The US Department of the Treasury has released a “2020 National Strategy for Combating Terrorist and Other Illicit Financing“, which provides a roadmap to identify current money laundering and terrorist financing threats and provides strategies to mitigate the identified threats and risks.
In the Strategy, some of the key money laundering risks are identified as the proceeds of crime from fraud (securities fraud included), online cybercrime and drug trafficking and from activities of transnational criminal organizations. Fraud is identified as the largest threat.
One of the key methods identified is the use of Bitcoin and other digital currencies that are used to launder proceeds of crime, often through encrypted messaging apps and on the darknet.
In the Strategy, the use of shell companies to hide the identity of control persons behind shareholders of private companies is also identified as a key risk. The Strategy notes a study by the US Treasury that found that shell companies were used in a substantial portion of tax evasion and fraud cases, generating proceeds of crime. The problem is compounded, according to the Strategy, when money launderers structure companies through AML lax jurisdictions, making it hard to un-peel the layers of owners of companies.
The Strategy also addresses risks in the real estate sector, noting that in money laundering cases, studies show that real estate professionals such as mortgage brokers, real estate agents and to a lesser extent, real estate lawyers, were the dataset most involved in facilitation of real estate transactions that involved money laundering. The examples in the Strategy include money from China used for real estate.
The Strategy discusses the role of lawyers and notes that lawyers are not required to understand the nature or source of income of clients or potential clients, and yet they serve as access points to the US financial system, making them vulnerable to abuse by clients.
The Strategy notes that it is well-established law that privilege and the work-product doctrine do not apply to legal services where the activity was or is criminal or involves fraud and goes on to highlight the increased action by law enforcement against lawyers who assist in narco trafficking and whose trust accounts are used for criminal or fraudulent activities by clients. It provides examples, particularly of securities fraud, where lawyers provided services to facilitate securities fraud and were prosecuted. The Strategy notes that some lawyers provide services that are not the provision of legal services.
To strengthen compliance and disrupt illicit financial activities, the Strategy recommends a number of actions to take including implementing a risk-based approach to supervision, improving reporting obligations, implementing an enhanced focus on supervising transactions involving digital currencies and exchanges because of their high risk nature, and improved comprehension and attention paid to real estate transactions and finally, improved collection of beneficial ownership data to identify the control persons behind shareholders of private companies.