BFI REPORT ON MONEY LAUNDERING

Group members: Alan Fernandes, Jonathan Dias,

Jobby Joseph, Najah Bashir and

Neeraj Pandey

Course: B.Com (Hons), Sem III

Batch: 2018-2021
INTRODUCTION

Money nowadays is the main motivation for engaging in almost any criminal activity. Money-
Laundering is the way that criminals blend their money to seem normal to avoid the suspicion of
the origin of the illegal cash and clear out from the radars of criminal agencies.

Terror militants and oppressor associations additionally depend on cash to support themselves
and to do acts of terror. Cash for these terror cells is gotten from a wide assortment of sources.
While terrorists are not significantly worried about masking the birthplace of cash, they are
worried about covering its goal and the reason for which it has been gathered. Terrorists and
their oppressor associations work along these lines and utilize strategies like those utilized by tax
criminals to conceal their cash.

The capacity to avert and recognize illegal tax avoidance is a profoundly powerful method for
distinguishing criminals and terror oppressors and the hidden movement from which cash is
determined. The utilization of insight and analytical systems can be one method for identifying
and disrupting the exercises of terror oppressors and oppressor associations.

The objective of an enormous number of criminal acts is to create a benefit for the individual or
gang that does the act. Laundering of money is the preparing of these criminal revenues to
continue to camouflage their unlawful origin. This procedure is of high significance, as it
empowers the criminal to appreciate these benefits without imperiling their source.

Illicit arms deals, sneaking, and the exercises of well-planned crime, including for instance drug
dealing and prostitution rings, can create enormous measures of revenue. Theft, insider
exchanging, pay off and PC misrepresentation plans can likewise deliver huge benefits and make
the advantage to "legitimize" the unfair black money increases through money laundering.

At the point when a crime creates considerable benefits, the individual or group included must
figure out how to control the profits without standing out to the people in question. Crooks do
this by camouflaging the sources, changing the structure, or moving the assets to a spot where
there is less chance of standing out.

In the start- or initial step - phase of money laundering, the launderer brings his illicit benefits
into the monetary system. This may be executed by separating a lot of money into less obvious
littler wholes that are then kept straightforwardly into a ledger or by obtaining various financial
instruments (cheques, cash orders, and so forth.) that are then gathered and saved into accounts at
another area.
TYPES OF MONEY LAUNDERING

1. Trade-based laundering:
Trade-based money laundering is a method used by criminals to disguise their illegal
proceeds. This can be done by altering business documents and misrepresenting financial
transactions to disguise the dirty money as ‘business profits’.

2. Bank capture:
In such cases, the money launderers themselves own a financial institution. In this way,
the launderer is able to move the money through the bank and transfer the dirty money to
other banks legally, making this form of laundering hard to catch.

3. Structuring:
Structuring refers to when a money launderer takes a large amount of dirty money and
breaks it into smaller amounts to make it seem less suspicious and to avoid having to
report it. For example, in the U.S, all cash deposits and withdrawals exceeding $10,000
must be accompanied by a Currency Transaction Report. Such rules can be manipulated
by launderers, by breaking the amount down to smaller amounts, say $5000, and
depositing it into several different accounts on different days.

4. Real-estate laundering:
Another form of money laundering is through real-estate laundering. Money launderers
use the dirty money to purchase real-estate and then sell it at a profit. Any surplus of cash
would be assumed to be from the sale and thus would be less suspicious.

5. Casino laundering:
Money can also be disguised in the form of gambling winnings. By purchasing chips with
the dirty money, gambling with only a small portion and then converting all the chips
back into money, a money launderer could easily get away with the dirty money by
claiming it to be casino winnings.

IMPACT OF MONEY LAUNDERING

1) Loss of government revenue:

When criminal proceeds are hidden to escape detection, governments are not able to tax
the funds, causing governments to lose millions of dollars in revenue. In addition, law-
abiding citizens realize a higher tax rate than would be expected without the presence of
money laundering. It also makes government tax collection more difficult. This loss of
revenue generally means higher tax rates than would normally be the case if the untaxed
proceeds of crime were legitimate.
2) More Crimes:
Successful laundering money means that criminal activity actually does pay off. This
success encourages criminals to continue their illicit schemes because they get to spend
the profit with no repercussions. This means more fraud, more corporate embezzling,
more drugs on the streets, more drug-related crime, law-enforcement resources stretched
beyond their means and a general loss of morale on the part of legitimate business people
who don't break the law and don't make nearly the profits that the criminals do.

3) Country’s Reputation:
Nations cannot afford to have their reputations and financial institutions tarnished by an
association with money laundering, especially in today's global economy. The negative
reputation that results from these activities diminishes legitimate global opportunities and
sustainable growth while attracting international criminal organizations with undesirable
reputations and short-term goals. This can result in diminished development and
economic growth. Furthermore, once a country's financial reputation is damaged,
reviving it is very difficult and requires significant government resources to rectify a
problem that could be prevented with proper anti-money-laundering controls.

4) Money laundering erodes financial institutions:

I. Constant money laundering through financial institutions erodes these institutions
in three broad ways: I. By increasing the probability individual customers will be
defrauded by corrupt individuals within the institution;
II. By increasing the probability that the institution itself will become corrupt or even
controlled by criminal interests, again leading to customers being defrauded; and
III. By increasing the risk of financial failure faced by the institution as a result of the
institution itself being defrauded.

5) Economic Impacts:
Money laundering can also adversely affect currencies and interest rates as launderers
reinvest funds where their schemes are less likely to be detected, rather than where rates
of return are higher. And money laundering can increase the threat of monetary instability
due to the misallocation of resources from artificial distortions in asset and commodity
prices. In short, money laundering and financial crime may result in inexplicable changes
in money demand and increased volatility of international capital flows, interest, and
exchange rates. The unpredictable nature of money laundering, coupled with the
attendant loss of policy control, may make sound economic policy difficult to achieve.
ANTI – MONEY LAUNDERING AND ITS POLICIES

Anti-money laundering are certain policies that are set in place to banks and other financial
bodies to continuously monitor their clients to prevent money laundering. The laws need
institutions to report any fraudulent activity and make sure that they have a follow up action to
prevent such activities from happening again. The Financial Action Task Force [FATF] was
created to tackle money laundering.

FATF created frameworks for a lot of countries to tackle money laundering and also made sure
to present it to the whole world so that it pushes the countries to enforce the policies by FATF in
a more effective way. FATF takes care of over 37 countries. Employees are given training and
proper software’s are put into place so that the policies are worked on in an effective way. But
not all banks have to accept these policies, they can have their own views and work on it on
however they see fit.

Even the United Nations Office of Drugs and Crime shows ways on how to identify and prevent
money laundering.

The World Bank gives an insight on how to stop money laundering and also helps government of
different counties and various businesses to tackle such situations.

IMPORTANCE

Money laundering has become very common in nowadays and countries need to safeguard their
economies by setting up various policies to tackle this issue. The policies are generally meant
towards gathering all records i.e. accounts and activities, of clients. If any suspicious activity is
found, it is needs to be reported to the concern government.

Banks are safeguarded from getting any backlash when they share any of their client’s
information for the purpose of anti – money laundering.

Currency exchange firms, casinos, insurance agencies, and accountants must also follow certain
anti-money laundering regulations. Using all this information it makes it easier for the
government to track and catch the criminal.

Technology has made it easier to implement the anti – money laundering policies and to do a
thorough research on its clients and find the criminals.

RECENT POLICIES REGARDING AML

A number of banks have alleged failed to enforce effective anti-money laundering and
countering the financing of terrorism (AML/CFT) controls. European Union has prepared to
implement the Fifth EU Anti-money Laundering Directive (2018/843/EU) (5MLD); this is the
policies the banks need to follow and is based on to their jurisdiction:
 Banks in the EU
EU banks identify four main weaknesses of their current regime:
 Ineffective compliance with AML/CFT legal requirements
 Governance failures
 Failure to aggravate high-risk business models; and
 Ineffective group AML/CFT policies.

There needs to be an effective and adequate supervision by national authorities, close

supervision in cross-border situations and international cooperation with key non-EU
authorities. Emphasizes, that the European Banking Authority takes lead in ensuring that
breaches are investigated by national supervisors and also facilitates international
cooperation.

The exploitation of Baltic and Nordic banks’ AML/CFT operations by a Russian money-
laundering ring, suggests that there are greater risks for companies operating in these
regions. Financial institutions in these areas should ensure sufficient AML risk-
assessment procedures and a compliance strategy set in place. Moreover, banks based
outside the Baltic and Nordic should consider enhancing their due diligence in relation to
the services provided.
It is also noted that some improvements can be made at an operational level and the EC’s
findings can serve as a basis for future policy choices and legislative developments.

 Banks in Germany
German government has proposed to implement the 5MLD, which includes amendments
to the Federal Ministry of Finance (BMF)’s initial requirements for cross-border matters
in relation to AML due diligence conducted by third parties.
Businesses that rely on third parties to meet their AML customer due diligence
requirements had to ensure that such parties complied with the German Anti-money
Laundering Act. Since banks are generally trusted third parties by law, the amendment
should reduce the number of hurdles that they face. If a German bank is looking to
identify a Dutch customer, it relies on the identification procedure of a Dutch bank that
has gathered all the information required by 5MLD. Thus removes the unnecessary
requirement for non-German banks to comply with the German law thus encouraging
cooperation between banks throughout the EU.

 Banks in UAE
On 7 July 2019 the UAE minister of justice announced a number of resolutions for new
AML/CFT initiatives, which includes establishing an AML/CFT section, issuing
procedures for legal professionals and establishing a committee for managing frozen,
seized and confiscated funds. The initiatives follow the UAE Securities and Commodities
 Authority’s AML Guidelines in May 2019, this helps identify, assess and remove such
wrongdoings. These guidelines provide UAE banks with a clear and critical insight into
the ways in which the supervisory authorities will construe their certain obligations and
ensure that it complies with obligations under the Anti-money Laundering and
Combating the Financing of Terrorism and Illegal Organizations Law (20/2018).

 Banks in UK
From the Anti-money Laundering Annual Report 2018/2019, reveals that the UK
regulatory body has more than 60 ongoing AML investigations. The value has increased
significantly from £60.9 million to £227.3 million.

Fined the Standard Chartered Bank more than £102 million for AML breaches, following
investigations into its correspondent banking business and certain branches in the Middle
East. It criticized the bank’s past approach as being “narrow, slow and reactive”. Some of
the Standard Chartered Bank breaches rose from the actions of junior employees showing
that there is no insight on human errors. Banks are permitted to use AI technology to
reduce risk, which can support customer due diligence and transaction monitoring and
automate audit trails. The 5MLD states that customer identification may now be carried
out by electronically.

COMMON POLICIES

 Ensure that you have a highly credible system in place for detecting suspected AML
activity. As both human intelligence and technical support can spot the warning signs,
employee training programmes, internal communications and monitoring systems should
all be up to date on the latest risks.
 Revisit the procedure to risk assessment in light of any changes. While a risk-based
approach to testing or verification activity is appropriate and failing to review this
approach can give away a false sense of security.
 Where risk is identified, you may come across a difficult decision to exit the relationship
(with the customer or another bank), business sector or jurisdiction. Despite push-back
from stakeholders, the costs the company has to incur should be the first priority.
 Investigate any suspicious activity and keep thorough records of your decision on
whether to freeze funds and file a report with the relevant authorities. If there is no report
filed, it is essential that the reasons for this are completely documented.
 Finally, latest legal and regulatory developments shall ensure not only that you are aware
of your obligations, but that you have plenty of time to conduct thorough due diligence,
assess risks and review your overall AML/CFT strategy.