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The world has undergone many significant changes in the recent year. We saw Russia's brutal invasion of Ukraine, which brought to light the well-known fact that there is a vast quantity of Russian money with questionable origins floating around the world.
This illicit financial flow into the West conveniently found its way into the purchase of expensive items and real estate.
In addition to being important for particular governments and Anti-Financial Crime (AFC) networks, this subject is currently also of interest to world leaders, media, and the general public.
On the one hand, we found instances of long-forgotten unity; on the other hand, we observed distressingly disparate strategies used by various countries to address sanction-related concerns.
We have observed how many people actually struggled to ensure that government and private sector organizations comprehend and uphold the letter of the law. We also saw anti-sanctions efforts that claimed they were to blame for the global economic downturn.
In addition, we regrettably choose a different response to Russia's war and the application of sanctions against Russia than the growing divide between the global South and the North.
Finally, as the sanctions system put more pressure on Russia, we could watch the deterioration of relations between Russia and Iran and North Korea, with Iran supplying drones and North Korea sending artillery shells to Russia to bolster its conflict in Ukraine.
The AFC must focus on the following during the extremely difficult and challenging year that lies ahead:
1) Effective sanction regime enforcement;
2) Reevaluating current channels for collaboration and figuring out new routes to achieve global collaboration
Consequently, we anticipate:
3) a contentious discussion between those who favor increasing transparency and information sharing and those who defend privacy.
4) Increasing pressure on specific high-risk industries to unify legislation and improve enforcement (e.g. capital market and investment advisers and, of course, gatekeepers or DNFBPs).
The necessity of preventing the escalation of financial crimes (such as fraud, exploitation of the insolvency system, and identity theft) as a result of the economic downturn will rise concurrently.
Due to a persistent lack of solidarity, transparency, teamwork, and resources, attempts to seize frozen assets will continue to uncover some very uncomfortably true facts about the absence of harmonised laws and fundamental concepts.
It is obvious that the assets cannot be frozen indefinitely because doing so would violate the legal certainty principle and, more crucially, would need high maintenance expenditures from the taxpayers.
It is also evident that there will be many difficulties in seizing the assets of specified individuals in order to pay for Ukraine's recovery and reconstruction.
Even though the theoretical issues will be overcome, the capacity on the enforcement side is still lacking, which is why there is still continuous dispute regarding the legal foundation for seizure.
Sanctions enforcement is technically challenging, politically challenging, and expensive.
Any option for asset confiscation, whether it be one based on attempted sanctions evasion or a more conventional idea that connects the confiscated assets to criminal activity, must adhere to the principles of due process and the rule of law, i.e., proper investigation and adjudication.
The government agencies that deal with the application of penalty lists, such as FIUs, investigators, prosecutors, and other regulators (including commercial and property registrations), are chronically underfunded and overworked.
Therefore, any political initiative that calls for the expediency of confiscation attempts can be regarded as notable, provided that it also includes a plan for allocating enough resources, creating coordination channels, and harmonizing enforcement techniques.
I can say with confidence that the scale and complexity of the techniques for layering and integrating assets of kleptocrats were being burdened by conventional methods of collaboration between various public and private sector stakeholderes thanks to the experience of FIU Latvia in establishing and leading the award-winning International Financial Intelligence Taskforce (IFIT) that dealt with one of the most notable examples of the facilitation of Russia-related illicit flows.
IFIT (from 2019 to 2022) successfully addressed a number of difficulties that the majority of nations will face in 2023:
- what amount of evidence is needed to prove illicit origin of assets that are hidden via complex, multijurisdictional ownership structures;
- how to prove the illicit origin of assets in case of a foreign predicate crime in a country that is ‘de facto’ un-cooperative (despite having one of the highest rated AML/CFT systems according to FATF);
- if not a particular predicate crime, just a criminal origin or a reasonable suspicion of criminal origin of the assets should be proven, what if that criminality is historical (it happened 10, 20 or 30 years ago);
- when does the limitation period of a money laundering indictment expire? (maybe never – due to the complexity of money laundering schemes and the vague language of laws!)
IFIT enabled the creation of new typological and methodological frameworks as well as a shared understanding of the problems.
Additionally, it worked as a mechanism for increasing capacity. Finally, it produced excellent outcomes, including freezes, seizures, confiscations, administrative fines, indictments, and changes to the legislation.
This calamity must not go to waste.
The quote "Insanity is doing the same thing over and over and expecting different results" is supported by IFIt is success.
In these trying circumstances, we have the chance to band together, coordinate our efforts, think creatively, act differently, and create a better system to combat financial crime. This year will bring about a lot of change.
By fLEXI tEAM