Anti Money Laundering

Bankovn institut vysok kola Praha
Department of finance and economics
Anti - money - laundering
Bachelors degree work
Author: Sultan Muratbek Uulu

Banking Management
Supervisor: Ing. Zbynk Kalabis
Prague April, 2014

Declaration
I declare that I elaborated my bachelors degree work independently and I stated all the
literature used.
I attest by my signature that the submitted electronic version of the work is identical
with its printed version, and I am aware of the fact that the work will be archived in the library
of the BIV, and further, made accessible to third persons through the internal database of
electronic university works.
In Prague, 29.4.2014 .
Sultan Muratbek Uulu

Acknowledgement
I would like to thank all people that have helped and inspired me to write this thesis.
First of all, I owe my deepest gratitude to prof. Z. Kalabis, who gave their consent to the topic
of my thesis. Finally i would like to thank my family for their support and understanding.
Annotation
Nowadays money laundering is being a global problem. The worldwide volume of
money laundering is dramatically large. Fast development in technology, communication and
globalization led to frequent flow of big amount of financial assets. Consequently
governments are not able to react in time to control and monitor those flows. It is widely
known that impressive share of those flows are assets obtained by criminal activities. Money
laundering is associated with black economy with criminal activities, illegal drug trading,
illegal arms sales, prostitution, racket, corruption. So it is linked not only to economic
problems, but also social issues. Together with new regulations and laws, money laundering is
becoming more circumspect. It easily adapts to new channels and new locations. There are
tens of global organizations aimed to combat money laundering which design and consult
individual countries. Nevertheless, fight against money laundering runs differently in different
markets. So this bachelor thesis compares trends of money laundering in USA and Russia,
with its counter-measures against money laundering.
Keywords: Money Laundering, Illicit Assets, Criminal Activities, Anti-money Laundering,

USA, Russia, FATF, UN.
Anotace
V dnen dob, pran pinavch penz je globlnm problmem. Svtov objem pran
pinavch penz vrazn velk. Prudk rozvoj informanch a komunikanch technologi a
globalizace vede k astmu pohybu finannch prostedk. Nsledovn, vldy nejsou schopn
vasn kontrolovat tyto pohyby. Je znmo, e velk st tchto prostedk je zskan trestnmi
innostmi. Pran pinavch penz je spojena s ernou ekonomikou s trestnmi innostmi,
ileglnm obchodem drogami a zbranmi, prostituc, korupc. Take to navazuje nejenom na
ekonomick problmy, ale i na sociln. Spolu s novmi zkony, pran pinavch penz se
stv vc obezetn. Jednodue se to pizpsobuje na nov kanly a nov polohy. Existuje
destky svtovch organizaci zamench na boj proti pran pinavch penz, kter navrhuji a
podporuji jednotliv zem. Vcemn, boj proti pran pinavch penz v rznch trzch
probh rzn. Tato bakalsk prce porovnv trendy pran pinavch penz v USA a Rusku
s jejma opaten.
Klov slova: Pran pinavch penz, ilegln aktiva, trestn innosti, Boj proti pran
pinavch penz, USA, Rusko, OSN, FATF.
Table of contents
Introduction ................................................................................................................................
1. Definition ................................................................................................................................
2. Methods of Money Laundering .............................................................................................
3. Impacts of Money Laundering .............................................................................................
4. Money Laundering Counter-Measures .................................................................................
4.1 Global Organizations .................................................................................................
4.2 Basic Counter-measures ............................................................................................
5. Money Laundering in USA .................................................................................................
5.1Trends ........................................................................................................................
5.3 Anti-money laundering institutions ......
5.2 Anti-money laundering legal system .....
6.Money Laundering in Russia ................................................................................................
6.1 Trends ..................................................
6.3 Anti-money laundering institutions ......
6.2 Anti-money laundering legal system ....
Conclusions .............................................................................................................................
Bibliography .............................................................................................................................
List of Figures ...........................................................................................................................
List of Abbreviations ................................................................................................................

Introduction
Money laundering is one the most important issues of the financial world and the
global economy in general. Nowadays, prolonged economical crisis compels governments to
pay higher attention to economic policy. Consequently, it leads to strengthening of a struggle
against financial crimes. Taxes are rising; modern technologies allow careful tracking and
monitoring of a cash flow; international organization introducing strict rules for members. On
the other hand, globalization and new technologies allow being flexible in financial and
payment activities. It gives a chance to easily transfer and stock resources in any part of the
world. All those factors above directly or indirectly impact and provoke the financial crime.
As a part of financial crime, money laundering is becoming more organized, more globalized
and more sophisticated. In addition, it brings more profit. And because of its scope and
topicality I have chosen exactly money laundering as a topic of bachelor thesis.
The main goal of this bachelor thesis is analyzing and comparing of current trends of
money laundering and its counter-measures in USA and Russia. As a first partial goal general
trends of money laundering will be described. Second partial goal is to analyze counter-
measures including institutions and preventing regulations.
The bachelor thesis was divided into six chapters. First parts are dedicated for
theoretical description of the topic and primarily based on literature. Firstly, basic definitions
of money laundering with a brief history are written in the first chapter. Second chapter
describes methods and tools of money laundering. In the third chapter an attempt to show an
impact of money laundering is made. Forth chapter is dedicated for different basic methods
against money laundering, including global institutions.
Second part of the thesis is analytical part. Content of this part is based on analyzing
of studies, media and literature. It is aimed to show trends in money laundering with
following counter-measures in USA and Russia. Main focus will be on legal system and
government anti-money laundering organization.
To elaborate this topic research of primary and secondary sources are required. As it
is a very dynamic issue, it is important to study not only special literature, but also reports and
publishing of global organizations, official government authorities. Moreover, studying of
trends requires research through such media as news agencies, magazines, online media etc.
6
1. Definition
It is not simple to clearly define what is a money laundering. Despite of short
history, money laundering and its methods have noticeably changed. Moreover, due to
different legislative norms different countries could perceive it in different ways.
Traditionally, money laundering is considered as process by which criminals attempt to hide
the origins and ownership gained through criminal activities. Consequently, it is a
concealment of profits for own income and wealth. This has led people believe that money
laundering is a turning dirty money into clean money or washing drug money or disguising
1
criminal money. But today it is a misnomer.
There are various definitions of money laundering. For instance, Article 1 of the
draft European Communities (EC) Directive of March 1990 defines it as: the conversion or
transfer of property, knowing that such property is derived from serious crime, for the purpose
of concealing or disguising the illicit origin of the property or of assisting any person who is
involved in committing such an offence or offences to evade the legal consequences of his
action, and the concealment or disguise of the true nature, source, location, disposition,
movement, rights with respect to, or ownership of property, knowing that such property is
2
derived from serious crime.
Also according to Federal Law of Russian Federation money laundering could be

described as a turning of money or property obtained by criminal activities to a legal
ownership.3
Finally, the successful process of money laundering allows the criminals to control
their proceeds and provide legal cover for their source of income. Eventually, it could help to
4
increase further illegal activities of drug traffickers, terrorists or other criminal groups.
1 Hopton D. (2009). Money Laundering: A Concise Guide for All Business. Gower Publishing, Ltd. P. 1
2 Money Laundering - What Is Money Laundering? International Money Laundering Information
Bureau. 20.12.2013 <http://www.imlib.org/page2_wisml.html>
3 Rossijskaja Federacija / Federal''nyj Zakon / O Protivodejstvii Legalizacii (Otmyvaniju) Dohodov,
Poluchennyh Prestupnym Putem, I Finansirovaniju Terrorizma . KonsultantPlus. 20.12.2013.
<http://base.consultant.ru/cons/cgi/online.cgi?req=doc;base=LAW;n=146209;fld=134;dst=4294967295;rnd=
0.19248001002433623;from=138641-0>
4 Money Laundering - What Is Money Laundering? International Money Laundering Information Bureau.
20.12.2013 <http://www.imlib.org/page2_wisml.html>
7
History
It is widely assumed, that the origins of money laundering start in the beginning of
20th century in USA. During strict temperance laws of 1920s and 1930s, underground
economy of USA had a dramatic volume of money turnover from illegal distribution of
5
alcoholic beverages. At the same time, money laundering appears as phrase. There is a
widespread opinion that money laundering is related to Al Capone and his Laundromats.
During that time Mafia in USA were earning a huge profit from bootleg liquor, extortion,
gambling and prostitution. There was a need to legitimate this money and its sources. And
Laundromat was an optimal tool - due to cash payment it was not possible to control exact
revenue. Consequently, dirty money was mixed with clean money. But other experts say that it
is called so because of its process. Dirty or illegal money are laundered or washed, so they
become clean and legal.6
In 1950s and 1960s major revenue were shifted from bootlegging to gambling. In
1970s it moved to drug trading. With time money laundering starts to cover all types of
criminal activities. In addition, there is almost no cash in money laundering electronic
banking makes it more flexible and sophisticated, faster and geographically unlimited.7
Very significant period was also the fall of USSR. Transfer to liberal and market
economy with cardinal economical reforms have led to uncontrolled grey economy with big
8
amount of capital turnover.
5 Beare M.E, Schnieder S. (2007) Money Laundering in Canada: Chasing Dirty and Dangerous
Dollars. University of Toronto Press, Scholarly Publishing Division. Page 3
6 History Of Money Laundering. International Money Laundering Information Bureau. 20.12.2013
<http://www.imlib.org/page1_hist.html>
7 Beare M.E, Schnieder S. (2007) Money Laundering in Canada: Chasing Dirty and Dangerous
Dollars. University of Toronto Press, Scholarly Publishing Division.. Pages 4-8.
8 Gidadubli R.D., Kumar R.S. Prichiny i posledstvija otmyvanija deneg v postsovetskoj Rossii (Zhurnal
"Jekonomicheskaja teorija prestuplenij i nakazanij" 5-2, 20.12.2013 http://corruption.rsuh.ru/magazine/5-
2/n5-20.html
8
2. Methods of money laundering
As it was mentioned money laundering is sophisticated, and there is no only one
method of it. But traditionally money laundering was divided into three steps:
1. Placement placing the criminal assets into the financial system directly or
indirectly.
For example, money obtained from drug selling are converted to cashiers checks or
adding money on a bank account.
2. Layering separation of criminal proceeds from their source by using complex
layers of financial transactions dedicated to cover the audit trail and provide
anonymity. As example, we could assume assets transfers through offshore banks.
3. Intergration integration stage place the laundered assets back into the legal
economy
9
in such a way that they appear to be normal business funds. Here money is
transferred back to owner as legal assets.
For easier understanding of those three stages money laundering cycle is shown on
figure 1. This model was created by The Financial Crimes Enforcement Network
(FinCEN). It demonstrates the money laundering cycle including all three stages. As it
seen, some stages could not be used. For example, such operations as wore transfers,
checks and other may be followed directly from placement to integration stage. And some
10
other tools allow transferring of assets directly from placement to ownership.
9 Houpton D. (2006) Money Laundering: A Concise Guide for All Business. Ashgate Pub Co, Pages 2-3
10 Madinger J. (2011) Money Laundering: A Guide for Criminal Investigators, Third Edition. CRC
Press Pages 7-8
9
Figure 1 General Money Laundering Cycle
Source: Money Laundering: A Guide for Criminal Investigators, Third Edition
As it was mentioned, there are more and more complex and complicated schemes of
money laundering. Obviously, we could assume that the one of the most well-known first
methods of money laundering is Laundromats. Even it is not fully confirmed case this could
be the basic example of money laundering. Casino, money exchange agencies, underground
banking networks, gambling are prominent classic methods.
The scheme of money laundering through casino is very simple. Player purchase
casino chips with the money obtained, for instance from drug selling, then plays few games
and change chips again for a cash. In some cases, criminal entrepreneurs bought the winning
lottery tickets from real winners (before the prize is clamed) and then achieve the prize.
Another classic example is a horse racing stakes. Criminal groups used to buy race horses and
subsequently get the prize in exchange for dirty money. The same case is observed on race
tracks. Finally the most common model was a placing bets using small denominations of cash.
10
11
Sure, bettor could not win on every turn, but losses can cover necessary expenses. To
emphasize the effectiveness of methods above, we should consider wide scale of criminal
groups, subornation and ownership of casino or betting centers.
Further example of classic money laundering methods is non-financing institutes.

Non-financing institutes are usually used to cover dirty money or mix it with clean money.
They are often called as shell companies and they help to unite illegal business activities
with legal. For instance, casino could be owned by criminal groups and they could launder
their dirty money via their own casino. It is common that these types of companies are
business of a highly cash-intensive type. These include, among others, retail shops, car
washes, vending machine enterprises, restaurants and bars. It allows spending dirty money
under the coverage of legal business activities. 12
Further similar types to shell companies are ghost or front companies.

According to experts, those companies are legally incorporated and registered by criminal
organizations without real business activities. They are found exclusively for manipulation
and financial transactions for laundering purposes. Usually they are established in so called
offshore tax havens. There is no precise definition of this term, but in general tax haven
concept provide low tax rates, high levels of bank or commercial secrecy in the face of
government, large financial sector, modern communication facilities, the low control of
foreign transactions and currencies. One of the main benefits of tax haven is low control of
assets origin. So criminal groups could place and hold dirty money without any confirmation
of origin. Later, they are able to withdraw it or transfer back to home country. Further offshore
tax accounts could be used for fictitious transactions, when offshore shell company provides
false invoices or bills. 13
The International Consortium of Investigative Journalists revealed materials, which

show that more than 120,000 offshore companies and trusts have holders in 170 different
countries. Studies have estimated that global flow of cross-border transactions from financial
11 Beare M.E, Schnieder S. (2007) Money Laundering in Canada: Chasing Dirty and
Dangerous Dollars. University of Toronto Press, Scholarly Publishing Division. Page 20-25
12 Gilmore W.C. (1999) Dirty Money: The Evolution of Money Laundering Counter-
measures.Council of Europe. Pages 37-38
13 Ibidem
11
crimes is between $1 trillion and $1.6 trillion a year. In addition, the sizes of offshore tax
14
havens are stably growing.
The location of the most famous tax havens are demonstrated in following map:
Figure 2 Locations in offshore tax jurisdictions
Source: http://www.grant-thornton.co.uk
New type of money laundering is E-Gambling and E-Gaming. Today virtual

gaming platform is being not only a place for drug selling, distribution of child pornography
and other criminal activities, but also emerging money laundering industry. Same as real
casino, virtual casino offers to exchange money for chips and backwards or send it to another
player. Internet also provides an anonymity and flexibility for players. It allows easy
transferring of money abroad bypassing traditional banking system. For instance nowadays
Europe is being the biggest online gambling market, accounting $12 billion revenue from the
total global $30 billion. Furthermore, due to its high profitability this industry was welcomed
in a lot of countries. Examples of its expanding are e-currencies and e-payments. Players are
able to transfer globally currencies without third party, create anonymously accounts and
make payments all over the world. Due to lack of regulations of this sector, it is having
convenient conditions for money laundering. Moreover, there are already computer programs
15
allowing producing virtual currencies, which could be further cashed. In figure 3 the
example of using online gambling to launder is shown.
14 Ryle G., Guevara M.W., Hudson M., Hager N., Campbell D., Candea S. (2013) Secret Files Expose
Offshores Global Impact ICIJ.25.12.2013 <http://www.icij.org/offshore/secret-files-expose-offshores-global-
impact>
15 Maras M.H (2013) The CRC Press Terrorism Reader. CRC Press Pages 114-115
12
Figure 3 Example of using online gambling to launder 10,000 of illegal proceedings
Source: Online Gambling as a Game Changer to Money Laundering? Ingo Fiedler, The University of Hamburg
Another famous sector for money laundering is sport. Sport is a multi-billion dollar
business with connection to politics and private interests. It is estimated that sporting industry
accounts for from 0,5 to 3,7 of overall EU-GDP. Sports that are regularly indicated as being
vulnerable to criminal money are football, cricket, rugby, horse racing, motor racing, car
racing, ice hockey, basketball and volleyball. The most suspected type is a football industry
due to its scale. There are 38 million registered players in more than 300.000 clubs with 5
million referees and officials. It is played all over the world and is the most popular sport in
many countries. Football now is not just sport, it is a global industry with an increasing
economic impact at the top and important social functions at lower levels. Such components
as million-dollar contracts, betting business, investments and sponsorships are very attractive
for various forms of crime and corruption. Money could be laundered through a lot of
activities of football industry. Investments in football club could be used to integrate money of
illegal origin into the financial market. Books and bills could be falsified in order to launder
the cash received from tickets sales. Acquisition and transfer of players mean transfer of
assets. Those operations are weakly monitored due to lack of transparency of payment
transactions and speculation based amounts. Further weak part of football is betting activities.
Nowadays betting moves to online and that complicates monitoring and tracking of money.
Betting could be also operated through illegal gambling business. Another form of money
laundering is so called image contracts when companies pay for a usage of the image
through offshore accounts. Next forms of money laundering through football are sponsorships
and advertising arrangements. Sponsorship and advertisement money could be provided from
13
criminal groups, if there is no control of background. Examples above could be used in almost
16
similar form in almost all types of sport.
16 FATF Report: Money Laundering through the Football Sector, (2009), FATF GAFI, 25.12.2013
< http://www.fatf-gafi.org/media/fatf/documents/reports/ML%20through%20the%20Football
%20Sector.pdf>
14
3. Impacts of Money Laundering
It is known that money laundering is harmful to economy, society and politics.
Already in 1998 International Monetary Fund estimated that the size of money laundering is
between two and five percent of the world GPD. Concerning to The United Nations Office on
Drugs and Crime (UNODC) in 2009 criminal activities amounts up to 3,6% of the global
GDP, and 2,7% (USD 1.6 trillion) was laundered. 17
It could have both direct and indirect impacts. Direct effects are the costs related
directly to crime to victims or society. Examples of direct impacts: turnover of drug
smuggling, costs of fraud or costs of corruption. And direct victims are the society, the legal
system, the government, the judges, the lawyers, the costs of prisons and many others.
Successful money laundering could help make criminal activities profitable and consequently
could promote criminals and corruption. However, most of the effects of money laundering
are indirect. Money laundering affects business activities, relative prices, consumption,
18
saving, output, employment and growth.
Regarding to experts money laundering is critical for development and developing

countries especially. One of the basic factors for development of such countries is financial
institutes. Money laundering could heavily affect the work of the financial institutes in multiple
ways. It reduces productivity in the economys real sector by diverting resources and encouraging
crime and corruption. It can distort international trade and capital flows to the detriment of long-
term development. Money laundering harms the image of banking sector, where customer trust is
19
essential. For instance, China accounted for almost half of the $858.8 billion in dirty money
20
that flowed into tax havens and Western banks in 2010. World
17 What is money laundering? F.A.Q. FATF GAFI, 30.12.2013.

<http://www.fatf-gafi.org/pages/faq/moneylaundering/>
18 Masciandaro D., Takts E., Unger B., (2007) Black Finance: The Economics of Money
Laundering. E. Elgar Page 149
19 Bartlett B.L. (2002) The negative effects of money laundering on economic development.
International Economics Group, Dewey Ballantine LLP. 30.12.2013
<http://www.afp.gov.au/~/media/afp/pdf/m/money-laundering-02.ashx>
20 Dawson S.(2012) Dirty money costs developing world $6 trillion, led by China: report.
Reuters. 30.12.2013 <http://www.reuters.com/article/2012/12/18/us-funds-global-illicit-
idUSBRE8BH00220121218>
15
Bank and International Monetary Fund are highlighting five similar areas of involvement on
21
development:
1. Increased Crime and Corruption. Successful money laundering leads to rise of

crime and illegal activities. Consequently it raises the level of corruption.
2. International Consequences and Foreign Investment. Tarnished image of the
country could limit the flow of foreign investments and reduce the cooperation with
international institutions and companies.
3. Weakened Financial Institutions. Money laundering and financing of terrorism
could harm the economy from inside. It could provoke the unstable work of banking
institutions, securities firms, insurance companies and investment management firms.
4. Compromised Economy and Private Sector. Due to usage of machination
techniques, money laundering could cause instability in economy by misallocation of
assets.
5. Damaged Privatization Efforts. Money launderers threaten the efforts of many
countries to reform their economies through privatization.
Another topical global issue is the relationship of money laundering to terrorism. As

it was mentioned above money laundering is close to criminal groups and money of criminal
origins. Since money laundering could impact the illegal arms trafficking, it is not ruled out
that it impacts terrorist and terrorism in general. A terrorist group, as any other criminal
organization, needs to finance their own activities by developing sources of funding. And
laundering those funds allows providing all required materials and tools. For example, the
CIA estimates that it cost Al-Qaida about $30 million a year to sustain its activities before
22
9/11. Against the background of global topicality of terrorism, financing of terrorism is
being a large topic for observation. And here money laundering is essential part of it.
According to World Bank, money laundering and financing of terrorism have similar
techniques funds originate from criminal activities, legitimate sources or both. But there
could be also one significant difference financing of terrorism could be supported via such
legal funds as donations or gifts of cash.23
21 Schott P.A. (2006) Reference Guide to Anti-Money Laundering and Combating the Financing of
Terrorism Second Edition. World Bank. 30.12.2013<
http://siteresources.worldbank.org/EXTAML/Resources/396511-
1146581427871/Reference_Guide_AMLCFT_2ndSupplement.pdf>
22 Money laundering and the financing of terrorism. (2009). The Authority of the House of
Lords. European Union Committee. 2.1.2014 <
http://www.coe.int/t/dghl/monitoring/moneyval/activities/UK_Parlrep.pdf>
16
World Bank and International Monetary Fund offers following scheme of link
between money laundering and financing of terrorism:
Figure 4 The Process of Money Laundering and Financing of Terrorism
Source: Reference Guide to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)
17
4. Money Laundering Counter-Measures
To combat against money laundering a term Anti-Money Laundering (AML) was
introduced. The main aim of AML is control of financial institutions and other sectors to
prevent detect and report the money laundering activities.
According to Reuter and Thurman AML has a global scope and involves three
dimensions: national and international building blocks, a firm legal and enforcement
foundation, and close interaction between the public and private sectors in order to lower
compliance costs and raise the probability of achieving its objectives. Money laundering is a
global issue nowadays so it requires global counter-measures as well. Effective global AML
demands strong cooperation between international institutes and countries. However, it is
difficult to set up similar global AML tools because of differences in institutions, perspectives
and priorities among countries as well as within them. 24
This chapter defines major organizations in the global fight against money
laundering. Then it describes brief overview of counter-measures.
4.1 Global organizations
To support and maintain international cooperation against money laundering

mentioned there are different international standards setters such as UN, FATF, IAIS and
others. This chapter describes the most known organizations involved in anti-money
laundering.
The first organization which undertook significant action against money laundering
was The United Nations (UN). First of all, it had the broadest membership and wide range of
work. Very important tool of UN is the ability to adopt international treaties or conventions
toward particular countries because of membership rules and norms. Facing a growth of
problems with drug abuse and illicit trafficking, UN sets up The 1988 Vienna Convention. It
was the first official international action to combat money laundering. Nevertheless, the term
money laundering was not used, it defines the concept call upon countries to criminalize the
activity. Moreover, the main issue of the action was cooperation and regulations against illicit
drug trade. Next step in combat money laundering was The Palermo Convention, which was
24 Reuter P., Truman E.M. (2004) Chasing Dirty Money: The Fight Against Money
Laundering. Peterson Institute . Page 45
18
focused on fight international crime. The convention introduced a broad range of provisions to
fight organized crime through domestic legislative norms of each member country. For
example, with respect to money laundering the Palermo Convention specifically obligates to
each ratifying country to criminalize money laundering and include all serious crimes (not just
drug trafficking) as predicate offences to money laundering. After the attacks on the United
States in 2011 the financing of terrorism became critical topic. In the response to this issue,
UN adopted the International Convention for the Suppression of the Financing Terrorism
(1999). It required ratifying states to criminalize terrorism, terrorist organizations and terrorist
acts. Under this convention, it is unlawful to provide and collect fund for consequent usage
for terrorism activities. There are two more the UN security resolution which have relation to
money laundering Security Council Resolution 1973 and Security Council Resolution 1267
and Successors. Those have a goal to keep international peace and security with resolutions
toward crime, terrorism and its infrastructure. The UN created own Committee with a similar
tasks called The Counter-Terrorism Committee. That resolution obligated all member
countries to take specific actions to combat terrorism.
To combat money laundering the UN finally has established own programme within
the UN Office of Drugs and Crime. It is called the UN Global Programme against Money
Laundering(GPML) and is a research and assistance project with the goal of increasing the
effectiveness of international action against money laundering by offering technical expertise,
training and advice to member countries upon request. Its major objectives are:
Increase the awareness among key persons in UN member states;

Help create legal frameworks with the support of model legislation for both common
and civil law countries;
Help create legal frameworks with the support of model legislation for both common
and civil law countries;
Provide training for legal, judicial, law enforcement regulators and the private
financial sectors;
Promote a regional approach to addressing problems; develop and maintain strategic
relationships with other organizations;
Maintain a database of information and undertake analysis of relevant information.
19
In other words the GPML is a resource for information, expertise and technical
25
assistance in establishing or improving a countrys AML infrastructure.
For further effective combat against money laundering Group of Seven formed so
called The Financial Action Task Force (FATF). It was officially established in July 1989 by
the Ministers of its Member jurisdictions. Nowadays 34 countries are involved in
membership. Furthermore, there are 2 regional organizations, 8 Associate Members and more
than 20 international organizations as observers. It allows operating in almost all parts of the
world. For instance: Interpol, African Development Bank, World Bank, European Central
Bank and many other. 26 The objectives of the FATF are to set standards and promote effective
implementation of legal, regulatory and operational tools for combating money laundering,
terrorist financing and other related cases to the integrity of the global financial system.
Therefore it is named a policy-making body which works to generate the necessary
political will to bring about national legislative and regulatory reforms in these areas. The
FATF has developed a series of recommendations that are assumed as international standard in
fight against money laundering and the terrorism financing. The first version was issued in
1990, and then it was revised in 1996, 2001, 2003 and 2012 as last. 27
FATFs three primary functions with regard to money laundering are:28
Monitoring members progress in implementing anti-money laundering measures;

Reviewing and reporting on laundering trends, techniques and counter-measures
Promoting the adoption and implementation of FATF anti-money laundering standards
globally.
26 About Us. FATF Members and Observers. FATF GAFI. 2.1.2014

<http://www.fatf-gafi.org/pages/aboutus/membersandobservers/>
27 About Us. Who we are. FATF GAFI. 5.1.2014 <http://www.fatf-gafi.org/pages/aboutus/whoweare/>
20
The FATF Recommendations set out the essential measures that countries should
29
have in place to:
Identify the risks, develop policies and domestic coordination;
Pursue money laundering, terrorist financing and the financing of proliferation;
Apply preventive measures for the financial sector and other designated sectors;
Establish powers and responsibilities for the competent authorities (e.g., investigative,
law enforcement and supervisory authorities) and other institutional measures;
Enhance the transparency and availability of beneficial ownership information of legal
persons and arrangements;
Facilitate international cooperation.
30
FATF recommendations 2012 are divided into following seven chapters:
A. Aml/Cft Policies And Coordination

B. Money Laundering And Confiscation
C. Terrorist Financing And Financing Of Proliferation
D. Preventive Measures
E. Transparency And Beneficial Ownership Of Legal Persons And Arrangements
F. Powers And Responsibilities Of Competent Authorities And Other Institutional
Measures
G. International Cooperation
Those recommendations are presented as direct recommendation to countries, and for

example the first recommendation is written as Countries should identify, assess, and
understand the money laundering and terrorist financing risks for the country, and should
take action, including designating an authority or mechanism to coordinate actions to assess
risks, and apply resources, aimed at ensuring the risks are mitigated effectively.31
Another important player in anti-money laundering is the Basel Committee on Banking

32
Supervision (BCBS) which was found in 1974 by Group of Ten. It is the primary global
29 International Standards On Combating Money Laundering And The Financing Of Terrorism &
Proliferation (2013) FATF GAFI. 5.1.2014 <http://www.fatf-
gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf>
30 Ibidem
31 Ibidem
32 About the Basel Committee (2013). Bank for International
Settlements. 5.1.2014 <http://www.bis.org/bcbs/about.htm>
21
standard-setter for regulation of banks and provides a forum for cooperation on banking
supervisory matters. The main objective of the committee is enhancing financial stability by
strengthening, supervision and improving bank practices worldwide. The main activities are
exchanging information, experience and techniques, establishing and promoting new
standards, monitoring the implementation of standards, consulting, coordination and
cooperating.33
Since insurance sector is also weak part for the money laundering, very essential role is
played by International Association of Insurance Supervisors (IAIS). IAIS is a voluntary
membership organization of insurance supervisors and regulators from more than 200
jurisdictions in nearly 140 countries. The mission of the IAIS is to promote effective and
globally consistent supervision of the insurance industry in order to develop and maintain fair,
safe and stable insurance markets for the benefit and protection of policyholders and to
contribute to global financial stability. It is responsible for a setting standards, further
implementation and maintaining financial stability in general.34 In 2004 IAIS issued Guidance
35
Notes contain four principles for insurance entities:
Comply with anti-money laundering laws, Have

know your customer procedures, Cooperate
with all law enforcement authorities, and
Have internal AML policies, procedures and training programs for employees.
Next obvious organization in anti-money laundering is the International Organization of

Securities Commissioners (IOSCO). It is an organization of securities commissioners and
administrators that have day-to-day tasks for securities regulation and the administration of
36
securities laws in their respective countries. Its membership regulates almost the whole
world security market and it is the main international cooperative forum for securities market
regulatory agencies. IOSCO members are drawn from, and regulate, over 100 jurisdictions
33 Charter. (2013) Basel Committee on Banking Supervision. 10.1.2014

<http://www.bis.org/bcbs/charter.pdf>
34 ANNUAL REPORT 2012-2013. (2013). International Association of Insurance

Supervisors.10.1.2-14 <http://www.iaisweb.org/view/element_href.cfm?src=1/20894.pdf>
35 Schott P.A. (2006) Reference Guide to Anti-Money Laundering and Combating the Financing
of Terrorism Second Edition. World Bank. 10.4.2013<
36 Ibidem
22
37
and its membership continues to grow. The IOSCO Objectives and Principles of Securities
Regulation sets out 38 Principles of securities regulation, which are based upon following
38
three Objectives of securities regulation:
Protecting investors;
Ensuring that markets are fair, efficient and transparent;
Reducing systemic risk.
Another key organization in fight against money laundering is The Egmont Group of
Financial Intelligence Units. It was founded by governments to analyze information
submitted by covered entities and persons pursuant to money laundering reporting
requirements. Such agencies are mostly known as Financial Intelligence Unit (FIU) and are
middle point for national AML programs, since they provide information exchange between
39
financial institutions and law enforcement. In 2013 the Egmont Group has 139 member
financial intelligence units. And the main goal of the Edmond Group is the improving of the
cooperation between these members and implementation of domestic programs in this field.
World Bank and International Monetary Fund are key organizations in AML as well.
However, those two organizations have different functions. The main aim of World Bank is
fighting poverty, strengthen development, providing loans and technical assistance in different
areas. While IMF works on macro-economic level and keeping financial stability throughout
the world. Nevertheless, both organizations work closely and have the same goals in anti
money laundering and combating in financing of terrorism. World Bank and IMF cooperate
with all organizations mentioned above and take part in almost all their projects.40
37 IOSCO Historical Background. IOSCO. 10.1.2014

<http://www.iosco.org/about/index.cfm?section=background>
38 IOSCO Objectives and Principles of Securities Regulation and the Methodology for Assessing
Implementation of the IOSCO Objectives and Principles of Securities Regulation. IOSCO. 14.1.2014
<http://www.iosco.org/about/index.cfm?section=obj_prin>
1146581427871/Reference_Guide_AMLCFT_2ndSupplement.pdf> Page X-5
23
4.2 Basic counter-measures
According to Paul Allan Schott there are four main elements of effective AML framework and
most of them are based on FATF recommendations. First of all each country should work on
its own Legal System Requirements. Under this point, each country should make sure that
laws and norms are properly set up in frame of AML. International organizations support
countries by issuing standards which could be effective in AML. According to those standards
each country should adopt following laws considering its own specifics and circumstances:41
Criminalization of money laundering in accordance with the Vienna and Palermo

Conventions. Firstly, country has to ensure, that money laundering is perceived as a
crime and it is criminally liable.
Criminalization of terrorism and terrorist financing. Same as the first point, state has
to criminalize terrorism and financing of it.
Laws for seizure, confiscation and forfeiture and illegal proceeds. Those laws are
designed to make criminal activities unprofitable and keep the access to funds from
criminal groups.
The types of entities and persons to be covered by AML laws. FATF recommends
improving the structure and categories of entities and persons.
Integrity standards for financial institutions. Countries should have laws controlling
the work of financial institutions including its licensing, authorization etc.
Consistent laws for implementation of FATF recommendations. It is important to
control laws and regulations so they are consistent in cooperation with each other.
Cooperation among competent authorities. Each country needs to provide that there
are effective mechanisms in place to enable effective cooperation between all
participants (institutions, FIU, policy makers etc.)
Investigations. Each country should assure that designated law enforcement authorities
are responsible for money laundering and terrorist financing investigations
Second element of effective AML and CFT is Preventive Measures. The same as first
element FATF brought different preventive measures that a country should adopt in the
anti-money laundering area. Nevertheless, preventive measures are not offered as
1146581427871/Reference_Guide_AMLCFT_2ndSupplement.pdf> Page V-2
24
recommendations, they are mandates for action if the country wants to adopt international
standards. Some examples of preventive measures are below:
Customer Identification and Due Diligence Record Keeping Requirements.

Suspicious Transactions Reporting.
Cash Transaction Reporting.
Balancing Privacy Laws with Reporting and Disclosure Requirements.
Internal Controls, Compliance, and Audit
Regulation and SupervisionIntegrity Standards
Legal Entities and Arrangements
In general, by implementing preventive measures countries will have an access to all possible
information with aim to prevent money laundering activities. Countries must assure that their
financial institutions have appropriate customer identification and due diligence procedures in
place. All institutions should keep all possible information about customers, transactions,
funds and other for a fixed time. In case of suspiciousness institutions should inform
appropriate authorities. Financial institutions and other parties should set up regulations,
42
controls and norms within them.
The Financial Intelligence Unit is next counter-measure used in AML. It plays increasingly
important role nowadays. According to IMF the FIU is a central national agency responsible
for receiving, analyzing, and transmitting disclosures on suspicious transactions to the
43
competent authorities. In other words FIU works with information and consequently draw a
conclusion. Money launderers cover the origin, source, location and other facts of illegal
funds, and the main function of FIU is to discover all covered information and predict
intention of them. Figure 5 shows the flow of information within FIU and its core functions -
receiving transaction reports, analyzing reports and final operational analysis. In addition, FIU
store information for the strategic analysis.44
1146581427871/Reference_Guide_AMLCFT_2ndSupplement.pdf> Page VI-1-VI-28
43 Financial Intelligence Units: An Overview. (2004). International Monetary Fund, World
Bank. 15.1.2014. http://www.imf.org/external/pubs/ft/FIU/fiu.pdf
44 Ibidem
25
Figure 5 Typical FIU Information Flow
Source: Financial Intelligence Units: An Overview, 2004
Moreover, FIU has such functions as monitoring compliance with AML requirements,
blocking transactions, training, conducting research and enhancing public awareness of AML
issues.45 It is important to mention different types of FIU:46
FIU could operate as administrative model, which is either attached to a regulatory

authority, such as the central bank or the ministry of finance, or as an independent
administrative agency.
It could be the law enforcement model, when the agency is attached to a police agency.
The judicial or prosecutorial model, where the agency is affiliated with a judicial
authority or the prosecutors office.
The hybrid model, which is some combination of the above three.
45 Financial Intelligence Units: An Overview. (2004). International Monetary Fund, World

Bank. 15.1.2014. http://www.imf.org/external/pubs/ft/FIU/fiu.pdf
46 Ibidem
26
Next AML is an International Cooperation. Today money laundering is a global mechanism.
New information technologies allow criminal groups to be flexible not just in time, but also in
place. So international cooperation is required for more effective exchange of information.
And effective cooperation among different cross-border agencies could allow faster and
opportune reaction to money laundering activities. International Cooperation is needed more
and more at all stages of AML from setting up new laws and regulations to blocking
transactions on FIU level. Especially it is critical nowadays, when there are lots of
manipulations via tax havens, transnational criminal groups and cross-border drug
trafficking.47
27
5. Money Laundering in USA
5.1 Trends
It is widely known that the USA is one of the most active players is AML worldwide. But at
the same time, due to its big and wealthy market is attractive for criminal groups. The biggest
profitable money-laundering activities in USA are drug trafficking, tax evasion, fraud. Other
registered activities were for instance prostitution, motor vehicle theft, human trafficking etc.
In 2000 earnings from criminal activities were estimated as 779 billions of USD, which was 8
48
percent of GDP. Figure 4 shows the volume of earnings from criminal activities in USA in
1965-2010.
Figure 6 Estimated earnings from criminal activity* in the United States, billions of current US$ (1965-2010)
Source: Estimating illicit financial flows resulting from drug trafficking and other transnational organized
crimes,2011, UNODC.
Tax Evasion
USA is on the top of the countries with largest of tax evasion with more than $337 billion. In
addition, financial crisis had a big influence on it. Figure 5 shows the top ten countries with
the biggest tax gaps and shadow economies with comparison to GDP in 2011.
48 Researcg report: Estimating Illicit Financial Flows Resulting From Drug Trafficking And
Other Transnational Organized Crimes (2011) UNODC. 20.1.2014
<http://www.unodc.org/documents/data-and-analysis/Studies/Illicit_financial_flows_2011_web.pdf>
28
Figure 7 The top 10 countries losing to tax evasion in absolute terms (2011)
Source: The Cost of Tax Abuse - Tackle Tax Havens, 2011, The Tax Justice Network
Relation between tax crimes and money laundering is a discussed topic. Even though tax gap
is a part of shadow economy, consequently it is very close to black market and money
laundering.
Tax havens are also often used tool in USA. In 2011 US Government lost approximately
$39.8 billion in tax revenues from corporations and wealthy individuals who sheltered money
in foreign tax havens. This amount could cover education costs for more than 3.7 million
children for one year, or total expenditures on firefighters of USA in 2008. Following states
are most suffering states as a result of transfers to tax havens: California ( $7 billion), New
York ($4 billion), New Jersey ($3 billion), Illinois ($2,5 billion), Pennsylvania ($2 billion).
Running a business through tax havens allows easily avoid taxation company should be
registered in one of the tax havens and you are not obliged to pay taxes for USA. It is also
estimated that 60 percent of money in offshore belongs to businesses and 40 percent belongs
to individuals or household filers. Within companies that use tax havens we could meet such
companies as American Express, Goldman Sachs Group, PepsiCO, Exxon Mobil, Mc
49
Donalds, Apple, 3M, General Motors, Coca-Cola and many other well-known companies.
49 The Hidden Cost of Offshore Tax Havens (2013) U.S. PIRG Education Fund.
20.1.2014
<http://www.uspirgedfund.org/sites/pirg/files/reports/USPIRG_State_Tax_Havens.pdf>
29
Drug trafficking
Another big topic is drug market. In terms of distribution, illicit drug market of USA is one of
the biggest markets if not the biggest. North America accounts almost half of the worlds drug
market. On the figure 4 it is seen that the North American market takes 44%. But it is hard to
estimate real volume of the illicit drugs, so recent surveys and research studies by sources
from the UN to streetRx.com put the size of the illegal drug market in the U.S. at anywhere
from $200 to $750 billion.50
Figure 8 Regional breakdown of the global illicit drug market in billion US $ (N = $322 bn) (2005)
Sources: UNODC, World Drug Report 2005.
Despite of USA AML policy and its effort, drug cartels are still effectively laundering finance
gained from illicit drug distribution. Almost all drugs are smuggled via Mexico, therefore
Mexican drug cartels have a biggest share in money laundering in USA. In 2004 it was
estimated that the four major drugs that are smuggled into the United States from Mexico ( i.e.
methamphetamine, heroin, cocaine, and marijuana,) generate as much as $22 billion per year
51
for the sources of supply.
50 Durden T. Top 10 Facts About The U.S. Illegal Drug Market (2013).
Zerohedge. 20.1.2014. <http://www.zerohedge.com/news/2013-10-30/top-10-facts-about-
us-illegal-drug-market>
51 Money Laundering. The Drug Enforcement

Administration. 20.1.2014
<http://www.justice.gov/dea/ops/money.shtml>
30
For instance, British bank HSBC with 470 US branches and more than 4 million customers
dealt in 2011 with $7 billion from the affiliate HSBC Mexico. And according to Senate
Permanent Subcommittee on Investigations report it may have included proceeds from illegal
drug sales in USA. For example HSBC was accused for offering high risk products like US
dollar accounts in Cayman Islands and working with high risk clients like casas de cambio
(Casa de cambio is an unofficial house of exchange primarily based on American-Mexican
border and millions of USA).52 Furthermore, according to USA Justice Department reports
such banks as Sigue Corp, Union Bank of California, American Express International Bank
and Bank Atlantic were parts of suspicious funds or transfers and paid $10-20 millions to
53
avoid prosecution.
Simple techniques of money laundering used by drug cartels are - usage of family institutions
(where money is shared and transferred via group members), investment in inconspicuous
institutions (restaurants, water parks, hotel resorts etc) and usage of different institutions
which were explained in previous chapters.54
Gambling
Canada and the United States account for almost 50% of the global casino market. In 2012
55
USA casinos had a revenue of amount $37.34 billion and returning 8.5 percent as taxes.
Money laundering through casino is often used by drug traffickers. For instance, The New
York/New Jersey HIDTA estimates that drug traffickers launder between $4 billion and $8
billion annually in the New York/Northern New Jersey metropolitan area. 56 Last year Las
Vegas Sands Corp. (LVS), operator of the Venetian-Palazzo hotel complex in the largest U.S.
gambling market, had to pay $47.4 million to end a federal probe of its failure to report a
high-stakes patrons suspicious deposits. The patron, Zhenli Ye Gon, who identified himself
52 HSBC Exposed U.S. Financial System to Money Laundering, Drug, Terrorist Financing
Risks (2012). The Committee on Homeland Security and Governmental Affairs. 30.1.2013
<http://www.hsgac.senate.gov/subcommittees/investigations/media/hsbc-exposed-us-finacial-system-to-
money-laundering-drug-terrorist-financing-risks>
53 Gibson D. Laundering cartel money is nothing new for banking industry. (2012)
Examiner. 30.1.2014 <http://www.examiner.com/article/laundering-cartel-money-is-nothing-new-
for-banking-industry>
54 Bullock J. 3 Ways Drug Cartels Launder Their Money, Right In Front Of You (2013) PolicyMic.
30.1.2014 <http://www.policymic.com/articles/60233/3-ways-drug-cartels-launder-their-money-right-in-
front-of-you>
55 State of the States: The AGA Survey of Casino Entertainment. (2013) The American Gaming
Association (AGA) 30.1.2014
,http://www.americangaming.org/sites/default/files/uploads/docs/aga_sos2013_fnl.pdf>
56 Money Laundering In Casinos (2005). Casino

Watch. 30.1.2014
<http://www.casinowatch.org/crime/money_laundering.html>
31
to the casino as the owner of a chemical business, wired or deposited $58 million with Las
Vegas Sands from February 2005 to March 2007, according to a statement of facts included
with the agreement. In 2007 in Mexico Ye Gon was charged with drug-trafficking and that
57
time he was awaiting extradition.
Online gambling
As it was mention above, online gambling is one of the most vulnerable industries for money
laundering. Due to the Wall Street analysts online gambling may bring around $250 million in
first year. For instance, New Jersey authorized Internet gambling by the end of November
2013, and in the beginning of January 2014, there were already 150 thousand accounts. For
sure, it has a big chance to cannibalize tradition walk-in casinos. And traditional casinos start
running online casinos as well. Except New Jersey, two more states offer Internet gambling
Nevada and Delaware. 58
Such dynamical growth of online vulnerability, is already attracting an attention of US

Government. FBI is warning Congress about its sophisticated technologies and calling to
weigh the law enforcement impacts of Internet gambling.59
5.2 Anti-Money Laundering Institutions
Except international organizations mentioned before, there are local agencies formed by US
government to fight money laundering. This chapter presents key AML organizations of USA.
There is a lot of different institutions involved in AML. Almost every business should fight
and combat money laundering. But there are some institutions and organization which are
responsible for AML coordinating, organizing and monitoring. The most important player of
USA AML is The Financial Crimes Enforcement Network (FinCEN). FinCEN is is a
bureau of the U.S. Department of the Treasury with mission to safeguard the financial system
from illicit use and combat money laundering and promote national security through the
57 Gullo K., Palmeri C. (2013) Las Vegas Sands to Pay $47.4 Million in U.S. Agreement.
Bloomberg L.P. 30.1.2014 <http://www.bloomberg.com/news/2013-08-27/las-vegas-sands-reaches-non-
prosecution-deal-with-u-s-.html>
58 Parry W. (2014) Internet gambling accounts in NJ near 150,000. Bloomberg

Businessweek. 30.1.2014. <http://www.businessweek.com/ap/2014-01-06/internet-gambling-
accounts-in-nj-near-150-000>
59 Pataki G., Thakston J. Online gambling a bigger risk than you think: Column. (2014).
USA Today <http://www.usatoday.com/story/opinion/2014/01/30/online-gambling-terrorists-
column/5055941/>
32
collection, analysis, and dissemination of financial intelligence and strategic use of financial
authorities. FinCENs responsibilities are receiving and maintaining financial transactions
data; analyzing and disseminating that data for law enforcement purposes; and building global
60
cooperation with counterpart organizations in other countries and with international bodies.
Since tax evasion is linked to money laundering Internal Revenue Service (IRS) is next
important AML part. The IRS is a bureau of the Department of the Treasury and federal
agency responsible for tax collection and tax law enforcement. It is one of the world's most
efficient tax administrators. Further important institution is the Office of Terrorism and
Financial Intelligence (TFI) marshals the department's intelligence and enforcement
functions with the twin aims of safeguarding the financial system against illicit use and
combating rogue nations, terrorist facilitators, weapons of mass destruction proliferators,
money launderers, drug kingpins, and other national security threats.61
Not only Department of the Treasury is involved in AML, but also U.S. Department of Justice
(DOJ). Its division called The Asset Forfeiture and Money Laundering Section (AFMLS).
It leads DOJs asset forfeiture and AML enforcement efforts. AFMLS provides centralized
management for DOJs to ensure its integrity and maximize its law enforcement potential,
while also providing managerial direction to the Department's components in prosecuting
money laundering. The Section initiates, coordinates and reviews legislative and policy
proposals impacting on the asset forfeiture program and money laundering enforcement
62
agencies.
State bureau named The Bureau of Economic and Business Affairs (EB) is also involved in
US AML. EB's goal is to promote economic security and prosperity at home and abroad. The
Bureau works on connection of economic prosperity and national security. It helps to promote
clear economy policy in US Government with overview to national secutiry and economic
development.
60 About FinCEN. What We Do. FinCEN. 2.2.2014 <http://www.fincen.gov/about_fincen/wwd/>

61 About. Terrorism and Financial Intelligence. (2013). The Department of the Treasury. 2.2.2014
<http://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Terrorism-and-Financial-
Intelligence.aspx>
62 Third Mutual Evaluation Report On Anti-Money Laundering And Combating The Financing
Of Terrorism. United States Of America (2006). FATF GAFI. 2.2.2014 <http://www.fatf-
gafi.org/media/fatf/documents/reports/mer/MER%20US%20full.pdf>
33
There are many further different institutions associated with AML. For instance, Drug
Enforcement Administration and National Drug Intelligence Center working on drug sector;
Department of Homeland Security, Immigration and Customs Enforcement targeted on
movement of people and goods; National Indian Gaming Commission with regulations on
63
gaming activities, or even Federal Bureau of Investigations.
5.3 Anti-Money Laundering Legal System
Since combat money laundering is very complex and strategic process, legislative frame is the
first tool. There are hundreds of different requirements and regulations, and below are the key
USA AML acts and regulations.
The first most important AML tool in USA was designed in 1970 as Bank Secrecy Act
(BSA). BSA is almost a basis for AML, and almost every subsequent laws and regulations are
imposed to it. Firstly BSA created requirements for recordkeeping and reporting by private
individuals, banks and other financial institutions. Another goal was to help identifying the
source, volume, and movement of currency and other monetary instruments transported or
transmitted into or out of the United States or deposited in financial institutions. Banks were
64
required to report cash transactions over $10 thousand using Currency Transaction Report.
In the BSA next institutions were obliged to reporting: Bank (except bank credit cards
systems), Broker or dealer in securities, Money services business, Telegraph companies,
Casino, Card club, Person subject to supervision by any state of federal bank supervisory
65
authority, Futures commissions merchant, Introducing broker in commodities. All those
types of institutions are required to fill and report so called Currency Transaction Report. It is
a paper form which should be filled with various information about transaction. For instance,
persons involved in transaction, amount etc. From 2013 Currency Transaction Report is
66
submitted only electronically. Reports are sent and operated by IRS and FinCEN.
63 Third Mutual Evaluation Report On Anti-Money Laundering And Combating The Financing
Of Terrorism. United States Of America (2006). FATF GAFI. 2.2.2014 <http://www.fatf-
gafi.org/media/fatf/documents/reports/mer/MER%20US%20full.pdf>
64 History of Anti-Money Laundering Laws. FinCEN. 10.2.2014
<http://www.fincen.gov/news_room/aml_history.html>
65 Guide to the U.S. Anti-Money Laundering Requirements. Frequently Asked Questions - Fifth
Edition (2012) PROTIVITI. 10.2.2014 <http://www.protiviti.com/en-US/Documents/Resource-
Guides/Guide-to-US-AML-Requirements-5thEdition-Protiviti.pdf>
66 http://bsaefiling.fincen.treas.gov/main.html
34
Through Money Laundering Control Act (1986) money laundering is officially federal
crime with penalties up to 20 years and fines $500 thousand for each count. This act is
strengthening BSA in many aspects.67 Another important federal legislation is Anti-Drug

Abuse Act (1988), which had impact on drug trade. It prohibits money laundering where
money is obtained from illegal trade of drugs. Moreover, it had an impact on such businesses
as car dealers, real estate closing personnel by requiring from them reports on big currency
transactions.68 Next considerable step was Annunzio-Wylie Anti-Money Laundering Act

(1992), which brought Suspicious Activity Report (SAR). SAR is a report that documents
suspicious or potentially suspicious activity attempted or conducted through financial
institutions. SAR is one the most effective AML tools which required to filed by depository
institutions, casinos, card clubs, insurance companies, brokers etc. As it is very complicated to
detect suspicious activity FinCEN provides different trainings and recommendations on SAR
for every type of institution. In addition, Government gives protection to any institution
69
operating with SAR.
Money Laundering Suppression Act (1994) and Money Laundering and Financial
Crimes Strategy Act (1998) were focused more on inside work of institutions. Institutions
were required to register every money service business, maintain list with all business, run
trainings and develop AML examination procedures. It also required the Department of the
Treasury to develop a National Money Laundering Strategy - a report of efforts to fight
70
money laundering and terrorist financing networks.
Next tool associated with BSA is a Report of Foreign Bank and Financial Accounts
(FBAR). FBAR is a report that must be filled by a US person (US citizens and US resident
for tax purposes and legal entities), who has a financial interest in, or signature authority over,
any foreign financial accounts, including bank, securities or other financial accounts in a
68 History of Anti-Money Laundering Laws. FinCEN. 10.2.2014
70 Hurlburt K. (2012) United States Anti-Money Laundering Regulations and Combating the
Financing of Terrorism. SHURAAKO. 10.2.2014 <http://shuraako.org/sites/shuraako.org/files/anti-
money-laundering-casestudy_1.pdf>
35
foreign country, which have a maximum value exceeding $10,000 at any time during a
71
calendar year. Since it is a requirement only for US persons, there is a special act for non-
US persons Foreign Account Tax Compliance Act (FATCA). FATCA was designed in
2010 to combat tax evasion by US taxpayers hiding money in offshore accounts. Its main goal
is an identifying US account holders who have assets outside of the USA and provide
reporting of that information. According to FATCA foreign institutions have to report
information about US taxpayers to IRS. The IRS is the U.S. government agency responsible
72
for tax collection and tax law enforcement.
For physical movement of cash, there is another report called Report of International
Transportation of Currency or Monetary Instruments (CMIR). It should be filled when
person (including a bank) physically transports, mails, or ships currency or monetary
instruments in excess of $10,000 at one time out of or into the United States. A CMIR must be
filed with the Bureau of Customs and Border Protection officer at the time of arriving into or
departure from the United States. 73
After September 11th 2001, terrorism and financing of terrorism has attracted a large
attention. Ex-president George W.Bush signed into law the USA PATRIOT Act in October
2001. Its main goals were to fight terrorism and prevention of it in a large scale. It has
significantly expanded type of financial institution subject to AML requirements: from
banks to travel agencies. Furthermore, more foreign financial institutions were assumed as US
institutions. Third title is dedicated for money laundering. Following are new regulations
based on this Act:
Criminalized the financing of terrorism and augmented the existing BSA framework
by strengthening customer identification procedures
Prohibited financial institutions from engaging in business with foreign shell banks
Required financial institutions to have due diligence procedures (and enhanced due
diligence procedures for foreign correspondent and private banking accounts)
73 Ibidem
36
Improved information sharing between financial institutions and the U.S. government
by requiring government-institution information sharing and voluntary information
sharing among financial institutions
Expanded the anti-money laundering program requirements to all financial institutions
Increased civil and criminal penalties for money laundering
Provided the Secretary of the Treasury with the authority to impose "special measures"
on jurisdictions, institutions, or transactions that are of "primary money laundering
concern"
Facilitated records access and required banks to respond to regulatory requests for
information within 120 hours
Required federal banking agencies to consider a bank's AML record when reviewing
74
bank mergers, acquisitions, and other applications for business combinations
As it is seen, the basis for AML is reporting and providing information to government. Figure
9 shows the trend of reporting.
Figure 9 Bank Secrecy Act Filings by Type, Fiscal Years 2009 20113
Source: FinCEN Annual Report 2011
74 History of Anti-Money Laundering Laws.

FinCEN. 10.2.2014
37
6. Money laundering in Russia
6.1 Trends
First of all it is important to take into account the size of Russian grey economy. Different
sources and studies estimate 15-40 percent of GDP. Russian experts estimate it as 9 trillion
roubles ($250 billion).According to World Bank its underground economy is 3 times more
75
than other G8 countries.
Tax evasion is one of the biggest economic problems of Russian economy. Due to its history,
change of government regimes and economic reforms, Russia could not combat against grey
th
economy in the beginning of 90 . It had no ready infrastructure and experience to collect
taxes and control tax payment. Population was not able to distinguish legal business activity
76
from illegal. Consequently it was hard to state what is money laundering and where is it. As
it seen from Figure 10, Russia lost the almost 15 percent of GDP on tax evasion in 2010.
Figure 10 Tax lost as % GDP (2010)
Source: Guardian, Tax evasion: how much does it cost?, 2012
Below trends of registered crimes related with taxes are shown in Figure 11. Black line shows
tax crime committed by businesses, and grey line indicates by individuals. As it seen the
75 Russias shadow economy accounts for 15-20% of GDP (2013) Russia

Today. 20.2.2014 <http://rt.com/business/siluanov-shadow-economy-gdp-055/>
76 Russian Capitalism and Money-Laundering (2001) UNITED NATIONS.. 20.2.2014
<https://www.imolin.org/pdf/imolin/rc81613r.pdf> Page 13
38
77
amount of registered crimes is lowering from global financial crisis. Due to shadow
operations, 2,5% of Russias annual GDP is transferred abroad. Here comes so called
odnodnevki (one day companies), which are registered at remote address to unknowing
people, were often involved in illegal transactions. It is estimated by Central Bank that there
3.9 million companies registered with the Federal Tax Service, but only 2 million are real
78
organizations. Below tax lost to GDP rating according to World Bank where Russia is at
first place.
Figure 11 Tax violation evolution in Russia (200-2011)
Source: Nauchnyj zhurnal Molodoj uchenyj, http://www.moluch.ru/
Another big problem of Russias economy is capital outflow. It is estimated that in 3 months
79
$45-50 billion was transferred to foreign countries, and is going to pick $130 billion.
During last 20 years Russia was always one of the top of countries with biggest capital
80
outflow. Experts say it counts from $800 million to $1 trillion. It is widely considered in
Russia, that most of those outflows are illicit finances. So in estimating of money laundering
experts consider about capital outflows. Due to statistic fails and poor data experts still
assume those data as hypothetical. Therefore some experts present those data not as exact
77 Zharova E.N. (2013) Uklonenie ot uplaty nalogov: prichiny, masshtaby projavlenija i metody
protivodejstvija. Molodoj uchenyj. 20.2.2014 <http://www.moluch.ru/archive/53/7158/>
78 Howard A. (2013) Russia loses 52bn a year in tax evasion and illegal transfers, says bank
chief. Guardian. 20.2.2014 <http://www.theguardian.com/world/2013/feb/21/russia-loses-52-billion-tax-
evasion>
79 Russia capital flight $45-50 bln this year, full year may be $130 bln Goldman. (2014). REUTERS.
20.2.2014 <http://www.reuters.com/article/2014/03/13/ukraine-crisis-russia-capital-idUSL6N0MA2N720140313>
80 Kropman V. (2013) Okolo trilliona dollarov uteklo iz Rossii v ofshory za poslednie 20 let.
Deutsche Welle. 20.2.2014 < http://dw.de/p/1ADts>
39
statistics, but as existence of the problem. Moreover, a lot of citizens of Russia rather worry
81
about crime and illegal sources then about laundering at all.
Below Figure 12 shows estimated private capital outflows from Russia. As it seen balance is
negative. Capital flows also include foreign direct investment, but in case of Russia, it is very
small share of it.
Figure 12 Russia private capital outflow (2006-2011)
Source: Ernst and Young, Capital outflow from Russia: from Myths to Reality, 2012
Most of the capital outflows are directed to offshore zones. Main destinations are Cyprus,
82
Hong-Kong, Switzerland, Great-Britain and Netherlands. Many Russian experts assume
offshore zones as threat of Russian economy. They assume that 80% percent of Russian
83
securities and stock trading is operated via offshore zones.
It is widely supposed that the big share of capital outflows is illicit capital. Russia in last 10
years was at the second place within countries with biggest illicit financial flows in average.
According to Global Financial Integrity in 2011 Russia hits the first place with $191 billion of
illicit financial flows, when China had $151 billion.
81 Russian Capitalism and Money-Laundering (2001) UNITED

NATIONS.. 20.2.2014 <https://www.imolin.org/pdf/imolin/rc81613r.pdf> Page 5
82 Ofshory opustoshili bjudzhet Rossii. (2011)
Kommersant. 20.2.2014
<http://www.kommersant.ru/doc/1752425>
83 Pochemu 90% krupnoj rossijskoj sobstvennosti zaregistrirovano v offshorah? Partya
Dela. 20.2.2014 <http://www.partyadela.ru/who-we-are/blogs/forums-blogs/pochemu-90-
procentov-krupnoi-rossiiskoi+sobstvennosti-zaregestrirovano-v-offshorah/>
40
Figure 13 Illicit Financial Flows from the Top Seven Developing Economies, 2002-2011 (in millions of US
dollars or percent)
Source: GFI, Illicit Financial Flows from Developing Countries: 2002-2011
In 90s Russia observed a boom of criminal activities. There were almost 9000 identified
organized criminal groups who were controlling 40,000 businesses, including 450 banks. By
the end of 1998 criminals were controlling 40 percent of commercial banks, 60 percent of
public and 40 percent of private businesses. Over 3,000 organizations were identified by its
structure as money laundering businesses.84 With the beginning of Putins governing Russia
crime world has substantially modified. Crime organizations are more pursued by government
and many of them emigrated from Russia. Anyway crime organizations are still operating in a
big scale. As Dr. Kar notes, "The recorded Foreign Direct Investments positions merely reflect
the round-tripping of prior illicit deposits from Russia into Cyprus," making Cyprus a major
85
money laundering machine for Russian criminals.
Since drug trafficking is one of the major sources for illicit finances volume of drug
trafficking could show the scope of money laundering. For instance, in 2010 heroin for $13
billion was delivered from Afghanistan to Russia.86 Federal Drug Service of the Russian
Federation reports that population spent in 2011 $8,5 billion on drugs. And amount of regular
drug consumer is about 5 million. 87 It is important to take into account that Russia has
84 Russian Capitalism and Money-Laundering (2001) UNITED

NATIONS.. 20.2.2014 <https://www.imolin.org/pdf/imolin/rc81613r.pdf> Page 13
85 Russia: Illicit Financial Flows and the Underground Economy (2013)
GFI.20.2.2014 <http://russia.gfintegrity.org/>
86 Researcg report: Estimating Illicit Financial Flows Resulting From Drug Trafficking And
Other Transnational Organized Crimes (2011) UNODC. 20.1.2014
<http://www.unodc.org/documents/data-and-analysis/Studies/Illicit_financial_flows_2011_web.pdf> Page
49
87 FSKN ocenivaet rynok sbyta narkotikov v Rossii v $8,5 mlrd v god (2012) FSKN.
20.2.2014
<http://map.fskn.gov.ru/includes/periodics/review/2012/0326/165918048/print.shtml>
41
relatively very strict regulation regarding drug and its types. But the effectiveness of anti-drug
activities is poor, and those data are just officially registered.
6.2 Anti-Money Laundering Institutions
There a few Russian government institutions involved in AML. Russian Federation is settling
new regulations to centralize fight against money-laundering. For example there were such
institutions Federal Service for Financial Markets and Federal Insurance Supervision Service
which were aimed to control securities and insurances. But last year they were dissolved and
functions were shared between The Federal Financial Monitoring Service (Rosfinmonitoring)
and Bank of Russia.
Nowadays the central anti-money laundering institution is Rosfinmonitoring. It was founded

in 2002 by approval of Vladimir Putin. Its main mission is combating money laundering and
financing of terrorism. Rosfinmonitoring is considered as main body for financial intelligence
of Russia and reports directly to the President. Rosfinmonitoring is working with major part
of all AML issues in Russia.
According to Decree No. 808 dated June 13, 2012, the main functions of the Federal Financial
Monitoring Service are as follows:88
monitor legal entities and individuals compliance with Russia's AML and terrorist
financing legislation, and prosecution of violators;
submit draft versions of federal laws, presidential and government acts and other
documents concerning its activities to the President of the Russian Federation and the
Government of the Russian Federation for consideration;
issue regulations concerning its activities;
collect, process and analyze data on transactions with monetary funds or other assets that
are subject to monitoring in accordance with applicable Russian state and federal laws;
verify the information on transactions with monetary funds or other assets, including by
request of additional customer transaction data from organizations and entities carrying
out transactions with monetary funds or other assets in accordance with the established
procedure, as well as information about account (deposit) activity of credit institutions'
customers;
88 Rosfinmonitoring functions. Rosfinmonitoring. 20.2.2014

<http://www.fedsfm.ru/en/about/rosfinmonitoring-powers>
42
identify indicators of potential money laundering and terrorist financing activity in
transactions with monetary funds or other assets;
exercise control over transactions with monetary funds or other assets in accordance with
applicable Russian laws and regulations;
receive, including in response to requests, from the federal bodies of state power, bodies
of state power of constituent entities of the Russian Federation, local government bodies
and the Central Bank of the Russian Federation the information concerning its activities,
except for private personal data;
assess the threats to national security posed by money laundering and terrorist financing
and submit the annual report on such threats and measures to neutralize them to the
President of the Russian Federation;
keep a record of organizations carrying out transactions with monetary funds or other
assets without having a designated oversight body in the main field of activities;
suspend transactions with monetary funds or other assets in accordance with applicable
Russian laws and regulations;
prepare and implement measures aimed at the prevention of violations of Russia's
legislation governing the combating of money laundering and terrorist financing;
disseminate information to law enforcement authorities based on sufficient grounds to
suspect the transactions (deals) of being linked to legalization (laundering) of criminally
gained proceeds or terrorism financing, as well as make disclosures at requests of law
enforcement authorities in accordance with applicable federal laws and regulations; create
and maintain the federal database and ensure the methodological unity and coordinated
functioning of the information systems existing in the areas of its activity; carry out the
functions of a chief steward and recipient of budgetary funds allocated in the federal
budget for the needs of Rosfinmonitoring;
provide training to Rosfinmonitoring's staff;
Next important player is Bank of Russia which is monitoring the work of banks and other
credit institutions in Russia. Even every bank should report to Rosfinmonitoring, Bank of
Russia could combat money-laundering by its following functions:89
it sets the rules for conducting banking operations;
89 Legal Status and Functions of the Bank of Russia. Bank of

Russia. 20.2.2014 <http://www.cbr.ru/Eng/today/?PrtId=bankstatus>
43
it takes the decision on the state registration of credit institutions, issues banking
licenses to credit institutions and suspends and revokes them;
it supervises the activities of credit institutions and banking groups;
it registers securities issues by credit institutions in compliance with federal laws;
it conducts independently or at the instruction of the Russian Government all types of
banking operations and other transactions necessary for the performance of Bank of
Russia functions;
it sets the procedure for and conditions of foreign exchange purchases and sales by
currency exchanges and issues, suspends and revokes permits for the currency
exchanges to organize foreign exchange purchases and sales.
For instance Bank of Russia has taken out licenses from Moscow banks after where money
laundering was detected.90 Today, Bank of Russia creates new regulations concerning Bitcoin,
91
which is observed as highly vulnerable currency for money-laundering.
As volume of tax evasion is dramatically great Federal Tax Service of Russia (FTS) is
obviously involved part of AML. Examples of FTSs functions are:92
monitoring and supervising of tax regulations and laws

recording database of individual and organizational tax payers
design tax payment notifications, requirements, confirmations and other formality
documents
monitoring of gambling and casino sector
FTS works closely with Central Bank, for instance in 2013 Government signed into law that
93
FTS could have direct access to bank accounts without any previous inspection and inquiry.
Another institutions involved in AML are Federal Drug Control Service of the Russian
Federation, General Administration for Economic Security and Combatting the
Corruption, Federal Security Service.
90 Russia's central bank revokes licences from two Moscow banks. (2014).
REUTERS.20.2.2014 <http://www.reuters.com/article/2014/02/11/russia-cbank-licences-
idUSL5N0LG07S20140211>
91 Russian Central Bank warns against using Bitcoin. (2014). Russia

Today. 20.2.2014 <http://rt.com/business/bitcoin-warning-russia-bank-280/>
92 Funkcii FNS Rossii. Federal Tax Service of Russia. 20.2.2014
<http://www.nalog.ru/rn77/about_fts/fts/functions_fts/>
93 Putin podpisal zakon o bor'be s otmyvaniem deneg. (2013)

LENTA. 20.2.2014 <http://lenta.ru/news/2013/07/01/sign/>
44
6.3 Anti-Money Laundering Legal System
As it was mentioned before, Russias sharp change of economy system led to various
difficulties in economy. In 90s there were no system of anti-money laundering, and money
laundering was not defined in general. First steps of AML began with studying general
standards of UN and Europe. On the basis of those standards the first concept law project
called responsibility for illicit finances legalization were designed in 1994. In 1996 it was
94
officially passed as an article 174 of the Criminal Code. Together with it money
laundering was defined as an act that includes the completion of financial operations and
other transactions with monetary funds or property knowingly acquired by other people by
criminal means in order to impart legitimacy to their ownership and to conceal the criminal
origin of the property.95
In 2000 FATF published a list of countries which are not able to internationally cooperate in
AML due to its lack of AML policy. Russia was in the top fifteen. Even at that time, according
to FATF Russia did not passed 10 criteria out of 25 and did not have AML system at all.
Russia was in the black list of FATF till 2002, when the new law N 115-F4 was issued with
aim to combat money laundering. Russia has introduced new committee of finance
monitoring, which was responsible for controlling of financial operations with big amount. To
quit FATF black list Russia also needed to join European Convention on Laundering, Search,
Seizure and Confiscation of the Proceeds from Crime from 1990. 96 On the basis of this law
almost all institutions must report Rosfinmonitoring in case of transactions more than 600
97
thousand roubles (approximately 17 thousand USD).
98
Federal Law N 115-F3 brought for the first time basic legal norms for AML:
94 Karpovich O.G. Protivodejstvie legalizacii (otmyvaniju) prestupnyh dohodov v Rossii (2009)

Yurist. 20.2.2014 <http://www.twirpx.com/file/738507/>
95 Second Mutual Evaluation Report Anti-Money Laundering and Combating The Financing
Of Terrorism Russian Federation. (2008). FATF GAFI. 20.2.2014 <http://www.fatf-
gafi.org/media/fatf/documents/reports/mer/MER%20Russia%20ful.pdf>

97 Rosfinmonitoring predlagaet rasshirit' polnomochija gosorganov v bor'be s ukloneniem

ot nalogov i otmyvaniem deneg (2012) Finmarket. 20.2.2014
<http://www.finmarket.ru/news/3020078>

45
Registration of institutions working with financial operations and consequent control
of operations;
Organization of AML in government level with setting up responsible government
authorities;
Organization of government authorities international cooperation;
Support of implementation of this law
On the basis of this law, President issued a decree N1263 about authorized body in AML.
Together with Committee on financial monitoring this decree sets up next actions:99
Data collection with next processing and analyzing of financial operations;

Creation of integrated information system and maintaining federal database;
Reporting appropriate information to law-enforcement agencies;
Cooperation and information exchange with foreign country agencies;
Setting up Committee on financial monitoring as representative in international
organizations.
In 2005 Vladimir Putin signed a concept of National Strategy Against Legalization Of

Illicit Assets And Financing Of Terrorism. Money laundering was assumed as not only
economical problem, but also security issue. This strategy initiated an establishment of
Rosfinmonitoring. It also includes cases with corruption, control of offshore transactions,
financial outflows, lack of AML training etc. In general this strategy dedicated to
responsible federal authorities. It unites all existing regulations and laws, and aimed to
strengthen and unite in fight money laundering. There are four main directions were
emphasized: 100
Further developing of AML legal system;

Strengthening a cooperation between financial institutions and law-enforcement
agencies;
Improving professional AML trainings and retraining of specialists, investigators,
prosecutors;
Improving of international cooperation.

100 KONCEPCIJa nacional'noj strategii protivodejstvija legalizacii (otmyvaniju) dohodov,
poluchennyh prestupnym putem, i finansirovaniju terrorizma, (2005) Rosfinmonitoring. 20.2.2014
< http://fedsfm.ru/content/files/documents/AMLCFT_National_Concept.doc>
46
Russia is improving and inventing more and more new AML regulations. FATF appreciate
highly the progress of AML system of Russia. One of the most discussed issues is money
laundering through offshore. In 2013 Vladimir Putin requested Rosfinmonitoring to design the
National Plan Against Money Laudering. It should take into account such sectors as e-
currencies, drug trading.101 Other publically discussed areas are work of banks, tax evasion,
corruption and other economical crimes.102
101 Putin velel podgotovit' nacional'nyj plan po bor'be s otmyvaniem deneg. (2013)
NEWSRU.20.2.2014 <http://www.newsru.com/arch/finance/27jun2013/rufinmonitorplan.html
102 Putin uzhestochit bor'bu s otmyvaniem sredstv. (2014) Gazeta.ru.

20.2.2014 http://www.gazeta.ru/business/2014/03/04/5935761.shtml
47
Conclusion
On the basis of this research it is possible to state that scale of Money laundering is wide.
Moreover data confirms that it exists in different forms in different countries. For writing of
thesis professional literature, articles and researches of experts from different sources as well
as media were used. It should be noted that the topic of money laundering is new and due to
its fast evolution. So there is a relatively small amount of literature. Another factor is a deficit
of data, since absolute majority of money launderings volume is estimated. And distinction
between different sources is highly differentiated.
Money laundering can be described as legalizing of financial assets obtained by criminal

activities. But in some cases money laundering can also include partly tax evasion, where
assets could come from legal activities. For instance, Russian media and many experts
perceive occasionally tax evasion as money laundering. But officially most of the
governments try to divide tax evasion from money laundering. History of money laundering
began in the beginning of 20th century in USA. Nevertheless Russia faced money laundering
when it has transferred to capitalism in 1990s. If in the USA money laundering is often
associated with casinos, gambling and drugs, first Russian money laundering activities were
based on tax evasion. The important thing of money laundering here is an official definition of
money laundering. USA could create legislative frame for anti-money-laundering based on its
long experience, while Russia had sharp reforms in economy system. Consequently Russia
was unable not only combat money laundering, but even to state what is money laundering.
The scheme of money laundering in USA and Russia is relatively similar. Financial assets
should be placed, layered and finally integrated. Money laundering through classical methods
such as gambling, sport are more used in USA, while in Russia casino and many types of
gambling are officially forbidden. Lack of data doesnt allow estimating money laundering
through Russian casino zones or sports. Nowadays USA is facing emerging e-gambling with
its big volumes of turnover. Both countries combat money laundering via offshores. But it is
widely known that Russian financial assets take major parts of several tax havens. And today
it is one the most disturbing issues for Russia. But it is speculated whether it is economical
interest, or political case.
Money laundering could be harmful to economy, society and politics. Experts estimate that it
has negative effect development of country with consequent negative social impacts. It is
estimated that USA loses around 8 percent of GDP on tax evasion and criminal activities. And
USA is on the top of countries by size, while Russia is on the top by percentage ratio to GDP.
48
Russia loses 14 percent of GDP only on tax evasion, without including illicit flows, which are
estimated as $191 billion per year. Next factor is developing criminal activities and financing
of terrorism, which are actual big global problems.
A lot of international organizations were created to fight money laundering. Most of global
organizations are founded with aim to support and consult countries in a fight with money
laundering. The central organizations are the United Nations and Financial Action Task Force.
The United Nations set up own international conventions and run its own research and
assistance project. It offers technical expertise, trainings and advice to member countries on a
request. Financial Action Task Force is responsible for monitoring trends and regulations;
examine success and provide so called recommendations to 36 countries and several associate
members. For example todays Russian anti-money laundering policy was majorly based on
FATF recommendations. Most of such organizations primarily work with legislative system of
members. They create and advise new regulations, laws or possible changes. For instance, UN
has initiated Vienna Convention, where it offered to assume money laundering as a crime.
FATF recommends also such preventive measures as customer identification or suspicious
transactions reporting. FATF has own black list, on the basis of which it could freeze the
cooperation with particular countries or areas, where Russia was until 2002. As a lot of
various institutions are involved in AML, there are organizations which are responsible for
combating money laundering in individual sectors: the Basel Committee on Banking
Supervision in bank sector, International Association of Insurance Supervisors in insurance
sectors, International Organization of Securities Commissioners for securities.
The basis of anti-money laundering is a legal system of country, because it prevents possible
vulnerabilities. First of all, country should legally state that the money laundering is a crime.
Basically, according to FATF, countries should set up laws which consequently will not allow
criminals get to funds; organize structure and categories of institutions and people involved in
money laundering; clarify the responsibilities of each institutions involved in anti-money
laundering. Both of the countries define money laundering as a crime and still improving their
laws and regulations. The legal system of USA is highly deliberated, because of its long
history starting with Bank Secrecy Act in 1970. On the other side Russia starts the official
fight against money laundering in 1996 with article N.174 of the Criminal Code. Russia was
not able to state clear regulations due to lack of experience and anti-money laundering laws
are still widely discussed. While Russia is organizing appropriate reporting within Russian
institutions, USA began arranging reporting from foreign countries. Nevertheless, FATF
admits the fast evolution of anti-money laundering legal system in Russia. Anti-money
49
laundering legal system could not properly function when the basic laws of crime are not
clearly defined. Change of economic system led to illiteracy of government, and population as
well. In 1990s Russia were fighting against surge of a violation and an absence of basic
economic regulations. Population simply did not know what illegal economical activity is. In
other words, there was no need to legalize money, because you could purchase everything
without control.
There are recommended preventive measures by FATF as well. They are focused mainly on
information exchange and reporting it to appropriate authorities. For example, financial
institutions are obliged to request certain information from transaction sender and
subsequently send to financial intelligence unit. USA developed routine scheme of reporting
with training for suspicious cases. Russia is invented also own system of reporting and
trainings together with FATF. It is possible to suppose that here Russia is facing corruption
and a lack of transparency, which did not allow proper reporting and information exchange.
Financial intelligence unit is central national agency responsible for collecting information
about transactions, analyzing it and uncover possible money laundering on the basis of this
data. It also maintains the main database of countrys transactions. The role of financial
intelligence unit in USA is played by The Financial Crimes Enforcement Network, which has
almost the same functions as Russian Rosfinmonitoring. Furthermore, international
cooperation is essential part in fight against money laundering. As money laundering is a
geographically flexible issue, fluent international cooperation brings to effective anti-money
laundering. USA was always one of the leaders in anti-money laundering, while Russia was
taken out of FATF Black list only in 2002. Even though, already in 2013 Russia became a
head of FATF.
It is almost impossible equally compare Russia and USA in money laundering. USA is on the
main trendsetters in anti-money laundering. Money laundering and Financing of terrorism are
reviewed at national level. Legal system is worked out in details, institutions are engaged in
cooperation. Russia is still working on basic regulations. Transforming of economic system
led to social and economical problems, and it is possible to suppose that money laundering
was not the priority task for Russian government. The size of shadow economy, amount of
financial outflows could show the scale of money laundering. Nevertheless, it could be
admitted that Russia is making fast steps towards economy with strong anti-money laundering
system, especially against the background of economic size, continuing socio-economical
reforms and short history of money laundering.
50
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53
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54
Online web-portals
http://www.fincen.gov/
http://www.bis.org/
http://www.fatf-gafi.org
http://www.treasury.gov
http://www.afp.gov.au/
http://www.policymic.com
http://map.fskn.gov.ru
http://www.nalog.ru
http://www.imlib.org/
http://www.iosco.org
http://www.fedsfm.ru/
http://www.cbr.ru
http://www.imlib.org
http://www.casinowatch.org
http://www.justice.gov
http://www.kommersant.ru
http://russia.gfintegrity.org
55
List of figures
Figure 1 General Money Laundering Cycle.................................................................................................................10
Figure 2 Locations in offshore tax jurisdictions...........................................................................................................12
Figure 3 Example of using online gambling to launder 10,000 of illegal proceedings............................................. 13
Figure 4 The Process of Money Laundering and Financing of Terrorism...................................................................17
Figure 5 Typical FIU Information Flow.......................................................................................................................26
Figure 6 Estimated earnings from criminal activity* in the United States, billions of current US$ (1965-2010).......28
Figure 7 The top 10 countries losing to tax evasion in absolute terms (2011).............................................................29
Figure 8 Regional breakdown of the global illicit drug market in billion US $ (N = $322 bn) (2005).......................30
Figure 9 Bank Secrecy Act Filings by Type, Fiscal Years 2009 20113.....................................................................37
Figure 10 Tax lost as % GDP (2010)............................................................................................................................38
Figure 11 Tax violation evolution in Russia (200-2011)..............................................................................................39
Figure 12 Russia private capital outflow (2006-2011).................................................................................................40
Figure 13 Illicit Financial Flows from the Top Seven Developing Economies, 2002-2011 (in millions of US
dollars or percent).........................................................................................................................................................41
56
List of Abbreviations
AFMLS The Asset Forfeiture and Money Laundering Section

AML Anti-money laundering
BCSBS The Basel Committee on Banking Supervision
BSA Bank Secrecy Act
CIA The Central Intelligence Agency
CMIR Report of International Transportation of Currency or Monetary Instruments
DOJ The U.S. Department of Justice
EB The Bureau of Economic and Business Affairs
EC European Commission
EU European Union
FATCA Foreign Account Tax Compliance Act
FATF Financial Action Task Force
FBAR Foreign Bank and Financial Accounts
FBI Federal Bureau of Investigation
FinCEN The Financial Crimes Enforcement Network
FIU Financial Intelligence Unit
FTS Federal Tax Service of Russia
GDP Gross Domestic Product
GPML The UN Global Programme against Money Laundering
IAIS The International Association of Insurance Supervisors
IAIS The International Association of Insurance Supervisors
IMF The International Monetary Fund
IRS The Internal Revenue Service
OSCO The International Organization of Securities Commissioners
Rosfinmonitoring The Federal Financial Monitoring Service
SAR Suspicious Activity Report
TFI Office of Terrorism and Financial Intelligence
UNODC The United Nations Office on Drugs and Crime
USA The United States of America
USD United States dollar
USSR The Union of Soviet Socialist Republics
57

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Anti Money Laundering

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Bankovn institut vysok kola Praha

Department of finance and economics

Anti - money - laundering

Bachelors degree work

Author: Sultan Muratbek Uulu

Supervisor: Ing. Zbynk Kalabis

Prague April, 2014

Sultan Muratbek Uulu

Keywords: Money Laundering, Illicit Assets, Criminal Activities, Anti-money Laundering,

2. Methods of Money Laundering .............................................................................................

3. Impacts of Money Laundering .............................................................................................

4. Money Laundering Counter-Measures .................................................................................

4.1 Global Organizations .................................................................................................

4.2 Basic Counter-measures ............................................................................................

5. Money Laundering in USA .................................................................................................

5.3 Anti-money laundering institutions ......

5.2 Anti-money laundering legal system .....

6.Money Laundering in Russia ................................................................................................

6.1 Trends ..................................................

6.3 Anti-money laundering institutions ......

6.2 Anti-money laundering legal system ....

List of Figures ...........................................................................................................................

List of Abbreviations ................................................................................................................

Also according to Federal Law of Russian Federation money laundering could be

become clean and legal.6

Source: Money Laundering: A Guide for Criminal Investigators, Third Edition

Further example of classic money laundering methods is non-financing institutes.

under the coverage of legal business activities. 12

Further similar types to shell companies are ghost or front companies.

false invoices or bills. 13

The International Consortium of Investigative Journalists revealed materials, which

Figure 2 Locations in offshore tax jurisdictions

New type of money laundering is E-Gambling and E-Gaming. Today virtual

GDP, and 2,7% (USD 1.6 trillion) was laundered. 17

Regarding to experts money laundering is critical for development and developing

17 What is money laundering? F.A.Q. FATF GAFI, 30.12.2013.

1. Increased Crime and Corruption. Successful money laundering leads to rise of

Another topical global issue is the relationship of money laundering to terrorism. As

legal funds as donations or gifts of cash.23

Figure 4 The Process of Money Laundering and Financing of Terrorism

and priorities among countries as well as within them. 24

4.1 Global organizations

To support and maintain international cooperation against money laundering

Increase the awareness among key persons in UN member states;

FATFs three primary functions with regard to money laundering are:28

Monitoring members progress in implementing anti-money laundering measures;

26 About Us. FATF Members and Observers. FATF GAFI. 2.1.2014

A. Aml/Cft Policies And Coordination

Those recommendations are presented as direct recommendation to countries, and for

Another important player in anti-money laundering is the Basel Committee on Banking

Comply with anti-money laundering laws, Have

Next obvious organization in anti-money laundering is the International Organization of

33 Charter. (2013) Basel Committee on Banking Supervision. 10.1.2014

34 ANNUAL REPORT 2012-2013. (2013). International Association of Insurance

37 IOSCO Historical Background. IOSCO. 10.1.2014

Criminalization of money laundering in accordance with the Vienna and Palermo

Customer Identification and Due Diligence Record Keeping Requirements.

store information for the strategic analysis.44

Source: Financial Intelligence Units: An Overview, 2004

issues.45 It is important to mention different types of FIU:46

FIU could operate as administrative model, which is either attached to a regulatory

45 Financial Intelligence Units: An Overview. (2004). International Monetary Fund, World

from $200 to $750 billion.50

Sources: UNODC, World Drug Report 2005.