MEASURES TO COMBAT ECONOMIC CRIME, INCLUDING MONEY-LAUNDERING

B. Talking Points Submitted by the Panellists of Panels 2 and 4Mr. Felix McKenna
Detective Chief Superintendent, Chief Bureau Officer, Criminal Assets Bureau, Ireland
As a law enforcement officer I make the following observations and comments on measures to combat
economic crime including money laundering.
Investment Fraud embraces a number of methods used by serious and organised criminals to defraud
investors, typically involving non-existent companies or fictitious commodities. The value of these frauds can bevery large. A well planned investment fraud might generate around €500,000 while one bogus investmentcompany, the organisers of which are now serving prison sentences, defrauded customers of €3 million between
1995 to 1997. An investment fraud may involve individuals acting under the umbrella of a genuine investmentcompany or through wholly fictitious or fraudulent investment brokers. Generous returns from money invested in
the scheme are promised, the initial investors may be paid dividends out of the money received from later
investors prolonging the life of the fraud, the deception is often elaborate, meetings are held in good hotels, finerestaurants or even in offices located within bank premises. The criminals are well dressed and carry one or two
mobile phones which are constantly ringing during a meeting. Some fraudsters operate only via the telephone oremail and discourage or continually cancel pre-arranged meetings. Victims are often encouraged to join by otherinvestors (who turn out to be in league with the fraudsters).

The Use of Information Technology in Economic Crime
From my own experience in the investigation of 419 frauds, also known as West African or Nigerian letter
frauds; this type of fraud involves the victim being asked to facilitate the transfer of significant funds, usually froman account belonging to someone who has been forced to leave their country following political unrest. The
fraudsters/conmen are willing to exploit any opportunity to achieve their aims and letters and emails have been
noted asking for assistance to access money belonging to victims of September 11. Publicity in early 2003 raised
local awareness in Ireland of this type of fraud and the Irish Police had a steady stream of reports throughout thelatter part of the year amounting to nearly 300 reports. I am aware most internet service providers also now
encourage their email account holders to report to them examples of 419 emails received, in order that they canbar the sender from sending such correspondence. Therefore, Information Technology is a means of creating anawareness in the general public to safeguard them against fraud.

The Use of Whistle-blowers i.e. Bank Employees
My own experience in the investigation of Money Laundering and the concept of suspicious transaction
reports to encourage staff/people to come forward, is that they should have some protection. Under Irish
legislation i.e. the Criminal Justice Act 1994, Bank Employees who make unusual/suspicious transaction reports
are given protection under the legislation to make such reports. In this hypothetical case the Bank Employee, if
the legislation was in place, could have made a suspicious transaction or an unusual transaction report to a
Senior Compliance Officer in their headquarters bypassing the Bank Manager if protection/safeguards were inplace.

Information Technology Used by Organised Crime
New Technology is used in crime, such as fraud, blackmail and extortion as well as paedophilia and childpornography. The national high-tech crime unit defines this type of crime asA.

New Crimes New Tools - New crimes committed against computers and IT networks which present newopportunities to criminals and new challenges to law enforcement agencies, e.g. hacking and viruses,
denial of service attacks and spoof websites; andB.

Old Crimes New Tools - Traditional crimes supported by the use of the internet and new technology suchas fraud, blackmail and extortion. Paedophilia, pornography, identity theft and cyber stalking.

High-tech crime has become a rapidly growing phenomenon over recent years, computers and in particular
the internet provide great benefits for our society; however, there is a real threat that criminals will exploit thesemediums, turning a tool designed to benefit society into a tool to help them commit crime.

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Prevention by Law Enforcement Officials of Schemes Prior to Victims Incurring Loss
In practical terms, if this situation existed in Ireland and from a practical case point for law enforcement toidentify large amounts of money in Ireland, there is a law, the civil restraint powers under the Proceeds of Crime
Act, 1996 which enables law enforcement officers in Ireland to obtain a freezing order against all monies held in
the bank accounts. This is done by the sharing of information from within the jurisdictions where the victims havetransferred monies from and where law enforcement investigations are active and alive. The freezing order canthen remain in force until the principals are apprehended in due course and the monies are therefore protected
and safeguarded for the safe return to the victims.
Additionally, under our money laundering legislation, provisions are available in some jurisdictions for a
restraint order to be placed over monies such as in this example. However, also there are provisions in money
laundering legislation in Europe and in Ireland, whereby the financial institutions identified in this hypotheticalcase are alerted to a money laundering investigation proceeding in their country or an adjoining country andthereby a letter indicating that if they deal or transmit any of these monies, they are then involved in theconspiracy or involved in aiding and abetting money laundering and the accounts can be locked by means of aletter to the bank which will have the effect of freezing any monies held there.

The Common Law Approach - Tracing and Confiscation of Assets
Based on the Proceeds of Crime Act, 2002 in the United Kingdom and the Criminal Justice Act, 1994 as
amended in 1999 in Ireland.
Common law systems of criminal confiscation focus on the prosecutor applying to a designated court or thecourt of trial for the investigation in the court as to the extent of the benefit which a convicted person made from
criminal activity. In drug related cases the investigation can extend beyond the particular offence to all associateddrug related crime. Where crime other than drug related crime is involved, the investigation is likely to be limited
to a specific crime of which the person was convicted. The investigation aims at imposing on the convictedperson, a legal obligation to pay to the State the sum assessed as the value of the benefit. The order does not
focus on any one particular property and the defendant can decide on which steps are needed to discharge theobligation. If he fails to do so he runs the risk of imprisonment in default.
While the benefit investigation aimed at the confiscation order can only take place after conviction, assets may
be restrained prior to the trial to ensure that they are not dissipated. The restraint is likely to be against all theassets of the defendant, though cases of assets are likely to be identified. Assets in the name of third parties
which are believed to be the property of the defendant can also be restrained. Restraint orders will usually allow
money to be paid out for living expenses even for the carrying out of a business. The prosecutor might ask thecourt to appoint a receiver or manager to preserve the restrained assets.
During the investigation the prosecution will have the advantage of certain presumptions. These include apresumption that property acquired by the defendant after a certain date in the statute, usually 6 years before thecharge or after conviction, was obtained as a result of the criminal conduct and that any expenditure incurred by
the defendant after a certain date was met from property obtained as a result of the criminal conduct. These
presumptions can be rebutted by evidence from the defendant. At the confiscation hearing the standard of proofis the lower balance of probabilities test rather than the higher beyond reasonable doubt test which is the one
generally applied to criminal matters. Thus the court starts from the position that the defendant’s property wasobtained illegally and that it is up to him to show that it is, or part of it was obtained legitimately.
The confiscation hearing will probably not follow immediately after the conviction, there could be a number ofadjournments while the prosecutor or agency collects evidence of benefit. The confiscation order will not be forthe entire amount of the benefit but will be limited to a sum which can be realised in the hands of the defendant.
However, there is usually a power to re-open the assessment of benefit even after the conviction order has been
made if new information about the size of the benefit or of the assets available to the defendant comes to light.

Civil Forfeiture and the use of Tax Powers
The modern use of legal processes focusing on the assets produced by the criminal activity rather than on theguilt or innocence of specific offenders started with US developments in the 1980’s, powers of civil confiscation
had existed since the 18th Century and the US Customs Laws. The concept of civil forfeiture has withstood
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MEASURES TO COMBAT ECONOMIC CRIME, INCLUDING MONEY-LAUNDERING

sanction and was constitutionally acceptable so long as the individual case was not grossly disproportionate to
the gravity of the offence.
Parallel to the US developments was the introduction in Italy in 1982 of a law which allowed the courts toseize the assets of persons belonging to a mafia conspiracy and of relatives or associates suspected of holding
assets for them. These provisions were later challenged before the European Court of Human Rights and were
found that they were acceptable as proportionate preventative measures. In N - V - Italy in 1991, the applicant
argued that civil forfeiture was punishment without a conviction and thus breached Article 6, subsection 2 of theEuropean Convention of Human Rights but the Commission on Human Rights said that the proceedings did notinclude a finding of guilt and thus the applicant never acquired the status of an accused person.
Special legislation was introduced in Ireland in 1996 to serve the civil restraint of assets which are believed tobe the proceeds of crime and if they are not claimed by a legitimate owner within 7 years they can be transferredto the State. The court must accept that the belief in criminal origin is reasonable. The process is run by anagency made up of police, revenue and social welfare officers. The Irish legislation is unusual in that the sameagency uses Revenue powers to tax the income accumulated by criminals from criminal activity.
The Proceeds of Crime Act 1996 introduced a new cause of action of a freezing order leading to eventual civil
forfeiture. Asset focused in rem rather than in personam. It is a freezing process with a confiscation application
after seven years, limited to property over €13,000. Civil standard of proof, no conviction needed. See the UKcase of McCann 2002 on what the civil balance of proof means in an anti-social behaviour case. The applicant’sbelief can go into evidence. Limited but significant exception to the hearsay rule. Must be reasonably grounded.
Shifts or shares the burden of proof when the CAB makes a statable case. Payment out applications for legal
services, etc. Use of receivership orders. Ireland sells the assets rather than manages.
The tax approach used in Ireland and in the latter UK law has the advantage of incorporating heavy revenue
penalties and interest and provisions for reversing the burden of proof which have long been considered
acceptable in tax cases. This approach is only feasible in States with elaborate and well resourced tax
enforcement systems and where virtually all the population are recorded on the tax system. The law can providethat a citizen with a mysterious income must show that all tax obligations have been met. The tax authorities are
only interested in the existence of income whether its origin is legal or illegal should be irrelevant. There is noneed to trace particular assets or associate them with particular crimes.
Some tax codes include powers to freeze and seize assets while the tax obligations are clarified. The tax
approach has the advantage that it is morally neutral while, through the collection of substantial arrears interest
and penalties, it can effectively remove the criminal profits and get the income and indeed the tax payer into thelegitimate economy. This approach has fewer human rights and constitutionally difficulties except that the special
revisions for criminal profits will constitute a form of discrimination requiring a rational justification. In addition civil
tax enforcement powers can be used in combination with criminal penalties for tax offences. In order to make it
effective, special provisions had to be introduced to allow for the sharing of information from tax records with theofficers investigating the assets.
In Ireland, a special agency called the Criminal Assets Bureau was set up in order to tackle and deprive
organised crime of their profits.

Suspicious Financial Activity Reporting and the Scale of Activity
The scale of Money Laundering activity is very difficult to estimate on a global spectrum. As well as making
extensive use of cash, serious and organised fraudsters will often go to great lengths to avoid arousing suspicion
with the regulated financial sector and suspicious financial transactions, including cash payments, to aid
disclosure regime. However the use of the regulated sector is unavoidable if serious and organised fraudsters
wish to legitimise their criminal proceeds (like in our hypothetical case).
One way of laundering money, particularly at the layering stage is to invest in financial products with a view toselling them quickly. The use of insurance policies, share portfolios or high yield savings accounts to launderfunds often involve incurring penalties for the early withdrawal of savings or the closing of policies or the selling ofshares at a loss. Serious and organised criminals, particularly major fraudsters may and are prepared to bearsuch costs if they perceive that the overall risk of detection is lower than other money laundering methods. Given– 162 –III PAPERS SUBMITTED TO THE WORKSHOP

that some level of financial expertise may be needed to launder money effectively in this way, this is an area
where criminal fraudsters may look to corrupt a financial professional in helping them, as occurred in thishypothetical case with the Manager, Mr. A.

Banks & Financial Services Providers who are at Risk by Money Launders
All banks and financial service providers are at risk of being used to facilitate money laundering. Large banks
and financial service providers which provide a wide range of financial products and services and which also
have operations in both high and low risk jurisdictions may be particularly at risk. Although the money launderer
faces the challenge of due diligence checks being carried out by those larger institutions, they are attractive tomoney launderers because their size and reputation mean that receiving institutions in other countries are likely
to ask fewer questions about transfers of money. As with what happened in this hypothetical case where money
is being transferred from a major bank to a number of minor banks in another jurisdiction.
Mr. A in the hypothetical case, who is the bank manager, allowed himself to be the victim of serious andorganised criminals, as in this case fraudsters to assist them to launder monies by providing the expertise andinside information in respect of the activities of the bank. Mr. A may well have carried out his activities as a resultof a lack of awareness or curiosity amongst bank managers who may be used to launder money, some may turna blind eye or there may be a degree of collusion. In the latter instance, the professional may not be an entirely
willing accomplice, as Mr. A may not be in this case, since serious and organised criminals are often prepared touse intimidation as well as other inducements to obtain the help they need.

The Use of Front Companies and High Cash Businesses
Serious and organised criminals frequently launder cash through legitimate and quasi-legitimate businesses.
These businesses are often owned or part-owned by criminals or their associates, although legitimate
businessmen may also be duped into providing means for laundering criminal proceeds. The businesses typicallyhave a high cash turnover, this makes it easier for criminally acquired cash to be mixed in with legitimate funds,
e.g. restaurants, nightclubs, fast food outlets, tanning salons, taxi firms, car sales or repair companies.
These are my observations and comments on economic crime with some references to the exposures in thehypothetical cases.

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