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AML and CFT.pptx
1. An overview of AML/CTF System
in Nepal
Prakash (LLM, Second- PU)
2. Some important terminologies that are used
while dealing with AML/CFT system
• Reporting entities- are of two kinds Financial and non-financial
• Regulator- supervisory bodies of reporting entities
• FIU- Financial information unit
• FATF financial Action Task force
• APG- Asia Pacific Group on Money laundering
• Recommendation- FATF 40 Recom..
• IOs-= Methodology (immediate out come)
• ME= mutul evaluation
• ARIN- Asset recovery international network.
3. • TTR= Threshold transaction report
• STR= Suspicious transaction report
• SAR= Suspicious activity report.
• BO= Beneficial ownership
• PEPs= Politically exposed persons
• FI= Financial institution
• DNFBPs= Designated non- financial Business professions
• EGMONT= umbrella organization of FIUs
• LEAs= Law enforcement agencies.
• TF= Terrorist financing
• CFT= counter financing of terrorism.
• Predicate offense= mother offense.
• Illicit origin= source of origin
• Proceeds of crime= property derived from the commission of crime.
4. • KYC= know your customer NPOs= non profit organizations
• KYM= Know your member MVTS= Money and Value tra…
• CDD- Customer due diligence NCC= National Coordination Com…
• ECDD= Enhanced Customer due diligence
• Risk-Based Approach
• Seizing, Freezing, and confiscation.
• Correspondent Banking
• Shell company
• Tax heaven
• Compliance
• Technical compliance
• Effectiveness
5. What money laundering offense is?
• It is a process of concealing or disguising illicit origin and also
the process of transfer and transformation with a motive to
protect the person who is involved in the commission of a
crime.
• Process of hiding or disguising the true nature, source, origin,
location movement, and ownership of such property knowingly
or having reasonable ground to believe that such property is
derived from the commission of a crime.
• Use, acquire, and possess such property knowingly or having
reasonable ground to believe that the property is derived from
the commission of a crime.
6. Actus reus
• Conceal, disguise, transfer, and transformation
• Hiding or disguising true nature, source, origin, location
ownership ..
• Use, acquire, and possess.
Means Rea
Knowingly, having a reasonable ground to believe and purposely.
(Criminal conduct +criminal property +criminal intent+
consequence=ML)
7. Money Laundering
“the conversion or transfer of property, knowing that such property
is derived from any offense(s), for the purpose of concealing or
disguising the illicit origin of the property or of assisting any person
who is involved in such offense(s) to evade the legal consequences
of his actions”
Without the association of predicate offenses, there is no question
of ML. in this regard, predicate offenses are such offenses that
generate the proceeds of crime in monetary value, and such value
may be the subject of ML, prohibited by Law.
So money laundering is not itself a predicate offense, it is a
secondary offense or by-product of a predicate offense.
9. System of AML
• There are two types of measures (Preventive and Law enforcement)
• Under the preventive measures, two types of reporting entities are
categorized- Financial (FI) and non-financial (DNFBPs)
• Banks, finance companies, and cooperatives are termed as financial reporting
entities.
• Realtors, casinos, notaries, precious metal dealers, and auditors are cited as
non-financial reporting entities or DNFBPs (Designated non- financial
business professions)
• Reporting entities are responsible to file STR, TTR, and SAR to FIU
compulsorily.
• Financial Information Unit (FIU) is an intelligence body that analyzes financial
information and disseminates it to LEAs for the further investigation.
10. International standards
• FATF 4o recommendations- as directive principles. (1990)
This recommendation provides the ground for technical compliance. The
state should enact its laws and policies commensurate with these
recommendations being based on the country's criminal justice system.
• The recommendations are:-
1. Applying the risk-based approach. 2. coordination and cooperation 3
.criminalization of ML 4. seizing frizzing and confiscation of property
5. Terrorist financing 6. target financial sanctions related to terrorism
7. Targeted financial sanctions related to proliferation 8. NPOs 9. FI
secrecy law 10. CDD 11. Record Keeping 12. Politically persons 13
correspondent Banking 14. MVTS 15. New technology 16. wire transfer
17. Reliance on the third party. 18. internal control and foreign branches or
subsidiaries.
11. • 19 high-risk countries
• 20 reporting of suspicious transaction
• 21 Tipping off and confidentiality
• 22 DNFBPs- customer due diligence.
12. 23 DNFBPs: Other measures
24
Transparency and beneficial ownership of legal persons
25
Transparency and beneficial ownership of legal arrangements
26
Regulation and supervision of financial institutions
27
Powers of supervisors
28
Regulation and supervision of DNFBPs
29
Financial intelligence units
30
Responsibilities of law enforcement and investigative
authorities
31
Powers of law enforcement and investigative authorities
13. 32
Cash couriers
33
Statistics
34
Guidance and feedback
35
Sanctions
36
International instruments
37
Mutual legal assistance
38
Mutual legal assistance: freezing and confiscation
39
Extradition
40
Other forms of international cooperation
14. Effectiveness – Immediate outcomes
1. Risk-based approach outcome 1
2. International cooperation 2
3. Related with FI and Regulators 3 &4
4. Preventing Legal person from being criminally used 5
5. Financial Information use- 6
6. Law Enforcement (Investigation) 7
7. Seizing Freezing and confiscation of criminal proceeds 8
8 TF, the proliferation of arm and ammunition 9-11
15. United Nations Convention against Transnational Organized Crime, 2000
purpose: is to promote cooperation to prevent and combat transnational organized
crime more effectively.
Article - 2 definition
(d) “Property” shall mean assets of every kind, whether corporeal or incorporeal,
movable or immovable, tangible or intangible, and legal documents or
instruments evidencing title to, or interest in, such assets;
(e) “Proceeds of crime” shall mean any property derived from or obtained, directly
or indirectly, through the commission of an offence;
(f) “Freezing” or “seizure” shall mean temporarily prohibiting the transfer,
conversion, disposition or movement of property or temporarily assuming custody
or control of property on the basis of an order issued by a court or other
competent authority;
(g) “Confiscation”, which includes forfeiture where applicable, shall mean the
permanent deprivation of property by order of a court or other competent
authority;
(h) “Predicate offence” shall mean any offence as a result of which proceeds have
been generated that may become the subject of an offence as defined in article 6
of this Convention;
16. Article 6 of this convention-
• Criminalization of the laundering of proceeds of crime
1. Each State Party shall adopt, in accordance with fundamental principles of its
domestic law, such legislative and other measures as may be necessary to
establish as criminal offences, when committed intentionally:
(a) (i) The conversion or transfer of property, knowing that such property is the
proceeds of crime, for the purpose of concealing or disguising the illicit origin
of the property or of helping any person who is involved in the commission of
the predicate offence to evade the legal consequences of his or her action;
(ii) The concealment or disguise of the true nature, source, location, disposition,
movement or ownership of or rights with respect to property, knowing that
such property is the proceeds of crime;
iii The acquisition, possession or use of property, knowing, at the time of
receipt, that such property is the proceeds of crime; (ii) Participation in,
association with or conspiracy to commit, attempts to commit and aiding,
abetting, facilitating and counselling the commission of any of the offences
established in accordance with this article.
17. UNITED NATIONS CONVENTION AGAINST ILLICIT TRAFFIC IN
NARCOTIC DRUGS AND PSYCHOTROPIC SUBSTANCES, 1988
• The conversion or transfer of property, knowing that such property is derived
from any offence or offences established in accordance with subparagraph a)
of this paragraph, or from an act of participation in such offence or offences,
for the purpose of concealing or disguising the illicit origin of the property or
of assisting any person who is involved in the commission of such an offence
or offences to evade the legal consequences of his actions;
• The concealment or disguise of the true nature, source, location, disposition,
movement, rights with respect to, or ownership of property, knowing that
such property is derived from an offence or offences established in accordance
with subparagraph a) of this paragraph or from an act of participation in such
an offence or offences;
• The acquisition, possession or use of property, knowing, at the time of
receipt, that such property was derived from an offence or offences
established in accordance with subparagraph a) of this paragraph or from an
act of participation in such offence or offences;
18. Nepali context
• Asset (Money) Laundering Prevention Act, 2008
• Mutual legal Assistance Act, 2070
• Extradition Act, 2070
• Other various statutes related to predicate offense.
• Institutional mechanism
• OPMCM
• DMLI
• NCC
• FIU
• Reporting entities.
• Govt. attorney
• Judicial bodies
20. Cont…….. Prosecution
LEAs (Convert suspicion
in to fact through
Evidence)
FIU (Intelligence)
Sharing of suspicion
Predicate offense (illicit
origin and proceed of
crimes)
Section 3 ALPA
(Prohibited activities)
Reporting
entities
Commission of the ML
Offence
Clean money (C, D, C, T)
21. Investigation of ML offense
• Follow the money is the main destination.
• Two types of investigation model, i.e – Crime to money and money to
crime
• Self laundering, third party laundering or stand-alone type of laundering
(must determine)
• search, seizure, arrest, bail, remand
• Financial analysis
• Protecting the right of innocent third party
• Use of a legal person?
• Ground of prosecution
22. Nature of ML offense
• Transnational and Complex
• Takes the way of organized crime but not in all circumstances.
• Involvement of the third party
• Misuse of Financial system as well FI
• Affected by the demographic situation, size, migrant rate, geographical
location, production, goods, services, etc.
• Financial crime.
• It is not a primary offense.
• By product of the predicate offense
23. Methods used in Nepal to commit ML
• Structuring – to avoid the detection of state.
• Smurfing – use of multiple accounts to deposit the proceeds.
• Capital flight- using illegal means of transaction to flight the
proceeds of aboard.
• Bulk cash smuggling/ Cross broader/money mule
• Trade-based money laundering- over-invoicing, invoicing etc,
• Loan schemes (Fictitious)
• Use of innocent third party
• Distancing of proceeds and illicit origin.
• Exploits in weak spots. (where as the less regulation exists.)
24. Punishment – section 30
• Principal offender- fine- Two times of the claimed amount and 2 years
of imprisonment not exceeding to 10 years (Natural person)
• If a legal person has been used in committing ML- fine up to five times.
• Conspirator – as equal to the principal offender.
• Abettor, instigator, facilitator- half of the punishment with respect to
the principal offender.
25. Confiscation- section 34
• Laundered property
• Instrumentalities used or likely to use in the commission of a
crime or associated with it.
• Two types of Confiscation model
Property-based: section 18(1)- the property derived from the
commission of a crime – section 34 (1)
Value-based confiscation: section 18(2) and section 34 (2).
Confiscation of equivalent value of the property if disposition
occurs.
26. नेपालमा संगठित अपराधको दृष्टिकोणबाि
सम्पत्ति शुद्धीकरण
• संगठित अपराध ननवारण ऐन २०७० को दफा ३ ले संगठित अपराधलाई ननषेध
गरेको ।
• ऐ दफाको उपदफा ३ को खण्ड (ग) ले गम्भीर अपराधको रुपमा सम्पत्ति
शुद्धीकरणलाई उल्लेख गरेको ।
• ऐ ऐनको दफा ९ ले सजायको व्यवस्था गरेकोमा दफा ३ को उपदफा ३ को
खण्ड (क) र (ख) को कसुरमा थप ५० प्रनतशत सजायको व्यवस्था गरेको
तर खण्ड (ग) को कसुरमा सजायको व्यवस्था भएको नदेखखएको ।
• दफा ११ ले प्रचललत कानूनमा जुनसुक
ै क
ु रा लेखखएको भएता पनन भ्रटिाचार,
सम्पत्ति शुद्धीकरण र आतंककारी क्रियाकलापमा त्तविीय लगानी वाहेकका
संगठित अपराधको अनुसन्धान कष्म्तमा अधधकृ त स्तरको प्रहरी कममचारीले
गनेछ भन्ने व्यवस्था भएको तर सजायको व्यवस्था नभएको ।
27. Problems in Nepal
• Lack of common understanding
• The situation of technical compliance and its effectiveness are worst.
Difficult to meet the international standards.
• Lack of proper supervision and monitoring as well as regulation.
Casinos, relators, precious metal dealers, etc are out of proper regulation
• FIU is not as strong as the international standards demand.
• Lack of scientific and effective investigation.
• Lack of international coordination- (no MLAT)
• Excessive use of illegal means of transaction.
• Cash based economy.
28. Procedure
• State party case
• Investigation- DMLI
• Prosecution- DMLI, in accordance with the decision of govt. attorney.
• Two tires of court- Special and supreme court
29. Prevention of Asset (Money) laundering Act, 2008
• Section 3 has criminalized ML offenses and section 4- TF.
• Section 5 deals with the extraterritorial jurisdiction of the offense.
• Section 6 to 7fa. Deals with the provisions relating to reporting
entities and regulators.
• Section 8, NCC, section 9, DMLI, 10 FIU,
• Section deals with process of complaints.
• Section 14- deals with the process of carrying out preliminary inquiry.
• Section 15 deals with the appointment of investigation officer
• Section 16 deals with the power of investigation officer
• Section 17 deals with the custody, remand etc.
30. • Section 18 – seizing and freezing (value-based and property based)
• Section 22 – prosecution
• Section 23- time limitation.
• Section 25a- referral process
• Section 29- stand type of money laundering.
• Section 30 punishment
section 34- confiscation.
31. Exam preparation..
• Introduction
• International obligation/standards- Vienna, parlemo convention, FATF
recommendations
• National Legal Framework
• International and national institutional mechanism.
• Objectives of the prevention of ML.
• SWOT…
