EXAMPLE OF EXPLOITATION OF JURISDICTIONS INCLUDED IN THE GRAY LIST BY CRIMINAL ORGANIZATIONS.

Published on August 2023

by Miguel CASSAGNE

1. The threat of money laundering and its serious consequences. Need for collective treatment under common international standards.

Money laundering represents a severe financial crime that poses a significant threat to the global economic stability at large and to individual nations in particular, undermining the integrity of financial systems worldwide. This illicit activity often thrives on funds derived from drug trafficking and political corruption, or sometimes, a combination of both factors. This is in addition to heinous crimes like human trafficking, sexual slavery, organ trafficking, and more.

To combat this menace globally and collectively, the International Financial Action Task Force (FATF) was established in 1989. It is an international entity responsible for providing recommendations in the fight against Money Laundering, Terrorist Financing, and the Proliferation of Weapons of Mass Destruction. The FATF also evaluates its member jurisdictions to ensure that they have translated these recommendations into domestic regulations and assesses the effectiveness of the internal policies for the prevention of money laundering and terrorist financing implemented through these regulations.

2. FATF Jurisdiction Evaluation System and the Public Documents reflecting the Results (Gray and Black Lists).

FAFT evaluation is conducted through a process known as "Mutual Evaluations," the results of which lead to the creation of two public documents issued by FATF three times a year. Through these documents FAFTI identify jurisdictions that satisfactorily meet the two aforementioned evaluation parameters, as well as those jurisdictions with weak measures to combat money laundering and terrorism financing that require special monitoring ("Gray List"), and jurisdictions labeled as "High-Risk" ("Black List").

a.) Gray List. The document that describes jurisdictions with weak prevention systems is called "Jurisdictions under Increased Monitoring" (also known as the "Gray List").

In this document, FATF identifies countries that are actively working with it to address strategic deficiencies in their regimes to counter money laundering, terrorism financing, and the financing of proliferation.

Being placed on the "Gray List" signifies a commitment to swiftly address identified strategic deficiencies within agreed-upon timeframes and subject to increased monitoring.

The FATF's process of publicly listing countries with weak regimes for preventing money laundering and terrorist financing has proven ti be vert effective. As of June 2023, FATF has reviewed over 125 countries and jurisdictions, publicly identifying 98 of them as having weak regimes. Out of these 98 countries, 72 have successfully implemented the necessary reforms to address their deficiencies in money laundering and terrorism financing prevention and have been excluded from the process.

Among the 26 jurisdictions still on the "Gray List" (published on June 23, 2023) are Albania, Barbados, Burkina Faso, Cameroon, Cayman Islands, Croatia, Democratic Republic of Congo, Gibraltar, Haiti, Jamaica, Jordan, Mali, Mozambique, Nigeria, Panama, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Turkey, Uganda, United Arab Emirates, Vietnam, and Yemen.

b.) Black List. In the case of the ?Declaration of High-Risk Jurisdictions subject to a Call to Action? (also known as "Black List"), FATF identifies countries or jurisdictions with serious strategic deficiencies to counter money laundering, terrorist financing, and proliferation of weapons of mass destruction. Currently, only three jurisdictions are included in the Black List: Democratic People's Republic of Korea, Iran, and Myanmar.

Regarding these three identified high-risk countries, FATF urges all its members and exhorts all jurisdictions to apply Enhanced Due Diligence, and in the most severe cases, to apply countermeasures to protect the international financial system from the ongoing risks of money laundering, terrorist financing, and proliferation of weapons of mass destruction emanating from these countries.

3. Example of Exploitation of Jurisdictions with Weak Prevention Systems (included in the Gray List) by Criminal Organizations.

A recent practical example of criminal exploitation of countries with weak prevention systems can be observed in money laundering structures involving criminals based in Panama.

Currently, Panama is one of the 26 countries included in the latest "Gray List" published by FATF. Although political authorities in Panama suggested that the country may be removed from this list by the upcoming October, it is undeniable that Panama continues to be utilized as a financial route for conducting money laundering operations.

In recent years, U.S. authorities have investigated and uncovered cases of money laundering involving both Panama and Venezuela.

These covert and fraudulent operations primarily aim to launder illicit funds with the ultimate destination being Miami. These involve multimillion-dollar investments in sectors such as the textile industry, luxury property development, high-end restaurants, and luxury vehicle acquisitions. In all of these cases, the individuals involved are connected to the government of Nicolás Maduro, maintaining close ties to high-ranking officials and even those at secondary levels.

The criminal pattern involves these individuals establishing multiple companies in Venezuela, and resorting to complex accounting maneuvers to justify the origin of their investments. These funds are then transferred to Panama, often in the form of investment corporations. These corporations also undergo a process of creative accounting to "legitimize" the funds before being ultimately transferred to Miami as legitimate investments.

These transactions involve substantial sums of money leaving Venezuela with dubious origins. As this money lacks legal justification, the perpetrators of corruption seek to "clean" its source, which is where complex accounting manipulation comes into play.

One of the most recent cases involves Naman Wakil, a Venezuelan-born Syrian businessman who recently passed away, who was facing allegations in Miami for his alleged involvement in laundering hundreds of millions of dollars through these corrupt schemes. He was scheduled to appear in a federal court in next October for having been accused of charges related to paying bribes to Venezuelan officials in exchange for government contracts between 2010 and 2017, as well as investing illicit profits in luxury properties in Miami. Wakil's wealth exceeded $400 million and included high-value properties, a yacht, and an aircraft. This case adds to other members of Venezuela's business elite facing similar accusations in federal courts in Miami, all accused of capitalizing on their political connections to enrich themselves through inflated government contracts and corruption schemes.

Another example highlighting the same money laundering pattern involves individuals connected to the company SECONAFI (Servicios Contables Administrativos y Financieros -Administrative and Financial Accounting Services-), operating in both Venezuela and Panama. Investigations in both countries suggest their potential involvement in channeling illicit funds through companies in Panama, with ties extending to the United States.

These examples cited in the case of Panama are applicable to other jurisdictions, demonstrating the utility of FATF´s evaluations and the consequent identification of jurisdictions with deficient prevention systems.

4. Final conclusions.

As observed, criminal organizations continuously change tactics as well as the countries in which they intend to carry out their activities. It is more likely for them to perpetrate their crimes in jurisdictions listed on the Gray List as a means to evade controls, exploiting the weaknesses of these countries.

This could entail a significant increase in crime rates (due to criminal organizations relocating or operating within that jurisdiction), as well as negatively impact national security and weaken the financial system and economy. Additionally, this could lead to adverse consequences in international relations and in relation to the country's access to external sources of financing. Hence, the importance for all jurisdictions to comply with FATF international standards and have effective Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) systems in place.

By doing this, a jurisdiction that accomplishes this goal not only deters illicit conduct within its borders but also plays a role in bolstering both local and global financial systems.

In the highlighted instance, it becomes essential for Panama (in addition to conducting thorough inquiries into questionable fund transfers originating from Venezuelan government contractors, which eventually find their way to Miami) to adopt comprehensive actions aimed at exiting the Gray List. This involves enacting impactful strategies to strengthen their domestic mechanisms for countering such offenses, thus deterring and better prosecuting these unlawful activities.