Methodology of banking system to prevent money laundering. States of argument.

Introduction

It is very hard to find anyone that s/he is not like money or want money. Because without money no one can live in this world. So everyone needs money. And you have to earn this money. But sometime people earn money illegal way. One of the illegal ways is Money Laundering.

What is Money Laundering?

Money Laundering[1] is typically used to refer to any financial transaction that was meant to be kept secret, but was eventually found out. Sometimes it refers to the process of concealing a source of money, which is often earned by illegal means. A definition of what constitutes the offence of money laundering under Bangladesh law is set out in Section 2 (Tha) of the Prevention of Money Laundering Act 2002 (Act No. 7 of 2002)[2] which is reads as follows: “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 or indirectly through legal or illegal means;” Here properties does not mean every things. Properties has been defined in section 2(Da) of the Act[3] as “Properties means movable or immovable properties of any nature and description.” So money laundering is a process to hide either the source or the destination of money; in many cases it aims to make illegal transactions appear legitimate and legal. In other word, Money Laundering is most often described as the “turning of dirty or black money into clean or white money”. If undertaken successfully, money laundering allows criminals to legitimize “dirty” money by mingling it with “clean” money, ultimately providing a legitimate cover for the source of their income. Generally, the act of conversion and concealment is considered crucial to the laundering process.

Why Money Laundering is done?

There are many reasons to engage in money laundering. But researcher finds out three main reasons.

• First, money represents the lifeblood of the organization that engages in criminal conduct for financial gain because it covers operating expenses, replaces inventories, purchases the services of corrupt officials to escape detection and further the interests of the illegal enterprise, and pays for an excessive lifestyle. To spend money in these ways, criminals must make the money they derived illegally appear legitimate.
• Second, a trail of money from a crime to criminals can become convicting evidence. Criminals must obscure or hide the source of their wealth or alternatively disguise ownership or control to ensure that illicit proceeds are not used to accuse them.
• Third, the proceeds from crime often become the target of investigation and seizure. To defense ill- gotten gains from suspicion and protect them from seizure, criminals must conceal their existence or, alternatively, make them look legitimate.

But the main reason in our country is hide the source of their wealth or alternatively disguise ownership.

How Money is laundered

There is no single method of laundering money. Methods can range from the purchase and resale of a luxury item (e.g. a house, car or jewelry) to passing money through a complex international web of legitimate businesses and ‘shell’ companies (i.e. those companies that primarily exist only as named legal entities without any trading or business activities). Sometimes it involves several steps that make it difficult to trace the original source of money. Some of these steps include transferring the money between bank accounts, breaking up large amounts of money into small deposits, or buying acceptable forms of money such as money orders or cashier’s checks. The process is usually planned and organized to avoid being caught and facing punishment. There are a number of crimes where the initial proceeds usually take the form of cash that needs to enter the financial system by some means. Bribery, extortion, robbery are almost always made with cash.

Perhaps the best way to understand the concept is to take a look at some common techniques. Suppose, for example, that an employee was stealing large sums of cash from her employer without getting caught. If she was to make large deposits into her bank account, some regulator (or computer program) might notice the unusually large deposits, thereby increasing her chance of getting caught. Instead, the criminal might launder the money by simply using the cash to make purchases and then reselling the items in a legitimate market. The money gained from these sales is ‘cleaner’ and the criminal is drawing less attention to herself.

Despite the variety of methods employed, the laundering is not a single act but a process accomplished in 3 basic stages which may comprise numerous transactions by the launderers that could alert a financial institution to criminal activity –

• Placement – the physical disposal of the initial proceeds derived from illegal activity.
• Layering – separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity.
• Integration – the provision of apparent legitimacy to wealth derived criminally. If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing as normal business funds.

Anti-money Laundering (AML)

The methods and techniques of Money Laundering are ever evolving process and changing in response to developing counter measures. The prevention of laundering the proceeds of crime has become a major priority for all jurisdictions from which financial activities are carried out. Anti-money laundering is the term used by banks and other financial institutions to describe the variety of measures they have to combat this illegal activity and to prevent criminals from using individual banks and the financial system.  There are different kinds of acts that help banks and the financial system to prevent money laundering. There is also different organization works to prevent this. Like, Financial Action Task Force (FATF), Combating terrorist financing (CFT) etc.

Anti-Money Laundering Policy

In our country there is an anti-money laundering policy for every financial institution. The prevention of laundering the proceeds of crime has become a major priority for all jurisdictions from which financial activities are carried out. To prevent these Illegal uses of money Bangladesh Govt. has introduced the Money Laundering Prevention Act[4]. The Act was last amended in the year 2009 and all the Financial Institutes are following this act. Till today there are 26 Circulars issued by Bangladesh Bank under this act. To prevent Money laundering a banker must do the following:

• While opening a new account, the account opening form should be duly filled up by all the information of the Customer.
• The KYC has to be properly filled up
• The TP (Transaction Profile) is mandatory for a client to understand his/her transactions. If needed, the TP has to be updated at the Client’s consent.
• All other necessary papers should be properly collected along with the Voter ID card.
• If there is any suspicious transaction is notified, the BAMLCO (Branch Anti Money Laundering Compliance Officer) has to be notified and accordingly the STR (Suspicious Transaction Report) reporting has to be done.
• The Cash department should be aware of the Transactions. It has to be noted if suddenly a big amount of money is deposited in any account. Proper documents will be required if any Client does this type of transaction.
• Structuring, over/ under Invoicing is another way to do Money Laundering. The Foreign Exchange Department should look into this matter cautiously.
• If in any account there is a transaction exceeding 7.00 lac in a single day that has to be reported as CTR (cash Transaction report)
• All the Bank Officials must go through all the 26 Circulars and must use in doing the Banking.

One of the best methods of preventing and deterring money laundering is a sound knowledge of a customer’s business and pattern of financial transactions and commitments. The adoption of procedures by which Banks and other Financial Institutions “know their customer” is not only a principle of good business but is also an essential tool to avoid involvement in money laundering. For the purposes of these guidance notes the term Banks and other Financial Institutions refer to businesses carrying on relevant financial business as defined under the legislation.

Responsibilities of Bangladesh Bank

The Act[5] gives Bangladesh Bank broad responsibility for prevention of money laundering and wide ranging powers to take adequate measures to prevent money laundering facilitate its detection, monitor its incidence, and enforce rules and to act as the prosecuting agency for breaches of the Act. The responsibilities and powers of Bangladesh Bank are, in summary (See Section 4 and 5 of the Act):

• To investigate into all money-laundering offences.
• Supervise and monitor the activities of banks, financial institutions and other institutions engaged in financial activities.
• Call for reports relating to money laundering from banks, financial institutions and other institutions engaged in financial activities analyze such reports and take appropriate actions.
• Provide training to employees of banks, financial institutions and other institutions engaged in financial activities on prevention of money laundering.
• To authorize any person to enter into any premises for conducting investigations into money laundering offences.
• Persons authorized by Bangladesh Bank to investigate offences can exercise the same powers as the Officer in Charge of Police Station can exercise under the Code of Criminal Procedure.
• To do all other acts in attaining the objectives of the Act.
• The Courts will not accept any offence under the Act for trial unless a complaint is lodged by Bangladesh Bank or any person authorized by Bangladesh Bank in this behalf.

Overall Assessment

Private Banks are relatively high inherent money laundering risk within many of their business activities and recognized the need to develop and implement strong AML systems and controls to address areas of their business activities which were relatively vulnerable to money laundering. They should implement strong AML systems, because this will help on reputational risk, changes to private banks’ risk profiles, risk-based approach to AML, senior management oversight and control, relationship managers, customer due diligence, reliance on others, and approval of customer relationships including high-risk customers, monitoring, and suspicion reporting. The ability to differentiate legitimate from suspicious activity will become more of a challenge as global financial markets expand and both the markets and criminals become increasingly sophisticated. Private Banks must continue to develop high AML standards and operate robust controls based on reliable and up-to-date due diligence, close links between Know Your Customer (KYC) information and transaction monitoring and a robust ethical stance and oversight of controls by senior management.

Conclusion

We all know that greed is bad. So if we can implement strong AML systems, then we can prevent this greed of money. We always have laws, but we never implement them properly. So our economy is dying now. The government should monitor the money laundering to prevent it.

BIBLIOGRAPHY

• The Prevention of Money Laundering Act 2002
• Money laundering.  (n.d.).  Retrieved December 1, 2011, from http://en.wikipedia.org/wiki/Money_laundering#Bangladesh
• Lawrence M. Salinger, Encyclopedia of white-collar & corporate crime: A – I, Volume 1, page 78, ISBN 0761930043, 2005.
• Baker, Raymond (2005). Capitalism’s Achilles Heel. Wiley.
• Money Laundering Bulletin, Issue 154, June 2008, Dr Jackie Harvey (Newcastle Business School)
• Levi, Michael and William Gilmore (2002). “Terrorist Finance, Money Laundering and the Ris of Mutual Evaluation: A New Paradigm for Crime Control?”. European Journal of Law Reform 4 (2): 337–364.
• BASIC Bank Anti Money Laundering Guidelines.

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