Money Laundering

Money Laundering Chapter 12 Hughes and MacDonald Text

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

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.

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)

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.

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

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.

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 policing…promoting lawlessness and a world of threat, fear and control by unaccountable criminals.

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.

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

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

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

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

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

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.

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

Important Terms • 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. Suspicious Transactions

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

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

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

Question 2 Considering the threat money laundering poses for international finance, what are bankers required to do to prevent this criminal act? Dawn

Question 3 What is a suspicious transaction? Carly

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

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

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

Question 7 What is the Financial Action Task Force? Why was it established, and what role does it play in combating money laundering? Dina

Question 8 What are the consequences of Russian criminal activity with regard to money laundering?

Money Laundering