By Dr Jacob Magri – Associate
Considerable progress has been made in fighting money laundering and terrorism financing in real-world financial environments, particularly with the introduction of stronger anti-money laundering /counter-terrorism financing (AML/CTF) legislative regimes and increased levels of inter-state co-operation and support. The regulatory framework in Malta, for instance, comprises the Prevention of Money Laundering Act (‘PMLA’) and the Prevention of Money Laundering and Funding of Terrorism Regulations (‘PMLFTR’). These pieces of legislation are in alignment with European Union legislation and lay down the obligations of subject persons (i.e. persons from sectors which are prone to be used for money laundering and funding of terrorism activities).
There are three phases to money laundering: placement, layering and integration. In the placement stage, the funds generated from crime are brought into the financial system. At this point the proceeds of crime emanating from predicate offences, are most apparent and at highest risk of detection. Money launderers ‘place’ the illegally obtained funds using a variety of techniques, which include the deposit of cash into bank accounts and the use of cash to purchase high value assets such as land, property and luxury items. Once the proceeds of crime have been placed into the financial system, there is an attempt to conceal or disguise the source or ownership of the funds by creating complex layers of financial transactions. The purpose of this is to disassociate the illegal funds from the predicate offence by purposefully creating a complex web of financial transactions aimed at concealing any audit trail and the source and ownership of funds. Integration of the ‘cleaned’ money into the economy is the final stage of the process and is accomplished by the money launderer, making it appear to have been legally earned. It is extremely difficult to discern between legal and illegal wealth at the integration stage.
Terrorism financing, on the other hand, occurs when the primary motivation is not financial gain but, rather, the use of funds to “encourage, plan, assist or engage in” acts of terrorism. In terms of sub-article (3) of Article 328B of the Maltese Criminal Code, the crime of funding of terrorism is the process by which a person receives, provides or invites another person to provide, money or other property intending it to be used, or which he has reasonable cause to suspect that it may be used, for the purposes of terrorism. The definition of funding of terrorism, therefore, cares little about the source of the funds (contrary to money laundering), but it is what the funds are to be used for that defines its scope. In fact, the primary distinction between the two crimes lies in the fact that terrorism financing funds can also derive from legitimate sources, not merely criminal acts. In the case of money laundering however, there is always an underlying predicate offence and it therefore always involves an illegal source of funds.
While there can be a number of different motivators and drivers for money laundering and terrorism financing activity, they are inextricably linked. Terrorist groups usually have non-financial goals: publicity, dissemination of an ideology, the destruction of a society or regime and simply spreading terror and intimidation. By contrast, money launderers seek financial profit. The sole purpose and motivation behind money laundering is to give a legal existence to assets emanating from illicit sources.
Therefore, although the two phenomena differ in various ways, they often materialize through the same vulnerabilities of the financial system. Both terrorists and money launderers use anonymity techniques to evade the attention of the authorities and to protect the identity of their sponsors or beneficiaries. However, transactions associated with terrorism financing tend to be carried out in small amounts. That is why, when terrorists raise money from legitimate sources, it becomes very difficult to trace the origin of these funds.
The result obtained however is intrinsically similar, that is both crimes involve an element of reward and satisfaction. Once money passes through the money laundering cycle, the launderer is rewarded with ‘clean’ funds which can be used to such person’s satisfaction. Similarly, the terrorist financers are rewarded with ensuring that the plan they financed is eventually carried out.