Midlands Audit Fraud Seminar

1. Midlands Audit Fraud Seminar Dave Churchill Churchill Fraud Solutions Ltd

2. Proceeds of Crime Act 2002

3. SAR’S Restraint A C Q U I S I T I V E C R I M E Financial Investigation Cash Seizure Confiscation Money Laundering Offences

4. Money Laundering ?

5. Money Laundering - Definition • The process by which criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding prosecution, conviction and confiscation of the criminal funds

6. Money Laundering - Sec 327/328/329 • Conceals, disguises, converts , transfers, removes criminal property • Enters into, or becomes concerned in, an arrangement to facilitate another person to acquire , retain, use or control criminal property. • Acquires , uses or has possession of criminal property. All 14 yrs imprisonment • 14 yrs imprisonment on indictment

7. Defence • No offence if you DO NOT KNOW or SUSPECT the property constitutes (or represents) criminal property • Or is a benefit from criminal conduct

10. All Acquisitive Crimes • Theft/Robbery/Fraud • Illegal arms sales, smuggling, • Activities of organised crime e.g. drug trafficking /prostitution rings / computer fraud • Bribery and corruption Idea is – To legitimise ill-gotten gains Through money laundering

11. Disclosures • Suspicious Activity Reports (SAR’s); • Financial information passed to SOCA • Not Local Authorities

12. Financial Activity Dissemination SAR’s SOCA Law Enforcement Agencies Crimes/other Intelligence Police Customs and Revenue Tax FIU’s Intelligence Units Intelligence Packages/ Investigation

13. Local Authorities • Not Regulated • Auditors are • Go to Police with Fraud

14. COMMERCE v Know Your Customer Requirements • Identify the source of funds; From where and from whom • Always record details to provide an audit trail for investigators

15. “SUSPICION” • This is personal and subjective but falls far short of proof. • It is beyond mere speculation but based on some foundation

16. SUSPICION • A Person who considers a transaction to be suspicious does not have to know the exact nature of the criminal offence • or that the particular funds were definitely those arising from the crime

17. RECOGNISING SUSPICIONS • Such transactions are often inconsistent with a customers legitimate transactions or with the normal business activity of that customer or account • Transactions with no apparent purpose and which make no obvious economic sense

18. POSSIBLE INDICATORS • Where the request is out of the ordinary or outside the experience of the firm e.g. customer size or pattern of transactions is out of line with previous activity • Refusal to provide requested Information • Use of a relationship for a single transaction or for only a short period of time

19. POSSIBLE INDICATORS • Extensive use of off-shore accounts, companies etc where the customers needs do not support such extensive economic requirements • Unnecessary routing of funds through third party accounts / cash transactions

20. Examples • Dealings in Cash – Sales of Houses • High overpayment of Council tax – Repayment made • Student Fees in cash

21. ML Offences / Procedures involved • Placement; Physical deposit of money into the financial system • Layering/Blending Disassociate the illegal money from the source/complex web of transactions • Integration Laundering back into the system appearing legitimate

22. Restraint of a suspects assets • Reasonable cause to believe an offender benefited from criminal conduct and • A criminal investigation has started in relation to an offence • Before Conviction

23. Cash Seizure • Power to search a person reasonably suspected of carrying a large sum of cash derived from or intended for use in crime. • Also search premises for cash if lawfully present. • Was £10,000 then £5000 – now £1000

24. Confiscation Investigations • An investigation into ; • Whether a person has Benefited from criminal conduct and • The extent or whereabouts of his or her benefit from that conduct.

25. Confiscation Orders • Made after Conviction • Court work out the benefit from crime and order to pay. ( Could be less if not available) • Enforced against realisable property whether legally obtained or not.

26. Overview • Criminal Activity Generates substantial profits • Must control funds without attracting attention to the activity or those involved Need to Disguise the sources / change the form/ move the funds

27. Money Laundering used to fight crime • Connects criminals and their networks through their financial transactions • Frequently the only way to locate and recover stolen funds • Removing ill-gotten gains removes criminality and hits harder than many other sanctions

29. The Third European Directive

30. Objective • To Stop the use of Financial Systems for the purpose of Money Laundering and Terrorist Financing • To be implemented by 15th December 2007

31. Sofia

32. Prague

33. Vilnius

36. The 3rd Directive-The Main points • The identification of customers and beneficial owners and the verification of their identity. • This Directive to apply to those activities of the institutions and persons performed on the Internet • Also to include life insurance intermediaries and trust and company service providers

37. Cash Payments • Covers Dealers in High value goods, e.g. precious stones/metals/works of art/auctioneers where they receive payments of €15000 or over • Should use A RISK BASED APPROACH – and focus on these areas

38. The Risk Based Approach • Risk in all cases can vary – • Customer due diligence should be simplified where appropriate • BUT some cases need a more rigorous approach – An enhanced customer due diligence

39. Greater Risk Areas • Beneficial owner - Notaries, legal professionals holding pooled accounts – • Politically Exposed Persons – Business relationships with those individuals holding or having held important public positions – particularly from countries where corruption is widespread –

40. Politically Exposed Persons • Persons who are or have been entrusted with prominent public functions and immediate family members and close associates of such persons.

41. Enhanced Customer Due Diligence • Where customer not physically present for ID need additional documents /data /information to prove ID • Verify/certify documents supplied • Ensure first payment through an account opened in customers name with a credit institution

42. Records • Documents to be retained at least 5 years after the business relationship with customer ended Or • Five years from the transaction

43. What the Papers Say

44. Bulgaria's Prosecutors Accuse Mobster Brothers of Money Laundering23 May 2007, Wednesday The Marinovs, and five others are accused of plotting the murders of businessman Nikola Damyanov, reserve general Lyuben Gotsev and late underworld boss Ivan Todoro.The two brothers are currently on home arrest

45. SECOND MINISTER INVOLVED IN SOFIA HEATING COMPANY CORRUPTION CONTROVERSY IN BULGARIA09:06 Fri 11 May 2007 • Regional Development and Public Works Minister Assen Gagauzov and Economy and Energy Minister Roumen Ovcharov,of the Democrats for Strong Bulgaria (DSB) are involved in a corruption controversy • Bulgaria’s intelligence service detected 87 phone calls between Gagauzov and Krasimir Georgiev, owner of a the company under investigation for money laundering

46. Sofia Bank Manager to Face Court 19 January 2007, Friday • Branch manager Krassimir Boyanov of a branch of Hebros Bank will face court for not observing the law for measures curbing money laundering.He did not report to the Financial Intelligence Agency for a money transaction from one bank account to another of BGN 874,000 in just one day. According to investigators working on the case, Boyanov's guilt is finally proven. The case has been introduced to the Sofia City Court. If Boyanov is pronounced guilty, he may get up to three years in prison.

47. Part of Killed Mobster's Money Already Laundered in Bulgaria16 November 2006, • The prosecutor admitted that Dimitrov's widow had managed to sell one of his hotels, due to a procedural oversight. • The prosecutor's office had charged Anguelina Dimitrova at the end of August, but the district prosecutor forgot to freeze her assets. • He confessed that his subordinates were not always effective enough in their fight with money laundering

48. Crime Gang Broken - Prague Police corruption Detectives charged with providing money laundering gang members with information on potential victims, police uniforms, weapons and ammunition, identification badges and falsified search warrants.

49. TI Corruption Index

50. 2 High-Ranking Officials in Bulgaria Arrested for Money Laundering8 December 2006, Friday A director and his assistant at Bulgaria's Economy and Energy Ministry were arrested Friday for alleged graft receipts and money laundering.