AML & CTF TRAINING

On Special Topic:
A Comprehensive & Practical Understanding
On AML & TF
Legislations & Implementation
By: RCMD & Wubetu A.
(FORM July. 21 22, 2012)
Opening Session
Get to know one another
Name
Place of assignment

Job title

Guiding principles of the training session

Overview of course outline & Schedule

 Suggested Ground Rules

Brainstorm freely and dont worry about

disagreeing openly; it stimulates discussion and
helps others think aloud !
Dont take up more than your fair share of talk time !
Be prompt
Dont interrupt when others are speaking
Put your Mobiles on Silent Mode
Arrive On Time
Any Others?
 Topics to be covered
Definition and basic concepts of Money
Laundering and Terrorist Financing,
The Implication of Money Laundering and
Terrorist Financing for development ,
Understanding of effective AML & TF
regime/established system and development
of international initiatives,
Understanding of the legal framework of
Ethiopia,
 Topics to be
Brief Explanation on Banks AML & TF Policy &
Procedures and Implementation, with a special
emphasis to Suspicious Transaction Reports
(STRs).
BIBs AML policy & Procedure

Due diligence

Red flags/indicators of suspicious

transactions
 Objectives of the Training Course
Understand the fundamental concepts of
Money Laundering and Terrorist Financing,
Understanding the evolution of international
and national legislation regarding AML/CTF and
the key changes,

Understand the essence of the risk-based ML-

analysis team in determining reporting and
suspicion transactions,
 Objectives of the
Comprehend the most important typologies
of ML/TF based on national and international
initiatives (e.g. FATF) to identify suspicious
behavior.
Organization & Schedule of the
Training
Organization of the training program:
Duration of training 1&half days
The training consists of 8 sessions

Schedule for half day:

Morning:
02.30-10.00 1st Session
10.00-10.30 Coffee Break
10.30-12.30 2nd Session
Afternoon:
01.30-03.00 1st Session
03.00-03.30 Coffee Break
03.30-05.15 2nd Session
Have A
Nice Time
And Enjoy
The Training!
1. Definition and basic concepts of
ML & TF

Question-1
What is Money Laundering?
 Definition and basic concepts

What is Money Laundering?

It is a process of making dirty money clean.

Money generated from illegitimate source is

converted into legitimate.

The true ownership of the proceeds, are

concealed or its origin gets hidden.
 Definition and basic concepts
Source of Money Laundering
The proceeds or profits generated from:
(i) Drug trafficking
(ii) People smuggling
(iii) Arms, antique, gold smuggling

(iv) Financial frauds

(v) Corruption, or
(vi) Illegal sale of wild life products and other
specified predicate offences
 Definition and basic concepts
Definitions of Money Laundering
According to proclamation No. 780/2013 Feb. 4th.
2013, article 2 (1) money laundering means an
offence defined under Article 29 of this proclamation;

(29)

According to BIBs AML & TF PP manual article

1(3)6, is the attempt to conceal or disguise the nature,
location and source of ownership or control of illegally
obtained money..
 Definition and basic concepts
Some facts about Money launderers
Big time criminals who operate through
international networks without disclosing
their identity,
Every year involved in the range of $600 bil. to
$2 trio. This gives financial power to engage
or coerce or bribe people to work for them,
Use professionals to create legal structure/
entities and use them for laundering of funds
 Definition and basic concepts

Question-2
How does money laundering occur?
Definition and basic concepts
How does money laundering occur?
A complete money laundering operation can be
analyzed in three essential stages/process.
PLACEMENT
Entry of funds in banking system or illicit funds are
separated from their illegal source.

LAYERING
Distancing of funds from point of entry or creating
multiple layers of transactions that further separate the funds
from their illegal source.
Definition and basic concepts
How does money laundering
INTEGRATION
usage of funds or
It involves reintroduction of the illegal funds
into the legitimate economy.
The funds now appear as clean and taxable
income.
Allow the criminal to use the funds without
raising suspicion.
Definition and basic concepts
What is Terrorist Financing?
Terrorist financing is the act of providing
financial support to terrorists or terrorist
organizations to enable them to carry out
terrorists acts.
As per United Nations Convention for the
suppression of financing of terrorism (SFT
Convention 1999)
Definition and basic concepts
What is Terrorist Financing?
According to Ethiopian legislation & BIB: is an
offence established when a person directly or
indirectly legally or unlawfully but willfully provides
or collects funds with the intention that they should
be used in full or in part in order to carry out a
terrorist act or activity.
Definition and basic concepts
Sources of Terrorist Financing:
I) Illegal sources: Examples see above, including:
Kidnap and extortion;
Misuse of non-profit organizations and charities
fraud; and
Thefts and robbery.
II) Legitimate sources: Examples:
Contributions and donations
Sale of publications
Cultural of social events
Legitimate business activities
Definition and basic concepts
The relationship & Difference b/n ML & TF.
Source of fund;

Although terrorist financing is a form of

money laundering, it doesnt work the way
conventional money laundering (stages)
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
Definition and basic concepts
The relationship & Difference b/n ML & TF.
Money Laundering is about hiding the source,
whereas, Terrorist Financing is about hiding the
destination or use of funds.

Both criminals make illegitimate use of the

financial sector.
 Definition and basic concepts
Typologies/Techniques Employed/FI used
as Conduit:
Where does ML/TF operations take place?
Deposit structuring

Connected Accounts

Payable Through Accounts

Loan back arrangements

Forex Money Changers

 Definition and basic concepts
Typologies.
Investment Banking

Companies Trading and Business Activity

Correspondent Banking

Lawyers, Accountants & other Intermediaries

Misuse of Non-Profit Organizations

Definition and basic concepts
Typologies./Summary/
Where does ML/TF operations take place?

Accountants, Lawyers,
Cash intensive business & notaries and company
Trade in high value items formation agents
Areas
vulnerable
to ML & TF
ML through the banks, TF Charitable institutions
Foreign exchange and informal fund
bureaus and other transfer system
Reflection

?
Have a nice break
2. Implication of ML and TF for devt.

Is ML/TF a problem of developed

economies only? in other words,
Is AML/CTF imposition on
developing economies?
2. Implication of ML and TF for devt.
Money laundering and the financing of
terrorism can occur in any country
Especial impact on developing countries due
to their Small size economy, fragile fina. Sys.
Adverse implications for Developing nations
Increased Crime and Corruption
Damaged reputation & intl consequences
Weakened Financial Institutions
Due to associated risks, losses, costs, liquidity
Compromised Economy & weakened prvt sector
Front companies, monetary-ecoc instability
 Implication of ML and TF for ..
ML & TF activities on the financial sector:
Discourage people to put their money in
financial institutions because of lack of
transparency. Due to contamination of legal
financial transactions.

May lead to bankruptcy of financial

institutions and destabilize the financial
market.
Tend to induce corruption in the financial
sector.
Implication of ML and TF for
Impact on macro economy:
Rapid movement of large amount of money
inconsistent with financially productive
purposes.
Affect Interest rates and Exchange rates
Need for cash to buy drug High Money dd High
Price for money (Int. Rate) attract foreign inv
High Capital Inflow Exchange Rate appreciate
Pricing of estates/property
Real estate the preferred choice of criminals to hide
ill-gotten gains by Manipulating property prices
Portion of price under table, offshore Sale/purchase,
Implication of ML and TF for
Undermines rule of law:
all people & instns are subject to and
accountable to Law that is fairly applied and
enforced
Illegal money movement and illegal
income to criminals
Damage the principle idea that rule of law
is applied consistently to all subjects.
Tend to induce corruption in the public
sector.
Implication of ML and TF for
Undermine governance:
A well functioning AML system make it
difficult for corrupt officials to expatriate
their ill gotten funds.

A well functioning AML system allows

such funds to be repatriated in cases
where it has been deposited abroad.
Implication of ML and TF for ..
Undermine economic liberalization:
ML & TF activities undermine inflow and
outflow of capital and tend to:
Encourage governments to impose restrictive
capital controls. Due to unanticipated cross-border
asset transfers.

Encourage governments to impose restrictive

regulations on financial transactions and
trade with jurisdictions that do not have
adequate ML control policies.
Implication of ML and TF for ..
ML & TF Risks/Summary
What are the risks to banks?
(i) Reputational risk
(ii) Legal risk
(iii) Operational risk (failed internal processes,
people and systems & technology)
(iv) Concentration risk (either side of balance
sheet)
All risks are inter-related and together have the
potential of causing serious threat to the
survival of the bank.
 Implication of ML and TF for.
Penalties imposed on banks:
Dec. 2012 HSBC US$ 1.9 Bill

Jan. 2006 ABN AMRO US$ 80 mill

Nov. 2005 Bank of New York US$ 24 mill

Feb. 2005 City National Bank US$750,000

Jan. 2005 Riggs Bank US$ 41 mill

Oct. 2004 AmSouth Bank US$ 50 mill

Sep. 2004 City Bank Japan License cancelled

Implication of ML and TF for
Behind the Financial Penalties.
ANM AMRO related with terrorists in Iran
and Libya
Liberty Reserve electronic banking, about
USD 6 bln, related with child pornography and
bank hacking
City Bank some time tagged as the biggest
money Launder in US
HSBC related with drugs, drug cartels,
terrorist countries
Implication of ML and TF for
What is the importance of AML & CTF?
Fighting Crime and Corruption
Reduce potential to conceal the financial proceeds of
crime,
Increase the difficulty for legitimate funds to be used
to finance terrorist activity,
Enhancing Stability of Financial institutions
Minimize the risk of abuse or misuse of a countrys
financial institutions and other vulnerable sectors
with activities and transactions related to criminal
elements, Increased Public Confidence,
Minimize negative economic impact
Non productive invt / companies, protect value &
easy transfer
3. Understanding of effective AML &
TF regime
Challenges faced by countries to fight
ML/TF are multifaceted:
Cash-based economies

Porous borders

Weak institutions for enforcements

Large informal sector

 Understanding of effective
AML/CFT Challenges in Cash Based
Economies:
Some countries have experienced that it is not easy to
implement the FATF recommendations in cash-based
economy because of the size and amount of money
dealt with in the financial sector.
What is cash-based economy?
Cash-based economies are economies where
cash is more frequently used as an instrument
for making payments rather than cheques,
payment order, wire transfers, and debit and
credit cards etc.
Understanding of effective
What are the roles of cash in money
laundering?
Disguise the audit trail

Provide anonymity

Concealing true ownership and origin of

money

Changing the form of money

Understanding of effective .
Why cash-based Economy exists?
Poor outreach of financial system.
Lack of trust in the financial system.
Slow and insecure means of fund transfer
and payment system.
Unaffordable financial system (high fees
and charges)
Others: low literacy rate; large informal
sector; and lack of understanding.
Understanding of effective .
Two aspects of challenges in cash- based
economy:

How to protect the financial sector handling

the large volume of cash transactions.

How to increase the effectiveness of

AML/CFT regime in the entire economy.
 Understanding of effective .
Challenges in protecting the financial sector:
In short challenges in;
Performing on-going monitoring and KYC.

Detecting suspicious transactions an

activities.
 Understanding of effective ..
How these risks can be mitigated?

1. Financial sector development,

Increase the peoples accessibility to the

financial services
How many people per bank?
Financial service s in the rural areas
Knowledge dissemination on how to use banks

2. Modernize the payment system.

3. Improve the competitiveness of financial sector.

Understanding of effective
Protecting the financial sector:
4. More enhanced customer due diligence is
required. Since Banks cannot see the recipient of
cash withdrawn and the origin of cash deposited.

5. Cooperate with legal enforcement

authorities In order to detect criminal
proceeds. This will reduce burden to the financial
sector in conducting due diligence.
Understanding of effective .
Challenges for the effectiveness of AML/CFT
regime:
1. Large amount of cash does not raise suspicion
in ordinary business transactions,
2. Follow the money is disrupted by cash
transaction in the investigative process,
3. Non-existence of written records make judicial
process difficult,
4. More people use alternative remittance system,
5. More cash is carried by cash couriers,
 Understanding of effective
Challenges for the effectiveness of ..
In short, challenges in:
Investigating money launderers and terrorist
financiers because business transactions
leave no record ( lack of evidence),
Arresting money launderers and terrorist
financiers because even bank records do not
carry effective information (lack of evidence)
Protecting the cross border- transactions
 Understanding of effective .
How to enhance the effectiveness of
AML/CFT regime?
1. Enhance financial sector integrity and safety net:
policies and instruments to promote fairness and
integrity of operations of financial institutions and
markets as well as safeguard of depositors.
2. Regulatory governance; relating to the objectives
independence, enforcement authority and decision
making arrangements of regulator.
3. Regulatory practices, consisting of practical application
of laws, rules and procedures,
4. Prudential framework; rules and guidance on internal
controls and governance of supervised entities,
 Understanding of effective
How to enhance the effectiveness
6. Reduce the Size of informal sector
What is informal sector
The unregulated non-formal portion of the
market economy that produces goods and
services for sale or for other forms of
remuneration.
Characteristics.
Low entry requirements (capital /professional
qualification
A small scale of operation
Skills often acquired outside to formal education
Labor- intensive methods of production and adapted
technology.
 Understanding of effective .
Relevant instrument to the development of
effective AML & TF regime?
(International AML Initiatives)
Major Initiatives:
In 1986, USA became the first country in the world to
criminalize the laundering of the proceeds of criminal
activity with the enactment of the Money Laundering
Control Act of 1986.
The main international agreements addressing money
laundering are the 1988 United Nations Vienna
Convention against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances (the Vienna Convention) and
the 1990 Council of Europe Convention on Laundering.
Understanding of effective .
(International AML Initiatives)
The G-7 Summit in Paris in 1989 took a great step

forward in combating international money

laundering with the creation of the Financial Action
Task Force (FATF) to develop a coordinated
international response to mounting concern over
money laundering.
The FATF 40 Recommendations set out the basic
framework on what countries need to do in terms of laws,
regulations and enforcement --to combat money
laundering
After 9/11 attack the FATF, at its Washington meeting in
October 2001, came up with 8 Special Recommendations
to tackle this threat. Terrorists use similar systems to
money launderers and the 8 Special Recommendations
complement the 40 existing Recommendations.
Understanding of effective .
(International AML Initiatives)
In October 2002 a group of the world's

largest banks jointly with Transparency

International (TI), the global anti-corruption
organization, drew up a set of global anti-
money laundering guidelines for
international private banks, known as the
"Wolfsberg Anti-Money Laundering
Principles,
The Basel Core Principles (BCPs) on
Banking Supervision (BCBs) developed CDD
for Banks October 2001,
Understanding of effective .
(International AML Initiatives)
The International Organization of Securities
Commissions (IOSCO) adopted, in October
1992, a report and resolution encouraging its
members to take necessary steps to combat
money laundering in securities and futures
markets.
Understanding of effective AML & TF
Conclusion
How to protect the financial institutions from ML/FT risks.
More enhanced CDD procedure is required

Currency transaction reports may be useful source of

information
Reconsider the support of enforcement authorities

Internal AML/CFT programs

How to increase the effectiveness of AML/CFT regime

Financial sector development

Financial sector integrity

Reduction of the size of the informal sector

THANK YOU
 END
THANK YOU

Zerihun Girma
Cell. 0911 40-45-96
E-mail: RMSBUNNABANKSC.Com