Awareness Programme

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 Money Laundering Definition

Money laundering is the

Money is put through a
process of illegally concealing
number of stages to make it
the origin of money, obtained
look like it is legitimate.
from illicit activities.

Money is dirty if it originates

Sometimes it is also referred
from a illegal source such as a
to as ‘washing money’
crime, i.e. drugs.

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 Definition from International Conventions

✓ Known as the ‘United Nations Convention for Transnational

Organized Crime’ it defines Money Laundering as;
✓ Possession or using property knowing that it was derived from a
criminal offence.
Palermo Convention 2000 ✓ Concealing or disguising the true origin of proceeds or assisting
anyone who has been involved in a crime to evade legal action.

✓ Money Laundering has been described ‘as the process which the
Vienna Convention 1987 proceeds of crime have been put through a series of transactions
which disguise their illicit origins, and make them appear to have come
through a legitimate source’.

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 The Crime of Money Laundering in UAE

Any Person, having the knowledge that the funds are the proceeds of a Felony or a Misdemeanour, and who
wilfully commits any of the following acts , shall be considered a perpetrator of the Crime of Money
Laundering.

Transferring or moving proceeds, or conducting any

Acquiring, possessing, or using proceeds upon
transaction with the aim of concealing or disguising
receipt.
their illegal source.

Assisting the perpetrator of the predicate offense

to escape punishment.

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Money Laundering generally refers to the ‘washing’ of proceeds generated from some of the below;

Drugs, Bribery, Corruption

Prostitution, Kidnapping, Extortion

Gambling, Robbery, Terrorist Act

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 Predicate Offence

→ A Predicate Offence or Predicate Crime refers to a Crime which is a Component of a Larger Crime.

→ In a Financial Context, the Predicate Crime would be any Crime that Generates Monetary Proceeds.

→ The Larger Crime would be Money Laundering or Financing of Terrorism.

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International Regulators Call on all Countries to Recognise the below offences and have Appropriate
Punishments in Place

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Money Laundering Cycle

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 Money Laundering Sources, Process, Methods

3 Stages 1 Placement 2 Layering 3 Integration

Goal Goal Goal

To Deposit Criminal Conceal the origin of Create an apparent
Source Of Funds Legal origin of the
Proceeds into the the Criminal Proceeds.
✓ Drugs Proceeds.
Financial System.
✓ Corruption
✓ Theft
✓ Bribery Methods Methods Methods
» Currency Smuggling » Cash Deposit into » Property Deals
» Blending of Funds Multiple Accounts » Front Companies
» Asset Purchase » Withdrawal of Cash » Disguise ownership
» Bank Complicity » Wire Transfer of Assets
» Currency Exchange » Cash Converted into » False Invoices
Monetary » Foreign Bank
Instruments Complicity

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 3 Categories Relating to Professional Money Laundering (PML)
Professional Money Launderers (PMLs) that Specialise in Enabling Criminals to Evade Anti Money Laundering
and Counter Terrorism Financing Safeguards and Sanctions in order to Enjoy the Profits from Illegal Activities.

Individual PML Organisational ML Network Based PML

► An individual PML, who possesses
specialised skills or expertise in
placing, moving and laundering
funds.
► They specialise in the provision of
ML services, which can also be
performed while acting in a
legitimate, professional occupation.
► Examples include accounting
services, financial or legal advice,
and the formation of companies.
• A Professional money laundering
organisation (PMLO), which
consists of two or more individuals
acting as an autonomous,
structured group that specialises in
providing services or advice to
launder money for criminals or
other OCGs.
• Laundering funds may be the core
activity of the organisation.
► A Professional money laundering
network (PMLN), which is a
collection of associates or contacts
working together to facilitate PML
schemes and/or subcontract their
services for specific tasks.
► These networks usually operate
globally, and can include two or
more PMLOs that work together.
► These interpersonal relationships
are not always organised, and are
often flexible in nature.
10
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 Cash Intensive Businesses

→ Restaurant
→ Grocery Store
A Business that Receives Significant → Car Wash
Amounts of Cash in Receipts
→ Vending Machines
→ Car Park

✓Construction Companies
✓Moving/Haulage Companies
A Business in an Industry that Receives ✓Independent Contractors
Cash Payments for Services

► Launder large amounts of cash, which are proceeds of criminal activity, by claiming
Risks that the funds originate from economic activities;
► Launder amounts of cash, which are proceeds of criminal activity, by justifying its origin
based on fictitious economic activities (both for goods and services) 11
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12
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 Terrorist Financing
United Nations 1999 International Convention for the Suppression of Financing of Terrorism

Collecting funds with the Funding that leads to Terrorist financing

intention that they Harm or injury to any involves the solicitation,
should be used in any person not actively collection or provision of
Act that cause Death or taking part in the funds with the intention
serious bodily injury to a hostilities in a situation that they may be used
Civilian. of Armed Conflict. to support terrorist acts
or organizations.

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Funding : Sources/ Methods/ Access

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 Formal Movement
► Funding methods include
through the Financial
use of both the informal
System
and formal financial
systems.
Informal Movement ► Terrorists will use both
Funding comes from systems to ensure there is
includes cash
Clean & Dirty Money
through Borders a consistent flow of funds
to sustain their ability to
function.
► This will include Bulk
Cash, Illegal Money
Remitters, Banks, Credit
Terrorist
Cards, Virtual Currency,
Financing Shell & Front
Companies......
All of these
mechanisms serve
as facilitation tools.
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 Money Laundering & Terrorist Financing Are Linked

Terrorist Financing is
Most of Terrorist Considered to be an Open
Not all Money Loop, as it does not remain
Financing is
Laundering is
Related to with the original
Terrorist
Money Contributor of the Funds
Financing
Laundering
The Primary Goal of Individuals or an Entity
in Terrorism Financing is therefore not
Necessarily to Conceal the Sources of Money
but to Conceal both the Funding Activity and
Proceeds of Funds for Terrorist the Nature of the Funded Activity.
Money Financing
Laundering always originate from
originate from a Legal and Illegal
Crime Sources Money Laundering is
Considered to be a Closed
Loop, as it remains or comes
back to the owner
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 Comparison of Organised Crime to Terrorism Financing

Organised Crime Terrorist Groups

→ Motivated By Profit/Greed → Motivated by Ideology
→ Seek Economic Ends → Seek Political Ends
→ Engage in Corruption → Engage in Corruption
→ Network & Cell Based Structure → Network & Cell Based Structure
→ Requires Safe Havens → Requires Safe Havens
→ Needs to Recruit New Members → Needs to Recruit New Members
→ Requires Specialists → Requires Specialists
→ Group Identity Important → Group Identity Important
→ Threat of Violence → Threat of Violence
→ Select Targets who Pose Threat → Select Symbolic Targets
→ Avoid Public Attention → Seek Public Attention
→ Money Laundering an Essential Tool → Money Laundering an Essential Tool

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 Case Example

► The September 11 hijackers used US and foreign financial institutions to hold, move, and retrieve their money which
enabled them to carry out their terrorist activity.
► They deposited money into US accounts, primarily by wire transfers and deposits of Cash or Travellers Cheques
brought from overseas.
► Several of the hijackers kept funds in foreign accounts that they accessed in the US through ATM and Credit Card
transactions.

● The hijackers received funds from facilitators in Germany and the UAE as the transited through Pakistan before
arriving in the US.
● The Al Qaeda plot was estimated to cost around 650,000 US Dollars at the time, and the vast amount of that passed
through the hijackers accounts while in the US.
● While in the US, the hijackers spent the majority of the funds on Flight training, Travel, and Living expenses.
● There were 19 hijackers and they opened 24 bank accounts at 4 different banks.

Through reconstruction of available Financial Information, the FBI and the Internal
Revenue Service established how the hijackers responsible for the attacks
received their money and how the money was moved into and out of their
accounts.
The following Financial profiles were developed from their Domestic Accounts. 19
19
✓Accounts were opened with
cash/cash equivalents in
average amounts of $3,000 to
$5,000.
✓Identification used to open the
accounts were visas issued
through foreign governments.
✓Accounts were opened within
30 days after entry into the
United States.
✓Addresses used usually were
not permanent addresses, but
rather were mail boxes and
were changed frequently.
✓Twelve hijackers opened
accounts at the same bank.
►Some accounts directly
received and sent wire
transfers of small amounts to
and from foreign countries
such as United Arab Emirates
(UAE), Saudi Arabia and
Germany.
►Overall transactions were
below reporting requirements.
►Funding of the accounts was
by cash and overseas wire
transfers.
►After a deposit was made,
withdrawals occurred
immediately.
Hijackers on all four flights
purchased traveller's checks
overseas and brought them into
the US Some of these traveller's
checks were deposited into their
US checking accounts.
One of the hijackers received
substantial funding through wire
transfers into his German bank
account in 1998 and 1999 from
an individual.
In 1999, this same hijacker
opened an account in UAE,
giving a power of attorney over
the account to the same
individual who had been wiring
money to his German account.
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21
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 Money Laundering Statistics from Around the World
Approximately $300
1 billion is Laundered
through the United
States Each Year
Anti-money laundering
2 attempts only recover
only 0.1% of criminal
funds.
An estimated £88
3 billion is laundered
every year in the UK
The most common form
4 of money laundering is
known as smurfing (or
structuring).
It has been reported by
authorities that every
5 year $15 billion streams
out of Russia through
money laundering
About half of cases
reporting money
6 laundering in Latin
America show that banks
were involved.
$18 billion is lost
through money
7 laundering in India
every year, which
makes India a big target
Dh3 billion were
confiscated from
8 companies for violating
anti-money laundering
law in UAE
Authorities found
9 Ferdinand Marcos hid
almost $500 million in
Swiss bank accounts.
In 1998, the Swiss Finance
Ministry said that the
10 nation was involved in
$500 billion of money
laundering every year.
 The Economic and Social Consequences of Money Laundering

Increased Exposure to Organized Crime and Corruption:

→ Successful money laundering enhances the profitable aspects of criminal activity.
→ When a country is seen as a haven for money laundering, it will attract people who commit
crime.

Typically, havens for money laundering and terrorist financing have the following;
► Limited numbers of predicate crimes for money laundering (i.e., criminal offenses that may
permit a jurisdiction to bring a money laundering charge).
► Limited types of institutions and persons covered by money laundering laws and regulations.
► Little to no enforcement of the laws, and weak penalties or provisions that make it difficult to
confiscate or freeze assets related to money laundering.

In countries with weaker

laws and enforcement, it
is corruption that triggers
money laundering.

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 Undermining the Legitimate Private Sector

● Money launderers are known to use front companies: businesses that appear legitimate and
engage in legitimate business but are in fact controlled by criminals who blend the proceeds
of illicit activity with legitimate funds to hide the ill-gotten gains.

● These front companies have a competitive advantage over legitimate firms as they have
access to substantial illicit funds, allowing them to subsidize products and services sold at
below market rates.

This makes it It also provides a

difficult for legitimate vehicle for evading
businesses to compete taxes, thus depriving
against front the country of
companies. revenue.

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 Weakening Financial Institutions
● Money laundering and terrorist financing can harm the soundness of a country’s financial
sector.
● They can negatively affect the stability of individual banks or other financial institutions,
such as securities firms and insurance companies.

Dampening Effect on Foreign Investments

● There is a dampening effect on vestment when a country’s commercial and financial sectors
are perceived to be compromised and subject to the influence of organized crime.
● To maintain a business-friendly environment these impedances have to be weeded out.

Loss of Control of, or Mistakes in, Decisions Regarding Economic Policy

● Due to the large amounts of money involved in the money laundering process, in some
emerging market countries these illicit proceeds may dwarf government budgets.
● This can result in the loss of control of economic policy by governments or in policy mistakes.

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 A reputation as a money laundering or terrorist financing haven can harm development
Reputation and economic growth in a country.
Risk for the
It diminishes legitimate global opportunities because foreign institutions find the extra
Country scrutiny involved in working with institutions in money laundering havens is too
expensive.

In order to protect the financial system from money laundering and terrorist
Risk of financing, the United States, the United Nations, the European Union, and other
International governing bodies may impose sanctions against foreign countries, entities or
Sanctions individuals, terrorists and terrorist groups, drug traffickers, and other security
threats.

Comprehensive Comprehensive sanctions prohibit virtually all transactions with a specific country.
or Targeted Targeted sanctions prohibit transactions with specified industries, entities, or individuals
Sanctions listed.

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 Advantages of a Powerful AML / CTF framework
Elevating the stability of financial
institutions
• Money laundering gives birth to
many financial risks, and
fortunately, there are sound
banking practices that reduce
these risks.
• These risks include fraud,
violation of laws and regulations.
• Customer Due Diligence (CDD)
processes and Know Your
Customer (KYC) are the essential
part of an effective AML and CTF
regime.
One of the excellent ways to reduce
money laundering is to implement AML
and CTF programs effectively.
Below are a few benefits of having a
robust AML / CTF framework:
Encouraging Economic Development
• Money laundering directly impacts the economy
of a country in a negative manner.
• The laundered amount is usually placed in sterile
investments to preserve their original value or
making them more easily transferable to other
productive avenues for further investments.
• These investments clearly include high-value
consumption assets like real estate, jewellery, art,
luxury cars, or antiques.
Fighting Corruption and Crime
• A steady AML and CFT
institutional framework, which
incorporates a broad premise for
crimes like money laundering,
helps in fighting corruption and
crime.
• An effective AML and CFT
framework regime is a deterrent
to any sort of criminal activity.
• The confiscation and seizure of
the proceeds of money
laundering activities are vital to
the success of any AML program
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 Thirteen given prison sentences by Dubai court over Dh185 million money laundering plot

The group established three shell Defendants transferred the

companies and duped clients into
believing they belonged to the
law company
• The gang of international fraudsters
stole large cash payments, intended
for an Emirati law firm, from major
clients over a period of six years.
money through a number of
banks and exchange centres to
people in Egypt, Morocco,
Jordan among other countries.

• The clients targeted included car The defendants were accused of

They issued fake invoices and
manufacturer BMW, a major car
receipts to the unwitting victims
agency in the UAE, a Swiss watches
in order to obtain the cash
group, and Japanese Kyocera Group,
court records showed.
forging official documents and
using them to set up four legal
consultancy firms in different
countries while illegally
obtaining the firm’s money.

The funds were then transferred
to accounts set up by the
criminal enterprise. Some were
employees in Legal Company
✓ They were found guilty of charges including money
laundering, fraud and forgery, with 13 given prison terms The court ordered the
of between one and three years. confiscation of all assets owned
✓ Two of the group's members were fined Dh20,000 each for by the defendants to help
recover the laundered amounts.
their roles in the crime.
✓ The three shell companies were each fined Dh500,000.
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 GATEKEEPERS

✓ Notaries
✓ Accountants
✓ Auditors
✓ Lawyers

► Countries around the world have been putting responsibilities on professionals, such as
lawyers, accountants, company formation agents, auditors and other financial intermediaries,
who have the ability to either block or facilitate the entry of illegitimate money into the
financial system.
► The responsibilities of such gatekeepers include requiring them to identify clients, to conduct
due diligence on their clients, to maintain records about their clients and to report suspicious
client activities.
► Rules also prohibit gatekeepers from informing or tipping off clients who are the subject of the
suspicious transaction reports.

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 FATF Released a Typology Report Stating that the Following Functions Provided by Lawyers, Notaries,
Accountants and other Professionals are the most useful to a Professional Money Launderer.

Creating & Managing Corporate Vehicles or other Complex Legal Arrangements such as Trusts.
Corporate
Vehicle These Arrangements are used to obscure the Links between the Proceeds of Crime and the Perpetrator.

Buying or Selling Property. Property Transfers serves as either the Cover of illegal Funds ( Layering
Property Stage ) or the Final Investment of Proceeds after they pass through the initial Laundering Process
( Integration Stage )

Financial Sometimes these Professionals may carry out various Financial Operations on Behalf of the Client.
Transactions Example: Buying & Selling Stock, Making Deposits & Withdrawing Funds, Issuing & Cashing Cheques.

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35
 Criminals with Large Amounts of Cash To Invest May Pose As Individuals Hoping To Minimize Tax Liabilities
Tax Advice Or Seeking To Place Assets out of Reach In Order To Avoid Future Liabilities.

Providing Instructions To Financial Institutions.

Various Undertaking Certain Litigation.
Setting up And Managing A Charity.

► In Many Cases, Criminals Will Use Legal Professionals to Provide An Impression Of Respectability In Order
to Dissuade Questioning or Suspicion From Institutions and to Create an Added Step in the Chain of any
Possible Investigations.

The Report also Describes Red

Flag Indicators of Money
Laundering & Terrorist
Financing 36
36
 The Client
► Is overly secretive.
► Is using an agent or an
intermediary or avoids
personal contact without
a good reason.
► Is reluctant to provide or
refuses to provide
information or
documents usually
required to enable the
transaction’s execution.
► Holds or has previously
held a senior public
position, or has
professional or family ties
to such individuals.
► Shows unusual interest
and asks repeated
questions on the
procedures for applying
ordinary standards.
► Is known to have ties to
criminals.
The Parties
► Are native to, or residents
in, or are incorporated in
a high-risk country.
► Are connected without
an apparent business
reason.
► Are tied in a way that
generates doubts as to
the real nature of the
transaction.
► Appear in multiple
transactions over a short
period of time.
► Attempt to disguise the
real owner or parties to
the transaction.
► Are incapacitated or
under legal age and there
is no logical explanation
of their involvement.
Source of Funds The Lawyer
► Is provided using unusual ► Is at a significant distance
payment arrangements. from the client or
► Is collateral located in a transaction without a
high-risk country. legitimate or economic
► Represents a significant reason.
increase in capital for a ► Does not have
recently incorporated experience in providing
company, including the particular services
foreign capital, without a needed.
logical explanation. ► Is being paid substantially
► Stems from large financial higher than usual fees
transactions that cannot without a legitimate
be justified by the reason.
corporate purpose. ► Is frequently changed by
► Represents unusually high the client, or the client
capital in comparison has multiple legal
with similar businesses. advisors without
legitimate reason.
► Is providing services
previous refused by
another professional.
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 FATF cites the following example in its typologies report of how a lawyer may help set up a complex
laundering scheme

Case; An Attorney was convicted by a jury of conspiracy to commit Money Laundering

● The Attorney helped his Client to invest drug proceeds by forming a company in the name of his Clients
wife.

● The Attorney then arranged a loan from that Company to another Non Criminal Client.

● The Attorney then drafted a fake Construction work Contract, making the repayment of the loan appear
to be payment for Construction work performed by the Company.

● The Attorney then drew up a promissory note which the wife signed, but did not provide copies to either
party.

● The Attorney also advised his Client how to deposit the cash from the loan without triggering reporting
requirements.

● The Attorney was sentenced and highlighted that he used his ‘Special Legal Skills’ to Commit the offence.
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 Wilful blindness

Describes a situation in which a person

seeks to avoid civil or criminal liability for
a wrongful act by intentionally keeping
Sometimes called them self unaware of facts that would A legal principle in
“ignorance of law” render him or her liable or implicated. Money Laundering
or “Purposeful particularly related to
indifference” ‘’Gatekeepers’’

Gatekeepers
They are deemed to have a
particular role in identifying,
These are professionals such as lawyers, notaries,
preventing and reporting
accountants, investment advisors, and trust and
money laundering.
company service providers who assist in
transactions involving the movement of money.
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What Are DNFBPs

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 Methods of Money Laundering

● Money laundering is an ever-evolving activity; it must be continuously monitored in all its various
forms in order for measures against it to be timely and effective.

● A shift in laundering activity into the non-bank financial sector and to non-financial businesses
and professions has risen sharply.

► A money launderer will seek to operate in and around the appropriate system in a manner that
best fits the execution of the scheme to launder funds.

► FATF and FATF-style regional bodies publish periodic typology reports to “monitor changes and
better understand the underlying mechanisms of money laundering and terrorist financing.”

► Objective is to report on some of the “key methods and trends in these areas”

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 Structuring & Micro structuring

● Structuring is designing a transaction to evade triggering reporting requirements or a record

keeping requirement ( Example, structuring a transaction below $10,000 or equivalent currency )

● It is a crime in most countries and must be reported by filing a Suspicious Transaction Report STR

● Structuring is recognised as the most common method of Money Laundering.

● The individuals engaged in Structuring are referred to as Runners or Smurfs and they may be
the Launderers or are employed by the Launderers.

● They go from Bank to Bank depositing Cash and/or purchasing Monetary Instruments in
amounts under the reporting threshold.

● Micro structuring is the same as Structuring except that it is done at a much smaller level.

● The Smurf/Runner breaks the amount into smaller deposits making the Suspicious Activity more difficult to
detect. 42
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43
 Money Laundering in Real Estate

Overview
► Real Estate is frequently sold and resold in fairly quick succession in order to launder funds to try to
make it appear as the money is originating from a legitimate source through the sale of the property.

► Money Laundering in Real Estate can occur in any of the three stages of the Money Laundering process
whether it is Placement, Layering, or Integration.

Placement Layering Integration

✓ A Criminal may use illicit cash in
the Real Estate sector by
purchasing the property in
Cash.
✓ A Criminal may conceal the true
origin of the illicit funds by
selling and purchasing a number
of properties.
✓ A Criminal may sell the property
and invest the funds in stocks as
an example by using the
paperwork from the sale to
demonstrate an apparent
source of funds.

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44
 Some Possible Red Flags in Real Estate
Country Risk
→ Location of the property in
relation to the buyer.
→ Regions which do not have
robust regulations in place
covering Real Estate.
→ Countries known to have
high levels of Corruption &
Bribery.
Customer Risk
♦ Anonymous owners through
Companies and Trusts.
♦ Cash intensive Businesses.
♦ The use of intermediaries
who are not subject to AML
regulations or supervision.
♦ Politically Exposed People
(PEP)
♦ People with Criminal History.
Transaction Risk
► The speed of the transaction
where it is expedited without
valid reason.
► Purchase with large amounts
of Cash.
► Crypto Payments.
► Use of Complex Loans or
other obscure Financial
Arrangements.
► Property not in line with the
profile of the Purchaser.
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In Australia, AUSTRAC identified Real Estate to be a significant Money Laundering Channel there and is very
Lucrative to the Launderer for the Following reasons:

01 03 05
Reasons Methods in Australia Methods in Australia

• It Can be • Structuring cash • Use of Gatekeepers

Purchased in Cash. deposits used for the to conceal criminal
• The Ultimate purchase. involvement.
Beneficial Owner • Use of Shell, Front, • Use of third party
can be disguised. Trust Companies to buyers known as
hide ownership. ‘Cleanskins’

02 04 06
Reasons Methods in Australia Methods in Australia

• It is a stable and • Use of Loans and • Conducting criminal

reliable investment. Mortgages as a activity at the
• Value can be cover for Laundering. property such as
increased through • Generation of Rental growing drugs,
renovations and income to legitimize brothel.
improvement. illicit funds.
 Common Red Flags Globally in Real Estate
Use of third parties
Example: using a friend or
family member to purchase
property on their behalf
Unusual loans or mortgages
Example: using ‘loan-back’
schemes through offshore
lenders
Manipulation of property
values
Example: buying or selling at a
price well above or below
market value with the
difference made up by
undisclosed cash payments
Structuring cash deposits
Renovations and
Example: paying a large improvements
deposit for a property with
Example: using illicit funds for
bank cheques from several
the renovations or extension
banks
Using rental income to
Front, Shell, Trust
legitimize funds
Purpose; to distance the
Example: by providing the
criminals from the property
‘tenant’ – a collaborator with
they own
funds to cover rent payments
Use of professional
Purchase of real estate to
facilitators
facilitate other criminal
activity Purpose; to maintain a buffer
between the criminals and
Example: drug houses
their assets
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 Money Laundering in Travel Agencies

Travel agencies can also be used as a means for money launderers to mix illegal funds with clean
money to make the illegal funds look legitimate, by providing a reason to purchase high-priced
airline tickets, hotels and other vacation-related expenses.

Money laundering can occur in travel agencies in the following manner

► Purchasing an expensive airline ticket for another person who then asks for a refund.

► Structuring wire transfers in small amounts to avoid record-keeping requirements, especially

when the wires are from foreign countries.

► Establish tour operator networks with false bookings and documentation to justify significant
payments from foreign travel groups.

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 Travel Agency used as a Front by Terrorists
• A travel agency was created on Bintan
Island, Indonesia as a cover for the Islamic
State in Iraq and Syria (ISIS) to facilitate the
safe passage of other terrorists.
• The agency was created by Indonesia
militant suspect Gigih Rahmat Dewe with
an initial seed money of ($2,800) from his
handler, Bahrun Naim, who is an ISIS
operative in Syria known to be involved in
several terror plots in Indonesia.
• Gigih and Bahrun discussed that this
arrangement could provide a legitimate
cover for money laundering and could also
generate revenue for their cause.
Harder to track terrorists
♦ Terrorists are using legitimate businesses which in
turn makes them harder to detect as compared to
money launderers.
♦ Unlike money launderers, funds need not be
significant enough to promote their cause.
(FATF) identifies four key areas to further strengthen
1. Action to address jurisdictional issues including
safe havens and failed states.
2. Outreach to the private sector to ensure the
availability of information (in the form of
Suspicious Transactions Reports) to detect
terrorist financing.
3. Building a better understanding across public and
private sectors.
4. Enhancing financial intelligence. 49
 Vehicle Sellers

→ Criminals will often use expensive assets, including cars, boats and even luxury planes, to disguise illegal funds and
later convert them into cash.
→ Money laundering through vehicle sales is a simple process. Criminals purchase a vehicle with illegal cash and sell
it elsewhere as a legitimate asset in another country.

Laundering risks and ways laundering can occur through vehicle sellers include:
▪Structuring cash deposits below the reporting threshold, or purchasing vehicles with sequentially numbered checks or
money orders.
▪Trading in vehicles and conducting successive transactions of buying and selling new and used vehicles to produce
complex layers of transactions.
▪Accepting third-party payments, particularly from jurisdictions with ineffective money laundering controls.

► In other instances, criminals will avoid detection by well-regulated formal banking systems by paying for vehicles
through cash, mobile apps, prepaid cards or even straw buyers and seemingly legitimate front businesses.
► Criminal dealerships also occasionally exchange vehicles to launder money, falsifying sales documents or even
failing to deliver the vehicles to camouflage illicit funds. 50
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 Art & Antiques

● The world of art and antiques trading is widely portrayed as a glamorous hobby reserved for the rich and
famous, while loosely regulated in many countries it’s a very attractive way for criminals to disguise their
illicit proceeds and even make a substantial profit.

● Transactions in art and antiquities have historically been ideal methods to launder money, as objects can be
smuggled across borders and hidden or stored in ultra-secure warehouses in freeports for years or decades
after the sale.

● Example, Imagine: A corrupt politician decides to ‘clean’ their money. They anonymously buy a Van Gogh
painting for cash at an auction and transport the piece via a private plane to a secure warehouse. The
politician can then sell the painting through a legitimate art dealer and obtain ‘clean’ money, completing
the money laundering cycle.

Why Money Launderers use the Art Market

✓ The anonymity of the buyer and seller, Offshore or Foreign Accounts are commonly used.
✓ Industry not regulated in many Countries, Intermediaries are widely used for transactions.
✓ Value of the Art can be high and supply is limited making it very appealable, Confidentiality of Transacting Parties.
51
 The Illicit Antiquities Trade and Terrorist Financing

► Illicit antiquities fund terrorism both in conflict zones and in the West.
► The 2016 attack in Brussels was linked to cultural racketeering through suicide bomber Khalid El Bakraoui.
► In these such attacks, just a few antiquities can provide funding for a large cache of weapons.
► For example, the cost of the November 2015 attacks in Paris totalled just $88,160, including telephones,
false identification, travel and other costs.
► In that one attack alone, the cost of false identification amounted to $5,370—the cost of a relatively
inexpensive antiquity.

● The following Infographic illustrates

concerning facts about the illicit antiquities
trade and its links to terrorist activity.

52
53
 Precious Metals/Jewellery

● The smuggling, stealing, and trading of precious metals, stones, or gems are pretty frequent and regular.
● For instance, criminals or money launderers use dirty money in order to buy gold, diamond, and other
precious metals or stones.
● The money launderers or criminals then resell the precious metals or stones to bring the money into the
financial markets again and tag it as legitimate or authentic.
● Owing to their size and value, they offer a lucrative route to market for Money Launderers through easy
transportation, easy to hide, and hold their value as an investment.

Potential Red Flags

► Payments are made in cash. Usually, in a transaction of precious stones or metals, large amounts are involved.
► But if the payments are split in cash, multiple money orders, cashier’s cheque, or traveller's cheque, or are being
paid through a third-party account. Then you might suspect the probability of money laundering.
► The customer is not willing to provide complete or accurate financial references, contact information, or any type
of business affiliations.
► The supplier or customer attempts to maintain a high degree of secrecy about a transaction, like normal business
records should not be maintained.
54
 £104m Dubai money laundering mission.

► A network of couriers who smuggled more than £100 million ($124 million) of criminal cash in suitcases from the
UK to Dubai was found guilty following a trial of one of the largest money laundering scams ever recorded.

► In total 11 couriers have been convicted alongside the ringleader, the National Crime Agency said .In less than a
year, the couriers flew more than 80 flights, carrying cases full of drug money.

● The group communicated on a WhatsApp group called Sunshine and Lollipops.

● The couriers were given business class flights to take advantage of a larger luggage allowance and check-in closer
to the departure time, investigators said.

▬ Around £500,000 was crammed into suitcases that were then packed with coffee granules or sprayed with air
freshener to disguise the scent from sniffer dogs.
▬ The money, said to be cash from drug dealing, was collected from crime gangs around the UK before being
counted in London, the NCA said. The couriers themselves were paid around £3,000 per trip.
▬ Cash smugglers typically work on behalf of international controller networks, who move the finances of the
international drug trade, people traffickers, fraudsters and other criminal groups, making the source of the
money difficult to trace. 55
56
Authorization letter from
Emirati Ring leader
approving transport of
money from U.k. to Dubai in
relation to his business
registered here.

57
 Why money launderers prefer using gold for money laundering

► Gold is an extremely attractive vehicle for laundering money. It provides a way for criminals to convert their
illicit cash into anonymous, transferable assets.
► For some societies, gold carries an important cultural or religious significance that adds to its demand.

Reasons why Gold for Money Laundering is used

Contango Liquidity Over the Counter Transformable

This means the Future price
of gold is greater than the
spot price.
The liquidity of gold is high
when compared to other
investments.
We can get cash instantly
without any bank account.
Gold can be sold anywhere
over the counter and isn’t
controlled by any exchange.
It’s much easier to find
buyers or sellers for Gold.
Gold can be changed into
many forms (Jewellery) and
denominations (Coins /
Bars) without losing the face
value. Also helps with
Smuggling.

Regulatory Reporting Global Currency Tax Return on Investment

Many Countries don’t have
regulations relating to
submission of Cash
Transaction or Suspicious
reports.
One can buy or sell gold
anywhere around the globe.
One can buy it in the eastern
part of the world and sell it
in the west without losing
the face value.
There is no tax associated
with gold when you go with
an investment perspective.
The sales tax or VAT is all
that you pay.
Unlike Stocks/Bonds, Gold
will give reliable returns
depending on the market
rate.
58
 𝐒𝐡𝐞𝐥𝐥 C𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬

A shell company can be used to launder money by concealing

the true ownership of assets and making it difficult for
authorities to trace the origin of funds.

This allows the laundered money to be integrated into the

legitimate financial system and makes it appear as though the
funds are the proceeds of legitimate activities.

To prevent the abuse of shell companies for money laundering,

many countries have implemented laws and regulations that
require companies to disclose their beneficial ownership
information and to take steps to prevent the misuse of shell
companies for illegal purposes.

59
59
𝐇𝐨𝐰 𝐚𝐫𝐞 𝐒𝐡𝐞𝐥𝐥 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐮𝐬𝐞𝐝 𝐢𝐧 𝐌𝐨𝐧𝐞𝐲 𝐋𝐚𝐮𝐧𝐝𝐞𝐫𝐢𝐧𝐠 ?

•The money launderer creates a shell company in a jurisdiction with lax

Incorporation disclosure requirements, or by using nominee directors and
shareholders to conceal the true ownership of the company.

•The shell company opens a bank account in its name, and the money
Bank Account launderer deposits the proceeds of illegal activities into the account.

•The money launderer uses the shell company to conduct a series of

Layering financial transactions, such as buying and selling assets, or making
wire transfers, in order to create a complex trail of transactions that
makes it difficult for authorities to trace the origin of the funds.

•The money launderer uses the shell company to integrate the

Integration proceeds of illegal activities into the legitimate financial system by
investing the funds in legitimate assets or businesses.

60
60
 Trade Based Money Laundering

● FATF ( Financial Action Task Force ) defined trade-based money laundering (TBML) as the process of
disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to
legitimize their illicit origins.
● In practice, this can be achieved through the misrepresentation of the price, quantity or quality of imports
or exports.

► Money launderers can move money out of one country by simply using their illicit funds to purchase high-
value products, and then exporting them at very low prices to a colluding foreign partner, who then sells
them in the open market at their true value.
► To give the transactions an air of legitimacy, the partners may use a financial institution for trade financing,
which often entails letters of credit and other documentation.

→ International Guidance refers to six ways to execute trade-based money laundering:

61
 Over-invoicing or Under-invoicing

Over-invoicing: By invoicing the goods or service at a price above the fair market price, the seller is able to receive
value from the buyer (i.e., the payment for the goods or service will be higher than the value that the buyer
receives when it is sold on the open market).

Under-invoicing: By invoicing the goods or service at a price below the fair market price, the seller is able to
transfer value to the buyer (i.e., the payment for the goods or service is lower than the value that the buyer will
receive when it is sold on the open market).

Over-shipping or Short-shipping

● The difference in the invoiced quantity of goods and the quantity of goods that are shipped whereby the buyer
or seller gains excess value based on the payment made.
● These methods of TBML involve sending more or less than is declared to Customs, allowing money launderers to
move value between jurisdictions.
● This can also involve disguising goods as something they are not, such as melting gold into the form of common
items like wrenches and belt buckles. 62
63
 Ghost-shipping

● This is the process of simply making up fictitious trades wherein the buyer and the seller collude to provide
documentation that a trade took place.
● The banks financing the transaction may then transfer the funds even though nothing was actually exchanged.
● Through the use of shell companies, criminals can act as both “buyer” and “seller” if they are able to hide the
fact they control both entities in the transaction.

Shell Company
► Primarily used to reduce the transparency of ownership in the transaction.

Multiple Invoicing
♦ Numerous invoices are issued for the same shipment of goods, thus allowing the money launderer the
opportunity to make numerous payments and justify them with the invoices.

Black market trades

▬ Commonly referred to as the Black Market Peso Exchange whereby a domestic transfer of funds is used to pay
for goods by a foreign importer.

64
65
66
 Types of Products Involved in TBML

● Precious Metals
● Automobiles
● Textiles
● Electronics

Countries Involved in TBML

▬ Nigeria ▬ Peru
▬ Hong Kong ▬ United Kingdom
▬ Mexico ▬ Free Trade Zones
▬ Venezuela
▬ Panama
▬ China
▬ Colombia
▬ United Arab Emirates
▬ Ecuador 67
 Credit Unions
● A credit union ,is a type of financial institution similar to a commercial bank, it is a member-owned non-profit
financial cooperative.
● Although they offer many of the same products and services as other financial institutions, credit unions have
some distinguishing characteristics that make them unique such as the following;

► Credit unions are owned and controlled by the people, or members, who use their services.
► Profits made by credit unions are returned back to members in the form of reduced fees, higher savings rates
and lower loan rates.
► Credit unions are service driven whereas banks are profit driven.
► If you have any outstanding loan from the credit union when you die, your loan dies with you!

♦ Credit unions have a presence in approximately 120 countries with over 88,000 credit unions.

68
The United Kingdom’s Joint Money Laundering Steering Group (JMLSG) stated although credit unions pose a low
money laundering risk due to their smaller average size and fewer products offered, they are still vulnerable to money
laundering and terrorist financing schemes.

In a guidance document published by the JMLSG, the group concluded that high-risk transactions include:

money transfers to third parties.

third parties paying in cash for someone else.
 reluctance to provide identity information when opening an account.
unusual activity in the accounts of children

► The JMLSG even advised credit unions to watch for unusual activity in the accounts of children because parents could
be trying to use those funds for illicit purposes, thinking such transactions would draw less attention.

► Examples in the past have shown that even bankrupted companies continued their operations on the bank accounts
of children.
69
 Credit Cards

▪ Credit card accounts are not likely to be used in the initial placement stage of money laundering because
the industry generally restricts cash payments.

▪ They are more likely to be used in the layering or integration stages.

Example
1. Money launderer Josh prepays his credit card using illicit funds that he has already introduced into the banking
system, creating a credit balance on his account.
2. Josh then requests a credit refund, which enables him to further obscure the origin of the funds. ( Layering )
3. Josh then uses the illicit money he placed in his bank account and the credit card refund to pay for a new kitchen.

→ Through these steps he has ( integrated ) his illicit funds into the financial system.

1. A money launderer places his ill-gotten funds in accounts at offshore banks and then accesses these funds using credit
and debit cards associated with the offshore account.

2. Alternatively, he smuggles the cash out of one country into an offshore jurisdiction with lax regulatory oversight,
places the cash in offshore banks and accesses the illicit funds using credit or debit cards. 70
 Prepaid Cards

Prepaid cards don’t require a bank account and can be used to pay for
goods and services.
Issued by banks and other financial services firms, prepaid cards are
pre-loaded and reloaded with funds and can be purchased on behalf of
others.

Unlike credit and debit cards, prepaid cards do not require an

evaluation of the cardholder’s creditworthiness or the existence of a
payment account.
Some prepaid cards can be used to withdraw money from ATMs.

Prepaid cards have the same characteristics that make cash attractive
to criminals: they are portable, valuable, exchangeable and
anonymous.
71
 Why Do Money Launderers Use Prepaid Cards?
Anonymity
● Prepaid cards can be purchased
without the same customer due
diligence (CDD) identification
and verification measures
associated with other payment
cards.
Funding methods
● The origin of funds loaded
onto prepaid cards, and their
transaction history, can be
obscured. Funds may be
loaded onto open cards via a
variety of services, including
phone and online mediums .
Portability and transport
● Prepaid cards physically
resemble normal credit cards
and can be transported
discreetly in many
environments, as an
alternative to large volumes of
cash.
Global reach
● Many open prepaid cards can
be used on global payment
networks and so enable money
laundering using prepaid cards
across borders, by facilitating
funding in one country and
cash withdrawals in another.
Service complexity
● The large number of service
providers involved in the
prepaid card industry makes
AML transaction monitoring
administratively challenging.
72
 How are prepaid cards used in money laundering schemes?

► The accessibility and availability of prepaid cards mean criminals can purchase them from numerous outlets and
use them to move and transform illegal funds.
► Money laundering using prepaid cards can happen at any of the 3 stages of money laundering – placement,
layering, or integration

Placement: Criminals may, for example, use their illegal funds to purchase large numbers of prepaid cards and then
introduce their stored value into the legitimate financial system or transport the cards overseas to avoid the scrutiny of
authorities. The criminals may even hire money mules to purchase and transport the cards.

Layering: Funds stored on prepaid cards can be spent on or redeemed for merchandise (such as computers or other high-
value electronics) resold or transported abroad. Criminals may also use prepaid cards as currency, reselling them to
beneficiaries meaning that anti-money laundering layering needs to be considered.

Integration: Money laundering using prepaid cards can be carried out when criminals use them as a form of payment for
legitimate goods and services, such as component chemicals for drug manufacturing, real estate deals, or life insurance
products.
73
(FATF) has issued guidance regarding fraud and money laundering using prepaid
cards.
Red flags to look out for include:

1 Individuals who hold an unusual volume of prepaid card accounts with the same provider.
2 Funds are transferred out of prepaid card accounts immediately after loading .
3 Withdrawal of funds at different ATMs, often in other countries.

4 Prepaid card accounts used only for cash withdrawals rather than purchases.
5 Unusual purchase of goods or services in countries with a heightened risk for money laundering.
6 Unusual purchasing patterns: for example, a customer paying for a high-value item (such as a laptop)
with several prepaid cards .

7 Discrepancies between the information submitted by the customer and information detected by
monitoring systems.
8 Prepaid cards being sent to recipients through the mail or being discovered on travellers who have an
inconsistent connection to stated business activities .
74
 What is been done to prevent Money Laundering in Prepaid Cards
● Some jurisdictions are tightening their prepaid card AML/CFT regulations to combat the risks of money
laundering using prepaid cards.
● In the EU, for example, the 5th Anti-Money Laundering Directive lowered the transaction limit on prepaid
cards and prohibited using cards issued in high-risk countries.
● From a practical perspective, firms may consider a range of measures to manage and control risks of fraud
and money laundering using prepaid cards, including:

Spending limits Stricter controls on

Limits on funding, cash access
purchasing, and
reloading.

Geographical
constraints

75
 Trust and Company Service Providers

● Trust and company service providers (TCSPs) participate in the creation, administration or management of
corporate vehicles.
● A corporate vehicle is a legal business entity such as a LLC, Trust, Partnership. Etc.
● They refer to any person or business that provides any of the following services to third parties:

Acting as a Acting as (or arranging

formation agent of for another person to
legal persons. act as) partner of a
partnership, or a similar
position.

Providing a registered
office, business address Acting as (or
for a company, a Acting as (or arranging arranging for another
partnership for another person to person to act as) a
or any other legal person act as) a trustee of an nominee shareholder
or arrangement. express trust. for another person.
76
77
 FATF Report on Vulnerabilities for TCSP’s

1 Unknown or inconsistent application of regulatory guidelines regarding identification and reporting

requirements.
2 Limited market restriction on practitioners to ensure adequate skills, competence and integrity.

3 Inconsistent record-keeping across the industry.

4
TCSPs may operate in an unlicensed environment.

5 Depending on the jurisdictional requirements, a TCSP’s CDD may be performed by other financial
institutions.

78
 Some potential indicators of money laundering for this industry
Clients use the services of TCSPs to form Clients with a base in tax havens or countries
complex company structures that are used with a high number of terrorist organizations,
for layering money laundering of illicit funds high levels of corruption, subject to
or hiding their criminal transactions. Sanctions, or weak AML/CFT regime.

The use of legal persons or legal

Business relationships with complex and arrangements that operate in jurisdictions
opaque legal entities and arrangements. with secrecy laws.

The payment of “consultancy fees” to shell Clients who want to set up a business in the
companies established in foreign jurisdictions UAE hide their business identities from TCSPs
or jurisdictions known to have a market in by giving wrong addresses or fake identity
the formation of numerous shell companies. documents .

Clients use the services of TCSPs to form

Clients hide their beneficial ownership details complex company structures that are used
from TCSPs using nominee agreements. for layering money laundering of illicit funds
or hiding their criminal transactions.
79
AML/CFT compliance requirements for trusts and company service providers in UAE

Understand Implement
possible ML/FT customer due
risk exposure diligence
measures

Ongoing monitoring

Put in place Report suspicious

internal policies, transactions to
controls, and Financial Intelligence
procedures Unit (FIU)

80
 FREE TRADE ZONES

▪ With more than 3,000 free trade zones (FTZs) in over 135 countries, FTZs play an integral role in international trade.
▪ FTZs are designated geographic areas with special regulatory and tax treatments for certain trade-related goods and
services.
▪ Most major FTZs are also located in regional financial centres that link international trade hubs with access to global
financial markets.

According to FATF’s Report on the Money Laundering Vulnerabilities in Free Trade Zones, systemic weaknesses
for FTZs include:

Weak procedures to Lack of cooperation

Inadequate AML/CFT Minimal oversight
inspect goods and between FTZs and
safeguards. by local authorities.
legal entities, local customs
including appropriate authorities.
record-keeping.
81
 Money Laundering in Insurance
● An important aspect of the way the insurance industry operates is that most of the business conducted by
insurance companies is transacted through intermediaries such as agents or independent brokers.
● There are three main factors that make the insurance industry vulnerable to money laundering: inconsistent
enforcement of government regulations, certain features of life insurance products and the use of
intermediaries.

► Criminals may use life insurance and other investment-related insurance products to place illicit proceeds
into the financial system, especially where the insurer or intermediary accepts premium payments in cash.

► Such products may be purchased with the intention of either holding the insurance policy over its standard
duration or cancelling coverage before maturity and, where permitted, withdrawing premiums paid less a
penalty (a practice known as “early surrender”) so as to free up funds for alternative uses.

♦ Illicit actors may also deliberately overpay premiums and request a refund for the amount overpaid to the
insurance carrier in order to trigger pay-out under a policy.

♦ Reimbursed premiums, withdrawn, contributions, and pay-out proceeds (whether legitimate or fraudulent)
can then be deposited into a bank account or used to purchase other financial instruments without
necessarily revealing the ultimate origin of the funds. 82
▬ The likes of life and other investment-related products are generally considered to present higher ML/FT
risk, particularly where they have high cash values upon surrender.

▬ The following methods may be employed to launder funds through life insurance and other investment-
related insurance products or relationships:

● Buying products with insurance termination features without concern for the product’s investment
performance.

● Establishing fictitious insurance or reinsurance companies or intermediaries in order to place or

move illicit proceeds without revealing the true source of funds.

● Borrowing against the cash surrender value of permanent life insurance policies or using a policy as
collateral to purchase other financial instruments

● Assigning policies and payments to third parties, especially through policies (such as second-hand
endowment and bearer insurance policies) that allow the policyholder to change the beneficiary
before maturity or surrender without the knowledge or consent of the insurer

● One indicator of possible money laundering is when a potential policyholder is more interested in 83
the cancellation terms of a policy than the benefits of the policy.
► The following table describes attributes used to assess the vulnerability of product offerings and provides
lower- and higher-risk examples of each.

84
 Service and Transaction Risk Factors

● Service and transaction risk can be assessed by identifying how vulnerable a product is to use by a third
party or unintended use based on the methods of transaction available.

● Service and transaction risk is influenced by product design.

● Understanding potential service and transaction risks in the business is a significant factor in recognizing
unusual activity at a customer level.

The following table describes attributes used to assess service and transaction risk and provides lower- and
higher-risk examples of each.

85
86
 Distribution Channel and Intermediary Risk Factors

♦ The distribution channel is the method a customer uses to open a new policy or account.

♦ The distribution channel risk is identified by assessing how vulnerable the channel is to money laundering or
terrorist financing activities based on attributes that may make it easier to obscure customer identity.

► The risk of failing to identify a customer correctly may be higher for distribution channels that use an
intermediary or do not require face-to-face contact.

► Depending on the product, distribution channel risk may be mitigated by using distributors who are also
subject to AML/CFT obligations or a pension scheme subscribed through the customer’s employer.

The following table describes attributes used to assess the vulnerability of distribution channels and provides
lower- and higher-risk examples of each.

87
88
 Customer Risk Factors

► Customer-based risk factors are assessed to evaluate the level of vulnerability to ML/FT threats posed by
customers based on their characteristics.

► Understanding the inherent risks enables an insurer, agent, or broker to identify appropriate mitigating controls
and manage residual risks.

► Customer risk factors combined with business risk factors can be used as criteria for risk scoring to identify high-
risk customers.

Such Risk Factors Include

→ Customer Identity.
→ Third-party involvement.
→ Customer’s source of wealth or funds.
→ Customers who are politically exposed persons (“PEPs”), including the direct family members and close known
associates of a PEP, and legal entities where at least one beneficial owner is a PEP.
→ Known criminals, terrorists, or persons on sanctions lists.

89
The following table describes attributes used to assess customer risks and provides lower- and higher-risk
examples of each.

90
Attribute Lower- Risk Example Higher-Risk Example

91
 Geographic Risk Factors
▬ A customer’s geographic location or connections may indicate a higher risk for ML/FT activities.
▬ To mitigate risk, controls are recommended based on domestic and international geographic risk factors.
▬ Customer risk is higher among customers with connections outside the country, especially connections to
higher-risk countries.
▬ Where available, data from internal insurer historical case experiences or government data based on crimes
applicable to ML or predicate offenses can be used to inform the assessment of domestic geographical risk.

● According to the National Assessment of Inherent Money Laundering and Terrorist Financing Risks in the United
Arab Emirates, the regions and jurisdictions most often involved in criminal activity in relation to the UAE were
Pakistan, India, Iran, Bangladesh, China, Russia, South Africa, Nigeria, Somalia, Lebanon, Yemen, Syria, Iraq,
Afghanistan, and North Africa.

The following table describes attributes used to assess geographic risks and provides each's lower- and higher-
risk examples.

92
Attribute Lower-Risk Example Higher-Risk Example

93
 Red Flag Indicators for the UAE Life Insurance Sector

● The UAE Insurance Authority (now merged with the CBUAE) has issued the following list of red flag
indicators when handling life insurance and other investment-related insurance products.

● These indicators should be incorporated into an insurance operator’s AML/CFT policies, procedures,
detection scenarios, and other processes for identifying potentially suspicious activity related to life and
general insurance products.

Red Flags
• The purchase of an insurance product does not reflect a customer’s known needs (e.g., purpose of the
account).

• The early surrender of an insurance product is taken at a cost to the customer.

• The surrender of an insurance product is initiated with the refund directed to a third party.

• The customer exhibits no concern for the investment performance of a purchased insurance product
and instead exhibits significant concern for its early surrender terms. 94
 Money Service Business (MSB)
► A money services business (MSB), or money or value transfer service (MVTS) as defined by FATF, transmits or
converts currencies. Such businesses usually provide currency exchange, money transmission, check-cashing, and
money order services.

♦ MBSs are vulnerable to money laundering since cash and one-off transactions are often not traceable.
♦ Therefore, MSBs must have Anti-Money Laundering Compliance programs to comply with regulations and verify
required information between interested parties during transactions.
♦ MBSs must scan their customers using screening services to identify risks their customers might bring. In addition,
MBSs have to comply with different regulations depending on their business type and location.

Examples of common risk indicators for Transactions

• Are just below the threshold for due diligence
checks.
• Appear to have no obvious economic or financial
basis benefit.
• Route through third countries or third parties.
• Regularly go to or from tax haven countries.
• Information accompanying the payment appears
false or contradictory.
• Are destined for money service businesses around
the borders of countries at high risk of terrorism.
95
 ADGM imposes $360,000 fine on money services company for compliance failures

► The Abu Dhabi Global Market's Financial Services Regulatory Authority (FSRA) imposed a penalty of $360,000
on Wise Nuqud, a licensed money service company, for failing to abide by several Anti Money Laundering
requirements.

● The FSRA found that Wise Nuqud, which operates within the ADGM, did not establish and maintain adequate
anti-money laundering systems and controls to ensure full compliance with its obligations.

● The company did not identify and verify the source of funds and wealth when it came to a category of
customers it had identified as high risk, before undertaking transactions on behalf of those customers.

▬ Instead, Wise Nuqud carried out source of fund and wealth checks on those customers only when their account
met a specified payment threshold — and after it had already established a business relationship with those
customers.
▬ The company did not properly obtain the approval of senior management to establish business relationships
with a category of customers that it had identified as high risk.
▬ It also did not consider nationality as part of its risk-based assessment of customers, and it did not obtain and
consider adequate information on the intended nature of business for a category of its customers. 96
 Scrap Metal
► A man who handled £360,000 in illegal cash payments for the sale of scrap metal has been given a 12-month
jail sentence following an investigation.

► The investigation discovered Carl Bulmer, of Trent View, Keadby, had broken money laundering regulations by
acting as a middleman in the buying and selling of scrap metal for cash.

♦ Under UK Legislation, Scrap dealers are not legally allowed to pay, or be paid, in cash, and payments should be
made by cheque.
♦ The convict told officers he was approached by two men who asked him to weigh in scrap metal for them as
they did not have bank accounts.
♦ He said the unnamed associates would arrive at his home with a van of scrap, which was unloaded into his
vehicle.

● The convict would then travel to a certain meeting point and get cash payments in a sealed envelope, which
he passed to the men.
● The convict said he had doubted the legitimacy of the arrangement, but went ahead regardless as he ‘needed
the cash’.
● Investigations revealed the convict had travelled from his home to a scrap dealer in another location on 75
separate occasions over a specified period of time and weighed in metal worth £368,924.
97
 Casinos

● Casinos are among the most proficient cash-generating businesses.

● High rollers, big profits, credit facilities and a variety of other factors combine to create a glittering amount of
cash that flows from the house to the players and back.

► Casinos and other businesses associated with gambling, such as bookmaking, lotteries and horse racing,
continue to be associated with money laundering because they provide a ready-made excuse for recently
acquired wealth with no apparent legitimate source.

▬ Money laundering through casinos generally occurs in the placement and layering stage (for example,
converting the funds to be laundered from cash to checks and utilizing casino credit to add a layer of
transactions before the funds are ultimately transferred out).

98
99
 China Union Illegal Payment Scheme
● In mid 2022, Melbourne's Crown Casino was been hit with a record $80 million fine for a scheme that allowed the
illegal transfer of funds from China.

● Chinese nationals were not able to transfer more than $50,000 out of the country per year.

The Scheme

► The investigation found that the Crown devised a scheme where it would issue false receipts for hotel services.

► The guest would then pay the bill using a China Union Pay bank card, be given a voucher, and exchange that
voucher for gambling chips.

► An investigation into the Crown uncovered that foreign punters were able to use a China Union Pay (CUP) bank
card to access funds to gamble at the casino.

► The estimated that Crown derived revenue of more than $32 million from the scandal, which violated Chinese
laws and Victoria's Casino Control Act.
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 Common Money Laundering Schemes in Casinos

This is the simplest, most typical method of laundering money at a casino. A criminal simply exchanges
Cash-in,
their money for playing chips and then converts them back into cash.
cash-out
This way, dirty money can get mistaken for money won at a casino.

Collusion
between This strategy requires one player to ‘lose’ all their dirty money to another player, who they’re in
collusion with.
players

Casinos in Vancouver were used to launder large sums of money from China, Since Chinese citizens are
The restricted from bringing more than $50,000 out of their country. Instead, they could wire a large sum
Vancouver of money to the Chinese bank account of a Vancouver-based crime syndicate, and receive cash in
Model exchange upon arrival to Vancouver. The visitors could then take this cash to a Vancouver casino, make
a few small bets, and then withdraw it as “winnings” cleaned of its illegal source.

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 People can try to clean their money offering to purchase casino chips from gamblers at a favourable
Buying
price.
someone
else’s chips Sometimes, these criminals can even pay off a player’s debt, expecting to get repayments in the form
of chips later.

Abusing Some players can simply use their gambling accounts as a replacement for traditional banks.
gambling To do this, both the seller and the buyer conspire to transfer money between their respective
accounts gambling accounts under the guise of ‘winnings.’

Combining More advanced criminals further conceal traces of money laundered through casinos by involving
gambling and virtual assets (cryptocurrencies, NFTs) or property purchases.
non-gambling
By doing this, criminals attempt to confuse the authorities by obscuring the origin of the funds.
methods

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 Anti-Money Laundering Program Deficiency Penalties
Tinian Dynasty Hotel & Casino fined $75M (2015)
● Casino failed to develop and implement an AML program (no dedicated AML officer, failure to develop and implement
AML policies and procedures, no independent tests of the AML program), which led the casino to fail to file thousands of
CTRs and have employees assist wealthy VIP patrons engage in suspicious transactions (especially structuring).

Trump Taj Mahal fined $10M (2015)

● Casino failed to maintain an effective AML program, failed to file SARs and CTRs, and maintain appropriate records.

Caesar’s Palace fined $9.5M (2015)

● Casino “allowed some of the most lucrative and riskiest financial transactions to go unreported,” promoted private salons
in the United States and abroad without appropriately monitoring transactions, such as wire transfers, for suspicious
activity and openly allowed patrons to gamble anonymously.

Sparks Nugget fined $1M (2016)

● Casino “had a systemic breakdown in its compliance program” and disregarded its compliance manager. Rather than file
rightfully prepared suspicious activity reports (SARs), Sparks Nugget instructed the compliance manager to avoid
interacting with regulatory auditors and prevented her from reviewing a copy of the completed regulatory exam report.
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 Crypto Currency
► Crypto uses blockchain technology, a decentralized, network-based system supported by its users.

► Individual cryptocurrencies exist as a shared ledger that documents and records digital transactions for a specific
blockchain.

Blockchain

▪ Blockchain is essentially a digital database of records stored securely in blocks of information.

▪ A blockchain represents a more secure system because it’s a chain that keeps on growing, rather than an organized
database that can be hacked.
▪ It’s a system of mass information storage and record-keeping in chronological order with timestamps, and
blockchain code can’t be reversed.
▪ Crypto transactions happen once in time and can’t be reverted, the purchaser would simply need to sell to
someone else. Blockchain has a strict no refunds, no exchanges policy.

► Following is a graphic 6 step process on how Blockchain works

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 Reasons for Money Laundering in Cryptocurrency

Total online nature of cryptocurrency

● Technology developments are happening at a faster rate across the world. But, at a higher rate, criminals are
exploiting the shortcomings of technology for the wrong use. The full online nature of cryptocurrencies makes them
an easier target for laundering money.

● These virtual assets are stored, transacted, and conducted online. Full online nature with the anonymity of the
owner creates the possibility of laundering activities. Whether placing illicit funds or layering money with structured
transactions or putting it back in the legal system, crypto is at high risk.

Lack of regulation or government control

● Generally, the financial infrastructure and systems of any country are highly regulated. Such a regulated
environment ensures safe and secure transactions across the globe. But, that is not the case with the world of
virtual assets.

● There are little to no regulations in place for the cryptocurrency market. Some of the governments do not even
encourage the use of cryptocurrency, let alone framing any legal protection rules. The absence of regulations is the
key attraction for financial criminals to use it for layering of illicit funds.

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 Basic characteristics of cryptocurrencies
► The best feature of cryptocurrencies is they are global and accepted everywhere. You can use these virtual assets
for cross-border transactions. Also, these are more autonomous because no intermediaries are involved.

► These features of cryptocurrencies make them more attractive to financial criminals. It is easier, faster, and
convenient to process these virtual assets across borders. Also, the crypto transfer transaction from one owner to
another is not centralized, leading to higher risks.

Ways in which Crypto Laundering Happens

Placement of illegal money

● Money launderers buy one cryptocurrency through one of the online cryptocurrency exchange houses. This
exchange is the one with lesser or no compliance with AML regulations.

● The cash or cryptocurrency used for buying is the illegal money that enters the ecosystem. This is the first stage of
money laundering – placement.

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 The layering of illegal money
● The second stage of money laundering is layering. Financial criminals use a structured transaction to layer the
illegal money.

● They enter into buying and selling transactions of cryptocurrency on crypto exchanges. They also transfer their
virtual assets to other countries to move them away from the actual source.

Entry of illegal money as clean in the financial system

► The third stage is integration where illegal funds enter the financial system as legal money.

► Herein, money launderers sell cryptocurrencies to other buyers through over-the-counter brokers.

Online gambling transactions

♦ Generally, gambling sites accept cryptocurrencies as the mode of payment. They buy chips for gambling using
illegal cryptocurrency. Then, they encash it using clean money.

Decentralized fund transfer networks

● The cryptocurrency transfer network is decentralized.
● Generally, people transfer cryptos to other people in countries that have no or weak AML regulations. Next, they
buy other goods or services with those illegal virtual assets to convert them into clean money. 112
 Cryptocurrency tumbler
► There exists cryptocurrency mixing services or tumbler that pools cryptocurrencies from many users. Then, the
tumbler is split and distributed to each owner as per the proportion received.

► This is how crypto launderers put illegal money into the system, which may go to any participant of the tumbler.

Sample Cryptocurrency
Tumbler Transaction on
the following slide

Abuse of crypto ATMs

● Many private companies have installed cryptocurrency ATMs in many countries. ( Example; UAE , US, Philippines,
India, & Malaysia to name a few )

● On these ATMs, you can buy cryptocurrency using cash, or debit/credit cards. But these ATMs have no regulatory
structure or legislation controlling them.

● Because of all these red flags, AML watchdogs must keep a focused eye on the world of cryptocurrency. 113
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 ELECTRONIC TRANSFERS OF FUNDS

► An electronic transfer of funds is any transfer of funds that is initiated by electronic means.
► It’s the fastest way to move money, and systems like the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) move millions of wires or transfer messages daily.
► As such, illicit fund transfers can be easily hidden among the millions of legitimate transfers that
occur each day

The party initiating the transaction normally must provide their bank with the following information:

The recipient's name, address, contact number, along with any other personal information required
to facilitate the transaction.

The recipient's banking information, including their account number and branch number.

The receiving bank's information, which includes the institution's name, address, and bank
identifier (routing number or SWIFT code).

The reason for the transfer.

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 Automated Clearing House

► An automated clearing house is a computer-based electronic network for processing transactions, usually
domestic low value payments, between participating financial institutions. It may support both credit transfers
and direct debits.

► An ACH transaction basically consists of a data file containing information about the desired payment.
Processing a transaction consists of sending that file to the originator's bank, then to the clearing house, and
finally to the recipient's bank, where the funds are transferred to the receiving account.

● ACH transactions can be much more appealing to money launderers compared to wire transfers, as a
domestic ACH transaction record has very limited information about the payment’s originator and receiver.

● Furthermore, ACH’s may be used to legitimise frequent and recurring transactions – therefore they may be
less noticeable to the transaction monitoring systems of banks.

● ACH transfers were originally designed for batch processing of high volume, low-dollar domestic transactions
(primarily consumer payments) which are relatively low risk from a money laundering perspective.

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Electronic Fund Transfer

Automated Clearing House

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 Indicators of Money Laundering using Electronic Transfers of Funds

Funds transfers that occur to or from a
financial secrecy haven, or to or from a high-
risk geographic location without an apparent
business reason, or when the activity is
inconsistent with the customer’s business or
history.
Many small, incoming transfers of funds that are
received, or deposits that are made using checks and
money orders. Upon credit to the account, all or most
of the transfers or deposits are wired to another
account in a different geographic location in a manner
inconsistent with the customer’s business or history.

Large, incoming funds transfers that are Funds activity that is Payments or receipts are received
received on behalf of a foreign client, unexplained, repetitive or shows that have no apparent link to
with little or no explanation or apparent unusual patterns. legitimate contracts, goods or
reason. services.

Funds transfers that are sent or received from the same person to or
from different accounts.

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 Private Banking

● Private banking activities are generally defined as providing personalized services to higher net worth customers
(e.g., estate planning, financial advice, lending, investment management, bill paying, mail forwarding, and
maintenance of a residence).

● Privacy and confidentiality are important elements of private banking relationships. Although customers may
choose private banking services simply to manage their assets, they may also seek a confidential, safe, and legal
haven for their capital.

Risk Factors

● Private banking services can be vulnerable to money laundering schemes, and in part, the following
vulnerabilities to money laundering;

▬ Private bankers as client advocates.

▬ Powerful clients including politically exposed persons (PEPs), industrialists, and entertainers.
▬ Culture of confidentiality and the use of secrecy jurisdictions or shell companies.
▬ Private banking culture of lax internal controls.
▬ Competitive nature of the business.
▬ Significant profit potential for the bank.
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 Risk Mitigation In Private Banking

► Banks should assess the risks its private banking activities pose based on the scope of operations and the
complexity of the bank’s customer relationships.
► Management should establish a risk profile for each customer to be used in prioritizing oversight resources
and for ongoing monitoring of relationship activities.
► The following factors should be considered when identifying risk characteristics of private banking
customers:

Nature of the The source of the customer’s wealth, the nature of the customer’s business, and the extent to which
customer’s the customer’s business history presents an increased risk for money laundering and terrorist
wealth financing. This factor should be considered for private banking accounts opened for PEPs.

Purpose and The size, purpose, types of accounts, products, and services involved in the relationship, and the
anticipated anticipated activity of the account.
activity

Relationship
The nature and duration of the bank’s relationship (including relationships with affiliates) with the
private banking customer.
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 Corporate
Structure Type of corporate structure (e.g., IBCs, shell companies (domestic or foreign), or PICs).

The geographic location of the private banking customer’s domicile and business (domestic or
Geographic foreign). The review should consider the extent to which the relevant jurisdiction is internationally
Jurisdiction recognized as presenting a greater risk for money laundering or, conversely, is considered to have
robust AML standards.

Public Information known or reasonably available to the bank about the private banking customer. The scope
Information and depth of this review should depend on the nature of this relationship and the risks involved.

In Summary
► Before opening accounts, banks should collect the following information from the private banking clients:
● Purpose of the account.
● Type of products and services to be used.
● Anticipated account activity.
● Description and history of the source of the client’s wealth.
● Client’s estimated net worth, including financial statements.
● References or other information to confirm the reputation of the client. 125
 Source of Funds (SOW) & Source of Wealth (SOW)
► Understanding where customers have obtained the money that they are using to carry out transactions and make
investments is an important part of the Know Your Customer (KYC) process and integral to AML/CFT compliance.
► As money launderers use increasingly sophisticated methodologies to conceal the source of illegal money, firms
must work harder than ever to establish the source of funds and wealth.
► Practically, this means that firms must implement an array of KYC measures and controls, such as customer due
diligence (CDD) and transaction monitoring measures, in order to protect both their assets and their customers.

Source of Funds Source of Wealth

Source of funds refers to the funds Source of wealth refers to the origin
being used to fund the specific of the clients entire body of wealth
transaction at hand. (i.e. total assets)

Key questions: How and Where did

the client get the money for this
V’s Key questions: How and Why does
the client have the assets they do and
transaction or business relationship? how did they accumulate them.

Examples Examples
Personal savings, Pension release, Employment income, Investments,
Inheritance, Gifts, Dividends. Inheritance, Business Interests. 126
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AML Supervisory Authorities in UAE

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Do You Have All This Information ?

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 Checklist for filing STR and SAR on goAML portal under UAE AML Laws

Status
Key Considerations Yes No
Did anyone observe anything suspicious about the customer, their information,
1
documents, behaviour, or transaction?

Did the front-line employee ( who observed the suspicion) report the matter to the
2 Compliance officer through an internal SAR/STR form?

Does the internal STR/SAR form include the details about the suspicion observed, red
3 flag indicators noted, the reason for such suspicion, details about the parties, and the
employee who first identified the suspicion?

Has the Compliance officer conducted an internal investigation or sought additional

4
details about the identified suspicion?

Has the Compliance officer documented the investigation outcome, capturing

5 answers to the following?
▪ Who- Parties involved.

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 Continuation From Previous Slide

Key Considerations Status

Yes No
▪ What- Activity or transaction details.
▪ Where- Location of the incident.
▪ When- Date & Time of incident.
▪ Why- Reasons for suspicion & Red flags observed.
While conducting the investigation, did the Compliance officer consider the Crime
6 types and keywords that best describes the Suspicious transaction or activity?

Did the Compliance officer document the decision- whether to report the matter to
7
the Financial Intelligence Unit or not, along with the rationale for doing so?

Has the Compliance officer obtained management approval on the investigation

8
results and the reporting decision ?

If decided to report the Suspicion, is all the data required for the goAML portal
9
available at that time, such as KYC, Identity documents, Transaction/Activity details?
Has the Compliance officer submitted the report without delay from the time of
10 identification of the Suspicion and the decision to report to the Financial Intelligence
Unit ? 146
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Introduction to Proliferation Financing and International Obligations

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