presentataion money laundering

8/10/2019 Presentataion Money Laundering

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Presentation On Money Laundering


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Table Of Contents

1. Overview

2. Meaning / Definitions3. Stages/Process

4. Techniques

5. Indicators

6. Risks

7. Impact

8. Relationship with Terrorism

9. Combating Measures

10. Role Of Chartered Accountants

11. Inference


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Overview

Seen This Somewhere ?????? ????????


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Meaning / Definitions

Drugs/Arms Trafficking

Terrorism

Extortion

Conversion Criminal Activities

Illegally Obtained

Money

Appears To Originate

From Legitimate Source


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Meaning / Definitions (Cont.)

Money Laundering is the practice of disguising illegally obtained funds so that

they may seem legal and is the main operation of the underground economy

According Swiss Bank MoneyLaundering is a process whereby the origin of

funds generated by illegal means is concealed (drug trafficking, gun smuggling,

corruption, etc)

Sec.3 of PML Act, 2002 defines money laundering as: whosoeverdirectly or

indirectly attempts to indulge or knowingly assists or knowingly is a party or is

actually involved in any process or activity connected with the proceeds of

crime and projecting it as untainted property shall be guilty of the offence ofmoney-laundering


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Stages / Process


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Stages / Process (Cont.)

The physical disposal of cashproceeds derived from illegal activities

Placement
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The separation of illicit proceeds from their source by creating complex layersof financial transactions

To confuse the audit trail by creating complex layers of financial transactionswhich appear, individually, to be legitimate

Layering
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Putting laundered proceeds into the legitimate economy so that the proceedsappear to be from normal business activities.

Reinjecting laundered proceeds into economy so that they reenter financial system as normal

business funds Provides an apparently legitimate explanationto criminally derived wealth

Integration
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Techniques Employed

1. Smurfing/ Deposit structuring

2. Shipping Money Abroad

3. Credit/ Debit cards

4. Use Of PassThroughOr PayableThroughAccounts

5. Electronic Wire Transfers

6. Loan Back Arrangement7. Correspondent Banking

8. Trading And Other Business Activities

9. Lawyers, Accountants & other Intermediaries

10. Placement Using Insurance Products

11. Placement Using Investment Related Transactions

12. Misuse of Non Profit Organisations (NPOs)


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Indicators

Suspic ious Transact ions

Suspicious transaction means a transaction whether or not made incash and whichGives rise to a reasonable ground of suspicion that it may involve

the proceeds of crime

Appears to have no economic rationale or bonafide purposeLarge cash withdrawals from: a dormant or inactive account or

account with unexpected large credit from abroadSudden increase in cash deposits of an individual with no

justificationReceipt or payment of large cash sums with no obvious purpose

or relationship to Account holder / his business


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Indicators (Cont.)

Suspic ious Behavior Indicators

Ac coun t Opening Stage

Customer appears to be acting as agent for another person or entitybut declines/evades or is reluctant to provide information inresponse to questions about that person or entity

Customersname appears in negative list circulated by regulators


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Indicators (Cont.)

Transaction Stage

Customer requests for avoiding Banksnormal documentation requirements.

Customer refuses to provide information necessary for Banks to make report /records as per regulatory requirements

Customer provides information that Bank determines to be false

Customer splits transactions involving cash deposits in order to avoidthreshold limit reporting requirements

Customer seeks to change or cancel a transaction after informing of currencytransaction reporting, information, verification or record keeping requirements

Customer exhibits unusual concern about secrecy or requests information

regarding how to conceal transactions from government authorities

Customer exhibits unusual curiosity about banks internal systems, controlsand policies


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Indicators (Cont.)

Trade Finance

Wire transfers

Other Inward/Outward remittances

Review Letter of Credits, Shipment of items inconsistent with customersbusiness

Irregular pricing of goods Excessively amended letters of credit Transactions designed to avoid home country legal restrictions


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Indicators (Cont.)

Red/Warning Flags

High activity and low balances Insensitivity to transaction charges

Credits by different people into same account

Immediate turnaround (ins and outs)

Refusal to provide identification or other information Desires unnecessarily complex transactions

Reference by persons impossible to contact/ difficult to verify

Inadequate or unusual documentation


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Risk

1. Reputational

2. Operational

3. Legal

4. Concentration


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Risk (Cont.)

Reputational

The potential that adverse publicity regarding a banks business

practices, whether accurate or not, will cause a loss of confidence in

the integrity of the institution

A major threat to banks as confidence of depositors, creditors andgeneral market place to be maintained

Banks vulnerable to Reputational Risk as they can easily become a

vehicle for or a victim of customersillegal activities


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Risk (Cont.)

Operational

The risk of direct or indirect loss resulting from inadequate or failed

internal processes, people and systems or from external events

Weaknesses in implementation of banksprograms, ineffective control

procedures and failure to practice due diligence


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Risk (Cont.)

Legal

The possibility that lawsuits, adverse judgments or contracts that turn

out to be unenforceable can disrupt or adversely affect the operations

or condition of a bank.

Banks may become subject to lawsuits resulting from the failure toobserve mandatory KYC standards or from the failure to practice due

diligence

Banks can suffer fines, criminal liabilities and special penaltiesimposed by supervisors


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Risk (Cont.)

Concentration

Mostly applies on the assets side of the balance sheet: Information

systems to identify credit concentrations; setting prudential limits to

restrict banks exposures to single borrowers or groups of related

borrowers

On liabilities side: Risk of early and sudden withdrawal of funds by

large depositors- damages to liquidity


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Impacts

International Consequences and Foreign Investment

Weakened Financial Institutions

Compromised Economy and Private Sector

Short Tax Collection

Increased Crime and Corruption


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Impacts (Cont.)

Penalty Imposed On Banks

Jan 06 ABN Amro US$ 80 Million

Aug 05 Arab Bank US$ 24 Million

Feb 05 City National Bank US$ 0.75 Million

Jan 05 Riggs Bank US$ 41 Million

Oct 04 AM South Bank US$ 50 Million

Sep 04 City Bank - Japan US$ 25 Million


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Relationship With Terrorism

Do you remember September 11, 2001?


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Relationship With Terrorism (Cont.)

Terrorist FinancingAs per the Monograph on Terrorists Financing

(issued by the 9/11 enquiry commission),

preparations for the 9/11 attacks cost between

US$400,000 and US$500,000-of which aboutUS$300,000 was spent in the United States.


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Relationship With Terrorism (Cont.)

Terrorist groups need money to finance their activities and that these are often

raised from other criminal activity which have tragic effects:- 80% of the heroin on the streets in United Kingdom originates from

Afghanistan and the proceeds often end up in the coffers of Islamist terror

groups;

Both Protestant and Catholic terrorist paramilitaries in Northern Ireland derive

income from smuggling and extortion;

Bank robbery is a preferred form of fund raising for terrorists in both Italy and

Spain.

Globally

- estimated US$800 billion 1 trillion of illicit funds is circulatingworldwide

- about US$400 - 500 billion is associated with drug trade

- about US$200 - 250 billion are associated


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Combating Money Laundering

Money LaunderingPrevention

Observing Rules for

Bankers

Customer

due Diligence

Identifying

Irregular / Suspicious

Transactions

Compliance withLaws


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Combating Money Laundering (Cont.)

Ind ian Init iat ives

PMLA Act, 2002

Maintenance of Records of transactionsEvery banking company or financial institution or intermediary, as the case

may be, shall maintain a record of

All cash transactions of the value of more than rupees ten lakhs or its

equivalent in foreign currency ;

ll series of cash transactions integrally connected to each other having a

value below rupees ten lakhs or its equivalent in foreign currency where such

series of transactions have taken place within a month

All cash transactions where forged or counterfeit currency notes or banknotes have been used as genuine and where any forgery of a valuable

security has taken place


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All suspicious transactions whether or not made in cash and by way of :Cheques, Travelers Cheques, A/c Transfer, Credits or debits into or from any

non-monetary accounts, Money transfer or remittances, Loans and Advances,Collection Services

Procedure and manner of furnishing informationAny suspicious activity should be reported to the FIU within 7 days of its

occurrence. Monthly information should be submitted by the 7th of thesucceeding month to the Director of FIU.

Verification & Maintenance of the records of the identity of clients:Records to be maintained for ten years.

RBI issued a circular on Feb 16, 2006 reiterating the above rules. With regard toaccounts for which a SAR has been filed with the authorities, Banks may not putany restrictions on operations in those accounts. However, it should be ensuredthat there is no tipping off to the customer at any level.


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Income Tax Regulat ions

Income Tax - Rule 114B : "Every person shall quote his PAN in alldocuments pertaining to the following transactions with a bankingcompany, namely (among others) :

A time deposit or an account (not being time deposit), exceeding

INR 50,000; Payment in cash for purchase of bank drafts or pay orders or

bankers cheques from a banking company for an amount

aggregating INR 50,000 or more during any one day;

Deposit in cash aggregating INR 50,000 or more, with a banking

company during any one day;


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Internat ional Effor ts

The International Criminal Police Organisation (INTERPOL)

The Vienna Convention-1988

British Commonwealth

Financial Action Task Force

Asia / Pacific Group on Money Laundering (APG)

The Financial Crimes Enforcement Network (FinCEN)

Software solutions

R l Of Ch d A


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Role Of Chartered Accountants

Development of Accounting & Auditing Standards

Monitoring Mechanism

Enforcement Directorate

Adjudicating Authority

Member to Appellate Tribunal Legal representation

Others

I f


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Inference

Money laundering is serious threat to global financial system and

good governance. It is also boosting international crimes andterrorist activities.

Bottom LineBillions of dirtypounds are mistakenly cleanedby financial institutions and

professional advisers, or received by businesses turning a blind eye to largecash payments. As a consequence, money laundering represents a seriousthreat, not just to sound economic and financial development but to thepolitical integrity and stability of our nation. Thus we as informationprofessionals should play their part in ensuring that the right systems are in

place to help businesses to know their clients better and hence combatinternational crime and protect the assets of the business and its customers.


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