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Financial Crime, Law and Governance

Navigating Challenges in Different Contexts

Editors: Doron Goldbarsht, Louis de Koker

Publisher: Springer Nature Switzerland

Book Series : Ius Gentium: Comparative Perspectives on Law and Justice

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

Table of Contents

About this book

Embark on a journey through the dynamic landscape of global financial crime combating with our latest collection, meticulously curated by leading researchers. At the intersection of finance, technology, law, governance, and international cooperation, this multidisciplinary exploration offers profound insights into the nuanced world of financial crime across diverse jurisdictions, including Australia, Germany, New Zealand, Nigeria and the United Kingdom.

Discover a wealth of knowledge as contributors investigate facets such as asset forfeiture, non-conviction-based asset recovery, money laundering in the real estate sector, and the challenges and opportunities posed by new technologies and fintechs. Unravel the crypto crime and terror nexus and explore the necessity of public–private collaboration to combat the abuse of Non-Fungible Tokens. Dive into policy approaches, including the WireCard scandal, and understand how good governance, both public and corporate, remains paramount in the fight against financial crime.

As we navigate an age of intergovernmental rulemaking, the collection emphasizes the crucial role of robust governance frameworks and examines the impact of permissive regulation on practices in the City of London. Delve into discussions on crime risk, risk management, de-risking, and the potential consequences of overcompliance and conservative risk approaches on financial exclusion levels.

While global standards on financial crime have solidified over the past three decades, the future direction of standard-setting and compliance enforcement remains uncertain in our complex global political landscape. The collection concludes by pondering these current challenges, offering a thought-provoking exploration of what lies ahead.

This collection a product of the Financial Integrity Hub (FIH), serves as a valuable resource for financial regulators, compliance officers, and scholars, offering profound insights and perspectives to navigate the dynamic landscape of financial crime combatting.

Chapters "Non-Conviction-Based Asset Recovery in Nigeria – An Additional Tool for Law Enforcement Agencies?", "'De-risking’ Denials of Bank Services: An Over-Compliance Dilemma?" and "Terror on the Blockchain: The Emergent Crypto-Crime-Terror Nexus" are available open access under a Creative Commons Attribution 4.0 International License via link.springer.com.

Frontmatter

Towards a Global Approach to Combating Financial Crime

Abstract

This chapter considers some of the main drivers behind the current globalised approach to combating financial crime. It traces the history behind the current global anti-money laundering and counter terrorism and proliferation financing framework that emerged over the past decades. It considers in particular key United Nations conventions, United Nations Security Council resolutions and the role of the Financial Action Task Force and also regional initiatives, with a particular focus on Europe.

Louis de Koker, Doron Goldbarsht

Open Access

Non-Conviction Based Asset Recovery in Nigeria: An Additional Tool for Law Enforcement Agencies?

Abstract

Within Nigeria, anti-money laundering and asset recovery powers lie primarily with agencies established under the Corrupt Practices and Related Offences Act 2000, the Economic and Financial Crimes Commission Act 2004 and the Advance Fee Fraud and Other Fraud Related Offences Act 2006. International efforts to recover assets associated with serious and organised crime emanating from Nigeria frequently focus on the proceeds of corruption. Despite the powers of Nigerian authorities and extensive international efforts, relatively few cases of grand corruption are prosecuted successfully, and the value of the assets recovered from financially-motivated criminals are very low in comparison to the value of the proceeds they are said to generate. Kleptocrats and other Politically Exposed Persons have been able to exploit legal loopholes in the criminal courts to avoid or delay conviction, enabling them to conceal massive amounts of stolen wealth in offshore financial centres around the world. The aim of this contribution is to focus on non-conviction based asset recovery and its availability to the Nigerian authorities in their efforts to combat financial crime. Despite extensive debate over the existence of non-conviction based asset recovery-related legislation, we demonstrate such provisions are available, however, we also show that there are many barriers to their effective implementation which may obscure their usefulness.

Peter Sproat, Tony Ward, Jackie Harvey, Sue Turner, Abdullahi Shehu, Abdullahi Bello

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Open Access

‘De-Risking’, De-Banking and Denials of Bank Services: An Over-Compliance Dilemma?

Abstract

This chapter considers the impact of drivers of over-compliance or so-called ‘gold plating’ on decisions of banks to terminate or restrict relationships with customers and counterparts. It draws on a South African study of factors that influenced overly-conservative design of anti-money laundering and counter terrorist financing measures of South African banks in a rule-based context. It considers whether the identified drivers are still relevant in a risk-based context. The chapter concludes that the broad drivers remain relevant and that regulators that wish to limit risk-informed de-banking should avoid strengthening the drivers and consider how best to neutralise them.

Louis de Koker, Pompeu Casanovas

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Money Laundering Through Real Estate: Why, and How, New Zealand has Sought to Regulate It

Abstract

New Zealand property markets have had problems with money laundering and foreign investment at times, which might have partially contributed to overheated real estate booms. Gatekeeper professions including real estate agents, lawyers and accountants were forced to address it via expanded AML regulatory measures. Challenges remain, even as neighbouring Australia begins its own journey towards regulating the sector.

Gary Hughes

Environmental Crime and Money Laundering in Australia

Abstract

Environmental crime, driven by profit motives, leads to the accumulation of illicit gains. Despite the original intention of the global anti-money laundering and counter-terrorism financing (AML/CTF) framework after the September 11 attacks, its application in addressing environmental crime presents a logical progression for nations confronting transnational and organized environmental offenses. This chapter explores the international and Australian perspectives on comprehending and investigating environmental crime, and how these intersect with AML/CTF practices. It provides a broad overview of Australia’s risk profile as both a source and destination for the proceeds of environmental crime. Furthermore, it focuses on recent instances of waste trafficking and water-related crime in Australia. These two categories of environmental crime have garnered law enforcement attention and public scrutiny within the country.

Benjamin Scott

Giving Shape to Finance and the City of London: Permissive Regulation and Minimalist Governance

Abstract

To walk through the close streets and narrow alleys of the City of London is to step into another world. A world ostensibly in London, but certainly not of London. This is a space defined by finance; it is a cathedral to the power of capital, competition and, above all, pure market ideology. Almost everything that operates within this space does so for the purposes of enshrining competitive market exchange. Yet, in the decades subsequent to the 2008 financial crisis, we have only seen how this market ideology often runs unchecked and is too often stalked by, what Susan Strange (1997) so emphatically referred to as, casino capitalism. For Strange (1997), the important distinction between the gambling of casinos and that of finance is, at least in the context of the former, there is a level of voluntary engagement. However, in the context of finance, and as the crisis of 2008 laid so bare, we are all woven into the tapestry of risk as involuntary participants, ensnared and unable to escape. Of less interest here is whether any specific crime was committed during this time. After all, as Tombs and Canning (2021) remind us, crime is little more than a state labelling process. Of more importance is the systemic harm the cascaded out of decades of permissive regulation, corporate greed and endemic cultures of risk and aggression with little concern for any social impact not reflected on the profit and loss sheet. The true legacy of the Great Financial Crisis is that it enshrined the truism that, as the Joseph Rowntree Foundation (2011) highlighted, it was the poorest and most vulnerable in our society who paid the highest price, whilst contributing the least to its origins and development. And so it continues, all aspects of finance punish those most marginalised across society (Baeckström 2022).

Alex Simpson, Corina Sheerin, Vince Hurley

Enhancing Integrity in the Implementation of FATF Recommendations: Robust Governance Frameworks to Combat Financial Crime in an Age of Intergovernmental Rulemaking

Abstract

In this chapter, we discuss the main governance challenges posed by the Financial Action Task Force (FATF) recommendations for addressing money laundering and terrorist financing. The key task for states is to find a balance between meeting international demands and upholding strong domestic laws. The chapter focuses on the potential role for an integrity branch of government in upholding robust processes and procedures, in light of the increasing power of intergovernmental organisations such as the FATF. The chapter engages with arguments in support of an integrity branch of government in Australia and expands these arguments on the basis that such a branch may enhance the integrity and legitimacy of laws that adopt and adapt the FATF recommendations. It is argued that the FATF example is illustrative of a broader trend towards intergovernmental rulemaking, which holds significant potential to streamline legal approaches to global challenges such as financial crime. However, this intergovernmental model and the focus on consistency and conformity across jurisdictions should not be allowed to erode domestic sovereignty and the legitimacy of domestic legal processes in the development and implementation of law and policy frameworks. As such, the chapter weighs the merits and limitations of establishing an integrity branch in response to increasing intergovernmental power. It draws on the FATF example to demonstrate how an integrity branch may have impacted the law-making process in Australia, in the context of implementing the FATF recommendations and legislating to combat financial crime. The chapter furnishes an initial framework for invigorating existing institutions to champion integrity, reinforce legitimacy, and preserve the foundational tenets of good governance.

Doron Goldbarsht, Hannah Harris

To Report or Not to Report? An Analysis of the Relationship Between Defence Against Terrorism Financing Suspicious Activity Reports and Fraud in the United Kingdom

Abstract

To tackle terrorism financing, the United Kingdom has implemented the global mechanisms introduced by the United Nations and the Financial Action Task Force. The ensuing legislative provisions have forced terrorism financiers to adapt their funding mechanisms and move away from their traditional funding sources. Consequently, terrorists can obtain funding by committing fraud, often without detection. While efforts have been made to identify new typologies and adapt relevant legislation, the link between fraud and terrorism financing is misunderstood. This chapter provides a novel investigation and identifies a new terrorism financing fraud typology which will assist in improving our understanding of how terrorists raise and use money. Furthermore, it will also shed a new light on the inadequacies of the United Kingdom’s counter-fraud and counter-terrorism financing reporting mechanisms. In doing so, it will highlight the deficiencies in the use of financial intelligence and the exchange of information from the submission of defence against terrorism financing suspicious activity reports.

Nicholas Ryder

Open Access

Terror on the Blockchain: The Emergent Crypto-Crime-Terror Nexus

Abstract

Inadequate oversight and an inchoate appreciation are giving terrorist groups ready access to transboundary financial transfers by means of virtual currency. This chapter counters the prevailing approach that treats cryptocurrency-enabled crimes, such as terrorism, as monolithic. This chapter demonstrates that terrorist groups are using cryptocurrency and decentralized finance to fundraise and transfer funds in conjunction with the traditional financial system. Since actual case studies are few and data limited, this chapter is a proof of concept: it compares terrorist financing schemes by the Al-Qassam Brigades and Al Qaeda that used virtual assets. The comparison of virtual assets being used finds that standards developed and recommended by the Financial Action Task Force (FATF) are wholly inadequate to contain the proliferation of decentralized finance technology and centralized virtual assets as drivers of the global Illicit International Political Economy (IIPE). FATF recommendations are not sufficiently nuanced, nor are they effective at detecting, disrupting and deterring he nexus of crypto, crime and terror. To make matters worse, FATF members are falling short on implementing even FATF’s inadequate standards. The chapter concludes that FATF needs to: clarify inclusion criteria under the current definition of virtual assets; broaden regulations, improve interagency collaboration, and formulate more nuanced recommendations that are sensitive to crypto-enabled crimes across different criminal activities and criminogenic factors.

Ariel Burgess, Rhianna Hamilton, Christian Leuprecht

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Money Laundering Risks: The Case of Non-fungible Tokens—Key Recommendations for Australia

Abstract

As criminals continue to generate cryptocurrencies via fraudulent means, non-fungible tokens are well suited to act as vehicles to launder such funds outside of the regulatory oversight and protections of the Australian Transaction Reports and Analysis Centre. Unlike cryptocurrency exchanges, non-fungible tokens are currently not regulated directly under the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth). In August 2022, the newly elected Albanese Government announced an unprecedented ‘token mapping’ exercise in order to classify specific crypto assets and identify the gaps in the crypto asset regulatory market. This article aims to answer the question: How could the Australian anti-money laundering regulatory landscape be reformed in order to comply with updated global standards and adequately protect the non-fungible token ecosystem from money laundering exploitation? The first part of this paper presents a technical examination of non-fungible tokens and their ecosystem. Secondly, it is discussed whether non-fungible tokens are able to be utilised by criminals to launder illicit proceeds. Thirdly, drawing upon the normative system of recommendations and updated guidance as outlined by the Financial Action Task Force, Australia’s existing crypto asset regulatory landscape is critically analysed insofar as illuminating a rigid reliance on traditional anti-money laundering measures incongruent with the nascent risks posed by non-fungible tokens and their associated markets. Finally, this paper analyses Australia’s level of technical compliance with customer due diligence requirements and the Travel Rule and recommends incorporating select non-fungible token service providers as regulated entities, requiring the implementation of risk-based Know Your Customer processes informed by a de minimis threshold.

Samuel Orchard

The Legal Design of Domestic MLA Procedures in Southeast Europe: A Comparative Analysis of Serbia, North Macedonia and Bosnia and Herzegovina

Abstract

The chapter explores the domestic legal design of Mutual Legal Assistance (MLA) procedures, analysing individual forms of MLA such as extradition of suspects or convicts, takeover or surrender of prosecution, and execution of foreign judgments. The analysis compares legislation from three countries in Southeast Europe: Serbia, North Macedonia, and Bosnia and Herzegovina. It examines whether two key components of legal design, namely (1) the discretion granted to institutions within the criminal justice system and political establishment and (2) the presence of checks and balances systems within MLA procedures, have a positive or negative impact on MLA policy in practice. The analysis reveals that, although the three countries share many similarities in their legal arrangements pertaining to MLA procedures, there are some variations in specific forms of MLA, in terms of the discretion granted to domestic actors and the presence of checks and balances within the procedure. The findings show that significant discretion given to specific actors within the MLA policy can pave the way for harmful practices such as arbitrariness, uneven application of the law, and potential political abuse. The study also highlights the value of incorporating built-in checks and balances within the MLA procedure to ensure accountability and mutual control mechanisms, confirming that, where such mechanisms are not present, appropriate accountability and control safeguards are missing, enabling potential abuse of power or neglect in handling the MLA procedure. At the same time, it emerges that these checks and balances, whether they include internal review mechanisms, joint decision-making models, and/or approval powers (‘de facto vetoing’), should not be excessive or burdensome to avoid obstructing the MLA processes.

Slobodan Tomic, Elizabeth David-Barrett

Public-Private Collaboration for Combatting Cyber Fraud

Abstract

It is estimated that Australians lost a staggering $3.1 billion to scams in 2022. This figure represents an alarming 80 percent increase compared with the total losses recorded in 2021. This figure is destined to increase in coming years due to the emerging popularity of the metaverse. The growing prevalence of scams in recent years has prompted government, law enforcement agencies, and the private sector to enhance their collaborative efforts in supporting the fight against these fraudulent activities. The current state of cooperation between Police and the private sector in Australia will be discussed, as well as the benefits of and barriers to collaborative work from a private investigations perspective. In addition, options for advancement of processes will be suggested, with a focus on continuing to improve the likelihood of asset recovery for victims. Ultimately, by strengthening the collaborative efforts of government, law enforcement, and the private sector, Australia can take significant strides in mitigating the impact of scams and ensuring the protection of its citizens against fraudulent activities.

Daniel Halpin, Sheri Todd

Policy Conservatism and the Wirecard Scandal

Abstract

Germany is considered the European FinTech champion. The recent Wirecard Scandal has raised concerns over Germany’s financial policy approach and sheds light into how financial crime can be hidden behind innovation. The aim of this chapter is to explain why and when German officials have applied a conservative approach towards financial technologies both from an historical perspective and through policy analyses. In doing so, the chapter case study is the recent Wirecard Scandal. I apply a political economy framework to shed light on the influence of regulation on innovation and the tight network of regulators and financial actors in the innovation system of Germany. Results show that regulatory avoidance can be hidden behind German’s regulatory architecture where the centralization of powers within BaFin supervisory authority limited the foresight of the Wirecard Scandal.

Alfio Puglisi

Global Standard-Setting on Financial Crime: Navigating Challenges

Abstract

The chapter considers some of the challenges relating to global standard-setting to combat financial crime. It identifies the need for research about the drivers behind the standard-setting processes, the abuse of global standards by authoritarian governments to justify oppressive measures, and challenges regarding enforcement of compliance.

Doron Goldbarsht, Louis de Koker

Title: Financial Crime, Law and Governance
Editors: Doron Goldbarsht
Louis de Koker
Publisher: Springer Nature Switzerland
Electronic ISBN: 978-3-031-59547-9
Print ISBN: 978-3-031-59546-2
DOI: https://doi.org/10.1007/978-3-031-59547-9