CHAPTER 1

Background of the Study

Objective of the study
Methodology of the study
Scope of the study
Limitation of the study

Objective of the study

The main objectives of the study are given below:

1. To know about the banking system of Al-Arafah Islami Bank Ltd.

2. To develop working skills.
3. To know about the different scheme, policy, procedures of AIBL.
4. To know about credit facilities, limitation of AIBL.
5. Identify the limitations of the Bank.
6. Identify the different problems of the different division s.
7. To observe the overall environmental situation of the bank.
8. To know about money laundering.
9. Effect of money laundering.
10.Identification or symptom of ML.
11.To recommend how to solve the problem.
12.Prevention way of money laundering.

Methodology of the study:

The methodology of the can be discussed under the major heads:
1. Organization & development of the report: The report is organized &
development under a mixture of both descriptive an analytical frame
work.
2. Data sources :the data sources used to prepare this report delineated
as follows:
A. Primary sources:
Practical deskwork.
Face to face conversation with the officers and executives.
Face to face conversation with the client.

B. Secondary sources:

Annual report of Al-Arafah Islami Bank Ltd.

Bank statements.
Brochures of bank.
Annual circular on money laundering.
Guide line for foreign exchange transaction by BB.

Scope of the study:

n modern life there have no alternative way to develop the national

economy with out bank . Bank is not only a financial institution but also
life blood of the national growth. a banking institution is essential in a
modern society . It plays a key role in the economic development of a country
and forms the core of the money market in an advanced country .in recent age
the banking sector over the world has been undergoing a lot of change due to
deregulation, technological innovation, globalization etc. Bangladesh banking
sector is lagging for behind in adopting these changes. To succeed well in
these changing environments, not only development of appropriate
infrastructure is necessary but also infusion of professionalism in to banking
service is essential.
Commercial banks play a significant role to meet up the needs of the society
such as capital formulation, large scale production industrialization, growth
of trade etc. Carry the foreign remittances of wage earners and other fund for
the country. AIBL is and unconditional land specialized financial institution
that performs most of the standard banking services and investment activities
on the basis of profit and loss sharing system confirming to the principle of
Islamic shariah .A IBL bank does not pay interest to depositors. Instead
depositors participate in the profitability of the bank.
In this century bank is and essential part of every business commercial welfare
activities .but this is also using by criminals for illegal monetary activities. in
this case money laundering is commonly used a term .Financial
institutions ,government need to aware about the term money laundering
for protect illegality and ensure social and economic welfare.

Limitations of the study:

Objective of the practical orientation program is to have practical exposure for
the student .My tenure was for one month only , which was some how not
sufficient after working hole day in the office it was very much difficult , if not
impossible to study again theoretical aspect of banking . There is also having
some limitations:
1. Required information and data are not well furnished by the central
accounts departments of BB.
2. Lack of depth of knowledge and analytical ability for writing such
report.
3. The bank confidentially keeps the data.
4. The data and information related with the topic was not easily available.
5. Supply of more practical and contemporary data is another out coming.
6. The study was not done very successfully due to inexperience.
7. Time constraints.
8. This suffers from a narrow data range for analysis.
9. The data seems insufficient may be suffering from take of reliability to
some extent.
10.Communication gap between the related officials and me.

CHAPTER 2
Overview of AIBL

Historical background of AIBL

Profile

Vision and Mission of the AIBL

Objective of AIBL

Functional area of AIBL

SOWT analysis of AIBL O.R.Nizam Branch

Banking Services of AIBL O.R.Nizam Branch

Overview of Al-Arafah Islami Bank Limited:

The prime objective of Al-Arafah Islami Bank is to serve the people for
attainment of their economic goal and success in life here and hereafter. AlArafah Islami Bank stands not only for material well being but also for ethical
development of its customers.

Historical Background of the AIBL:

The Bank started its operation on June 18,1995 as a commercial Bank in the
name and Style of Al Arafa Islami Bank Limited. The prime objective of Al
Arafa Islami Bank is to serve the people for attainment of their economic goal
and success in life here and Hereafter. AIBL faced a several setbacks in respect
of business. With active initiative taken by the member of the board and the
management team, the company could overcome the problem and get it
converted into a full-fledged commercial.

Problem on 2001 after obtaining license from Bangladesh Bank as Al Arafa

Islami Bank Ltd. The Authorized capital of the Bank was fixed at TK .100
Million and paid up capital at TK .100.12 Million of which 20.50 Million was
subscribed by the sponsors at that time. At present the Bank is operating
through 46 Branches of the country.

Company Profile:
Company Name: Al-Arafah Islami Bank Limited
Legal Form: A public limited company incorporated in Bangladesh on 18
June under the company act 1994.
Incorporated on: June 18, 1995
Started operation on: September 27, 19995
Paid up capital: Tk.115.23 Crore
No. of Director: 23
Managing Director: M.A. Samad Sheikh
Registered Office :
Al-Arafah Islami Bank Limited
36, Dilkusha commercial Area
Dhaka- 1000, Bangladesh
Web.http//www. Al-Arafah bank .com
Type of Banking: Islamic Bankers / Based on Islamic shariah

Vision and Mission of the AIBL:

Vision:
To be pioneer in Islami Banking in Bangladesh and contribute
significantly to the growth of the national economy.

Mission:
Achieving the satisfaction of Almighty Allah both here & hereafter
Proliferation of Shariah Based Banking Practices.
Quality financial services adopting the latest technology.
Fast and efficient customer service.
Maintaining high standard of business ethics.
Balanced growth.
Steady & competitive return on shareholders equity.
Innovative banking at a competitive price.
Attract and retain quality human resources.
Extending competitive compensation packages to the employees.
Firm commitment to the growth of national economy.
Involving more in Micro and SME financing.

Objectives of AIBL
Form time immemorial Banks principally did the function of moneylenders or
Mohajans but the function and scope of modern banking are now-a-days
very wide and different. They accept deposits and lend money like their
ancestors, nevertheless, their role as catalytic agent of economic development
encompassing wide range of services is very important. Business commerce
and industries in modern times cannot go without banks. There are people
interested to abide by the injunctions of religion in all sphere of life including
economic activities. Human being is value oriented
And social science is not value neutral. Al arafah islami bank believes in moral
and material development simultaneously. Interest or Usury has not been
appreciated and accepted by the tawrat of Prophet Moses, the Bible of Prophet
Jesus and the Quran of Hazarat Muhammad (SM). Effort are there to do
banking without interest Al Arafa islami bank limited avoids interest in all its
transactions and provides all available modern banking services to its client
and want to contribute in both moral and material development of human
being. No sustainable material well being is possible without spiritual
development of mankind. Only material well being should not be the objective
of development. Socio economic justice and brotherhood can be implemented
better in a God-fearing society.
Other objective of Al Arafah Islami Bank include:
To establish interest-free and welfare oriented banking system.
To help in poverty alleviation and employment generation.
To contribute in sustainable economic growth.

10

 To establish the relationship between bank and customer as

partnership Basis.

Functional Area of AIBL:

Export and Import Function

Retail Banking

Industrial financing trade financing

Syndicated Loan

Project financing

Hire purchase

Lease financing

Online service

Automated Accounting

Integrated System

Signature Verification

Any Branch Banking

ATM Services (to be implemented )

POS Services ( to be implemented )

Other Delivery Channel Services (to be implemented)

11

SWOT Analysis of the Al-Arafah Islami Bank:

Cooperation with each other .
Fewer default loan .
Strength

Membership with SWIFT.

Good banker-customer relationship.
Energetic work force.
Reluctance to add campaign.

Weakness

Some inexpert and laggard assistant officers .

Existing manual vouchers.
Shortage of Branch.
Lack of consumer credit scheme.
Entrance of new private Banks.
Not enough Efficient administration.
Weak in marketing.
Huge business area.
Introducing ATM card.

Opportunity

Growth sales volume.

Introducing any branch banking through online.
Different services of FCBS (ex: Phone Banking )
Different classic services of Foreign Banks.

Threats

Entrance of new PC Banks.

Political unrest.

12

Banking Services of Al- Arafah Islamic Bank Limited

O.R.Nizamg Rood, Chittagong:
Cash
Account
General Banking

Remittance
Clearing House
Customer Services
Musharaka (equity participation on the basis of sharing profit
and loss)
Mudaraba (sharing of profit and loss in business where one of
the partner provides expertise and management and other
partner provides capital remaining inactive)

Investment Department

Murabaha (buying and selling of commodities goods etc. with

profit)
Bai-Muajjal (credit sale with profit)
Ijara(leasing for rent )
Hire purchase or Shirkatul Melk)
Bi-Salam (purchasing of agricultural products while in
production and providing advance money to the producers)
Istisna (purchasing of industrial products while in production
and providing advance money to the producers)
Quard
Import

Foreign Exchange

Export
Remittance

13

CHAPTER 3

General Banking

Introduction

Customer service

Account Section

Clearing Section

Local Remittance Section

Other Service Section

14

Introduction:

eneral Banking is designed to provide financial service to the general

people. General Banking sector includes customer services department.

Customer service department provides various client services to their clients.

Account opening and closing, travel related services, reply client quarries
about different department and control & documentation of client file.
Requirement is the major function of this department. Customer service
department is the most important department in the Al Arafah Islami Bank Ltd,
because at first, customers are wants to know various information from the
customer service department. Since bank is financial organization, so as a part
of service organization this department should satisfy to their client with the
best service. Banking goodwill will be effected if customer service department
cannot satisfy to their client properly. For this reason customer service
department should take care of every client. More over customer service
department is playing a vital role in banking services.

15

Customer service:
Al Arafah Islami Bank Limited O.R. Nizam Road Branch gives all shorts of
service to their customer by five departments. These departments are very
essential part of banking activities to render various services to their clients.
These departments helps bank to perform its banking activities in
systematically, actively and efficiently. The operations of the banks are clearly
distributed among the department in order to avoid the haphazard situation in
maintaining banking system. Since bank is a service oriented financial
organization, ever department of bank plays an important role in rendering
banking service to the client. AIBL, GEC Branch has several department and
sections for rendering different customer services.
These departments are:

Deposit Department
Accounts Department
Cash Department
Remittance Department
Advance Department
Foreign exchange Department

A. Deposit Department:
Deposit Department is an important department of bank. Account
opening activities are accomplished under this department. Banker and
customer relationship creates by opening an account in bank. Any
person who intends to get banking services has to open an account in the
bank.
B. Account Department:
Accounts department supplies all numerical data and information of the
bank credit section current deposit staff payments total assets and
liabilities various income and expenditure are shown in the statement in
the statement prepared by the accounts department.

16

C. Cash Department:
Cash amount is the main source of all banking activities. For that every day
bank has to remain certain amount in cash in accordance with the rules and
regulation of Bangladesh Bank.
D. Advance Department:
Bank offers loans to businessman, industrialist and other in consideration
of its interest. Bank gives by profit or loss sharing ratio in accordance
with the terms and condition. AIBL is an Islamic shariah base bank. So it
follows the rules of shariah.
E. Foreign Exchange Department:
International trade and foreign exchange constituted the major business
activity conducted by the bank. Foreign exchange department offers full
range of trade finance service, namely issue, advising and confirmation of
documentary credit, arranging forward exchange cover, pre shipment
finance negotiation and purchase of export bills discounting of bills
exchange and collection of bill etc.
F. Remittance Department:
There are many ways though which one can remit money from one place
to another the ways are pay order PO Demand Draft DD Telegraphic
Transfer TT and Security Deposit Receipt SDR Among the ways PO and
SDR issued in case of remittance with in the city where DD TT are issued
incase of remittance outside the city but with in the country

17

Account Section:
Accounts department is the most important department in the AL-Arafah
Islami Bank Ltd as it supplies all numerical data and information of the bank.
Credit section current deposit. Staff Payments, Total assets and Liabilities
various income and expenditure are shown in the statement in the statement
prepared by the accounts department.

Functions:
1. To prepared and maintain daily input journal proof sheet and validation
report
2. To prepare flash report daily liquidity position
3. Other miscellaneous work of the department
4. Daily statement of affairs
5. Test agreed is another arrangement maintained for control purpose. Test
control agreed is most important for bank internal control
6. To prepare in chime and expenses statement
7. To maintain trial balance and financial accounts system
8. To maintain and prepare maturity balance sheet
9. Daily posting of voucher issued by all departments
10.To prepare clearing difference
Statements Prepared by Accounts Section:
1.
2.
3.
4.
5.
6.

Sector wise balance position

Maturity balance sheet
Foreign currency statement
Branch trail balance
Liquidity position
Income expenses statement

18

Types of accounts:
Al Arafah Islamic Bank Limited collects deposits from people by
various accounts. Ti collects deposit the accounts are divided four
categories. These are
Al-Wadia current A/C
Mudaraba Short Notice Deposit A/C
Mudaraba Term Deposit

Al-Wadia current A/C:

Al Arafah Islami Bank Ltd operates the Al Wadia current A/C according to the
principles of Al Wadia, which are based on Islamic Shariah. It is promised to
hard over the deposited money to clients of the bank when they desire to
withdraw

on the others hand bank take the permission from the clients to

invest the deposited money The depositors do not get profit from the
account and not need to bear any loss which from this account.

Mudaraba Short Notice Deposit A/C:

It is one kind of current A/C. Before withdrawing the deposit depositor must
inform the bank but the account holders have to have fixed amount of deposit
for withdrawing the depositor will get profit in daily basis.

19

Mudaraba Term Deposit:

It is a kind of fixed deposit. On the basis of tine duration its profit rate varies
on various deposits. If one wants to withdrawn its deposit amount before
maturity then he will get profit which is given Mudaraba Savings deposit.
According to this deposit there is various deposit scheme are available such as:
Millionaire Scheme:
Savings helps capital formation. Millionaire scheme has been introduced with
a view to encourage saving habit amount the people. Under this scheme
depositing monthly installment of only TK. 1150.00 for 20 years/ TK. 2170 for
15 years/ TK. 4600 for 10years/TK. 9950for 6 years one can cash on maturity
a sum of TK 100000000.

Double the Money Scheme:

Banks van play leading role in mobilizing internal savings. Savings helps
capital formation which leads nation to economic progress and prosperity this
scheme has been introduced to provide an opportunity to people for safe
deposits. Under this scheme within 8 years your money will be doubled.
Monthly Deposit Scheme:
Under this scheme through monthly installment the depositor can cash
profitable and attractive amount of the end of affixed period. The scheme will
help fixed income people to implement their future income plan this scheme
requires a depositor to deposit 60 monthly installment of TK 500 and earn a
total sum of TK 38000 approx at the end of 5 years and 120 month installment
of TK 500 each to earn a total sum, of TK 71250 at the end of 8 years and 120
month installment of TK 500 each a total amount of 100000 at the end of 10
years.

20

Hajj Scheme
There are many religious minded people who fail to perform Holy Hajj due to
indecision.
Under the above scheme they will e able to perform Holy Hajj by depositing
slab wise amount per month.

Clearing Section:
In the clearing department the work is to clear the Cheque and pay order
through Bangladesh Bank or Central Bank that are submitted for cash
collection Everyday clearing house takes a place in Bangladesh Bank once in
the morning called morning house (1st house) another in the evening called
return house (2nd house). In the house all the banks representative sit together
and change their money receive instrument of the particular banks to clear the
paper and transfer the money to their particular accounts.

Types of clearing:
There are two types of clearing:
Inward clearing:
The Cheque or instruments of Al Arafah Islami Bank Ltd that are submitted to
other banks for collections of money of bills are called inward clearing.
Outward Clearing:
The Cheque or instruments of other banks that are submitted to the Al Arafah
Islami Bank Ltd for collection is called outward clearing.

21

Clearing House:
A place that provides an arrangement by which various representative of each
clearing bank assemble there each business day to day exchange local Cheque.
Draft bill of exchange etc that are received by them for collection from their
customers its objects are to settle balance between the banks of a city, town or
a region with a minimum of inconvenience and labor.

Before the

establishment of clearing house the bank had to send their bill buy clerks to
other banks for getting cash against those Cheques obviously this was a
laborious and time consuming process and waste full procedure.
Besides it was risky to carry cash from one bank to another and it also invalid
lot of daily under the auspices of the modern clearing house transaction
involving of taka are settle easily with in a matter of an hour or so. Under the
clearing system reciprocal claims of one bank against others are offset and
only the net balance or difference between receipts and payments are settled by
drawing on the account of the debtor bank maintained with central bank in
Bangladesh Bank organized the clearinghouse.

Local Remittance Section:

The major function of commercial Banks is mobilization of fund other then
these banks provide ancillary services to its clients. Clients need to remit
money from one place to another for their business or purposes. Banks fulfill
this need of customers by means of remittance service. Money can be remitted
domestically or internationally which knew as local remittance and foreign
remittance.

22

There are three ways of transferring fund domestically. The modes of

transferring funds are:

Demand Draft DD

Pay Order PO

Telegraphic Transfer

Demand Draft DD:

This is an instrument through which customers money is remitted to another
person firm organization in outstation in outstation outside the clearing house
area from a branch of one bank to an outstation branch of the some bank or to
a branch of another bank with prior arrangement between those banks with the
issuing branch.
This an order instrument in which the issuing branch gives instruction to the
payee drawee branch to pay certain amount of money to the order of certain
person firm organization.
The DD may be open without crossing or crossed. An open DD can be over the
counter to the payee endorsee by the payee drawee branch against proper
identification of the payee. The crossed DD is paid through the payees account
only.
Procedures of issuing:
1. Obtain Demand drafts application from duly filled in and signed by the
form purchaser applicant
2. Receive the amount is case transfer with prescribed commission and
postage amount
3. Issue the DD duly filled in and signed by the authorized signatories
4. insert test number (here applicable)
5. Enter the DD issue register
6. Issue advice to the payee branch (IBCA)

23

Issuing Voucher of DD:

Cash /partys A/C

Dr.

AIBL G/A (concerned branch)

Cr

Income A/C

Cr

(Other commission on remittance)

DD application forms treat as a credit voucher. DD issued branch has to
prepare AIBL

inter branch transaction credit advice ) and then after advice

send to the responding blanch.

On Receipt of Advice:
AIBL G/A

Dr (DD issuing branch)

S/Assets on Bills payable DD

Cr

AIBL send by DD issuing branch is treated as debit voucher.

Procedure of Payment:
1. Examine gentility of the DD amount verify signature test series on bye
no etc.
2. Enter in the DD payable register
3. Verify with the IBCA/Test etc.
4. Pass necessary vouchers

24

Payment vouching of DD
AIBL G/A A/C

Dr

DD payable A/C

Cr

DD payable A/C

Cr

Parts A/C

Cr

Charges of DD
Commission

@ 0.15% Minimum TK. 25

Telex charge

AT actual Minimum TK 50

Pay Order:
A Pay order is a written under issued by a branch of bank to pay a certain sum
of money to a specific person or a bank. It may be said as to be a bankers
Cheque as it is issued by a bank and payable by itself.
Procedures for issuing:
Obtain PO application from duly filed in and signed by the purchaser/
application.
Receive the amount in cash/ transfer with commission amount
Issue P/O
Enter in P. O register

25

Issuing Vouchers of P.O:

Cash or party A/C

Dr

P. O

Cr

Income A/C

Cr

If the payment order issued against a Cheque of party A/C then Cheque will be
debited in respective partys A/C
Procedures for payment:
a. Examine gentility of the pay order.
b. Enter in P O register gives contra entry
c. Debit found of far payment
Charges of P O:
Amount Charge:
1. Up to TK 1,00000
2. TK 1000000 to 5000000
3. Above TK 500000

TK 25
TK 60
TK 100

Telegraphic Transfer :
This is a mode of transfer remittance of customers money from a branch of one
bank to another branch of the same bank or to a branch of another bank with
prior arrangement between that banks with the TT issuing branch through
telegraphic message The issuing used to send the message of such remittance
to the Drawee/ payee branch through telegram adding certain code number or
test number on the basis of test key apparatus developed by the concern bank
for its different branches. The payee / Drawee branch on receipt of the
message decodes the test a message and being fully satisfied pay the amount
by crediting the payees account (if account is maintained with the payee

26

branch). Now days the messages are passed through telephone /FAX/E-mail
etc. Recently the communication system has developed to a great extent.
Procedure of issuing:
a. Obtain TT application form duly filled in and signed by the purchaser/
applicant with the false account particulars of the beneficiary.
b. Receive the amount in cash /transfer with prescribed commission
postage telephone / telex etc. charge
c. Prepare TT message inserting test number
d. Enter in TT issue register (code number).
e. Issue advice to the payee branch (IBCA)
Vouchers of Issuing TT :
a. Note the TT message and verify the test number and vouchers of issuing TT:
Partys A/C

Dr

AIBL G/A (Concerned branch)

Cr

Income A/c(Commission, Telex)

Cr

Procedure for Paymen:

Note the TT message and verty the test number and infirm if TT serial
no/confirm is ok/etc.
b. If ok enter into TT Payable register
c.Pass necessary vouchers for payment.

27

Vouchers of TT Payable:
AIBL G/A

Dr

Partys A/C

Cr

TT Payable A/C

Dr

TT Payable A/C

Cr.

Charges of TT :
Commission
Telex charge

@G. 15 Minimum TK 25
At actual Minimum TK 50

Other Service Section:

Lockers and dispatch:
A) Lockers : Lockers are a safe custody of a bank for the clients .
There are three types of lockers in the bank.
Lockers operation: Lockers always operated jointly One of them is
banker and another is customer.
a) Rent: Lockers are allotted on yearly basis, for large size locker
the rent is TK.300 and for medium size the rent is TK.1200 and
small size rent is TK.1000 only.
b) Requirement:
1. A locker holder must have a bank A/C i.e. MSD A/C.
2. A locker holder should him important and reliable
customer.
3. Fill up an application form for a lockers as an SS card.
4. One copy of PP size photograph that is introduced by a
previous locker holder or A/C holder.
c) Key Deposit: A locker holder paid key deposit, which is
refundable now key deposit is amount of TK. 500 in our branch.

28

B)

Dispatch: Dispatch is very important for a bank. Out ward

correspondence depends on outward on outward dispatch. There are two
types of dispatch

Inward Dispatch:
All the letters received by the dispatch department and delivered manager of
section wise authorized officer to opened and marked to the concerned
department in charge.
Outward Dispatch:
Outward dispatch is very important for a bank. Before the letters delivered
they are duly stamped and entries in the outward dispatch register.

29

CHAPTER -4

Money Laundering

Definition of Money Laundering

Reasons of Money Laundering
Affect of Money Laundering in Business /
economic development
Stages of Money Laundering
Symptom of Money Laundering
Penalties for Money Laundering

30

Definition of Money Laundering:

A definition of what institutes the offence of money laundering under
Bangladesh law is set out in Section-2 (Tha) of the prevention of Money
Laundering Act 2002 (Act No. 7 of 2002) Which is reads as follows: Money
Laundering means:
(Au) Properties acquired or earned directly or indirectly through illegal means;
(Au) Illegal transfer, conversion concealment of location or assistance in the
above act of the properties acquired or earned directly or indirectly legal or
illegal means;
Properties has been defined in section 2(Da) of the Act as Properties means
movable or immovable Properties of any nature and description.
The U.S customs Service, an arm of the Department of the Treasury, provides
a lengthy definition of money laundering as the process whereby proceeds,
reasonably believed to have been derived from criminal activity, are
transported, transferred, transformed, converted or intermingled with
legitimate funds for the purpose of concealing or disguising the true nature,
source disposition, movement or ownership of these proceeds. The goal of the
money laundering process is to make funds derived from, or associated with,
illicit activity appear legitimate.
Another definition of Money laundering under U.S. law is, the involvement
in any one transaction or series of transactions that assists a criminal in
keeping, concealing or disposing of proceeds derived from illegal activities.
The EU defines it as the conversion or transfer of property knowing that such
property is derived from serious crime, for the purpose of concealing or
disguising the illicit origin of the property or of assisting any person who is
involved in committing such an offence or offences to evade the legal
consequences of his action, and the concealment or disguise of the true nature,
source, location, disposition, movement, rights with respect to or ownership of
property, knowing that such property derived from serious crime.
31

A concise working definition was adopted by Interpol General Secretariat

Assembly in 1995, which defines money laundering as: Any Act or attempted
act to conceal or disguise the identity of illegally obtained proceeds so that
they appear to have originated from legitimate source.
The joint Money Laundering Sterling Group (JMLSG) of the U.K. defines
it as the process whereby criminals attempt to hide and disguise the true
origin and ownership of the proceeds of their criminal activities, thereby
avoiding prosecutions, conviction and confiscation of criminal funds.
In lay terms Money Laundering is most often described as the turning of
dirty or black money into clean or white money. If undertaken successfully,
money laundering criminals to legitimate dirty money by mingling it with
clean money, ultimately providing a legitimate cover for the source of their
income. Generally, the act of conversion concealment is considered crucial to
the laundering process.

32

Reasons of Money Laundering:

Criminals engage in money laundering form three main reasons:
First, Money represents the lifeblood of the organization that engages in
criminal conduct for financial gain because it covers operating expenses,
replenishes inventories purchases the services of corrupt officials to escape
detections and further the interests of the illegal enterprise, and pays for an
extravagant lifestyle. To spend money in these ways, criminals must make the
money they derived illegally appear legitimate.
Second, a trial of money from an offence to criminals can become in
criminating evidence. Criminals must obscure or hide the source of their
wealth or alternatively disguise the ownership or control to ensure that illicit
proceeds are not used to prosecute them.
Third, the proceeds from crime often become the target of investigations and
seizure. To shied ill-gotten suspicion and protect them from seizure, criminals
must conceal their existence or alternatively make them look legitimate.

33

Impact of money Laundering:

Money Laundering has potentially devastating economic, security and
social consequences. Money laundering is a process vital to making crime
worthwhile. It provides the fuel for drug dealers, smugglers, terrorists, illegal
arms dealers, corrupt public officials, and others to operate and expand their
criminal enterprises. This drives up the cost of government due to the need for
increased law enforcement and health care expenditures (for example, for
treatment of drug addicts) to combat the serious consequences that result.
Crime has become increasingly international in scope, and the financial
aspects of crime have become more complex due to rapid advances in
technology and the globalization of the financial service industry.
Impact of Tax and Revenue:
Money Laundering diminishes government tax revenue and therefore
indirectly harms honest taxpayers. It also makes government tax collection
more difficult. This loss of revenue generally means higher tax rates than
would normally be case if the untaxed proceeds of crime were legitimate. We
also pay more taxes for public works expenditures inflated by corruption. And
those of us who pay taxes pay more because of those who evade taxes.
Impact of Market price:
Money Laundering distorts asset and commodity prices and leads to
misallocation of resources. For financial institutions it can lead to an unstable
liability base and to unsound asset structures thereby creating risks of
monetary instability and even systemic. The loss of credibility and investor
confidence that such crises can bring has the potential of destabilizing
financial systems, particularly in smaller economics.
Impact on Private sector:
One of the most serious microeconomic effects of money laundering is felt
in the private sector. Money Launderers often use front companies, which comingle the proceeds of illicit activity with legitimate funds, to hide the illgotten gains. These front companies have access to substantial illicit funds,
allowing them to subsidize front company products and services at levels well
below market rates. This makes it difficult, if impossible, for legitimate
business to complete against front companies with subsidized funding, a
situations that can result in the crowding out of private sector business by
criminal organizations.

34

Impact on Global Economy:

No one knows exactly how much dirty money flows through the worlds
financial system every year, but the amounts involved are undoubtedly huge.
The international Money has estimated that the magnitude of money
laundering is between 2 and 5 % of world gross domestic product, or a least
USD 800 billion to USD1.5 trillion. In some countries, these illicit proceeds
dwarf government budgets, resulting in a loss of control of economic policy by
governments. Indeed, in some cases, the sheer magnitude of the accumulated
asset base of laundered proceeds can be used to corner markets- or even small
economies.
Impact on national economy:
Among its other negative socioeconomic effects, money laundering
transfers economic power from the market, government, and citizens to
criminals. Furthermore, the sheer magnitude of the economic power that
accrues to criminals from money laundering has a corrupting effect on all
elements of society.
Impact on society;
The social and political costs of laundered money are also serious as
laundered money may be used to corrupt national institutions. Bribing of
officials and governments undermines the moral fabric in society, and by
weakening collective ethical standards, corrupts our democratic institutions.
When money laundering goes unchecked, it encourages the underlying
criminal activity from which such money is generated.

35

Impact of financial Institutions:

Nationals cannot afford to have their reputations and financial institutions
tarnished by an association with money laundering especially in todays global
economy. Money laundering erodes confidence in financial institutions and the
underlying criminal activity-fraud, counterfeiting, narcotics trafficking and
corruptionweaken the reputation and standing of any financial institution.
Actions by banks to prevent money laundering are not only a regulatory
requirement, but also an act of self interest. A bank tainted by money
laundering accusations from regulators, law enforcement agencies, or the press
risk likely prosecution, the loss of their good market reputation, and damaging
the reputation of the country. It is very difficult and requires significant
resources to rectify a problem that could be prevented with proper anti money
laundering controls.
It is generally recognized that effective efforts to combat money laundering
cannot be carried out without the cooperation of financial institutions, their
supervisory authorities and the law enforcement agencies. Accordingly, in
order to address the concerns and obligations of these three parties, these
guidance Notes were drawn up.

Affect Of Money Laundering in business/ economic development:

Damages market integrity

Deters foreign investment
Diminish Gov. Tax revenue.
Contaminates the Industry.
Uneven playing field for honest business.
Risks for financial institutions.
Distorts assets and commodity prices and leads to misallocation of
resource.
Makes crime a profitable enterprise.

36

Stages of Money Laundering:

Three basic stages on money laundering are:
Placement: The physical disposal of the initial proceeds derived from illegal
activity.
Layering: Separating illicit proceeds from their source by creating complex
layers of financial transactions designed to disguise the audit trail and provide
anonymity.
Integration: The provision of apparent legitimacy to wealth derived
criminally. If the layering process has succeeded, integration schemes place the
laundered proceeds back into the economy in such a way that they re-enter the
financial system appearing as normal business funds.
Placement stage
Cash paid into bank
(sometimes with staff
complicity or mixed
with
proceeds
of
legitimate business.)
Cash exported.
Cash used o buy high
value goods, property
or business assets.
Cash purchase of single
premium life insurance
or other investment

Layering stage
Integration stage
Sale or switch to other Redemption of contract
forms of investment.
or switch to other forms
of investment.
Money transferred to
assets of legitimate False loan repayments
financial institutions.
or forged invoices used
as cover for laundered
Telegraphic
transfers money.
(often using fictitious
names
or
funds Complex
web
of
disguised as proceeds of transfers (both domestic
legitimate business.)
and
international)
makes tracing original
Cash
deposited
in source of funds virtually
outstation branches and impossible.
even overseas banking
system
Resale of goods/ assets.

37

Symptom of money laundering:

The following is a list of circumstances, which might give rise to a suspicion
of money laundering. The list is not exhaustive and whether or not they are
suspicious depends on the background and details. He example are as under:
Money Laundering using Cash Transactions:
a) Unusually large cash deposits made by an individual or business whose
ostensible business activities would normally be generated by Cheque
and other instruments.
b) Substantial increases in cash deposits of any individual or business
without apparent cause, especially if such deposits are subsequently
transferred within a short period out of the account and/or to a
destination not normally associated with the customer.
c) Customers who deposit cash by means of numerous credit slips so that
the total of each deposit is unremarkable, but the total of all the credits is
significant.
d) Company accounts where the transactions, both deposits and
withdrawals, are denominated in cash rather than forms of debit and
credit normally associated with commercial operations (e.g. Cheque,
casher orders, demand drafts etc.)
e) Customers who constantly paying or deposits cash to cover requests for
demand draft, money transfer or others negotiable instruments.
f) Customers who seek to exchange large quantities of law denomination
notes for those of higher denomination.
g) Frequent exchange of cash into other currencies.
h) Customers whose deposits contain counterfeit notes, or forged
instruments.
i) Customers transferring large sum of money to or form overseas
locations with instructions for payment in cash.
j) Purchase or sale of foreign currencies in substantial amounts using cash
settlement, deposit the customer having an account with the institution.

38

Money Laundering Using Bank Accounts:

1. Customers who wish to maintain a number of trustee or customers
accounts which do not appear consistent with the type of business,
including transactions which involve nominees.
2. Customers who have numerous account and paying amount of cash to
each of them where the total of credits is a large amount.
3. Any individual or business whose account shows virtually no normal
personal banking or business related activities, but is used to receive or
disburse large sums which have no obvious purpose or relationship to
the account holder and/or his business (e.g. a substantial increase in
turnover on an account.)
4. Reluctance to provide normal information when opening an account,
providing minimal fictitious or conflicting information, or information
which is difficult or expensive to verify.
5. Customers who appear to have accounts with several financial
institutions within the same locality, especially when there is a regular
consolidation process of funds from such other accounts prior to a
request for onward transmission of the funds.
6. Matching of debits with credit paid in by cash on the same or previous
day.
7. Paying in large third party Cheque endorsed in favor of the customer.
8. Large cash withdrawals from a previously dormant or inactive account,
or from an account which has just a large credit from abroad.
9. Business representatives avoiding contract with the branch.
10.Customers who decline to provide information which normally would
make them eligible for credit or other valuable banking services.
11.Insufficient use of normal banking facilities (e.g. avoidance of high
interest rate facilities for large balance.)
12.Large numbers of individual making payments into the same accounts
without an educate explanation.
Money Laundering Using Investment Related transactions
1. Purchase of government securities, where this does not appear
appropriate given the customers apparent standing.
2. Requests by Customers for investment management services (either
foreign currency or government securities ) where the source of the
funds is unclear or inconsistent with the customers apparent standing.
3. Large or unusual settlements of securities in cash form.
4. Purchase or selling securities with no discernible purpose or in unusual
circumstances.
39

Money Laundering by Off-shore Activity

1. Customers introduced by an overseas branch, affiliate or other bank in
known drug producing or drug trafficking countries.
2. Use of letters of credit and other methods of trade finance to move
money between countries where such trade is not consistent with the
customers usual business.
3. Customers who make regular and large payments, including wire
transfer transactions, that cannot be clearly identified as bona fide
transactions to, or receive regular and large payments from, known
drug producing or drug trafficking, countries or countries which are
commonly associated with terrorist activity or which are tax havens.
4. Building up of large balances not consistent with the known turnover
of the customers business and subsequent transfer to accounts held
overseas.
5. Unexplained electronic fund transfers by a customer on an in and out
basis or without passing through an account.
6. Frequent requests for travelers, Cheque, Foreign currency, drafts or
other negotiable instruments.
7. Frequent paying in of travelers Cheque or foreign currency drafts
particularly if originating from overseas.
8. Numerous were transfers received in a account but where each transfer
is below the transaction size reporting requirement in the remitting
country.

40

Money Laundering by Secured and Unsecured Lending

1. Customers who repay problem loans unexpectedly.
2. Requests to borrow against assets held by the financial institution or a
third party, where the origin of the assets is not known or the assets are
inconsistent with the customers standing.
3. Request to provide or arrange finance where the source of the
customers financial contribution to a deal is unclear, particularly where
property is involved.

Penalties for Money laundering:

All offences under the act are non-bail able and the penalties for the
commission of the offences all have prison terms and/or fines as prescribed in
the act as follows:
The offence of money Laundering is punishable by terms of a minimum
imprisonment for six months and a maximum of up to seven years plus a fine
amounting to double the money laundered (See Section 13 of the Act).
The punishment for violation of seizure Orders is a minimum imprisonment
for one year or a fine of at least Taka ten thousand or both (See Section 14 of
the Act).
The punishment for violation of Freezing Orders is a minimum
imprisonment for one year or a fine of at least Taka five thousand or both (See
Section 15 of the Act).
The offence of divulging information by informing i.e. tipping off the
person who is the subject of a suspicion, or any third party is pounishable by a
minimum imprisonment for one year or a fine of at least Taka ten thousand or
both (See Section 14 of the Act).
The offence of obstructing investigation or failure to assist any enquiry
officer in connection with an investigation into money laundering is
punishable by a minimum imprisonment for one year or a fine of at least Taka
ten thousand or both (See Section 17 of the Act).

41

If any bank, financial institution and other institutions engaged in financial

activities fail to retain customer identification and transaction records or fail to
furnish required information as per the Act, Bangladesh Bank will report such
failure to the licensing authority can take proper action for such negligence and
failure (See section 19 (3) of the Act).
Bangladesh Bank is empowered to impose fines of not less than Taka ten
thousand and not more than Taka one lac on any bank, financial institution and
other institutions engaged in financial activities for the failure or negligence to
retain customer identification and transaction records or fail to furnish required
information to Bangladesh Bank (See section 19 (4) of the Act).
If any Company Partnership Firm, Society or Association violates any
provisions of the Act it will be deemed that every owner, partner directors,
employees and officers have individually violated such provisions.

42

CHAPTER 5
Performance Evaluation of the AIBL:
Performance at a glance
Profit & Loss of AIBL
Investment Growth of AIBL
International Trade of AIBL
Dividend Payment Percent of AIBL
Deposit Mix 2007 of AIBL
Deposit Growth of AIBL

43

AIBL AT A GLANCE
Particulars
Authorized Capital
Paid up Capital
Reserve Fund
Share holder Equity
Deposit
Investment
Import
Export
Total Income
Total Expenditure
Profit before Tax &
Provision
Profit after Tax &
Provision
Tax
Total Assets
Fixed Assets
EPS
Dividend

2004
1000.00
586.96
488.96
957.26
10108.28
8150.16
9337.49
3639.34
1120.85
771.96
348.89

2005
1000.00
677.94
542.22
1220.16
11643.66
11474.41
12631.60
4932.90
1452.68
904.48
548.20

2006
2500.00
854.94
835.98
1690.18
16775.33
17423.19
18821.40
9142.70
2172.48
1202.71
969.77

2007
2500.00
1153.18
1091.95
2037.50
23009.13
22906.37
27042.72
12714.91
2955.61
2199.43
756.18

154.76

262.90

470.02

347.31

157.00
12874.61
195.17
26.36
15.50%

215.10
15336.89
209.00
38.78
26%

385.45
21368.16
215.10
55.02
35%

235.53
30182.32
334.48
30.12
20%

44

Comment: The Total Profit of the bank was TK.347.31 million at 31 st December 2007 as
against TK.470.02 million at 31st December recording decline of 33.40% of which
TK.122.71 million. The present is to increase the profit through having low cost of ensure a
better spread with an average return on investment.

45

Comment: International Trade is one of Major Activities conducted by the

bank. At the end of 2007, the total amount of foreign trade (export, import, and
Remittance) was 41601.58 million taka showing a growth of 41.93%. The total
export revenue of the bank was 9142.70 million taka in 2006, which has
increased by 39.07% to 12714.91 million taka in 2000.

46

Comment: The investment of the bank stood at TK. 22906.37 million as on

31st December 2007 as against .TK. 17423.19 million in the previous year
showing an increase by 31.47%. The investment portfolio of the bank is well
diversified and covers a board spectrum of business and industries

47

Comment: AL-Arafah Islami Bank was established as a public limited

company on 18 June 1995. The inaugural ceremony took place on 27
September 1995. The authorized capital of the bank is TK.2500.00 million and
paid up capital is TK.1153.18 million ason31.12.2007.Renowned Islamic
Scholars and pious businessman of the country are the sponsors of the bank.
100% of paid up capital is being owned by local shareholders.
48

Comment: The bank has been paying dividend every year since 1998 just
after conversion of a public Limited company. The Board of Directors of the is
pleased to recommend 20% stock dividend in the year 2007.

49

Comment: The total deposit of the bank was TK. 23009.13 million at 31st
December 2007 as against TK. 16775.33 million at 31st December 2006
recording growth of 37.16% of which TK. 685.50 million was bank deposit
and general deposit was 22,323.63 million taka. The present strategy is to
increase the deposit base through maintaining competitive profit rates and
having low cost of funds to ensure a better spread with an average return on
investment.

50

Comment: The total deposit of the bank was TK. 23009.13 million at 31 st
December 2007 as against TK. 16775.33 million at 31 st December 2006
recording growth of 37.16% of which TK. 685.50 million was bank deposit
and general deposit was 22,323.63 million taka. The present strategy is to
increase the deposit base through maintaining competitive profit rates and
having low cost of funds to ensure a better spread with an average return on
investment.

51

CHAPTER 6

Finding
Recommendation
Suggestion for Money Laundering
Conclusion

52

Finding
During my internship period at Al- Arafah Islami Bank limited I have
observed the system following by the bank. By observing the system I have
identified some problem of Al- Arafah Islami Bank limited .The finding are as
follows:
Less attractive remuneration package and motivation for the employees.
Very few initiatives have taken to it known among public through
advertisement.
Lengthy procedure in handling simple general banking transaction such
as issuing of T.T, D.D,P.O,
There is no online banking system in the Al- Arafah Islami Bank limited
There are many illiterate clients in AIBL.
Communication or dealing with customer is enough poor
Has not enough strong marketing policy.
Promotional activities are poor.
Employees of AIBL are not getting enough training facility.
There is no customer care section.
There is no Islamic banking facility
Customer are not enough satisfied by its service
Information cell are not enough equipped (i.e. Booklet brochure of
services )
Though AIBL using banking software but it is not integrated with all
departments
Insufficient presence of modern communication equipment
Application of modern technology such as computerization is not
sufficient.
There is no investment section
Shortage of officers

53

Recommendation:
Recommendation for Al-Arafah Islami Bank limited.
Though conducting this study I have acquired some practical knowledge
about banking system and other relevant matters. Now I would like to
provide some recommendation, which maybe helpful to promote the
performance of Al-Arafah Islami Bank limited. As per earnest observation
some suggestions for improvement of the situation are given below:
1. Need to offer more incentive to depositors Al-Arafah Islami Bank
limited.
2. Increase the branch to reach the depositors all over the country
3. Deeply more efficient marketing force.
4. Training facility should be in crease in order to increase the
capability of the employee.
5. Need more attention to the customer
6. Information cell need to improve more by equipping related
material
7. Atomization /computerization should introduce all over the system.
8. Interior decoration needs more improvisation
9. Established a smartness of the customer service department needs to
improve.
10. Proper training system should e conducted at regular interval for the
junior level officer.
11.Online banking is very much in todays modern world. I highly
recommended launching of such service

54

Suggestion for Money Laundering:

In order to prevent money maundering, attention should be given following
things to be considered besides law enforcing:
1. Only banking system will not achieve expected success. Its necessary
to build up economic infrastructures which are helpful for the
development of the country.
2. Strong determination should be taken and fruitful measures should be
taken to remove corruption from country. For this accountability and
transference will ensure and as a result liability will be increase.
3. Everything required for the development of banking system should be
done and qualified person should be given duties. In this regard
honesty, competencies, sincerity and responsibility should be under
consideration.
4. The bad effect of money Laundering should be published through
newspaper, radio and other world service. Besides immigrants should
be encouraged to send money through legal way. Foreign embassies can
play a positive role in this case.
5. The distance of foreign exchange should be reduced. Many people
dont want to send money through banking channel for high remittance
charge fixed by foreign banks.
6. The advantage of online banking system should be extended and its
fruitfulness should be sent to peoples. The distance of bank in town and
villages should be lessened and the quality of the service should be
developed.
7. In order to prevent money laundering mutual co-operation between
governments of different countries can play a significant role.
Moreover, International Monitory fund (IMF) can take appropriate
measures in this case.
8. Foreign aid to the government sanction money, loan etc. should be
used appropriately in appropriate fields. This should be a system for
different non-government organizations, foreign agencies for their
activities and liabilities.

55

Conclusion:
In Conclusion, I can say that this types of are very essential for a MBA student
to take preparation to meet the global competition in the real life business. By
this program I have learned about practical banking practice. I have also tried
to learn about the theoretical emersion of money laundering and General
Banking.
The Al- Arafah Islami Bank is first generation Banking in the private sector
and second Bank to register as an Islamic Bank. This Bank remained profitable
only for a few years since its inception. But because of insider influence,
inefficiency in operation, monitoring and controlling and taken of appropriate
steps from the owners part, TOBL has been nor surviving as a losing concern
and is not being treated as a problem bank by the Bangladesh Bank. In order to
overcome the problems the bank should take some steps to make its
advancement. The suggestion that is given in the study will bring a positive
impact on the banks financials.
In this report I have also discussed about the money laundering. Here I have
focused on the reasons of Money laundering, Social and economical impact of
Money laundering, Symptom or which raise the suspicion of Money
laundering.
From the case study of AIBL I have identifies some problem of the bank and
according to that I have provided some suggestion. Here I have also discussed
role and preventing activities can take by various financial institution.
56

Bibliography

57

References:

Various report and statement supplied by AlARAFAH ISLAMI

BANK LIMITTED
Annual report of AIBL
Various Booklet and brochure of AIBL and Islamic bank ltd
Bank and company act 1991 by Md ommar chy and syeed javed
Shaleuddin.
Guidelines for foreign exchange transaction (vl 1&2) published by
Bangladesh Bank.
Annual circular on Money laundering by BB
Web site http: //www.AlArafah Bank .com

58