law enforcement storefront
operation. Does a storefront money
laundering operation offer the police a
problem free effective alternative
investigative technique?
35 R. v. Bond, 135 A.R. 329 (Alberta C.A.) at page 333

opinedIllegal conduct by the police during an
investigation, while wholly relevant to the issue ofabuse of the court’s processes, is not per se fatal toprosecutions which may follow: Mack, supra, at 558.
Frequently it will be, but situational police illegality
happens. Police involve themselves in high speed
chases, travelling beyond posted speed limits.
Police pose as prostitutes and communicate for that
purpose in order to gather evidence. Police buy,
possess, and transport illegal drugs on a daily basis
during undercover operations. In a perfect world
this would not be necessary but, patently, illegal
drug commerce is neither successfully investigated,
nor resisted, by uniformed police peering throughhotel-room transoms and keyholes or waiting
patiently at police headquarters to receive theconfessions of penitent drug-traffickers :VIII. MONEY LAUNDERINGINVESTIGATIVE TECHNIQUESAND THE RULE OF LAW
Law enforcement can undertake astorefront money laundering operation
where the police and co-operating agents
hold themselves out as service providers
for criminals. This type of investigativetechnique has advantages and problems.
The police must conceal and convert
criminal assets in this type of operation.
That is the essence of a money laundering
operation. The police view the operationfrom a different perspective. They movemoney or other assets to record thecriminal’s instructions and gather evidence
for subsequent prosecutions. If someone
reviews the law enforcement activity froma justice policy viewpoint the investigators
may have a good motive but they arecommitting crimes. Are they any better
than the criminals? Some consider thisissue through he eyes of law enforcement
others argue that the rule of law should
apply to the police and the criminals alike.
A. Police Illegality
The Supreme Court of Canada
considered the police illegality issue in apolice reverses sting drug investigation. In
R. v. Campbell and Shirose36, the court heldthat the police were not immune from
criminal liability for criminal activities
committed in the course of a bona fidecriminal investigation. However, whileobserving that “everybody is subject to theordinary law of the land”, the Supreme
Court explicitly recognised that “if someform of public interest immunity is to beextended to the police...it should be left to
Parliament to delineate the nature and
36 This and other Supreme Court decisions can be

f o u n d a t : h t t p : / / w w w. s c c - c s c . g c . c a /Judgments_Jugements/menu_e.htm. . R. v.
Campbell and Shirose can be accessed at http://
www.canlii.org/ca/cas/scc/1999/1999scc18.html.

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RESOURCE MATERIAL SERIES No. 58
scope of the immunity and thecircumstances in which it is available”. The
Court noted further that “in this country
it is accepted that it is for Parliament todetermine when in the context of law
enforcement the end justifies the meansthat would otherwise be unlawful”. Thismeans that the law must keep up withcriminal activity and address the needs ofproactive law enforcement. That is adifficult requirement in any democracy.
B. Benefits in a Storefront
Operation
The use of storefront money laundering
techniques has been proven to be very
effective. The technique has several
advantages. Criminals come to theundercover police operation rather than thepolice attempting to infiltrate a criminal’sorganization. Criminals, once satisfied
that the storefront money laundering
operation can deliver, frequently divulge
information. Often that is information that
law enforcement would never discover intheir ordinary investigations. Essentially,
criminals brag about their criminal
prowess. Their admissions provide
invaluable criminal intelligence. As amoney laundering service, the storefront
allows law enforcement to better track theassets moved by the undercover operatives.
The storefront client can tell theundercover operative where they want theasset to go, or better yet, the undercover
operative can suggest alternative routes
and investments. In either scenario thelong-term goal is to track, trace, freeze andultimately, forfeit the assets.
C. Associated Problems in a
Storefront Operation
Storefront money laundering operations
also create problems. Frequently thelaundered assets must be moved offshore.
Obviously, foreign law enforcement must
co-operate in these investigations.
Otherwise a domestic investigation that298

moves outside Canada runs the risk of
infringing another State’s law. These
operations must be long term. The up-front
development costs would be easily
frustrated if the police immediatelyarrested the first criminal that brought ina suitcase of cash to be laundered. Thereis a continuous risk that the storefront’s
laundered cash could be used to purchasemore drugs or foster other criminal activity.
This is a difficult reality to deal with assome point in every storefront
investigation.
D. A Police Officer Exception to the
Money Laundering Offence
In Canada we have a concern with illegal
police conduct. The undercover police
officer must inevitably commit a money
laundering offence. The police are subject
to the rule of law. Laundering is a broadly
defined concept in Canada’s criminal law.37
The offence provisions are broad enoughto include the controlled delivery of assetsthat the police know or believe are proceedsof crime. Essentially, the scope of thesection could be seen to resemble controlled
deliveries of drugs.38 The important point
to remember is that the “rule of law”
37 Section 462.31 (1) provides as follows :Every one commits an offence who uses, transfers
the possession of, sends or delivers to any personor place, transports, transmits, alters, disposesof or otherwise deals with, in any manner andby any means, any property or any proceeds ofany property with intent to conceal or convertthat property or those proceeds, knowing or
believing that all or a part of that property or of
those proceeds was obtained or derived directly
or indirectly as a result of(a) the commission in Canada of an enterprisecrime offence or a designated substanceoffence; or(b) an act or omission anywhere that, if it had
occurred in Canada, would have constituted
an enterprise crime offence or a designatedsubstance offence.

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applies. If the police commit an unlawful
act in their investigation the defence willargue that their illegal activity taints theinvestigation and justifies a judicial “stayof proceedings”.
Parliament, to use the words of theSupreme Court, in R. v. Campbell and
Shirose, delineated “the nature and scopeof the immunity and the circumstances inwhich it is available”. This occurred as aresult of a statutory money laundering
exception for law enforcement.39

38 The 1988 Vienna Convention specifically calls uponcountries to co-operate in controlled deliveries ofdrugs. In 1996 Canada’s new Controlled Drugs andSubstances Act’s (CDSA) new Controlled Drugs andSubstances Act (Police Enforcement) Regulations,
SOR/97-234 (see http://canada2.justice.gc.ca/en/
laws/C-38.8/234/67999.html ) established a very
rigorous administrative regime for state supplieddrugs and exceptions for law enforcement when
they undertake investigations that could infringe
the CDSA offences.
39 Subsection 462.31(3) of the Criminal Code, as wellas identical amendments in other money
laundering offences, provides as follows :(3) A peace officer or a person acting under the
direction of a peace officer is not guilty of an
offence under subsection (1) if the peace officer
or person does any of the things mentioned inthat subsection for the purposes of aninvestigation or otherwise in the execution of
the peace officer’s duties
This is not a wide-open exception for any peace
officer. For example foreign law enforcement official
would not be considered to be a peace officer in
Canada. That foreign law enforcement officer or
any civilian agent assisting a peace officer must
act under the direction and control of a peace officer.
In addition the peace officer must be undertaking
the money laundering investigation as part of his/her duties.

It should be noted that the mere
existence of a law enforcement exception
does not mean that the storefront money
laundering operation’s client has no
defences. The exception operates as ashield for law enforcement and persons
acting under the direction and control ofthe peace officer but it does not obviate any
defence for the accused individual.
Entrapment continues to be a recognised
legal defence in Canada40.
40 In 1985, in R. v Jewitt [1985] 2 S.C.R.

128, 136137, the Supreme Court of Canada found thatcourts had a discretion, although it could only be
exercised in “the clearest of cases”. Subsequentdecisions from the court have expanded upon theconcept. Madam Justice L’Heureux-Dub_ has beenquite instrumental in developing the law in thisarea. In R. v. Conway, [1989] 1 S.C.R. 1659, 1667
she said that:“ ... where the affront to fair play and decency isdisproportionate to the societal interest in theeffective prosecution of criminal cases, then theadministration of justice is best served by staying
the proceedings.”

In Power [1994] 1 S.C.R. 601, she defined “theclearest of cases” to mean “conduct which shocks
the conscience of the community.” She said thecases of this nature will be extremely rare. In
O’Connor [1995] 4 S.C.R. 411, 465, she said a staywill only be appropriate when two criteria are
fulfilled:
1. Where the prejudice caused by the abuse inquestion will be manifested, perpetuated or
aggravated through the conduct of the trial,or by its outcome (in other words, this is not a
remedy for past misconduct per se; there has
to be some continuing abuse); and2. Where no other remedy is reasonably capableof removing that prejudice.
Finally, R. v. Mack, [1988] 2 S.C.R 903 is theseminal decision on point. It fully canvassed all
aspects of the issue and raised the problem causedby police illegality.

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RESOURCE MATERIAL SERIES No. 58
E. Storefront Operation
Implementation Issues
In the last decade the RCMP has
undertaken a number of storefront money
laundering operations. They have also
assisted foreign law enforcement in money
pick ups and ancillary activity. The
existence of the law enforcement exception
has assisted the police as they determine
if a proposed storefront or other proactive
investigative technique is appropriate. In
spite of this exception, every storefront
money laundering proposal creates othersignificant issues.

be obtained in all cases. This is importantconsideration in any Canadian storefront
laundering case. A Canadian peace officer
must work on the case so that the officer
and others are sheltered within the
exception created by ss. 463.31. Any
undercover operation will use a Canadianpeace officer. Every foreign peace officer,
posing as an agent, or civilian argent, must
operate under the Canadian peace officer’s
direction and control to shelter under the
exception. They are agents of the state forinterception purposes. This has an impact
on any possible interception.

Some issues are obvious. These
operations became security problems.
Generally, the undercover team deals withsignificant amounts of cash. Proper
personal and exhibit security is required.
Cover teams; safe locales; and record
keeping systems are essential. Storefront
enforcement cases also have otherunexpected surveillance costs.

These operations frequently include aninternational dimension has an effect oninterception options. Canada’s Criminal
Code, and, in particular, Part VI does not
apply outside Canada. This means thatinterceptions of private communications
outside Canada must comply with the law
in the territory upon which the interception
occurred. Charter considerations may
continue to apply42 in some cases. The bestadvise is to obtain judicial authorisations
whenever possible.

F. One-party Interceptions
Every case commences with the
expectation that the best admissible
evidence is sought. Frequently, thisrequires the interceptions of theparticipant’s conversations and video
surveillance of their conduct. This isrequired for the personal security of theoperatives. Equally, interception evidence
is important for the intrinsic value of theevidence obtained by means of theinterception. The problem is that
Canadian interception law creates preconditions that all investigative
participants in a storefront operation
should understand.
Electronic surveillance evidence isadmissible against an accused person, in
Canada, provided that the evidence waslawfully obtained. Canadian law41 provides
that a judicially authorised one-party
consent interception order can and should

300

41 Part VI of the Criminal Code governs.

(See http://
canada.justice.gc.ca/en/laws/C-46/35184.html). Theinterception of private communications by an‹‹agent of the state›› with the consent of one of theparticipants but without prior judicial
authorization violates s. 8 of Canada’s Charter ofRights and Freedoms. The Supreme Court of
Canada, in R. v. Duarte, refused to apply American
jurisprudence and opined that while a s. 184
criminal offence did not occur in a one party consent
interception scenario that in all cases where stateagents consented a prior judicial authorization wasa constitutional prerequisite. (see : http://
www.canlii.org/ca/cas/scc/1990/1990scc2.html ). As
a result subsections 184.1 to 184.4 were added toPart VI of the Code.
42 Section 8 of the Charter gives persons “the right tobe secure against unreasonable search and seizure”.
Case law indicates that the Charter may apply
outside Canada in certain cases.

117TH INTERNATIONAL SEMINAR
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G. Other Investigative Conduct
Undercover investigations are a routinefeature in Canadian law enforcement.
Apart from the one-party intercept scenario
undercover operatives have few legal
roadblocks to control their activity.
Recently, the defence bar has seized upon
the R. v. Campbell and Shirose and its
predecessors to successfully argue that any
police illegality taints an investigation andinures to the benefit of the criminal
defendant.
The tainted police conduct shocks thecommunity’s standards of fairness. The
argument is that this conduct requires thecourt to enter a stay of proceedings. Thishas been argued in several cases. Most
occurred before the recent amendment to462.31 creating a law enforcement
exception. 43 The money laundering
exception does not create exceptions forother unlawful conduct. The defence
frequently looks for unlawful activity toadvance a defence. Therefor investigators
must be aware of this concern.
H. Profits or Evidence
Finally, what happens to the profits froma Canadian storefront money laundering
i n v e s t i g a t i o n ? C a n a d a ’s f i n a n c i a ladministration provisions and the criminallaw 44 have another unexpected impact
upon storefront money laundering
operations. The storefront operator
charges the criminal for their investment
or cash conversion activity. If they did not
the criminal would be suspicious. Law
43 In R. v. Mathiesson ((1995), 172 A.R.

196 (Q.B.), acase where the police laundered money. In
R.v.Cresswell (http://www.courts.gov.bc.ca/jdb-txt/
ca/00/05/c00-0583.htm ) the British Columbia Courtof Appeal returned the matter for reconsideration.
44 At the federal level, the Financial Administration
Act, RSC 1985, C. F-11 and the Criminal Code havean impact on the money realized in a storefront
money laundering operation.

enforcement would like to re-invest thesecharges into the operation to help fund thestorefront’s costs. This is a problem.
The realities are that the operation<scosts, recovered from the criminal, areretained as a case exhibit. The heavy
investigative costs for these operations
must be included in the investigative
budget. There can not be a direct transferof the criminals laundering costs to thestorefront’s operations budget. The merefact that money is obtained does notconvert an exhibit into property which thepolice can use for their own purposes.
These exhibits are ultimately disposed of,generally by forfeiture orders.45 There isno direct payment or financial benefit tolaw enforcement.
IX. CONCLUSION
Canada has adopted a moderate andbalanced approach to the problems createdby money laundering. It has constantly
reviewed its laws and attempted to reflect
the best practices of other jurisdictions
around the world. I always end these typesof discussions with the observation thatcriminals are more organized than States.
Criminals use national borders as a shield
whenever it suits their purposes.
Criminals are free to organise for their own
self-interest. They merge as needed andcompete as required.

45 The subsequent disposition of the forfeited property,

in any case prosecuted by the Attorney General of
Canada, is controlled by the Seized Property
Management Act (http://canada2.justice.gc.ca/en/
laws/S-8.3/83666.html). This law specifies thateverything is deposited into a special purpose
account. It also permits domestic sharing with
Provincial governments and international sharing
with foreign governments.

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RESOURCE MATERIAL SERIES No. 58
States seem prone to an approach thatsuggests co-operation while investigatorscompete for budgets and media attention.
The Attorney General of Trinidad andTo b a g o a d v i s e d t h e I n t e r n a t i o n a l
Association of Prosecutors, in a speech at
Ottawa, in September 1998, that nations
had to pool their sovereignties to protect
their sovereignties. Free trade and theeasy movement of capital and information
merely accelerates the need to actuallyadopt the Attorney General’s observation.

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THE IMPACT OF THE DIGITAL AGE ON MONEY
LAUNDERING INVESTIGATIONS
Daniel P. Murphy *I. INTRODUCTION
In the film Jerry Mcguire one of the main
characters uttered a phrase that
popularises the criminal’s justification for
most profit motivated crimes “SHOW ME
THE MONEY”. The volume of cash in
many criminal activities creates a problem
for the criminal and their advisors.
What is we look at currency as nothing
more than pieces of paper? Nations standbehind the value represented by the paper
but it remains paper. I am not intimatelyfamiliar with national or international
finances. My knowledge of banking is
minimal and personal, rather thanprofessional. On the other hand, myexperiences tell me that drug traffickers
need to move their currency for a varietyof reasons. This gives the State an
investigative opportunity. It also provides
an opportunity to forfeit a criminal’s cash.
These are two different issues.
The simple fact is that a dollar bill, or a
$20 dollar bill, weighs a gram. The weightof currency in a drug transaction, at thehigher levels, is greater than the weight ofthe drugs. This creates it own security risk.
The cash has to be moved around the world.
It has to be converted into other currency.
Cash should be seen as a businessinconvenience.
Cash is an important justification forevery currency transaction reporting
systems.1 Canada recently revised and* Senior Counsel, Strategic Prosecution, Policy
Section, Justice Canada, Canada

replaced its Proceeds of Crime (Money
Laundering) Act.2 That law will cover cashtransactions, which occur in a variety ofbusiness sectors.3 The Regulations containthe implementation provisions for this new
anti-money regime. In the anti money
laundering environment the regulation of
the financial sector is more than a means
to test a financial institution’s institutional
stability or its “know your customer”
policies.
Canada’s new law and its ancillary
regulatory package will establish somecash transaction reporting requirements in
Canada. Essentially, transaction reporting
will be triggered by proscribed amounts ofcash, deposited or involved in a transaction.
In addition, Part 11 of the Act will establish
a regime to gather information concerning
the cross border movement of cash andmonetary instruments.4 The provisions in
the regulatory package will eventually
evolve beyond concerns on paper currency

1

FINCEN recently released A Survey of Electronic
Cash, Electronic Banking and Internet Gambling,an excellent review of the field. http://
www.ustreas.gov/fincen/e-cash.pdf
2 S.C. 2000, C. 17
3 Section 6 specifies that persons subject to the Act
will keep and maintain records. The Act improves
upon and replaces the previous Proceeds of Crime(money laundering) Act and Regulations. Statutesof Canada 1991,c.26, in R.S.C 1985, C. P-24.5 asamended. (see http://canada2.justice.gc.ca/en/laws/
P-24.5/79312.html )4 Section12 specifies that the part will deal withcurrency or monetary instruments greater than aproscribed amount.

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RESOURCE MATERIAL SERIES No. 58
and address the new world of digital cash.
This law depends upon currencytransaction reporting and the ancillaryfinancial institution record keeping
requirements. It will include emerging
issues as they impact on the money
laundering issue. In fact, three emerging
issues have developed and each connects
to the emerging digital age. These are:(i)

The issue of personal information
protection in the digital age.
(ii) The issue of an investigator ’s
capacity to capture digitalcommunications, and(iii) The ability for individual’s to moveand conceal digital information.
Consider this last issue, for a minute. A
letter or a fraudulent receipt can be used
to acquire money. Good documentary
evidence is the essence of a financial crime
investigation. Investigators will look underthe bed; search file cabinets andcontinually seize the paper. After all it is
the best evidence. In the last decade thesearch for documents has been frustrated
by the evolution of the digital age. You now
need to search computers yet the Internet
and data safe havens can easily convert apersonal computer into an expensive
paperweight. The State’s ability to search
the Internet and seize Internet
communications is a common concern for
all nations. It is also new territory.
Unfortunately, this territory ignores
national borders yet national laws depend
upon borders. In this paper I will attempt
to raise some issues with respect to thethree emerging issues set out above.
How does the digital revolution impact
on the investigative imperatives of themodern world? That is a question everyone
must ask since the entire world has jumped
into a digital whirlpool. This is especially304

important in an era the individuals
response is to demand that states enact
laws to protect individual privacy.
II. PERSONAL PRIVACYPROTECTION
Hollywood movies suggest that nothingis secure from the intrepid Internet searchengine and a sophisticated digitaldetective.5 Canada’s Constitution includes
a Charter of Rights and Freedoms, which
impacts upon the ability of the state tosearch and seize information which
includes a reasonable expectation ofprivacy exists.
In a 1993 case, R. v. Plant,6 the Supreme
Court of Canada held that Canada’s s. 8Charter protected a biographical core of
personal information maintained by acommercial enterprise, in certain
scenarios. In Plant the police obtainedhydro consumption records from a city
utility company without a search warrant.
Justice Sopinka, for the majority, opinedthat the Charter protected a biographicalcore of personal information from the State.
He opined as follows:“The United States Supreme Court
has limited application of the Fourth
Amendment (the right against
unreasonable search and seizure)5

Coincidentally, as I was finishing this brief paper
my local newspaper arrived with an insert
magazine called Backbone-Premier issue. It
contained a short article by Sheldon Gordon, Diaryof a Digital Detective. The article described afictional denial of service attack against a Canadianon-line grocery service business. I suspect that a
future article could be on how a person can accesspersonal information from any computer. The issue
is that computers make our lives easier while theyrisk our privacy.
6 h t t p : / / w w w. c a n l i i . o r g / c a / c a s / s c c / 1 9 9 3 /1993scc96.htm

117TH INTERNATIONAL SEMINAR
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protection afforded by the UnitedStates Constitution to situations inwhich the information sought by stateauthorities is personal andconfidential in nature: United Statesv. Miller, 425 U.S. 435 (1976). Thatcase determined that the accused’scheques, subpoenaed for evidence
from a commercial bank, were notsubject to Fourth Amendment
protection. While I do not wish to betaken as adopting the position thatcommercial records such as cancelledcheques are not subject to s. 8
protection, I do agree with that aspectof the Miller decision which would
suggest that in order for constitutional
protection to be extended, theinformation seized must be of a“personal and confidential” nature. In
fostering the underlying values ofdignity, integrity and autonomy, it isfitting that s. 8 of the Charter shouldseek to protect a biographical core of
personal information which
individuals in a free and democraticsociety would wish to maintain andcontrol from dissemination to thestate. This would include information
which tends to reveal intimate detailsof the lifestyle and personal choicesof the individual. The computer
records investigated in the case at bar
while revealing the pattern ofelectricity consumption in theresidence cannot reasonably be said
to reveal intimate details of theappellant’s life since electricity
consumption reveals very little about
the personal lifestyle or private
decisions of the occupant of theresidence. ”
Commercial businesses, including
financial institutions, collect a significant
amount of personal information on theircustomers. Traditional businesses
obtained personal information, via papertransaction or otherwise. They obtainedthat information for their credit files:
customer preference files: and otherreasons. E Business obtains the same
information electronically. They could also
capture essential information the momentthat an individual accessed the business’s
web site. Frequently, an Internet businessi n c l u d e s a s p e c i f i c p r i v a c y p o l i c y.
Individuals had an opportunity to
acknowledge that they have read andagreed to the site’s privacy policy. I often
wonder who takes the time to read thoseprivacy statements and policies.
The result is that individuals havegrown concerned with the Wild West typeof privacy infringement, which they
perceive exists in the commercial world.
Nations have responded to this perception.
Type in Information Privacy on an Internet
search engine and you access thousands ofhits.7 You could also immediately accessthe Council of Europe’s Directive 95/46.8
You will quickly note a significant
movement to protect the “data subject’s”(i.e. a Counsel of Europe expression)
privacy. Their Directive specificallyrequires that third countries receiving data
adopt an adequate level of protection for
personal information.
III. CANADA’S LEGISLATEDRESPONSE TO PERSONALINFORMATION
Canada recently enacted its Personal
Information Protection and Electronic
Documents Act.9 Part 1 of this law (which
I will describe as the PIPED Act)
establishes a right of protection for
personal information collected, used or7

One interesting site I discovered was Privacy andthe Information Highway, by Ian Lawson at http://strategis.ic.gc.ca/SSG/ca01021e.html
8 http://www.privacy.org/pi/intl_orgs/ec/eudp.html
and save a lot of time.

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RESOURCE MATERIAL SERIES No. 58
disclosed in the course of commercial
activities. It establishes principles togovern the collection, use and disclosure of
personal information. The accuracy of any
records holding personal information is asignificant issue of concern in the PIPEDAct. It also requires businesses to provide
adequate security for records containing
personal information. It requires businessto make information management policies
readily available. In addition, business was
required to provide individuals with accessto information about themselves. It further
provides that a Privacy Commissioner
could receive complaints concerning
contraventions of the Act’s principles;
conduct investigations; and attempt toresolve such complaints. Unresolved
disputes relating to certain matters can betaken to the Federal Court for resolution.
A. Some Details on the Act
The PIPED Act came into force on
January 1, 2001. It specifically covers
banks; other federally regulated financial
institutions; and other federal businessorganizations. Transitional provisions
provide that all other Canadian businesses
will become subject to that law within three
years. This law controls the businesscollection of personal information and thesubsequent use and disclosure of suchinformation. The PIPED Act will have asignificant impact on how a business uses
the personal information it collects. It will
also have an impact upon investigations
since it applies the concept of personal
information protection and access, in amanner that is similar Canada’s Privacy
Act.10B. Business Records Impact
The PIPED Act establishes two resultsthat have yet to be fully appreciated. The
9

S.C. 2000 c. 5, http://canada.justice.gc.ca/en/laws/
ann_stat.html
10 R.S.C. 1985, c. P.21, as amended.

306

first impacts upon businesses. Everybusiness must convert their record keeping
systems into a personal information
retrieval system. Their customers have aright to access all their personal
information held by the business.11 Thatbusiness must assist the individual in
preparing the access request, if necessary.
In addition, the “organization” 12 must
respond to an individuals access request
with due diligence and in any case not later
than thirty days after receipt of therequest.13
The business must insure that theirrecords are accessible. In addition, they
had better insure that the personal
information they collect, use and disclose
is accurate; used in the manner intended;and properly disclosed.14 The individual,
in addition to their right to access theirpersonal information, has a right tocomplain to the Privacy Commissioner.
The Commissioner has the statutory right
11 PIPED Act, Section 8 allows individuals to submit

written requests for access to a business
12 PIPED Act, Subsection 2 defines an “organization”

to include an association, a partnership, a person
and a trade union. Section 4 then provides that
the Act applies to any “organizations” that collects
personal information. Section 2 defines personal
information to mean “information about an
identifiable individual, but does not include thename, title or business address or telephone
number of an employee of an organization”. Finally,
since personal information is contained in records,
section 2 defines records, in an expansive definition,
to include any correspondence, memorandum, book,plan, map, drawing, diagram, pictorial or graphic
work, photograph, film, microform, soundrecording, videotape, machine-readable record andany other documentary material, regardless ofphysical form or characteristics, and any copy of
any of those things.
13 PIPED Act, subsection 8(3).
14 PIPED Act, section 7 controls the collection use anddisclosure of personal information.

117TH INTERNATIONAL SEMINAR
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to investigate the individuals complaint
and take the matter to Court.15 Finally,
the court has the power to remedy thecomplaint Section 16 of the PIPED Act
allows the court to:
(a)

(b)

(c)

order an organization to correct its
practices in order to comply withsections 5 to 10;
order an organization to publish a
notice of any action taken or
proposed to be taken to correct its
practices, whether or not ordered
to correct them under paragraph(a); andaward damages to thecomplainant, including damages
for any humiliation that thecomplainant has suffered.

There have not been any decisions, todate, since the Act came into force at the
beginning of 2001.
Current reality, vis-à-vis businessrecords, is that individuals have a very
difficult challenge obtaining access. Law
enforcement has a similar challenge. In
light of the Charier, and the courts ability
to determine that personal information
accessed from a commercial enterprise goesto the biographical core of information
deserving of protection, the police arealways well advised to access businessinformation under the authority of awarrant. The problem is that the records
are not readily available. Frequently thepolice wait, in sufferance, while therequired record is retrieved. The law will,over time, compel organizations to shift
their record-keeping paradigm toward
accessibility. Accessibility by law
enforcement will be improved.

15 Sections 12 to 15.

C. Impact on the Police
I indicated that there were two
unexpected impacts as a result of the
PIPED Act. The Act controls how businessdiscloses personal information theyretained. If law enforcement obtains accessto personal information held by a business,they may have to disclose that fact if theperson asks for instances where theirinformation is used. This will have an
unexpected impact upon law enforcement.
The essence of the PIPED Act is that
individuals should have the right to know
the use and disclosure activities of any
business that retained their information.
Organizations are required, under the
PIPED Act, to advise their customers, upona request from the customer, with respect
to any business use of personal
information. Subsection 7 (c); (c.1); (d); and(e) authorise disclosure without consent.16
The individual, however, retains the rightto access their personal information recordin the organization and determine if theorganization has made any disclosures
under the authority of subsections7 (3)(c)to (e).
This means that a police investigativeinterest, even if the police used a warrant
that authorised a surreptitious disclosure,16 The relevant sections read as follows:(c) required to comply with a subpoena or warrant
issued or an order made by a court, person or
body with jurisdiction to compel the productionof information, or to comply with rules of court
relating to the production of records;(c.1) made to a government institution or part ofa government institution that has made a request
for the information, identified its lawful authority
to obtain the information and indicated that(i) it suspects that the information relates tonational security, the defence of Canada or the
conduct of international affairs,(ii) the disclosure is requested for the purposeof enforcing any law of Canada, a province ora foreign jurisdiction, carrying out an

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RESOURCE MATERIAL SERIES No. 58
should be disclosed to a requesting
individual. Indeed, any competentcriminal or criminal organization, might,
as a matter of routine, file PIPED Act
section 8 requests to determine if theorganization has disclosed to authorities.
This can be equated to an early warning
mechanism for interested individuals.
The PIPED Act responded to thispossibility by allowing the organization to
notify the authorities about an accessrequest and delay access pending adecision, by the authorities to object.17 I
will not set out the specific provisions but
the result is that law enforcement must
create some type of system to respond to abusiness’s notification about accessrequests. If the deadline to object passes
without an objection from the relevant
authority the business must tell the person
investigation relating to the enforcement of
any such law or gathering intelligence for the
purpose of enforcing any such law, or(iii) the disclosure is requested for the purposeof administering any law of Canada or aprovince;(d) made on the initiative of the organization to
an investigative body, a government institution
or a part of a government institution and theorganization(i) has reasonable grounds to believe that the
information relates to a breach of anagreement or a contravention of the laws ofCanada, a province or a foreign jurisdictionthat has been, is being or is about to becommitted, or(ii) suspects that the information relates tonational security, the defence of Canada or the
conduct of international affairs;(e) made to a person who needs the information
because of an emergency that threatens the life,
health or security of an individual and, if theindividual whom the information is about is alive,
the organization informs that individual inwriting without delay of the disclosure;
17 PIPED Act, subsection 9(21.) to 9 (2.4).

308

who made the request about the earlier
disclosure to law enforcement.
D. Suspicious Transaction
Reporting
There is one other aspect to the PIPEDAct. It contemplates consent disclosure,
informed consent and a confirmation of thefact of a disclosure to law enforcement.
Recall however, that Canada’s new
Proceeds of Crime (Money Laundering) Act
create a suspicious transaction reporting
requirement and a new tipping off offence.18
Section 97 of that Proceeds of Crime (Moneylaundering) Act includes conditional andconsequential amendment to the PIPEDAct. It adds a subsection 7(3) and9(2.1)(a)(I), (2.3) and (2.4)(c)(I) to
specifically cover suspicious transaction
reporting.
IV. THE GROWTH OF INTERNETCOMMUNICATIONS ANDCYBERCRIME
There is a phenomenal amount ofliterature on the Web concerning the
growth of cybercrime. The United States’
National Information Infrastructure
Protection Act of 199619 illustrates how
significant a problem this is for one
jurisdiction. At the 10th United Nations
Conference on Prevention of Crime andTreatment of Offenders’ Computer Crime
Workshop, last April, the Attorney Generalof Canada summarised the problem
created by the Internet and the personal
computer in a few words. The Attorney
General advised the group that:
Computer networks, and the Internet,
in particular, have managed to shrink our
18 S.C., 2000, C.

17. Section 8 creates an offence todisclosure that a suspicious transaction report has
been made.
19 18 U.S.C. 1830 http://www.cybercrime.gov/
1030_new.html

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
vast world. Today’s technology allows us
to share information with people in othercountries, and on other continents withminimal expense.
With the internet the possibility now
exists for people all over the world to haveaccess to the stores of knowledge andproducts and services that were once only
accessible by a very few. This possibility
has provided new opportunities to draw theworld together. The emergence of ecommerce is allowing small businesses
around the world to compete with theirlarger competitors.
But, the Internet has also createdcorresponding opportunities for criminals.
Like everyone else, criminals haveembraced high technology to further theirgoals. We are becoming increasingly awareof the threats posed by the Internet. Hate
literature and child pornography can bedisseminated easily. Even traditional
crimes such as fraud and forgery can now
be committed with the Internet.
In October 1999, the G8 Ministers ofJustice and the Interior adopted a set ofprinciples on transborder access to storedcomputer data. The principles cover many
issues relevant to computer evidence;
including, the secure rapid preservation ofdata, and transborder access to data
through expedited mutual assistance, andin some cases direct transborder access incases of public internet sites or withconsent of an authorized user.
On March 28, 2000 F.B.I. Director LouisFreeh made a statement on the Record
before the United States’ Senate
Committee on Judiciary.20 The Director
analysed the problems created by thecybercrime phenomenon. I can not improve
20 http://www.fbi.gov/pressrm/congress/congress00/

cyber032800.htm

upon his excellent overview andrecommend the statement for anyone
seeking a general description of the issues.
I can only add that nations must consider
this problem or recognize the reality that
their borders and sovereign interests arecompletely artificial.
Concomitantly to the 10th United nations
Convention; the work of the Ministers ofJustice and Interior and the efforts in the
United States, the Council of Europe, overthe last three years, has been negotiating
a draft Convention on Cyber-crime, which
will be open to signature to all of its
members and to non-member states.
The purpose of the Convention is “todeter actions directed against theconfidentiality, integrity and availability ofcomputer systems, networks and computer
data, as well as the misuse of such systems,
networks and data, by providing for thecriminalisation of such conduct, as
described in the Convention, and theadoption of powers sufficient for effectively
combating such criminal offences, byfacilitating the detection, investigation andprosecution of such criminal offences atboth the domestic and international level,and by providing arrangements for fast andreliable international co-operation.”21
In particular, the Convention has four
major components:(1.)

Requiring State Parties tocriminalise certain forms of abuseagainst computer systems (i.e.,
illegal access, illegal interceptionof communications, datainterference, system interference
and misuses of hacking and virus

21 The most recent public draft of this convention, i.e.

version 25, can be accessed at: http://
conventions.coe.int/treaty/EN/projets/
cybercrime25.htm

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RESOURCE MATERIAL SERIES No. 58

(2.)

(3.)

programs and devices) and certain
forms of crimes committed throughthe use of computer systems (i.e.,f o r g e r y, f r a u d , p r o d u c t i o n /distribution/possession of childpornography, and infringement of
copyright as defined undernational law pursuant to fulfilling
obligations under a number of
specific copyright treaties).

investigation and prosecution ofConvention offences and any
offence in respect of which evidence
is in electronic form (e.g., mutual
legal assistance, extradition).
State Parties are entitled to use theConvention to supplement any
existing treaties among them orwhere there are no existingtreaties or other arrangements.

Requiring State Parties to enact,or take such other measures as arenecessary, to ensure that various
enforcement powers can be
exercised by law enforcement
authorities for the purpose of
criminal investigations orproceedings (i.e., orders for thepreservation of specific computer
data pending its acquisition bylegal measures, search and seizureof computer data, orders for the
production of computer data,collection of traffic data,interception of communications) in
relation to Convention offences,
any other criminal offence
committed by means of a computer
system and evidence in electronic
form of any criminal offence.

The cybercrime issue can become overly
focused on how Internet communications
occur. The environment changes fasterthan the law. This means that it is difficult
to stay in front of the communications.
Essentially this becomes an interception
issue.

Requiring State Parties to adopt
legislative and other measures toestablish jurisdiction over theConvention offences when theoffence is committed: in its
territory; on board a ship or airline
registered under the law of that
Party; or by one of its nationals if
the conduct is a criminal offence
where it was committed or if theoffence is committed outside theterritorial jurisdiction of any State.

V. INTERCEPTION ISSUES
The interception of private
communications, as an investigativetechnique, varies around the world. Somecountries do not have any specific laws
controlling this technique. Others have a
law that permits investigators to use
wiretaps provided they do so forintelligence purposes.22 Canada, and othercountries, legislated specific laws and use
wiretaps to gather evidence that is used inprosecutions.23 The Canadian interception
law was found to be an acceptableprocedure under Canada’s Charter ofRights and Freedoms. From the Canadianperspective, the parties involved in atargeted communication have a reasonable
expectation of privacy and a judicial
authorization is required before theinterception occurs if the State intends touse the interception as evidence.
22 The United Kingdom’s Regulation of Investigatory

Powers Act.
23 In Canada Part VI of the Criminal Code, for

(4.)

310

Requiring State Parties to provide,to the widest extent possible, eachother co-operation in thecriminal evidence purposes and the Canadian
Security Intelligence Services Act, for national
security purposes.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
Considering the person’s expectation ofprivacy, there is minimal difference
between phone communications andcommunications involving the Internet.
Part VI authorizations are obtained by thepolice to intercept e-mail and other Internet
communications while they are in transit.
In the United States Title III was
influenced by Berger v. New York24 and Katz
v. U.S. 25 Canadian wiretap law should
apply the same analysis. They are asconcerned with the need to control thethreat posed to individual privacy byindiscriminate police use of wiretapping.
The American and Canadian wiretap
legislation were drafted very broadly inorder to regulate and control thet e c h n o l o g i c a l i n v a s i v e o f p r i v a c y.
Legislative amendments have also been
made to keep pace with new police
investigative techniques and technologythat were not contemplated by the initialenactments. In Canada warrants inrelation to videotaping, digital number
recorders, tracking devices and cell phones
were added to the Criminal Code.
The United States Supreme Court has
described and outlined the history of theformation of the Internet:26[para25] The Internet is aninternational network ofinterconnected computers. It is theoutgrowth of what began in 1969 as amilitary programme called“ARPANET,” which was designed toenable computers operated by the
military, defense contractors, and

24 Berger v.

New York 388 U.S. 41 (1967)
U.S. 389 U.S. 347 (1967)
26 Reno, Attorney General O v. American Civil
Liberties Union (06/26/1997), From Wiretappingand Other Electronic Surveillance, By Hubbard,
Brauti and Fenton, Canada law Book
25 Katz v.

universities conducting defenserelated research to communicate with
one another by redundant channels
even if some portions of the network
were damaged in a war. While the
ARPANET no longer exists, it
provided an example for thedevelopment of a number of civilian
networks that, eventually linking
with each other, now enable tens of
millions of people to communicate
with one another and to access vast
amounts of information from aroundthe world. The Internet is “a uniqueand wholly new medium of world-wide
human communication.”[para26] The Internet has experienced“extraordinary growth.” The numberof “host” computers - those that store
information and relay
communications-increased from about
300 in 1981 to approximately
9,400,000 by the time of the trial in
1996. Roughly 60% of these hosts arelocated in the United States. About
40 million people used the Internet atthe time of trial, a number that is
expected to mushroom to 200 million
by 1999.
The Reno court opined on the extra
territorial nature of the Internet as a
medium of communications:[para28] Anyone with access to theInternet may take advantage of a wide
variety of communication andinformation retrieval methods. Thesemethods are constantly evolving anddifficult to categorize precisely. But,
as presently constituted, those most
relevant to this case are electronic
mail (“e-mail”), automatic mailing list
services (“mail exploders,” sometimes
referred to as “listservs”),“newsgroups,” “chat rooms,” and the“World Wide Web.” All of these311

RESOURCE MATERIAL SERIES No. 58
methods can be used to transmit text;
most can transmit sound, pictures,and moving video images. Taken
together, these tools constitute a
unique medium-known to its users as“cyberspace” - located in no particulargeographical location but available toanyone, anywhere in the world, withaccess to the Internet. (Emphasis
added)[para29] E-mail enables an individual
to send an electronic messagegenerally akin to a note or letter toanother individual or to a group ofaddressees. The message is generally
stored electronically, sometimes
waiting for the recipient to check her“mailbox” and sometimes making its
receipt known through some type of
prompt. A mail exploder is a sort of email group. Subscribers can send
messages to a common e-mail address,
which then forwards the message tothe group’s other subscribers.
Newsgroups also serve groups ofregular participants, but these
postings may be read by others as
well. There are thousands of suchgroups, each serving to foster an
exchange of information or opinion ona particular topic running the gamut
from, say, the music of Wagner toBalkan politics to AIDS prevention to
the Chicago Bulls. About 100,000 new
messages are posted every day. In
most newsgroups, postings areautomatically purged at regularintervals. In addition to posting amessage that can be read later, two
or more individuals wishing tocommunicate more immediately canenter a chat room to engage in realtime dialogue-in other words, by
typing messages to one another thatappear almost immediately on theothers’ computer screens. ... It is “noexaggeration to conclude that the312

content on the Internet is as diverse
as human thought.”[para30] The best known category ofcommunication over the Internet is
the World Wide Web, which allows
users to search for and retrieve
information stored in remotecomputers, as well as, in some cases,
to communicate back to designatedsites. In concrete terms, the Web
consists of a vast number of
documents stored in different
computers all over the world. Someof these documents are simply files
containing information. However,more elaborate documents, commonly
known as Web “pages,” are alsoprevalent. Each has its own address“rather like a telephone number.”[para31] Navigating the Web isrelatively straightforward. A user
may either type the address of aknown page or enter one or more
keywords into a commercial “searchengine” in an effort to locate sites ona subject of interest. A particular Web
page may contain the information
sought by the “surfer,” or, through its
links, it may be an avenue to otherdocuments located anywhere on theInternet. Users generally explore agiven Web page, or move to another,by clicking a computer “mouse” on oneof the page’s icons or links. Access tomost Web pages is freely available,
but some allow access only to those
who have purchased the right from acommercial provider. The Web is thus
comparable, from the readers’viewpoint, to both a vast library
including millions of readily available
and indexed publications and a
sprawling mall offering goods andservices.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
The United States’ Electronic
Communications Privacy Act (ECPA) of
1986 attempted to update the wiretap
statute by prohibiting the unlawful access,use and disclosure of electronic
communications. The intent wasinterpreted to exclude stored electronic
message, once the intended recipient
opened the messages. 27 Other cases
adopted a more restrictive interpretationof the law.28
VI. CANADA’S APPROACH
The Criminal Code’s search provisions
were amended to provide for a search
warrant to be used to search computers.
The regular warrant provision containedin s.487 of the Code was amended to afford

broad latitude to the police to conduct
searches of computers without complying
with Part VI. Section 487 specifically deals
with computer searches as follows:(2.1) A person authorized under thissection to search a computer system ina building or place for data may(a) use or cause to be used any computer
system at the building or place tosearch any data contained in oravailable to the computer system;(b) reproduce or cause to be reproduced
any data in the form of a print-out orother intelligible output;(c) seize the print-out or other output for
examination or copying; and(d) use or cause to be used any copying
equipment at the place to makecopies of the data.

27 Steve Jackson Games, Inc. v. United States Secret

Service, 36 F.3d 457 (5th Cir., 1994)
28 United States v. Smith, 155 F.3d 1051, 98 Cal. (9thCir., 1998) In Canada, R. v. McQueen (1975), 25
C.C.C. (2d) 262 at 265 (Alta. C.A.) the court
interpreted the word intercept contained in s.183.
The court stated:
In interpreting new legislation, a good starting
place is to consider the dictionary definition ofwords used. The Shorter Oxford English Dictionary,
3rd ed., defines:
Intercept 1. trans. To seize, catch, or carry off on
the way from one place to another; to cut off fromthe destination aimed at -- 1548. b. To stop thenatural course of (light, heat, etc.); to cut off(light) from anything 1945. c. To interrupt -- 1759.
d. To check, cut off (passage or motion) from one
place to another 1596. 2. To prevent, check, stop,hinder 1576. 3. To mark off or include (a certain
space) between two points or lines; hence, tocontain, enclose. 4. To cut off (one thing) fromanother, or (ellipt.) from sight, access, etc. 1662.
In, at least, its primary sense the word intercept
suggests that there must be an interference
between the place of origination and the place ofdestination of the communication. If Parliament
intended the word intercept to be used in thisprimary sense, then there was no interception here.

(2.2) Every person who is in possession
or control of any building or place inrespect of which a search is carried out
under this section shall, on presentationof the warrant, permit the person
carrying out the search(a) to use or cause to be used any
computer system at the building orplace in order to search any datacontained in or available to thecomputer system for data that theperson is authorized by this section
to search for;(b) to obtain a hard copy of the data andto seize it; and(c) to use or cause to be used any copying
equipment at the place to makecopies of the data.
It seems self evident that a search
warrant, rather that a Part VI
authorization, is the appropriate order tosearch a computer. The problem is that aninterception or a search, which ever theorder required in the circumstances,
depends upon laws that are limited to theterritory of the state.

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RESOURCE MATERIAL SERIES No. 58
A Canadian search warrant orauthorization has no effect outside Canada.
Conversely a foreign search warrant orintercept authorization is ineffective in
Canada. Mutual legal assistanceprovisions are available to assist anotherstate. Canada has enacted the Mutual
Assistance in Criminal Matters Act to use
in various requests under relevant Treaties
and Conventions. S. 10 of the Act permits
a foreign country to request Canadianauthorities to obtain a search authorizationon their behalf in Canada. The section
provides:10. The Criminal Code, other thansection 487.1 (telewarrants) thereof,
applies, with such modifications as
the circumstances require, in respectof a search or a seizure pursuant tothis Act, except where that Act isinconsistent with this Act.
Part VI of the Criminal Code specificallylimits authorizations to specifically listed
offences. A foreign MLAT request seeks
evidence that assists a foreign offence.
Therefore a wiretap authorization is notavailable under the mutual assistance law.
It is inconsistent with the Mutual Legal
Assistance Act. The Council of Europe’s
draft Cybercrime Convention illustrates
the problem when digital traffic moves
across jurisdictions.
It is clear that nations must co-operate
if they are every able to respond to Internet
crimes. Additionally, the interception ofprivate communications is hamstrung due
to shifting technology. Interceptions now
occur at the carrier’s switch. As global
communications and world trade
agreements develop, switches are notalways located in the country where atargeted private communication occurs. If
the place of interception is a switch thelocale of the switch may require that the
local interception law must be used to314

authorize the interception. This raises aninteresting question if the offence underinvestigation prevents the issuance of an
authorization. Again, this illustrates thatnations must co-operate to address crimein the digital age.
VII. CONCLUSION
Individuals around the world perceivethat the digital age minimises privacy tothe altar of technological convenience. In
Canada, this has led to enhanced privacy
obligations for businesses. These
provisions have unexpected impact on thepolice and the business community. The
Internet is the latest tool for investigatorsand criminals.
The ability to investigate thiscommunication medium is something thatwill challenge law enforcement for theforeseeable future. Equally significant, theterritorially limitations of domestic wiretap
laws significantly limits law enforcement.
Nations will have to respond to these issues
or admit that the 21st century creates anunregulated communication environment.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS

CURRENT SITUATION AND COUNTERMEASURESAGAINST MONEY LAUNDERING- A GERMAN AND EUROPEAN PERSPECTIVE
Peter H. Wilkitzki *I. PRELIMINARY REMARKS
I would like to attempt to describe as
exhaustively as possible both the problems
and the potential solutions related to thisvery broad topic, without at the same timelosing sight of the needs of legal
practitioners and of those who must
contribute towards legislation.
It is clear to me here that I am running
the risk of repeating many matters alreadydealt with exhaustively in the course of theseminar so far, and that the specificquestions on which you expect me tocomment may not be covered until the
discussion. On the other hand, as a
German and a European, I naturally see
the topic from the point of view of mycontinent, and hope that this reveals atleast something which is new andinteresting for you, and that I can perhaps
provide new details and facets.
II. WHAT ACTUAL AND LEGALPHENOMENA ARE WE DEALING
WITH?
Undoubtedly money laundering isclosely linked to organized crime. Actually,
it is the area where organized crime canbest be attacked and hurt. So, the primary
goal in suppressing organized crime must
be to optimise the siphoning off of theproceeds of crime. This is because crime,and organized crime in particular, depends
on making major profits. According to* Director General of Criminal Affairs Bureau,
Federal Ministry of Justice, Federal Republic of
Germany

estimates by the United Nations, theturnover of the worldwide illegal drug tradeis much higher than that of the oil industry(some authors even speak of USD 1 trillion
per year). Thus, organized crime is mostvulnerable at this “nerve centre”; andconversely, any criminal law policy,
however repressive it may be, is of little
use unless it addresses the question offunding and flows of money. What is ofparticular importance here is to prevent“dirty” assets being disguised andconverted into apparently “legal” money,
being “washed white”. The legal term thathas entered into English usage is “money
laundering” - which is by the way a termthat sometimes causes difficulties whentranslated into the specialist legal
terminology of other languages. [e. g.,
Chinese ].
Today, we are able to take as a basis asecure definition of the term “money
laundering”: This refers to the systematic
disguising of illegal assets by smuggling
them into the legal financial markets inorder to remove them from access by thecriminal prosecution organs and to retain
their economic value. The simplest case
can consist of cash or non-cash transfer ofillegally obtained money - mostly cash,
frequently in small monetary units. The
more refined forms are shown by crossborder transactions and/or bytransformation of illegal assets into “legal”
company holdings, real estate, etc. Many
authors distinguish between the first stage,
the “placement stage”, and the second, the“placement stage” where the money, once
being in the “circuit”, will be confusingly
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RESOURCE MATERIAL SERIES No. 58
transferred hence and forth. (I will return
later to the specific risks connected withelectronic banking.)
Even if criminal law is always to be used
only as a last resort, there is no doubt thatmeasures embodied in criminal law must
be the focus of the suppression of suchgrievous, menacing phenomena as money
laundering. The primary measuretargeting the suppression of money
laundering must therefore be to criminalise
disguising the origin of the proceeds ofcrime, as well as the third party
acquisition, possession or use of articles
obtained as a result of criminal offences.
Here, the first question to arise is (evenif this may appear to you to be “typicallyGerman”): What is the legal interest
protected by the element of the criminal
offence targeting money laundering?
Firstly, it is the state’s administration ofjustice, and secondly it is the legal interest
protected by the element of the criminal
offence targeting the crime that preceded
it, which is otherwise known as the“predicate offence”. Some researchers feelthat this is too narrow; they consider theinterests to be protected by the element of
the offence to be constituted by the legal
economic and financial markets, or internal
security as a whole. One German author
ironically states that the legal interests
protected are just “global interests” thatcannot be defined more exactly; anotherholds that money laundering is just an“investigation concept commuted into acriminal offence”. This uncertainty, whichis unusual in criminal law, is connected tothe highly preventive characteristic of theelement of the offence that aims less tosanction the wrong done in the specificindividual case than it aims to address thegeneral, primarily preventive, impact of the
suppression of general economic and social
phenomena. To say it with another
German author’s words: Money laundering

316

means a double strategy combining
criminal punishment of an offender - inpersonam - with siphoning off of proceedsof crime - in rem - (I will return later to thepreventive measures outside criminal law.)
What are the actions that must be
threatened with punishment? Once more,a distinction must be made between two
aims: Firstly, disguising articles resulting
from specific predicate offences, disguising
their origin through misleading activities,
preventing or hindering the identificationof their origin or their finding andconfiscation. Secondly, criminal law means
must be used to prevent third parties
obtaining, storing or using such articles (forthemselves or for others). Once more, we
are in the border area of prevention since
this alternative is intended to isolate
offenders from their environment
financially: If no one purchases the illegal
proceeds from the offenders, and they are
thereby prevented from employing them ingenuine legal transactions, those profits
become useless and valueless; the offence
becomes “not worthwhile” for the offenders.
To what “articles” can such actions refer?
To put it briefly: To all moveables andimmoveables, as well as to rights andreceivables. To be more specific: to money,
either as cash or deposits, precious metals
and stones, real estate, securities,
receivables, shares in companies and otherholdings. No limits are set to the (criminal)
imagination.
These articles must originate from asuitable “predicate offence”. It goes
without saying that this must be a criminal
offence; but not every criminal offence
qualifies as predicate offence (although ininternational fora, there is a growing
tendency towards recognition of thebroadest possible concept, the “all crime
principle”).

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
Only those specific criminal offences thatare typical of organized crime are relevant.
The question of how these are to be
described within the legal framework canbe answered in a variety of ways:
Parliament can enumerate all suitablepredicate offences or categories of predicate
offence in laws (thereby running the riskof needing to amend the law should newforms or fields of crime arise), or it may
address the amount of the punishment
imposable in abstract terms (with the dual
risk of setting the threshold either too high,and omitting to cover some typicalpredicate offences, or too low, and wrongly
covering some predicate offences that are
atypical).
The best solution probably lies
somewhere in the middle, meaning in a
combination of abstractly encompassing all
grievous criminal offences above a certain
threshold of imposable punishment,
individually supplemented by somepredicate offences which are less grievous,
but which are typical of organized crime.
Criminological research has shown thattypical predicate offences to money
laundering are all property crimes, and inparticular fraud, breach of trust, theft,blackmail, corruption, crimes committed on
a commercial basis, the forging of
documents, drug offences, smuggling,trafficking in human beings, “red-light”
crime, computer and environmental crime,
terrorism and membership of a criminal
association (opinions are however divided
as to the last two categories).
It has proven advantageous, especiallyin cases in which the participation of themoney launderers in the predicate offencecannot be detected, to cover not only
predicate offences committed by a third
party, but also those committed by themoney launderers themselves, what can be
regarded as proof of the theory that, in fact,
the laundering offence aims atcriminalizing the predicate offence - the“front criminality” - rather than thelaundering act as such. (If, however, theoffender is sanctioned for the predicate
offence, there will be no additional sanction
for the laundering offence.) Because of thestrong international connections in thisarea, there is a real need also to include
predicate offences that have beencommitted abroad.
In practice, the main problem does notconsist in proving the predicate offence assuch, but in proving that the article“originates” from the predicate offence. In
contrast to the classical element of theoffence of fencing, the term “to originate”
is to be given a broad interpretation so thatthe “chains” of exploitative activities, which
are typical of money laundering, are also
covered, i.e. activities where the originalarticle is replaced by a second and then athird, etc., whilst retaining its value. Aslong as only the relationship to the originalarticle is retained, each surrogate is to be
involved; a border should only be drawn
where an article is “transformed” by theseparate performance of a third party, or if
it was obtained in good faith. The question,
which remains unresolved in most cases inthe statutory provisions, is that of how one
can proceed if a surrogate originates only
partly from the unlawfully obtained asset.
Attempted money laundering should bepunishable in the same manner as thecompleted crime. In addition to intentional
commission, negligent, or at least recklesscommission should be punishable, i.e.
cases where the offender omits to recognisebecause of gross carelessness what should
actually be obvious to anyone, namely thatthe article originates from a criminal
offence. Practitioners repeatedly issue calls
to go further, and to formally reverse theburden of proof, i.e. always to presume thatthe offender knew or should have known
that the article originates from a criminal

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RESOURCE MATERIAL SERIES No. 58
act unless the offender proves the opposite.
Such statutory evidentiary rules that place
the accused at a disadvantage would
naturally meet the needs of practitioners;
however, they give rise to considerable
problems, partly constitutional in nature,
concerning their compatibility with theprinciple of guilt and the requirements ofcriminal proceedings based on the rule oflaw.
As money laundering constitutes serious
criminality, the level of sanctions to beinflicted must be rather high (in Germany,
there is a minimum sanction of 3 monthsof prison which theoretically excludes theapplication of fines and which - more
important - means that a lot of procedural
measures can be taken the use of which islimited to cases of serious crimes only.)
More important, and something to which
offenders are frequently more vulnerable
than to their punishment, is to deny them
the benefits of the assets that they haveacquired. Hence, the substantive law andprocessorial legal institutions thatfacilitate the seizure of such assets (andthe important provisional measures likefreezing and securing that precede it) is ofcentral significance, some authors call thisarea the “third dimension of combating
crime” - “crime must not pay”! Again we
observe an important shift from measures“in personam” to measures “in rem”, and it
is not for nothing that a major part of theinternational regulations (which I will be
describing later) concerns this area.
It is also practical to alleviate thepunishment of anyone who voluntarily
reports an offence that has not yet been
detected and makes possible theconfiscation of the article, or who by
voluntarily disclosing their knowledge
contributes to the detection of the offence
or of another’s contribution to the offenceof (such alleviation, under certain

318

preconditions, ranging up to waiving
punishment) and to offer them an incentive
to withdraw or to file a report by virtue ofsuch regulations.
A problem that has been much discussed
recently is the question of whether
members of legal, tax and economic
consulting professions (lawyers, notaries,
tax auditors, auditors) should be able tofulfil the element of the offence of money
laundering or whether, in the interest of
the administration of justice, precedence
is given to the highly-protected relationshipof trust with their clients, especially since,at least according to academic studies thathave been implemented in Germany, there
are no indications in this respect of criminal
policy activity being needed. I will be
coming back to this question in the context
of the EU directive.
As I have mentioned, there is a need fora series of non-criminal law measures in
addition to criminal law measures. They
pursue the aim of, firstly, preventing thecommission of criminal offences of money
laundering and, secondly, providing thecriminal prosecution authorities with ameans of suppressing money laundering:
What is needed for this purpose is tocreate a traceable “papertrail” to enable one
to identify the join between the illegal andlegal markets, thus enabling the criminal
prosecution organs to reconstruct thefinancial flows and to access the centres ofthe organisations.
Firstly, therefore, financial institutions
and other enterprises (e.g. financial service
institutions, casinos, people in commerce,
persons managing third party funds for afee) must be obliged, when opening
accounts and managing cash transactions
greater than a certain amount, to require
their clients to identify themselves, torecord the individual transactions and to117TH INTERNATIONAL SEMINAR
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make these records available to thecompetent authorities. Furthermore, theymust be obliged to inform the criminal
prosecution authorities when they havesuspicions and in cases of transactions
reaching a certain amount, and to interrupt
the transaction until the authorities havetaken a decision. Here, the interruption
period must be long enough to allow acheck, but also short enough not to place
the legitimate interests of the enterprise
at a disadvantage. Finally, special security
and verification measures must be imposedon enterprises that can be particularly
easily misused for the purposes of money
laundering.
All these duties need in turn to be
reinforced by means of criminal or at least
administrative law sanctions.
III. WHAT REQUIREMENTS FOR
NATIONAL CRIMINAL LAW
EMERGE FROM THE TOOLSAVAILABLE UNDERINTERNATIONAL LAW?
I have already mentioned the fact thatthe areas of organized crime and money
laundering are characterised byparticularly strong international
connections. Hence, it is appropriate inthese areas for particular emphasis to be
attached to drafting international legal
instruments and implementing them innational legislation and practice. All majorinternational and regional organisations
have addressed this material, and havedrafted tools that are worthy of note on the
one hand because of their quality, and on
the other because of their high degree ofagreement.
A. United Nations
The efforts to create an obligation underinternational law to criminalise money
laundering were launched by the United
Nations. It is a pleasant duty for me toremind you of this at an event organizedby an organisation belonging to the United
Nations family.
The Convention Against Illicit Traffic in
Narcotic Drugs and Psychotropic
Substances, accepted in Vienna on 20
December 1988, is concerned, as its namesuggests, only with the area of drug
offences. However, its Article 3 contains aduty to establish as criminal offences not
only the illicit trade in drugs (para 1 (a)),
but- correctly recognising that drugtrafficking, as well as organized crime
as a whole, would be largely bereft of its
economic basis if it were unable tolaunder its proceeds- in accordance with para 1 (b) also for- “the conversion or transfer of property,
knowing that such property is derived
from any (drug offence), for the
purpose of concealing or disguising
the illicit origin of the property or ofassisting any person who is involvedin the commission of such an offence
or offences to evade the legal
consequences of his actions” and- “the concealment or disguise of thetrue nature, source, location,
disposition, movement, rights withrespect to, or ownership of property,
knowing that such property is derived
from a (drug offence)”.
This definition, accepted after lengthy,
difficult negotiations, was intended, as I
will explain later, to become the “mother”
of all money laundering regulations draftedin the ensuing period in various
international fora; it hence demonstrates
a unique United Nations “success story”.
It is appropriate to the abovementioned
special significance attached to siphoning
off the proceeds of crime and theirsurrogates in this area that a whole,extensive Article of the Convention (Art.

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RESOURCE MATERIAL SERIES No. 585) is devoted to the “confiscation ofproceeds”. It places an obligation on theMember States to make this possible undernational law, and on request by a foreignstate. Art. 6 et seqq. of the Convention
contain obligations in the area of criminal
law cooperation (extradition, mutual legal
assistance, transfer of proceedings).
The “success story” of the United
Nations in the area of the suppression oforganized crime and money laundering
does not end with the drafting of thisConvention: The UN Convention against
Transnational Organized Crime (with two
Additional Protocols) was recently signed
in Palermo, on 12 December 2000 - basedon a Polish initiative - marking a further
milestone on the path towards world-wide
suppression of organized crime. Its areaof application covers, on the one hand, aseries of enumerated criminal offences,including money laundering, as well as all
criminal offences that are transnational by
nature and in respect of which a maximum
penalty of four or more years may be
imposed.
Article 6 of the Convention obliges thesignatory states to the criminalize “thelaundering of proceeds of crime”; it is basedon the fundamental structure of thecorresponding Article of the Drug
Convention, and contains in para 2 detailed
instructions on including a “widest rangeof predicate offences”.
Article 7 of the Convention also provides
for an obligation, outside criminal law, totake “measures to combat moneylaundering”, containing above all: a“comprehensive domestic regulatory andsupervisory regime for banks and non-bankfinancial institutions and, whereappropriate, other bodies particularly
susceptible to money-laundering ... inorder to deter and detect all forms ofmoney-laundering, which regime shall

320

emphasize requirements for customer
identification, record-keeping and thereporting of suspicious transactions”.
In this Convention, too, the significanceof siphoning off the proceeds and theirsurrogates is stressed in that three Articles(12 - 14) are devoted to “Confiscation and
Seizure” - including international
cooperation in this area. Article 16 et seqq.
in turn contain regulations for criminal law
cooperation.
B. Council of Europe
For the European region, but also for
those states outside Europe that are able
to accede to the “open” Conventions of theCouncil of Europe, the work of the Councilof Europe in this area is as significant asthat of the United Nations. You will not, I
hope, therefore accuse me of“Eurocentrism” if I allot a similarly broadspan of attention to this field.
The Council of Europe Convention on
Laundering, Search, Seizure andConfiscation of the Proceeds from Crime
was opened for signature on 8 November
1990, following a Resolution adopted by the
15th Conference of the European Ministersof Justice (1986) stressing the need for “theformulation, in the light inter alia of thework of the United Nations, ofinternational norms and standards toguarantee effective international
cooperation between judicial (and, where
necessary police) authorities as regards thedetection, freezing and forfeiture of theproceeds of illicit drug trafficking. The
Convention, however, goes far beyond thismandate by facilitating international
cooperation with regard to all types ofcriminality, in particular those generatinglarge profits.
For that purpose, the Convention
provides a complete set of rules forinternational cooperation, including

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securing evidence about instrumentalities
and proceeds, freezing of bank accounts,
seizure of property and similar provisional
measures, and executing foreign
confiscation orders.
The draftsmen of the Convention
recognised that, in order to render thesetools effective, the national substantive
penal law systems which could realisticallynot be fully harmonised had at least to be
put on an equal footing and that, inparticular, the successful fight against
serious criminality required theintroduction of a laundering offence instates which had not already introduced
such an offence. Article 6 of the Convention
obliges Parties to criminalize money
laundering under their domestic law. The
catalogue of offences listed in paragraph 1
is mainly based on the UN Drug
Convention of 1988. Paragraphs 2 and 3,
however, go beyond the UN Convention bymaking it clear that the Convention isintended to cover extraterritorial predicate
offences, and by also criminalizing
negligent and other behaviour. The rest of
the Convention mainly contains rules oninternational cooperation. A whole
Chapter (Articles 13 through 17) isdedicated to confiscation.
For the past two years, the Council ofEurope has been considering drawing up
an Additional Protocol to the 1990
Convention in order to adapt it to therapidly changing money launderingsituation. This Protocol could, inparticular:
(i)

(ii)

elaborate explicit provisions for
asset-sharing arrangements,
possibly also for exchanging
information concerning the assets
and lifting bank secrecy,
create a follow-up procedure
supplementing the Convention bymaking it subject to periodic

review and elaborating
recommendations to facilitate its
application and giving guidance toParties in disputes arising out of
its implementation,(iii) create a clear, institutionalised,legally-binding multilateralmechanism for enabling the
Financial Intelligence Units tocooperate with each other,(iv) lower the standard of proof inrespect of predicate offences,(v) overcome legal differences between
civil law-based forfeitures andcriminal law-based confiscations,(vi) limit the available grounds forrefusal by eliminating harmful tax
competition and restricting
exceptions, such as the fiscal
offence exception.
Whether, when and with what content
an additional protocol will be draftedcannot be forecast at present.
C. European Union
In contrast to Council of Europe
Conventions that create obligations only forthe states acceding to them, directives of
the European Union are binding on all EU
States; they must be transposed into
national law with no restrictions.
On 10 June 1991, the Council of theEuropean Union issued Directive 91/308/
EEC “on prevention of the use of thefinancial system for the purpose of money
laundering”. Its preamble starts by stating
that, when credit and financial institutions
are used to launder proceeds from criminal
activities, the soundness and stability of
the institution concerned and confidence
in the financial system as a whole could beseriously jeopardized, thereby losing thetrust of the public, and that therefore
coordinated measures at Community levelare necessary. As money laundering is
usually carried out in an international

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context, measures had to be adopted at aninternational level as well.
Article 2 of the Directive obliges Member
States to ensure that money laundering,as defined in Article 1, is prohibited.
Articles 3 through 12 concentrate on
preventive and administrative measures tobe taken by credit and financial
institutions. They must in particular:(i)require identification of theircustomers when entering intobusiness relations or conducting
transactions,(ii) keep for at least five years copies
or references of the identification
documents and the documents
relating to transactions,(iii) examine with special attention
certain suspicious transactions,(iv) make records of examinations
available to the competentauthorities,(v) report suspicious transactions notwithstanding banking secrecy,(vi) establish procedures of internal
control and training.
Article 12 of the Directive obliges
Member States to ensure that its provisions
are extended to other professions andcategories of undertakings that engage inactivities that are particularly likely to be
used for money-laundering purposes. In
order to fulfil this mandate, the Council
recently (November 2000) adopted a
Common position with a view to theadoption of a Directive amending the 1991
Directive.
The text approved by the Council is
intended, firstly, to expand the list ofpredicate offences to money laundering.
Secondly, the obligations from the 1991
directive are to be expanded to coverfurther financial institutions andprofessional groups. It is primarily
noticeable and politically disputed because322

it is intended not only to include real estateand precious metal agents and casino
operators, but also lawyers, notaries,
accounting experts and balance sheet
auditors. The Federal Government, which
had pleaded to remove the legal consulting
professions as a whole from the area of
application of the directive because of theabovementioned fundamental reservations- that is, concerning collision with therelationship of trust between a lawyer andhis/her client, was successful to a degree,in that it was possible to remove out-ofcourt legal advice (“ascertaining the legal
position of their client”) from the obligation
to report suspicion for legal and economic
consulting professions.
The “Common position” is now before theEuropean Parliament for a decision; itremains to be seen whether it will insist
on amendments being made to the text.
Other EU instruments related to money
laundering I will not treat in detail here
are the following:(i)

Second Protocol to the Convention
on the Protection of the European
Communities’ Financial Interests
dated 19.6.97(ii) Action Plan of the EU heads ofstate and government to combat
organized crime dated 15.8.97(exchange of information between
EU States)(iii) Joint Action dated 3.12.98, 98(699/
JI) and connected Framework
Decision (aiming in particular atreaching better and faster mutual
assistance in confiscation matters,
as well as advanced training of law
enforcement officials in the area ofconfiscation of proceeds of crime)(iv) Draft Framework Decision on
money laundering, etc.
(v) EU Mutual Assistance Convention

117TH INTERNATIONAL SEMINAR
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D “G 7 / G 8” States’ Co-operation /“Financial Action Task Force on
Money Laundering” (FATF)
The “G 7” group of states deserve to beemphasised at this event because they forma link between the European region, fromwhich I come, and your region. In 1989 at
its Paris summit, it set up a Financial
Action Task Force on Money Laundering(FATF) that submitted a list of 40
recommendations in 1990. This list wasrevised in 1996; its update is currently
being examined.
The list is accompanied by usefulinterpretative notes, it may be regarded as
one of the most complete and distinct
inventories of repressive and preventive
items aiming at combating money
laundering, containing in particular:(i)legal measures in the field of
criminal law (criminalization,
extension of criminal liability,
confiscation, identification,
tracing, freezing and seizing, ofproceeds of crime, criminal
procedural law, banking secrecylaw),(ii) rules on the role of the financial
system, such as duties to customer
identification, keeping,
maintaining and making records
available to competent authorities,
paying attention to newtechnologies, applying increased
diligence in cases of complex,
unusual and suspicioustransactions, developing internal
policies and training programmes
against money laundering,(iii) measures to cope with the problem
of countries with insufficient antimoney laundering measures,(iv) other measures, such as detecting
or monitoring the physical crossborder transportation of cash etc.,(v) rules on the role of regulatory and(vi)other administrative authorities,
and last, but not least, the duty tobroaden, strengthen and simplify
international co-operation in theadministrative and criminal law
areas, displaying a detailed
catalogue of mutual assistancemeasures, starting from classicaltools like extradition and not
ending with modern andsophisticated ones like thoseaiming at avoiding conflicts ofjurisdiction and asset-sharing.

The establishment of Contact Points
between FATF states, via which a regularexchange of information is carried out, has
proven to be of particular value. By
evaluating a questionnaire campaign, acomprehensive compendium of the law andpractice of the individual states was drawn
up, providing a unique service topractitioners.
The G 7 summits in Birmingham andCologne appointed the FATF to address the
topic of “offshore centres / non-cooperative
jurisdictions”. Certain offshore areas(there are still more than 80 such oases)
are especially attractive to money
launderers and endanger the efforts of
those states that recognise and implement
the international standards, in some cases
hindering the world-wide suppression ofmoney laundering. Permit me to insert,
word-for-word, a quote from thecommuniqué of a G 7/G 8 summit (Moscow,
October 1999) in order to describe theproblem:“Jurisdictions with inadequate financial
regulation and supervision, as well as
excessive bank and corporate secrecy, playa significant role in laundering theproceeds of serious crime. A number ofjurisdictions are also characterized by theabsence of compulsory financial
supervision over the activity of banks and

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other providers of financial services, andby the absence of obligations on renderinginternational legal assistance in the seizure
and confiscation of the proceeds of illegal
origin. This allows criminal groups tocreate and make use of offshore financial
institutions, trusts, shell companies, andnominee accounts to hide the identity ofthe beneficial owners for the purpose oflaundering the proceeds of crime. These
practices should not be allowed tocontinue.”
In a first step, the FATF 25 draftedcharacteristics by which to identify noncooperative jurisdictions, and is currently
concerned with identifying suchjurisdictions, and where appropriate withenacting suitable sanctions against them.
IV. HOW AND HOW
SUCCESSFULLY HAS GERMANLAW IMPLEMENTED THE
INTERNATIONALREQUIREMENTS?
In 1992, the Federal Republic of
Germany inserted a separate element of
the criminal offence of money laundering(section 261 Criminal Code [StGB]) into its
Criminal Code, which has been expanded
several times since then (mainly in its listof predicate offences, which covers in
addition to all major crimes, a list of minor
crimes which have a special relation toorganized crime). As mentioned above,certain instruments under the General
Part of the Criminal Code are equallyimportant for combating money
laundering. Here, German law has created
new and more effective types of confiscation
measures.
For the non-criminal law area, in 1993
the Money Laundering Act(Geldwäeschegesetz - GWG) was adopted(and amended in 1998); in particular the
Act defines duties to require identification324

and report suspicion for financialtransactions by specific enterprises(bureaux de change were later included
here). The duty to require identification isconcerned with amounts from DM 30,000
upwards (previously DM 20,000). The
obligation to report suspicion can also apply
to smaller amounts.
In 1998, amongst other things securingsuspicious amounts of money in criminal
proceedings was made easier, and it was
ensured that financial authorities are
informed as early as possible of informationthat is of fiscal relevance. Furthermore,cash checks were carried out on crossing
borders.
In order to avoid repetitions, I would liketo refer in other respects to the general
information that I provided at the
beginning, in which in each case I took
German law as a basis, and from which you
can therefore obtain the gist of the German
provisions.
From 1994 to 1999, German police crime
statistics show an increase in the numberof cases investigated by the police inaccordance with section 261 of the Criminal
Code from 198 to 481 annually; inaccordance with the court criminal
prosecution statistics, 25 persons wereconvicted in 1998 because of violations ofsection 261 of the Criminal Code (cases are
not included here, however, in which a
sentence was also handed down in respectof an element of an offence for which ahigher punishment was imposable). Assets
were secured in 1999 worth roughly DM
50 million. Approximately the sameamount is accounted for by additional tax
revenue based on tax investigations incases related to money laundering.
These figures appear to bedisappointingly low in a country with 80
million inhabitants and a highly-developed

117TH INTERNATIONAL SEMINAR
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economy, in a country in which according
to a plausible estimate the Italian Mafia
alone has invested DM 70 billion in Eastern
Germany in the ten years following
German Reunification. (In fact, the“Reunification criminality” has
unfortunately proved to be one of the mostimportant features of organized crime inGermany during the last ten years.) Thus,
the obvious conclusion to reach is that there
is a gross disproportion between thelegislative and practical effort and theefficiency of the measures.
On the other hand, we need to recognisethat weighing up effort and proceeds in thisarea is highly problematic because of thelarge number of measurement criteria andthe database, which of necessity is riddledwith gaps. This also applies to theevaluation of suspicion reports submitted
by the financial institutions: Whilst it istrue that suspicion only became concretein 7 % of cases regarding the element of
the criminal offence of money laundering,
it must be regarded as a success that links
with existing knowledge held by thecriminal prosecution authorities is revealedin 2/3 of all cases of suspicion that arereported, and that additional knowledge ofgroups of offenders, basic crimes andmoney laundering activities was obtained
and that in 1/4 of cases. Finally, it must be
pointed out once more that much of thesuccess of money laundering suppression
measures lies in the preventive area, andthat it hence cannot be quantified.
However, it is necessary at the same time
to admit that the efficiency of theregulations can still be improved. Since
one of the main problems is said to lie in
confirming suspicion and providing
evidence, a central file of suspicion reports
has now been created at the Federal
Criminal Police Office (BKA) in order togain information on structures spanningmore than one case. (The problem is rooted

in Germany’s federal structure, theconsequence of which is that suspicion
reports are accepted and evaluated not atFederal level, but at Land level.)
Since, as I have already mentioned
several times, in the set of legal tools forthe seizure of articles concerned withcrimes and of their proceeds is particularly
significant, efforts are being made in order
to increase efficiency here. Project groups
that have been formed at Land level, in
which specially-trained investigators
advise criminal prosecutors, have alreadyled to a considerable increase in theapplication of mechanisms for thesiphoning off of proceeds (just one
examples: the new Financial Investigation
Units in two of the 16 German Läenderalone have confiscated values of more than
50 millions of $ in 1998), this being fresh
proof of the theory that, sometimes,
thorough basic and further training of
persons acting is more effective thantightening the statutory provisions.
It is unlikely that Germany will be ablein future to avoid making amendments tothe legal provisions altogether. The
abovementioned amendments to theprovisions in the context of the European
Union could lead to a new need fortransposition - be it in the area of the listof predicate offences, or be it in the area of
the group of offenders addressed. However,other developments might also requirelegislative measures (it is only necessary
to offer as an example the increased use of
the Internet for economic transactions) - a
development that has already led to the
sceptic question by some authors whether,under the conditions of the new electronicage, the criminalization of money
laundering still makes sense at all.
Another smaller example: There could bea new need for action (but probably not for
Parliament) on the basis of new incentives
and opportunities to commit crimes in

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connection with the introduction of theEURO.
In any case, Parliament and theadministration should make efforts toavoid actionism, to restrict its
encroachment to a level of what is
absolutely indispensable, and also always
to include in the “cost-benefit analysis” theburdens imposed by the new regulations
on the non-criminal part of the populationand on the economy.
V. CLOSING WORDS - ON
INTERNATIONAL COOPERATION
I have already mentioned that, in lightof the material, primarily concerned as it
is with overcoming cross-border crime, thecreation of duties to criminalise and toharmonise or approximate substantive
criminal law or other law is only one sideof the coin of all international tools, eventhough it is an important one. These tools
are accompanied by provisions aiming at
optimising international cooperation,
which are at least equally important.
Here we find the greatest potential for
optimising the world-wide suppression ofmoney laundering: It is a matter ofapplying the classical tools of extraditionand legal assistance as broadly as possible,
i.e. especially in foregoing as far as possible
the lengthy, bureaucratic procedures andgrounds for refusal, which in some cases
still reflect ideas of sovereignty that belong
in the Middle Ages.
Above all, there is a need to implement
and apply the new legal assistance tools
for the cross-border “searching, seizing,
freezing and confiscating of assets” thathave been developed over the past few
years - especially by the new Conventions
that I have presented. Until these tools
have found their way into the legislationof all states and have been internalised by326

the practitioners who must apply them, thebitter motto with which the author once
described the suppression of international
crime will remain valid: The criminals aretravelling in supersonic aircraft, whilst thecriminal prosecution organs are chasing
them in a post coach and have to stop at
each national border. I would like to ask
all of you to contribute in your own
workplaces and by your own efforts to soon
making this situation truly a thing of thepast.

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THE FIGHT AGAINST MONEY LAUNDERING:THE U.S. PERSPECTIVE
Susan L. Smith *I. INTRODUCTION
Money laundering occurs in almost every
crime where there is a financial motive.
Because of the need to hide the fact thatthe wealth came from a criminal act,
criminals need to disguise the money. 1
These proceeds of crime, particularly cash,
must be laundered for reinvestment. This
involves a series of complicated financialtransactions (structured deposits, wiretransfers, purchase of money orders or
cashier’s checks, etc.) which ultimately
results in criminal money becoming “clean”
and acceptable for legitimate businesspurposes.2 This laundering of criminallyderived proceeds has become a lucrativeand sophisticated business in the UnitedStates and is an indispensable element of
the drug cartels’ and organized crime’s
activities.3 By moving and concealing theexistence of enormous amounts of wealth,money laundering gives large scalecriminal activity a flexibility and scope
which would otherwise be impossible.4 In
his 1995 remarks to the United Nations on* Senior Trial Attorney, Asset Forfeiture and Money
Laundering Section, Criminal Division, UnitedStates Department of Justice, U. S. A.
1 William F. Bruton, Money Laundering: Is It Now a
Corporate Problem?, 17 Dick. J. Int’l L. 437.
2 William C. Gilmore, Dirty Money: The Evolutionof Money Laundering Countermeasures, 2d Ed.,Council of Europe Publishing, 1999.
3 See James D. Harmon, Jr., United States Money
Laundering Laws: International Implications, 9
N.Y.L. SCH. J. INT’L & COMP. L. 1, 2 (1988).
4 Kirk McCormick and Brian Stekloff, Money
Laundering, 37 Am. Crim. L. Rev. 729, (2000).

the Occasion of the 50th Anniversary of its
Creation, then President Clinton said:“Criminal enterprises are moving vast
sums of ill-gotten gains through theinternational financial system withabsolute impunity. We must not allow
them to wash the blood off profits fromthe sale of drugs, from terror, or fromorganized crime.”
It is the goal of the United States toensure that criminals and their laundered
money can find no safe haven anywhere
and to destroy criminal organizations bytaking the profit out of crime. The
increased threat from internationalorganized crime, coupled with theglobalization of the economy and the
explosion of communications technology,
requires the United States’ anti-money
laundering efforts to be multi-dimensional.
At the federal level, the United States’
efforts to combat money laundering involvethe coordinated work of broad array offederal agencies. The Treasury and JusticeDepartments lead the nation’s law
enforcement efforts, while the federal
financial regulators (the Federal Reserve
Board, the Office of the Comptroller of theCurrency, the Federal Deposit Insurance
Corporation, the Office of Thrift
Supervision, the National Credit Union
Administration and the Securities
Exchange Commission) are responsible forthe examination of financial institutions
within their respective jurisdictions toensure that those institutions have createdeffective internal systems to detect
potential money laundering.5 The UnitedStates’ primary line of attack against

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domestic and international drug and othermoney launderers has been and continues
to focus on denying our financial system tomoney launderers through theimplementation of the Money Laundering
Control Act6 and the Bank Secrecy Act7.
This core group of statutory tools wereenacted by Congress in order to meet thethreats posed by domestic andtransnational organized crime and toenhance law enforcement’s ability tosucceed in disrupting and dismantling thebusiness of organized crime.
II. OVERVIEW OF MONEY
LAUNDERING STATUTES
A. Background
The United States criminalized money
laundering on October 27, 1986. These
statutes are found at 18 U.S.C. § § 1956
and 1957. See Money Laundering Control
Act of 1986, Pub. L 99-570. These statutes
fully criminalized money laundering, withpenalties of up to 20 years and fines of up
to $500,000 for each count. Highlights of
the Act include:
(i)

(ii)

extended criminality to persons
knowingly conducting or
attempting to conduct financialtransactions with proceeds
generated by certain specified
crimes, as well as to persons whoare “willfully blind to” such
unlawful activity;
extended extraterritorial
jurisdiction over the conductprohibited by the statutes;

5 The National Money Laundering Strategy Act for2000.
6 Pub. L. 99-570, Title XIII (October 27, 1986), as
amended, codified at 18 U.S.C. § 1956 and § 1957.
7 Pub. L. 91-508 (October 26, 1970), as amended,
codified at 12 U.S.C. § 1829b, 12 U.S.C. §§ 195159, and 31 U.S.C. §§ 5311-5330.

328(iii) extended civil and criminal
forfeiture to commissions received
for conducting a money launderingtransaction, (18 U.S.C. § § 981 and
982);(iv) outlawed structuring or “smurfing”
operations to avoid the Bank
Secrecy Act (BSA) reporting
requirements (31 U.S.C. § 5324);and(v) mandated compliance procedures
to be required of banks; (theprocedures were created by 1987
regulations issued by the Secretaryof the Treasury).
Over the years, emerging money
laundering typologies, international
requirements, prosecutorial experiences,and case law interpretations haveindicated the need for legislative changes
to the money laundering statutes. Thechanges have increased the number ofcrimes which can generate proceeds for themoney laundering laws to approximately
170 criminal offenses. The following is abrief summary of the legislative
amendments to the money laundering
laws:
(i)

The Anti-Drug Abuse Act of 1988,
effective on November 18, 1988,
further criminalized money
laundering to include financialtransactions conducted with illegal
proceeds with the intent to commit
tax evasion and extended
criminality to persons who conducttransactions involving property“represented by a law enforcement
officer to be the proceeds ofspecified unlawful activity” (SUA).
The Act also increased the civil andcriminal forfeiture statutes toinclude forfeiture of any property
or assets involved in an illegal
financial transaction related tomoney laundering. The Act also

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added a number of criminal
offenses to be included in the term
“SUA,” such as smuggling of goods
into the United States, copyright
infringement, and violations of theArms Control Act.
(ii) The Annunzio-Wylie Anti-Money
Laundering Act of 1992, whichbecame effective on October 28,
1992, enlarged the definitions of“transaction” and “financialtransaction” to include the use ofa safe-deposit box and the transferof title to any real property, vehicle,
vessel or aircraft. The Act also
enlarged “SUA” to include offenses
against a foreign nation involving
kidnaping, robbery, extortion, or
fraud against a foreign bank, andseveral other criminal offenses,
including food stamp fraud.
Additionally, the Act extended thecriminal penalties of § § 1956 and1957 to a conspiracy to violate themoney laundering statutes.
(iii) T h e M o n e y L a u n d e r i n g
Suppression Act of 1994, effective
September 23, 1994, incorporated
both substantive and technicalamendments to Titles 18 and 31(BSA). Of particular importancewere the following changes: (1) arequirement that Treasury issue
new regulations implementing a
new BSA provision, 31 U.S.C. §5330, requiring any person who
owns or controls a moneytransmitter business to registerwith the Secretary of the Treasury;(2) an amendment to 31 U.S.C. §5324 which legislatively
overturned the January 1994
Supreme Court decision (Ratzlaf v.
United States) concerning theproof required to establish a 31
U.S.C. § 5324(a)(3) structuring
violation; and (3) the requirementof additional record keeping and(iv)reporting of negotiable
instruments drawn on foreign
financial institutions.
The Terrorism Prevention Act,
passed by Congress on April 24,
1996, added approximately 20 new
crimes to the list of “SUAs” insection 1956. The Health
Insurance Portability andAccountability Act of 1996, Pub. L.
104-191, 110 Stat. 1936, effective
August 21, 1996, added certain
health care offenses to the list ofpredicates for money laundering
violations, and the newimmigration law signed by the
President on September 30, 1996,
added certain immigration
offenses, such as alien smuggling,
to the list of RICO predicates, thus
making them predicate offenses
under the money laundering
statutes.

B. 18 United States Code, Section
1956
Section 1956, “laundering of monetary
instruments,” is divided into subsections(a) through (h). The substantive provision,
subsection 1956(a), is divided into threesubsections dealing with domestic financialtransactions, international transportationof monetary instruments or funds, andsting operations, respectively. Subsection
1956(b) provides a civil penalty for
violations of the first two provisions ofsubsection (a). Subsection 1956(c) defines
most of the terms used in § 1956 (as wellas in § 1957). Subsections 1956(d), (e), and(f) discuss the relationship of § 1956 toother federal statutes, agency investigative
responsibilities, and extraterritorial
jurisdiction, respectively. Subsection (g)requires the Attorney General to inform theappropriate regulating agency of any
conviction under 18 U.S.C. § § 1956, 1957,
1960 or 31 U.S.C. § 5322 of a financial
institution or any officer, director, or

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RESOURCE MATERIAL SERIES No. 58
employee of a financial institution.
Subsection (h) raises the penalties forconspiracies to violate § 1956 and § 1957
to the level of the substantive offense. The
focus of this discussion is on the elementsof the crimes set forth in § 1956(a), withreference to the definitions set forth insubsection (c) where appropriate.

v. Posters ‘N’ Things, 969 F.2d 652, (8th Cir.
1992), cert. granted, 113 S.Ct. 1410 (1993);
United States v. Brown, 944 F.2d 1377,
1387 (7th Cir. 1991); United States v.
Jackson, 935 F.2d 832 (7th Cir. 1991);
United States v. Blackman, 904 F.2d 1250
(8th Cir. 1990); United States v. Massac,
867 F.2d 174 (3rd Cir. 1989).

As stated above, section 1956(a) is
divided into three parts. Subsection
1956(a)(1) primarily addresses domestic
money laundering and prohibits theknowing participation in financialtransactions with criminal proceeds.
Subsection 1956(a)(2) addresses
international money laundering andprohibits the knowing transportation ortransfer of criminally derived monetary
instruments in foreign commerce.
Subsection 1956(a)(3) explicitly authorizes
the use of government undercover “sting”
operations to expose money laundering.

1. A Financial Transaction
Subsection 1956(c)(4) defines a “financialtransaction” as either:(A) a transaction8 (i) involving the
movement of funds by wire or othermeans or (ii) involving one or moremonetary instruments, which in any
way or degree affects interstate or
foreign commerce, or(B) a transaction involving the use ofa financial institution which isengaged in, or the activities of which
affect, interstate or foreign commercein any way or degree.

C. Essential Elements of Section
1956(a)(1)
The elements of an offense under Section
1956(a)(1) are: (1) that the defendantconducts or attempts to conduct a financialtransaction; (2) that the defendant knewthat the property involved in the financialtransaction represents the proceeds ofsome form of unlawful activity; (3) that thefinancial transaction in fact involves theproceeds of specified unlawful activity; and(4) that the defendant conducted thefinancial transaction with one of four
purposes: (i) with the intent to promote thecarrying on of specified unlawful activity;(ii) with the intent to evade taxes; (iii)knowing that the transaction was designed
in whole or in part to disguise the nature,
location, source, ownership, or control ofthe proceeds of the specified unlawful
activity or (iv) to avoid a transaction
reporting requirement under State orFederal law. United States v. Awan, 966
F.2d 1415 (11th Cir. 1992); United States

The statute defines “financialtransaction” very broadly. See S.Rep. No.
433, 99th Cong. 2d Sess. 12-13 (1986). The
statute contains four alternative
definitions of “financial transaction”
presented in subsection 1956(c)(4): (i) the
movement of funds by wire or other means;(ii) the use of a monetary instrument; (iii)the use of a financial institution; and (iv)the transfer of title to any real property
vehicle, vessel, or aircraft, which in any
way or degree affects interstate or foreigncommerce.

330

8

As defined in subsection 1956(c)(3), the term“transaction” includes a purchase, sale, loan,pledge, gift, transfer, delivery, or other disposition,
and with respect to a financial institution includes
a deposit, withdrawal, transfer between accounts,
exchange of currency, loan, extension of credit,
purchase or sale of any stock, bond, certificate ofdeposit, or other monetary instrument, or any otherpayment, transfer, or delivery by, through, or to afinancial institution, by whatever means effected.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS(i) The Movement of Funds by Wire or
Other Means
The word “funds” is not defined in thestatute. Moreover, there is no legislative
history to explain its meaning. This
subdefinition apparently includes all formsof wire or electronic funds transfer that
affect interstate or foreign commerce.
Thus, if an individual wire transfers theproceeds of criminal activity, he or she will
have engaged in a financial transaction.
United States v. Herron, 97 F.3d 234, 237(8th Cir. 1996). The language of the statuteis not so limited, however. The word
“funds” has been defined as “available
money” or “money available for use”. Thus,
in a broader sense, one who transfers funds
by other means could also be said to haveengaged in a financial transaction as
defined in this subdefinition. Included in
the “transfer of funds” could be debit cardtransfers and barter exchanges. Therefore,
if an individual exchanged the proceeds ofa crime for a work of art as a means oflaundering money, such an exchange could
fall within the ambit of this subdefinition.
Generally, courts have interpreted“funds movement” broadly. Included
within this subdefinition is the transfer ofcashier’s checks, United States v. Arditti,
955 F.2d 231 (5th Cir. 1992) (noting that §1956(c)(5) defines “bank checks” but notcashier’s checks as monetary instruments),
as well as the mere transfer of illegal
proceeds from one person to another,
United States v. Reed, 77 F.3d. 139 (6th Cir.
1996) (giving drug proceeds to a courier
involves the movement of funds by meansof the courier).
(ii)The Use of a Monetary Instrument9
Under this subdefinition, the term
“financial transaction” includes thepurchase, sale or disposition of any kind of
property as long as the disposition involves
a monetary instrument. United States v.
Blackman, 904 F.2d at 1257. As an

example, an individual who transfers any“monetary instrument” to another, whether
or not that instrument ever finds its way
into a financial institution, has engaged ina “financial transaction.” See UnitedStates v. Gallo, 927 F.2d 815 (5th Cir.
1991)(transfer of a box of currency from one
individual to another is a financialtransaction); United States v. Hamilton,
931 F.2d 1046 (5th Cir. 1991)(the mailingof the proceeds of drug transactions toanother is a financial transaction); UnitedStates v. Castano-Martinez, 859 F.2d 925(11th Cir. 1988)(financial transactions
included various “transfers” of currency
from the defendant’s house to vehicles
parked outside).
(iii)Use of a Financial Institution
This definition cross references the term
“financial institution” which is defined atsubsection 1956(c)(6) by further crossreference to 31 U.S.C. § 5312(a)(2) and its
implementing regulations. 10 The mostcommon transactions involving banks andsimilar institutions are covered by thisdefinition. The writing of a check drawn

9

Monetary instrument is defined in subsection
1956(c)(5) as: (i) coin or currency of the UnitedStates or of any other country, traveler’s checks,
personal checks, bank checks, and money orders,or (ii) investment securities or negotiable
instruments in bearer form or otherwise in suchform that title passes upon delivery.
10 31 U.S.C. § 5312(a)(2) includes within the meaningof “financial institutions” such entities as banks;
thrift institutions; securities brokers and dealers;
investment bankers or companies; currency
exchanges; issuers, redeemers, or cashiers oftravelers’ checks, checks, or money orders; credit
card companies; insurance companies; travel
agencies; licensed senders of money; telegraphcompanies; vehicle dealers; realtors; the United
Postal Service; government agencies involved in the
aforementioned activities; and, other businesses as
designated by the Secretary of the Treasury.

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RESOURCE MATERIAL SERIES No. 58
on an account maintained in such afinancial institution, whether for cash or
to a vendor who has provided services,
clearly falls within the definition of afinancial transaction contained in §1956(c)(4)(B). United States v. Jackson,
935 F.2d at 841. See also S.Rep. No. 433,
99th Cong. 2d Sess. 12-13 (1986); UnitedStates v. Martin, 933 F.2d 609 (8th Cir.
1991), and United States v. Blackman, 904
F.2d at 1257.
(iv) The Transfer of Title
This subdefinition includes any transferof title to real estate, vehicles, vessels or
aircraft. United States v. Kaufmann, 985
F.2d 884 (7th Cir. 1993) (sale of car for cash
is a financial transaction.) This
subdefinition was added in 1992 to close aloophole in the definition of “financialtransaction” under §§ 1956 and 1957 wherea transfer involved neither a monetary
instrument, a transfer of funds, nor afinancial institution.11(v) A f f e c t s I n t e r s t a t e o r F o r e i g n
Commerce
All the subdefinitions of “financialtransaction” contained in subsection
1956(c)(4) require that the transaction“affect interstate or foreign commerce” orbe conducted through or by a financial
institution which engaged in or theactivities of which affect interstate offoreign commerce “in any way or degree.”
The term “affect commerce in any way ordegree” is derived from the Hobbs Act, 18
U.S.C. § 1951, and is intended to reflect
the full exercise of Congress’ powers under

11 See § 1527 of the Annunzio-Wylie Anti-Money

Laundering Act of 1992. Even before theamendment, there was case law supporting this
proposition. See United States v. Blackman, 904
F.2d 1250, 1257 (8th Cir. 1990)(transfer of title on
defendant’s truck qualified as “financialtransaction”).

332

the Commerce Clause of the Constitution.
United States v. Gallo, 927 F.2d at 823. The
broad language of the Hobbs Act manifests
an intention “to use all the constitutional
power Congress has to punish interferencewith interstate commerce ...” United States
v. Eaves, 877 F.2d 943 (11th Cir. 1989) cert.
denied 493 U.S. 1977 (1990), quoting
Stirone v. United States, 361 U.S. 212, 215(1960). The appropriate inquiry is whether
a defendant’s conduct constitutes asufficient threat to interstate commerce so
as to implicate an area of federal concern
sufficient to give rise to federal jurisdiction.
United States v. Jannotti, 673 F.2d 578 (3rdCir.), cert. denied 457 U.S. 1106 (1982).
The purpose of the interstate commerce
nexus in the money laundering statute is
to provide a predicate for federal legislative
jurisdiction. United States v. Koller, 956
F.2d 1408 (7th Cir. 1992). See UnitedStates v. Kelley, 929 F.2d 582 (10th Cir.)cert. denied 112 S.Ct. 341 (1991). There issubstantial agreement that the “in oraffecting interstate commerce”
requirement is broadly construed and a“minimal effect” on interstate commerce issufficient to establish federal jurisdiction.
Id. at 586; United States v. Eaves, 877 F.2d
at 946. See, e.g., United States v. Lucas,
932 F.2d 1210 (8th Cir.) cert. denied 112
S.Ct. 399 (1991); United States v. Tuchow,
768 F.2d 855, 870 (7th Cir. 1985); UnitedStates v. Robinson, 763 F.2d 778, 781 (6thCir. 1985); United States v. Sorrow, 732
F.2d 176, 189 (11th Cir. 1984).
2. Knowing That the Property Represents
the Proceeds of Some Form of Unlawful
Activity
The government must establish, withdirect or circumstantial evidence, that thedefendant actually or constructively knewthat the property involved in the financialtransaction was the proceeds of some state,federal, or foreign felonious activity.12 Thisknowledge element is separate and distinct
from the specified unlawful activity

117TH INTERNATIONAL SEMINAR
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element. The defendant need not knowthat the property was in fact proceeds ofspecified unlawful activity. Rather, it issufficient if he knows the property to be
the proceeds of some form of felonious
conduct under state, federal or foreign law.
United States v. Campbell, 977 F.2d 854,
858 (4th Cir. 1992); United States v. Awan,
966 F.2d at 1424-1425; United States v.
Jackson, 935 F.2d at 838; United States v.
Sutera, 933 F.2d 641, 644-646; UnitedStates v. Ortiz, 738 F. Supp. 1394, 1399
(S.D.Fla. 1990); S. Rep. No. 433, 99th
Cong., 2d Sess. 12 (1986).
The knowledge element can be met inseveral ways. The defendant’s knowledge
may be either actual, constructive, ordeemed by operation of the defendant’s
willful blindness to the facts. Id. at 9-10;
United States v. Campbell, 977 F.2d at 85759; United States v. Ortiz, 738 F. Supp. at
1400, n. 3. See also United States v.
Giovannetti, 919 F.2d 1223 (7th Cir. 1990);
United States v. Nersesian, 834 F.2d 1294
(2nd Cir. 1987); United States v. Jewel, 532
F. 2d 697 (9th Cir. 1976), cert. denied, 426
U.S. 951 (1976). Circumstantial evidence
will suffice to establish the requisiteknowledge. See United States v. Campbell,
977 F.2d at 859 (evidence of drug dealer’s
lifestyle, defendant’s statement that themoney “might have been drug money,” andthe fraudulent nature of the transaction inwhich the defendant participated sufficient

12 The term “knowing that the property involved in

the financial transaction represents the proceedsof some form of unlawful activity” is defined in §1956(c)(1) to mean that the person knew theproperty involved in the transaction represented
proceeds from some form, though not necessarily
which form, of activity that constitutes a felony
under State, Federal, or foreign law, regardless ofwhether or not such activity is specified inparagraph (7). Paragraph (7) defines the term
“specified unlawful activity.”

to allow jury to find that defendant was
willfully blind as to the source of themoney); United States v. Atterson, 926 F.2d
649, 656 (7th Cir.) cert. denied, 111 S.Ct
2909 (1991) (jury may conclude that
defendant who wires cash for drug dealing
boyfriend knew the cash was the proceedsof unlawful activity); United States v. Gallo,
927 F.2d at 822 (jury may conclude that
defendant who meets a drug dealer in aparking lot and receives a box of currency
wrapped in aluminum foil packets fromhim knew that the cash was the proceedsof unlawful activity); United States v.
Isabel, 945 F.2d 1193 (1st Cir. 1991) (jurymay conclude that defendant knew the
cash was the proceeds of unlawful activity
when the defendant receives cash from anindividual with no legitimate source ofincome and had previously been arrested
on drug charges); United States v. Brown,
944 F.2d 1377, 1387 (7th Cir. 1991)(defendant received over $70,000 througha number of “elaborate and timeconsuming transfers,” carefully engineered
to avoid the reporting requirements and heknew that the individuals had access tolarge amounts of marijuana).
3. Proceeds of Specified Unlawful Activity
This element requires proof that theproperty involved in the transaction was,in fact, the “proceeds of specified unlawful
activity,” as defined in § 1956(c)(7). While
the government must only establish that adefendant knew that the property wasderived from “some” form of felonious
activity under state, federal or foreign law,
the government must prove that theproceeds were in fact derived from“specified unlawful activity.” However, thegovernment is not required to trace theproceeds back to a particular offense.
United States v. Blackman, 904 F.2d at
1257. Frequently, defendants willcommingle the proceeds of specified
unlawful activity with legally derived
funds. In United States v. Jackson, the333

RESOURCE MATERIAL SERIES No. 58
court addressed this issue and stated,§1956(a)(1)(B)(i) require[s] only thata transaction “involve[ ]” the proceedsof an activity which the participant
knows is unlawful, and which in fact
“involves” the proceeds of one of thetypes of criminal conduct identified in§ 1956(c)(7). We do not read Congress’
use of the word “involve” as imposing
the requirement that the government
trace the origin of all the funds
deposited into a bank account todetermine exactly which funds wereused for what transaction. Moreover,
we cannot believe that Congress
intended that participants in
unlawful activities could prevent theirown convictions under the money
laundering statute simply bycommingling funds derived from both
“specified unlawful activity” and otheractivities.
935 F.2d at 840. See also United States
v. Johnson, 971 F.2d 562 (10th Cir. 1992);
United States v. Poster ‘N’ Things, 969 F.2d
652 (8th Cir. 1992).
4. Specific Intent - Intent to Promote
Specified Unlawful Activity
This element requires the government
to prove that the defendant conducted or
attempted to conduct a financialtransaction with the intent to promote a
specified unlawful activity. Courts havefound that the reinvesting of illegal
proceeds into an illegal enterprise are thetypes of activities which can show an intent
to promote a specified unlawful activity.
United States v. Hildebrand, 152 F.3d 756,
762 (8th Cir. 1998) (payments for officesupplies, secretarial services and staff
wages constitute transactions with intent
to promote an on-going fraud scheme);
United States v. Mirabella, 73 F.3d 1508
(9th Cir. 1996) (using fraud proceeds to pay
commissions to persons who brought in334

more victims promoted specified unlawful
activity); Unites States v. Munoz-Romo,
947 F.2d 170 (5th Cir. 1991) (purchase ofhouse in which cash from drug sales were
hidden, and purchase of cars used to drive
to sites of drug sales are transactions that
promote specified unlawful activity).
Additionally, where a defendant distributes
the proceeds to other co-conspirators oruses the proceeds to keep the scheme
ongoing are instances which the courts
have found to promote the specified
unlawful activity. United States v.
Coscarelli, 105 F.3d 984, 990 (5th Cir. 1997),
aff ’d en banc, 149 F.3d 342 (5th Cir. 1998)(using proceeds of telemarketing fraud to
pay co-conspirators and overhead expenses
promote the fraud scheme); United States
v. Masden, 170 F.3d 790 (7 th Cir. 1999)(using money from new investors to pay off
earlier investors - as in a classic Ponzi
scheme - promotes the scheme because it
foster good will and nurtures false
impression that investors who want theirmoney back will be paid).
5. Specific Intent - Intent to Engage in a
Violation of § 7201 or § 7206 of theInternal Revenue CodeThis element requires the government
to prove that the defendant conducted afinancial transaction with the intent toevade Federal taxes. In an analysis
explained by the chairman of the Senate
Judiciary Committee:[This provision] is vital to the effective
use of the money laundering statuteand would allow the Internal Revenue
Service with its expertise ininvestigating financial transactions toparticipate in developing cases under§1956. Under this provision any
person who conducts a financialtransaction that in whole or in part
involves property derived fromunlawful activity, intending to engage
in conduct that constitutes a violationof the tax laws, would be guilty of a

117TH INTERNATIONAL SEMINAR
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money laundering offense13
The scope of subsection (a)(1)(A)(ii) is
controlled to a large extent by the reach of§ § 7201 and 7206 of the Internal Revenue
Code of 1986. Consequently, in seeking todetermine whether a defendant has actedwith intent to violate § 7201 or § 7206,
those sections must be consulted. In
general, § 7201 covers attempted tax
evasion (willfully attempt in any manner
to evade or defeat any tax or the payment
thereof) and § 7206 covers the preparationand filing of false tax returns and otherfalse documents. The subsection, therefore,
essentially extends to a person who
engages in a financial transaction involving
proceeds derived from specified unlawful
activity with the intent to evade thepayment of taxes or with the intent tosubmit a materially false tax return or
document to the IRS. Conduct evidencing
this type of intent has been found where
the defendant failed to report thelaundered funds as income or disguise thetransfer of illegal proceeds as a loan
payment. United States v. Suba, 131 F.3d.
662 (11th Cir. 1998) (defendant’s failure toreport three checks on him income tax
return is evidence that he laundered themwith intent to evade taxes); United Statesv. Zanghi, 189 F.3d 71 (1 st Cir. 1999)(transferring fraud proceeds in a mannerdesigned to make it appear to be a loan
payment instead of income violates the tax
laws and is sufficient to show an intent toevade taxes). This intent element is rarely
charged by prosecutors because of thenecessity of obtaining approval by the Tax
Division of the U.S. Department of Justice.

13 134 Cong. Rec. S17367 (daily ed. November 10,1988) (statement of Sen. Biden).

6. Specific Intent - Intent to Conceal or
Disguise the Nature, Location, Source,
Ownership, or Control of Proceeds ofUnlawful Activity
This element requires the government
to prove that the defendant conducted or
attempted to conduct a financialtransaction knowing that the transaction
was designed, in whole or in part, to conceal
the nature, the location, source, ownershipor control of the proceeds of specified
unlawful activity. The Tenth Circuit inUnited States v. Sanders, 929 F.2d 1466,
1470-1473 (10th Cir.), cert. denied, 112
S.Ct. 143 (1991), explored the requirementsof this element. In reversing the money
laundering convictions of the defendants
who had used drug proceeds to purchaseautomobiles, the court noted that merely
spending the proceeds of illegal activities
did not violate the money laundering
statute. The court further stated that,the purpose of the money laundering
statute is to reach commercial
transactions intended (at least inpart) to disguise the relationship of
the item purchased with the person
providing the proceeds and that theproceeds used to make the purchasewere obtained from illegal activities.
Id. In reversing the conviction, the courtemphasized that no third-parties wereinvolved and no effort was made to conceal
the identity of the defendants as thepurchasers. Id.
The Tenth Circuit further clarified its
holding concerning this issue in UnitedStates v. Edgmon, 952 F.2d 1206 (10th Cir.
1992), cert. denied, 1992 WL 127032(1992), and United States v. Lovett, 964
F.2d 1029 (10th Cir. 1992). In Edgmon, thecourt upheld the defendant’s money
laundering conviction where the factual
circumstances suggested a complicatedscheme which used a third-party to conceal

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RESOURCE MATERIAL SERIES No. 58
the true ownership of the proceeds. The
court stated, “The involved transactions,unlike the simple automobile purchases in
Sanders, certainly support a finding underthe money laundering statute of intent toconceal the origin or nature of the proceedsof unlawful activity.” United States v.
Edgmon, 952 F.2d at 1211. In Lovett, thedefendant was charged, among otherthings, with four counts of money
laundering under § 1956(a)(1)(B)(i). The
court applied the standards relied on in
Sanders to each of the four counts. The
court upheld Lovett’s convictions on two
counts where he instructed his brother not
to tell the victim about the purchase of thepick-up truck and where he gave a numberof conflicting statement regarding thesource of the cash used in the purchase ofa home. The court reversed the remaining
two counts, where the defendant had
purchased a car for his own use and adiamond ring for his wife, by concludingthat the government had failed to introduce
any direct evidence supporting thedefendant’s intent to conceal or disguise theorigin of the proceeds used in thosetransactions. The court found, however,that neither the money laundering statutenor its holding in Sanders created arequirement that “every money launderingconviction must be supported by evidence
of intent to conceal the identity of theparticipants of the transaction.” UnitedStates v. Lovett, 964 F.2d at 1034. The
court further stated,
To find that the money laundering
statute is aimed solely at thosetransactions designed to conceal theidentity of the participants to thetransaction is to ignore the broad
language of the statute. We see noreason why the concealment
requirement may not be met by otheraffirmative acts related to thecommercial transaction — acts
designed to quell the suspicions of336

third parties regarding the nature,
location, source, ownership or controlof the proceeds of the defendant’s
unlawful activity. . . [T]he statute is
aimed broadly at transactions
designed in whole or in part to conceal
or disguise in any manner the nature,
location, source, ownership or controlof the proceeds of unlawful activity.
Id. at 1034, n. 3.
The Seventh Circuit, while endorsing thecourt’s reasoning in Sanders, upheld themoney laundering conviction of the
defendant in United States v. Jackson, 935
F. 2 d a t 8 4 1 , w h e r e t h e d e f e n d a n t
commingled the proceeds of his drug
distribution operation with the “legitimate”
funds deposited in the business accounts.
The court found that the very act ofcommingling the funds was itself
suggestive of a design to hide the source of
ill-gotten gains. Id. at 840. The court
further explained that:[t] he conversion of cash into goods
and services as a way of concealing or
disguising the wellspring of the cash
is a central concern of the money
laundering statute... To convict under§ 1956(a)(1)(B)(i) the government
must prove not just that the defendant
spent ill-gotten gains, but that theexpenditures were designed to hide
the provenance of the funds involved.
Id. at 841-842. See also United States v.
P o s t e r s ‘ N ’ T h i n g s , 9 6 9 F. 2 d 6 5 2(defendant’s commingling in one accountof legitimate business receipts andillegitimate receipts was evidence ofdefendant’s intent to disguise the natureor source of the proceeds from her unlawful
business); United States v. Beddow, 957
F.2d 1330, 1335 (6th Cir. 1992) (evidence
of defendant’s convoluted financial dealings
with his banks and his charter boat

117TH INTERNATIONAL SEMINAR
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business supported a conclusion that heintended to disguise the illegal source of
his money); United States v. Isabel, 945
F.2d 1193 (1st Cir. 1991) (receiving cashfrom drug dealer with no legitimate sourceof income and issuing false payroll checkin return is evidence of intent to conceal
the illegal source of the money); UnitedStates v. Sutera, 933 F.2d 641, 648 (8th Cir.
1991) (defendant deposited illegal
gambling proceeds into business accountwhich he used to pay personal bills andgambling expenses; while the money could
have been better hidden, a reasonable jury
could find that the defendant had the intent
to hide the gambling proceeds); UnitedStates v. Martin, 933 F.2d 609 (8th Cir.
1991) (evidence which showed the purchaseof stock with drug proceeds and theissuance of the stock certificates in thename of a third party instead of thepurchaser was sufficient to prove
defendant’s intent to conceal or disguise);
United States v. Massac, 867 F.2d 174, 178(3d Cir. 1989) (intent to conceal foundwhere defendant, a drug dealer, used a cashtransmitting business, rather than a bank,to transfer $22,000 in cash to Haiti over a
five month period). Cf. United States v.
Gonzalez-Rodriguez, 966 F.2d 918, 925-926(5th cir. 1992) (no evidence of concealment
found where defendant readily cooperated
with law enforcement officers, voluntarily
disclosing her possession of the cash andturning it over to the agents for counting,and she made no false exculpatory
statements to the agents).
Specific Intent - Intent to Avoid aFederal or State Reporting
Requirement
This element requires the government
to prove that the defendant conducted or
attempted to conduct a financialtransaction knowing that the transaction
was designed, in whole or in part, to avoid
a federal or state reporting requirement.
In this context, the federal or state
7

reporting requirements include all thefederal and state currency transaction
reports as well as state campaign financereporting laws. Most cases in which thecourts have found evidence of this intent
involve instances where the defendant“structured” deposits or payments underthe $10,000 reporting threshold. See
United States v. Morales, 108 F.3d 1213
(10th Cir. 1997) (purchase of bar with 50
payments under $10,000 evidenced intent
to avoid a reporting requirement); UnitedStates v. Griffin 84 F.3d 912 (7th Cir. 1996)(converting $99,810 in drug proceeds tocashier’s checks in amounts under $10,000
is a violation of this element); United States
v. Patino-Reyes, 974 F.2d 94 (8th Cir. 1992)(defendant buys two cashier’s checks inamounts under $10,000, evading CTR
requirement, and uses checks to buy boat,
evading Form 8300, reporting
requirement).
D. Elements of Section 1956(a)(2)Subsection 1956(a)(2) provides that
whoever transports, transmits, ortransfers, or attempts to transport,
transmit, or transfer a monetary
instrument or funds from a place in the
United States to or through a place outside
the United States or to a place in the
United States from or through a placeoutside the United States (A) with theintent to promote the carrying on of
specified unlawful activity; or (B) knowingthat the monetary instrument or funds
involved in the transportation,transmission, or transfer represent theproceeds of some form of unlawful activity
and knowing that such transportation,transmission, or transfer is designed inwhole or in part (i) to conceal or disguisethe nature, the location, the source, theownership, or the control of the proceedsof specified unlawful activity; or (ii) to avoid
a transaction reporting requirement under
State or Federal law... [is guilty of an
offense].

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RESOURCE MATERIAL SERIES No. 58
Unlike § 1956(a)(1), which has threeelements common to all of its subdivisions,the elements of this statute differ from
subdivision to subdivision. Only the“transportation, transmission, or transfer”
element, which corresponds to the“financial transaction” element of §1956(a)(1), is common to all parts of thestatute.
1. Transportation, Transmission, orTransfer
Prior to the 1988 amendments,
subsection 1956(a)(2) prohibited “monetarytransportation” offenses using theoperative term “transports or attempts totransport.” The term “transport” wasundefined and the Department of Justiceconcluded that the term encompassed allmeans of transporting funds or monetary
instruments, including wire transmissions,electronic fund transfers, etc. Thisconclusion was reinforced by the fact thatthe statute proscribed the transportationof “funds” in addition to “monetary
instruments” and left the term “funds”
undefined. Thus, the transportation of“funds” arguably included electronic fundtransfers and other forms of non-paper
financial transfers.
Subsection 6471(b) of the Anti-Drug
Abuse Act of 1988 amended the statute to
replace the phrase “transports or attempts
to transport” with the phrase “transports,
transmits, or transfers, or attempts totransport, transmit, or transfer.” Thelegislative history indicates that by adding
the terms “transmit” and “transfer,”
Congress intended only to clarify the scopeof activities that it thought was alreadyembraced within the term “transport.” 14
Section 1531 of the Annunzio-Wylie AntiMoney Laundering Act of 1992 replaced theterm “transportation,” as it appeared in §14 See 134 Congressional Record, S17360 (daily ed.,November 10, 1988) (statement of Sen. Biden).

338

1956 (a)(2) and (b), with “transportation,transmission, or transfer.”
All of the subdivisions of subsection
1956(a)(2) apply to situations in which aperson transports or attempts to transport“monetary instruments” (as defined insubsection 1956(c)(5)) or funds into or outof the United States for certain illicit
purposes. Which of the other elements
apply depends on which of the specificintent alternatives is alleged.
2. With the Intent to Promote theCarrying on of Specified Unlawful
Activity
The offense described in § 1956(a)(2)(A)requires that the transportation,transmission, or transfer, or attemptedtransportation, transmission, or transfer
be carried out “with the intent to promote
the carrying on of specified unlawful
activity.” Unlike the corresponding
provision in subsection 1956(a)(1)(A)(i),there is no requirement in this subsectionthat the monetary instrument or funds be
the product of specified unlawful activity.15
Nor is there any “knowledge” requirement.
Prosecutors must only establish that thedefendant transported, transmitted, ortransferred, or attempted to transport,
transmit, or transfer the monetary
15 See United States v. Piervinazi et al., Nos.

921473,1474 (2nd Cir. May 2, 1994)(Noting thedistinction between § § 1956(a)(1), 1957 and1956(a)(2) with respect to the element of proceeds).
It is important to note that the absence of arequirement that the monetary instruments orfunds be the proceeds of unlawful activity would
allow for the use of government funds in “sting”
and other types of operations where government
agents provide the instruments or funds to belaundered. Thus, if an individual or domestic
money laundering organization was willing tolaunder its money through outbound currencytransportation, the use of government funds would
not preclude an otherwise viable subsection

117TH INTERNATIONAL SEMINAR
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instrument or funds with the “intent topromote the carrying on of specified
unlawful activity.
In a Second Circuit case, United States
v. Piervinazi et al., 23 F.3d 670 (2d Cir.
1994), the court was called upon to examine
the promotion intent prong in a § 1956(a)(2)context. In this case, defendant argued
that the overseas transmission or attempt
must accomplish some “secondary”
criminal purpose separate and apart fromthe particular activity generating theproceeds in order to promote some future
criminal activity. The court there held thatthe intent to promote in an (a)(2)(A) context
was satisfied by finding that the purposeof the international transportation, ortransmission, or attempt, was to promote
the very activity underlying the transfer,and did not require proof that “thelaundering would promote subsequentcriminal activity.” Thus, assuming the
purpose of the transfer were proven to havebeen to promote an ongoing bank or wire
fraud, then § 1956(a)(2)(A)’s requirements
were satisfied.
3. With the Intent to Conceal or Disguisethe Nature, Source, etc., of the Proceedsof Specified Unlawful Activity
This subsection adds two or threeelements of proof to a subsection 1956(a)(2)prosecution. First, like subsection
1956(a)(1)(B)(i), it requires that thedefendant know that the monetary
instrument or funds involved in thetransportation or attempted transportation
1956(a)(2)(A) prosecution if it could be establishedthat the purpose of the transportation was topromote the carrying on of specified unlawful
activity (§ 1956 (c)(7)). The absence of arequirement that the monetary instruments orfunds be the proceeds of unlawful activity would
also be useful in a circumstance where legitimate
funds are transferred to influence participation ina specified unlawful activity.

represent the proceeds of some form of
unlawful activity. The analysis applicableto subsection 1956(a)(1) in regard to thiselement is applicable to subsection
1956(a)(2)(B)(i) prosecutions.
Second, like subsection 1956(a)(1)(B)(i),this subsection requires proof that thetransportation was designed in whole orpart “to conceal or disguise the nature, thelocation, the source, the ownership, or thecontrol of the proceeds of specified unlawful
activity.”16
Third, there is at least an implicationthat the transportation, transmission ortransfer must involve the proceeds ofspecified unlawful activity. The statute is
ambiguous in this regard. On the one hand,as mentioned above, § (a)(2), unlike
subsection (a)(1), contains no generally
applicable proceeds requirement.17 On theother hand, Congress included a reference
to “the proceeds of specified unlawful
activity” in subparagraph (a)(2)(B)(i),suggesting that for the purposes of thisprovision only, a violation of § 1956(a)(2)
occurs only when the proceeds of specified
unlawful activity are involved.
Section 108 of the Crime Control Act of1990 eases the government’s burden of
proof with respect to both of the knowledge
requirements in 18 U.S.C. § 1956(a)(2)(B).
The amendment specifically makes it
possible to satisfy these requirements byhaving an undercover agent or confidential
informant make representations to thedefendant concerning the source of themoney and the purpose of the transaction.
Thus, in a case under § (a)(2)(B), the16 The legislative history of this section is Sec. 510 of

S.1970; and Sec. 1410 of S. 1972, 101st Cong. See
135 Congressional Record, S16760 (daily ed.,November 21, 1989).
17 See United States v. Hamilton, 931 F.2d 1046, 1052
(5th Cir. 1991).

339

RESOURCE MATERIAL SERIES No. 58
government could satisfy the knowledge
requirements by having a confidential
informant, working under the direction ofa federal agent, tell the defendant that theproperty being sent into or out of the wasto disguise the ownership of the property.
4. With the Intent to Avoid a Transaction
Reporting Requirement under State orFederal Law
This element, like subsection (B)(i)above, requires proof that the defendant
knew that the monetary instruments orfunds involved in the transportation,transmission, or transfer or attemptedtransportation, transmission, or transfer
represent the proceeds of some form of
unlawful activity. But this provision
already does not require the government
to prove that the property was, in fact, theproceeds of specified unlawful activity. In
addition, subsection (a)(2)(B)(ii) adds theelement of proof that such transportation
be designed in whole or part “to avoid atransportation reporting requirement
under State or Federal law.” Thus, all thathas to be proven in addition to thetransportation element is that: (1) the
defendant knew the funds to be the productof some kind of unlawful activity; and (2)the defendant knew that the purpose of the
movement in or out of the country was to
avoid a reporting requirement. Both ofthese elements may, after the 1990
amendments, be established with evidenceof a proper representation by a law
enforcement officer, and evidence that thedefendant believed the law enforcement
officer’s representation to be true.
In United States v. Ortiz, 738 F.Supp.
1394, 1398-1400 (S.D. Fla. 1990), theportion of § 1956(a)(2) that requires thegovernment to prove that the defendant
dealt with proceeds “knowing” the proceeds
were criminally derived was challenged as
ambiguous. In Ortiz, the defendant was
charged with attempting to transport

340$497,000 in U.S. currency from Miami toa place outside the United States knowingthat the money was the proceeds of someunlawful activity and knowing that the
movement of the funds was designed to
avoid the transaction reporting
requirement. The court found no
ambiguity. Citing § 1956(c)(1)’s definitionof “knowing that the property involved ina financial transaction represents theproceeds of some form of unlawful activity,”
the court said the following: “Thisdefinition suggests that the statute isapplicable to the transportation of theproceeds of any felonious activity where thedefendant has knowledge that the proceeds
are derived from felonious activity”. See
also United States v. Levine, 750 F. Supp.
1433 (D. Colo. 1990) (language inindictment charging defendant acted“knowing that the transactions were
designed ... to conceal or disguise thenature ... of the proceeds of these specified
unlawful activities” is a sufficient chargethat the defendant also knew thattransactions involved illegal proceeds);
United States v. Lizotte, 856 F.2d 341 (1stCir. 1988).
E. Elements of Subsection 1956(a)(3)- Undercover “Sting” Operations
In 1988, § 6465 of the Anti Drug Abuse
Act created an entirely new money
laundering offense that may be committed
as a result of a government “sting”
operation. 18 U.S.C. § 1956(a)(3)18 states:
Whoever, with the intent (A) to promote thecarrying on of specified unlawful activity;(B) to conceal or disguise the nature,
location, source, ownership or control ofproperty believed to be the proceeds ofspecified unlawful activity; or (C) to avoid
a transaction reporting requirement under
State or Federal law conducts or attempts
18 Enacted by § 6465 of the Anti-Drug Abuse Act of1988, Pub. L. 100-690, 102 Stat. 4375, eff. Nov. 18,
1988.

117TH INTERNATIONAL SEMINAR
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to conduct a financial transaction involving
property represented to be the proceeds ofspecified unlawful activity, or property used
to conduct or facilitate specified unlawful
activity, shall be fined under this title or
imprisoned for not more than 20 years, or
both.
The term “represented” is defined in thissubsection as meaning any representation
made by either a law enforcement officer
or by another person at the direction of, orwith the approval of, a federal official
authorized to investigate or prosecute
violations of 18 U.S.C. § 1956. Subsection
1956(a)(3) was added to the statuteexpressly to permit prosecution where thedefendant believed the proceeds were
derived from specified unlawful activity
because of a representation made by a law
enforcement officer or an informant
working under the officer’s control. In his
analysis of § 6465 of the Anti-Drug Abuse
Act of 1988,19 which added subsection (a)(3)
to 18 U.S.C. § 1956, Senator Joseph R.
Biden, Jr., Chairman of the Senate
Judiciary Committee, said the following:This amendment to the money
laundering statute, 18 U.S.C. § 1956,
would permit undercover law
enforcement officers to pose as drugtraffickers in order to obtain evidence
necessary to convict money
launderers. The present statute does
not provide for such operations
because it permits a conviction only
where the laundered money “in fact
involves the proceeds of specified
unlawful activity.” 18 U.S.C. §1956(a)(1). Since money provided byan undercover officer posing as a drugtrafficker does not “in fact” involve
drug money, the laundering of suchmoney is not presently an offense
under the statute.20
19 Pub. L. 100-690, 102 Stat. 4375.

1. The Representation ClauseA s a m e n d e d i n 1 9 9 2 , 21 t h e
representation clause of § 1956(a)(3) reads
as follows:“... involving property represented to be
the proceeds of specified unlawful activity,or property used to conduct or facilitate
specified unlawful activity ...” Thus, it is
an offense under § 1956(a)(3) if a law
enforcement officer says, “this is drugmoney” and the defendant uses the money(or attempts to use the money) to conduct
a financial transaction with one of thealternative intents specified insubparagraphs (A), (B) or (C), i.e., topromote future specified unlawful activity(such as buying an airplane to be used for
drug smuggling); to conceal or disguise theownership of the money (such as by wiring
it to an account held by a fictitious
corporation); or to violate a currency
reporting requirement (such as byengaging in structured deposits). It is also
an offense under § (a)(3) if the officer says,“this is an airplane/firearm/farm used tofacilitate drug trafficking” and thedefendant then engages in a financialtransaction involving that property with
one of the specific intents.
Congress saw the elimination of theknowledge and proceeds requirements asjustified only because the representation
requirement was to be added. The
legislative history makes clear that the
representation element was seen as an
20 134 Cong. Rec. S17365 (daily ed. November 10,1988). Section 6465 was derived from § 2353 of
S.2852, 100th Cong., 2d Sess., the Senate versionof what became the Anti-Drug Abuse Act of 1988.
The original Senate language of the provisionappears at 134 Cong. Rec. S14335 (daily ed. October
3, 1988). An analysis of that language appears, id.
at pp. S14072 and S14096.
21 See § 1531 of the Annunzio-Wylie Anti-Money
Laundering Act of 1992.

341

RESOURCE MATERIAL SERIES No. 58
essential element of the new statute. Thus
the proper reading of the representation
clause is that, whereas a representation isessential, the officer or other authorizedindividual may make either of two kindsof representations: 1) that the property is
the proceeds of criminal activity, or 2) thatthe property was used to conduct or
facilitate criminal activity.
The representation need not be explicit.
Ambiguous statements concerning theillegal derivation of the funds are sufficient
to satisfy the representation element aslong as the agent suggests that he isinvolved in an illegal activity. In UnitedStates v. Breque, 964 F.2d 381 (5th Cir.),cert. denied, 113 S.Ct. 1253 (1993), forexample, the undercover IRS agent never
explicitly told the defendant that themoney he was laundering through hiscurrency exchange business was drugmoney. However, based on the defendant’s
responses to the agent’s veiled references
to drug dealing, including a suggestion tohis co-conspirator that they charge a higher
commission because of the dangers
involved in dealing with drug traffickers,
the court held that a jury could infer thatthe defendant knew that the money had
been represented as drug money. Similarly,
in United States v. Kaufmann, 985 F.2d 884(7th Cir. 1993), a government agent buying
a Porsche automobile from the defendant
never explicitly stated that the $40,000 in
cash he was using was drug proceeds. The
court held that the government need notprove that the agent expressly indicatedthe source of the cash to the defendant, butrather “[i] t is enough that the government
prove that an enforcement officer orauthorized person made the defendant
aware of circumstances from which a
reasonable person would infer that theproperty was drug proceeds.” Id. at 893.
In addition, there is no requirement thatagents in sting operations “recite thealleged source” of the represented tainted342

funds at each transaction during the courseof a sting operation. According to the Fifth
Circuit, doing so would place an
unnecessary burden on the government’s
ability to carry out credible sting
operations. See United States v. Arditti,
955 F.2d 331, 339 (5th Cir. 1992).
2. Differences in Intent Requirements in(a)(1) and (a)(3)Congress recognized that thesubstitution of the representation
requirement in (a)(3) for the knowledge andproceeds requirements in (a)(1) was
imperfect: a knowledge requirement
applies to all defendants; to be convictedof an offense under (a)(1), even an aider
and abetter has to know that the property
was derived from some form of unlawful
activity. The representation requirement,
however, is not part of the mens rea of theoffense. To compensate for the eliminationof the knowledge requirement from themens rea, Congress made the intent
requirement in (a)(3) stricter than it is in(a)(1). Senator Biden addressed this point
as follows:
While this [the fact that the
representation requirement is notpart of the mens rea] would mean thateveryone involved in the financialtransaction would be guilty of thisoffense whether he was aware of thelaw enforcement officer ’s
representation or not, thestrengthened specific intent
requirement would guard against
innocent persons being prosecuted.22
The reference to the “strengthened
specific intent requirement” is todifferentiate between the language in §§1956(a)(1)(B)(i) and (ii) and the languagein §§ 1956(a)(3)(B) and (C). While the threealternative intent elements of subsection(a)(3) are very similar to the threecorresponding elements in the original

117TH INTERNATIONAL SEMINAR
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version of subsection (a)(1), they are not
identical. The second and third
alternatives in (a)(3) require proof of
specific intent “to conceal or disguise thenature, location, source, ownership, or
control” of the criminal proceeds, §1956(a)(3)(B), or “to avoid a transaction
reporting requirement,” § 1956(a)(3)(C). In
contrast, subsection (a)(1)(B) requires only
proof that the defendant had knowledge
that the purpose of the transaction was “toconceal or disguise the nature, location,
source, ownership, or control” of thecriminal proceeds, § 1956(a)(1)(B)(i), or “toavoid a transaction reporting
requirement,” § 1956(a)(1)(B)(ii). The
legislative history suggests that the “hadknowledge” requirement of (a)(1) is aweaker standard than the specific intent
requirement of (a)(3).23
F. 18 United States Code Section
1957 - Engaging in Monetary
Transactions in Property Derived
from Specified Unlawful Activity
Section 1957 contains an offense
entitled, “Engaging in monetarytransactions in property derived from
specified unlawful activity.” In essence,subsection 1957(a) proscribes the knowing
disbursement or receipt of over $10,000 of
criminally derived funds if a financial
institution is utilized at some point. The
statute does not require that these funds
be used for any additional criminal purpose
nor that the defendant engaged in thetransaction with any specific intent. For
example, assuming more than $10,000 was
involved, the deposit in a bank of theproceeds of a house sale by a seller who
knows that these proceeds were funds
derived from drug dealing would constitutea violation of this statute. Thus, § 1957 is
22 134 Cong. Rec. S14072, S14096 (daily ed., October

3, 1988).
23 134 Cong. Rec. S14072, S14096 (daily ed., October

3, 1988).

the equivalent of a financial transaction
offense under § 1956(a)(1) with the specificintent requirements replaced by therequirement that the transaction involve$10,000 and a financial institution.
1. Essential Elements
The elements of § 1957 are: (1) an
individual must engage or attempt toengage in a “monetary transaction”;24 (2)the defendant must know that the property
involved in the transaction is criminallyderived; and (3) the property must in fact
be derived from “specified unlawful
activity.”25

24 The term “monetary transaction”, as originallydefined in Subsection 1957(f)(1), included: thedeposit, withdrawal, transfer or exchange, in oraffecting interstate or foreign commerce, of funds
or monetary instrument . . . by, through, or to afinancial institution (as defined in 31 U.S.C. §5312(a)(2)). Additional language was added in 1988
to state that the term “monetary transaction” . . .
does not include any transaction necessary topreserve a person’s right to representation as
guaranteed by the Sixth Amendment to theConstitution. . . .” The term “monetary instrument”
in § 1957 as originally enacted was given the samedefinition as under 31 U.S.C. § 5312(a)(3) and 31
C.F.R. § 103.11(k). This definition includes U.S.
currency and all negotiable instruments that areeither in bearer form, endorsed without restriction,
made out to a fictitious payee, or otherwise in suchform that title thereto passes immediately upondelivery.
Effective November 18, 1988, § 6184 of the ADAA
amended 18 U.S.C. § 1957(f)(1) to specify that theterm “monetary instrument” was to have the samedefinition as in 18 U.S.C. § 1956(c)(5), which is asfollows:
1. coin or currency of the United States or of any
other country, travelers’ checks, personal checks,bank checks, money orders, or
2. investment securities or negotiable instruments
in bearer form or otherwise in such form that
title thereto passes upon delivery.

343

RESOURCE MATERIAL SERIES No. 58(a) Monetary Transaction
The term “monetary transaction” isnarrower than the term “financialtransaction” as used in § 1956 in that it
requires that a financial institution and at
least $10,000 be involved in thetransaction. This is the only substantive
provision of either § 1956 or § 1957 that
requires that a financial institution
participate or otherwise be connected to thetransaction in order for that transaction to
be criminal money laundering. But thedefinition of “financial institution” in §5312 of Title 31 is extremely broad. Thus,
for example, a transaction occurring at a
car dealership or a jewelry store is a“monetary transaction” under § 1957.
A defendant may violate § 1957 simply
through the deposit of proceeds from anunderlying offense. In United States v.
Griffith, 17 F.3d 865 (1994), the Court
affirmed the § 1957 conviction of the
defendant who deposited proceeds received
from the transfer of fraudulently procured
camera equipment. In United States v.
Lovett, 964 F.2d 1029 (10th Cir.), thedefendant embezzled funds from his
grandmother’s bank accounts, and used themoney as collateral for a loan. The Tenth
Circuit held that each time the defendantdeposited loan proceeds, which he had
divided into six separate checks, he violated§ 1957. Similarly, in United States v.
Hollis, 971 F.2d 1141 (10th Cir. 1992), thedefendant was convicted under § 1957 fordepositing checks from a completed wire
fraud scheme. One court has even held that
simply spending proceeds will violate §1957. See United States v. Kelley, 929 F.2d
582, 585 (10th Cir.), cert. denied, 112 S.Ct.
341 (1991)(defendant used proceeds offraudulently obtained loan to buy a car).

25 Subsection 1957(f)(3) defines “specified unlawful

activity” in accordance with the definition containedin subsection 1956(c)(7).

344(b) Knowledge and Proceeds
The knowledge requirement containedin § 1957 is only that the individual knowthat the monies involved are derived fromsome kind of criminal activity. There is norequirement of knowledge that the funds
be derived from any particular kind ofcrime or, indeed, that the funds were
derived from a felony rather than amisdemeanor. The proceeds requirement
is identical to the analogous provision in §1956(a)(1). Thus the knowledge andproceeds elements of a § 1957 offense are
not unlike the same elements under § 1956,
and the same case law is applicable to both.
III. RECENT DEVELOPMENTS IN
THE U.S. STRATEGY AGAINSTMONEY LAUNDERINGOn October 15, 1998, Congress passed
the Money Laundering and Financial
Crimes Strategy Act of 1998. The Act,
which was introduced by Congresswoman
Nydia Velazquez of New York and signed
into law by President Clinton, called upon
the President, acting through the Secretaryof the Treasury and in consultation with
the Attorney General, to develop a national
strategy for combating money launderingand related financial crimes. The Act called
for the first national strategy to be sent toCongress in 1999, and updated annuallyfor the following four consecutive years.
The first annual strategy was released on
September 23, 1999. The National Money
Laundering Strategy for 2000 was releasedon March 8, 2000, at a press conference cochaired by Deputy Attorney General Eric
Holder and Deputy Treasury Secretary
Stuart Eizenstat.
The 2000 Strategy is organizedaccording to four overarching goals:(1) to strengthen domestic enforcement
in order to disrupt the flow of illegalmoney;

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS(2) t o e n h a n c e r e g u l a t o r y a n dcooperative public-private efforts toprevent money laundering;(3) to strengthen partnerships withstate and local governments to fightmoney laundering throughout theUnited States; and(4) t o s t r e n g t h e n i n t e r n a t i o n a lcooperation in order to disrupt the
global flow of illicit money.
These four goals are supported by
identified objectives which, in turn, are to
be accomplished through approximately 65
specific action items set out in the strategy.
The following are summaries of the mostsignificant action items:
A. Designation of High Intensity
Financial Crime Areas (HIFCAs)
The designation of HIFCAs was
mandated by the 1998 legislation and was
the first action item in the 1999 Strategy.
HIFCAs are defined as special, high-riskareas or sectors where law enforcement willconcentrate its resources and energy tocombat money laundering. The Justice andTreasury Departments led a process to
identify and designate the first HIFCAs.
As part of this process, the two
departments convened an interagency
HIFCA Working Group to collect andanalyze relevant information and makerecommendations to the Deputy Attorney
General and the Deputy Treasury
Secretary for the HIFCA designations. The
2000 Strategy designated the first HIFCAs:(1) the New York City/Northern New Jersey
area; (2) the Los Angeles, California,
metropolitan area; (3) San Juan, Puerto
Rico; and (4) a “systems” HIFCA to focus
and enhance current efforts addressing the
problem of cross-border currency
smuggling/movements between Mexicoand Texas and Arizona.
The HIFCA programme is intended toconcentrate law enforcement efforts at thefederal, state, and local levels to combat
money laundering in the designated highintensity money laundering zones. In orderto implement this goal, money laundering
action teams have been created or
identified within each HIFCA to spearheada coordinated federal, state, and local antimoney laundering effort. Future HIFCAs
will be selected from applications received
from prospective areas or from candidates
proposed by the Secretary of the Treasuryor the Attorney General.
B. Financial Crime-Free
Communities Support
Programme (C-FIC)
The 2000 Strategy announces thelaunching of the C-FIC programme. The
C-FIC programme is also the result of alegislative mandate which calls for theestablishment of a federal grant
programme to provide seed capital for
emerging state and local counter-money
laundering enforcement efforts. The
Bureau of Justice Assistance (BJA) is
assisting the Treasury Department in
administering this grant programme.
Congress appropriated $2.9 million in fiscal
year 2000 for the commencement of thisprogramme. The first nine recipients for
C-FIC grants were announced in
September 2000 and included a variety of
programs proposed by state and local law
enforcement agencies in New York, Illinois,
Arizona, Florida, Texas and California.
C. Money Service BusinessSuspicious Activity Report (SAR)
Reporting
In conjunction with the release of thestrategy, the Treasury Department
announced the issuance of final
regulations, effective December 31, 2001,
mandating that money transmitters,
issuers, sellers, and redeemers of moneyorders and traveler’s checks must reportsuspicious transactions to the Treasury
Department.

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RESOURCE MATERIAL SERIES No. 58
D. Financial Crime Havens
The 1999 Strategy called for theformation of an interagency working group
to explore whether measures should be
adopted to restrict financial institutions in
the United States from opening ormaintaining correspondent banking
accounts for foreign banks that areorganized in “lax” offshore jurisdictions.
This initiative was pursued in conjunction
with the Financial Action Task Force’s
initiative which resulted in the naming offifteen Non-cooperative Countries andJurisdictions in June 2000. The issuanceof this list was followed by the issuance ofFinCEN Advisories to United States
financial institutions concerning the fifteen
designated jurisdictions.
E. “Gatekeepers”
Pursuant to the 1999 Strategy, aninteragency working group was created to
examine the responsibilities ofprofessionals, such as lawyers andaccountants, with regard to money
laundering. The 2000 Strategy directed theworking group to continue its review and“to make recommendations - ranging fromenhanced professional education,
standards or rules, to legislation - as might
be needed.” In April 2000, a meeting ofrepresentatives from the G-7 countries wasconvened in Washington, D.C. to discuss
this issue. Because of the difficult legal
and policy issues involved when
considering the responsibilities of lawyers
and accountants in this area, the working
group will continue to study this issue andprepare recommendations for the Steering
Committee in 2001.
F. Proposed Legislation
The Treasury Department announced
that, in conjunction with the 2000 Strategy,
the administration was sending new antimoney laundering legislation to Congress.
T h e I n t e r n a t i o n a l C o u n t e r- M o n e yLaundering Act of 2000 offered critically346

needed new authority to take calibrated
action against foreign financial crime
havens. In addition to seeking enactmentof the Treasury bill, the 2000 Strategy
called for the administration to seek
enactment of the Justice Department’s
Money Laundering Act of 2000, which was
submitted to Congress on November 10,
1999. This bill contained numerous
provisions which would enhance theeffectiveness of the money laundering
statutes. However, neither of these bills
was enacted in 2000. It is expected thatthese bills will be re-submitted to Congressin 2001.
In conjunction with the announcementof the 2000 Strategy, on March 7, 2000, theAttorney General and the Secretary of theTreasury issued a joint memorandum to all
U.S. Attorneys (USAs) and the heads ofall of the federal law enforcement agencies,
which emphasized the importance of antimoney laundering enforcement andrequested the implementation of several
action items recommended in the 1999
Strategy. Specifically, the memorandum
urged the USAs and the law enforcement
agencies:(i)to encourage below-thresholdinvestigations and prosecutions
that potentially have a systemic or
financial sector-wide effect onmoney laundering;(ii) to establish SAR review teams;(iii) to ensure that all informants andcooperating witnesses aredebriefed with respect to money
laundering methods and theirknowledge of money laundering
techniques;(iv) to increase the use of electronic
surveillance in appropriate money
laundering cases;(v) to enhance the support andanalysis of multi-district money
laundering investigations;

117TH INTERNATIONAL SEMINAR
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to increase training for financial
investigations; and(vii) to increase the strategic use of
asset forfeiture in money
laundering cases.
The 2000 Strategy set out a far-reaching
and highly ambitious regimen of action
items and milestones to be addressed andaccomplished during 2000. The
implementation of the Money Laundering
Strategy was being guided by aninteragency Steering Committee co-chairedby the Deputy Secretary of the Treasury
and the Deputy Attorney General, with theparticipation of relevant departments andagencies. The Steering Committee has the
responsibility of tracking and identifying
progress toward fulfillment of the goals andobjectives identified in the 2000 Strategy
and this progress will be reported in the2001 Strategy.
IV. CONCLUSION
Today, more than ever before, money
laundering is a world-wide phenomenon
and an international challenge. While nohard numbers exist on the amount ofworldwide money laundering, former IMF
Managing Director Michel Camdessus has
estimated the global volume between two
and five per cent of the world’s grossdomestic product. Even at the low end ofthat range, the amount of proceeds fromnarcotics trafficking, arms trafficking,bank and securities fraud, and othersimilar crimes laundered worldwide eachyear amounts to almost $600 billion. In
light of American financial institutions’prominent role in the international
financial system, it is likely that asubstantial portion of that $600 billion will
be laundered through the United States.
The basic anti-money laundering objectiveof the United States must be, and iscurrently, to identify and prevent the initialplacement of illicit proceeds into ournation’s financial system. It is at this stage
that the launderers of illicit money are
most vulnerable to detection andprosecution, and their illicit proceeds aremost vulnerable to identification, seizureand forfeiture. Although the United States
has aggressively pursued the investigationand prosecution of those laundering illicit
funds, prosecuting approximately 2000
defendants per year, its objectives andstrategy must not remain static but must
continue to strengthen federal enforcementof the money laundering laws and tointensify its law enforcement efforts to
identify money launderers and disrupt theflow of illicit money in the United States.
Additionally, the United States must
continue to work closely with its
international partners in bilateral andmultilateral contexts to take coordinatedaction against the financial power of drugtrafficking and other criminalorganizations. While this action will not
eradicate international drug trafficking ortransnational organized crime, it will
create an increasingly hostile environment
for the money launderer and afford newelements of protection to economic andpolitical systems.26

26 William C. Gilmore, Dirty Money: The Evolutionof Money Laundering Countermeasures, 2d Ed.,Council of Europe Publishing, 1999.

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CURRENT SITUATION AND COUNTERMEASURES AGAINSTMONEY LAUNDERING:
FOCUSING ON THE EXPERIENCE AND LEGAL POLICIES OF
THE REPUBLIC OF KOREA
Chae, Jung-Sug *I. INTRODUCTION
Since late in the 20th century, people haveenjoyed the benefits of industrializationand globalization that the development oftransportation and communication
technology has brought to the world. At
the same time, this economic and socialchange has also brought about changes tothe form, technique, and scope of crime.
The consequences are that criminals arecrossing borders with an ease unknown in
the past and are expanding the area of theiractivity, and that they are becoming evermore intelligent and specialized.
The expansion of the influence oforganized crime has reached such pointthat it poses great threat to the safety ofinternational community. According to therecent statistics, crime groups arecommitting trafficking in drugs and illicit
firearms, and counterfeiting of currency
and credit card, which involve dirty money
totaling 3000 billion US dollars. Theinternational community has come torecognize that corruption serve as the soil
for the growth of organized crime. And theanti-corruption round initiated with thisrecognition has become an eloquentinternational movement.

important purpose and motivation isfinancial profits. Therefore, in order tocombat organized crime and corruption
effectively, we need to deprive offenders of
their financial gains. To attack themfinancially is to cut off the Achilles tendonof organized crime groups.1 But, criminals
are cutting off the link between crimes andcriminally-derived money, by laundering
dirty money taking advantage of all
methods and mechanisms imaginable.
We call the series of transactions turning
dirty money into clean money, money
laundering. In the following, I’ll first look
into what money laundering is, and thecurrent situation of money laundering in
the international community.
II. DEFINITION OF MONEY
LAUNDERING AND THE CURRENTSITUATION
A. Definition of Money Laundering
Money laundering is the process bywhich one conceals the existence, the illegal
source, or illegal application of income, andthen disguises that income to appear
legitimate. 2 In other words, money

1

It is difficult to give a uniform
explanation about the purpose of organizedcrime and corruption, but the most* Senior Prosecutor, Seoul High Prosecutors’ Office,Republic of Korea

352

R. Peter, Money Laundering and Its Current Status
in Switzerland: New Disincentive for Financial
Tourism, 11 Northwestern Journal of International
Law & Business 104(1990), p. 108
2 The President’s Commission on Organized Crime,
Interim Report to the President and Attorney
General, The Cash Connection: Organized Crime,
Financial Institutions and Money, 1984. 10.

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laundering refer to a series of transactionstransforming criminally-derived funds into
legitimate funds through financial
institutions, for the purpose of concealing
the illicit nature and origin of the property
from government authorities.
Money laundering negatively impacts
economic growth and society at large. It
distorts economic order, shields criminal
activities, which are associated with crime
proceeds, from exposure, and corrupts
public officials and our society on the whole.
B. Characteristics of Money
Laundering
Money laundering is performed
systematically and secretly, making it
difficult to identify exactly how muchmoney is laundered and what methods are
employed. And, it is difficult to criminalize,
regulate or crackdown on money
laundering with the traditional legal notion
and system.
Criminologically, money laundering can
be characterized as borderless economic
crime or organized crime. Recently, withthe rapid development of internet andcommunication technology, crime proceeds
can be moved from one country to anotherin a matter of hours, by using wiretransfers. These factors make theregulation of money laundering moredifficult.
C. Current Situation of Money
Laundering Worldwide
As pointed out, the exact amounts oflaundered money are so difficult to assess.
However, we can give a rough estimate, bysynthesizing various informations.
According to Financial Action Task Force(FATF), it is estimated that the amountsof money laundered annually worldwide
from the illicit drug trade alone range
between 300 billion US dollars and 500
billion US dollars in 1998. Since thisestimate only regards the amountassociated with exposed drug crimes, theamounts of illicit money actually launderedworldwide could be five or six times larger.
There have been a number of money
laundering cases worldwide. The most
famous one is “The Pizza Connection” case.
And, one of the most well known money
laundering cases that are not associatedwith drug crime is “Bank of Credit andCommerce International (BCCI)” case.
These two cases revealed that money
laundering is performed comprehensively,
systematically, professionally, diversely3
and without the check of national borders.
In “The Pizza Connection” case, we could
see how various crime groups in different
parts of the world formed a network
associated with major banks of the UnitedStates and Switzerland, and see thelinkage between poppy fields of Southeast
Asia and the Pizza parlours of the UnitedStates. In “BCCI” case, it was revealed that
financial experts were deeply involved inmoney laundering, taking advantage of
their expert knowledge, discrepancy
between financial systems of individual
countries, and financial secrecy protection
system. From this case, it was reaffirmed
how difficult it is to investigate andregulate money laundering.

3 The Canadian police authorities, after examining
150 cases of money laundering, concluded that there
are various methods used to launder money fromvery simple ones to elaborate ones, and that thelimit of these methods are only set by the capacityof criminal group’s imagination. (Margaret E.
Beare & Stephen Schneider, Trading of Illicit
Funds: Money Laundering in Canada, Working
Paper No.1990-5, Ministry of the Solicitor General,
p.XI)

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RESOURCE MATERIAL SERIES No. 58
III. CURRENT SITUATION OF
MONEY LAUNDERINGREGULATION
A. International Efforts
In early 1980’s, the international
community formed a consensus that a
priority should be given to the regulationof money laundering. The efforts of theinternational community were exerted
through the United Nations and otherinternational organizations, and onregional and national level.
1. Before the Conclusion of the 1988
Vienna Convention
It was the Committee of Ministers of theCouncil of Europe4 of June 27, 1980 thatmoney laundering problem was first
discussed on international dimension. The
Committee of Ministers adopted therecommendation (R 80/10) regardingM e a s u r e s A g a i n s t t h e Tr a n s f e r o f
Safekeeping of Funds of Criminal Origin,urging European countries to take interestin the regulation of money laundering.
After that, the United States and theUnited Kingdom established domestic laws
making money laundering criminal
offense. The United Nations adopted theUnited Nations Convention Against Illicit
Traffic in Narcotic Drugs and Psychotropic
Substances on December 19, 1988. As
Spain ratified the Convention on August
13, 1990, becoming the 20 th country to
ratify it, the Convention came into force
on November 11, 1990.5
The Convention provides the conversion
and transfer of crime proceeds and theconcealment and disguise of the nature ororigin of crime proceeds as criminal offense
4

It is a European inter-governmental organization,with 26 member states. It has adopted many
conventions in the area of international criminal
justice.

354

in Article 3, Paragraph 1(b). And, theConvention provides obtaining, possessing
or using of crime proceeds with knowledge
as criminal offense in Article 3 Paragraph1(c). The Convention requires that State
Parties must implement Article3
Paragraph 1(b) and that regarding Article
3 Paragraph (c), State Parties should takemeasures to criminalize it under thedomestic law to the extent that it complies
with the principles of the Constitution andthe basic concepts of the legal system. This
Convention has a historic meaning in thatit criminalizes money laundering activity.
I will go on to the international efforts after
this Convention.
2. After the Conclusion of the 1988
Convention
On November 18, 1990, the Council ofEurope adopted the Convention on
Laundering, Search and Confiscation of theProceeds from Crime. This Convention
aimed at strengthening international
cooperation in investigation, search andseizure of proceeds derived from major
crimes (felony) such as drug crimes andterrorism which are known to yield large
profits. As the finance market of EC(European Community) countries took thecourse for unification, efforts to countermoney laundering through the authorityof EC arose in Europe. And as a part ofthis effort, EC enacted the Council
Directive on Prevention of the Use of the
Financial System for the Purpose of Money
Laundering on June 10, 1991.
The prevention of money laundering was
also discussed at the summits of G7
countries. At the Toronto summit in 1988,
G7 declared the necessity of regulating
money laundering.6 At the Arshur summit
in 1989, they made a declaration, inviting
5

The Republic of Korea deposited the instrument of
ratification of the Convention on December 28,
1998.

117TH INTERNATIONAL SEMINAR
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all countries to join G7’s cooperative efforts
to combat drug trafficking and laundering
the proceeds7 and resolved to establish the
Financial Action Task Force (FATF).
The FATF was participated by 16
countries and organizations including theG7, the council of European Community
and Sweden, etc. The first report of the
FATF was made on February 2, 1990, andwas released in each participating country
on April 19 of the same year. The report ismade up of three parts, the first part about
the scale and the mechanism of money
laundering, the second part about themeasures made to counter money
laundering, and the third part, including
recommendations.
The forty
recommendations of the third partpresented a comprehensive blueprint for
the international community in preventing
money laundering, having a continuous
influence in the international effort tocounter money laundering.
The FATF went on to enhance its
activities as more countries andorganizations joined it. The forty
recommendations are being modified
continuously. Since OECD functions as thesecretariat of FATF, it has also transformed
into a gathering of expert groups
independent from other internationalorganizations, and has played a very
important role in countering money
laundering.
There have been many efforts onregional level as well. The Organizationof American States (OAS), which had
discussed measures against drug problems,
adopted the Model Regulations Concerning
Laundering Offences Connected to Illicit
Drug Trafficking and Related Offences at
the 11th meeting of Inter-American Drug

Abuse Control Commission (CICAD) on
March 10, 1992. Through this, it wasaffirmed that in order to combat drug crime
which is one of the most formidable
problem in American continent, regulationof the proceeds and instrumentality should
be conducted in parallel. In Asia, the Asia/
Pacific Group on Money Laundering (APG)
was established in February 1997. The
APG works to enhance cooperation in theregion, by conducting studies about theprevention of money laundering in Asia/
Pacific region, and issuing evaluations on
anti-money laundering measures of Asia/
Pacific countries.
On the level of the United Nations, the8 th United Nations Congress on thePrevention of Crime and the Treatment of
Offenders held in Havana, Cuba in Augustand September 1990 adopted “Basic Rules
for the Control and Prevention ofOrganized Crime”. On December 14, 1990,
the General Assembly, through two
Resolutions8, urged states for their actions
to facilitate seizure and confiscation ofcrime proceeds and to develop effective
measures to counter money laundering.
In this atmosphere, the 1 st session ofCommission on Crime Prevention andCriminal Justice (CCPCJ) was held in April
1992 in Vienna. At the 1 st session of
CCPCJ, the participating countries
recognized that the regulation of money
laundering and flow of crime proceeds ismore important than anything to counter
crime and that the CCPCJ should place its
priority on the discussion of strategy tocounter money laundering.9 In July 1992,
the United Nations Economic and Social
Council, accepting the recommendation of
the CCPCJ, set countering money
laundering as the priority of the work of
8

6

Political Declaration, paragraph 16
7 Economic Declaration, paragraph 52

United Nations General Assembly Resolutions 45/
107, 45/123
9 Resolution 1/2

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RESOURCE MATERIAL SERIES No. 58
CCPCJ and the UN Crime Prevention andCriminal Justice Programme for four
consecutive years.10 As a consequence, the
CCPCJ has had uninterrupted discussionof the prevention of money laundering andflow of crime proceeds since the 2nd sessionof Commission in 1993 and made reportsof the result of the discussions, urging thecriminalization and strong regulation ofmoney laundering.
On December 4, 1994, the General
Assembly adopted a Model Treaty on
Mutual Assistance in Criminal Matters. At
that time, the General Assembly also
adopted the Protocol to the Model Treaty
on Mutual Assistance in Criminal Mattersconcerning the Proceeds of Crime, which
provides the framework for theinternational cooperation in theconfiscation and forfeiture of crime
proceeds.
3. Conclusion of the Convention Against
Transnational Organized Crime
In an effort to combat transnationalorganized crime which poses threat to thesafety of the international community, theUnited Nations held the Ministerial
Conference on Organized Transnational
Crime in November 1994 in Naples of Italy.
This conference adopted an international
document entitled the Naples Political
Declaration and Global Action Plan against
Organized Transnational Crime. The
Naples Political Declaration called on the
CCPCJ to collect opinions from individual
governments regarding the content and theeffect of a convention against transnationalorganized crime. The United Nations
General Assembly urged each state party
to promptly implement the Naples Political
Declaration and Global Action Plan.11

In December 1996, the General
Assembly, taking notice of a draft
convention against transnationalorganized crime proposed by Poland, called
upon the CCPCJ to give priority to theconsideration of the finalization of the draft
convention. 12 In December 1997, theGeneral Assembly decided to establish an
open-ended meeting for the intergovernmental expert group for the draft ofa comprehensive international convention
against transnational organized crime.13 In
December 1998, the General Assembly
called for the establishment of the Ad Hoc
Committee to take over the achievement
made regarding the draft convention andto finish the project.14
The Ad Hoc Committee, after having theinformal preparatory meeting in
September 1998 in Buenos Aires, held thefirst session in January 1999. Through ten
sessions of meetings, the Convention
against Transnational Organized Crime
was adopted in September 2000. Amongthe three supplementary protocols being
discussed, the “Protocol to Prevent,
Suppress and Punish Trafficking in
Persons, Especially Women and Children”,
and the “Protocol against the Smugglingof Migrants by Land, Sea and Air” wereapproved at the 11th session held in October
2000. The approval of the Protocol against
the Illicit Manufacturing of and Trafficking
in Firearms, Their Parts and Components
and Ammunition was reserved for morediscussions on some issues which have notbeen agreed on.
At the back of the UN’s positive actions
and achievements, there were regional
conferences and declarations. They are the
Buenos Aires declaration, the Dakar
declaration and the Manila declaration.

10 Resolution 45/107, 45/123

12 Resolution 51/120

11 United Nations General Assembly Resolution of

13 Resolution 52/85

December 23, 1994 49/159

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14 Resolution 53/111

117TH INTERNATIONAL SEMINAR
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The Buenos Aires declaration was adopted
at the regional ministerial workshop ofNovember 1995 which was a follow-up
meeting to the Naples Political Declaration
and Global Action Plan. The Dakar
declaration was adopted at African regional
ministerial workshop held in July 1997 in
Dakar of Senegal. The Manila declaration
was adopted at Asian regional ministerial
workshop regarding transnationalorganized crime and corruption, held inMarch 1998 in Manila, the Philippines.
Since the contents of this Convention arethose that have recently been discussed
and agreed on by the international
community, they include relatively strong
measures to combat money laundering.
Article 6 of the Convention criminalizes awide range of activities related with money
laundering, and requires state parties toinclude all major crimes provided in theConvention as the predicate offense. Thisis a step forward from the 1988 Convention
which provided for the punishment ofmoney laundering only in case it isassociated with drug crimes. Article 7
provides diverse and systematic measures
to regulate money laundering, including
reporting of suspicious transaction. Article
13 also touches upon the efforts to enhanceinternational and regional cooperation
among justice, enforcement and regulation
agencies of state parties, to implement
these measures. Article 12 of theConvention provides confiscation of crime
proceeds, usage of records including bankrecords for the confiscation of crime
proceeds, and power to freeze or seizure
proceeds. Article 13 provides forinternational cooperation for confiscation,
and Article 14 provides for the disposal of
confiscated assets.

4. C o n c l u s i o n o f C o n v e n t i o n o nCombating Bribery of Foreign Public
Officials in International BusinessTransaction
At the outset, money laundering problem
was discussed in association with drug
crimes. The discussion about money
laundering was developed in such directionthat countering money laundering isimportant to counter not only drug crimes
but also organized crimes, especiallytransnational organized crimes. Recently,
the international community perceives thatthe predicate offenses for the regulation ofmoney laundering should not be restricted
to drug crimes and organized crimes, butshould be extended to corruption crimes aswell. Corruption crimes are not a domestic
problem of an individual country. It
undermines fair competition of enterprisesin the global market place, and provides
soil for the growth of transnationalorganized crimes. The international
community has begun its work to combat
corruption.
With this background, OECD finalized
the Convention on Combating Bribery ofForeign Public Officials in International
Business Transaction. This Convention
requires state parties to take legislative
measures to criminally punish the act ofoffering bribes to foreign public officials,
and to give assistance to each other ininvestigation and extradition associatedwith such case. This Convention was
adopted at OECD in November 1997, wassigned by 34 countries in December 1997,
and came into force on February 15, 1999.
In the process of the discussion of thisConvention, there was a consensus ofopinion that prevention of money
laundering and control of crime proceeds
is essential for countering corruption.
Article 7 of the Convention provides thateach state party which has made briberyof its own public official a predicate offense

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RESOURCE MATERIAL SERIES No. 58
for the purpose of the application of its
money laundering legislation shall do soon the same terms for the bribery of aforeign public official, without regard to theplace where the bribery occurred. Article
8 of the Convention provides that stateparty shall take measures regarding themaintenance of books and records,
financial statement disclosures, andaccounting and auditing standards, toprohibit the establishment of off-the-books
accounts, the making of off-the-books orinadequately identified transactions, andshall provide civil, administrative or
criminal penalties.
B. Efforts Made by IndividualCountries
Countries worldwide have devoted
efforts to respond to money laundering
problem voluntarily or as they wereencouraged by the aforementioned
international conventions. They
established domestic laws to make money
laundering criminal offense, to confiscateproceeds associated with money
laundering, and to require financial
institutions to report cash transactions
over a certain sum. This move was led bycommon law countries, at the head of which
was the United States.
The United States enacted and enforced
the Bank Secrecy Act of 197015 as early as
1970. In the same year, the United States
established the Racketeering Influenced
and Corrupt Organizations Act of1970(RICO Act) and the Controlled
Substances Act of 1970, providing
measures to confiscate certain illicit assets
or proceeds. In 1986, the Money
Laundering Act of 198616 was established.

15 Pub.

L. No. 91-508, 401(a), 84 Stat.1114(1970)
L. No.99-570, 1351-1367, 100 Stat. 32073208. This Act is a part of the Anti-Drug Abuse Actof 1986, and is provided in 18 U.S.C. and 33 U.S.C.

16 Pub.

358

In 1986, the United Kingdom
established the Drug Trafficking Offences
Act of 1986, providing for the confiscationof certain illicit proceeds, and criminalizing
money laundering activities. The United
Kingdom is continuing its work tostrengthen related laws. Australia
established the Proceeds of Crime Act in
1987, criminalizing money laundering andproviding for the confiscation of criminallyderived assets. In 1988, Australia enacted
the Cash Transaction Reports Act of 1988.
Civil law countries were slower thancommon law countries in coming up withmeasures to counter money laundering.
Japan ratified the 1988 Vienna Convention
in 1989 and enacted the implementing laws
in 1991, which came into force in 1992.
These implementing laws are “Law
Concerning Special Provisions for the
Narcotics and Psychotropics Control Law,etc. and Other Matters for the Preventionof Activities Encouraging Illicit Conducts
and Other Activities Involving Controlled
Substances through International
Cooperation”(the so-called New Drug Law
or Anti-Drug Special Law) and “Act
Revising Parts of the Hemp Control Act,
the Stimulant Control Act and the Opium
Act”. The New Drug Act criminalizes
money laundering, and provides for theconfiscation and forfeiture of illicit
proceeds, freezing procedure, international
assistance, and reporting of suspicioustransactions. However, this Act, which
punishes money laundering associatedwith only drug-related crimes, could not be
an effective medium to respond toorganized crimes.
With this recognition, Japan established,in 1999, the “Law Concerning the
Punishment of Organized Crime and theControl of the Proceeds of Crime (so called
Anti-Organized Crime Act)”. This Act
provides for stronger punishment oforganized crime, and provides for extended

117TH INTERNATIONAL SEMINAR
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control of money laundering. Under thisAct, the predicate offenses for money
laundering regulation include drug-related
crimes, major crimes (felony) which carrya certain degree of statutory penalty, which
are likely to produce large illicit proceeds,
and include crimes like prostitution andpossession of deadly weapons though they
carry lower statutory penalty. The Act also
provides punishment for the behavior
aimed at managing the business of acorporation by using illicit proceeds derived
from the above predicate offenses, and the
conduct of disguising, concealing andobtaining the proceeds of crime. The Act
also provides measures for the confiscationand forfeiture of the proceeds of crime. The
Act requires banks and other financial
institutions to report to relevant
authorities, suspicious transactions if they
are suspected of being derived from illicit
proceeds. The Act aims at increasing theefficacy of the control of money laundering
by providing mechanisms for international
assistance process regarding confiscationand forfeiture.
In Germany, the discussion of money
laundering problem began in early 1990’s.
In 1992, the offense of money laundering
was newly included in the criminal law.
And an organized crime act called Gesetz
zur Bekämfung des illegalen
Rauschgifthandels und anderer
Erscheinungsformen der Organisierten
Kriminalität (OrgKG, vom 15.7.1992) wasestablished to make money laundering
activities associated with organized crimes
and drug crimes, a criminal offense.
Switzerland was rather late incriminalizing money laundering due to its
long-standing policy of giving strong
protection to bank secrecy. However,
Switzerland underwent a series of major
drug-related cases including the TurkeyLebanon connection case in 1987, and waspressured by the United States and theEuropean Community to take measuresagainst money laundering. In 1990,
Switzerland revised its criminal law tocriminalize money laundering.
In 1987, France provided thepunishment of money laundering activity(blanchiment de capitaux) in its publicsanitation law called le code de la santpublique. Italy had controlled money
laundering activity as a part of the control
of organized crimes, but did not have legal
provisions directly setting out thepunishment of money laundering. Moneylaundering was controlled through the
major crime (felony) prevention law of
1978, but this was an indirect way. After
ratifying the 1988 Vienna Convention, Italyestablished the Act against Mafian
Organized Crime in March 1990, which
provides improved measures againstmoney laundering.
In the past, Hong Kong did not have acentral bank, and a policy controlling theexchange of currency. Besides, Hong Kong
adopted a complete bank secrecy protection
system. For these reasons, Hong Kong wascriticized for providing a financial havenfor the laundering of drug money. In 1989,
however, Hong Kong established the Drug
Trafficking (Recovery of Proceeds)
Ordinance, and has become active incracking down on drug crimes andcontrolling money laundering.
IV. CURRENT STATUS OF MONEY
LAUNDERING IN THE REPUBLIC
OF KOREA
A. The Characteristics of Money
Laundering in the Republic of
Korea
The economic development and themethod of financial transactions in Korea
differ from the West and the early
developed nations, which are societies that
conduct business based on credit.

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Therefore, the investigation authorities
and tax authorities in Korea are faced withcases of money laundering activity that are
different to what foreign authorities face.
In general, foreign investigation
authorities in the West handle moneylaundering cases that involve thesmuggling of drug and weapons. In
contrast, Korean investigation authorities
mostly investigate money-laundering
activities that involve bribery of
government officials and politicians,
embezzlement or breach of trust in the big
companies and public funds, and corrupt
financial dealings. The investigations
revolve around the issues concerning how
the funds were transferred to one accountto another or how the illicit funds werelaundered.
In bribery cases, the people who bribe
the officials are usually corporate
executives, and the source of the illicit
funds is the company’s slush funds. Thus,
the creation of illicit funds is orchestrated
between a company and a financial
institution, which make the investigations
very difficult. Furthermore, the people whoare bribed are mostly politicians or highranking government officials who use theirpower to ensure that the funds aretransferred in great secrecy. This also
hampers the investigation.
Recently, money laundering techniques
have become more sophisticated andoperate on an international scale due toactive economic trade, massive capital
investments from abroad, widespread useof electronic money transfers, international
travel, and the liberalization of the foreignexchange market. The sophisticatedtechniques used by money launderers
aggravate the difficult situation.

360

B. The Real Name Financial
Transaction System and Money
Laundering
Money laundering in Korea is connectedto the enforcement of the Real Name
Financial Transaction System in August
12, 1993. Before the enforcement of theReal Name Financial Transaction System,
most criminals were able to open a bankaccount under an anonymous name anduse that bank account for money
laundering activities. After the money islaundered, the bank account is discarded.
But after the Real Name Financial
Transaction System (hereafter referred toas the “system”) was enforced, criminals
were no longer able to open bank accounts
under anonymous names. Thus, fake bankaccounts were not used for money
laundering activities anymore. But, there
have been instances where criminals wereable to open accounts using the identities
of his or her relatives or co-workers in orderto launder money through these bankaccounts. In other cases, criminals
laundered money by making bank accounts
using forged identities by enlisting the helpof directors or employees who worked atfinancial institutions.
Although this may sound paradoxical,
the investigation authorities have faced
more difficulty in tracking moneylaundering activities due to this system.
Before, most money laundering wascentered on bank accounts registered undera fake name. Now, money laundering hastaken on a new form, where money isdelivered in cash or bank accounts areregistered under the criminal’s relative or
the real identity of an accomplice. Because
these types of transactions are legal anddo not appear as irregular financial
dealings on paper, the money laundering
goes unnoticed and the bank accounts are
more difficult to trace.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
C. The Size of the Underground
Economy and Illegal Funds in the
Republic of Korea
The size of the underground economy in
Korea is very difficult to measure. No
official government institution has everannounced an official estimate of the sizeof the underground economy. However,
several private research institutions haveattempted to estimate the size of theunderground economy by using several
economic indicators and data.
The Korea Development Institute has
estimated that the underground economy
in Korea accounts for 15% of the nation’s
GNP. 17 This estimate was based on
analyzing annual household spending in
1994. This analysis was conducted after
the enforcement of the Real Name
Financial Transaction System. The Korean
Tax Research Institute and Korea
University’s Economic Research Institutewere contracted by the Korean government
to analyze the size of the undergroundeconomy in March 1995. The twoorganizations estimated that the size of theunderground economy during 1993 wasabout 22% of the nation’s GNP. And the
Korea Development Institute and otherorganizations estimated that the
17 As for the United States, many experts haveestimated that the underground economy in the
United States accounts for 10~15% of the nation’s
GNP. According to the material submitted to theHouse of Representatives Committee on
Appropriations in May 1995, 83% of overall people
voluntarily reported their income taxes, whereas
only 36% of small business owners did so. Evenless, 11 % of small business owners who mainly use
cash transactions (the so-called informal traders)voluntarily report their income taxes. It is also
estimated that the yearly revenue of prostitution
business in the United States amount to 1.2 billion
US dollars. This is more than the trading profits
of Toyota. The underground economy in Italy isestimated to account for 30% of the nation’s GNP.

underground economy was closer to37%~42% of the GNP in 1993. Theseestimates suggest that the size of the
Korean underground economy was
between $56.25 billion18 and $138.75 billion
in 1993.
The Korea Institute for International
Economic Policy said in a recent report thatthe size of the underground economy
accounts for 11%~33% ($39.8 billion ~$121.8 billion) of the nation’s GNP in 1998.
The dollar/won exchange rate on December
31, 1998 was 1 U.S. Dollar per 1207 Korean
Won.
How much money is needed to support
the activities in the underground economyof this size? Since the Real NameTransaction System took effect across thenation on August 12, 1993, every citizen
was required by law to use their real names
for opening a bank account. Between
August 13, 1993 and October 12, 1993, allKorean citizens were given a time period
to transfer their money to real name bankaccounts. Bank accounts opened underfake names were forbidden. Citizens andemployees of financial institutions, who did
not comply with the laws were fined andpenalized. Thus, it was natural that
irregularities and misuse of bank accounts
surfaced.
Table 1 shows that 31,000 bank accounts
which were opened under fake names andhad deposits that totaled $53.8 million
remained without transference to realname accounts, while 26 million bankaccounts which were opened under real
18 The exchange rate was 794 won to the dollar as ofJanuary 3, 1993 and 808 won as of December 31,
1993. For the sake of convenience in calculation,
the rate of 800 won to the dollar is applied to therest of the text if not specified otherwise. <cf. $1:
788 won as of 1994. 12. 31., $1:744 won as of 1995.
12. 31.$1:844won as of 1996.12.31>

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RESOURCE MATERIAL SERIES No. 58
names and had total deposits of $11.38
billion also remained without
reconfirmation by real name in June 1995.
The owners of the 31,000 bank accounts
opened under fake names were neveridentified and the money remains in thebanks. There were also strong suspicion
that the money transferred from fake namebank accounts to real name bank accounts

was illicit money. Thus, experts estimatedthat the amount of the illicit funds range
from $11.43 billion(C+E) to $19.37
billion(B+C+D+E). This estimate does notinclude the amount of cash that the citizens
possess in their homes. Taking into
consideration that Koreans yet prefer tostore cash in their homes instead of saving
it in the bank, the amount of illicit money
is probably far larger than the official
estimate.

Table 1 Current Status of The Real Name Financial Transaction Act(Dated on June 30, 1995)(Unit: US dollars)
Real NameBank Accounts

Fake NameBank Accounts

Total amount in bankaccounts
Real Name Bank
Accounts
Bank Accounts opened
under another person’s
nameBank Accounts without
an owner
Total amount in bankaccounts
Transferred to Real
Name Bank AccountBank accounts that were
not transferred

V. EFFORTS TO COMBAT MONEY
LAUNDERING IN THE REPUBLIC
OF KOREAA.

General Outlook
Until recently, the Republic of Korea did
not possess any direct restrictions thatpunished criminals engaging in money
laundering activities. However, the needfor measures to identify money-laundering
activity came to light during the processof investigating financial crimes, bribery,drugs, and organized crime. These
investigations involved the tracking downof illicit funds.

362

506.8 billion (175 millionbank accounts)
491 billion (146 millionbank accounts)
4.38 billion (2,969,000 bankaccounts)
11.38 billion (26 millionbank accounts)
3.54 billion (631,000 bankaccounts)
3.49 billion (600,000 bankaccounts)
53.8 million (31,000 bankaccounts)

In other words, until recently, proof ofmoney laundering was used as court
evidence to convict the criminal of a felony.
The money-laundering evidence was not
used to confiscate the proceeds of crimes
and the criminal assets or to impose a fine.
Therefore, unless the criminal broke any
banking laws during the money laundering
process, he or she could not be pressed withcriminal charges for money laundering. In
addition, the illicit money could not be
confiscated or be used as criminal evidence
to impose a fine except the money which
was directly offered to the criminals.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
But after the signing of the 1988 Vienna
Convention, which spread awareness ofm o n e y l a u n d e r i n g a c t i v i t y, t h einternational community graduallyrealized that seizure of illicit profits from
criminal activity was necessary in order toprevent the spread of crime. These events
coincided with Korea’s campaign against
abuse of power and graft. On January 5,
1995, the Special Act on Confiscation
related with Crimes of Public Officials wasenacted. If a public official is found to haveaccepted bribes, his or her profits andassets attained from the illicit dealingss h a l l b e c o n f i s c a t e d b y t h i s l a w.
Furthermore, any money or assets received
in exchange for special favors shall also be
confiscated. This special law was aprogressive development but since it did
not punish criminals engaged only inmoney laundering and not in other criminal
activities, it had severe limitations.
After the 1988 Vienna Convention tookeffect, the Republic of Korea accepted theprovisions in the convention and enacted
the Special Act on the Prevention of Illegal
Trafficking in Narcotics, Psychotropic
Substances and Hemp on December 6, 1995
and included the provision allowing thepersecution of criminals engaging in money
laundering activity.19 This special law fully
followed the agreements in the 1988
Vienna Convention. Yet, this special law
also had limitations. Only criminals
engaging in money laundering activities
that are connected to drug trafficking(psychotropic drugs, other illegal drugs)
could be punished.

Through administrative efforts after theenforcement of the Real Name Financial
Transaction System, the Bank Supervisory
A g e n c y o r d e r e d 20 t h e d i r e c t o r s o rpresidents of all Korean financial
institutions that any employee caught
engaging in any kind of money laundering
directly or indirectly will be discharged andpunished severely.21
As a person in charge of criminal
investigations, I would like to shed lighton the problems we face. Although the Real
Name Financial Transaction Systemprevent money laundering, the system hasstrengthened the protection of bank secrecy
and has made the investigation of illicit
funds more difficult. Before theenforcement of the system, it has been
relatively easy to trace bank accountrecords with the support of the Bank
Supervisory Agency or the submission of
official administration documents to all
financial institutions. But now, thepossession of official administration
documents, only allows us to confirm theexistence of a specific bank account.
Without a warrant, we cannot investigate
the bank transaction statement and bankrelated documents, nor can we trace thebank accounts related to the suspicious
account or bank checks.
In the next section, I would like toexplain the legislation activities
surrounding the direct restriction on
money laundering.

19 Korea enacted the Special Act on the Prevention of

Illegal Trafficking in Narcotics, Psychotropic
Substances and Hemp in January 1995. Korea
ratified the 1988 Vienna Convention years later in
1998, due to controversy over some provisions of
the Convention, relating to international
assistance.

20 Bank Supervisory Agency, Guideline for thePrevention of Financial Accident, Article 7
21 Bank Supervisory Agency, Internal Regulation of

Financial Institutions, Article 9363

RESOURCE MATERIAL SERIES No. 58
B. Legislations for Directly
Restricting Money Laundering
As the investigation of money
laundering is more closely linked tofinancial crimes and abuse of power andgraft rather than drug-related crimes in
Korea, legislation activity has focused on
passing a comprehensive money
laundering prevention law that will
directly restrict money-laundering activity.
These efforts have paid off through theselection of the “Act on the Reporting andUsage of Specific Financial Transaction
Information” and the “Act on theRegulation and Punishment of Concealing
Crime Proceeds” as government bills thatwere submitted to the regular session of
the National Assembly for approval on
November 21, 2000. Unfortunately, thebills were not reviewed during the regularsession of the National Assembly, but the
chances of passing the bill in early 2000 isfavorable.
The legislation process for stronger
money laundering laws was expedited by
the request from abroad, that is, thepressure from the United Nations andOECD, domestic policies focused exposing
abuse of power and graft, and opening of
the foreign exchange market that allowed
inflows of illicit funds and capital flightoverseas. The following paragraphs briefly
outline the major provisions of the proposedbill.
1. Act on the Regulation and Punishmentof Concealing Crime Proceeds
First, let us examine the “Act on theRegulation and Punishment of Concealing
Crime Proceeds”. This law was established
to eliminate financial funds that support
criminal activities and to maintain publicorder. This law restricts money launderingof illicit profits gained from criminal
activity and allows special power of law to
confiscate and trace illicit profits.22

This law applies broadly to certain
criminal activities which are broadlys e l e c t e d a s i t f o l l o w s t h e FAT F
recommendations substantially. 23 The
predicate offenses of this law are certain
crimes that involve smuggling, bribery,
illegal capital flight and criminal activities
that are antisocial in nature and are major
crimes (felonies). (Crimes related to drugs
are covered by the Special Act on thePrevention of Illegal Trafficking inNarcotics, Psychotropic Substances and
Hemp)
FATF Recommendation [4] : Eachcountry should take such measures as
may be necessary, including legislative
ones, to enable it to criminalise money
laundering as set forth in the Vienna
Convention. Each country should
extend the offence of drug money
laundering to one based on serious
offences. Each county would
determine which serious crimes would
be designated as money laundering
predicate offences.
There are generally two approaches in
the way to categorize the predicate offensesof money laundering offense. In England,
Germany, and France a “lump sum”
approach is used to broadly categorize
predicate offenses according to the lengthand severity of the statutory penalty. In
the United States, Japan, Singapore, andother countries, predicate offenses are
categorized according to a “case-by-case”
approach. The lump sum approach has
shortcomings because it is prone to include
too many crimes as predicate offenses.
Therefore, the “case-by-case” approach was
adopted for this law.

22 Article 1, Act on the Regulation and Punishmentof Concealing Crime Proceeds
23 Article 2 Paragraph 1 of the Act on the Regulation

and Punishment of Concealing Crime Proceeds

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117TH INTERNATIONAL SEMINAR
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The statutory penalty of money
laundering crimes is a 5-year prison
sentence or less. After selecting major
crimes (felonies) that carry a maximum 5year prison sentence or more, life sentenceor death penalty, these felonies were rated
according to the severity of the crime,
involvement of organized crimes,
probability of large illicit profiteering, needfor international cooperation, and theimpact on the national economy. Crimes
that carry a maximum 5-year prison
sentence or less but fund organized crime
activities was included in this rating. 35
predicate offenses were selected as a result.
The 35 kinds of predicate offenses are
divided into five categories.
(i)Felonies: Manslaughter, Theft andB u r g l a r y, O r g a n i z e d c r i m emember (Criminal Law Act, Article
114, Paragraph 1), etc.
(ii) Crimes that involved organize
crime on a professional or repeatedb a s i s : B l a c k m a i l , Vi o l e n c e ,Smuggling (import tax evasion
exceeding the amount of US$41,700)24, etc.
(iii) Illicit profiteering of a large
amount of money around legal
business activities: Violating the
Act on the Aggravated Punishment
of Certain Economic Crimes.
(Article 3: Illicit profits that exceed
US $416,700; fraud, blackmail,breach of trust) and violation of the
Securities Exchange Law, etc.
(iv) C r i m e s r e l a t e d t o m o n e ylaundering and crimes listed on
International Treaties: Bribery of
government officials, forgery andalteration of currency, forgery andalteration of official documents,
forgery and alteration of securities,

(v)

(vi)

bribing foreign public officials, etc.
Illegal capital and asset flight withspecific focus on taking advantageof the liberalization of the foreignexchange market: Violating the Act
on the Aggravated Punishment of
Certain Economic Crimes. (Article
4: Assets and capital flight toforeign country), Violation of theForeign Trade Law (Article 54:
Manipulation of import price), etc.
Crimes that carry a maximum 5year prison sentence or less but
fund organized crime activities:
Gambling, Prostitution, Violationof the the Customs Act (Article 179,
Paragraph 3: Smuggling
activities), etc.

Especially, the details of sub-paragraph(vi) is shown in Table 2.

24 As of December 2000, won is traded at the exchangeof 1,200 won to the dollar.

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RESOURCE MATERIAL SERIES No. 58
Table 2 Predicate Offenses Whish Carry a Statutory Penalty (of Under)
Five-Year Prison Sentence
Designation of the offense
Advance acceptance of bribe
Acceptance of bribe in return formediation
Preparation/conspiracy ofcounterfeiting of valuable
securities, etc.
Making false medical certificate
Habitual gambling
Opening gambling place
Interference with an auction ora bid
Smuggling goods abroad
Prohibition of similar activities(Opening of racing track without
permit)Operating business without
permission

Prohibition of similar activities(Opening of racing track without
permit)Circulation of funds by disguising sales

Provision
Article 129(2) of the
Criminal Code
Article 132 of the Criminal
Code
Article 224 of the Criminal
Code

Penalty
3 years and below

Article 233 of the Criminal
Code
Article 246(2) of the
Criminal Code
Article 247 of the Criminal
Code
Article 315 of the Criminal
Code
Article 179(3) of the
Customs Law
Article 24 of the Bicycle
and Motorboat Racing Act

3 years and below

Article 30(1) of the Special
Act on the Regulation andPunishment of Speculative
Acts, etc.
Article 50 of the Korean
Horse Racing Association
Act
Article 70(2)(3) of theSpecialized Credit
Financial Business Act

3 years and below

For details of the predicate offenses,
please refer to Appendix A and Appendix
B.
In the course of selecting the predicate
offenses, inclusion of some offenses was acontroversial issue. First, some suggested
the exclusion of Article 8 [tax evasion
exceeding 200 million won (US $ 167,000)
a year] of the Act on AggravatedPunishment of Certain Offenses from the366

3 years and below
2 years and below

3 years and below
3 years and below
2 years and below
3 years and below
3 years and below

3 years and below

3 years and below

predicate offenses. However, it was
included in the predicate offenses as theoffense of tax evasion of huge sum is aserious crime and considering that it wasa predicate offense in the government’s
draft of 1997 for an anti-money laundering
act.
Secondly, whether to include Article 30[illicit fund raising] of the Political Fund
Act was a problem. With regard to this,117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
various elements like the essential purposeof the Act on the Regulation andPunishment of Concealing Crime Proceeds,
the examples of foreign legislation, and thestandard for the scope of predicate offenses
were considered. Moreover, there wereconcerns that inclusion of Article 30 of the
Political Fund Act would undermine thepolitical neutrality of the financial
intelligence organization. And the Political
Fund Act itself contains provisions settingout the acceptance of unauthorized politicalfund as criminal offense, and the
mandatory confiscation of the illicit
proceeds. For these reasons, Article 30 was
not included in the scope of predicate
offenses. However, this issue could giverise to heated arguments as the eradicationof political corruption is an important
assignment for the anti-corruption round.
Thirdly, there were suggestions toinclude foreign aggression, insurrection,
violation of the National Security Act andviolation of the Military Secret Protection
Act in the scope of predicate offenses.
H o w e v e r, t h i s w a s n o t a c c e p t e d ,considering the essential purpose of the Act
on the Regulation and Punishment ofConcealing Crime Proceeds and theexamples of foreign laws.
Fourthly, it was suggested that all of theoffenses of embezzlement, breach of trustand fraud be included in the predicate
offenses. Considering that this could
excessively curb economic activities,
economic offenses exceeding 500 million
won ( US $ 416,700) were included in thepredicate offenses. This limit was set toprevent economic activities from being
overly restricted, while at the same timeto ensure the achievement of the essential
purpose of the Act on the Regulation andPunishment of Concealing Crime Proceeds.
The discussion left a room for considering
the extension of the scope of economic
offenses to be included in the predicate

offenses in the future.
In the following, I would like to explainsome provisions characteristic of this Act.
When a predicate offense and anotheroffense which is not a predicate offense arecommitted concurrently, the law provides
that the latter offense is included in thescope of predicate offenses as well. It isbecause in such a case as this, it is very
difficult to identify the exact origin of thecrime proceeds. It was noticed that the law
could be construed as being incapable ofpunishing money laundering activities or
confiscating proceeds of crime, when theoffense which is associated with money
laundering and crime proceeds is not
identified for reasons of conflict withanother offense not covered by the law.
(The Special Act on the Prevention of Illegal
Trafficking in Narcotics, Psychotropic
Substances and Hemp has a similar
provision in Article 2 Paragraph 2.)
The law also criminalizes the act oflaundering the proceeds of crime in Korea,
which originated from the criminal
activities committed by foreigners outside
Korea.25 This is aimed at preventing Korea
from becoming a financial haven for
criminal organizations, and to join theinternational effort to counter and preventmoney laundering. The law clearly sets outthat although a criminal activity which isincluded in the predicate offenses was
initiated in a foreign country, it is coveredby the law when it is included in thepredicate offenses if it is occasioned in
Korea and when it is also a criminal offensein the foreign country.
Globalization of international financeand crime has facilitated the movement ofillegal funds from country to country. Insuch circumstance, if Korea implements its
25 Article 2 Paragraph 1, Act on the Regulation andPunishment of Concealing Crime Proceeds

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RESOURCE MATERIAL SERIES No. 58
second phase plan for liberalizing
restrictions on foreign exchange market
without measures to prevent the flow ofillegal funds into the country, Korea could
become a financial haven for money
launderers. In order to prevent this, Korea
has worked to create a financial
intelligence unit which would check theflow of illegal funds in and out of thecountry, and made the Act on theRegulation and Punishment of Concealing
Crime Proceeds to cover offenses
committed by foreigners outside Korea.26
But, the law requires dual criminality
for its application to crimes committed
outside the country, in order to ensure legal
stability for nationals of foreign countries.
It would be unreasonable if a foreigner ispunished under a Korean law for
laundering funds derived from an activity
committed in another country where that
activity does not constitute a criminal
offense.
In the following, I will explain what is
punishable under the Act on the Regulation
and Punishment of Concealing Crime
Proceeds, and the penalty provided by theAct.
Under the Act, a person who disguises
the fact that he or she obtained or disposedof the proceeds of crime, conceals theproceeds of crime or disguises the facts
regarding the origin and cause of theproceeds of crime shall be punishable withimprisonment of five years and below or afine not exceeding 30 million won (US$25,000).27 A person who knowingly accepts
or receives the proceeds of crime shall bepunishable with imprisonment of not morethan three years, and a fine not exceeding

20 million won (US $16,700).28
Under this Act, the proceeds of crime
include assets derived from the commissionof predicate offenses, or assets obtained as
the remuneration for the commission ofsuch offenses, funds or assets associatedwith offenses listed in Appendix B likeflight of assets out of the country, assets
derived from the proceeds of crime, andassets which is a mixture of the preceding
assets and other assets mingled together.
Assets derived from the proceeds of crime
include assets obtained as the fruit derived
from the proceeds of crime, assets obtainedat the price of the proceeds of crime, assets
obtained at the price of the preceding
assets, and other assets obtained throughthe possession or disposal of the proceedsof crime. 29 For example, they include
money obtained by renting the land
received as remuneration for the murder
for hire (an example of the fruit derived
from the proceeds of crime), money earned
by selling the land (an example of theassets obtained at the price of the proceedsof crime), stocks purchased with the money
received by selling the land (an example of
the assets obtained at the price of thepreceding assets), and money earned byselling the stocks (other assets obtained
through the possession or disposal of theproceeds of crime).
The Act on the Regulation andPunishment of Concealing Crime Proceeds
requires certain employees of financial
institutions to report suspicious financialtransactions. Employees of financial
institutions as set out under the Act on theReporting and Usage of Specific Financial
Transaction Information, which will be
28 Article 4, Act on the Regulation and Punishment

26 The United Kingdom, Australia, Canada and Japan

have similar provisions.
27 Article 3 Paragraph 1, Act on the Regulation andPunishment of Concealing Crime Proceeds

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of Concealing Crime Proceeds
29 Article 2 Sub-paragraph 2, 3 and 4, Act on theRegulation and Punishment of Concealing Crime
Proceeds

117TH INTERNATIONAL SEMINAR
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explained in the next section, should
immediately report to the competent
investigative authorities when they comeby the fact that assets received throughfinancial transactions are the proceeds ofcrime, or the fact that their clients areconcealing or disguising the proceeds ofcrime. The employees should not disclose
to the clients or other persons associatedwith the suspicious financial transactions,the fact that they made such reporting to
the investigative authorities. Any
employee who violated these obligations ispunishable by imprisonment of not morethan two years, or a fine not exceeding 10
million won (US $8,300).30
In many cases, money laundering is
performed by legal persons including
corporations, or by agents. Regarding
those cases where a representative of alegal person, or an agent, employee orservant of a legal person or an individual
violates its provisions in relation to thebusiness of that legal person or individual,
the Act provides fines for that legal person
or individual as well as punishment for theactual performer of the offense.
The Act also provides an exception to
Article 48 of the Criminal Code regarding
the confiscation of the proceeds of crime.31
Whereas the Criminal Code limits thescope of the proceeds of crime subject toconfiscation to original articles, the Act on
the Regulation and Punishment ofConcealing Crime Proceeds expands thescope to the proceeds of crime and assets
derived from the proceeds of crime. Under
this Act, the property subject to confiscation
includes not only corporeal property suchas immovable and movable property but
also all profits that are generally accepted
30 Article 5, Act on the Regulation and Punishment

as economically valuable. If the property
obtained from the commission of offense isconverted, it is still confiscable as long as
it could be identified and traced.
This Act provides for discretionary
confiscation as does Article 48 of the
Criminal Code. Whether to confiscate or
not is determined by the judgment of thecourt. Whereas the Special Act on thePrevention of Illegal Trafficking inNarcotics, Psychotropic Substances andHemp adopts mandatory confiscation forreasons of the pressing necessity for theprevention of drug-related crime and forthe international cooperation, and theprobability of the reinvestment of the illicit
proceeds into crimes, this Act adopts
discretionary confiscation as the predicate
offenses of this Act embrace various kindsof offenses. It would be reasonable todetermine on whether to confiscate or not
regarding specific cases.
And this Act provides another exception,other than the provision on confiscation
system, to the Criminal Code. The Act
provides discretionary collection of thecorresponding value to be confiscated.32
Under the Criminal Code, the collection of
the corresponding value is allowed only
when the article subject to confiscation
cannot be confiscated. This Act provides
additional circumstances in which thecollection of the corresponding value canbe conducted. Those circumstances arethose when it is determined unreasonable
to confiscate certain asset considering thenature of the asset, the situation of its
usage, and the existence of the conflicting
rights over the asset.
This Act also contains special provisions
on the international cooperation. This Act
provides the requirements and restrictionof Concealing Crime Proceeds
31 Article 8, Act on the Regulation and Punishmentof Concealing Crime Proceeds

32 Article 10, Act on the Regulation and Punishmentof Concealing Crime Proceeds

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RESOURCE MATERIAL SERIES No. 58
on the international assistance given by
Korea regarding the execution of a final
judgment on confiscation and the freezingof assets for confiscation at the instance ofa request made by a foreign country. 33
Unlike the Special Act on the Preventionof Illegal Trafficking in Narcotics,
Psychotropic Substances and Hemp which
requires the relevant treaty to give suchinternational assistance (Article 64
Paragraph 1), this Act allows international
assistance provided on the assurance ofreciprocity, concerning the predicate
offenses listed in the Act and the offenses
provided under Article 3 and 4 of the Act.
It should be noticed that the Special Act
on the Prevention of Illegal Trafficking inNarcotics, Psychotropic Substances andHemp is Korea’s implementing law for theUnited Nations Convention Against Illicit
Traffic in Narcotic Drugs and Psychotropic
Substances of 1988, where as the Act on
the Regulation and Punishment ofConcealing Crime Proceeds is not. The
need to promote international cooperation
was considered in this Act.
In the next section, I will explain the Act
on the Reporting and Usage of SpecificFinancial Transaction Information.
2. Act on the Reporting and Usage of
S p e c i f i c F i n a n c i a l Tr a n s a c t i o nInformation
This Act is aimed at providing the legal
framework for the reporting and usage of
information on financial transactions,which are necessary for the prevention ofmoney laundering activities throughfinancial transactions, thereby deferring
crimes and establishing transparent
financial order.34

This Act provides the establishment of
the Financial Intelligence Unit (FIU) under
the Minister of Finance and Economy.35
Under this Act, the FIU is authorized todeal with the following tasks:(i)
Arrangement, and analysis of
information reported by financial
institutions, and provision of suchinformation(ii) Regulation and inspection ofbusinesses performed by financial
institutions(iii) Cooperation and exchange of
information with foreign FIUs(iv) Other related tasks as designatedby the presidential decree
The Act requires certain financial
institutions to immediately report to thehead of the FIU in the following
circumstances.36(i)
If there is sufficient reason tobelieve that the financial asset
obtained in relation to a financialtransaction is illegal asset, or thatthe client of the financialtransaction is performing money
laundering activity, and if the sumof the financial transaction inquestion is above certain amount(to be designated by thepresidential decree)(ii) If there is sufficient reason tobelieve that the client is dividing
up the financial transaction inorder to avoid the application of theabove provision, and if the totalsum of the divided financialtransactions amount to a certain
amount (to be designated by thepresidential decree)(iii) If it made a report concerning afinancial transaction to the33 Article 11, Act on the Regulation and Punishment

35 Article 34, Act on the Reporting and Usage ofof Concealing Crime Proceeds
34 Article 1, Act on the Reporting and Usage of SpecificFinancial Transaction Information

36 Article 4, Act on the Reporting and Usage of Specific

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Specific Financial Transaction Information
Financial Transaction Information

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VISITING EXPERTS’ PAPERS
competent investigative authority
under the Act on the Regulation
and Punishment of Concealing
Crime Proceeds (Article 5
Paragraph 1)
Furthermore, the Act on the Reportingand Usage of Specific Financial
Transaction Information ensures theconfidentiality of financial information, byprohibiting the employees of financial
institutions and the officials of theinvestigative authorities from leaking thesecrets concerning financial transactions,and from using the information for
purposes other than the ones provided
under the law.37 The Act also places the
FIU under the obligation to provide
relevant information to law enforcement
authorities including the Prosecutor
General, the Commissioner of the National
Tax Service, the Commissioner of the
Customs Service, the Financial
Supervisory Commission, and the Head of
the National Police Agency.38
VI. AN EXAMPLE OF KOREA’SMONEY LAUNDERING CASE:
INVESTIGATION OF SECRET FUND
OF EX-PRESIDENT ROH TAE WOO
The following is a description of Former
President Roh Tae Woo’s secret fund casewhich is one of the most well-known
successes in money laundering
investigation in Korea.
A. Background to the Launch of theInvestigation
After the Real Name Financial
Transaction System came into effect inKorea on August 12, 1993, there was arumor going around that an enormous
37 Article 9 Paragraph 1, Act on the Reporting andUsage of Specific Financial Transaction Information
38 Article 7, Act on the Reporting and Usage of SpecificFinancial Transaction Information

amount of secret funds in the stock market
and private financial businesses needed to
be transferred to real name, and that agreat deal of money was used to lobby
politicians and high-ranking public officials
in relation to the secret funds. And the
Korean prosecutors’ office had kept its eyeon this report.
In August 1995, the then Minister ofGovernment Administration accidentally
mentioned that he had been contacted by
the ex president’s people, who asked him
to transfer the secret funds totaling 400
billion won (500 million US dollars) to real
names. On October 19 of that year, acongressman of the opposition party
disclosed at a National Assembly sessionthat Former President Roh Tae Woo’s
secret fund totaling 400 billion won (500
million US dollars) was broken up into
portions and deposited in several differentbank accounts under various borrowed
names. The evidence produced to back theclaim was a bank record of a Shinhan Bank
(Seosomun Branch Office) account under
the name of Wooil Corporation, in which
10 billion won (12.5 million US dollars) was
deposited. On that date, the Director of
Loan Department of the Shinhan Bank
confirmed that Seosomun Branch Office ofhis bank held three accounts underborrowed names including the account in
Wooil’s name and that a total of 30 billion
won (37.5 million US dollars) were
deposited in these accounts.
The Korean prosecutors’ office
immediately initiated the investigation
into this case with recognition that thiscase is an unprecedented incident
associated with corrupt accumulation of
wealth by an ex president. The Koreanprosecutors’ office was determined to
conduct thorough and strict investigation
into this case, and to bring the ex president
to justice for any corruption substantiatedby the investigation, in order to ensure

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RESOURCE MATERIAL SERIES No. 58
social justice and to cut off the corrupt tie
between the politicians and the businesses.
B. Outline of the Investigation
On October 20, 1995, the Central
Investigation Department of the Supreme
Prosecutors’ Office obtained the warrants
of seizure regarding the suspected bankaccounts, and began the tracing of funds.
The Korean Supreme Prosecutors’ Officeinterrogated the Director of the
Presidential Security Service and theperson who took charge of the Financial
Division under the President Security
Service when Mr. Roh Tae Woo was in
office. They stated that Mr. Roh raised andused secret funds while in office and thatas he retired from his office, the left-overof the funds was deposited into theaccounts opened in the borrowed names.
A total of 74 billion won (92.5 million US
dollars) had been deposited into theseaccounts, and the remaining sum at thetime was 36.5 billion won (45.63 million US
dollars).
The investigation was extended toadditional accounts of borrowed names
opened in four banks (including theCommercial Bank) for the same purpose.
Through the investigation of the bankofficials, and the track of funds by thewarrants of seizure regarding the accounts,
the Prosecutors’ Office identified 37
accounts in which Mr. Roh’s secret funds
were deposited. It also disclosed that as
many as 500 bank accounts were involvedin this case, as means to launder the funds.
Parts of the funds were given as loans to
the involved corporations and to purchasereal estates.
On November 16 of the same year, Mr.
Roh was placed under detention for chargesof bribery (the violation of the Act on
Aggravated Punishment of Certain
Offenses). The former Director of the
Presidential Security Service was arrested

372

for complicity in the crime. Since then, theProsecutors’ Office also investigated as
many as 60 persons associated in this case,including the incumbent and former
members of the National Assembly, theformer Head Secretary for Economy in the
Presidential Office, the officials of banks
and the persons who lent their names tobe used in opening the bank accounts.
On December 7, the Prosecutors’ Officebegan investigation regarding 200 persons
including the leaders and officials ofcorporations such as Samsung, Hyundai,
Jinro, LG, and Daewoo, for having offeredbribe to Mr. Roh. Regarding the money
laundering activities in this case, theProsecutors’ Office investigated 200
persons including the Chairman of
Dongbang Oil Corporation and Mr. Roh’sbrother.
92 public officials including prosecutors,
investigators, and the officials of the
National Tax Service and the Financial
Supervisory Service were put into theinvestigation of this case.
C. Outcome of the Investigation
1. Size of the Secret Funds
Judging from the investigation of Mr.
Roh and other persons involved, the actual
sum of the secret fund raised through thecontribution of corporations is believed toamount to as much as 460 billion won (575
million US dollars). However, the sum of
the secret funds substantiated or provedby the Prosecutors’ Office was 283.8 billion
won (354.9 million US dollars). Mr. Roh
was indicted for receiving, from the leadersof 35 corporations, bribes ranging from 500
million won (625,000 US dollars) to 25
billion won (31.25 million US dollars),
totaling 283.8 billion won (354.9 million US
dollars).

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2. How the Fund was Raised
Mr. Roh was the President of Korea forfive years from February 25, 1988 to
February 24, 1993. As the President,
empowered to establish and implement
governmental policies, and direct andsupervise the head of governmental
ministries, he was able to influence theactivities of corporations in relation to theselection of the provider of government-run
services, the licensing of importantbusinesses, financial assistance, andtaxation. He had private meetings withthe chairmen or presidents of corporations
pretending as if he was interested in thebriefing of the operation of the corporations
and in hearing the opinion of the businessleaders. He received enormous amount ofmoney from these corporations, by hintingthat he might exercise his powers to
influence their business.
The followings are some of the examplesof the way how he collected the funds fromthe corporations.
(i)
In May 1991, the then President
Roh received 10 billion won (12.5
million US dollars) from Chairman
Kim of Daewoo Corporation, at his
presidential office. He received a
total of 24 billion won (30 million
US dollars) from Chairman Kim
through seven transactions. The
money was given to President Rohin return for his influence inawarding the contract for theconstruction of Jinhae Navy
Submarine Base to Daewoo
Corporation, and with request for
his influence in another bidding forthe construction of Wolsung Atomic
Power Plant III and IV.
(ii) In August 1991, President Rohreceived 10 billion won (12.5
million US dollars) from Chairman
Choi of Dongah Corporation, at an
office in his presidential house. He
received a total of 23 billion won(28.75 million US dollars) from
Chairman Choi through six
transactions. The money was
given to Mr. Roh in return forawarding the contract for theconstruction of Asan Bay Navy
Base, and with request for his
influence on another bidding forthe construction of Uljin Atomic
Power Plant III and IV.
(iii) In late November 1990, President
Roh received 10 billion won (12.5
million US dollars) from Chairman
Chung of Hanbo Corporation, at asecret place near his presidential
house. He received a total of 15
billion won (18.75 million US
dollars) from Chairman Chungthrough four transactions. The
money was given to Mr. Roh withrequest for his influence on their
Suseo apartment-construction
business.
(iv) President Roh also received a totalof 25 billion won (31.25 million US
dollars) from Chairman Lee ofSamsung Corporation in return for
his influence in Samsung’s auto
manufacturing business,
construction business and others.
He also received 25 billion won(31.25 million US dollars) from
Hyundai Corporation and 21
billion won (26.25 million US
dollars) from LG Corporation, by
hinting, at private meeting withthe leaders of these corporations,that he could give favorable orunfavorable consideration about
their businesses.
3. Management of the Fund and Money
Laundering
Mr. Roh made Director Lee of the
Presidential Security Service to supervise
the overall management of the secret fund,373

RESOURCE MATERIAL SERIES No. 58
and made the Director of the Financial
Division of the Presidential Security
Service to directly manage the deposit into
and withdrawal from the accounts.
(i) M o n e y L a u n d e r i n g T h r o u g hFinancial Institutions
The fund was either deposited into thebank accounts opened under borrowed
names or used to purchase the certificate
of deposit (CD) in order to conceal the origin
or the actual owner of the fund. A total of
37 accounts were opened under borrowed
names in 8 branch offices of 5 banks. 12
other accounts under borrowed names wereused to move and launder the funds. They
purchased the certificates of deposit worth
118.3 billion won (147.88 million US
dollars). They were re-sold between
December 1992 and February 1993 anddeposited into six bank accounts opened
under the borrowed names.
While, in October 1993 when the Real
Name Financial Transaction System wasin force, they opened a real name account,using the identity of an owner of a dormant
account in collaboration with a manager
of a branch office of a bank. 520 million
won (650,000 US dollars) was deposited
into this account, and then was withdrawn
from it.
(ii) Money Laundering by Purchasing
Real Estates
They also employed the method ofpurchasing real estates to launder thefunds. Parts of Mr. Roh’s secret funds wereused to purchase real estates in the nameof his relatives. 23 billion won (28.75
million US dollars) was given to the
Chairman of Dongbang Oil Corporation(father-in-law of his son) to purchase abuilding in downtown Seoul and toconstruct a new building. 12.979 billion
won (16.22 million US dollars) was usedby his brother in purchasing a building inSeoul and a house in the city of Daegu. 2.35
billion won (2.94 million US dollars) was

374

used to purchase luxurious mansions inSeoul, which was registered under thename of a third person.
(iii)Lending Funds to Corporations
Mr. Roh faced difficulties in using andmanaging his secret funds deposited atfinancial institutions, as the Real Name
Financial Transaction System became
effective. He made his brother-in-law,Keum Jin Ho (former Minister ofCommerce and Industry) to launder thefunds as follows.
(a) In September 1993, he lent 60.62
billion won (75.78 million US dollars)
to Chairman Chung of Hanbo
Corporation at the yearly interest of
8.5% to be repaid after 5 years. This
fund had been deposited in six
accounts opened at Kookmin Bank.
Chairman Chung pretended as if he
was the owner of the fund, anddeposited the fund into accounts
opened under his real name.
(b) In October of the same year, helaundered 36.28 billion won (45.35
million US dollars) through
Chairman Lee of Daewoo
Corporation. The fund had been
deposited in twelve fake nameaccounts opened at Seosomun Branchof Shinhan Bank.
DaewooCorporation transferred this fund toaccounts opened under its real name,pretending as if it was the true ownerof the fund. Mr. Roh lent this fund to
Daewoo Corporation.
The bank officials conspired with Mr.
Roh or remained silent in this process.
(iv) Concealing of The Fund in Foreign
Country
The Korean Prosecutors’ Office
investigated into the allegation that Mr.
Roh collected a great sum of secret fundthrough Yulgok project (an armamentbuild-up project) and concealed the fund by

117TH INTERNATIONAL SEMINAR
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depositing at the Bank of Switzerland. In
February 1990, it was exposed that Mr.
Roh’s daughter and son-in-law managed
several accounts (each holding 10,000 US
dollars or below) at various banks, totaling
200,000 US dollars. The Prosecutors’ Office
investigated the suspicion that the fundmanaged by Roh’s daughter was a portionof his secret fund.
On November 4, 1995, Korea made arequest to the U.S. authorities for provisionof information regarding the flow or originof the above fund managed by Roh’sdaughter. Two days later, Korea requested
the Swiss government to officially confirm
whether Mr. Roh’s family or relatives heldbank accounts at the banks in Switzerland.
Because of the limitation of international
assistance in criminal investigation, andthe difficulty of obtaining evidence in suchcase as this, the investigation regardingwhether Mr. Roh concealed his fund inforeign countries did not yield concrete
evidence.
4. How the involved persons were
processed
On December 5, 1995, Mr. Roh, theformer director of the Presidential Security
Service, and the former director of thefinancial division of the PSS were indicted
and placed under detention. The
Prosecutors’ Office also indicted 12 persons
including leaders of corporations. 3 bankofficials were prosecuted for summary
proceedings.
The prosecution claimed that Mr. Rohshould be subjected to life imprisonmentand confiscation totaling 283.896 billion
won (354.87 million US dollars) for chargesof bribery and insurrection. According to
the Special Act on Confiscation related with
Crimes of Public Officials, the prosecution
requested for the freezing of Mr. Roh’s
entire assets for the purpose of executing
confiscation.

On April 17, 1997, after two appeals
trials, Mr. Roh was finally sentenced to
imprisonment of 17 years and confiscationor collection of 262.896 billion won (328.62
million US dollars) by the Supreme Court.
5. Secret fund of Ex President Chun Doo
Hwan
After the investigation was initiatedregarding Mr. Roh’s secret funds, it was
exposed that another former President,
Chun Doo Hwan, who held the office fromFebruary 25, 1981 through February 24,
1988, had secretly collected funds throughsimilar methods as Mr. Roh used.
At the result of the investigation by theProsecutors’ Office, Mr. Chun was finallysentenced to life imprisonment andconfiscation or collection of 220.5 billion
won (275.63 billion US dollars) for chargesof bribery and insurrection on April 17,
1997 by the Supreme Court.
VII. CONCLUSION:
COUNTERMEASURES IN THE
FUTURE
A. Providing Legal Framework
As crime becomes more organized,
globalized, and specialized, it is no longer
a domestic problem within an individual
country, but it is becoming a serious threat
to the safety of the international
community, perhaps the human race. The
most effective countermeasure against
these crimes is depriving the perpetratorsof the crimes of all economic profits.
To make it possible, we need the legal
framework to criminalize money
laundering, and to confiscate illicit
proceeds as thoroughly as possible. There
are several approaches for providing such
legal framework: 1) adding the provisionin the criminal code, 2) including theprovision in a special law such as a drug-

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RESOURCE MATERIAL SERIES No. 58
related special law, 3) including theprovisions both in the criminal code and as p e c i a l l a w, a n d 4 ) e n a c t i n g acomprehensive money laundering
controlling law. Each individual country
would choose a pattern based on its legal
circumstances.
In order for strong control of money
laundering activities, the law should covera wide scope of predicate offenses, allow
extensive confiscation and provide
measures to freeze the assets subject toconfiscation. The law should provide forstrict regulation of financial institutions
and should invite their voluntarycooperation. It should also include specificprovisions for international cooperation(such as extradition and mutual assistancein criminal matters). If we take these into
account, the enactment of a comprehensive
money laundering law is the most desirableway.
B. Efforts of Law Enforcement
Authorities to Strengthen
Criminal Punishment
The enactment of law alone does not
ensure the eradication of money
laundering. Only when the prosecutors,
police officers, tax officials and other law
enforcement officials commit themselves tothorough tracking down the flow of illicit
proceeds and the perpetrators, the efforts
to provide legal framework would lead tosuccessful suppression of crime.
H o w e v e r, t h e l a w e n f o r c e m e n t
authorities are facing increased difficulties
in tracing the flow of illicit proceeds forvarious reasons. The financial institutions
are strengthening the protection of banksecrecy. The businesses that the financial
institutions deal with are becoming more
complex and multifold.
The
computerization also becomes the cause forincreased difficulty in obtaining evidence.
And electronic trading and cash-less376

transactions, and the liberalization offinancial policy have increased the
movement of enormous sum of money fromcountry to country.
To effectively cope with this situation,
more persons and resources should be put
into the law enforcement authorities, foremployment and training of experts anddevelopment of scientific investigativetechniques. The budget for the suppressionof crime should be considered as aninvestment for social welfare.
C. Establishment of Credit-based
Society, Development of New
Taxation Techniques andIncrease of Public Awareness
Money laundering would not be fully
controlled only through the judicial andadministrative regulation. We need tofundamentally eradicate money laundering
by establishing a credit-based society
where dirty money is not tolerated.
We need to develop taxation techniques
to prevent the evasion of tax. And at thesame time, credit dealings should be more
widely accepted than cash transactions.
Especially, in developing countries, efforts
should be made to increase publicawareness regarding the tax evasion.
In Korea, the use of credit card has
increased dramatically in recent years, andcredit dealing is being accepted as aneffective means for trade. Korea isplanning to implement a comprehensive
taxation system for financial income
starting from February 1, 2001. When thissystem is applied in Korea, it willcontribute greatly to preventing
transactions made under the borrowed orstolen names, which are universally used
as a method of laundering money.

117TH INTERNATIONAL SEMINAR
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D. Strengthening International
Cooperation
Illegal proceeds tend to flow from astrictly controlled place to a place with lessregulation. Therefore, the efforts of one or
two countries cannot sufficiently address
money laundering problem. We need toconclude multilateral and bilateral treaties
to facilitate international cooperation incriminal matters, and make domestic law
to back up these treaties.
And domestic laws to implement
multilateral conventions should bemonitored. The monitoring team should
be enabled to urge a state party to faithfully
implement the convention by making
reports on the result of the monitoring. The
monitoring on the implementation ofOECD anti-bribery convention is a good
example of such monitoring.
Furthermore, the international
community including the United Nations
should continue to make efforts to stop the
exploitation of tax haven and offshorebanking centers or states.39
In this regard, I believe that UNAFEI’s
recent seminars and studies regarding

39 They include Bahamas, Bermuda, Channel Islands,

Gebraltar, Panamas, British Virgin Islands,
Lebanon, Lichtenstein and others.(Ingo Walter, The
Secret Money Market, New York: Harper Business,
1990, pp. 210

money laundering are very timely anddesirable. I believe that its work willcontribute to the establishment of a safe
global community through the suppressionof crime not only in Asia region but also in
the whole world.
Appendix A
Major Crimes (regarding Article 2
Paragraph 1)
1. The offenses provided in thefollowing provisions of the Criminal
Code(a) Article 114 Paragraph 1, Part II
Chapter 5 Crimes injurious to
public security(b) Article 129 through Article 132,
Part II Chapter 7 Crimes
concerning the duties of public
officials(c) Article 207, Article 208, Article
212 (attempts to commit thecrimes specified only in Article
207 and 208) and Article 213,
Part II Chapter 18 Crimes
concerning currency(d) Article 214 through Article 217,
Article 223 (attempts to commit
the crimes specified only in
Articles 214 through 217) and
Article 224 (preparation andconspiracies with intent tocommit the crime only in Articles
214 and 215), Part II Chapter 19
Crimes concerning valuable
securities and postage andrevenue stamps(e) Article 225 through Article 2272, Article 228(1), Article 229(excluding Article 228 Paragraph2), Articles 231 through 234 andArticle 235 [attempts to commit
the crimes specified only in
Articles 225 through 227-2,
Article 228(1), Article 229(excluding Article 228 Paragraph2), Articles 231 through 234],
Part II Chapter 20 Crimes

377

RESOURCE MATERIAL SERIES No. 58
concerning documents(f) Article 246 Paragraph 2 andArticle 247, Part II Chapter 23
Crimes concerning gambling andlotteries(g) Article 250, Article 254 (attempts
to commit the crimes specified
only in Article 250) and Article
255 (preparation andconspiracies with intent tocommit the crime only in Article250), Part II Chapter 24 Crimesof homicide(h) Article 314 and Article 315, PartII Chapter 34 Crimes against
credit, business and auction(i) Articles 323 through 324-5,
Article 325 and Article 326, PartII Chapter 37 Crimes ofobstructing another fromexercising his right(j) A r t i c l e s 3 2 9 t h r o u g h 3 3 1 ,Articles 333 through 340, Article
342 (excluding attempts tocommit the crimes specified in
Article 331-2, Article 332 andArticle 341) and Article 343, PartII Chapter 38 Crimes of larceny
and robbery(k) Article 350 and Article 352(attempts to commit the crime
specified only in Article 350),
Part II Chapter 39 Crimes offraud and extortion(l) Article 355 [provided that thisarticle was violated by a person
provided in Article 2 Subparagraphs 1, 2 and 4 (onlyincluding those persons who
assist the persons provided
under Sub-paragraphs 1 and 2
and deal with a part of that
persons’ task) of the Act on the
Responsibility of Accounting
Employees, in relation to his
duties and task, knowing thatthe national treasury or a local
government would sustain loss

378

as a result of that violation], PartII Chapter 40 Crimes of
embezzlement and breach oftrust(m) Article 362, Part II Chapter 41
Crimes concerning stolen
property
2. Articles 23, 24 26 and 27 of the
Bicycle and Motorboat Racing Act
3. A r t i c l e 1 7 9 a n d A r t i c l e 1 8 2Paragraph 2 (attempts to commit thecrime specified only in Article 179)of the Customs Act
4. Article 54 Sub-paragraph 3 of theForeign Trade Act
5. Article 111 of the Lawyers Act
6. Article 5 of the Illegal Check Control
Act
7. Article 30 Paragraph 1 of the Special
Act on the Regulation andPunishment of Speculative Act, etc.
8. Article 622 and 624 (attempts tocommit the crime specified only in
Article 622) of the Commercial Code
9. Article 93 of the Trademark Act
10. Article 95-8 of the Futures TradingAct
11. Article 40 Sub-paragraph 1 andArticle 42 of the Child Welfare Act
12. Article 70 Paragraph 1, Paragraph
2 (3) and Paragraph 5 of theSpecialized Credit Financial
Business Act
13. Article 24, and Article 25 Paragraph
1 Sub-paragraphs 1 and 2 of thePrevention of Prostitution Act
14. Article 29 Paragraph 1 of the Sound
Records, Video Products and GamesAct
15. Article 207-2 of the Securities
Transaction Act
16. Article 46 and Article 47 Subparagraph 1 of the Employment
Security Act
17. Article 70 of the Act on the Controlof Firearms, Swords, Explosives, etc.
18. Article 3, 5 and 7 of the Act on the
Aggravated Punishment of Certain

117TH INTERNATIONAL SEMINAR
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Economic Crimes
19. Articles 2, 3, 5, 5-2, 5-4, 6 and 8 of
the Act on the AggravatedPunishment of Certain Crimes
20. Articles 366, 368 and 370 of the
Bankruptcy Act
21. Articles 2 through 4, Article 5 (1) and
Article 6 [attempts to commit thecrimes specified only in Article 2,
Article 3, Article 4 Paragraph 2(excluding the crimes specified in
Article 136, 255, 314, 315, 335, 337(the latter part), 340 Paragraph 2(the latter part) and 343 of the
Criminal Code) and Article 5
Paragraph 1] of the Act on the
Punishment of Violence, etc.
22. Articles 50, 51, 53, 54, 58 and 60 of
the Korean Horse Racing Association
Act

Appendix B
Predicate Offenses under Article 2
Sub-paragraph 2 (B)• Article 25 Paragraph 1(3) of thePrevention of the Prostitution Act• Article 5 Paragraph 2 and Article 6of the Act on the Punishment ofViolence, etc.
• Article 3 Paragraph 1 of the Act on
Preventing Bribery of Foreign Public
Officials in International BusinessTransactions• Article 4 of the Act on the AggravatedPunishment of Certain Economic
Crimes379

RESOURCE MATERIAL SERIES No. 58

CURRENT SITUATION AND
COUNTERMEASURES AGAINST MONEY LAUNDERING:
HONG KONG
Sin Kam-wah *I. INTRODUCTION
Money laundering is one of, if not thebiggest, transnational crime facing us all
today. Ever since the mid to late 1980s, it
was accepted that to effectively fight theworld drug trade, law enforcement needed
not only to get culprits sentenced to long
periods of imprisonment but also to
confiscate their assets and proceeds ofcrime. With emphasis placed on taking
their money the criminal has had to resort
to laundering to hide it away or disguise
its origin.
Given the ease with which money andassets can be moved around the world it is
impossible for any one jurisdiction toeffectively fight this battle on their own.
Effective laws and co-operation amongst
jurisdictions are a necessity for any
successful action to be taken against thelaunderers and their activities. Hong Kong
has been quick to recognise their
responsibility in this regard and we joined
the Financial Action Task Force (FATF)
when it was first established in 1989.
Subsequently we joined the Asian PacificGroup against Money Laundering (APG)
when it was established in 1997.
The People’s Republic of China is not amember of FATF but is a member of the
APG. After the handover in 1997 whenHong Kong became a Special
Administrative Region of the Mainland,* Senior Superintendent, Organized Crime and Triad
Bureau, Hong Kong Police Force, Hong Kong

380

Hong Kong continued its membership of
FATF, despite the mainland not being amember. Indeed in June 2001 Hong Kong
will take up the Presidency of FATF for the
one year term of office. This will be an
important time for the organisation as itis planned to review the 40
recommendations.
This paper draws heavily on theexperience of the Hong Kong Police, andwill address the following areas:(i)

The Current Laws in Hong Kongand their use(ii) Co-operation by banks and othersectors, including obstacles and theovercoming of them throughlegislation, education andregulation(iii) The functions and activities of the
Joint Financial Intelligence Unit
in Hong Kong(iv) Asset confiscation(v) Case examples(vi) International co-operation
II. THE MAGNITUDE OF MONEY
LAUNDERING
It is almost impossible to put an accurate
figure on the amount of money being
laundered each year; criminals, after all,do not publish accounts. Estimates of therevenue generated from narcotics
trafficking in the USA alone range from
US$40 billion to US$100 billion1.

117TH INTERNATIONAL SEMINAR
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The Financial Action Task Force (FATF)
estimates that narcotics trafficking is the
single largest source of criminal proceeds,
followed by the various types of fraud 2.
Smuggling, gambling and, increasingly
nowadays, trafficking in human beings also
generate significant amounts of criminal
proceeds. Often overlooked, however, is thehuge amounts of money generated by tax
evasion. Many people do not think of tax
evasion as being a source of criminal
proceeds; indeed, in some jurisdictions tax
evasion is not a crime per se. However one
only has to consider the huge industry
which has grown up around so called tax
havens, or off-shore financial centres, torealise that tax evasion - and its legallyambiguous sibling, tax avoidance - is big
business.
In summary, therefore, whilst it is notpossible to accurately quantify the amountof money laundering going on in any one
country or region, it is possible to conclude
that the amount of money being launderedis huge.
III. THE CURRENT LAWS IN HONG
KONG AND THEIR USE
A. Criminalisation of Money
Laundering
For historical reasons, Hong Kong’s
money laundering laws are in two
Ordinances. Firstly in 1989 came the Drug
Trafficking (Recovery of Proceeds)
Ordinance, Cap 405. Under section 25 thefollowing offence was introduced :“Subject to section 25A, a person
commits an offence if, knowing or
having reasonable grounds to believethat any property in whole or in part,

directly or indirectly represents any
person’s proceeds of drug trafficking,he deals with that property.”
The main points to note are “Knowing
or reasonable belief.” Obviously knowledge
is a fairly straight forward concept, but it
is difficult to prove other than through say- admissions, undercover officers,
accomplices or technical assistance.
Reasonable belief is however a much moredifficult concept to show and it wasconsidered by the Court of Appeal in
HKSAR and SHING SIU MING and twoothers (CA415/97). SHING was a major
drug trafficker between Hong Kong andAustralia and he was sentenced to 30 years
for trafficking and money laundering andthe two others involved were also sentenced
to 7 years each for money laundering. The
two others were his wife and sister and theprosecution relied on reasonable belief.
The Court of Appeal said :“Knowledge if proved would simply
resolve the matter. Difficulty,
however, arises from the use of thewords “having reasonable grounds tobelieve.” This phrase we are satisfied,contains subjective and objective
elements. In our view it requires proof
that there were grounds that acommon sense, right-thinking
member of the community would
consider were sufficient to lead a
person to believe that the person being
assisted was a drug trafficker or had
benefited therefrom. That is theobjective element. It must also be
proved that those grounds were
known to the defendant. That is the
subjective element.”
The Court of Appeal also later said :1

Financial Action Task Force Annual Report 19992000
2 Financial Action Task Force Annual Report 19992000“Here the judge was wrong as he was
directing that it was incumbent upon
the prosecution to prove either

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RESOURCE MATERIAL SERIES No. 58
knowledge or belief, which hecharacterized as “something less thanknowledge”, in the minds of the
defendants. The test is, in fact, notso high. The prosecution has to proveknowledge of trafficking or that adefendant had reasonable grounds tobelieve that there was trafficking.
The prosecution is not called upon toprove actual belief. It would be
sufficient to prove reasonable grounds
for such a belief and that thedefendant knew of those grounds.”
In this case the prosecution could provehuge sums of money coming from Australia
to the relatives’ bank accounts which
SHING told them to set up and that they
withdrew the money in cash and gave it to
SHING. They believed SHING wasunemployed, they knew he had previously
been convicted of drug offences and had
visited him in prison. The prosecution
could show they opened accounts for an
unemployed person with previous drug
convictions which received huge sums ofmoney (HK$47 million) which they
withdrew in cash and gave to him and theyknew all the above facts. A right-thinking
member of society using common sense
should have believed the money was fromdrugs. The applications were dismissed.
Similarly,- “Any property” is very wide
and includes, everything you can think ofsuch as cash, flats, jewellery, cars, stocks,
shares etc, etc. “Represents any person’s
proceeds” means if the criminal gets cashfrom trafficking and then buys a house withthe cash and then sells the house and buys
shares; the cash, house and shares all
represent the proceeds. Also one shouldnote it refers to “any person’s” which meansthat one can also launder one’s own
proceeds of crime and be charged with boththe substantive offence and money
laundering, as Happened in SHING’s Case
Mentioned Earlier.

382“Drug Trafficking” under the law
includes many serious drug offences suchas manufacturing, importing, exporting
etc. “Deals” is defined as :(a) Receiving or acquiring the property;(b) Concealing or disguising the property(whether by concealing or disguising
its nature, source, location,
disposition, movement or ownershipor any rights with respect to it orotherwise);(c) Disposing of or converting theproperty;(d) Bringing the property into or
removing from H.K.;(e) Using the property to borrow money,or as a security (whether by way of
charge, mortgage or pledge orotherwise).
The maximum sentence is 14 years anda $5 million fine on Indictment and 3 years
and $1/2 million fine on summaryconviction.
When FATF extended the money
laundering recommendations to coverorganized and serious crimes, Hong Kong
introduced the Organized and Serious
Crimes Ordinance, (OSCO), Cap 455 in late1994 and it came into effect in mid 1995.
Also at section 25, the money laundering
offence is the same as the DT (ROP) offence
except that is applies to proceeds of an
indictable offence, rather than proceeds of
drug trafficking. Basically all offences inHong Kong are indictable, which means wehave few problems over worrying whether
the proceeds of crime are from a predicate
offence or not, as in some otherjurisdictions.
An interesting part of the OSCO offence
is section 25(4), which reads:“In this section and section 25A,
references to an indictable offence

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include a reference to conduct which
would constitute an indictable offence
if it had occurred in Hong Kong.”
This means that the proceeds of crimefrom overseas are not welcome in Hong
Kong and any attempt to bring them toHong Kong constitutes an offence in the
territory. For example a robber in Japandeposits the proceeds into a Hong Kongbank account in his own or another’s name,he or the other persons are laundering in
Hong Kong. Although with the otherpersons one would have to prove theknowledge or reasonable belief. However
if someone remits money out of Japanthrough a remittance agent he comits anoffence against the Japanese Banking Act,but there is no similar offence in Hong
Kong and consequently dealing in theproceeds of that Japanese offence in Hong
Kong is not money laundering.
It is of interest to note that tax evasion
is an indictable offence in Hong Kong andtherefore dealing in both local and overseas
proceeds of tax evasion is an offence inHong Kong.
To summarise, our laws in Hong Kongare far reaching in that it is an offence tolaunder the proceeds of nearly all offences,
one can launder one’s own proceeds and it
does not matter if the predicate offence
happened outside our jurisdiction.
B. Money Laundering Cases
The Hong Kong experience suggests that
it is very hard to show “knolwedge” or“reasonable belief” in money laundering
offences. Consequently there is currently
an amendment before our legislature tolower the mental element to “suspect”.
Proving someone should have suspected
property dealt with by them is the proceedsof crime will be easier.

Another problem with the HK legislationis showing that the property which was the
subject of the transaction was, as a matterof fact, the proceeds of crime. This is often
not easy, but it should be borne in mind
that through the use of circumstantial
evidence the Courts can be asked toconclude that the property must be theproceeds of crime.
Circumstantial evidence derives its
main force from the fact that it usuallyconsists of a number of items pointing inthe same direction :“It has been said that circumstantial
evidence is to be considered a chain,and each piece of evidence as a link in
the chain, but that is not so, for then,if any one link break, the chain would
fall. It is more like the case of a ropecomprised of several cords. One
strand of the cord might beinsufficient to sustain the weight, butthree standard together may be ofquite sufficient strength. Thus it may
be in circumstantial evidence - there
may be a combination of
circumstances, no one of which would
raise a reasonable conviction or morethan a mere suspicion; but the threetaken together may create aconclusion of guilt with as muchcertainty as human affairs can requireor admit of.”
[ R v. Exall (1866) 4 F&F 922]
Examples of the type of circumstantial
evidence one can use are :(a) Expert Evidence(b) Audit Trails(c) Unlikelihood of Legitimate Origin(d) Absence of Commercial or Domestic
Logic(e) Evidence of Bad Character(f) Contamination of cash(g) Packaging of Proceeds(h) Denomination of Banknotes

383

RESOURCE MATERIAL SERIES No. 58(i) Lies by the Defendant(j) Inferences from Silence(k) Surveillance(l) False identities, addresses anddocumentation(m) Overall Criminal Enterprise(n) Accomplices Evidence(o) Admission regarding the suspicious
and unusual circumstances in respectof the property in issue.
Hong Kong has become aggressive inseeking the use of circumstantial evidence
to prove crime proceeds.
IV. THE INVOLVEMENT OF OTHER
SECTORS IN THE FIGHT AGAINSTMONEY LAUNDERINGAs must be apparent when looking at theway proceeds are laundered law
enforcement cannot hope to achieve any
real success on their own. If one has acertain type of crime one can try and follow
the proceeds and hope to identify thecriminal and/or launderer, but the chancesof success in this way is very limited. If
one has a suspect or target one can look at
his bank accounts, businesses etc. and try
and identify the source, but one is startingat the integration stage and working
backwards, consequently if the criminal
has laundered his proceeds well it isdifficult to get anywhere. Also this is time
consuming and resource intensive.
However if the professionals along theway such as the bankers, accountants,
lawyers, money changers, remittanceagents, stockbrokers, estate agents, highvalue retailers etc. are helping the law
enforcement agencies by reporting
suspicious transactions then the task
becomes much easier.
Consequently an important part of any
successful money laundering regime is to
get these sectors to help. Unfortunately

384

none of these sectors are going to help
willingly for a number of reasons. The
main obstacles to assisting and reporting
to police that have been identified in Hong
Kong through discussion with the various
sectors are :(a) Client confidentiality(b) Distrust of the Police(c) Possible loss of business(d) Breach of restriction under law orotherwise(e) Fear of damages or liability for loss(f) Not knowing what to do or who toreport to(g) Fear of the fact a disclosure was madewill get out leading to a fear of
retribution from the criminal, loss ofbusiness etc.
(h) Discouraged by low level of police
success and lack of feedback(i) Lack of awareness(j) Aware of the low risk of prosecution
if they do not comply(k) Insufficient resources(l) High cost and lack of rewards(m) Belief that no or little laundering
occurs in their sector
The obstacles have been overcome in a
number of ways but primarily through thelegislation, education and regulation.
1. Legislation
Section 25A of OSCO and DT(ROP) arebasically the same, but Section 25A(1) of
OSCO says:“Where a person knows or suspects thatany property (a) in whole or in part directly or
indirectly represents any person’s
proceeds of;(b) was used in connection with; or(c) is intended to be used in connection
with an indictable offence,
he shall as soon as it is reasonable
for him to do so disclose that

117TH INTERNATIONAL SEMINAR
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knowledge, or suspicion, together
with any matter on which thatknowledge or suspicion is based to an
authorised officer”.
The penalty for non-compliance is 3
months imprisonment and a fine of
HK$25,000 - $50,000 but of course the real
penalty is the stigma attached to aprosecution under this section and thedamage to one’s reputation. Manycompanies just would not deal with say abank or accountants who have been
convicted under this section.
Few points about this section are :(i)“Knows or suspects”, therequirement is suspects which isin legal terms low. One can assume
the Courts will expect a level ofprofessional standards from theperson. That is to say it would bereasonable for a trained
accountant to suspect something
amiss having looked at theaccounts but perhaps notreasonable for the account clerk.
(ii) “ i s i n t e n d e d t o b e u s e d i nconnection with”, this covers say
the drug trafficker collecting
money together to pay for his drugs
before he receives them or say arich businessman withdrawing
cash from the bank to pay the
kidnap ransom for the return of hisson. In the latter example if thebank knew the money was being
withdrawn by a victim to pay aransom they clearly are under aduty to disclose.
(iii) “soon as is reasonable” - would
depend on all the circumstances,
but a few days is not asking much.
(iv) “an authorized officer” - this isdefined in the Ordinance as any
police officer, customs officer oranyone else authorised by the
Secretary for Justice. In effect it

is JFIU - the Joint Financial
Intelligence Unit. This is a unit in
Narcotics Bureau manned bypolice and customs which will becovered in more detail later.
The bonus of the section is that if aperson makes a disclosure in accordancewith it, he cannot then be charged with
Money Laundering. Section 25A(2) saysthat if the disclosure is made before any
act in contravention of Section 25(1) andthe disclosure relates to the act, one canstill do the act with the consent of an
authorised officer. Or if the disclosure
follows the act providing the disclosure ismade of his own initiative, as soon as it isreasonable to do so, then there is no offence
against Section 25(1).
The key to Suspicious Transaction
Reporting is ‘Know Your Customer’. If you
know who you are dealing with then you
can decide if it is suspicious or not. For
example, if the managing director of alisted company puts HK$5 million into his
account then it is probably not suspicious,
but if a building site labourer puts HK$5
million in his account, it is definitely
suspicious. Banks and other organisations
need to know who their customer is, what
he does, what his salary is, where he lives
etc. For companies they need to know
about the type of business, turnover etc.
With this information they can identify
suspicious or unusual transactions much
more easily.
Most people disclose after the act andfor them and those who disclose before, in
99.9% of the cases JFIU tell them that they
can continue to deal with the account inquestion. Only very rarely will they be toldthat they cannot continue to deal. Such a
notification effectively freezes the accountand there are specific provisions to do thisunder the Restraint Provisions.
Accordingly one is placing the person or

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RESOURCE MATERIAL SERIES No. 58
Institution in a difficult position byrefusing and so it is rarely used.
In Section 25A(3), the law specificallysays a disclosure shall not be treated as abreach of restriction imposed by contract,
law etc. etc. It also says one cannot beliable for any damages which may result
from having made the disclosure.
Section 25A(4) says that for people inemployment providing they report to theircompliance officer or supervisor they havefulfilled their duty and it is incumbent uponthat person in accordance with theemployer ’s procedures to make thedisclosure. This effectively forces financial
institutions and other such businesses toestablish procedures and tell their staff.
Section 25A(5) makes it an offence to tip
the subject of the disclosure off. Section
26 also effectively restricts anyone,
including the police, even during a trial,from revealing a disclosure has been madeand by whom. This restriction is important
if disclosure makers are to have any
confidence in the system.
2. Education
As one can see through the legislation
we have overcome a number of the
obstacles. On the education front,
Financial Intelligence Unit Officers andInvestigators spend many hours giving
presentations and lectures to people fromdifferent sectors and different levels - frombank tellers up to senior directors of stock
brokering and accounting firms and eventhe law society as lawyers seemparticularly ignorant of their
responsibilities. This means that as agroup money laundering investigators
establish a very wide network of contacts
in varied institutions and business.
In addition to direct education JFIU
provide a series of regular feedback toinstitutions. Primarily to date we have386

concentrated on the banks but we areslowly trying to involve other sectors. This
feedback is considered very important by
the banking sector. We tell them aboutmoney laundering methods and indicators
we have come across and from these they
can hopefully identify what is suspicious
and what is not and educate their staff.
Additionally each disclosure maker istold of the result of every disclosure madewhich investigators classify in one of fourways:(a) positive(b) other crime(c) unresolved(d) no crime
Also when investigators do come acrossa money laundering case they review
everything afterwards to see if anyone
should have made a disclosure but failed
to do so. They then discuss it with theInstitution concerned. With the banks weare still very much at this stage rather thanprosecution. Tied in with this the Financial
Intelligence Unit has begun to examine
banks’ disclosures from both a quantitativeand quality viewpoint. Based on this JFIU
have been able to identify weaknesses invarious banks compliance structures andencourage training of staff at appropriate
levels on problem subjects.
3. Regulation
Regulation in this context means how
various sectors can be pushed into
complying. Probably the best example isthe banks. The Hong Kong Monetary
Authority (HKMA) have issued guidelines
under Section 7(3) of the Banking
Ordinance. These guidelines are not law
but they do establish the minimum
standards the HKMA expect licensed
banks in Hong Kong to subscribe to. If local
banks are found to be in breach of theguidelines the HKMA can order a Money
Laundering Audit to examine the banks

117TH INTERNATIONAL SEMINAR
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rules and compliance. If the HKMA were
unhappy with the bank they could thenwithdraw its license until it complies withthe guidelines. If we the police find banks
in regular or deliberate breach of theguidelines we will involve the HKMA. If
we go back to the background and history
to this whole subject the HKMA must keepa strong grip on the banks on this issue as
if it was felt that the Hong Kong banking
system was being used for money
laundering and banks were doing little toprevent it, Hong Kong would faceinternational sanctions. Other sectors suchas the Insurance Sector, Lawyers andAccountants also have their own
guidelines.
One sector that was soon identified in
Hong Kong as a problem and because it was
unregulated was difficult to do anything
about was Remittance Agents and Money
Changers. There is a huge network ofRemittance Agents working in Hong Kong.
Some are run as actual businesses (likeWestern Union), while others operate aspart of existing businesses, like goldsmith
shops, apartment houses or whatever;whilst others operate out of peoples flats
and homes. These agents have reciprocal
agents, shops or relatives overseas. They
will then arrange for the transfer of funds
all over the world. Many of these agentsuse a counter-balance method and settle
at irregular intervals so in many instances
no money is actually sent. They often use
cash courier, bank remittance and othermethods that break the audit trial. All thatis required to run such an Agency is atelephone, fax and bank account.

human smuggling and fraud.
The police therefore decided they needed
Regulating and earlier this year anamendment to OSCO was introduced.
Unfortunately due to arguments over thecost of implementation and manpower
Government eventually went forregistration rather than licensing. It
remains to be seen if this works. Anyway
these remittance centres and moneychangers (not banks, who are governed by
HKMA regulations) must now keep records
for 6 years (just like the banks) and identify
their customers and their transactions,over $20,000HK. They must register with
the Joint Financial Intelligence Unit anda copy of all registered money changers andremittance agents is now on the JFIU
website (www.jfiuhk.com). The law cameinto effect on June 1st 2000 and there wasa 3 month grace period. We are still trying
to encourage people to register. Probably
in the new year we will start charging
people who are not complying. Obviously
only time will tell how effective this will bein the fight against money laundering.
This threshold amount for remittanceagents and money changers was to preventmoney changers becoming bogged downwith numerous records. It has led to some
confusion about threshold reporting, but it
is not a threshold reporting system, they
merely have to keep records.
The legal requirements to makedisclosures, obstacles to this and the
involvement of other sectors are covered,but how are we doing? Disclosure figures
by year are :These remittance agents were clearly
not keeping proper records, not identifying
their customers and were totallyunregulated and uncontrolled. They areparticularly active in moving funds to andfrom China and are popular withlaunderers involved in drug activities,

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Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
(to 1/11/2000)

No. of Disclosures
34
125
147
267
368
550
1,798
4,141
4,227
5,570
5,804
5,010

The disclosure figures by sector are:
Year

Banks

1998
1999

5524
5757

Lawyers
1
0

Accountants
4
1

FinancialCompanies
24
14

Other than the retail banking sector itis quite true to say compliance in Hong
Kong is not satisfactory. We are working
hard to encourage greater response fromother sectors, but probably only a few highprofile prosecutions of lawyers andaccountants will encourage these sectors
to take the subject seriously. Currently
police are heading a governmental
committee to see what can be done toimprove the situation in all sectors.
V. THE FINANCIALINTELLIGENCE UNIT
In Hong Kong the FIU is manned by both
Police and Customs Officers and is known
as the Joint Financial Intelligence Unit.
For historical reasons it is housed in our
Narcotics Bureau. The primary role of the
JFIU is the collection, collation and

388

Insurance
Companies
816

Foreign
Exchange Cos
5
14

Other

Total

4
2

5570
5804

dissemination of disclosures or suspicioustransaction reports. The unit itself does
not investigate any disclosures. They checkthe subjects against the Criminal andIntelligence Records as well as the previous
disclosure history. Based on this thedisclosures are distributed primarily to theCustoms and Excise, Police Narcotics
Bureau or the Organized Crime and Triad
Bureau. If there are no indications as towho should investigate, the disclosure isallocated to any of the units so that eachhas roughly one third of all disclosures. If
subsequent enquiries show another unit
should be investigating the enquiry ispassed across. From time to time some getpassed to our Commercial Crime Bureau,
Independent Commission against
Corruption or Security Wing.

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Hong Kong are members of the EgmontGroup and are committed to the exchange
of information obtained through JFIU withoverseas agencies. Any information
obtained through disclosures can be passed
overseas for intelligence purposes only. If
the information is required for Court
purposes then more formal channels, suchas the MLA route needs to be followed, as
the information needs to be obtained by a
Production Order or Search Warrant.. By
law we are not allowed to reveal to anyone,
including the Courts that a disclosure has
been made and by whom. Accordingly
whilst information is supplied the sourceis always concealed. As far as HK isconcerned enquiries can be made direct to
the JFIU or through the normal Interpol
channels.
As has been alluded to earlier in thispaper an important part of the JFIU work
also involves the provision of feedback andtraining to the disclosure makers. This is
an often overlooked, but vital, part of an
FIU duties. The effectiveness of a
suspicious transaction reporting systemrelies on both the quantity and quality of
the reports made. This in turn depends on
how well staff of financial institutions(which in practice make the vast majorityof reports) can identify transactions which
are genuinely suspicious. Without proper
training, both the quantity and quality of
the reports will remain at a low level.
Although banks and other financial
institutions provide basic training to theirstaff, input from the FIU is vital if they
are to be kept up to date on the latest trends
and methodologies for laundering money.
The following practices can be consideredwhen planning training and feedback :
(i)
(ii)

lectures to bank complianceofficers and front line staff;
provision of training material or
vetting of a bank training material
to ensure it is up to date and covers

all relevant legislation;(iii) provision of real life sanitised cases
to illustrate particular methods ofmoney laundering and highlightsuspicious activity indicators;(iv) working groups consisting ofmembers of both financial
institutions and the FIU tohighlight best practices;(v) an FIU web site to increase publicawareness of the legal
requirements to report suspicioustransactions;(vi) qualitative and quantitative
analyses of suspicious transaction
reports made by individual
institutions.
In addition, makers of suspicioustransaction reports should be informed,
whenever practical, of the progress andultimate outcome of the investigation
generated by their report, particularly
where the report has led to a successful
case.
VI. RESTRAINT AND
CONFISCATION
During this paper restraint andconfiscation have been mentioned and after
all this is the main reason why criminals
have to launder their funds. Accordingly
we will mention the law in this regard inHong Kong and also see how we are doing.
Hong Kong restraint orders are made exparte and hence we are able to obtain themand serve them prior to arrest or
subsequent to arrest without the defendant
becoming aware of our intention
beforehand. This is obviously importantto prevent the proceeds from disappearing.
There has been some problems overcontinuing a restraint order where thedefendant is not charged straight away. An
amendment to the law is before thelegislature to overcome this allowing the389

RESOURCE MATERIAL SERIES No. 58
restraint of assets to continue for a“reasonable period” whilst police
investigate prior to charging. The Courts
will assess what is a reasonable period in
all the circumstances of the particular case.
There are confiscation provisions in bothDT (ROP) and OSCO. In DT (ROP) andOSCO investigators can seek confiscationof a person’s assets in three sets ofcircumstances :(a) upon conviction(b) upon death(c) has absconded
Normally it is upon conviction and so it
will be covered from that perspective.
Upon conviction in the District or High
Court the prosecution will apply toconfiscate the proceeds. Firstly the offence
must be in Schedule 1 of DT(ROP) or
Schedule 1 or 2 of OSCO. These schedules
in fact include most major or serious
crimes. The court must then determine if
the person has benefitted from the crimeand under OSCO the proceeds must be atleast HK$100,000. The court will thenassess the extent of the person’s proceedsof crime. Under section 2 (6) of OSCO
proceeds are defined as :(a) Any payments or other rewards
received by him at any time inconnection with the commission of
the offence;(b) Any property derived or realised,directly or indirectly by him for anyof the payments or other rewards; or(c) Any pecuniary advantage obtained inconnection with the commission ofthat offence.
This means that in a loansharking casethe proceeds include the initial deduction
made by the loanshark and all subsequent
repayments including the principal or
actual loan. In drug cases the court can

390

assess the proceeds from the quantity ofdrugs involved and/or the amount passing
through his accounts.
The police will put forward a statement
to support their assessment of the proceeds
for the court to consider and the court willthen give a ruling on its assessment of theproceeds of crime.
When the case is an Organized Crime
under section 9 of OSCO the police may ask
the court to assume that any assets
acquired in the last six years by the person
are the proceeds of crime. It is incumbent
upon the person to refute this and show theassets were lawfully obtained. If the court
sides with the police, the value of the assets,
so assessed, can be added to the value ofthe defendants proceeds of crime.
The next step is that the police will put
forward details of the person’s assets, whichhave normally been restrained or charged(a restraint or charging order is used
depending on the type of assets). Theremay be some debate here over say the
spouse’s assets and whether they are
entirely theirs. Anyway the court will thenrule on the value of the person’s assets.
Note there is no need for any link between
the Assets and the Proceeds.
Finally the court will then make aconfiscation order up to the value of theproceeds they have assessed, but it cannot
be greater than the assets available. That
is to say if the proceeds of a drug trafficker
are assessed at HK$10 million, but thepolice have only identified assets of HK$5
million, then the order will be for $5 million.
If the police locate more assets in the next
6 years they can return to Court to seek anamendment of the confiscation order up to
the assessed proceeds. If the defendants
assets are held outside Hong Kong and herefuses to realise them and pay theconfiscation order he can be given an extra

117TH INTERNATIONAL SEMINAR
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sentence.
If the police cannot find any assets they
can seek the confiscation of a nominal sum,
say $1 and then they have up to 6 years tofind the assets and return to court to get
the confiscation order varied.
To date $461 million HK has been
confiscated in Hong Kong, mostly drugmoney and a further $163 million HK isunder restraint. Concerning confiscation
under OSCO, we have not had the success
we hoped for. Why not? There are anumber of reasons :(a) Some scheduled offences whichshould be included are not. Examples
are :(i) Aiding and Abetting Illegal
Immigrants for humansmuggling cases.
(ii) Carrying on the business oflending money without a licence.
(iii) S a l e a n d P r o d u c t i o n o f
Pornographic material.
(b) Many offences have victims where
the prosecution have to step aside toallow compensation of the victim
from the assets.
(c) Persuading the prosecutors to put
certain offences in higher courts.
Traditionally bookmakers, illegal
casino operators and loansharks havereceived relatively small sentences(under 3 years) and hence these caseare heard in the Magistracy where it
is not possible to seek confiscation.
Prosecutors are proving very
reluctant to put cases in higher courts
merely so confiscation of assets canbe sought. Dialogue between thepolice and the prosecutors is
continuing on the subject.
Given the trans-national nature oforganized crime criminals will often keep
assets overseas. HK laws have provisions

to allow for the enforcement of overseas
restraint and confiscation orders andsharing of confiscated assets. These will
be touched upon again later.
VII. CASE EXAMPLES
Some case examples are now given toillustrate some of the points raised earlier
and are considered useful experience toshare:(a) US Fraud Case
A small bank in the USA was defraudedof several million USD by the President(Mr.A) and Vice-President assisted by twoother men, one of whom we will call Mr. B.
The bank eventually went into liquidationand the four men were all tried andconvicted.
Enquiries showed that Mr. A & B
laundered much of their money through asolicitor in Hong Kong, Mr. C. Mr. C set
up various companies and opened bankaccounts for those companies, used hisclient account and also obtained a Belize
passport for Mr. A in a false name.
Mr. A & B moved their proceeds intoeither Mr. C’s client account in Hong Kongor into another Hong Kong account in thename of Co. K. Co. K was set up by Mr. C
in Hong Kong for Mr. A & B. Mr. C opened
the account in Hong Kong and Mr. B
opened an account in Guernsey. Much of
the money received into Co. K’s HK
account was by way of structured
remittances (i.e. amounts less than
$10,000 in order to by-pass US reporting
requirements). Money from Mr. C’s client
account was remitted to Co. K’s accountin Guernsey. Money from the two Co. K
account’s in Hong Kong and Guernsey wasthen remitted to another Guernsey accountin the name of Co. L, a BVI Company set
up by Mr. B. Mr. B then moved his shareon to a Swiss Bank account, Mr. A moved

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RESOURCE MATERIAL SERIES No. 58
his share to Co. M’s account in Guernsey.
Co. M had been set up by the solicitor Mr.
C in Hong Kong for Mr. A who used a falsename - Mr. D. Mr. C also assisted Mr. A to
get a Belize passport in this false name ‘D’.
Mr. C had also opened a bank account in
Guernsey for the Company. Some of A’sshare was remitted back to C’s client
account. Some of this was further remitted
to a Company N in Mexico and the remitterwas shown as one of C’s nominee companies
he used in establishing companies for his
clients. This was apparently done at D’srequest so that Company M’s name was notshown on the remittance.
‘C’ was interviewed and claimed client
privilege and refused to answer any
questions. However he then decided after
the police visit and on receiving
correspondence from the US that ‘A’ had
used a false identity and that ‘A’ & ‘D’ werein fact the same person and he ‘co-operated’
with police. He claimed not to have realised
this up to that point. He denied knowingthat the money from Company K which
went to Co. L was the same money whichthen went to Co. M. As such he did notknow Co. K & M were connected. He
denied making the transactions from theCo. ‘K’ account in Guernsey to the Co. ‘L’account. Unfortunately we have a chicken
and egg case with the Channel Islands laws
in that we are not allowed warrants tocheck the banking records unless we charge‘C’. We cannot charge ‘C’ unless we getthese banking records or other evidence.
When asked about the movement
between all the Companies and what was
the point of them all, the solicitor said that
it was common for him to do this for
American clients. The US had a worldwide
tax system and many Americans like to put
a little nest egg away from the reach of the
tax authorities. He did it all the time andwhat he meant but did not say was “andwhat is wrong with that”. He spoke of392

opening companies for one transaction andclosing them out afterwards in order tomake it more difficult to trace the flow offunds and claimed that was alright andthat putting someone elses name on aremittance was acceptable. These areclassic money laundering indicators andyet he spoke of them as normal businesspractice. Regarding the Belize passports
for which he accepted a birth certificate as
proof of identity from an American visiting
Hong Kong he felt this was alright and saw
no reason why he should have taken the
passport.
‘C’ has not been charged as there wereinsufficient evidence to show he knew orshould have reasonably believed the funds
were the proceeds of crime.
Whether or not the solicitor was culpablein this case, a number of issues are raised:(a) C m e t A & B t h r o u g h a nintermediary he trusted.
Professionals must be wary ofIntermediaries.
(b) ‘C’ should have asked why the client
wanted to open these accounts andmove money around. ‘C’ possibly
suspected tax evasion an indictableoffence in Hong Kong, but chose not
to do anything or he knew of thefraud.
(c) If one operates a bank account for acompany one has set up one must beaware of structuring and transaction
reporting conditions in othercountries.
(d) S o l i c i t o r s s h o u l d n o t a l l o w
remittances to come through theirclient accounts when the client canmove money in other ways, unlessthere is a very good reason to do so.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS(e) Solicitors should not hide theidentity of a remitter for their clientunless there is a very good reason to
do so.
(f) If one is asking overseas clients for
identification get their passports.
Birth certificates which have no
photograph do not prove someone’s
identity. It is in most countries easy
to obtain a copy of anyones birthcertificate.
The obvious
identification to request is a
passport.
Overseas people do use bank accounts
in Hong Kong to do the following
transactions, which without explanation
should be regarded as suspicious :(i)‘U’ Turn transactions - wheremoney is say remitted from the
USA to the account in Hong Kongand then remitted straight back toanother person or US Company.

(ii)

Layering - a number of different
transactions when one could havesufficed.

(iii) Numerous transactions withcountries known for drug or
criminal activities.
(iv)

Tr a n s a c t i o n s w h i c h a r e
inconsistent with the clients
background or profile.

As the operator of the account the lawyer
should not wait for the banks to spot thesuspicious transaction and disclose. The
lawyer must monitor accounts he is
responsible for and that includes his own
client account (for large cash transactions)and disclose when he sees suspicious
activities.

(b) Operation Maltwine
A character called Mr. ‘A’ was operatinga legitimate money lending business called
Co. X Ltd. This company had four offices
around the territory and throughnewspaper adverts he attracted a steadystream of clients. These clients wererequired to complete an application form
giving all their personal particulars. The
application forms were then passed to thehead office and only a very small
percentage of applicants were eversuccessful in obtaining a loan.
Details of all the unsuccessful applicants
were passed to the criminal side of thebusiness and from a secret office within thehead office cold calls were made to theunsuccessful applicants who were offeredloans of $2,000. The initial payment was
only $1,800, $200 being deducted for ahandling charge. Then $400 interest had
to be paid every 10 days until the principalof $2,000 was paid in full. This works out
to over 1,000% per annum.
This offer was made on a take it or leave
it basis and many desperate people
accepted. If it was agreed another gangmember was contacted and told to pay themoney direct into the debtors account andthe application form and other details werethen Faxed to a records office in Shenzhen,
just across the border with China. Records
in the Hong Kong office were thenshredded.
The office in Shenzhen had all therecords computerised. The debtors weretold to repay money into various accounts
which had been opened by debtors or drug
addicts who had registered a number ofdifferent companies and opened a series ofbank accounts for a small payment. 36
accounts were used in all. The office inShenzhen monitored repayment into thedifferent accounts. Non payers details werereferred to another office in Shenzhen

393

RESOURCE MATERIAL SERIES No. 58
which ran the debt collecting side of things.
From the debt collecting office a groupof young triads were tasked daily to visit
various addresses to either remind thedebtors to repay or to splash paint all overtheir doors and leave threatening
messages. It also transpired that the debt
collecting office took orders from othersyndicates to harass their debtors.
Meanwhile the money was withdrawn
from the repayment accounts by bank cards
or as there is a daily limit on withdrawals
by using the Jockey Club. One canpurchase betting vouchers for large
amounts by using ones bank card and thesewere then cashed straight away. Some of
the money was used to lend to new debtors
and the rest, about HK$2 million a month
was remitted to Macau.
The money was later remitted back toanother company, Co. Y, which pretended
to be involved in trade, but in fact did noneat all and from there it was used to run theoperation or it was moved to Mr. X and his
relatives who bought flats.
While some of the companies were in X’s
name, anything illegal was distanced from
him and the only time he felt safe toactually get involved was in the Records
Office in Shenzhen or with Co. Y.
Various police units had arrested anumber of the young men causing criminal
damage and the Organized Crime & Triad
Bureau also identified the people operating
the collection account and paying the
debtors. This suggested a large syndicate
was at work. Surveillance andinvestigation work led on to much of therest of the operation, although everything
was not really tied together until police
went overt in April 2000. Anyway once it
was realised that the gang were keeping
records and directing things from China,

394

HK Police approached the Police Security
Bureau who gave us very professional
assistance, including surveillance. There
were some problems at first in thatloansharking is not an offence in the
Mainland but these were overcome, thanks
to a great spirit of co-operation.
In April 2000 joint raids in China andHong Kong were carried out once Mr. X wasseen at his records office in Shenzhen andeveryone arrested. HK Police were allowed
to be present in China, film the raid andseizing of exhibits which the PSB agreed
to do in accordance with HK procedures,
so that everything will be admissible in our
Courts.
Mr. X’s assets of about HK$48 million
have been restrained and enquiries weremade with thousands of debtors andcriminal damage victims. Mr. X and thefive other Hong Kong citizens arrested in
China were returned and charged. Mr. X
and his main assistant are detained andthe rest were given Court Bail. Of thosearrested in Hong Kong some have been
charged and some are on bail.
The money being laundered through
Macau was an attempt to disguise its
source and it was explained away as money
coming out of China from trading deals
through unofficial sources given China’s
tight currency control restrictions. Whilst
the Macau police have been helpful andunderstanding their Judiciary has blocked
our efforts to obtain warrants to see what
was happening over there and how muchmoney is still held there. HK Police are
now trying a formal letter of request.
However we have been able to link money
going to Macau to money returning after
one of those detained in China gave us
permission to access his accounts in Macau.
Mr. X had been running this operation
for about 8 years and keeping his records

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
and involvement outside of Hong Kong
where the group was operating, made him
feel secure. In Hong Kong the only thingthat ties him to the syndicate is the money
and it is to hope we not only convict him,
but we also confiscate his assets.
(c) Tax Evasion
An appeal case HKSAR and LI CHING(CA 436/97) is an important case for money
laundering investigators. LI opened a bankaccount for a group involved in a deception
which duly came off and $2.8 million HK
was deposited into the account andwithdrawn by LI. On arrest LI claimed toknow nothing about the deception and that
he was given $50,000 only and the rest of
the cash he gave to Ah Keung. He claimed
he thought Ah Keung was using theaccount to put some tax evasion moneyfrom China through. The Appeal Court
held that his belief was that he dealt in
the proceeds of tax evasion from China.
Tax evasion was an offence in China, it was
indictable in Hong Kong and therefore he
was guilty of money laundering. His appeal
was dismissed. This ruling emphasisedthat investigators did not have to prove theactual offence, merely that the defendantbelieved the proceeds was from an offence.

requests the transactions to beshown as cash deposits rather thantransfer deposits, thereby breaking
the audit trail.
The banks are well aware of this thanks
to Police feedbacks and have made regulardisclosures over the years. Police have
tried different approaches :(i)(d) Bookmaking Cases
The following have been noted as strong
indicators that bank accounts are being
used for bookmaking :(i)Increased use on Mondays andThursdays i.e. the days after theraces.
(ii) T h e A c c o u n t s h a v e f e w
transactions in July and August,which is the close season.
(iii) The deposits are either ‘no book
cash deposits’ or ‘transfer deposits’.
(iv) The withdrawals are in cash.
Sometimes they are then followed
by deposits to a number of otheraccounts, but the account holder(ii)

Operation Birchwood was
mounted against 25 syndicates
operating in China and Macau whowere laundering their proceeds
through Hong Kong banks. In
June 1998, 28 people were arrested
and four were charged when they
admitted what they were doing,with sentences of between a fineand 10 months imprisonment
imposed. The man who got 10
months, YU Leung-chong is stillfighting police as we are trying to
get his proceeds confiscated. We
have restrained his accounts andproperty worth $3.9 million HK
and we are attempting toconfiscate up to $6.9 million as hiswife also has $3 million in assets,
but has never worked in her life.
The confiscation hearing is set for
March 2001. Following thisoperation we have had few
successes as the overseas
bookmakers now know it is anoffence, which some did not before
the operation. Consequently
admissions are not so easy toobtain now.
Operation Guildersome wasmounted against a number of local
bookmaking syndicates, and saw
25 bookmakers and 4 money
launderers arrested. Fourteen of
the bookmakers were convicted
and received between fines andsuspended sentences. This
operation highlighted to us the395

RESOURCE MATERIAL SERIES No. 58
difficulties in proving the proceedsof crime in bookmaking cases.
Proceeds in the Ordinance aredescribed as payments received,
whereas people bet on credit withbookmakers. Consequently bets on
the day are not proceeds, one has
to show that money going throught h e b o o k m a k e r ’s a c c o u n t spreviously were bookmaking
proceeds and this is not easy. It
relies on admissions, punters
telling you, or old betting records
and banking records matching up.
All unlikely. Police now try andidentify locally operatingbookmakers and throughsurveillance or call forwarding
records identify the location ofoperation.
(iii) Other operations - have been
mounted and police have had
success against football
bookmakers and launderers. Also
last racing season HK Police
worked with the Macau Judicial
Police (MJP) to get them to arresta syndicate operating in Macau,
and we are now trying to build acase against the bank accountoperators (launderers) in Hong
Kong who will be arrested once thebookmakers are convicted in
Macau. Other initiatives include
trying to put a circumstantial
money laundering case together.
Investigators will pick an accountwhich displays all the indicators
and use the financial investigation
units head to give expert evidence,
Police will also show the person
had no employment (we can get tax
records through Production
Orders), those who are identifiable
who have dealt with the accountwill be record checked, most tend
to have gambling and bookmaking
convictions and lastly bank tellers

396

will give evidence that the accountoperator requests the transactions
to be shown in cash rather than asa transfer. It will be hoped that
the Judge will only be able toconclude given all the different
circumstances that the money
being dealt with in the account is
the proceeds of an indictableoffence.
(e) A Drug Case
Narcotics Bureau have had some very
successful drug money laundering cases
over the years and some large asset
seizures, but one case to highlight wassignificant because it arose purely fromdisclosures.
A housing estate in Kowloon East had
one bank and that bank noted that a
number of accounts operated by young
people aged from 14 to 22 were receiving
regular deposits of between $20 - 60,000HK
every few days in $20, $50 and $100 notes.
Very soon after the deposits the depositors
would withdraw the sum in 1,000 dollar
notes. The bank was suspicious and madea disclosure.
Investigators mounted an operation
using surveillance, Observation Posts andundercover officers to make controlled
buys. The Narcotics Bureau Financial
investigators also looked at the money.
Over a one year period this street leveltrafficking operation had laundered HK$13
million through their accounts. Fifteen
syndicate members were eventuallycharged and convicted in the High Court
and over HK$2 million in assets was
confiscated.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
VIII. INTERNATIONAL COOPERATION
Given that the proceeds of crime can be
moved around the world easily, it is
impossible for any one jurisdiction toeffectively fight the battle on their own. Cooperation among all law enforcement
agencies therefore becomes vital. Such cooperation should be two-phased; theexchange of intelligence in money
laundering matters and the rendering ofassistance to another jurisdiction in
obtaining evidence. The swift exchange ofintelligence between enforcement agencies
and FIU of different jurisdictions at theinvestigation phase is important iftransnational money laundering is to be
tackled effectively and efficiently. There
are treaties governing mutual legal
assistance in criminal matters designed forcollecting evidence for use in a court of law.
FATF Recommendation No. 32 states:“Each country should make efforts toimprove a spontaneous or “uponrequest” international informationexchange relating to suspicioustransactions, persons andcorporations involved in thosetransactions between competentauthorities. Strict safeguards shouldbe established to ensure that thisexchange of information is consistent
with national and international
provisions on privacy and dataprotection.”
Recommendation No. 37 goes on to state:“There should be procedures formutual assistance in criminal mattersregarding the use of compulsory
measures including the production ofrecords by financial institutions andother persons, the search of persons
and premises, seizure and obtainingof evidence for use in money

laundering investigations andprosecutions and in related actions inforeign jurisdictions.”
To assist other jurisdictions further inthe fight against money laundering, Hong
Kong has provisions for Overseas
Confiscation Orders and Asset Sharing.
A. Overseas Confiscation Orders
The trans-national nature of organizedcrime is reflected in the fact that criminals
will often keep their assets in different
countries. It is essential, therefore thatlegislation proovides for this by allowing
for confiscation orders issued in overseas
jurisdictions to be enforced domestically. In
this regard, the FATF Recommendation
No. 38 says:“There should be authority to take
expeditious action in response to requests
by foreign countries to identify, freeze, seize
and confiscate proceeds or other property
of corresponding value to such proceeds,
based on money laundering or the crimes
underlying the laundering activity.”
B. Asset Sharing
Once an overseas confiscation order isenforced domestically, fairness dictatesthat the overseas jurisdiction be allowed
to share the confiscated assets. Provisionmust therefore be made, both by law andby policy, for assets to be shared between
jurisdictions. This may not always bepracticable where only a small amount ofproperty has been confiscated, as theadministrative costs involved would
outweigh the value of the assets to beshared. Government policy, therefore,should set a realistic threshold over andabove which foreign governments may beallowed to apply for and receive a share of
the assets commensurate with the work
done by each side in that particular case.

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RESOURCE MATERIAL SERIES No. 58
IX. CONCLUSION
Tackling money laundering will never be
easy. The ease with which money can be
moved around the world, the ingenuity ofmoney launderers in finding new ways to
disguise their ill gotten gains, theprevalence of tax havens and shelfcompanies and the excessive secrecy of
certain jurisdictions all combine to ensurethat tracing the flow of dirty money andprosecuting the money launderer willremain one of the hardest tasks in criminal
investigation. This task will be madesomewhat easier, however, if various antimoney laundering components are welded
together to form a cohesive anti-money
laundering strategy in as many
jurisdictions as possible. A workable andcomprehensive law, close international cooperation, an effective FIU and strong
regulation of the financial sector, combinedwith imaginative and thoroughinvestigation, are vital if money launderingand its inherent dangers to society are tobe effectively combated.

398

117TH INTERNATIONALPAPERSSEMINARPARTICIPANTS’PARTICIPANTS’ PAPERS

CURRENT SITUATION AND COUNTERMEASURESAGAINST MONEY LAUNDERING
Kevueli Tunidau *I. INTRODUCTION/BACKGROUND
Crime has traditionally been considereda domestic matter, a part of the life of eachsovereign state with which it must cope.
Criminals were almost always nationals of
the sovereign state and crimes havegenerally been committed within it’sborders. The ability to regulate crimes andpunish those who transgress society’s rules
has been, until recently, a matter fiercely
guarded by each sovereign state. Moneylaundering, although not a newphenomenon, has become the talk of
academics, law enforcement agencies andpoliticians. The reason appears to bebecause this crime has become an
Organized Transnational Crime (OTC)
conducted on a massive scale by OrganizedTransnational Criminal Enterprises(OTCE) or syndicates (see UN Report on
the Fifth Session, Economic and Social
Council Official Records, 1996, Supp 10).
In short, money laundering and those who
engage in it, have gone global and Fiji is
no exception to it’s influences.
A. South Pacific Regional Meetings
on OTCAs an OTC, money laundering can only
be combated by Fiji in cooperation withother sovereign states. However, it is in
the sphere of regional bodies that a mostcoordinated approach in addressing OTCE
and money laundering had been very
effective. The Forum Secretariat andCommonwealth Secretariat had been
instrumental in harnessing the cooperationand participation of South Pacific island* Barrister & Solicitor, Office of the Director of Public
Prosecutions, Fijinations and enhancing an understanding
and effective implementation of proceedsof crime, mutual assistance in criminal
matters and extradition arrangements.
Fiji is very much indebted to theJapanese Government and her various
donor agencies for the technical support,
expertise, training and funding to facilitate
the various mechanisms of combating
crime in the Pacific. The Fiji Government
also acknowledged the invaluable role of
JICA and UNAFEI and the need for theirsupport to continue.
B. Honiara Declaration
Although Fiji and her Pacific Islandneighbors are not members of the Financial
Action Task Force (“FATF”) which was
founded by the G-7 Summit in Paris in
1989, to examine ways to combat money
laundering, the need for uniformity and acoordinated approach to tackle thistransnational crime despite differing legal
systems, language and culture was wellrealized regionally.
The Declaration by the South Pacific
Forum on Law Enforcement Cooperationin Honiara, Solomon Islands on July 1992[“Honiara Declaration”] echoed theconcerns of Pacific Forum leaders that ‘anadverse law enforcement environment could
threaten the sovereignty, security andeconomic integrity of Forum members andjeopardize economic and social
development..... and the potential impactof transnational crime was a matter ofincreasing concern to regional states andenforcement agencies.’ The Honiara
Declaration recognized ‘Mutual Assistance399

RESOURCE MATERIAL SERIES No. 58
in Criminal Matters’, ‘Forfeiture of theProceeds of Crime’ and ‘Extradition’ as very
vital in the region’s concerted effort tocombat money laundering and other OTC.
Mutual assistance in criminal matters‘would enhance cooperation between theircourts, prosecution authorities and law
enforcement agencies.’
Forfeiture of the proceeds of crime‘enables the proceeds and instrumentalities
of crime to be traced, frozen and seized’. To
attain this there is a ‘need to regulatebanking and other financial services toreduce the possible manipulation of these
services to “launder” the proceeds of crime.’
A proper regulation of the banking system
would ensure that bank secrecy laws
cannot be used as a shield for thelaundering of criminal profits nor to
obstruct the operation of mutual assistancearrangements.
The Honiara Declaration also recognizes
the need for Fiji and her neighbors toreview extradition arrangements within
the region and steps to be taken thatextradition legislation be modified in linewith the United Nation’s Model Treaty on
Extradition or on the current London
Scheme for the Rendition of Fugitive
Offenders within the commonwealth.
The Honiara Declation was thus theplatform for Fiji to legislate laws on Mutual
Assistance in Criminal Matters andForfeiture of the Proceeds of Crime and to
modify her extradition legislation as
pointed to above. Fiji fulfilled her desire
to combat money laundering and other
OTC by enacting the Proceeds of Crimes
Act, 1997 (POC) and the Mutual Assistancein Criminal Matters Act, 1997 (MACM).

400

II. CRIMINALIZATION OF MONEY
LAUNDERING IN FIJI
A. Scheme of the POC Act
It appears to be accepted that there arethree phases or stages in the laundering
process:(i)
Placement: where cash enters thefinancial system;(ii) Layering: where the money is
involved in a number oftransactions; and(iii) Integration: where money is mixed
with lawful funds or integrated
back into the economy, with theappearance of legitimacy.
The POC Act endeavors to trace andmonitor these phases of laundering
culminating in a recovery process of theproceeds of crime. Thus the scheme of the
Act is:“To provide for confiscation of theproceeds of crime to deprive persons of theproceeds, benefits and properties derived
from the commission of serious offences andto assist law enforcement authorities intracing the proceeds, benefits and properties
and for related matters”.
B. Purpose of the POC Act
It’s purpose is threefold:(i)Permits a court in Fiji to grantorders for the forfeiture andconfiscation of property used inconnection with the commission ofa serious offence;(ii) Read together with the MACM Act
1997 it will provide a mechanism
for parallel orders issued in aforeign country to be given effectin Fiji; and(iii) Targets proceeds of a serious
offence. ‘Serious offence’ is defined
under section 3 of the Act as an
offence of which the maximum
penalty prescribed by law is death,117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
or imprisonment for not less than
12 months.
C. Money Laundering as an Offence
Part V of the POC Act creates money
laundering as an offence against a natural
person and a body corporate by virtue ofsection 69 (2) (a) & (b) respectively. It isalso the penalty provision. Section 69 (3)POC Act considered money laundering an
offence where:
A person either• engages directly or indirectly in atransaction that involves money, orother property, that is proceeds ofcrimeOr• receives, possesses, conceals, disposesof or brings into Fiji any money, orother property, that is proceeds of
crime
And
• the person knows, or oughtreasonably to know, that the moneyor other property is derived orrealized, directly or indirectly, fromsome form of unlawful activity.
• Section 70 creates an offence ofreceiving, possessing, concealing,
disposing of or bringing into Fiji ofany money or property that isproceeds of crime.
• Section 71 imputes liability on a body
corporate within the scope of thecompany’s director, servant or agent’s
actual or apparent authority or of any
other person at the direction, consent
or agreement of a director, servant or
agent’s scope of actual or apparent
authority.

III. SCOPE AND EXTENSION OF
PREDICATE OFFENCES FOR
MONEY LAUNDERING
Fiji is yet to determine and fully gauge
the scope and extension of predicate
offences for money laundering due to it’sinternalization and sophistication. Despite
this the joint cooperation of foreign
detection and investigating agencies
resulted in the seizure of about 300
kilogrammes of heroin with a street valueof about F$25million in Suva recently. A
Chinese national from Hong Kong and Fiji
Chinese national were arrested and now
awaiting trial. The joint operation involved
about 20 agents from the Fiji Police Force,
Australian Federal Police, Royal Canadian
Mounted Police, the United States Drug
Enforcement Administration and New
Zealand Police.
Another factor to consider in this regard
is the absence in Fiji of a FinanceIntelligence Unit (“FIU”) manned byappropriately trained people to analyze andmonitor various commercial and banking
transactions.
Thus the scope and extension ofpredicate offences for money laundering inFiji can not be fully realized without theassistance of foreign aid in cooperation with
our internal security agencies.
IV. FINANCIAL INTELLIGENCEUNITS (FIU)
As noted above, Fiji is yet to establish
Financial Intelligence Units. At this stage
it is a proposal by a POC Implementation
Committee comprising of the AttorneyGeneral, Director of Public Prosecutions,
Assistant Commissioner of Police and a
representative of the Reserve Bank of Fiji.
The committee’s task is to look at
regulations that can be put together tostrengthen the Proceeds of Crime Act. The
FIU is proposed to be manned by

401

RESOURCE MATERIAL SERIES No. 58
appropriately trained officers of the police
force and reserve bank.
The committee is also mooting theestablishment of a regional FIU with theview that it be located in a more developed
country such as New Zealand or Australia
due to their established infrastructure andtechnological advance. The exchange of
information between the national andregional FIU would assist recipient
national statutory bodies such as the Fiji
Trade and Investment Board about anindividual person, organization or
corporate entity.
It is envisaged that the expert andtechnical nature of a FIU requires
assistance in the training of personnel inthis area and the appropriate technology.
V. COOPERATION BY BANKS AND
NON-BANK FINANCIAL
INSTITUTIONS
A. Definitions
A “bank” under section 3 of the POC Act
means:• the Reserve Bank of Fiji; or• a bank within the meaning of the
Banking Act.
The Banking Act defines it as any
financial institution whose operations
include the acceptance of deposits of money
withdrawable or transferable by cheque orother means of payment transfer.
Under section 63 of the POC Act‘financial institution’ means:• a bank• a credit union; or• a trust company, finance company ordeposit taking company.
The Banking Act defines ‘financial
institution’ as any company doing banking
business. It further defines ‘banking

402

business’ as:• the business of accepting deposits ofmoney from the public or members
thereof, withdrawable or payable
upon demand or after a fixed period
or after notice, or any similar
operation through the frequent salesor placement of bonds, certificates,
notes or other securities, and the useof such funds, either in whole or inpart, for loans or investments for theaccount and at the risk of the person
doing such business; and• any other activity recognized by the
Reserve Bank as customary banking
practice which a licensed financial
institution is authorized to do by the
Reserve Bank.
It would be noted that the definition ofa financial institution under section 63
POC Act is very limited. It does not coverlawyers who operate sole or inpartnerships, accounting firms, foreignexchange agencies, travel agencies, second
hand car-dealers, etc.
The POC Committee is proposing toamend the definition in line with the
Financial Transactions Reporting Act No.
33 of 2000 of the Republic of Vanuatu.
Under that Act the following falls within
the meaning of a financial institution:• Reserve Bank of Vanuatu;• A licensee within the meaning of the
Financial Institutions Act;
• A company licensed as an exemptedbank or financial institution under the
Banking Act;
• A company licensed under the
Vanuatu Interactive Gaming Act;
• A person licensed under the Casino
Control Act;
• A person carrying on business underthe Betting Control Act;

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS• A person carrying on business under
the Gaming Control Act;
• A person carrying on a business:• Of administering or managing funds
on behalf of an international company
within the meaning of theInternational Companies Act• as a trustee in respect of funds ofother persons• as a trustee or manager of a unittrust
• A person carrying on a business of an
insurer, an insurance intermediary, asecurities dealer or a futures broker;• A person carrying on a business of:• exchanging money;• collecting, holding, exchanging or
remitting funds or otherwise
negotiating fund transfers onbehalf of other persons;• preparing pay-rolls on behalf ofother persons from funds collected• delivering funds;• A lawyer, but only to the extent thatthe lawyer receives funds in thecourse of his or her business for the
purpose of deposit or investment or
settling real estate transactions;• An accountant, but only to the extent
that the accountant receives funds inthe course of his or her business forthe purposes of deposit or investment;• A person carrying on a business of:• Dealing in bullion;• Issuing, selling or redeeming
traveler’s cheques, money orders
or similar instruments;• Collecting, holding and delivering
cash as part of a business orproviding payroll services;• A credit union under the Credit
Unions Act or a cooperative society
under the Cooperative Societies
Act;
A person carrying on electronic businessunder the E-Business Act.
The limited meaning of a financial
institution under the POC Act, unlike the
Financial Transactions Reporting Act of
Vanuatu, limits the scope of expectation forcooperation of non-bank financial
institutions that do not fall within themeaning of a financial institution.
B. Retention of Records by
Financial Institutions
Section 59(1) stipulates that a financial
institution is to retain the original of adocument that relates to a financialtransaction carried out by the institution,
for the minimum of the retention period i.e. 7 years (s 63). Such document pertains
to:• opening and closing of an account;• operation of an account;• opening or use of a deposit box;
• telegraphic or electronic transfer offunds;• transmission of funds between Fijiand a foreign country or between
foreign countries; and• application for a loan and grant of theloan.
Section 59 (3) requires a financial
institution to retain the original documentson microfilm or in another way to facilitate
retrieval of them reasonably practicable.
Section 59(4) imposes penalty of notexceeding $30,000 for an institution that
contravenes subsection (1) & (3).

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RESOURCE MATERIAL SERIES No. 58
C. Register of Original Documents
Section 60 requires the institution toretain a copy of the original if the latter isrequired by law to release it before the endof the retention period and to maintain aregister of record the release of the
document.
D. Communication of Information to
Law Enforcement Authorities
Section 61 stipulates that where afinancial institution is a party to atransaction and the financial institution
has reasonable grounds to suspect that
information that the financial institution
has concerning the transaction:• be relevant to an investigation of or
the prosecution of a person for an
offenceor• may be of assistance in theenforcement of the Act
The institution may give the information
to a police officer or the Director of Public
Prosecutions.
Subsection (2) protects a financial
institution, it’s officers, employees or agent
against any civil liability in taking theaction stipulated under subsection (1).
Subsection (3) restricts the financial
institution, it’s officers, employees or agent
from disclosing to anyone else of it’ssuspicion or information given to the policeor the Director of Public Prosecutions
under subsection (1).
Subsection (4) penalizes any one who
contravened subsection (3)E. Protection for Financial
Institutions
Section 62 protects a financial
institution, it’s officers, employees or agent

404

for the purposes of sections 69 (money
laundering) and 70 (possession of property
suspected of being proceeds of crime).
VII. ASSET CONFISCATION
A. Conviction Based
Asset confiscation under the POC Act isbased upon the conviction of a person of aserious offence under the Act. A serious
offence is an offence of which the maximum
penalty prescribed by law is death, or
imprisonment for not less than 12 months.
Under section 4 (2) of the Act a person istaken to be convicted of a serious offence
if:• the person is convicted, whether
summarily or on indictment, of theoffence;• the person is charged with, and foundguilty of, the offence but is discharged
without conviction; or• a court, with the consent of the person,
takes the offence, of which the person
has not been found guilty, into accountin passing sentence on the person foranother offence.
B. Application by Director of Public
Prosecutions (DPP) for
Confiscation Order
Section 5 (1) (b) of POC Act stipulates
that after a person is convicted of a serious
offence the DPP may apply to the court fora confiscation order against the person
convicted in respect of benefits derived bythat person from the commission of theoffence.
C. Notice
Section 7 (2) provides that when the DPP
applies for a confiscation order against aperson he/she should give the person
written notice of the application. The
person upon receipt of the notice may
appear and adduce evidence at the hearing

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERSof the application.
D. Amendment of Application
Section 8(1) of the Act allows the DPP toamend the application at any time before
the final determination of the application,
to include any other benefit upon being
satisfied that the benefit was notreasonably capable of identification when
the application was originally made; ornecessary evidence became available only
after the application was originally made.
The DPP is obliged to give written noticeof the amendment because the effect of theamendment would be an additional benefit
in the application for the confiscation order(subsection 4).
E. Procedure on Application
The court may in determining anapplication for a confiscation order haveregard to the transcript of any proceedings
against the person for the offence (section
9(1)).
Where an application is made for a
confiscation order to the court before which
the person is convicted, and the court has
not, when the application is made, passed
sentence on the person for the offence, thecourt may if it thinks fit, defer passing
sentence until it has determined theapplication for the order (section 9(2)).
F. Confiscation Order on Conviction
Where a court, after hearing the DPP’s
application for a confiscation order, issatisfied that a person has benefited fromthat offence, order the person to pay into
court an amount equal to the value of theperson’s benefits from the offence or theamount that might be realized at the time
the confiscation order is made (section 20(1)).
Section 20 (3) provides that the court can
not make a confiscation order:• until the period allowed by the rulesof the the court for the lodging of an
appeal against conviction has expired;• where an appeal against conviction
has been lodged - until the appeal
lapses or is finally determined.
G. Rules for Determining Benefit
and Assessing Value
A person’s benefit is the value of theproperty so obtained (section 21(1)).
Where a person derives an advantage
from the offence committed, the advantage
is deemed to be a sum of money equal tothe value of the advantage so derived(section 21(2)).
The court in determining whether aperson has benefited from the commissionof a serious offence and in assessing thevalue of the benefit, shall, unless thecontrary is proved, deem:(a) all property appearing to the court tobe held by the person on the day on
which the application is made; andall property appearing to the court tobe held by the person at any time:• within the period between the day
the offence was committed and the
day on which the application is
made, or• within the period of 5 years
immediately before the day on
which the application is made,to be property that came into thepossession or under the control of theperson by reason of the commission of theoffence;(b) any expenditure by the person met
out of payments received by the
person as a result of the commission

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RESOURCE MATERIAL SERIES No. 58
of that offence; or(c) any property received or deemed tohave been received by the person asa result or in connection with thecommission of the offence, to beproperty received by the person freeof any interests therein (section
21(3)).
The court will leave out of account any
benefits of a person that are shown to thecourt to have been taken into account whena confiscation order has previously been
made against the person (subsection (4)).
If evidence is given that the value of aperson’s property after the commission of
the offence exceeded the value of his or her
property before the commission of theoffence, the court will treat the value of thebenefits derived from the commission of theoffence as being not less than the amountof the excess (subsection (5)).
If the person satisfies the court that thewhole or part of the excess was due tocauses unrelated to the commission of theoffence, subsection (5) will not apply to theexcess (subsection (6)).

H. Statements Relating to Benefits
from Commission of Serious
Offence
Section 22 (1) & (2) requires the DPP totender into court a statement which
determines that a person has benefited
from the offence and an assessment of thevalue of the person’s benefit after a copy ofthe statement had been served on that
person. The court will then require that
person to indicate whether he accepts theallegations in the statement. If he or she
does not accept any such allegation, to
indicate what he or she proposes to rely
on.

406

Where a person fails to comply withsubsection (2) the court may, for the
purpose of determination, treat theacceptance of the DPP as conclusive of thematters to which it relates (subsections (3)& (4)).
An acceptance by a person that he or she
received any benefit from an offence
committed is admissible in any proceedings
for any offence.
I. Amount to be Recovered Under
Confiscation Order
Section 23 provides that the amount tobe recovered under a confiscation ordershall be that which the court assesses tobe the value of the person’s benefit fromthe offence.
J. Variation of Confiscation Orders
The DPP may apply to the court for avariation of the confiscation order toincrease the amount by the value of theproperty (section 24).
K. Court May Lift Corporate Veil
In assessing the value of benefits derived
by a person from the commission of an
offence the court may treat as property ofthe person any property that is subject tothe effective control of the person whether
or not the person has any legal or equitableinterest in the property, or any right, poweror privilege in connection with the property(section 25(1)).
The court may have regard to:• shareholdings, debentures ordirectorships of a company that has
an interest in the property and mayorder the investigation andinspection of the books of a named
company;• a trust that has a relationship to theproperty; and• any relationship between persons

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
having an interest in the property(subsection(2)).
The court upon the application by the
DPP may make an order declaring theproperty under subsection (1) as available
to satisfy the order (subsection(3)). The
order may be enforced against the property
and a restraining order may be made in
respect the same property (subsection(4)).
L. Enforcement of Confiscation
OrdersSection 26 provides that an amountunder a confiscation order is a civil debt
due to the state and enforced as in civil
proceedings. A person who is a bankrupt
is dealt with under the Bankruptcy Act.
M. Registered Foreign Confiscation
Orders
Where under the MACM Act a foreign
confiscation order is registered in the court,
any amount paid, in Fiji or elsewhere, tosatisfy the foreign confiscation order shallbe taken to have been paid in satisfactionof the debt that arises by the registrationof the said order in court (section 27).
VIII. OTHER ANTI-MONEY
LAUNDERING SYSTEMS/STRATEGIESI had earlier draw attention to the
Mutual Assistance in Criminal Matters Act(MACM) and the Extradition Act. Bothlegislation complement the POC Act in theextradition of suspected offenders to andfrom Fiji and in areas of mutual criminal
assistance between Fiji and othercountries.
A. Extradition Act
The Fiji Extradition Act is broadly basedon the UK 1881 Fugitive Offenders Act. The
provisions of the Act have continued inforce even after Fiji became a Republic in
1987. All treaties negotiated and signed

before 1987 continued to be operative after
1987, although New Zealand and Australia
decided to negotiate new arrangements.
Section 4 of the Extradition Act provides
that:“Subject to the provisions of this Act, aperson found in Fiji who is accused orconvicted of an extradition offence in any
treaty state or designated Commonwealthcountry or who is alleged to be unlawfullyat large after conviction of such an offencein any such State or country, may bearrested and returned to that State or
country as provided by this Act.”
Commonwealth countries are thoselisted in the schedule to the Act - actual
membership of the Commonwealth washeld to be irrelevant in R v Brixton Prison
Governor ex parte Kahan (1989) 2 All ER.
An extradition offence is, in the case ofa treaty State, it is provided for by theTreaty, in the case of a designated
Commonwealth country, it falls within the
Schedule and is punishable withimprisonment for twelve months or more;
and if it satisfied the dual criminality test
set out in section 5 of the Act.
The scope of the Extradition Act isrestrictive and is due to the absence ofExtradition Treaties between Fiji and nonCommonwealth or treaty countries. But
this should change if money laundering is
to be tackled squarely because its effect is
global, international and wide ranging.
The United Nation described OTC andmoney laundering as a “formidable
problem for the International Community”,
a new form of “geopolitics” and “one of themost pernicious forms of criminality ofwhich the dimensions have yet to be fullymeasured and the impact fully
determined”. (Report of the SecretaryGeneral, 4 April 1996 at p.4; UN Press
Release SOC/CP/179 20 May 1996; UNCPJ

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RESOURCE MATERIAL SERIES No. 58
Newsletter nos. 30/31, Dec 1995 at p 5.)
Leading jurists have offered similar
predictions of gloom and peril (see Money
Laundering Control (Dublin) Sweet &Maxwell, 1996).
T h e n e e d f o r F i j i t o e x t e n d i t ’s
extradition treaty borders is due to the factthat OTCE are not limited to operating
within national borders, their internationalrole has become increasingly importantand powerful. Money laundering and theactivities of OTCE are said to “pose aserious threat worldwide in terms ofnational and international security, as wellas political, economic, financial and social
disruptions”. (Zvekic, International
Cooperation and Transnational Organized
Crime, (1996) ASIL 537.)
But even countries that have extradition
arrangements with Fiji or Commonwealthcountries, the incompatibility between
different systems in law, attitude ofcountries to the extradition of their own
nationals and conflicting claims ofjurisdiction are issues which affect theoutcome of a request for extradition, which
has a direct bearing on the real issue ofextradition - the ability of criminals to use
national boundaries and complicatedlegislation to avoid the justice system. Fijiand New Zealand, for example, saw theneed to strengthen their extradition
treaties by signing an Agreement on
Extradition on 21st March, 1992.
Further to this both countries exchanged
diplomatic notes for the passage of Mutual
Assistance in Criminal Matters allowing
video link evidence of witnesses in theirrespective countries.
B. Extradition Cases in Fiji
Our experience with the extradition
cases in the past decade or so has shownthat it requires a level of expertise not onlyin the ability to compare offences in two

408

different countries but also in the ability
to work with the Extradition Act and a bilateral treaty.
Recent years have seen a spate ofrequests. The request made by Fiji to theUnited Kingdom for the return of Kahan
to answer charges of arms smuggling, therequest by Fiji to Australia to extradite
Michael Desmond Benefield for Fraudulent
Conversion, the request by the UnitedStates to Fiji for the return of Kaspar Paul
Rutten for importation of marijuana, therequest by Australia to Fiji for the returnfor Rape, the request byof
New Zealand to Fiji for the return ofMaivelan for serious fraud offences and therequest of the Hong Kong Government for
the return of Tammie Tam Sukh Chong for
fraud offences.
The recent arrest of two people with
about 300 kilograms of heroin could be ourfirst money laundering case. Anotheraccomplice was recently convicted in
Kiribati and sentenced to 5 years in prison.
It is likely that Fiji will seek his extradition
after he has served his prison term to facecriminal charges in Fiji. It is establishedthat one of the accused persons hasproperties in New Zealand, Australia,
Canada and the United States of America.
There is much to be said for prioritizing
the enactment of extradition laws to ensurecompatibility of principles andpracticability of arrangements to assist in
combating money laundering. There areat present too many accessible countries
where there are no extradition
arrangements. Such a vacuum exists tobenefit money launderers who can crossnational boundaries by whatever means
with ease.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
C. Mutual Assistance in Criminal
Matters Act 1997 (MACM)
Fiji enacted the MACM Act in 1997
together with the POC Act. We are yet tosee some major developments in Mutual
Assistance where the Act was practically
implemented. We are on a learning curve
and the only way of developing expertiseis to run cases.
D. Procedures
The Mutual Assistance system is basedon reciprocity and a network of treaties andconventions. However, the process depends
on each country having domestic legislation
to allow it to provide assistance to othercountries. The MACM Act is the domestic
law in Fiji.
If a country wants assistance from Fiji
which involves the exercise of compulsory
powers, it has to make a formal request to
the Attorney- General of Fiji. The AttorneyGeneral will decide whether assistanceshould be provided. If the Minister decides
that assistance should be provided, therequest is forwarded to the Commissionerof Police, if it requires investigative action,
to the DPP, if it requires court action inFiji.
E. Investigation
The provisions which apply at theinvestigation stage in criminal assets cases
tap into the POC Act. They give the Courts
in Fiji the same powers in respect of aforeign investigation that they have in
relation to a financial investigation being
conducted in Fiji. The Fijian courts canissue search warrants, make production
orders and monitoring orders.
F. Cases
As pointed earlier, the only cases so farthat had invoked the MACM Act arevarious serious criminal cases in Fiji where
either the complainants or witnesses havereturned abroad or have migrated. The

assistance is by taking of evidence by the
courts of the requested country via video
link. However, mutual assistance in thisregard applies only to witnesses who are
in Australia and New Zealand.
IV. CONCLUSION
Fiji has recognized the potential threat
to her sovereignty, security and economic
integrity by money laundering and other
OTC. It is also recognized that throughthe work of the Financial Action Task Force(FATF) and other bodies, criminals arebeing progressively squeezed out of otherregions by tighter laws. They are now
finding Fiji and other South Pacificcountries to be an attractive target. As aresult money laundering and other OTC
are becoming more prevalent in the region.
To counter these threats Fiji enacted the
POC Act 1997 and MACM Act 1997. The
POC Act criminalise money laundering andput in place a system of forfeiture of tainted
property and confiscation of assets orproceeds of criminal activities after aperson is convicted of the commission of aserious offence under the Act.
The MACM Act provide mutual
assistance in criminal matters between Fijiand other countries. While the Mutual
Assistance legislation facilitates obtaining
material overseas, it does not of itself makethat material legally admissible in the
courts of the requesting jurisdiction.
Admissibility can be achieved byrelatively simple amendments to theevidence laws of the requesting
jurisdiction. For example, such
amendments could provide that properly
authenticated material obtained fromoverseas under a Mutual Assistancerequest could be prima facie admissible inevidence, subject to the discretion of the
Court to exclude it in the interests of409

RESOURCE MATERIAL SERIES No. 58
justice.
For effective extradition between Fijiand other countries, the basic laws should
allow the executive of each nation to
respond to requests for the surrender offugitive criminals. While reserving its
sovereign right to refuse extradition incertain exceptional cases, the nation’s law
should enable it to surrender fugitives toanother country in cases where that action
does not offend its public policy.

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117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS

THE SUSPICIOUS TRANSACTION REPORTING SYSTEM AND
ITS EFFECTIVE USE
Tatsuo Ueda *I. INTRODUCTION
The countermeasures against money
laundering in Japan have just started inrecent years. One of the most importantpillars among them is the Suspicious
Transaction Reporting (STR) system.
However, unfortunately, the STR system
in Japan has not been utilized effectively
yet. In this presentation, the current
situation of the Japanese STR system andalso its effective use will be examined andstudied.
II. SUSPICIOUS TRANSACTIONREPORTING (STR) SYSTEM AND
FINANCIAL INTELLIGENCE UNIT
(FIU)
A. STR System
The Suspicious Transaction Reporting(STR) system is the principle mechanism
to fight against money laundering. It is
designed to use information reported byfinancial institutions for investigations ofmoney laundering and predicate offences,and to prevent crime organizations fromabusing financial services. Its purpose isto get useful financial information
concerning money laundering fromfinancial institutions, to utilize theinformation for actual investigations andto maintain confidence in financial
institutions and the overall financial
system.
Article 54 of the Anti-Organized Crime
Law provides that “any bank or otherfinancial institution ... shall promptly* Narcotics Control Officer, Kanto-Shinetsu Regional
Bureau of Health and Welfare, Japan

report to the Minister in charge ... when it
is deemed that there is a suspicion that theproperty received by such financial
institution ... is crime proceeds.” This
Article is the basis of the Japanese STR
system. In short, this system requests
financial institutions to report suspicious
persons and their financial activities to law
enforcement authorities. The law
enforcement authorities will utilize suchinformation as a clue for their actual
criminal investigation.
Figure. 1 Flow Chart of the STR
SystemFinancial Institutions
Suspicious Transaction
ReportFinancial Intelligence Unit
Useful Information
Law Enforcement Authorities

The STR system is not a system that was
introduced only in Japan. This system isrecommended internationally as theeffective mechanism to prevent and detectmoney laundering.
The 40Recommendations of the Financial Action
Ta s k F o r c e ( FAT F ) , w h i c h i s t h einternational standard for anti-money
laundering measures, states as follows:
Recommendation 14
Financial institutions should pay
special attention to all complex,
unusual large transactions, and all
unusual patterns of transactions,which have no apparent economic orvisible lawful purpose. The
background and purpose of suchtransactions should, as far as possible,

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RESOURCE MATERIAL SERIES No. 58
be examined, the findings establishedin writing, and be available to help
supervisors, auditors and law
enforcement agencies.
Recommendation 15
If financial institutions suspect thatfunds stem from a criminal activity,
they should be required to report
promptly their suspicions to thecompetent authorities.
This concept is based on the actualitythat it is very difficult to chase the money
flow, once it enters the financial system.
Therefore, it is necessary for the law
enforcement authorities to get cooperation(in short, information) from financial
institutions before (or when) illegal money
enters the financial system. Financial
institutions are expected to play a role of afirst barrier against illegal money, as theycan examine such financial transactions
from the viewpoint of their expertise. The
cooperation from financial institutions isessential to detect money laundering. In
this connection, in the case of Japan, there
is no punishment for financial institutions
not submitting STRs. Since judgment byfinancial institutions of whether it issuspicious or not has ambiguity, it is
impossible to impose a punishment onthem.
As Japan is the one of the major financial
centers of the world, the introduction of the
STR system into the Japanese legal system
was strongly recommended by related
international anti-money laundering
forums. As illegal money can cross borders
easily, other countries that had alreadyintroduced strict anti-money laundering
measures, such as the USA and European
countries, had concerns that Japan would
become a safe haven for illegal money.
In 1992, the STR system was first
introduced into Japanese legislation by theenactment of the Anti-Drug Special Law.
However, at first, the introduction of thisnew system created a lot of criticism fromJapanese financial institutions. The pointof these issues was the relationshipbetween bank secrecy and STRs. As it was
obvious that bank secrecy should be
disclosed to related authorities in cases
where a transaction might be related to acertain crime, financial institutions had
resistance to submitting STRs, even after
the enactment of the Law.

Table 1. History of Japanese Countermeasures

412

Year
1992

Name of the Law
Anti-Drug Special Law

2000

Anti-Organized Crime Law

Countermeasures• Predicate offences: only drug crimes• STR system was introduced.
• Predicate offences: almost all organizedcrimes• Comprehensive STR system wasintroduced.
• FIU (JAFIO) was established.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
B. Financial Intelligence Unit (FIU)In February 2000, the Anti-Organized
Crime Law was newly established in Japanand this law introduced a comprehensive
STR system. The scope of predicate offenceof money laundering was expanded toalmost all organized crimes. Based on thelaw, the Japan Financial Intelligence Office(JAFIO) was established in the Financial
Services Agency (FSA) as the Japanese
Financial Intelligence Unit (FIU). Whatis the FIU? The role of the FIU is:(i)to correct STRs from financial
institutions;(ii) to analyze STRs;(iii) to disseminate the results of theanalysis of STRs to law
enforcement authorities.
In other words, the role of the FIU is abridge between financial institutions andlaw enforcement authorities. The first FIU
in the world was the FinCEN (Financial
Crime Enforcement Network) in the USA,established in 1990. At present, more than
50 countries have FIUs; but the ministries
to which the FIUs belong differ among
these countries. In the case of the USA
and France, their FIUs belong to the
Department of Treasury or the Ministry of
Finance. On the other hand, in the case of
the UK, the FIU belongs to the Home
Office. In any case, the FIU is the central
national authority to act in the
aforementioned role, and it does not matter
where it belongs.
The absence of FIUs means that there
are no authorities to analyze STRs. Not
only is the introduction of the STR systeman essential instrument to fight againstmoney laundering but so is theestablishment of FIUs. Therefore, theestablishment of FIUs in Japan has also
been strongly requested by related
international anti-money laundering
forums. FIU is an essential unit in the STR
system. Regarding the STR system and

FIU, the United Nations Convention
against Transnational Organized Crime
requires member countries as follows;
Article 7, Paragraph 1: Each State Party:(a) Shall institute a comprehensive
domestic regulatory andsupervisory regime for banks andnon-bank financial institutions ...
which regime shall emphasize
requirements for customer
identification, record-keeping andthe reporting of suspicioustransactions;(b) ... shall consider the establishmentof a financial intelligence unit toserve as a national center for thecollection, analysis anddissemination of information
regarding potential moneylaundering.
III. CURRENT SITUATION OF THE
STR SYSTEM IN JAPAN
Figure 2 shows the transition of thenumber of STRs. Before 1999, the number
of STRs was very small. As I mentioned
before, the main reason for the small
number of STRs at that time was thereluctance of financial institutions todisclose bank secrecy. The following points
are considered as the reasons for that:(i)Lack of awareness about the STR
system by financial institutions.
(ii) Financial institutions could notjudge whether transactions wererelated to “drug crimes” or not,even when very suspicious.

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RESOURCE MATERIAL SERIES No. 58
Figure. 2 Suspicious Transactions Reporting
8000
7000
7000
6000
5000
4000
3000
2000
1059
1000
0

12

17

6

4

5

9

13

1992

1993

1994

1995

1996

1997

1998

1999

2000

Source: Finandial Services Agency (The data in 2000 is provisional.)
The data shows a drastic increase in thenumber of STRs after the enactment of theAnti-Organized Crime Law in 2000. The
present number of STRs, several thousands
per year, is equal level to the number ofother developed countries. The JAFIO(Japan Financial Intelligence Office) in the
Financial Services Agency receives a large
number of STRs from many financial
institutions. At present, the JAFIO iscomposed of thirteen staff members, someof whom are dispatched from law
enforcement authorities such as the Police,
Public Prosecutor’s Office, and the Customs
and Narcotics Control Office. Others arefrom the Financial Services Agency. People
from the law enforcement authorities
function as experts in criminal
investigation; whereas, those from the
Financial Services Agency have the role offinancial experts.
JAFIO has its own database in which
enormous data on STRs can be stored.
JAFIO also has computer software to
analyze STRs. This software was originallydeveloped by JAFIO; it can automaticallyconnect related transactions with persons.

414

JAFIO provides the results of their STRs
analysis to each law enforcement authority
every two weeks, in the form ofelectromagnetic data.
IV. PROBLEMS
Although the number of STRs is quite
large, the number of exposed cases ofmoney laundering in Japan has remained
small. In addition, there are no cases
where the results of analysis by JAFIO
have been used to instigate investigations
by law enforcement authorities. Thismeans that the STR system does notcontribute to law enforcement authorities
investigation nor do the law enforcement
authorities utilize the information obtainedby JAFIO. The following are my personalobservations of each organization.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
Table 2. Number of Exposed Cases of Money Laundering
Year
1992
Number of exposed cases0of money laundering

1993
1

1994
0

1995
2

1996
2

1997
0

1998
2

1999
1

Source: National Police Agency

A. Financial Institutions
As I mentioned before, after theenactment of the Anti-Organized Crime
Law, the predicate offences of money
laundering were expanded to almost allorganized crimes. However, Japanesefinancial institutions may misunderstandthe new Law. They seem to be underpressure to submit STRs, even if there is“little” suspicion. The original idea of the
STR system is that financial institutions
carry out first screening of suspicioustransactions. STR should be submitted to
JAFIO only when “really” suspicious.
According to what I have heard from mycolleagues in JAFIO, the quality of STRs
is still low. Therefore, the rapid increasein the number of STRs submitted fromfinancial institutions does not necessarily
present a good sign.
The Post Offices are also included infinancial institutions under the Law, andthey have a duty to submit STRs. However,until now, there have been only 2 cases of
STRs from Post Offices since 1990. This
extremely small number clearly showstheir negative stance against the STR
system. The Postal Service still has
difficulties concerning the disclosure ofcustomer’s secrecy.
B. JAFIO
The JAFIO in the Financial Services
Agency also has some problems. STRs are
submitted from financial institutions in theform of a paper or document on floppy disc.
If on a floppy disc, JAFIO can easily store
the information in their database.
However, according to what I have heard

from my colleagues in JAFIO, 90% of the
STRs are still submitted in the form of apaper. As the total number of staff in the
JAFIO is only thirteen, the manual storingof such an enormous number of STRs into
their database is a heavy burden for
JAFIO.
The analysis of STRs by JAFIO is also
insufficient. For this reason, JAFIO
analyzes only information contained in the
STRs submitted by financial institutions.
In other words, their present methodologyof analysis is carried out only from the pointof financial aspects.
As I mentioned before, the original
concept behind the JAFIO is as a bridge
between financial institutions and law
enforcement authorities, and JAFIO has
the role of providing high-quality
information about money laundering to law
enforcement authorities. For their mission,
not only financial analysis but also criminal
analysis has to be carried out.
However, JAFIO is not authorized tocarry out their own investigations nor
official inquiries to financial institutions.
During the drafting of the Bill of the AntiOrganized Crime Law, there was a
discussion that such power should be given
to the JAFIO. As a result, JAFIO was not
given such power because it was consideredthat only law enforcement authorities
should carry out such “criminal”
investigations, in compliance with criminal
procedures not administrative procedures.
As JAFIO is itself an administrative
organization, not a law enforcement

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RESOURCE MATERIAL SERIES No. 58
organization, its powers are limited.
It is necessary to analyze STRs to checksuspicious persons against existing
criminal databases. FinCEN in the USA
can access various governmental databases
to analyze STRs. However, JAFIO cannot
access related national or local databases,
such as criminal records, drivers license
records etc. The reason for this is simple.
JAFIO is not a law enforcement
organization. Under such conditions,
JAFIO cannot attach additional
informational value to STRs submitted
from financial institutions. The JAFIO,
with its present power, cannot provide
high-quality information about money
laundering to the law enforcement
authorities. Presently, the JAFIO cannot
attach additional information to theiranalyses, which is limited to correcting
STRs from financial institutions andputting STRs in order.
C. Law Enforcement Authorities
As I mentioned before, JAFIO provides
the results of their analyses of STRs to eachlaw enforcement authority every two
weeks, in the form of electromagnetic data.
In the case of the Narcotics Control
Department (NCD), the results of theiranalysis are stored in NCD’s databaseserver, and every Narcotics Agent canaccess the data through an intranet.
However, access to it still remains at a low
level. In the case of the Police, the National
Police Agency (NPA) receives data from
JAFIO in the first instance, and the NPA
distributes the data to each Prefectural
Police Headquarters.
The biggest problem that law
enforcement authorities have is the lackof interest in the STRs. It seems that manylaw enforcement officers still do not know
about the STR system and the existence of
JAFIO. Though this situation might becompounded by the low-quality of analysis

416

by the JAFIO, law enforcement authorities
should gain more interest in theinformation forwarded by the JAFIO.
As Japanese anti-money laundering
measures have just started, law
enforcement authorities still seem not to
be interested in money laundering, or they
do not still have enough expertise to carryout money laundering investigations.
V. PROPOSALS TO SOLVE THESE
PROBLEMS
The following are my proposals toimprove the present STR system in Japanand the activities of the JAFIO.
A. Financial Institutions
The STRs submitted from financial
institutions are the basis of the STR
system. Therefore, the quality of STRs isvery important. As I mentioned before, thenumber of STRs from financial institutions
might be sufficient, but its quality is still
low. To improve the quality, I propose thefollowing measures.
1. Increase Attention to Money
Laundering Prevention
As the countermeasures against money
laundering in Japan have just started inrecent years, the attention paid by financial
institutions to money laundering detection
or prevention is still inadequate. To
enhance their attention, the authorities
concerned should provide education aboutmoney laundering and its
countermeasures. Seminars for financial
institutions should be improved so thatthey will be able to better understand theirimportant role in money laundering
prevention. Not only financial authorities
but also law enforcement authorities
should be involved in such seminars.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
2. Improve the Quality of STRs
In the seminar, law enforcement
authorities have to provide current
information about money laundering forthem. For example, actual cases of money
laundering, including the modus operandi
of money laundering abusing legal
financial systems, should be introduced inseminars, whereby financial institutions
can better understand their obligations androle in such transactions.
3. Involvement of the Post Office
The Post Office is a major and importantfinancial institution in Japan. Theirinvolvement in countermeasures againstmoney laundering is crucially important.
Like private financial institutions,seminars concerning money laundering fortheir staff are necessary to enhance theirattention to money laundering. In
addition, the Post Office should establish
a central unit for anti-money laundering
activities. Their lack of attention or drive,
due to the nature of the Post Office as anationalized organization, will cause
crucial damage to nationalcountermeasures against money
laundering.
B. JAFIO
The JAFIO is the most importantorganization in the Japanese anti-money
laundering scheme. Their reinforcement
is essential to improve the current situationof money laundering Japan.
1. S t r e n g t h e n i n g o f H u m a n
Resources of the JAFIOThe human resources of the JAFIO
should be reinforced. As the lack ofattention to the issues of money launderingin the Financial Services Agency (FSA)
itself, the position of the JAFIO is lessappreciated. Therefore, sufficient humanresources are not allocated to the JAFIO
within the FSA. However, as money
laundering damages the confidence ofJapanese financial systems, the FSA
should allocate more people to the JAFIO.
In addition, as users of information from
JAFIO, law enforcement authorities should
dispatch more people to JAFIO.
2. Power of Investigation to the
JAFIOPower of investigation is necessary for
JAFIO to effectively carry out theiranalysis. With such, the JAFIO will be able
to get the necessary, complementary
information from financial institutions. In
addition, the JAFIO should be able toobtain information related to crimes, suchas personal criminal records from law
enforcement authorities. Thus, JAFIO
would be able to carry out high-quality
analysis of STRs and provide useful
information to law enforcement authorities
for their investigation. Needless to say, the
JAFIO itself is not a law enforcement body,
but a minimum power of investigation isnecessary to improve the ability of its
analysis.
C. Law Enforcement Authorities
1. Enhance their Attention to Money
LaunderingFirst, like financial institutions, theirattention to money laundering is stillinsufficient. Law enforcement authorities
are required to study money-laundering
investigations and also examine theeffective use of JAFIO information.
Therefore, each law enforcement authority
should more actively conduct educational
programs for their officers, to improve theirexpertise on money laundering.
In addition, the distribution of JAFIO
information to each law enforcement
authority must be improved. Information
should be accessed by or distributed to all
the law enforcement officers. These
measures will contribute to the elevationof anti-money laundering awareness in all
law enforcement officers.

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RESOURCE MATERIAL SERIES No. 58
All law enforcement authorities should
contact JAFIO more actively. Theirrequests or inquiries to JAFIO are expected
to contribute to the close relationshipbetween law enforcement authorities andthe JAFIO. Regular meetings between law
enforcement authorities and the JAFIO
should be held more frequently.
VI. CONCLUSION
In Japan, the countermeasures againstmoney laundering have just started andfruitful outcomes have not yet been seen.
Though it might be too early to judge thepresent STR system, several problems
have already appeared. The STR system
is a key mechanism of thecountermeasures; thus the improvement of
the STR system will boost the nationwide
anti-money laundering movement.

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117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS

CURRENT SITUATION AND COUNTERMEASURES AGAINSTMONEY LAUNDERING IN SOUTH AFRICA
Ronel Van Wyk *I. INTRODUCTION
South Africa moved into an entirely new
dispensation with a new democraticallyelected government that came into power
on 27 April 1994. The return of South
Africa to the international arena, thederegulation of financial markets andadvances in communications technology
have brought a dramatic increase inorganized crime in the Republic. With agrowing awareness of the threat presentedb y d i r t y m o n e y, S o u t h A f r i c a h a s
introduced certain measures to protect
itself. Certain objectives have been reached
and a comprehensive legislative framework
to combat money laundering was developedin a fairly short period of time.
II. DEFINITION
Various definitions can be given formoney laundering, each designed to fit a
specific set of circumstances in whichmoney laundering is taking place. In its
simplest form money laundering can be
defined as the manipulation of money orproperty in order to misrepresent its true
source or nature.
III. THE FINANCIAL ACTION TASKFORCE (FATF)
South Africa is not a member of the
Financial Action Task Force. However, themajor financial centre countries of Europe,
North America and Asia are members andhave adopted the forty recommendations* National Coordinator, Project Investigations
Commercial Branch Head Office, Detective Service
South African Police Service, South Africa

as a standard for an effective money
laundering control strategy. These
countries will therefore measure South
Africa’s money laundering control strategy
against the forty recommendations.
Furthermore, the FATF has alreadyembarked on projects involving South
Africa and there is distinct possibility that
South Africa will become involved in the
FATF.
IV. DEVELOPMENT OFLEGISLATION IN SOUTH AFRICA
A. The Drugs and Drug Trafficking
Act, 1992 (Act No 140 of 1992)
The first set of money laundering
legislation in South Africa came into
operation on 30 April 1993. Moneylaundering was originally criminalized in
the Drugs and Drug Trafficking Act, 1992
(Act No 140 of 1992). The Act criminalizedinter alia the laundering of proceeds ofspecific drug-related offences and required
the reporting of suspicious transactions
involving the proceeds of drug-related
offences. It also provided mechanisms for
restraining and confiscation orders in
respect of such proceeds and forinternational assistance regarding theenforcement of foreign confiscation orders
in respect of the proceeds of drug-related
offence.
B. The Proceeds of Crime Act, 1996
(Act No 76 of 1996)
The general offence of money laundering
was later included in the Proceeds of Crime
Act, 1996 (Act No 76 of 1996). The Proceedsof Crime Act criminalized the launderingof the proceeds of any type of offence. The

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RESOURCE MATERIAL SERIES No. 58
Act came into effect on 16 May 1997 andprovided, inter alia, for the confiscation of
the proceeds of crime in general. It createda general reporting obligation forbusinesses coming into possession of
suspicious property and also madeprovision for the freezing and confiscationof the proceeds of crime. The misuse of
information, the failure to comply with anorder of court in terms of the Act andhindering a person in the performance of
his or her functions under the Act was also
criminalized.
C. The Prevention of Organized
Crime Act, 1998 (Act No 121 of
1998)
Money laundering has been declared acriminal offence in South Africa in termsof the Prevention of Organized Crime Act,
1998 (Act No 121 of 1998)(POCA) whichcame into operation on 21 January 1999.
The Prevention on Organized Crime Act:
• Criminalises racketeering and creates
offences relating to activities ofcriminal gangs.
• Criminalises money laundering in
general and also creates a number ofserious offences in respect of thelaundering of the proceeds of a patternof racketeering activity;• Contains the general reporting
obligation for businesses acquiring
suspicious property;• Contains mechanisms for criminal
confiscation of proceeds of crime andfor civil forfeiture of proceeds andinstrumentalities of offences;• Allows the National Director of Public
Prosecutions to obtain information for
purposes of an investigation under the
Act from any statutory body, andcreates• mechanisms for co-operation between
the investors and the Commissionerof the South African Revenue

420

Services.
Amendments to address certain flaws in
the Act were effected by the Prevention ofOrganized Crime Amendment Act, 1999
(Act No 24 of 1999) and the Prevention ofOrganized Crime Second Amendment Act,
1999 (Act No 38 of 1999).
Section 2 of the Prevention of Organized
Crime Act makes provision for seven (7)offences relating to racketeering activities.
This section is largely based on the RICO
(Racketeering Influenced and Corruption
Organisations) legislation of the UnitedStates. The purpose of declaring these
activities to be offences is to prevent the
infiltration and contamination oflegitimate enterprises by organizedcriminals and to prevent them fromacquiring any interest in theestablishment, operation or activities ofsuch enterprises.
Section 4 of the Act addresses the offenceof money laundering. This section applies
to any act committed in connection withproceeds of crime by a person who
appreciated or should have appreciated theillicit nature of the property, if it assists or
is likely to assist the criminal to avoid
prosecution or to hide, remove or diminish
the proceeds.
Section 5 of the Act prohibits any conduct
facilitating the retention or control of theproceeds of crime by another person, or
benefiting person. In terms of section 6 noone may acquire, use or possess theproceeds of crime unless he has reported
his suspicion to the reporting body.
The offence of money laundering, andrelated offences in terms of section 5 andsection 6 were previously dealt with by theProceeds of Crime Act, 1996 (Act No 76 of
1996), except for the fact that is now clearthat the offences can be committed
intentionally or through negligence. This

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
was done by substituting the phrase“knowing or having reasonable grounds tobelieve” in the Proceeds of Crime Act withthe phrase “knows or ought reasonably tohave known” in the Prevention ofOrganized Crime Act.
Section 7 of the Act imposes a reporting
duty on all persons conducting a businessor who are in charge of a businessundertaking and who suspect or oughtreasonably to have suspected (intention or
negligence) that:(i)any property which comes into his
or her possession or the possessionof the business undertaking, is orforms part of the proceeds of
unlawful activities;(ii) a transaction to which he or she or
the business undertaking is aparty will facilitate the transfer ofthe proceeds of unlawful activities;or(iii) a transaction to which he or she or
the business undertaking is aparty and which is discontinued:(a) may have brought the proceedsof unlawful activities intopossession of the person orbusiness undertaking: or(b) may have facilitated the transferof the proceeds of unlawful
activity, had that transaction
been concluded
The Act stipulates that the suspicion, as
well as all available information concerning
the grounds on which it rests, must bereported within a reasonable time to aperson designated by the Minister ofJustice. The designated person is theCommander of the subcomponent:
Commercial Crime Investigations, Head
Office of the South African Police Service.

The Proceeds of Crime Act was
problematic in the sense that businessundertakings that reported suspicioustransactions were refusing investigating
officers access to documents or records
listed in their report. These documents orrecords had to be obtained by means of anorder issued in terms of section 205 of the
Criminal Procedure Act, 1977 (Act No 51
of 1977), which, in many instances,seriously hampered and delayed moneylaundering investigations.
Section 7 of the Prevention of Organized
Crime Act, largely negates section 205
orders as a prerequisite for access to bankrecords. The Commander: Commercial
Branch can henceforth, in writing, require
the person/business making the report toprovide him with particulars “of any matter
concerning the suspicion to which thereport relates and the grounds on which it
rests”. The Commander may also instruct
the person or the business making thereport, to provide him with copies of allavailable documents concerning
particulars or further particulars. Persons
conducting a business or who are in chargeof businesses are rendered criminally liable
for failure to report their suspicions or tocomply with any other obligation
contemplated in section 7.
A person who knows or ought reasonably
to have known that a report has been made,commits an offence in terms of section 75(1)if he or she brings information to theattention of another person, which is likely
to prejudice an investigation.
No restriction on the disclosure of
information, whether imposed by any
statutory law, the common law or any
agreement, relieves the person of thisobligation, unless it can be classified under
the narrow heading of attorney-client
privilege.

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RESOURCE MATERIAL SERIES No. 58
Failure to comply with the reporting
obligation constitutes an offence for which
a person is liable to a fine or to
imprisonment for a period not exceeding
15 years. A person who is convicted of amoney laundering offence under section 4,5
or 6 of the Act is liable to a maximum fineof R100 million ($13 192 612) or to
imprisonment for a period not exceeding
30 years. Although the Proceeds of Crime
Act was repealed by the Prevention ofOrganized Crime Act, some of its provisions
may still be enforced.
D. A Proposed Financial
Intelligence Centre (FIC) BillA Financial Intelligence Centre Bill will
be tabled before the Parliament of South
Africa, probably in 2001. The object of theBill is to complement the Prevention ofOrganized Crime Act, 1998 (“POCA”) byintroducing mechanisms and measures
aimed at preventing and combating money
laundering activities. The essence of the
new legislation is that it places the
responsibility for detecting potentially
illegal activities on accountable
institutions.
The proposed Bill will inter alia provides
for the establishment of a Financial
Intelligence Centre (FIC) that will, among
other things, act as a centralised repository
and analyst of certain cash and suspicioustransactions. It will be an independent
statutory body, outside the Public Service
but within the public administration, as
envisaged by section 195 of theConstitution of South Africa, accountable
to the Minister of Finance. It will create aframework of laws and regulations tocontrol the way in which accountable
institutions conduct their business as far
as record keeping, reporting, staff, training
and compliance requirements areconcerned. The Bill will also impose certain
duties, such as the duty to identify clients,
the duty to keep records of transactions and422

the duty to report certain transaction to
the FIC, on institutions that may be used
for money laundering purposes. The FIC
will not be an investigative body. The
structure of the Centre has not been
decided on.
E. Other Legislation
Legislation which will help in the fightagainst money laundering, includes theInternational Co-operation in Criminal
Matters Act, 1996 (Act No 75 of 1996) andthe Extradition Amendment Act, 1996 (ActNo 77 of 1996). These Acts deal withmatters relating to the obtaining ofevidence from foreign states, supplying
evidence to foreign states, transferring theproceeds of crime, the carrying out of
foreign penal orders and sentences andextradition.
Apart from statutory measures, ourcommon law and existing law containcrimes and other provisions that may still
be employed by investigators andprosecutors in money laundering cases, eg:
(i)
(ii)

Fraud
Conspiracy in contravention ofsection 18(2) of the Riotous
Assemblies Act, 1956 (Act No 17 of
1956).
(iii) C o m p l i c i t y ( e i t h e r a s a n
accomplice or accessory after thefact); and(iv) Defeating, or attempting to defeat
the ends of justice.
V. TYPES OF MONEY
LAUNDERING SCHEMES IN
OPERATION
Much research is still required on money
laundering in South Africa. Statistics on
the magnitude of money laundering are notreadily available. Information on the main
methods employed by money launderers atpresent is also mainly anecdotal. However,117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
the following tentative observations can bemade about money laundering methods inSouth Africa:(i)

It appears that the informal
business sector is often abused formoney laundering. Front
businesses that are often
conducted include shabeens, taxi
operations and micro-lending
businesses.
(ii) Casinos were used extensively inthe past and some instances oflaundering still occur in thegambling industry.
(iii) Gold, jewellery, real estate, luxury
vehicles and furniture are oftenbought to wash money.
(iv) Professionals are sometimes
involved in money laundering
schemes. An investigation which
was conducted by an appointed
commission, showed an increase in
the use of attorneys’ trust accounts
for money laundering purposes.
(v) Cases are still often encountered
where hot money was deposited inbank accounts or washed bybuying insurance or other financial
instruments.
(vi) Electronic wire transfers to andfrom South Africa.
VI. NUMBER OF MONEY
LAUNDERING CASES IN SOUTH
AFRICA (EXCLUDING CASESREGISTERED AS ENQUIRIES)
A. Cases In Terms Of The Drugs And
Drug Trafficking Act
Although cases were investigated interms of this Act there has been noconvictions for money laundering.
B. Cases in terms of the Proceeds ofCrime Act
Four (4) cases were registered in termsof this Act. Three cases are still underinvestigation.
C. Cases in Terms of the Preventionof Organized Crime Act
Three (3) cases were registered in termsof this Act. One case is still underinvestigation. In two cases that are before
the court at present the suspects arecharged with fraud and with
contraventions of section 4 of thePrevention of Organized Crime Act, 1998
(Act No 121 of 1998). There has, however,not been any conviction for money
laundering in terms of the Prevention ofOrganized Crime Act.
VII. TRANSNATIONAL ORGANIZEDCRIMINAL GROUPS AND THEIRACTIVITIES
Gangsters have identified South Africa
as a fresh innocent market for money
laundering and international crime. The
opening of South African borders has
spurred dramatic growth in crime. With
globalisation, launders now have theability to manipulate financial systems tomove large sums of money across the world.
It is estimated that R200bn ($26 billion)
in drug money finds its way into thefinancial system annually.
VIII. ASSETS CONFISCATION
Chapter 5 of the Prevention of Organized
Crime Act, 1998 (Act No 121 of 1998) deals
with the confiscation procedures that haveto be followed to confiscate the proceeds of
unlawful activities. Apart from thecriminal confiscation procedure, thePrevention of Organized Crime Act also
introduced a civil forfeiture procedure.
Important differences between the criminal
confiscation procedure and the civil
forfeiture procedure include the following:(i)

The criminal confiscation
procedure focuses on the criminal
benefit that a person obtained

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RESOURCE MATERIAL SERIES No. 58
through unlawful activities. The
civil forfeiture procedure can also
be used to forfeit such criminal
benefit, but, in addition, allows theforfeiture of property that aided
the commission of an offence.
(ii) T h e c r i m i n a l c o n f i s c a t i o nprocedure follows upon theconviction of a person for an offence
that gave rise to criminal benefit.
No conviction or even prosecutionof any person is required fortainted property to be forfeited.
(iii) A successful criminal confiscation
procedure results in a court order
requiring the defendant to pay a
specific amount to the State, whilea successful civil forfeitureprocedure results in an orderforfeiting the specific property to
the State.
In terms of civil forfeiture the State may
seize and forfeit property merely byshowing that there are reasonable grounds
to believe that the properties concerned isan instrumentality of an offence referred
to in Schedule 1 or is the proceeds of
unlawful activities. Proceeds or the
instrumentality of an offence can,therefore, be confiscated and forfeited
without a conviction being a prerequisite.
Civil recovery of property does, however,not imply that the State can seize andforfeit property at will. The National
Director of Public Prosecution may apply
to a High Court for an order forfeiting to
the State.
The Act provides for two mechanisms todeprive the criminal of his ill-begotten
gains. These mechanisms are the so-called“restraint order” and the “confiscation
order”. A restraint order is a proactive
measure to conserve property, thereby
prohibiting a person from dealing in any
manner with any property to which theorder relates. A restraining order can only424

be made by the High Court of South Africa.
Only the National Director of Public
Prosecutions may apply to the High Court
to have a restraining order imposed.
Property which was instrumental in thecommission of a Schedule 1 offence or
which are the proceeds of unlawful
activities may only be seized by a police
official if the High Court has made a
specific order authorising the seizure of theproperty concerned by a police official.
Such an order may only be made once theHigh Court has made a preservation ofproperty order which is a freezing order,
prohibiting any person from dealing in any
manner with such property. The order can
only be granted following an application of
the National Director of Public
Prosecutions to the High Court.
If the court finds that the defendant
benefited from crime, the value of theproceeds of the defendant’s unlawful
activities is determined. Section 9 of the
Act provides that the value of a defendant’s
proceeds of unlawful activities is the sumof the values of the payments or otherrewards received by him or her at any time,
whether before or after the commencementof the Act. Section 15 of the Act prescribes
how the value of specific property, otherthan money, must be determined. Chapter
7 of the Prevention of Organized Crime Act
makes provision for the establishment of a
Criminal Assets Recovery Account to which
all moneys derived from the execution ofconfiscation and forfeiture orders will be
paid.
Civil recovery is undertaken by the Asset
Forfeiture Unit. The Unit was created interms of the National Prosecuting
Authority Act, 1998 (Act No 32 of 1998).
This Unit is headed by a Special Director
and is located in the Office of the National
Director of Public Prosecutions. The
mandate of the Unit is to:117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS(i)develop detail policy guidelines forforfeiture proceedings;(ii) institute forfeiture proceedings;
and(iii) co-ordinate the management ofassets subjected to restraining
orders.
Assets that have been confiscated thus
far in terms of the Act include, among other,several houses, luxury vehicles andfurniture that amounts to millions of rand.
Criminal investigations are pending
against the persons from whom theseassets were confiscated.
IX. THE REPORTING OFSUSPICIOUS TRANSACTIONSThe Prevention of Organized Crime Act
creates a general reporting obligation in
respect of suspicious transactions. A
suspicious transaction will often be one,which is inconsistent with a customer’s
known legitimate business or personal
activities or with the usual business forthat type of account. Whether that
suspicion is reasonable will depend on theparticular context and circumstances andthe client’s profile.
A. Prescribed Form of the Report
The report must be in writing and mustcorrespond substantially with the form
prescribed in the Prevention of Organized
Crime Regulations, 1999. The report must
contain the full particulars of:
(i)
(ii)

the person making the report;
the person against whom thesuspicion has been formed, in so far
as such particulars are available;(iii) the transaction or other action
whereby the property concerned
has come into the possession of theperson making the report; and(iv) the property concerned.

It must also set out the grounds on which
the suspicion rests and indicate what
documentary proof is available in respectof the transaction or action and in respectof the grounds for the suspicion. The reportmust be accompanied by copies of
documentation that are directly relevantto that suspicion and the grounds on which
it rests. The report must be handed or
faxed to the designated person or any
official of the subcomponent.
The Commander of the Commercial
Crime Investigations may, in writing,require the reporter to provide him withparticulars or further particulars on any
matter concerning the suspicion and thegrounds on which it rests, as well as copiesof all available documentation concerning
such particulars. If the person has therequired information or documentation, hemust comply with the request within areasonable time.
B. Analysis of the Reports
Analysis of the reported transactions is
the responsibility of the South African
Police Service. Reports made to Head
Office are analysed by designatedpersonnel. A reference number is allocatedto a report and an acknowledgement ofreceipt is sent to the reporting institution.
If the report meets the requirements interms of the Act and the regulations, thereport is sent to the Commercial Crime
Units of the Commercial Branch of theSouth African Police Service forinvestigation. The units concerned arerequested to provide Head Office with areference number and the particulars of theinvestigating officer within ten days after
the report has been received at their unitsr e s p e c t i v e l y. T h e o u t c o m e o f t h einvestigation must be reported to Head
Office after completion.

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C. A Case Involving the Cooperationof a Financial Institution in
Providing Information on
Suspicious Financial
Transactions
1. The State versus Jumnalalall
Bantho and Parshan Bantho
In 1997, a bank in South Africa reported
a suspicious transaction in terms of thethen Proceeds of Crime Act to the South
African Police Service. Further
investigations revealed that a person was
regularly depositing large sums of cash into
his private banking account and that
another person was depositing someconsiderably smaller amounts into the
trading bank account of a close corporation.
One of the suspects was requested to givean explanation of the deposits. He
informed the investigating officer that hehad a secondhand clothing business. He
said that he bought clothing stock from acompany in Swaziland and that he sold his
stock to hawkers and persons from theTranskei, a former homeland. He statedthat his turnover did not exceed R40 000,00($5 333) a month and did not have anyother source of income. He admitted that
he did not have an import permit from
Swaziland.
When the bank documents wereperused, it transpired that the accused had
deposited a sum of R 580 930,00 ($77 457)
in cash into his own bank account in August
1997. The suspect could not give an
explanation, as this amount had not been
deposited into his business account which
was held at another branch. It was further
established that the accused had a second
private account held at another bank inwhich he held R 901 000 ($120 133). He
withdrew money and transferred themoney to other accounts.
It was further established that Parshan
Bantho also had a number of vehicles and426

a house, of which the market value is R380000 ($50 666). There was a bond on thehouse to the value of about R220 000,00($29 333). Parshan Bantho only had thebusiness for about two years, and it would
not have been possible to accumulate theabove assets in a legitimate way. It was
believed that the assets were the proceedsof crime. Although the case was also
investigated in terms of the then Proceedsof Crime Act, the accused was found guilty
on charges of contraventions of the Importand Export Control Act, 1963 (Act No 45 of
1963).
X. COOPERATION BY BANKS AND
OTHER FINANCIAL INSTITUTIONS
Reporting institutions have identified asingle reference point within theirorganisation to which their staff must
report suspected money launderingtransactions promptly. These reports areevaluated by a qualified person within theinstitution and suspicious activities arereported to the South African Police
Service. The banks in South Africa haveacknowledged the fact that they have todevelop their own defence mechanisms
against money laundering activities. This
involves knowing the customer and his or
her business, refusing to act for customers
in suspicious transactions and determiningof the true ownership of all their accounts
and safe-custody facilities. The staff ofinstitutions are encouraged to co-operate
fully with the law enforcement agencies
and provide prompt information on
suspicious transactions.
In 1996 the Money Laundering Forumof South Africa was set up to createchannels of communication between
organisations in the private sector and thepolice. Matters of mutual importanceconcerning money laundering are
discussed during meetings.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
XI. OTHER ANTI-MONEY
LAUNDERING SYSTEMS/STRATEGIES
A. Intelligence Gathering and the
Capturing of Information on
Database
Information on suspicious activities andpersons is fed to a database of the South
African Police Service. The Individual
Structuring Information System (ISIS) isa database on which records and storesinformation in respect of suspect gangs,
syndicates, organisations and activities of
persons for enquiry purposes and thecombating of organized crime. Informationon persons against whom suspicions havebeen formed and their activities, in so far
as particulars are available, is fed to thisdatabase.
B. Establishment of an
Investigating Unit to Combat
Financial Crimes
It is envisaged that an Investigating
Unit that will be responsible for theinvestigation of reported suspicioustransactions and all money launderingcases, which may flow from the information
received will be established in 2001. The
Investigating Unit will be included under
the structures of the Commercial Branchof the South African Police Service. This
team will gather information on suspicioustransactions and proceed with further
investigations in this regard.

XII. INVESTIGATION OF MONEY
LAUNDERING IN SOUTH
AFRICA (METHODS OF
CONTROLLED DELIVERY AND
UNDERCOVER OPERATIONS)In the investigations which have thus
far been conducted in South Africa in termsof money laundering methods of controlled
delivery and undercover methods have notbeen used.
XIII. CONCLUSION
The most dangerous consequence ofmoney laundering schemes is that it places
vast amounts of money in the hands ofcriminals and enables them to put suchamounts to further illegal use. Regulatory
measures must be introduced to combat
money laundering by means of proactive
and preventive action. However, the key
to effective money laundering prevention
is recognition. It is important for financial
institutions to recognise those situations
in which money laundering might actually
be occurring. It is further a truism to saythat legislation is only effective as its
enforcement.

C. Sharing of Information
Section 73 of the Prevention ofOrganized Crime Act provides that theCommissioner of the South African
Revenue Service must be notified of any
investigations in terms of the Act,notwithstanding secrecy provisions inincome tax legislation, with a view tomutual cooperation and the sharing of
information regarding possible money
laundering activities.

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RESOURCE MATERIAL SERIES No. 58

CURRENT SITUATION AND COUNTERMEASURES AGAINSTMONEY LAUNDERING:TANZANIA’S EXPERIENCE
Saidi Ally Mwema *I. INTRODUCTION
Prior to the mid-1980s, our country had
no orientation with organized crimes. The
crime pattern was largely dominated byordinary traditional offences such as simple
thefts, sporadic incidents of armed
robberies, simple forgeries, and the like.
We could not by then envisage thatorganized criminal syndicates would one
day transcend across our borders with suchforce and speed.
Early symptoms of organized crimes
were first detected in 1983 when the
country experienced serious economiccrisis1. However, the nature and extent oforganized crimes by then differs from what
we are experiencing today. The organizedcriminal syndicates which dominated thescene were largely based within the
country, without any external connections.
As a result, even the legislation which wasenacted in 1984 to cater for that situation
contained fewer offences that forms partof the organized offences2. As a matter offact, the Act 3 was specifically tailoredagainst International Economic Saboteurs.
Though some of the provisions of the Act
are still valid and operational, their* Dar es Salaan Regional Crimes Officer, Tanzania
Police Force, Tanzania
1 This was the time when the then Prime Minister,late EDWARD MORINGE SOKOINE, declared andled the war against economic saboteurs.
2 The economic and organized crime control Act
number 13 of 1984.
3 Ibid;428

application to what is taking place today
in the organized crime world is very
difficult and below the required standards.
II. THE CURRENT PATTERN OFORGANIZED CRIME IN TANZANIAIn 1985, the organized crime pattern inthe country began to take a different shape.
This was a time when our country made aU-turn in her economic policy. The effects
of globalization never spared us. The windof change in the former East European
countries also had a role in determining
our economic policy.
As a result of such changes which wereby then taking shape in the world, we
decided to abandon our former closed-door
economic policy and instead opted for tradeliberalization. This change of policy left
our doors open for both genuine investors
and potential organized criminal
syndicates of the world to infiltrate theiroperatives into our country.
Immediately there-after, we began tonote an astonishing upsurge of certain
offences as well as emergence of new formsof crimes, such as the illegal Arms dealing,major frauds, poaching, corruption, violent
crimes, smuggling, economic crime/fiscal
offences, drug trafficking, and mostrecently terrorism. The opening up of oureconomy and the development of scienceand technology have together fuelled up
organized crime incidents in our country.
This was the first real orientation which
we had with organized crimes.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
III. THE OFFENCE OF MONEY
LAUNDERING

IV. BRIEF ANALYSIS OF THE
CURRENT SITUATIONThis is part of organized crime offences.
It is very difficult and completely out ofperspective to discuss about money
laundering without discussing organizedcrimes. Money laundering should be
discussed in the context of organizedcrimes. This is the reason why we havedirected our attention to organized crimesin the foregoing paragraphs. Just as it waswith organized crimes, the offence of money
laundering has not yet manifested itself
fully in our system.

As mentioned in the introductory part,the offence of Money laundering has not
yet registered itself very firmly in oursystem. Perhaps we lack the necessary
skills to detect and investigate this offenceor it is non existent. However, we would
like to believe the former to be true becausewith the trade liberalization at its peak,there has been a lot of people from all over
the world coming into the country under
the guise of investors. Due to lack ofadequate skills it has always been difficult
on us to identify non-genuine investors
from the genuine ones.

There is however a very strong
possibility that the offence has deeply
entrenched itself in our system but owing
to the intricacies involved in its detection
and investigation, we have yet to flush itout. To many of us for example, we used toassociate the offence of money launderingwith illicit drug trafficking only. It tooktime before it dawned on us that money
laundering can be facilitated by dirty
incomes derived from all the organizedcrime offences.
With those brief foregoing introductory
remarks, let us now examine the current
situation and countermeasures that havebeen adopted in Tanzania against Money
Laundering. In this regard, our discussion
will cover a brief analysis of the current
situation of money laundering and the legal
framework for combating such crime; weshall also explore and identify current
problems in the detection, investigation,prosecution and punishment of the said
offenders and solutions for them. We shallfinally discuss, albeit briefly, the possibilityof introducing new investigation methods
and legislation in the fight against money
laundering.

Being a poor country which welcomes
investments from all over the world,
sometimes it is felt that if you start equiries
against the so called investors you risk thepossibility of chasing them away with theirmuch wanted investments. As a result weare always in dilemma not knowing theright course of action to take.
It is partly because of these reasons that
our record of detection is not very
impressive at all. These are however
instances when Money Laundering
activities have been inferred. One such
incident involved the MERIDIAN BIAO
bank which had offices in Tanzania,
Zambia and in other countries in theworld4. Apart from that case we do not haveany statistics to amplify this situation.
This does not however mean that Money
Laundering is not present in our country.
Most of the emphasis had therefore beenplaced in fighting other organized crimes.
4

This bank was opened by suspected criminals from
Malaysia and after operating for some time, itwound up its activities abruptly leaving several
account holders in abeyance. It is believed thatthe same happened in Zambia.

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RESOURCE MATERIAL SERIES No. 58
The legal framework that is in place caters
generally for organized crimes without
specifically addressing the offence of Money
Laundering. Recently, however, emphasis
has been placed on Money Laundering as
well. Let us now examine the legal
framework in place against the offence ofMoney Laundering in Tanzania.
V. THE LEGAL FRAMEWORK FOR
FIGHTING MONEY LAUNDERINGThe offence of money laundering has
always been discussed in the context oforganized crime. For a long time in ourcountry, there were no specific legal
frameworks to deal with money laundering
as a separate offence. The tendency has
always been to resort to various legal
provisions in place against organizedcrimes. We therefore intended to highlightsome registration put in place againstorganized crime which also somehow caters
for the offence of money laundering.
A. Legislation Against Organized
Crime
When traces of organized crime began
to be felt in Tanzania, organized crime had
not yet assumed the international
character it has now. As such, thelegislation enacted was mainly aimed atcombating what was considered a group of
local economic saboteurs and other localorganized criminal gangs5.
Prior to the enactment of this legislation,
there were of course, two United Nations
conventions against Narcotic drugs and theother against psychotropic substances.
These conventions adopted a number ofresolutions aimed at controlling narcotic
drugs and psychotropic substances whichby then were the leading organized crimes.
It was envisaged, correctly, that other5

The economic and organized crime control Act,
Number 13 of 1984.

430

forms of organized crimes derive their
origins from the illicit trade and abuse of
dangerous drugs.
Apart from the two United Nations
conventions, two legislations were also
enacted in 1965 and 1969 respectively6.
Though they were not expressly dealing
with organized crime directly, they wereintended to facilitate the extradition of
criminals and to follow in hot pursuit,though special arrangements with othercountries, all those people who commit
crimes in one country and run to anothercountry. It was envisaged, again correctly,that the existence of such legislation would
deter potential offenders from organizing
their criminal schemes in one country andrun to seek refuge and reap fruits of theircriminal acts in another country whenthings turn sour in their countries.
As started earlier, the best weapon that
the Tanzanian Government thought would
help wipe out or control incidents oforganized crime, is the Economic andOrganized Crime Control Act7. This Act
was enacted in 1984 when the first real
adverse effects of organized crime began
to bite. The promulgation of this Act was
aimed at making better provisions for thecontrol and eradication of certain crimes
and culpable non-criminal misconduct
through the prescription of modified
investigation and trial procedures, and new
remedies and for connected matters. A
number of new offences were created andenshrined in the first schedule of that Act.
One such offence is that of “Leading
Organized Crime”8. In the following part
we wish to discuss briefly some of theprovisions of the Act which criminalizes
money laundering.
6

The extradition Act of 1965 and the fugitive
offenders (pursuit) Act of 1969.
7 No. 13 of 1984.
8 Ibid; paragraph 4(1) of the first schedule to the Act.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
B. The Economic And Organized
Crime Control Act, Number 13 of
1984Part III of the Act covers the procedureand regulation governing the investigationand prosecution of economic cases.
Organized crimes (including money
laundering) falls within the ambits of thispart. Under the provision of the Act, theinvestigation of all economic offences
reported to the Police shall be conductedby Police Officers, with the assistance ofsuch public officials as may be designatedby the Director of Public Prosecutions after
consultation with the Director of Criminal
Investigation and by order published in
Gazette9.
The act also empowers a Police Officer
to conduct search and seize property
involved in an economic forfeiture orconfiscation of a property proved to havebeen involved in the commission or
facilitation of an economic offence 10 .
Transfer of advantage or property involvedin or arising out of the commission by any
person of an economic offence is prohibitedby the Act11.
However, when one reads the above
provisions of law between the lines, he will
notice that they do not provide anything
specific in relation to the money laundering
offence but rather they provide fororganized crimes in general. Absence ofspecific legal provisions that ciminalizes
money laundering creates loop-holes in ourlegal systems which assists organizedcriminal gangs to thrive and flourish.
This helpless situation led many
countries to introduce legislative initiatives
regarding money laundering andconfiscation of the proceeds of crime. In
act it was the United Nations convention
which appealed to and mandated member
countries to adopt a model with acceptable
standards. In the following part, we wish
to discuss briefly about the directive of theUnited nations and the impact it had on
our country in formulating the required
legislation against money laundering.
C. The United Nations Convention
As we are all aware, the United Nations
in many of its deliberations, convened a
conference in Vienna, Austria. 12 The
conference came up with a very famousconvention against Illicit Traffic in Narcotic
Drugs and Psychotropic Substances. The
conference also came up with a model draft
to be adopted by all member countries inorder to intensify the war againstorganized crimes and especially illicit
traffic in narcotic drugs which in most cases
brews up other forms of organized crimes.
The objectives of such model draft were/
are to enable different countries of theworld to unify their strengths in order tofight and eradicate organized crime
syndicates more collectively.
Tanzania, being a member of the United
Nations, adopted into her legal system the
proposed model and enacted two legislation
almost simultaneously, the Mutual
Assistance in Criminal Matters Act13 andthe Proceeds of Crime Act 14 . Theselegislation are of unique importance as theycall for Agreements to be made between
states with regard to mutual assistance ina variety of activities related to theinvestigation of crime such as; collectionof evidence, location of witnesses orsuspects, service for search and seizure of

12 Ibid; section 58(1).
9Ibid; section 21(1).
10 Ibid; section 22.
11 Ibid; section 23.

13 In 1988.
14 Number 24 of 1991 and number 25 of 1991,

respectively.

431

RESOURCE MATERIAL SERIES No. 58
stolen property etc, just to mention a andseizure of stolen property etc, just to
mention a few15. Let us now examine theappropriate legal provisions in these two
Acts which criminalizes money laundering.
D. The Proceeds of Crimes Act,
Number 25 of 1991.
This Act was designed to introduce a newlaw fashioned to provide the most effective
weaponry so far against major crimes. Its
purpose, according to the bill sent toparliament for debate16, is to strike at theheart of major organized crimes bydepriving persons involved of the profits
and instrumentalities of their crimes. By
so doing, it was envisaged that the Act will
suppress criminal activity by attacking the
primary motive, profit, and prevent
reinvestment of that profit in further
criminal activities. Generally speaking,
the Act contains provisions of a coordinatedinternational effort designed to target boththe pushers and others involved in criminal
activities as well as those who reap themost reward from such crimes.
This Act also provides a mechanism forthe tracing, freezing and confiscation of theproceeds of crime such as drug trafficking17.
It also confers on Police new powers toassist in following the money trail 18.
Furthermore, the Act creates a few new
offences such as money laundering andorganized fraud19.
The Proceeds of Crime Act20 when taken
together with the Mutual Assistance in

15 Section 4 of the mutual assistance in criminal

matters Act, 1991.
16 Bill for proposed enactment of a law against

proceeds of crime.
17 Section 9 of the Proceeds of Crime Act, number 25

of 1991.

Criminal Matters Act, enables freezing andconfiscation orders made by courts in ourcountry to be enforced abroad. Likewise,
they enable orders made in foreigncountries in relation to foreign offences tobe enforced against assets located in
Tanzania.
VI. CURRENT PROBLEMS IN THE
DETENTION, INVESTIGATION,PROSECUTION AND PUNISHMENT
OF MONEY LAUNDERING
OFFENDERS
A. Detection
This is the key to the dismantling oforganized criminal syndicates. Without
detection, it is impossible to apprehend andprosecute perpetrators of this crime.
Detection however, requires special skills
and knowledge of how this offence iscommitted. The investigators have a dutyof sharpening their detection skills by updating themselves on methods oflaundering cash that have been used toconvert dirty cash into clean assets. Once
investigators are able to distinguishvarious techniques employed by theoffenders of this crime, detection becomesan easy task.
With increasing globalization andliberalization, countries, especiallydeveloping ones, are vulnerable to the risks
of money laundering. Therefore,
appropriate detection strategies ought tobe put in place in order to discourage
offenders of money laundering offence fromentrenching their roots into our countries.
As stated earlier, our records oncriminalizing money laundering in
Tanzania is not very impressive. The
logical assumption is that our detection
strategies are not well advanced. We
highly appreciate invitations to forums like

18 Ibid; section 31(3).
19 Section 71 of the proceeds of crime Act, Part VII.

432

20 Number 25 of 1991.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
this because we are sure to learn something
useful which can improve detection ofmoney laundering in our country.

would entail failure on our parts because
organized criminals would always be
several steps ahead of us.

With the development in technology, forexample electronic cashing throughinternet, organized criminal gangs can now
move large sums of money easier from onepart of the world to another. This has
somehow substantially reduced theimportance of national borders thus
allowing international criminals to finance,
profit from and expand their illicit
operation. This therefore requires highest
standards of detection. This can only beobtained through training and cooperationfrom other developed countries orinternational agencies.

Prosecution of this offence also requires
training and understanding of certain
intricacies surrounding this offence.
Designated prosecutors should be picked
and trained in the various aspects of money
laundering.

B. Investigation and Prosecution
Money laundering investigations arevery complex and require specialized
expertise, and are normally lengthy
investigations. Many traditional Police
investigative tactics did not include
emphasis on the money, now however,these investigations are becoming anessential part of any significant organizedcrime investigation.
The problems outlined about detection
can equally be highlighted in the aspect ofinvestigation. We lack the necessary skills
and knowledge of how to successfully
investigate a money laundering case. The
complexity nature and the lengthiness ofsuch investigations calls for well trained
personnel to carry out such tasks. These
persons should be well versed about theexistence of both bilateral and multilateral
instruments at their disposal and how best
to utilize them to their advantage.
Equally important here, is to impart thenecessary knowledge to the investigators
about the current techniques involving
modern technology in the commission ofthis global offence. Lack of such knowledge

C. Punishment to Offenders
Detection and prosecution of offenders
alone is meaningless unless appropriate
punishment is meted out to proved
offenders. Punishment to offenders, as we
all know, serves a number of purposes.
First and foremost, it consoles the victimsof the offence, it also teaches a lesson tothe offender and more importantly, it acts
as a deterrent to potential criminals.
There is a prevailing belief worldwide
that the more severe a punishment is, thebetter. Members of the public would always
be relieved if severe punishment is inflicted
upon proved offenders. This is the reason
why many penal statutes impose
corresponding punishment to various
offences.
In Tanzania, the Penal Code 21 is thestatute which creates most criminal
offences and imposes penalties to offendersof various crimes. However, in so far as
economic cases are concerned, organizedcrimes being among them, any person
convicted of an economic offence shall be
liable to imprisonment for a term notexceeding fifteen years, or to both thatimprisonment and any other penal
measure provided for in the respective
Act22.
In cases involving money laundering,
imprisonment of whatever term would not
21 Chapter 16 of the revised laws.

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RESOURCE MATERIAL SERIES No. 58
by itself teach offenders a lesson nor will it
serve as a deterrence to others.
Deprivation of the ill gotten property or any
other proceeds of the crime would equally
be very appropriate and would certainly
inflict greater pain to the offender. Since
most of proceeds of money laundering crime
are located far away from where the offence
took place, an appropriate machineryshould be put in place to trace and seize
such properties in those countries. Thismachinery has been established in
Tanzania by the enactment of two Acts23.
However, so far there is no case example
to amplify the application of the provisions
enshrined in those Acts.
VII. POSSIBILITY OF
INTRODUCING NEW
INVESTIGATION METHODS(INCLUDING NEW LEGISLATION)
IN THE FIGHT AGAINST MONEY
LAUNDERING
In order to win the war against offenders
or perpetrators of this offence, deliberateand calculated steps need to be taken inorder to sharpen the investigative skills of
officers concerned and also the come up
with a legislation that will iron out all theexisting legal hurdles.
As narrated in the foregoing paragraphs,
criminals of this offence employ very
sophisticated tactics and resort to modern
technology in facilitating the conversion of
dirty cash into clean assets. They also use
skilled personnel and other professionals
such as Accountants, Lawyers etc. to fend
for them. All these poses a great challenge
to the law enforcers, especially those indeveloping countries like Tanzania, wholack adequate skills, knowledge andmodern facilities.

This situation is further compoundedfrom bad to worse by the fact that thisoffence is an internationalized one in thesense that offenders form themselves instrong organized criminal syndicates. Thisset up requires harmonization of different
legal systems and global cooperation. No
country the world over can manage to fight
this crime single handedly and win. It is
for this obvious reason that we in Tanzania
have supported various Regional andInternational efforts between Law
Enforcement Agencies and Other
Institutions, geared at fighting organizedcrime and particularly money laundering,collectively. We believe that introductionof whatever investigation methods or new
legislation would not bring the desired
effect if there is no corresponding collective
Regional or International resolve to tackle
this problem jointly.
The following is therefore an example of
the Regional and International cooperationthat exists between us and other countries/
institutions against organized crimes:(a) There is the Annual Chiefs of Police
Conference for the three East Africancountries where security cooperationand exchange of intelligence
information feature most. Organizedcrimes are discussed in this forum
and appropriate strategies are set24.
This is also supplemented by the
biannual operational drugs meetingfor the Heads of Criminal
Investigation Department and AntiNarcotic units of the three East
African countries 25 . Within East
African, there is also the East African
Inter-State Defence and Security
Sub-Committee which meetsannually to assess the security

22 Economic and organized crime control Act, number

24 The countries involved are Kenya, Uganda and13 of 1984, section 59(2).
23 Number 24 of 1991 and number 25 of 1991.

25 Ibid; recently Rwanda joined as a member.

434

Tanzania.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
situation within the Region. In allthese forums organized crime is themain agenda item. As a result of suchcooperation in the Region, the Headsof states for the east African states
have signed the protocol for
combating illicit drug trafficking andmoney laundering in East Africa26.
(b) In the SADC region, in which
Tanzania is one of the member
countries, the Chiefs of Police for
SADC have a forum called
SARPCCO27. They meet biannually to
lay strategies to combat organizedcrime and other cross-border crimesin the region. A similar protocol asthat in the East African Region was
signed in 1996 for the SADC
countries.
(c) In August 1999 a meeting wasconvened in Arusha, Tanzania, tolaunch the Eastern and Southern
Africa Anti-money laundering group.
In that meeting the ministers
responsible for finance and Legal
Affairs from nine countries of our
Region, agreed on a number of points
for action in the region. Among thosepoints include:(i) Working towards attainment of
the international standards inthe fight against the launderingof proceeds of those crimes
referred to in relevant
multilateral agreements andinitiatives which deal with
combating serious crime, and to
implement
the40
Recommendations of the
Financial Action Task Force onmoney laundering.

(ii) To improve cooperation between
members, and with other states,in the fight against money
laundering.
(iii) To co-operate with all relevantinternational organizations
concerned with combating
money laundering.
(iv) To study emerging regional
trends in money laundering, andto share member states’
experiences in order to address
those trends.
(v) To institute an evaluation
process, including mutual
evaluation, to assess themeasures in place in eachmember state, and theireffectiveness, and to identify thegaps between existing measuresand endorsed standards.
(vi) To a d d r e s s d e f i c i e n c i e s
identified through the process.
(vii) To develop institutional andhuman resource capacities tocheck money laundering.
(d) There is also the INTERPOL. Thisbody has very much helped tocoordinate a number of activities
between Law Enforcement Agency ofits 178 members. INTERPOL has
provided us with the X-400
communication equipment whichtransmits swiftly any information ina safe and secure manner to be usedby the member countries. Recently,
the Interpol Sub-regional Bureau
Office was opened in Nairobi,
Kenya28. The Bureau helps to passover any information on clandestine
money laundering activities.
It is therefore our considered view

26 This was done Arusha, Tanzania, on 30th November,

2000.
27 The Southern Africa Regional Police Chiefs

Committee.

28 Senior Police Officer from Kenya, Tanzania and

Rwanda have already been seconded there.

435

RESOURCE MATERIAL SERIES No. 58
that any new investigation methods
or new legislation envisaged to be
introduced, should take into
consideration efforts being currently
made both within the Region andInternationally so as to supplement
such efforts not to contradict them.
VIII. CONCLUSION
Now, money laundering has firmly
established itself as a major worldwide law
enforcement issue. Apart from the effects
of globalization, trade liberalization anddevelopment of science and technology, ourcountry is also faced with a large influx ofrefugees and other displaced people fleeing
the fighting and civil strifes in the Great
Lakes Region29.
Experience over years has shown thatthese people (refugees) engage insmuggling of firearms, illicit dangerous
drugs and other organized offences. Someof them have also established hidden
properties arising from the proceeds of suchcrime and others are being used byorganized criminal gangs to invest their illgotten money in our territory.
On the other hand, being a poor country
in dire need for investments, it is very
difficult to draw a line between genuine andfake investors. As a matter of practice, we
do not quite often make a follow up or trace
the source of money by such investors. Thisin turn diminishes our capabilities indealing with this offence.
All in all, the best solution to the money
laundering problem should come fromconcerted Regional and International
efforts. This seminar for example, is oneof the necessary platforms upon which

29 The wars in the Democratic Republic of Congo, civil

strifes in Rwanda and Burundi serve as an example.

436

concrete and appropriate strategies canembark from. We thus urge otherdeveloped countries and International
institutions to emulate the traditional
example set by the organizers of thisseminar and attend to the short-falls in thedeveloping countries in dealing with theoffence of money laundering.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS

CURRENT SITUATION AND COUNTERMEASURES AGAINSTMONEY LAUNDERING IN THAILAND
Pisan Mookjang *Thailand is a democratic country with astrong economy in Southeast Asia. Like
most developing countries, Thailand ismainly concerned with the economic andsocial development of the country for thewell-being of her people. So she must face
up to various kinds of problems such as
unemployment, poverty, education, traffic,
political corruption, the environment andcrime, etc.

economic crises and the negative effects
emerging from the effort to convert thec o u n t r y ’s e c o n o m i c s y s t e m f r o magricultural oriented to industrial oriented.

It is generally accepted that “crime”
means an offence for which there is severe
punishment by law and such offences arecollectively treated as serious lawbreaking. Not only “Street Crimes” suchas homicide, rape, larceny, extortion,robbery, gang-robbery and drug offences
etc. are serious problems to the Thai
Government but also “Transnational
Crimes” and “Economic Crimes” are themost serious ones in this decade.

B. Smuggling of Illegal Migrants
Since Thailand’s economic condition ismuch better than her neighboring countries’
such as Myanmar, Loas, Cambodia andChina, there has been an influx of illegal
foreign workers through the means of fakepassports and visas made by organized
smuggling rings. These organized criminalgroups not only smuggle illegal workers
from neighboring countries into Thailand
but are involved in smuggling illegal
migrants to other countries by using
Thailand as the gateway and a temporary
resort. This is also rewarding business for
it turns out that this business makes a lotof money especially smuggling illegal
migrants to other countries like the USA,the UK, the Netherlands and Japan, and it
costs each person about 75,000 baht —140,000 baht for one illegal trip.

I. MAJOR TRANSNATIONALORGANIZED CRIMINAL GROUPSAND THEIR ACTIVITIESA. Drug Trafficking
Drug crime in Thailand starts at the
beginning of the cycle in that many typesof drugs like heroin, amphetamine, opium,
marijuana are produced here in Thailand
and immediately transported to “domestic
markets” which will be trafficked directly
to the “consumers”. This brade is stimulate
by the tension people get from the country’s* Superintendent, Economic Crime Prevention andSuppression Police Cadet Academy, Royal Police
Headquater, Thailand

Moreover, the proximity of the golden
triangle where the borders of Thailand,
Myanma and Loas, meet has allowed drug
business to be prosperous, especially opium
plantation.

C. Arms Trafficking
Thailand is located among neighboring
countries which have problems concerninginternal peace and order such as Myanmar,
and Cambodia. Consequently, for the past
10 years, there has been an in-flow and outflow of lethal weapons. Unfortunately,some Thai government officials cooperatewith the organized criminal groups secretly

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RESOURCE MATERIAL SERIES No. 58
to sell illegal weapons to ethnic or minorgroups along the borders of Thailand.
These weapons are used to fight against
their governments.
D. Trafficking in Women
There are a large number of prostitutesin Thailand partly due to poverty andpartly because many women have been
misled and forced into it, some of whom
have been trafficked to other countries such
as Japan and Germany. However, it is
widely known that some foreign prostitutes
come and do their business in Thailand
under the control of transnationalorganized crime syndicates.
II. PROBLEMS AND OBSTACLES TOSOLVING TRANSNATIONALORGANIZED CRIME(1) The authority and power of law
enfocement officers is limited and thisdoes not allow the officers to act quickly
and fast, and to keep up with thedevelopment and different forms ofcrime, for example, wire trapping is stillprohibited.
(2) Most law enforcement officers lackknowledge about transnationalorganized crime and about the new
types of crime such as computer crime.
(3) The shortage of criminal justicepersonnel and the limited budget as aresult of economic crises of the country.
III. ECONOMIC CRIME IN
THAILAND
There are various types of economic
crime in Thailand but this paper will focus
on the enforcement of two kinds of offence
which are increasing on a large scale both
domestically and internationally : they arecredit card fraud and counterfeiting andthe laundering of money by organizedcrime groups.

438

A. Credit Card Fraud andCounterfeiting
At present, economic crime, especiallycredit card fraud and counterfeiting U.S.
currency, are mostly committed by wellorganized crime syndicates, who operate
not only within each country but expand
to international level, by fleeing between
countries believing that they will not beapprehended, with a significant number of
trade transactions taken along neighboring
countries such as Cambodia, Laos,
Malaysia and Myanmar.
The occurrence of both credit card fraudand counterfeiting U.S. currency tend toincrease at an alarming rate along withgreater complexity in investigations andthe inability of law enforcement officials toapprehend the suspects. In addition, thenumber of credit card holders is increasing
because of competition between the credit
card companies and more borders havebeen opened to allow trade withneighboring countries. Because of this,certain problems need to be emphasized.
1. Loop-Holes/Weak Points
Criminals who commit fraud always
take advantage of existing loop holes or
weakpoints to forge and counterfeit. We
should try to minimize every advantage
used by the criminals by communicatingthese loopholes and weakpoints throughout
the law enforcement community.
2. Modus Operandi
It is the duty of law enforcement officials
to know the modus operandi of thecriminals and every type of modus operandi
should be informed to all competent law
enforcement officers.
3. Information
The criminal uses advanced
communications (telephones, especiallycellular hand or mobile phone, and faxes)
to pass his information and travels to and117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
from countries in a matter of hours. Law
enforcement officers should, therefore, use
these same means with each other to bringthe criminals to justice regardless ofgeographical boundaries by establishing
information exchange centers between law
enforcement authorities to keep ahead of
the criminals.
4. Co-operation
Both counterfeit and credit cardfraudsters are organized and often commit
their crimes in different countries at thesame time. We need to be at least asorganized as the criminals and also havethe ability to pass information to othercountries, for effective co-operation, before
they can commit any crime anywhere in
the world.
The above-mentioned problems have to
be closely considered and administered by
all competent law enforcement authorities
continually, and effectively. Only then willa law enforcement strategy be developed
to benefit the economy and societies ofevery country.
B. Money Laundering
Historically, “crime” has been considered
only in terms of acts of violence, threats ofviolence and overt thefts. The Thai system
of jurisprudence has evolved by defining
as illegal, certain activities directed against
property and persons, and over a numberof years, law enforcement agencies havedeveloped generally accepted methods forinvestigating these traditional crimes. As
firstly mentioned, “economic crime” causes
a lot of problems to law enforcement andone of the illegal activities of this type ofcrime, which becomes an alarming issue
nowadays, is money laundering.
Since most money collected by organizedcrime activities is from illegal sources suchas loansharking, prostitution, gambling or
narcotics, the individual racketeer isunderstandably reluctant to report theincome and its source on his tax return.
Before spending or using these funds, it isnecessary that this money must be given
an image of legality so that it can bereported on the tax return without
revealing the true nature of its origins.
This process of conversion is known as“laundering”.
If law enforcement officials are to combat
organized crime successfully, they musthave an understanding of how money
acquired from illicit sources is transformed
into respectable funds that can be spentand invested without the fear ofprosecution.
The Bank of Thailand has classified
money laundering into several
characteristics;
1. Carrying cash when travelingabroadCriminals tend to carry dirty money,
especially cash, with them every time they
travel abroad to finance themselves abroad
because dirty money obtained from drugtrafficking or other economic crime
activities could be traced by law
enforcement officials if the transfer is done
through financial institutions.
2. Deposits with domestic financial
institutions
The role of the modern banking system
has helped criminals to deposit their dirty
money in financial institutions. Part of theordinary business of financial institutions
is discretion, which is the bankers duty
when serving their clients, and last but notleast, his obligation to keep all information
secret.
3. International wire transfer
Satellite communication hold thepromise of a new era in which people
throughout the world while be linked,

439

RESOURCE MATERIAL SERIES No. 58
including the Thai citizen, by a single
telecommunications system. This will
provide a great number of avenues tot r e m e n d o u s l y e x p a n d T h a i l a n d ’s
telecommunication’s capacity and enhance
its chances of becoming the region’s
telecommunication’s hub. Whereas
electronic records favor law enfocement
authorities, modern international banking
favors the criminal. It is difficult,sometimes impossible, and often not worth
the trouble, to follow the paper trial acrossinternational borders. Therefore, money
launderers use typical internationaltransfers to hide the true source of themoney. With the advent of satellite
communication, hi-tech information
systems and the introduction of facsimile
machines, both economic criminals anddrug traffickers have been invited tolaunder their dirty money during this last
decade and it will continue to flourish as
we approach the conclusion of this century.
4. Front Companies
Drug traffickers and white-collar
criminals certainly conceal their illegal
income and the ownership of such illicit
money to avoid being detected by law
enforcement officials. They establish a“front company” in a free-port state andproceed with lending money or selling highprice merchandise to their own companies
with high interest rates or high costs withthe real intention to launder the dirty
money into legal income.
5. Others
While laundering money can beaccomplished by a wide variety oflegitimate businesses, it should berecognized that certain domestic
businesses have characteristics which lendthemselves to successful laundering
operations. Businesses that normallyexperience a high rate of spoilage or otherloss of goods also have a high potential tolaunder money. Groceries, hotels,

440

restaurants, money changers are good
examples, since some spoilage of goods is
expected during the normal course ofbusiness. When such a business is taken
over, a large bulk of illicit money isintroduced into the business and recordedin the general income accounts of thegrocery stores, hotels, restaurants etc. as
if this money has been received from
customers. Fraudulent invoices, forms of
produce or other perishable items ar thenissured to these business by other mobowned or mob-controlld companies acting
as suppliers.
Domestic laundries : domestic
businesses also have characteristics which
lend themselves to successful laundering
operations. For example, the businessselected as a “laundry” must be capable ofabsorbing a large volume of cash income,since most illicit income is received in theform of cash. The purpose of laundering
funds is to co-mingle licit and illicit money
so that they cannot be separated, while
simultaneously preventing the discovery of
the introduction of illegal money into thebusiness. Since almost all checks andcredit card receipts are traceable by law
enforcement officials, businesses such as
restaurants, bars, and massage parlors,
which normally take in high proportionsof cash, tend to be more desirable as apotential “laundry” than a businessnormally receiving most of its income in
the form of checks or other traceable
financial instruments.
The above technique has been used tolaunder funds successfully for a number ofyears, and a large numbr of domestic
businesses controlled by organized crimegroups are still being used for this function.
A few years ago, however, law enforcement
officials from the Office of Narcotics Control
Board (ONCB) adapted new methods, suchas sampling, ratio analysis, andflowcharting to discover laundering

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
operations and to successfully prosecutethe people involved in the conversion
process.

been taken in providing investigators withnew jurisdictional tools to combat thisproblem.

Another method used to uncoverdomestic laundering operations involves
researching the corporate and ownership
structures of both the suspected businessand all the companies’ deals. Since theultimate success of laundering operations
are dependent upon keeping the money “inhouse” there will be a commonality among
the various businesses. The relationshipbetween the various companies may b
illustrated visually by the process offlowcharting, which allows investigators,
prosecutors, and judges to grasp moreeasily the sometimes complex relationships
which exist in laundering operations.

Worldwide rules and different legal
cultures : since laundering is typically doneby moving money across international
borders, it is highly desirable to developinternationally uniform rules on money
laundering definitions an forfeituredefinitions.

Implications for law enforcement : since
the laundering of dirty money depends
upon keeping the cash flow “in house”, it
creates such complexity that investigations
into the operation appear to be toocomplicated to undertake. Experience has
shown, however, that these laundering
operations are not complicatd and can be
successfully investigated by law
enforcement officers willingly to use
techniques such as sampling, ratio
analysis, and flowcharting, combined withtraditional methods of investigation.
The success of organized crime inlaundering funds through secret numberedbank accounts and foreign corporations andthrough securities and financial
instruments issured by off-shore bankshas, in larger part, been a result of the factthat these “foreign laundries” havetraditionally been beyond the jurisdiction
and resources of law enforcement agencies
operating in the Kingdom of Thailand.
While investigating this type of laundering
operation remain expensive, difficult, andtime consuming, significant steps have

IV. RECENT LEGISLATIVEDEVELOPMENTS
It has been taken for granted that
Thailand provides a fertile ground where
illegal businesses can operate lucratively
much to their advantage. This is possible
partly because of its socio-economic
conditions and partly because of its geopolitical situation. Against this backdrop,
however hard the government and theinstitutions concerned try to combat
organized crimes in general and money
laundering in particular, it seems that a
total victory over such crimes is still an
illusive object, if not a distant dream, ifconcerted efforts are lacking on both aregional and international scale.
There are a variety of illegal sources that
contribute to the flourishing business ofmoney laundering. In order to spotlightthe gravity of the situation and its
d e v a s t a t i n g i m p a c t o n s o c i e t y,
Chulalongkorn’s Political Economy Center,
Faculty of Economics, has undertaken a
research into illegal trades in Thailand
along the following main categories : (1)drug trafficking (2) trading in contrabandarms; (3) diesel oil smuggling; (4)prostitution; (5) human trafficking, and (6)illegal gambling. The study provides
estimates of these illegal trades concludingthat these six activities generated 289-457
thousand million Baht of value added perannum during the period 1993-1995. The

441

RESOURCE MATERIAL SERIES No. 58
figure is equivalent to 8-13 percent of GNP.
The largest contributor was gambling,followed by prostitution, drug trafficking,diesel oil smuggling, trafficking labour, andtrading in contraband arms, as can be seenin the table below:
Estimates of the Size of the Illegal Economy(1993-1995, billion baht per annum)
Category

Value added

1. Drug trafficking

29-33

2. Trading in contraband arms

6-31

3. Diesel oil smuggling

9

4. Prostitution in Thailand100

5. Human trafficking

5-7

6. Illegal Gambling140-277

6.1 Underground lottery(80-98)

6.2 Football gambling(12-16)

6.3 Casinos(45-163)
Total

289-457

Remark : Thailand’s GDP between 1993-1995
averaged 3.6 billion Baht a year.

The above table testifies to the fact thatthe average volume of turnover of theillegal economy in Thailand is staggeringly
huge and it is enough to stimulate thebusiness of money laundering and otherrelated activities. It can therefore be safely
deduced that these illegal business
operators and their agents will resort toall available facilities whether they belegal, financial, or banking to launder theirillicit proceeds of crime. Their widespreaduse of money to achieve their ultimate aimsof turning illegal proceeds to legal money
undoubtedly paves the way for a generald e g r a d a t i o n o f m o r a l i t y, w h i c hunfortunately has become a negative social
phenomenon tearing apart the fabric ofsociety.
The overall situation being as such, it
has become imperative that the442

Government and the business community
take timely action to gurard against theonslaught of organized crime, particularlymoney laundering. To this end, as we haveobserved, the State reacted, and willcontinue to react, with some commendable
determination by means of administrativeand legislative initiatives.
Legislative & Aministrative Initiatives
Beginning in 1991, the government ofThailand had taken the following
legislative and administrative measures inpursuance of the 1988 Vienna Convention(The United Nations Convention against
Illicit Trafficking in Narcotics Drugs &Psychotropic Substances) :a) t h e A c t o n M e a s u r e s f o r t h e
Suppression of Offenders in an
Offence Relating to Narcotics, B.E.
2534; (1991)b) Ministerial Rgulations (to implement
the above Act); andc) the Money Laundering Control Act,1999
It may, however, be noted that the legal
and administrative instruments shown in(a) and (b) above do not directly deal withmoney laundering properly; whereas item(c) is the precise answer to the problem ofmoney laundering in Thailand.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
MONEY LAUNDERING CONTROLACT OF THAILAND 1999
The Money Laundering Control Act
1999 consists of 7 chapters and
66 sections :Chapter 1 : General Provision
Chapter 2 : Reporting and Identification
Chapter 3 : Money Laundering ControlBoard
C h a p t e r 4 : B u s i n e s s Tr a n s a c t i o n
Committee
Chapter 5 : Office of Money Laundering
Control
Chapter 6 : Actions on Properties
Chapter 7 : Penalties“Predicate offences” mean
1. Narcotic offences : offenses pertaining
to narcotics, under the Narcotics
Control Act or the Act on Measures
for the Suppression of Offenders in
an Offense Relating to Narcotics.
2. Trafficking of children and women :offenses relating to sexuality under
the Penal Code, in particular sexual
offenses pertaining to procuring,
seducing, and taking away, forindecent acts, women and children inorder to gratify the sexual desire ofanother person, sexual offenses
against children and minors, offenses
under the Measures to Prevent andSuppress Trading of Women andChildren Act, offenses under thePrevention and Suppression of
Prostitution Act, especially offenses
pertaining to procuring, seducing andtaking away persons for the purposeof forced prostitution, offenses
pertaining to conducting a
prostituion businesses as owner,
operator, or manager of places of
prostituion, or supervising persons
who commit prostituion in places ofknown prostitution.
3. Cheating and fraud of the public :offenses of cheating and fraud of the

public under the Penal Code oroffenses pertaining to acquiring loans
fraudulently pursuant to the
Fraudulent Loans and Swindles Act.
4. Misappropriation or cheating andfraud by financial institutions :offenses of misappropriation andcheating and fraud under the law
governing commercial banks, law
governing the conduct of business infinance, money market funds,
securities and credit fencier, law
governing securities and securities
market, which are committed bymanaging directors or any person
who is responsible for or has someinterests in conducting the affairs ofa financial institution.
5. Malfeasance in office or in judicial
office : offenses pertaining tomalfeasance in office or malfeasancein judicial office under the Penal
Code, offenses pertaining to law
governing officers of governmentorganizations or sector or offenses
pertaining to malfeasance on
dishonesty in carrying out official
duty under other laws.
6. Extortion or blackmail by financial
institutions : offenses of extortion or
blackmail which are committed by amember of a secret society or criminalorganization, under the Penal Code.
7. Customs evasion : offenses of customs
evasion under the Customs Law.
“transaction” means any activity
relating to a juristic act, contract, or any
operation with other persons dealing withfinance, business or involving properties;“suspicious transaction” means atransaction that is more complicated than
the norm by which that transaction isusually conducted, a transaction that lacks
economic possibility, a transaction believed
to be conducted for the purpose of avoiding
the application of this Act or a transaction

443

RESOURCE MATERIAL SERIES No. 58
related or possibly related to a predicate
offense, whether the transaction was
conducted once or more than once;“properties related to an offense” means :(1) money or properties derived from a
predicate offfense, or from supportingor assisting in the commission of apredicate offense;(2) money or properties derived from thesale, distribution, or transfer in any
manners the money or properties in(1); or(3) fruits of the money and properties in(1) and (2)Notwithstanding how many times theproperties in (1), (2), or (3) have been sold,distributed, transferred, or changed from,or have been found in whosever ownership,or have been transferred to whomever, or
have been shown registered or recorded
under whosever ownership.
“Financial institutions” means :1. Banks
2. Trust and investment companies,
credit and finance companies andsecurities enterprises
3. Industrial Fund Enterprise ofThailand
4. Saving Cooperative
5. Other institutions as designated in
the Ministerial Regulations.
Definition of “money laundering
offence” under section 5 of the
Money Laundering Control Act
1999
Whoever(1) transfers, receives the transfer, orchanges the form of properties related
to an offense, for the purpose ofconcealing or covering up the sourcesof those properties, or for the purposeof assisting other persons before,
while, or after the commission of theoffense so that the offenders can avoid444

the penalty or receive lesser penalty
for the predicate offense; or(2) takes any actions in order to cover
up or disguise the true nature of themanner of obtaining, location, sale,transfer, and rights of ownership, of
properties related to an offense
Shall be deemed as having committed
the offense of money laundering.
The following persons are required toreport without delay to the Anti-Money
Laundering Office, all transactions that are
unusual, suspicious or in excess of a given
amount fixed in the Ministerial
Regulations :1. Financial Institutions
2. Land registration offices
3. Other persons in exercise of theirprofession carrying out, supervising oradvising on transactions involving
movement of capital.
The Money Laundering Control
Board mainly consists of :• Prime Minister as Chairman• Minister of Finance as Vice-Chairman• Permanent Secretary of Ministry ofJustice• Attorney-General• Commissioner General of the Royal
Thai Police• Secretary General of Narcotic Control
Board• Governor of the Bank of Thailand• Other nine members with expertise ineconomics, monetary matters, financeor law appointed by the cabinet etc.
The Anti-Money Laundering Office issubordinate to the Office of thePrime Minister and has thefollowing powers and duties;
1. To carry out resolutions of the Money
Laundering Control Board andBusiness Transaction Committee
2. To receive, collect and examine
information on financial transactions

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
3. To share information with the Court
and other competent authorities forthe purpose of investigating andprosecuting offenders
4. To develop training programs forconcerned government and private
sectors.
Special methods of investigation
The competent officials may apply to the
Civil Court for an order authorizing;• Placing bank accounts undersurveillance• Tapping telephone lines• Accessing computer systems.
There shall be a Business Transaction
Committee consisting of :• Secretary General of the Money
Laundering Control Board as
Chairman• Other 4 members appointed by the
Money Laundering Control Board.
Action on Properties (section 48-59)
The acknowledgement of the report may
accompany an order by the BusinessTr a n s a c t i o n C o m m i t t e e s e i z i n g o r
attaching suspicious properties for a period
not exceeding 90 days.
All properties related to predicate
offences must be forfeited irrespective ofwhether there is a convicted person and theproperties will devolve to the Kingdom ofThailand.
Penalties (sections 60-66)
Whoever commits a money laundering
offence shall be punished withimprisonment of one to ten years and a finefrom between twenty thousand Baht to two
hundred thousand Baht or both.
It the offender is a juristic person, heshall be punished with a fine from two
hundred thousand Baht to a million Baht.

445

REPORTS
OF THECOURSERESOURCE MATERIALSERIES
No. 58
GROUP 1METHODS FOR OBTAINING INTELLIGENCE FORINVESTIGATION OF MONEY LAUNDERING
Chairperson
Co-Chairperson
Rapporteur
Co-Rapporteur
Members

Advisors

Mr. Sudhir Kumar Awasthi
Mr. Dappula P. J. De Livera
Mr. Kevueli Tunidau
Mr. Tatsuo Ueda
Mr. Phoung Sophy
Mr. Raymond Porter Aguilar
Mr. Ryouichi Chihara
Mr. Bader Talib AL-Shaqsi
Prof. Yuichiro Tachi
Prof. Shinya Watanabe
Prof. Mikiko Kakihara

I. INTRODUCTION
Money laundering and those who engage
in it have gone global and “pose a serious
threat worldwide in terms of national andinternational security, as well as political,
economic, financial and social
disruptions.”1 It is a formidable problem
for the international community, a newform of geopolitics and one of the mostpernicious forms of criminality of which thedimensions have yet to be fully measured
and the impact fully determined.2
Since money laundering is theprocessing of the criminal proceeds toconceal their illegal origin, the objective ofthe launderer is to disguise the illicit originof the substantial profits generated by thecriminal activity so that such profits canbe used as if they were derived from alegitimate source.3
1

Zvekic, “International Cooperation andTransnational Organized Crime” (1996) ASIL 537.
2 See Report of the Secretary-General, 4 April 1996
at p.4; UN Press Release SOC/CP/179 20 May 1996;
UNCPJ Newsletter nos. 30/31, Dec 1995 at p.5.

446

(India)(Sri Lanka)(Fiji)(Japan)(Cambodia)(Costa Rica)(Japan)(Oman)(UNAFEI)(UNAFEI)(UNAFEI)

It appears to be accepted that there arethree phases or stages in the laundering
process. The first is the placement, where
cash enters the financial system. This is
the choke point or the nerve center of theprocedure, where the launderer is more
vulnerable and the attempt to launder caneasily be identified. The second stage isthe layering where the money is involvedin a number of transactions so that the
tracing of the origin of the money is lost.
Finally the third stage is integration, wheremoney is mixed with lawful funds or
integrated back into the economy, with theappearance of legitimacy. The thrust of thisreport is on the important first stage.
The United States of America
implemented the first national anddomestic initiative to counter money
laundering.4 It is apparent however thatin a time of globalization of financial
3

Countering Money Laundering: The FATF, The
European Union and the Portuguese Experiences Past and Current Developments, Dr. Gil Galvao Paper presented at 117 th International Senior
Seminar, UNAFEI, Tokyo, at p.1.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
markets, it is not sufficient to havedomestic measures to combat money
laundering. It is paramount therefore that
action against money laundering andmeasures to prevent it are universally
applied.5
In 1988, the United Nations Convention
Against Illicit Traffic in Narcotic Drugs andPsychotropic Substances (the Vienna
Convention) was adopted and theincrimination of money laundering was
included in an international treaty for the
first time.
A. Financial Action Task ForceThe Financial Action Task Force6 (FATF)
was founded in 1989 by the G-7 Summit in
Paris to examine ways to combat money
laundering. It published a report in 1990
with forty Recommendations7 which were
to become the standard by which antimoney laundering measures should be
judged. In 1996 the recommendations wererevised to reflect the changes which haveoccurred in the money laundering problem.
The relevant provisions within the broad
ambit of intelligence are recommendations
4

The United States criminalized money launderingon October 27, 1986 by passing the Money
Laundering Control Act of 1986.
5 See Footnote 3, supra, at p.5.
6 The FATF currently consists of 26 countries andtwo international organizations. Its membership
includes the major financial center countries ofEurope, North America and Asia. It is a multidisciplinary body - as is essential in dealing withmoney laundering - bringing together the policymaking power of legal, financial and law
enforcement experts.
7 The forty recommendations set out the basic
framework for anti-money laundering efforts andthey are designed to be of universal application.
They cover the criminal justice system and law
enforcement, the financial system and its
regulation, and international co-operation.

10-12, 14, 15, 19, 21-25, 28 and 29
respectively.8
B. Egmont Group of Financial
Intelligence Units9 (EgmontGroup)
Following the FATF Recommendations
several countries put in place legislation
to counter money laundering andestablished their Finance Intelligence
Units (FIU). The Egmont Group which
comprises of the FIUs’ of the world, defined
an FIU as“A central national agency responsible
for receiving (and, as permitted,
requesting), analyzing and disseminating
to the present authorities, disclosures offinancial information
(i)
(ii)

concerning suspected proceeds ofcrime, orrequired by national legislation or
regulation,in order to counter money laundering.”10
8

For the full text of these recommendations pleasesee appendix 1.
9 The Egmont Group meetings named after the
Egmont-Arenburg palace in Brussels on April 1995,
consists of countries that have operational
Financial Units. The group currently consists of
53 countries including: Aruba, Australia, Austria,
Belgium, Bermuda, Bolivia, Brazil, British Virgin
Islands, Bulgaria, Chile, Colombia, Costa Rica,
Croatia, Cyprus, Czech Republic, Denmark,
Dominican Republic, Estonia, Finland France,
Greece, Guernsey, Hong Kong, Hungary, Iceland,
Ireland, Isle of Man, Italy, Japan, Jersey, Latvia,
Lithuania, Luxembourg, Mexico, Monaco,
Netherlands, NL Antilles, New Zealand, Norway,
Panama, Paraguay, Portugal, Romania, Slovakia,
Slovenia, Spain, Sweden, Switzerland, Taiwan,
Turkey, United Kingdom, United States, Venezuela.
10 This definition was adopted at the plenary meetingof the Egmont Group in Rome in November 1996
and reaffirmed in the Madrid meeting.

447

RESOURCE MATERIAL SERIES No. 58
In it’s statement of purpose11 the EgmontGroup, among other things, recognized theinternational nature of money launderingand realized that many governments haveboth imposed disclosure obligations on
financial institutions and designated FIU’s
to receive, analyze and disseminate tocompetent authorities such disclosures offinancial information. It is also increase
the effectiveness of individual FIUs andcontribute to the success of the global fightagainst money laundering.
The 18 countries represented in thisseminar have different legal stages incombating money laundering andestablishment of FIUs. A majority has
draft proposals for legislation againstmoney laundering. Countries such as Fiji,South Africa and Tanzania have legislation
but short of an independent FIU althoughin each of these countries suspicioustransaction reports (STRs) are either madeto the police or the Director of Public
Prosecution (DPP) by Financial
Institutions and/or by persons conducting
a business or who are in charge of abusiness undertaking.
C. UN Convention against TOC
In November 2000, United Nations
Convention against Transnational
Organized Crime was adopted by theUnited Nations General Assembly and it
was opened for signature by member statesin December 2000. It requires member
countries among other things, as follows:“Article 7, Paragraph 1
Each State Party:(a) Shall institute a comprehensive
domestic regulatory andsupervisory regime for banks andnon-bank financial institutions ...
which regime shall emphasize
11 Resolved in Madrid on 24 June 1997.

448

(b)

requirements for customer
identification, record-keeping andthe reporting of suspicioustransactions;... shall consider the establishmentof a financial intelligence unit toserve as a national center for thecollection, analysis anddissemination of information
regarding potential moneylaundering.”

D. Techniques of “Placement” ofIllicit Funds into the Financial
System
We submit that it is important in thisreport to identify the various techniquesmoney launderers utilize the financial
system to launder their money.
1. The Banking Sector(i)Banks remain an importantmechanism for the disposal of
criminal proceeds, though there
appears to be a recognition bymoney launderers that obvious
techniques such as depositing
large sums of cash into bankaccounts for subsequent transfer islikely to be reported to law
enforcement authorities, and thus
extra steps are being taken. The
technique of “smurfing” or“structuring” was commonly used
- this technique entails making
numerous deposits of small
amounts below a reporting
threshold, usually to a large
number of accounts.
(ii)

Accounts in false names or
accounts held in the name ofrelatives, associates or otherpersons operating on behalf of thecriminal. Other methods used tohide the beneficial owner of theproperty include the use of shellcompanies.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE(iii) Use of “collection account”.
Immigrants from foreign countries
would pay many small amounts
into one account and the money
would then be sent abroad. Often
the foreign account would receive
payments from a number ofapparently unconnected accounts
in the source country.
(iv)

(v)

(vi)

Use of “payable through accounts”.
These are demand deposits
account maintained at financial
institutions by foreign banks or
corporations. The foreign bankfunnels all the deposits andcheques of it’s customers into one
account that the foreign bank holds
at the local bank. The foreign
customers have signatory
authority to the account as subaccount holders and can conduct
normal international banking
activities. The payable throughaccounts pose challenge to “knowyour customer” policies and STR
guidelines.
Loan back arrangements inconjunction with cash smuggling.
By this technique, the launderer
usually transfers the illegal
proceeds to another country, andthen deposit the proceeds as asecurity or guarantee for a bankloan, which is then sent back to theoriginal country. This method not
only gives the laundered money
the appearance of a genuine loan
but also often provides tax
advantages.
Telegraphic transfers, bank drafts,money orders and cashier ’scheques are common instruments
for money laundering.

2. Non-Bank Financial Institutions
Banks offer a wide range of financial
products and hold the largest share of thefinancial market and accordingly theservices they provide are widely used formoney laundering. However, non-bankfinancial institutions and non-financial
businesses are becoming more attractive
avenues for introducing ill-gotten gains
into regular financial channels as the anti
money laundering regulations in thebanking sector becomes increasingly
effective. The channels used include:(i)

Bureau de change, exchange
offices or casa de cambio. They
offer a range of services which are
attractive to criminals such as:(ii)

Exchange services which can beused to buy or sell foreign
currencies, as well as consolidatingsmall denomination bank notes
into larger ones;(iii) Exchanging financial instruments
such as traveler’s cheques; and(iv)

Telegraphic transfer facilities.

(v)

Remittance services.

(vi)

Use of hawala, hundi or so called“underground banking”.

3. N o n - F i n a n c i a l B u s i n e s s e s o rProfessions(i)
These include lawyers,
accountants, financial advisors,
notaries, secretarial companies
and other fiduciaries whose
services are employed to assist in
the disposal of criminal profits.
(ii)

Casinos and other businesses
associated with gambling.

(iii) Purchase and cross border delivery

449

RESOURCE MATERIAL SERIES No. 58
of precious metals such as gold andsilver.
II. METHODS OF OBTAININGINTELLIGENCE
A. STR System
The objective of an STR system is tofacilitate the detection of illicit proceeds ofcrime as it enters the financial system via
the financial institutions, i.e. at theplacement stage of the money laundering
process. This is the “choke point” wheremoney laundering is most vulnerable. It
is important therefore that a legal checks
and balance system is put in place to(i)legally recognize the STR systemdomestically in compliance with
the FATF recommendations;(ii) exert obligatory compliance byfinancial institutions to the STR
provisions;(iii) sanction non-compliance byfinancial institutions of the legal
STR obligations; and(iv) safeguard the integrity of thefinancial system12.
12 A typical example is the BCCI (The Bank of Credit

and Commerce International) case. Unlike any
ordinary bank, BCCI was from its earliest days
made up of multiplying layers of entities, related
to one another through an impenetrable series ofholding companies, affiliates, subsidiaries, bankswithin-banks, insider dealings and nominee
relationships. By fracturing corporate structure,
record keeping, regulatory review, and audits, thecomplex BCCI family of entities was able to evade
ordinary legal restrictions on the movement of
capital and goods as a matter of daily practice androutine. Thus it becomes an ideal mechanism forfacilitating illicit activity by others, including many
governments’ officials whose laws BCCI was
breaking.
BCCI’s criminality included fraud by BCCI and
BCCI customers involving billions of dollars; money
laundering in Europe, Africa, Asia, and the for

450

This requires a methodical and practical
approach to the form of STR relevant tosuit a given situation in each jurisdiction.
For instance, the form of STR expectedfrom a financial institution would varyfrom a law or accountant firm due to thenature of the transactions peculiar to them.
In this report we propose to examine the
STR of financial institutions and briefly the
FIU of Japan and a comparative glimpseof Hong Kong13 and the United States aswell.
1. The Japanese STR System14 and FIU
In 1992, the STR system was first
introduced into Japanese legislation by theenactment of the Anti-Drug Special Law.
Subsequent to this, the Anti-Organized
Crime Law was enacted in year 2000 which
introduced a comprehensive STR system.
The scope of predicate offence of money
laundering was expanded to almost allorganized crimes. Based on the law, theJapan Financial Intelligence Office(JAFIO) was established in the Financial
Services Agency (FSA) as the Japanese
Financial Intelligence Unit.
example, use of shell corporations. Americas;
BCCI’s bribery of officials in most of those locations;
support of terrorism, arms trafficking, and the saleof nuclear technologies; management of
prostitution; the commission and facilitation ofincome tax evasion, smuggling, and illegal
immigration; illicit purchases of banks and realestate and a panoply of financial crimes limited onlyby the imagination of its officers and customers.
It is important to note also that among BCCI’s
principal mechanisms (techniques) for committing
crimes are that which we noted at item 1.4 above,
13 See Appendix 4 for the guidelines issued by the
Monetary Authority of Hong Kong to financial
institutions for the prevention of money laundering.
14 See Appendix 2 & 3 for the standard form of STRs
by financial institutions and the full text of a typical
STR in Japan.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSEAt present, depository institutions(banks), insurance companies, securities
brokers and other non-bank financial
institutions are covered in the STR system.
However, non-financial institutions orother relevant professionals (so called
gatekeepers) are not covered. Complianceby financial institutions is mandatory but
no legal sanction is provided for nondisclosure of STRs.
B. Better quality STRs vis a vis
Know Your Customer Policy andRules
In order to facilitate better quality andreliable suspicious transaction reportsbanks and other financial institutions
should know their customers.

Who are they dealing with?
The customer tells the banks who theyare. It would be necessary to obtainevidence of identity-reliablecircumstantial-hearsay?
The customer gives and an address. Is
it correct?
Verification would be necessary. How?
What if the customer:(i)
Is a foreigner?
(ii) A child?
(iii) Wife?
(iv) Housebound?
Where are we dealing with them?

What does that mean?
(i)
Making every reasonable effort todetermine the true identity andbeneficial ownership of theaccounts.
(ii) Knowing the source of the funds.
(iii) K n o w i n g t h e n a t u r e o f t h ecustomers business.
(iv) K n o w i n g w h a t c o n s t i t u t ereasonable account activity.

Traditionally, a customer would be seen
in person.
In the world of:(i)
Postal banking(ii) Electronic banking(iii) Telephone banking(iv) Internet banking

Why are bankers concerned?
(i)
Can they simply take people at facevalue?
(ii) Who are they dealing with?
(iii) Where do they come from?
(iv) How do we prove this information
accurate?
(v) Where are we dealing with them?
(vi) Why should we bother?

To protect profits, reputation, obey thelaw and be the good citizens.

Why cannot they simply take people atface value?
Unfortunately, quite a lot of people are
not honest. The net result could be a bad
debt or fraud. More importantly being
involved with criminals puts theirreputation at risk.

What would be the situation?
Why should they bother?

What are the implications for theauthorities?
(i)

The need to recognize that in a very
few countries there is a completely
reliable identification system.
(ii) The need to recognize that remote
identification is here to stay.
(iii) The need to keep ahead of thecounterfeitor.
(iv) Accept that there will be instancesthat identification cannot be
proved absolutely.

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RESOURCE MATERIAL SERIES No. 58
Therefore, it could be said that
identification is rarely certain and difficult
to prove. This statement would also be true
in relation to the place of residence ordomicile. Thus the way ahead is closer
partnership to reduce difficulties.
C. Recommended Guidelines for
STRs
In the context of the report, the following
guidelines are recommended.
1. Cash Transactions(i)Large deposits and withdrawals
without rational reasons.
(ii) Transactions frequently made inshort periods of time andaccompanied by large deposits andwithdrawals without rational
reasons.
(iii) Transactions where large amountsof small-denomination coins orbills without rational reasons.
(iv) Large cash deposits into night safe
facilities or rapid increase ofamount without rational reasons.
2. Opening of New Accounts(i)
New accounts in fictitious names
or in the name of other persons.
(ii) Accounts that are suspected ofhaving been opened in fictitious
names or in the names of otherpersons.
(iii) Accounts bearing the names ofcorporations that are suspected ofnever having existed.
(iv) Customers who wish to have cash
cards sent to destinations otherthan their addresses.
(v) Customers who have tried to open
accounts by mail-order without
proper information.
(vi) Customers who attempt to open
multiple accounts without rational
reasons.
(vii) Customers who have no convincing
reasons to make transactions at aparticular branch.

452

3. Transactions through Existing Accounts(i)
Accounts that have been used forlarge deposits and withdrawals
during a short period of time after
their opening and have then beenclosed or discontinued for any
other transactions without
rational reasons.
(ii) Transactions where large deposits
and withdrawals are madefrequently without rational
reasons.
(iii) A c c o u n t s w i t h f r e q u e n tremittances to a large number ofpeople without rational reasons.
(iv) Accounts that customers use forreceiving frequent remittancesfrom a large number of people
without rational reasons.
(v) Accounts that have not been active
for a long time and suddenly
experiences large deposits andwithdrawals without rational
reasons.
(vi) Transactions those are unusualfrom the viewpoint of economic
rationality.
4. Trading in Bonds and/or Other
Securities(i)
Transactions where customers
bring in large amounts of bonds
and/or other securities to sell themfor cash without rational reasons.
(ii) Customers settle trading in bonds
and/or other securities with checks
drawn by/or remittances fromthird parties without rational
reasons.
(iii) Customers attempting to buy large
amounts of bonds for cash orchecks and then request to receive
bond certificates while refusing touse depositary services without
rational reasons.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
5. Transactions Related to Safekeeping
Deposit and Safety Boxes(i)
Customers use safety box facilities
frequently without rational
reasons.
6. Cross-border Transactions(i)
Customers who provide
information which is suspected ofbeing falsified or ambiguous
information.
(ii) Customers make frequent large
overseas remittances within shortperiods of time without rational
reasons.
(iii) Customers send large overseas
remittances for economicallyunreasonable purposes.
(iv) C u s t o m e r s r e c e i v e l a r g e
remittances from abroad that areeconomically unreasonable.
(v) Customers frequently order orencash large amounts of traveler’sor remittance checks without
rational reasons.
(vi) Customers who are based injurisdictions which do notcooperate with international antimoney laundering efforts or areshipping illegal drugs.
(vii) Customers carry out with parties
based in NCCTs (Non-Cooperative
Countries and Territories 15 ) or
jurisdictions which are shipping
illegal drugs.
(viii) Customers introduced by parties
based in NCCTs or jurisdictions
which are shipping illegal drugs.
7. Loan Transactions(i)
Customers unexpectedly makerepayments of overdue loan.
(ii) L o a n a p p l i c a t i o n s w h e r eborrowing customers put up assets

held by third parties as collateral.
8. Other Transactions(i)
Customers who jointly visit a bankbranch and request different
tellers to make large cash or
foreign exchange deals.
(ii) Customers who refuse to explain
reasons or submit information
when requested to verify theintended beneficiary.
(iii) Transactions that are made byemployees of banks or theirrelatives to benefit parties that are
unknown.
(iv) Transactions where employees ofbanks are suspected of committing
crimes.
(v) Transactions where deposits are
made with forged or stolen moneyor securities and the customers are
suspected of knowing that themoney or securities are forged orstolen.
(vi) C u s t o m e r s w h o u n u s u a l l yemphasize the secrecy of the deals,
and customers who attempt to ask,
force or bribe bank officials.
(vii) Transactions that are identified as
unusual by bank officials based on
their knowledge and previous
experience, and transactions
involving customers whose
attitudes or actions are identified
as unusual by bank officials.
III. OTHER METHODS OFINTELLIGENCE16
Apart from STRs detected through thefinancial institutions, there are othermethods of intelligence to detect money
laundering offences. These include:

15 These are countries identified by FATF to haveinsufficient laws and regulations to assist in thefight against money laundering.

16 Some of the methods mentioned in this sub topic

are also canvassed by Group 3 in their report.

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RESOURCE MATERIAL SERIES No. 58
A. Private Informers
The use of private informers could serve
as a useful source of intelligence in money
laundering investigations. However, one
should expect the perils of using private
informers as a source of intelligence ininvestigation. It is most prudent if possible
to maintain the anonymity of theseinformers. The disclosure of their identity
and the nature of information may risk thetruth seeking mission of the criminal
justice systems in using rewarded
criminals as witnesses.
B. Surveillance (Electronic/Cyber)Interception of private communication
is a commonly used method of intelligencegathering. The use of electronic devices
and computers feature a common tool inthese operations. The use of persons insurveillance could also be described asanother means in this regard. The wire
tap as it is commonly known may not berecognized as a legitimate source ofintelligence in certain jurisdiction however
it is believed to be used widely as a sourceof intelligence gathering in investigation.
C. Undercover Operations
The courts 17 have long upheld thevalidity of undercover operations as ameans of intelligence gathering ininvestigation. The conduct of personnel inthis operation must be that which does not
violate fundamental fairness and does not
impeach the fundamental rights ofindividuals.
D. Information derived from a
Criminal Investigation
This source is derived throughinterrogation. The usage of interrogationin criminal investigation would in certain
instances serve to alert the investigator
about sources that target intelligence inregard to other crime. No one person is
17 As in the Operation Casablanca case.

454

likely to know the full extent of criminal
enterprise. Therefore these interviews ofdifferent persons in criminal investigation
could contribute as a source of intelligencegathering with regard to further criminal
activity.
IV. PROBLEMS IN THE
FUNCTIONING OF FINANCIAL
UNIT AND PROPOSED SOLUTIONS
Financial Intelligence Units arefunctioning in some countries like UnitedStates of America, Japan, Hong Kong, etc.
envisaged in their statutes to combat
money laundering. Various problems havebeen experienced in it’s functioning to makeit a potent weapon against this crime.
Money laundering has become a global
phenomenon with the help of modern
technology and it needs a global effort tocombat it. Some major problems to fight
this menace are enumerated here.
A. Lack of Relevant Legislation to
Criminalize Money Laundering
A number of countries do not have thelegislation to criminalize money
laundering. All such countries need tomake enactments in this connection to
make this global effort successful.
International pressure also needs to bebrought on such countries to take
immediate steps in this direction.
B. Absence of FIU
Some countries have the legislation tofight against money laundering but they
have not created FIU. Fiji is an example
where money laundering legislation exists
but there is no FIU to build financial
intelligence system. Such countries needto create FIUs expeditiously suitable totheir situation in order to fight money
laundering effectively.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
C. Limited Scope of FIU
There are countries like Japan whichhave the required legislation and FIU but
their STRs are limited to only banks andfinancial institutions. Transactions
relating to real-estate, luxury cars, jewelers
are not covered. In some countries, postoffices also conduct financial transactions
just like banks. Real estate transactions
are made through lawyers and attorneys.
A significant part of illegal money islaundered through real-estatetransactions. Similarly accountants,
money-changers, businesses and trades
can also be required to submit STRs to FIU
to broaden the scope of FIU and facilitate
analysis. Each country can think ofbroadening the scope of FIU according to
it’ s situation and requirement.
D. Improper Analysis of STRs
In most cases, receiving the STRs frombanks and financial institutions without
other relevant information about thetransaction and proper analysis does notserve a useful purpose in identifying anddetecting that the transaction relates tomoney-laundering. FIUs need to haveaccess to wider data-bases of enforcement
agencies like police, anti drug-trafficking
enforcement agencies, anti-corruption
agencies, customs and income-tax
departments in order to analyze the STRs
meaningfully.
The system of submission of STRs to
FIUs and analysis by FIUs need to becomputerized with the help of suitablesoftware to make the job of analysis
meaningful. Sometimes it may benecessary for analysis purposes to haveadditional information about the nature of
the transaction and the persons involvedin the transaction. For this purpose, FIU
should have the authority to access further
information from banks, financial
institutions and law enforcement
authorities.

E. Quality of STRs
Banks and financial institutions may
find it difficult to identify as to whichtransaction is suspicious and which is not.
In an attempt to overcome this difficulty,
for instance, the USA has adopted thethreshold approach in addition to STR
system. Their legislation provides thatcash transactions of $10,000 and above
should be reported to the FIU and theconcept of Currency Transaction Report(CTR) was introduced. This approach
results in receiving large number of CTRs
which makes the process of identifying asuspicious transaction and analysis
difficult. However, an accessible database
was created for law enforcement
authorities.18
In the case of Costa Rica, record keeping
by financial institutions in a prescribed
form is also undertaken on a thresholdbasis for access by law enforcement
authorities when necessary.
Another approach may be proper
education and training of personnel ofbanks and financial institutions in
identifying suspicious transactions.
Countries like Japan and Hong Kong haveissued detailed guidelines to banks andfinancial institutions as to whichtransactions are to be suspected. There isalso a necessity of monitoring banks andfinancial institutions and ensuring thatthey comply with instructions andguidelines regarding submission of STRs.
In Hong Kong, a bank official has been
designated as a compliance officer whomonitors that guidelines are enforced. The
experience has been found to be useful andcan be useful for adoption by othercountries.
18 The Financial Crimes Enforcement Network(FinCEN) is the US FIU. It has a large data basethat is accessible by law enforcement authorities
and likewise, FinCEN can access their data bases.

455

RESOURCE MATERIAL SERIES No. 58
F. Absence of Sanctions for NonDisclosure of STRs
The provision of sanctions for noncompliance of guidelines to submit STRs
by banks and other financial institutions
need to be made in the relevant statute.
Some countries do not have any criminal
sanction for non-compliance. Each country
should provide appropriate sanction for
non-compliance in its legislation.
G. Extension of STRs to NonFinancial Institutions
STRs need to be broad based in order tofight money laundering. It has been foundin countries where legal provisions for
mandatory reporting to FIU exist thatmoney launderers have turned toalternative avenues of money 1aundering
due to tightening of controls in financial
sectors. Legal provisions can be made tobring in the gate-keepers (lawyers andaccountants), tax advisors, real-estateagents, dealers in high value goods andcasinos etc. requiring them to file STRs.
Gate-keeper is a new anti-money
laundering jargon and defined as someone
who is responsible for allowing someone
else access to a field although he does not
own the gate or the field. They provide
several services that may open the “gate”
to financial transactions, management ofdeposits or securities accounts, real-estatetransactions, investment services,company formation, creation of trusts andfinancial and tax-advice. This is a delicate
and controversial issue and a balanced
approach needs to be adopted reconciling
requirements of professional secrecy andfight against money laundering.
The dividing line may be ascertaining
the legal position for a client or
representing a client in a legal proceeding
and participation in a financial transaction
involving money laundering. Here again,
the problem of identification of a particular456

transaction being suspicious by persons andinstitutions may arise. The solution may
be found either in threshold approach or
public education and awareness. It will
depend on each country to adopt a
particular approach or a combinationaccording to it’s own conditions.
The European Union had brought in a
directive in 1991 making STRs by financial
institutions mandatory which came into
effect in 1993. It has now brought anamendment to this directive in the year
2000 that the above-mentioned gatekeepers, business and trade-institutions
should also be brought in the ambit ofmandatory reporting of suspicioustransactions.
In addition to STR, the USA also has
provisions of filing CTR by casinos andInternal Revenue Service (IRS 8300) bytrades and businesses. A Currency
Monetary Instrument Report (CMIR) is
required to be filed to customs authorities
whenever money is transported in or out of
the country.
V. CONCLUSION
It should be noted that a good number ofjurisdictions do not have anti-money
laundering legislation and do not have a
Financial Intelligence Unit system. They
should be encouraged to enact legislationin this contest and take constructive
measures to set up suitable Financial
Intelligence Units.
The jurisdictions who possess necessary
legislation to tackle the laundering problem
should identify and be mindful of
deficiencies money in their systems andtake appropriate measures to remedy thesituation.
It would also be appropriate to suggestthat suitable public awareness programmes

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
be set up to educate both official and thegeneral public in the sensitivities to theworking of the anti-money launderingsystem.
Relevant jurisdictions should also takenote of all matters discussed above andadopt appropriate recommendations withregard to the solutions discussed.

457

RESOURCE MATERIAL SERIES No. 58

GROUP 2COMPONENTS AND LEGAL FRAMEWORK FOR COMBATINGMONEY LAUNDERING, CURRENT SITUATION, PROBLEMSAND SOLUTIONS FOR ASSET CONFISCATION SYSTEM
Chairperson
Co- Chairperson
Rapporteur
Co- Rapporteur
Co Rapporteur
Members

Advisors
Professor
Professor
Visiting Expert

Mr. Meinrado P. Paredes
Mr.Wataru Nemoto
Mr. Kedar Prasad Poudyal
Mr. Ahmad Zaidi Bin Ibrahim
Mr. Camillus Jacob Sambua
Ms. Nadira Tabassum
Mr. Richard Otieno Okore
Mr. Haruo Maruyama
Deputy Director Keiichi Aizawa
Chikara Satou
Nosaka Akihino
Ms. Susan Lea Smith

I. INTRODUCTION
Rapid globalization and economic
development has opened up newopportunities for pursuing more fulfilling
lives. On the other hand, it has also created
new opportunities for criminal exploitation,
challenging the basic rules of our social,economic and political systems. In recent
years, crime has become increasinglyinternational in scope, and the financial
aspects of crime have become more
complex, due to rapid advances intechnology and globalization of thefinancial services industry. Moneylaundering is an indispensable element oforganized crime, narcotics trafficking,terrorist activities or arms trafficking. It
is necessary for all the nations to enact thenecessary laws and regulations toeffectively combat money laundering. One
such method is the establishment of aneffective confiscation system.1

458

Philippines
Japan
Nepal
Malaysia
Papua New Guinea
Bangladesh
Kenya
Japan
UNAFEIUNAFEIUNAFEI
United States

Traditionally, nations concentrated only
on crimes not on proceeds. Consequently,
existing laws are inefficient to trace andconfiscate proceeds of crime. Legal
provisions for confiscation of the proceeds
generated from all types of serious crimes
is the main tool to fight against money
laundering. Therefore, the focus of antimoney laundering legislation should
include a strong confiscation provision.
This group has identified problems relating
to the tracing, freezing and the confiscationof illegal proceeds and suggests that strong
legislative and administrative measures
must be enacted to create an effective
confiscation system. This paper will
examine the following issues concerning
confiscation:
1

Article 1(f) of the UN Convention Against Illicit
Traffic in Narcotic Drugs and Psychotropic
Substances, (Vienna Convention), and Article 2(g)of the UN Convention Against Transnational
Organized Crime define confiscation as thepermanent deprivation of property by order of acourt or other competent authority.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE(i)

The current situation inparticipating countries as well asother countries;(ii) I d e n t i f i c a t i o n o f c o m m o n
problems;(iii) Identification of possible solutions.
Prior to discussing these issues, however,
it is first necessary to examine the current
international standards concerning thecreation of an effective confiscation system.
II. INTERNATIONAL STANDARDS
A. 1988 United Nations Convention
against Illicit Traffic in Narcotic
Drugs and Psychotropic
Substances (Vienna Convention)
The scope of the Vienna Convention was
to promote co-operation among the parties
so that they may address more effectively
the various aspects of illicit traffic innarcotic drugs and psychotropic
substances. To comply with their
obligations under the Convention, theparties must take such legislative andadministrative measures which
criminalizes all forms of narcotics
trafficking, drug-related money launderingand provides for the confiscation ofproperty derived from such drug-related
crimes.
Article V of the Vienna Convention
details the obligations of the parties to seek
confiscation of drug trafficking and money
laundering proceeds, as well as the
instrumentalities used to commit suchoffenses. It mandates each signatory
country to enact laws with domestic andinternational confiscation application.
Article V requires parties to the convention
to enact domestic confiscation legislations
enabling the party in question to locate,freeze, and confiscate all kinds of property
derived from, or used in, drug trafficking
or drug money laundering. It also requires
each party to provide assistance to anothercountry by identifying, tracing, seizing,
freezing, or confiscating any property orproceeds which were derived from, or usedin, drug trafficking or drug money
laundering and which may be located intheir country. Furthermore, Article V
provides that bank secrecy laws must notserve as a barrier to domestic andinternational asset confiscation
investigations.
B. The Forty Recommendations of
the Financial Action Task Force(FATF)The FATF is an international working
group whose purpose is the development
and promotion of policies to combat money
laundering. These policies aim to prevent
such proceeds from being utilized in future
criminal activities and from affecting
legitimate economic activities. The FATF
requires each country to take necessary
measures to criminalize money laundering
for all serious crimes. The determinationof what constitutes serious crimes andwhat will be designated as money
laundering predicate offences is left to eachcountry to decide.
In Recommendation 7, the FATF
identified and recommended confiscation
as one such measure to combat money
laundering. It recommended that countries
should adopt measures similar to those set
forth in the Vienna Convention to enable
their competent authorities to confiscate
property actually laundered or traceable
thereto, instrumentalities used in, or
intended for use in the commission of any
money laundering offence, or property ofcorresponding value, without prejudicing
the rights of bona fide third parties. Suchmeasures to confiscate should include theauthority to:(i)

Identify, trace and evaluate
property which is subject to459

RESOURCE MATERIAL SERIES No. 58
confiscation;
Carry out provisional measures,such as freezing and seizing, toprevent any dealing, transfer or
disposal of such property; and(iii) Take any appropriate investigative
measure.

crimes.
These countries havecomprehensive confiscation regimes whichallow for the confiscation of the proceedsof drug trafficking and other serious crimes
as well as the confiscation of
instrumentalities used to facilitate thecrime.

C. 2000 United Nations Convention
Against Transnational OrganizedCrime
The purpose of this Convention is topromote international co-operation toprevent and combat transnationalorganized crime more effectively. Article
12 of the Convention explicitly deals withthe seizure and confiscation of proceeds ofcrime. It restates the requirements
contained in Article V of the Vienna
Convention but extends seizure andconfiscation to other serious crimes.

While all the above listed countries haveprovisions for criminal confiscation basedon conviction, Malaysia, South Africa,
Thailand and the United States
additionally have civil in rem2 confiscation
procedures.

(ii)

III. REVIEW OF CURRENTSITUATION IN COUNTRIESFrom the countries’ reports anddiscussion, it was determined that
Bangladesh, Cambodia, Costa Rica, Kenya,
Malaysia, Nepal, Oman, Pakistan, Sri
Lanka and Tanzania have enacted laws to
confiscate the proceeds of drug trafficking,and a few have additionally extended theirlaws to confiscate the proceeds of othe
crimes such as bribary and other forms ofcorruption. The penal laws in Papua New
Guinea and the Philippines provide for theconfiscation of the proceeds of all crimes.
However, these laws are inadequate as they
do not apply to converted or transferredassets. Additionally, all the above named
countries have not criminalized money
laundering for all serious crimes.
Canada, Fiji, Germany, Hong Kong,Japan, Portugal, Republic of Korea, South
Africa, Thailand and the United States
have enacted anti-money laundering
legislation which extends to all serious

460

IV. PROBLEMS RELATING TO THE
CONFISCATION OF PROCEEDSThe group identified the following
general and specific problems relating toconfiscation measures to fight againstmoney laundering. Upon review of thelegal provisions of participating countries,
it was determined that while all theparticipating countries have confiscation
laws, most countries’ laws are insufficientand ineffective in the fight against money
laundering.
A. General Problems
1. Lack of AwarenessIn many of the countries, there is a
general lack of awareness among thegeneral public and particularly amonglawmakers, law enforcement officials, andjudges concerning the gravity and adverse
effect of money laundering.

2

Civil in rem confiscation proceedings are brought
against the property and do not depend upon theconviction of the wrongdoer. The government must
prove the basis of the confiscation action by apreponderance of the evidence, after which theburden shifts to the claimant to defend his or herinterest in the property.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
2. Lack of a Strong Political Will
The increasing concentrations of wealthamong criminal groups in a number ofjurisdictions is a concern not only becauseof the impacts on investments, real estatevalues, legitimate commerce andgovernment integrity, but also because
these organizations have the wealth to
make large campaign contributions tocandidates who may then assist them intheir criminal activities. A government
elected with the help of such money
generally loses the political will to enact
strong anti-money laundering andconfiscation legislation. Illicit funds andcorrupt officials represent a continuing
threat to democracy in virtually all regionsof the world.
B. Specific Problems
1. N a r r o w s c o p e o f a p p l i c a t i o n o f
confiscation laws
In most of the participating countries,
confiscation is only available for theproceeds of narcotics trafficking. In
addition, only a few of the participating
countries have legislation which
criminalizes money laundering for theproceeds of all serious crime and which
would extend confiscation to such proceeds.
Because of the narrow scope of thecountries’ confiscation laws, successful
confiscation actions have been limited in
numbers.
2. Standard of Proof
In many countries, criminal confiscationis the only basis for confiscation. Therefore
before any confiscation can occur, adefendant must be charged and convictedof a crime. The burden of proof in criminalcases requires the government to prove its
case beyond a reasonable doubt. Because
a conviction is necessary before confiscation
can be effected in most countries, it issometimes difficult to achieve. In many of
the countries, the rate of conviction is very
low. Sometimes, even though a defendantcannot show any legal source for his assets,
the confiscation will fail because thegovernment has insufficient evidence toprove guilt. Additionally, most criminal
forfeiture systems contain no means forconfiscating the illegal assets of a criminal
who has absconded or died.
3. Implementation Problems
A Study of the situation of the various
countries also shows that despite havingsome confiscation provisions, their effective
implementation has been lacking. In mostof the countries, there are no prosecutions
for money laundering or confiscation. Mostof the implementation problems are related
to a country’s ability to identify, trace,
freeze and confiscate the proceeds of crime
both pre-trial and post conviction. The
following causes were determined to hinder
the implementation of confiscation laws.
(a) Strong Bank Secrecy Laws
In countries like the Philippines, there
is a strong bank secrecy law which cannot
be pierced for law enforcement purposes.
Because of this, investigating authorities
cannot identify or trace illicit monies forconfiscation.
(b) Lack of Reporting Obligations ofFinancial Institutions as Regards
Suspicious Transactions
In most of the participating countries,
there is no provision mandating financial
institutions to report suspicioust r a n s a c t i o n s . C o n s e q u e n t l y, t h einvestigating authorities do not receive thenecessary information which would alert
them to the possible existence and locationof illegal assets.
(c) Lack of Financial Intelligence Units
Criminals are increasingly usingsophisticated methods to hide their illegal
proceeds. Without the assistance of afinancial intelligence unit to analyze
suspicious transaction reports and

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RESOURCE MATERIAL SERIES No. 58
facilitate financial investigations, mostillegal assets cannot be identified andconsequently are not confiscated.
(d) Lack of Procedural Laws
Additionally, it was determined that insome countries, there is a lack of procedural
laws to satisfactorily give effect toconfiscation. In many countries, forexample, the property laws create an equal
property right of the father, mother andsons over the ancestral property. If one
member of the family is involved incriminal activity and has used the common
property for facilitating his/her criminal
activities, naturally, it is unfair toconfiscate the entire common property. The
property rights of those family members
who did not know of the criminal use of
the property should not be affected.
Because of the difficulty in determining
which part of the property should be
confiscated, confiscation claims usually fail.
Thus, because the procedural law has nomeans to satisfactorily divide the property,
it is impossible to execute a confiscation
order.
(e) Lack of Proper Provisions forInternational Co-operation
Even those countries which haveconfiscation laws often are unable to fully
implement the law because there is noprovision for international co-operation. In
many instances, illegal proceeds have beentransferred to another country and without
assistance from that country, the proceeds
cannot be confiscated. However, if thecountry in which the assets are located does
not have the ability to provide suchinternational assistance, the confiscation
action will fail.

462

V. SOLUTIONS TO IDENTIFIEDPROBLEMS
A. Increase Awareness Concerning
Money Laundering
Substantive efforts should be made toraise the public awareness concerning thedangers of money laundering to thenational security of a country. This can beaccomplished through the publication of
informative articles in local newspapers,
the conducting of seminars for lawmakers,
judges, law enforcement officials andprivate sector persons and ultimately, in
the investigation and prosecution of money
launderers.
B. Need for a Comprehensive
Proceeds of Crime Law
Those countries which only have alimited confiscation system should enact acomprehensive law to confiscate theproceeds of serious crime. It is suggested
that developed countries should provide
assistance to those countries in the draftingof such new legislation as well as provide
financial and technical assistance to create
an infrastructure for the effective
implementation of the confiscation laws.
Furthermore, where countries areunwilling to enact and implement suchlaws, the international community must
exert pressure through the use ofcountermeasures against such non cooperating countries. An effective
confiscation law should include thefollowing provisions.
1. All Serious Crimes to be Included
All countries should include provisions
within their law which allow theconfiscation of proceeds from serious
crimes3. However, it is recognized that eachcountry will determine those crimes to be
designated as serious. It is suggested thatcertain crimes be included in suchdefinition such as, drug trafficking, humanand arms trafficking, terrorism, corruption,

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
if it is registered in other’s nameso long as the owner is not an
innocent owner or a bona fidepurchaser for value;fraud and other transnational organizedcrimes.
2. Provisional Measures
Any confiscation law should provide forthe pre-trial freezing or seizure of assets.
If any individual or organization orcompany is suspected of engaging in an
illegal transaction with the proceeds ofcrime, the competent authority must be
given the power to demand particulars of
the accounts of such persons and if
necessary, to freeze and/or seize theidentified assets prior to trial.
3. Types of Property to be Confiscated
In some countries, only the proceeds
which are located with or in the name ofan accused can be confiscated. In othercountries, intangible property cannot be
confiscated nor can the property generated
from the proceeds be confiscated.
Difficulties are also experienced concerning
the confiscation of instrumentalities, mixed
property (illegal property mixed with thelegal property) and other property whichfacilitates the concealment of illegal
property. A comprehensive confiscation law
should provide for the confiscation of thefollowing types of property:

3(i)All movable, immovable, tangible,
intangible, claim rights, andsecurities;(ii)

All property that is proved to beproceeds or traceable thereto, even

The UN Convention Against Transnational
Organized Crime in Article 2(1)(a) requires theconfiscation of the proceeds of offences covered by
the Convention. The offences mentioned areorganized crimes, money laundering, corruption,and obstruction of Justice. (See Articles 5, 6, 8 and
23). The Convention also defines serious crime as
conduct constituting an offence punishable by amaximum deprivation of liberty of at least four
years or a more serious penalty.

(iii) All instrumentalities including
real estate, vehicles, andmachinery which have been used
or intended to be used in thecommission of a crime;(iv)

Any proceeds which have been
mixed with other legal property to
the extent of the value of the illegal
property;(v)

Interest and profit generated fromthe proceeds.

4. In rem Confiscation
In some countries like the United States,
there is a provision under which, in certain
instances, property can be confiscated even
without conviction. This type ofconfiscation is difficult for many countries
to accept. However, as has been statedearlier, in many of the developing countries,
the conviction rate is very low thus
prohibiting the confiscation of most illegal
assets. Consequently, adoption of such inrem confiscation measures is suggested if
the legal system of a particular country
permits.
5. Legal Presumptions
If a country’s domestic legal systems
allows, a defendant should be required toprove the lawful origin of the alleged
proceeds of serious crime or other property
liable to confiscation.4

4

See Vienna Convention, Article V(7) andConvention Against Transnational Organized
Crime, Article 12(7).

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RESOURCE MATERIAL SERIES No. 58
C. Enhancements for Effective
Implementation
Effective implementation is still aproblem in most countries. The following
measures are suggested to enhance
effective implementation.
(i)Bank secrecy laws must be
amended to allow law enforcement
agencies to obtain information
concerning the location of theproceeds of crime.5(ii)

Financial institutions must be
required to report suspicioustransactions.6(iii) A Financial Intelligence Unit
should be established to analyze
suspicious transaction reports andassist in financial investigations.
D. Disposition of ConfiscatedProperty
In some countries, all or a portion ofconfiscated assets are segregated to be used
to enhance law enforcement capabilities.
However, other countries believe that suchconfiscated assets should be returned to thegeneral treasury. It was concluded thateach country should determine the properuse of such property according to theirrespective laws.
E. International Co-operation
Major drug traffickers and othercriminals often hide their illicitly generated
proceeds outside the country where they
commit their crimes. Thus, one country’s
confiscation efforts, however effective andcomprehensive, may not be enough to takethe profit out of transnational crime. For
confiscation laws to work effectively,
countries must apply and enforce theirdomestic confiscation measures
5
6

FATF Recommendation 2.
See FATF Recommendation 15 and Convention
Against Transnational Organized Crime, Article 7.

464

consistently and must pursue theconfiscation of illegal assets found abroad.
Recognizing the diversity of legal
systems among nations, the Vienna
Convention7 and the Convention Against
Transnational Organized Crime providethat a requested country may seek theforfeiture of property at the request ofanother country in one, or both, of two
ways. The requested country may initiate
its own forfeiture proceedings against theproperty in question using the evidence
provided by the requesting country.
Alternatively, the requested country may
give full faith and credit to a forfeiture
judgment rendered by the competentauthorities of the requesting country.
The sharing of confiscated assets among
countries serves to create an incentive for
future cooperation and often provides themeans for a country to assist in theinvestigation, tracing, freezing, seizing andconfiscation of illegal assets. The means
to effect a request for assistance in thefreezing, seizure and confiscation of illegal
proceeds and asset sharing should bedetermined through multilateral orbilateral agreements among countries.
VI. CONCLUSION
To c o m b a t m o n e y l a u n d e r i n g ,participating countries should have strong
substantive and procedural laws against
it. Effective asset confiscation is a critical
tool of modern law enforcement. Throughasset forfeiture, governments can take boththe profit out of crime and disrupt criminal
activity by forfeiting the property thatmakes the crimes possible. In this way, law
enforcement is not limited to arresting andprosecuting criminal offenders, but can also
attack the economic underpinnings ofcrime and make restitution to victims.
7

See Article V.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
However, as criminal activity becomesincreasingly transnational, international
cooperation has become a law enforcement
imperative. Only through suchinternational cooperation, can nations hope
to win the fight against transnationalorganized crime.

465

RESOURCE MATERIAL SERIES No. 58

GROUP 3CURRENT SITUATION, PROBLEMS AND SOLUTIONS FOR
SPECIAL INVESTIGATIVE TOOLS IN COMBATING MONEY
LAUNDERING
Chairperson
Co-Chairperson
Rapporteur
Co-Rapporteur
Members

Visiting Expert
Advisors

Mr. Ahmed Nasim
Mr. Takashi Itoyama
Ms. Ronel Van Wyk
Mr. Saidi Ally Mwema
Mr. Soeparno Adi Soeryo
Mr. Mitsuru Nishikori
Mr. Pisan Mookjang
Mr. Peter H Wilkitzki
Director Mikinao Kitada
Prof. Hiroshi Iitsuka
Prof. Hiroshi Tsutomi

I. INTRODUCTION
Money laundering, which briefly means“making dirty money look clean”, occurs inevery crime where there is a financial
motive. The problem of laundering money
derived from illicit trafficking in drugs, aswell as other serious crimes, has become a
global threat to the integrity, reliability andstability of financial and trade systems andeven government structures. This growing
threat requires countermeasures by theinternational community as a whole, inorder to deny safe havens to criminals andtheir illicit proceeds. The proceeds of crime,
particularly cash, are laundered forreinvestment. This involves a series ofcomplicated financial transactions i.e. wiretransfers, purchase of money orders or
cashiers cheques, underground banking
etc, which ultimately results in criminal
money become “clean” and accepted for
legitimate business purposes.
Over the past few years, we havewitnessed the benefits of industrializationand globalization of transport and466(Pakistan)(Japan)(South Africa)(Tanzania)(Indonesia)(Japan)(Thailand)(Germany)(UNAFEI)(UNAFEI)(UNAFEI)

communication. However, on the negativeside we see criminals crossing borders withan ease unknown in the past and are
expanding their area of criminal activity
and become ever more intelligent andorganized. To meet the threats posed bydomestic and transnational organizedcrime and to enhance law enforcement’s
ability to succeed in combating money
laundering, we need national andinternational combined efforts.
It may also be noted that the newly
emerging forms of multilateral cooperation
among law enforcement agencies is, on the
one hand, necessitated by globalization ofcrime, but, on the other hand, it encountersproblems due to the insufficiency of laws
and regulations which would enable fuller
application of modern technology as an
instrument of special investigation
techniques.1
In proving money laundering offences it
is important to prove the link between themoney laundering offence and the fact thatthe criminal was aware that the proceeds

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
had been obtained illegally. Through thecontinuous surveillance of these offences
we will also be able to effectively
investigate and prove the money
laundering offences.
In this paper we intent to examine thethree special investigation techniques
namely (i) controlled delivery (ii) electronic
surveillance (wiretapping etc.); and (iii)
undercover operations as effective weapons
in combating money laundering. In thisregard our discussion will cover a brief
analysis of each of the three investigativetechniques. We shall also explore the legal
framework and identify current problems
encountered in the use of these tools in
facilitating the investigation of money
laundering. Finally, we shall recommend
albeit briefly, the use of the above
mentioned investigation techniques andcall for change of provisions of domestic
laws.
II. CONTROLLED DELIVERY
A. Introduction
In terms of Article 2(i) of the United
Nations Convention Against Transnational
Organized Crime, controlled delivery shallmean the technique of allowing an illicit
or suspect consignment to pass out of,through or into the territory of one or morestates, with the knowledge and under thesupervision of their competent authorities
with a view to the investigation of an
offence and the identification of persons
involved in the commission of the offence.2
This is done for the purpose of furthering
the investigation of an offence and thepossible identification of persons involvedin the commission of the offence.

It is an investigative technique which
has been known for years as aninternationally and domestically accepted
method for the monitoring and thecombating of crimes including money
laundering and predicate offences such as
drug trafficking, illegal firearms,
smuggling, stolen motor vehicle etc.
There are two methods of controlled
delivery namely live control delivery andclean controlled delivery. If the illegal
goods or surrogates, at least in part, arriveat their final destination it is called live
control delivery. Where the circumstancesof the detection and concealment are as
such, that it is possible to remove all ormost of the illegal goods and substitutecounterfeit illegal goods before allowing theconsignment to proceeds, a clean controlled
delivery can be made. If the finaldestination of the consignment is within
the frontiers of the country in which theinitial detection occurred, “Internal
Controlled Delivery” is possible. If theintended final destination of theconsignment is in a country other than that
where the initial detection was made, thereis the potential for an “External Controlled
Delivery”.3
An example of a clean control delivery
in a money laundering investigation canbe found in ‘Operation Mule Train’, an
undercover operation which was conductedin the United states. On July 1, 1998, theChief Financial Officer, President, and Vice
President of Supermail International, Inc.,cheque cashing company, were arrested on
money laundering charges stemming froma two-year investigation conducted by theLos Angeles office of the FBI and the Los
Angeles Police Department. According tocorporate filings, the company was one of1

Statement of Slawomir Redo at the Central Asian
Seminar on TOC, 22-23 March 2000.
2 Art 2 of the UN Convention against Transnational
Organized Crime: September 2000

3

PD Curring: The technique of controlled delivery
as a weapon in dealing with illicit traffic in narcotic
dugs and psychotropic substance: 2000/06/07/

467

RESOURCE MATERIAL SERIES No. 58
the largest cheque enterprises operating in
the western U.S., and purported to be oneof the leading U.S. money transfers agents
providing services to Mexico and Latin
America. It was considered a significant
and growing company among theincreasing number of independent nonbank financial institutions operating inmany inner-city neighborhoods wherebanks have reduced their presence.
The three executives, along with six
other employees and associates, werearrested after a federal grand jury returned
a 6 7 - c o u n t i n d i c t m e n t a g a i n s t 11
defendants, including the Supermail
corporation, charging multiple
conspiracies, money laundering, evading
currency reporting requirements, aiding
and abetting, and criminal forfeiture. The
initial target of the investigation was acompany store in Reseda, California.
Investigators, working in an undercovercapacity, approached the manager, who
agreed to launder “drug” money inexchange for a cash fee. The undercover
officers then delivered cash which herepresented to be drug proceeds to the
managers and he converted the cash intomoney orders issued by the company. As
larger sums were launched, the manager
sought the assistance of his associates
working at other store locations. When a
new manager took over operations at the
Reseda store in April 1997, he brought inthe company’s corporate officers, including
the CEO, the President and the Senior Vice
President. Pocketing the cash fee, thecorporate officers authorized the issuanceof money orders and the wire transfers oflarge sums of “drug” money to a secret bankaccount in Miami, Florida while the cash
was used to maintain operations at thecompany stores.
To avoid detection by law enforcement,
no Suspicious Activity Reports (SAR) formsof Currency Transaction Reports (CTR)

468

were filed by the company for any of thesetransactions; however, SAR forms and
CTR’S were filed by the banks into which
the cash deposits were made, and thesefiling significantly enhanced the value ofother information received. In total, thedefendants laundered over $3.2 million
dollars of “drug” money. The investigation
is believed to be one of the largest money
laundering “sting” operations targeting acheque cashing business in U.S. history.4
B. Common Issues and Problems
In many countries the controlled
delivery technique is used as a method for
conducting criminal investigation but there
is no specific legal authorization provided
in the domestic laws. In those countries,
controlled delivery operations are
conducted in accordance withdepartmental guidelines in the relevant
law enforcement agency i.e. police,prosecutors, customs etc. These authorities
have employed the technique mainly in thefight against money laundering, drugtrafficking, illegal firearms, stolen
properties trafficking and humantrafficking. However, as criminals employ
modern technologies to assist in theircriminal activities, there is a need to enact
new laws which allow law enforcement to
use the same modern technologies in theirinvestigative techniques.
Due to the economic and technological
gap between developed and developing
countries, there is often a lack of resources
such as skilled personnel and modern
investigation equipment for evidencecollection. This, in a way, affects the efforts
made in combating money laundering.
Certainly combating money laundering
requires resources both physical andhuman. Controlled delivery as an effective
investigative tool is being used in many
4

Susan L Smith: Money Laundering: Trends andTechniques: February 2, 2001

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
countries. However, law enforcement
agencies are reluctant to reveal their useof this investigative technique as not to tip
off criminals.

(4) In case there will be need for external
control delivery there are additional
factors which will have to beconsidered including:

C. Proposed Solutions
Money laundering and other predicate
offences such as drug trafficking, fire arms
smuggling, corruption, fraud, extortion etc.
are extremely difficult to detect. It,
therefore, requires not only a high level ofskill, professionalism, team work andcooperation, but also as an special
investigative technique. In this regard, thefollowing points may be considered in acontrolled delivery operation :(i)The legal provisions in force inthe detecting country and thecountry of destination.

(ii) Whether there is sufficient time
to develop an acceptable action
plan between the law
enforcement agencies in thedetecting country and thecountry of destination.
(iii) Whether the authorities in the
country of destination are able tolaunch an operation given theidentification and detection
principles.5(1) Those controlling the operation must
make sure the information does notleak as premature publicity willrender controlled delivery operation
useless.

II. ELECTRONIC SURVEILLANCE(2) Whenever possible, removal of illegal
goods such as drugs, firearms etc
should be made and a harmless
substance substituted. It should be
noted that “clean controlled delivery”
eliminates not only the risk of illegal
goods being lost but also gives greater
freedom in organizing surveillance
and reduces the risk of alarming thecriminals who may have arranged
counter surveillance.
(3) T h e u l t i m a t e d e l i v e r y o f t h econsignment should be made with thecooperation of the firm that would
normally make such a delivery. A law
enforcement officer posing as adriver’s assistant should travel withthe delivery vehicle which should bemonitored by other operation teammembers who will take the necessary
evidence such as fingerprints,
photographs etc.

A. Introduction
Criminal investigations are becoming
increasingly more difficult as criminals use
advanced technologies and moresophisticated methods to commit theircrimes. In order for investigators to keep
pace, they must use sophisticatedinvestigative techniques. One extremely
successful technique has been electronic
surveillance, both silent video surveillance
and interception of wire, be it oral orelectronic communication. In fact,
recording criminals talking about theircrimes in their own voice not only helps toprove a case against them but also enables
law enforcement authorities to learn ofconspirator’s plans to commit crime and lay
a trap to prevent the occurrence of violent
crimes.
Electronic surveillance can be defined
simply as the interception of oral or
5

See Footnote 3, supra P4

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RESOURCE MATERIAL SERIES No. 58
electronic communication through wire,
telephone, computer etc. in order to listen
and record information by using technicalmeans. Electronic surveillance caneffectively be used in cases such as money
laundering, drug trafficking and extortion.

not to divulge information assuming any
information will be given to law
enforcement authorities. From theforegoing, it would appear that the court
will issue a warrant after evaluating thefollowing points:

B. Common Issues and Problems
The major problem in the use of thistechnique is the need to strike a balance
between the investigation of the criminal
activity and the constitutional rights of theindividual i.e. a persons’ reasonable
expectation of privacy. In an effort to strikesuch balance the domestic legislation ofvarious countries prohibits any
unauthorized electronic surveillance.
H o w e v e r, t h e r e a r e e s t a b l i s h e drequirements for obtaining authority tomake such interceptions. A warrant
authorizing electronic surveillance of oral,
wire- and electronic communications aswell as silent video can only be issued by ajudge. For example in the United States,
law enforcement officers are required toconfine their surveillance to only relevant
conversations or activities, specify thelength of time the technique will be usedand certify that normal investigativetechniques have either been tried andfailed or are reasonably unable to succeed,or too dangerous to attempt.
In other words, before obtaining aninterception warrant, law enforcement
officers are required to exhaust normal/
traditional investigation techniques unlesssuch techniques will alert the criminal of
an investigation. Another traditional
method is to search a person’s home under
the authority of a search warrant while theowner is present, but again it is notnecessarily true that criminals will hide or
keep valuable information of their criminal
activities in their homes. Even if the law
enforcement officers use an informer orundercover officer, the target can choose

470

(i)

Traditional/normal investigativetechniques have been tried andfailed,(ii)

Tr a d i t i o n a l i n v e s t i g a t i v etechniques are reasonably likely tofail, or(iii) T r a d i t i o n a l i n v e s t i g a t i v etechniques are too dangerous to
try.6
C. Proposed Solutions
While we see electronic surveillance isan effective investigative tool as thecriminals are not aware that their words
or actions are being recorded by law
enforcement agencies because of its
extraordinary invasiveness, the use ofelectronic surveillance should be limited toonly those times when it is necessary. The
necessary requirements can be shown if
investigators can satisfy the court thattraditional investigation techniques havebeen tried and failed and can explain howeach traditional technique i.e.
interrogation, physical surveillance, search
warrants etc. would be futile or dangerous
in their particular investigations.
Certainly, as electronic surveillance can be
conducted across border, the necessity of
having multilateral and bilateralagreements between member states cannot
be ignored.
In analyzing the use of electronic
surveillance among the participating
countries, there are countries, which have,6

T D Colbridge : Electronic surveillance. A matterof necessity: February 2000

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
and those which have no legal provisions
governing electronics surveillance. For
example, Germany, 7 Japan, Pakistan,South Africa and the United States ofAmerica South Africa etc, have laws
concerning interception of communications
for the purpose of criminal investigation.
However, there are countries that do nothave legislation but still use the technique
as a criminal investigation tool.
Lastly it should be noted that as money
laundering offences are more likely to be
cross-border crimes there should beinternational cooperation in the use ofelectronic surveillance just as it is true forother special investigative techniques. A
minimum requirement for theadmissibility of cross-border surveillanceshould be that the conditions for applying
the methods are met under the law of either
State.
III. UNDERCOVER OPERATIONS
A. Introduction
Money laundering takes place in a
myriad of ways. A small-time criminal
might launder stolen money by purchasing
a valuable item in one country and selling
it at a later stage in another country. A
criminal with more funds to wash andcriminal organizations whose activities
generate large amounts of illicit profits
cannot rely with safety on one launderingtransaction only. They usually require amore complex money laundering scheme
which might utilize shell companies andan intricate web of international financialtransactions.
The methods used by criminals in theirtrade, whether it is narcotics, organizedcrime, money laundering etc., have become
more advanced and are sometimes
7

German Code on Criminal Procedure: Guidelines
set by the Prosecutions Service

extremely complex and difficult to detect.
Undercover policing is proving to be one of
the most successful investigative tools incombating money laundering. The use ofundercover investigative techniques
requires extensive planning, preparationand handling. This investigative techniquealso imposes heavy demands on police
officers on a professional as well as ethicallevel. They are faced with certain problems
which are not encountered in any othertype of enforcement activity. Undercoverwork is a useful technique for obtaining
information regarding the activities ofcriminal elements. The information
obtained is virtually indispensable in thedevelopment of intelligence that leads tothe identification, arrest and conviction of
offenders and recovery of stolen property,
and is also one of the most effective meansof detecting or preventing criminal activity.
An undercover operation is a method ofinvestigation where substantial
information and evidence on money
laundering activities are gathered over a
period of time, involving the use of lawful
measures by law enforcement and by using
undercover agents to obtain suchinformation and evidence.
Law enforcement agencies rely on theseundercover agents to infiltrate criminalorganizations to gather information to
dismantle them. Undercover assignments
come in many varieties. They include
everything from short-term, buy-bustscenarios to longer-term investigations
lasting months or years. There are twodimensions within undercover operations.
One being the utilization of a confidential
informant who provides insight andinformation concerning the activities ofcriminals, and the other is the utilizationof undercover police officers (agents) thatassume a different identity in order toobtain information and evidence. These
two dimensions are normally used

471

RESOURCE MATERIAL SERIES No. 58
simultaneously in an effort to address thethreat effectively.
Undercover operations conducted in aproper manner are very expensive and insome instances, can be a controversial
investigative method. It is furthermore adangerous investigative technique which
may involve innocent members of the
public. Proper measures should therefore
be put into place in respect of the sensitivityof the information, the involvement of the
public, the security of the agent(s) and theinformant and the evidence gathered
during the operation.
A good example of a successful
undercover operation with regard to money
laundering is ‘Operation Casablanca’. The
United States Customs Service concluded
the operation in May 1998. It was thelargest, most comprehensive andsignificant drug money laundering case in
the history of the United State law
enforcement. This undercover money
laundering investigation resulted in the
seizure of more than $98 million in cashfrom drug traffickers, more than 4 tons ofmarijuana and two tons of cocaine. The
indictment, which was issued in UnitedState District court in Los Angeles, charged
26 Mexican bank officials and three
Mexican Banks, CONFIA, SERFIN, andBANCOMER with laundering drug money.
Additional, bankers from two Venezuelan
banks, BANCO INDUSTRIAL DE
VENEZUELA and BANCO DEL CARIBE
were charged in the money laundering
scheme. In ‘Operation Casablanca’,undercover agents were introduced tofinancial managers from drug cartels, andthey obtained contracts to “pick up” drug
proceeds on the streets of major UnitedStates cities. The agents were later
introduced to Mexican bankers who openedbank accounts for them. Funds that were
“picked up” were transported back to Los
Angeles, California where it was deposited472

in United State Customs Servicescontrolled undercover bank accounts.
Funds were then wire transferred toaccounts opened by the Mexican banking
officials. After taking out their commission,
the officials then issued Mexican bankdrafts drawn on the U.S. accounts of the
Mexican banks. These bank drafts weredelivered back to the undercover agents in
the U.S. either in person or via courier.
The funds were then disbursed at thedirection of the money launderers.
Court orders were obtained allowing forthe seizure of the total amount of drugmoney laundered through the accounts andthe amount of commissions paid to thebankers. Because the Mexican bank drafts
were drawn on the U.S. accounts of the
Mexican banks, court orders were obtained
allowing for the seizure of theaforementioned funds from those U.S.
accounts. As a result of the investigation,
BANCOMER and SERFIN each pled guilty
to criminal money laundering violations
and together forfeited a total of $16 million
to the government. Each bank was also
fined $500,000. CONFIA settled theindictment with a civil plea and forfeited$12 million.
Twenty individuals, including 12
Mexican bankers and their associates, havepled guilty to money laundering and/or
drug smuggling charges. Three Mexican
bankers were convicted after a jury trial,
and three Mexican bankers were acquitted.
Three Venezuelan bankers were convicted
in December 1999 on money launderingcharges. An amount of $64 million of the$98 million originally seized during thisinvestigation has been forfeited to thegovernment of the United States.8
B. Common Issues and Problems
The most common problem thatcountries have to deal with is the questionof whether an undercover operation is

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
justifiable and whether it has been
executed within the boundaries of the law.
Furthermore, the methods employedduring the operation should not infringeon the constitutional rights of the person(s)involved. The Supreme Court in the UnitedStates has long upheld the validity ofundercover and reverse sting operations aslong as outrageous governmental conduct
is avoided. Four factors can be considered
in determining whether outrageous
conduct exists: (i) the need for the type of
conduct in relationship to the criminal
activity; (ii) the preexistence of the criminal
enterprise; (iii) the level of discretion orcontrol of the criminal enterprise by thegovernment; and (iv) the impact of thegovernment activity creating thecommission of the criminal activity.9

Another issue which is the subject of alegal debate is the question of the role ofthe undercover agent. Instead ofpreventing crime there is some possibility
that a police agent may further andfacilitate the commitment of crime. In
money laundering cases, the agent has toparticipate. The involvement of the agent
in this case is not a question of committing
the offence, but of intent. The agent does
not help the money laundering offence, but
he rather assists in preventing further
crimes. A line should be drawn between
the legal participation of an undercoveragent in illegal activities and the legal
inducement of a crime during theoperation. The courts of the countries
should in terms of their own legal
frameworks deal with this matter.

Additionally it is important that anundercover operation be approved andmonitored. The approval must require
written documentation, stating supporting
facts and circumstances, that: (i) initiationof investigative activity regarding thealleged criminal conduct or enterprise iswarranted under applicable departmental
guidelines; (ii) the proposed undercover
operation appears to be an effective meansof obtaining evidence or necessary
information; (iii) the undercover operation
will be conducted with minimal intrusionconsistent with the need to collect theevidence or information in a timely andeffective manner; (iv) approval for the useof an informant or confidential source has
been obtained as required by Attorney
Generals or National Public Prosecutors;and (v) any foreseeable participation by anundercover employee in illegal activities isjustified.10

Undercover operations as a method ofinvestigation have proved successful in the
United States and in other countries. The
participating countries have also
acknowledged the importance of theseinvestigative techniques. A majority of thecountries represented have employed thetechnique of undercover operations forinvestigating crimes which include drug
and firearms trafficking, money
laundering, stolen properties, woman
trafficking etc. Japan (for narcotics andfirearms trafficking only) and Malaysia
have some special laws or regulations
pertaining to conducting undercover
operations.

8

Susan L Smith: The Fight against Money
Laundering: The U.S. Perspective: February, 1
2000
9 William P Schaefer: Combating organized crime: thelegislative and regulatory framework

The German Code on Criminal
Procedure makes provision for the use ofundercover investigators where there issufficient factual indications showing thata criminal offence of considerable
importance has been committed and ifclearing up this using other means would
offer no prospects of success or be much
10 US Attorney General Guidelines on FBI UndercoverOperations Revised: 11/13/93

473

RESOURCE MATERIAL SERIES No. 58
more difficult. Some problems with
undercover agents and the due process
requirements have led to stringent court
practice concerning the sentencing ofoffenders that have been induced byundercover agents to commit the offence,but not to a broad questioning of the tactic
itself. In the United States and in manyother countries the use of this method ofinvestigation is not regulated by law but isconsidered a valuable investigative tool.
Countries should not permit undercover
operations where agents are required tocommit violent acts. In cases where thiscannot be avoided, necessary measures
should be taken to prevent the violencefrom occurring. Countries should, however,consider the regulation of investigativetechniques such as undercover operations,by law in day to day judicial practice.
Law enforcement agencies often find it
necessary to use information provided byindividuals of less than sterling characterand reputation, who live and function
within the criminal element itself.
Although a multitude of factors may
motivate these individuals to provide
information to the police, the use of
informants remains one of law
enforcement’s oldest and most essential
investigative tools. The rights andobligations of the informant should beprotected and an assurance ofconfidentiality should be given. Proper
records on informants should bemaintained and the identity of each
informant should be concealed.
Informants should have an explicit
understanding of what they may and may
not do while working for a law enforcement
agency. By granting limited and specificauthority, law enforcement agencies caneffectively control the activities of theinformant. It, however, often becomes
necessary for informants to visit locations

474

where criminal activities, such as thebuying and selling of narcotics takes place,where they are subjected to arrests by otheragencies and prosecuted for the offences.
The officer in charge of the informant
should therefore effectively control theactivities of the informant and times should
be limited where informants can become
involved in such activities.
C. Proposed Solutions
In this regard countries should consider
and adopt the recommendations made by
the United Nations to create an obligation
under international law to criminalize
money laundering. Article 4 of the Councilof Europe Convention on Laundering,
Search and Seizure and Confiscation of theProceeds of Crime (1990) refers to special
investigative powers and techniques. It
places an obligation on the member states
to consider adopting legislative and othermeasures as may be necessary to enable it
to use special investigative techniques.
The approach of courts when presenting
evidence, which was obtained during
undercover operations, is very important.
Courts must recognize the importance of
not disclosing certain information on the
persons involved and the techniques used.
The disclosure of this information can leadto the endangerment of the lives of law
enforcement officers, the persons who allow
their properties to be used and will reveal
the methods used during undercover
operations, thus making it difficult to use
the methods in the future.
In terms of article 14 of the Convention
on Mutual Assistance in Criminal Matters
between the Members States of theEuropean Union (2000), member countries
may agree to assist one another in the
conduct of investigations into crime by
officers acting covertly or with a false
identity.

117TH INTERNATIONAL SEMINARREPORTS OF THE COURSE
IV. CONCLUSION
It is our considered view that special
investigative techniques such as controlled
delivery, electronic surveillance andundercover operation should be included
in domestic laws with a view ofstrengthening enforcement of money
laundering laws and to intensify law
enforcement efforts in detecting money
launderers and prosecute them. Thisaction will, however, not eradicate
traditional investigation techniques but
will supplement detection efforts.
As global communications and world
trade agreements are increasing due totechnological development, the ability toinvestigate money laundering cases issomething that will continue to challenge
law enforcement officers for the foreseeable
future. It is therefore, important that as
criminals employ modern technologies toassist their criminal activities, there is aneed to enact new laws which allow law
enforcement agencies to use such modern
technologies in their investigating
techniques.
Money laundering techniques will makeprogress as technology advances. We
should make joint efforts worldwide toestablish anti-money laundering laws andsystems. We must also combat money
laundering through training and exchange
of information among countries.
Additionally, each country should continue
to work closely with its international
partners in bilateral and multilateralassistance agreements to promote further
actions to effectively address money
laundering and other criminal activities
and to win the fight against money
laundering.

475

RESOURCE MATERIAL SERIES No. 58

476

APPENDIXCOMMEMORATIVE PHOTOGRAPHS• 116th International Training Course• 117th International Senior Seminar

UNAFEI

THE 116th International Training Course

Left to Right:
Above:Mr. Yam (Hong Kong), Mr. Park (Korea), Prof. Tsutomi (UNAFEI), Prof. Nosaka(UNAFEI)
4th Row:
Mr. Takagi (Chef), Ms. Kubo (Staff), Mr. Souma (Staff), Ms. Takeda (Staff), Ms.
Matsushita (Staff), Ms. Saitou (Staff), Mr. Nozaki (Staff), Mr. Gohda (Staff), Mr.
Kimura (Staff), Mr. Kai (Staff), Mr. Nakagawa (Staff), Ms. Inada (Japan), Ms. Ono(JICA)
3rd Row:
Mr. Hirata (Staff), Mr. Wang (China), Mr. Yokokawa (Japan), Mr. Sengsouvanh (Laos),Mr. Hatanaka (Japan), Mr. Amamoto (Japan), Mr. Suwit (Thailand), Mr. Miyamoto(Japan), Mr. Fukushi (Japan), Mr. Shibata (Japan), Mr. Jimbo (Staff), Mr. Konno(Japan), Ms. Hoshi (Japan)
2nd Row:
Ms. Kamitani (Staff), Mr. Tamagoshi (Japan), Mr. Ruy (Brazil), Mr.Hubert (P.N.G),
Mr. Ramend (Fiji), Mr. Kamya (Uganda), Mr. Upadhyay (India), Mr. Gondal (Pakistan),
Mr. King'wai (Tanzania), Mr. Hariyanto (Indonesia), Mr. Paminluan (Philippines),
Mr. Mustafa (Malaysia), Mr. Inoue (Japan), Mr. Awunah (Nigeria)
1st Row:
Ms. Findlay-Debeck (L.A.), Mr. Miyamoto (Staff), Prof. Kakihara, Prof. Satou, Dep.
Director Aizawa, Ms. Hilger (Germany), Dr. Hilger (Germany), Director Kitada, Mr.
Roberti (Italy), Mr. Ohr (U.S.A.), Prof. Iitsuka, Prof. Tachi, Prof. Watanabe, Mr.
Chishima (Staff)

THE 117th International Senior Seminar

Left to Right:
Above:
Mr. Sin (Hong Kong), Mr. Chae (Korea), Mr. Wilkitzki (Germany), Ms. Smith (U.S.A),
Prof. Satou (UNAFEI)
4rd Row:
Ms. Saitou (Staff), Ms. Matsushita (Staff), Mr. Kimura (Staff), Mr. Kai (Staff), Mr.
Souma (Staff), Mr. Nozaki (Staff), Mr. Nakagawa (Staff), Mr. Gohda (Staff), Mr. Hirata(Staff), Mr. Jimbo (Staff), Mr. Takagi (Chef)
3nd Row:
Ms. Takeda (Staff), Ms. Kubo (Staff), Mr. Maruyama (Japan), Mr. Nishikori (Japan),
Mr. Awasthi (India), Mr. Itoyama (Japan), Mr. Tunidau (Fiji), Mr. Nemoto (Japan),
Mr. De Livera (Sri Lanka), Mr. Ueda (Japan), Mr. Phoung (Cambodia), Ms. Kamitani(Staff)
2th Row:
Ms. Mitani (JICA), Ms. Van Wyk (South Africa), Mr. Okore (Kenya), Mr. Nasim(Pakistan), Mr. Sambua (P.N.G.), Mr. Chihara (Japan), Mr. Mwema (Tanzania), Mr.
Zaidi (Malaysia), Mr. Porter (Costa Rica), Mr. Mookjang (Thailand), Mr. Poudyal(Nepal), Mr. Paredes (Philippines), Mr. Soeryo (Indonesia), Ms. Nadira (Bangladesh),
Mr. Bader (Oman)
1st Row:
Mr. Chishima (Staff), Prof. Kakihara, Prof. Watanabe, Prof. Tachi, Deputy Director
Aizawa, Mr. Murphy (Canada), Director Kitada, Dr. Galvao (Portugal), Prof. Iitsuka,
Prof. Tsutomi, Prof. Nosaka, Mr. Miyamoto (Staff), Ms. R. Findlay-Debeck (L.A.)