Anti Money Laundering Measures and Business Ethics

Anti Money Laundering Measures and Business Ethics

1. Definitions

  • Money Laundering
  • Terrorism Financing
  • Relationship with other crimes and world economy

2. Money Laundering

A. Methodology

  • 2.A.1 Placement
  • 2.A.2 Layering
  • 2.A.3 Integration
  • 2.A.4 Issuance of Cheque

B. Sources and Techniques

2.B.1 Crimes and Civil wrongs

Nature of crimes
2.B.2 Corruption, Drug Trafficking, Ransom, Counterfeiting, Copy Rights violations, Arms Smuggling, Stock Exchange Frauds Learning from 79 Federal Violations in USA

Nature of Civil Wrongs
2.B.3 Structured Insurance Policies, Letter of Credit, Abuse of Credit Cards, Structured Loans, Under or Over Invoicing, Transit Trade, Free Zone Concessions, Correspondent Banking , Negotiable instruments, Telegraphic Transfers, Off shore transactions.

Formal Institutions
2.B.4 Off shore or shell Banks, Insurance and Investments Companies, Bureau De Change, Pension Funds, Shell Corporations, Venture Capital, Casinos, Travel Agencies, Real Estate Agents.

Informal Institutions
2.B.5 Cash Business and Transactions, Hundi, Hawala, Fin Chin, Peso Exchange System, Antique Dealers, Precious Commodities dealers. Lotteries.

3. How the banks are abused?

  • Review of the accounts with case Studies
  • Review of the customers with case studies
  • Review of the transactions with case studies
  • Case studies of BCCI , Bank of America etc
  • Walking Accounts and Numbered Accounts

4. International Initiatives and relevance with KYC

A. Initiatives

  • 4.A.1 Concepts and Objectives
  • 4.A.2 Bank of International Settlement and BaselCommittee
  • 4.A.3 UN Convention on Financing of Terrorism 1999
  • 4.A.4 UN Convention on Narcotic Drugs 1988
  • 4.A.5 OECD Conventions on Corruption and Bribery1997
  • 4.A.6 UN Convention Against Transnational Organized Crimes 2000
  • 4.A.7 Financial Action Task Force’s Recommendations (1990 and 2001) 40 + 8

B. Implications

  • 4.B.1 National and International Implications
  • 4.B.2 Initiatives by national agencies like State Bank, SECP and
  • National Accountability Bureau.
  • 4.B.3 Identification, Monitoring, Training, Auditing And Anti Money
  • Laundering Units
  • 4.B.4 Reporting to AML units and to Authorities.
  • 4.B.5 Global co-operation and KYC.


5. How to exercise KYC in Pakistan

  • Procedure laid down by Financial Action Task Force
  • Procedure laid down by State Bank
  • Recommended steps
  • Step One Policy
  • Step Two Identification and Record Keeping
  • Step Three Monitoring
  • Step Four Reporting
  • Evaluation of: Customer related risks, Transaction related risks, Jurisdiction related risks
  • Role of AML units and Compliance Officers

Business Ethics

  1. Ethics and approaches in Ethics
  2. Ethical Power: Purpose, Perspectives, Patience, Persistence, Pride
  3. Work Ethics:
    • Missionand Goal related
    • Work related
    • Style related
    • Belief related
  4. Building Ethical Organization:
    • Organizational Tools to Cultivate ethics
    • Ethical Decision making
  5. Factors responsible for Ethical & moral erosion
  6. Promoting ethics at work place.

• IMPORTANT CONCEPTS

A bureau de change is a business where people can exchange one currency for another. A bureau de change is often located at a bank, at a travel agent, airport, main railway station or large stores—namely, anywhere there is likely to be a market for people needing to convert currency. So they are particularly prominent at travel hubs, although currency can be exchanged in many other ways both legally and illegally in other venues.
• A tax haven is a state, country or territory where certain taxes are levied at a low rate or not at all.
• Structuring: Often known as smurfing, this is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.[8]
• Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement.[9]
• Cash-intensive businesses: In this method, a business typically involved in receiving cash uses its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Service businesses are best suited to this method, as such businesses have no variable costs, and it is hard to detect discrepancies between revenues and costs. Examples are parking buildings, strip clubs, tanning beds, car washes and casinos.
• Trade-based laundering: This involves under- or overvaluing invoices to disguise the movement of money.[10]
• Shell companies and trusts: Trusts and shell companies disguise the true owner of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner.[11]
• Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant on this is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.
• Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.
• Casinos: In this method, an individual walks into a casino with cash and buys chips, plays for a while, and then cashes in the chips, taking payment in a check, or just getting a receipt, claiming it as gambling winnings.[9]
• Other gambling: Money is spent on gambling, preferably on higher odds. The wins are shown if the source for money is asked for, while the losses are hidden.
• Real estate: Someone purchases real estate with illegal proceeds and then sells the property. To outsiders, the proceeds from the sale look like legitimate income. Alternatively, the price of the property is manipulated: the seller agrees to a contract that underrepresents the value of the property, and receives criminal proceeds to make up the difference.[11]
• Black salaries: A company may have unregistered employees without a written contract and pay them cash salaries. Dirty money might be used to pay them.[12]
• Tax amnesties: For example, those that legalize unreported assets in tax havens and cash[13]
• Fictitious loans
• A goal of money laundering is to be able to use the dirty money for private consumption. If unable to use it openly, the traditional way to keep the dirty money near is hiding it as cash at home or other places. A more modern method is a credit card connected to a tax haven bank.
• In theory, electronic money should provide as easy a method of transferring value without revealing identity as untracked banknotes, especially wire transfers involving anonymity-protecting numbered bank accounts.
• Reverse money laundering is a process that disguises a legitimate source of funds that are to be used for illegal purposes.
• An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include:
• greater privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act)
• little or no taxation (i.e. tax havens)
• easy access to deposits (at least in terms of regulation)
• protection against local, political, or financial instability
• Offshore banks can sometimes provide access to politically and economically stable jurisdictions. This will be an advantage for residents in areas where there is risk of political turmoil, who fear their assets may be frozen, seized or disappear
• Some offshore banks may operate with a lower cost base and can provide higher interest rates than the legal rate in the home country due to lower overheads and a lack of government intervention.
• Interest is generally paid by offshore banks without tax being deducted. This is an advantage to individuals who do not pay tax on worldwide income, or who do not pay tax until the tax return is agreed, or who feel that they can illegally evade tax by hiding the interest income.
• Foreign Shell Bank: A foreign Bank without a physical presence in any country and has no employees.
• Gate Keepers is a term that is being applied to qualified professionals such as layers, accountants etc that can facilitate the laundering of money or assets to enable the conversion and ultimate inclusion of the assents in legitimate financial circles.
• G7: The Group of Seven industrialized nations: U.S, Japan, Germany, France, Italy, the U.K and Canada.
• Non-Financial Businesses and Professionals: These include casinos, real estate agents, dealers in precious metals, precious stones, lawyers, notaries and other legal professionals, accountants, trust and company service providers.
• Money Services Business. This include non-bank financial institutions, currency dealers, exchange companies and travelers cheque issuers.
• Safe Harbor :A provision in law that provide protection to financial institutions, NFBP and their officers from civil or criminal liability for disclosing/furnishing information, suspicious transaction reporting etc.
• A potentially suspicious or money laundering situation raises a Red Flag, a warning signal.
• Front Company It is the company used by the money launderer for the purpose of concealing the true identity of the owner
FATF’s three primary functions with regard to money laundering are:
1. Monitoring members’ progress in implementing anti-money laundering measures.
2. Reviewing and reporting on laundering trends, techniques, and countermeasures.
3. Promoting the adoption and implementation of FATF anti-money laundering standards globally.
The FATF currently comprises 34 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe.

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