money laundering

1. Money laundering
•The word “laundry”
literally means “cleaning”
•Metaphorically, money
laundering refers to
“cleaning on money”

2. Illegal /
Dirty Money
Legal / white
MoneyConversion
Definition: 'Money Laundering' is the process by which
illegal funds and assets are converted into legitimate
funds and assets.

3. GLOBAL MONEY LAUNDERING

4. Human trafficking
Arms smuggling
Tax evasion
Drug trafficking
Corrupt practices
Theft Fraud
Robbery
Prostitution

5. Money Laundering & Globalization
The 20th Century was characterized by a number of structural
changes in the World economy. In the last decade of this century,
Globalization became the buzz word: bringing together nation
states to make the world a “global village” .
The main pillars of this process were Liberalization and
Deregulation of national economies.
Some of the prominent changes in this century were rapid
developments in financial information, exponential growth of
technology and communication which allowed money to
move anywhere in the world with speed and ease.

6. Money Laundering & Globalization
These developments combined, created both
opportunities and risks for the society. One of these risks
is the increase crime and criminality. The phenomenon
of money laundering is an aspect of organized crime
The society witnessed the proliferation of organized
criminal groups, operating across national boundaries and
sovereignties

7. How much money is laundered every year?
Since money laundering is an illegal activity therefore one
can only estimate the amount of money laundered every
year.
The International Monetary Fund, for example, had stated
in 2011 that the aggregate size of money laundering in the
world could be somewhere between 2-5% of the world’s
gross domestic product
This is $800 billion - $2 trillion in current US dollars.

8. HOW MONEY LAUNDERING WORKS:

9. Money Laundering Cycle:
1.
Predicate Crimes
•Corruption and Bribery
•Fraud
•Organized crime
•Drug and human trafficking
•Environmental crime
•Terrorism
•Other serious crimes…
• Initial introduction of
criminal proceeds into
the stream of
commerce
• Most vulnerable stage
of money laundering
process
2.
PLACEMENT
3.
LAYERING
• Involves distancing the money
from its criminal source:
• movements of $ into
different accounts
• movements of money to
different countries
• Increasingly difficult to detect.
4.
INTEGRATION
•The last stage in the
laundering process.
•Occurs when the laundered
proceeds are distributed
back to the criminal.
•Creates appearance of
legitimate wealth.

10. # placement

11. smurfing explainedSmurfing

12. electronic transfer

13. # layering

14. electronic funds transfer

16. # integration

17. credit and debit cards

18. terrorist
financing

19. Financing of terrorism:
o Money to fund terrorist activities moves through the global
financial system via wire transfers and in and out of personal and
business accounts.
o Although terrorist financing is a form of money laundering, it
doesn’t work the way conventional money laundering works. The
money frequently starts out clean i.e. as a ‘charitable donation’
before moving to terrorist accounts. It is highly time sensitive
requiring quick response.

20. money laundering vs. terrorist financing

21. REASONS FOR MONEY LAUNDERING
Absence of legislation
Evasion of tax
Increase in profits
To make black money
appear white money
Limited risks of exposure

22. Absence of legislation against money laundering:
 Absence of legislation against
money laundering give a free
hand to criminals. sometimes
governments itself is involved
they do this to win political
rivals, to please their allies and
to strengthen their rule. Also
CBR (Central Board of
Revenue) has never bothered to
unearth laundered money,
rather always joined hands with
the and money launderers.

23. Evasion of tax:
 Tax evaders launder money so that they can lie
about where money and assets came from in order
to evade tax. And sometimes they simply operate
outside that part of the economy where records are
kept.

24. Increase profits:
When people have incentive for more profit in
any particular area, such as in production and trading
of drugs, arms, and across the borders trade, they
start taking risk to earn higher profits.

25. To Appear black money legitimate:
 In money laundering,
black money usually
becomes legitimate after
a series of process. And
less risk is involved of
being caught. This
doesn’t happen in other
economic crimes. So in
order to appear their
money more legitimate
they go for money
laundering.

26. Limited risks:
The availability of multiple
opportunities for personal
enrichment without the risk of
being exposed is another cause
of money laundering. Such
economic environments are
much more conducive to make
black money.

27. What’s
in it
for the bank?

28. Money Laundering Risks:
What are the risks to banks?
(i) Reputational risk
(ii) Legal risk
(iii) Concentration risk (either side of balance
sheet).
All risks are inter-related and together have the potential of
causing serious threat to the survival of the bank

29. Reputational Risk:
 The potential that adverse publicity regarding a bank’s business
practices, whether accurate or not, will cause a loss of
confidence in the integrity of the institution.
 Reputational Risk : a major threat to banks as confidence of
depositors, creditors and general market place to be
maintained.
 Banks vulnerable to Reputational Risk as they can easily
become a vehicle for or a victim of customers’ illegal activities.

30. Legal Risk:
 The possibility that lawsuits, adverse judgments or contracts
that turn out to be unenforceable can disrupt or adversely
affect the operations or condition of a bank.
 Banks may become subject to lawsuits resulting from the
failure to observe mandatory KYC standards or from the
failure to practice due diligence.
 Banks can suffer fines, criminal liabilities and special penalties
imposed by supervisors.

31. Concentration Risk:
 Mostly applies on the assets side of the balance
sheet: Information systems to identify credit
concentrations; setting prudential limits to restrict
banks’ exposures to single borrowers or groups of
related borrowers.
 On liabilities side: Risk of early and sudden
withdrawal of funds by large depositors- damages to
liquidity.

32. Punishment for Offence:
 Imprisonment up to seven years.
 The same is 10 years in case of Narcotics and Drugs, and
 Fine up to Rs 5 lacs.
 In addition, the tainted property is also confiscated by the
Central Government.

33. Penalties imposed on banks
Jan. 2006 ABM AMRO US$ 80 million
Aug. 2005 Arab Bank US$ 24 million
Feb. 2005 City National Bank US$750,000
Jan. 2005 Riggs Bank US$ 41 million
Oct. 2004 AmSouth Bank US$ 50 million
Sep. 2004 City Bank Japan License cancelled
May. 2004 Riggs Bank US$ 25 million

34. What KYC means?
 Customer?
 One who maintains an account, establishes business
relationship, on who’s behalf account is maintained,
beneficiary of accounts maintained by intermediaries,
and one who carries potential risk through one off
transaction.
 Your? Who should know?
 Branch manager, audit officer, monitoring officials, PO.
 Know? What you should know?
 True identity and beneficial ownership of the accounts.
 Permanent address, registered & administrative address.

35. What KYC means?
 Making reasonable efforts to determine the true identity
and beneficial ownership of accounts;
 Sources of funds.
 Nature of customers’ business.
 What constitutes reasonable account activity?
 Who your customer’s customer are?

36. KYC Does Not Mean:
 Denial of Service to the Common Person.
 Intrusive Behavior.
 Use of information for cross selling.
 Harassment of customers- threatening to close down the
accounts arbitrarily.

37. Core elements of KYC:
 Customer Acceptance Policy.
 Customer Identification Procedure- Customer Profile.
 Risk classification of accounts - risk based approach.
 Risk Management.
 Ongoing monitoring of account activity.
 Reporting of cash and suspicious transactions.

38. Measures to deter money laundering:
 Board and management oversight of AML risks.
 Appointment a senior executive as principal officer with
adequate authority and resources at his command.
 Systems and controls to identify, assess & manage the money
laundering risks.
 Make a report to the Board on the operation and
effectiveness of systems and control.
 Appropriate documentation of risk management policies,
their application and risk profiles.

39.  Appropriate measures to ensure that ML risks are taken
into account in daily operations, development of new
financial products, establishing new business
relationships and changes in the customer profile.
 Screening of employees before hiring and of those who
have access to sensitive information.
 Appropriate quality training to staff.
 Quick and timely reporting of suspicious transactions.
Measures to deter money laundering:

40. SUSPICIOUS TRANACTION:
Suspicious transaction means a transaction whether or not
made in cash which, to a person acting in good faith –
• gives rise to a reasonable ground of suspicion that it may
involve the proceeds of crime; or
• appears to be made in circumstances of unusual or
unjustified complexity; or

41.  Providing misleading information / information not easily
verifiable while opening an Account.
 Large cash withdrawals from: a dormant or inactive account or
account with unexpected large credit from abroad.
 Sudden increase in cash deposits of an individual with no
justification.
 Employees leading lavish lifestyles that do not match their
known income sources.
SUSPICIOUS TRANACTION:

42. Suspicious Transaction:
 Large cash deposits into same account.
 Substantial increase in turnover in a dormant account.
 Receipt or payment of large cash sums with no obvious
purpose or relationship to Account holder / his business.
 Reluctance to provide normal information when opening an
Account or providing minimal or fictitious information.

43. Role of cash in money laundering:
 Disguise the audit trail.
 Provide anonymity.
 Concealing true ownership and origin of money.
 Control over money.
 Changing the form of money.

45. Recommendations
 The truth is that no individual nation has the power to stop money laundering alone
 If one country is hostile to laundering, criminals simply look elsewhere for a place to
clean their money. Therefore, Global cooperation is essential.
 The most prominent international organization in this respect is probably the
Financial Action Task Force (FATF), which has 33 member states and international
organizations on its roster list as of 2005. The FATF issued the "40 Recommendations"
for banks that have become the anti-money-laundering standard.

46. Recommendations
Some of these recommendations include:
 Identify and do background checks on depositors.
 Report all suspicious activity. (For example, if a background check revealed that
depositor A works in a steel factory, and he typically deposits $2,000 every two weeks, a
series of 10 $9,000 deposits over the course of two weeks should raise a red flag.)
 Build an internal taskforce to identify laundering clues.
 Financial institutions should not keep anonymous accounts or accounts in obviously
fictitious

47. Recommendations
 Financial institutions should maintain, for at least five years, all
necessary records on transactions, both domestic or
international, to enable them to comply swiftly with information
 Financial institutions should pay special attention to all complex,
unusual large transactions, and all unusual patterns of
transactions, which have no apparent economic or visible lawful
purpose
 If a financial institution suspects or has reasonable grounds to
suspect that funds are the proceeds of a criminal activity, or are
related to terrorist financing, it should be required, directly by
law or regulation, to report promptly its suspicions to the
financial intelligence unit (FIU).

48. Organizations fighting for money laundering
Other global organizations fighting money laundering include the
 United Nations,
 International Monetary Fund,
 World Bank

49. References
•http://fiuindia.gov.in/faq-moneylaundering.htm
•www.crime.hku.hk/moneylaundering.doc
•http://en.wikipedia.org/wiki/Money_laundering
•http://www.laundryman.u-net.com/page1_hist.html
•http://www.countermoneylaundering.com/public/?q=node/6
•http://www.scribd.com/doc/9188630/Money-Laundering-A-Brief-History
•http://www.isyours.com/e/banking/secrecy/laundering.html
•www.countermoneylaundering.com
•www.money.howstuffworks.com
• http://www.dawn.com/wps/wcm/connect/dawn-content-
library/dawn/search
•http://www.unodc.org/unodc/en/money-laundering/globalization.html
•http://www.laundryman.u-net.com/page4_mlproc.html