CBFI Final Notes

The Money Laundering Cycle Money laundering is the process that disguises illegal profits without
compromising the criminals who wish to benefit from the proceeds. There are two reasons why
criminals -- whether drug traffickers, corporate embezzlers or corrupt public officials -- have to
launder money: the money trail is evidence of their crime and the money itself is vulnerable to
seizure and has to be protected. Regardless of who uses the apparatus of money laundering, the
operational principles are essentially the same. Money laundering is a dynamic three-stage process
that requires:

How is money laundered?

In the initial or placement stage of money laundering, the launderer introduces his illegal profits
into the financial system. This might be done by breaking up large amounts of cash into less
conspicuous, smaller sums that are then deposited directly into a bank account, or by purchasing a
series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited
into accounts at another location. After the funds have entered the financial system,

the second--or layering--stage takes place. In this phase, the launderer engages in a series of
conversions or movements of the funds to distance them from their source. The funds might be
channelled through the purchase and sale of investment instruments, or the launderer might simply
wire the funds through a series of accounts at various banks across the globe. This use of widely
scattered accounts for laundering is especially prevalent in those jurisdictions that do not cooperate
in anti-money laundering investigations. In some instances, the launderer might disguise the
transfers as payments for goods or services, thus giving them a legitimate appearance. Having
successfully processed criminal profits through the first 2 phases of the money laundering process,

the launderer then moves them to the third stage—integration--in which the funds re-enter the
legitimate economy. The launderer might choose to invest the funds in real estate, luxury assets, or
business ventures.

Effective anti-money-laundering policies, on the other hand, reinforce a variety of other good-
governance policies that help sustain economic development, particularly through the strengthening
of the financial sector.

Indeed, several of the basic anti-money-laundering policies—such as know your-customer rules and
strong internal controls—are also fundamental, longstanding principles of prudential banking
operation, supervision, and regulation.

Strong correspondence between anti-money-laundering policies and financial good governance

rules. As noted in the previous section, a strong rule of law governing financial institutions in
developing countries is a fundamental prerequisite for economic growth. Anti-money-laundering
policies are a constituent element in the good-governance policies that form a solid rule-of-law
environment for developing-country financial institutions. A strong indicator of this is the large
overlap that exists between the Prudential Financial-stability rules promoted by governmental and
inter-governmental organizations on the one hand, and fundamental anti money-laundering policies
on the other.

banks may lay themselves open to direct losses from fraud, either through negligence in screening
undesirable customers or where the integrity of their own officers has been undermined through
association with criminals. fraud by criminal customers, or employees corrupted by such
customers.1 In 1997, the Basel Committee published its Core Principles for Banking Supervision2
which further elaborated the importance of "know your customer" (KYC) banking rules as a
prudential risk-management issue, again citing the potential for reputational damage and fraud if
such policies are absent, and identified KYC rules as an integral element of a bank's "internal control"
mechanism for risk management.

The risk that service providers will fail to stay relevant and competitive in a changing marketplace.
New technologies are driving tumultuous change in every area of the marketplace – competition,
customer expectations, public policy, etc. – and undermining traditional business models.
Institutions lack understanding of changing market structures, have become complacent o stuck in
their ways, or are overwhelmed by the pace of change and clinging on to survival in the short term.
Institutions are more concerned about their survival than meeting client needs – but if client needs
are not met they will cease to exist. A tectonic shift in the marketplace, where digital transformation
of financial service providers no longer is seen as a competitive advantage, but rather becomes a
necessary condition for survival. Risk that all MFIs want to become digital and abandon a functioning
relationship and high-touch human business while entering a winner-takes-all competitive market

Data Analytics (Lecture 20) Notes

Presenting the data in simplified reports and visualizations, discovering patterns and trends, and
then predicting future events can be challenging for organizations.

Working

 A key area in which analytics has the potential to deliver substantial benefits is strategy
formulation and implementation.
 Timely information that helps the business people to take important decisions.
 Plays a crucial role in calculating the business’ profit, while helping answer questions and
letting forecast the future of your business.
 Financial analytics provides different views of a company’s financial data.
 As a part of finance transformation efforts, business managers and finance staff should
collaboratively define, develop and apply finance analytics. Decision teams with clear data
governance roles and responsibilities can brainstorm problem economics, co-create more
intuitive reporting formats and push one another’s thinking.

Data Analytics as solution

The need to eliminate risk and predict market trends has always been the goal of financial
professionals on behalf of their companies or clients. Data analytics can even detect fraud or
mismanagement of resources to reduce the likelihood of audits, operational shutdowns, or criminal
activity.

Types of Analytics

1. Predictive Sales Analytics

2. Product Profitability Analytics which product is a loss/profit to the firm
3. Client Profitability Analytics, which client/customer is profitable or loss, effect on working
capital.
4. Cash Flow Analytics Cash flow is the lifeblood of your business
5. Value-driven Analytics, which value driven had more benefits that cost for example,
6. Shareholder Value Analytics.
BUSINESS-CENTRIC APPROACH - Create a shared view of business objectives and drivers

Business managers and finance staff should co-design finance analytics frameworks for a shared
view of performance.

Make it easier to act on finance analytics reports

 Basing finance analytics on scenario analysis

 Building more commentary and opinion into finance analytics reports
 Making finance analytics reports more accessible

Use finance analytics to motivate better decision making

 Focus on business decisions first and finance analytics last.

 Then improve finance analytics problem-solving processes by anticipating and planning for
failure early.
 By combining internal financial information and operational data with external information
such as social media, demographics and big data, finance analytics can address critical
business questions with unprecedented ease, speed, and accuracy.