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Finance andISSN 2

2017, Vol.

Launder

AML/C

yland, USA

st 10, 2017

i2.11375

nomic ineffting the fiug-traffickinprimarily francreasing l

arison illicitard and conon a new mnks but alsonce are enorore relaxed more relaxedaper, we trssing the cotem both in orld.

igence, Risanks, Tax

d Banking 2374-2089

4, No. 2

ring

CFT)

A

fficiency. inancing ng when aud. The evels of t money nflicts of meaning shadow

rmous in “war on d efforts race the osts and modern

sk based havens,

1. Intro

The com“mixed known system,aggresscitizensthe modinitiativmarket role in industriefficienfailuresoffsettinsystem.substan“governof resoFinanci

While distortiobenefitssystem and Wahave beis the csecurityeconomefforts wthat aredestructboth at flows wfollowinorganizjustify eAll the miniscurepresen

Money inefficie

oduction

mmon undeeconomy” as laissez-f

, the goversion and ests could interdern marketves and dec

system as the econo

ial economincy in the us” and/or “mng these “i However,

ntial misallnment over-urces is tying of Terro

any effort on of the las. The aim of these eff

ashington, Deen substantcomplicationy, objective

mic analysis were widene deemed ttion. Nonetthe public

worldwide ng the 9/1

zed terroristeither the reavailable d

ule relative nt well over

launderingency. Per th

erstanding ois quite re

faire capitarnment’s rotablishing aract in markt system is centralized practiced b

omy. The nies is that aluse of its rmarket distoinefficienciegovernmenocations o-reach,” dep

ypified in thrism (AML

on the paraissez-faire

of the preforts, especiDC, and thetially undern resulting

es and moredifficult to

ned to incluto be “statetheless, the and privateeven after 1/2001 ter

t attack on esource expdata appears

to illicit mr 99% of the

g, of coursehe United S

of our modeemoved fromalism or “puole is limita legal envikets to buy characterizeactions tak

by most counecessity folthough a laesources, it

ortions.” (Mes” and thuts have thei

of resourcepending on ohe governm

L/CFT) effor

rt of the gmarket systsent paper ially followe ensuing estated relatifrom the c

e specificalo say the leaude violatione sponsors global reso

e level, yet the doublirorist attacthe U.S. h

penditures os to indicatemoney flowe total mone

e, is illegal States Treasu

17

ern market sm the classure capitalited to protironment in

y and sell goed by a mix

ken by indivuntries, the or this roleaissez-faire t has certai

McConnell, 2us increasinir own set oes. One suone’s persp

ment’s Antirts. (FATF(

government tem is laudis to make

wing the Sepemphasize oive to the b

co-minglinglly the “waast. Mattersns of econoof terrorism

ources expethere has b

ing off intecks. The arhomeland sior the threate that the le

ws due to fey laundere

world-widury Departm

system, alsosical undersism”. Undetecting priv

n which conoods, servicxture of cenviduals andgovernmen

e for govermarket syst

in inherent 2015) Goveng the overof shortcomiuch “goverective, that -Money La12), Update

to redress dable, all sue the case tptember 11,on counterienefits. Par

g of economar on terror are even fu

omic sanctiom” or proliended in thibeen no evidernational ergument thince 9/11 dt to individuevel of intefraud and

ed globally.

e and consment, mone

International

o known as standing of r the classi

vate properntracts woulces, and restralized gov

d firms. In nt plays an rnments in tem promotshortcomin

ernments arerall effectivings that carnment failhas resulted

aundering aed 2016)

any inherech efforts hthat the cos2001 terror

ng the finat and parcel

mic and polrism”, whicurther compons imposediferators ofis effort havdent reductiefforts to chat there hadoes not in-ual privacy

ernational tedrug traffic

titutes a sigey launderin

Finance andISSN 2

2017, Vol.

“capitalismthe market

ical versionrty from th

uld be enforsources. In cvernment ecthis versionactive, butmodern a

tes a high dngs, called e thus chargveness of aan themselvlure,” or d in a misaland Comba

ent inefficihave their csts to the frist attacks

ancing of tel of this asslitical, i.e., ch makes aplicated whd on rogue f weapons ve been subion in illici

combat theshas been no-of-itself su

y from theseerrorist finacking that

gnificant ecng is the pr

d Banking 2374-2089

4, No. 2

m” or the t system n of this heft and rced and contrast, conomic n of the t limited dvanced

degree of “market

ged with a market es cause case of llocation ating the

iency or osts and financial in NYC

errorism, sessment national a purely en these regimes of mass bstantial t money se flows o major uffice to e efforts. ancing is together

conomic ocess of

makingAny reefficiencalled ucontrarybroker”regard seeing t“good clevel oflaw-abiinstall athey caapprehe

Conseqbeen mnumerocosts immandatintercepfor finaeconomthat goeinstituti

In 2it was dand othbefore t

In 2falsifyinagainst the larg

In tLuxembestimate

In 2entered ever act

g illegally-geduction in ncy. Caughtupon to act y to financi” in the lendsee themsetheir anti-mcorporate cif scrutiny tiding citizena home secuannot be ending wron

quently, thismade clear ous financiamposed on ed by AMpted by thesancial insti

mies’ largestes beyond ions. A sma

2012, HSBCdiscovered ther organizethe activity

2014, BNP ng businessCuba, Suda

gest fine eve

the 1980s, tbourg and wed to be in t

2010, one oa Deferred

tion (estima

gained procillicit mon

t in the mion behalf oial intermedder-borroweelves as “famoney launditizens” in ahey are subns might beurity systemexpected tng-doers.

s presents aby the inc

al institutionfinancial i

ML/CFT effse efforts hatutions. Ret and most sa simple bll sample of

C Holdings,that the finad crime growas detecte

Paribas, a Fs records aftan, and Iraner imposed f

the Bank of with offices the billions

of the biggesd Prosecutioated at $450

eeds (“dirtyney flows iddle are thf the govern

diaries’ tradier, or saver-iacilitators” dering role aa mixed ecobject to in t expected to

m and reporo replace

a principal-acreasing nuns by law-ennstitutions, forts and tas thereby recent cases sophisticatereaking of f money lau

, a London-ancial instituoups throughed.

French bankter it was din. Thus, BNPfor violating

f Credit and in London,for drug tra

st banks in An Agreemen

0 billion) wa

18

y money”) is of courshe financialnment in itsitional role,investor, relin this relaas necessaronomic systtheir day-too take all nrt any suspi

the police

agent problumber of mnforcementtogether w

the minuscresulted in b

of moneyed financialthe law by

undering cas

-based compution laundehout Iran. T

k with globascovered thP was forceg those sanc

Commerce, was foundaffickers. (L

America, Wnt (DPA) (was brought u

appear lege to be laul intermedias AML/CFT, under a lalationship. Fationship nory and consitem, object o-day businecessary stecious activi

e by patro

em in the bmoney launt agencies inwith ever incule in comboth moral hy launderingl institutionsy isolated inses includes

pany, paid nered money

The launderi

al headquarthe institutioned to pay a fctions.

e Internationd guilty of laLegal Dictio

Wachovia (nwhich has siunder the B

International

al (“clean”)uded and inaries “agenT efforts. Missez- faire Financial inot “policemistent with to the high

ness activityeps to security in their nolling the

bank-client ndering casen recent yeancreasing lemparison ilhazard and g by somes, point to andividuals es

nearly $2 bifor drug tra

ing went on

ters in Londn violated Ufine of $8.9

nal, a bank raundering anonary, 2017)

now part of Wince expiredank Secrecy

Finance andISSN 2

2017, Vol.

). (Treasuryincreases ecnts” that ha

Many see thisystem, of

ntermediariemen.” Other

their obligah cost and iny. To put itre their homneighborhoneighborho

relationshipes brought ars. The sigevels of rellicit moneconflicts of

e of the dea systemic pemployed b

illion in fineaffickers, te

n for many y

don, pled guU.S. sanctio9 billion whi

registered inn amount o)

Wells Fargod) after the y Act.

d Banking 2374-2089

4, No. 2

y, 2015) conomic

ave been s role as

f “honest es in this rs, while ations as ncreased t simply,

mes, e.g., oods, but ood and

p as has against

gnificant gulation y flows f interest eveloped problem by these

es after errorists, years

uilty to ns ich is

n f money

o), biggest

In 2of Finanlaunder

In 1Nauru, involve(Whiteh

In this pthe samof the econom

2. US A

Recent e

BSA, owhich rto detecfile repregulatoheavily and dettax evaassociatBSA esobligatiidentitydrafts, (bank nwhetherbusineswith FiStated transactother fito the IR

Money money consequworld. Ihoweve(Treasudrug tra

2012, the Bncial Servicring regulati

1998, Russian island no

ement in thehead, 2017)

paper, we wme time asse

financial smies, includi

Anti-Money

efforts by the

r otherwiserequires finct and prev

ports that arory mattersused by law

ter money lasion or othted with thtablished anions for finay and retain cashier’s c

notes) in amr a single t

ss day, finaninCen (FinaDepartmenttions to cominancial crimRS (Interna

launderingis money t

uence of alIt is difficuer, per theury, 2015), aafficking of

ritish bank,ces (DFS), oions to the t

ian criminalortheast of A

e “no questio)

will attempt essing the csystem bothing the less

y Launderi

U.S. to comb

e known as Tancial instit

vent money re determins. The docuw enforcemlaundering wher unlawfuhe deposit onti-money lancial institrecords of

hecks, monmounts betwtransaction ncial instituancial Crimt of the Tr

mbat domesmes. Other al Revenue S

g is the convthat has beelmost all prlt to estima latest USabout $300 ffenses gene

Standard Cof helping thtune of an e

ls launderedAustralia thons asked”

to trace theosts and beh in moderdeveloped

ng Efforts

bat money lau

The Currentutions in thlaundering

ned to haveuments file

ment agenciewhether it i

ul activity. (or use of lalaundering ctutions. Finacertain info

ney orders, ween $3,000

or a series utions are remes Enforcereasury thatstic and intebusinesses

Service) and

version of en derived rofit generaate with anyS Treasury’

billion is gerating almo

19

Chartered whe Iranian g

estimated $2

d an estimathat had turneregistration

e evolution enefits of thrn advanceeconomies

undering beg

ncy and Forehe United S

g. The BSAe a high deed by busines, both domis in furthe(IRS, 2016)arge sums ocustomer idancial instit

formation pr and travel

0 and $10,0of related

equired to fement Netwt collects aernational mmust repor

d FinCen. (C

“dirty” monby illegal m

ating crimesy accuracy h’s Nationalgenerated anost all those

was accused,government287 billion o

ted $80 billied to offsho

n of offshore

of the presehis governmed economiof the world

gin with the Beign TransaStates to ass

A requires begree of usnesses undemestic and ierance of a ) More speof potentialldentificationtutions are rrior to issuiler’s check

000. For castransaction

file a Currenwork). FinCand analyzemoney laundrt cash transCurrency, 2

ney into “cmeans. Mos and can ohow much ml Money Lnnually in ie proceeds.

International

by New Yoto circumv

over 10 year

ion throughore bankinge financial i

ent AML/Cment initiativ

ies and as d.

Bank Secrecactions Reposist U.S. gousinesses toefulness in er the BSAinternationacriminal encifically, toly illicit an

n, recordkeerequired to vng or sellins, when push transactions with a cuncy Transac

Cen is a bures informatidering, terrosactions of

2016)

clean” moneney launderoccur almomoney is laLaundering illicit proceThe United

Finance andISSN 2

2017, Vol.

ork’s Deparvent US monars.

h shell bankg, leading toinstitutions.

CFT regime ve on the ef

well as e

cy Act of 1orting Act oovernment ao keep reco

n criminal, tA requiremal to identifynterprise, teo mitigate tnonymous ceping, and rverify a cus

ng bank cheurchased wons above $ustomer in ction Repor

ureau of theion about forist financmore than

ey wherebyering is a nest anywher

aundered in Risk Ass

eeds with frd Nations O

d Banking 2374-2089

4, No. 2

rtment ney

s in

while at fficiency merging

970 (the of 1970) agencies ords and tax, and ents are

fy, detect errorism, the risks cash, the eporting stomer’s ecks and ith cash $10,000, a single

rt (CTR) e United financial ing, and $10,000

y “dirty” ecessary re in the

the US, sessment raud and

Office on

Drugs afrom fra

Fraud eillicit pgovernmreimburthat is etraffickisometimFederalcashingcorruptibe notefinanciaaccountinto rev(IdentityStolen register

Drug trfrom Uprimaryreliableestimateto earn low levproceedexchangbetweenMexicoU.S. anlaunder

InternatEnterprinterestincludekidnappengage venture

It is inte1969 fo

and Crime (aud and dru

encompasseproceeds inment prograrsement, anestimated toing. Health

mes with thl governmeg services, ion at the f

ed. Use of thal fraud sct access canvealing datay Theft). Aidentity inf

r for a prepa

rafficking, inU.S. sales, oy source of e estimates oes range froabout 14 ce

vel drug deads. The sevgers (casasn 2007 and

o in 2010, arnd abroad, bring activity

tional orgarises, Eurass both doms alien smping, loan s

in white-ces.

eresting to normal decla

(UNODC) pug traffickin

es several dn the US, rams, includi

nd food and o generate

hcare fraud he participatent paymen

some of wfederal, statehe Internet

chemes. Pern be stolen ta or provid

A stolen ideformation caid card, and

n contrast, or approximsupply for sof how muom $6 billioents of everalers and divering by s de cambid 2013, comre believed ecause of p

y from Mexi

anized crimsian Organimestically anmuggling, dsharking, prcollar crim

note that thearation of a

provides a sng in the U.S

distinct crimroughly 80ing false clanutrition suat least twiinvolves t

tion of mednts receivedwhich have e, local levto commit rsonal identhrough hacding access entity can bcan be used apply for

is a cash bumately 20 psome drugsch money Mon to $39 bry dollar spestributors thU.S. bankso) because

mbined withto have ledlacement chico to the U

me groups, zed Crime,nd abroad.

drug traffickrostitution,

mes and co-

e Bank Secra “war on

20

similar estimS. (Crime, 2

mes, which 0% of the aims for fed

ubsidies; repice the voluthe submissdical profesd illegally b

been founel, as well identity the

ntifying infcking or soc

to a compbe used to fd remotelya credit car

usiness genpercent of ths and a transMexican dr

billion. For ent by retaihroughout ts of custome of U.S. eh the U.S. d to an increhallenges in

U.S. (Treasur

i.e., La C, Middle EThe crimin

king, extorracketeerin

-mingle ill

recy Act of drugs” tha

mate of $302011)

together gtotal. Frau

deral tax refpresent onlyume of illicsion of falsssionals, supby check cnd to be coas foreign oeft has expaformation acial exploitsputer systemfacilitate fray to open ad. (Treasury

nerating an ehe total illisit point forrug traffickicocaine, Mil buyers in the country mer relatioenforcemencurrency deease in holdn both country, 2015)

Cosa NostrEastern Crimnal activity rtion, finanng, and moegal activit

1970 followat would be

International

0 billion in

enerate theud perpetratfunds, Medy one categocit proceedsse claims fpport staff, can be cashomplicit inofficial corranded the scand the infs in which thm in whichaud and laua bank or by, 2015)

estimated $cit cash flo

r others. Alting organizaexican suppthe U.S. It who receivnships with

nt actions aeposit restri

ding and usitries. This s

ra (Mafia), minal Enter

associated ncial fraud,ney laundeties with l

wed Presidee directed t

Finance andISSN 2

2017, Vol.

illicit mone

e largest voted against

dicare and Mory of frauds earned frofor reimbur and even phed through

n the fraudruption shocope and imformation uthe victim ish the data iunder the pbrokerage a

$64 billion aows. Mexicthough therations earn pliers are esis the thou

ve most of th Mexicanagainst U.Sictions imping drug casshifted some

African Crprises; targ

d with these, illegal gaering. Somelegitimate b

ent Richard toward erad

d Banking 2374-2089

4, No. 2

ey flows

olume of federal

Medicaid d but one om drug rsement, patients. h check . Public

ould also mpact of used for s tricked is stored roceeds. account,

annually co is the re are no

overall, stimated sands of the drug

n money S. banks posed by sh in the e money

Criminal get U.S. e groups ambling, e groups business

Nixon’s dication,

interdicmessagControlPolicy AStates scomparTreasurbut an launderillicit myet wasBank S(formalRequireThe “w“public

Since thhave co

Thetransact

Theto incluinvolvin

Thesanctionreportin

Theinstitute

Thebanking

Unfortufind new

More re2001, tepossibleU.S. Ddomestibarriersinforma

ction, and ine from Pl—during wAlliance, wspends $51rable to the ry. This is nindication

ring, especimoney flowss the drivingSecrecy Actlly known ed to Interce

war on drugsenemy num

he BSA waome about to

e Money Lations involv

e 1988 Antiude car dealeng large am

e 1992 Annns for violatng for wire t

e Money Lae training in

e Money Lag agencies t

unately, as tw methods t

ecently, theerrorist attae acts of terepartment ic and inters that had bation about

ncarcerationPresident Nwhich he decwhich advoc

billion ann$64 billion

not an attemof the diffially as it res from drug g force beht of 1970 tas Uniting ept and Obss” has givenmber one”.

as created, o strengthen

aundering Cving proceed

i-Drug Abuers and real

mounts of cu

nunzio-Wylitions of the transfers.

aundering Sn anti-mone

aundering ato develop tr

these moneto prevent t

e USA Patracks. The larrorism, or sof Justice, rnational sublocked lawpotential te

n. (Payan, 2Nixon to tclared drug

cates for an nually on tn annually g

mpt to preseculty in asselates to thetrafficking ind U.S. antill the morand Streng

struct Terron way to the

many othern the movem

Control Act ds generated

use Act, whil estate persurrency.

ie Anti-MonBSA, and r

Suppression y launderin

and Financiaraining for

ey launderintheir activity

riot Act of aw is intendsponsorshipthe Nation

urveillance ow enforcemeerrorist thre

21

2013) This wthe Congrabuse “pubend to the

these initiatgenerated b

ent an argumsessing thee “war on in the U.S.

nti-money lare recent pgthening A

orism Act oe “war on te

r legislativement. These

of 1986, whd from illeg

ich expandeonnel, requ

ney Launderequiring ad

n Act of 199ng examinat

al Crimes Sexaminers.

ng regulatioy from beco

2001 was pded to help p of terroristnal Securityof electronient, intelligats and coo

was followeress on Dblic enemy War on Dr

tives. (Alliaby drug trafment for the

costs and drugs.” It irepresents

aundering epassing of tAmerica by

f 2001) underrorism” w

e acts and e include:

hich prohibgal activities

ed the definiuiring them t

ering Act, wdditional ve

94 which reqion procedu

trategy Act (Legal Dict

ons are put oming detec

passed in rgovernmen

t groups. Thy Agency aic communigence and dordinating e

International

ed in June 1Drug Abuse

number onerugs, estimaance, 2016)fficking estie general lebenefits of

is also interno more tha

efforts, fromthe USA PProviding

der Presidenwhich has no

money laun

its engagings.

ition of “finto file repor

which requirrifications,

quires banksures.

of 1998 whtionary, 201

into place,cted or cons

esponse to nt agencies he law gaveand other feications; it defense agefforts to res

Finance andISSN 2

2017, Vol.

1971 with ae Preventie”. Today, tates that the) This is sttimated by tegalization of combatingresting to nan 20% of t

m the passinPatriot Act

Appropriatnt George Wow become

ndering reg

g in any

nancial instirts on transa

res stricter recordkeep

s to develop

hich require17)

, criminals sidered susp

the Septemdetect and

e new powefederal agenalso remov

encies from spond to th

d Banking 2374-2089

4, No. 2

a special ion and the Drug e United trikingly the U.S. of drugs g money note that the total, ng of the of 2001 te Tools

W. Bush. the new

gulations

itution” actions

ping, and

p and

es

work to picious.

mber 11, prevent

ers to the ncies on ved legal

sharing em. The

Patriot AprivacyalthougAnti-M2016) Inhas to aby the (AML),TerrorisAML/Cdrug tracorrupti

3. Mon

One muterrorismto other“white-motivatcriminocommitoccupatcommitis finanbusinescrimes, financiaembezzthe bucktrading.collar claunderpart theless thainstituti

The pro“dirty” means. becomeincludecredit internat(which

Act raised cy rights of Ugh the Patrio

Money Laundn essence th

a great exten“war on dr, politicallysm (CFT), p

CFT effort iafficking. Oion that rep

ney Launde

must wonderm and drugr causes, pr-collar crimeted nonviolology, it watted by a tion”. The ttted by busi

ncial—to obss advantage

but they aal gain. Tzlement, taxket of white. More comcrimes. (Firing is that ere are no van whole-heions to take

ocess of momoney intoHowever,

e conflated w, misuse of cards, and tional sanctis concerne

concerns amU.S. citizenot Act comdering to Phe USA Patnt hijacked rugs.” Cons

y driven by politically din which th

On the otheresents up t

ering: “Whi

r why currg-traffickingrimarily fraue” or possiblent crime cas first defperson of term white-iness and go

btain or avoie. (Investigall typically

The most cx evasion ane collar crim

mmon crimeindLaw, 20while it co

victims otheearted effort

a forceful r

oney laundo “clean” min several with other fthe financiatraditional

tions. Most ed with sour

mong civil lns, concernsmprises 10 c

revent Terrtriot Act is aanti-moneysequently, tthe “war ondriven by the number er hand, frato 80% of il

ite-collar C

rent AML/Cg when the oud. One posbly a “victimcommitted fined by sorespectabil

-collar crimovernment id losing mation, 2016y involve ccommon wnd money lame, includines, like insu016) The unstitutes a

er than the ton the part

role in comb

dering per smoney. “Dirt

legal and rforms of final system (il currency)anti-moneyrce of funds

22

liberties gros that are bcategories, rorism, dealall about th

y launderingto the then n drugs”, wthe “war onone objecti

aud, human llicit money

Crime”

CFT effortsoverwhelmssibility is tmless crimeby busines

ociologist Elity and h

me is now syprofessiona

money, prope6) White Cocrime comm

white collaaundering.ng Ponzi schurance frauunderlying crime, it istax authoritt of financiabating illici

se is non-vity” money regulatory snancial criminvolving th), includingy launderings) with terro

oups and otheyond the scalled “titlels with mone “war on teg efforts tha

existing Awas added thn terrorism”ive, is comsmuggling

y flows is a

s are primaing majoritythe perceptie”. White-coss and goveEdwin Suthigh social ynonymousals. ...The merty, or servollar crime cmitted thro

ar crimes aMany typeshemes and sud and tax

premise o a “non-vioties. This mal institutiont money flo

iolent. It is is money thsystems, th

me, and somhings such ag terrorismg laws openorism finan

International

her critics suscope of thes”, only onney-laundererrorism” b

at had alreadnti-Money

he Combatin”, in what i

mbating terro, organizeddistant third

arily driveny of illicit mion that monollar crime rernment proherland in status in

s with the fmotivation bvices or to scan describugh deceit are variouss of scams securities frevasion, als

of this perolent crime”

might then ens and indivows.

defined ashat has beene term mon

metimes usedas securitiesm financingnly conflatencing (which

Finance andISSN 2

2017, Vol.

urrounding his paper. Hne “title”, Tring. (Manabut as a byprdy been sideLaundering

ng the Finanis now a syorism, follod crime, andd objective.

n by the thmoney flowney-launderrefers to finofessionals.1939 as “the course

full range obehind thesesecure a perbe a wide va

and motivs types ofand frauds raud such asso constitut

rception of ”, and for texplain the viduals with

s the conven derived bney launderd more gens, digital curg, and evae money lauh is concern

d Banking 2374-2089

4, No. 2

the data However, Title III: agement, roduct it etracked g efforts ncing of ymbiotic owed by d public

hreat of ws is due ring is a

nancially . Within

“a crime e of his of frauds e crimes rsonal or ariety of vated by f fraud, fall into s insider te white

f money the most possible

hin these

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destinatinvolvefurtivelyand occto creatreferred“illegitithroughthe acquprovidewith theflows isfrom itsavoidan

4. FinaLaunde

Very eaanti-morequiredstandard

‐ ThePsychot

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All thesnarcoticfinancinpolicy) when nthat wa

Key to indepenfinanciaproliferthe gloFATF w

tion of funes three stepy introduce

curs when thte confusiond to as “layimate originh additional uisition of

es a way to e “source os either “nos “source”, nce than tax

ancial Actiering Effor

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e 1988 Unittropic Subst

e 2000 Con

e 2003 Unit

e Recommeering, (and ssm.

se internatiocs traffickinng of terrorigave way t

nations realis global.

this internndent inter-gal system ration of webal anti-mo

was founded

nds) when ps: placemeed into the he cash is cn, sometimeyering” or cns” of the m

transactionadditional wspend the fu

of funds” anon-violent” o

the more lix evasion. (A

ion Task Frts

US law enfering effortsnationally cng AML and

ted Nations tances,

nvention aga

ted nations

endations ofsubsequently

onal instrumng, internatism. In a seto multilatezed that thi

ational effogovernmentagainst m

eapons of money laundd in 1989 o

regulating ent, layerinlegitimate fonverted ines by wiringcovering th

money. Finans until the wealth fromunds whilend there is nor “victimleikely is the About Busin

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forcement as in generalcoordinated d CFT inclu

Convention

ainst Transn

Convention

f the 1989 Fy, post Sept

ments were tional organense, unilateeralism (thes battle cou

ort was the tal body to

money laundmass destrucdering (AMon the initia

23

the financng, and intefinancial sy

nto “book” mg or transfehe tracks. Tally, the mon“dirty mon

m the transaavoiding suno implicatess”. Furtheperception

ness Crime

TF) and th

authorities l, could noteffort. Som

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national Org

n against Co

Financial Actember 11, 2

designed tnized crimeeralism (thee coordinateuld not be w

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actions of thuspicions. Mtion that theermore, the that moneySolutions In

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llicit Traffic

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is referredn, the monegh numeroure is to delrated into ths “clean.” The illicit fun

Money launde source of further the

y launderingnc., 2017)

tionalizatio

hat the “wy simply painternationa

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me,

nd most imp

Force (FATbating the Fi

money laundruption, andpath for impimplementiing it alone”

k Force (FA policies toncing and mmendationist financin, UK, Franc

Finance andISSN 2

2017, Vol.

aundering tegitimate fud to as “plaey is movedus accountslete the pasthe financiaThis then allnds, and uldering is co

f these illici money is rg is more a

on of Anti

war on drugassing US lal instrume

ic Drugs and

portantly,

TF) on Moneinancing of

dering lawsd subsequeplementing ing national” against an

ATF), set uo protect th

the finann are recogng (CFT) sce, German

d Banking 2374-2089

4, No. 2

typically unds are cement” d around . This is st or the l system lows for timately

oncerned t money removed bout tax

i-Money

gs” and laws but ents and

d

ey f

s to stop ently the national l policy) n enemy

up as an e global

ncing of nized as

standard. ny, Italy,

Japan, CTask Fowith a pworld. (CFT). reviewsat the hin Parishigh-incas deve

The TasfinanciareportinlaunderFATF ilaunderin monfinancinRecommRecommset the financinbe impl

These Financirequire criminalaunderand susnon-finand disand pro

5. FATF

As of 2the Euroco-opercombatRegionaMembe(UN) wthe wor

Canada) to orce has alwproblem thaIn 2001 thIt monitors

s” based onheadquarterss, further encome econoloped count

sk Force waal and lawng on compring. At the ssued a rep

ring. These ney laundering followimendationsmendations internationng of terrorilemented at

recommending of Terro

states, amalize moneyring, implemspicious traancial businseminate su

osecuting mo

F Blacklist

017 FATF copean Comration with ing money al Members

ers includingwith 6 experrld have co

develop poways had toat had a highhe purpose countries’

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as charged w enforcem

pliance, antime of its

port containstandards wing. The ming the (SR) on (AML) andnal standarism and terrthe nationa

dations areorism (AMLmong othery launderingment customansaction renesses and uspicious traoney launde

“Name an

consists of tmmission and

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s. Furthermg for examprt groups, anommitted to

olicies to coo deal with her priority of FATF wprogress in aluations of

ganization foimage of ba very highinternationa

with studyiment activitind issuing r

creation, thning Forty were revisedmandate of

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e now knL/CFT) andr things, tg and enabmer due dileporting req

professionsansaction reering. (FATF

d Shame”

thirty-five md the Gulf C

ATF-Style ing and terrormore, there a

ple the Intend the Worlo the FATF

24

ombat monthe image in the deve

was expandimplement

f member cor Economieing a “rich

h Human Deal standards

ing money ies taken arecommendhe organizatRecommend in 2003 tothe organiz

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nown as Ad were last to: implemble authoritiligence (e.gquirements s, establisheports, and F, 2017)

member jurCo-Operationternationarism financare twenty-

ernational Mld bank (W

F Recomme

ney launderiof being a

eloped worled to combting the FATcountries. Tic Cooperatih nations cluevelopments.

laundering at the natidations andtion had 16

ndations to o reflect evozation was 01 terrorisng were amendations

aundering mf FATF Rection and oth

Anti-Moneyupdated in

ment relevanies to config., identity for financi

h a financiacooperate i

isdictions aon Council. al Regional ing that are-five Interna

Monetary FuWB). In total

endations th

International

ing (AML).“rich nationd than it habat the finaTF Recommhe FATF Seion and Devub.” Most OIndex (HD

trends, mononal and istandards members. more effecolving patteexpanded tt attacks, added. Togs on Terrorismeasures acommendatiher legally b

y Launderi2012. The

nt internatifiscate the p

verificationial institutiol intelligencinternationa

nd two regiThe FATF Bodies (F

e considereational Obsund (IMF), over 180 juhrough the

Finance andISSN 2

2017, Vol.

. Consequens club” co

ad in the devancing of te

mendations becretariat isvelopment (

OECD memDI) and are r

nitoring leginternationato combat

In its first yctively fighterns and tecto include

and 9 gether, thesm Financin

and combations are intebinding mea

ing/Combat Recommen

tional convproceeds ofn), record kons and dece unity to

ally in inves

ional organialso works SRBs) invo

ed Associateserver Orgathe United urisdictionsglobal net

d Banking 2374-2089

4, No. 2

ntly, the oncerned veloping errorism by “peer s housed (OECD)

mbers are regarded

gislative, al level, t money year, the t money chniques terrorist Special

e Forty ng (CFT) ting the ended to asures.

ting the ndations

ventions, f money keeping, signated receive stigating

izations, in close

olved in e and/or

anization Nations

s around work of

FSRBs

In 200commoor anointernatlack of inabilityaccountrelatingcommo

There aNCCT non-coocooperajurisdic“Gray Lmore iRecommformal financia

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6. Offsh

The lisOrganizOf interFinancithe mosystemssmall, lnon-resOffshordeposito

and FATF m

0 FATF isonly called tother, FATFtional effortf cooperatioy) to provit and broker

g to such baonly used in

are presentlinitiative.

operative juation (“Proctions that List”). The mportant imendationssanction a jal pressure.

ly in 2017 ctions that h Jurisdictio

r-measures ntial money ctions. Mosta), Panama, c AML/CFncies or hancies. (FATF

hore Finan

t of FATF zation Memrest in this dial Centers tst part are s are perfeclow-tax jurisidents in thre bank is or, typically

membership

ssued a listhe “FATF BF membersts against mon manifestide foreign rage recordank and brmoney laun

ly no “NonHowever, urisdictionsgress Repopose moneeffect of th

in internati. While, unjurisdiction

there are ohave strategons subject

to protect laundering

t recently inand Papua

FT deficienad committF, 2017)

ncial Center

jurisdictionmbers is an i

discussion ithat are comneither on

ctly legal uisdictions she form of

a financiay an offshor

ps. (FATF, 2

st of “NonBlacklist”. Ts believed

money laundted itself as

law enforcds, and custookerage accndering.

n-CooperativFATF issu

s list have orts”). The ey launderine FATF Blaonal effortnder intern

n placed on

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g and terrorn 2016 seveNew Guin

cies after hted to an

rs and Insti

ns includinndication ois a category

mmonly assoany FATF

under internpecializing offshore col institutionre financial

25

2017)

n-CooperatiThis was a l

were uncdering (and s an unwilcement offiomer identifcounts, she

ve Countrieues “Update

made signFATF als

ng/terrorist acklist has bts against

national lawthe FATF B

untries, Noncies that pall on its mnational finrist financineral countri

nea, were rehaving madaction plan

itutions

ng Associatof the globalry of jurisdiociated with

official blnational law

in providinompanies an located ocenter, i.e.,

ive Countrilist of 15 jucooperative later, terrorlingness or

ficials with fication and

ell company

es and Terres”, as counificant imo issues ufinancing

been signifimoney lau

w, the FATFBlacklist of

orth Korea apose a risk members annancial sysng (ML/TFies includinemoved fromde sufficienn developed

te, Regional nature of tctions and ih discussionacklist or “

w. Offshoreng corporatnd the inveoutside the , a low tax j

International

ies or Terrurisdictions t

with otherism financir inability (

informatiod beneficial y, and other

ritories” in untries on

mprovementupdates to

risks (“Pseicant, and aundering thF Blacklist ften found i

and Iran, thto the inte

nd other jurstem from

F) risks emang: Algeria, m the list ont progress d with FAT

al, and Intethe money-linstitutions ns of money“gray list” e financial cte and commestment of o

country ojurisdiction

Finance andISSN 2

2017, Vol.

ritories” (Nthat, for oner jurisdicting). Typica(frequently,

on relating owner infor financial

the contexthe High-r

ts in standidentify adeudo Black

arguably hashan has th

carried wiitself under

hat are idenernational frisdictions t

the ongoianating fro Angola, M

of jurisdictio in address

ATF to addr

ernational Olaundering pknown as O

y launderinggiven that centers are

mmercial seroffshore fu

of residencen (or tax hav

d Banking 2374-2089

4, No. 2

NCCTs), e reason tions in ally, this

a legal to bank

ormation vehicles

xt of the risk and ard and dditional klist” or s proven e FATF ith it no r intense

ntified as financial to apply ing and m these

Myanmar ons with sing the ress the

Observer problem. Offshore g but for low tax usually

rvices to unds. An e of the ven) that

provide

OffshorinstituticurrencEurocurbordersdeposit depositEurocurEurocurmain EJapanesEurocurregulatimarket Marketwish to and othparticul

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Furthermjurisdicturmoilalso pro

es financial

re banks arion anywhecy (i.e., engrrency. Eur

s of the coudenominat

. Likewise,rrency deprrency does

Eurocurrencse Yen; therrency and ions, reservin which E. This Eurocircumven

her barriers larly in the U

re banking privacy/con

crutiny, attraion), and pregal system“offshore” f

to this day,cludes Swisa. Given theround econospeaking, otax on inte

re tax havenng 31% of tded away ineposits, the n Islands. It

e Isle of Maer, many oth

more, offshctions. This , or who feovide highe

and legal ad

re a subset ere in the wgages in inrocurrency untry that isted in Aust, a depositposit, or ms not have ties are the

e currenciesEurobond

ve requiremEurocurrencocurrency Mt regulatoryto the free

United Stat

has prolifenfidentialityacts high riotection aga

ms). While tfrom the Un, the term isss banks ane historical omy, organoffshore baerest. As mns have 1.2%the net profn offshore aglobal markt might alsoan, for examhers are less

hore bankinwill be an

ear their asser interest r

dvantages. (

of what arworld whic

nternational is deposits sue the currtralian Dollt denominamore specto involve

e US Dollas of the mamarkets arents, and oty is borrow

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erated in rey (bank secrisk investmainst local pthe term “onited Kingds used figur

nd those of background

nized crime anking does

much as half% of the wofits of Uniteaccounts. Inket is domi

o be noted thmple, are kns structured

ng can proadvantage

sets may berates than t

26

(IMF, 2017)

re known ach accepts

banking). in banks (

rency the dlars held inated in US cifically oreither the E

ar, the Euroajor develore active bether barrier

wed and lenutilized by lnts, tax lawcapital, that2017)

ecent years recy), low o

ments), easypolitical or foffshore badom, and mratively to rother landl

d of offshor via tax evs not prevef the worldorld’s populed States mun terms of inated by twthat the “orinown for thand less reg

ovide accessfor resident

e frozen, sethe legal ra

)

as Eurobankdeposits orThis foreig

(Eurobanksdeposit is den a South A

Dollars her more clEuro currenozone Europed econom

ecause theyrs to the fret by banks large firms

ws, reserve rt are often

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most offshorrefer to suchlocked natire banking, vasion, and nt assets fr’s capital fllation and hultinationalsoffshore bawo key juriiginal” offshheir well-reggulated.

s to politicts in areas wized or disa

ate in the h

International

ks. A Eurobr makes loagn currency) that are lenominated Africa bank eld in a Bearly a E

ncy or the Eo, the Britimies of they avoid, domee flow of cis known aand wealth

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ates from thre banks areh banks regons such ait is often amoney lau

rom being slows throughold 26% ofs. An estimanking centesdictions: Shore centersgulated ban

cally and ewhere thereappear. Offs

home countr

Finance andISSN 2

2017, Vol.

bank is a fans in any y is referrelocated out

d in. For exak is a EurocBrazilian baEurodollar Eurozone. Tish Pound e world. Tomestic intercapital. Theas the Eurochy individuts, interest rdomestic b

vantages, inens), less reat least in tnstable regihe Channele located o

gardless of las Luxemboassociated wundering. Hsubject to p

gh offshore f the world’

mated $20-20ers and in t

Switzerland s, Jersey, G

nking infrast

economicalle is risk of fshore bankry, possibly

d Banking 2374-2089

4, No. 2

financial foreign

ed to as tside the ample, a currency ank is a deposit.

The four and the

oday the rest rate e money currency uals who rate caps, banking,

ncluding: gulation terms of mes and l Islands on island location, ourg and with the:

However, personal centers. s wealth, 0 trillion terms of and the

uernsey, tructure,

y stable political ing may y due to

lower opaid byserviceshigher oOffshorfoundatalso assarguingtaxes. Cit encoupressure

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7. Tax H

A commor jurisdbe a coregulatiforeign complicoverseaTelecomnetwork

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overheads ay offshore bs that may nor lower ratre banking tions, whichsert that the

g that tax coCritics of thurages a “ed to deregu

o say, the cargue that e banking

zed crime thx havens, alogangs, terroemote, and cult. Offshoe of the cosnk Secrecy 1 Report of ne, offshoreernational fi

ature and its

Havens and

mon associadiction whe

ountry whosions of othe

capital. Ocated settleas accounmmunicatiok which exc

S. followin) to access omised. Desy, an internae, since stant of a crac

and or a lacbanks withonot be availte loans basis often lin

h may havee creation oompetition ahe industry,

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critics of ofoffshore bhas been

hrough monong with cl

orist groups,therefore c

ore private sts of establ

Act requirForeign ba

e banking isfirms and wo

historical a

d Bank Sec

ation of offsere certain tse laws ander jurisdictioffshore banement procnts. SWIFn) is based

changes mes

ng Septembthe SWIF

spite protesational effoarting to surckdown on

k of governout tax beinlable from ded on risk, a

nked to othe specific taof tax and ballows peophowever, cle bottom” own banking

ffshore banank accounassociated

ney launderlearing hous, and other ostly to visbanking is lishing andes U.S. Tax

ank and Finas a legitimaorkers, yet associations

crecy

shore financtaxes are levd other measons. Or, simnks operatincesses and T (The d in Brussessages betw

er 11, 2001T databasests from ceort has beenrvey offshotax evasio

27

nment interng deducteddomestic baand investm

her structureax advantagbanking comple to chooslaim this coin which gg systems to

nking enumnts are som

in the paring. Followses, have bestate or no

sit, so physiusually momaintainin

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ate financialat the same

s. (Borrero &

cial centers vied at a lowsures can b

mply a counng in such

conduct SSociety

els and opween banks

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ore jurisdicton, and will

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ment opportues, such as ges. Many ampetition isse an approompetition agovernmento prevent th

merate just ametimes les

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ounts (FBAl exercise u

e time contin& Errico, 20

is “tax havw rate or nobe used to entry which m

tax havenSWIFT trafor Worlderates a wand other fi

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tions in 200l not object

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addition, i offshore bas, anonymunities not aoffshore co

advocates o an advanta

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as many dis financialle undergroumber 11, 20d of helpingors. Offshoand access le to those accounts. Aartment of

AR). Howevundertaken bnues to arou017)

vens.” A taxot at all. Altevade or avmodifies itss can help nsactions wdwide Intorldwide fiinancial inst

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09, the OECt to governm

Finance andISSN 2

2017, Vol.

interest is gbanks offer

mous bank aavailable elompanies, tof offshore age of the ince of servantage, arguoped count

ng of capital

isadvantagely secure, a

ound econo001, offshorg various orore jurisdict

to informaon higher i

As indicatedthe Treasur

ver, when alby many exuse suspicio

x haven is a ternatively,

void the tax s tax laws t

effectivelywith customterbank F

financial metitutions.

Tracking Por privacy ng this inva

bank secreCD has bee

nments usin

d Banking 2374-2089

4, No. 2

generally banking ccounts, sewhere. trusts or banking industry, ices and uing that tries are l.

es. They and that my and re banks rganized tions are ation can ncomes,

d earlier, ry Form ll is said xpatriate on by its

country it might laws or

o attract y bypass mers in

Financial essaging

Program severely asion of ecy. For en at the ng stolen

bank daaffair. LFATF oof confevasionSwiss NeverthLuxembtranspar2017)

8. Shad

AML/CthroughA finanlenders (such asin the includesocietieinvestm

A non-bhave a regulatopoolingfirms, pexchang

To comas HawHawalasystem located operatinsystemsemergindevelopby the iHawalaIn the hIt is “mpromissplace en

ata to track Liechtensteion money lafidential UBn by the Un

law and heless, OECbourg, fromrency, and h

dow Banks

CFT efforts h traditionalncial interm

and borrows a bank), aform of los: commerc

es, credit ument scheme

bank financfull banki

ory agency.g, contractupawn shops,ges, and mi

mplicate matwala; and da (or Hewalbased on thin the Mid

ng outside s. Hawala isng capital trped into a fuinstruments

a is probablyhawala syste

money transfsory instrumntirely on th

down tax cin, was oneaundering aBS Bank (Snited Statesthe countrCD has remm its so-cahas re-categ

and other

take on a nl banks but

mediary is awers. That and that instoans or othcial banks, unions, finaes, and pens

ial institutiong license NBFIs facal savings, , cashier’s ccro-loan org

tters one cadigital currela, also knohe performaddle East, Nof, or paras believed trade centers

fully-fledgeds of the formy used mostem, money fer without ments are ehe honor sy

cheats in offe of the rem

at the time aSwitzerlands Internal Rry’s constitmoved 18 clled “Grey

gorized them

Non-Bank

ew meaningalso shadowan institutio

is, savers titution giveer forms omutual savancial advision funds. (

on (NBFI) oor is not

cilitate bankand marke

check issuerganizations

an add inforency, such wn as Hundance and hoNorth Africallel to, tradto have arises in the earld money mamal bankingtly for migris transferremoney movexchanged stem. As th

28

ffshore centemaining unalong with Ad) details abRevenue Sertution by countries, i

List” of nm as “White

Financial I

g when onew banks andon that faci(lenders) g

es those funof investmevings banksisers or br(Kodres, 20

or shadow bsupervised

k-related finet brokeringrs, check ca. (The Worl

rmal and unas Bitcoin,di) meaningonor of a huca, the Hornditional banen in the finly medievalarket instrug system inrant workered via a netwvement.” Thbetween th

his system d

ers, such asncooperativeAndorra anbout 285 clrvice (IRS)a Swiss ncluding Snations thate List” natio

Intermedia

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nancial servg. Examplesashing locatild Bank, 20

nderground , that is creg “transfer”uge networkn of Africa,nking, finannancing of l period. In

ument, whicn the first har’s remittancwork of hawhe unique f

he hawala boes not dep

International

s in the 200e tax havend Monaco. lients suspewas ruled afederal admwitzerland, t did not o

ons. (Global

aries (NBFI

at illicit mo-bank financhannelingto an intermstors (borrowist of finannd loan assurance com

nancial instional or intvices, such s of NBFIs ions, payday17)

money traneated and h

”, is an infok of money, and the In

ncial channelong-distanSouth Asiah was only alf of the 2ces to their wala brokerfeature of thbrokers; the

pend on the

Finance andISSN 2

2017, Vol.

08 Liechtensns, as identThe recent

ected of wia violation ministrative, Liechtenstoffer sufficl Financial I

Is)

oney flows nncial intermeg of funds brmediary inwers). This

ncial intermsociations, bmpanies, co

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ay lending, c

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ormal value y brokers, pndian subcoels, and rem

nce trade aroa, it appearsy gradually r0th centurycountries o

rs, or “hawahe system ise transactiolegal enforc

d Banking 2374-2089

4, No. 2

stein tax tified by t sharing llful tax of both

e court. tein and

cient tax Integrity,

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building ollective

does not banking ent, risk nsurance currency

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y. Today, of origin. aladors.” s that no on takes ceability

of claimextensivcomponTreasur

It is preproblemfinancinfinanciaAMT/Cnecessitand intrBased” on a risinstitutii.e., “theconomlong-ter

Informaprovidechargedunprofitcountrie(e.g., duSomaliawar andpreventwith noin somebeen us2002)

While tcurrencof digitinstitutiEuros, ball aroumathemnumbercentral circulatcan eveand ver

ms, it can ove use of nents that dry, 2017)

ecisely this m for any anng of terroral system.

CFT efforts tated a comrusive efforApproach,

sk-based asions to brinhe un-bank

mies of the rm.

al money tre a fast and d by banks.table exchaes such as E

due to differa). A lax ord terrorist t the flow oo other alterne parts of thsed by aid o

the transfercies, there istal currencyion, centralbut instead

und the wormatically gr-crunching bank or any

tion as the mer be “minerify both th

operate evenconnectiondistinguish

characterisnti-money larism. All AMOnly if alhave any

mpromise wirts to monii.e., a focus

ssessment; ng into the fked segmenworld that

ransfer systconvenient Its advantange rate rEgypt) or wrences in lr non-existeactivity in

of funds to tnative than he world it

organization

r of purchass the growiny, created al bank, or

are producrld, using sgenerated

tasks, a pry other entitmathematicsed” is limitehe creation

n in the abss, such as it from ot

stic of any saundering eMT/CFT efll financial

chance ofith financiaitor all finas on transacand in retuformal banknts of the

could prov

tems such atransfer of ages are m

regulations hen the banegal enviroent legal sysuch placethese nationto resort to

t is the onlyns in areas w

sing power ng use of aland held elenational go

ced by peopoftware thaas the c

rocedure knty to issue as of the Bitced to aroundof new Bit

29

sence of a lfamily rel

ther remitt

such informefforts and efforts are ba

transactionf being sucal institutionancial transctions and eurn authoritking system

world’s pve a bonan

as hawala, funds, usua

most pronoun(as has be

nking systemonment in pystem and oes is compons, leaving o these “hawy option fo

where it is th

remains prlternative syectronicallyovernment. ple, and incat solves macomputers nown as Ba flood of ncoin systemd 21 milliotcoins throu

legal and julations and ance system

mal money teven more sased on thens are part

ccessful. Thns to reducesactions, anentities that ties would jm the substapopulation”,nza for the

are attractially with a fnced when

een the casm in the recplaces suchoften the lacounded by individuals

wala” formsr legitimatehe best-func

rimarily thrystems such

y. No one cBitcoins a

creasingly bathematical

in this Bitcoin “minnew Bitcoinm were set uon. The entiugh mining

International

udicial envirregional a

ms. (U.S. D

transfer sysso for any ef

eliminationt of the fohis is why e the high-cond replace trepresentedjoin efforts antial inform especiallyfinancial in

ve to custofar lower co

the receivie for manyeiving coun

h as Afghanck of persoefforts by Wwith familof money t

e fund transctioning ins

rough the mh as Bitcoincontrols it, aren’t printebusinesses, l problems.

network ning”. Therns and devalup so that thire network g, and the t

Finance andISSN 2

2017, Vol.

ronment. Taffiliations, Department

stem that prfforts to comn of the “inormal econ

AMT/CFTost, comprethem with d a “red flags with the fmal bankingy in the enstitutions o

omers becauommission ting countryy typical rentry is less cnistan, Yemonal securityWestern naly and busintransfers. Msfers, and hstitution. (El

medium of n. Bitcoin isincluding fed, like Dorunning coThus, Bitcexecute

re is no walue those alhe total numk is used to transfer of

d Banking 2374-2089

4, No. 2

Trust and are the

t of the

resents a mbat the nformal” omy do

T efforts ehensive a “Risk

g” based financial g sector, merging over the

use they than that y applies eceiving complex

men, and y due to ations to ness ties

Moreover, has even l-Qorchi,

national s a form financial ollars or omputers coins are difficult

ay for a lready in

mber that monitor Bitcoins

betweenseveral across cryptocboth baand thequite aBitcoinwill havthe valcurrenccourse, have the

9. Vuln

The vulmoney monetardifficultnotes. Tand repomnipresource, spent amoney of Marcalso “netransfercash fostructurdemonstransact

While institutiopeningindividubroker-dopen thAlternathe benwithin institutiaccurate

n users. Biexchangesthe interne

currencies, aank charges e omission appealing tos might notve a future luation of tcies are acc

first overce most to lo

nerabilities

lnerabilitieslaundering

ry system t for author

The use of cporting thresent, is alsowner, or

as cash. Calaundering.ch 11, 2015ear money”rs, prepaid dor purchasesred to stay strate that sotion as requ

cash is theions are theg bank anduals who cdealer, case

he account aatively, the aneficial own

financial iions, given e informatio

itcoins can , and can bet. This mattractive cuand exchanof both bano activities t be the solin the glob

these virtuaepted and iome the re

ose from thi

and Risks

s and risks g, is inherestarts with rities to difcash and moresholds wso an inherelegitimacy. sh is an es. There was5, and much” or “almostdebit cards,s or bank d

under theome mercha

uired. (U.S.

e main mee conduits d brokeragcontrol the

e examples and shield account ma

ner who coninstitutions.that the exion about the

be boughtbe directly akes Bitcourrency in wnge rates. Itnk transacti

such as me or only p

bal financialal currenciintegrated inluctance ofs potential r

of the existently obvio

cash or bfferentiate bonetary instill continuently fungibCash gene

ssential comapproxima

h of that curt money” su, and traveldeposits. Tr

recordkeepants will accDepartment

edium for of these cae accounts

e accounts.show crimithe identitie

ay be openentrols the fu

Of courseisting legal e identity of

30

t and sold transferred

oin and simwhich to set goes withoions costs amoney launlayer in thi

al system, oes has becnto the trad

f sovereign rival. (The E

ting financious to mosbank notes. between lictruments in

ue to be able monetarerated from mponent of ately $1.36 trrency circuuch as cashiler’s checksransactions ping and rcept more tt of the Trea

illicit monash flows es using nom To move

inals may ues of the crd in the nam

unds. This the, this is nsystem enaf the benefi

in exchangd anonymoumilar virtuaettle internaout saying tand exchanndering or s area, it isnce the sof

come less vditional finaissuers of

Economist,

ial system fst observer

The widescit and illicin amounts ua problem.ry instrumedrug traffi

f the U.S. atrillion of Uulates globaier’s checkss that crimin

with cash reporting thhan $10,00asury, 2015

ey transferexplicitly orminees to

e funds intse an indiviriminals whme of a bushen raises tnot the so

ables the creicial owner.

International

ge for tradiusly from oal currencieational transthat the anoge rates, millegal drucertain tha

ftware has bvolatile, esancial marktraditional 2017)

for illicit mors. An undspread use it use and m

under regulaCash, wh

nt that carrcking or fra

and global U.S. banknot

lly. But it iss, money ornals can buand cash a

hresholds, a0 in cash w)

rs, banks ar implicitly.disguise th

to an accoidual, servinho own andsiness that whe issue of le responsieation of legIn that rega

Finance andISSN 2

2017, Vol.

itional currone user to es, also knsactions, by

onymity of make such aug dealingsat virtual cubeen perfecspecially askets. They mfiat currenc

money transfderstanding

of cash, mmovement

atory recordhile necessaries no recoraud can beeconomies,tes in circuls not just carders, nonbauy to use inalternativesand case e

without repor

and other fy. This mighhe identity

ount at a bng as a nomd control thwas created

f complicit vibility of fgal entities ard, individ

d Banking 2374-2089

4, No. 2

ency on another

nown as ypassing Bitcoins

a system s. While urrencies cted, and s virtual must, of cies that

fers. i.e., of any

makes it of bank

dkeeping ary and

ord of its held or , and of lation as ash, it is ank wire nstead of s can be xamples rting the

financial ht entail

y of the bank or

minee, to he funds. d to hide violators financial without

uals and

entities

Fraud ofrom tlaunderhundredof mercis knowdisguiseschemelocal cuAnotherboth to 2015)

10. Mo

There anecessit“dirty mto shielUSA wthe US Crime (fraud andrug sain the U

Of courdrug tra2009, pprevioumoney-launderall govepreventefforts trequirem

Compoumoney businescasinosknown money, reportin

can disguis

of course isthe deficiering compliads of thousachants that twn as trade be criminal p

es is the Blaurrency avar form of Tlaunder the

ney Laund

are two mtates the nemoney” neeld the mone

was estimateTreasury to

(UNODC) nd drug trafles were $6

United State

rse, the amoaffickers, mper a reporusly establis-laundering.red each yeaernments. Tt, and appreto prevent aments and t

unding the laundering

sses, trade-b, real estateas smurfingused to de

ng requirem

se the nature

s the main nt compliaance deficieands of locatogether witbased moneproceeds thrack Market Pailable in LTBML invoe cash and t

dering Meth

motives for eed to remoeds to “cleaney from attd in the 20o be about $provides a fficking offe64 billion (2es at $236 bi

ount of monmay have laurt by UNODshed by the. Regardlesar is in the

Thus, governehend monand detect tto avoid the

difficulty g methods, based launde, and blackg, is a methoefeat suspicments. A su

e, purpose,

explanationance with encies are aations for finth financial ey launderinrough tradePeso Excha

Latin Ameriolves criminto generate

hods

launderingve all tracened.” Seconempts to co15 National$300 billionsimilar esti

enses gener20%), puttinillion (80%)

ney launderundered aroDC. This fe Internatioss of the dbillions (USnments and ey laundereransactionsreputationa

of enforcinincluding:

ering, shellk salaries, jod of placemcion of monub-compone

31

ownership,

n for the manti-mone

an inevitablnancial servinstitutions

ng (TBML)e-related finange (BMPEica and Asnals using additional p

g dirty mones that may nd, is to avoonfiscate it.l Money Lan annually. imate of $3rate most ofng the proce), most of w

red world-wound $1.6 tfigure is coonal Monetadifficulty iS Dollars) ainternation

ers. Financis involving dal risk invol

ng anti-mon structuring

l companiesjust to namment whereney launderent of this

and contro

misuse of prey launderie conseque

vices. This is wittingly f. TBML can

nancial transE) which inia for drugillicit proceprofits. (U.S

ney. First, indicate a coid detectio. The amouaundering RThe United

300 billion f those proceeds for all which is attr

wide is muchtrillion, or 2onsistent wiary Fund (In measuremand poses aal bodies haial institutiodirty moneylved.

ney launderg, bulk cas and trusts,

me the mosteby cash is bring and to is to use

International

l of bank fin

roducts anding obligatnce of a finis compounfacilitate illin involve vasactions. On

nvolves mong dollars in eeds to purS. Departme

is to avoidcrime was con which neunt of moneRisk Assessd Nations Oannually. Aeeds. UNODother forms

ributable to

h higher. Cr2.7 per centith the 2 toIMF) to estment, the significantave undertakons have liy, both beca

ing laws arsh smuggli, round-tripp

obvious. “broken into

avoid antismaller am

Finance andISSN 2

2017, Vol.

nancial acco

d services rtions. Ant

nancial systnded by the icit activityarious schemne exampleney brokers

the Unitedrchase tradeent of the T

d suspicioncommitted, ecessitates tey launderesment (NMLOffice on DrAs indicatedDC estimats of financifraud.

riminals, est of global o 5 per centimate the amount of

t policy conaken efforts ikewise undause of gov

re the multing, cash-inping, bank

“Structuringsmaller dep

i-money laumounts of

d Banking 2374-2089

4, No. 2

ounts.

resulting i-money em with millions

y in what mes that of such making

d States. e goods, Treasury,

n which i.e., the

the need ed in the LRA) of rugs and d above, tes illicit al crime

specially GDP, in nt range scale of

f money ncern for to deter, dertaken

vernment

titude of ntensive capture,

g,” often posits of undering cash to

purchasin small

“Bulk cthan $1offshorethe casproportExamplthe Fedform ofthe Uni

“Trade-of monTrusts abeneficcorporashippedlaundercontrollcontrols

“Casinoof casinindividuwill expproceedproceedlegitimaa contramake up

Lastly, written Ultimatconsumhiding ia tax ha

11. Enf

Anti-modescribepreventlaunder

se bearer inl amounts.

cash smugg10,000, to ae bank, wite of “cashion of its les include:

deral Reservf $100 bankted States.

-based launney. Furtherand corporaial, owner.

ation offshod back as ring methodling interess, and then m

os” and “reanos, an indual will thenpect to tak

ds as gamblds and thenate income.act that undp the differe

In the case contract a

tely, the gomption. If unit as cash ataven bank. (

forcement a

oney laundee the legal t, detect, anring guideli

nstruments,

ling” involvanother jurih greater ba

h-intensive brevenue as parking bu

ve, of the U.k notes, and

dering” invrmore, trustate vehiclesIn the case

ore, preferaba foreign

d is “bank st in a banmove mone

al estate” ardividual man play for ae payment ling winninn sells the Alternative

der-represenence.

of “black saand pay theoal of monenable to uset home or ot(Financial A

and the Ro

ering (AMLcontrols th

nd report moines came

such as mo

ves physicasdiction andank secrecybusinesses,”s cash usesuildings, strS. currency

d about thre

volves undets and shells, dependinof “round-t

bly in a taxdirect invcapture.” I

nk, preferabey through t

re also oftenay walk in

a relatively swith a che

ngs. With reproperty. T

ely, the pricnts the valu

alaries,” a cem cash saey launderine it openly, ther places.

Action Task

le of Finan

L) is a termhat require oney laundeinto prom

32

oney orders,

ally smugglid depositin

y or less rig” a business its accourip clubs, tay in circulatiee-quarters

er-or overval companiesng on the jtripping,” mx haven whvestment, eIn this casebly in a juthe bank wi

n the focus onto a casinoshort time. Weck, or at leal estate, soTo outsiderce of the proue of the pro

company maalaries. Dirng is to be the traditioA more moForce, 200

ncial Institu

m mainly usfinancial inering activi

minence glo

, and then u

ing cash in ng it in a fingorous monss typically

unts to depanning bedsion, approxof those U

aluing invois can disguurisdiction,

money is dehere minimexempt froe, money l

urisdiction wthout scruti

of money lao and buysWhen the peast get a omeone purrs, the procoperty is maoperty, and

ay have unrrty money

able to usonal way toodern metho5)

utions

ed in the finstitutions aities. As indobally becau

International

ultimately d

large amounancial instey launderi

y expected posit crimin, car washeimately thre.S. $100 bil

ices to disguuise the true need not posited in a

mal records m taxationaunderers owith weak ny.

aundering ms chips witperson cashereceipt so trchases real

ceeds from anipulated; receives cr

registered emmight be ue the dirty

o keep the dod is a credi

nancial andand other redicated prevuse of the

Finance andISSN 2

2017, Vol.

deposit thos

unts, usuallytitution, sucing enforcemto receive

nally derivees, and casiee-quarters lls are held

guise the moe owner ofdisclose tha controlledare kept, a

n. Another or criminalmoney lau

methods. In th illicit caes in the chithey can cll estate withthe sale lothe seller a

riminal pro

mployees wused to pamoney for

dirty moneyit card conn

d legal induegulated enviously, ante formation

d Banking 2374-2089

4, No. 2

se, again

y greater ch as an ment. In

a large ed cash. nos. Per is in the

d outside

ovement f money. eir true,

d foreign and then

money ls buy a undering

the case ash. The ips, they laim the h illegal ook like agrees to ceeds to

without a ay them. r private y near is nected to

ustries to ntities to i-money

n of the

Financianti-mothe terrcountriecooperaThis prmomenbehind 2017)

An effehave giinformatheir cuterms oset forththe ConCorruptproceedgovernmAML ldiffereninstitutifinancia

Under custometransactThis mein whic“identifidentifymoney trained suspicioper levesubstanjurisdic

Smallerstructur“blacklisoftwarmust th2016)

ial Action Toney launderorist attackes that weation, a procrocess took

ntum to the the present

ective AMLiven the relation with oustomers, esof criminalizh in the Unnvention Agtion (2003)ds of a crimments. Whiaws and re

ntly. Today,ions, are real intelligen

AML lawers.” For extions for sueans knowinch the custofy and repory unusual olaundering.in anti-mo

ous. Additioel of suspic

ntial increasction.

r transactionring can leaists” and trre has minehen determin

Task Force ering standaks of Septemere deficiecess colloqu

k on greatepoint that

t anti-mone

L program revant regul

other countrstablish riskzing moneynited Nationgainst Trans. It is definme for conile banks oegulations, , most finaequired to ince unit in th

s and reguxample, a bauspicious acng the ident

omer is likert anomalie

or suspiciou. Bank emploney laundonally, antiion, and insse in funds

ns that meetad to flaggeransactions

ed data and ne whether

(FATF) andards. These mber 11, 20ent in theiuially know

er urgency many obse

ey launderin

requires a jlators and pries as approk-based conty launderingns Conventisnational Oned as knowncealing orperating in financial in

ancial institidentify andheir respect

ulations, alank must vectivity. Thistity of the c

ely to engags.” By know

us behavior,loyees, such

dering and -money lauspects it fors, a large w

t certain cried transacti

that involflagged su

to file a rep

33

d the promustandards

001, after FAir anti-monwn as “nam

as combatervers and jng efforts. (

jurisdiction police the popriate; andtrols, keep rg, the elemeion Against

Organized Crwingly engr disguisingn the same nstitutions tutions operd report trative country

ll financialerify a custs is often tecustomer ange. In additwing one’s , termed anh as tellers are instruc

undering sor anomalieswithdrawal

iteria may aions. The solve countrieuspect transport with the

ulgation of began to hATF began ney laundee and shaming the finjurisdiction(Financial C

to have crowers and d require finrecord, and ents of the ct Illicit Trafrime (2000)

gaging in a g the illicitcountry genall structurrating globansactions

y.

l institutionomer’s idenermed as “knd understantion, financcustomers,

nomalies, wand custom

cted to repoftware filte. Such anom

l, or movin

also be flaggoftware alses hostile tactions, it ae governme

International

an internatiave more ra process t

ering laws me”, i.e., thenancing of s view it a

Crimes Enfo

iminalized tools to invnancial instireport susp

crime of moffic in Narc), and the Cfinancial trorigin of

nerally musre their AM

bally, and mof a suspic

ns are reqntity and, if know your nding the kiial institutiofinancial in

which may bmer account

ort activitieers customemalies inclung money

ged as suspio flags namto the hostalerts bank

ent. (Sulliva

Finance andISSN 2

2017, Vol.

ional framerelevance foto publicly

and intere FATF “Blterrorism g

as the drivinforcement N

money launvestigate; catitutions to: picious activoney laundecotic DrugsConvention ransaction wthe proper

st follow thML efforts many non-fcious natur

quired to “f necessary,

customer” inds of tranons are req

nstitutions cbe an indicrepresentaties that the

er data, clasude any sudto a bank

icious. For emes on govt nation. Omanageme

an & Cromw

d Banking 2374-2089

4, No. 2

ework of ollowing identify

rnational acklist.” gathered ng force

Network,

ndering; an share identify

vities. In ering are (1988), Against

with the rty from he same slightly

financial e to the

“identify monitor (KYC).

nsactions quired to can often cation of ives, are

ey deem ssifies it dden and

secrecy

example, vernment Once the ent, who well LLP,

12. A R

An evaassociatapproachas beclimited have noincludinaway fr

Besidesdata-proGroups expresscustome

Rather targues understcommenare comeffectivdetermimeasureNon-Finand takeand asse

13. Ass

Risk is or groustate, soby the contextfactors countrythat mathat MLactivitygeneralthe exte

ML/TF Identifi

Risk Based A

aluation of ted privacych” (RBA) tcome more

benefits thoted the signg undermirom develop

s economicotection prin the EU

sed concerners, essentia

than a blankthat once ood, countrnsurate wit

mmensurateve resource ining highees or allowinancial Buse effective aess their ML

essing Mon

a function oup of peopleociety, the ethreat or th, looking atthat represe

y. They mayake them attL or TF ma

y on financly. The key

ent of differ

risk assesscation starts

Approach (

the costs ay concerns tto AML/CFvocal abou

hat they claignificant nening domespment.

c costs to iractices ma

and the Un that monally conscri

ket surveillamoney lau

ry authoritieth those riske with the

allocation. er and lowing simplifisinesses andaction to miL/TF risks o

ney Launde

of three face, object oreconomy, ehat may supt vulnerabilient weakne

y also includtractive for ay cause anial systems

y is that the rent risks to

sment comps by develo

(RBA) to A

and benefitsthis raised hFT. Leadingut the risingim it bringsgative effecstic capital

implement ay entail diSA such asney launderpting privat

ance of all fundering anes may appks. The obje“risks idenRisk asses

wer risks thied measured Professionitigate ML/on an “ongo

ering and T

ctors: threat,r activity wtc. Vulnerabpport or facities as disti

esses in AMde the featuML or TF

nd includess and institrisk assessmassist with

prises of thping an init

34

AML/CFT

s of the AMhas resulted

g the charge g costs of as. On the otcts of moneformation,

anti-moneyisproportions the Ameriring rules te businesse

financial trand terroristly AML/CFective of thntified,” as ssments carrhat may thees respectivns (DNFBP/TF risks. Coing basis.”

Terrorism F

, vulnerabilwith the poteabilities comcilitate its ainct from th

ML/CFT sysures of a secpurposes. C

s the effect tutions, as ment adoptsprioritizing

hree stages:tial list of po

ML enforced in what iwas the fin

anti-money ther hand, gey launderindepressing

y-launderingnate costs ican Civil Lrequire ba

es “into age

ansactions, t financing FT measurehe RBA is t

well as toried out byen be addr

vely. FinancPs) should aountries sho

” (Financil A

Financing (

lity, and conential to ca

mprises thosactivities. Ihreat meansstems or coctor, a finanConsequenc

of the undwell as thes an approa

g mitigation

: identificatotential risk

International

ment outlins now term

nancial servilaundering

governmentng on econ growth, an

g laws, impto individu

Liberties Unanks to repnts of the su

the risk-bas(ML/TF)

es in way thto ensure Ao enable dey countries ressed by aial institutioalso be ableould then ta

Action Task

(ML/TF) R

nsequence. Ause harm tose things thn the ML/T

s focusing oontrols or cencial producce refers to derlying crie economy

ach that atten efforts.

tion, analysks or risk fac

Finance andISSN 2

2017, Vol.

ned above med the “ris

ices industrregulation

t-linked economic develnd diverting

proper atteual privacynion (ACLport on theurveillance

sed approacrisks are p

hat ensures AML/CFT m

ecision mashould be uapplying enons and Dee to identifyake steps to Force, 201

Risk

A threat is ao, for exam

hat can be eTF risk asson, for examertain featu

ct or type ofthe impact iminal and

y and socieempts to dis

sis, and evaactors countr

d Banking 2374-2089

4, No. 2

plus the sk based ry which and the

onomists lopment, g capital

ntion to y rights. U) have eir own state.”

ch (RBA) properly they are

measures aking on used for nhanced signated y, assess identify 4)

a person mple, the

xploited sessment mple, the ures of a f service or harm terrorist ty more

stinguish

aluation. ries face

when coinvolverisks orto deter

14. Gui

The risFATF ITerroriscompetunderstcommenthe wayinternal

Examplcorporacorrespto indivaccountservicesdiversitfinance and instexchangwealth customeconfidebanking(PEPs),high vawhen ecomplieinvolveCouncil

15. Ban

To mitigprocessrequirinbankingapplicatThis wiwhether

ombating Mes considerar risk factorrmine priori

idance for B

sk-based apInternationasm and Proent authoriand the Mnsurate to ty banks all structures,

les of ML/Tate and invondent bankvidual and ts, loans (is to cash-inty of serviceand corpor

titutions. Tge for cash manageme

ers’ wealthentiality, difg secrecy, c, high valuealue transactexecuting tres insufficied regardingl BSA/AML

nk Risk Mi

gate bank ris are expectng banks tog services. Btion of CDDill determiner to enter, c

ML/TF. Anaation of the rs. Evaluatioities for add

Banking

pproach (RBal Standardoliferation, wities and

ML/TF risksthose risks tllocate thei and implem

TF risk assovestment bking. Retail

business including mntensive bues. Corporarate bankinghis includeor other as

ent) involvh (sometimefficulty to idcomplexity e transactiotions, limiteransactions ently with g the owneL InfoBase,

itigation an

isk, banks ated to be do gather inBased on a D measurese the level acontinue or

alysis lies anature, sou

on involvesdressing them

BA) is centds on Comwhich werefinancial ins to which to mitigate tr complian

ment policie

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ed informatiwith a banFATF Rec

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35

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Finance andISSN 2

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sessment pres of the id

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eans that codentify, assML/CFT manks, this apternal contrect ML/TF.

lude retail bmanagemennd services such as c

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d Banking 2374-2089

4, No. 2

ocess. It dentified ous stage

revised ncing of ountries, ess and

measures pplies to rols and

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checking ision of

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16. Ong

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nd here witexpected b

36

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customer customer’s it least the exerstanding situations, o

with nationall owner’s nf informatioased wheremplified whEnforcemen

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the purposons Examinatitutions wiclaim that f

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th banks siby banks. O

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and, wheridentity basextent requirthe purposobtaining ful and interna

names againon obtainede the risk here the risknt Network,

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involved inhe business

And, finally,ended naturcil BSA/AMant customestitutions are

ppropriate, nformation al client), ase and intencustomer’s irisk, and wr the businn of proof titutions fee2017)

wing who thnitoring me

Finance andISSN 2

2017, Vol.

splay homting similar icularly rele4)

ble, the cusble and indeapplicable lended naturemation. In actions legisl

and other xtent to whwith the b

d with the b

tifying infotion to infotional search

k assessmenwner to undn criminal s relationsh, seeking adre of the b

ML InfoBaser surveilla

re being con

banks couln (e.g., not rand/or seekended naturidentity, as

where banksness relation

would lie wel under the

heir customeans the scr

d Banking 2374-2089

4, No. 2

ogenous types of

evant for

stomer’s ependent egal and e of the addition, lation by relevant

hich this business business

ormation form the hes (e.g., t. Third, derstand activity.

hip to be dditional business e, 2017)

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ld apply equiring

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mers are. rutiny of

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To be oused foof custodifferendocumewell assuspectits suspunusualapproprtimely suspicioand in tescalateand probank shcontrolsmitigate

17. Ban

Bank inAML/Caccordanationaand propromote

tions to ddge of the

ss relationshample, thei

g it up to es.

monitoringally suspicioc transactionroup. It neey, where lare the only repth of moner risk profuations, whthe risks are

on the safe r customer omers. Critnt customerent, retain a any querie, that funds

picions proml movemenriate case mmanner an

ous. Funds the manner e suspicionsocesses leadhould repors are a pree ML/TF ris

nk Governa

nternal contrCFT is cleaance with thl risk assess

ocess to idee complianc

determine wcustomer

hip. Monitoir behaviordate, whic

g transactionous. Monitons. It coulded not requrge volumesealistic metnitoring in

files. It is exhile banks me lower.

side, bankssegmentati

teria applier segments and communes raised anare the pro

mptly to thent of fund

managementnd a determor transactispecified bys and, ultimding banks rt once MLerequisite fsk. (Austral

ance

rols includearly allocatehe applicablsment); and

entify, assesce as a core

whether thand the na

oring also inr, use of prch may req

ns is an essoring shouldd also be usuire electros of transacthod of mon

line with xpected tha

may decide

s should doon and for d to decideshould alsonicate to thend resolvedceeds of crie relevant F

ds or transt systems somination mions that arey the compe

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L/TF suspicfor the effelian Transac

e: appropriaed; controlle local legid, controls tss and monie value of th

37

hose transaature and pnvolves ideroducts andquire the a

sential compd be carriedsed to comonic systemctions occunitoring tran

their instiat enhanced to reduce th

cument andthe allocatie the frequo be transpae relevant pd. If a bankime or are rFinancial Insactions foro that such

made was toe suspiciouetent authorrt to the FIsuspicion cacion has foective implection Report

ate governanls to monitislation, espto test the oitor risk. In

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consistent the bankin

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e reported pprocesses bareflect this. ed on a risurally, adeqof policies

ysis Centre,

ments wheregrity of stacross-borderctiveness of d, senior mlear messag

Finance andISSN 2

2017, Vol.

t with the ng product he customerney involver additiona

ransactions basis or triggivity with te types of automated ld adjust thent and inrequired fonsity of mo

eria and pareach of the

f the monitonks should pf their monitsonable groncing, it sha Banks sho

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sk-sensitive quate bank s and proc, 2017)

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d Banking 2374-2089

4, No. 2

bank’s and the r profile ed), and al, CDD

that are gered by that of a banking systems

he extent ndividual or higher onitoring

rameters clusters

oring of properly toring as ounds to all report ould flag ld have ized in a tion are the FIU place to policies basis, a internal

esses to

bility for ance (in and the policies should:

bank will

not enterisks wcommuthe meathe bankbank’s A

To mitiinformathroughinformainformareports)that dire

It is alscontrolsthe impbroughtappointenvironstaff wCouncil

18. Vett

Of courthey emexpertisAML/Cwhich ishould respons

Bank sML/TF and intelines ofML/TF should htests or approprIn additstaff ardissemi

er into, or mwhich cannounication relasures needk is prepareAML/CFT u

gate ML/TFation to geth its activitiation to undation from ); and lastlyectly impac

so importans be clearlyportance oft to seniortment of a snment shoul

with relevanl BSA/AML

ting, Recru

rse, internamploy havese necessary

CFT controlindividual s

be taken sibilities.

taff traininrisks, busin

ernal controf business w

risks they have the deby monitor

riate measurtion, AML/Cre hired, ainated to rel

maintain, buot be mitiglated to theed to mitigaed to acceptunit.

F risk, seniot an accuraies and indderstand whthe Chief

y, should enct the ability

nt that respy allocated tf ML/TF rir managemskilled comld be condunt policies L InfoBase,

uitment, Re

al controls ee integrity y to carry os. The level

staff are expto manag

g and awaness activitiols. This trawithin the bare likely t

esired effectring levels ores where sCFT traininand compllevant staff

usiness relaated effecti

e actual or pate the ML/t; and lastly

or managemate picture dividual bushether the bCompliance

nsure that pry of the bank

ponsibility fto an indiviisk manage

ment’s attenmpliance offucive to assand proced 2017)

emuneratio

extend welland are ad

out their funl of vetting posed and n

ge potential

reness shouies and up toaining shoulbank, equippto face and t, and this cof compliantaff are una

ng should belemented bas appropri

38

ationships thively; implpotential M/TF risks idy, senior ma

ment shouldof the ML

siness relatibank’s ML/e Officer orocesses arek to address

for the conidual of suffement and ntion. This ficer at mansuring the idures. (Fed

on, Training

l beyond godequately snction, wheprocedures

not focus ml conflicts

uld be of ho date with ld be obligaping staff wtheir oblig

can be checknce with theable to deme regular, reby AML/Ciate. (Jersey

hat are assolement adeq

ML/TF risks dentified andanagement s

d: receive suL/TF risk toionships; re/CFT controon the effece in place ts and contro

nsistency anfficient seniocomplianceincludes,

nagement leintegrity, coderal Finan

g and Awar

overnance.skilled and

ere staff areof staff sho

merely on seof interes

high qualitythe latest le

atory for allwith a soundgations in reked for exame bank’s AMonstrate the

elevant and CFT informy Financial S

International

ociated withquate mechfaced by th

d on the extshould adeq

ufficient, reo which theceive sufficols are effectiveness oo escalate i

ol risks.

nd effectiveority withine, and that but is not

evel. A bankompetence

ncial Institu

reness

Banks shoud possess th

responsibleould reflect enior managst for staff

y, and relevegal and regl relevant std understanelation to thmple by req

ML/CFT cone level of knnot be a one

mation and Services Co

Finance andISSN 2

2017, Vol.

h excessivehanisms of he bank; detent of resid

quately reso

egular and ohe bank is cient and oective (for eof control, important d

eness of AMn the bank t

ML/TF isst restricted nk’s internal

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uld check thhe knowlede for implethe ML/TF

gement roleff with AM

evant to thegulatory obltaff, and tai

nding of spehose risks. Tquiring staffntrols and anowledge exe-off exerci

updates tommission,

d Banking 2374-2089

4, No. 2

ML/TF internal

ecide on dual risk ource the

objective exposed

objective example or audit

decisions

ML/CFT to signal sues are

to, the l control iance of mination

hat staff dge and menting

F risks to es. Steps ML/CFT

e bank’s ligations, ilored to ecialized Training

ff to pass applying xpected. ise when that are 2017)

19. Ass

Banks sadheredby the bAML/Cthat banadvisingassess Mthe banthe necfunction(includi

Banks programand probrancheshould AML/C

20. Fin

DespiteAML/Chave coupon thlaunderHSBC HFargo) 2transacttheir AAML/CFinanci

Financiexcludegroups.was to ethe posapproxiis that fundocumautomatnow a cexclusio

essment of

should alsod to and effebank’s com

CFT controlnks are requg relevant ML/TF risknk has put incessary indens effectiving across li

are requirem with a vieocesses andes and subinform sen

CFT framew

ancial Incl

e the effortCFT efforts omplained shem by the ring was brHoldings (22010, just ttions daily

AML/CFT eCFT effort ial Inclusion

ial Inclusioed and unde FI focuses entice the fissibility of imately 50%financially mented grtically classcentral elemon and the b

f Controls

o take stepsfective. To thmpliance offls should beuired to appstaff how ts across then place to mependence, ely, includines of busi

ed to have ew to establd the qualitsidiaries, b

nior managework. (Reser

usion (FI)

t to mitigatthrough thistridently ab

existing Aought again

2012), BCCto name a feand to encoefforts, for is bound t

ns (GPFI) at

n (FI) focuerserved gron develop

financial insexpanding

% of the woexcluded an

roups, in sified as prement of AMbenefits of b

s to be satishis end, theficer. In adde reviewed point a comto meet thee bank as wemitigate the authority, s

ding the abiness, and fo

an indepenishing the ety of its risboth domesement’s vierve Bank of

te the costs Risk Basebout the ad

AML/CFT rnst major fiI (1991), Stew. Given thourage the f

without thto fail, statt the G-20 s

uses on facroups, incluping countristitutions to

their markorld’s adult nd underserboth develesenting low

ML/CFT mubringing peo

39

sfied that their controls dition, the aby an audi

mpliance offeir obligatioell as the adrisks. The

seniority, rebility to aoreign bran

ndent auditeffectivenessk managemstically andew of the df New Zeala

t to financied Approacdditional finregime. At financial instandard Chahe Herculeafinancial sehe cooperatte authoritisummit in S

cilitating auding low iies where thparticipate

kets by “bapopulation.rved groupsloping and

wer risk for ust now takeople into th

heir AML/Cshould be madequacy oit function.fficer at manons, their rodequacy andcompliance

esources anaccess all rches and su

t function ts of the banment acros

d, where redesign and and, 2017)

ial institutich (RBA), fnancial andthe same ti

stitutions inarter (2012)an task of mctor to cooption of theies endorseSouth Korea

ccess to foncome, rurhe challengemore willin

anking the u. The unders, includingd developeML/TF. Co

e into consihe formal fin

International

CFT policiemonitored of and compOf course,

nagement leole should d effectivene officer shod expertiserelevant in

ubsidiaries).

to test the nk’s overall s its operat

elevant, abrimplementa

ons for thefinancial ins

administraime case af

ncluding: BN, Wachovia

monitoring bperate with

financial d the Glob

a in 2010.

ormal servial sectors, e is the greangly in AMun-banked”lying premi

g low incomed countrieonsequentlyideration thnancial syste

Finance andISSN 2

2017, Vol.

es and conton an ongoipliance with

it should bevel. In addbe to mon

ness of the mould therefo

e to carry onternal info

bank’s AMAML/CFT

ations, deparoad. The ation of the

eir participstitutions anative burdenfter case ofNP Paribas

a (now part billions of f

h state authointermediar

bal Partner

ices for finand undocuatest. The id

ML/CFT effo” which conise of this i

me, rural sees should y, the RBA whe risks of fem.

d Banking 2374-2089

4, No. 2

trols are ng basis h banks’ be noted dition to

nitor and measures ore have out these ormation

ML/CFT policies

artments, findings e bank’s

ation in nd banks n placed f money (2014), of Wells financial orities in ries any ship for

nancially umented dea here orts with nstitutes nitiative ctor and not be

which is financial

The genfinanciacorrespterroristthen takrecord-kcontrolssupport

21. RisInclusio

For AMthroughRecommaccountFI is nowhich crisk bas

FATF ameasurecountryfinancialikely towould bbusines

Ongoinelectronthat detand clabankingthe proshould bwith theproductdetermiinstitutiany actucould bof suffic

It is redocumekeeping

neral princial institutionondingly wt financing)ke the diffekeeping reqs, and for et FI. (Financ

sk Based on (FI)

ML/CFT puh financial mendationst, which amo easy mattcan be usedsed approac

allows for es where th

y level, baseal initiation o be engagbe acceptabss relationsh

ng CDD andnic scanningtects large iassifies it pg institutionogram alertsbe reportede degree of ts or servicinations (mions. Monittual suspiciobe mitigatedcient inform

equired thaents for a mg electronic

iple of RBAns to take e

where the ris) simplified

ferent steps quirements,each of thecial Action T

Approach

urposes, it institution

. Approximmount to 50%ter. Countried to verify ch with verif

Simplified here is a lowed on risk o

must knowed in crimi

ble for a finahip from the

d business g. Technoloincreases iner levels o

ns in blacklis bank man

d to the govef monitoringes used. Re

monetary or toring to deon leading

d by closer tmation due t

at financial minimum ocopies, or m

A is that wenhanced msks are lowed measures

of the AM report of

em presentsTask Force,

(RBA), C

is essentialns subject

mately 2.5 b% of the woes usually dcustomers’ fication pro

(though nwer risk of Mor at financiw: who theirnal activityancial instite type of tran

relationshipogy has alson account bf suspicionisted or hosnagers whoernment. FIg based on tegulatory auother thres

etect unusuato the remotransaction mto too little

institutionf five yearsmerely reco

40

where there measures to m

er (and thermay be pe

ML/CFT prsuspicious

s how the S, 2017)

Customer D

l that finanto adequa

illion adultsorld’s adultdefine the “identity; an

ocesses prop

neither an ML/TF. Simal institutior customers

y or be condtution to inf

ansaction or

p monitorino paved the alances or

n. Software stile countrieo then studyI would thuthe risks assuthorities asholds, to bal, potentialoval of anymonitoringCDD could

ns keep at s. Options

ording refere

are highermanage andre is no suspermitted. F

rocess: Custtransaction

Standards c

Due Dilige

ncial producate regulatis worldwidt population“reliable, innd financialportionate to

absence nomplified DCon level; thes are, what duits for prfer the purpbusiness re

ng must be way for anlarge withdis also use

es. When suy the informs not reducesociated wit

are to be mibe reviewedl suspicious

threshold o, acknowled

d limit the ut

least the available aence details

International

risks, cound mitigate thpicion of minancial Inctomer Due

ns, use of aan be read

ence (CDD

cts and servion in linee lack acces

n. Combininndependent l institutiono ML/TF ris

or an exemCC standarde principle rthey do, anoceeds of cose and inte

elationship e

performed nti-money ladrawals, anded to detecuch transactmation ande CDD, sincth a customindful and g

d regularly) s transactionor exceptiondging howetility of mon

informationare scannings. Of course

Finance andISSN 2

2017, Vol.

ntries musthose risks,

money laundclusion (FIDiligence

agents, and d and interp

D), and Fi

rvices are pe with thess to a formng RBA, CDsource docu

ns can also sk.

mption fromds can be deremaining thnd whether crime. In a ended naturestablished.

through maaundering sd which filtct transactiotions are id

d decide whce RBA is a

mer, an accogive due wmade by f

ns is requirn. Simplifie

ever that an nitoring.

n on identg of docume, an RBA is

d Banking 2374-2089

4, No. 2

t require and that

dering or I) would

(CDD), internal

preted to

inancial

provided e FATF

mal bank DD, and uments” define a

m) CDD ecided at hat each they are RBA, it re of the

anual or oftware, ters data ons with dentified, hether it allowed,

ount, and weight to financial ed, with ed CDD absence

ification ments, or s usually

not appidentifyto sepaindicatoperforminstitutiwith rebalancetransactbeing toeach oth

22. UniInclusio

UnfortuFund (Iroughly(UNODEvery yillicit aceconomof the p

Unfortusuccessover thtolerantcrime redrugs aalthougnations,a more corruptiend of tas statesuch as was thelaunderterrorismWashinone polfurther hinder nminiscu

plicable to ying suspiciarate or speors to identi

m identificaions hold thespect to age regulatorytion monitoo ensure thher. (Financ

intended Con (FI)

unately, in tIMF), globay $1-2 trilliDC), less thyear moneyctivities. (PW

mic inefficieprivate secto

unately, thesive detailede years. Ast of money esulting priand the ensgh fraud still, primarily imultilateralion and Illithe Cold Waes led by th

the UN, ture Financial Aring (AML)m (CFT) f

ngton, DC. Olicy tool buaccentuatednuclear pro

ule impact

suspiciousious activiticific monitify suspicio

ation and vehe businessgents’ comy concerns oring systemhat financiacial Action T

Consequenc

the real woal money laon U.S. Do

han 1% of gy launderingWC Global

ency which or, i.e., finan

e present Ad and legalis stated earlaundering imarily fromsuing “war l remains thin North Aml approach wicit Drug Tar and with e USA, undrned their aAction Task) but then following tOne could aut that is an d when “saoliferation.

on illicit f

s activity ries. Transactoring, but ous activitieerification s relationshpliance witabout agen

ms must coal inclusionsTask Force,

ces of AML

orld very litaundering trollars. Yet, global illicitg channels l, 2017) Thican only be

ncial institut

AML/CFT aistic enforcrlier, and frgiven the p

m fraud. Thon drugs”

he main soumerica and was called f

Trafficking.terrorism e

der the auspttention to t

k Force (FATturned its

he Septembargue that it

issue that ianctions vioWhat is clefinancial fl

41

reporting. Bctions with some finan

es. Agents mobligations

hip and are th AML/CFnts with th

over what iss (FI) and , 2017)

L/CFT Risk

ttle goes as ransactions per the Unt financial faround $2

is clearly is e addressed

utions, and s

approach haement and

rom a histoperception ohis began to

which greurce of illiciEurope, confor with varThis multil

emerging aspices of thethis growing

ATF) which os attention

mber 11, 20t was a mistis beyond t

olations” weear is that tlows given

But an RBvulnerable

ncial institutmay be perm, the prevaaccountabl

FT requiremhe financials performedAML/CFT

k-Based Ap

planned. Pare estimat

nited Nationflows are ctrillion wo

a case of md by state ausociety at lar

as been of assessment

orical perspeof it being a

change witeatly increat funds trannfronted thirious Unitedlateral appr

s the numbee OECD ang threat. Thoriginally wquickly to

001, terroristake to co-mthe scope ofere also addthe present

the enorm

International

BA could bgroups are tions have mitted, in efalent rule ble for it, anments. It isl inclusion d by agentsobjectives

proach (RB

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very limitt guidance mective, soci“white coll

th the widesased global nsactions to is growing gd Nations Croach was rr one threat

nd other intehe main speawas geared t

combatingst attacks o

mingle separf this paperded to the l

AML/CFTmous resour

Finance andISSN 2

2017, Vol.

be approprusually notdeveloped ffect or pra

being that fnd ultimatels recommeobjective.

s. The overmutually r

BA) and Fi

rnational M% of global n Drugs andized by autceeds from re and repre

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ted successmandated biety has beelar” or “vicspread use money lauthe present

global phenConventionsreaffirmed wt to the globternational aarhead of thtowards antg the finanon New Yrate objectivr. The probllist of objecT approach rces expend

d Banking 2374-2089

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riate for t subject specific

actice, to financial ly liable

ended to Finally,

rall goal reinforce

inancial

Monetary GDP, or d Crime thorities.

various esents an operation

despite by FATF en more timless” of illicit

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ncing of York and

ves with lem was ctives to has had

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n became cs and all-eions. The coar on terroris in compa-collar” crimns raised amof citizens f

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lear that thencompassinosts of comism” supersarison to t

me of fraud.mong civil following thance with as detailed pand less intons remain“offer” wasted effort onor more of tstomers thate the oversial flows thatomy. You cesented as afar as comwith “finan

is was an illnancial activ

Risk-Base

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42

ences that fu

FATF Recmost of theere enormoumore relaxemore relaxepush-back f

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Finance andISSN 2

2017, Vol.

ectiveness.

ML/CFT wlaced on fe benefit ev

hough the lae more widl industry asng the data s moved to ng the Riscient and pa

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AML/CFT scial institutive effects

d Banking 2374-2089

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were too financial ven with atter was despread s well as privacy

ease the k-Based alatable, ltimately

(CDD) ion (FI). financial e pool of d that no gnificant cially the ervable! eet their ng more banking le for all

n (FE)/

olved in markets”. errorism s. These poor. In

mbat the financial

t role in mpliance countries standard. ions and of poor

implemnon-fintranspar

In fact, among shell cocounterpresentito dirty ability tfor its mare the

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the most renations, fai

ompanies, aring terrorising serious money. Th

to determinminimal mosame shortc

have from tds. On the

ations whensuspicious trt, the cost

ng has affecfines in recng on compYour Custo

g them highal institutiower. Notwithem vulnerling to ado

ustomer (KY

the present sess and mes. This hascludes no loa higher risutions. Rathct of beingon (FI), banudging the king”. (Ram

ct that de-riial Conduct ing by refucost and ris

f standards inesses andership and c

ecent FATF iling scores accountantssm financigaps in law

he report scone the true oonitoring ofcomings rai

the start coe one handn it comes ransactionsof complia

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approach tomitigate mos led banks tonger provisk and that

her than adog rewarded nks are choo

risks of cmachandran,

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using to opesk-based ap

on customed professiocontrol of fi

(2016) repofor its effor and real eng, but do

w enforcemeored the U.Sowners of sf non-financsed in FATF

mplained ad, there arto the mea, and on the

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ulioo, 2016C), and taleresulted in le to quickhe reluctanceing set-uped processen. (Accentu

o AML/CFToney laundeto adopt a ciding servict could be opting the R

with an eosing to cea

clients on a, 2015)

and does h(FCA), namen new or proach the

43

er identificons (non-bfirms and tru

ort gave therts to preve

estate agentoes not doent efforts tS., “non-comshell compacial industriF’s last eval

about the risre regulatoasures used e other handwing arountively. With been a lot

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e U.S., that vent the laundts. Overall, o enough tthat leave thmpliant” (thanies. It alsoies, such asluation of th

sing costs oors that ha

by financid, there are

nd the worlglobal banof pressurrequiremen

ement are rdemand forhuge gap ir bankers tofall guy”, fophisticated ing, 2015)

e required tterrorist fine position ws, market secostly futurApproach

customer bage in certaicase basis,

reaffirmed anks have bisting custoent option t

International

e financial well as sts, 2011)

views itself dering of crthe U.S. is

to rein in he financialhe lowest poo gave the U

law firms he U.S. in 2

of complianve raised ial institutiolaws and red and this

nks being hire from regnts in transaraising comr bank comin knowled

o undertake financial insoftware to

to prevent snancing riskwith respect egments, anre fines, m(RBA) to A

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Finance andISSN 2

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sector (bantandards on

f as a standariminal procs more effecorporate

l system vuossible scorU.S. a failinand realtor

2006. (Wolf,

nce with AMthe bar an

ons to prevegulations. higher com

it with multgulators foractions monmpliance co

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nstitutions ao handle th

sanctions viks, or facet to their cund countriesmonitoring, AML/CFT wng from Fs completely

ks are enga

rt publishedntinue to ennts. It appeanti-financi

d Banking 2374-2089

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nks) and n entity

ard setter ceeds by ective in secrecy,

ulnerable re) on its ng score s. These , 2016)

ML/CFT nd their vent and Without

mpliance ti-billion r greater nitoring, osts and ficers, as ise, and ions that are also he know

iolations e severe stomers.

s seen as or even with the

Financial y, rather aging in

d by the ngage in ears that al crime

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A furthother inand thecorrespaccess fto their indicatethey mpaymentransactcorrespsufficievery risnecessaPaymen

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risks wouldng controls nship. The rcosts of come of criminely affectedes, foreign nies. (Sheen

her consequnterbank rele Internatioondent banfinancial ser customers,es that someaintain and

nt networkstions couldondent bannt volumessky; or las

ary informants and Mar

r IMF repoerminated os and other

mies in Africsanctions merations for

the new mape, economcould disrupnces, potenInternationa

rofit, reputacan further

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mic, politicavely cutting , exacerbatl undergroun

d be to avoioutweighs

report identmpliance, snal, civil ad by de-ris

embassies,n, 2017)

uence of delationships.onal Monetnking systeervices in di, supportinge banks pro

d are establs might frd narrow. ks have cut

s to overcomstly, chooseation for anrket Infrastr

ort has concoutright in s

available evca, the Carib

may be the individual

macroeconomic and trad

pt financialntially underal Monetary

ational concr isolate coves. These

groups serval, and secaccess to fi

ting politicnd “shadow

id them altos the finantifies the mstricter reguand regulatosking are: , nonprofit

-risking haReports by

tary Fund m. Througifferent jurig internationoviding theslishing few ragment an

To avoid t back servime complia

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cluded that some jurisdvidence indbbean, Centmost affec

l banks in omic envirode sanctionsl services armining finy Fund, 201

cerns, and ommunities closures ha

ved by thocurity implfinances, fural tensions

w markets”,

44

ogether or encial benefmain explanulatory requory prosecmoney ser

t organizati

s been a coy both the (IMF) em

gh corresposdictions annal trade anse services

new ones.nd that the

penalties ices for respance costs; e payment risk asses15)

t corresponddictions folldicates that sntral Asia, Ected. AML/deciding to

onment, chas, and tax trand cross-bnancial stabi

6)

rising AMLfrom the

ave had a mose busineslications. Trther isolatins, and pote thus furthe

end those rfit gained natory variauirements anutions and rvice businions (NPO

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elationshipsover the l

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of corresponternational

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erging markthe Pacific ats are of co

w CBRs. Ote regulatory. Further prs, includingion, growth

utiny contriancial systefect on finan

ding significial exclusionities from tcilitating thning the AM

Finance andISSN 2

2017, Vol.

s where thelong-term bd de-risking

errent effectThe secto

SBs), pawnnancial tec

ondent bankl Settlemende-risking

onships, baer payment Growing eber of relatat that cros

options foputational rst, do not gctions percers about whle. (Comm

ships (CBRbal financiakets and devas well as course not tther considy and enforessure to wg trade finah, and deve

ibute to de-em and un

ancial accesscant humaon has resuthe global f

he developmML/CFT obj

d Banking 2374-2089

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e cost of business g as the t created ors most nbrokers, hnology

king and nts (BIS)

on the nks can services

evidence ionships s-border or these damage

generate eived as hich the

mittee on

Rs), have al crisis. veloping countries the only derations orcement withdraw ance and lopment

-risking, ndermine s for the nitarian, ulted in financial ment of jectives.

(Shetretmay haincome dispropthe wor

MultinaNGOs This wAML/Cattentiogeneratrisk-basconsisteinterestequal rifaced band supnationabuy-in need tofor Effeexchanggovernmwould rand cus

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