By; Asst.Prof.Dr.Anusorn Tamajai

1. Protecting Against Corruption and Economic Crimes : Financial Institution Campaign against Money Laundering By; Asst.Prof.Dr.AnusornTamajai

2. A TYPICAL MONEY LAUNERING SCHEME ที่มา : http://www.bangkokpost.com

3. Protecting Against Corruption and Economic Crimes : Financial Institution Campaign against Money Laundering • Focus on : • Financial institution campaign against money laundering

4. Globalization and rapid economic liberalization in countries with low levels of transparency and good governance lead to increased money laundering, financial crimes and corruption activities. • Thailand and ASEAN started to open their markets and economies 30 years ago. These countries and their financial sectors have been considered more vulnerable to potential abuse by organized crime groups due to inadequate legal and institutional safeguards. • Since the 1980s, with the ever-growing seriousness of money-laundering activities, the international community has paid proper attention to money laundering. • Anti-money laundering laws have been developed and are being updated. New institutions that specialize in the fight against money laundering and corruption are developing.

5. A combination of financial liberalization and quantitative easing has caused volatility in capital flows. We need to understand the problems associated with the absorption of capital inflows. The impact of capital flows is a complex issue that has been analyzed from different perspectives. We need to understand more about capital flow volatility so we can develop better measures and policies to manage it. The recent increase in capital flow volatility in Thailand and Asian emerging countries has generated difficulties for policy makers and business sectors alike. The capital inflows and outflows themselves generate significant turbulence in emerging market economies, affecting asset prices, investment, consumption, saving, exchange rates and the financial sector.

6. The Economic Theory of Crime • The economic theory of crime (including corruption and money laundering) hypothesizes that criminals respond consistently to incentives, i.e., the opportunities (cost and benefits) available to them in legitimate and illegitimate activities. Crime rates are negatively associated with opportunity costs of crime and with the probability and severity of punishment, while positively associated with gains from criminal behavior, as predicted by the economic theory. • The economic theoretical prediction based on a recursive model for the economics of crime consists of two equations: the supply-of-crime equation and the arrest-rate equation. The results of many regression analyses of variations in the crime rate across provinces in Thailand are generally consistent with theoretical predictions. So we can conclude that economic theory is powerful in explaining criminal behavior.

7. Capital flows, increasing financial volatility and money-laundering activities • From mid-2012 to mid-2013, most Asian countries including Thailand experienced short-term speculative capital inflows, regional currency appreciation, and rising financial asset prices, especially in their stock markets. The US Federal Reserve Bank Quantitative Easing 3 (QE3) measure played a key role in these economic and financial phenomena. • After the signal of QE3 tapering by Fed Chairman Ben Bernanke and some key members of the bank’s Federal Open Market Committee, the financial markets reversed their previous direction. • Since May 21, 2013, stock markets have declined sharply; the Thai baht has depreciated rapidly; and financial volatility has increased along with financial and economic fluctuation.

8. With the exception of the Asian economic crisis in 1997 and 1998, Asian developing countries have generally achieved high economic growth rates during the past three decades, mainly from the high and rising investment rates and prudential management of economic policies. Foreign capital inflows have played an important role in financing investment in these countries. Private capital flows, although beneficial in net terms, pose two types of challenges. First, a large surplus leads to economic overheating and the associated problems of the appreciation of the real exchange rate. Second, sharp reversals in capital flows can be potentially disruptive. • The role of capital inflows in Asian economies and Thailand had some common characteristics during 1980-1998 and 2009-2013. Short-term capital inflows from 2009 to the first half of 2013 changed into capital outflows. This sharp reversal of capital flows caused volatility and financial and economic disruption.

9. The surge in capital inflows began as early as 1988 in Thailand, 1989 in Malaysia and the Philippines, and 1990 in Indonesia. In the mid-1980s, Indonesia, Malaysia and Thailand had undergone successful structural adjustment programs to set the foundation for this influx of capital. • Generally, the more liberalized environment resulted in a greater degree of capital mobility. • The capital inflow phenomenon, and the associated need to efficiently intermediate large amounts of foreign capital and address potential macroeconomic overheating, were the direct products of this transition between the polar opposites of financially integrated regimes. East Asian countries were at the forefront of a worldwide movement toward increased financial integration (see World Bank 1997). In terms of Chenery, Robinson and Syrquin’s (1986) topology of growth, East Asian economies look more like those of industrialized than developing countries since they derive nearly half of their output growth from TFP growth rather than from accumulation (Table 1).

11. Principles of anti-money laundering and its operations • 1. Confidentiality, Legality and Prudence. Bank and financial institutions must abide by the relevant rules and regulations and refrain from disclosing any information on anti-money laundering activities. Financial institutions must abide by legal and prudential regulations to fulfill their obligations and to fight against money laundering. • 2. Financial institutions must cooperate with administrative enforcement departments, judicial departments and taxation authorities to fight money laundering in line with laws and regulations.

12. Customer identification and large-value suspicious transaction report system • Suspicious transactions refer to those transactions of an abnormal amount, frequency, source and direction. A suspicious transactions reporting system and customer identification are important countermeasures against money laundering by banks and other financial institutions. The account information and transaction record-keeping system is also an important measure, which has been required since 1990 in the Financial Action Task Force (FATF) recommendations. The purpose of the system is twofold. Judicial departments need records of financial transactions in their investigation of money laundering and must use the records as evidence. In addition, collection analysis and reporting of large-value and suspicious transactions need to be monitored continually, given the growing sophistication of money laundering.

13. Anti-money laundering via mobile money market • Ensuring appropriate regulation of anti-money laundering via mobile money markets is crucial. All regulations need to be consistent with FATF standards. International standard-setting bodies – such as the FATF – are working to understand the complexities of the different business models and to formulate appropriate responses to more detailed questions regarding the application of these standards to low-value, low-risk m-money transactions.

14. Key Points Policy guidance in AML/CFT for policy makers: • Impose AML/CFT obligations on nonbank providers of financial services. • Promote regulations that balance financial inclusion with financial integrity. • Impose AML/CFT obligations on retail outlets. • Promote a clear and effective supervisory regime for m-money providers. • Define an enforceable sanctioning regime for m-money. • Provide AML/CFT training to supervisors.

15. Guidelines for m-money providers: • Develop internal solutions to monitor money-laundering/terrorist-financing (ML/TF) transactions. • Require retail outlets to report their suspicious transactions. • Ensure that appropriate rules are followed regarding information to be reported. Recommendations for the FATF: • Provide further guidance to identify low-risk transactions and customers. • Issue a risk-based guidance report on m-money.

16. 10 MOST HIGHEST RISK COUNTRIES Country Overall scores Rank IRAN 8.56 1 AFGHANISTAN 8.53 2 CAMBODIA 8.39 3 TAJIKISTAN 8.34 4 GUINEA-BISSAU 8.25 5 IRAQ 8.22 6 MALI 8.06 7 SWAZILAND 7.92 8 MOZAMBIQUE 7.92 9 MYANMAR 7.89 10

17. 10 LOWEST RISK COUNTRIES Country Overall scores Rank JAMAICA 3.98 153 MALTA 3.97 154 POLAND 3.95 155 BELGIUM 3.91 156 NEW ZEALAND 3.83 157 BULGARIA 3.83 158 LITHUANIA 3.64 159 SLOVENIA 3.38 160 ESTONIA 3.27 161 FINLAND 2.51 162

18. MONEY CAUDER IN ASEAN Country Overall scores Rank LAOS 7.45 19 VIETNAM 6.76 38 THAILAND 6.53 49 PHILIPPINES 6.39 56 INDONESIA 6.25 64 BRUNEI 5.84 82 MALAYSIA 5.41 102 SINGAPORE 4.96 127 Union of MyanmarNA Kingdom of Cambodia NA