Anti-money Laundering by Restricting Financial Transactions

Yuri Truntsevsky

1 a

and Stanislav Dolganov

2 b

Institute of Legislation and Comparative Law under the Government of the Russian Federation, Moscow, Russia

Academy of the Ministry of Internal Affairs of the Russian Federation, Moscow, Russia

Keywords: Criminal law, operational-search activities, banking, crime, money laundering, banking.

Abstract: The goal of this research is to study the methods of money laundering with the development of science-based

measures to identify committed and prevent planned unlawful acts by competent units of law enforcement

authorities performing operational-search activities. To achieve this goal, the following research methods

were used: analysis, abstraction, description, comparison, generalization, inquest, dialectics. Analysis of the

current situation shows that, despite the awareness of the money laundering problem at the global level and a

significant improvement in the legal framework, the number of annually registered crimes in this category

does not decrease. The research of methods of money laundering and the determination of their features, made

it possible to determine the directions for improving the system of measures for detecting and preventing

crimes, as well as to develop recommendations for the inclusion in the current legislation of legal norms aimed

at temporarily limiting (prohibiting) transactions with monetary funds and other assets. The practical

significance of the research lies in the fact that the proposals presented in the article can contribute to the

development of an effective mechanism for combating money laundering.

1 INTRODUCTION

The seriousness of the money laundering problem

throughout the world is evidenced by the fact that the

fight against this negative phenomenon is relevant for

many international organizations. For example, the

UN Security Council resolutions provide for

measures to restrict (prohibit) financial transactions

with a certain circle of individuals and organizations

in order to combat the financing of terrorism.

According to the official statistics of the Ministry

of Internal Affairs of the Russian Federation, 950

crimes were registered in 2020 in Russia,

responsibility for which is provided for by Articles

174 and 174.1 of the Criminal Code of the Russian

Federation, an increase was 0.4% in comparison with

the previous reporting period (FKU "GIATs Ministry

of Internal Affairs of Russia", 2021). What can also

signal about the lack of measures taken to reduce the

level of money laundering?

As a result of effective interaction between

banking organizations and authorities performing

operational-search activities (hereinafter - OSA), it is

https://orcid.org/0000-0002-9906-0585

https://orcid.org/0000-0002-6165-3916

possible to identify committed and prevent planned

unlawful acts (Alaeddin et al, 2019; Sartor, Beamish,

2020). Accordingly, in order to fulfill the tasks

assigned to law enforcement authorities, it is

necessary to study the main features of money

laundering, methods of committing crimes, since

without this knowledge it is rather difficult to fully

implement the entire range of necessary measures

aimed at countering crimes of this category (Singh,

Best, 2019).

The money laundering issue is anyway addressed

in the researches of domestic and foreign experts of

criminal law and operational-search activities.

However, currently, there are many unresolved issues

related to the provision of information by banking

organizations to law enforcement authorities about

possible suspicious activities of banking entities

related to the need to improve legislation on

restricting (prohibiting) illegal financial transactions

in order to effectively respond in real time.

Wherefore, this research, in addition to studying the

methods of money laundering, pays attention to the

development of science-based measures to identify

and prevent this category of crimes by law

Truntsevsky, Y. and Dolganov, S.

Anti-Money Laundering by Restricting Financial Transactions.

DOI: 10.5220/0010625100003152

In Proceedings of the VII International Scientiﬁc-Practical Conference “Criminal Law and Operative Search Activities: Problems of Legislation, Science and Practice” (CLOSA 2021), pages

5-9

ISBN: 978-989-758-532-6; ISSN: 2184-9854

enforcement units performing operational-search

activities, taking into account the specifics of

domestic legislation, and formulated proposals for its

improvement.

2 MATERIALS AND METHODS

In the course of the research and data collection,

attention was drawn to both the global and domestic

state of the money laundering problem. Various

methods were used to obtain up-to-date and reliable

data.

An analysis of scientific literature and research on

the selected topic was performed for the period from

2015 to 2020, using search databases. Keywords

included a combination of analytical concepts and

types of criminal activity. Then secondary selection

criteria were added to the search queries, the search

included only peer-reviewed sources. The following

resources were mainly used: Elibrary, ProQuest

Scopus, Web of Science. All query results were

processed manually to determine their relevance to

the research issue. As a result of the work done, many

sources that are directly related to the researched

issue were excluded from the initial list. Empirical

research was focused on. Such criteria made it

possible to significantly narrow the range of

researches relevant for the data analysis in terms of

their methodological significance, as well as an

assessment of empirical conclusions that were

significant for the research.

In course of the research, surveys and interviews

were conducted among law enforcement officers,

state supervisory authorities of banking, managers

and employees of banking and credit organizations,

specialists of criminal law and the theory of

operational-search activities in Moscow, the Russian

Federation, where most banking and credit

organizations are registered and operate (208 of 406

(Bank of Russia)). In total, 30 people of each category

were interviewed, with a total of 120 respondents for

October - December 2020. All surveys and interviews

were analyzed, the results were compared with data

from publications of other researchers.

The empirical basis of the research was the

official information of law enforcement authorities on

the registered facts of committing unlawful acts in

this category and the number of criminal cases

initiated, as well as sentences passed by Russian

courts of various levels.

3 RESULTS AND DISCUSSION

Money laundering always acts as an additional

criminal act that takes place after the commission of

a predicate offense. Based on the data obtained as a

result of the analysis of criminal cases and court

sentences conducted in the course of the surveys and

interviews, it was established that among the main

predicate offenses are corruption crimes against

property and of economic activity, committed in

banking, real estate and construction, foreign

economic activity, consumer market, fuel and energy,

timber and agro-industrial complexes.

Despite that the money laundering facts can be

detected by almost any authority that conducts OSA,

the overwhelming majority of crimes in this category

are detected and disclosed by specialized divisions of

the Internal Affairs Directorate and the Federal

Security Service (FSB).

The most popular method of money laundering is

the acquisition of high-value assets owned, according

to the results of expert research, by 94% of persons

who have committed predicate offenses (Rodichev,

2016). In this case, criminals do not always register

property in their own name, asking for help in rights

registration to persons who are in trust with them

(Demetis, 2018). According to the survey results, in

most cases, such persons are close relatives of the

lawbreakers (parents, children, spouses).

Considering that low official incomes of

nominees (Ravenda et al, 2019), as well as payments

for transactions from settlement accounts of “fly-by-

night companies” (Bahoo, 2020), can act as signs of

money laundering through the acquisition of high-

value assets, in this case, not only the task of the OSA

related to the detection, prevention, suppression and

disclosure of crimes can be performed, but also the

task of identifying the property subject to confiscation

(Federal Law № 144-FZ, Article 2, 1995). Also, one

of the most common ways of money laundering is the

conversion of funds from the national currency into

other types of currencies. This method feature is that

the criminals receive a large amount of cash into the

account, and immediately acquire another currency

with it, usually freely convertible (Asteriou et al,

2021).

To acquire currency, criminals, as a rule, select

people with low income (students, pensioners,

migrants) who are ready to take part in such schemes

for a small fee. Nominee buyers are used in the

scheme in order to avoid fixing the personal data of

real buyers of foreign currency at the credit

institution. Immediately after the transaction, the

currency is transferred by nominee buyers to

CLOSA 2021 - VII INTERNATIONAL SCIENTIFIC-PRACTICAL CONFERENCE “CRIMINAL LAW AND OPERATIVE SEARCH

ACTIVITIES: PROBLEMS OF LEGISLATION, SCIENCE AND PRACTICE”

criminals. According to the results of a survey of law

enforcement and government officials on banking

supervision, 86% of criminals using this method of

legalization prefer US dollars and EURO.

The considered method of legalization often has

the following features:

1. the contacts of persons purchasing the currency

with persons who have committed a crime

preceding the money laundering from such an

offense. Often, visits to credit institutions and the

purchase of foreign currency by nominee buyers

take place under the control of the beneficiaries;

2. purchase of foreign currency in large amounts by

persons aged 18 to 23 and over 60;

3. purchase of foreign currency in large amounts by

foreign citizens, as a rule, of the CIS member

states, without further transfer to the countries of

which they are residents.

It should be noted that crime documentation,

during operational-search activities, is facilitated by

the availability of video recording equipment with

which credit institutions and ATMs are equipped. In

this case, the joint visits to credit institutions by

nominal buyers and offenders, assistance to dummies

in filling out documents for the purchase of currency,

as well as its transfer to offenders after purchase can

be confirmed.

In accordance with the OSA tasks, in this case, it

is advisable to send relevant inquiries to credit

institutions within the OSA “Inquiry”, in compliance

with the requirements established by law (Federal

Law № 144-FZ, Article 6, 1995).

As a rule, lawbreakers resort to another method

when it is necessary to legitimize the funds received

by them of criminal schemes related to embezzlement

of public funds in the execution of state and municipal

orders, business activities. In this case, the offenders

include the money and property obtained in a criminal

way into legal activity by paying for the purchased

goods, services rendered, fulfillment of credit

obligations and other reasons.

The transfer of funds to the settlement accounts of

legal entities and individual entrepreneurs is

performed by criminals, as a rule, shortly after the

commission of the predicate offense. The fancy

financial transactions will be evidenced by the

documents that served as the basis for their

commission (contracts, payment orders, etc.), copies

and originals of which can be obtained by the bodies

authorized to perform OSA by inquiries.

Splitting large sums into smaller ones and then

crediting them to one account is another way that

criminals use to legalize illegal funds.

In this case, lawbreakers, as a rule, are aware that

if the amount of monetary funds or property

transaction is greater than or equal to 600,000 rubles

or equivalent to 600,000 rubles (when performing a

transaction in foreign currency), it is subject to

mandatory control in accordance with the legislation

and credit institutions are obliged to submit relevant

information to Rosfinmonitoring (The Federal

Service for Financial Monitoring (Rosfinmonitoring)

is a federal executive body of Russia that performs

the functions of countering the money laundering and

the financing of terrorism, as well as on the

development of state policy, legal regulation and

coordination of activities in this area of other federal

executive bodies).

Accordingly, Rosfinmonitoring does not have

information on transactions less than the indicated

amount, if credit institutions themselves do not

provide information on financial transactions in

amounts less than the amount established by law if

there is a suspicion of the legality of their

performance. However, given that such transactions

usually have one beneficiary and are performed in a

relatively short period of time, the use of automated

monitoring and analysis systems of transactions by

credit institutions could have a positive effect on

counteracting this type of activity.

It is worth emphasizing that criminals often use a

combination of several methods to legalize. The

lawbreakers choose the method taking into account

the specifics of the illegal activity, but, as a rule, it

includes transit payments through the accounts of

intermediary firms with the subsequent cashing of

funds.

It is necessary to be conscious of the fact that the

method of legalization is determined by criminals

based on the object features (cash or non-cash funds,

real estate, etc.), the presence of ties with the

executive authorities and organizations performing

banking activities, geographic location and other

circumstances. Although, it is worth noting that

recently criminals are not limited to illegal activities

within the national borders of one state. Criminal

organizations have benefited from a growing global

marketplace and technological advances in

communications and transportation (Lord & Levi,

2017, Bahoo et al, 2020). According to the Europol

Serious and Organised Crime Threat Assessment

(SOCTA), based on the analysis of collected data on

organized crime, as well as intelligence stored in

Europol databases, seven of ten organized crime

groups operate in more than three countries

(European Police Office (Europol), 2017).

About 1% of GDP within the EU is attributed to

Anti-Money Laundering by Restricting Financial Transactions

illegal financial activities such as money laundering.

This corresponds to approximately EUR 160 billion

(Premti et al, 2020) Moreover, the identification and

investigation of transnational crimes is complicated

by the lack of proper interaction between the

authorities of national states, their evasion from

providing legal assistance to other countries (FATF,

2020

A negative phenomenon can also be the fact that

banks and credit organizations often report the

implementation of suspicious transactions long after

they were performed (Truntsevsky, 2011). Shortfalls

in the banking sector regulation are revealed in the

course of international studies of mass money

laundering with the participation of large

international banks. For example, the ICIJ report

(International Consortium of Investigative

Journalists) states that only for the period from 1999

to 2017, the internal control employees of financial

institutions identified suspicious transactions that

showed signs of possible money laundering or other

criminal activity totaling over USD 2 trillion,

including USD 514 billion at JPMorgan and USD 1.3

trillion at Deutsche Bank (ICIJ, 2020, Schnauder,

2020).

Remarkably a transaction that is suspicious in

terms of financial transparency is not necessarily

evidence of criminal behavior, but each such

transaction deserves attention and appropriate

scrutiny (Lord, Wingerde & Campbell, 2018, Xie,

Reddy, Liang, 2017). In this regard, it seems logical

to develop and apply legal norms that allow the

competent authorities of OSA to temporarily restrict

(prohibit) the financial and other transactions with

monetary funds in the presence of reliable

information about the crime commission, in cases

where delay may lead to concealment proceeds from

crime (96% of respondents agreed with the feasibility

of this proposal).

4 CONCLUSIONS

Despite the importance of timely response to the

revealed facts of criminal activity and the expediency

of blocking offense-related property, in truth, there is

a problem of the quick decision-making process on

blocking funds and other property. In this case, the

OSA authorities do not have the powers to block

offense-related property. Accordingly, if there is

information about the illegal transactions and

financial transactions, a number of approvals shall be

made to prevent their fulfillment, to prevent the

withdrawal of funds abroad.

The bank accounts blocking shall have a legal

basis, and arbitrariness on the part of employees of

operational units shall also be excluded. It seems

appropriate to allow the competent authorities to

temporarily restrict (prohibit) the financial and other

transactions with monetary funds or assets at the

legislative level for a period of up to three days in the

production of impatient postponements of the OSA.

These norms should be applied in cases where delay

may lead to the concealment of the proceeds of crime.

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Anti-Money Laundering by Restricting Financial Transactions