Global standards in the field of countering money laundering and terrorist financing: current issues

Agamagomedova Saniyat ORCID: 0000-0002-8265-2971 Senior Research Fellow, Institute of State and Law of the Russian Academy of Sciences 119019, Russia, Moscow, Znamenka str., 10 saniyat_aga@mail.ru Other publications by this author

The globalization of economic relations, digital mechanisms of financial turnover, the development of online commerce and digital financial services – these and other factors have led to the rapid development of not only government regulation of these and related areas of public relations, but also the active establishment and subsequent improvement of international standards in the field of financial turnover. One of the problematic aspects of such regulation is countering the legalization (laundering) of criminal proceeds and the financing of terrorism. The gradual and, apparently, irrevocable withdrawal of financial transactions into the digital field required new approaches to controlling the turnover of financial resources. Moreover, despite the rapid digitalization of the financial services sector (and the financial sector, as a rule, is recognized as an undisputed pioneer here), the turnover of cash and instruments also persists. With this in mind, the control of the intra-national and cross-border turnover of financial resources contains several rather independent areas and requires supranational regulatory mechanisms. In this regard, the development of issues of the effectiveness of international standards in the field of countering money laundering and terrorist financing (hereinafter referred to as AML/CFT) will become particularly relevant.

According to experts, in 2022, the volume of money laundering in the world amounted to almost 3% of global GDP ^[1]. The basis of the requirements for national AML/CFT systems in the world today are the recommendations of the Financial Action Task Force on Money Laundering (hereinafter - FATF). After two decades of Russia's membership in this intergovernmental organization, the FATF suspended Russia's membership in 2023, but at the same time refused to include it in the black or gray lists. Our country continues to be a member of the FATF Global Network, actively participating and chairing the Eurasian Group on Countering Money Laundering and Terrorist Financing (EAG). Russia remains committed to complying with international AML/CFT standards, and the domestic anti-money laundering system continues to function effectively (Official website of Rosfinmonitoring. https://www.fedsfm.ru/releases/7361 (model date: 02.02.2025).

The issues of money laundering have been considered in recent years by both domestic and foreign scientists. Scientific interest was aroused by such aspects of such activity as its correlation with various categories of crimes (N. Lu, N. Wang), with the development of cryptoeconomics (M.W. Calafos, G. Dimitoglou), with the protection of personal data (Y. He, J. Chen). The question of the place of the banking sector in anti-money laundering mechanisms is well developed (F. Koprivec, G. Kržmanc, M. Škrjanc, K. Kenda, E. Novak, N.A. Ponomareva, R.R. Kalimullina, I.V. Vashchekina, J.A. Jans). Taking into account the involvement of a large list of government agencies in AML/CFT, scientists are actively exploring issues of interstate and interdepartmental cooperation in this area (R.R. Karimov, G.Y. Karimova, N.V. Kapustina).

Before proceeding to characterize the current issues of AML/CFT implementation based on international standards in this field of public relations, it is necessary to define the basic concepts.

In Russian legislation, the legalization (laundering) of criminally obtained income is understood as legitimizing the possession, use or disposal of funds or other property obtained as a result of committing a crime (Article 3 of Federal Law No. 115-FZ dated 08/07/2001 "On Countering the Legalization (Laundering) of Criminally Obtained Income and Financing terrorism" // Federal Law of the Russian Federation. 08/13/2001, No. 33 (Part I), Article 3418).

The definition of the concept in question in domestic criminal legislation has a narrower and at the same time law enforcement character, in which it is understood as the commission of financial transactions and other transactions with funds or other property knowingly acquired by criminal means in order to legitimize the possession, use and disposal of said funds or other property (Articles 174-174.1. The Criminal Code of the Russian Federation dated 13.06.1996 No. 63-FZ // Federal Law of the Russian Federation. 17.06.1996, No. 25, article 2954).

As for the research field, the issues of studying anti-money laundering mechanisms are raised in both legal and economic research, which seems quite natural. The interdisciplinary nature of the problem of money laundering requires complex, systemic (both from the point of view of the branch of science and from the point of view of the level of regulation (international, cross-border, national, corporate levels)) approaches to solving it, or at least minimizing it.

It should be noted that both the AML/CFT system and its main objectives are ambiguously positioned in scientific publications. Thus, money laundering is understood as the process of disguising, concealing and converting illegal income received as a result of certain crimes (as a rule, drug trafficking, prostitution, smuggling, tax crimes) ^[1]. It includes placement, multi-level structuring and integration for the transfer and conversion of illegal fiat currencies into legitimate assets ^[2].

Domestic scientists in most cases identify income legalization with financial transactions and reflect the position of the legislator in its truncated or law enforcement version ^[3]. Scientists recognize that money laundering undermines economic stability and social security, and see the goals of AML/CFT as maintaining healthy economic development ^[1], ensuring financial security and social stability ^[4]. Some authors believe that the fight against money laundering (Anti-money laundering (AML)) It is vital for maintaining financial markets, social stability and political power ^[1].

The rapid development of digitalization in the financial and other sectors of the economy has led to relatively new approaches to the scientific substantiation of AML/CFT. Increasingly, this activity is associated with the regulation of the turnover of cryptocurrencies. Moreover, according to experts, the regulation of virtual currencies should begin with the fight against money laundering, and AML/CFT regulation today is not just a legal requirement, but is becoming a transformative force changing the future of virtual currencies, encouraging the blockchain to move towards maximum transparency ^[5]. Some authors believe that with the growth of the cryptoeconomy and the liquidity of cryptocurrencies around the world, cryptocurrency potentially acts as another new tool for money laundering ^[6], and even single out the concept of "cyber money laundering", which provides fast, simple, inexpensive and anonymous transactions and allows circumventing traditional methods of detecting money laundering ^[2].

AML/CFT issues are often considered in the context of confidentiality and data protection issues ^[4]. Solutions to these problems are reasonably associated in modern conditions with legal, technical and other measures, with the use of machine learning and deep learning in the field of AML/CFT ^[1], artificial intelligence ^[7]. blockchain and cryptographic tools that are designed to effectively detect suspicious interbank transactions while maintaining confidentiality ^[4].

Quite naturally, AML/CFT issues are often considered in the context of financial markets, the banking sector, and banking services ^[7-10]. In this regard, scientists talk about the problems of distributing responsibilities to combat AML/CFT between banks and non-banking organizations ^[10], a specific financial institution or their group ^[7].

Given that AML/CFT measures are inextricably linked to financial markets, which are becoming supranational in the context of economic integration, the creation of AML/CFT integration mechanisms is of paramount importance. Thus, scientists identify a pan-European approach to AML/CFT issues and analyze European legislation in this area ^[10], the creation of specialized bodies to control money laundering, including the Anti-Money Laundering Authority (AMLA). The latter, according to researchers, marks an important milestone in the institutional structure of the European Union (EU) to ensure compliance with AML/CFT rules and is endowed with the competence of a supervisory authority, competent to conduct investigations and apply sanctions in case of violation of the requirements ^[11]. Experts describe the EU's new approaches to combating money laundering and financial crimes based on significant reforms in 2021. These reforms reflect a paradigm shift from the traditional legal norms of criminal law to a more centralized model of law enforcement within the framework of integration education. The specificity of the new approaches lies, on the one hand, in expanding anti-money laundering strategies, on the other hand, in shifting the burden of proof to suspects in illegal transactions ^[12].

With regard to AML/CFT integration mechanisms, the law enforcement and preventive aspects of the problem under consideration are evident. Thus, in relation to the EU, scientists note the repressive purpose of the AML/CFT integration legal framework, given that the criminalization of money laundering and terrorist financing is an obligation under international law. However, the main system of AML/CFT requirements is preventive in nature ^[11].

Thus, our review of the normative and doctrinal understanding of AML/CFT measures allowed us to conclude that there are many options for such an understanding.

Through the methods of comparative analysis, classification and systematization, the main scientific positions on the measures under consideration were identified, and the method of legal formalization made it possible to build a form of correlation of AML/CFT measures with other legal phenomena and processes, to substantiate their links with related legal institutions.

In legislation and science, such measures can be considered as: part of anti-criminal policy, currency control, tax control (tax offenses are often positioned as a stage preceding income laundering), financial control, banking supervision, customs control (in terms of control over the movement of cash), means of economic development, means of ensuring security, a component of mechanisms for increasing transparency of banking and other financial transactions, an element of combating the shadow economy, corruption, capital outflow, part of the system for protecting national financial systems, conditions for full regulation of virtual currencies, etc.

The measures under consideration include financial and law enforcement components, and are regulated at the national and international levels.

Global AML/CFT standards are of great importance given the globalization and digitalization of financial transactions and pursue several goals, among which, in our opinion, the unification of national legislation and the establishment of minimum AML/CFT requirements are priorities. As for unification, ensuring the international legal regime of freedom of movement of financial resources is considered as the basic tasks of international financial law ^{[13, p. 532]}.

Such standards are enshrined in a number of international treaties and agreements, the most important of which are: the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime of 08.11.1990; the International Convention for the Suppression of the Financing of Terrorism of December 9, 1999; the United Nations Convention against Corruption of October 31, 2003; the United Nations Convention against Transnational Organized Crime dated November 15, 2000; Resolution of the Interpol General Assembly No. AGN/68/RES/2 "Financing of terrorism" dated November 12, 1999 and others.

Taking into account the above-mentioned role of banks in AML/CFT, part of the international standards in this area is related to the banking sector. We are talking about Universal Directives on Combating Money Laundering in the private Banking sector, better known as the Wolfsberg Principles. They were developed by eleven leading banks in the world on October 30, 2000 and contain recommendations for banks to prevent the use of the banking system to legalize "dirty" income. These principles are based on the requirement that the bank may establish relationships only with those clients whose sources of income or financing can reasonably be confirmed to be of legitimate origin. At the same time, the specific AML/CFT mechanisms remain at the discretion of the credit institution. In fact, we are dealing with "soft" regulation, with regulation at the level of principles, which is quite natural for international documents of this nature.

A special place in the list of such documents is occupied by the FATF recommendations, which form the basis for a coordinated response to threats to the financial system and help ensure equal conditions in the fight against AML/CFT. First issued in 1990, these recommendations were updated in 1996, 2001, 2003, and 2012 ^{[14, p. 139]}. In addition to developing and implementing recommendations, this intergovernmental organization monitors the implementation of AML/CFT measures in member States and identifies their dynamics. It should be noted that the forms of illegal movement of funds are very diverse and include cash, digital financial turnover, and cryptocurrency. Despite the rapid growth of digital financial services, cash transactions persist, and some AML/CFT measures are aimed at this traditional sector of turnover. Thus, the introduction of the Fourth and Fifth EU Directives on Money Laundering into German legislation led to significant changes in the so-called "money laundering legislation" related to the actual restriction of cash transactions ^[15].

With regard to the Eurasian Economic Union (EAEU), control over the movement of cash and (or) monetary instruments across the customs border of the EAEU in the framework of countering the legalization (laundering) of proceeds from crime and the financing of terrorism is one of the main functions of customs authorities (paragraph 4, paragraph 2, Article 351 of the EAEU Customs Code). It should be noted that this area of customs control includes both financial and non-financial components ^[16].

Anti-AML/CFT measures also differ in relation to integration entities and their emerging financial markets. Thus, the approach to the institutional component of regulation and coordination of such measures in various interstate unions is being solved in different ways. While in the EU, as we noted above, a specialized body in this area has been created, the creation of such a regional body is only being discussed in relation to the East African states ^[17]. In the EAEU, these issues are handled by the Financial Policy Department of the Eurasian Economic Commission.

Global AML/CFT standards are naturally being transformed by a number of factors. In addition to integration and digitalization, these include the introduction of a risk-based approach in this area. In addition, the main areas of the updated FATF recommendations were issues of transparency of financial transactions, an emphasis on operational standards, responses to new threats and the development of adequate response measures, and interagency AML/CFT cooperation. The latter deserves special attention. The AML/CFT mechanism involves a whole system of bodies at the national level. In relation to Russia, we are talking about cooperation between the Central Bank, the Federal Financial Monitoring Service, the Federal Customs Service, the Federal Tax Service, the Presidential Commissioner for the Protection of Entrepreneurs' Rights, the Investigative Committee of the Russian Federation, the Federal Security Service of the Russian Federation, the Ministry of Internal Affairs of the Russian Federation, the Prosecutor General's Office of the Russian Federation and other bodies ^[18]. The strategic documents regulating the activities of some of them contain provisions on taking into account international standards within the framework of FATF recommendations when implementing a set of measures aimed at ensuring measures to counter the legalization (laundering) of proceeds from crime and the financing of terrorism ^[19].

Some authors cite conflict in interstate relations as factors influencing the level of money laundering. Using the example of East Africa, they conclude that military and other conflicts lead to a decrease in the level of penetration of banking services into the region, which, in turn, leads to an increase in informal and shadow quasi-banking intermediaries, creating ample opportunities for money laundering ^[17].

Various tools are offered to solve AML/CFT problems, some of them are directly related to international standards in this area of regulation. Thus, experts identify two trends in the prospects for financial regulation: the harmonization and standardization of requirements in traditional sectors of financial markets and the development of "regulatory arbitration" (business moving to a less regulated industry or jurisdiction) using new financial technologies in order to reduce regulatory costs ^[20]. In this regard, it seems the most optimal way to find a balance between regulatory pressure on businesses, allowing for AML/CFT, and transparency, accessibility of financial services, and freedom of cross-border capital turnover.

In conclusion, it should be noted that the scope of supranational AML/CFT regulation will expand. This is due to the fact that in the context of economic integration and digitalization of economic interaction, national mechanisms for controlling the legalization of criminal proceeds are clearly insufficient. Despite the fact that global AML/CFT standards reflect the so-called "soft" regulation, regulation at the level of principles and in the form of recommendations, it is important to unify national anti-money laundering mechanisms and establish a kind of minimum for such measures.

In addition, we are witnessing the emergence of alternative centers for generating international standards in this area (an example of which is the EAG, which is an associate member of the FATF). This allows states in the development of AML /CFT to have the right to choose the organization whose recommendations are most appropriate (relevant) to the national specifics of regulation, and control is designed to maximize the processes of transparency and openness of financial turnover in the modern real and digital space.