Agency

Office of the Superintendent of Financial Institutions

Title

Policies and procedures (guidelines and best practices) to prevent and deter money laundering through banks in Canada

First regulatory agency in Canada to use its mandate to address money laundering through prevention, detection, and enforcement support

In 1990, OSFI issued a Best Practices document that was intended to guide the financial community in policies that would serve to identify suspicious transactions. During the same year, a federal study of money laundering control in Canada (Beare and Schneider, 1990) stated that while the OSFI has yet to develop formal policies in the area of money laundering, it has taken concrete steps to address the problem.

The initial focus of OSFI in this area was on encouraging financial institutions under its supervision to "maintain and strengthen internal rules and procedures to detect money laundering and to urge full cooperation with law enforcement agencies investigating money laundering activities" (Mitchell 1989: 2). To this end, OSFI adopted standards set by the Bank for International Settlements. These standards, adjusted for Canada, are contained in an OSFI document entitled The Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering, which was circulated to all financial institutions regulated by OSFI.

Beginning in the early 1990s, the Deposit-Taking Institutions Division of OSFI has undertaken initiatives to encourage the development of policies and programs within chartered banks to address money laundering.

Since the late 1980s, the OSFI has played a supporting role (when necessary) on RCMP proceeds of crime enforcement. The role of OSFI in a money laundering investigation is to ensure that there is no threat to an institution's solvency and that consumer confidence remains strong.

The 1990 federal money laundering study (Beare and Schneider, 1990) acknowledged that despite its logistical and legislative strengths, OSFI's powers are confined mainly to a reactive role. The OSFI acknowledged that it "is not geared to detect such activities as money laundering by clients or non-clients" of banking institutions (Mitchell 1989: 2). It has few mechanisms to detect and deter money laundering before it occurs. This weakness derives from its limited mandate and a regulatory approach that concentrates mainly on analyzing aggregate data.

Since the 1990 study, OSFI has developed more formal polices and directives for the prevention and detection of money laundering through regulated companies. Most significantly, in 1996 a document entitled Guideline: Deterring and Detecting Money Laundering was issued by OSFI. This document outlines guidelines that all federally regulated deposit-taking institutions are expected to implement, although these measures are not mandated by law.

The 34-page document includes:

• Definition of money laundering;
• An outline of relevant Canadian legislation;
• Guidelines specifying that a formal statement of policy from each financial institution’s Board of Directors or senior management should enunciate the institution’s commitment to combat the abuse of its facilities for the purpose of money laundering;
• Confirmation that adherence to the ‘Know Your Customer’ policy remains the best measurement of the strength of internal controls against money laundering;
• The requirement that each financial institution must designate a senior officer to be responsible for anti-money laundering processes;
• A description of the retention of transaction records;
• Instructions for drawing up a list of customers who regularly deal in large amounts of cash and who could be exempted from the reporting requirements;
• Instructions for the maintenance of a central record keeping system that would allow OSFI to carry out an efficient review of the records and allow the banks to report on their money laundering deterrence and detection procedures;
• A requirement that each financial institution develop a process to disclose suspicious transactions promptly both internally to senior management and externally to the RCMP;
• A requirement that all financial institutions provide appropriate training for personnel handling transactions and that all employees be made aware that they have a statutory obligation to cooperate;
• A requirement that when dealing with wire transfers, information on the identities of the individuals ordering, receiving, or benefiting from the transfer should be completed;
• A warning against ‘tipping off’ a customer about police investigation; and
• A warning against ‘pass through’ accounts that would allow clients of foreign banks to conduct financial transactions in Canada.

For emphasis, the guidelines add: "It is imperative that when a financial institution has an absence of factual information to negate any suspicion, the suspicious transaction should be reported to the local Proceeds of Crime Section of the RCMP without delay."

The document also states that regulated institutions should be prepared to provide information or material on money laundering deterrence and detection procedures to OSFI examiners at their yearly examination and upon request during the year.

Since 1996, OSFI has not undertaken any additional measures to address the problem of money laundering. Any future role of OFSI in combating money laundering will be contingent upon the new suspicious transaction reporting legislation (Bill C-22). This role will most likely be ensuring that its regulated institutions comply with the new legislation. However, the specific role of OSFI in relation to the new legislation has yet to be defined.

Sources

Personal communication, Compliance Division, OSFI; OSFI Internet web site www.osfi-bsif.gc.ca; OSFI (1996) Deterring and Detecting Money Laundering. Reference: Guidelines for Banks, Trust and Loan Companies and Cooperative Credit Associations. Ottawa: OSFI, September; Beare, Margaret and Stephen Schneider (1990) Tracing of Illicit Funds: Money laundering in Canada. Ottawa: Solicitor General of Canada; Mitchell, Robert (1989). Money Laundering and the Law. Presentation to Schedule "B" Banks. Canadian Bankers Association Conference: January.

Agency

Federal Reserve Board

Title

Anti-money laundering program: guidance for and compliance examinations of banks

Lead federal regulatory agency in combating money laundering; one of the few national monetary authorities to incorporate money laundering issues into its mandate.

Description

The Federal Reserve Bank (FRB) was founded by Congress in 1913 to safeguard a secure monetary and financial system in the US. The four main tasks of the Federal Reserve System are to:

• conduct the nation’s monetary policy;
• supervise and regulate banking institutions and to protect the credit rights of consumers;
• maintain the stability of the system; and
• provide certain financial services to the U.S. government, the public and foreign official institutions.

As part of its mandate, the FRB has initiated a number of anti-money laundering initiatives and is considered one of the lead federal regulators in the U.S. in combating this problem.

Among the anti-money laundering activities of the Federal Reserve Board are:

• the development of anti-money laundering guidance provisions for regulated banks;
• examination of institutions for compliance with the Bank Secrecy Act (BSA)^[1];
• conducting money laundering investigations;
• providing advice to U.S. law enforcement agencies for investigations and training; and
• providing training to foreign central banks and government agencies.

One of the principal activities of the Federal Reserve is to ensure its regulated banks comply with BSA requirements. Compliance audits are conducted by over 700 bank examiners, who are responsible for reviewing the operations of some 1,300 financial institutions in the U.S.. In addition, FRB regulations require financial institutions to provide for independent testing of BSA compliance by bank personnel or an outside party.

The principal objective of the Federal Reserve Board BSA examination is to determine whether banks have established and maintain adequate compliance programs and management information systems to detect the possibility of money laundering. Specifically, the Federal Reserve conducts examinations to evaluate whether banks have adequate systems in place to:

• detect and report suspicious activity;
• comply with BSA requirements;
• establish account opening and monitoring standards;
• understand the source of funds for customers opening accounts;
• verify the legal status of customers; and
• identify beneficial owners of accounts.

In its BSA compliance examination, the Federal Reserve begins with a review of policies, procedures and internal controls, which may be followed by more in-depth procedures in areas of higher risk. This review helps determine whether a bank should implement additional policies, procedures, systems or controls to comply with the BSA, and to prevent, detect and report money laundering. If the Federal Reserve identifies significant weaknesses in the bank's internal controls, they will use their supervisory authority to ensure that the bank takes appropriate corrective measures. Similarly, if the Federal Reserve uncovers significant risks, it will take steps to ensure that the bank is properly managing those risks.

At the next scheduled exam, or sooner, compliance examiners will evaluate the adequacy of the corrective action of the bank.

The Federal Reserve is one of many federal banking regulators that can revoke the licence of a domestic or foreign bank if it is convicted of money laundering.

On July 12, 1999, the Federal Reserve Board issued the first guidance ever dispensed by an U.S. regulatory agency on how the private banking sector can deter and prevent money laundering. The guidelines emanated from a special examination by the New York Federal Reserve Bank of some 40 New York City banks that offer private banking services. In a one-year period, examiners reviewed a cross-section of commercial banks, U.S. branches of foreign banks, and trust companies. From that work flowed a set of "sound practices" that "reflect the type of . . . controls essential to minimize reputational and legal risks and deter money laundering." The sound practices are outline in a 16-page document entitled Guidance on Sound Risk Management Practices Governing Private Banking Activities.

Sources

Interview, Richard A. Small; Federal Reserve Board Internet web site www.federalreserve.gov; Board of Governors, Federal Reserve Board. (1997) Bank Secrecy Act Examination Manual, Washington, DC.; Small, Richard (1999) Vulnerability of Private Banking to Money Laundering Activities. Testimony before the Permanent Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate. November; "Fed gives first guidance to private bankers to deter laundering'." Money Laundering Alert 8(11):1 August, 1997; "Bank of New York, regulators form compliance plan on money laundering." Dow Jones. February 9, 2000.

Agency

New York State Department of Banking

Title

Anti-money laundering programs by state banking regulator

Significant proactive and reactive measures to address money laundering in regulated institutions; criminal investigations by a regulatory agency; involvement in money laundering joint force operations with law enforcement agencies

Description

The New York State Banking Department is the primary regulator for state-licensed and state-chartered financial entities, including domestic banks, foreign bank branches, savings institutions and trust companies and other financial institutions operating in New York including mortgage bankers and brokers, check cashers, money transmitters, and licensed lenders, among others.

The Department's legislative mandate is to insure the safe and sound conduct of these businesses, to conserve assets, to prevent unsound and destructive competition, to maintain public confidence in the banking system, and to protect the public interest and the interests of depositors, creditors and shareholders. Almost 73 percent of the agency's 534 full-time employees are bank examiners.

The Banking Department has incorporated into its mandate and operations a focus on money laundering. The operational activities can be demarcated into three categories:

• ensuring state-charted institutions have anti-money laundering prevention and Bank Secrecy Act (BSA) compliance programs in place;
• conducting criminal investigations into money laundering at state-chartered institutions; and
• levying administrative and criminal sanctions, including suspending and revoking licenses.

The Banking Department’s proactive role involves ensuring its regulated members have programs in place to combat money laundering and comply with federal and state currency and suspicious transaction reporting regulations. In particular, through its periodic external examinations it ensures that regulated institutions comply with Bank Secrecy Act provisions. This function is carried out by the Examinations Bureau and the Criminal Investigations Bureau.

Through the Criminal Investigations Bureau (CIB), the Department conducts investigations into criminal activity involving state-chartered institutions and licensed entities. Through this mandate, it interacts with other regulatory, law enforcement and prosecution agencies. In this context, the CIB has become involved in joint force operations with law enforcement agencies. The most notable is the El Dorado Money Laundering Task Force, which is comprised of personnel from the United States Customs Service, the Internal Revenue Service, the New York City Police Department, and the New York State Banking Department. The Task Force has enjoyed recent success in identifying and prosecuting money laundering through money transmitters. The CIB also conducts background investigations on applicants for charters and licenses.

The Department uses its considerable regulatory power to evoke penalties against regulated institutions, including suspending and revoking state licenses to conduct banking and other financial intermediary services. It also has the power to force state-chartered institutions to adopt or modify security and compliance programs to adhere to relevant federal and state regulations. These powers were most recently applied to the Bank of New York (BONY) in reaction to the discovery of an extensive money laundering operation at the BONY. In a written agreement with the Banking Department and the Federal Reserve, the BONY agreed to a number of enhancements to its money laundering prevention and compliance program (summarized below):

• To submit to the Department and the Federal Reserve an acceptable enhanced customer due diligence program, which shall be designed to reasonably ensure the identification and the timely, accurate, and complete reporting of known or suspected criminal activity against or involving BONY to law enforcement and supervisory authorities as required by suspicious activity reporting regulations;

• Within 10 days after the end of each calendar quarter, BONY shall provide to the Reserve Bank and the Department updates regarding their Anti-Money Laundering Oversight Committee, which shall include information concerning customer accounts selected for review and the subsequent actions taken with regard to the reviewed accounts;

• Within 60 days of this agreement, BONY shall submit to the Reserve Bank and the Department an acceptable plan describing the steps that BONY will continue to take to strengthen compliance with regard to anti-money laundering procedures and suspicious activity reporting within BONY; and

• Within 45 days of this agreement, BONY shall submit to the Reserve Bank and the Department an acceptable plan outlining the steps that BONY will continue to take to strengthen its risk management environment pertaining to funds transfer and cash management products.

Sources

New York State Department of Banking, web site, www.banking.state.ny.us; "Banking Department Suspends License Of Money Transmitter." NY State Banking Department Press Release, October 31, 1997; Written Agreement By and Among Bank Of New York, Federal Reserve Bank Of New York and New York State Banking Department, February 8, 2000.

Agency

Securities and Futures Commission

Title

Guidelines issued by Hong Kong securities regulators to industry participants to detect and prevent money laundering

Innovations

Focus on organized criminal activity (money laundering) by securities regulatory body; awareness-raising and education of industry on money laundering

Description

In 1997, the Securities and Futures Commission of Hong Kong issued guidance notes for industry participants which provide a general background on the subject of money laundering, summarizes the main provisions of applicable anti-money-laundering legislation in Hong Kong, and provides guidance on the practical implications of that legislation for the securities industry.

This Guidance Note is intended for use by securities dealers, investment advisers, commodity trading advisers, and foreign exchange traders.

The comprehensive document is divided into four sections:

1. Background (the nature of money laundering, stages in the money laundering process, potential uses of the securities, futures and leveraged foreign exchange business in the money laundering process and recent international initiatives);
2. Legislation covering money laundering in Hong Kong;
3. Policies and procedures expected of registered persons and licensed traders in Hong Kong (including client identification, record keeping, retention of records, recognition and reporting of suspicious transactions, procedures for disclosure, and education and training); and
4. Appendices (including examples of suspicious transactions in the securities market, sample letter acknowledging disclosure of money laundering, and a sample status report from Police Department disclosing a person investigated for money laundering).

Sources

Securities and Futures Commission of Hong Kong (1997) Money Laundering. Revised Guidance Notes Issued By The Securities And Futures Commission, July.

Agency

The Waterfront Commission of New York Harbor

Innovations

Comprehensive approach to TOC in a high-risk sector; centralization of regulatory and enforcement powers in one agency

Description

Control of maritime ports has long been a goal of organized crime groups. A presence on the waterfront allows criminal organizations to facilitate the movement of contraband into and out of ports and divert legitimate products into the black market. This is no different in Canada; a recent report by the Criminal Intelligence Service Canada (1999) states that "criminal organizations are entrenched with the infrastructure of Canada’s maritime ports."

The Waterfront Commission of New York Harbor, created in 1953 as a result of pervasive corruption in the Port of New York-New Jersey, is a unique law enforcement and regulatory agency with jurisdiction over the piers in both New York and New Jersey. The Commission not only guards against criminal infiltration of the piers, but also regulates the hiring and registration of dock workers in the port to prevent corruptive practices. The statutory mandate of the Commission is to investigate, deter, combat, and remedy criminal activity and influence in the Port of New York-New Jersey and to ensure fair hiring and employment practices.

Responsibility for the everyday operations of the Commission lies with the Executive Director who supervises six divisions, each of which is identified below.

Executive - This Division’s responsibilities include developing and overseeing the implementation of agency policy, legislation and regulations; preparation of annual and special reports; public relations; conducting labor relations with agency unions; formulation of the annual budget; maintaining records and administration of group insurance plans; providing legal advice to the Commissioners; undertaking agency litigation; conducting investigations; and ordering hearings.

Law - Legal counsel in this Division conduct investigations of applicants for licensing and registration to determine if they meet the appropriate legal standards. These attorneys also investigate persons and companies already licensed to ascertain if they have engaged in any violations of law. Hearings are conducted by the Assistant Counsel to determine whether applications should be granted or denied and whether registrations or licenses should be revoked or suspended. Counsel also conducts investigations into waterfront practices at the Port.

Police - This Division is staffed by a Chief, supervising officers, detectives and detective-investigators, all of whom possess full police powers in New York and New Jersey. These officers investigate criminal activity in the Port, analyze organized crime data, perform background checks of individuals and companies that have applied for registrations and licenses, review pier and waterfront terminal cargo protection and security procedures, and maintain the Commission’s licensing and investigative files. The Division also participates in investigations with federal, state, and local agencies.

Licensing and Employment Information Centers - This Division processes applications filed by individuals and firms required to be registered or licensed, supervises the hiring of longshore workers, checkers and pier guards in the Port, and makes employment information available to these dock workers.

Audit and Control - Investigative accountants routinely audit the books and records of licensed firms to guard against violations of federal or state laws, and to ensure that the Commission’s bookkeeping requirements are followed and that assessment reports are correct. The books and records of potential licensees and other individuals and firms under Commission investigation are also examined by these accountants.

Management Information Systems and Administration - This Division provides the agency with important computer, clerical, stenographic, court reporting, messenger and other support services and maintains personnel and attendance records. The proper functioning of the Commission’s computer networks and data bases is entrusted to this Division.

The 1997/98 annual report of the Commission cites specific areas of success, including a "sharp" reduction in individual and organized cargo theft. "When theft has occurred, the Commission’s Police Division has had solid success in apprehending thieves and in recovering valuable stolen shipments." The Commission has also successfully been able to remove dock workers and union officials with ties to organized crime
(The New York Times, October 29, 1998).

Sources

Criminal Intelligence Service Canada (1999). CISC Annual Report on Organized Crime in Canada. Ottawa: CISC; The Waterfront Commission of New York Harbor (1998). Annual Report 1997/98. New York: The Commission; "Report Ties Union Official to the Gambino Crime Family." The New York Times, October 29, 1998.

Agency

New York City School Construction Authority

Title

Office of the Inspector General

A regulatory body created specifically to prevent and deter corruption, fraud, waste and racketeering within the New York school construction industry

Description

When the New York City School Construction Authority (SCA) was created in the late 1980s, it was mandated to improve the physical conditions of schools in the city. Billions of dollars were needed to be spent immediately in the construction and repair of public schools in New York. The challenge was to ensure that the money intended for school construction was not diverted by unscrupulous contractors or organized crime groups, which have long had a presence in this industry. This needed to be accomplished without crippling the building program or slowing the construction process (Thacher,1991).

Traditional law enforcement approaches had not reduced corruption in the New York City construction industry to an acceptable level. As such, the decision was made to create a new kind of office with powers, resources, and roles never before consolidated in or made available to a stand alone crime-control office in the United States. This office is known as the Office of Inspector General (OIG) and it has been given the mandate to protect the multi-billion dollar New York City school construction program from victimization by organized crime groups, fraud, corruption, extortion, wasteful practices and all manner of crimes perpetrated by those doing business with, as well as those employed by the SCA. By reducing corruption, fraud, and wasteful practices, and by supporting civil suits for the recovery of monies that have been lost, the OIG also strives to save the SCA money.

The underlying philosophy of the OIG’s approach to corruption and racketeering in New York City school construction was prevention and deterrence.

Specifically, in pursuing its unique mandate, this new office was built on several principles, which are summarized below.

• One of the OIG’s principal goals would be to prevent and deter corrupt activity. Its operations would have to generate a perception and a reality that wrong-doing would be detected and would result in significant punishment;

• An equally important goal is to block opportunities and reduce incentives to act corruptly;

• Detection and punishment must be creative and multi-faceted:

- Investigations will employ a range of sophisticated auditing, surveillance, undercover operations and stings as well as traditional law enforcement techniques.
- Investigations must not be merely reactive to complaints; rather they must pro-actively scrutinize areas of operations previously identified as prone to corruption or criminal exploitation. In order to be proactive, investigative initiatives must be informed by a comprehensive intelligence base and guided by sophisticated analysis of corruption and crime problems affecting the SCA.
- The OIG relies on a range of sanctions, including criminal prosecutions, civil law suits, civil remedies (forfeiture, treble damages, restitution and injunctive relief) and administrative sanctions (ranging from the withholding of construction progress payments to debarment from future work).

• The OIG has developed its own intelligence operation, including a network of source intelligence (both in the construction industry and within the SCA itself) which will provide information to the Inspector General about criminality affecting the SCA. This information will be maintained and analyzed for both tactical and strategic purposes;

• The OIG is positioned within the SCA so that it could play a major policy role in shaping the SCA organizational structure, as well as in the daily construction operations themselves; and

• While not a statutory law enforcement agency, the OIG works closely with law enforcement agencies, including participation in joint investigations and intelligence projects with relevant local, state, and federal enforcement and prosecution agencies.

The OIG has three parts: an operations division, a counsel’s office, and an administrative support team.

Operations - The Operations Division is comprised of an Investigations Bureau and a Police and Analysis Bureau. These two units combine the tools and expertise of five disciplines: legal, investigative, analytic, accounting, and engineering. The Investigations Bureau is comprised of the Field Investigations Unit and the Criminal Investigations and Prosecution Unit. The Field Investigations Unit is staffed by attorneys, investigators, accountants, and engineering/design audit experts, assisted by tactical analysts from the Research and Analysis Unit. The unit investigates complaints that come to the SCA, as well as initiate its own audits and investigations based upon reports from the Intelligence Unit. The Criminal Investigations and Prosecutions Unit is comprised of personnel from three law enforcement agencies - the New York State Organized Crime Task Force, the New York County District Attorney’s Office, and the New York State Police.

Intelligence - The Intelligence Unit has three responsibilities: (1) to obtain information from a wide array of sources both within and outside of the OIG’s office, (2) to oversee an aggressive field associate program, and (3) to manage the storage and retrieval of intelligence information.

Research and Analysis - This unit utilizes information generated by the Intelligence Unit and by the Field Investigations and Criminal Investigations and Prosecutions Units to prepare two types of (strategic) analytic reports: (1) strategic assessments of patterns of criminal activity that impinge upon the operations of SCA, and (2) systems analyses that identify practices and procedures within SCA operations that create incentives and opportunities for corruption.

The strategic assessments are used by field operations in planning and implementing investigations; the systems analyses will be used to design more effective regulations, practices, and procedures for SCA.

Sources

New York City School Construction Authority web site www.nyc.gov/html/sca/home.html Thacher, Thomas (1991) "Institutional Innovation in Controlling Organized Crime. Reflections on the Recent Integration of Law Enforcement Personnel with Industry Policy Makers in New York City School Construction." in Cyrille Fijnaut and James Jacobs (eds.) Organized Crime and its Containment: A Transatlantic Initiative. Boston: Kluwer Law and Taxation Publishers: 169-182.

Agency

Department of Finance

Title

Bill C-22: Currency and Suspicious Activity Reporting

The Bill was developed after consultations with the provinces, territories, and stakeholders throughout Canada.

According to Federal Government consultation documents, the principal objectives of the legislation are to help law enforcement officials deter and detect the cross-border movement of proceeds of crime by giving them the tools that they need to investigate these activities, and to enhance Canada’s contribution to international efforts to deter and detect money laundering in conjunction with the standards set by the FATF.

Under the proposed legislation, regulated financial institutions, casinos, currency exchange businesses, as well as other entities and individuals acting as financial intermediaries will be required to report large volume cash transactions and any financial transactions that they have reasonable grounds to suspect are related to a money laundering offence. As well, individuals and businesses that move large amounts of cash across the border will be required to declare such movements to Canada Customs (now the Canada Customs and Revenue Agency (CCRA)).

As the legislation has yet to be finalized, the types of transactions that must be reported are still unclear. Even after the legislation receives Royal Assent, the type of transactions to be reported will continue to change as the relevant Federal regulations are modified and schedules are continuously issued. Definitions and indicators of "suspicious transaction" specific to different industry sectors will be set out in a series of schedules issued by the Financial Transactions and Reports Analysis Centre of Canada (see below).

The legislation as passed by the House of Commons on May 4, 2000 will include both large volume currency transaction reporting (the threshold amount to be determined in future regulations) and suspicious transaction reporting, whereby institutions and individuals will have to report financial transactions where there are reasonable grounds to suspect it is related to money laundering.

The maximum penalties for failing to report designated transactions under the Bill include fines of up to (CDN)$2 million and imprisonment for up to five years.

In addition, individuals and entities that import, export, or transport currency or monetary instruments with a value above a prescribed amounts (to be set by future regulations) across the Canadian border will be required to report such activities to CCRA. Failure to report may result in the seizure of the cash or monetary instruments being transported.

The proposed legislation also establishes an independent government body to receive and analyze reported information about regulated transactions and cross-border currency movements. This new body, to be known as the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) will be a central repository for information about money laundering activities across Canada. FinTRAC will also have primary responsibility for monitoring the compliance of financial intermediaries with the legislation. It is proposed that this will be conducted through random audits conducted by FinTRAC.

In order to facilitate organized crime enforcement, FinTRAC will have the authority to disclose information related to suspicious financial transactions in limited circumstances to:

• Canadian law enforcement agencies investigating a crime involving money laundering;
• CCRA taxation officials, if the information also relates to a taxation matter^[2];
• Citizenship and Immigration Canada (CIC), if the information also relates to immigration offences^[3];
• Canadian Security Intelligence Service (CSIS), if the information also relates to a suspected threat to national security; and
• foreign law enforcement agencies, if FinTRAC or the Minister of Finance has entered into an agreement with a foreign state or international organization regarding the exchange of such information^[4].

The legislation has met with criticism and opposition. The Canadian Bar Association’s Criminal Justice Section has challenged the federal government on a number of aspects of the legislation, particularly those sections dealing with the disclosure of information (especially as it impacts on attorney-client confidentiality) and the proposed notion of a "suspicious transaction."

Sources

Bill C-22. An Act to facilitate combating the laundering of proceeds of crime, to establish the Financial Transactions and Reports Analysis Centre of Canada and to amend and repeal certain Acts in consequence. Second Session, Thirty-Sixth Parliament, 48 Elizabeth II, 1999. First reading, December 15, 1999.

Agency

United States Treasury Department

Title

Transaction Reporting Legislation, Regulations, and Agencies

First transaction based, regulatory approach to combating money laundering in the world; expansion to businesses outside of the financial services sector

The BSA requires reporting and recording of certain transactions and the retention of specified reports and records. Broadly speaking, the BSA provides four basic tools to identify those who attempt to conceal their participation in crimes where substantial amounts of currency are generated:

• A Currency Transaction Report (CTR) must be filed by banks and other financial institutions whenever a currency transaction over (US)$10,000 occurs. CTRs are filed with Treasury Department agencies and all criminal violations of the CTR reporting requirement are investigated by the Internal Revenue Service (IRS) Criminal Investigation Section.

• A Currency of Monetary Instruments Report (CMIR) must be filed with U.S. Customs Service whenever the value of currency or monetary instruments over (US)$10,000 are transported across U.S. national borders.

• Foreign Bank Accounts Reports (FBAR) must be filed by persons subject to U.S. jurisdiction who have a financial interest in, or signature authority over, a foreign financial account in excess of (US)$10,000.

• Individuals as well as financial institutions may be required to keep certain records up to five years. The purpose of the record retention provision is to ensure a paper trail exists to facilitate money laundering investigations. These records include copies of cheques, drafts, money orders, and customer identification, among others.

Much of the responsibility for administering and enforcing transaction reporting in the United States falls under the Treasury Department, and more specifically the Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN).

In 1984, the IRS was given direct authority to ensure that the receipt of currency over (US)$10,000 by constituent businesses was reported. In response to these responsibilities, the IRS has developed a Anti-Money Laundering Compliance Program which guides examiners in evaluating compliance with the reporting and record keeping requirements of the Bank Secrecy Act and other relevant Internal Revenue Code sections.

According to the IRS Manual Handbook, the Anti-Money Laundering Compliance Program is designed to assist entities in understanding reporting and record keeping requirements and maximize the filing of timely, complete and accurate reports. The three aspects of the program are to:

• ascertain entities required to report and/or record under the Bank Secrecy Act or relevant sections of the Internal Revenue Code;
• notify entities of their reporting and record-keeping obligations; and
• conduct compliance reviews and examinations and assess civil and criminal penalties for noncompliance.

In October 1994, the Treasury Department’s Office of Financial Enforcement was merged with FinCEN to create a single agency for BSA reporting requirements. This includes responsibility for issuing regulations and imposing penalties for a failure to comply. Since 1996, FinCEN has been the sole location for financial institutions to submit Suspicious Activity Reports.

Congress gave the Secretary of the Treasury (sometimes jointly with the Federal Reserve Board) broad discretion to define the entities subject to the law and detail the reports and records to be made and retained.

Since the BSA was enacted, a rash of legislation, regulations, and directives has been introduced, elaborating on and/or broadening the mandatory reporting and record-keeping requirements. In 1986 The Money Laundering Control Act increased penalties for violations of the BSA and added a specific prohibition against structuring transactions to avoid reporting. The U.S. government also broadened the coverage of mandatory reporting to non-bank financial institutions as well as businesses outside of the financial services sector (such as automobile dealerships, casinos, and jewelry stores). The types of transactions covered by CTRs and SARs were also expanded.

Beginning in 1990, financial institutions were required to record the sale or issuance of certain monetary instruments of (US)$3,000 or more.

Electronic wire transfers, a popular tool to move criminal proceeds internationally, is now subject to a number of regulations regarding identification, record-keeping, and reporting. Beginning in 1997, financial institutions and money remitters were required to maintain records and verify the identity of those sending wire transfers of (US)$3,000 or more.

The focus of new regulations in the 1990s also signaled a move away from currency reporting to suspicious activity reports. In 1996, federal regulations took effect that required banking institutions to report suspicious transactions. The SAR regulations require U.S. banks and other depository institutions to report a transaction that the institution "knows, suspects, or has reason to suspect":

• "involves funds derived from illegal activities or is intended . . . to hide or disguise funds or assets derived from illegal activities . . . as part of a plan to violate or evade federal law or regulation or to avoid any (federal) transaction reporting requirement;"

• is designed to evade any BSA requirement (e.g., "structuring" any financial transaction, such as two deposits of $5,000, to avoid reporting requirements); and

• "has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and (the institution) knows of no reasonable explanation for the transaction after examining the available facts" (as cited in Money Laundering Alert, February 1996).

In December 1998, the Federal Deposit Insurance Corporation (FDIC) posted for comment a notice of a proposed federal banking regulation - the "Know Your Customer" (KYC) rule - that would increase the record-keeping, reporting and due diligence requirements of the private sector in relation to its customers. The regulations would require relevant companies and individuals to develop customer profiles and determine the source of funds on deposits not matching the customer's typical banking activity.

Specifically, the proposed regulations would have required financial institution to create customer profiles which:

• establishes the identity of the customer;
• details the sources of funds;
• determines the customer’s normal banking patterns;
• monitors the customers transactions in order to identify inconsistent transactions; and
• determines when the ‘inconsistencies’ constitute a ‘suspicious’ transaction.

However, it was apparent that many viewed these latest regulations as far too intrusive. In less than three months after the proposals were circulated for comment, more than 225,000 letters and e-mails were received by federal agencies. Nearly all opposed the rules, citing an unprecedented invasion of privacy (St. Petersburg Times, June 16, 1999). Based upon this widespread opposition, Congress urged that the regulations be withdrawn and the federal regulatory agencies acquiesced.

Despite the victory of critics of transaction reporting, President Clinton has recently proposed a strategy to fight money laundering that many view as intrusive as the KYC regime. These regulations, which resulted from the recent discovery of massive money laundering in large U.S. banks, impose tighter regulations on financial institutions and includes a requirement that storefront check cashiers, brokerage firms and casinos notify authorities of suspicious activities (The Tampa Tribune, October 3, 1999). These proposals took a step closer to fruition on March 9, 2000, when the Treasury and Justice Departments, announced that by the end of the year, new regulations requiring securities firms to file suspicious activity reports will be introduced (Wall Street Journal, March 9, 2000).

Sources

Langone, Anthony. (1988) "IRS Criminal Investigation Tackles Money Laundering." Police Chief. 55(1): January: 52-54; Internal Revenue Service. (1998) Internal Revenue Service Manual Handbook. HB 9.5. July 30."The Final Rule. Suspicious Activity Reporting: U.S. Suspicion Reporting System Gets Major Transformation." Money Laundering Alert 7(5) February, 1996: 5; "U.S. agencies clash with privacy groups over suspicion reporting." Money Laundering Alert, June 1999, 10(8): 8; "Invading Our Financial Privacy (Editorial)." St. Petersburg Times, June 16, 1999: 16A; "Bankers Can't Be Police Officers." The Tampa Tribune, October 3, 1999; "Administration wants securities firms to help it detect money laundering." Wall Street Journal, March 9, 2000.

Agency

Australian Transaction Reports and Analysis Centre

Title

Cash and suspicious transaction reporting system

Electronic reporting of cash and suspicious transactions; equal emphasis on reporting of both proceeds of crime and tax evasion

Description

Like the United States, the Australian government has also predicated its regulatory enforcement of money laundering through cash and suspicious transaction reporting. Those obligations are contained in the Financial Transaction Reports Act 1988 (FTR) which requires "cash dealers" to report:

• cash transactions of (AUS)$10,000 or more or the foreign currency equivalent;
• cash transfers or international wire transfers into and out of Australia of (AUS)$10,000 or more; and
• suspicious transactions that the cash dealer has reasonable grounds to believe are relevant to evasion of a tax law, investigation, or enforcement of crime.

The legislation also sets standards that must be met by cash dealers, including records that must be completed and maintained, client identification procedures, and verification of the identity of persons who are signatories to accounts. Failure to meet these standards may result in criminal and civil penalties, including imprisonment.

The legislation also stipulates penalties for avoiding the reporting requirements or for providing false or incomplete information by individuals or entities who are transferring or facilitating the transfer of funds. The penalties for non-compliance include both criminal and civil sanctions, including court-ordered injunctive remedies to secure compliance with the requirements.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the agency charged to oversee compliance with the legislative requirements of the FTR. The functions of this agency include the collection, retention, compilation, analysis, and dissemination of FTR information and the provision of advice and assistance to the Commissioner of Taxation in relation to FTR information. AUSTRAC is also responsible for issuing guidelines and circulars to cash dealers about minimum standards and their obligations under the FTR.

AUSTRAC also acts as a source of financial information and financial intelligence, which it disseminates to the Australian Taxation Office (ATO) and law enforcement agencies.

AUSTRAC provides the ATO and specified law enforcement agencies with both general and specific access to the financial information it collects. The general access, governed by memorandums of understanding, is by way of controlled on-line (computer) access to the data and, where appropriate, by extracts of parts of the data holdings. AUSTRAC also provides training to authorized officers from other agencies.

One of the unique features of the Australian FTR system, when compared to that in the United States, is that in addition to identifying the proceeds of crime, it is also geared toward identifying tax evasion.

Sources

Australian Transaction Reports and Analysis Centre www.austrac.gov.au/; AUSTRAC (1999) 1998/99 Annual Report. Sydney: AUSTRAC; John Walker Consulting Services (1999) Estimates of the Extent of Money Laundering in and through Australia. Sydney: AUSTRAC. September.

Agency

Canada Customs and Revenue Agency (CCRA)

In 1972, the federal government directed that Revenue Canada (now CCRA), with the assistance and support of the Solicitor General Canada, represented by the RCMP, to conduct a continuing program of tax audits and investigations into the members of organized crime. The objective is to minimize the accumulation of unreported illicit wealth amassed by persons engaged in these illegal activities and to prosecute significant cases of willful non-compliance.

This initiative evolved into what is now know as the Special Enforcement Program (SEP). As a functional responsibility of the CCRA Investigations Directorate, the SEP performs two functions: (1) help maintain the integrity of the Canadian tax system, ensuring that all tax payers pay their fair share of taxes and are listed on the tax rolls, and (2) target the accumulation of under-reported and unreported illicit wealth attributable to income earned through known or suspected illegal activity by enforcing the Income Tax Act.

With respect to the latter, the SEP’s objective is to investigate people engaged in all types of illegal activities and stop them from accumulating unreported illicit income. The program focuses on income from such profit-oriented criminal activities as drug trafficking, theft, extortion, fraud, bookmaking, prostitution, gambling, and the smuggling of contraband and firearms. The SEP accomplishes this mandate by one or more of the following:

• Locating and identifying an individual and gathering information on illegal activity through close liaison with the RCMP and other police and enforcement agencies;

• Taking enforcement action to ensure individuals file income tax returns and statements of assets and liabilities. People involved in illegal activities often do not file tax returns, and do not pay taxes on their illegal income. They can be prosecuted for these offences. Penalties include fines ranging from (CDN)$1,000 to $25,000 and jail terms to a maximum of 12 months. In addition, CCRA can issue assessments for the taxable income, including penalties and interest;

• Conducting audits if there are signs that taxes can be recovered. In addition to the taxes and interest, CCRA may charge penalties of up to 50 percent of the unpaid taxes for people who knowingly make misrepresentations or omissions on their tax returns; and

• Conducting investigations if there are signs of significant tax fraud. Cases in which there is evidence of offences under the Income Tax Act are referred to the Department of Justice, which may lay criminal charges. Persons or corporations found guilty of an offence on summary conviction are liable for a fine of between 50 and 200 percent of the tax evaded, and imprisonment for a maximum of two years. Persons or corporations found guilty of an offence on indictment are liable to a fine of between 100 and 200 percent of the tax evaded, and imprisonment for a maximum of 5 years.

Currently, the SEP is the main body within CCRA to administer civil and criminal powers that investigate and remove unreported illicit wealth of persons involved in criminal activities. The SEP is primarily an administrative compliance program with most cases being concluded civilly with assessment or reassessments of tax, penalties, and interest.

According to a CCRA official interviewed for this research, 95 percent of charges for tax evasion are successfully prosecuted by the Crown. In 1998, the program raised (CDN) $42 million in taxes and 13 cases were convicted criminally with fines totaling (CDN) $900,000 and 45 months of jail time.

The Investigations Directorate of the CCRA administers the SEP and has investigators located in 29 of the 32 tax services offices across Canada. Through these offices investigators work with RCMP and other police forces to target persons and entities profiting from crime primarily through the enforcement of the Income Tax Act. Potential cases of tax evasion stemming from unreported criminal revenue are often referred to the SEP by police agencies in Canada. According to a CCRA official, a survey of CCRA Tax Service Offices demonstrated that referrals from police are running at approximately 140 percent of current program capacity.

Beginning in 1998, CCRA special investigators have been seconded to the Integrated Proceeds of Crime (IPOC) Units, which is the result of a MOU between the CCRA Investigations Directorate and the RCMP. Sixteen CCRA investigators have now been seconded to IPOC Units throughout the country.

One of the main roles of CCRA investigators on the IPOC units is to identify cases offering tax re-assessment potential for timely referral to the SEP units. (The relationship and information exchange between CCRA and police investigators must comply with the confidentiality provisions of Section 241 of the Income Tax Act.) Another principal role is to provide forensic accounting expertise to the IPOC units.

According to CCRA statistics, six months following the start of this partnership, over (CDN)$35 million in potential tax recoveries had been identified by CCRA personnel on the IPOC Units. Furthermore, tax charges had been laid against five individuals for unreported income of (CDN)$1.5 million.

CCRA taxation enforcement also contributes to money laundering enforcement through its participation in amending the Proceeds of Crime (Money Laundering) Act. The impact of this amendment for CCRA taxation enforcement is that this agency will receive tombstone information from the proposed federal Financial Transaction Reporting and Analysis Centre when a combination of money laundering and tax evasion is suspected.

Finally, the Anti-Evasion Division was established recently within the Investigations Directorate to coordinate and facilitate CCRA’s strategies to counter evasion issues. According to a CCRA official, this coordinated approach, although aimed at all evasion situations, will have an impact on the unreported profits of organized crime.

Sources

Interview and personal communications, CCRA; Solicitor General Canada (1977) Press Release: Minister of National Revenue and Solicitor General of Canada Release Text of 1972 Agreement to Combat Organized Crime: September 29.

Agency

Canada Customs and Revenue Agency (Excise Duties and Taxes)

Title

Enforcement of excise policies to combat contraband and black markets

Use of excise policies and special proactive programs to target contraband smuggling and diversion of in-bond products to domestic black markets

Description

Canada Customs and Revenue Agency (CCRA) is responsible for the development and enforcement of federal excise policies and programs aimed at the manufacture and distribution of controlled goods, in particular tobacco and alcohol products.

Specific responsibilities include:

• Performing audit and surveillance activities at distilleries, breweries and tobacco manufacturers and tobacco packers as well as other manufacturers;
• Performing excise licensee searches;
• preparing affidavits and information statements to support prosecutions;
• providing expert witness court testimony under the Excise Act;
• providing guidance on interpretations and audit verification programs; and
• disposing of assets and goods seized under the Excise Act.

In pursuing its mandate, CCRA has undertaken a number of proactive initiatives addressing the illegal diversion of imported or domestically produced alcohol or tobacco to the black market.

In particular, CCRA operates the following programs:

Tobacco Product Tracking Program—This program collects data on the sale and delivery of tobacco products outside of Canada. The objective of the program is to provide enforcement agencies with sufficient detail to enhance their efforts in reducing the diversion of tobacco into the Canadian black market.

Tobacco Export Verification Program—This program tracks the movement of legal tobacco products and verifies that they are exported. This program was initiated to ensure that exports of tobacco products destined to the United States from licensed Canadian tobacco manufacturers are not diverted to the Canadian black market.

Alcohol Revenue Protection Program—This program tracks and verifies alcohol shipments from domestic distillers to both the domestic and export market. As with tobacco, this program was initiated in response to the diversion to the domestic black market of in-bond alcohol. Current responsibilities of CCRA Officers under this program include conducting surveillance of in-bond alcohol movements, regularly visiting distilleries, monitoring the shipping activities of distilleries, and preparing and reviewing reports.

No empirical data is available that assesses the impact of these special programs on the diversion of in-bond liquor or tobacco to the domestic black market. However, CCRA officials have indicated that the proactive monitoring has enjoyed some success. In one distillery, where an Excise Office had been assigned, the officer noticed a new product that he had never seen before. The distillery stated that this product was for export only. However, this product later turned up in Toronto bars and the appropriate enforcement action was taken.

Source

Personal Interview, Excise Duties and Taxes Directorate, CCRA

Agency

United States Internal Revenue Service

Title

Organized Crime Unit

Innovations

Resources and unit within taxation agency dedicated specifically to organized crime

Description

The involvement of the Internal Revenue Service (IRS) in addressing organized crime began during the era of prohibition, where it was recruited to add another element to combating the highly-profitable underground liquor trade by targeting accumulated wealth through tax enforcement.

Today, the involvement of the IRS in this enforcement area is carried out primarily through the Criminal Investigations Division, and more specifically a special Organized Crime Unit. This unit participates extensively in multi-agency Organized Crime Strike Forces. According to the Internal Revenue Service Manual Handbook, the Strike Forces are directed toward the identification and investigation of taxpayers who derive substantial income from organized criminal activities. Unlike CCRA investigators in Canada, IRS special agents have full peace officer status in the United States.

As a participant in the Strike Force, the IRS has two objectives:

(2) To assess and collect the proper taxes due and to enforce civil sanctions by assessing and collecting applicable penalties.

In general, the Strike Force will designate and investigate case subjects who are:

• engaged in organized criminal activities, with particular emphasis on the principal figures involved in organized crime groups;
• receiving substantial income from illegal activities;
• infiltrating legitimate businesses through illegal means; and
• believed to be receiving substantial income from an illegal activity that is separate and apart from the alleged tax violations, such as corruption in government, welfare fraud, or commercial bribery.

Investigations undertaken by the IRS in the context of a Strike Force are solely IRS operations. At all times, control of the investigation is under the authority of the Commissioner of Internal Revenue or delegate. Upon initiation of an IRS investigation, the IRS advises the Department of Justice attorney in charge of the Strike Force that the IRS will be conducting an investigation believed to qualify for inclusion in the Strike Force. The IRS will then request from the Strike Force any information within its files which may have tax administration consequences or will in any way assist in the investigation.

In addition to its work in targeting organized crime figures through a tax investigation, one of the primary enforcement and regulatory functions of the IRS concerns money laundering. To this end, a function of the IRS is to enforce the Bank Secrecy Act, as detailed earlier in this report.

The IRS pursues its enforcement mandate on an international basis. In 1994, The Criminal Investigative Division developed and implemented a strategy to address international law enforcement objectives.

The strategy calls for the assignment of special IRS agents to strategic foreign posts for the purpose of:

• facilitating the development and utilization of information obtained in host foreign countries to support investigations over which IRS Criminal Investigations has law enforcement responsibility;
• providing assistance to foreign governments in establishing or enhancing money laundering, criminal tax, and asset forfeiture statutes;
• assisting foreign governments in developing and improving exchange of information agreements;
• conducting tax, money laundering and financial investigative techniques training courses for host governments; and
• establishing contacts with foreign law enforcement officials in the regions where they are assigned.

During fiscal year 1998, IRS Criminal Investigations had special agents or attachés assigned to permanent positions in Colombia, Mexico, Germany, Canada, and Hong Kong. These agents are working closely with investigators responsible for investigating similar crimes throughout the world.

Sources

Internal Revenue Service Internet web site www.irs.Treas.gov; Internal Revenue Service (n.d.) Internal Revenue Service Manual Handbook Hb 9.5 07/30/98; IRS Criminal Investigation Division. 1998 Annual Report. Washington, DC: 1998; James Calder. (1992) "Al Capone and the IRS: State Sanctioned Criminology of Organized Crime." Crime, Law and Social Justice 17(1): 1-23

Agency

Department of Justice

Title

Racketeering Influence and Corrupt Organization Act

Treatment of criminal enterprise as a prohibited commercial activity; civil forfeiture of assets used in criminal circumstances

Description

The United States has taken the most aggressive steps in applying civil sanctions against individuals involved in organized crime. At the federal level, the Racketeer Influenced Corrupted Organization (RICO) Act represents one of the most far-reaching tools in organized crime enforcement in the United States.

RICO was developed in response to the deficiencies of the 19^th century criminal trial model that was geared to deal with street crimes, but not sophisticated organizations. RICO addressed those crimes in which large numbers of criminals were involved and where crime group leaders are insulated by an echelon of low level members.

RICO makes it unlawful to acquire, operate, or receive income from an enterprise through a pattern of racketeering activity. Civil RICO injunctions can, for example, prohibit individuals from owning or becoming involved in businesses or certain activities, thereby providing civil injunctive barriers to the involvement of organized crime figures in legitimate or illegitimate organizations.

Under RICO, district courts have the power to:

• order any person to divest himself of any interest, direct or indirect, in any enterprise;
• impose reasonable restrictions on the future activities of investments of any person; or
• order dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons.

One of the most far-reaching and controversial provisions of RICO allows the government or a private citizen to file a civil suite requesting the court to order sanctions or to provide injunctive relief against an individual or corporation involved in racketeering. This provision allows for the government or private citizens victimized by a defendant to sue civilly to recoup treble damages. These enhanced criminal remedies and treble damage civil recovery are applicable when an "enterprise" is involved in a "pattern of racketeering activity." This means that any individual or group who commits two or more indictable offenses within a 10-year period is subject to 20 years imprisonment, fines up to (US)$25,000, forfeiture of any interest in the enterprise, as well as dissolution of the enterprise itself.

In contrast to criminal prosecutions, where the burden of proof is beyond a reasonable doubt, only the lesser standard of proof - a preponderance of evidence - is required under RICO. Moreover, a criminal conviction is not a prerequisite for injunctive relief under the civil RICO statute (Guiliani, 1986). Officials can also seize property without notice, upon an ex parte application (without hearing the defendants case) of probable cause that the property has been involved in a crime. No person need be charged.

One of the central civil sanctions of the RICO statute is asset forfeiture, which has increasingly become a critical weapon in the fight against organized crime and narcotics trafficking in particular. The Comprehensive Drug Abuse Prevention and Control Act of 1970, strengthened civil forfeiture as a means of confiscating illegal substances and the means by which they are manufactured and distributed. In 1978, the United States Congress amended the statute to authorize seizure and forfeiture of the proceeds from narcotics trafficking in violation of federal law. The statute provides for the forfeiture of "all moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance [as well as] all proceeds traceable to such an exchange." By expanding the type of property subject to seizure, 21 U.S.C. Section 881(6) gave prosecutors their first effective civil mechanism for striking at the profits of narcotics trafficking. Through this law, Congress sought to provide law enforcement with a way to disgorge criminal enterprises of their profits. Significantly, by authorizing forfeiture through civil proceedings against contraband or property used during the commission of a crime, RICO went well beyond traditional forfeiture statutes that apply criminal sanction against the perpetrator.

There are several circumstances where civil asset forfeiture is the most effective method of removing the instrumentalities and profits from narcotics trafficking. Since criminal forfeiture requires the conviction of the violator, it is not available in cases where the drug trafficker is a fugitive, deceased, or resides outside the reach of U.S. extradition laws or when assets are in the possession of a third party or entity which may in fact be unaware of criminal activity. However, civil forfeiture can be successful after proving, by a preponderance of the evidence, that the asset either represents the proceeds of criminal activity or was intended as a payment for narcotics (Fiano, 1999).

The enactment of the RICO statute has resulted in the successful prosecution of many high level organized crime figures over the years. Beginning in 1980, use of civil RICO mushroomed in the U.S.; the inclusion in the statute of mail, wire, and securities fraud as predicate acts afforded plaintiffs the opportunity to use the statute’s civil provisions in contexts its drafters had probably never contemplated.

In response to these alleged abuses, defendants and judges sought ways to limit civil RICO by limiting the definition of an enterprise that is critical to establishing "racketeering" activities of defendants (Gardiner, 1988). In June 1999, the US House of Representatives passed the Civil Asset Forfeiture Reform Bill was backed by both Republican and Democratic leaders of the House and Senate Judiciary committees and backed by such diverse groups as the U.S. Chamber of Commerce and the American Civil Liberties Union. The Senate has subsequently passed the Bill, and the president is expected to sign it. The Bill shifts the burden onto the government, which must prove, by clear and convincing evidence, that property seized was derived from crime. In addition, if it is alleged that property is an instrument of crime, all federal forfeiture statutes would have to incorporate a defence for innocent owners. The Bill also allows federal judges to release property to the owner if continued government possession causes substantial hardship to the owner. It extends the time a property owner has to challenge a seizure in court and ends the requirement that a person seeking to recover property post a bond with the court worth 10 percent of the property value. 

Sources

18 U.S.C. Section 1961 et seq. (1976); 21 U.S.C. Section 848 (1983); Russello v. United States, 464 U.S. 16, 27-28 (1983); S. Rep. No. 617, 91st Cong., 1st Sess. 78 (1969); Flittie, William J. (1975) "Civil Restraints: Another Weapon for the Battle with Organized Crime." Police Chief. 42(2): February: 66-70; North, Donald V. (1988) "RICO: A Theory of Investigation." The Police Chief. 55(1): January: 44-47; Giuliani, Rudolph. (1986) "Legal Remedies for Attacking Organized Crime." in Herbert Edelhertz. (ed.) Major Issues in Organized Crime Control. Washington: U.S. Department of Justice; Gardiner, Michael A. (1998) "The Enterprise Requirement: Getting To The Heart Of Civil Rico. "Wisconsin Law Review 1988 Wis. L. Rev. 663 (July/August); Clark, (1976) "Civil and Criminal Penalties and Forfeitures: A Framework for Constitutional Analysis." 60 Minn. L. Rev. 379; Maxeiner (1977) "Bane of American Forfeiture Law Q Banished At Last?" 62 Cornell L. Rev. 768 ; The National Governors' Association, et. al. (1999) "State Laws And Procedures Affecting Drug Trafficking Control: A National Overview." GAO Report HR-99-1 January: 73-77; Fiano, Righard (1999) "Statement by Richard Fiano, Chief of Operations Drug Enforcement Administration United States Department of Justice at the Senate Judiciary Committee, Subcommittee on Criminal Justice Oversight." July 21, 1999; "Asset Forfeiture Bill Approved." Associated Press. April 12, 2000.

Agency

South Africa Department of Justice

Title

Civil forfeiture provisions of the Prevention of Organised Crime Act

Codification of civil forfeiture provisions in criminal legislation that attempt to minimize the abuses that have emerged in the U.S. RICO laws

Description

As part of sweeping new legislation entitled Prevention of Organised Crime Act, the South African government has codified into law the concept of civil forfeiture of assets suspected of being derived from criminal activities.

The legislation provides for the seizure of property by the state where a "reasonable suspicion" exists that it constitutes the proceeds of crime and the owner is unable to provide a satisfactory explanation of its origin. According to Chapter Six of the legislation "The rules of evidence applicable in civil proceedings apply to proceedings under this chapter," meaning that forfeiture is a civil action by the state, and not a criminal one, and so reduced standards of evidence apply.

While largely based on the RICO statute, the civil asset forfeiture provisions of the South African law also incorporates some of the recent reforms proposed in the U.S. Although no person need be found guilty of a criminal offence, this legislation places the onus on the state to prove on a balance of probabilities that the property is an instrumentality of an offence or the proceeds of unlawful activities.

In one recent case, a civil forfeiture was unsuccessful in part because the