Money laundering Money laundering is the practice of engaging in financial transactions in order to conceal the identity, source, and/or

destination of money and is a main operation of the underground economy. In the past, the term "money laundering" was applied only to financial transactions related to organized crime. Today its definition is often expanded by government regulators (such as the United States Office of the Comptroller of the Currency) to encompass any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting. As a result, the illegal activity of money laundering is now recognized as potentially practiced by individuals, small and large businesses, corrupt officials, members of organized crime (such as drug dealers or the Mafia), and even corrupt states, through a complex network of shell companies and trusts based in offshore tax havens. A few examples of money laundering are smurfing or kiting. The increasing complexity of financial crime, the increasing recognized value of socalled "financial intelligence" (FININT) in combating transnational crime and terrorism, and the speculated impact of capital extracted from the legitimate economy has led to an increased prominence of money laundering in political, economic, and legal debate. Hot moneyIn economics, hot money refers to funds which flow into a country to take advantage of a favorable interest rate, and therefore obtain higher returns. They influence the balance of payments and strengthen the exchange rate of the recipient country while weakening the currency of the country losing the money. These funds are held in currency markets by speculators as opposed to national banks or domestic investors. As such, they are highly volatile and will be shifted to another foreign exchange market when relative interest rates make this more profitable. Hot money is a major factor in capital flight and the ability of developing nations to finance their debt. As large sums of money can move very quickly to take advantage of small fluctuations in interest rates and currency values, countries which have difficulty raising money through the sale of long-term bonds are particularly susceptible to shortterm interest rate pressure, particularly during periods of rapid inflation. These types of transactions were largely responsible for the currency crises in Mexico and Asia during the 1990s. In part to reduce the influence of hot money on a nations economy, a few nations have minimum time requirements for investment. For example, Chile requires all foreign investments to be put in a one-year-locked account. Although this sort of control reduces investment in a country, it also makes its economy less susceptible to currency flight. Demat account

In India, a demat account, the abbreviation for dematerialised account, is a type of banking account which dematerializes paper-based physical stock shares. The dematerialised account is used to avoid holding physical shares: the shares are bought and sold through a stock broker. This account is popular in India. The Securities and Exchange Board of India (SEBI) mandates a demat account for share trading above 500 shares. As of April 2006, it became mandatory that any person holding a demat account should possess a Permanent Account Number (PAN), and the deadline for submission of PAN details to the depository lapsed on January 2007. Procedure 1. Fill demat request form (DRF) (obtained from a depository participant or DP with whom your depository account is opened). 2. Deface the share certificate(s) you want to dematerialise by writing across Surrendered for dematerialisation. 3. Submit the DRF & share certificate(s) to DP. DP would forward them to the issuer / their R&T Agent. 4. After dematerialisation, your depository account with your DP, would be credited with the dematerialised securities. The benefits - A safe and convenient way to hold securities; - Immediate transfer of securities; - No stamp duty on transfer of securities; - Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.; - Reduction in paperwork involved in transfer of securities; - Reduction in transaction cost; - No odd lot problem, even one share can be sold; - Nomination facility; - Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately; - Transmission of securities is done by DP eliminating correspondence with companies; - Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc. - Holding investments in equity and debt instruments in a single account. Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It consists primarily of shareholders' equity but may also include preferred stock that is irredeemable and non-cumulative and retained earnings.

Capital in this sense is related to, but different from, the accounting concept of shareholder's equity. Both tier 1 and tier 2 capital were first defined in the Basel I capital accord and remained substantially the same in the replacement Basel II accord. Each country's banking regulator, however, has some discretion over how differing financial instruments may count in a capital calculation. This is appropriate, as the legal framework varies in different legal systems. The theoretical reason for holding capital is that it should provide protection against unexpected losses. Note that this is not the same as expected losses which are covered by provisions, reserves and current year profits. The Tier 1 capital ratio is the ratio of a bank's core equity capital to its total risk-weighted assets. Risk-weighted assets are the total of all assets held by the bank which are weighted for credit risk according to a formula determined by the Regulator (usually the country's Central Bank). Most central banks follow the Bank of International Settlements (BIS) guidelines in setting formulae for asset risk weights. Assets like cash and coins usually have zero risk weight, while debentures might have a risk weight of 100%. A good definition of Tier I capital is that it includes equity capital and disclosed reserves, where equity capital includes instruments that can't be redeemed at the option of the holder (meaning that the owner of the shares cannot decide on his own that he wants to withdraw the money he invested and so cannot leave the bank without the risk coverage). Reserves are, as they are held by the bank, by their nature not an amount of money on which anybody but the bank can have an influence on. Tier 2 capital Tier 2 capital is a measure of a bank's financial strength with regard to the second most reliable form of financial capital, from a regulator's point of view. The forms of banking capital were largely standardised in the Basel I accord, issued by the Basel Committee on Banking Supervision and left untouched by the Basel II accord. National regulators of most countries around the world have implemented these standards in local legislation. Tier 1 capital is considered the more reliable form of capital. There are several classifications of tier two capital. In the Basel I accord, these are categorised as undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt. Undisclosed Reserves Undisclosed reserves are not common, but are accepted by some regulators where a bank has made a profit but this has not appeared in normal retained profits or in general reserves of the bank.

Revaluation Reserves A revaluation reserve is a reserve created when a company has an asset revalued and an increase in value is brought to account. A simple example may be where a bank owns the land and building of its head-offices and bought them for $100 a century ago. A current revaluation is very likely to show a large increase in value. The increase would be added to a revaluation reserve. General Provisions A general provision is created when a company is aware that a loss may have occurred but is not sure of the exact nature of that loss. Under pre-IFRS accounting standards, general provisions were commonly created to provide for losses that were expected in the future. As these did not represent incurred losses, regulators tended to allow them to be counted as capital. Hybrid Instruments Hybrids are instruments that have some characteristics of both debt and shareholders' equity. Provided these are close to equity in nature, in that they are able to take losses on the face value without triggering a liquidation of the bank, they may be counted as capital. Subordinated Term Debt Subordinated debt is debt that ranks lower than ordinary depositors of the bank. Tier 3 capital GUIDELINES FOR TIER 3 CAPITALFitch Investors Service announces rating guidelines for tier 3 capital issues of international banks. Tier 3 capital was created by the Basle Committee on Banking Supervision to provide capital cushion for the price risks to which banks are exposed, particularly those arising from their trading activities. The Group of Ten Countries (G10) is expected to approve the tier 3 guidelines as part of the Capital Accord to Incorporate Market Risks. In assigning ratings to tier 3 capital issues, Fitch concentrates on the unique credit profile of each issuer. The most important factor in rating tier 3 securities is the overall strength of the issuing bank, as reflected in its current senior debt rating and ratings outlook. The relative size of the issue, the role of trading activities in the bank's operating profile and the regulatory and operating environments in the institution's home country are also important.

To qualify as tier 3 capital, securities must be subordinated, unsecured, and subject to a minimum maturity of two years. They are not repayable prior to maturity without the consent of regulators. Also, they are subject to a 'lock-in' clause that allows regulators to prevent payment of interest and principle if payment would cause the issuing bank to fall below minimum capital requirements. In analyzing tier 3 issues of highly rated banks ('AA' category or better), Fitch expects there to be little or no rating differential between existing subordinated debt and new tier 3 issues. For institutions of lower credit quality ('A' or lower), Fitch may place a wider gap between senior credit ratings and tier 3 ratings, due to a higher probability of the lock-in being invoked and the possibility of ultimate default.