Money Laundering and Its Prevention

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• Money Laundering and Its Prevention

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References

• Banking Law and Practice-
• Syed Ashraf Ali and RA Howlader.
• BB Website,
• Wikipedia, and
• other internet sources

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Chapter Objectives

• What is Money Laundering?
• How is money laundered?
• Where does money laundering occur?
• How does money laundering affect business?
• What influence does money laundering have on
  economic development?
• What is the connection with society at large?
• How does fighting money laundering help fight
  crime?
• What should individual governments be doing about
  it?
• Money Laundering Methods
• Money Laundering Prevention Act,2002

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Money laundering

• Money laundering is the practice of disguising
  the origins of illegally-obtained money.
  Ultimately, it is the process by which the
  proceeds of crime are made to appear legitimate.
  The money involved can be generated by any number
  of criminal acts, including drug dealing,
  corruption, accounting fraud and other types of
  fraud, and tax evasion. The methods by which
  money may be laundered are varied and can range
  in sophistication from simple to complex

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In Bangladesh, the Prevention of Money Laundering
Act, 2002 (Act No. VII of 2002). In terms of
section 2 (tha).

• Money Laundering means
• (a) Properties acquired or earned directly or
  indirectly through illegal means
• (b) Illegal transfer, conversion, concealment of
  location or assistance in the above act of the
  properties acquired or earned directly of
  indirectly through legal or illegal means.

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THE MONEY LAUNDERING PROCESS

• Money laundering is not a single act but is in
  fact a process that is accomplished in three
  basic steps. These steps can be taken at the same
  time in the course of a single transaction, but
  they can also appear in well separable forms one
  by one as well. The steps are-
• Placement
• Layering and
• Integration.  

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THE MONEY LAUNDERING PROCESS
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• There are also common factors regarding the wide
  range of methods used by money launderers when
  they attempt to launder their criminal proceeds.
  Three common factors identified in laundering
  operations are
• -the need to conceal the origin and true
  ownership of the proceeds.
• -the need to maintain control of the proceeds.
• -the need to change the form of the proceeds in
  order to shrink the huge volumes of cash
  generated by the initial criminal activity.

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• PLACEMENT
• This is the first stage in the washing cycle.
  Money laundering is a "cash-intensive business,
  generating vast amounts of cash from illegal
  activities (for example, street dealing of drugs
  where payment takes the form of cash in small
  denominations). The monies are placed into the
  financial system or retail economy or are
  smuggled out of the country.
• LAYERING
• The purpose of layering is to disassociate the
  illegal monies from the source of the crime by
  purposely creating a complex web of financial
  transactions aimed at concealing any audit trail
  as well as the source and ownership of funds.
  Typically, layers are created by moving monies in
  and out of the bank accounts of bearer companies
  through electronic funds' transfer (EFT).

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INTEGRATION

• The final stage in the process. It is this stage
  at which the money is integrated into the
  legitimate economic and financial system and is
  assimilated with all other assets in the system.
  Integration of the "cleaned" money into the
  economy is accomplished by the launderer making
  it appear to have been legally earned

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Money Laundering Methods
PlacementStage LayeringStage IntegrationStage
Cash paid into bank (sometimes with staff complicity or mixed with proceeds of  legitimate business). Wire transfers abroad (often using shell companies or funds disguised as proceeds of legitimate business). False loan repayments or forged invoices used as cover for laundered money.
Cash exported. Cash deposited in overseas banking system. Complex web of transfers (both domestic and international) makes tracing original source of funds virtually impossible.
Cash used to buy high value goods, property or business assets. Resale of goods/ assets Income from property or legitimate business  assets appears "clean".
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Other methods

• the establishment of anonymous companies in
  countries where the right to secrecy is
  guaranteed. They are then able to grant
  themselves loans out of the laundered money in
  the course of a future legal transaction.
• the sending of false export-import invoices
  overvaluing goods allows the launderer to move
  money from one country to another country.
• a simpler method is to transfer the money (via
  Electronic Fund Transfer) to a legitimate bank
  from a bank owned by the launderers

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Where does money laundering occur?

• As money laundering is a consequence of almost
  all profit generating crime, it can occur
  practically anywhere in the world. Generally,
  money launderers tend to seek out countries or
  sectors in which there is a low risk of detection
  due to weak or ineffective anti-money laundering
  programs. Because the objective of money
  laundering is to get the illegal funds back to
  the individual who generated them, launderers
  usually prefer to move funds through stable
  financial systems.

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Major money laundering countries

• Afghanistan Canada
• Aruba China
• Australia Colombia
• Belize Denmark
• Bermuda Finland
• Brazil Germany
• Burma (Myanmar) Greece

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• It can occur on that country, where the
  regulation and the law enforcement system is
  weak. For example bangladesh, afghanistan,
  pakistan and so many under developed countries.
• For further information about countries involved
  in money laundering
• http//www.state.gov/p/inl/rls/nrcrpt/2007/vol2/h
  tml/80883.htm

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How does money laundering affect business?

• Most of the case business man are engaging with
  money laundering. It happens in the time of
  export and import. To reduce the tax amount they
  transfer money by hundi. By this illegal way some
  of the business man reduce their cost and gain
  high profit, whether those are doing legal
  business.

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What influence does money laundering have on
economic development?

• Launderers are continuously looking for new
  routes for laundering their funds. Economies with
  growing or developing financial centers, but
  inadequate controls are particularly vulnerable
  as established financial centre countries
  implement comprehensive anti-money laundering
  regimes.
• Differences between national anti-money
  laundering systems will be exploited by
  launderers, who tend to move their networks to
  countries and financial systems with weak or
  ineffective countermeasures.

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• As with the damaged integrity of an individual
  financial institution, there is a damping effect
  on foreign direct investment when a countrys
  commercial and financial sectors are perceived to
  be subject to the control and influence of
  organized crime.

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What is the connection with society at large?

• The possible social and political costs of money
  laundering, if left unchecked or dealt with
  ineffectively, are serious. Organized crime can
  infiltrate financial institutions, acquire
  control of large sectors of the economy through
  investment, or offer bribes to public officials
  and indeed governments. 

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How does fighting money laundering help fight
crime?

• Money laundering is a threat to the good
  functioning of a financial system however, it
  can also be the Achilles heel of criminal
  activity.
• Most importantly, however, targeting the money
  laundering aspect of criminal activity and
  depriving the criminal of his ill-gotten gains
  means hitting him where he is vulnerable. Without
  a usable profit, the criminal activity will not
  continue

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What should individual governments be doing about
it?

• It is critically important that governments
  include all relevant voices in developing a
  national anti-money laundering program. They
  should, for example, bring law enforcement and
  financial regulatory authorities together with
  the private sector to enable financial
  institutions to play a role in dealing with the
  problem. This means, among other things,
  involving the relevant authorities in
  establishing financial transaction reporting
  systems, customer identification, record keeping
  standards and a means for verifying compliance.

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Bangladesh fights against the money laundering

• Money laundering is a criminal offense in
  Bangladesh and can result in imprisonment for up
  to seven years, in addition to financial
  penalties. The Bank of Bangladesh is responsible
  for investigating suspected cases and presenting
  them to the courts, as well as applying for
  orders freezing or seizing assets of accused
  money launderers. This article offers an overview
  of Bangladesh Money Laundering law.

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• In 2002, Bangladesh enacted the Money Laundering
  Prevention Act ("MLPA"), which applies to all
  forms of money laundering. Under the MLPA, money
  laundering is a non-bail able crime. A conviction
  for money laundering can result in imprisonment
  from a minimum of six months to a maximum of
  seven years, along with a fine of up to double
  the amount involved in the crime.

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Money laundering prevention act

• Money Laundering Prevention Act, 2002 (Act No. 7
  of 2002) has been published in the Bangladesh
  Gazette (extra issue) on 7th April, 2002 with the
  purpose of combating money laundering. As per
  article 1(2) of the Act, the Government of the
  Peoples Republic of Bangladesh has made this Act
  effective from April 30, 2002 AD (Baishakh 17,
  1409 Bangla) by an Official Notification in the
  Gazette.

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Responsibility of the banks, financial
institutions and other institutions engaged in
financial activities in preventing and
identifying money laundering

• In checking and identifying money laundering
  banks, financial institutions and other
  institutions engaged in financial activities
• (Ka) As a client of it , it should preserve the
  correct and full information of all of its
  clients and in the event of closing of
  transactions it should preserve records of
  transactions for at least five years from the
  date of closure
• (Kha) Will provide the records so preserved as
  per Sub-section (Ka) above to Bangladesh Bank
  from time to time on demand
• (Ga) Information regarding abnormal transactions
  and doubtful transactions which are likely to be
  related to money laundering should be informed to
  Bangladesh Bank.
• (2) Bangladesh Bank will determine the
  information to be preserved as per Subsection (1)
  and issue Circular or Gazette Notification from
  time to time.

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• (3) In the event of failure of providing and
  preserving the information as mentioned in
  Sub-section (1) Bangladesh Bank will inform the
  licensing authority of the defaulting bank,
  financial institution and other institutions
  engaged in financial activities so that the
  concerned authority can take proper action for
  negligence and failure against the concerned
  bank, financial institution and other institution
  engaged in financial activities as per their own
  rule or provision.
• (4) Whatever may contain in Sub-section (3),
  Bangladesh Bank will be able to impose fine up to
  a maximum of Taka one lac and a minimum of Taka
  ten thousand to the defaulting bank, financial
  institution and other institution engaged in
  financial activities for failure to preserve and
  supply information as mentioned in Sun-section
  (3) and also for negligence.

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Responsibility of Bangladesh Bank in preventing
Money Laundering

• (Ka) To conduct enquiry about the crime of money
  laundering
• (Kha) Observe and supervise the activities of
  banks, financial institutions and other financial
  institutions engaged in financial activities
• (Ga) To invite statement from the banks,
  financial institutions and other institutions
  engaged in financial activities about any matter
  connected with money laundering.

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Power of enquiry

• (1) Bangladesh Bank or any person authorized by
  Bangladesh Bank can enquire into the crime
  committed under this Act
• (2) In case of enquiry in to a matter the power
  which an Officer in Charge of a Police Station
  can exercise under the Code of Criminal Procedure

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Establishment of Money Laundering Court

• (1) In order to fulfill the objective of this Act
  all Courts of Sessions will be regarded as Money
  Laundering Court and all Session Judges will be
  the justice of Money Laundering Court.
• (2) Session Judge will settle all cases under
  this Act himself or he can send the case to any
  Additional Session Judge under him for
  settlement.

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Legal seizure of property

• On the basis of written application from
  Bangladesh Bank or any person authorized by
  Bangladesh Bank the Court will issue legal
  seizure of property to this effect that the
  property of the accused in whatever condition it
  may remain will be banned from sale or transfer.

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Freezing of the property

• On the basis of written application of Bangladesh
  Bank or person authorized by Bangladesh Bank the
  Court will issue Freezing Order for the
  properties of the person who is accused under
  this Act.
• In the Freezing Order under this Section, the
  name of the accused, designation, name of father
  and mother, address, profession etc should be
  mentioned as far as possible.

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Appeal.

• Whatever different may exist in the Code of Civil
  and Criminal Procedures, the aggrieved party
  aggrieved by order, judgment , degree or
  punishment imposed by the Court will be able to
  appeal in the High Court within 30 days of the
  date of the above order, judgment, degree or
  punishment order

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Punishment for Money Laundering

• (1) If any person is engaged in Money Laundering
  in any way he will be regarded as a person who
  has committed a crime.
• will be sentenced to imprisonment for at least a
  period of six months and a maximum of seven years
  and will be fined for an amount not exceeding
  double the amount involved in the crime.

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Punishment for violation of the Freezing Order

• If any person violates the Freezing Order under
  Section 11 he will be imprisoned for at least one
  year maximum or fined for at least Taka five
  thousand maximum or he may be punished with both.

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Punishment for divulgation of information

• No person will obstruct the enquiry or divulge
  information relating to enquiry
• If any person violates the provision of
  Sub-section (1) he will be imprisoned for at
  least one year maximum or fined for at least Taka
  ten thousand maximum or he may be punished with
  both

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Punishment for obstruction in enquiry

• No person will express his unwillingness without
  any reasonable ground to assist the enquiry
  officer in his enquiry activities under this Act.
• If any person violates the provision of
  Sub-section (1) he will be imprisoned for at
  least one year maximum or fined for at least Taka
  ten thousand maximum or he may be punished with
  both.

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Example Of Money Laundering