1. The evolution of money laundering and AML/CFT measures
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KEY WORDS |
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administrative offence |
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laundromat |
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Al Capone |
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Meyer Lansky |
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anti-money laundering (AML) |
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mob |
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bootlegging |
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money laundering (ML) |
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criminal offence |
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predicate offence |
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extortion |
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racketeering |
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FATF Recommendations |
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tax evasion |
• Financial Action Task Force |
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U.S. Bank Secrecy Act |
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(FATF) |
• U.S. Money Laundering Control |
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gambling |
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Act |
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international convention |
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Warsaw Convention |
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international organization |
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Watergate Scandal |
KEY QUESTIONS
•When did activities indirectly related to money laundering first appear?
•List the three main stages of the money laundering evolution.
•What is the difference between possessing proceeds of a criminal or an administrative offence?
•How did Al Capone become an influential mobster?
•What did Al Capone do during prohibition?
•Why was it not possible to convict Al Capone for bootlegging, racketeering, extortion, and sexual exploitation?
•Is Al Capone’s commingling of funds in the laundromat business a fictitious story?
•What was Al Capone convicted of?
•What arguments did Al Capone’s defense use during the trial?
•How did Al Capone’s conviction relate to contemporary money laundering charges?
•How did Meyer Lansky become the “Mob’s Accountant”?
•When and why did Meyer Lansky acquire a gambling franchise in Cuba?
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•Why did Meyer Lansky use a bank in Switzerland to channel his money?
•Meyer Lansky was convicted of which crime? How was he penalized?
•What was the purpose of transferring funds to Mexico during the Watergate Scandal?
•When did the term “laundering”, with reference to money, first appear?
•What was the first national law to limit bank secrecy? What were the banks required to do under this law?
•When did the term “money laundering” first appear in judicial context?
•When and where was the first AML law passed?
•List the three requirements for banks enacted by the U.S. Bank Secrecy Act (1970).
•Name the first international convention to cover issues related to money laundering? What was the purpose of the convention?
•List four main statements of the U.S. Money Laundering Control Act (1986).
•Name the first convention to set up AML measures. List the measures.
•When did the first international AML standards appear? Which areas did they cover?
•Which body passed the first international AML standards? Which areas did they cover?
•What is the purpose of confiscating the proceeds from illicit trafficking of drugs (by the Vienna Convention)?
•Which international conventions dealt with issues of transnational organized crime and corruption?
•When did the first sources of international law, related to countering the financing of terrorism, appear? List these sources.
•What is the Warsaw Convention (on AML/CFT issues), and why was it adopted?
•When were the FATF Recommendations last revised? Why?
•How were the FATF Recommendations restructured in 2012?
•What was the reason for the revision of the FATF Recommendations in 2012?
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1.1. A brief history of money laundering
Money laundering activities in the narrow and broad senses
1. Al Capone, 1920–30s
2. Meyer Lansky, 1930–50s |
3. Watergate Scandal, 1973 |
The processing of criminal proceeds to disguise their illegal origin
The possession of criminal proceeds
E.g. income tax evasion
The possession of the proceeds of an administrative offence 
Hiding assets from a ruthless ruler who levies heavy taxes or tries to confiscate the assets
The origin of money laundering. Sterling Seagrave in his “Lords of the Rim” (1996) writes that in 2000 B.C. Chinese merchants banished their wealth by investing it in remote provinces or even outside the country.
Some countries use this approach, therefore unlicensed taxi-cab drivers, private tutors, flea-market traders, etc. should be prosecuted for ML
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1.2. The first stage of ML evolution: Al Capone tax evasion charges
Al Capone was born in 1899; by
1920 he became an influential lieutenant in the mob
During prohibition (1920s) the mob started illegal brewing, distilling and distributing beer and liquor
Gangsters were earning huge sums of cash from bootlegging, racketeering, extortion, and sexual exploitation
The evidence was insufficient to convict Al Capone for commission of predicate offences
The mob has acquired interests in legitimate business in the cleaning (a cash business) and dyeing field
Illicit earnings were mingled with receipts from the laun-
dromat business and then paid
Cash back to the mobsters, making 
an impression of legitimate in-
come
The U.S. Treasury Department had been developing evidence on tax evasion charges
Al Capone’s expenditures were far beyond his legitimate income; the amount of money processed via the laundromat was insufficient to jus- 
tify his income
The FBI agents obtained statements to the effect that Capone had attended race tracks in the Miami area, that he had made a plane trip to
Bimini and a cruise to Nassau
The defense argued that the government cannot impose legal taxes on criminal proceeds
On October 18, 1931 Al Capone was convicted for tax evasion. Later he was sentenced to eleven years in federal prison, fined $50,000 and charged $7,692 for court costs. The back taxes amounted to $215,000 plus interest due.
In 1939 Al Capone was released after having paid all fines and back taxes.
During the confinement he deteriorated greatly from syphilis. Having the mentality of a 12-year-old child, Al Capone became incapable of returning to gangland politics, and died in 1947.
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