Methods & Trends

Overview

Corruption is a significant issue in the global economic system and can lead to increased poverty, destabilisation of governments, diminished economic performance and social inequality. Furthermore, corruption and ML are intrinsically linked - by successfully laundering the proceeds of a corruption offence, such as bribery or theft of public funds, the illicit gains may be enjoyed for private gain without fear of being confiscated. For these reasons, over the years APG typologies work including the collection of case studies has includes a focus on understanding emerging risks, trends and contextual issues associated with laundering the proceeds of corruption.

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Scope of Corruption in the Asia/Pacific Region

A recent survey by Transparency International found that one in four persons surveyed have paid a bribe to access public services. When extrapolated to the population, over 900 million people across the Asia Pacific region had paid a bribe in the past year in order to access basic services such as education or healthcare. Furthermore, results of the 2016 Corruption Perceptions Index show that majority of Asia Pacific jurisdictions sit in the bottom half of the index with 19 out of 30 jurisdictions in the region scored 40 or less out of 100 (see Transparency International

These findings are reflected in APG members’ national ML/TF risk assessments with a number of members highlighting corruption as a higher-risk ML threat and mutual evaluation (ME) teams paying particular attention to corruption issues in APG 3rd round ME reports.

International standards on combating money laundering and the financing of terrorism & proliferation

While the international standards are designed to combat ML, TF and PF because of the intrinsic link between corruption and ML, when the international standards are effectively implemented, they creates an environment where it is more difficult for corruption to thrive undetected and unpunished (see FATF Reference Guide and Information Note on the Use of the FATF Recommendations to Support the Fight against Corruption).

The FATF Reference Guide and Information Note on the Use of the FATF Recommendations to Support the Fight against Corruption provides an in-depth discussion on how effective implementation of FATF Recommendations can combat corruption. Very briefly, the FATF Recommendations can combat corruption by:

1. Safeguarding the Integrity of the Public Sector – the FATF Recommendations require that key government agencies have:

  • sufficient operational independence and autonomy to ensure freedom from undue political influence and interference;

  • adequate resources effectively perform their functions; and

  • staff have appropriate skills, receive adequate training, and maintain high professional standards.

These measures facilitate a culture of honesty, integrity and professionalism, which makes it more difficult for corruption to thrive.

2. Protecting Private Sector Institutions from Abuse - the FATF Recommendations require that;

  • persons with significant controlling interest or management function in financial institutions, such as banks, must be vetted using “fit and proper” criteria, which helps to prevent corrupt persons from gaining control over private sector institutions;

  • financial institutions must screen employees to ensure high standards, which helps to prevent corrupt persons from infiltrating or otherwise criminally abusing these institutions;

  • financial institutions must implement internal controls and audit functions to ensure compliance with AML/CFT measures, which facilitates detection of abuse by corrupt persons; and

  • financial institutions must be subject to adequate supervision and monitoring for AML/CFT compliance, which facilitates the detections of corruption activities.  

3. Increasing Transparency of the Financial System - the FATF Recommendations require that;

  • when establishing business relationships or conducting transactions on behalf of customers, financial institutions must verify the identity of the customer, any natural person on whose behalf a customer is acting, and any individuals who ultimately own or control customers that are legal persons (such as companies) or legal arrangements (such as trusts). These measures increase financial transparency by making it difficult for corrupt persons to conduct business anonymously;

  • financial institutions must put in place risk management systems to determine whether a customer or the beneficial owner is a politically exposed person (PEP) or a family member or close associate of a PEP, which facilitates detection of where public officials are abusing their position for private grain;

  • financial institutions must have timely access to adequate and accurate information, which identifies the individual(s) who own or control legal persons and legal arrangements this increases ownership transparency making it more difficult for public officials to hide the proceeds of corruption within these legal structures; and

  • wire transfers must be accompanied by accurate and all required information that identifies the person who sent the transaction and to whom the transaction is being sent. This facilitates transparency and tracing of the movement of corruption proceeds.

4. Facilitating the detection, investigation and prosecution of corruption and money laundering, and the recovery of stolen assets - the FATF Recommendations require that:

  • financial institutions are required to examine the background and purpose of all complex, unusual large transactions, which have no apparent economic or lawful purpose with scrutiny given to high risk customers, jurisdictions, business relationships and trans­actions. This facilitates the detection of suspicious activity, such as corruption, which must be reported to the authorities for further analysis and investigation;

  • jurisdictions must establish a FIU, with adequate resources and powers, to receive and analyse suspicious transaction re­ports and other relevant information, and dis­seminate their analyse to the law enforcement for further investigation;

  • laundering of proceeds from a  sufficiently broad range of corruption and bribery offences, by natural and legal persons must be criminalised;

  • authorities must have sufficient powers to; (i) access financial records and obtain evidence for the purpose of ensuring proper in­vestigation and prosecution of money launder­ing offences and underlying corruption related predicate offences, and (ii) trace, freeze and confiscate corruption related property. This facilitate the protection and compensation of the victims of corruption and bribery, and the recovery of stolen assets; and

  • countries must have laws and mechanisms which enable them to provide a wide range of mutual legal assistance, execute extradition re­quests and otherwise facilitate international cooperation, which facilitate combating cross-border corruption.

Case Study 1 - Case originally provided by China for 2016 APG Yearly Typologies Report

When investigating the case of person K involving bribery in March 2014, the People’s Procuratorate of Yongchun County, Quanzhou, Fujian Province suspected his relative, person L, of ML. In December 2014, the People’s Court of Yongchun County convicted person L for ML. Person L was sentenced to 6 months’ imprisonment and a fine of RMB 20,000 (~USD3,000).

Case details: Person L, a local farmer, was K’s brother in law. In 2013, K took the position as head of management station of agricultural machinery of Yongchun County. Person K received bribes of RMB 200,800 (~USD31,000) from an agricultural machinery company. Under the instruction of person K , L transferred bribe money to the value of RMB 160,000 (~USD25,000) and also lent money to others in order to register companies. Loan repayments were then made into person L’s bank account. In February 2014, person L transferred RMB 198,000 (~USD30,500) to an automobile sales & service company in Xiamen and provided his identification for the purchase of a car for person K.

Case Study 2 - Case originally provided by Chinese Taipei for 2013 APG Yearly Typologies Report

Mr A was the owner of Company W. Mr B was the nominal owner of Company X which was controlled by Mr A. Mr C, a friend of Mr A’s, was the owner of Company Y. Mr D was the division chief of the information management division of state owned Hospital Z. Mr E was a computer engineer under the direction of Mr D.

Mr D and Mr E were responsible for the procurement of Hospital Z’s medical computerized system and maintenance contract from 2007 to 2010. Mr D demanded Mr A, who intended to win the bidding, to pay bribes for giving favour in the procurements, and abetted Mr E to set up some unnecessary qualification requirements to drive out other potential competitors.

Mr A used Company A as a tender, and borrowed the names of Mr B‘s Company X and Mr C’s Company Y to participate in the bidding. In this way, Company A usually won the bids. After winning the bids each time, Mr A would pay Mr D by cash or remit the bribe to the designated bank accounts of Mr F (one of Mr A’s friends) or Company G and then withdrew cash or issued bearer cheques to Mr D.

During the abovementioned period, Mr D accepted bribes worth more than NTD 6 million (about USD200,000) in total. This anti-corruption case was successfully investigated by the Taipei Field Division of the Investigation Bureau and the abovementioned suspects were charged with violation of Government Procurement Act, bribery, corruption and money laundering by prosecutor of the Shi-Lin District Prosecutors Office in September 2011. 

Case Study 4 - Case provided by Hong Kong, China for the APG Yearly Typologies Report

In 2009, the executive director of a publicly listed company in Hong Kong conspired with the owner of a trustee company and the latter’s financial consultant, who later became the listed company’s vice-president (“the trio”) to deceive the Stock Exchange of Hong Kong Limited (“SEHK”) and the shareholders of the listed company. This deception included the acquisition of New Zealand dairy farms by providing false declarations that the ultimate beneficial owner of the trustee company was an independent third party to the listed company, failing to declare that the executive director had an interest in the acquisition, and that the executive director and the owner of trustee company had agreed to share the commission arising from the sale & purchase of the said New Zealand dairy farms.  

False financial information of the New Zealand farm assets was also provided to the SEHK. The listed company made an announcement giving details of its plan to purchase the New Zealand farm assets but concealed the fact that the farm assets were suffering a substantial loss. The acquisition was approved by the shareholders of the listed company.  HK$842 million was raised by the listed company through the issue of convertible notes.  Part of the fund was paid to the trustee company in New Zealand which remitted back HK$73.7 million to a company owned by the executive director in Hong Kong. HK$68.95 million was then routed through the account of a solicitor’s firm in Hong Kong to the wife of the executive director. 

Following ICAC investigation, the wife of the executive director and the solicitor were convicted of ML in September 2014, and were sentenced to 78 and 72 months of imprisonment respectively.  Following an appeal, the Court of Appeal ordered a retrial against them. In April 2016, the trio was convicted of conspiracy to defraud.  In addition, the executive director was convicted of ML.  They were sentenced to imprisonment ranging from 60 to 99 months. The trio have lodged appeals against their conviction.

Open source materials on anti-corruption

There is a significant repository of open source materials on anti-corruption, a few of which are listed below:

APG - In 2016 APG has published the Recovering the Proceeds of Corruption in the Pacific – Joint Pacific Island Law Officers’ Network (PILON) and APG project report co-led by Papua New Guinea and Vanuatu containing Pacific Island case studies and typologies focussing on corruption.

Australia - Politically Exposed Persons (PEPs), Corruption and Foreign Bribery Brief. This brief is designed to provide information about ML methods, vulnerabilities and indicators associated with PEPs and laundering the proceeds of corruption including foreign bribery.

ESAAMLG - published the Report of the links between corruption and the implementation of anti-money laundering strategies and measures in the ESAAMLG region (see ESAAMLG website).

OECD - has published publications focussing on corruption which are available from http://www.oecd.org/corruption.