!
Banks and the Fight against Terrorism
Fiona Zori Krummenacher
International and European Law: Public International Law (LLM track) University of Amsterdam
Supervised by
Prof. Mr. Dr. H.G. Harmen van der Wilt
Date of Submission:10 July 2017
Picture Front Cover:
“Paradeplatz” in Zurich, Switzerland, the financial centre showing the Swiss leading banks UBS and Credit Suisse; Source: <https://www.srf.ch/news/wirtschaft/die-banken-verlieren-an-bedeutung> (4 July 2017).
Table of Contents
ABBREVIATIONS III
INTRODUCTION 1
I. TERRORISM: AN INTERNATIONAL CRIME? 3
1. Terrorism under the ICSFT 3
2. Terrorism: A “Transnational Crime” 3
II. CRIMINALISING THE FINANCING OF TERRORISM UNDER INTERNATIONAL LAW 5
1. Financing Terrorism 5
1.1 Expenditures 5
1.2 Forms of Financing Terrorism 5
2. Impact of 9/11 6
3. International Legal Framework 7
3.1 ICSFT 7
3.1.1 Criminalising Financing Terrorism under the ICSFT 7
3.1.2 What Qualifies as an Offence of FT under the ICSFT? 8
3.2 United Nations Security Council Resolutions 9
3.3 Other International Conventions 10
3.4 International “Soft Law” in Combatting the Financing of Terrorism 10
3.4.1 FATF Recommendations on Anti-Terrorist Financing 10
3.4.2 Basel Committee on Banking Supervision Guidelines 11
4. The Targets of International Policies on Combatting the Financing of Terrorism 12
5. Conclusion 12
III. ROLE OF BANKS IN COMBATTING TERRORISM 13
1. Role of Banks in Combatting the Financing of Terrorism 13
1.1 Banks as Vehicles for Financing Terrorism 13
1.2 Legal Obligations of Banks to Combat Terrorism 13
1.2.1 The Authentication of Account Holders or Beneficiaries 14
1.2.2 Suspicious Transaction Reporting 15
1.2.3 Record Keeping 17
1.2.4 Asset Freezing 17
2. Illustrative Cases of Swiss Banks in Combatting the Financing of Terrorism 18
3. Consequences and Outlook 19
IV. CRIMINAL LIABILITY OF BANKS IN THE UNITED STATES AND SWITZERLAND 21
1. Corporate Criminal Liability 21
2. Corporate Criminal Liability under the ICSFT 22
3. Criminal Liability of Banks in Switzerland for Financing Terrorism 22
3.1 Corporate Criminal Liability in Switzerland 22
3.2 Criminal Liability of Banks for Financing Terrorism in Switzerland 23
4. Criminal Liability of Banks in the United States for Financing Terrorism 24
4.1 Corporate Criminal Liability in the United States 24
4.2 Criminal Liability of Banks for Financing Terrorism in the United States 25
V. IMPACT OF BANKING SECRECY ON COMBATTING THE FINANCING OF
TERRORISM IN THE UNITED STATES AND SWITZERLAND 26
1. Banking Secrecy in General 26
2. Banking Secrecy under the ICSFT 27
3. Scope of Swiss Banking Secrecy vis-à-vis the United States in Combatting the Financing of Terrorism 27
3.1 Swiss Banking Secrecy 27
3.2 Status of Swiss Banking Secrecy in the United States 28
3.2.1 Legal Assistance in Criminal Matters 28
3.2.2 Civil and Criminal Proceedings 28
3.2.2.1 Relevant Judgments in the United States 28
3.2.2.2 Consequences 30
VI. EVALUATION 31
1. Problems Faced in the Global Combat Against Financing Terrorism 31
2. Incentives for Banks to Combat Financing Terrorism 32
3. Challenges for Banks in Combatting the Financing of Terrorism 32
4. Drawbacks for Banks Stemming from Combatting the Financing of Terrorism 33
5. Banks: A Success in Combatting the Financing of Terrorism? 33
BIBLIOGRAPHY 35
Abbreviations
AML Anti-Money Laundering
BCBS Basel Committee on Banking Supervision
CCIT Comprehensive Convention on International Terrorism (Draft) CDD Customer Due Diligence
CFT Combatting the Financing of Terrorism DOJ U.S. Department of Justice
DPA Deferred Prosecution Agreement e.g. for example (exempli gratia) ed./eds. editor(s)
FATF Financial Action Task Force FIUs Financial Intelligence Units FT financing terrorism
i.e. that is (id est)
ICC International Criminal Court
ICSFT International Convention for the Suppression of the Financing of Terrorism of 1999 IMF International Monetary Fund
KYC Know-Your-Customer Rule
OECD Organisation for Economic Cooperation and Development STR Suspicious Transaction Report
SCC Swiss Criminal Code
STL Special Tribunal for Sierra Leone UN United Nations
UNSC United Nations Security Council
US United States
UNODC United Nations Office on Drugs and Crime
Banks and the Fight against Terrorism
Introduction
Since 2000, more than 150,000 terrorist incidents have occurred worldwide, and the number of countries that have experienced terrorist attacks has risen steadily. Terrorism is a pressing problem 1
for contemporary society. One way to fight terrorism is to detect assets of and money transfers to terrorists and to drain the funding of terrorism, since terrorists require money to carry out their activities. For instance, the radical “Paris assassinator”, who in January 2015 shot four persons, received a small loan from a French bank with which he bought his assault rifles. 2
On 9 December 1999, the General Assembly of the United Nations (UN) adopted the International Convention for the Suppression of the Financing of Terrorism (ICSFT). However, only in the aftermath of the 9/11 terrorist attacks was the Convention ratified by a sufficient number of countries to enter into force. The ratification obliged states to implement the provisions of the Convention, particularly to criminalise the financing of terrorists, terrorist organisations, and terrorist acts. Since 9/11, the international community has focused on destroying the financial foundations of terrorist activities, perceiving money as the “life-blood for terrorism”. Draining terrorists’ funding is a means to combat terrorism with the benefit of not having to contemplate the lawfulness of use of force or military detention to counter terrorism. 3
This thesis examines how banks are involved in the fight against terrorism, using a descriptive external assessment.
The main object of this thesis is not state terrorism, which mainly involves public international law issues such as non-intervention, international responsibility and countermeasures, but rather on
Institute for Economics and Peace ‘Global Terrorism Index 2016’ 2, 37 <http://visionofhumanity.org/indexes/
1
terrorism-index/> (9 May 2017).
C Boss and O Zihlmann ‘Schweizer Banken verstärken die Jagd nach Terroristen’ Sonntagszeitung (Schweiz
2
8 October 2016) < http://www.sonntagszeitung.ch/read/sz_09_10_2016/wirtschaft/Schweizer-Banken-verstaerken-die-Jagd-nach-Terroristen-75045> (28 April 2017).
R Cryer and others An Introduction to International Criminal Law and Procedure (3rd edn Cambridge 2014) 332.
terrorism caused by private actors and the role of banks in the fight against it. Therefore, Chapter I 4
defines terrorism as the “enemy” and discusses if terrorism qualifies as an international crime.
Chapter II explains how terrorism is financed and shows the impact of 9/11 on the criminalisation of financing terrorism. An overview of the international legal framework on the criminalisation of financing terrorism as well as an analysis of the constituent elements of the offence of financing terrorism under the ICSFT will be given.
In order to analyse how banks are involved in the fight against terrorism, Chapter III addresses the major obligations arising from the ICSFT and “soft law”. Subsequently, it assesses how banks react to minimise their risks of becoming involved in financing terrorism (FT) and the consequences thereof. Finally, an assumption is made about further legal developments the financial services industry should expect in the future.
Chapter IV is devoted to the question of whether a bank contributing to FT is criminally liable, focussing on the legal landscapes in Switzerland and the United States (US). In both countries, banks risk criminal liability with regard to FT.
Chapter V investigates whether Swiss banking secrecy is protected by US courts in terrorism-related cases. The answer is no – a conclusion drawn from four illustrative cases in which US judges acknowledged the supremacy of American security interests over foreign banking secrecy.
Finally, Chapter VI evaluates if banks are successful in combatting terrorism and concludes banks’ compliance procedures with international and “soft” laws in combatting FT can create obstacles for terrorism; however, there is room for improvement.
M Filippo ‘Terrorist Crimes and International Co-operation: Critical Remarks on the Definition and Inclusion of
4
Terrorism in the Category of International Crimes’ (2008) 19 EJIL 533, 548 f.; for an overview on different forms of terrorism see M Cohn ‘Understanding, Responding to and Preventing Terrorism’ (2002) 24 Arab Studies Quarterly 25, 36 ff.
I. Terrorism: An International Crime?
Today, the fight against terrorism is multifaceted and includes military, political, financial, legislative and law enforcement measures such as financial sanctions from the United Nations Security Council (UNSC). However, the primary paradigm through which to address terrorism is criminal law, and a terrorist act, in one form or another, constitutes a criminal offence. 5
1. Terrorism under the ICSFT
“Terrorism” and “terrorist” are controversial terms that carry legal, political and religious overtones. While there is broad agreement that acts of violence committed against civilians – such as those on 9/11 and the bombing of Pan Am Flight 103 and its crash in Lockerbie, Scotland – constitute acts of terrorism, there are different views as to what constitutes “terrorism”. There is no universally 6
agreed upon definition of terrorism in customary international law or in international treaty law. 7
The ICSFT, coming into force on 10 April 2002, is the only global convention that defines terrorism, and it only does so for a secondary purpose. Article 2 of the Convention refers to the offence of financing acts of terrorism, which are defined as acts covered by a list of the nine previous sectoral conventions; established by the UN system; annexed to the Convention and “any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act.” It is noteworthy that a political purpose is not 8
required. For the purpose of this thesis, the definition of terrorism given by the ICSFT suffices. 9
2. Terrorism: A “Transnational Crime”
Terrorism first appeared on the international agenda in 1934, when the League of Nations put forth a plan to draft a Convention for the Prevention and Punishment of Terrorism. Although an agreement was finally reached, the Convention never received a sufficient amount of ratifications to
Cryer (n 3) 332.
5
HV Morais ‘The War against Money Laundering, Terrorism, and the Financing of Terrorism’ (2002) 1 Lawasia Journal
6
1, 13.
UNODC Frequently Asked Questions on International Law Aspects of Countering Terrorism (2009) 10 <https://
7
www.unodc.org/documents/terrorism/Publications/FAQ/English.pdf> (21 April 2017). Cryer (n 3) 336.
8
For a thorough discussion on the definition of terrorism see eg GP Fletcher ‘The Indefinable Concept of Terrorism’
9
Journal of International Criminal Justice 4 (2006), 894-911 and MJ Ventura ‘Terrorism According to the STL’s Interlocutory Decision on the Applicable Law: A Defining Moment or a Moment of Defining?’ (2011) 9 Journal of International Criminal Justice 1021-1042.
come into force. Even today, there is no international convention prohibiting terrorism; however, numerous international treaties were agreed upon, addressing specific areas of terrorist activities. 10
Despite being regarded by the UNSC as a threat to international peace and security, international terrorist acts do not fall into the category of “core international” crimes, such as genocide, war crimes and crimes against humanity. Instead, terrorism is considered a “transnational crime” – a 11
crime of international concern, which can have trans-boundary effects. Norms of transnational 12
criminal law do not directly establish criminal liability under international (treaty) law, but establish legal duties for state parties to establish criminal liability for transnational crimes under their domestic laws. 13
Except for the Special Tribunal for Lebanon (STL), there is no international court or tribunal that exercises jurisdiction over terrorism-related crimes. Nevertheless, through the ICSFT and UNSC 14
resolutions, particularly Resolution 1373 (2001), the UN declared FT a crime and declared terrorism to be international in nature and thus subject to universal jurisdiction. Since the UN 15
represents the international community, it is defensible to perceive terrorism as a natural “candidate” for qualifying as a separate international crime covered by an emerging rule of customary law. 16
Terrorism <http://www.internationalcrimesdatabase.org/crimes/terrorism#p1> (27 April 2017).
10
UNODOC ‘Handbook on Criminal Justice Responses to Terrorism’ (2009) 9 <http://www.unodc.org/documents/
11
terrorism/Publications/Handbook_Criminal_Justice_Responses/English.pdf> (21 April 2017).
Cryer (n 3) 329; F Jessberger ‘Corporate Involvement in Slavery and Criminal Responsibility under International
12
Law’ 14 Journal of International Criminal Justice (2016) 327, 330. Jessberger (n 12) 330.
13
Cryer (n 3) 343 ff.
14
M Lawless ‘Terrorism: An International Crime’ (2007/2008) 63 International Journal 139, 143 f., 156.
15
Filippo (n 4) 569; AJ Colangelo ‘Absolute Conflicts of Law’ (2016) 91 Indiana Law Journal 719, 763; AJ Colangelo
16
‘Constitutional Limits on Extraterritorial Jurisdiction: Terrorism and the Intersection of National and International’ (2007) 48 Harvard International Law Journal 121, 133-134.
II. Criminalising the Financing of Terrorism under International Law
In order to explain banks’ roles in combatting terrorism, it is necessary to explain how terrorism is financed and to show how 9/11 influenced the criminalisation of FT. Finally, an overview of the international legal framework is given, and the offence of FT under the ICSFT is discussed.
1. Financing Terrorism 1.1 Expenditures
It seems that terrorist acts do not require much money; for the attacks on the World Trade Centre in New York in 2001, the terrorists spent no more than $500,000. Nineteen terrorists repeatedly entered the US, trained as commercial pilots, engaged in intercontinental air travel, rented cars, established personal bank accounts, obtained credit cards and generally lived adequately funded lives in the months prior to the attacks. “Day-to-day” guerrilla warfare, such as using suicide bombers, involves even fewer operational costs. In contrast, building and maintaining an effective, 17
lasting terrorist organisation is costly: in the case of Al-Qaeda, hundreds of millions of dollars were necessary. It is estimated that Al-Qaeda received between $300 million and $500 million over a 18
ten-year period prior to 9/11, averaging $30 million to $50 million a year. About ten percent of the group’s spending was on terrorist operations and attacks, whereas 90 percent was used to maintain the network’s infrastructure. ISIS, currently the world’s wealthiest terror organisation, owns 19
financial assets estimated at about $2 billion. 20
1.2 Forms of Financing Terrorism
The assets required to fund terrorist organisations and operations originate from a variety of licit and illicit sources, including individuals, organisations and criminal enterprises. There are two 21
M Pieth ‘Criminalizing the Financing of Terrorism’ (2006) 4 Journal of International Criminal Justice 1074, 1076; JM
17
Winer ‘Globalization, Terrorist Finance, and Global Conflict: Time for a White List?’ in M Pieth (ed) Financing
Terrorism (Springer Netherlands 2002) 5, 5.
C Freeland ‘How Can Sound Customer Due Diligence Rules Help Prevent the Misuse of Financial Institutions in the
18
Financing of Terrorism?’ in M Pieth (ed) Financing Terrorism (Springer Netherlands 2002) 41, 45.
JL Hesterman ‘The Terrorist-Criminal Nexus: An Alliance of International Drug Cartels, Organized Crime, and Terror
19
Groups’ (CRC Press 2013) 169.
H Ghaddar ‘ISIS is an outcome of a much bigger problem’ Oxford University Press (England 4 January 2015)
20
<https://blog.oup.com/2015/01/isis-outcome-bigger-problem-oiso/> (27 April 2017); S Croucher ‘Western Banks, Terrorism and Isis: The Nihilism of Dark Finance Fuelling Global Insecurity’ International Business Times
(13 November 2014 UK)
<http://www.ibtimes.co.uk/western-banks-terrorism-isis-nihilism-dark-finance-fuelling-global-insecurity-1474508> (29 April 2017). Hesterman (n 19) 169.
distinct types of terrorist financing: money laundering and financing terrorism and the use of legitimate funds. 22
Money laundering is the practice of engaging in financial transactions in order to conceal the identities, sources and destinations of money that has been obtained through crime. Either 23
terrorism is financed by money obtained through crime that has been laundered to become usable in the common financial system, or terrorist funding comes from legitimate sources such as charities and donors. The use of legitimate funds to finance terrorism can occur with or without the knowledge of the donors or contributors of such funds. 24
2. Impact of 9/11
Until 9/11, sources of funds for terrorism were relatively unconstrained. Money, regardless of its involvement in terrorist deposits, coursed rather freely through the global financial infrastructure. Many states did little to implement anti-money laundering (AML) standards. This changed after 25
9/11. The 9/11 terrorist attacks showed the risk of “no-questions asked” banking practices, and financial non-transparency manifested as a means to facilitate terrorism. The attacks thus brought 26
a new sense of urgency to the war against money laundering, international terrorism and FT. The 27
international community recognised that the fight against terrorism needed to be fought on multiple fronts. The Bush administration declared a global “war on terror” and launched an attack against the financial foundations of terrorism by issuing Executive Order 13224 to freeze assets and block transactions in the US of any person or institution associated with terrorists or terrorist organisations, with the objective “to starve the terrorists of their support funds.” The US led the 28
way in combating FT, and many countries joined the fight. Following 9/11, many countries, in 29
some cases threatened with restricted access to major financial centres, enacted comprehensive measures to combat money laundering and to promote financial transparency. In the wake of 9/11, 30
the number of ratifications of the ICSFT increased from six countries to 117. The need for greater 31
Morais (n 6) 19. 22 Hesterman (n 19) 192 f. 23 Morais (n 6) 20. 24 Winer (n 17) 5 f. 25 Ibid 27. 26 Morais (n 6) 1. 27 Ibid 15. 28 Hesterman (n 19) 165. 29 Winer (n 17) 27. 30 Lawless (n 15) 148. 31
transparency, accountability and traceability of financial transactions, regardless of their provenance or destination or the mechanics of their movement became widely accepted. Besides the US and 32
the UNSC, a number of European states and the European Union have also compiled and issued their own consolidated lists of terrorists and terrorist organisations. Moreover, 9/11 called for 33
multilateral action from the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force (FATF), the UN, the International Monetary Fund (IMF) and the World Bank. Of these bodies, the FATF and the UN had the largest impacts on the universal adoption and advancement of AML and anti-FT initiatives. 34
After 9/11, the world saw a convergence of international and national legal frameworks to combat money laundering, terrorism and FT. 35
3. International Legal Framework 3.1 ICSFT
3.1.1 Criminalising Financing of Terrorism under the ICSFT
Internationally, the UN have been at the forefront of the effort to combat terrorism and FT. There are 13 multilateral conventions developed under the auspices of the UN that aim to criminalise, and thereby suppress, different aspects of terrorist activities. Since 2002, the UN General Assembly has been drafting the Comprehensive Convention on International Terrorism (CCIT). The CCIT would oblige all signatories to deny both funds and safe havens to terrorist groups. However, negotiations have stalled, since no agreement can be reached on the definition of terrorism and the Convention’s scope. 36
The multilateral convention of interest for this thesis is the ICSFT, which has so far been ratified by 188 states. The ICSFT obliges state parties to criminalise the financing of terrorists, terrorist 37
Winer (n 17) 27.
32
Morais (n 6) 16.
33
J D’Souza ‘Terrorist Financing, Money Laundering, and Tax Evasion Examining the Performance of Financial
34
Intelligence Units’ (CRC Press United States of America 2012) 45 f. Morais (n 6) 26.
35
World Bank ‘Combating Money Laundering and the Financing of Terrorism - A Comprehensive Training Guide:
36
Workbook 6. Combating the Financing of Terrorism’ (World Bank United States of America 2009) 9; ‘What is the Comprehensive Convention on International Terrorism?’ (28 September 2016) Livemint <http://www.livemint.com/ Politics/Ee84kLhbyP5NJ9mFnMzkKO/Will-Sushmas-speech-at-the-UNGA-give-fresh-push-to-antiter.html> (19 April 2017).
<https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XVIII-11&chapter=18&clang=_en>
37
organisations and terrorist acts. The ICSFT is broader in scope than the earlier so-called sectoral 38
counter-terrorism conventions in that it does not relate to specific types of terrorist acts. Instead, 39
the ICSFT seeks to cripple terrorism as a whole not by addressing acts of proper terrorism, but by striving to cut off the provision of material, mainly financial, resources to terrorists. This puts the ICSFT in a class of its own among counterterrorism treaties. 40
So far, almost all jurisdictions have criminalised FT as a distinct offence, and most jurisdictions have criminalised financing terrorist organisations. In general, FT is treated as a serious crime. In most jurisdictions, the maximum prison sentence is between 10 years and life imprisonment. The 41
Swiss Parliament, for instance, implemented the ICSFT by adopting Article 260quinquies of the Swiss
Criminal Code (SCC), which punishes the direct and/or intentional financing of a violent crime that is intended to intimidate the public or to coerce a state or international organisation into carrying out or not carrying out an act. Under Article 260ter(1)(2) SCC, Swiss criminal law prohibits financially
supporting of a criminal organisation. Similarly, the US adopted the Antiterrorism Act (ATA), 42
which prohibits FT under Section 2339C(a) of the U.S. Code. 43
3.1.2 What Qualifies as an Offence of Financing of Terrorism under the ICSFT?
Keeping in mind that the ICSFT is only applicable to offences involving a foreign party and cannot be applied in purely domestic situations (see Article 3 ICSFT), FT is defined in Article 2(1) ICSFT. The financing of terrorism occurs when a “person by any means, directly or 44
indirectly, unlawfully and wilfully, provides or collects funds with the intention that these should be used or in the knowledge that these will be used in full or in part, to carry out” a terrorist act as defined in the ICSFT (see above I.1.). The crime of FT thus comprises material and mental 45
elements:
Morais (n 6) 21.
38
P Klein ‘International Convention for the Suppression of the Financing of Terrorism’ accessed on 10 February 2017
39
from the website of the United Nations Audiovisual Library of International Law <http://www.un.org/law/avl/>. R Lavalle ‘The International Convention for the Suppression of the Financing of Terrorism’ (2000) 60 Heidelberg
40
Journal of International Law 491, 492.
FATF ‘Terrorist Financing, FATF Report to G20 Leaders, Actions being taken by the FATF’ (November 2015) 3 f.
41
<http://www.fatf-gafi.org/publications/fatfrecommendations/documents/terrorist-financing-fatf-report-to-g20.html> (26 April 2017).
Report on the national evaluation of the risks of money laundering and terrorist financing in Switzerland (June 2015)
42 52f. <https://www.newsd.admin.ch/newsd/message/attachments/42276.pdf> (23 April 2017). Colangelo (n 16) 764. 43 Klein (n 39). 44
World Bank Workbook 6 (n 36) 6.
The material element of the offence is broadly defined as the provision or collection of funds. 46
The mental element requires the offender to act wilfully and with the intention to use the funds to finance acts of terrorism or with knowledge that they will be used for that purpose. It is the 47
intention to further the commission of an act of terrorism that gives rise to prosecution under the Convention, since such prosecution could be initiated, even where the funds collected or transferred were not actually used to carry out a terrorist act, as long as such intent was established (Article 2(3) ICSFT). This would then amount to an attempt. Attempting, organising, participating 48
as an accomplice or intentionally contributing to FT are punishable according to Article 2(4) and (5) of the ICSFT.
3.2 United Nations Security Council Resolutions
The UNSC drafted another important contribution to the legal framework meant to combat FT. Perceiving acts of terrorism as “threat[s] to international peace and security”, the UNSC adopted, under Chapter VII of the UN Charter, two major resolutions: Resolutions 1267 (1999) and 1373 (2001). Both are legally binding for all UN members (Articles 25 and 48 of the UN Charter). 49
With Resolution 1267, the UNSC established a legal sanction regime, freezing assets of named individuals and entities, such as Osama bin Laden, Al-Qaeda and the Taliban. This regime was later modified and adapted to new resolutions. 50
In the wake of 9/11, the UNSC issued Resolution 1373, calling all states to sign, ratify and implement the ICSFT. Similar to the ICSFT, the UNSC obliged states to prevent and suppress the financing of terrorist acts; to criminalise the wilful provision or collection of funds to finance terrorist acts; to freeze funds and assets of persons or entities involved in terrorist acts; to prohibit nationals, other persons and entities from making funds, financial assets and economic resources available to those engaged in terrorist activities; to deny safe havens to terrorists and to cooperate closely with other countries in criminal investigations and proceedings related to such crimes. 51
Ibid 18. 46 UNODOC Handbook (n 11) 38. 47 Klein (n 39). 48
World Bank Workbook 6 (n 36) 9; UNODOC (n 6) 14.
49
Ibid 9.
50
Morais (n 6) 21.
3.3 Other International Conventions
Combatting the Financing of Terrorism (CFT) is part of a broad international effort; therefore, other international instruments, such as the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (i.e., the Vienna Convention, 1988), the UN Convention Against Transnational Organised Crime (i.e., the Palermo Convention, 2000) and the UN Convention Against Corruption (i.e., the Merida Convention, 2003) can also be used in CFT. At the regional level one might cite the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism (CETS No. 198, 2005), which extended the scope of the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (CETS No. 141, 1990) and the European Convention on the Suppression of Terrorism (1977) with the Amending Protocol (2003). 52
3.4 International “Soft Law” in Combatting the Financing of Terrorism
Until today, the use of international “soft law” is increasing in the fight against FT. Although such quasi-legal instruments are non-binding, they have an effect on the global climate that should not be underestimated. The most relevant “soft laws” in CFT are outlined in the following sections. 53
3.4.1 FATF Recommendations on Anti-Terrorist Financing
The FATF is a leading intergovernmental body that was established in 1989 to fight money laundering. Currently, it comprises 35 member jurisdictions and two regional organisations, representing most major financial centres, a number of FATF-associated members and FATF observer organisations. Today, the FATF provides the basis for an international CFT regime, sets standards and promotes the effective implementation of legal, regulatory and operational measures for combating money laundering and FT. The FATF’s recommendations are recognised as the global AML and CFT standards. Its member states are obliged to implement the FATF’s recommended 54
measures. Since the FATF has a limited membership, it can only make recommendations to its members and invite non-members to adhere to its standards. In the wake of 9/11 and relying explicitly on UNSC Resolution 1373 (2001) as its legal basis, the FATF organised special
World Bank Workbook 6 (n 36) 10.
52
R Durrieu ‘Financing of Terrorism in International Law - Towards a New Global Legal Order’ (Martinus Nijhoff
53
Publishers Leiden 2013) 119 ff.
FATF ‘Recommendations on International Standards on Combating Money Laundering and the Financing of
54
Terrorism & Proliferation - February 2012’ (2016) 7 f. <http://www.fatf-gafi.org/media/fatf/documents/ recommendations/pdfs/FATF_Recommendations.pdf> (20 April 2017).
recommendations in October 2001 to crack down on FT. One of the FATF recommendations’ most prominent requirements is the ratification and implementation of the ICSFT and relevant UNSC resolutions in order to criminalise FT and to freeze and/or confiscate terrorists’ assets. The FATF’s 55
actions cover the particularities of terrorist financing and capture certain issues in greater detail than both the ICSFT and UNSC Resolution 1373 (2001) do. It led to greater financial transparency and stricter regulatory oversight around the world. 56
Although the FATF recommendations are not binding, many countries have made political commitments to combat FT by implementing the recommendations. Additionally, the World Bank and the IMF have endorsed the FATF recommendations, adding them to the list of standards and codes that are relevant to their operations. 57
3.4.2 Basel Committee on Banking Supervision Guidelines
The Basel Committee on Banking Supervision (BCBS), founded in 1974 in Basel, Switzerland, is a major self-regulatory organisation focussing on significant gaps in the international regulatory system. The BCBS comprises representatives of the central banks and banking supervisory authorities of 27 countries. Its guidelines describe how banks should include money laundering and terrorist financing risks in their overall risk management practices, supporting the adoption of the FATF’s standards. The BCBS can set rules for banks and bank supervisors that, through the 58
BCBS’s influence as a standard-setter and the support of the IMF and World Bank, have a broader reach. In October 2001, the BCBS published its standards on customer due diligence for banks 59
(CDD), which provided guidance on the CDD process and highlighted the importance of the know-your-customer rule (KYC) for banks. CDD and KYC procedures are key components in 60
preventing terrorists from abusing the financial sector. To fight FT, a bank needs to know who its 61
customers are in order to respond to requests from law enforcement or intelligence authorities concerning accounts in the names of known terrorists or terrorist organisations. Since terrorists are
Pieth (n 16) 1075.
55
Morais (n 6) 16, 21; Hesterman (n 19) 165 f.
56
World Bank Workbook 6 (n 36) 9, 12.
57
Basel Committee on Banking Supervision ‘Guidelines Sound management of risks related to money laundering and
58
financing of terrorism’ February 2016 <http://www.bis.org/bcbs/publ/d353.pdf> (23 April 2017). Freeland (n 18) 42.
59
Winer (n 17) 7; World Bank ‘Combating Money Laundering and the Financing of Terrorism - A Comprehensive
60
Training Guide: Workbook 3b. Compliance Requirements for Financial Institution’ (World Bank United States of America 2009) 11.
Freeland (n 18) 43 ff.
often reluctant to open accounts under their true names and try to hide behind anonymous accounts or “fronts” (i.e., trusts, charities, nominees, corporate vehicles or professional intermediaries), the CDD gives banks clear guidance on preventing terrorists from using such fronts. In practice, CDD is complex, but its principles are clear: the bank must make every effort to establish the identity of the beneficial owner(s) of all accounts and persons who conduct business with it. The monitoring 62
of CDD must be applied globally, including the bank’s overseas branches and subsidiaries. 63
4. The Targets of International Combatting the Financing of Terrorism Policies
The UNSC sanctions lists are directed against certain individuals, groups or organisations such as Osama bin Laden or entities connected to Al-Qaeda. Apart from those, the private sector is not the immediate target of international CFT rules and standards. Banks and money-transfer operators are usually regulated by national laws. Although they are called upon to implement CFT policies, international standards are not immediately transferable to national systems of regulation and enforcement. The targets of international rules for CFT are states themselves. States must adopt and implement legislation and regulations to guide enforcement of AML and CFT requirements. The individual state that must ensure that its private sector’s practices conform to the goals set by international standards and treaty obligations. 64
5. Conclusion
Terrorism is a transnational crime that has the potential to become a separate international crime. Following 9/11, the global fight against FT has been intensified. The international community intends to combat FT with the ICSFT and UNSC resolutions (i.e., “hard law”) and quasi-legal, non-binding instruments with less influence on states’ behaviours (“soft law”). States are obliged to take AML and CFT measures, which consequently affect their respective financial sectors.
Ibid 43.
62
Ibid 46.
63
World Bank Workbook 6 (n 36) 13 ff.
III. Role of Banks in Combatting Terrorism
In order to elaborate on the role of banks in the fight against terrorism, this chapter addresses banks’ major obligations stemming from the international legal framework on combatting terrorism. For the purpose of this thesis, the term “bank” refers to “an establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers.” 65
1. Role of Banks in Combatting the Financing of Terrorism 1.1 Banks as Vehicles for Financing Terrorism
Banks, in many ways, can be vehicles for financing criminal activities. Financial service providers, particularly global banks, are part of an industry that has been involved in financing terrorist operations. Banks are vulnerable to terrorist groups seeking to finance their operations. Since 66
terrorist groups often raise money in locations other than where the money is required, they must be able to move money from its origin to the area where it is needed. The movement of money is a critical intermediary step. Logically, terrorists want to move money as safely, effectively and quickly as possible. Whereas cash transfers in person could be less reliable due to the possibility of theft along the way, transfers made between banks are more accurate, swift and complete. 67
Since funding is the “lifeblood” of terrorist organisations, it represents one of terrorists’ most significant vulnerabilities. A key tenet of combatting terrorism is breaking the chain of financing, 68
which will diminish terrorists’ capacity to carry out terrorist acts. Banks, as the main providers of 69
financial services, can thus have a preventive effect of great importance in CFT.
1.2 Legal Obligations of Banks to Combat Terrorism
In order to suppress FT, the ICSFT and UNSC Resolutions 1267 (1999) and 1373 (2001) prescribe state parties to take certain measures. To comply with their international obligations, states must adapt their domestic legislation, with the consequence that these adopted measures substantially
<http://www.businessdictionary.com/definition/bank.html> (24 April 2017).
65
SI Landman ‘Bank Liability Under the Anti-Terrorism Act: Dispelling the „Routine Banking Services“ Defense in
66
Material Support Cases’ (2008) 2 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1314104> (28 April 2017). M Freeman and M Ruehsen ‘Terrorism Financing Methods: An Overview’ (2013) 7 Perspectives on Terrorism 5, 17.
67
DM Lormel ‘The challenges of Terrorist Financing in 2013 and beyond’ (2013) 11 <https://www.lexisnexis.com/risk/
68
intl/de/resources/whitepaper/Terrorist-Financing-in-2013.pdf> (21 April 2017). World Bank Workbook 6 (n 36) 20.
affect the banking sector. Today, the worldwide banking sector’s compliance to international regulatory requirements such as regulatory laws, regulations, rules, self-regulatory organisation standards and codes of conduct is an essential part of banks’ business activities and corporate culture. Non-compliance can result in regulatory sanctions such as the withdrawal of licenses, material financial loss or loss of reputation. Moreover, banks have a responsibility to prevent the 70
criminal use of the banking system. The Wolfsberg Group is a coalition of private financial 71
institutions that was founded in 2000 at Château Wolfsberg in Switzerland. The Wolfsburg Group established a set of transparency standards (i.e. a private code of conduct) and expanded its aim to include preventing terrorist financing by adopting the Wolfsberg Statement on the Suppression of the Financing of Terrorism in January 2002. The Statement affects banks’ business practices, 72
because if banks subscribe to the Group, the latter would jeopardise its reputation if it failed to meet its public commitments. 73
The major obligations of banks stemming from the international legal framework of CFT are explained in the following sections.
1.2.1 The Authentication of Account Holders or Beneficiaries
To suppress FT, Article 18(1)(b)(i) of the ICSFT invites state parties to consider adopting regulations “prohibiting the opening of accounts the holders or beneficiaries of which are unidentified or unidentifiable, and measures to ensure that such institutions verify the identity of the real owners of such transactions.”
FATF Recommendation 10 details this CDD obligation. In contrast to the ICSFT, it issues guidance as to what CDD measures should be taken, leading to the KYC rule, which obliges banks to conduct transactions only with people holding accounts with them and requires those account holders to provide a significant amount of personal information when opening an account. CDD requires 74
W Shahin and E El-Achkar ‘Banking and Monetary Policies in a Changing Financial Environment: A Regulatory
70
Approach’ (Routledge International Studies in Money and Banking England 2016) 35. Freeland (n 18) 41.
71
Currently the Wolfsberg Group consists of the following leading international banks: Banco Santander, Bank of
72
America, Bank of Tokyo-Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan Chase, Société Générale, Standard Chartered Bank, UBS <http://www.wolfsberg-principles.com> (19 April 2017); JM Winer ‘Cops across Borders: The Evolution of Transatlantic Law Enforcement and Judicial Cooperation’ (1 September 2004) Council on Foreign Relations <http://www.cfr.org/world/cops-across-borders-evolution-transatlantic-law-enforcement-judicial-cooperation/p7389> (19 April 2017).
Winer (n 17) 35.
73
Freeman and Ruehsen (n 67) 12.
financial institutions to verify the identities of their customers through reliable, independent sources and conduct CDD on an ongoing basis. Regarding legal persons and special arrangements, financial institutions should understand the ownership and control structure of the customer. If a bank is unable to take such CDD measures, it should not open an account, commence business relations or perform the transaction; terminate the business relationship; and consider making a suspicious transaction report (STR) in relation to the customer (see below 1.2.2).
Regarding the identification of legal entities, Article 18(1)(b)(ii) of the ICSFT demands that state parties require financial institutions “to take measures to verify the legal existence and structure from the customer.” Similarly, FATF Recommendations 8 and 24 address the risks of abuse or misuse by terrorist organisations and financiers of entities legally created under domestic laws. FATF Recommendation 8 stresses the vulnerability of non-profit organisations, warning that terrorists can misuse charitable, religious, educational, social and fraternal organisations. The aim is thus to prevent legal persons from being used as covers for or means of financing terrorist activities. 75
1.2.2 Suspicious Transaction Reporting
Countermeasures to fight FT begin with public and private partnerships. International cooperation 76
between the private and public sectors is imperative for the successful detection and prevention of FT. States cannot directly monitor and control financial transfers: the monitoring must be 77
“entrusted” (under threat of penal and/or administrative sanctions) to the financial institutions and professionals on the front line of the “war on terrorism”. Article 18(1)(b)(iii) of the ICSFT prescribes state parties to adopt “regulations imposing on financial institutions the obligation to report promptly to the competent authorities all complex, unusual large transactions and unusual patterns of transactions, which have no apparent economic or obviously lawful purpose.“ Similarly, FATF Recommendation 20 obliges financial institutions to file promptly a STR to financial intelligence units (FIUs), if they “suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used for terrorism, terrorist acts, or by terrorist organisations.” Thus, in order to comply with the STR obligation, banks should look out for suspicious transactions. Possible conditions that can arouse suspicion are an unclear economic background of 78
World Bank Workbook 6 (n 36) 40 f.
75
Lormel (n 68) 9.
76
Freeland (n 18) 48.
77
World Bank Workbook 6 (n 36) 24 f.
the money, information from prosecution authorities, media reports, third-party information, transaction monitoring, cash transactions or the involvement of high-risk countries. Furthermore, 79
FATF Recommendation 21(b) recommends that financial institutions do not notify a customer that his or her behaviour has been reported as suspicious to a FIU.
In the fight against terrorism, banks require guidance on the definition of what a terrorist or terrorist organisation is, as there is often a thin line between terrorists and so-called “freedom fighters”. The financial sector should receive a “black list” from police and intelligence units that lists terrorists and terrorist organisations. Such lists are especially required in the case of charities and foundations, since it is difficult to identify charities and other fundraising organisations that support terrorism. In the past, many innocent-sounding organisations raised money from legitimate sympathisers, who believed they were contributing to a humanitarian cause, and have channelled funds to terrorist activities. The competent enforcement authority or the FIU is in a position to 80
determine whether a transaction relates to a particular terrorist activity and to determine a course of action. For this reason, banks do not necessarily need to determine the legality of the source or destination of the funds. Instead, they should ascertain whether transactions are unusual, suspicious or indicative of terrorist activity. The likelihood that a bank will be able to identify a transaction as 81
terrorist financing is relatively low. For example, foreign terrorists, as a main form of material support for ISIS, are usually self-funded. If they buy plane tickets to Syria, an act that is defined as FT, it is impossible for a bank to detect this without additional intelligence. Collaboration with intelligence agencies is therefore growing. Unless a bank identifies a transaction party as a 82
terrorist (e.g. if the party’s name appears on a black list), the most it can usually do is review transactions and report those that appear suspicious. Banks thus become state informers reporting 83
suspicious, terrorist-related funding. 84
Federal Office of Police ‘2015 Annual Report by the Money Laundering Reporting Office Switzerland
79
MROS’ (April 2016) 27 <https://www.fedpol.admin.ch/dam/data/fedpol/kriminalitaet/geldwaescherei/jabe/jb-mros-2015-e.pdf> (25 May 2017).
Freeland (n 18) 45.
80
M Pieth ‘Financial Action Task Force Guidance for Financial Institutions in Detecting Terrorism’ in M Pieth (ed)
81
Financing Terrorism (Springer Netherlands 2002) 147, 150 f.
R Olding ‘Australian banks report huge rise in suspected terrorism transactions’ The Sydney Morning Herald
82
(Australia 4 November 2015) <http://www.smh.com.au/business/banking-and-finance/australian-banks-report-huge-rise-in-suspected-terrorism-transactions-20151104-gkqu08.html> (19 January 2017).
World Bank Workbook 6 (n 36) 25.
83
D’Souza (n 34) 7.
1.2.3 Record Keeping
Pursuant to Article 18(1)(b)(iv) of the ICSFT, national law should require financial institutions “to maintain, for at least five years, all necessary records on transactions, both domestic or international.” FATF Recommendation 11 suggests the same. Record keeping enables banks to comply swiftly with information requests from competent authorities. The records must be sufficient to allow the reconstruction of individual transactions in order to provide evidence for prosecution of criminal activity, since financial data can be a key factor in prosecuting terrorism cases. FIUs often make use of STR filings because financial transactions leave “footprints” for law enforcement agencies to intercept and follow. Even if investigations do not begin with suspicious financial transactions, financial records can provide evidence to help piece together the details of a case. Banks are thus increasingly providing evidence in the fight against FT. 85 86
1.2.4 Asset Freezing
Pursuant to Article 8(1) of the ICSFT, each state party shall take appropriate measures “for the identification, detection and freezing or seizure of any funds used or allocated for the purpose of” financing terrorist activity. This invasive measure ensures that assets can no longer be used by their owner. The aim of freezing assets is to prevent suspected terrorists from carrying out their plans and to prevent terrorist financiers from funding terrorists, which would enable the latter to carry out their plans. 87
The freezing obligation is endorsed by FATF Recommendation 6 and arises mainly from UNSC Resolutions 1267 (1999) and 1373 (2001), provided the so called “terrorist lists” of the UNSC have been implemented into a nation’s legal system. In 25 jurisdictions, national laws require financial institutions to give direct and immediate effect to the UN financial sanctions list of designated individuals. These systems automatically implement new UN designations without the need for action from national authorities. However, most jurisdictions (78%) require the transposition of UN sanctions lists into their national legal systems, (e.g., through entries on a national list of designated entities or through a freezing order). Generally, it is a bank’s duty to screen all new and existing 88
Freeman and Ruehsen (n 67) 21; FATF ‘Anti-money laundering and counter-terrorist financing measures -
85
Switzerland’ Fourth Round Mutual Evaluation Report (December 2016) 82 <www.fatf-gafi.org/publications/ mutualevaluations/documents/mer-switzerland-2016.html> (23 April 2017).
Olding (n 82).
86
M van den Broek and others ‘Asset Freezing: Smart Sanction or Criminal Charge?’ (2011) 27 Utrecht Journal of
87
International and European Law 18, 19. FATF Report to G20 Leaders (n 41) 5 f.
customers against individuals with terrorist backgrounds or those listed on terrorist lists. If there is a match, the bank must freeze the customer’s assets. 89
Since the aim of asset freezing is prevention, it is not necessary that the person or entity whose funds are concerned be an official suspect or even that the authorities begin criminal proceedings against the individual or entity. Perceiving terrorism as a threat to international peace and security (see Chapter VII of the UN Charter), even a few indications that the concerned party may be a terrorist or has links to suspected terrorists or terrorist organisations can be sufficient to place a person or entity on the SC terrorist list and freeze the person’s or entity’s assets. 90
Banks rely on complex computer programs to detect risks. Thomson Reuters World-Check, for 91
instance, is a private compliance database program that serves the KYC-screening needs of the world’s largest banks and reveals banks’ hidden risks in their customer relationships. World-Check’s research is sourced from the public domain. It gathers public information on individuals and entities the international community has deemed worthy of enhanced scrutiny. While some information is derived from official terrorist lists, much is uncovered through research. 92
2. Illustrative Cases of Swiss Banks in Combatting the Financing of Terrorism
In 2015, a young Swiss national with a migration background informed his bank that he had a new telephone number with a different country code. The bank checked and noted that the new country code corresponded to a South Asian country known to harbour jihadi training camps. Thus, the bank reported the account to the Swiss FIU, which decided to forward the STR to prosecution authorities after finding evidence indicating that the client either had joined a terrorist organisation or had helped finance terrorism by contributing funds to a Salafi organisation. 93
Another case concerned a banking client who personally transferred a small amount of money to a European religious organisation established to protect one of the holiest sites of Islam. The bank’s transaction monitoring system raised a red flag, because the name of the religious organisation
Shahin and El-Achkar (n 70) 55.
89
Broek and others (n 87) 19.
90
Boss and Zihlmann (n 2).
91
Thomson Reuters World-Check <https://risk.thomsonreuters.com/content/dam/openweb/documents/pdf/risk/
92
brochures/thomson-reuters-world-check-brochure.pdf> (18 April 2017). Federal Office of Police 2015 Annual Report (n 79) 41.
partially matched the name of an underground militant organisation acting in the Middle East that the US and the European Union placed on a list of terrorist organisations in 2002. Since the possibility that the organisation is question did not have ties with a terrorist or criminal organisation could not be excluded, the bank reported the account to a Swiss FIU. The FIU’s analysis of the client’s data and transactions on the account gave no indication of criminal activity or direct support for a terrorist organisation. The bank took a cautious approach in order to contribute to the fight 94
against FT.
3. Consequences and Outlook
Examples, like the radical “Paris assassinator” who used a bank loan to purchase weapons mentioned above in the Introduction, show that banks have a paramount responsibility. Failing to conduct the proper due diligence to detect terrorist funding and to report suspicious transactions may have deadly consequences, putting lives at risk. Despite being private actors, banks now take 95
on security roles that are normally the responsibility of the public sphere. It seems that banks have been forced into the role of cops, a task typically belonging to states. 96
The increased global attention on CFT and the imposition of fines and enforcement actions related to inadequate AML/CFT compliance procedures in recent years resulted in a trend of “de-risking” practices in the banking sector. Rather than managing clients perceived as risky clients, financial institutions opt to end relationships to minimise their risk while leaving risky clients without access to the banking services. Such “de-risking” practices contribute to increased vulnerabilities by pushing high-risk clients out of the formal financial sector where there is no monitoring or towards smaller financial institutions that may lack adequate AML/CFT capabilities. This undermines the objectives of both AML and CFT efforts. Furthermore, if banks under the goal of “de-risking”, 97
choose not to provide banking services to non-FATF-complying countries, whole communities will be denied access to the international financial system, thus losing support for economic growth. 98
The most stigmatised group of high-risk clients are non-profit organisations, since they are
Ibid 42 f.
94
Freeland (n 18) 48.
95
Debate at SPUI25 on ‘Turning banks into cops? Private actors in the front line of security’ on 22 September 2016
96
<http://www.spui25.nl/en/shared-content/events/events/2016/09/private-actors-in-the-front-line-of-terrorism.html> (18 May 2017); critical: T Turner and L Shetret ‘Understanding Bank De-Risking and Its Effects on Financial
Inclusion‘(Global Center on Cooperative Security November 2015) 30 <https://www.oxfam.org/sites/www.oxfam.org/ files/file_attachments/rr-bank-de-risking-181115-en_0.pdf> (18 May 2018).
Turner and Shetret (n 95) 3 ff.
97
Croucher (n 20).
particularly vulnerable to being used by terrorists. The closure of their accounts affects the financial access of the individuals and populations these entities serve. Such financial exclusion is a massive barrier for disadvantaged populations. Thus, despite the objective of having strict CFT measures in all states, such overtly restrictive measures may negatively affect financial services and lead to adverse security and humanitarian implications. Banks should invest resources in compliance departments to assure adequate staffing and resourcing of operational and technological teams in order to detect FT and not to preventively exclude innocent individuals or entities. 99
With continuous terrorist attacks across the world, the financial service industry has been confronted with more and more regulations, and it is unlikely that this trend will change. The 100
burden of adopting and complying with regulations creates excessive costs for banks. With every 101
further terrorist attack, international pressure on banks to detect potential terrorist attacks and their associated costs increase. It is conceivable that higher regulatory costs will alter competition, as 102
only a few large banks will be capable of efficient global competition. 103
Turner and Shetret (n 95) 3 ff., 32.
99
PJ Ruce ‘Anti-Money Laundering: The Challenges of Know Your Customer Legislation for Private Bankers and the
100
Hidden Benefits for Relationship Management (the Bright Side of Knowing Your Customer)’ [2011] Banking Law Journal 548, 557.
Shahin and El-Achkar (n 70) 61 ff.
101
Boss and Zihlmann (n 2).
102
Shahin and El-Achkar (n 70) 64.
IV. Criminal Liability of Banks in the United States and Switzerland
This chapter analyses whether a bank contributing to FT is criminally liable in Switzerland and the US.
1. Corporate Criminal Liability in General
So far, there has been little development regarding corporate criminal liability in international law. The STL is the only international tribunal recognising the criminal liability of a legal 104
person. However, in international treaties, it has become standard practice that corporations can 105
be held criminally liable. Apart from incarceration and the death penalty, corporations and 106
individuals face many of the same consequences following a conviction. 107
The imposition of criminal liability on legal persons is controversial. Germany and Italy, for instance, reject corporate criminal liability, since corporations possess no mental state („societas
delinquere non potest“). Other legal systems (i.e. the US and Switzerland) acknowledge 108
corporate criminal liability, imputing the actions of natural persons to corporation. The rationale 109
for prosecuting corporations is that criminal liability of legal persons should deter corporations from crime and obeying pressures imposed by their organisational structure. Otherwise, corporate policies may encourage illegal behaviours by simply firing individuals who are caught or by appointing “fall guys” to take responsibility and go to prison, thus leaving the legal entity unaffected. 110
J Crawford and S Olleson ‘The Nature and Forms of International Responsibility’ in MD Evans (ed) International
104
Law (4th edn) (OUP Oxford 2014) 443, 445; Jessberger (n 12) 341; H van der Wilt ‘Corporate Criminal Responsibility
for International Crimes: Exploring the Possibilities’ (2013) 12 Chinese Journal of International Law 43, 43.
Jessberger (n 12) 338; STL, NewTV S.A.L. et al. Decision on Interlocutory Appeal Concerning Personal Jurisdiction
105
in Contempt Proceedings (STL-14-05), Appeals Panel, 2 October 2014. UNODOC Handbook (n 11) 39.
106
C Doyle ‘Corporate Criminal Liability: An Overview of Federal Law’ (Congressional Research Service 2013) 29
107
<https://fas.org/sgp/crs/misc/R43293.pdf> (28 April 2017).
H Amrani ‘The Development of Anti-Money Laundering Regime: Challenging issues to sovereignty, jurisdiction,
108
law enforcement, and their implications on the effectiveness in countering money laundering’ (Erasmus University Rotterdam 2012) 97 f. <http://hdl.handle.net/1765/37747> (1 May 2017); Lavalle (n 40) 507; Linklaters LLP
‘Corporate criminal liability. A review of law and practice across the globe’ 4 (2016) <https://www.allens.com.au/pubs/ pdf/ibo/CorporateCriminalLiabilityPublication_2016.pdf> (1 June 2017).
Amrani (n 109) 97 f.
109
A Foerschler ‘Corporate Criminal Intent: Toward a Better Understanding of Corporate Misconduct’ (1990) 78
110
2. Corporate Criminal Liability under the ICSFT
Article 5 of the ICSFT obliges state parties to hold legal persons liable under specific circumstances. Each state party must “take the necessary measures to enable a legal entity located in its territory or organized under its laws to be held liable when a person responsible for the management or control of that legal entity has, in that capacity, committed” a terrorist financing offence, and “such liability may be criminal, civil or administrative”. The liability of legal entities is not dependent on the criminal liability of individuals. Liable legal entities shall, under domestic law, become subject to effective, proportionate and dissuasive criminal, civil or administrative sanctions (Article 5(2) and (3) ICSFT). Such sanctions may be monetary in nature. Similarly, FATF Recommendation 35 recommends that sanctions be available to impose on natural or legal persons, including financial institutions and their directors and senior management. The FATF’s 111
Interpretive Note to Recommendation 5 states that criminal liability and sanctions and, where those are not possible due to fundamental principles of domestic law, civil or administrative liability and sanctions should apply to legal persons. Thus, the practice leans towards establishing criminal 112
corporate liability whenever possible. 113
Since the ICSFT obliges state parties to hold legal entities liable for FT in some form or another, the following section examines how banks can be criminally liable for FT. It would go beyond 114
the scope of this thesis to describe the regimes of all states; therefore, the focus is on a civil-law country (Switzerland) and a common law country (the US).
3. Criminal Liability of Banks in Switzerland for Financing Terrorism 3.1 Corporate Criminal Liability in Switzerland
In 2003, Switzerland added corporate criminal liability to its criminal code, distinguishing between
subsidiary and cumulative corporate criminal liability (Article 102(1) and (2) SCC). Both forms 115
of corporate criminal liability require that a felony or misdemeanour is committed in an undertaking in the exercise of commercial activities in accordance with the objects of the undertaking (Article 102(1) SCC). An act is “committed in an undertaking in the exercise of commercial
Pieth (n 17) 1084; UNODOC Handbook (n 11) 39.
111
FATF Recommendations (n 53) 37.
112
UNODOC Handbook (n 11) 39.
113
For civil corporate liability of financial institutions in US in context of terrorism see eg Landman (n 66) 2.
114
MJ Hilf ‘Bankenstrafrecht: Die Strafbarkeit der Mitarbeitenden, des Managements, der Bank’ in Susan Emmenegger
115
activities” if the predicate offence materialises in an industry’s typical operational risk. FT is perceived as a typical operational risk. 116
Pursuant to subsidiary corporate criminal liability, a legal entity can only incur criminal liability if it is impossible to attribute the act to any specific natural person due to inadequate organisation (Article 102(1) SCC). However, regarding specific predicate offences, such as FT (Article 260quinquies SCC) or the support of a criminal (terrorist) organisation (Article 260ter(1)
(2) SCC), a legal entity incurs criminal liability irrespective of the criminal liability of any natural person, provided the undertaking has failed to take all reasonable organisational measures required to prevent the offence (Article 102(2) SCC). Thus, regarding the offence of FT there can be a
cumulative criminal culpability (i.e., the simultaneous culpability of an individual and of a legal
entity). 117
3.2 Criminal Liability of Banks for Financing Terrorism in Switzerland
Most FT cases fall under Article 260ter SCC, which criminalises the support of a criminal
organisation, because in Swiss criminal law the latter prevails the offence of FT (Article 260quinquies SCC). In practice, the offence of FT is thus limited to cases in which individual
perpetrators (i.e., terrorists) are supported or cannot be linked closely enough to a terrorist organisation. 118
The offence of FT requires intent (dolus directus first or second degree); dolus eventualis to FT is not sufficient (Article 260quinquies(2) SCC). It is difficult to imagine that a blameless bank 119
employee fulfils this threshold. Since dolus eventualis only suffices for aiding and abetting FT, it is likelier that an employee would be convicted of aiding and abetting FT. However, under Swiss criminal law, a bank employee who aids and abets in the offence of FT cannot cause criminal liability for the bank. Thus, there is only one conceivable situation in which a bank risks criminal 120
liability for FT: if a bank employee, acting on his or her own, intends to finance terrorism, and the
MA Niggli and DR Gfeller ‘Art 102 Swiss Criminal Code’ no 94, 283 in MA Niggli and H Wiprächtiger (eds) Basler
116
Kommentar, Strafrecht I, Art. 1-110 StGB, Jugendstrafgesetz (3rd edn Helbing Lichtenhahn Verlag Basel 2013); N von
Gleichenstein Strafrechtliche Bankhaftung Anforderungen an organisatorische Vorkehrungen der Banken zur
Verhinderung von strafrechtlicher Verantwortlichkeit nach Art. 102 StGB (Stämpfli Verlag AG Bern 2011) 136 f.
Niggli and Gfeller (n 116) no 232.
117
Gleichenstein (n 116) 135.
118
Niggli and Gfeller (n 116) no 284.
119
Gleichenstein (n 116) 139 f.
bank had no reasonable organisational measures (e.g., risk analysis, education of bank employees, internal controls or guidelines) to prevent FT by its employees. 121
In conclusion, under Swiss criminal law, in specific circumstances banks can incur criminal liability for FT or supporting a criminal (terrorist) organisation. Nonetheless, as of 2016, no Swiss criminal proceedings have been conducted against a bank or other legal entity regarding FT. 122
4. Criminal Liability of Banks in the United States for Financing Terrorism 4.1 Corporate Criminal Liability in the United States
In the twentieth century, large cooperations played a central role in American life: thus, it was necessary to introduce a regulatory mechanism to punish corporate malfeasance. The U.S. 123
Supreme Court’s landmark decision, New York Central & Hudson River Railroad v. United States, in 1909 affirmed corporate criminal liability and is still a good law. 124
The US has embraced the most aggressive and far-reaching form of corporate criminal liability of any common law country. The range of federal offences with which a corporation can be charged 125
today is immense. For a corporation to be convicted, prosecutors need only establish that: (1) a corporate agent committed an illegal act (2) within the scope of his employment; and (3) with the intent to benefit the corporation. This standard formula is quite broad. American courts have 126
routinely permitted corporate liability for the act of any agent – even the lowest level employee, independent of whether he or she acted in a manner expressly forbidden by the company’s internal policies. Thus, regardless if a compliance or oversight system is in place, the employee’s intent and knowledge are imputed to the corporation. More surprisingly, in United States v. Bank of New 127
England the court emphasised that a bank’s knowledge is the sum of what all the employees know
within the scope of their employment. Such a doctrine of “collective intent” allows courts to affirm
Ibid 143 ff.; Niggli and Gfeller (n 116) no 293.
121
‘Geld aus der Schweiz für Terroristen’ Tages-Anzeiger (Zurich 18 December 2016) <http://www.tagesanzeiger.ch/
122
schweiz/standard/bundesanwaltschaft-ermittelt-wegen-terrorfinanzierung/story/22349135> (28 April 2017). EB Diskant ‘Comparative corporate criminal liability: exploring the uniquely American doctrine through
123
comparative criminal procedure’ (2008) 118 Yale Law Journal 126, 135.
New York Central & Hudson River Railroad v United States 212 U.S. 481 (1909).
124
Diskant (n 123) 130.
125
Ibid 139.
126
Ibid 139 f.; — ‘Corporate Criminal Responsibility - American Standards Of Corporate Criminal Liability’ <http://
127
law.jrank.org/pages/744/Corporate-Criminal-Responsibility-American-standards-corporate-criminal-liability.html> (2 May 2017); Doyle (n 107) 4.
