An Overview onAnti-Money Laundering Initiatives

Debaprosad Debnath General Manager (PRL)Bangladesh Bank

What is Money Laundering?

Money Laundering is the process by which proceeds from a criminal activity are disguised to conceal their illicit origin

A concise working definition was adopted by Interpol General Secretariat Assembly in 1995: Any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.

In lay terms Money Laundering is most often described as;turning of dirty or black money into clean or white money. If undertaken successfully, money laundering allows criminals to legitimize dirty money by mingling it with clean money, ultimately providing a legitimate cover for the source of their income. Generally, the act of conversion and concealment is considered crucial to the laundering process.

The term Money Laundering originated from Mafia owned Laundromats in US

The term laundering is used because, the cash proceeds from drug sales were actually washed with soap and water

3 Stages of Money Laundering:- Placement- Layering- Integration

Stages of Money LaunderingPLACEMENT, or physical disposal of cash proceeds of illegal activity, the initial entry of the funds into the financial system

LAYERING, or separating illicit proceeds from source by creating layers of financial transactions designed to disguise audit trail and provide anonymity

INTEGRATION, or providing apparent legitimacy to proceeds and allow them to re-enter the economy so that they appear to be legitimate investment funds

*PLACEMENT : EXAMPLE

Mr. Anthoni a corrupt politician earned Tk.10.00 crore by illegal means and placed the same as under:

BANKS6.00 crore

By opening 30 accountsin 30 banksSTOCK EXCHANGE.1.00 crore

By purchasingShares of Different Companies. FINANCIALINSTITUTIONS1.00 crore

By opening10 accounts in10 institutionsINSURANCECOMPANIES2.00 crore

By making 5 Life Policies for Familymembers

*LAYERING : EXAMPLESONALIRUPALIAGRANIJANATANATIONALPUBALIHSBCCITI NASCBISLAMI AL ARAFAHABIBNCCBUTTARAMTBL Mr. Anthoni moved the money deposited in the banks through a series of economically meaningless transactions

*INTEGRATION : EXAMPLE Mr. Anthoni formed a company namely M/S Daffodil Textile Ltd and opened an A/C in EBLEBLA/C No.1005522Banks5.50 croreStock Ex.1.00 croreFin. Ins..1.00 crore

Insurance2.00crore

FDRs4.00 croreLoans3.50 croreTk.0.50 crore > Invested in the Textile Mill < Tk.3.50 crore

The Money Laundering Process

International Initiatives Background- Al Capone- 1920s- Watergate scandal-1973- US Court- 1982- US Law- 1986

International Standards on ML/FT- G-7- Vienna Convention- 1988- FATF (Financial Action Task Force)- 1989- FATF 40+9 Recommendations- 1990/2001- Palermo Convention-2000- UN Convention against Corruption (UNCAC)- FSRB (FATF Style Regional Bodies)- APG, CFATF

Other Standards- Basel Core Principles on Banking Supervision- EU Directives on ML/FT- Wolfsberg Principles- US Bank Secrecy Act/Patriot Act

NCCT (Non Cooperating Countries and Territories) FIU (Financial Intelligence Unit) Egmont Group-1995 Mutual Evaluation-2008 International Cooperation Review Group (ICRG) Procedure

AML Regime in Bangladesh APG Membership- 1997 MLP Act, 2002 (30 April, 2002) AMLD (Anti-Money Laundering Department)(June, 2002) Investigation- BAC/CID/ACC MLP Ordinance, 2008 MLP Act, 2009

BANGLADESH BANKS STATUSBangladesh Bank established Anti-Money Laundering Department (AMLD) for looking after the issues under the MLP Act, 2002 (MLP Act, 2009). Now it is known as Bangladesh Financial Intelligence Unit ( BFIU) under MLP Act, 2012.

BFIU (Prev.AMLD) instructed all the banks and financial institutions to: Ensure KYC requirements

Report unusual / suspicious transactions (STR)

Keep records upto 5 years after termination of relationship

Set up internal control mechanism.

Report Cash Transactions (above Tk.700,000)

FIU (Financial Intelligence Unit)Objectives:- To develop a central database- To Exchange Information with other International Agencies- To Comply the International Standards of AML Issues- To become the member of EGMONT Group

*The term "money laundering" is often said to have originated at the time of the famous American gangsterism that arose originally out of Prohibition - the banning of alcoholic drinks. Several mechanisms were used to disguise the origins of the large amounts of money generated by the import and sale of alcohol and other "rackets" such as gambling, some of which was illegal. Because the mobster Al Capone used investments in coin-operated laundromats to disguise or "wash" the millions he made from bootlegging and other illegal enterprises, he most often is credited with coining the term "money laundering" But laundering by other names has been practiced a long time. In medieval times, for example, when the Roman Catholic Church banned usury (the practice of lending money at interest) as both a crime and a mortal sin, merchants devised methods that still are in practice to get around the usury laws.The term laundering is used because, years ago, the cash proceeds (in U.S. dollars) from drug sales were actually washed with soap and water to appear old and worn. Launderers would then have their smurfs go to the Federal Reserve Bank and exchange the laundered bills in for new bills. Along with the new bills came a Fed receipt, which served to support the legitimate origin of the cash. The scam was finally identified when someone at the Fed realized that the serial numbers on the bills indicated that they should not be as old and worn as they appeared to be. *