Chapter 3: The Licensing Process and AML/CFT Due Diligence
BOX 3.1
Two Examples of Money Laundering Schemes in Banks Controlled by Criminals (Continued )
Russian federation in the 1990s According to the United Nations Office for Drug Control and Crime Prevention (“UNODCCP”), “the Russian federation law enforcement agencies estimated that by the end of 1998, organized crime controlled about half of commercial banks, 60 percent of public and 40 percent of private businesses.” “The control over banks enables an easy generation of illicit proceeds. It significantly simplifies criminal actions (for example, extortion or kidnapping for ransom) against the bank’s customers. It also facilitates the criminal penetration into other sectors of the economy, as it simplifies the financial servicing of criminal operations. For money laundering activities, the control provides a long term advantage and considerable protection in the event that banking regulations are imposed. When the criminal organization itself owns and runs a bank, even the most stringent regulation would not contribute much to curbing money laundering. “It is not necessary to worry about suspicious reports when one owns the bank”.
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Source: UNODCCP (2001), Russian capitalism and money laundering.
examples also illustrate how useful banks can be to criminals for laundering the proceeds of their criminal activities. The proper design and implementation of licensing requirements therefore constitutes a key building block of an effective AML /CFT regime. The licensing process is typically undertaken either by the banking supervisor or by a specific licensing authority. In the latter case, the AML /CFT supervisor has to have adequate cooperation arrangements with the relevant authority2 to have its views taken into account and to have access to adequate information. The prohibition of criminal involvement in banking must apply to direct control through direct ownership and to indirect control, through beneficial ownership, of a significant or controlling interest in a bank. Furthermore, this prohibition must apply to holding a management function in a bank.
2.2 The Basel Committee on Banking Supervision Sets Minimum Licensing Requirements Principle 3 of the Basel Core Principles for Effective Banking Supervision (BCP) sets out minimum criteria for the licensing of banks. The principle states that the 47