Combating Money Laundry to The Next Level : Extending Due Dilligence and Record Keeping Requierement

LAW REVIEW

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Background

Conceptually, White Collar Crime (WCC) is “A crime committed by a person of respectability and high social status in the course of his occupation”[1],WCC  consists of several variety action which are Corruption,Bribery,Fraud,Tax Evasion,Money-Laundering,Corporate Crime and also Enviromental Crime.WCC encompasses a number of problems in the areas where criminal, business and economic, and international law overlapping and interacting. Economic and financial crime refer to diverse activities that cannot be included under a homoge- neous rubric. The newness of the field, the overlap of criminal and administrative penal law, the scope of economic and financial law, and divergences among legal systems make an accurate definition elusive.[2]It results even in Asia Regional,White Collar Crime had became An issue that hardly to resolve by the Law.

Money Laundering,as a form of WCC,became Asia’s Major Issue since,in many cases,are difficult to overcome, thus money laundering impose significant costs on and create risks to the world economy generally,and in Asia Particularly through disruptions in orderly and transparent economic activity, and political and social unrest,speaking of which,in Asia Regional,each Country has their Municipal Laws that strictly regulated Money Laundering by established Anti Money Laundering(AML),particularly,several of Asian Country such as Japan and Hongkong adopting the Intergovernmental Financial Action Task Force (FATF) to strenghten its regulation[3], FATF provides government with a comprehensive framework for anti-money laundering action focusing around the criminal justice system and law enforcement, the role of the financial sector and government regulators in combating money laundering, and the need for international cooperation[4],it must be noted that AML programme is more efficient and more effective when its greatest attention is directed at those areas with the greatest risk[5].

Asian authorities have strenghtened AML laws, it is proven by developing Financial Intelligence Unit (FIU),maintaining AML frameworks for financial institutions,and remarkably improving coordination and cooperation between National Authorities Across nation,however, it leaves a major loophole of vacuum of law, since many countries in Asia that applied AML solely regulated Due Diligence and Record keeping requirement to Financial Institutions, thus, the Non-Financial institutions by specific entities or persons such as Real estate agencies and Lawyers may continue to commit Money Laundering Activities without no sanctions, since there is no regulation that regulating Due Diligence[6] and Record keeping requirement to Non-Financial institutions and for that matter, it is the time that Asian Country to extent its municipal law regarding to Due Diligence and Record keeping requirement beyond financial institutions.

Basic Regulation of Anti Money Laundering in Asia

Pursuant to its Municipal law that regulated AML of each Countries in Asia, it stipulated that every Money Laundering committed by an Individual or Group of people classified as a violation of law and eligible to obtain a punishment or sanctions, Also pursuant to FATF recommendations[7]that stipulated several recommendations regarding to Money Laundering, regardless of FATF is not legally binding to Asian Country because its derived from (Recommendation). FATF recommendations could be categorized as a guidance to overcome the Money Laundering Issues which has been classified as Asia’s Major issue.

Legal Issue

The legal issue concerned with the Extending AML Laws in Asia is a matter of Economic Law,the main question presented is whether or Asian Countries should extend its AML laws regarding to Due Diligence & Record keeping requirement to Non-Financial Institutions, pursuant to its AML Municipal Law in Asian Regional, considering that Money Laundering Action does not solely commit by Financial Institution, but also Non-Financial Institution.

In this Globalization era, from economic law perspective, it is invariably that Legal issue regarding to Money Laundering arising progressively due to Technology Development that possibly can trigger some entities to commit Money Laundering without being detected, if AML laws were not specifically regulate its regulation, hence there’s Vacuum of Law that would be happened, It implies that even when there’s specific regulation that regulate some actions, some entities have tendency to violated the regulation, much less, when there’s no regulation regarding to that action.

AML laws,generally,focus its regulation to Financial Institutions, thereby leaving a major loophole that would effectively permit other types of entities or persons (e.g., alternative remittance systems; businesses; shell companies; trusts; real estate agencies; car dealers; jewelers; casinos; and professionals such as accountants, financial advisers and lawyers) to continue money laundering activities. When laws do not clearly cover both financial institutions and the full range of non-financial institutions,a number of professionals and institutions that frequently handle large cash transactions are unregulated, therefore increasing the likelihood of money laundering activities, instance, money could be laundered through non-financial sectors such as property. For example, a building could be bought with proceeds of a crime and then sold, even at a loss with the loss being the cost of legitimizing the laundered money.

In china for example, pursuant to Anti-Money Laundering Law of the People’s Republic of China (Adopted at the 24th Meeting of the Standing Committee of the Tenth National People’s Congress of the People’s Republic of China on October 31, 2006),mentioning that the regulation solely focused on Financial Institutions[8], similarly with AML Law in China, pursuant to Anti Money Laundering and Counter Terrorist financing (Financial Institutions) Ordinance of Hong Kong in part 2 provision (Requirements Relating to Customer Due Diligence and Record-keeping) particularly section 5, which is quoted “Schedule 2 has effect with respect to financial institutions” [9], it indicated that AML Law in Hong kong, focused its Regulation subject to Financial Institutions, in 2012 itself there’s 297 Prosecutions and 211 Convictions regarding to Money Laundering in Financial Institutions scope,[10]not to mention Money Laundering committed in Non-Financial institutions is still lack of regulation on that matter.

Noting that there’s still lack of regulation regarding to Due Diligence & Record Keeping Requirement to Non Financial institution in  Asian Country,it can be categorized as a Vacuum of Law, hence it can trigger a negative implication to Asian Economic Development in particular, since Non Financial institutions such as Real estate agencies, could continue to commit Money Laundering without being punished since there is no regulation forbidding Individual or Group of person to commit such thing.

How to overcome this issue?

Considering that Money laundering could happened not merely in Financial Institutions, but taking into account that Non Financial Institutions could actually commit Money Laundering, Asian Authorities in this case should strengthen its regulatory supervision of money laundering and AML laws,in particular to amend its Law regarding to Due Diligence and Record keeping requirement provision to Non Financial Institutions so it will not leave a major flaws in Law because Vacuum of law.

Pursuant to FATF Recommendations, particular in Recommendations Number 24 point (b) it stipulated that Countries should ensure that the other categories of designated non-financial businesses and professions are subject to effective systems for monitoring and ensuring their compliance with requirements to combat money laundering and terrorist financing.[11]From the point, it can be guidance for Asian Countries to include Non Financial Institutional as the subject of the AML laws, thus Asian Regional could combat money laundering to its highest level of law enforcement.

Conclusion

An effective Municipal AML laws requires the existence of certain structures, such as a robust regulatory framework, the rule of law, government effectiveness, a culture of compliance, and an effective judicial system.[12] Some Asian economies do not have these structural elements, or have significant weaknesses or shortcomings that impair the implementation of an effective AML framework,more particularly,AML Laws in Asian Country have tendency not to regulated Due Dilligence and Keeping Record requierement to Non Financial Institutions(Beyond Financial Institutions),thus there’s Vacuum of Law that happened.

Non-compliance with FATF recommendations means heightened risk for an economy’s financial systems, reputation, and its interests in dealing with other economies.[13] Recognizing this risk, most Asian economies have made considerable progress over the past few years to maintain and strengthen its municipal Law regarding to Money Laundering. Nonetheless, significant weaknesses remain due to Vacuum of  Law, However, difficulties achieving full implementation are certainly not limited to Asia; creating robust AML Laws remain a challenge throughout much of the world. An IMF study of global Found that compliance generally remains low, not just in Asia[14] Further, AML Laws development and establishment takes time and that most Asian economies are moving in the right direction.

Regardless of its Vacuum of Law that happened in several country In Asian Region,it is the right time to extent its Regulatory regarding to Anti Money Laundering,specifically Due Dilligence and Record Keeping Requierement to Non Financial Institutions in order to combating the Money Laundering to the further level of enforcement.

Bibliography

Powner,Andrew, Expert Guide to Fraud & White Collar Crime : Recent developments regarding money-laundering in Hong Kong.

Zagaris,Bruce. International White Collar Crime Cases and Material.( Cambridge University Press, New York,2010)

Lim,Fransisco. Anti Money Laundering Initiatives : Ramifications on the Legal Profession.

Pontell,Henry. International Handbook of White Collar and Corporate Crime(Springer Science+Business Media, LLC,New York,2007)

Pontell,Henry & Geis,Gilbert. Introduction: White-Collar and Corporate Crime in Asia

Baldacchino,Justin.Understanding Recent AML Regulatory Changes in Asia Pacific.

Desai,Susi. Implementation of Anti-Money Laundering Standards in Asia.

 

[1] Edwin H. Sutherland during his presidential address at the American Sociological Society Meeting in 1939.

[2] Vincenzo Ruggiero, Economic and Financial Crime in Europe, La Criminalite ́ Economique et Financiere en Europe (Economic and Financial Crime in Europe 19, 24 (Paul Ponsaers & Vincenzo  Ruggiero eds., L’Harmattan, 2002).

[3] House Committee on Banking and financial Services, A Committing Money Laundering ,at prepared testimony of Jonathan Winer, Deputy Assistant Secretary of State, U.S. Department of State (June 11, 1998).

[4] See, Financial Action Task Force on Money Laundering: The Forty Recommendations of the Financial Task Force on Money Laundering with Interpretative Notes, WL 35 I.L.M. 1291 (1996).

[5] FATF: Guidance on the Risk-Based Approach to Combating Money Laundering and Terrorist Financing (June 2007).

[6] Due diligence is a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances; not measured by any absolute standard but depends on the relative facts of the special case.

[7] 40 FATF Recommendations & 9 FATF Special Recommendations

[8] Chapter III Art.15 – Art.22 of Anti-Money Laundering Law of the People’s Republic of China. China (Adopted at the 24th Meeting of the Standing Committee of the Tenth National People’s Congress of the People’s Republic of China on October 31, 2006),

[9] Part 2 Section 5 of Anti Money Laundering and Counter Terrorist financing (Financial Institutions) Ordinance of Hong Kong.

[10] U.S. Department of State 2012 International Narcotics Control Strategy Report Volume II: Money Laundering and Financial Crimes.

[11] 40 Financial Action Task Force (FATF) Recommendations.

[12] International Monetary Fund. “Conception, Compliance with the AML/CFT International Standard: Lessons from a Cross-Country Analysis,” by Vergugo Yepes. IMF Working Paper WP/11/177. July 2011

[13]Money laundering and FATF compliance by the international community,” by Ali Alkaabi, George Mohay, Adrian McCullagh, and Alan N. Chantler. IFIP Advances in Information and Communication Technology. September 20-23, 2010. Brisbane, Australia.

[14] International Monetary Fund. “Conception, Compliance with the AML/CFT International Standard: Lessons from a Cross-Country Analysis,” by Vergugo Yepes. IMF Working Paper WP/11/177. July 2011.

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