Nuestro socio Rafael Collado, junto a las asociadas Lucía Álvarez y Josefa Zamorano, y el asociado Camilo León, escribieron el capítulo “Anti-Money Laundering and Counter-Terrorist Financing Law in Latin America” para la Guía de Compliance Corporativo de la publicación inglesa Latin Lawyer. A continuación, compartimos el texto completo en su versión original en inglés, el que también puede ser consultado en su fuente original, en el siguiente vínculo.

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The regulatory landscape regarding anti-money laundering and counter-terrorist financing in Latin America has advanced significantly in recent decades, evolving from an approach that once merely comprised repressive regulations. Currently, the majority of countries in the region have regulations in place for both acts, as well as entities in place with the power to carry out specialised investigations and analyse suspicious financial transactions, with Brazil being the latest to introduce counter-terrorist financing regulations in 2016. However, the regulatory regimes in place do vary across the region. These approaches imply a complex task to compliance officers, especially those in charge of compliance across the entire region.

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Money laundering and terrorist financing: the basics

The crime of money laundering has been defined as:

[t]he conversion or transfer of property, knowing that it is derived from a criminal offense, for the purpose of hiding or disguising its illegal provenance or helping anyone involved in the commission of the crime evade the legal consequences of such action.^[2]

Money laundering is the process of seeking to hide or conceal the nature, origin, location, ownership or control of illegally obtained money or assets. It involves introducing assets of illicit origin into the economy while giving them the appearance of legality through lawful activities, thus allowing criminals and criminal organisations to disguise the illegal origin of their assets, without endangering their source.

There are various stages to the process of money laundering, regardless of the complexity of the operation in question. While the methods of accomplishing money laundering are diverse, the doctrine has differentiated three crucial phases present in the execution of such a crime: ‘placement’, ‘masking’ and ‘integration’.^[3] These phases can be performed simultaneously or successively, although they commonly overlap.

In the first phase, placement, illicit assets are displaced. Normally, this is accomplished through transferring the money to a location other than from where it originated, by introducing it into the financial system through bank deposits, exchange houses, or by engaging in any kind of lawful business with said funds, thus mixing lawful funds with illicit funds.

The second phase of money laundering, masking, aims to detach illicit assets from their origin, which is usually accomplished by using the assets to carry out a series of financial transactions that prevent or make it increasingly difficult to track them, an objective that is achieved by using, among other practices, the resale of goods acquired with cash, or the conversion of cash into other means of payment.

The last phase of the process, integration, is used to create a final appearance of legality for assets of illicit origin, which may be achieved by placing the funds within the banking system in such a way that they appear as part of a normal commercial activity. At this point, illicit money becomes very difficult to detect.

Regarding the crime of terrorism financing, although it is regulated differently in the different countries of the region, as a rule it is committed through any form of economic action, help or intermediation that provides financial support to the activities of terrorist elements or groups.

Notwithstanding most of the cases that deal with cash, the term ‘financing’ should be understood in a more general, comprehensive sense, not only regarding the contribution of amounts of money, but of any other element that allows terrorists to accomplish the proposed offences.

In these cases, the legitimate or illicit origin of the resources is not relevant, as is the case with money laundering; therefore, financing can come from a variety of activities. However, although such sources may be lawful, it is important for terrorist groups to hide its source and use, so that funding activity goes unnoticed. Lawful sources include those from commercial enterprises to charitable works, the latter being one of the most important. Imports, exports and casinos can contribute to terrorist financing as well as money laundering.

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International regulatory framework on money laundering and terrorist financing offences

The intergovernmental organisation in charge of international prevention of money laundering and terrorist financing, the Financial Action Task Force (GAFI), is divided into regional groups, corresponding in the case of Latin America to the Latin American Financial Action Group (GAFILAT).

The aim of GAFILAT is to promote the implementation of best practices to combat money laundering and terrorist financing, mainly by communicating the 40 GAFI recommendations in this area (the 40 Recommendations).^[4]

GAFILAT brings together Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Dominican Republic and Uruguay.

The 40 Recommendations can be summarised with the following general criteria:

• risk assessment and implementation of a risk-based approach;
• national cooperation and coordination;
• implementation of financial sanctions and also forfeiture for money laundering and terrorist financing crimes;
• implementation of preventive measures directly involving financial institutions, such as due diligence duties, record-keeping, special measures in the case of politically exposed persons (PEP), are equipped with effective systems for monitoring transactions carried out by their clients, report suspicious transactions to the relevant financial intelligence unit, among others;
• transparency on the structure of legal persons, with the aim of preventing them from being misused to carry out crimes of money laundering or terrorist financing;
• implementation of the rules of regulation and supervision of financial institutions to prevent them from being used to commit any of the crimes; and
• international cooperation to take the prevention measures indicated in international instruments, in addition to providing mutual legal assistance and the implementation of coordinated sanctions such as extradition, freezing property from one of the crimes and confiscation.

GAFILAT uses the 40 recommendations to guide its members in the implementation of their own prevention systems based on such criteria through training programmes for its members, mutual assessments and technical assistance.

In Latin America, international cooperation manifests through memorandums of understanding comprising conventions regarding cooperation and technical assistance, exchange of information and consultation between securities regulators. These memorandums of understanding allow different countries to cooperate in the face of money laundering and terrorist financing, facilitating the delivery of information between financial analysis institutions in the countries that are part of these agreements.

Through this mechanism, members should ensure that their authorities can quickly, constructively and effectively provide the highest level of international cooperation with regard to money laundering and terrorist financing. Competent authorities should use clear channels or mechanisms for the effective transmission and execution of request for information or other types of assistance, as well as clear and efficient processes for the prioritisation and time execution of requests, and for safeguarding the information received.

Despite the 40 Recommendations being identified as the extraterritorial laws that are the most widely enforced, there are also numerous multinational cooperation agreements, including the United Nations Convention against the Illicit Trafficking in Narcotics and Psychotropic Substances;^[5] the United Nations Convention against Transnational Organized Crime and its Protocols;^[6] the United Nations Convention against Corruption, held in 2003;^[7] and the Convention for the Suppression of Financing of Terrorism, held in 1999.^[8] Where appropriate, countries are also encouraged to ratify and implement other relevant international conventions, such as the European Convention on Cybercrime;^[9] the Inter-American Convention against Terrorism;^[10] and the European Convention on Money Laundering, Search, Seizure and Confiscation of the Proceeds of Crime and on the Financing of Terrorism.^[11]

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Regulations and guidelines delivered by international organisations: the case of GAFILAT and the Caribbean Financial Action Group

GAFILAT’s work in Latin America is that of supporting its member countries in the implementation of the 40 Recommendations and in the creation of a regional prevention system against money laundering and terrorist financing crimes. This support is accomplished through training programmes and technical assistance, which is delivered through the preparation of guides, reports and supporting documents. Furthermore, one of the most important tools for the countries of the region consists of mutual evaluations, which the countries of the region undergo to assess and submit their prevention systems to the scrutiny of the other member countries.

Mutual evaluations have become a useful instrument for the countries of the region to evaluate their systems for preventing and combating money laundering and terrorist financing crimes. This procedure comprises a review of the mechanisms that each member country has to prevent these crimes and take punitive action, especially considering how these mechanisms comply with the GAFI 40 Recommendations and how effective their results are. In particular, the relevant laws and regulations of each country, and the supervision systems and regulations established to prevent the occurrence of crimes through activities prone to commit them (mainly those of the financial sector) are analysed. Finally, the capacity and implementation of these systems within the country are also assessed.

If the country successfully completes the evaluation process, it joins the GAFI global network and receives an endorsement rating, which allows it to demonstrate to the international community that its system is effective in the prevention and repression of money laundering and terrorist financing criminal offences. This functions as an incentive for countries to be part of mutual evaluations. Currently, except for the case of Cuba, which only had a single evaluation carried out in 2014, the member countries have been evaluated at least twice, highlighting the cases of Peru and Uruguay, which already have the latest reports corresponding to the evaluations carried out during the years of 2019 and 2020, thus completing three evaluations.

GAFILAT also undertakes training efforts for Member States, which is particularly relevant for those who are part of the units that prosecute money laundering and terrorist financing crimes. The institution facilitates the training of public agents of the member countries, where the most relevant matters of prevention and fight against organised crime are addressed. In the same way, the teams that participate in the mutual evaluation processes of the member countries are trained, composed of experts in criminal law, law enforcement and regulatory issues related to the financial sector and the financial activities and professions that belong to the countries that compose GAFILAT.

Finally, the organisation gives a series of guides and directives to the member countries that guide the actions of the institutions dedicated to combating money laundering and terrorist financing crimes, also serving as guidance regarding the way in which both offences are regulated and the protection system of each country. In this sense, GAFILAT provides both general recommendations for action and procedural matters, as well as others referring to specific matters and activities where these crimes may be committed.

In particular, we highlight the documentation issued during 2020, among which is the analysis of the implementation of money laundering and terrorist financing preventive measures in the notary sector, which had the support of the International Union of Notaries for its drafting; the ‘Report on practices and challenges of the countries of Latin America on the mechanisms for gathering basic information and final beneficiaries’; the ‘Guide on sectoral evaluation of risks of money laundering’; the ‘Analysis of the implementation of recommendations No. 18 and No. 19 of the GAFI’; the ‘Guide for supervision with a risk-based approach of designated non-financial activities and professions without a prudential regulator’; and the ‘Guide on ML and TF risks that have been generated as a result of the pandemic caused by the Covid-19 virus’.

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Analysis of regulations from the perspective of compliance efforts

Practical insights

The legal and regulatory normative strategies for the prevention of money laundering and terrorist financing present differences between the countries of the region, with an important development of administrative tools in some countries, while others maintain a system based on collaboration with the penal system. This new regulation imposes duties on the compliance areas not only to comply with the substantive law, but also with the new regulatory focus on prevention.

Next, we will go over these different strategies, reviewing the criminalisation tools and the various complementary prevention systems, considering the national regulations of a representative group of countries (Chile, Bolivia, Argentina, Colombia, Brazil and Peru), and how this new regulatory framework shapes compliance practice from a practical point of view.

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Money laundering and terrorist financing criminalisation strategies

Regarding money laundering, there are two tendencies. On the one hand, certain countries opted for a system in which the crime consists of a figure related exclusively to a list (listing system) of base crimes (e.g., Chile, Bolivia, Brazil up to the year 2012 and Colombia); and, on the other hand, others have an autonomous system, in which the classification focuses on the criminal act and the governing factor, regarding any criminal offence (Argentina and Peru).

The listing system has led to some problems derived from the exclusion of some key crimes for the fight against money laundering, and, in some cases, it has also impeded the prosecution for terrorist financing. However, this system makes it easier to avoid some procedural problems that exist in the autonomous system. In particular, the insolvency problems are best resolved, such as the problem of acquiring necessary proof of the basic crime that satisfies the standard for testing one of the regulatory elements of money laundering.

On the other hand, the autonomous system clearly improves money laundering prosecution, since it is applicable to all crimes, assuming that the conduct of mobilising capital as a result of a crime is inherently reprehensible, and not an extension of the reprehensibility of the base crimes. In this way, it allows overcoming the original discussion on money laundering, regarding whether it is a criminal offence in itself or the special criminalisation of a form of completion of all crimes.

These two approaches must be tackled differently depending on the compliance area. The list approach requires a full risk assessment on the base crimes that could be committed by the vendors or clients of the company in risk zones, who are those from whom the ‘illicit asset’ could be received. These assessments are known as know-your-client policies (KYC). The vendor and client KYC due diligence is an obligation regarding all vendors or clients that could commit the base crimes and then bring in assets from these criminal activities. This could lead to discrimination allegations from the vendors or clients, and to more false positives.

On the other hand, the autonomous prosecution simplifies the KYC work because the risk to commit money laundering is managed by compliance areas as well as other crimes. However, a wide KYC due diligence process could tend slow down the vendor’s or client’s registration process as well as the payment process. To overcome this potential problem, the KYC policy must prioritise the vendor by risk criterion, a division that can only be made if the organisation’s internal process is very well known by the policymakers. The successful competition of this hard and complex process may result in a very tailored compliance programme, but there are incentives to avoid this process.

Regarding terrorist financing, with the exception of Brazil and Peru, in the rest of the region it has been an autonomous crime for several years, most of the time linked to a regulation aimed at punishing terrorism.^[12]

Two additional criminalisation efforts present in some countries should be highlighted. First, the criminalisation of the omission of control or reporting of suspicious operations, present in Peru^[13] and Colombia.^[14] The vast majority of countries have a suspicious transaction reporting (STR) system, but the levels of incentives for reporting entities to generate correct STRs vary among countries, this type of criminalisation being an interesting way to strengthen the administrative prevention system.

For a compliance officer, the management of an STR response process could be an all-day task. Therefore, the best practice on this matter is to create an STR response system, which could automate at least the first part of the process. The final decision, because of the liability involved, has to be made by the compliance officer (and not the CFO or the CEO), guided by a strong STR policy. In countries where the failure to deliver suspicious transactions is a crime, the STR policy is essential, as well as the financial and technological means for its implementation by the compliance officer.

Second, we highlight the inclusion in Chile and Bolivia of money laundering and terrorist financing as crimes for which legal persons can be held responsible (criminal corporate liability).^[15] Chile is the only country in which there is this criminal reinforcement since, although in other countries in the region criminal corporate liability does also exist, at this time it is limited only to crimes of corruption. This is the case of Argentina^[16] and Peru.^[17] On the opposite side we find the situation of Colombia and Brazil, where there is still no regulation of this type regarding legal persons, despite it being a permanent recommendation of international organisations^[18] as a way to fight corruption and, therefore, prevent money laundering and terrorist financing.

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Prevention strategies for money laundering and terrorist financing

In this area, it highlights the similarity between all systems in the region. In fact, many of the countries that have been analysed have an administrative system of prevention of money laundering and terrorist financing based on the delivery of STRs by companied linked to activities prone to be used as intermediaries of these crimes (mainly from the financial sector).

Thus, the system of obliged subjects who must report STRs to a specialised entity is the general rule in Latin America. Argentina,^[19] Bolivia^[20] and Peru^[21] all have administrative agencies called Financial Research Units (UIFs). Similarly, the COAF of Brazil,^[22] the UAF of Chile^[23] and the UAIF of Colombia^[24] are all administrative agencies aimed at analysing the STRs they receive. However, these regulations differ in several areas: from an institutional perspective; regarding the depth of compliance obligations of the required subjects; and regarding the sanctioning powers, issues that will be briefly considered.

In institutional terms, there are two types of institutions: financial analysis units that are autonomous entities; and those belonging to the system of safeguarding the financial system. Paradigmatic of the autonomous system is the UAF of Chile, an entity that does not link with any other administrative agency and has its own purposes, even though it has limited powers. On the contrary, the paradigm of institutional linkage is the case of the UIF of Peru, which is structured as a unit within the agency in charge of financial market surveillance.

Regarding the depth of compliance obligations that apply to obliged entities, several of the administrative regulations required regulated entities to have a compliance system for this purpose, usually establishing the duty to have a compliance officer. In several countries, this STR compliance officer was the first entity to respond to compliance logics, before the creation of general regulations that have surfaced from the regulation of criminal liability of legal persons.

As we suggest above, a full compliance area can be overwhelmed by this task if it is in charge of other important matters (a crime prevention programme, an antitrust compliance programme, a privacy compliance programme and so on). That is why in countries with this approach it is common to automate and segregate the function of money laundering prevention, with a compliance officer assigned exclusively for this purpose, being the only one who has a relationship with the administrative agency in charge of the prevention of money laundering and terrorist financing.

Finally, some of these administrative agencies have the power to enforce their own regulation, which is an improvement of the administrative prevention system, as sanctions are intended to strengthen compliance with adjective and reporting obligations, aimed at informing suspicious operations, strengthening the need to have a specialised area within the compliance branch of the company, solely dedicated to the system of STRs. In the cases of Chile and Colombia, a strategy is maintained that departs from a compliance approach, as these types of sanctions are not available and their administrative agencies are used as a source of evidence for money laundering and terrorist financing crime-prosecuting agencies. Thus, in these two countries, administrative units play a role in supporting the suppression of crimes, giving the companies’ internal STR system the opportunity to actively prevent money laundering and terrorist financing through this more abstract control if the system is connected to the general compliance programme.^[25]

Recently, following the recommendations of GAFILAT, several countries have designed a risk-based money laundering and terrorist financing prevention plan. The main tool for this is money laundering and terrorist financing risk assessments, consisting of a national and annual assessment that delivers the focus of action for their respective analysis units. Chile, Bolivia, Brazil, Peru and Colombia have all conducted annual risk assessments, which have allowed them to further focus their prevention efforts. These new efforts to focus the public prevention system has to be considered by the money laundering and terrorist financing prevention models within the companies, because if a business is considered risky by the public risk assessment, the best way to tackle this is to conduct a full risk assessment to the operation in order to conduct the same process, albeit with a compliance perspective.

We believe that this public–private collaboration will be the next generation of money laundering and terrorist financing compliance, making the enforced self-regulation the best regulatory tool to improve private compliance programmes in order to function as the first ‘public’ watchdog on this relevant topic.

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Footnotes

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^[1] Rafael Collado González is a partner and Lucía Álvarez Galvez, Josefa Zamorano Quiroga and Camilo León Millones are associates at FerradaNehme.

^[2] Definition of the International Financial Action Group (‘GAFI’ being its Spanish acronym). GAFI is an intergovernmental body whose purpose is the development and promotion of policies at the national and international levels, to combat money laundering and terrorist financing. Available at http://www.fatf-gafi.org.

^[3] Toso, M, Ángela. ‘Blanqueo de Capitales, su Prevención en el Ordenamiento Jurídico Chileno’ (Money Laundering, Its Prevention in the Legal Chilean Order). In: Revista Chilena de Derecho (Chilean Journal of Law), Vol. 35, No.3, 2008. page. 407.

^[4] ‘International standard on combating money laundering, terrorist financing and financing the proliferation of weapons of mass destruction’. Document available at: https://www.gafilat.org/index.php/es/biblioteca-virtual/gafilat/documentos-de-interes-17/publicaciones-web/3997-recomendaciones-metodologia-actdic20-1/file [reviewed on 19 February 2021].

^[5] Also known as the Vienna Convention held in 1988. Available at: https://www.incb.org/documents/PRECURSORS/1988_CONVENTION/1988Convention_S.pdf [reviewed on 19 February 2021].

^[6] Also known as the Palermo Convention held in December 2000. Available at: https://www.unodc.org/documents/treaties/UNTOC/Publications/TOC%20Convention/TOCebook-s.pdf [reviewed on 19 February 2021].

^[7] Available at: https://www.unodc.org/documents/mexicoandcentralamerica/publications/Corrupcion/Convencion_de_las_NU_contra_la_Corrupcion.pdf [reviewed on 19 February 2021].

^[8] Available at: https://www.oas.org/juridico/spanish/tratados/sp_conve_inter_repre_finan_terro.pdf [reviewed on 19 February 2021].

^[9] Held in Budapest on 23 November 2001. Available at: https://www.oas.org/juridico/english/cyb_pry_convenio.pdf [reviewed on 19 February 2021].

^[10] Hel don 3 June 2002. Available at: https://www.oas.org/xxxiiga/espanol/documentos/docs_esp/agres1840_02.htm [reviewed on 19 February 2021].

^[11] Held in the city of Strasbourg on 6 October 2014. Available at: https://rm.coe.int/16806d8c12 [reviewed on 19 February 2021].

^[12] In Argentina, it is typified in Article 306 of the Argentine Penal Code; in Bolivia, in Article 133 of the Bolivian Penal Code; in Brazil, in Article 6 of Law 13.260 from 26 March 2016; in Chile, in Article 8 of Law 18.134 from 13 November 2003; in Peru, Law 29.936 from 21 November 2012 established the new Article 4A to the Anti-Terrorism Law, criminalising terrorist financing; and in Colombia, it is typified in Article 345 of the Colombian Penal Code.

^[13] Article 5 of the D.L. No.1106 from 19 April 2012.

^[14] Article 325 of the Colombian Penal Code.

^[15] Chilean Law 20.393, stated the criminal liability for legal persons; the Bolivian Law 1390/2021 stated the criminal liability for legal persons. In the case of Chile both money laundering and terrorist financing are included as corporate crimes, in the Bolivian case only the money laundering is included.

^[16] Law 27.401 from 1 December 2017, which, while establishing criminal liability for legal persons, did so exclusively regarding a limited group of crimes.

^[17] Law 30.424, which began in July 2017, only establishes the crime of transnational bribery within its catalogue.

^[18] In particular, the OCDE and the GAFI.

^[19] ‘Unidad de Información Financiera’, created by Law 26.683 on 2 June 2011.

^[20] Created by Law 1768 on 10 March 1997, the UIF expanded its powers through the Law ‘Marcelo Quiroga Santa Cruz’, and acquired the most relevant ones in terms of auditing through Decree 910 from 15 June 2011.

^[21] Created by Law 27.693 from 12 April 2002.

^[22] ‘Conselho de Controle de Atividades Financeirs’, created by Law 9613 on 3 March 1998, has been subject of various reforms, the latter being a very controversial one since its powers were reduced. That in reference is the reform of Law 13.974 from 7 January 2020.

^[23] Created by Law 19.913 on 12 November 2003.

^[24] Created by Law 526 on 15 August 1999.

^[25] In this area, it is important the highlight the efforts of persecutors in some countries to create specialised entities, such as ULDECCO (unit of the Public Prosecutor’s Office) and the BRILAC (police’s brigade for money laundering investigations) in the case of Chile, and the FISLAAPD (specialised asset laundering prosecutor’s office) in Peru.