An appraisal of United Nations and other money laundering and financing of terrorism counter-measures

Author:Norman Mugarura
Position:Global Action Research and Development Initiative Limited – Research, London, UK
SUMMARY

Purpose – The purpose of the paper was to examine the challenges inherent in harnessing the UN and other AML counter-measures, paying particular attention to the United Nations Resolutions on countering financing of terrorism and why the UN Security Resolutions have not been easy to invoke. As regards other AML counter-measures, the paper examined the legal status of soft law instruments, articulating the possible reasons why they are easy to implement. Design/methodology/approach – The paper was written by the... (see full summary)

 
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The fight against money laundering and its predicate offences such as financing of terrorism has necessitated the need for states to employ different legal instruments both at a national level and internationally. The anti-money laundering and countering financing of terrorism framework based on FATF (1996) 40 recommendations was further strengthened by the Nine United Nations General Assembly Resolution adopted in 2001. In an extraordinary plenary in Washington, DC (October 2001), FATF adopted a resolution extending its mandate to Countering Financing of Terrorism1. This was in response to a series of terrorist attacks not least in Kenya and Tanzania (1998) and later in USA on 11 September 2001. It would now work closely with other agencies including the United Nations Security Council to bring the enforcement of CFT under Chapter 7 of United Nations. Similarly, states would no longer have to treat the FATF recommendations as non-binding soft law regimes. States would also be required to pass domestic legislation translating the nine special recommendations on Financing of Terrorism at home. The United Security Council would treat financing of terrorism as a security threat within the purview of Article 39 of the Charter of United Nations2. The respective State's failure to cooperate with its obligations under the UN Charter could justify a more direct approach to invocation of sanctions – both economic (Article 40) and military (Article 41)3. It is therefore essential to explore the nature and effect of the UN General Assembly Resolutions and their suitability in countering money laundering and financing of terrorism.

1 United Nations general assembly resolutions

The purpose of United Nations (as per Article 1 of UN Charter 1945) was to maintain peace and security; and to that end to take effective collective measures and removal of the threat to peace and for the suppression of acts of terrorism or other breaches of the peace; and to bring about peaceful means – settlement of international disputes. Bearing this provision in mind, after the simultaneous bombing of US embassies in Kenya and Tanzania by terrorists in 1998, the United Nation Security Council adopted two special resolutions – 1267 and 1373 (1999), as provisional measures taken under Article 40 of the Charter of United Nations 19454. These resolutions were specifically adopted to undermine the efforts of terrorists through the financial sector. The International Convention for Suppressing of Terrorism (2009) defines the primary objective of terrorism as “to intimidate a population, to compel a government or an international organization to do or to abstain from doing an Act” ( Hopton, 2005 ). While, this definition is not about money laundering as its primary objective, the underlying logic is that cutting of terrorist funding has the potential to undermine terrorist operations wherever they are planned. Cutting terrorist funding would interrupt the flow of arms and materials to terrorist groups; training and travel, and cut off other logistics.

States would now ensure that financial institutions implement the sanctions regimes adopted by the United Nations General assembly. Resolution 1267 imposes a wide range of sanctions against the Taliban regime in Afghanistan for providing sanctuary and training of international terrorists' related activities ( Blair and Brent, 2008 ). Specifically, Resolution 1267 required UN member countries to freeze funds and other financial resources (including property owned or controlled by the Taliban) as designated by a committee established under resolution 12675. UN Resolution 1333 (2000) relates to asset freezing of the Taliban regime, Osama Bin Laden and any persons associated with him including Al-Qaeda as designated by 1267 committee. The terms associated is used to refer to acts or activities indicating that an individual, undertaking or entity is associated with Osama Bin Laden, Al-Qaeda and the Taliban. This includes although not limited to the following:

  • Participating in the financing, planning, facilitating, preparing or perpetuating acts or activities by, in conjunction with, under the name of, on behalf of, or in support of;
  • Supplying, selling or transferring arms or related materials to;
  • Recruiting for; or
  • Otherwise supporting the acts or activities of Osama Bin Laden, the Al-Qaeda Organization and the Taliban or any cells, affiliate sprinter group or derivative thereof.5
  • In order to make the above Resolutions easily implemented within member countries, the UN Security Council adopted Resolution 1363 (2001) which was adopted on 30 July 2001. This Resolution creates mechanisms for implementing Resolution 1267 and 1333, including establishing a monitoring group of five experts, reporting to 1267 committee; and the sanctions enforcement support team of 15 experts under the monitoring group. In order for the above Resolutions to function properly, 1363 required member countries to enforce and strengthen through legislative or administrative measures to prevent violations of the requirements under Resolutions 1267 and 1333. UN Security Council Resolution 1390 (2002) adopted on 16 January 2002 required member countries to inter alia freeze without delay any funds and financial assets of Osama Bin Laden, members of Al-Qaeda Organisation and the Taliban regime; and other persons and entities associated with them, as designated in the list by 1267 committee pursuant to the earlier UN General Assembly Resolutions 1267 and 1333.

     The delegates however recognized that wholesale application of anti-terrorist measures would have counter-productive effect and exemptions were acceptably necessary. The United Nations General Assembly Resolution 1452 (2002), adopted on 20 December 2002, creates provisions for member countries to exempt certain funds and other financial assets or economic resources, notably those necessary for basic expenses (such as payment for food. mortgage, medicine, and medical treatment, etc.). This would be undertaken by notifying the 1267 Committee and for extraordinary expenses to be approved by 1267 Committee. Under UN General Assembly Resolution 1455 (2003) adopted on 17 January 2003, calls upon to inter alia take urgent measures – both legislative and administrative against their nations, other individuals or entities operating in their territory to prevent and punish violations of the asset freezing provisions under 1267, 1333 and 1390. These Resolutions would have far reaching consequences for banks failing to honour their obligations under in particular Resolution 1267. Further more, UN Resolution 1526 (2004) adopted on 30 January 2004, member countries were required to cut the flow of funds and other financial assets or economic resources to persons and entities associated with Osama Bin Laden, the Al-Qaeda Organisation and the Taliban, taking into account appropriate international codes and standards for combating the financing of terrorism. This would include those designed to prevent the abuse of non-profit or charitable organisations and alternative remittance systems. Member countries are urged to implement comprehensive international anti-money laundering standards embodied in the FATF 40+9 Recommendations. This required is provide by UN Resolution 1617 (2005) adopted on 29 July 2005. This Resolution to a large extend reiterates the obligations of member countries relating to persons and entities associated with Osama Bin Laden, the Al-Qaeda Organisation and the Taliban regime in Afghanistan.

    There was also a need to adopt another UN Resolution 1730 which was adopted on 19 December 2006 that would further streamline the sanctions mechanisms against designated persons. This Resolution was passed after a request from the UN Secretary General, requires member countries to establish Security Council subsidiary Organs as focal points to coordinate operations of different committees. These focal points would receive delisting requests from persons and entities listed by various sanctions committees of the United Nations Security Council, including 1267 Committee, and delisting request to be incorporated by sanctions committee in their own procedures. Finally, Resolution 1735 (2006) was adopted on 22 December 2006, providing clarification on the following:

  • Information to be provided for proposing persons and entities for inclusion in the consolidated list, including identifying those parts of the information that can be publically published.
  • Setting out requirements in relation to delisting from the consolidated list, specifically as to whether there was a mistake in the original inclusion of the person or entities or whether the person or entity continues to meet the criteria for inclusion – as set out under Resolution 1617.
  • Also providing mechanisms for delisting those people or entity that had severed links with the Taliban regimes, Osama Bin Laden and the Al-Qaeda organization. These regimes would enhance the international community in fighting money laundering and financing of terrorism.
  • Furthermore, the FATF also works closely with the Wolfsberg Group in proffering guidelines and principles of best banking practice in relation to Money laundering and countering financing of Terrorism. The Wolfsberg Group first issued its principles in October 2000 and have subsequently been revised to reflect desired changes.

    States should do more than just prescribing regulatory regimes unless they have imbued measures to enforce them because rules which cannot be enforced to deter undesired behaviour locally are meaningless. While “a-one-size fits all approach” in regulation of financial markets – subject to the varying dynamics of development cannot work, countries...

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