BACK-GROUND -What is Money

Laundering?

Illegally
obtained money

Criminal Activity

Conversion

Appears to
originate from
legitimate
source

Drugs / Robbery
Corruption
Extortion

WHAT IS MONEY LAUNDERING?

Money laundering is the processing of criminal
proceeds to disguise their illegal origin.
Traditionally, Money laundering was associated
with the crime of hiding the proceeds of the
offence of narcotics as captioned in the Vienna
convention.
In modern era, other criminal activities generate
large proceeds of crime which need to be
cleansed and made legitimate.

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WHAT IS TERRORIST FINANCING?

The financial support, in any form of terrorism
or of those who encourage, plan or engage
in it (IMF/World Bank).
Terrorism is the deliberate use of violence
against civilian targets with the intention of
instilling terror in a population for some
political gain or purpose
In the 1990s (Kenya and Tanzania US
embassy bombings) and particularly after
September 11, 2001, the world caught up
with Financing of Terrorism
ML and TF remain global problems with far
reaching effects

TERRORIST FINANCING
Legal Sources
o
Collection of membership dues
o
Sale of publications
o
Cultural or social events
o
Door to door solicitation within community
o
Appeal to wealthy members of the community
Illegal Sources
o
Kidnap and extortion;
o
Smuggling;
o
Fraud;
o
Misuse of non-profit organizations and charities
fraud;
o
Thefts and robbery; and
o
Drug trafficking
o
State Sponsorship

TERRORIST FINANCING

Things Terrorists Need

o
o
o
o

Ability to Travel
Communications
Instruments of terror
Disposable Funds

PREDICATE OFFENCE
Predicate offence- is the underlying criminal
offence that gave rise to criminal proceeds
which are or may be the subject of a ML
charge. Legitimately earned funds do not need
to be laundered(with exception of TF)
You cant launder money unless you have got
some money to launder. You wont have the
money to launder unless you got it from
someone,
somewhere,
somehow
doing
something wrong.
That act of doing something wrong is the
predicate offence: it comes before, it is
predicate to, the act of ML.
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CRIMINAL ACTIVITIESBribery / Corruption

Drug Trafficking
Robbery
and Fraud
White Collar
Crimes
(including
Insider Trading
and Securities
offences)

Piracy and
hijacking

Counterfeiting and Forgery

Other crimes

Smuggling
(arms,
people,
goods)

Poaching, Illegal
fishing
,illegal mining,

WHY LAUNDER MONEY?

Hide the origin of the money to make it
appear legitimate.
Confuse the audit trail by truncating
information flow.
Divert suspicions and avoid unwanted
questions about unexplained wealth
Money Laundering seeks to achieve two basic
goals: separate the perpetrator and the proceeds
from the underlying crime, and
disguise the proceeds as legitimate funds
or assets and hence allow the criminal to
enjoy the benefits of criminal activities
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WHY LAUNDER MONEY?

Criminals thus launder money
Avoid prosecution
Increase profits
Avoid seizure of accumulated wealth
Legitimize proceeds of crime
Secure income for the future if successful.

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MONEY LAUNDERING PROCESS

Three stages of money laundering
Placement
Layering
Integration
Placement
Immersion or Soaking
The physical disposal of cash proceeds derived
from illegal activity
The initial point of entry for funds derived from
criminal activities.
The easiest form of soaking being use of the
banking system via a myriad of financial
services.
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MONEY LAUNDERING PROCESS

Layering
Soaping and Scrubbing
Creating complex layers of financial transactionsaimed at separation of illicit proceeds from their
source
These disguise the audit trail and provide
anonymity
The creation of complex networks of transactions
which attempt to obscure the link between the
initial entry point, and the end of the laundering
cycle.

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MONEY LAUNDERING PROCESS

Integration
Repatriation / Spin Dry
Re-injecting laundered proceeds into the main
stream economy so that they re-enter the
financial system as normal business funds
Provides an apparently legitimate explanation to
criminally derived wealth
The return of funds to the legitimate economy for
later extraction.

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MONEY LAUNDERING PROCESS/SCHEME

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EFFECTS OF ML
Erode countrys ability to use the international
financial system or for its institutions to grow into
other countries
Erode the integrity of financial institutions and
thus the financial system
Reputational risk
Legal risk
Operational risk
Present a threat to political stability, peace, unity
and growth of democratic systems and institutions
Give criminal organizations considerable leverage
over economies,
Threatens law and order,
Ruins competitiveness in an economy,
Affects attainmentTanzania
of national
goals
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REASONS FOR IMPLEMENTING AML

MEASURES

Protecting your family: Fighting money

laundering deters the underlying crimes that can
affect you and your family directly(e.g. drug
trafficking, kidnapping of family members)
Protecting the community: Creating an
environment that is hostile to criminal enterprise
deters the criminalisation of the community
Law and order: Reduce crime, and prevent failed
states
Prevent
Reputational
damage:
Money
laundering can erode a countrys ability to use the
international financial system or for its institutions
to grow into other countries
Protect the financial sector: to ensure financial
sector stability and protecting integrity of the
financial system.
The economy in general: Support development
and access to finance, remove distortions in the
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economy and stabilize it.

REASONS FOR IMPLEMENTING AML

MEASURES
Individual institutions: In addition to
reputational damage, there may be significant
financial consequences from lost business, fines,
including revocation of licence; and limitations on
(international) business activities,
ML vulnerabilities can have a systemic
impact
Money laundering and related financial crimes
can contribute to financial sector crises or
impede macro-economic performance and
affect attainment of national goals

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ACCOUNTANTS ROLE
Accountants and Auditors are two sides of the same
coin.
Accountants write and keep books.
Auditors examine and vouch books.
Accountants help in the establishment of companies
in their early formation.
Accountants and Auditors are reporting persons for
Money Laundering Terrorist Financing purposes.
In their role of writing and keeping books of
accounts, accountants should be alive to the risks of
ML/TF.
In the process of booking assets, the accountant
should ensure that assets are generated legally.
Equally, companies should make payments for
bonafide goods and
acquired by
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ACCOUNTANTS ROLE
The International Financial Reporting Standards (IFRS)
did not come as an accident. They came in to close
the gap of establishing a mechanism for measuring
performance across the world. This instills sensibility
inside the firm and to the parties trading with the
firms.
In ML/TF parlance, it is only the accountant who can
structure the accounts and conceal illegal proceeds. If
successful, the auditor may find it difficult to exhume
the illegality and therefore render a positive opinion
on the accounts when in fact they should not.
Practically, accountants will be the first to know if
Money Laundering or Terrorist Financing is going on in
an institution. An astute accountant will interrogate
transactions which do not make sense. If they are not
happy they should refer such transactions to Internal
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ACCOUNTANTS ROLE
Risk Management
Internal
Laundering Reporting Officer.

Audit

or

Money

Auditors come into the picture after the effect. They

look at the laws of the country, policies developed
by management and good practice. They have the
best opportunity of seeing the bigger picture. With
their panoramic view they can query management
on any practices they think make no sense or were
in gross violation of the law or internal policies and
procedures.
In all events, accountants and auditors should report
suspicious Transactions to the Financial Intelligence
Unit as their legal obligation.
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CHALLENGES
Money Laundering and Terrorist financing are
new phenomena.
Accountants and Auditors must have a good
understanding of how money is laundered
including the financing of terrorism. There is
therefore an urgent need to include these in the
teaching curriculum at all levels so that people
know what to look for.
Money launderers and terrorist financiers employ
the best accountants and lawyers to guard their
forts. You therefore need very sophisticated
accountants and auditors to match the criminal
industry. This requires talent and resources.
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CHALLENGES

Just as we complain of climates change, we should

seriously consider the change in the moral fabric of
our people. The get rich quickly at any cost
syndrome is such a serious challenge to the
accounting and auditing profession.
Some enterprises want to thrive and they do not
care about the source of wealth. Young men and
women see their success in the gold and silver that
they can amass. Ethics is no longer an issue!! The
accounting and auditing profession should guard
against these developments.
The dual economy where the informal sector is so
large is a problem.
While we are challenged for resources and skills, we
must as a profession look at the feasibility of
developing a strong code of conduct for the
profession and deal with problematic cases seriously
to safe guard the profession.
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CHALLENGES
We should remember that the biggest
audit scandal (Enron) does not speak well
about the industry. Arthur Anderson got
into a lot of problems and when enough
research is done this was a sure Money
Laundering case.

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CONCLUSION
Money laundering and financing of terrorism
are serious crimes whose effects are serious,
The war against money laundering and terrorist
financing calls for domestic, regional and
international cooperation,
The accountants, like all other professionals
have a pivotal role to play.
Sensitization and training of reporting persons,
stakeholders and the Public is very important,
Efforts by our governments to attain national
development goals becomes hard with
unchecked financial criminality.

Tanzania FIU

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