Ms Mwelwa

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT SCIENCE

BBA 170 BUSINESS LAW

Class Activity

Activity 6
You will approach these questions in light of the notes which were recently
made available to you:
I. “The current anti-money laundering (AML) standards is the best method for
all countries.”

Tackle the above contention through a cost-benefit analysis of one aspect of

the international AML regime which is, the risk-based approach in the
conducting of customer due diligence. In doing so, address issues such as the
merit in requiring countries to implement a risk-based customer due
diligence (CDD) regime and the impact on the incidence of money
laundering.
Don’t just copy my findings and take it as Biblical truth. Do your own
research. This rubric is just to give you an idea so I have modified the original
version for easier understanding. If you decide to plagiarse my work...
• A direct practical consequence is that gathering data of customers is
beneficial for marketing. This information may be used for the purpose
 of customer acquisition and retention. Re-use of the data for different
purposes may reduce paperwork, lessen time constraints, prevent
duplication of efforts, and ultimately, save costs. This is excellent for
economies which have not yet advance from paper-based data
collection.
Commercially, safe banking practices reduce the risk of governments seizing
and forfeiting a customer’s loan collateral if it should happen that that the
customer is found to be laundering money through the bank. Countless
banks have been caught up in scandals of this nature in the US and
elsewhere.
Reputation wise, it is good business to be known as welcoming, prudent and
safe. The Danish Danske Bank is demonstrating its commitment to be more
engaging and transparent by leveraging crowdsourcing via social media to
“become a better bank”. Otherwise, negative perception equals loss of faith,
confidence trust, and ultimately profits. Clearly, the risk-based strategy
makes business sense.
However, the secretive nature of money laundering makes it difficult to
measure exactly how big the problem is and also how effective the AML
measures are. Countries blindly dedicate much of their resources to
ensuring that the risk-based approach, CDD, and the Recommendations in
general, are implemented despite there being no concrete proof that it has
any effect of money laundering. It is especially in hard in developing
counties where even CDD is a hindrance to financial inclusion. In South
Africa over one million individuals do not have any identity document and
this country also has an influx of undocumented migrants. In other countries
like Kenya it is no better, with as much as 95% of adults unable to prove their
residential address.

• Cutting the red tape on AML policy promises a multitude of rewards.

Firstly, risk-based regulation provides a basis for reducing the flow of
reports so that there is no superfluous reporting. Consequently,
matters which are likely to generate meaningful intelligence or a
productive regulatory output are given priority. In turn, FIUs operate
more efficiently instead of downing in STR’s which, if the FIU is unable
or too slow, may fail to analyse them all.
Second, the flexibility of the risk-based approach enables designated
professional persons and even persons of other professions, to be active in
AML/CTF. In her daily work at the bank, a financial due diligence officer is
likely to have developed an intuitive feeling allowing her to identify possible
money laundering cases. She understands how her bank gives rise to risks
and she establishes strategies and procedures for responding to those risks.
In a similar vein, a law-abiding banker in the security sector would know
better than to accept cash transactions. A criminal lawyer should suspect a
client who hands him large sums of cash as a fee retainer as he is more likely
to be paid with dirty money than practioners in other professions. Therefore,
ordinary and designated professional are both treated as resourceful actors.
Nevertheless, the risk-based approach has led to differing perceptions of
what constitutes suspicious transactions and risk. Different domestic actors
like banks, accountants and law enforcement can develop their own
interpretations. Subsequently, reporting duty lacks homogeneity and
standardization. In the cross-border context, the conclusion becomes even
worse and complicates international cooperation.
Due to such ambiguity, it may turn out that reporting entities run the risk of
being accused of false reporting and may even be held civilly liable by the
customer who has been reported. The threat of civil liability can actually
influence financial business organisations and DNFBPS with a reporting duty
to play it safe, by reporting as few cases as possible. On the other hand, still,
others opt to report a few cases as possible. In any case, the quality of reposts
is jeopardized.

• Adopting a risk-based strategy means employing diverse professional

know-how experience, and differing approaches than what the
launderer is used to. This flair of unpredictability is useful for making
it more difficult for sophisticated launders to launder money so easily.
It is also ideal of intercepting dirty money at any stage of the
laundering process in tune with the ever-developing money
laundering techniques. In this way, regulated entities become
proactive agents in the mitigation of the money laundering risk. Hence,
preventing money launders from familiarising themselves with
predictable norms.
Still, penetration of technology into traditional organisations has rendered
CDD potentially redundant. The KYC attempts are virtually useless on a
platform like the internet where one can have multiple digital personalities.
Frighteningly, a terrorist can conclude transaction furthering their plot
without anyone noticing. More still, the process of disguising money has
been expedited. Launderers can now place, later and integrate money at the
click of a mouse in record time.
• There is a strong connection between a country’s political economic
and social development and its compliance with FATF standards.
Countries like Germany and the United Kingdom have the added
advantage of mature and stable systems founded on principles such as
respect for equality and rule of law. Additionally, there is genuine
willingness to curb money laundering. The effect that this has on
international economic relations is willingness to trade with counties
known to have a secure financial sector.
This is unlike in transitional economies for example, like China, where the
political climate simply does not allow for the integrity of the financial
system to be the first priority. Another example of difference in priority can
be inferred from a statement made by the head of the Middle Eastern
country’s Intelligence Agency who had stated that “terrorist financing means
nothing to us; terrorists are coming across the border and bringing bombs
with them. Our money is better spent buying bomb-sniffing dogs than hiring
FIU analysts.” In practice, despite AML measures being costly, transitional
economies hastily adopt, but not enforce, AML policy as a bargaining chip for
economic and social support form developed counties.
The domestic legal system is also a factor which affects the performance of
AML policy. A legal system such as that of the US, with its strict public rule
enforcement and administrative sanctions is more likely to have
occurrences of over reporting than in a legal system where regulatory
enforcement is much more flexible and lenient such as the Dutch system;
where sanctions are much lower, and the threat of liability claims is minimal.
The reality is that even though AML measures are challenging for all counties
to implement, the obligations and unique country circumstances, make it
rather difficult for some national economies. For instance, in some
developing counties, governments lack the budgetary resources which
would enable them to create a plethora of specialized institutions that
developed counties often have. Strategic inefficiencies like poor
coordination between public institutions are also contributing factors.
In light of this, it would be unjustifiable for the FATF when conducting its
enforcement mechanisms, to name and shame countries which fall into this
category. For obvious reasons wealthy countries generally perform better in
assessments.
✓ This is how you do a discussion question.

II. “Central bank independence refers to the freedom of monetary

policymakers from direct political or governmental influence in the conduct
of policy.”

Walsh CE

a) In this context, what does independence mean? You should have done
enough research to see what the meaning of the word in this context
b) Why should central banks be independent? You should have found a
reason for this and if you don’t agree, give reason why not
c) Is Zambia’s Central bank independent? Depending on which side on the
fence you are, your research will lead you to the conclusion that the Central
Bank is independent, or not. Scrutinize the provisions of the law. See Read
the Constitution, Bank of Zambia Act and the Banking and Financial Services
Act.

III. Contrast and compare Joachimson v Swiss Bank Corporation [1921] 3 KB

110 from United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431.
Make a summary of these two cases and see in which respects they are the
same and in which they are different.eg. different facts, different problems,
both dealing with banking law etc

✓ Short answer questions are straight forward.

✓ You should know how to make a summary by now.
END
Activity 5
Think carefully about the following questions.
1. What is a bank?
You should have your own definition here.
Check the statutory definition too, as well as the definition by case
law, there is a common denominator. See if you can figure out what it
is.

2. What is its role in society?

You should have your own idea here.
Gilchrist should enhance your feelings of a bank’s role in society.
Read his article please.

3. What makes banks so special or different to other types of

institutions?
See Gilchrist. Do you agree with him?

4. What is banking law?

By this point, you have read the material on Banking. I’m sure you
have a firm idea.

✓ Remember “Comprehension” at school? This is when you use that

skill.
✓ I shared an updated set of slides with you. Please be sure to peruse
and understand.
END
Activity 4
Generally, no one can give better title than he/she has (section 21 Sale of Goods

Act, 1893). However, in Bishopsgate Motor Finance Corporation Ltd v Transport

Brakes Ltd, 1949 1 KB 322, the Court held that a purchaser in good faith, for value

and without notice should be able to defend an action brought by any other person

in relation to ownership of the goods. With that in mind, it is apparent then that

the law creates exceptions to the nemo dat rule.

***

Petita owns and runs a Pharmacy in Kabulonga, Le Petite PharmaC. There are

different services offered besides the dispensing of medicines. One can purchase

jewellery, pawn it, or even have it fixed. Webster comes in one day and selects a

beautiful and expensive pair of ruby earrings for his wife, Maureen. He tries to

make a payment but either the POS machine or his card has a problem as the

transaction is continually declined. Impatient, he goes out to use the ATM and pays

cash instead. He requests of Petita that she should “wrap it up” nicely and that he

will come by later on to pick it as he needs to rush back to the office. Petita agrees

but neglects to do so.

Later in the day, Fred comes in and wishes to purchase a beautiful pair of earrings

for his girlfriend, Maureen. He sees the ruby earrings and purchases them. He

delivers them to his love that very evening.

The next morning, Webster goes to Le Petite PharmaC and finds that the ruby

earrings are gone. Petita tells him that there was a break-in and the earrings

are one of the items which were stolen. Webster reports the matter to the

Inspector Chrissy at the police station.

Two days later a woman, Charmaine, comes in to report a matter of a fraud. She

lent one of her business partners money for their company and it seems he

purchased something outside of their agreement. She is not able to say what it

is but she managed to get a print out from the bank, she suspects the transaction

in question took place at something or somewhere called Le Petite PharmaC a few

early in the week. As she is narrating her story, Inspector Chrissy’s sharp eye

notices the ruby earrings she is wearing. They look exactly like, and fit the

description of the one’s reported by Webster, not too long ago.

Charmaine is invited by Inspector Chrissy to explain how she came into possession

of the earrings. She said her best friend Maureen sold them to her that very

morning because she did not want her husband to find them as they were

gift from her boyfriend and she could no longer hide them around the house.

Upon being told that she is in possession of stolen goods and may be in conflict

with the law, a visibly distressed Charmaine is allowed to call her husband, Fred,

to come and support her. Advise all the relevant parties.

The recommended formula for scenario questions is:

I -ISSUE

R/P -RULE/PRINCIPLE

A -APPLICATION

C -CONCLUSION

Recommended, means, it is a good idea to do this. I am not saying you should.

It makes thinking process clear and the structure is easy to follow.

As always, I am looking for an understanding of the principle-not whether you

have given me the correct or wrong advice. Even if it is wrong, have you correctly

applied and understood the principles? Correct principles should make sense too.

This is just an example. Not saying this is the answer.

Issue

1. This issue in this scenario is whether or not Charmaine can keep the earrings

(Create a question you want to answer/identify a problem)

Rule/Principle

The point of departure is s 21 of the Sale of Goods Act 1893 (hereinafter “the Act”)

which provides that no one can give better title than he himself has. Title refers to

ownership in goods. Thus, a simple way of understanding this provision is that if I

do not own something, selling or giving it you, cannot make you the new owner as

I have no rights to transfer ownership to you anyway. There are exceptions to this

rule which are applicable to this scenario.

(Drop and explain your law here).

Can’t find a law? Means it’s not a legal problem.

Application

In relation to the scenario above, it is clear that Webster entered into a valid

contract of sale when he purchased the earrings thereby making him the owner.

It can be inferred, too, that there is was an implied agreement that the seller would

remain in possession of the goods until Webster’s return. Here, Petita is the seller

in possession of the goods.

A seller in possession of goods can transfer property in goods even if they are a

non-owner, creating an exception to the nemo dat rule. However, this rule does

not apply because of bla bla bla (go back to scenario or explain rule). You should

have done that activity on Sale of Goods, remember it??

What is applicable though, is bla bla. The reason is bla bla bla.

(In your application you’re playing around with the rules and the facts.)

Conclusion

In view of the above, it is clear/it is most likely that bla bla bla (address your issue)

END