American University of Afghanistan

Professional Development Institute

Herat Regional office

MONEY
LAUNDERING

Presenter: Hayatullah
Sahak
ACCA Qualified
ACCA/FIA Instructor
PDI- Herat

23th May 2016

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Money laundering
The word
laundry literally
means cleaning
Metaphorically,
money laundering
refers to cleaning
on money

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WHAT IS MONEY
LAUNDERING ?
Illegal /
Dirty
Money

Conversion

Legal /
white
Money

Definition: 'Money Laundering' is the

process by which illegal funds and assets
are converted into legitimate funds and
assets.

Theft Tax evasion Fraud

Human trafficking
Robbery
Prostitution

Arms smuggling

Drug trafficking

Corrupt
practices
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HOW MONEY LAUNDERING

WORKS:

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Money Laundering
Cycle:

2. PLACEMENT

1.
Predicate Crimes
Corruption and Bribery
Fraud
Organized crime
Drug and human trafficking
Environmental crime
Terrorism
Other serious crimes

4.
INTEGRATION
The last stage in the laundering
process.
Occurs when the laundered
proceeds are distributed back to
the criminal.
Creates appearance of legitimate
wealth.

Initial introduction of criminal

proceeds into the stream of
commerce
Most vulnerable stage of
money laundering process

3.
LAYERING
Involves distancing the money
from its criminal source:
movements of $ into different
accounts
movements of money to different
countries
Increasingly difficult to detect.

# placement

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Smurfing

smurfing explained

# layering

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electronic funds transfer

# integration

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credit and debit cards

terrorist
financing
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inancing of terrorism:
o

Money to fund terrorist activities moves through

the global financial system via wire transfers and
in and out of personal and business accounts.

Although terrorist financing is a form of money

laundering, it doesnt work the way conventional
money laundering works. The money frequently
starts out clean i.e. as a charitable donation
before moving to terrorist accounts. It is highly
time sensitive requiring quick response.

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money laundering vs. terrorist

financing

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REASONS FOR MONEY LAUNDERING

Absence of
legislation
Evasion of tax
Increase in profits
To make black
money appear
white money
Limited risks of
exposure

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Absence of legislation against

money laundering:

Absence of legislation against

money laundering give a free
hand to criminals. sometimes
governments itself is involved
they do this to win political
rivals, to please their allies and
to strengthen their rule.

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Evasion of tax:

Tax evaders launder money so that they can

lie about where money and assets came from
in order to evade tax. And sometimes they
simply operate outside that part of the
economy where records are kept.

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Increase profits:
When people have incentive for more profit
in
any particular area, such as in production
and trading
of drugs, arms, and across the borders
trade, they
start taking risk to earn higher profits.

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To Appear black money legitimate:

In money laundering,
black money usually
becomes legitimate
after a series of
process. And less risk
is involved of being
caught. This doesnt
happen in other
economic crimes. So in
order to appear their
money more
legitimate they go for
money laundering.

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How much money is laundered

every year?
Since money laundering is an illegal activity
therefore one can only estimate the amount of
money laundered every year.
The International Monetary Fund, for example,
had stated in 1996 that the aggregate size of
money laundering in the world could be
somewhere between 2-5% of the worlds
gross domestic product
This is $800 billion - $2 trillion in current US
dollars.

Whats
in it
for the bank?
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Money Laundering Risks:

What are the risks to banks?
(i) Reputational risk
(ii) Legal risk
(iii) Operational risk
All risks are inter-related and together have the
potential of causing serious
threat to the
survival of the bank

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Reputational Risk:
The

potential that adverse publicity regarding a

banks business practices, whether accurate or not,

will cause a loss of confidence in the integrity of the
institution.
Reputational

Risk : a major threat to banks as

confidence of depositors, creditors and general

market place to be maintained.
Banks

vulnerable to Reputational Risk as they can

easily become a vehicle for or a victim of

customers illegal activities.

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Legal Risk:
The

possibility that lawsuits, adverse judgments

or contracts that turn out to be unenforceable
can disrupt or adversely affect the operations or
condition of a bank.

Banks

may become subject to lawsuits resulting

from the failure to observe mandatory KYC
standards or from the failure to practice due
diligence.

Banks

can suffer fines, criminal liabilities and

special penalties imposed by supervisors.

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Operational Risk:
The

risk of direct or indirect loss resulting from

inadequate or failed internal processes, people

and systems or from external events.
Weaknesses

in

implementation

of

banks

programs, ineffective control procedures and

failure to practice due diligence.

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Punishment for Offence:

The punishment of money laundering is
vary from country to country, it may result
in:
Fine
Imprisonment
Ban
License cancelation

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Penalties imposed on banks

Jan. 2006 ABM AMRO

US$ 80 million
Aug. 2005 Arab Bank
US$ 24
million
Feb. 2005 City National Bank
US$750,000
Jan. 2005
Riggs Bank
US$
41million
Oct. 2004 AmSouth Bank
US$ 50
million
Sep. 2004 City Bank Japan
License
cancelled
May. 2004 Riggs Bank
US$ 25
million

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What KYC means?

Know

your customer (KYC)

Refers to due diligence activities that financial
institutions and other regulated companies must
perform to ascertain relevant information from
their clients for the purpose of doing business
with them.

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What KYC means?

Making

reasonable efforts to determine the

true identity and beneficial ownership of
accounts;
Sources of funds.
Nature of customers business.
What
constitutes
reasonable
account
activity?
Who your customers customer are?

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KYC Does Not Mean:

Denial

of Service to the Common

Person.
Intrusive
Use

Behavior.

of information for cross selling.

Harassment

of customers- threatening

to close down the accounts arbitrarily.

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Core elements of KYC:

Customer

Acceptance Policy.

Customer

Identification Procedure- Customer

Profile.
Risk

classification of accounts - risk based

approach.
Risk

Management.

Ongoing

monitoring of account activity.

Reporting

of cash and suspicious

transactions.

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Measures to deter money

laundering:
Board and management oversight of AML risks.
Appointment

a senior executive as principal

officer with adequate authority and resources at
his command.

Systems

and controls to identify, assess &

manage the money laundering risks.

Make

a report to the Board on the operation and

effectiveness of systems and control.

Appropriate

documentation of risk management

policies, their application and risk profiles.

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Measures to deter money

laundering:
Screening

of employees before hiring and of

those who have access to sensitive
information.

Appropriate
Quick

quality training to staff.

and timely reporting of suspicious

transactions.

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SUSPICIOUS TRANACTION:
Suspicious transaction means a transaction
whether or not made in cash which, to a person
acting in good faith
gives rise to a reasonable ground of suspicion
that it may involve the proceeds of crime; or
appears to be made in circumstances of
unusual or unjustified complexity; or

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SUSPICIOUS TRANACTION:
Providing

misleading information / information

not easily verifiable while opening an Account.

Large

cash withdrawals from: a dormant or

inactive account or account with unexpected
large credit from abroad.

Sudden

increase in cash deposits of an

individual with no justification.

Employees

leading lavish lifestyles that do not

match their known income sources.

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Suspicious Transaction:
Large

cash deposits into same account.

Substantial

increase in turnover in a dormant

account.
Receipt

or payment of large cash sums with

no obvious purpose or relationship to Account
holder / his business.

Reluctance

to provide normal information

when opening an Account or providing
minimal or fictitious information.

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Role of cash in money

laundering:
Disguise
Provide

the audit trail.

anonymity.

Concealing

true ownership and origin of

money.
Control

over money.

Changing

the form of money.

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Recommendations
The truth is that no individual nation has the
power to stop money laundering alone
If one country is hostile to laundering, criminals
simply look elsewhere for a place to clean their
money. Therefore, Global cooperation is essential.
The most prominent international organization in
this respect is probably the Financial Action
Task Force (FATF), which has 33 member states
and international organizations on its roster list as
of 2005. The FATF issued the "40
Recommendations" for banks that have become
the anti-money-laundering standard.

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Recommendations
Some of these recommendations include:
Identify and do background checks on depositors.
Report all suspicious activity. (For example, if a
background check revealed that depositor A works in
a steel factory, and he typically deposits $2,000
every two weeks, a series of 10 $9,000 deposits over
the course of two weeks should raise a red flag.)
Build an internal taskforce to identify laundering
clues.
Financial institutions should not keep anonymous
accounts or accounts in obviously fictitious

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Recommendations
Financial institutions should maintain, for at least
five years, all necessary records on transactions,
both domestic or international, to enable them to
comply swiftly with information
Financial institutions should pay special attention to
all complex, unusual large transactions, and all
unusual patterns of transactions, which have no
apparent economic or visible lawful purpose
If a financial institution suspects or has reasonable
grounds to suspect that funds are the proceeds of a
criminal activity, or are related to terrorist financing,
it should be required, directly by law or regulation,
to report promptly its suspicions to the financial
intelligence unit (FIU).

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Organizations fighting for money

laundering
Other global organizations fighting money
laundering include the
United Nations,
International Monetary Fund,
World Bank

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