Fact Sheet No. 5

United Nations General Assembly Special Session on the World Drug Problem New York, 8-10 June 1998

MONEY LAUNDERING

The laundering of money derived from illicit drug trafficking , as well as from other serious crimes, has become a global threat to the integrity and stability of financial and trading systems. The international community must work together to stop these practices to protect itself and to deny drug traffickers their ill-gotten gains.

Seizing even large amounts of drugs often only has a limited impact on overall trafficking and abuse of illicit narcotics. Supply is sufficiently elastic to accommodate sharp falls in product availability. Even street prices for drugs have shown themselves immune to large seizures.

However, blocking and taking away the profits from drug sales at their entry point into the financial system can significantly disrupt trafficking operations. Money, after all, is both the lifeblood and the sole end of illicit trafficking. It is critical to prevent the cash which comes directly from the sale of drugs from being converted into other financial instruments or assets. After the conversion has been made, subsequent transactions can create a complex paper trail which makes identification of the illicit source difficult.

To harmonize the efforts of the international community to counter money laundering, the United Nations Convention against Illicit traffic in Narcotic Drugs and Psychotropic Substances of 1988 requires the States which are party to it to declare money laundering a punishable offence. They are also required to adopt measures to identify and freeze or confiscate proceeds from the sale of illicit drugs and promote international cooperation against money laundering.

The Process

Money laundering has three stages: placement, layering and integration.

Placement, the initial entry of funds into the financial system, serves the purpose of relieving the holder of large amounts of actual cash and positioning these funds in the financial system for the next stage. Placement is the most vulnerable stage of the process, as the chance of discovery of the illicit origin of the money is greatest at the beginning.

Layering, the next stage, describes a series of transactions designed to conceal the money´s origin. At this level, money is often sent from one country to another and then broken up into a variety of investments, which are moved frequently to evade detection.

Integration is the final stage. In this stage, the funds have been fully assimilated into the legal economy, where they can be used for any purpose.

A number of countries have instituted a set of control measures, including the requirement for financial institutions to disclose suspicious operations, in order to detect and trace financial operations on dirty money. However, other countries, including many offshore banking "havens", are still subject to few such regulations. Hence, global agreement and cooperation are essential to prevent launderers from moving their business to unregulated countries and thus evading prosecution.

The Special Session will consider further measures to improve international cooperation and action against money laundering.

Highlights of the Draft United Nations Document on Money Laundering

A draft political declaration calls for the General Assembly to condemn the laundering of money derived from illicit drug trafficking and other related crimes and the use of countries´financial systems for that purpose. The Assembly would also urge all States to implement the anti-money laundering provisions of the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances by applying the following principles:

Establishment of a comprehensive legislative framework to criminalize money laundering related to serious crimes and to prevent, detect, investigate and prosecute money laundering by:

• Identifying, seizing and confiscating the proceeds of crime; and
• Including money laundering in mutual legal assistance agreements to ensure assistance in investigations, court cases or judicial proceedings.

Establishment of an effective financial/regulatory regime to deny access to national and international financial systems by criminals and their illicit funds through:

• Customer identification and verification requirements, in order to have available for competent authorities the necessary information on the identity of clients and the types of financial movements they carry out;
• Financial record-keeping;
• Mandatory reporting of suspicious activity; and
• Removal of bank secrecy impediments to anti-money laundering efforts.

Implementation of enforcement measures to provide for:

• Effective detection, investigation, prosecution and conviction of criminals engaging in money laundering activity;
• Extradition procedures; and
• Information sharing mechanisms.

The Assembly would also request the United Nations Office for Drug Control and Crime Prevention (ODCCP), within the framework of its Global Programme against Money Laundering, to continue to provide training, advice and technical assistance in the above areas to countries that request it.