Keywords

2.1 Money Laundering: The Crime Defined

A great deal of attention has focused on money laundering due to the highly sophisticated nature of its criminal practices—practices that have been internationally organized and professionally executed for a considerable amount of time.

Organized crime has had a relatively free hand in its efforts to make criminal assets legal. This is made possible by the total ineffectiveness of current national and international laws, which have not kept pace with the changing situation.

Gilson Dipp points out that organized crime takes advantage of the “inertia of States, and their closely-regulated executive, legislative and judicial branches, which are bound by the principle of territoriality—the idea that the law holds only within its boundaries. This is a hopelessly dated notion. Each State must, without giving up its sovereignty, achieve broad international cooperation. To insist on a 19th-century conception of sovereignty is to allow organized crime to exercise its will to the detriment of formal sovereignty.”Footnote 1

On the other hand, the understanding that organized crime greatly affects our economic and social fabric led to the realization that a new class of felony had to be clearly established. Such is also the case in the category of financial crimes, which is principally characterized by the absence of social scrutiny.

Francisco de Assis Betti views financial crimes as crimes that are generally “marked by the absence of social scrutiny, due to several factors including an excessive attachment to material things such as profit and egotistical zeal among the owners of capital, who are scornful of the lower classes and confident in their own impunity. Most of these crimes are covered up by collusive public officials. When the crimes do come to light, evidence is poorly produced and the facts are difficult to ascertain, given the specialized assessment required, culminating almost always in impunity.”Footnote 2

Money laundering was at first linked to drug trafficking. Recognition of the crime of money laundering traces its origins, in Europe, to a 1980 recommendation by the Council of Europe. The United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention of 1988) is considered the international milestone that paved the way for worldwide political and criminal analysis of the subject.

All efforts to categorize money laundering as a crime on its own were closely associated with the international traffic in narcotics. Two separate aspects appear to have been decisive in bringing about an international mobilization to punish the conversion of the proceeds of criminal drug trafficking into apparently legal wealth.

The first is the predictable inefficacy of the methods used in the war on drugs. The second factor stems from the economic impact that the movement of so-called “narcodollars” has on the economies of many countries—enough to interfere greatly with the normal course of production, competition and consumption.

Thus, there was a strong international push for the adoption of a means to combat money laundering. The United Nations Vienna Convention of 1988 provided an international legal framework, although it was specifically organized to battle the traffic of narcotic drugs and psychotropic substances.

The failure of traditional legislation to deal with these new issues was well known. It was a constant concern in many countries in their struggle against serious crime because permitting the flow of illegal capital poses a threat to everyone and undermines the confidence in law enforcement institutions.

Mireille Delmas-Marty and Geneviève Giudicelli-Delage assert that “beginning in the late 1980s, the international community became aware of the shortcomings—if not futility—of national rights when faced with increasingly effective international crime prospering precisely because of the disparities between, and lack of harmony among, national legislative bodies…. The UN Convention signed at Vienna on December 20, 1988, was the first response to bring harmony to enforcement.”Footnote 3

It is important to take into account that criminalizing money laundering emerged as a measure to inhibit the use and benefit of illegally acquired assets. Thus, it is a crime derived from another, and could not exist without the antecedent crime having been previously committed. It is, in the words of Jean Larguier and Philippe Conte, a “consequential crime,” as opposed to behavior preceding or concurrent with the primary act or attempt.Footnote 4

To confidently benefit from its illegal income, organized crime has protected itself well, much like the Government, causing the latter to turn to the most modern mechanisms for combating crime.

Francisco de Assis Betti adds that it is not always “easy for a criminal to use the proceeds of crime.” Profligate spending and the eccentricities that always accompany the easy acquisition of money, and immediate purchases way above one’s standard of living, are outward signs of wealth which give rise to suspicion, and are conducive to investigations by either police or internal revenue authorities. Experienced criminals therefore try to come up with arrangements for investing their criminal proceeds and work with others inclined to conceal these assets and obliterate the money trails in order to avoid enforcement efforts.Footnote 5

To the extent that society has realized that serious crime can encompass more than just violent crime, more and more States have ratified international regulatory instruments without restrictions, demonstrating that they are no longer willing to tolerate open-ended criminality within their borders.

The links between money laundering and organized crime necessitated immediate and aggressive intervention by governments, not least to ensure their very survival.

Article 3 of the Vienna Convention of 1988 requires that each signatory take all necessary steps to fight drug trafficking and to establish as criminal offenses under domestic law all of the practices enumerated therein. The practices in question are divided into three groups within Section 1 of Article 3. The first group (item “a” of Article 3, Section 1) refers to the drug trafficking itself as it describes production, manufacture, extraction, preparation or sale [3(1)(a)(i)], cultivation [3(1)(a)(ii)], possession or purchase for any of the above purposes [3(1)(a)(iii)], transportation and distribution [3(1)(a)(iv)], and the organization, management or financing of any of the offenses enumerated above [3(1)(a)(v)]. The second group (item “b” of Article 3, Section 1) deals with money laundering whereby all signatory States agree to outlaw the conversion or transfer of property that is derived from offenses provided in item “a” [3(1)(b)(i)] and the concealment or disguise of the true nature, location, disposition or ownership of said property [3(1)(b)(ii)]. Finally, the third group (item “c” of Article 3, Section 1) addresses other types of contact in connection with narcotics trafficking or money laundering, such as the acquisition, possession or use of the proceeds of narcotics trafficking [3(1)(c)(i)], possession of materials or equipment related to narcotics trafficking [3(1)(c)(ii)], inciting or inducing others to commit the offenses therein enumerated [3(1)(c)(iii)], and aiding or abetting the commission of any of the offenses therein enumerated [3(1)(c)(iv)].

Observe that money laundering is in essence a derivative crime because the offense is contingent upon an antecedent crime.

In 1992, in the Bahamas, the OAS General Assembly passed and adopted Model Regulations on money laundering offenses related to drug trafficking, which define, in Article 2, behavior considered unlawful. This led to the drafting of numerous laws in Latin America, including Colombia (Law No. 333 of 1996), Chile (Law No. 9366/1995), Paraguay (Law No. 1015/1997) and Venezuela. Money-laundering legislation was already in place in Argentina, Ecuador, Mexico and Peru before the Model Regulations were adopted in the Bahamas, but after the Vienna Convention.

When the Money-Laundering Law was promulgated in Brazil, the crime in question had already lost its characterization as a crime derived solely from drug-trafficking crimes, as was the case in many of the countries that make the offense illegal. For example, Spain, Switzerland, Austria, the United States, Canada, Australia and Mexico no longer classify money laundering as a mere appendage of drug trafficking. Given the evidence that the money-laundering problem is not exclusively a drug trafficking issue, and faced with the deleterious consequences of the entry of the proceeds from certain types of crime into a nation’s economy, many legislative bodies began to extend the concept of money laundering by associating it with other types of antecedent crimes.

The crime of money laundering had to be separated from drug trafficking because there was no justification for legislating against only that particular form of illicit enrichment. However, this presented serious questions of legal doctrine, such as the question of what legal interest is actually being protected.

Indeed, when money laundering was a crime exclusively in connection with drugs, it could be argued that the legal justification—albeit in an indirect and reflexive manner—was the same as that for drug trafficking. This is clearly the case in the Vienna Convention, which makes no formal distinction between drug trafficking per se and enrichment therefrom.

Argentine legislation, originally under Article 25 of Law No. 23737/1989 and currently under Article 3 of Law No. 25246/2000, provides a penalty of two to ten years for all who engage in money laundering even without having participated or cooperated in the predicate crime from which the money was obtained. Thus, if a prerequisite for liability for money laundering is the absence of some antecedent narcotics violation, we may infer that this is a case of violation of one and the same criminal legal interest, so as to avoid bis in idem.

With the shedding of this exclusive link with the originating crime, many questions emerged as to the legal justification for criminalizing money laundering. Today there is no question that the crime of money laundering falls within the category of financial crimes because of the great effect it has on socio-economic order. There is no doubt that introducing large sums of money that originated in crime into the market interferes with the normal course of production, consumption and competition.

Another difficulty with money laundering is that it is not simple to accomplish, nor does it follow any preset rule. The commission of the crime involves processes that are often complex and sophisticated, with actions taken in a concatenated or scattered manner, all in an effort to make dirty money look legal. One could indeed simply define money laundering as a procedure whereby one transforms goods acquired through unlawful acts into apparently legal goods. However, overriding considerations of legality and legal security do not permit us to make use of such a simple definition.

The crime of money laundering, classically speaking, involves three stages of conduct, namely: concealment or placement, in which goods acquired by unlawful means are made less visible; monitoring, dissimulation or layering, in which the money is severed from its origins, removing all clues as to how it was obtained; and integration, in which the illegal money is reincorporated into the economy after acquiring a semblance of legality. Added to this is the recycling stage, which consists of wiping out all records of those previous steps completed.

Faced with the complexity of the various forms of conduct and processes comprising money laundering, one is struck by the almost complete impossibility of imposing legal restraints other than through combined means, by proscribing more than one form of conduct, and open-ended means, since the large number of activities described in the Vienna Convention and adopted by most countries calls for intervention for full classification within the limits therein imposed. Additionally, money laundering is always a derivative crime, so that it must necessarily be connected, to a greater or lesser extent, to its antecedent crime. All of these issues give innumerable peculiarities to the crime of money laundering, peculiarities that must be gradually sorted out by jurisprudence or case law.

In Brazil’s case, money laundering was not typified in the main body of the Criminal Code, as was done, for instance, in the United States (in 18 U.S.C. § 1956). This poses an undeniable difficulty, for if the crime in question were codified, it would have to be promptly adapted to the principles and rules of the Criminal Code. Because this system is integrated and hierarchical, there would be no margin for unjustifiable exceptions. Such is the case in France, Italy, Switzerland and Colombia.

Created in December of 1989 by the seven richest countries in the world (G-7Footnote 6), the Financial Action Task Force (FATF, or Groupe d’Action Financière sur le blanchiment des capitaux—GAFI), organized under the aegis of the Organization for Economic Cooperation and Development (OECD), has a mandate to examine, develop and promote policies for the war on money laundering. It initially included twelve European countries along with the United States, Canada, Australia, and Japan. Other countries joined afterward (including China in 2007), as well as international organizations (the European Commission and the Gulf Cooperation Council). Brazil joined, initially as an observer and later as a full member, at the XI Plenary Meeting, held in September of 1999.

The OECD is an intergovernmental agency organized to promote measures for the fight against money laundering. Its list of Forty Recommendations, drafted in 1990, was revised in 1996. Another eight recommendations were drawn up in 2003 (on financing of terrorism) and a ninth in 2004 (also about financing of terrorism). On February 16, 2012, all forty-nine recommendations were revised, improved and condensed into forty.

These recommendations are not binding, but they do exert strong international influence on many countries (including nonmembers) to avoid losing credibility, because they are recognized by the International Monetary Fund and the World Bank as international standards for combating money laundering and the financing of terrorism. In the 1996 version, they were adopted by 130 countries. In the 2003–2004 version, they were adopted by over 180 countries.

It is important to mention that the idea of improving and condensing the Recommendations to avoid distortion and duplication, and to also incorporate the nine Special Recommendations on the financing of terrorism into the basic text (Forty Recommendations), originated in Brazil when it presided over the FATF between 2008 and 2009.

Some initial resistance to altering wording that had already become assimilated was overcome. No substantial changes were offered, and all focus was on fine-tuning the Recommendations to make them clearer and more objective, and as a result more easily enforceable. All of this changed and facilitated matters, including the member nations’ methods of evaluation.

The following are relevant provisions contained in the 2012 version of the Recommendations:

Countries should identify, assess, and understand the money laundering and terrorism financing risks of the country, and take action to mitigate them (Risk-Based Approach—RBA, Recommendation No. 1). Countries should ensure cooperation among policy-makers, the Financial Intelligence Units (FIUs) and law enforcement authorities, and domestic coordination of prevention and enforcement policies (Recommendation No. 2). The current text of Recommendation No. 2 (this was in Recommendation No. 31 before) adds legitimacy to Brazil’s National Strategy for the Fight against Corruption and Money Laundering (ENCCLA).Footnote 7 The crime of money laundering should apply to predicate offenses, which may include all serious offenses, any of a long list, or any offenses punishable by a maximum penalty of more than one year, and criminal liability should apply to all legal persons, irrespective of any civil or administrative liabilities (Recommendation No. 3). No criminal convictions should be necessary for asset forfeiture. Furthermore, with reference to the Vienna Convention (1988), the Terrorist Financing Convention (1999), and the Palermo Convention (transnational organized crime, 2000), the burden of proof on confiscated goods should be reversed (Recommendation No. 4). Countries should criminalize the financing of terrorism (Recommendation No. 5). Countries should implement financial sanction regimes to comply with UN Security Council resolutions on terrorism and its financing (Recommendation No. 6), and on the proliferation of weapons of mass destruction and its financing (Recommendation No. 7). Countries should establish policies to supervise and monitor non-profit organizations, so as to obtain real-time information on their activities, size and other important features, such as transparency, integrity and best practices (Recommendation No. 8). Financial institution secrecy laws, or professional privilege, should not inhibit the implementation of the FATF Recommendations (Recommendation No. 9). Financial institutions should be required to undertake customer due diligence and to verify the identity of the beneficial owner, and be prohibited from keeping anonymous accounts or those bearing fictitious names (Recommendation No. 10). Financial institutions should also be required to maintain records for at least five years (Recommendation No. 11) and closely monitor politically exposed persons (PEPs), that is, persons who have greater facility to launder money, such as politicians (in high posts) and their relatives (Recommendation No. 12). The 2012 version expanded the definition of PEPs to include both nationals and foreigners, and even international organizations.

Other provisions worth mentioning include:

Financial institutions should monitor wire transfers, ensure that detailed information is obtained on the sender as well as on the beneficiary, and prohibit transactions by certain people pursuant to UN Security Council resolutions, such as resolution 1267 of 1999 and resolution 1373 of 2001, for the prevention and suppression of terrorism and its financing (Recommendation No. 16). Designated non-financial businesses and professions (DNFBPs), such as casinos, real estate offices, dealers in precious metals or stones, and even attorneys, notaries and accountants, must report suspicious operations, and those who report suspicious activity must be protected from civil and criminal liability (Recommendation No. 22, in combination with Nos. 18 through 21). Countries should take measures to ensure transparency and obtain reliable and timely information on the beneficial ownership and control of legal persons (Recommendation No. 24), including information on trusts—settlors, trustees and beneficiaries (Recommendation No. 25). Financial Intelligence Units (FIUs) must have timely access to financial and administrative information, either directly or indirectly, as well as information from law enforcement authorities in order to fully perform their functions, which include analysis of suspicious statements on operations (Recommendations Nos. 26, 27, 29 and 31). Casinos must be subject to effective supervision and rules to prevent money laundering (Recommendation No. 28). Countries should establish the means for conducting freezing and seizure operations, even when the commission of the predicate crime may have occurred in another jurisdiction (country), and implement specialized multidisciplinary groups or task forces (Recommendation No. 30). Authorities should adopt investigative techniques such as undercover operations, electronic surveillance, access to computer systems, and controlled delivery (Recommendation No. 31). The physical transportation of currency should be restricted or banned (Recommendation No. 32). Proportionate and dissuasive sanctions should be available for natural and legal persons (Recommendation No. 35). There should be international legal cooperation, pursuant to the Vienna Convention (international traffic, 1988), Palermo Convention (transnational organized crime, 2000) and Mérida (corruption, 2003) (Recommendation No. 36). Countries should provide mutual assistance to facilitate a quick, constructive and effective solution (Recommendation No. 37), including the freezing and seizure of accounts, even with no prior conviction (Recommendation No. 38). Countries should quickly execute extradition requests (Recommendation No. 39), and spontaneously take action to combat predicate crimes, money laundering, and terrorism financing (Recommendation No. 40).

Thus, as of the 2012 revision, the Recommendations set forth general guidelines, with details given in Interpretative Notes. The glossary has made it easy to place the standards adopted in proper perspective and also provides important clarifications.

The Interpretative Notes are best described as a sort of common ground made to fit both common law and civil law countries.

One important innovation, albeit not the purpose of the February 2012 review, was pointing out the need for countries to adopt the Risk-Based Approach (RBA). In other words, before applying certain measures, standards must be established to guide public policies for preventing and combating money laundering, terrorism financing and (this is new) the proliferation of weapons of mass destruction.

With regard to politically exposed persons (PEPs), what was once a simple requirement to monitor certain foreign nationals or authority figures now refers to domestic entities, understood to include international organizations.

The FATF pressed for the creation of similar agencies known as FATF-Style Regional Bodies (FSRBs), intended to integrate the global network for the war on money laundering, including:

  1. (a)

    Asia–Pacific Group on Money Laundering (APG, which includes Australia, Bangladesh, Brunei, Cambodia, Taiwan, Cook Islands, Fiji, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Marshall Islands, Mongolia, Nepal, New Zealand, Niue, Pakistan, Palau, the Philippine Islands, Samoa, Singapore, Sri Lanka, Thailand, Tonga, the United States and Vanuatu);

  2. (b)

    Eurasian Group (EAG, including Belarus, Kazakhstan, Russia, Kyrgyzstan, the People’s Republic of China and Tajikistan);

  3. (c)

    Middle East and North Africa Financial Action Task Force (MENAFATF, made up of Algiers, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, Yemen and the United Arab Emirates);

  4. (d)

    Caribbean Financial Action Task Force (CFATF or GAFI CARAÏBE, for Central America and the Caribbean, namely Antigua and Barbuda, Anguilla, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman, Costa Rica, Dominica, the Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat, the Dutch Antilles, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, the Turks and Caicos Islands, Trinidad and Tobago, and Venezuela);

  5. (e)

    Moneyval (Council of Europe, composed of Albania, Andorra, Armenia, Azerbaijan, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Georgia, Hungary, Latvia, Lichtenstein, Lithuania, Moldavia, Malta, Monaco, Poland, Romania, Russia, San Marino, Serbia and Montenegro, Slovakia, Slovenia, Macedonia and the Ukraine);

  6. (f)

    Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG: Botswana, Kenya, Lesotho, Malawi, Mozambique, Mauritius, Namibia, South Africa, Swaziland, Seychelles, Uganda, Tanzania, Zambia and Zimbabwe);

  7. (g)

    Financial Action Task Force on Money Launderingin South America (GAFISUD, composed of Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay and Mexico);

  8. (h)

    Intergovernmental Action Group against Money Launderingin West Africa (GIABA);

  9. (i)

    Central African Action Group against Money Laundering (GABAC).Footnote 8

A group resembling an FSRB is the Offshore Group of Banking Supervisors—OGBS (composed of Aruba, Bahamas, Bahrain, Barbados, Bermuda, Cayman Islands, Cyprus, Brault, Guernsey, Hong Kong, the Isle of Man, Jersey, Labuan, Malaysia, Macau, Mauritius, Netherlands Antilles, Panama, Singapore and Vanuatu).

The purpose of these groups is to promote the adoption and effective implementation of the Forty Recommendations, requiring member nations to accept multilateral oversight and mutual evaluations.

The FATF does not appear particularly concerned with art, for in recommending the compulsory reporting of suspicious operations on the part of designated non-financial businesses and professions (DNFBPs), at no time did it mention that sector. It went no further than to include casinos, real estate offices, dealers in precious metals or stones, attorneys, and notaries and accountants, suggesting that they be subject to internal controls, and recommending protection of whistleblowers from civil and criminal liability (Recommendation No. 22, together with Nos. 18–21).

Despite estimates running into the billions for the underworld dealing in works of art,Footnote 9 the Financial Action Task Force has not addressed the problem.

2.2 International Laws and Treaties Regarding Money Laundering and the Protection of Cultural Heritage: A General Perspective

The United Nations Educational, Scientific and Cultural Organization (UNESCO) drafted a Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property on November 14, 1970. It sought to prevent the illegal traffic in artwork by requiring special export licenses and an administrative control system to enable Member States to prevent illegal importation and exploitation of artworks.Footnote 10

The Bureau of Educational and Cultural Affairs of the United States Department of State provides important support to the claims of States for violations of the aforesaid UNESCO Convention. In 2012, it allocated $6 million for the conservation of artworks (not just within the United States) and another $1 million for training government agencies, including federal prosecutors.Footnote 11

Another important international convention likewise intended to combat the illegal trade in artworks is the UN Convention on Stolen or Illegally Exported Cultural Objects (UNIDROIT). Its preamble addresses the concerns over the illegal trade in cultural objects,Footnote 12 and requires Member States to establish common rules for restitution or repatriation for the return of the property illegally removed. Observe that the Convention requires the return even of articles acquired in good faith.Footnote 13

In the wake of recommendations contained in the Convention Concerning the Protection of the World Cultural and Natural Heritage, drafted at the UNESCO General Conference on October 17–November 21, 1972, and dated 11/23/1972,Footnote 14 it became important for Governments to confer upon artwork “a function in the life of the community” (Article 5).

It is indeed incumbent upon all to protect the cultural heritage of mankind, as provided in the Convention Concerning the Protection of the World Cultural and Natural Heritage, specifically:

Article 4:

Each State Party to this Convention recognizes that the duty of ensuring the identification, protection, conservation, presentation and transmission to future generations of the cultural and natural heritage… situated on its territory, belongs primarily to that State. It will do all it can to this end, to the utmost of its own resources and, where appropriate, with any international assistance and cooperation, in particular, financial, artistic, scientific and technical, which it may be able to obtain.

Article 5:

To ensure that effective and active measures are taken for the protection, conservation and presentation of the cultural and natural heritage… each State Party to this Convention shall endeavor… d) to take the appropriate legal, scientific, technical, administrative and financial measures necessary for the identification, protection, conservation, presentation and rehabilitation of this heritage.

Article 11 – 1:

Every State Party to this Convention shall, in so far as possible, submit to the World Heritage Committee an inventory of property forming part of the cultural and natural heritage, situated in its territory and suitable for inclusion in the list provided for in paragraph 2 of this Article. This inventory, which shall not be considered exhaustive, shall include documentation about the location of the property in question and its significance.

Article 11 – 2:

On the basis of the inventories submitted by States in accordance with paragraph 1, the Committee shall establish, keep up to date and publish, under the title of ‘World Heritage List,’ a list of properties forming part of the cultural heritage and natural heritage, as defined in Articles 1 and 2 of this Convention, which it considers as having outstanding universal value in terms of such criteria as it shall have established. An updated list shall be distributed at least every two years.

Article 15 created the Fund for the Protection of the World Cultural and Natural Heritage called “The World Heritage Fund,” and Article 16 provides, in addition to voluntary contributions, a pledge to deposit contributions to the Fund every two years.Footnote 15 Finally, Article 29 requires the State Parties to prepare reports for the General UN Educational, Scientific and Cultural Organization, which are then brought to the attention of the World Heritage Committee.

Such measures were adopted to thwart ordinary crime against works of art (robbery, theft, receiving, forgery), but were not thought out in terms of money laundering and terrorism financing. Commission of ordinary crime sometimes constitutes a single element in money laundering, and the art used for this crime is only for appearances of legitimacy and legal activities.

Then, the United Nations Convention against Transnational Organized Crime was convened in Palermo on 11/15/2000,Footnote 16 following the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 12/20/1988 (Article 5).Footnote 17 Both global regulatory guidelines require the State Parties to make laundering the proceeds of crime itself a crime (Article 6), and provide for the confiscation of “proceeds of crime derived from offences covered by this Convention or property the value of which corresponds to that of such proceeds” [Article 12(1)(a)]. Parallel to that is the United Nations Convention against Corruption held at Mérida in 2003 (Article 31, item 5—confiscation and seizure of money in an amount equivalent to the proceeds of crime).Footnote 18

Items 2, 3 and 4 of Article 12 of the United Nations Convention against Transnational Organized Crime held at Palermo correspondingly assert that “State Parties shall adopt such measures as may be necessary to enable the identification, tracing, freezing or seizure of any item referred to in paragraph 1 of this article for the purpose of eventual confiscation; if the proceeds of crime have been transformed or converted, in part or in full, into other property, such property shall be liable to the measures referred to in this article instead of the proceeds; if proceeds of crime have been intermingled with property acquired from legitimate sources, such property shall, without prejudice to any powers relating to freezing or seizure, be liable to confiscation up to the assessed value of the intermingled proceeds.”

Such provisions accurately depict the new world order with respect to combating organized crime, including narcotics trafficking and corruption.

It is sometimes alleged by defendants that the property seized has no links to the crime. It is then up to the judge to properly estimate the amount that flowed from the proceeds of the unlawful conduct imputed, mindful of the need to enforce the requirements set forth in the foregoing Conventions, as well as Article 387, Section IV, of the Brazilian Code of Criminal Procedure, which requires that the sentence be fixed at the “minimum amount required for reparation of damages caused by the infraction, taking into account all losses suffered by the aggrieved party,” in order to put the confiscation into effect—that is, to secure definitive forfeiture of that amount for the injured party or to the State as indemnification for damages caused by unlawful conduct.

Under Article K.3 of the Treaty of Maastricht (1992), European Union Member States agreed to adopt a common policy in their domestic efforts, and the 1998 joint action (98/773/JHA) sought to include money laundering as a type of organized crime. This was revoked in part by the Framework DecisionFootnote 19 of the European Union Council dated 06/26/2001, whereby Member States agreed not to make reservations on Articles 2 and 6 of the European Convention of 1990 (including the rule that provides for money laundering resulting generically from criminal conduct), since only serious infractions can be at issue, and provided measures for confiscation and criminal action on the proceeds of crime having a maximum penalty of greater than one year, or crimes considered serious (Article 1).

The Framework Decision of 02/24/2005 (2005/212/JHA) on forfeiture of products, instruments and property related to the crime, allows “extended powers of confiscation” aimed not only at forfeiture of assets of all those found guilty, but also assets acquired by their spouses or companions, or whose property may have been transferred to some company under the influence or control of the guilty parties—for organized criminal practices such as counterfeiting, trafficking in persons or assisting illegal immigration, sexual exploitation of children and child pornography, traffic in narcotics, terrorism, terrorist organizations and money laundering, provided they be punishable by a sentence of a maximum of at least five to ten years of imprisonment, or, in the case of laundering, with a maximum penalty of at least four years of imprisonment, and by their nature generating financial income (Article 3, Sections 1–3).

Note that the Palermo Convention provides for international cooperation on matters of confiscation [Article 13(1)], and expressly provides that the proceeds of crime be allocated to finance a United Nations Organizations Fund, so that it may assist Member States in obtaining the wherewithal with which to enforce the Convention [Articles 14(3)(a) and 30(2)(c)].

Artworks could well be included in the scope of this Convention if one could point to convincing evidence that they might be related to the commission of antecedent crimes and to money laundering. If the art market were indeed being used for purposes of money laundering, those circumstances would justify judicial search and seizure, and possibly confiscation as well.

2.3 National Laws and Enforcement: A Perspective from the United States and Brazil

In the United States, legislation fully supports confiscation of property in both administrative and criminal proceedings. The United States Code, Title 19 § 1595a (c), establishes customs forfeiture by providing that “[m]erchandise which is introduced or attempted to be introduced into the United States contrary to law shall be treated as follows: (1) The merchandise shall be seized and forfeited if it… (a) is stolen, smuggled, or clandestinely imported or introduced.” There is a “failure to declare” law in the United States, 19 U.S.C. § 1497, which provides for forfeiture of any article not declared or mentioned orally or in writing.Footnote 20

The U.S. Cultural Property Implementation Act of March 1983 (19 U.S.C. §§ 2601—2613), provides a series of administrative measures. Section 2609(a) of the Act establishes that “[a]ny designated archaeological or ethnological material or article of cultural property which is imported into the United States in violation of Section 2606 of this title or Section 2607 of this titleFootnote 21 shall be subject to seizure and forfeiture.”

The U.S. criminal code (18 U.S.C.) establishes as a crime:

§ 542 (Entry of goods by means of false statements)

Whoever enters or introduces… into the commerce of the United States any imported merchandise by means of any fraudulent or false invoice, declaration, affidavit, letter, paper, or by means of any false statement, written or verbal,… or makes any false statement in any declaration without reasonable cause to believe the truth of such statement, or procures the making of any such false statement as to any matter material thereto without reasonable cause to believe the truth of such statement [shall be guilty of a crime].

§ 545 (Smuggling goods into the United States)

Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been brought into the United States contrary to law [shall be guilty of a crime]. Merchandise introduced into the United States in violation of this section shall be forfeited to the United States.

§ 1956 (Money Laundering)

(a)(1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity— (A) (i) with the intent to promote the carrying on of a specified unlawful activity; or with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or knowing that the transaction is designed in whole or in part— (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or to avoid a transaction reporting requirement under State or Federal law, shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both. (…) (2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States—(A) with the intent to promote the carrying on of specified unlawful activity; or (B) knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed in whole or in part— (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (ii) to avoid a transaction reporting requirement under State or Federal law, shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both (…).Footnote 22

§ 1957 (Engaging in monetary transactions in property derived from specified unlawful activity). Whoever, in any of the circumstances set forth in subsection (d), knowingly engages or attempts to engage in a monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified unlawful activity, shall be punished as provided in subsection (b).Footnote 23

§ 2314 (Transportation of stolen goods, securities, moneys, fraudulent State tax stamps, or articles used in counterfeiting)

Whosoever transports, transmits, or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, valued at $5,000 or more, knowing the same to have been stolen, converted or taken by fraud [shall be guilty of a crime].

Through this legislation, the United States Attorney’s Office for the Southern District of New York was able to seize, confiscate or repatriate many works of art either stolen or fraudulently sent to the United States under false or defective documentation.Footnote 24

In Brazil, Bill No. 3443/2008, converted into Law No. 12683 of 07/09/2012, which amended Law No. 9613 of 03/03/1998, was hotly debated by many agencies that take part in the National Strategy for the Fight against Corruption and Money Laundering (ENCCLA). The ENCCLA comprises over sixty members, including many government agencies, such as Brazil’s Federal Revenue Department, the Central Bank, the Ministry of Justice, State and Federal Attorneys’ Offices, the Federal Police, and State and Federal Courts. The ENCCLA strives to honor all international commitments entered into by Brazil, and keeps up with all countries that are members of the Financial Action Task Force on Money Laundering (FATF).Footnote 25

Among its recommendations is a need to close the loopholes that make money laundering feasible. Another recommendation is to require individuals in significant levels of trust (auditors, bank managers, insurance, real estate and capital goods brokers, etc.) to submit Suspicious Activity Reports to Financial Intelligence Units, which are key to all crime fighting systems.

In closing with a set list of antecedent crimes, it attempted to fine-tune and update the law to the most modern standards of money-laundering legislation, and thus provided preemptive asset forfeiture. Just as positive was the change requiring Suspicious Activity Reports from boards of trade, recordkeeping entities and all those involved in mediating, brokering or negotiating the trade of athletes. It was lax, however, in not including, for example, notification requirements on the part of sports clubs, sports federations and sports confederations.

By the new language imparted by Law 12683 of 09/07/2012, the crime of money laundering is now defined as:

Art. 1 Concealing or disguising the nature, origin, location, disposition, movement or ownership of goods, securities or money derived directly or indirectly from a criminal offense.

Penalty: Three to ten years of imprisonment and a fine.

§ 1 The same penalty shall apply to anyone who, in order to conceal or disguise the use of goods, securities or money arising directly or indirectly from a criminal offense:

I – converts them into legal assets;

II – acquires, receives, trades, negotiates, gives or receives them in guarantee or in bailment, keeps them on deposit, negotiates or transfers them;

III – imports or exports goods at a price other than their true value.

§ 2 The same penalty shall also apply to anyone who:

I – makes use – in financial or business dealings – of goods, securities or amounts they know or have reason to know are the proceeds of crime;

II – is a member of any group, association or office while aware that its primary or secondary activity involves the commission of crimes as provided herein.

§ 3 Such attempts are punishable pursuant to the sole paragraph of Article 14 of the Criminal Code.

§ 4 The penalty shall be increased by one-third to two-thirds if the crimes established in this Law are committed as repeat offenses or through a criminal organization.

§ 5 The penalty may be reduced by one-third to two-thirds, and may be served under a work-release or similar program, or the judge may suspend the sentence or instead sentence the defendant to curtailment of rights if the first principal, second principal or accomplice freely cooperates with the authorities, and provides information to assist in the investigation of the crimes, identifies the perpetrators or identifies the whereabouts of the goods, securities or monetary proceeds of the crime.

Brazil’s National Institute of Historic and Artistic Heritage (IPHAN) is a federal agency under the Ministry of Culture. Its mandate is to oversee and protect the stewardship of archaeological collections that are federal property (under Article 20, X of the Federal Constitution, and Article 17 of Law No. 3924 of 07/26/1961) and may not be preserved by private entities. It also extends protection to property having historical, artistic and cultural value. The Brazilian Constitution establishes, in Article 20, Section X, that all archaeological and prehistoric sites belong to the Union, and in Article 23, Sections III and IV, that all governing bodies (the Union, the states, the Federal District and the municipalities) shall be responsible for the protection of “documents, works and other assets of historical, artistic or cultural value (…) and archaeological sites” and also must “prevent the loss, destruction, or changing of the characteristics of works of art and other goods of historical, artistic and cultural value.”Footnote 26

Article 24 of Legislative Decree (Decreto-lei) No. 25 of 11/30/1937, which organized the protection of historical and artistic patrimony of Brazil, requires that “the Union maintain—for the preservation and exhibition of historical and artistic works—in addition to the National Historical Museum and the National Museum of Fine Arts, other national museums as may become necessary, and shall also make provisions to promote the establishment of state and municipal museums having similar purposes.”

There is also a provision for administrative seizure (of illegally exported national heritage worksFootnote 27), and for forfeiture arising from crime (generic provision for all proceeds from or instrumentalities of crime; and a provision in Brazil’s Money-Laundering Law, Article 91, Sections I and II of the Criminal Code, and Article 7, Section I of Law No. 9613 of 03/03/1998, as amended by Law No. 12683/2012).

The relevance and originality of all this warrant revisiting a very apropos line of reasoning in the author’s workFootnote 28 having to do with confiscation even when there is no previous criminal conviction. As was already discussed, the Financial Action Task Force (FATF) Recommendations (in particular, Recommendations Nos. 4 and 30), the UN Convention on the Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna, December 20, 1988, Article 5), the UN Convention against Transnational Organized Crime (Palermo, 2000, Article 12, Item 7), the UN Convention against Corruption (Mérida, 2003, Article 20, Article 30, Item 8 and Article 47), and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism (Warsaw, 2005, Article 2) all recommend that consideration be given to the adoption of confiscatory measures absent prior criminal conviction, or measures shifting the burden of proving the legal source of assets onto the accused.

To increase the likelihood of recovering assets of criminal origin, States are urged to draft laws instituting Civil Forfeiture Actions for Illegally Acquired Assets as a means of fighting money laundering by interrupting the usufruct of the proceeds of crime.

For example, on September 5–6, 2005, judicial authorities of the Office of the Federal Prosecutor, the Attorney General’s Office, and the Justice Ministry’s Asset Recovery and International Legal Cooperation Department (DRCI), met to discuss the project, given the participation of Kimberly Prost, UN specialist on Drugs and Crime. The meeting was again taken up on October 7 of that same year and then again on March 20, 2006, to finalize the project and conclude the discussions.

The primary focus was on establishing quicker means of recovering illegal assets—means that did not require a decision on the defendant’s criminal liability, but rather, a judicial recognition restricted to proof of the illegal origin of the assets, absence of proper title for their acquisition, or a mismatch between income level and assets acquired.

Leaving illegally obtained money in the hands of criminals—especially members of organized criminal gangs—encourages the reentry of those monies into the underworld, or back into the original illegal business practices occurring prior to, or even after serving a sentence, with the potential for serious harm to society.

ENCCLA Target No. 19 of 2008, foreseeing the need to confiscate illegal goods, highlighted the importance of a law to enable the taking of urgent measures in administrative proceedings. The Office of the Attorney General then agreed to draft a bill which, if passed, could apply to both administrative proceedings and lawsuits charging administrative dishonesty, irrespective of the civil actions addressed here.

Civil action opens up new inroads for obtaining assets that would end up financing organized crime, inasmuch as they are derived from it. They allow the State to deal with the proceeds of crime. They must also be clearly regulated so as on the one hand to not offend fundamental rights of the individual, and on the other to serve as a quick and effective tool for the recovery of illicit assets.

The civil action in question would indeed be an extension of State powers regarding illegal assets, inasmuch as it would allow definitive forfeiture while dispensing with a final decision by a court and still respecting the rights of the individual.

The rights of those who received the property in good faith, or of third parties in a similar situation, must be protected. They must therefore be assured the right to answer the civil charges, and even assured payment of minor expenses (like living expenses) during discussion of their situation. One could prove, for example, having rented the house in good faith without knowing that it was used for illegal purposes (such as prostitution).

It would not be appropriate, however, for the defense to argue adverse possession, because it would be too easy to deflect the purpose of the action if, for instance, the owner were to pay someone to allege uninterrupted possession.

We should mention that the burden of proof as to the illegal origin of the assets and monetary amounts does, in principle, fall on the State and includes not only the proceeds of the crime, but also its instrumentalities, such as cars, boats, houses and businesses. To be clear, it is only if the assets are included in an income tax return that the burden of proof is on the State, as opposed to the owner, possessor or bearer.

Note that criminal sanctions are oftentimes perceived as a temporary setback (even when penalties are severe), whereas the compulsory transfer of valuable assets to the State, such as cars, mansions and luxury items, causes more trouble to criminals because of its irreversible nature.

But civil action is not intended as a means of giving the State yet another punitive instrument. Yet it does have this effect, to the extent that those accustomed to having illegal assets value them very highly, even when compared to their own individual freedom. Hence, civil action to terminate ownership does indeed become a valuable instrument in fighting crime and is also more effective in the recovery of illegal assets.

It is much more difficult to obtain a satisfactory outcome in serious and complex crimes, especially money laundering, because criminals have made use of qualified professionals to enable them to distance themselves from the crime. Civil action is quite useful here because the value judgment involved is different. What must be proven is a link. It is not a judgment of merits as in a criminal procedure, but rather a determination of the probabilities that the assets are the product of illegal activity.

Indeed, the cost involved in gathering evidence of a crime such as money laundering, coupled with the difficulty of obtaining a favorable outcome, even in the presence of strong suspicion of criminal activity, has caused governments to rethink the entire system in terms of adopting less costly methods—methods more closely hedged in with the necessary guarantees—as a strong ally in the recovery of illicit assets.

It is important to the success of the action that specific cooperative agreements between States be entered into, thereby opening up a broad avenue for the recovery of illegal assets.

Due to its autonomous nature, the action under consideration may be brought concurrently with criminal prosecution, provided it does not jeopardize criminal investigations, which are often secret. If during the course of bringing civil action it is found that criminal prosecution can feasibly be quickly resolved, the civil suit should be suspended pending the outcome of criminal proceedings.

One must, however, be mindful of the absolute autonomy of civil action. Situations such as the death of a defendant or subject of an investigation, statutory limitations, insufficient evidence, criminal immunity or obtaining of evidence from abroad may burden, if not thwart, recovery of illegal assets.

Civil action could be improved by permitting preventive seizure or impoundment prior to definitive forfeiture, thus allowing the appointment of a custodian of property, but without preemptive alienation (before the decision becomes final), which could be risky because the judgment of merits is different from that in criminal courts, except in cases of deterioration.

Should a settlement occur in civil proceedings, the effect in criminal court would favor reducing the sentence, whether by acknowledgment of subsequent repentance (CPB—Brazilian Criminal Code, Article 16), or by mitigating circumstances, such as voluntary cooperation (CPB Article 65, Section III, Item b), or by plea bargaining.Footnote 29

To avoid improper management of such actions (purely personal or political filings), specific rules of procedure must be established, such as, for instance, rejection of filings once ten or fifteen years have elapsed following possession or holding, prior analysis of the history of the ownership of the assets through forensic examination, and a preliminary hearing with the defendant—all to preclude arbitrary or baseless filings.

Civil action for termination of ownership is accepted procedure in the United Kingdom, Iceland, Italy, the United States, Colombia (through Law No. 793 of 12/27/2002), Australia and South Africa.

In the United States, the Treasury Department’s Office of the Comptroller of the Currency (OCC) requires that all banks file Suspicious Activity Reports (SARs) with the Financial Crimes Enforcement Network (FinCEN), also a Treasury Department agency. This must be done whenever any violation is known or suspected, and also whenever a suspicious transaction involves money laundering or any violation of the rules made pursuant to the Bank Secrecy Act (BSA).Footnote 30

Note that the OCC has received requests to amend the expression “known or suspected violation” because of its breadth of scope. The conclusion was made, however, that attempted crimes, or the potential for the same, must be reported in order to bolster the effectiveness of efforts to combat money laundering. There was, however, more clarity provided on the requirement that banks report suspicious activities “for any reason” because critics considered the expression overly broad and rendered meaningless the $5,000 threshold for Suspicious Activity Reports. The OCC decided that reporting was required on any operation involving $5,000 or more, provided the banks know, suspect, or have reason to suspect that the operation involves money derived from illegal activities; there is some intent to conceal or disguise the money; it might form part of a plan to circumvent reporting; the money has no legal or business purpose; or the money does not match the customer’s expected profile.Footnote 31