22 December 1997
Threat to Europe from economic crime
Committee on Economic Affairs and Development
Rapporteur: Ms Helle Degn, Denmark, Socialist Group
The threat to Europe from economic crime - including money laundering and corruption -is now such that it threatens economic and social stability, and even democracy and the rule of law. The member states of the Council of Europe in this situation must reinforce their cooperation with the Organisation to fight economic crime with new resolve, in line with the commitments made at the Council's 2nd Summit of Heads of Government or State in October 1997. National legislations need to be strengthened, and existing international texts, including those concluded in the Council of Europe, should be signed and ratified if this is not already done. Finally, the report recommends that the Assembly regularly review the situation on the basis of reports by its Committee on Economic Affairs and Development and its Committee on Legal Affairs and Human Rights.
I. Draft resolution
1. Economic crime, including the phenomena of money laundering and corruption, have over recent years grown to such an extent as to pose a serious threat not only to the economic and social stability of many countries and indeed the world, but even to the rule of law and democracy itself. Even the European Union has failed to stamp out corruption in its own affairs, particularly in the operation of the Common Agricultural Policy. This situation calls for much closer cooperation among countries the world over, and notably the member states of the Council of Europe, an organisation which has been in the forefront of this struggle for many years.
2. The Assembly therefore calls on the governments of member states of the Council of Europe to strengthen, as a matter or urgency, the organisation's resources in its fight against economic crime, money laundering and corruption and to speed up their work in these fields, in line with the commitments made at the Conference of European Ministers of Justice in Prague in June 1997 and at the Council's Second Summit of Heads of Government or State held in Strasbourg in October 1997. Such enhanced political and material support is also needed in regard to other international organisations and initiatives in these fields.
3. Parallel to such international action, Council of Europe member states should strengthen, where necessary, their legislation in these domains, for instance by:
i. making it a criminal offence to belong to, or support, an association of organised economic crime;
ii. criminalising the laundering of proceeds from all serious crime;
iii. enhancing financial investigations into criminal assets;
iv. enabling confiscation, seizure or freezing of illicit assets from drug trafficking and other serious offences;
v. considering it a criminal offence if financial and non-financial institutions do not report suspicious transactions,
vi. adapting legislation and regulations to the requirements of international cooperation.
4. Furthermore, the Assembly calls for the speedy signature and ratification by all Council of Europe member states of the numerous international conventions and agreements that already exist, and in particular the European Conventions and, where applicable, Protocols on:
i. Extradition (ETS 24 and 86)
ii. Mutual Assistance in Criminal Matters (ETS 30, 98 and 99)
iii. Information on Foreign Law (ETS 97)
iv. Transfer of Sentenced Persons (ETS 112)
v. Insider Trading (ETS 130)
vi. Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (ETS 141).
5. The Assembly calls for new strategies that permit the coordination of different financial investigations targeting the assets of organised economic crime. Such initiatives may require quick legal mechanisms to lift banking secrecy and various provisions under which bankers, judiciaries, accountants and lawyers may be compelled by judicial order to breach their duty of loyalty and produce bank records or other financial statements or, if necessary, give testimony. Consideration should also be given to the possibility for different countries having participated in a law-enforcement operation to share assets recuperated, insofar as they cannot be returned to their rightful owners.
6. Special attention should be given to economic crime, money laundering and corruption being undertaken in the rapidly growing electronic commerce, as studied particularly within the OECD. Cooperation between the Council of Europe and the OECD should be stepped up to accelerate the shaping of legislation and conventions in this field.
7. Member states should agree to draw up, within the framework of the Council of Europe, regular reports on the situation in their countries as regards economic crime, money laundering and corruption for joint examination within the organisation, through a body which could advise countries on ways to improve the situation. Such a body should also be accessible to ordinary citizens in member states who feel affected by these ills. Finally, member states should consider introducing an Ombudsman or Commissioner at national level (where such a person does not exist already), or within existing regional or international organisations where available.
8. The Assembly invites member states which have not yet done so to join the Financial Action Task Force on Money Laundering (FATF) or at least to implement its work. The new body mentioned in paragraph 7 above should also be entrusted with the task of monitoring and evaluating the anti-money laundering policies of all member states.
9. The Assembly welcomes the agreement reached in November 1997 among the member countries of the OECD on a Convention on combating bribery in international business transactions, including that of foreign public officials, and calls on all member states of the Council of Europe, including non-OECD members, to sign and ratify this open treaty as soon as possible.
10. Finally, the Assembly calls for as close a coordination as possible between the Council of Europe and the European Union in the fields mentioned, especially in view of future European Union enlargement.
III. Draft Order
The Assembly decides to review regularly the work of the Council of Europe to combat economic crime, on the basis of reports by its Committee on Economic Affairs and Development and the Committee on Legal Affairs and Human Rights.
IV. Explanatory Memorandum by Mrs Degn
II. NATURE AND FORMS OF ECONOMIC CRIME
1. Definition. The worldwide reach
2. Council of Europe initiatives against economic crime and corruption
a. Economic crime
c. Other international action against corruption
III. MONEY LAUNDERING
2. Council of Europe action against money laundering:
the 'normative-operational approach'
IV. OTHER NORMATIVE INITIATIVES
1 Economic crime, drug trafficking, money laundering, corruption and fiscal fraud are no new phenomena in our societies. These activities have developed over a long period of time. What is new is that they have now grown to an extent such that they pose real risks to economic and social stability at regional, national and international level, with possibly serious political consequences in less consolidated states and democracies.
2 A number of factors have combined to make drug trafficking and money laundering in particular issues of grave concern to the international community and the subject of international cooperation. Important national and international efforts have been undertaken over the last few years to ensure action and coordination in the fight against the wider aspects of economic crime, including its growing internationalisation. The Council of Europe has in this regard taken, and supported, essential initiatives, especially since 1990.
3 The world's major economies continue to liberalise their economics. Far-reaching economic reforms are taking place in former socialist societies, and profound transformations from closed to open economies are under way, resulting in ever greater economic globalisation. The global liberalisation includes spectacular growth of capital markets and previously unencountered freedom of, and capacity for, money-transfers and capital movements. In such conditions economic crime, including organised economic crime have been able to grow with alarming speed, often ignoring borders and spanning continents in ways reminiscent of that other worldwide phenomenon, the multinational enterprise.
4 The relative "market competitiveness" of modern criminal economic activities is rooted in traditional forms of crime, corruption, fraud, intimidation, collusion and law evasion. This explains the "low costs" of criminal economic operations compared to legal ones. Our task will be, in economic parlance, to increase the 'cost' of economic crime in any way possible, from preventing perpetrators from benefiting from their ill-gotten gains to bringing them to justice.
5 Criminal economic activities are already now crippling the economies of countries and societies in strained social and financial circumstances. They threaten to dominate entire economic sectors and geographic regions. Recent studies by the International Monetary Fund suggest that money-laundering today is large and widespread enough to have tangible impact on the global economy. Economic crime threatens to destroy democracy and civic society in countries that are the most vulnerable. The overall extent of economic crime might grow large enough to disrupt the global economic order.
6 It is widely believed that the international extension of economic crime is dependent upon the extent to which its proceeds can be moved and reinvested legally and that, therefore, efficient containment should be sought in blocking transfers of illegal money - in other words to stop money-laundering. This is why money laundering will occupy a special place in this report. Money-launderers invest funds where they are financially secure, and only rarely in the poor areas or countries where the money has been obtained. This is why money-laundering and other border-crossing economic crime have a particularly negative impact on social conditions and economic development in states and regions that are in the greatest need of economic development.
7 Moreover, as launderers invest funds where the recycling process is more secure rather than where rates of return are higher because of good economic policies and fundamentals, laundering may negatively influence interest and exchange rates nationally and globally, given the high integration of capital markets.
8 In 1990 a United Nations report argued that the drugs trade represented, at the time, 10% of world GDP, with daily money laundering amounting to more than one billion dollars. The IMF and the Financial Action Task Force (to be described in greater detail later) give equally high estimates. One may question the preciseness of these figures since by definition money laundering is a clandestine, and hence largely unestimable, process. However, it is clear that the proceeds from economic crime have reached an unacceptable level, and that it is vital to act to reduce the profits made by those who engage in it.
9 In Europe there is increasing public concern over the threat presented by new forms of criminality as engaged in by sophisticated and transnational criminal groups. The liberalisation of trade and capital investment, the scientific and technical revolution, world-wide communication networks, increased mobility, the dismantling of barriers and frontiers permitting persons and goods to move more freely - positive elements of modern life though they certainly often are - are also factors that criminal organisations have had no hesitation in using for their own benefit.
10 Not so long ago, criminal justice was almost exclusively a national problem. Nowadays a criminal policy that takes the organised, transnational dimension of crime into full account is imperative. Unilateral measures by national governments are today often wholly insufficient, and no responsible political leader can still consider crime as purely domestic issue. States that want successfully to combat economic crime will have to co-operate, share experiences and put to common use their findings and means. There is growing awareness about the impossibility of fighting international economic crime with national measures. Yet states seem to have been much less quick than criminals in adapting their strategies to the international framework in which modern organised criminals are operating.
11 Organised criminals and criminal organisations pose an even greater threat than criminals operating alone, not least because they often seek not only profit, but also economic and political influence to get at and keep that profit. The example of certain countries shows that the economic position held by criminal organisations and their influence on the official structures of government may directly threaten the existence of the state as such, or at least its democratic structure.
12 Organised economic crime was considered a menace to national security at a hearing in the US Congress in October 1997. Mr Louis Freeh, the Director of the FBI, said that organised criminal groups are particularly dangerous since they use their increasing expertise in computer technology, encryption techniques and money laundering facilities to process hundreds of millions of dollars. He identified organised economic crime groups in the United States as coming from Russia and Central and Eastern Europe, Asia, Africa and many other parts of the world. The hearing also pointed to growing ties between the traditional Sicilian Mafia and the crime groups from other countries. Also in Europe these groups were said to be buying up vast real estate in Italy and pouring millions of dollars into that country's banks.
13 It is an almost impossible task to cover the extremely wide-ranging and complex subject of economic crime in one single report, especially one that strives for brevity. It is nevertheless the Rapporteur's hope to give a reasonably comprehensive view of the phenomenon and to suggest appropriate action. She wishes to express her gratitude not only to the members of the Committee on Economic Affairs and Development for their valuable contributions but also the Directorate of Legal Affairs of the Council of Europe which has provided excellent advice throughout. Finally, she wishes to thank various experts she has consulted in her own country Denmark.
II. NATURE AND FORMS OF ORGANISED ECONOMIC CRIME
1. Definition. The worldwide reach
14 The term "organised economic crime" is widely used nowadays. No internationally recognised definition exists, but legal definitions of, or references to, organised economic crime can be found, for instance, in the legislation of certain countries. The following points are common to most definitions of a criminal organisation: (a) a group of persons, (b) each having his own specific role, (c) brought together in a structured way, (d) for the purpose of committing an undetermined number of offences. Criminal organisations are in all known cases profit and power-oriented.
15 Organised (economic) crime is no mystery, although sometimes it is mystified by politicians. It may show different facets depending on the economic sectors or modus operandi involved, but it is always about money. No matter what illegal goods or services are concerned, if they can produce profit at an acceptable level of risk they will be traded. This is nothing more than the philosophy of any entrepreneur: investing and trading in sectors which show high profits and are sustained by consumer demand. The difference lies in the illegal character of goods or services offered. This trading or, in criminal law terms, trafficking activity, may concern goods which destroy human lives (weapons and drugs), jeopardise the natural or genetic heritage (pollutants or hazardous activities), reduce the human being or part of the human body to the status of an object (sex tourism, trafficking in children or women and trafficking in organs). Such trafficking activities presuppose other illegal commercial practices, such as money-laundering, tax evasion and corruption.
16 It is difficult to give an at the same time comprehensive and precise definition of the list of illegal activities that can be grouped under the heading of economic crime. A recommendation by the Council of Europe's Committee of Ministers of 1981, Recommendation No. R(81)12 on the subject list the following offences:
"- cartel offences
- fraudulent practices and abuse of economic situation by multinational companies
- fraudulent procurement or abuse of state or international organisation's grants
- computer crime(eg. theft of data, violation of secrets, manipulation of computerised data)
- bogus firms
- faking of company balance sheets and book-keeping offences
- fraud concerning economic situation and corporate capital of companies
- violation by a company of standards of security and health concerning employees
- fraud to the detriment of creditors (eg bankruptcy, violation of intellectual and industrial property rights)
- consumer fraud (in particular falsification of and misleading statements on goods, offences against public health, abuse of consumers' weakness and inexperience)
- unfair competition (including bribery of an employee of a competing company) and misleading advertising
- fiscal offences and evasion of social costs by enterprises
- customs offences (eg evasion of customs duties, breach of quota restrictions)
- offences concerning money and currency regulations
- stock exchange and bank offences (eg insider trading, fraudulent stock exchange manipulation and abuse of public's inexperience)
- offences against the environment"
17 Needless to say, the world has changed considerably since 1981, above all with the radical liberalisation of economic activity and the advent of new technology.
18 One difficulty consists in determining, whether, and at what level, corruption should be considered an economic crime. If a bottle of wine as a Christmas gift to a government or company official is not, a bundle of bills is, but the borderline is not always as clear as that. Insider knowledge used for personal gain in the evolution of shares is by now considered an economic crime, but unfair competition rendered possible by subsidies is normally not.
19 Economic crime has traditionally not been perceived as a conventional form of delinquency such as, for example, violations against people, property, morality or the public order, or for that matter theft. When analysing the nature of economic crime it is advisable to:
- focus on the whole range of financial and economic fraud as well as corruption, and at all levels;
- concentrate on illegal commercial activities with a global reach, in particular drug trafficking (but also such activities as illicit trade in nuclear materials, weapons smuggling or human smuggling.
- bear in mind the close relationship or, sometimes, identity between economic crime and organised crime.
20 Until recently, a sort of forgiveness (de facto immunity in some cases, perceived immunity in others) used to be observed vis-à-vis economic crime - often defined as "white-collar" crime. Economic crime was apparently considered less dangerous to society or less 'evil' than conventional delinquency, perhaps in consideration of its perceived non-violent nature. Criminalisation, and sometimes even moral condemnation, was avoided, as people committing economic crime were often considered more 'smart' than criminal.
21 This is still the case in certain countries, including developed market economies, and one is struck by the relative inefficiency of the diverse counter-strategies tried, often caused by difficulties in incorporating economic crime behaviour in the traditional legal framework, and by the absence of a clear and coherent system of criminal law prevention and enforcement. The latter point has become a priority as organised economic crime is using more and more sophisticated techniques and has become increasingly flexible and global. And it is especially evident in money laundering.
22 Some criminal organisations may be considered businesses in their own right. Since organised economic crime needs control over the territory where it operates, it 'invests' in violence and corruption in order to increase the profits on the illegal 'commodities' it brings to market. Territorial control refers principally to illegal markets with no or low outer barriers, such as prostitution, smuggling and loan-sharking. Activities on a global scale cannot, however, be based on direct territorial control in all their stages. In certain markets criminal organisations try to achieve 'vertical integration' so as to be able to coordinate centrally (e.g. money laundering, large-scale distribution of narcotics - especially internationally - and the 'supply' of violence for extortionary purposes). In such markets the most powerful criminal organisations try to reach some degree of accommodation among each other, in traditional cartel fashion. Such activities can only continue and develop if 'profits' are re-invested, i.e. laundered internationally.
2. Council of Europe initiatives against economic crime and corruption
a. Organised economic crime
23 Since it is driven by profit and power, organised economic crime is an ever-changing phenomenon which requires permanent analysis of its modus operandi and the criminal offences it commits. Knowledge about these decisive questions should be shared among European countries. Common criteria need to be established to facilitate a European strategy that can bridge the differences between national legal systems. This is why the initiative of the Council of Europe to set up, in 1997, a new Committee of experts on criminal law and criminological aspects of organised economic crime (PC-CO) deserves the Assembly's full support. This committee has the difficult task of analysing the characteristics of organised economic crime with a view, inter alia, to identifying lacunae in international cooperation instruments and suggest solutions to be included in new legal instruments. The Rapporteur in addition suggests that this committee work in liaison with any economic crime ombudsmen or commissioners whose creation is called for in the draft resolution accompanying this report.
24 A pioneering step was taken when the new committee decided to send out a detailed questionnaire to all member states with a view to gathering information on the organised economic crime situation and the counter-measures applied. On the basis of the responses to the questionnaire, the Committee is expected to produce a report analysing the features of organised economic crime in Europe and pinpointing the strengths and weaknesses of domestic policies and of international co-operation. This report, to be produced annually by the so-called 'PC-CO Committee' as from 1998, should give rise to a permanent dialogue between member states and the Council of Europe on the best means of harmonising domestic legislations, bringing law enforcement practices closer to each other and fostering international co-operation against organised crime.
25 The Rapporteur strongly insists on the need to improve international co-operation, traditionally seen as one of the major fields of interest of the Council of Europe. The time has come, is indeed overdue, when the international instruments developed by the Council of Europe over the last 40 years, for example on extradition or mutual assistance, to mention only the two best-known conventions, need to be updated so as to better respond to the challenge posed by international crime. In this effort, it must be ensured that initiatives taken by other international fora do not create unsurmountable difficulties for negotiations engaged within the Council of Europe.
26 Of course, one also has to recognise that as the number of Council of Europe member states increases, disparities grow also. They also grow due to the particular circumstances relating to European integration within the framework of the Fifteen EU members. Such changes in numbers and homogeneity create a need for more co-operation, not less. Some Council of Europe member states seem less eager than others to reach progress. Pressure must be brought to bear on them to overcome their hesitations, for whatever reason they hold them.
27 Co-operation in the future should be of two kinds. On the one hand it must be carried out within the whole group of 40 member states. On the other it must be 'cross-sectional' and take into account the increasing complexity of the 'European geometry'. It seems unavoidable to create an operational link between the activities of co-operation in criminal matters within the 15 members of the European Union and those undertaken in the more general framework of the 40 members of the Council of Europe.
28 Co-operation in relation to organised and other forms of serious crime in the Council of Europe has focused for a number of years on the various forms of legal assistance. Since the 1980s, a second, more ambitious approach has been followed: co-operation and harmonisation of national legislations in certain fields, to enable a better and more speedy international reaction to crime. The 1978 Convention on the Suppression of Terrorism, the above-mentioned Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, the forthcoming Convention on the Protection of the Environment through Criminal Law and the (Criminal Law) Convention against Corruption are good examples of this new tendency. Recommendations on issues connected with organised economic crime, such as witness protection or crime policy, complete the body of rules which the member states are invited to implement in their own legislation.
29 There is also the problem of insider trading. Insider trading refers to the use for personal gain of priviledged knowledge when trading in stock. Although it is, of course, difficult precisely to define the notion of insider knowledge and to determine when the borderline to abusing such knowledge has been crossed, the Council of Europe's Convention on Insider Trading clearly recognises it as an economic crime under certain circumstances. To date the Convention, which entered into force in October 1991, has been signed by eight countries and ratified by seven. It is important that all member countries of the Council of Europe should sign and ratify it as soon as possible; for if we want to preserve a market-oriented economic system, in which the free trading of shares is essential and natural, then we must make sure that it does not punish ordinary shareholders who have put their savings at risk by unduly rewarding those in the know.
30 Organised economic crime is often, though not always, linked to another phenomenon which poses an acute threat to democracy, the rule of law and human rights. That is corruption. Organised economic crime and corruption do not necessarily appear jointly. There are situations in which criminal organisations do not contaminate the normal functioning of state institutions because they operate on the margins of society, in the absence of contacts or connections with government officials or local politicians.
31 Corruption is not necessarily generated by the needs of criminal organisations, nor always financed by them. One could mention, as an example, endemic corruption in public procurement contracts linked to the financing of political parties or campaigns. In many cases, however, corruption is indeed one of the basic phenomena accompanying organised crime. Through corruption, organised economic crime tries to obtain the information it seeks, minimise the risk of being subject to law enforcement measures, and acquire a decisive influence in society. Organised economic crime has considerable financial means at its disposal, thereby giving corruption added means. If these phenomena are not effectively tackled and if, in addition, conditions are created - even inadvertently - favouring their growth, then the forms of corruption stemming from organised economic crime may endanger the very foundations of society, and official government structures may become mere puppets in criminal hands.
32 European citizens are increasingly concerned about the problem of corruption, which has emerged as an important clandestine driving force in Europe. Corruption is seriously undermining our citizens' faith in two of the foundations of our societies: the economic system, the basic rule of which is free but fair competition (the market economy); and democracy, guided by the principle of equality, governed by the rule of law, and supposed to favour values like competence and merit. Corruption threatens these fundamental values and constitutes a danger for the stability of democratic institutions. That is why the Council of Europe, whose precise aim is that of defending the rule of law, democracy and human rights - and, since the Vienna Summit in 1993, the democratic security of Europe - feels increasingly concerned about corruption. Moreover, corruption is an appropriate subject for European cooperation, not only because it is a problem shared by most, if not all, European states but also because it often presents transnational elements.
33 In June 1994, the 19th Conference of the European Ministers of Justice adopted a Resolution proposing the setting up of a "Multidisciplinary Group on Corruption within the Council of Europe" (GMC). This Group, established by the Committee of Ministers of the Council of Europe in September 1994, started work in March 1995. The GMC prepared a Programme of Action against Corruption, an ambitious document covering all aspects of the international fight against this phenomenon. This Programme was adopted in November 1996 by the Committee of Ministers, which fixed the end of the year 2000 as the deadline for its implementation.
34 The Multidisciplinary Group on Corruption has been working intensely on the preparation of several international instruments against corruption. It has prepared, first of all, twenty Guiding Principles which will soon be submitted to the Committee of Ministers for adoption and which specify the most important issues where an unambiguous commitment of our member states and observer countries is required to combat corruption effectively, including the criminalisation of corruption offences and the prohibition of tax deductibility of bribes. The countries are expected to include these principles in their national strategies against corruption.
35 Respect for the principles should be monitored through an effective follow-up mechanism, open to the participation of all member and non-member states willing to step up their fight against corruption. Only an effective, but at the same time flexible, monitoring mechanism of national anti-corruptoin measures will allow concrete results to be reached, given the economic interests involved at the level of international commerce and the difficulty of convincing countries to take unilateral action against corrupt business practices.
36 Such an action against corruption should therefore be conducted by a permanent entity entrusted with the task of analysing corruption and its links with organised crime, coordinating efforts at national level, ensuring compliance with international standards, promoting the exchange of experience and information, facilitating research and assisting governments and regional, local authorities in their strategies to combat corruption. The setting up, within the framework of the Council of Europe, of such a new entity to improve the present level of cooperation in this field, would be a major political initiative. By doing so, the Council of Europe would help to boost current negotiations and provide an effective tool to dynamise the organisation's action against corruption and organised crime.
37 Of course, work has already been undertaken in several other fields covered by the Programme of Action against Corruption. The drafting of a Criminal Law Convention providing for the criminalisation of the most serious forms of corrupt behaviour, including bribery of foreign officials, as well as specific provisions on international cooperation to facilitate the prosecution of corruption offences, is almost finished. Also, following a feasibility study requested by the Committee of Ministers, the GMC has started the drafting of civil law instruments against corruption, providing for specific remedies for victims of corruption and compensation for damages suffered. The GMC has also started the preparation of model codes of conduct for public officials.
38 Observers have noted that the economies in transition have particular difficulty in dealing properly with the dangers of organised crime, illicit trafficking and corruption. It was perhaps inevitable that the upheavals in the political, legal and economic systems of the countries of central and eastern Europe - some of which have undergone rather chaotic transitions to the market economy and even regional disintegration - would facilitate the operation of criminal organisations. The Council of Europe has therefore launched, in cooperation with the European Commission, a project to combat organised economic crime and corruption in the countries in transition (Octopus), which has been implemented in sixteen central and eastern European countries. This project should help diagnose these countries' legislation and practices in fields relevant to combating corruption and organised crime, formulate recommendations on the necessary changes and, subsequently, hold talks with officials to assess the appropriateness of the recommendations and their implementation.
c. Other internatonal action against corruption
39 The World Bank and the International Finance Corporation (IFC) have taken a strong stand in the fight against corruption. The World Bank, at its annual meeting in October 1996, offered its assistance to member governments in implementing national programmes to discourage corrupt practices. At the same time it does its utmost to control fraud and corruption in its projects. In some countries the World Bank has registered its concern about corruption at high level meetings with government leaders, for example when governments have persisted with non-viable and costly public investment projects. In some cases it has curtailed lending, especially where poor governance, including systemic corruption, has affected bank projects. The IFC is carrying out parallel action in its lending to the private sector.
40 Other international organisations are taking a most active stance. One task is to gather the experiences of their members and to organise training and other programmes aimed at sharing these experiences and developing the skills of officials charged with dealing with corruption in member countries.
41 Although corruption of national officials is a criminal offence in most countries, transnational bribery generally is not. Making international corruption a crime will require changed or new legislation, and mechanisms to enforce them. Both will require support from us parliamentarians. The United States, in 1997, adopted the Foreign Corrupt Practices Act, by which international bribery was criminalised. However, and this also seems to be the experience in the Council of Europe, certain countries have been reluctant to act unilaterally for fear of jeopardising the business interests of their nationals by subjecting them to more stringent standards of behaviour than their foreign competitors. The result is often a standstill, as the convoy can not travel any faster than the slowest of its ships. International organisations here provide a forum in which to agree on common definitions and standards, and to coordinate actions.
42 In 1996 the Organiation of American States (OAS) adopted the Inter-American Convention against Corruption, so far signed by 23 of the Organiation's 35 member states. The Convention is now in force between the countries that have ratified it: Bolivia, Costa Rica, Equador, Mexico, Paraguay, Peru, and Venezuela. The Convention is open to ratification also to states not members of the OAS.
43 In May 1997, the OECD Ministerial Council endorsed the Revised Recommendation on Combating Bribery in International Business Transactions. The Ministers reaffirmed their commitment to criminalising bribery of foreign public officials in an effective and coordinated manner. They recommended that member countries submit criminalisation proposals to their parliaments by April 1998, and seek their enactment by the end of 1998. They also decided to open negociations on a convention to be completed by the end of 1997 with a view to its entry into force as soon as possible in 1998. The Ministers also urged the prompt implementation of the 1996 Recommendation on ending tax deductability for foreign bribery (see also the Assembly's Resolution on OECD and the World Economy, Resolution 1134 (1997)).
44 In May 1997 the European Commission adopted a 'Communication' to the EU's Council of Ministers and the European Parliament on a Union Policy against Corruption. The Communication sets out a comprehensive EU policy on corruption inside the region as well as in its relations with non-member countries. It deals with a wide range of actions, including the ratification of Conventions criminalising the corruption of EU officials and those of member countries, eliminating the tax deductability of bribes, reforming public procurement, accounting and auditing systems, etc. In the case of non-member countries, the Commission proposes to "establish a coherent anti-corruption strategy in the area of its cooperation with third countries which benefit from EU assistance or have concluded cooperation or assistance agreements with the EU". The proposal also includes the establishment of special anti-corruption programmes, particularly in the applicant countries of central and eastern Europe. However, also the ACP (African, Caribbean, Pacific) countries parties to the Lomé Convention would be covered.
45 In December 1996 the United Nations General Assembly adopted a Declaration against corruption and bribery in international commercial transactions. Although not legally binding, the Declaration's wording on criminalising foreign bribery and ending its tax deductability signifies broad political agreement in the international community on this matter.
46 Initiatives are also afoot in the non-governmental arena. Thus, in March 1996, the International Chamber of Commerce (ICC) issued revised Rules of Conduct to Combat Extortion and Bribery in International Business Transactions. The Rules prohibit extortion and bribery for any purpose. They also recommend implementation of the 1994 OECD Recommendation on curbing bribery in international business.
47 Non-governmental organisations (NGOs) around the world are participating in the efforts of local governments and other entities to curb corruption. Among the international NGO's, Transparency International (based in Berlin, Germany) aims to curb corruption through international and national coalitions encouraging governments to establish and implement effective laws, policies and anti-corruption programmes. TI also tries to build up public support for anti-corruption programmes and to enhance public transparency and accountability in international business transactions and public procurement. Finally, it tries to encourage all parties to international business transactions to operate in accordance with its Standards of Conduct. Transparency International has more than seventy national chapters that fight corruption at the national level. It has contributed significantly to making corruption a public issue in the press and elsewhere, and cooperates with international organisations in actions against corruption.
III. MONEY LAUNDERING
48 Money laundering is defined in the "International Guide to Money Laundering: Law and Practice" as "the criminal process whereby the proceeds from crime are hidden and transformed by attempts to integrate them into the financial system in order to give them the appearance of legitimate funds".
49 Recent IMF studies suggest that the net yearly worldwide financial gains derived from criminal activities amount to US$ 500 billion (close to 2% of global GDP). They also maintain that the value of the total stock of laundered money is much larger than the yearly figure - probably larger than the GDP of many countries. The evidence of large-scale money laundering throughout industrial countries indicates that it stands in direct proportion to overall criminal activity in those countries. Finally, the globalisation of financial markets has led to an overall volume of legitimate capital flows so large that laundered money can float freely into this mainstream. It becomes virtually impossible to distinguish between legitimate and illegitimate funds.
50 Money laundering threatens the transparency and good functioning of financial markets worldwide and hence the global economy as such, since the latter depends increasingly on the efficient allocation of capital. The enhanced technological possibilities of capital markets operations have led launderers to use more sophisticated techniques. "Washing" mechanisms and recycling processes are employed, involving the services of many kinds of financial intermediaries and using the whole range of financial tools.
51 Today's money laundering is characterised by:
- an increasing move towards more sophisticated money laundering techniques and practices;
- greater investment of drug, terrorist and other illicitly obtained funds in legitimate businesses, in order to capitalise on such funds and to mask the movement of money;
- further internationalisation of money-laundering networks, using more and more countries and financial centres
- the deliberate mixing-together of illicit proceeds obtained through criminal acts, in order to disrupt the audit trail for the investigative authorities; and the increasing activities of money- laundering brokers who handle third party illicit funds which are unrelated to their own criminal activities.
52 Until only a few years ago, information about the use of proceeds from crime was rather scarce and focused mainly on the role of some countries as havens for illicit funds. New knowledge gained internationally over the last decade today permits us to have a clearer view of the situation.
53 Most money laundering systems are based on complex international financial transfers aimed at sending proceeds from crime to foreign banks, often through tax havens. Furthermore, there is a time gap between the accumulation of illegal capital and the laundering investments. This is so because huge amounts of money are under the control of people who - at times - do not possess the knowledge or economic-financial infrastructure necessay to invest large sums in a hurry.
54 Proceeds seem to follow three main laundering channels. A relatively small part of the illegal funds are immediately re-invested into illegal activities to maintain and enlarge such operations. A larger part is invested in sectors with 'weak entry barriers', high rates of profit or a high level of competitiveness (construction, agriculture, retail commerce, the tertiary sector etc.) The largest part of the proceeds, usually in cash, is being exported abroad. For reasons related to security and administrative efficiency, economic crime delegates it to financial experts to carry out these international laundering operations, which are based on the exploitation of differences in financial and banking regulations across countries and jurisdictions. Since this channel for technical reasons necessitates a time span related to the size of the funds, it is here that counter-operations can be mounted most successfully.
55 A few indications are in order as regards counter-strategies. The basic stages of the laundering cycle are well known. They are most commonly referred to as "placement, layering and integration". During these phases the recycling process into the financial system can be implemented, using banks, other financial services businesses and commercial activities.
56 Within the financial system, banks have historically been the main vehicle for money laundering. In general, the most common form of laundering which banks encounter is the deposit of accumulated cash transactions in the banking system, or the exchange of cash for other value items, such as equities and bearer instruments. Lately, however, financial services firms have become more important instruments for money launderers, both because banks have improved their control procedures (backed by more sophisticated laws and regulations) and because the high liquidity of various financial products allows launderers to move their "investments" with great speed.
57 The introduction of the proceeds of crime into the financial system is the initial stage of the washing cycle. More specifically, placement can be implemented:
- through banks
. large banks with branches in tax havens: the launderer can convert money out of the jurisdiction into government bonds, letters of credit or traveller's cheques;
- small-denomination cash deposits in foreign exchange;
- physical smuggling of foreign exchange into tax havens;
- "structuring financial transactions";
- cash deposits in parallel banking systems.
- by utilising other financial structures, such as money changers or financial intermediaries.
- through other commercial activities
- casinos: for example by managing slot machines, or by gambling in small amounts and then cashing the chips into a check under another name;
- small retailers or shop owners: each time they deposit their own earnings into the bank, they also deposit additional proceeds from crime (after which they will transfer the additional part to the launderer).
Layering means disguising the illegal origin of the source, by creating complex layers of financial transactions. Typically this can be done through international sales and purchases of securities, by currency and commodity deals and by offering securities as collateral for loans. These activities are often carried out for no profit at this stage, since the primary objective is to confuse the audit trail by moving the money around frequently and, more often than not, from one jurisdiction to another.
58 More specifically, layering can be implemented:
- through banks
. current accounts deposits and withdrawals in and out of tax havens;
. electronic fund transfers;
. obtaining credit cards in a tax haven and charging the expenses to an account opened in a foreign branch of the same bank.
- through other financial structures, such as insurance companies or financial services firms.
- through commercial activities, such as brass-plate companies or purchases in cash of various kinds of businesses or items.
59 If the layering stage has been successful, then the proceeds are integrated back into the economy, giving the appearance of legitimate funds. This can be done, for example, by setting up a portfolio of apparently legitimate investments, or by acquiring or floating a business. Integration can also be implemented through banks, other financial structures or commercial activities.
60 The most widely known case studies of money laundering operations show that the complex transactions to change the identity of illicit funds are carried out in sequence through many countries, especially in those with important financial centres, and in those which can be defined as tax havens/offshore financial centres (OFCs). This is not to say that the money trail does not pass through other states: on the contrary, as was remarked at the Council of Europe's 1992 money laundering conference, there appears to be a growing incidence of money laundering in the countries in transition in central and eastern Europe.
61 Despite the investigative and preventive anti-money laundering measures in place in many countries, laundering activities continue through the main financial centres because of the advantages offered by the more developed techniques available there. This holds especially for the second and third stages of the laundering cycle.
62 However, when complex techniques are not needed, economic crime will, by definition, look for financial services in countries with less restrictive banking and financial laws and regulations. In particular, operators direct their laundering activities towards those countries (and territories) which feature a weak anti-money laundering legislation and regulatory framework; vulnerable banking systems; weak supervisory authorities; secrecy laws; and few restrictions on capital flows. Since many tax havens and OFCs present these characteristics and serve as vehicles for money laundering, it would seem appropriate to briefly indicate their nature.
63 The "secret world" of tax havens and OFCs is a global business which already in 1991 was estimated at over one trillion US dollars. Even though there are no globally recognised, exact definitions of tax havens and OFCs, two working definitions may be used. Thus, a tax haven is a jurisdiction which has no, or at best low, direct and indirect tax rates compared with other jurisdictions". An OFC, meanwhile, is a centre which hosts financial activities separated from major regulating units (states) by geography and/or by legislation.
64 For the purpose of understanding what an OFC is in respect to money laundering, an additional definition can be given. Here, an OFC is defined as a territory in which the conduct of international banking business is facilitated by favourable and/or flexibly administered tax, exchange control and banking laws, bank secrecy, good communications and political stability, and in which the volume of banking business may bear little relation to the size and needs of the domestic market.
65 The distinction between a tax haven and an OFC is often vague, even though both attract capital flows. Tax havens are principally characterised by low taxation, while OFCs feature a complete range of banking and financial services. Broadly speaking, then, while most OFCs are tax havens, not all tax havens are OFCs. The dividing line is blurred for two main reasons. Firstly, these countries'/territories' financial centres can change their nature over time. Secondly, the term "tax haven" is disliked by most officials because of its negative connotations. Therefore, authorities tend to portray their country/territory as OFCs rather than tax havens.
66 The large capital market of offshore finance, which over the last thirty years has become a major part of the international financial system, has undermined the global capacity to control financial flows, has limited onshore sovereignty over taxation of companies and individuals, and has facilitated money laundering and other illicit activities. The rapid development of offshore finance as an investment environment (when based on political and social stability) has been driven by tax advantages, secrecy and weak regulations. In private banking as used by launderers, secrecy is the main attraction. In some OFCs, releasing information about a client's transactions is a criminal offence. Since bank secrecy and weak regulations favour the growth of illegal activities and make counter-operations against money laundering more difficult, OFCs authorities are under international pressure to take action in order better to regulate their financial systems.
67 Although the practical mechanisms of offshore finance are often hidden behind OFC secrecy legislations, the wide range of offshore services can be categorised into six main vehicles:
- offshore banking (private banking, corporate banking, international loans)
- offshore funds
- offshore companies
- captive insurance
- various other financial services (offshore stockbroking, offshore pensions, multi-currency mortgages, shipping and aircraft registries).
2. Council of Europe action against money laundering: the 'normative-operational approach'
68 Money laundering has for several reasons more recently become of central concern to the international community. Many efforts at national and international level have been undertaken over the last few years to ensure proper co-ordination in the fight against the growing internationalisation of economic crime.
69 The Council of Europe recognised the danger represented by the penetration of criminal money into the legal economy as early as 1980, when it adopted Recommendation N° R (80) 10 on measures against the safekeeping of funds of criminal origin. Though this recommendation was an important step towards enhancing the ability of the financial sector to detect money laundering, it was probably too much ahead of its time, and only a few countries complied with it. Efforts of the Council of Europe have intensified, especially since 1990 when the organisation took, or supported, a number of new initiatives.
70 Thus, in November 1990, the Council of Europe opened for signature its Convention on the Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. The Convention was signed by twelve member states, which were later joined by fourteen others and one non-member, Australia. It entered into force on 1 September 1993 following the three ratifications needed. By October 1997 eighteen member states had ratified. The Convention's provisions are in full agreement with the aims of increased international co-operation to combat the rising tide of economic crime and fiscal fraud.
71 As a follow-up to the Convention the Council of Europe has, among other things, held two major conferences on the subject matter. The first, the Council of Europe Money Laundering Conference, was held in September 1992, while the second, the Council of Europe Conference on Money Laundering in States in Transition, took place in late 1994.
72 Furthermore, the Council of Europe is about to start a programme for the mutual evaluation of measures against money-laundering in certain, mostly central and eastern European, countries, on the basis of the Financial Action Task Force (FATF) model (see pars. 80-82). In fact, the FATF itself and the Committee of Ministers of the Council of Europe recently gave the go-ahead to launch a regional FATF-type of evaluation programme, aiming to monitor the implementation of the 40 FATF recommendations and other relevant international instruments and using a system similar to that of the Task Force, under the auspices of the Council of Europe.
73 Expanding the application of strict anti-money laundering regulations beyond FATF countries, particularly to the rapidly changing Eastern European market, was defined already at the beginning of the 1990s as a major challenge by both the FATF and the Council of Europe. Unfortunately, the Programme, under which anti-money laundering policies of twenty-one member states were to be scrutinised, including the financial and legal and law enforcement sectors, is foreseen to be wholly implemented already before December 1999, which seems to this Rapporteur an unduly early deadline for such a complex evaluation. The experience of the FATF shows that only the introduction of anti-money laundering legislation takes several years even in countries that are fully integrated into regional or global markets and where financial, e.g. banking, structures and the regulatory framework are highly developed. The practical implementation of these measures is costly and time-consuming, and sometimes meets with strong resistance from various political or economic sectors. It is therefore vital to continue monitoring the performance of these 21 countries over a longer period of time, that is, at least 3-4 years beyond the original term, particularly since many countries in central and eastern Europe still have fragile economic and financial systems which are open to any kind of foreign investment, and generally speaking have an environment that attracts money launderers. In the longer term one should entrust the Council of Europe with the permanent monitoring of these countries' anti-money laundering policies and, taking due account of the FATF's future priorities, of widening this activity to all Council of Europe member states.
74 An important Conference of European Ministers of Justice - organised by the Council of Europe in Prague in June 1997 and which I had the privilege of attending in my capacity as Rapporteur for economic crime - discussed in depth needs and means for joint efforts against corruption and organised economic crime.
75 The Prague Conference gathered representatives not only from the 40 member states of the Council of Europe but also representatives of the European Union, the United States, Mexico, Canada, the Vatican, Bosnia and Herzegovina and Azerbaijan. The conference decided to pursue at national level the work started three years earlier on a framework convention against corruption. It was also decided to intensify the struggle against infiltration by organised economic crime into government and economic life. The then Deputy Secretary General of the Council of Europe, Mr Peter Leuprecht, in his address emphasised that corruption undermines the confidence of the citizens in the rule of law. Citizens want democracy, not cleptocracy, he said. The Resolution on the links between corruption and economic crime adopted at the conference is set out in Appendix 1.
76 Also, at the recent Second Summit of Heads of Government or State of the 40 member states of the Council of Europe, it was decided to seek common respones to the challenges posed by the growth in corruption, organised crime, drug trafficking throughout Europe.
77 The Final Declaration adopted at the Summit committed the Council of Europe member states to "seek[ing] common responses to the challenges opposed by the growth in corruption, organised economic crime and drug trafficking throughout Europe".
78 As part of an overall Action Plan for the Council of Europe the Heads of State and Government made the following pledge:
"Fighting corruption and organised crime: In order to promote co-operation between member states in the fight against corruption, including its links with organised crime and money-laundering, the Heads of State and Government instruct the Committee of Ministers:
- to adopt, before the end of the year , guiding principles which are to be applied in the development of domestic legislation and practice;
- to secure the rapid completion of international legal instruments pursuant to the Council of Europe's Programme of Action against Corruption;
- to establish without delay an appropriate and efficient mechanism for monitoring observance of the guiding principles and implementation of the said international legal instruments.
They call on all states to ratify the Convention on laundering, search, seizure and confiscation of the proceeds from crime."
IV. OTHER NORMATIVE INITIATIVES
79 Some other important international conventions and other agreements against economic crime are:
- The 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (also known as the Vienna Convention) has been ratified by over 100 countries and is the only treaty in this field with a global reach. It is considered the minimum standard of conduct required by states in relation to drug trafficking. The Convention makes criminal a comprehensive list of activities, including money laundering. It imposes obligations on its participants designed to ensure international co-operation as well as harmonisation of national systems of criminal justice systems in these areas. The Convention has had an important influence on most other international initiatives, including the Council of Europe Money Laundering Convention.
- The 1991 European Union Council Directive on Prevention of Use of the Financial System for the Purpose of Money Laundering is primarily concerned with the regulation of financial service activities within the context of the Internal Market (although provisions extend its indirect influence beyond the common border, especially in the European Economic Area (EEA) and EFTA countries, as well as in certain countries in central and eastern Europe.
- The 1992 Organisation of American States Model Regulations concerning Laundering Offences Connected to Illicit Drug Trafficking and Related Offences recognise the special role of the financial sector in the fight against money laundering. They are, however, limited to drug trafficking and related offences.
80 Several international agencies have been established to deal specifically with the problem of economic crime and money laundering. Apart from the previously mentioned FATF, there are the International Scientific and Professional Advisory Council of the United Nations Crime Prevention and Criminal Justice Programme (ISPAC) and the Inter-American Drug-Abuse Control Commission (CICAD).
81 A few words are in order about the FATF. It was established at the July 1989 Group of Seven Economic Summit in Paris. Since 1989 the FATF has grown to include 26 OECD and financial centres jurisdictions, as well as the European Commission and the Gulf Co-operation Council, with the IMF acting as an observer. The FATF works in co-operation with the Council of Europe, the Commonwealth Secretariat, the Customs Co-operation Council, Interpol and the UN International Drug Control Programme. One of the aims is to prevent banking systems and financial institutions from laundering the proceeds of criminal activities, and to examine measures that could be adopted by individual countries to combat money laundering.
82 In April 1990 the FATF issued the so-called Forty Recommendations, which were issued in revised form in 1996. They are a set of measures meant to be implemented by participating countries as a way to fight money laundering and establish a framework for monitoring and reporting suspicious transactions. Largely based on the philosophy of prevention, they address the need to improve national legal systems, enhance the role of the financial systems and strengthen international co-operation.
83 Internationally co-ordinated financial sector regulations are crucial for successful anti-economic crime operations. The Statement on Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering was issued by Basle Committee on Banking Regulations and Supervisory Practices in December 1988. The provisions follow the principles of customer identification, compliance with the law, co-operation with law enforcement agencies, and the introduction of internal compliance and training programmes by financial institutions. (This approach is followed in the OAS Model Regulations). National implementation of these principles require, first and foremost, a special effort in establishing adequate legislative and investigative implementation instruments in countries that still do not have them. As regards especially the members of the FATF, which have a rather developed legislative and regulatory framework for the financial sector, efforts concentrate on adjusting to changes in laundering techniques.
84 The global nature of many activities of economic crime makes it clear that international co-operation is the sine qua non for any effective counter-strategies. Co-operation must be based on a variety of prevention and enforcement instruments (investigative and legislative) at national and international level. In other words, international measures aiming at combating economic crime and money laundering should be implemented nationally, in addition to traditional criminal justice measures. Laws on property, property rights, commerce (including electronic commerce), contracts and credit must be formulated so that they facilitate, not render more difficult, the fight against economic crime.
85 However, the implementation of measures proposed either in Conventions or in Recommendations depends to a great extent on the good will of member states. Full harmonisation of domestic legal provisions seems rather difficult to achieve, but harmonised national policies to combat organised economic crime, coupled with better and faster co-operation procedures appears to be a realistic objective. In order to favour national acceptance of proposed measures, a constant monitoring of member states' compliance, through consensual peer-review mechanism, seems necessary - why not along the lines of the Country Studies undertaken by the OECD on the economic policies of its member countries?
86 As already mentioned, the Council of Europe is already active in monitoring anti-corruption and organised economic crime measures in countries of central and eastern Europe, through the so-called 'Octopus'-project, and is now launching an FATF-type evaluation procedure to follow up the implementation of anti-money laundering measures in the same region. The draft instruments against corruption also foresee the setting up of a monitoring mechanism. The combination of legal instruments that harmonise national laws and monitoring mechanisms that foster compliance with such instruments seems a suitable approach to create a truly harmonised European crime policy capable of responding to the challenge of organised crime. The Task Force on Organised Crime in the Baltic Sea Region was established in 1996 by the Heads of government in the Baltic Sea states, with the specific task of improving the regional cooperation on a concrete and practical level in areas such as the exchange of information, joint operative measures, judicial cooperation and joint training and activities.
87 At the policy level, international co-operation is achieved essentially by accession to international conventions, participation in regional directives initiatives and enforcement of bilateral mutual legal assistance treaties. (Regional cooperation can be highly useful, as demonstrated for instance in the Baltic Sea region where it is intense.) At the operational level anti-economic crime activities rely mainly on membership in Interpol; direct co-operation between various national law enforcement agencies; membership in anti-money laundering international institutions; and co-operation between authorities and financial services sector operators.
88 A consensus is emerging, especially among industrialised countries, on the need further to intensify international cooperation. Nevertheless, notwithstanding the significant progress made, the issue of money laundering requires permanently new counter-measures in order effectively to tackle the growing sophistication of the launderers. The Internet dimension also needs to be taken into account. The direction to follow, therefore, is to continue to pursue the efforts to enhance global awareness of the acute problems posed by economic crime activities and to support increased international co-operation with the ultimate objective to further harmonise world-wide counter-strategies. Unless we succeed, the democratic and political freedoms - never secure and always fragile - that our societies have conquered and which it is for every generation to defend will be used, not for the benefit of the people, but rather for that of criminal 'mafiosi' forces who already wreak such havoc and who only have their own interests in view, instead of those of ordinary people, whom we as parliamentarians have been elected to defend.
89 We should call on our member states to strengthen their legislation against economic crime in different ways. One would be to make it an offence to belong to or support an association of organised crime. We must also develop a better knowledge about the features of criminal organisations, and we must share that knowledge among ourselves.We should adopt national laws and regulations to the requirements placed by increasing international cooperation. This includes transfrontier cooperation in all its forms, for instance among police forces (such as Interpol).
90 In our Parliaments we must make sure that, to the extent that this has not already been done, the numerous internationally agreed conventions and other instruments established to fight organised crime are signed and ratified. The rapporteur is thinking in particular of the European Conventions on extradition (ETS 24) and mutual assistance in criminal matters (ETS 30) as well as their additional Protocols (ETS 86, 98 and 99) and the additional Protocols to the European Convention on Information on Foreign Law (ETS 97). There is also the Convention on the Transfer of Sentenced Persons (ETS 112) and the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (ETS 141). Furthermore, a number of countries made reservations and declarations when they ratified the European conventions dealing with extradition and mutual assistance (referred to in section 2 a.) They should ask themselves whether these reservations and declarations are still necessary. Moreover, a number of conventions on international co-operation in criminal matters may well have become in part obsolete. Countries should consider how they can be updated. There must also be greater political and financial support for existing international bodies active in the fight against organised economic crime and all the other ills raised in this report.
91 Our countries should also adopt measures that can target the ill-gotten proceeds of organised crime. This can be done by criminalising money-laundering, enhancing financial investigations into criminal assets and by enabling confiscation.
92 We should also criminalize the laundering and investment of proceeds of all serious crimes. Furthermore, we should consider it a criminal offence when financial and non-financial institutions do not report suspicious transactions. (In the Rapporteur's own country, Denmark, casinos are the only type of non-financial institution which is covered by legislation in this category.)
93 We must establish new investigative strategies that interconnect financial instigations targeting the assets of organised criminals. Such strategies require quick legal mechanisms to lift banking secrecy and various provisions under which bankers, judiciaries, accountants and lawyers may be compelled by judicial order to breach their duty of loyalty towards clients and produce bank records or other financial statements or, if necessary, give testamony.
94 We should adopt legislative measures permitting the confiscation or seizure of illicit assets from drug trafficking and other serious offences, asset forfeiture or the freezing of assets. We should also consider the introduction of provisions for asset-sharing among countries that participate in this same law enforcement operation (although the Rapporteur is aware that such legislation is not yet in place in many of our countries, among them the Rapporteur's own country Denmark).
95 Consideration should also be given to the possibility of appointing economic crime ombudsmen or commissioners at national level (where such a person does not already exist) or within existing regional or international organisations where available, in individual Council of Europe member states, or perhaps even among countries in the same region as part of regional cooperation. (Here, the Rapporteur is aware of the many thorny issues that have to be settled before such an ombudsman function can be instituted, such as the rules under which he would function and what types of economic crime he would have within his remit.)
96 As as been demonstrated throughout this report, the Council of Europe plays an important role in the fight against organised crime. We must beef-up its resources and entrust it with the continuous monitoring of the organised economic crime situation in Europe. Annual reports prepared by member states could form one basis for such a monitoring. They would be drawn up with the objective of clarifying the specific features of organised economic crime and, in particular, its links with corruption. The body established for this purpose should be so flexibile as to enable the participation of all interested countries, whether members or non-members. It could also serve as an advisory body to governments in matters related to economic and organised crime. Why not, in addition, envisage the establishment of a body to which citizens in Council of Europe member states could turn in their fight against economic crime? Such a body could hold up existing national legislation to public scrutiny and thereby help improve them.
97 Not all member states of the Council of Europe belong to the Financial Action Task Force on Money Laundering (FATF). We nevertheless have a duty to help these countries implement the FATF results, and we must provide adequate resources for this purpose. Once the third evaluation programme of the FATF has been completed, our member states should set up a permanent evaluation body within the framework of the Council of Europe to monitor, in cooperation with the FATF, the anti-money laundering policies of all member states.
98 We should also call on our governments to increase the capacity of the Council of Europe to assist member states in their efforts to improve international cooperation against organised crime, money laundering and corruption, in partnership with other interested international organisations. Furthermore, we must express our support for all those international institutions which fight economic crime. And we need to adapt our national laws and regulations to the growing need for international cooperation. Our police forces and judicial systems should cooperate with each other, on a basis of reciprocity.
99 In the report drawn up by the Committee on Economic Affairs and Development on "OECD and the World Economy", presented to the Parliamentary Assembly in September 1997, an entire chapter was devoted to the implications of rapidly growing electronic commerce. The OECD is doing admirable work in this field. It aims to permit electronic commerce to promote trade and the world economy in general, while at the same time preventing this new phenomenon from facilitating economic crime. The OECD deserves our wholehearted support in this effort, and its achievements should be shared with the Council of Europe and other institutions.
100 One can only hope, and perhaps optimistically expect, that international initiatives of the kind mentioned will give individual countries, and thereby eventually the international community, the courage to take action against economic crime which countries may be lacking if they suspect their neighbours of not following their good example. We have seen this happening in other areas, such as human rights and crimes against humanity, and the rapporteur considers these efforts to be part of what could in the best of cases be an evolution toward a more civilised world community. The alternative, if economic crime gains the upper ahnd, could well be the downfall of democracy. That is why we, as elected representatives of the peoples of Europe, must pursue this struggle all the more relentlessly, and jointly.
Resolution No. 1
on the links between corruption and organised crime
adopted by the Conference of European Ministers of Justice, Prague, June 1997
1. The Ministers participating in the 21st Conference of European Ministers of Justice (Prague, 1997);
2. Having examined the report submitted by the Czech Minister of Justice on the links between corruption and organised crime and the co-report of the Hungarian Minister of Justice;
3. Concerned about the new trends in modern criminality and, in particular, by the organised, sophisticated and transnational character of certain criminal activities;
4. Persuaded therefore that the fight against organised crime necessarily implies an adequate response to corruption;
5. Emphasising that corruption represents a major threat to the Rule of Law, democracy, human rights, fairness and social justice, hinders economic development, and endangers the stability of democratic institutions and the moral foundations of society;
6. Convinced that a successful strategy to combat corruption and organised crime requires a firm commitment by states to join their efforts, share experience and take common action;
7. Recognising that raising public awareness and promoting ethical values, in particular through education, are effective means of preventing corruption and organised crime;
8. Welcoming the adoption by the Committee of Ministers of the Council of Europe, in November 1996, of the Programme of Action against Corruption, following the recommendations of the 19th Conference of European Ministers of Justice (Valletta, 1994);
9. Recalling in this respect the importance of the participation of non-member states in the Council of Europe's activities against corruption and organised crime and welcoming their valuable contribution to the implementation of the Programme of Action against Corruption;
10. Bearing in mind that the Heads of State and Government of the Council of Europe will be addressing the issue of organised crime and corruption, insofar as they constitute a threat to democratic stability and security in Europe, at their Second Summit to be held in Strasbourg, on 10 and 11 October 1997;
Recommend the Committee of Ministers to:
1. Call for a speedy ratification, by the states which have not yet done so, of the European conventions on international co-operation in criminal matters and, in particular, of the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (ETS 141);
2. Review and update the Council of Europe's instruments in the field of international co-operation in criminal matters, in order to take due account of the new demands to combat organised crime and corruption;
3. Strengthen the action of the Council of Europe against corruption and organised crime, taking into account the work already accomplished and underway in other international fora, in particular European Union, United Nations and OECD, and promoting the coordination of this action with these Organisations.
4. Support the work undertaken by the European Committee on Crime Problems (CDPC), the European Committee on Legal Co-operation (CDCJ) and the Multidisciplinary Group on Corruption (GMC) aiming at the elaboration of international instruments against corruption;
5. Support the work undertaken by the CDPC relating to:
- the legal and criminological aspects of organised crime with a view to facilitating the approximation of corresponding national qualifications in criminal law, the divergence of which greatly hampers international co-operation, and
- computer and cyber-crime, with a view to facilitating the approximation of corresponding national qualifications in criminal law and to providing for efficient means of investigation of offences committed through the use of modern information technology;
6. Provide, jointly with the European Community, for the continuation and further development of the "Octopus" Programme, by adopting a multidisciplinary approach to the co-operation and expertise needed by states in transition, in order to strengthen their legislation, law enforcement practices and institutions of democratic society;
7. Implement as soon as possible the programme of evaluation of anti-money laundering measures in member states of the Council of Europe which are not covered by the Financial Action Task Force (FATF) procedures;
8. Speed up the implementation of the Programme of Action against Corruption;
9. With this in mind, intensify the efforts with a view to an early adoption of:
- a framework agreement defining common principles in the fight against corruption to be implemented through national legislation and complemented, where appropriate, by additional international instruments and structures,
- a criminal law convention providing for the coordinated criminalisation of corruption offences and for enhanced cooperation in the prosecution of such offences;
10. Pursue the work concerning the preparation of an international civil law instrument - dealing, inter alia, with compensation for damage resulting from corruption - as well as the preparation of a model code of conduct for public officials.
11. Ensure that the relevant international instruments to be prepared provide for an effective follow-up mechanism open to member states and non-member states of the Council of Europe on an equal footing;
12. Consider, in the framework of the preparation of the Second Summit of Heads of State and Governments of the Council of Europe, to be held in Strasbourg on 10 and 11 October 1997, the best means of promoting a dynamic process towards effectively preventing and combating organised crime and corruption.
List of some of the most important institutions fighting economic crime, money laundering and corruption/
Liste de certaines institutions les plus importantes qui traitent de la lutte contre la criminalité des affaires, le blanchiment de l'argent et la corruption
Council of Europe/Conseil de l'Europe
World Bank/Banque Mondiale
European Bank for Reconstruction and Development/
Banque européenne pour la reconstruction et le développement
International Monetary Fund/Fonds monétaire international
World Trade Organisation /Organisation mondiale du commerce
World Customs Organisation/Organisation mondiale des douanes
European Community/Communauté européenne
(Commission - General Secretariat of the Council of Ministers/
Secrétariat général du Conseil des Ministres)
International Criminal Police Organisation/
Organisation internationale de police criminelle (INTERPOL)
United Nations/Nations Unies
United Nations Interregional Crime and Justice Research Institute (UNICRI)
Institut interrégional de recherche des Nations-Unies dans les domaines criminel et judiciaire
European Institute for Crime Prevention and Control (HEUNI)/
Institut européen pour la prévention et le contrôle des crimes
Organisation for Economic Cooperation and Development (OECD)/
Organisation de coopération et de développement economiques (OCDE)
Financial Action Task Force on Money Laundering (FATF)/
Groupe d'action financière sur le blanchiment de capitaux (GAFI)
Transparency International (TI)
Council of Baltic Sea States/Conseil des Etats de la région de la mer baltique
Reporting committee : Committee on Economic Affairs and Development
Budgetary implications for the Assembly: none
Reference to committee: Doc. 7704 and Reference No. 2147 of 27 January 1997.
Draft resolution and draft order unanimously adopted by the committee on 27 November 1997.
Members of the committee: MM. Davis (Chairman), Mrs Degn (Vice-Chairperson, MM. Bloetzer, Valleix (Vice-Chairman), Aliko, Andreoli, Behrendt, Bilinski, Billing, Mrs Blattmann, MM. Bogár, Bonet Casas, Mrs Bribosia-Picard, M. Brunhart, Mrs Calner, M. Cunliffe, MM. Cusimano (Alternate: Turini), Dumitrescu, Mrs Durrieu, MM. Elo, Eyskens, MM. Figel, Frey, Mrs Frimannsdottir, MM Galanos, Galváo Lucas, Mrs Gatterer, MM. Gonzalez Laxe, Gusenbauer, Gylys, Kacin, Kamhi, Kiratlioglu, Kirilov, Koucky, Kutznetsov, Lambergs, Le Grand, Leers, Liapis, Malinowski (Alternate: Wielowieyski), Merkushov, Mitterrand, Muravschi, Obuljen, Pereira Coelho, Poppe, Puche, Rigo, Rippinger, Rutskoy, Sceberras Trigona, Siebert, Mrs Squarcialupi, Mrs Stepova, Mrs Stoyanova, MM Szalay (Alternate: Barsony), Telgmaa, Townend, Tripunovski, Vasile, Verivakis, Mrs Verspaget, MM. Wallace (Alternate: Deasy), Yavorivsky.
N.B. The names of those members present at the meeting are printed in italics.
Secretaries to the committee: MM. Torbiörn, Bertozzi and Ms Ramanauskaite.