Chapter-8: Money Laundering

Md. Ariful Hoque

Lecturer, DBA, IIUC

Money Laundering:
Definition of Money Laundering; Background of Money Laundering; How Money is
Laundered; Role of Bangladesh Bank in Combating Money Laundering; Information
needed to combat money laundering; Effects of Money Laundering in Economy and
Financial Sectors.

Money Laundering: Generally money laundering is the process used to disguise the sources of
money or assets derived from criminal activity. More precisely, money laundering refers to a
financial transaction scheme that aims to conceal the identity, sources and destination of illicitly
obtained money. Money laundering facilitates corruption and destabilized the economic
condition of developing countries. It also facilitates a broad range of serious underlying criminal
offense which ultimately threatens the integrity of the financial system.
According to United States Treasury department “Money laundering is the process of making
illegally (i.e. dirty money) gained proceeds appear legal (clean)”
INTERPOL’s definition of money laundering is “any act or attempt to conceal or disguise the
identity of illegally obtained proceeds so that they appear to have originated from legitimate
sources.”
So at last we say that money laundering is a process of passing funds through a number of
transactions in order to conceal their origin where fund acquired illegally by criminal activity.

Background of Money Laundering: However, historically, the concept of money laundering

was originally used by the American enforcement officers in the 1920. The term of money
laundering was first used in a legal context in 1982 also in America.

System of Money Laundering: Money laundering is often a diverse and complex which
involves three steps. These are placement, layering and integration.

Placement: When the launderer introduces his illegal earning into financial system then it is
known placement. The funds at the placement stage are usually processed relatively close to the
underlying activity often but not in every case in the country where the funds originate.
Cash can be placed in the financial system in the following way:
 Breaking up large amounts of cash into less conspicuous small sums that are then
deposited directly into several accounts to avoid detection.
 By purchasing a series of monetary instruments (cheques, bank drafts, pay orders etc)
that are then collected and deposited into accounts at another location.
 By buying travelers cheques, international money orders, foreign currencies.
 By buying high value property or business assets.

Layering: Layering takes place in the form of a series of conversions or movements of the funds
to distance them from initial criminal activity, so that the investigators will not be able to find out
 Md. Ariful Hoque
Lecturer, DBA, IIUC

their source. In this case, the launderer might choose an offshore financial center, a large
business center that provides an adequate financial or business infrastructure. Layering can
include:
 Paying large credit cards debts from an account funded by criminal activity.
 Electronic fund transfer between non-existent companies.
 Transfer of fund through a series of accounts at various banks across the global especially
in those jurisdictions that do not co-operate in anti-money laundering investigation.
 The launderer might disguise the transfers as payments for goods and services, thus
giving them a legitimate appearance
 Purchase and sale of stocks and share.

Integration: Integration means that the proceeds of layering are finally moved back into
financial system in such a way that they appear to be normal business funds. At the integration
stage, launderers might choose to invest laundered funds in other locations.
Integration includes:
 Investment of the funds into real estate, luxury assets or business venture.
 Sales of legitimate business purchased with the proceeds of criminal money.
 Loan transactions, where the loan is secured on a criminally funded assets.

Effects of Money Laundering in Economy and Financial Sectors of developing country:

Distorts of investment: Money laundering creates instability in the investment environment of

developing countries like Bangladesh. When money laundering occurs in a financial system then
real investor deprive from profit. Because through illegal way a number of person become owner
of large proportion of funds.
Depress the productivity:
Corporate competitiveness: Money laundering negatively affects the corporate business
competition of developing country. Generally legitimate businessmen cannot compete with the
money launderers because their primary purpose is to clean money rather than generate profit.
Interest rate and exchange rate: Money laundering has adverse consequences on the interest
rate and the exchange rate volatility particularly in developing nations.
Economic policy:
Income distribution:
Reduce GDP:
Loss of revenue:
Damping of entrepreneurial environment: Strong financial systems are incubators of
entrepreneurial growth. For developing nations, technological change is often associated with the
investment and new machinery. To adopt the more productive technologies from advanced
nations requires entrepreneurship.
 Md. Ariful Hoque
Lecturer, DBA, IIUC

Role of Bangladesh Bank in Combating Money Laundering: Money laundering is perhaps

one of the greatest challenges governments and banks face today increasingly globalized
financial system. According to money laundering prevention act, 2009 section 23 following are
the powers and responsibilities of Bangladesh Bank to combat money laundering in Bangladesh

(1) To combat and prevent money laundering and to resists any such activities the
Bangladesh Bank is empowered and authorized to
(a) Analyze the suspicious transaction reports and cash transaction report maintain a
database of all suspicious transaction reports and cash transaction reports and
related information.
(b) Call for and receive from reporting organizations any information related to the
transactions where there are reasonable grounds so suspect that the transaction is
involved with money laundering.
(c) Issue an order to any bank or financial institution to suspend a transaction or
freeze an account for a period of 30 days where the Bangladesh Bank has
reasonable grounds to suspect that the transaction involves proceeds of crime.
Provided that the order so passed may be extended for another 30 days for the
purpose of further investigation.
(d) Issue from time to time necessary direction to reporting organizations to ensure
proper reporting organizations for taking counter measures to combat money
laundering activities.
(e) Monitor the activities of the reporting organizations to ensure proper reporting and
the compliance of its directions or instructions and if necessary inspect the
reporting organization physically.
(f) For the purpose of the proper implementation of this act, provide training to the
staffs and officers of the reporting organization or institution as Bangladesh Bank
considers necessary and arrange meeting seminar etc.
(g) Carry out any other related functions to meet the objectives of this act.
(2) If the investigating organization request for information related to money laundering or
suspicious transactions, Bangladesh Bank shall provide, if not obliged otherwise by the
existing laws or any other cause.
 Md. Ariful Hoque
Lecturer, DBA, IIUC

Section 25: Responsibility of reporting organizations in preventing money laundering.

(1) For the purpose of preventing and identifying money laundering reporting organizations
shall
(a) Keep during the operation of accounts, the correct and full information of
identification of its clients and;
(b) In case of close account of and client, keep previous records of transactions of
such account for at least five years from the date of closure;
(c) Provide, from time to time, the records kept under clause (a) and (b) to Bangladesh
Bank time to time on demand from Bangladesh Bank;
(d) Inform proactively and immediately Bangladesh bank, facts on
suspicious/unusual/doubtful transactions likely to be related to money laundering.