What is Money Laundering?
Money laundering is the introduction of money into the legal system that has an illicit or even criminal origin, such as organised crime; drug trade, illegal arms trade, illicit trafficking in goods and merchandise; illegal labour; human trafficking; prostitution; serious and organised tax fraud, etc.
What is the Financing of Terrorism?
The financing of terrorism is the provision or collection of funds (from legal or illegal sources) in the context of terrorist activities.
How do Criminal Organisations Operate?
While the purpose of money laundering is to hide the illegal origin of the money, the purpose of terrorist financing is to hide its illegal destination.
The processes for money laundering and for the financing of terrorism are thus slightly different.
The money laundering process generally consists of three stages:
- Placement: in this stage, the money launderer introduces money of criminal origin into the financial system by splitting large sums and depositing them into different accounts (so-called “smurfing”). These deposits are made either directly or via monetary instruments, such as cheques, transfers, etc. The sums that were split up are then transferred to accounts in other places.
- Layering: during this stage, the money launderer increases the number of transactions of various kinds, such as purchases, sales, stock market investments, in order to disrupt the traceability of the sums of money and disguise their origin.
- Integration: in this third stage, the sums of money resurface and are reinvested in legal economic activities: real estate, luxury products, setting up businesses, etc.
The process for financing terrorism is only necessary if the sums required are high. It is based on two to three stages:
- The placement stage is only used if the sums of money for the financing of terrorism are substantial and of criminal origin.
Unlike money laundering, financial transactions linked to the financing of terrorist activities generally concern small amounts of money. Therefore, when terrorist organisations obtain funds from legal sources, it is difficult to detect and follow the trail of those funds. That is why the placement stage is less useful.
- As with money laundering, terrorist organisations usually opt for the layering stage in order to avoid attracting the attention of the authorities and to protect the identity of their principals and, ultimately, of the beneficiaries of the funds collected.
In addition to banking techniques, terrorist organisations use parallel systems for physical money transfers, such as “Hawala” and “Hundi”.
They also use the oldest method of transferring assets: the physical transportation of money, gold or other valuables by smuggling.
- Although there is no integration phase – since the funds are not reinvested in the legal economy – the funds resurface to be used for terrorist purposes.
What Is the Economic Scale of Money Laundering and Terrorist Financing?
According to the International Monetary Fund (IMF), laundered money and the money used to finance terrorism represent between 400 and 1 000 billion euros, or between 2.5 and 5% of global GDP.
What Are the Legal Provisions for Combating Money Laundering and Terrorist Financing?
In order to curb these phenomena, some thirty states, including Belgium, set up the Financial Action Task Force in 1989, an international organisation that formulates recommendations for its member states and regularly evaluates the measures these member states have taken.
At the European level, five directives were adopted, while the following measures were taken in Belgium:
- the Act of 11 January 1993 on the prevention of the use of the financial system for money laundering and terrorist financing; amended several times and replaced by
- the Act of 18 September 2017 on the prevention of money laundering and terrorist financing and restricting the use of cash (hereinafter referred to as the ML/TF Act);
- the various executive Royal decrees;
- the implementing regulations.
- Repression: article 505 of the Criminal Code.
Who Falls under the Act of 18 September 2017 on the Prevention of Money Laundering and Terrorist Financing and Restricting the Use of Cash (ML/TF Act)?
- For certain financial transactions, anyone can be asked to provide identification data and a number of data to verify that they are not conducting a transaction to launder money or finance terrorism;
- Everyone is subject to the restriction on cash payments (see below).
- Certain financial professions
monitored by the FPS Economy:
- companies specialising in financial leasing (art. 5, §1, 21°).
monitored by other institutions:
- the financial institutions, such as banks, financial intermediaries, insurers, etc., which are supervised by the National Bank and by the Financial Services and Markets Authority (art. 5, §1, 1, 21°);
- Certain non-financial professions
monitored by the FPS Economy:
- service providers to companies (art. 5, §1, 29°);
- real estate agents (except for syndicates) and surveyors (when exercising the activities of a real estate agent) (art. 5, §1, 30°);
- diamond traders (art. 5, §1, 31°);
- finance leasing companies (art. 5, §1, 22°)
- traders and intermediaries in the art and antiques sector (art. 5, §1, 31°/1)
- warehouses specialising in the storage of works of art and antiques (art. 5, §1, 31°/2)
- professional football clubs (art. 5, §1, 31°/3)
- the non-profit organisation RBFA (art. 5, §1, 31°/5)
monitored by other institutions:
- security companies (5, §1, 32°), which are controlled by the FPS Interior;
- accounting professions: auditors, accountants, bookkeeping and tax consultants (art. 5, §1, 23° to 25°), who are monitored by their respective disciplinary bodies;
- legal professions: notaries, bailiffs, and, for certain activities, lawyers (art. 5, §1, 26° to 28°), they are monitored by their respective disciplinary bodies;
- gaming establishments (art. 5, §1, 33°), which are monitored by the Gaming Commission.
Apart from the Restriction on Payments and Donations in Cash Applicable to Everyone, What Are the Main Preventive Measures Applicable to the Professions Referred to in the Previous Paragraph?
- Checking the identity of the persons carrying out transactions.
Identification must take place prior to the transaction (art. 30), with a copy of a supporting document (art. 27), usually the identity card, passport or, in the case of a company, the articles of association.
This obligation must be met in relation to the client, to any agents and to the effective beneficiaries (art. 19, 21 to 24 and 26).
The identification data, as well as the data and documents related to the transactions, must be updated (art. 35) and kept for 10 years from the end of the transactions (art. 60 to 62).
If identification is impossible, the company should not establish any business relationship with or carry out transactions for that person (art. 33).
- Detecting atypical transactions that may be attempts at money laundering or terrorist financing. This implies a number of precautions and actions:
- checking whether the operation is related to a high-risk country;
- checking whether the customer, an agent or a beneficial owner is suspected of terrorism and appears on the national risk list;
- obtaining information on the motives of the customer in order to determine the nature and object of the business relationship (art. 34);
- taking reinforced monitoring measures in the case of increased risk, such as concluding contracts with clients who are not present or with politically exposed persons (art. 37 to 41). For instance:
- ascertaining whether the client or his beneficial owner is a politically prominent person;
- establishing the origin of the assets and funds;
- carefully monitoring the business relationship;
- requesting additional identification documents.
- drawing up a report on suspicious transactions (art. 45, §2);
- reporting suspicions of money laundering or terrorist financing to the Financial Intelligence Processing Unit (CTIF-CFI) (art. 47 to 54) without informing the customers or third parties concerned (with the exception of the relevant authorities) that this information has been transmitted to CTIF-CFI or that a judicial investigation is under way or could be initiated (art. 55 and 56).
- taking internal control measures and providing training for staff (art. 8 to 12 and 13 to 15).
What Are the Rights of the Professions Subject to the ML/TF Act?
When they report a suspicion of money laundering or terrorist financing to the Financial Intelligence Processing Unit (CTIF-CFI), the persons covered by the law benefit from:
- protection against threats and acts of aggression (art. 59);
- judicial immunity (both criminal and civil) and disciplinary immunity when they report suspicions of money laundering or terrorist financing to CTIF-CFI in good faith (art. 57);
- anonymity: the identity of the suppliers of the information is not disclosed when CTIF-CFI informs the Public Prosecutor, the Federal Public Prosecutor's Office or a foreign body responsible for combating money laundering or the financing of terrorism (referred to in art. 83, §2), as well as in the case of testimony in court by CTIF-CFI members (art. 58).
What is the Degree of Secrecy Applicable to the Authorities with Regard to the Information Received?
The members of CTIF-CFI, the police and external experts are bound by professional secrecy (art. 83): they may not, with some exceptions, disclose information they have received while performing their duties.
What is the Role of the Financial Intelligence Processing Unit (CTIF-CFI), in Particular When it Receives Reports of Suspected Money Laundering or Terrorist Financing by Persons Subject to the ML/TF Act?
- CTIF-CFI's main role is to analyse the information it receives and, in case of serious indications of money laundering or terrorist financing, to forward this information to the Public Prosecutor or the Federal Public Prosecutor (art. 76, §3 and art. 79).
- It may also oppose, for a period of 5 days, the execution of a transaction when it suspects it is related to money laundering or terrorist financing, and may ask the Public Prosecutor or the Federal Prosecutor to extend this opposition (art. 80).
What Are the Sanctions in Case of Non-compliance with the ML/TF Act (Except for the Restriction on Cash Payments)?
With the exception of cash payments, the sanctions consist of an administrative fine of 250 to 1,250,000 euros for non-financial professions and of 5,000 to 10% of the annual net turnover for financial professions.
They are imposed by the authority competent for the sector in question (art. 132) and collected by the FPS Finance (art. 134).
What Are the Restrictions on Cash Payments and Donations, and What Are the Sanctions?
The amounts that may be paid in cash can apply to anyone. They vary according to the type of transactions; the rules should be applied in the following order (sections 66 and 67 of the ML/TF Act):
- When selling a property, payment may only be made by bank transfer or cheque.
- Except when selling real estate, no limitation on cash payments applies to payments and donations:
- between consumers and
- with certain financial institutions such as banks.
- Apart from the cases mentioned above, cash payments up to 3,000 euros may be made or received at public sales under the supervision of a judicial officer.
- With the exception of the cases referred to above, the following may not be paid in cash:
- the purchase/sale, between professionals, of precious metals, scrap metals or copper cables;
- the purchase of copper cables by a professional from a consumer;
- the purchase of precious metals or old metals by a trader from a consumer, except up to 500 euros and provided that the trader identifies the consumer/seller.
- In other cases, the payment and acceptance of a payment for one or several debts between which there seems to be a link may not exceed 3,000 euros in cash; the same applies to one or several donations between which there seems to be a link.
In case of payment or donation in cash exceeding the maximum permissible amounts mentioned above, the sanction is a criminal fine of 2,000 to 1,800,000 euros (including legal surcharges), which can be the subject of an administrative transaction (art. 137).
How Is Compliance with the ML/TF Act Monitored?
Different authorities each control certain sectors or aspects of the Act (see above, “Who falls under the ML/TF Act”).
In addition to the sectors falling under its competence, the FPS Economy monitors compliance with the restriction on payments and donations in cash (art. 85, §3).
These authorities may request any information they deem useful and, as a general rule, may also carry out on-site inspections. As far as the FPS Economy is concerned, it may, for the sectors and matters falling under its competence, exercise the enforcement powers provided for in Book XV of the Code of Economic Law: request all useful information, gain access to companies, etc. (art. 107 and 109).
What Is the Role of the FPS Economy?
As with the other supervisory authorities, the main tasks of the FPS Economy are, for the sectors falling under its competence (see above, “Who falls under the ML/TF Act”), on the one hand to draw up regulatory standards (art. 86) and, on the other, to check whether the persons subject to the Act comply with their legal obligations (art. 85, §1, 5°).
The FPS Economy also monitors compliance with the restriction on payments and donations in cash (art. 85, §3).