Following the publication of the Financial Action Task Force mutual evaluation of the UAE arrangements for combating illicit finance, Deloitte Middle East’s Public Safety leader, Andrew Morley, makes the case for going after the proceeds of crime and identifies the key elements of an effective framework for doing so.

Globalization has brought many benefits. Our ability to communicate via video and email, and to move finances electronically has proven invaluable in navigating the lockdowns imposed to minimize transmission of COVID-19. However, these benefits also provide opportunities for organized criminal groups to operate across international borders providing real challenges to national law enforcement agencies.

The United Nations Office for Drugs and Crime (UNODC) reports that ‘traditional, territorial-based criminal groups have evolved or have been partially replaced by smaller and more flexible networks with branches across several jurisdictions. In the course of an investigation, victims, suspects, organized criminal groups and proceeds of crime may be located in many States.’ The UNODC estimates that all criminal proceeds, excluding tax evasion, amounts to 2.3 to 5.5 per cent of global GDP.

There is an international consensus that one way to combat organized crime is to have effective arrangements for confiscating criminal assets.

The rationale being that organized crime is primarily motivated by profit and that having effective arrangements for taking away any profits will dis-incentivize criminals, disrupt criminal networks and provide some compensation for the harm caused by crime. This consensus has been institutionalized through international convention primarily the 1998 Vienna Convention which established the Financial Action Task Force (FTFA) which includes the confiscation of criminal assets in its evaluation framework to assess anti-money laundering and combating terrorist financing arrangements.

Countries across the Middle East region have made good progress, and in very quick time, in developing the legislation and capabilities necessary to deliver on this agenda.  Governments recognize that having effective arrangements in place to enable the restraint and confiscation of criminal assets are an important pillar in any strategy to keep the region safe and that this in turn contributes to economic confidence.

However, recent FATF evaluations in the region suggest there is still work to be done. The UAE evaluation recommended that legislation be broadened to provide for the confiscation of assets from organizations principally criminal in nature. The evaluation of KSA found that while the legislation was comprehensive they needed to strengthen investigative and prosecutorial capabilities, and improve international coordination as a large proportion of criminal assets were estimated to leave KSA.

Deloitte has extensive global experience in this field and has identified the elements required for an effective Asset Recovery System:

  • An Effective Legal Framework

This is a complex area. Many jurisdictions have both criminal and civil routes through which they can confiscate assets. Add to this that Organized Criminal Groups are constantly looking to find ways to undermine efforts to identify, locate and confiscate their assets. An effective legal framework that is constantly under review, has clear and comprehensive definitions of what is meant by Criminal Assets and which provides investigators and the courts effective powers all the while ensuring appropriate protection for the accused is therefore essential.

  • Comprehensive and up to date records of ownership

Though not within the remit of law enforcement agencies, reliable arrangements for recording ownership of assets and control of legal persons are invaluable to law enforcement agencies in tracing and locating assets. Any registers should identify the beneficial owners of any asset listed and need to be regulated to ensure accuracy and currency.

  • Strong Governance Arrangements supported by Information Management Systems

Each individual case and successful confiscation will require cooperation across a number of entities. This is easier if there are established governance and coordination arrangements between system stakeholders, including appropriate information sharing mechanisms to facilitate the effective development of an accurate and coherent understanding of strategic national risks, and to enhance operational information sharing to expedite casework.

These arrangements are likely to be much more effective if they have a ‘single source of truth’ on which to base decisions A national information database for asset recovery to track the progress of individual cases through the process and quantify success in seizing and managing confiscated assets can help with this. A common finding of FATF evaluations is that jurisdictions cannot provide good data to evidence impact

  • Specialist Capabilities

Any framework is only as good as the capabilities deployed to implement it.  At the front end of the process this is to ensure that any investigation in a case where they is a suspicion that the crime has generated profit is supplemented with financial investigative capabilities.

There are different models for this with some countries having this capability within existing law enforcement structures, whereas others have established a specialist agency for this.  Some jurisdictions also use private sector support to enhance capacity or deepen capabilities. In the US, Deloitte work alongside federal law enforcement agencies in identifying, locating and seizing assets bringing to bear their access to open source research, forensic accountancy experience and analytical tools to very good effect.

There are also capabilities required at the back end of the process. Many countries grant Law Enforcement agencies or an alternative administrative agency the power to temporarily freeze assets with any extension being subject to a prosecutorial or judicial order.   These powers need to be supported by effective arrangements for managing any assets to ensure that their value is maintained. In France this is managed by a dedicated agency – AGRASC (Agence de Gestion et de Recouvrement des avoirs Saisis et Confisqués) whereas other countries rely on public guardianship entities or appoint private receivers.

  • Framework for reinvesting confiscated assets

Whilst there are differences in individual country schemes for reinvesting any seized assets, most operate on the principle of victim compensation followed by reinvestment in law enforcement and/or broader public safety initiatives.

In Switzerland, the funds are shared between the investigating authority (50%), the Canton in which the assets were located (20%), and the federal government (30%). There are no limitations on how this funding is used in Switzerland, however other jurisdictions have a criteria for reinvesting these. In Australia expenditure is limited to crime prevention, law enforcement and drug treatment programmes.

There is an additional level of complexity when it comes to returning assets that have been generated from criminal activity overseas. In broad terms international convention supports assets being returned but the arrangements can vary depending on the maturity of the governance framework for any repatriated assets, mutual legal cooperation agreements and individual assessments around harm.

The growth in organized crime presents a threat that governments and law enforcement agencies around the world are working hard to combat.

Going after the profits of this crime is a well-established tactic and one that can be effective in disrupting criminal networks and so reduce crime but more than it provides a mechanism to compensate victims and communities for the harm caused by these crimes.

Whilst there is significant space for countries to develop arrangements that work for them the features listed above provide for a helpful framework for countries in developing these.

Deloitte has extensive experience in supporting Financial Institutions, Regulators and Law Enforcement Agencies in their work to combat illicit funding.  Our recent report ‘The Global Framework for Fighting Financial Crime’ sets out what could be done internationally and nationally to combat this crime whilst our report ‘Combatting Financial Crime in the UAE’ provided a perspective on how the UAE could address the observations made in the recent UAE FATF Mutual Evaluation Report.

If you would like to talk to us about this blog, our report or anything related to illicit finance please contact:

  • Andrew Morley. Partner and Public Safety and Justice Lead, Deloitte Middle East – anmorley@deloitte.com
  • Nipun Srivastava. Director and Financial Crime Lead, Deloitte Middle East – NipSrivastava@deloitte.com
  • Chris Bostock, Director UK Financial Crime Practice – cbostock@deloitte.co.uk

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