Focus on Intelligence and Action Against Clandestine Financial Circuits

Some countries have set up an intelligence and action sendee against clandestine financial channels which are at the heart of the capital flow control system as a financial intelligence unit. Its status seems to be a problem. The same is true of certain forms of communication that need to be clarified: not only between those subject to the obligation of the declaration of suspicion which is the support of its mission, but also between the cell and other state services or with foreign counterparts. Moreover, this service seems somewhat overwhelmed by its success, which invites to better proportionate its resources.

These services are under the systematic authority of the Ministers of Economy and the End of the Ends. This positioning gives rise to legitimate suspicions, that the relevant authorities downplay but without taking the conviction that the choice of organization chosen is fully compatible with a long-term treatment of any influence of the managed files for the service. Personalization of data insurance can only be worth intuitu personae. What we are talking about is an administrative structure that can, in itself, offer impartiality. The mention that ministers are informed of sensitive files or certain personalities may well reflect a national administrative tradition it does not reassure.

This finding, far from reassuring, casts doubt on the rigor of the evaluations of the intelligence services and action against clandestine financial circuits. Moreover, it should be remembered that the choice of administrative attachment services intelligence and action against clandestine financial channels are not shared by all countries. Some of them have opted for the inclusion of their financial intelligence unit in the judicial sphere. The latter choice may have some functional advantages in terms of capacity, investigations, or status, particularly in view of the guarantees of independence it might confer.

However, these factors must be weighed, taking into account the nature of the reports sent, which are increasingly based on grounds for laundering tax evasion, the variousness of the considerations at stake that may justify non-exclusively judicial approach intervenes, and counterparties in terms of transparency that may involve the membership of a service in the judicial orbit. In any event, the status services intelligence and action against clandestine financial channels will have to move in the direction of emancipation toward an administrative connection that is too “exclusive” in order to provide structural guarantees of independence and impartiality and to improve the functional results of the intelligence unit.

Let us say that these services are fueled by statements of suspicion from professionals subject to the occasional business relationship between them and their clients. A very majority of the reports come from banks and financial intermediaries. The fate of statements of suspicion, once transmitted, eludes the registrants. This situation can be nuanced when justice is seized, the intelligence and action unit can then inform the reporting. In this case, however, the feedback ends there, the consequences reserved for the referral of the justice, as well as the conduct of the investigation and its outcomes are not known to them.

In all cases where justice is not mobilized, registrants are kept in the dark about the exploitation of their reports. These solutions are probably dictated by the consideration of certain principles that may oppose the disclosure of sensitive information. It is no doubt that services intelligence and action against clandestine financial channels organizes meetings with professions subject to the reporting obligation, to discuss the different aspects reporting devices. But these exchanges are about general points of interest and not about the singular files transmitted by the taxpayers. However, it may be useful for them to be able to gauge the relevance of their statements, if only to consider the consequences to be reserved for the business relationships established with the clients they may have been led to suspect.

Moreover, it would certainly be a source of motivation for the registrants who play the game to know that the procedure used by them is not in vain. Without neglecting that communication service must be based on the duty to respect the rales of secrecy that may apply, both from a fiscal and judicial point of view, ways should be sought to reconcile these rales with the benefits of a return of information we’re heading for the registrants. At the very least, it should be considered that eveiyone should be able, after certain delays, to have information on the consequences of the reports and on the results of consecutive procedures. If the suspicion is also raised in cases where the suspicion is removed from the filers, e-ci was, in fact, pronounced.

The intelligence and action services against clandestine financial channels are among other things the recipient of a number of highly expansive declarations of suspicion. In six years, the volume of returns has doubled average in Western countries. Transmissions come mainly from subject professionals (95%), with the remainder coming from public institutions or from the private initiative. Despite this boom, there is talk of opening the doors of the intelligence and action sendees against clandestine financial circuits to whistleblowers. On this last point, these services indicates do not exploit this infoimation, which is, if any, transmits to the relevant authorities. This choice can be understood because of the legal context that prevails in some countries. Moreover, in view of its role, which is primarily a sorting and referral role, it is not appropriate to consider that the adoption of a completely passive attitude toward reports by non-pro-fessionals is a blocking could lead to irreparable information loss.

Nevertheless, the identity of the organization as a reference point for the anti-money laundering and anti-terrorist financing system could emerge somewhat clouded by an inclination to close itself to the advisers not mentioned by the texts to which sendees intelligence and action against clandestine financial channels little Frit offer guarantees that they may be less likely to find elsewhere: a window capable of solving golden issues to work toward procedures various, a protection of sources, an anchor in subsequent proceedings, and so on.

The issues raised by the recognition of the advisors are difficult in that a certain realism must be reconciled which, in the light of recent cases on massive fraud and organized crime, calls for them to be seen as useful to enforcement of laws and principles, or even a certain spirit, that oppose missteps that could lead to a culture of denunciation. Legislation in some countries has made progress in recent years, but it remains partial. In particular, the transmission of spontaneous information on economic and financial crime is not surrounded by the unified mechanism that should be. With respect to these intelligence sendees, it may be appropriate to extend the subjection to statements of suspicion to employees of the professionals concerned.

The subject professionals participate very unevenly in the mechanism which, it should be remembered, provides for a requirement to report suspicion. The professions subject to reporting obligations sometimes have some difficulties—the word is weak—in respecting this legal obligation. Financial sector professionals accounted for 92.6% of returns, which is cited as an industry compliance index. This last assessment, however, is to be qualified. For their part, non-financial occupations are generally unresponsive (7.4% of total transmissions). While real estate transactions play a significant role in the reporting of the banking sector, real estate professionals generally refrain from addressing sendees intelligence and action against clandestine financial channels in spite of the modest peak observed this year.

The involvement of lawyers is even more hesitant. In reality, it is such that we must rather mention the blocking on their part, which is obviously more than paradoxical when it comes to legal professionals. Secrecy must, of course, be respected in a number of situations corresponding to those where an advocate comes to defend a defendant in the context of criminal proceedings, because of the essential principles which must then apply, particularly in view of the sanctions incurred. It should be noted, however, that the criminal trial may see lawyers defending the public interest or availing themselves of this defence on behalf of the tax administration or the civil party they represent, situations that, in the future, could multiply in disputes triggered by associations. But it is true that it remains rare for a lawyer to try to prove the tax guilt of his clients and that it is difficult to base such a social demand given his mission in the criminal trial.

However, lawyers operate in other types of advisory relationships that are likely to be more ordinary professionals. In these relationships, they differ little from notaries or bankers, who, for their part, without this finding being equivalent to a general certification of their reporting practices, do not argue policy considerations to prevent a rule necessary for cornbating an unjustifiable breach of public order. The reluctance of lawyers must therefore be overcome by them, except that this profession collectively accepts to be suspected, which would be both unfair to the professionals, and serious. The volume of reports sent by auditors, which is increasing, remains surprisingly low in view of the missions that are theirs and which lead them to analyze in depth a considerable part of economic activity through the certification of accounts.

One might be tempted to explain the very small number of their reports by the existence of a filter exercised upstream by the accounting experts. But they themselves, if they appear more active, are only a weak source of intelligence transmission. Finally, among legal professionals, only notaries seem to mobilize, their statements have been increased by around 300% in a few years for a near-tripling. Quantitative data on declarations, moreover, are a certain variability over time. When this manifests itself in a steady increase in declarations, one is tempted to see it as a translation of a mobilization of professionals which, moreover, can be analyzed as corresponding to a form of standardization. It can be inferred that the tax fraud risk base is now better identified when, in the past still he, she’s been neglected. In these circumstances, there is no doubt that many of the fraudulent transactions still subject to criminal tax treatment may have been to proceed with impunity. When the variability of reports emerges as more erratic (an increase one year, a decrease next), this profile is most often associated with professionals who are not mobilized. It then forces this last observation.

In terms of the distribution of financial sector filers, banks and credit institutions are in first place. The share of bank returns in total has fallen in recent years (from 90% to 73%) due to a stronger increase in reporting by other subjects, not a declining heir reporting practices. However, these, which could have been rapidly stimulated by the expansion of the reporting obligation, appear to be only gradually being so. As for the banks, Services intelligence and action against clandestine financial channels esteeming that the declarative data show reasons for perplexity. Investigations into the private banking departments of several institutions under supervision have resulted in mixed findings that may have led to sanctions.

Moreover, despite the responses of the banks that point to the efforts to structuring internal control, questions remain unanswered:

The independence of those in charge of control is by no one assured, as they are mere employees of establishments without a protective status; this situation should be corrected and, at a minimum, these employees should be given a “protected employee” status. Recent history has shown that honest controllers can be subjected to dry layoffs, thus casting suspicion on the independence actually granted to those in charge of control;

- the evidence of form of existentialism of vigilance exists, that is, that their flows are transiently sensitive to the controls conducted by supervisors in the period that follows them, that bank executives are very sensitive to the risks mentioned by the regulations (this seems to be particularly the case for country risk);

for the latter, the discharge of responsibility on banks provided for by the latest anti-money laundering directive does not augur well for a satisfactoiy practice, nor does the absence of lists of people;

- particularly exposed will not promote standardization of pipes; the state should set an example not only by producing more realistic lists of non-cooperative countries, but also of countries considered to have no equivalent supervisory regimes and therefore need to be particularly monitored.

We must also focus on the monetary and financial code which reflects the extension of the obligation to report suspicion to the area of tax fraud laundering decided in the context of the internal work on the whitening. The reporting requirement for money laundering now covers in several countries also the sums or transactions they know, suspect, or have good reason to suspect, that they are the result of fraud there is a standard defined by decree. The decree in most countries provides a list of criteria that should guide the vigilance of the subject and determine them to make the planned declarations.

The economics of the scheme are problematic, in the sense that the normative scope of the obligation to report suspicion comes out conditional on the fact that one of the criteria listed is committed to it in the aspirations to report. However, these criteria are more akin to a kind of inventory of the practices most often found in cases of laundering of tax evasion, for pedagogical purposes, than to a body of rules that can establish an obligation. The casuistic set in the decree introduces an element of uncertainty and may excessively limit the device. In fact, the major credit institutions, as part of the tripartite dialogue, seem to adapt reinforced guidelines in relation to what the monetary and financial code implies, a finding that does not equate to that of compliance in the past satisfactory on their part. The increase in statements motivated by doubts about the tax environment of operations seems to be continuous. Nevertheless, the tax motive still represents only a small proportion of returns (11.5%). This statistic should not be inconsequential, since it is dependent both on conventional choices, which can lead to the emphasis on a general motivation rather than a specific one.

But there are some factors that lead to a trend toward under-reporting by the financial sector. First, some professionals in sectors, who are recognized as having significant money laundering risks, are very little active. While the increase in reports of manual changers is significant, insurance companies (and intermediaries) that manage assets of considerable financial importance are far from being as affected as banks (approximately 6% of statements made by them). In addition, insurance reports are declining. This situation leads to a recommendation that these companies be audited systematically of their compliance. The situation of investment companies and portfolio management companies is no more satisfactory. It is known, however, that these entities may meet particular risks, due to the difficulties of overseeing their operations, which, moreover, seems to be only unevenly interested in these professionals. In addition, the very strong “intuitu personae” that sometimes permeates their business relationships reinforces the risks. The low declarative activity of these professionals can therefore only cause concern.

The systematic failure of certain professions to their obligations, as well as the failures found during the examination of individual files, do not appear to provoke any particular reactions, other than, in the first case, a delay which remains quite futile. This impunity is not permissible. Since Parliament has intervened to impose clear obligations that are deemed to be in line with our highest principles of law, it is profoundly abnormal that in an area that directly concerns essential public interests, the subtraction of rules of public order or without further action. Moreover, some developments make these deficiencies untenable in practice. It is worth recalling the initiatives taken by the United States Department of Justice to assign criminal liability to banking and financial institutions that carry concealed assets from the U.S. tax authorities, apart from, apparently, any element of intentionality, and to extend this responsibility to the “facilitators” of this tax evasion. It will, of course, have to reconcile this claim with the national sovereignty of each state. But it would be paradoxical, to say the least, for national litigants to be more respectful of a foreign law than of an internal law on the grounds that the domestic authorities would have agreed to deal with their ill-will.

The processing of intelligence and action against clandestine financial circuits also serves as a filter and referral post since the organization sorts the recipients of the reports it addresses spontaneously. As such, while it is to be welcomed that certain provisions allow information to be sent to the tax authorities, the balance sheet of this faculty does not show, taken as a whole, that it is being exploited as one would expect in consideration of the reasons for reporting to the organization. The service is also subject to a right of communication available to the judicial authority, but the tax administration does not enjoy such a right. This is at least the interpretation favored and which, in order to be legally questionable, nevertheless persists.

Before setting out these different points, it is surprising to be surprised at some existing situations, and which, while reports corresponding to really huge issues, were at issue in some countries (one for 15 billion, the other for more than 3 billion), have not been able to do so. In particular, it appears that cooperation with foreign cells has not worked as they should have, which is not the responsibility of the intelligence and action services clandestine financial circuits. However, we must ensure that these failures do not go unanswered.

In this regard, an international supervisory body should be provided on the model of the future organization of financial supervision. On the other hand, attention must be paid to services intelligence and action against clandestine financial channels on the need to disseminate information, even in these cases, to the competent internal services. Finally, internal financial supervisors should be seized when they are seized information to be disseminated to foreign financial cells do not to inform the cell, as seems to arise occasionally in view of a case involving a foreign entity of a large banking group located in a nearby country.

Regarding the proper exploitation of statements of suspicion, the low number of judicial transmissions must be mentioned. Despite a strong increase in transmissions to justice, which needs to be confirmed, a certain inelasticity of transmissions to justice must be noted, in the context of a significant increase in the volume of declarations and even that if too small, staffing. It should be added that a significant proportion of transmissions correspond to “additional transmissions” and information addressed in the context of legal proceedings already under way. The number of radically new transmissions is reduced to between 250 and 300 cases each year on average in rich countries.

In fact, the exploitation of the notes sent to the courts is particularly mediocre. The intelligence and anti-illegal financial system services therefore have a very strong selection of files on bases that, if not normally known, are seem to be surrounded by some serious risks. The apparent inertia of the files referred to the courts could be attributed to the opening of an alternative market reform recently introduced in several countries: the transmission of files tax control. But, on this point too, it is necessary underlines some inertia worryingly. The data processed showed the translation of the 1650 statements of suspicion on average, in whole or in part, of a tax reason received by the intelligence and action against clandestine financial channels (8.6% of the returns received) in 109 transmission notes to the authorities, that is, a performance of the system oriented around intelligence and action services against clandestine financial channels ranging from 0.6% (taking into account total reporting) and 6.6% on average from the Organisation for Economic Co-Operation and Development (not including statements that mention a tax reason).

It must first be noted that the failure to mention any tax motives in the statements of suspicion transmitted to the intelligence and action services against clandestine financial channels does not equate to, in principle, in the absence of tax issues. In these circumstances, the possibility of such issues in the reported cases should be fully taken into account. Nevertheless, tax filers are increasingly drawing attention to their perception of possible underlying tax evasion. However, this influx of reports has not been converted by an increase due to the proportion of files submitted tax control. The relative increase is significant, but it is far from the extent of that of returns with a tax motive which, it must be stressed, probably do not exhaust the scope of the statements that would be justified competent authorities. These discrepancies would pose fewer problems if they were to take place in a context that gave full guarantees on the filtering exercised by Services intelligence and action against clandestine financial channels and its implications. However, on these points, the situation leaves something to be desired.

As for insufficient resources and regrettable loss, and outside the questions concern about the governance of the intelligence services and action against clandestine financial circuits, their operational means lead to concern about the prospect of an overflow of the financial cell by the cases to be dealt with. The means have, of course, increased, but in much more measured proportions than for the transmitted by the registrants. Data evidence of an increase in the relative ion of staffing levels that it’s all happened prosecuted since. With these officials dealing with hundreds of thousands of pieces of information a year, the imbalance is obvious. The system must have the means of the missions entrusted to it and which will regularly expand.

This lack of resources translates into insufficient reliability of the system. The intelligence and anti-illegal financial system services are national investigative services in their countries, which leads to be described as a member of the intelligence community. However, it is description of their activities that shows that intelligence and action against clandestine financial channels are service investigations which do not investigate, at least too often not beyond the gathering of information to marginally enrich or clarify the reports sent by the registrants.

In total, according to the countries, only a few thousand pieces of information have been thoroughly investigated, while very few files have been completed (as part of what the sendee calls for a pre-investigation) on the basis of information that does not require “heavy” additional investigations (such as the right to communicate). However, it should be noted that a high proportion of surveys are not analyzed because of lack of resources. It is, in these circumstances, particularly justified to question the added value of the intelligence unit. In a way, the mission these services could be seen as redundant, even counterproductive.

- Redundant to the extent that investigations carried out within them, if not devoid of informational value for sendees seized by the intelligence and action against financial circuits are obviously taken over by them, whether it is the judicial services or the tax services.

Counterproductive in that transit through this service is accompanied by a loss of information, given the small number of transmissions to management services and the obstacles encountered by intelligence services and action against clandestine financial circuits in the exploitation of reporting by registrants.

The fact remains that the intelligence and action services against clandestine financial circuits have legal means whose mobilization can provide information that it would be less easy to gather, through alternative channels (exchange of information with other peer-to-peer intelligence cells abroad, very broad communication right, etc.). Moreover, as the centralization of information, the intelligence and action services against clandestine financial circuits is probably irr eplaceable. In these circumstances, it seems fundamental that the device, and with it other elements of the system of which he is the pivot, are adapted, to make it more effective. It should be added that it is essential to consolidate the right to disclose information sendees intelligence and action against clandestine financial channels. As it stands, it is open to judicial authority in the framework of the procedures it conducted or as part of the proceedings criminals. It should be remembered that the latter procedure has been activated for some cases, a transmission rate that, even on the rise, remains low. In addition, the transmissions requested by the judicial or customs sendees must be counted during their investigations.

The formalization of relations with tax services is much less satisfactory, however. The system has the power to provide information to the authorities and more specifically, in this case, has the services of tax control. On the other hand, administrative structures are not empowered to address sendees intelligence and action against clandestine financial channels to identify, for example, the existence of information from a registrant that could be useful. This situation, which is not obvious, is accompanied by elements that lead to it being regarded as strictly Kafkaesque, from an administrative point of view as well as from a functional point of view. There is, however, no legal objection to the structure being directed at the intelligence and action services against clandestine financial channels. Beyond the legal discussions, it must be recommended that this faculty be fully open, the cunent solution leading to anomalies.

From an administrative point of view, first of all, the reconciliation between the lack of access, from an administrative service to the information held by another service, with the information transmitted to the authorities, if not systematically, at least routinely, on sensitive cases, appears, to say the least, unobvious. It will be said that in this case, the intelligence and action services against clandestine financial circuits exercise their options for transmission to the tax control. But, in the absence of any external control over this point, there is no guarantee of this. This lack of guarantee poses transparency problems. Without administrative coherence, the formalization of relations between administrative services is also functional.

The money laundering control system has been extended to laundering tax evasion (and, for that matter, other financial crimes, or financial content, such as abuse of social good or abuse of weaknessj.This extension did not go without its difficulties, with the subject filers arguing that it may be difficult for them to identify tax evasion. As a result, an identification system has been put in place to define a reasonable area of doubt and, for their part, some individuals (banks in particular, with the joint assistance of supervisors and intelligence and action against clandestine financial channels) have defined a formal framework (sometimes more inclusive than that laid down by the aforementioned decrees) to apply the scheme. It has been noted that there has been a sharp increase in reports to the intelligence and action services against clandestine financial channels, particularly as a result of identification of tax risks. The conversion of these reports into sendee notes appears to recognize a high level of selection. However, it is possible that the intelligence and action services against clandestine financial circuits do not have all the expertise necessary for the sorting of performed is really relevant. This potential could have less impact if other services (as customs can) have access to information against clandestine financial circuits, which is not the case.

In these circumstances, the supervision of the referral function exercised by the intelligence and action services against clandestine financial circuits, between tax services and services additional confusion. This uncertainty speaks volumes about the problems of coordination of government services caused by the current exploitation of sensitive information. In addition, it is perplexing. In the case of tax evasion, the desire to preserve the monopoly of certain authorities has gone so far as to provide that the information held by the service, when it is based solely on tax evasion or money laundering tax evasion, be passed on not to the courts, but only to the service authorities. This option left little room for the device to communicate to the justice system possible information about the concerning case. It should be added that it goes beyond the general solution that is applied in cases of money laundering of tax evasion.

This makes us say that the coordination between the tax services and the intelligence and intelligence services and action against clandestine financial circuits is also a problem in relation to the flow of information from tax services to intelligence services and action against clandestine financial channels. According to some reports, it seems in particular that the data gathered in the wake of the recent banking scandals have not been transmitted services intelligence and action against clandestine financial channels.

This observation might seem innocuous insofar as one might consider that the natural outlet of the data collected by the administrative and transmitted to the intelligence services, would have been the administration itself. Yet such a direction can only be presumed. These services might as well have taken the information available to them to court. It will be retorted that the latter has, in fact, got his hands on the data in question

(after legal-judicial acrobatics recalled otherwise). But this circumstance could not be certain at a time when the choice not to report to the intelligence and action services against clandestine financial circuits the existence of suspicions transactions traced in the “offending bank files” was adopted. In any event, statements about those who are particularly exposed are rather rare. It is, by its very nature, very difficult to measure the reality of the reluctance mentioned, even if it is tempting to give credit to the general diagnostically posed.

 
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