Money laundering, tax fraud, corruption : towards a single criminal standard?

Sévag Torossian, Avocat pénaliste à Paris
Sévag Torossian
11 Jan 2022

The current flurry of activity in the fight against money laundering, tax fraud and corruption is not the fault of national lawmakers. Nor even the European Union. A chronological reading of the international conventions of the last thirty years allows us to date quite precisely the major turning point in global cooperation in this singular triptych of the fight against international financial crime. We could date it to 1989 with the signing of the Vienna Convention or 1990 with the birth of the FATF. The important thing is that this impetus, provided by the United States, accompanied the end of the bipolar world, and with the underlying argument of the fight against terrorism, made it a civilisational issue. The evolution of this 'LFC' triptych (money laundering, tax fraud, corruption), obsessed with transparency, could well herald the emergence of a single criminal standard on a global scale.

The link between Samuel Huntington's theories on the 'clash of civilisations' and the fight against international financial crime is not easy to establish. With the benefit of thirty years' hindsight, we can now look at the thinly veiled links between the stated objective of transparency and the distilled goal of cultural hegemony. Western civilisation, which at its height dominated up to three-quarters of the planet's territory over the previous three centuries, has now become just another civilisation. The dismantling of the Soviet Union, the incredible economic boom in Asia and the revival of a global awareness of Islam have all heralded the end of a reign. The post-Second World War Western project of the free world, enshrined in the 1948 Universal Declaration of Human Rights, has undergone an irreversible transformation. The free world moved from hegemony through human rights to domination through criminal law.

To achieve this, it has turned the spotlight on the three universal vices of the money world: money laundering, tax fraud and corruption. Officially, the three areas are distinct. The periods, the bodies in charge and the conventions adopted seem so different that their development and study are still divided into three separate chapters. But if we look at the whole picture, we can clearly identify a funnel-shaped chronology. From 1988 to the present day, the arsenal deployed, all texts taken together, has been unprecedented: four global conventions signed in Vienna (1988), New York (1999), Palermo (2000) and Merida (2003); six anti-money laundering directives within the European Union (from 1991 to the present); an OECD convention (1997) and two other Council of Europe conventions (1999) devoted to corruption; two Council of Europe conventions on seizure and confiscation (1990 and 2005), three institutions created (the FATF in 1989, GRECO in 1995, the Global Forum on Fiscal Transparency, restructured in 2009)... And that's not all. At the same time - and this should be borne in mind - it was during this same period that modern communication and information technologies made it possible to equip every home and every human being with an accessible memory: the computer and the mobile phone. Legal arsenal, technological tools. Objective and means. The domination of criminal law underpins an objective that modern technologies can achieve transparency. At the end of the tunnel, a single, global, all-encompassing criminal standard could well emerge. But to what end?

Stage 1 - The money laundering chain

From the Colombian cartels to the Islamic State, from drug trafficking to the financing of terrorism, the fight against money laundering has become the spearhead of a vision for the next fifty years. The offence of money laundering was adopted on the American continent thirty years before the rest of the world. Fundamentally linked to the explosion in the number of banks and the widespread use of bank accounts - money laundering was gradually defined as the process of concealing the criminal origin of funds in order to give them an apparently legal source. Initially driven by the United States, the first jurisdiction to be concerned by the cartels' vast money-laundering operations, money laundering was not the subject of the first Council of Europe recommendation until 27 June 1980. France, for its part, only created the special offence of money laundering with the adoption of the law of 31 December 1987. The 1988 Vienna Convention on drug trafficking was the major turning point in the globalisation of the fight against financial crime.

A year later, in 1989, international cooperation led to the creation of an unprecedented institution, the Financial Action Task Force (FATF), at the instigation of the G7 (France, Germany, Italy, the United Kingdom, the United States, Canada and Japan), which met in Paris to draw up modern measures to combat money laundering. The FATF's "40 Recommendations" would henceforth constitute the main reading matrix for the modern world. The aim is to subject the world of money to a single principle: transparency. At the outset, the rules are self-evident. All countries had to criminalise money laundering, including the most recalcitrant. The banking institution, at the heart of the trading system, must know the identity of its customer ("Know your client"), it is subject to a duty of vigilance regarding each transaction, must keep records of them, must identify suspicious transactions and report them to the authorities. The transparency requirement means that legal entities cannot be used to conceal illicit transactions. The identity of the beneficial owner must be required, and the information must be accessible, not only for legal entities under ordinary law but also for the most exotic 'legal constructions'. In short, shell companies must disappear. Each country must have a Financial Intelligence Unit (FIU) that analyses suspicious transaction reports and information on money laundering, like Tracfin, which was set up in France in 1990, and a criminal prosecution authority that can work without being hindered. Each country must participate in the mutual legal assistance effort, including by refraining from attaching overly restrictive conditions to the requests received, refusing them on the grounds that a tax investigation is also underway, in the name of banking secrecy or any other discretionary reason. The mutual legal assistance measures in question concern not only extradition, but also - a new development for many countries - requests relating to freezing, seizure and confiscation, for which each State is required to put in place effective mechanisms.

But it's not just the banks. The FATF, and consequently the European directives, have extended the obligations of vigilance to all potential players in the money laundering chain, even if it means stigmatising them: lawyers, notaries, accountants, property developers, traders and even casinos. Additional measures have been devised for specific players and activities - politically exposed persons, money transfer services, new technologies, electronic transfers, etc. - not to mention coercive measures against non-cooperative countries.

In 2002, the two international financial institutions, the IMF and the World Bank, recognised the supremacy of the FATF's 40 recommendations in the fight against money laundering. Hitherto wary of the interventionism of the G7 action group, the IFIs nevertheless had observers at FATF plenary meetings. The IMF would incorporate the recommendations into its financial sector assessment programmes and its reports on compliance with standards and codes. The involvement of the IMF and the World Bank would definitively change the global landscape of the fight against money laundering by establishing the FATF as a key player. For its part, the European Union would endeavour to put in place directives, specific instruments setting objectives while leaving it up to the Member States to choose the means of moving in the same direction.

Stage 2 - Transnational corruption

At the same time, international cooperation was also tackling the fight against corruption. As early as 1999, following the adoption of two international conventions within the framework of the OECD and the Council of Europe, the GRECO (Group of States against Corruption) was set up by the Council of Europe to identify shortcomings in national policies and encourage member states to make the necessary legislative reforms. The Council of Europe member states were joined, of course, by the United States (and recently by Kazakhstan). Corruption was henceforth treated as a transnational crime, with specific incrimination for foreign public officials. Historically, the Palermo Convention of 2000, the first criminal law instrument devoted to transnational organised crime, was signed in Sicily as a tribute to anti-Mafia judge Giovanni Falcone, who was shot dead on the orders of Toto Rina, head of the Corleone clan. The Palermo Convention was intended to cover the whole range of issues relating to cooperation in criminal, procedural and substantive matters, with provisions devoted to corruption. But it was the Merida Convention of 31 October 2003 that would become the first global instrument in the fight against corruption, the first multilateral convention that also established the principle of the restitution of ill-gotten gains.

Ten years later, the OECD published the first report on foreign bribery, which showed the work that had been done: 427 cases recorded in the 41 signatory countries of the OECD Convention, 80 prison sentences handed down, 261 fines imposed on individuals and companies, the largest of which amounted to 1.8 billion dollars, and 80% of the bribes granted, promised or solicited concerned employees of public companies. Companies are at the centre of the debate, to such an extent that they are becoming a laboratory for "soft law" on corruption: alongside the traditional repressive mechanisms of governments ("hard law"), a series of prudential rules are being introduced to involve companies in the detection of corruption and to encourage... self-dealing. National anti-corruption agencies were set up to monitor the prudential rules imposed on companies, and novel alternative measures to prosecution were invented, such as court deals like the CJIP (judicial public interest agreement) in France, which avoided long and costly trials. The Americanisation of European criminal law was underway, and the decline of the criminal trial, adversarial debate and the burden of proof on the prosecution had begun.

Stage 3 - The terrorism argument

Money laundering and the financing of terrorism are two distinct offences that have only recently been brought together, and this was not, a priori, a matter of course. The FATF, which revised its standard in 1996, was still reluctant to do so. Two years before the attacks of 11 September 2001, the UN adopted the New York Convention for the Suppression of the Financing of Terrorism. But it was not until 11 September 2001 that the whole of the West accepted the idea of combining the fight against money laundering and the financing of terrorism - even though no international convention defined terrorism. Neither then nor now. And with good reason. Between resistance to oppression and terrorism, from one country to another, the subject very quickly becomes political. No consensus can be found on a universal definition of terrorism.

In October 2001, just after the 11 September attacks in the United States, the FATF finally accepted the principle of extending its mandate to include the financing of terrorism. Within the European Union, the "war on terror" was tackled with the adoption of the third directive on 26 October 2005. In 2003, the FATF also incorporated nine specific recommendations in application of its new complementary mission. State and international institutions, banks and law firms everywhere were now talking about "ML/FT risk" (money laundering/terrorist financing) as evidence of a marriage made in heaven. Then, for almost ten years, the fight against money laundering would drop down the European Union's list of priorities. In 2015, after the emergence of the terrorist organisation "Islamic State", the wave of attacks in Europe, the awareness of the use of efficient and rapid terrorist financing circuits, the identification of increasingly sophisticated money laundering methods, as well as typologies, led the European Union to adopt three new directives in a short space of time. The Fifth Directive of 2015 was particularly marked by the problem of terrorist financing. The trauma was such that the European Union, in an unprecedented move, began drafting the fifth directive without waiting for the previous one to be transposed. The aim was to reduce the financing solutions used by terrorists. One of the key points was to reduce the maximum limits for prepaid cards - a product that had played a decisive role in the preparation of the attack on the Bataclan in Paris in 2015. The Fifth Directive also extended the list of players subject to the obligation of vigilance, including cryptocurrency exchange platforms.

Stage 4 - The end of banking secrecy

Controlling the money laundering chain from one end to the other still left one major problem: banking secrecy. The aim was no longer simply to impose obligations on economic players, but to attack a cardinal principle that had made the fortunes of many countries. Referred to as the obligation for a bank not to pass on to a third party any information relating to its customers, banking secrecy was a matter for national legislation. Its violation is generally an offence punishable by imprisonment, but it cannot be invoked against certain authorities - in particular the tax authorities - or against a magistrate or investigator acting in the context of a judicial enquiry or investigation by means of a requisition addressed to the bank. The problem arose with what were still known as "tax havens", those that guaranteed strong banking secrecy, attractive or zero tax rates and a lack of criminalisation or prosecution of disturbing offences. It was necessary to convince, if not threaten. It is true that banking secrecy was challenged for the first time with the creation of the FATF in 1989, the generalisation of FIUs and the suspicious transaction reports imposed on banks, without informing the client concerned. Within the European Union, the identification of suspicious transactions and the obligation to report them to the authorities were also imposed by the first anti-money laundering directive of 10 June 1991. But this was not enough. A serious crisis was needed to get all the countries on board with this revolution that was not in its name. The principle of banking secrecy was called into question for a second time at the 2009 G20 meeting, which this time proclaimed the "end of banking secrecy". This followed the financial crisis of 2008 and the resounding affair of the UBS bank, which was accused of laundering tax fraud estimated at ten billion euros. Sanctions were introduced against countries that refused to cooperate. Efforts continued throughout the decade that followed, until the vast majority of recalcitrant states were forced to sign the multilateral agreement on the automatic exchange of information (EAR) before 2018. The OECD was at work. The Global Forum on Transparency in Tax Matters, which the organisation founded in 2000, was restructured in 2009, following the financial crisis and the announcement of the end of banking secrecy. Under the EAR, a predefined set of information on accounts held by non-residents would be automatically exchanged between tax administrations each year. Developed in 2014, the EAR should be implemented before 2018 by around a hundred jurisdictions.

Stage 5 - Tax evasion

The chain of money laundering, transnational corruption, banking secrecy and automatic exchange of information saw the emergence of a fifth project: BEPS. The Multilateral Convention on Tax Avoidance of 24 November 2016, better known as the Base Erosion and Profit Shifting (BEPS) Convention, had its sights set on the 1,650 or so existing bilateral tax treaties. It was perhaps the most sensitive of all the projects since it indirectly attacked the sovereignty of states and their sources of wealth. It was clearly out of the question for an organisation, however powerful, to dictate the tax rates that countries should apply, or to advocate a form of global tax harmonisation in the name of the fight against tax evasion. But tax-advantaged jurisdictions had to understand that an era was over. If tax rates were a matter of fiscal freedom and national sovereignty, attractive jurisdictions could no longer hide behind their culpable passivity: the interdependence of the new world forbade them to do so. Furthermore, within international groups of companies, the artificial transfer of profits to subsidiaries established in low-tax countries was estimated at one hundred to two hundred and forty billion dollars, or 4 to 10% of global tax revenues. Until 2015, these evasion strategies, erosion of the tax base and profit shifting, had been sidelined, if not neglected. Implementing the BEPS project would require a specific partnership between the OECD and the G20. The result was a fifteen-point plan to combat tax evasion. In particular, the instrument contained measures against "hybrid arrangements", the abusive use of tax treaties, a review of the definition of permanent establishment and measures to improve mutual agreement procedures, including provisions on arbitration. By the end of the 2020s, the string of "blacklists" of tax havens, which varied depending on the international organisation and the country concerned, had been gradually reduced, a sign of the apparent success of the battle against tax havens. So much so that the OECD's Committee on Fiscal Affairs is now congratulating itself on the disappearance of the world's non-cooperative jurisdictions.

Stage 6 - Towards a single BFC standard?

Over the last thirty years, international cooperation has acquired the legal, technical, technological and financial means to effectively combat the dangers of the new world of interdependence, interconnection and unprecedented speed of trade. From the forty recommendations of the FATF to the six anti-money laundering directives of the European Union, from the Palermo Convention to the Global Forum on Fiscal Transparency, if we squint our eyes, we can identify a single image: the naked man. Modern technology has given us access, willingly or not, to the daily lives of a large part of humanity. Our mobile phones, which are always on, allow us to be geolocated in real time, as do the GPS systems in the latest vehicles, which allow us to track our movements. Computers, equipped with an IP address, can be used to identify not only Internet searches, but also the contents of the computer - in short, the personal or professional interests, legal or illegal, of each individual. Encouraging people to pay for their expenses by bank transfer, direct debit or bank card means that, by simply reading a bank statement, you can gain intimate knowledge of the habits, daily life, private life, intentions and interests of an individual or a company. So much so that the unthinkable ban on cash payments is now a very serious issue.

Globalising the fight against international business crime, while respecting fundamental freedoms, is now a balancing act. Are we moving towards a single LFC (money laundering, tax fraud, corruption) standard? Because they all have the same word on their lips: transparency. Today, criminal law goes where it has never gone before. The model is the subject of a consensus in the name of higher interests, such as the war on terrorism, which is endangering Western civilisation. Transparency tells us that it must be imposed to protect us: it is a matter of life and death for us. But the terrorist financing argument will not hold up for several decades. The LFC standard, if it emerges, will have to be based on something else. When one danger disappears, an even greater danger must appear. The emergence of the LFC standard will perhaps be linked to the second civilisational danger facing the West: the economic rise of Asia - under cover of a rather powerful argument that has yet to be imagined.

By establishing transparency as a global objective in the fight against delinquency and crime, there is a risk of gradually reducing the area of public freedoms hard won since the 18th century in the West and, more recently, the world of the 1948 Universal Declaration of Human Rights. This battle seems to be a major challenge for Western civilisation. The use of international mechanisms to fight delinquency and crime through the law may also conceal an objective to control the six or seven other civilisations that have emerged since the end of the bipolar world in 1991. Of course, there are safeguards against illegal intrusions into private life. But the system now exists, as do the risks of intrusions by private hackers or malicious state institutions. What's more, the risk lies elsewhere. In the name of the fight against international financial crime, inter-state alliances may be tempted to maximise the use of the tools offered by technology, to move from prevention to hyper-prevention, and why not, following the example of certain American fictions, the generalisation of the detection of an offence before it is committed. The offence of criminal conspiracy already serves this purpose. The transition from intelligence to legal proceedings will develop exponentially with the widespread use of the magic formula of criminal conspiracy. Minority Report, or the art of arresting a criminal before the crime has been committed, already has a place in the criminal code. The question is where to draw the line. In the case of drug trafficking or terrorist attacks, neutralising the conspiracy to prepare the crime was somewhat obvious. When it comes to handling money, there is no longer any evidence. All this augurs well for the development of what the United States has called the "Darkweb", beyond any control or identification. A platform for illicit trade for some, a new free world for others, particularly for journalists and political opponents of totalitarian regimes, the free web will soon be attracting crowds of Westerners simply in love with freedom. Incidentally, FATF, GRECO and the Global Forum on Transparency may just be front companies hiding beneficial owners who are still unknown to us.,40877.html