money-laundering ukraine
Is this laundering money?
<p>Arnie is a registered entrepreneur who sells raw wood. He was contacted by Bob. Bob works in a state organization (not private), and was tasked with building several garages on one of the streets of a city. Bob was given a budget, and needs to buy materials for the construction. In this example it's metallic parts (carcass, armatures, or whatever).</p>
<p>So Bob contacted Arnie, and here is what they do:</p>
<ol>
<li>Bob transfers a part of the money from the governmental bank account to Arnie's official account, as if he is purchasing metal from Arnie.</li>
<li>Arnie withdraws this money from an ATM, and gives almost all of it to Bob. Bob gives some &quot;tip&quot; to Arnie</li>
<li>Bob buys metal and other resources from wherever Bob wants, not from Arnie. The governmental money is now cash, therefore it's not tracked anymore. Now Bob can spend this money any way he wants.</li>
</ol>
<p><strong>Bob DOES NOT get anything from Arnie</strong> - neither wood nor metal.</p>
<p>Arnie just withdraws the money, takes a tip and returns the balance to Bob.</p>
<p>It seems that Bob is actually keeping the part of the budget for himself and then buying cheap low-quality materials (or even steals them from somewhere else), employing cheap illegal workers, and saving a lot of money on this construction into his pocket.</p>
<p>My country, as far as I know, doesn't care whether the materials were purchased from an entrepreneur who actually sells them (Arnie doesn't sell metal). So according to papers, Arnie sold some metal to Bob, but in reality, Arnie just gave the money back to Bob, in cash after taking a &quot;tip&quot;. This makes a backdoor for manipulations like this one.</p>
<p>So it seems to me that Arnie basically launders stolen money. Is this true?</p>
<p>And if it is, what would be the legal consequences of someone unconnected to the transaction who knows about it reporting or not reporting it? For example, does not reporting it give rise to a risk of civil or criminal liability?</p>
<p>ETA: the country is Ukraine.</p>

<p><a href="/questions/tagged/united-states" class="post-tag" title="show questions tagged &#39;united-states&#39;" aria-label="show questions tagged &#39;united-states&#39;" rel="tag" aria-labelledby="united-states-container">united-states</a></p>
<p>Under U.S. law in almost every U.S. jurisdiction this would be illegal conduct. Arnie would be a co-conspirator with Bob in money laundering and in embezzlement of government funds. These would usually be criminal felonies.</p>
<p>The government (or a private whistleblower called a &quot;relator&quot; in what is called a &quot;<a href="https://en.wikipedia.org/wiki/Qui_tam" rel="noreferrer">qui tam</a>&quot; action, conducted in a procedurally proper way which afford the government an opportunity to sue itself before bringing the private qui tam action) could also sue Arnie and Bob and hold them liable, jointly and severally, for the funds diverted to Arnie and Bob in this scheme, and probably for punitive damages and/or civil penalties as well.</p>
<p>If the role played by Arnie was instead played by a U.S. publicly traded multinational company doing business in another country (or by an official of such a company who has knowledge of or is involved in the transaction with Bob), and it was also illegal to do this in that country (whether or not that law was enforced in that country), then the U.S. multinational company involved would also have violated the <a href="https://en.wikipedia.org/wiki/Foreign_Corrupt_Practices_Act" rel="noreferrer">U.S. Foreign Corrupt Practices Act</a> (FCPA). As noted at the link:</p>
<blockquote>
<p>The FCPA is jointly enforced by the Department of Justice (DOJ) and
the Securities and Exchange Commission (SEC), which apply criminal and
civil penalties respectively.</p>
</blockquote>
<p>So, in that case, it would be a violation of both U.S. and the other country's laws, in all likelihood giving rise to liability to both criminal and civil consequences in both countries.</p>
<p>It isn't patently obvious that this conduct would be illegal under the law of every country, although it seems likely.</p>
<p>For example, a sheriff operating a prison in Alabama can do something very similar (skim money off prison operation funds by obtaining low bids for prison service contracts) legally.</p>
<p>Similarly, if Arnie had actually gone out and purchased metal parts from a third party at Bob's direction and then delivered those metal parts to Bob's government employer, that would be entirely legal almost everywhere (although any kickback to Bob, if that was what was really happening would still probably be some form of embezzlement in which Arnie might be conspiring).</p>
<p>Also, while this is considered corrupt in most of the developed world, in many developing and undeveloped countries, civil servants are paid almost nothing and kick backs for supervising government contracts are tolerated at a minimum as a matter of unstated official policy by senior managers of the government entities that unofficially sanction or encourage this conduct by their subordinates. This reality is one of the main reasons that the U.S. FCPA is heavily criticized politically and in academic commentary.</p>
<blockquote>
<p>what would be the legal consequences of someone
unconnected to the transaction who knows about it reporting or not
reporting it? For example, does not reporting it give rise to a risk
of civil or criminal liability?</p>
</blockquote>
<p>Normally, someone not involved in Arnie's company, like a family member of Arnie, would have no legal duty to report this conduct upon learning of it, and would face no legal consequences for failing to report it, if the person not reporting it wasn't actually involved in the scheme.</p>
<p>Someone who cared about Arnie might want to counsel him that he is engaged in very risky conduct that could have catastrophic consequences if discovered and prosecuted. They might advise him that while this scheme does generate funds for Arnie that might not be worth the risk. Ultimately, as a practical matter, if that person didn't want to harm Arnie, however, that person would have to let Arnie decide for himself what to do.</p>
<p>If subpoenaed to serve as a witness, someone who knew about Arnie and Bob's conduct (other possibly than Arnie's spouse and his lawyer if his lawyer learned about the conduct only after the fact), could be compelled to testify in a court of law against Arnie about what the person who knew about this scheme knew, possibly contributing to Arnie going to prison and facing monetary penalties.</p>

<p><a href="/questions/tagged/england-and-wales" class="post-tag" title="show questions tagged &#39;england-and-wales&#39;" aria-label="show questions tagged &#39;england-and-wales&#39;" rel="tag" aria-labelledby="england-and-wales-container">england-and-wales</a></p>
<p>Short Answer:</p>
<p>Both Bob and Arnie comit money laundering and bribery offences.</p>
<p>Much longer Answer:</p>
<ul>
<li><strong>MONEY LAUNDERING</strong></li>
</ul>
<p>There are number of different money laundering offences within the Proceeds of Crime Act 2002 (POCA), with a number of different options and permutations available to the prosecutor depending on the evidence, for example:</p>
<p><strong>BOB</strong> commits the offence of &quot;transfering criminal property&quot; contrary to <a href="https://www.legislation.gov.uk/ukpga/2002/29/section/327?timeline=false" rel="noreferrer">section 327</a>:</p>
<blockquote>
<p>(1)A person commits an offence if he—</p>
<ul>
<li><p>(a)conceals criminal property;</p>
</li>
<li><p>(b)disguises criminal property;</p>
</li>
<li><p>(c)converts criminal property;</p>
</li>
<li><p>(d)<strong>transfers criminal property</strong>;</p>
</li>
<li><p>(e)removes criminal property from England and Wales or from Scotland or from Northern Ireland.</p>
</li>
</ul>
</blockquote>
<p><strong>ARNIE</strong> comits the offence of &quot;acquiring criminal property&quot; contrary to <a href="https://www.legislation.gov.uk/ukpga/2002/29/section/329?timeline=false" rel="noreferrer">section 329</a>:</p>
<blockquote>
<p>(1)A person commits an offence if he—</p>
<ul>
<li><p>(a)<strong>acquires criminal property</strong>;</p>
</li>
<li><p>(b)uses criminal property;</p>
</li>
<li><p>(c)has possession of criminal property.</p>
</li>
</ul>
</blockquote>
<p><strong>BOB and ARNIE</strong> both commit the offence of a &quot;money laundering arrangement&quot; contrary to <a href="https://www.legislation.gov.uk/ukpga/2002/29/section/328?timeline=false" rel="noreferrer">section 328</a></p>
<blockquote>
<p>(1)A person commits an offence if he <strong>enters into or becomes concerned in an arrangement</strong> which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person</p>
</blockquote>
<p>&quot;Criminal Property&quot; is defined at <a href="https://www.legislation.gov.uk/ukpga/2002/29/section/340?timeline=false" rel="noreferrer">Section 340(3)</a> if:</p>
<blockquote>
<ul>
<li><p>(a)it constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and</p>
</li>
<li><p>(b)the alleged offender knows or suspects that it constitutes or represents such a benefit.</p>
</li>
</ul>
</blockquote>
<ul>
<li><strong>BRIBERY</strong></li>
</ul>
<p>Again, depending on the evidence, there are a number different offences available to the prosecutor, what the Bribery Act 2010 refers to as &quot;cases&quot;, relating to the &quot;tip&quot; paid to Arnie by Bob:</p>
<p><strong>BOB</strong> comits the offence of &quot;bribing another person&quot; contrary to <a href="https://www.legislation.gov.uk/ukpga/2010/23/section/1?timeline=false" rel="noreferrer">section 1</a> Bribery Act 2010:</p>
<blockquote>
<p>(1)A person (“P”) [<em>i.e. Bob</em>] is guilty of an offence if either of the following cases applies.</p>
<p>(2)<strong>Case 1</strong> is where—</p>
<ul>
<li><p>(a)P offers, promises or gives a financial or other advantage to another person, and</p>
</li>
<li><p>(b)P intends the advantage—</p>
</li>
</ul>
<blockquote>
<p>(i)to induce a person to perform improperly a relevant function or activity, or</p>
<p>(ii)to reward a person for the improper performance of such a function or activity.</p>
</blockquote>
<p>(3)<strong>Case 2</strong> is where—</p>
<ul>
<li><p>(a)P offers, promises or gives a financial or other advantage to another person, and</p>
</li>
<li><p>(b)P knows or believes that the acceptance of the advantage would itself constitute the improper performance of a relevant function or activity.</p>
</li>
</ul>
<p>(4)In case 1 it does not matter whether the person to whom the advantage is offered, promised or given is the same person as the person who is to perform, or has performed, the function or activity concerned.</p>
<p>(5)In cases 1 and 2 it does not matter whether the advantage is offered, promised or given by P directly or through a third party.</p>
</blockquote>
<p><strong>ARNIE</strong> comits the offence of &quot;being bribed&quot; contrary to <a href="https://www.legislation.gov.uk/ukpga/2010/23/section/2?timeline=false" rel="noreferrer">section 2</a> Bribery Act 2010:</p>
<blockquote>
<p>(1)A person (“R”) [<em>i.e. Arnie</em>] is guilty of an offence if any of the following cases applies.</p>
<p>(2)<strong>Case 3</strong> is where R requests, agrees to receive or accepts a financial or other advantage intending that, in consequence, a relevant function or activity should be performed improperly (whether by R or another person).</p>
<p>(3)<strong>Case 4</strong> is where—</p>
<ul>
<li><p>(a)R requests, agrees to receive or accepts a financial or other advantage, and</p>
</li>
<li><p>(b)the request, agreement or acceptance itself constitutes the improper performance by R of a relevant function or activity.</p>
</li>
</ul>
<p>(4)<strong>Case 5</strong> is where R requests, agrees to receive or accepts a financial or other advantage as a reward for the improper performance (whether by R or another person) of a relevant function or activity.</p>
<p>(5)<strong>Case 6</strong> is where, in anticipation of or in consequence of R requesting, agreeing to receive or accepting a financial or other advantage, a relevant function or activity is performed improperly—</p>
<ul>
<li><p>(a)by R, or</p>
</li>
<li><p>(b)by another person at R's request or with R's assent or acquiescence.</p>
</li>
</ul>
<p>(6)In cases 3 to 6 it does not matter—</p>
<ul>
<li><p>(a)whether R requests, agrees to receive or accepts (or is to request, agree to receive or accept) the advantage directly or through a third party,</p>
</li>
<li><p>(b)whether the advantage is (or is to be) for the benefit of R or another person.</p>
</li>
</ul>
<p>(7)In cases 4 to 6 it does not matter whether R knows or believes that the performance of the function or activity is improper.</p>
<p>(8)In case 6, where a person other than R is performing the function or activity, it also does not matter whether that person knows or believes that the performance of the function or activity is improper.</p>
</blockquote>
<ul>
<li><strong>REPORTING</strong></li>
</ul>
<p>The is no legal requirement for anyone to report offences of this nature to the authorities  unless they are within the &quot;<a href="https://www.legislation.gov.uk/ukpga/2002/29/schedule/9/part/1?timeline=false" rel="noreferrer">Regulated Sector</a>&quot;</p>

<p>Bob and Arnie both hang, for conspiracy, Arnie for bribery and Bob for misuse of public funds.  See, there's a right way to do that transaction and they didn't do it.</p>
<p>Bob is required to have a paper trail for all public expenditures.  Bob puts out a <strong>Request for Quote</strong>, listing all the specific items required.  All this according to Government specified processes, which surely involve shopping it around to multiple qualified vendors for the best price.  Arnie submits a <strong>Quote</strong>, and will have to fight to win the selection.</p>
<p>Arnie wins, and Bob issues a <strong>Purchase Order</strong> for the goods using the pricing numbers from the Quote. Now Arnie needs to deliver the goods. And it's perfectly fine for Arnie to have subcontractors deliver the goods, as long as they are delivered and the government's <strong>receiving</strong> agent signs for the delivery &quot;received in good order&quot; on a <strong>Shipping Document</strong> (US parlance: &quot;shipper&quot;) which everyone gets a copy of. &quot;Press hard, you are making 4 copies&quot;.</p>
<p>Then Arnie sends an <strong>invoice</strong> to Bob. Bob's accounting staff has good <em>accounting controls</em>, so they a) check the Purchase Order did order those items and b) the Shipping Documents show them signed as received.  Then Bob's office sends <strong>payment</strong>.</p>
<p>And if Arnie wants to share the love with Bob, Arnie takes Bob out to a classy business dinner with entertainment, or arranges a travel junket for Bob and family to inspect a factory or something, up to the limits allowed by government anti-corruption rules. A cash kickback is probably not allowed.  Regardless, this comes out of Arnie's end and drains profit from the deal.</p>
<p>Then when government auditors come a-knocking on Arnie's door to account for the large payment made, Arnie can show the government's Request for Quote, Arnie's Quote, the government's Purchase Order, and Arnie's copy of the Shipping Documents showing they were indeed delivered.</p>
<p>If the materials are of insufficient quality, that is handled like any defective item claim. The government makes a claim against Arnie for fitness of the item. Arnie might be able to defend, by claiming the Request for Quote did not specify a particular quality of item (e.g. if the government required 12.9 strength bolts, but did not specify that and Arnie delivered 8.8).</p>
<p>And likewise Arnie would then have recourse against any subcontractors. But if the subcontractors are uncolletible, <strong>the buck stops with Arnie</strong> because Arnie wrote the bid.</p>
<p>All these layers of controls and CYA are why government procurement can be expensive.  But since this method works and is accountable, lesser methods are generally prohibited.</p>

<p>This is embezzlement, bribery, fraud, and kickbacks, but it doesn't satisfy many definitions of money laundering. According to the United States Department of the Treasury,</p>
<blockquote>
<p>Money laundering is the process of making illegally-gained proceeds (i.e. &quot;dirty money&quot;) appear legal (i.e. &quot;clean&quot;). Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the &quot;dirty money&quot; appears &quot;clean.&quot; <a href="https://www.fincen.gov/history-anti-money-laundering-laws" rel="nofollow noreferrer">https://www.fincen.gov/history-anti-money-laundering-laws</a></p>
</blockquote>
<p>Money laundering is where you engage in some scheme whereby you obscure the source of funds, allowing the money to be used openly as it appears to come from legitimate sources. Bob is going to have a hard time spending the money without it being a red flag that he is engaging in illegal activity.</p>
<blockquote>
<p>Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them.
<a href="https://www.fincen.gov/what-money-laundering" rel="nofollow noreferrer">https://www.fincen.gov/what-money-laundering</a></p>
</blockquote>
<blockquote>
<p>Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. <a href="https://en.wikipedia.org/wiki/Money_laundering" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/Money_laundering</a></p>
</blockquote>
<p>Consider how the activity described in the question will look to anyone who investigates it. Arnie owns a business, and that business (presumably) has a bank account. Bob transferred a bunch of money to that bank account. Immediately after, Arnie withdrew <em>cash</em> from the business' bank account. And then Bob suddenly appeared with a wad of cash. How in the world does this let either of them avoid suspicion? If anyone asks, Arnie is going to have a hard time explaining why he made a huge cash withdrawal and where the money went, and Bob is going to have a hard time explaining where his money came from.</p>
<p>There are different definitions of &quot;money laundering&quot;, and this might satisfy some of the others. However, tagging the question &quot;Ukraine&quot; is a bit odd, since &quot;money laundering&quot; is an English phrase, so if you're asking for definitions of &quot;money laundering&quot; given by the Ukrainian government, at most we can talk about what terms have been <em>translated</em> as &quot;money laundering&quot;.</p>
