By Savior Mwambwa
There are many varieties and ways that FICs can be set up to carry out there mandates and i believe like many others that our own FIC here in Zambia is very much set up and operates within our laws as well as the internationally accepted customs and practices of other FICs.
Remember, its not madam Mary Chirwa or Mr John Kasanga that formed FICs, it was very much a creation of the Zambian government particularly the PF government at the behest of the international community. It also was driven by the desire to satisfy international standards and various conventions as part of international efforts to fight money laundering specifically related to “terrorist financing” and I guess to escape the much dreaded FATF black list box.
I remember back then our process in Zambia was with full participation and endorsement of other law enforcement agencies such as DEC, ACC and the Fraud and Anti money laundering units within the ZP and in consultation with stakeholders like private sector banking institutions. In other words the FIC and its creation, Financial Intelligence Act did not just drop from the air as we are being made to believe by some of the reactions to its recent trends report.
Across the globe, Financial Intelligence Centres (FICs) also known as Financial Intelligence Units (FIUs) have been set up in most countries for the general purpose of combating money laundering and have generally given them the three core functions that are part of the accepted definition of an FIC. The administrative arrangements by which these functions are carried out, however, vary considerably from country to country. These variations arise from different country circumstances, together with the lack of an internationally accepted model for the functions of an FIC in the early 1990s, when the first such units were established. For example, in some countries, the function of the FIC as an additional tool for law-enforcement organizations in combating money laundering and associated crimes was emphasized, and this led to the establishment of the FIC in an investigative or prosecutorial agency. Other countries emphasized the need for a “buffer” between the financial institutions and the police, and consequently their FICs are established outside these agencies.
Types of FICs
According to the IMF and World Bank overview on FICs across the world, there are various types of arrangements for FICs summarized under four main general headings: the administrative-type FIC, the law-enforcement-type FIC, the judicial- or prosecutorial-type FIC, and the “mixed” or “hybrid” FIC. It should be emphasized, however, that such classification is, to a certain degree, arbitrary and that other ways of classifying FICs are possible. Nevertheless, these categories illustrate the wide variety of administrative arrangements under which FICs are established. Like with most structures there are advantages and disadvantages of each type of FIC but I shall not go into this for now.
Let us now turn to each one of the four types of FICs in a bit more detail below:
(1) Administrative-type FICs
Administrative-type FICs are usually part of the structure, or under the supervision of, an administration or an agency other than the law-enforcement or judicial authorities. They sometimes constitute a separate agency, placed under the substantive supervision of a ministry or administration (“autonomous” FICs) or not placed under such supervision (“independent” FICs). The main rationale for such an arrangement is to establish a “buffer” between the financial sector (and, more generally, entities and professionals subject to reporting obligations) and the law-enforcement authorities in charge of financial crime investigations and prosecutions.
Often, financial institutions facing a problematic transaction or relationship do not have hard evidence of the fact that such a transaction involves criminal activity or that the customer involved is part of a criminal operation or organization. They will therefore be reluctant to disclose it directly to a law-enforcement agency, out of a concern that their suspicion may become an accusation that could be based on a wrong interpretation of facts. The role of the FIC is then to substantiate the suspicion and send the case to the authorities in charge of criminal investigations and prosecutions only if the suspicion is substantiated.
The actual administrative location of such FICs varies: the most frequent arrangements are to establish the FIC in the ministry of finance, the central bank, or a regulatory agency. A few have been established as separate structures, independent of any ministry (CTIF/CFI in Belgium, for example). In most cases, the decision to establish the FIC outside the law-enforcement system also leads to the decision that the FIC’s powers will be limited to the
receipt, analysis, and dissemination of suspicious transaction and other reports, and that they will not be given investigative or prosecutorial powers. Similarly, the powers of the FIC to disclose the information contained in transaction reports is usually defined narrowly, to preserve the confidential character of the information provided to it.
By making an administrative authority a “buffer” between the financial institutions and law-enforcement sectors, authorities can more easily enlist the cooperation of reporting institutions, which are often conscious of the drawbacks vis-à-vis their clients of having direct institutionalized links with law-enforcement agencies. Administrative-type FICs are often preferred by the banking sector. They may also appeal to other institutions and professionals that have been added to the list of reporting entities for the same reasons.
(2) Law-enforcement-type FICs
In some countries, the emphasis on the law-enforcement aspects of the FIC led to the creation of the FIC as part of a law-enforcement agency, since this was the easiest way to establish a body with appropriate law-enforcement powers without having to design from scratch a new entity and a new legal and administrative framework.
Operationally, under this arrangement, the FIC will be close to other law-enforcement units, such as a financial crimes unit, and will benefit from their expertise and sources of information. In return, information received by the FIC can be accessed more easily by law-enforcement agencies and can be used in any investigation, thus increasing its usefulness. Exchange of information may also be expedited through the use of existing national and International criminal information exchange networks.
In addition, a law-enforcement-type FIC will normally have the law enforcement powers of the law-enforcement agency itself (without specific legislative authority being required), including the power to freeze transactions and seize assets (with the same degree of judicial supervision as applies to other law-enforcement powers in the country). This is likely to facilitate the timely exercise of law-enforcement powers when this is needed.
(3) Judicial or prosecutorial-type FICs
This type of FIC is established within the judicial branch of the state and most frequently under the prosecutor’s jurisdiction. Instances of such an arrangement are found in countries with a continental law tradition, where the public prosecutors are part of the judicial system and have authority over the investigatory bodies, allowing the former to direct and supervise criminal investigations. Disclosures of suspicious financial activity are usually received by the prosecutor’s office, which may open an investigation if suspicion is confirmed by the first inquiries carried out under its supervision.
The judiciary’s powers (e.g., seizing funds, freezing accounts, conducting interrogations, detaining suspects, and conducting searches) can then be brought into play immediately.
Judicial and prosecutorial FICs can work well in countries where banking secrecy laws are so strong that a direct link with the judicial or prosecutorial authorities is needed to ensure the cooperation of financial institutions. It may be noted that the choice of the prosecutor’s office as the location of an FIC does not exclude the possibility of establishing a police service with special responsibility for financial investigations. In addition, in many countries, the independence of the judiciary inspires confidence in financial circles. The principal advantage of this type of arrangement is that disclosed information is passed from the financial sector directly to an agency located in the judiciary for analysis and processing.
(4) “Hybrid” FICs
This last category encompasses FICs that contain different combinations of the arrangements described previously. This hybrid type of arrangement is an attempt to obtain the advantages of all the elements put together. Some FICs combine the features of knadministrative-type and law-enforcement-type FICs, while others combine the powers of the customs office with those of the police. For some countries, this is the result of joining two agencies that had been involved in combating money laundering into one.
It may be noted that in some FICs listed as administrative-type, staff from various regulatory and law enforcement agencies work in the FIC while continuing to exercise the powers of their agency of origin. Among the countries that have established “hybrid” FICs are Denmark, Jersey, Guernsey, and Norway.
Although the international community quickly developed standards on combating money laundering in general, mostly through the work started by the FATF in 1989, formal recognition of the FIC as a crucial element in anti-money- laundering strategy is more recent. In the 1990 FATF Recommendations, mention was made of the need for financial institutions to report suspicious transactions to “the competent authorities,” but these “competent authorities” were not defined, and could be any government agency designated for the purpose. It was only in 2003 when FATF recommendations recognized the need for an FIC in the sense defined by the Egmont Group.
The key message is that those attacking the FIC are aiming at the wrong targets and are clearly misguided on what the FICs function in relation to other LEA should be.
Maybe this is a good lesson for all of us to read and comprehend the real implications of what we sign on and not have selective accountability.
Savior Mwamba is a Programmes Officer at Open Society Foundations