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The practice of money laundering and politically exposed people

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  1. Abstract
  2. Introduction
    1. Argument
  3. PEP's: A brief overview
  4. Methodology
  5. Money laundering: The scope of the problem
    1. Background
    2. Financial details
    3. How money is laundered
    4. Estimates on the extent of money laundering
  6. Modern day problems
    1. Who is involved
    2. Terrorists
    3. Other organizations
    4. Impact
  7. Politically Exposed Persons (PEPs)
    1. Defining PEP's
    2. Basic considerations
    3. Others associated with PEPs
    4. Sleeper PEP's
    5. When does one lose status as a PEP?
  8. Risk
  9. PEPs and illegal activity
  10. Banks and awareness of the problem
  11. PEPs: Historical examples
    1. Pinochet
    2. Abacha
  12. National and regional responses to PEPs
    1. European Union
    2. The 3rd EU money laundering directive
    3. The 3rd directive in practice
    4. Canada
    5. Bill C-25 in practice
    6. Canadian law and risk assessment
    7. Controversy
  13. Conclusion
  14. References

The practice of money laundering has long since been regarded as a criminal offence though it is primarily during recent times that the practice has been undertaken on such a scale as to pose a genuine threat to the international political and financial orders. This is due to its association with crimes ranging from weapons dealing to embezzlement to terrorism. Of particular concern is the role of Politically Exposed Persons (PEPs) such as Augusto Pinochet in Chilli and Sani Abacha in Nigeria, a separate category of individual first identified by the Financial Task Force (FATF). Though definitions vary, PEPs generally include heads of state, other high ranking government officials, and those associated with them. For financial institutions, PEPs pose a high degree of risk because, if it is found that their assets were obtained by illegal means, this may result in financial ruin for the institution?like the now defunct Riggs Bank which had close dealings with Pinochet?due to the impact this has on their reputation as well as potentially millions of dollars in fines. As such, Canada, with the introduction of Bill C-25, the European Union, with the 3rd EU Money Laundering Directive, the United States, with the Patriot Act, and others have constructed policies which have set standards for defining PEPs as well as standards of due diligence which financial institutions must follow in order to ensure to the extent that is possible that PEPs with whom they do business have acquired their assets in a legal and legitimate manner. Though these conditions place a heavy burden on banks, credit unions, and other financial organizations, the extent of the threat is such that the benefits which can be derived from following these procedures likely out-weigh the not inconsiderable costs.

[...] This trend has been attributed to the higher level of public trust which people in those countries have in public officials and others who meet the criteria of PEPs, though this is changing PEPs: Historical Examples Having discussed the issue of money laundering in general and PEPs in particular, the paper will now turn to an investigation of historical examples where PEPs engaged in the practice of money laundering in a highly illegal and destructive manner. This section is intended to synthesize the first two by establishing that the link between PEPs, money laundering, and various crimes is one that is clear but at the same time exceedingly multifaceted. [...]


[...] In the FATF's 2003-04 Typologies Report, the organization investigated a variety of instances where PEPs were involved in money laundering and concluded that (FATF 2003-04 Report): the source of the funds that PEP may try to launder is not only bribes, illegal kickbacks and other directly corruption-related proceeds, but also may be embezzlement of outright theft of State assets or funds from political parties . as well as tax fraud. In certain cases a PEP may be directly implicated in other types of illegal activities such as organized crime or narcotics trafficking. [...]


[...] Introduction Argument The purpose of this paper is to investigate the role of Politically Exposed Persons (PEPs) in international money laundering schemes. Though money laundering has been practiced for millennia, dating back as long ago as Ancient China, it has only been with the introduction of new technologies and money laundering methods that the problem has grown to the point it has today, where billions are estimated to be laundered annually (Masciandaro, Takats, and Unger, 2007). This is significant because this money is often used in conjunction with a variety of criminal activities ranking from embezzlement to terrorism to murder. [...]

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