Money Laundering and Its Prevention

References:

Banking Law and PracticeSyed Ashraf Ali and RA Howlader.

BB Website, Wikipedia, and other internet sources

Chapter Objectives:

What is Money Laundering? How is money laundered? Where does money laundering occur? How does money laundering affect business? What influence does money laundering have on economic development? What is the connection with society at large? How does fighting money laundering help fight crime? What should individual governments be doing about it? Money Laundering Methods Money Laundering Prevention Act,2002

Money laundering

Money laundering is the practice of disguising the origins of illegally-obtained money. Ultimately, it is the process by which the proceeds of crime are made to appear legitimate. The money involved can be generated by any number of criminal acts, including drug dealing, corruption, accounting fraud and other types of fraud, and tax evasion. The methods by which money may be laundered are varied and can range in sophistication from simple to complex

In Bangladesh, the Prevention of Money Laundering Act, 2002 (Act No. VII of 2002). In terms of section 2 (tha). 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 of indirectly through legal or illegal means.

THE MONEY LAUNDERING PROCESS

Money laundering is not a single act but is in fact a process that is accomplished in three basic steps. These steps can be taken at the same time in the course of a single transaction, but they can also appear in well separable forms one by one as well. The steps are:Placement; Layering; and Integration.

THE MONEY LAUNDERING PROCESS

There are also common factors regarding the wide range of methods used by money launderers when they attempt to launder their criminal proceeds. Three common factors identified in laundering operations are;

-the need to conceal the origin and true ownership of the proceeds. -the need to maintain control of the proceeds. -the need to change the form of the proceeds in order to shrink the huge volumes of cash generated by the initial criminal activity.

PLACEMENT This is the first stage in the washing cycle. Money laundering is a "cash-intensive business, generating vast amounts of cash from illegal activities (for example, street dealing of drugs where payment takes the form of cash in small denominations). The monies are placed into the financial system or retail economy or are smuggled out of the country. LAYERING The purpose of layering is to disassociate the illegal monies from the source of the crime by purposely creating a complex web of financial transactions aimed at concealing any audit trail as well as the source and ownership of funds. Typically, layers are created by moving monies in and out of the bank accounts of bearer companies through electronic funds' transfer (EFT).

INTEGRATION

The final stage in the process. It is this stage at which the money is integrated into the legitimate economic and financial system and is assimilated with all other assets in the system. Integration of the "cleaned" money into the economy is accomplished by the launderer making it appear to have been legally earned

Money Laundering Methods

Placement Stage Cash paid into bank (sometimes with staff complicity or mixed with proceeds of legitimate business). Cash exported. Layering Stage Wire transfers abroad (often using shell companies or funds disguised as proceeds of legitimate business). Integration Stage False loan repayments or forged invoices used as cover for laundered money.

Cash deposited in overseas banking Complex web of transfers system. (both domestic and inter national) makes tracing original source of funds virtually impossible.

Cash used to buy high value Resale of goods/ assets goods, property or business assets.

Income from property or legitimate business assets appears "clean".

Other methods

the establishment of anonymous companies in countries where the right to secrecy is guaranteed. They are then able to grant themselves loans out of the laundered money in the course of a future legal transaction. the sending of false export-import invoices overvaluing goods allows the launderer to move money from one country to another country. a simpler method is to transfer the money (via Electronic Fund Transfer) to a legitimate bank from a bank owned by the launderers

Where does money laundering occur?

As money laundering is a consequence of almost all profit generating crime, it can occur practically anywhere in the world. Generally, money launderers tend to seek out countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programs. Because the objective of money laundering is to get the illegal funds back to the individual who generated them, launderers usually prefer to move funds through stable financial systems.

Major money laundering countries

Afghanistan Canada Aruba China Australia Colombia Belize Denmark Bermuda Finland Brazil Germany Burma (Myanmar) Greece

It can occur on that country, where the regulation and the law enforcement system is weak. For example bangladesh, afghanistan, pakistan and so many under developed countries. For further information about countries involved in money laundering:
http://www.state.gov/p/inl/rls/nrcrpt/2007/vol2/html/80883.htm

How does money laundering affect business?

Most of the case business man are engaging with money laundering. It happens in the time of export and import. To reduce the tax amount they transfer money by hundi. By this illegal way some of the business man reduce their cost and gain high profit, whether those are doing legal business.

What influence does money laundering have on economic development?

Launderers are continuously looking for new routes for laundering their funds. Economies with growing or developing financial centers, but inadequate controls are particularly vulnerable as established financial centre countries implement comprehensive anti-money laundering regimes. Differences between national anti-money laundering systems will be exploited by launderers, who tend to move their networks to countries and financial systems with weak or ineffective countermeasures.

As with the damaged integrity of an individual financial institution, there is a damping effect on foreign direct investment when a countrys commercial and financial sectors are perceived to be subject to the control and influence of organized crime.

What is the connection with society at large?

The possible social and political costs of money laundering, if left unchecked or dealt with ineffectively, are serious. Organized crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments.

How does fighting money laundering help fight crime?

Money laundering is a threat to the good functioning of a financial system; however, it can also be the Achilles heel of criminal activity. Most importantly, however, targeting the money laundering aspect of criminal activity and depriving the criminal of his ill-gotten gains means hitting him where he is vulnerable. Without a usable profit, the criminal activity will not continue

What should individual governments be doing about it?

It is critically important that governments include all relevant voices in developing a national antimoney laundering program. They should, for example, bring law enforcement and financial regulatory authorities together with the private sector to enable financial institutions to play a role in dealing with the problem. This means, among other things, involving the relevant authorities in establishing financial transaction reporting systems, customer identification, record keeping standards and a means for verifying compliance.

Bangladesh fights against the money laundering

Money laundering is a criminal offense in Bangladesh and can result in imprisonment for up to seven years, in addition to financial penalties. The Bank of Bangladesh is responsible for investigating suspected cases and presenting them to the courts, as well as applying for orders freezing or seizing assets of accused money launderers. This article offers an overview of Bangladesh Money Laundering law.

In 2002, Bangladesh enacted the Money Laundering Prevention Act ("MLPA"), which applies to all forms of money laundering. Under the MLPA, money laundering is a nonbail able crime. A conviction for money laundering can result in imprisonment from a minimum of six months to a maximum of seven years, along with a fine of up to double the amount involved in the crime.

Money laundering prevention act

Money Laundering Prevention Act, 2002 (Act No. 7 of 2002) has been published in the Bangladesh Gazette (extra issue) on 7th April, 2002 with the purpose of combating money laundering. As per article 1(2) of the Act, the Government of the Peoples Republic of Bangladesh has made this Act effective from April 30, 2002 AD (Baishakh 17, 1409 Bangla) by an Official Notification in the Gazette.

Responsibility of the banks, financial institutions and other institutions engaged in financial activities in preventing and identifying money laundering
(1)

In checking and identifying money laundering banks, financial institutions and other institutions engaged in financial activities
(Ka)

As a client of it , it should preserve the correct and full information of all of its clients and in the event of closing of transactions it should preserve records of transactions for at least five years from the date of closure; (Kha) Will provide the records so preserved as per Sub-section (Ka) above to Bangladesh Bank from time to time on demand; (Ga) Information regarding abnormal transactions and doubtful transactions which are likely to be related to money laundering should be informed to Bangladesh Bank. Bank will determine the information to be preserved as per Subsection (1) and issue Circular or Gazette Notification from time to time.

(2) Bangladesh

(3) In the event of failure of providing and preserving the information as mentioned in Sub-section (1) Bangladesh Bank will inform the licensing authority of the defaulting bank, financial institution and other institutions engaged in financial activities so that the concerned authority can take proper action for negligence and failure against the concerned bank, financial institution and other institution engaged in financial activities as per their own rule or provision. (4) Whatever may contain in Sub-section (3), Bangladesh Bank will be able to impose fine up to a maximum of Taka one lac and a minimum of Taka ten thousand to the defaulting bank, financial institution and other institution engaged in financial activities for failure to preserve and supply information as mentioned in Sun-section (3) and also for negligence.

Responsibility of Bangladesh Bank in preventing Money Laundering

(Ka) To conduct enquiry about the crime of money laundering; (Kha) Observe and supervise the activities of banks, financial institutions and other financial institutions engaged in financial activities; (Ga) To invite statement from the banks, financial institutions and other institutions engaged in financial activities about any matter connected with money laundering.

Power of enquiry
(1) Bangladesh Bank or any person authorized by Bangladesh Bank can enquire into the crime committed under this Act (2) In case of enquiry in to a matter the power which an Officer in Charge of a Police Station can exercise under the Code of Criminal Procedure

Establishment of Money Laundering Court

(1) 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. (2) 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.

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

(1)

(2)

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. 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.

Appeal.

Whatever different may exist in the Code of Civil and Criminal Procedures, the aggrieved party aggrieved by order, judgment , degree or punishment imposed by the Court will be able to appeal in the High Court within 30 days of the date of the above order, judgment, degree or punishment order

Punishment for Money Laundering

(1) If any person is engaged in Money Laundering in any way he will be regarded as a person who has committed a crime. will be sentenced to imprisonment for at least a period of six months and a maximum of seven years and will be fined for an amount not exceeding double the amount involved in the crime.

Punishment for violation of the Freezing Order

If any person violates the Freezing Order under Section 11 he will be imprisoned for at least one year maximum or fined for at least Taka five thousand maximum or he may be punished with both.

Punishment for divulgation of information

No person will obstruct the enquiry or divulge information relating to enquiry If any person violates the provision of Subsection (1) he will be imprisoned for at least one year maximum or fined for at least Taka ten thousand maximum or he may be punished with both

Punishment for obstruction in enquiry

No person will express his unwillingness without any reasonable ground to assist the enquiry officer in his enquiry activities under this Act. If any person violates the provision of Subsection (1) he will be imprisoned for at least one year maximum or fined for at least Taka ten thousand maximum or he may be punished with both.

Example Of Money Laundering