Money Laundering

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Money Laundering

• Chapter 12
• Hughes and MacDonald Text

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Questions You will Want to Be able to Answer

• What is money laundering?
• What motivates people to launder money?
• What basic process is followed to launder money?
• What responsibilities do employees of financial
  institutions have to address this problem?
• What sanctions/penalties can be imposed on
  employees and the institutions they serve for
  acts of commission or omission?
• What are negative impacts of money laundering in
  our world?
• What common procedures must be followed by
  financial institutions to provide that they have
  been duly diligent with regard to money
  laundering?
• List the crimes that are considered serious, and
  therefore, must be revealed through money
  laundering

3
Questions You will Want to Be able to Answer

• What is money laundering?
• Is the act of transforming profits earned from a
  criminal activity into legal profits.

4
Questions You will Want to Be able to Answer

• What motivates people to launder money?
• The desire to use the proceeds from crime without
  attracting attention (escaping detection)

5
Questions You will Want to Be able to Answer

• What basic process is followed to launder money?
• Placement phase one is the placement of
  currency into a financial institution.
• Layering phase two is the movement of funds
  from institution to institution to conceal the
  original source and ownership of the funds.
• Integration phase three is the time when the
  funds, having been washed are reinvested into a
  legitimate business.

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Questions You will Want to Be able to Answer

• What responsibilities do employees of financial
  institutions have to address this problem?

• Take responsible steps in context of the law
• Train employees
• Cooperate with other authorities and agencies
• Follow the law
• Use judgment
• Document

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Questions You will Want to Be able to Answer

• What sanctions/penalties can be imposed on
  employees and the institutions they serve for
  acts of commission or omission?
• Willful neglect and other errors may be both
  civil and criminal acts that if successfully
  prosecuted can result in fines and imprisonment
  or both.

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Questions You will Want to Be able to Answer

• What are negative impacts of money laundering in
  our world?
• Failure to act creates conditions conducive to
  the perpetuation of crime in all of its forms.
• These conditions give resources to criminals that
  may allow them to thwart policingpromoting
  lawlessness and a world of threat, fear and
  control by unaccountable criminals.

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Questions You will Want to Be able to Answer

• What common procedures must be followed by
  financial institutions to prove that they have
  been duly diligent with regard to money
  laundering?

• Due diligence
• Know your client
• Report suspicious transactions
• Verify source of funds
• Document due diligence and especially retain
  copies of all verified documents.
• Cooperate with other agencies and exchange
  information
• On instructions, financial institutions can
  freeze accounts, and will forfeit assets through
  government seizure.

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Questions You will Want to Be able to Answer

• List the crimes that are considered serious, and
  therefore, must be revealed through money
  laundering

• Drug trafficking
• Smuggling
• Trafficking in stolen art, cars, body parts,
  people, nuclear/military secrets, weapons

• Money used by terrorists
• Kidnapping for randsom
• Pariah states seeking to evade international
  sanctions
• Tax evasion

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Important Terms

• Flight capital/hot money
• Rapid withdrawal of capital from a country as a
  result of loss of confidence in the countrys
  government.

12
Important Terms

• Flight capital/hot money
• Rapid withdrawal of capital from a country as a
  result of loss of confidence in the countrys
  government.
• (a good example was Russian in the late 1990s)

13
Important Terms

• Smurfing
• Smurfs are individuals who help move the funds
  from one institution to another or from one
  country to another.
• Usually involve a major coordinator (Papa Smurf)
  who directs the smurfs to make deposits of drug
  profits at a large number of banks

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Important Terms

• Hawalah system
• System depends on trust and simplicity
• Launderer places a large sum of money in an
  underground bankthe identifying receipt is
  innocuous (a playing card torn in half for
  example)the other half is forwarded overseas to
  another Hawalah bankerwould gives the presenter
  the money in another country.

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Important Terms

• Chop system
• Used throughout the Chinese communities in
  Southeast Asia, Canada and U.S.
• It is a largely paperless remittance system
• Operates on the basis of a chop or mark that
  identifies the carrier as someone who can be
  trusted.
• Credit is granted in one country, the carrier
  goes to the target country to receive the cash on
  evidence of the chop.

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Important Terms

• Willful negligence
• Intentional failure to apply the law
• Is a criminal act
• Subject to severe penalties

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Important Terms
Suspicious Transactions

• Include things such as
• Deposits made just below the 10,000 currency
  reporting limit
• An excessive cashflow from a business in an area
  that is economically depressed
• Someone arriving at a teller with a large sum of
  cash.
• It is anything that raises questions out of the
  ordinary about the origin of the money.

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Important Terms - FATF

• FATF Financial Action Task Force
• Established in 1989 Paris G-7 Economic Summit
• An intergovernmental body established to develop
  and promote policies to combat money laundering
• 40 recommendations
• Money laundering cannot be controlled by
  conventional law enforcement methods
• Pool resources of
• Law enforcement agencies
• Regulatory agencies
• Central banks, and
• Finance ministries
• Compiled a blacklist of countries and territories
  including

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Important Terms - FATF

• FATF Financial Action Task Force
• Compiled a blacklist of countries and territories
  including
• Bahamas
• Cayman Islands
• Dominica
• Panama
• Israel
• Lebanon
• ST. Kitts-Nevis
• Nauru
• Niue

• Liechtenstein
• Russia
• Phillipines
• Cook Islands
• Marshall Islands

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Question 1

• What is money laundering, and why are bankers
  concerned about it? What are the three phases
  involved in laundering ill-gotten gains?
• Sal

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Question 2

• Considering the threat money laundering poses for
  international finance, what are bankers required
  to do to prevent this criminal act?
• Dawn

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Question 3

• What is a suspicious transaction?
• Carly

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Question 4

• Suppose that you are a banker and a new customer
  comes in with an 8,000 cash deposit. Is this a
  suspicious transaction? Should you report it
  to the authorities? What risks do you run?
• Jieling

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Question 5

• What is the significance of the Bank of Credit
  and Commerce International to money laundering?
  What are the lessons of the BCCI affair?
• Maeghan

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Question 6

• What are the consequences to a bank for failure
  of compliance with money laundering laws? Are
  there any notable cases of compliance failure?
• Chris

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Question 7

• What is the Financial Action Task Force? Why was
  it established, and what role does it play in
  combating money laundering?
• Dina

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Question 8

• What are the consequences of Russian criminal
  activity with regard to money laundering?