In present world through national economic system the rate and tendency of money laundering is increasing in alarming way.
1.1 INTRODUCTION
In present world through national economic system the rate and tendency of money laundering is increasing in alarming way. A survey of International Monitory Fund (IMF) shows that the average quantity of money laundering is equivalent to 2 to 5 percent of national GDP. In this case the situation is very dangerous for Bangladesh.
In July, 1989 FATF (Financial Action Task Force) was formed by G-7 in an economic summit to prevent the alarming situation of money laundering activities. FATF emphasizes on international interpersonal cooperation among the bank and several financial organization to prevent this criminal unlawful activities. At present more then one million shell company are running their such type of illegal activities through establishing money laundering network.
It is mentionable that, recently in Bangladesh the type of money laundering activities has been done through corruption.
To keep the economic system stable and active Bangladesh Govt. had taken initiative to prevent Money Laundering Act in 2002 and finally it was prepared the following year.
1.2 SCOPE
Almost every nation the illegal financial activities has been increased as at the same time the black money is been using in various illegal activities. Through people ear illegally but they try to give social validity of such earning. For this reason they try to maintain the secrecy of their illegal earnings tactfully. The way of giving validity of the source of illegal earning by maintaining secrecy is identified as money laundering.
1.3 SOCIOLOGY-ECONOMIC EFFECT OF MONEY LAUNDERING
The harmful effects of Money laundering in social and economic system are as follows-
· It estimates the tendency of crime and drug dealer, black marketers, illegal arms businessman and corrupted govt. officers and encouraged to do crime.
· Money laundering activities increase the govt. cost, particularly law and order maintaining cost and medical cost.
· For the money laundering govt. revenues decrease as well as indirectly it effects the real tax holder.
· Money laundering emphasizes the unequal distribution of assts by manipulating the price of assets and goods.
· It can put economic structure in a great uncertainty by creating unstable liability and current assets throw several financial organization.
· Dangerous effect of money laundering is seen in individual sector.
· Illegal earning of money stained of financial organization of country.
· Economic power of the society can be handled by the criminal for the effect of money laundering which sullied the society.
· In the age of globalization the nations do not except the damage of financial institution good will because of money laundering.
· It destroys the good will and position of financial institution through destroyed the faith of people.
2.1 WHAT IS MONEY LAUNDERING?
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)which is reads as follows: “Money Laundering means –
(Au) Properties acquired or earned directly or indirectly through illegal means;
(Aa) 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; “
Properties has been defined in section 2(Da) of the Act as “Properties means movable or immovable properties of any nature and description.
Another definition of Money Laundering under U.S Law is, “… the involvement in any one transaction or series of transactions that assists a criminal in keeping, concealing or disposing of proceeds derived from illegal activities.”
The EU defines it as “the conversion or transfer of property, knowing that such property is derived from serious crime, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in committing such an offence or offences to evade the legal consequences of his action, and 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 serious crime.”
In lay terms 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.
2.2 PURPOSE OF MONEY LAUNDARING ACT
Money laundering Act 2002 which was amended in 200, the major purpose are as follows-
· To keep active and stable economic system of country through provision of money laundering.
· To form a movement against money laundering activities.
· To established a mechanism for regulating evaluating and supporting all financial transaction of all bank and other financial institutions.
2.3 STAGES OF MONEY LAUNDERING
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 jewellery) 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). 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 and street level purchases of drugs are almost always made with cash. This has a need to enter the financial system by some means so that it can be converted into a form which can be more easily transformed, concealed or transported. The methods of achieving this are limited only by the ingenuity of the launderer and these methods have become increasingly sophisticated.
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.
2.4 WHY MONEY LAUNDERING IS DONE?
Criminals engage in money laundering for three main reasons:
First, money represents the lifeblood of the organization that engages in criminal conduct for financial gain because it covers operating expenses, replenishes inventories, purchases the services of corrupt officials to escape detection and further the interests of the illegal enterprise, and pays for an extravagant lifestyle. To spend money in these ways, criminals must make the money they derived illegally appear legitimate.
Second, a trail of money from an offense to criminals can become incriminating 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 prosecute them.
Third, the proceeds from crime often become the target of investigation and seizure. To shield ill- gotten gains from suspicion and protect them from seizure, criminals must conceal their existence or, alternatively, make them look legitimate.
2.5 WHY WE MUST COMBAT WITH MONEY LAUNDERING?
· Money laundering has potentially devastating economic, security, and social consequences. Money laundering is a process vital to making crime worthwhile. It provides the fuel for drug dealers, smugglers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. This drives up the cost of government due to the need for increased law enforcement and health care expenditures (for example, for treatment of drug addicts) to combat the serious consequences that result. Crime has become increasingly international in scope, and the financial aspects of crime have become more complex due to rapid advances in technology and the globalization of the financial services industry.
· Money laundering diminishes government tax revenue and therefore indirectly harms honest taxpayers. It also makes government tax collection more difficult. This loss of revenue generally means higher tax rates than would normally be the case if the untaxed proceeds of crime were legitimate. We also pay more taxes for public works expenditures inflated by corruption. And those of us who pay taxes pay more because of those who evade taxes. So we all experience higher costs of living than we would if financial crime—including money laundering—were prevented.
· Money laundering distorts asset and commodity prices and leads to misallocation of resources. For financial institutions it can lead to an unstable liability base and to unsound asset structures thereby creating risks of monetary instability and even systemic crises. The loss of credibility and investor confidence that such crises can bring has the potential of destabilizing financial systems, particularly in smaller economies.
· One of the most serious microeconomic effects of money laundering is felt in the private sector. Money launderers often use front companies, which co-mingle the proceeds of illicit activity with legitimate funds, to hide the ill-gotten gains. These front companies have access to substantial illicit funds, allowing them to subsidize front company products and services at levels well below market rates. This makes it difficult, if not impossible, for legitimate business to compete against front companies with subsidized funding, a situation that can result in the crowding out of private sector business by criminal organizations.
· No one knows exactly how much “dirty” money flows through the world’s financial system every year, but the amounts involved are undoubtedly huge. The International Money Fund has estimated that the magnitude of money laundering is between 2 and 5 percent of world gross domestic product, or at least USD 800 billion to USD1.5 trillion. In some countries, these illicit proceeds dwarf government budgets, resulting in a loss of control of economic policy by governments. Indeed, in some cases, the sheer magnitude of the accumulated asset base of laundered proceeds can be used to corner markets — or even small economies.
· Among its other negative socioeconomic effects, money laundering transfers economic power from the market, government, and citizens to criminals. Furthermore, the sheer magnitude of the economic power that accrues to criminals from money laundering has a corrupting effect on all elements of society.
· The social and political costs of laundered money are also serious as laundered money may be used to corrupt national institutions. Bribing of officials and governments undermines the moral fabric in society, and, by weakening collective ethical standards, corrupts our democratic institutions. When money laundering goes unchecked, it encourages the underlying criminal activity from which such money is generated.
· Nations cannot afford to have their reputations and financial institutions tarnished by an association with money laundering, especially in today’s global economy. Money laundering erodes confidence in financial institutions and the underlying criminal activity — fraud, counterfeiting, narcotics trafficking, and corruption — weaken the reputation and standing of any financial institution. Actions by banks to prevent money laundering are not only a regulatory requirement, but also an act of self- interest. A bank tainted by money laundering accusations from regulators, law enforcement agencies, or the press risk likely prosecution, the loss of their good market reputation, and damaging the reputation of the country. It is very difficult and requires significant resources to rectify a problem that could be prevented with proper anti-money-laundering controls.
· It is generally recognized that effective efforts to combat money laundering cannot be carried out without the co-operation of financial institutions, their supervisory authorities and the law enforcement agencies. Accordingly, in order to address the concerns and obligations of these three parties, these Guidance Notes were drawn up.
2.6 HOW FINANCIAL INSTITUTIONS CAN COMBAT MONEY LAUNDERING
· The prevention of laundering the proceeds of crime has become a major priority for all jurisdictions from which financial activities are carried out. 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.
· Thus efforts to combat money laundering largely focus on those points in the process where the launderer’s activities are more susceptible to recognition and have therefore to a large extent concentrated on the deposit taking procedures of banks i.e. the placement stage.
· Institutions and intermediaries must keep transaction records that are comprehensive enough to establish an audit trail. Such records can also provide useful information on the people and organizations involved in laundering schemes.
· In complying with the requirements of the Act financial institutions should at all times pay particular attention to the fundamental principle of good business practice – ‘know your customer’. Having a sound knowledge of a customer’s business and pattern of financial transactions and commitments is one of the best methods by which financial institutions and their staff will recognize attempts at money laundering.
2.7 REQUIREMENTS UNDER THE MONEY LAUNDERING PREVENTION ACT 2002
The legislation specifically relating to money laundering is contained in the Money Laundering Prevention Act 2002 (Act No. 7 of 2002) the provisions of which supersedes whatever may contain in any other Act in force in Bangladesh. So far as financial service providers are concerned, the Act:
· defines the circumstances, which constitute the offence of money laundering and provides penalties for the commission of the offence (See Section 2 Tha of the Act),
· requires banks, financial institutions and other institutions engaged in financial activities to
establish the identity of their customers (See Section 19 Ka of the Act),
· requires banks, financial institutions and other institutions engaged in financial activities to
retain correct and full information used to identify their customers and transaction records at
least for five years after termination of relationships with the customers (See Section 19 Ka of
the Act), and
· imposes an obligation on banks, financial institutions and other institutions engaged in
financial activities and their employees to make a report to the Bangladesh Bank where:
– they suspect that a money laundering offence has been or is being committed (See Section 19 Ga of the Act) and
– provide customer identification and transaction records to Bangladesh Bank from time to
time on demand (See Section 19 Kha of the Act).
2.8 RESPONSIBILITIES OF BANGLADESH BANK
The Act 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, 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.
2.9 ANTI MONEY LAUNDERING PROCESSES
Know Your Customer Procedures
· Each Financial Institution is required to perform due diligence on all prospective clients prior to opening an account. This process is completed by fulfilling the documentation requirements (Account Application, Bank References, Source of funds and Identification for example) and also a ‘Know Your Customer’ profile which is used to record a client’s source of wealth, expected transaction activity at it’s most basic level.
· Once the identification procedures have been completed and the client relationship is established, Financial Institutions should monitor the conduct of the relationship/account to ensure that it is consistent with the nature of business stated when the relationship/account was opened. Financial Institutions do this firstly by the their staff being diligent, reporting suspicious transactions undertaken by the customer, updating the client’s KYC profile for any significant changes in their lifestyle (e.g., change of employment status, increase in net worth) and by monitoring the transaction activity over the client’s account on a periodic basis.
· KYC profile gives the basic information about the customer like, Name, Address, Tel/Fax Numbers, line of business, Annual sales. If the customer is a Public Figure, the account will become automatically a High Risk Account.
· The KYC Profile information will also include the observations of the Institution’s Staff/Officer when they visit the customer’s business place like, the business place is owned or rented, the type of clients visited, by what method is the client paid (cheque or cash). The Staff/Officer will record his observations and sign the KYC Profile form.
· In the case of high net worth Accounts, the information will include net worth of the customer, source of funds etc.
· The KYC Profile leads to Risk Classification of the Account as High/Low Risk.
2.11 INTERNET OR ONLINE BANKING
· Banking and investment business on the Internet add a new dimension to Financial Institutions‘ activities. The unregulated nature of the Internet is attractive to criminals, opening up alternative possibilities for money laundering, and fraud.
· It is recognized that on-line transactions and services are convenient. However, it is not appropriate that Financial Institutions should offer on-line live account opening allowing full immediate operation of the account in a way which would dispense with or bypass normal identification procedures.
· However, initial application forms could be completed on-line and then followed up with appropriate identification checks. The account, in common with accounts opened through more traditional methods, should not be put into full operation until the relevant account opening provisions have been satisfied in accordance with these Guidance Notes.
· The development of technologies such as encryption, digital signatures, etc., and the development of new financial services and products, makes the Internet a dynamic environment offering significant business opportunities. The fast pace of technological and product development has significant regulatory and legal implications, and Bangladesh Bank is committed to keeping up to date with any developments on these issues through future revisions to its Guidance Notes.
2.12 MONEY LAUNDERING COURT
Establishment of Money Laundering Court
· 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.
· 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.
Jurisdiction of the Court
· The Court will be able to impose the prescribed punishment for the crime committed under this Act and in applicable cases pass other orders including order for enquiry, confinement, seizure, fine and compensation.
· If the crime under other Act is associated with the crime under another Act in such a manner that in order to dispense justice it is necessary to proceed for trial for the both crimes together or cases are to be instituted together, then trial for the crime committed under this Act can be done at the same time under other Act in the same Court. But the condition is this that if money laundering is associated with the schedule of crimes under such Act which is imprison able for a period less than three years the same will not be treated as a punishment under this Act.
Acceptance of the crime for trial etc
· Notwithstanding what is contained in any other laws all crimes under this Act will be cognizable for trial under this Act.
· All crimes under this Act will be Non-bailable.
· Subject to other provisions of this Act, no accused or punishable person will be released on bail, if–
(Ka) no opportunity is given to the complainant party on the application for releasing him on bail.
(Kha) The Court is satisfied that there is reasonable ground to adjust him guilty on the charges brought against him; or
(Ga) The Court is satisfied that the justice will not be hindered if he is released on bail.
Application of Code of Civil and Criminal Procedure
· If nothing otherwise exists in this Act, provisions of the Code of Civil and Criminal Procedures will be applicable as the case may be in case of filing of complain, enquiry, seizure, attachment of property, trial and settlement for the crimes under this Act.
· Person conducting cases in the Court on behalf of the complainant will be
called as Public Prosecutor.
· The Court will be able to order the enquiry officer to do further enquiry on the crime of the cases under trial and in such cases the Court will be able to fix up time limit for submission of the above enquiry report.
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.
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.
· If the Freezing Order is issued as per Sub -section (1) above
(Ka) The Court will publish it in the form of Notification in the Bangladesh Gazette and national daily for information of general public
(Kha)The concerned property will in no way can be transferred or the concerned property can not be made encumbered.
· 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.
· If the bank account of the accused is under Freezing Order, if nothing contrary is mentioned in the above Order, all receivables of the accused will be credited in the frozen bank account.
2.13 PENALTIES FOR MONEY LAUNDERING
All offences under the Act are non-bailable and the penalties for the commission of the offences all have prison terms and/or fines as prescribed in the Act as follows:
· The offence of money laundering is punishable by terms of a minimum imprisonment for six months and a maximum of up to seven years plus a fine amounting to double the money laundered (See Section 13 of the Act).
· The punishment for violation of Seizure Orders is a minimum imprisonment for one year or a fine of at least Taka ten thousand, or both. (See Section 14 of the Act).
· The punishment for violation of Freezing Orders is a minimum imprisonment for one year or a fine of at least Taka five thousand, or both. (See Section 15 of the Act).
· The offence of divulging information by informing i.e. tipping off the person who is the subject of a suspicion, or any third party is punishable by a minimum imprisonment for one year or a fine of at least Taka ten thousand, or both. (See Section 14 of the Act).
· The offence of obstructing investigations or failure to assist any enquiry officer in connection with an investigation into money laundering is punishable by a minimum imprisonment for one year or a fine of at least Taka ten thousand, or both. (See Section 17 of the Act).
· If any bank, financial institution and other institutions engaged in financial activities fail to retain customer identification and transaction records or fail to furnish required information as per the Act, Bangladesh Bank will report such failure to the licensing authority of the defaulting institution so that the concerned authority can take proper action for such negligence and failure (See Section 19 (3) of the Act
· Bangladesh Bank is empowered to impose fines of not less than Taka ten thousand and not more than Taka one lac on any bank, financial institution and other institutions engaged in financial activities for the failure or negligence to retain customer identification and transaction records or fail to furnish required information to Bangladesh Bank (See Section 19 (4) of the Act)
· If any Company, Partnership Firm, Society, or Association violates any provisions of the Act, it will be deemed that every owner, partner, directors, employees and officers have individually violated such provisions.
REFERENCE
· Money Laundering Provision Act by Ansir Ali Khan.
· Reports of Bangladesh Bank on Money Laundering.
· Internet