Short Notes on Anti Money Laundering
1. The conversion or transfer of property, the concealment or disguising of the nature of the proceeds, the acquisition, possession or use of property, knowing that these are derived from criminal activity and participate or assist the movement of funds to make the proceeds appear legitimate is money laundering.
Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, and illegal gambling is "dirty" and needs to be "cleaned" to appear to have been derived from legal activities, so that banks and other financial institutions will deal with it without suspicion. Money can be laundered by many methods which vary in complexity and sophistication.
Money laundering involves three steps: The first involves introducing cash into the financial system by some means ("placement"); the second involves carrying out complex financial transactions to camouflage the illegal source of the cash ("layering"); and finally, acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending upon the circumstances. For example, non-cash proceeds that are already in the financial system would not need to be placed.[8]
According to the United States Treasury Department:
Money laundering is the process of making illegally-gained proceeds (i.e., "dirty money") appear legal (i.e., "clean"). Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean".
2.Money laundering involves taking criminal proceeds and disguising their illegal source in anticipation of ultimately using the criminal proceeds to perform legal and illegal activities.
Simply put, money laundering is the process of making dirty money look clean.
3. Money laundering methods
Money laundering:
The money laundering cycle can be broken down into three distinct stages; however, it is important to remember that money laundering is a single process. The stages of money laundering include the:
Placement Stage
Layering Stage
Integration Stage
The Placement Stage
The placement stage represents the initial entry of the "dirty" cash or proceeds of crime into the financial system. Generally, this stage serves two purposes: (a) it relieves the criminal of holding and guarding large amounts of bulky of cash; and (b) it places the money into the legitimate financial system. It is during the placement stage that money launderers are the most vulnerable to being caught. This is due to the fact that placing large amounts of money (cash) into the legitimate financial system may raise suspicions of officials.
The placement of the proceeds of crime can be done in a number of ways. For example, cash could be packed into a suitcase and smuggled to a country, or the launderer could use smurfs to defeat reporting threshold laws and avoid suspicion. Some other common methods include:
Loan Repayment
Repayment of loans or credit cards with illegal proceeds Gambling
Purchase of gambling chips or placing bets on sporting events
Currency Smuggling
The physical movement of illegal currency or monetary instruments over the border
Currency Exchanges
Purchasing foreign money with illegal funds through foreign currency exchanges
Blending Funds
Using a legitimate cash focused business to co-mingle dirty funds with the day's legitimate sales receipts
This environment has resulted in a situation where officials in these jurisdictions are either unwilling due to regulations, or refuse to cooperate in requests for assistance during international money laundering investigations.
To combat this and other international impediments to effective money laundering investigations, many like-minded countries have met to develop, coordinate, and share model legislation, multilateral agreements, trends & intelligence, and other information. For example, such international watchdogs as the Financial Action Task Force (FATF) evolved out of these discussions.
The Layering Stage
After placement comes the layering stage (sometimes referred to as structuring). The layering stage is the most complex and often entails the international movement of the funds. The primary purpose of this stage is to separate the illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.
During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police cooperation.
The Integration Stage
The final stage of the money laundering process is termed the integration stage. It is at the integration stage where the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.
There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money with the criminal in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, art work, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits without necessarily drawing attention to themselves
Smurfs - A popular method used to launder cash in the placement stage. This technique involves the use of many individuals (the"smurfs") who exchange illicit funds (in smaller, less conspicuous amounts) for highly liquid items such as traveller cheques, bank drafts, or deposited directly into savings accounts. These instruments are then given to the launderer who then begins the layering stage.
For example, ten smurfs could "place" $1 million into financial institutions using this technique in less than two weeks
3. Case study:
Online or Internet Banking ( Special Case study how Money laundering 3 steps Happens):: Very important
Placement — Launderers want to get their proceeds into legitimate repositories such as banks, securities or real estate, with as little trace of the source and beneficial ownership as possible. Often, cyberspace banks do not accept conventional deposits. However,cyberbanks could be organized to take custodial-like forms — holding, reconciling and transferring rights to assets held in different forms around the world. Money launderers can create their own systems shadowing traditional commercial banks in order to acceptdeposits, perhaps as warehouses for cash or otherbulk commodities. Thus, cyberspace banks have thepotential to offer highly secure, uncommonly private“placement” vehicles for money launderersLayering — Electronic mail messages, aided by encryption and cyberspace banking transfers, enablelaunderers to transfer assets around the world manytimes a day.
Integration — Once layered, cyberspace bankingtechnologies may facilitate integration in two ways.If cyberbanking permits person-to-person cash-like transfers, with no actual cash involvement, existing currency reporting regulations do not apply. Using“super smart-card” technologies, money can be movedaround the world through ATM transactions. These smart cards permit easy retrieval of the “account”balance by the use of an ATM card
5. Terrorism Financing are 3 types
A. State financing: Separate entities are created with organizational and financial support of the state
B. Legimate modes : Donations by business,individuals and charity funds
C. Private funding:by criminal activities by bank robberies, drug trafficking, kidnaps,exortion..
6. Money laundering can take several forms, although most methods can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing".
Structuring: Often known as smurfing, this is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.
• Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement
• Cash-intensive businesses: In this method, a business typically expected to receive a large proportion of its revenue as cash uses its accounts to deposit criminally derived cash. Such enterprises often operate openly and in doing so generate cash revenue from incidental legitimate business in addition to the illicit cash – in such cases the business will usually claim all cash received as legitimate earnings. Service businesses are best suited to this method, as such enterprises have little or no variable costs and/or a large ratio between revenue and variable costs, which makes it difficult to detect discrepancies between revenues and costs. Examples are parking structures, strip clubs, tanning salons, car washes, arcades, bars, restaurants, and casinos.
• Trade-based laundering: This involves under- or over-valuing invoices to disguise the movement of money. For example, the art market has been accused of being an ideal vehicle for money laundering due to several unique aspects of art such as the subjective value of artworks as well as the secrecy of auction houses about the identity of the buyer and seller.
• Shell companies and trusts: Trusts and shell companies disguise the true owners of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true owner. Sometimes referred to by the slang term rathole, though that term usually refers to a person acting as the fictitious owner rather than the business entity.
• Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant on this is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.
• Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.
• Casinos: In this method, an individual walks into a casino and buys chips with illicit cash. The individual will then play for a relatively short time. When the person cashes in the chips, they will expect to take payment in a check, or at least get a receipt so they can claim the proceeds as gambling winnings.
• Other gambling: Money is spent on gambling, preferably on high odds games. One way to minimize risk with this method is to bet on every possible outcome of some event that has many possible outcomes, so no outcome(s) have short odds, and the bettor will lose only the vigorish and will have one or more winning bets that can be shown as the source of money. The losing bets will remain hidden.
• Real estate: Someone purchases real estate with illegal proceeds and then sells the property. To outsiders, the proceeds from the sale look like legitimate income. Alternatively, the price of the property is manipulated: the seller agrees to a contract that underrepresents the value of the property, and receives criminal proceeds to make up the difference.
• Black salaries: A company may have unregistered employees without written contracts and pay them cash salaries. Dirty money might be used to pay them.
• Tax amnesties: For example, those that legalize unreported assets and cash in tax havens.
• Life insurance business: Assignment of policies to unidentified third parties and for which no plausible reasons can be ascertained.
• By using national banking services smurfing, Muiltiple tier of accounts,funnel accounts,Contra transactions,DD,cash depost and transfer fund connected accounts, front companies, legimate accounts, dormant accounts(Mostly used by terrorists) and wire transfer
• Using remittance ,prepaid cards, money changers,credit and debit cards
By using The credit card industry includes: case study
Credit card associations, such as American Express,MasterCard and Visa, which license member banks toissue bankcards, authorize merchants to accept thosecards, or bothIssuing banks, which solicit potential customers and issue the credit cards.Acquiring banks, which process transactions for merchants who accept credit cards.
Third-party processors, which contract with issuing or acquiring banks to provide transaction processing andother credit card–related services for the banks.Credit card accounts are not likely to be used in the initialplacement stage of money laundering because the industrygenerally restricts cash payments. They are more likely to be usedin the layering or integration stages.
Example
Money launderer Josh prepays his credit card using illicit funds that he has already introduced into thebanking system, creating a credit balance on his account. Josh then requests a credit refund, whichenables him to further obscure the origin of the funds, which constitutes layering. Josh then uses the illicitmoney he placed in his bank account and the creditcard refund to pay for a new kitchen that he bought.Through these steps he has integrated his illicit fundsinto the financial system.
• A money launderer could put ill-gotten funds in accounts at banksoffshore and then access these funds using credit and debitcards associated with the offshore account. Alternatively, he couldsmuggle the cash out of one country into an offshore jurisdictionwith lax regulatory oversight, place the cash in offshore banks and— again — access the illicit funds using credit or debit cards.In a 2002 Report called “Extent of Money Laundering throughCredit Cards Is Unknown,” the U.S. Government AccountabilityOffice, the Congressional watchdog of the United States, offered hypothetical money laundering scenarios using credit cards. One
example was: “[Money launderers establish a legitimate businessin the U.S. as a ‘front’ for their illicit activity. They establish a bank account with a U.S.-based bank and obtain credit cards and ATM cards under the name of the ‘front business.’ Funds from theirillicit activities are deposited into the bank account in the United States. While in another country, where their U.S.-based bank hasaffiliates, they make withdrawals from their U.S. bank account,
using credit cards and ATM cards. Money is deposited by one of their cohorts in the U.S. and is transferred to pay off the credit cardloan or even prepay the credit card. The bank’s online services make it possible to transfer funds between checking and creditcard accounts.”
• Deposit Structuring/ smurfing:Deposting monet bewlow threshold . In india 10 lakh is threshold for it
• Multiple Tier of Accounts Funds are passed through multiple accounts bt splitting them into 2 or more portions at each stage
• Funnel accounts :Bank account is opened for the purpose of dirty money to be made by several persons usually below threshold value
• Contra transactions : to show heavy turnover in accounts, some amount is transferred to one account to another followed by an equal amount transferred from recipient account to the originating account .with repeated several transactions during the day
• Connected accounts in names relatives ,associates or other persons like binami accounts
• Front companies : selling goods and providing services having large volume of business often with cash dealing
• Legimate accounts: Individuals may run number of accounts with several banks
• Dormant accounts: 1stly to keep the account and 2nd ly to ensure that undue attention was not drawn to it
• Back to back loans : a ML transfer his criminal proceeds to another country as security or guarantee for a bank loan, which is then sent back to the original country .
6.ML Global measures can be achieved by
A. Engagement of international organizations
B. UNO initiatives like Vienna convention in 1988, Political declaration in 1998 , The Palermo convention in 2003
C. International monetary fund
D. Financial intelligence units (In india 15th nov 2004 , Director EIU economic intelligence council, Headed by finance Minister)
E. Egmont group of FIUs..1995 (151 FIUs)
7. FATF:::
The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field. First issued in 1990, the FATF Recommendations were revised in 1996, 2001, 2003 and most recently in 2012 to ensure that they remain up to date and relevant, and they are intended to be of universal application.
The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally. In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.
The FATF's decision making body, the FATF Plenary, meets three times per year.
FATF HQ in Paris
FATF currently comprises 34 member jurisdictions and 12 regional organizations
FATF Recommendations. ::
Money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction are serious threats to security and the integrity of the financial system.
The FATF Standards have been revised to strengthen global safeguards and further protect the integrity of the financial system by providing governments with stronger tools to take action against financial crime. At the same time, these new standards will address new priority areas such as corruption and tax crimes.
The revision of the Recommendations aims at achieving a balance:
On the one hand, the requirements have been specifically strengthened in areas which are higher risk or where implementation could be enhanced. They have been expanded to deal with new threats such as the financing of proliferation of weapons of mass destruction, and to be clearer on transparency and tougher on corruption.
On the other, they are also better targeted – there is more flexibility for simplified measures to be applied in low risk areas. This risk-based approach will allow financial institutions and other designated sectors to apply their resources to higher risk areas.
The FATF Recommendations are the basis on which all countries should meet the shared objective of tackling money laundering, terrorist financing and the financing of proliferation. The FATF calls upon all countries to effectively implement these measures in their national systems.
FATF Recommendations 2012
A – AML/CFT POLICIES AND COORDINATION
1 - Assessing risks & applying a risk-based approach
2 - National cooperation and coordination
B – MONEY LAUNDERING AND CONFISCATION
3 - Money laundering offence
4 - Confiscation and provisional measures
C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION
5 - SRII Terrorist financing offence
6 - SRIII Targeted financial sanctions related to terrorism & terrorist financing
7 - Targeted financial sanctions related to proliferation
8 - Non-profit organisations
D – PREVENTIVE MEASURES
9 - Financial institution secrecy laws
Customer due diligence and record keeping
10 - Customer due diligence
11 - Record keeping
Additional measures for specific customers and activities
12 - Politically exposed persons
13 - Correspondent banking
14 - Money or value transfer services
15 - New technologies
16 - Wire transfers
Reliance, Controls and Financial Groups
17 - Reliance on third parties
18 - Internal controls and foreign branches and subsidiaries
19 - Higher-risk countries
Reporting of suspicious transactions
20 - Reporting of suspicious transactions
21 - Tipping-off and confidentiality
Designated non-financial Businesses and Professions (DNFBPs)
22 - DNFBPs: Customer due diligence
23 - DNFBPs: Other measures
E – TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS
24 - Transparency and beneficial ownership of legal persons
25 - Transparency and beneficial ownership of legal arrangements
F – POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES
Regulation and Supervision
26 - Regulation and supervision of financial institutions
27 - Powers of supervisors
28 - Regulation and supervision of DNFBPs
Operational and Law Enforcement
29 - Financial intelligence units
30 - Responsibilities of law enforcement and investigative authorities
31 - Powers of law enforcement and investigative authorities
32 - Cash couriers
General Requirements
33 - Statistics
34 - Guidance and feedback
Sanctions
35 - Sanctions
G – INTERNATIONAL COOPERATION
36 - International instruments
37 - Mutual legal assistance
38 - Mutual legal assistance: freezing and confiscation
39 - Extradition
40 - Other forms of international cooperation
8.FATF IX Special Recommendations on Terrorist Financing:::
Recognising the vital importance of taking action to combat the financing of terrorism, the FATF has
agreed these Recommendations, which, when combined with the FATF Forty Recommendations on
money laundering, set out the basic framework to detect, prevent and suppress the financing of
terrorism and terrorist acts.
I. Ratification and implementation of UN instruments
Each country should take immediate steps to ratify and to implement fully the 1999 United Nations
International Convention for the Suppression of the Financing of Terrorism.
Countries should also immediately implement the United Nations resolutions relating to the
prevention and suppression of the financing of terrorist acts, particularly United Nations Security
Council Resolution 1373.
II. Criminalising the financing of terrorism and associated money laundering
Each country should criminalise the financing of terrorism, terrorist acts and terrorist organisations.
Countries should ensure that such offences are designated as money laundering predicate offences.
III. Freezing and confiscating terrorist assets
Each country should implement measures to freeze without delay funds or other assets of terrorists,
those who finance terrorism and terrorist organisations in accordance with the United Nations
resolutions relating to the prevention and suppression of the financing of terrorist acts.
Each country should also adopt and implement measures, including legislative ones, which would
enable the competent authorities to seize and confiscate property that is the proceeds of, or used in, or
intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organisations.
IV. Reporting suspicious transactions related to terrorism
If financial institutions, or other businesses or entities subject to anti-money laundering obligations,
suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used for
terrorism, terrorist acts or by terrorist organisations, they should be required to report promptly their
suspicions to the competent authorities.
V. International Co-operation
Each country should afford another country, on the basis of a treaty, arrangement or other mechanism
for mutual legal assistance or information exchange, the greatest possible measure of assistance in
connection with criminal, civil enforcement, and administrative investigations, inquiries and
proceedings relating to the financing of terrorism, terrorist acts and terrorist organisations.
Countries should also take all possible measures to ensure that they do not provide safe havens for
individuals charged with the financing of terrorism, terrorist acts or terrorist organisations, and should
have procedures in place to extradite, where possible, such individuals.
VI. Alternative Remittance
Each country should take measures to ensure that persons or legal entities, including agents, that
provide a service for the transmission of money or value, including transmission through an informal
money or value transfer system or network, should be licensed or registered and subject to all the
FATF Recommendations that apply to banks and non-bank financial institutions. Each country
should ensure that persons or legal entities that carry out this service illegally are subject to
administrative, civil or criminal sanctions.
VII. Wire transfers
Countries should take measures to require financial institutions, including money remitters, to include
accurate and meaningful originator information (name, address and account number) on funds
transfers and related messages that are sent, and the information should remain with the transfer or
related message through the payment chain.
Countries should take measures to ensure that financial institutions, including money remitters,
conduct enhanced scrutiny of and monitor for suspicious activity funds transfers which do not contain
complete originator information (name, address and account number).
VIII. Non-profit organi
sations
Countries should review the adequacy of laws and regulations that relate to entities that can be abused
for the financing of terrorism. Non-profit organisations are particularly vulnerable, and countries
should ensure that they cannot be misused:
(i) by terrorist organisations posing as legitimate entities;
(ii) to exploit legitimate entities as conduits for terrorist financing, including for the purpose of
escaping asset freezing measures; and
(iii) to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to
terrorist organisations.
IX. Cash Couriers
Countries should have measures in place to detect the physical cross-border transportation of currency
and bearer negotiable instruments, including a declaration system or other disclosure obligation.
Countries should ensure that their competent authorities have the legal authority to stop or restrain
currency or bearer negotiable instruments that are suspected to be related to terrorist financing or
money laundering, or that are falsely declared or disclosed.
Countries should ensure that effective, proportionate and dissuasive sanctions are available to deal
with persons who make false declaration(s) or disclosure(s). In cases where the currency or bearer
negotiable instruments are related to terrorist financing or money laundering, countries should also
adopt measures, including legislative ones consistent with Recommendation 3 and Special
Recommendation III, which would enable the confiscation of such currency or instruments.
9.FATF Regional bodies
There are eight regional FATF-style bodies and FATF Associate
Members that have similar form and functions to those of FATF.
Many FATF member countries are also members of these bodies.
Asia/Pacific Group on Money Laundering (APG).
Caribbean Financial Action Task Force (CFATF).
Council of Europe Select Committee of Experts on
the Evaluation of Anti-Money Laundering Measures
(MONEYVAL) (formerly PC-R-EV).
Eastern and Southern Africa Anti-Money Laundering
Group (ESAAMLG).
Eurasian Group (EAG).
Financial Action Task Force of South America against
Money Laundering (GAFISUD – Grupo de Acción
Financiera de Sudamérica)
Intergovernmental Action Group against Money-
Laundering in West Africa (GIABA – Groupe
Intergouvernemental d’Action contre le Blanchiment
d’Argent en Afrique de l’Quest)
Middle East and North Africa Financial Action Task
Force (MENAFATF)
10. cuckoo smurfing.::
In 2005, FATF added a new term to the vast money laundering
lexicon – “cuckoo smurfing.
The term, mentioned in the organization’s 2005 Typologies Report,refers to a form of money laundering linked to alternativeremittance systems, in which criminal funds are transferred through the accounts of unwitting persons who are expecting genuinefunds or payments from overseas. The term cuckoo smurfing firstoriginated in investigations in the United Kingdom, where it is asignificant money laundering technique.The cuckoo is a European bird that is a parasite because it laysits eggs in the nests of other birds, which hatch them and rearthe offspring. The main difference between traditional structurerand cuckoo smurfing is that in the latter the third parties who holdthe bank accounts being used are not aware of the fact that illicitmoney is being deposited into their accounts.Cuckoo smurfing requires the work of an insider within a financialinstitution and is generally a four step process:
The first step occurs when a customer provides fundsto an alternative remitter for transfer to a beneficiary,generally in another country.
The next step involves the insider, who will provide the transaction details (beneficiary name, bank, accountnumber and amount) of the transfer to an associatein the foreign country where the beneficiary of thetransfer is located. The associate in the foreign countrywill have cash that needs to be placed into the financialsystem.
The associate in the foreign country will then depositcash into the bank account of the intended beneficiary.The beneficiary will receive the full amount of thetransfer and the associate in the foreign country will be able to place some of its cash into the financial system
The associate in the foreign country then arranges to get the funds from the alternate remitter, using oneof the methods by which alternate remitters transferfunds. In this case, the associate in the foreign countrywill have laundered the funds and will have legitimate funds to replace the criminally derived ones depositedinto the beneficiary’s account.
11. Wolfsberg Group:: 13 Banks
Banco Santander
Bank of America
Bank of Tokyo-Mitsubishi UFJ
Barclays
Citigroup
Credit Suisse
Deutsche Bank
Goldman Sachs
HSBC
J.P. Morgan Chase
Société Générale
Standard Chartered Bank
UBS
The Wolfsberg Group is an association of 13 global banks that aims to develop financial services industry standards and related products for Know Your Customer, Anti-Money Laundering and
Counter Terrorist Financing policiesThe Group first came together in 2000 at the Wolfsberg castle in
Switzerland, accompanied by representatives of Transparency International, to draft anti-money laundering guidelines for private banking that, when implemented, would mark an unprecedented
private-sector assault on the laundering of corruption proceeds. Their principles hold no force of law and carry no penalties for those who do not abide by them. The Wolfsberg Anti-Money Laundering Principles for Private Banking was published in October 2000 and was revised in May
2002. These principles recommend controls for private banking that range from the basic, such as customer identification, to enhanced due diligence, such as heightened scrutiny of individuals who “have or have had positions of public trust.” The banks that released the principles with Transparency International said that the principles would “make it harder for corrupt people to deposit their ill-gotten
gains in the world’s banking system.” The principles say banks will “endeavor to accept only those clients whose source of wealth and funds can be reasonably established to be legitimate.” They highlight the need to identify the beneficial owner of funds “for all accounts” when that person is someone other than the client, and urge private bankers to perform due diligence on “money managers and similar intermediaries” to determine that the middlemen have a “satisfactory” due diligence process for their clients or a regulatory obligation to conduct such due diligence. The principles recommend that “at least one person other than the private banker” should approve all new clients and accounts.
The principles list several situations that require further due diligence, including activities that involve:
Public officials, including individuals holding, or having held, positions of public trust, as well as their families and close associates. High-risk countries, including countries “identified by credible sources as having inadequate anti-moneylaundering standards or representing high-risk for crime and corruption.” High-risk activities, involving clients and beneficial owners whose source of wealth “emanates from activities known to be susceptible to money laundering.” The Wolfsberg principles say that banks should have written policies on the “identification of and follow-up on unusual or
suspicious activities,” and should include a definition of what is suspicious, as well as examples of such activity. They recommend a “sufficient” monitoring system that uses the private banker’s
knowledge of the types of activity that would be suspicious for particular clients. They also outline mechanisms that can be used to identify suspicious activity, including meetings, discussions and
in-country visits with clients and steps that should be taken when suspicious activity is detected.
The principles also address: Reporting to manageMent of money laundering issues. AML training.
Retention of relevant documents. Deviations from policy. Creation of an anti-money laundering department and
an AML policy.
In May 2002, the Wolfsberg Principles for Private Banking were revised. A section was added prohibiting the use of internal non-client accounts (sometimes referred to as “concentration”
accounts) to keep clients from being linked to the movement of funds on their behalf (i.e., banks should forbid the use of such internal accounts in a manner that would prevent officials from appropriately monitoring movements of client funds). The Wolfsberg Group also issued guidelines in early 2002 on “The Suppression of the Financing of Terrorism,” outlining the roles of financial institutions in the fight against money laundering and terrorism financing. The Wolfsberg recommendations include:
Providing official lists of suspected terrorists on a globally coordinated basis by relevant authorities.
Including adequate information in the lists to help institutions search customer databases efficiently.
Providing prompt feedback to institutions following circulation of the official lists. Providing information on the manner, means and
methods used by terrorists. Developing government guidelines for business sectors and activities identified as high-risk for terrorism financing. Developing uniform global formats for funds transfers
that assist in the detection of terrorism financing. The group also recommends that financial institutions be protected by a safe harbor immunity to encourage them to share information and to report to authorities. The Wolfsberg Group also committed itself to recommending enhanced due diligence for “business relationships with remittance businesses, exchange houses, casas de cambio, bureaux de
change and money transfer agents…” and committed its members to taking enhanced due diligence steps for high-risk customers or those in high-risk sectors, and activities “such as underground
banking businesses or alternative remittance systems.” In 2002, Wolfsberg issued guidelines on “Anti-Money Laundering Principles for Correspondent Banking” that outlined steps financialinstitutions should take to combat money laundering and terrorism financing through correspondent banking
12.AML/CFT legislation in Major countries
A. EUROPE a) European convention on the suppression of terrorism 1977 b)EC on laundering ,search , Seizure from crime 1993
B.US a) Bank secrecy act 1970 b)Money laundering control Act 1986 c) Anti drug abuse act 1988 d)Annuzio –Wylie AML act 1992 d)ML Suppression Act 1994 f)ML and Financial crimes strategy act 1998 G) USA PETRIOT ACT 2001
C. UK
. Terrorism Act 2000
• Anti-terrorism, Crime and Security Act 2001
• Proceeds of Crime Act 2002
• Serious Organised Crime and Police Act 2005
• Money Laundering Regulations 2007
• Money Laundering Regulation, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
• Sanctions and Anti-Money Laundering Act 2018
13.AML/CFT IN INDIA
In 2002, the Parliament of India passed an act called the Prevention of Money Laundering Act, 2002. The main objectives of this act are to prevent money-laundering as well as to provide for confiscation of property either derived from or involved in, money-laundering.
Section 12 (1) describes the obligations that banks, other financial institutions, and intermediaries have to
(a) Maintain records that detail the nature and value of transactions, whether such transactions comprise a single transaction or a series of connected transactions, and where these transactions take place within a month.
(b) Furnish information on transactions referred to in clause (a) to the Director within the time prescribed, including records of the identity of all its clients.
Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above, must be maintained for ten years after the transactions finished. It is handled by the Indian Income Tax Department.
The provisions of the Act are frequently reviewed and various amendments have been passed from time to time.[
Most money laundering activities in India are through political parties, corporate companies and the shares market. These are investigated by the Enforcement Directorate and Indian Income Tax Department.[ According to Government of India, out of the total tax arrears of ₹2,480 billion (US$37 billion) about ₹1,300 billion (US$19 billion) pertain to money laundering and securities scam cases.
Bank accountants must record all transactions over Rs. 1 million and maintain such records for 10 years. Banks must also make cash transaction reports (CTRs) and suspicious transaction reports over Rs. 1 million within 7 days of initial suspicion. They must submit their reports to the Enforcement Directorate and Income Tax Department.[
14.The Prevention of Money Laundering Act
The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005 . Director, FIU-IND and Director (Enforcement) have been conferred with exclusive and concurrent powers under relevant sections of the Act to implement the provisions of the Act.
The PMLA and rules notified thereunder impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information to FIU-IND. PMLA defines money laundering offence and provides for the freezing, seizure and confiscation of the proceeds of crime.
PMLA 2002 Overview::
Section 1 - Short title, extent and commencement
Section 2 - Definitions
Section 3 - Offence of Money-Laundering
Section 4 - Punishment for Money Laundering
Section 12 - Obligations-Reporting Entity to maintain records
Section 12A - Obligations-Access to information
Section 13 - Powers of the Director
Section 14 - No civil proceedings
Section 15 - Powers to prescribe procedure
Section 26 - Appellate Tribunal
Section 39 - Right of Appellant
Section 40 - Deemed to be Public Servants
Section 41 - Restriction on Civil Courts
Section 42 - Appeal to High Court
Section 44 - Offences triable by Special Courts
Section 48 - Authorities under the Act
Section 49 - Appointment of Authorities and Other Officers
Section 50 - Summons, production of documents etc.
Section 54 - Other authorities empowered and required to assist
Section 56 - Agreements with foreign countries
Section 66 - Disclosure of information
Section 69 - Recovery of fines
Section 75 - Power to remove difficulties
15.FIU –IND
Overview of FIU-IND
Financial Intelligence Unit – India (FIU-IND) was set by the Government of India vide O.M. dated 18th November 2004 as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions. FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes. FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
Functions of FIU-IND::
The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them and, as appropriate, disseminate valuable financial information to intelligence/enforcement agencies and regulatory authorities . The functions of FIU-IND are:
Collection of Information: Act as the central reception point for receiving Cash Transaction reports (CTRs), Cross Border Wire Transfer Reports (CBWTRs), Reports on Purchase or Sale of Immovable Property (IPRs) and Suspicious Transaction Reports (STRs) from various reporting entities.
Analysis of Information: Analyze received information in order to uncover patterns of transactions suggesting suspicion of money laundering and related crimes.
Sharing of Information:Share information with national intelligence/law enforcement agencies, national regulatory authorities and foreign Financial Intelligence Units.
Act as Central Repository:Establish and maintain national data base on cash transactions and suspicious transactions on the basis of reports received from reporting entities.
Coordination:Coordinate and strengthen collection and sharing of financial intelligence through an effective national, regional and global network to combat money laundering and related crimes.
Research and Analysis:Monitor and identify strategic key areas on money laundering trends, typologies and developments.
Organization Strength of FIU-IND
FIU-IND is a multi disciplinary body with a sanctioned strength of 74 personnel. These are being inducted from different organizations namely Central Board of Direct Taxes (CBDT), Central Board of Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), Department of Legal Affairs and Intelligence agencies
Financial Intelligence Unit – India (FIU-IND)
Financial Intelligence Unit – India (FIU-IND) was set by the Government of India in 2004 as
the central national agency responsible for receiving, processing, analyzing and disseminating
information relating to suspect financial transactions. FIU-IND is also responsible for
coordinating and strengthening efforts of national and international intelligence, investigation
and enforcement agencies in pursuing the global efforts against money laundering and related
crimes. FIU-IND is an independent body reporting directly to the Economic Intelligence
Council (EIC) headed by the Finance Minister.
Functions of FIU-IND
The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them
and, as appropriate, disseminate valuable financial information to intelligence/enforcement
agencies and regulatory authorities . The functions of FIU-IND are:
Collection of Information: Act as the central reception point for receiving Cash
Transaction reports (CTRs) and Suspicious Transaction Reports (STRs) from various
reporting entities.
Analysis of Information: Analyze received information in order to uncover patterns
of transactions suggesting suspicion of money laundering and related crimes.
Sharing of Information: Share information with national intelligence/law
enforcement agencies, national regulatory authorities and foreign Financial
Intelligence Units.
Act as Central Repository: Establish and maintain national data base on cash
transactions and suspicious transactions on the basis of reports received from
reporting entities.
Coordination: Coordinate and strengthen collection and sharing of financial
intelligence through an effective national, regional and global network to combat
money laundering and related crimes.
Research and Analysis: Monitor and identify strategic key areas on money
laundering trends, typologies and developments.
Organisational Set-up
FIU-IND is a multi disciplinary body headed by a Director. Personnel in this Unit are being
inducted from different organizations namely Central Board of Direct Taxes (CBDT), Central
Board of Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange
Board of India (SEBI), Department of Legal Affairs and Intelligence agencies.
Authorities at FIU-IND
According to Section 48 of the Prevention of Money Laundering Act, 2002
there shall be the following classes of authorities for the purposes of this Act, namely:-
(a) Director or Additional Director or Joint Director,
(b) Deputy Director,
(c) Assistant Director, and
(d) such other class of officers as may be appointed for the purposes of this Act.
Appointment of Authorities
As per Section 49 of the Prevention of Money Laundering Act, 2002:
(1) The Central Government may appoint such persons as it thinks fit to be authorities for the
purposes of this Act.
(2) Without prejudice to the provisions of sub-section (1), the Central Government may
authorise the Director or an Additional Director or a Joint Director or a Deputy Director or an
Assistant Director appointed under that sub-section to appoint other authorities below the
rank of an Assistant Director.
(3) Subject to such conditions and limitations as the Central Government may impose, an
authority may exercise the powers and discharge the duties conferred or imposed on it under
this Act.
Director and officers subordinate to him deemed to be public servants
Section 40 of the Prevention of Money Laundering Act, 2002 declares the Chairperson,
Members and other officers and employees of the Appellate Tribunal, the Adjudicating
Authority, Director and the officers subordinate to him shall be deemed to be public servants
within the meaning of section 21 of the Indian Penal Code, 1860 (45 of 1860).
Powers of the Director
Section 13 of the Prevention of Money Laundering Act, 2002 confers following powers on
the Director to ensure compliance:
(1) The Director may, either of his own motion or on an application made by any authority,
officer or person, call for records referred to in sub-section (1) of section 12 and may make
such inquiry or cause such inquiry to be made, as he thinks fit.
(2) If the Director, in the course of any inquiry, finds that a banking company, financial
institution or an intermediary or any of its officers has failed to comply with the provisions
contained in section 12, then, without prejudice to any other action that may be taken under
any other provisions of this Act, he may, by an order, levy a fine on such banking company
or financial institution or intermediary which shall not be less than ten thousand rupees but
may extend to one lakh rupees for each failure.
(3) The Director shall forward a copy of the order passed under sub-section (2) to every
banking company, financial institution or intermediary or person who is a party to the
proceedings under that sub-section.
Powers of authorities regarding summons, production of documents and to give
evidence:
Section 50 of the Prevention of Money Laundering Act, 2002 confers following powers of
summons, production of documents and to give evidence etc.:
(1) The Director shall, for the purposes of section 13, have the same powers as are vested in a
civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect
of the following matters, namely:-
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company,
financial institution or a company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed
(2) The Director, Additional Director, Joint Director, Deputy Director or Assistant Director
shall have power to summon any person whose attendance he considers necessary whether to
give evidence or to produce any records during the course of any investigation or proceeding
under this Act.
(3) All the persons so summoned shall be bound to attend in person or through authorised
agents, as such officer may direct, and shall be bound to state the truth upon any subject
which they are examined or make statements, and produce such documents as may be
required.
(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 (45 of
1860).
(5) Subject to any rules made in this behalf by the Central Government, any officer referred
to in sub-section (2) may impound and retain in his custody for such period, as he thinks fit,
any records produced before him in any proceedings under this Act:
Provided that an Assistant Director or a Deputy Director shall not -
(a) impound any records without recording his reasons for so doing; or
(b) retain in his custody any such records for a period exceeding three months, without
obtaining the prior approval of the Director.
Assistance from other authorities for enforcement of the Act
Section 54 of the Prevention of Money Laundering Act, 2002 empowers and requires various
authorities to assist in the enforcement of the act. The following officers are empowered and
required to assist the authorities in the enforcement of this Act, namely:-
(a) officers of the Customs and Central Excise Departments;
(b) officers appointed under sub-section (1) of section 5 of the Narcotic Drugs and
Psychotropic Substances Act, 1985 (61 of 1985);
(c) income-tax authorities under sub-section (1) of section 117 of the Income-tax Act, 1961
(43 of 1961);
(d) officers of the stock exchange recognised under section 4 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
(e) officers of the Reserve Bank of India constituted under sub-section (1) of section 3 of
the Reserve Bank of India Act, 1934 (2 of 1934);
(f) officers of Police;
(g) officers of enforcement appointed under sub-section (1) of section 36 of the Foreign
Exchange Management Act, 1973 (40 of 1999);
(h) officers of the Securities and Exchange Board of India established under section 3 of the
Securities and Exchange Board of India Act, 1992 (15 of 1992);
(i) officers of any other body corporate constituted or established under a Central Act or a
State Act;
(j) such other officers of the Central Government, State Government, local authorities or
banking companies as the Central Government may, by notification, specify, in this behalf.
Agreements with foreign countries
Section 56 of the Prevention of Money Laundering Act, 2002 provides for agreements with
foreign countries to facilitate exchange of information with them:
(1) The Central Government may enter into an agreement with the Government of any
country outside India for-
(a) enforcing the provisions of this Act;
(b) exchange of information for the prevention of any offence under this Act or under the
corresponding law in force in that country or investigation of cases relating to any offence
under this Act.
and may, by notification in the Official Gazette, make such provisions as may be necessary
for implementing the agreement.
(2) The Central Government may, by notification in the Official Gazette, direct that the
application of this Chapter in relation to a contracting State with which reciprocal
arrangements have been made, shall be subject to such conditions, exceptions or
qualifications as are specified in the said notification.
Disclosure of information
Section 66 of the Prevention of Money Laundering Act, 2002 provides for disclosure of
information to other officers, authority or body:
The Director or any other authority specified by him by a general or special order in this
behalf may furnish or cause to be furnished to-
(i) any officer, authority or body performing any functions under any law relating to
imposition of any tax, duty or cess or to dealings in foreign exchange, or prevention of illicit
traffic in the narcotic drugs and psychotropic substances under the Narcotic Drugs and
Psychotropic Substances Act, 1985 (61 of 1985); or
(ii) such other officer, authority or body performing functions under any other law as the
Central Government may, if in its opinion it is necessary so to do in the public interest,
specify by notification in the Official Gazette in this behalf, any information received or
obtained by such Director or any other authority, specified by him in the performance of
their functions under this Act, as may, in the opinion of the Director or the other authority so
specified by him, be necessary for the purpose of the officer, authority or body specified in
clause (i) or clause (ii) to perform his or its functions under that law.
Recovery of fines
Section 69 of the Prevention of Money Laundering Act, 2002 refers to recovery of fines.
Where any fine imposed on any person under section 13 or section 63 is not paid within six
months from the day of imposition of fine, the Director or any other officer authorised by him
in this behalf may proceed to recover the amount from the said person in the same manner as
prescribed in Schedule 11 of the Income-tax Act, 1961 (43 of 1961) for the recovery of
arrears and he or any officer authorised by him in this behalf shall have all the powers of the
Tax Recovery Officer mentioned in the said Schedule for the said purpose.
The new network, called FINnet (Financial Intelligence Network), is a technology-based
secure platform for bringing together investigative and enforcement agencies to collect,
analyse and disseminate valuable financial information for combating money laundering and
related crimes.
Restriction on Civil Court Jurisdiction
Section 41 of the Prevention of Money Laundering Act, 2002 says that no civil court shall
have jurisdiction to entertain any suit or proceeding in respect of any matter which the
Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this
Act to determine and no injunction shall be granted by any court or other authority in respect
of any action taken or to be taken in pursuance of any power conferred by or under this Act."
Appeal to Appellate Tribunal
Section 26 of the Prevention of Money Laundering Act, 2002 deals with appeal to Appellate
Tribunal.
(1) Save as otherwise provided in sub-section (3), the Director or any person aggrieved by an
order made by the Adjudicating Authority under this Act, may prefer an appeal to the
Appellate Tribunal.
(2) Any banking company, financial institution or intermediary aggrieved by any order of the
Director made under sub-section (2) of section 13, may prefer an appeal to the Appellate
Tribunal.
(3) Every appeal preferred under sub-section (1) or sub-section (2) shall be filed within a
period of forty-five days from the date on which a copy of the order made by the
Adjudicating Authority or Director is received and it shall be in such form and be
accompanied by such fee as may be prescribed:
Provided that the Appellate Tribunal may, after giving an opportunity of being heard,
entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that
there was sufficient cause for not filing it within that period.
(4) On receipt of an appeal under sub-section (1), or sub-section (2), the Appellate Tribunal
may, after giving the parties to the appeal an opportunity of being heard, pass such orders
thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made
Right of Appellant
Section 39 of the Prevention of Money Laundering Act, 2002 provides for the right of the
appellant.
(1) A person preferring an appeal to the Appellate Tribunal under this Act may either appear
in person or take the assistance of an authorised representative of his choice to present his
case before the Appellate Tribunal.
Explanation - For the purposes of this sub-section, the expression "authorized
representative" shall have the same meaning as assigned to it under sub-section (2) of
section 288 of the Income Tax Act, 1961.
(2) The Central Government or the Director may authorise one or more authorised
representatives or any of its officers to act as presenting officers and every person so
authorised may present the case with respect to any appeal before the Appellate Tribunal.
Appeal to High Court
Section 42 of the Prevention of Money Laundering Act, 2002 provides for appeal to High
Court:
“Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal
to the High Court within sixty days from the date of communication of the decision or order
of the Appellate Tribunal to him on any question of law or fact arising out of such order:
Provided that the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be filed within a
further period not exceeding sixty days.
Explanation.-For the purposes of this section, "High Court" means-
(i) the High Court within the jurisdiction of which the aggrieved party ordinarily resides or
carries on business or personally works for gain; and
(ii) where the Central Government is the aggrieved party, the High Court within the
jurisdiction of which the respondent, or in a case where there are more than one respondent,
any of the respondents, ordinarily resides or carries on business or personally works for gain.
Offences which can be seen by Special Courts
Section 44 of the Prevention of Money Laundering Act, 2002 provides for trial by Special
Courts:
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of
1974),-
a. the schedule offence and the offence punishable under section 4 shall be tried only by the
Special Court constituted for the area in which the offence has been committed;
Provided that the Special Court , trying a schedule offence before the commencement of this
Act, shall continue to try such scheduled offence, or
b. a Special Court may, upon a complaint made by an authority authorised in this behalf
under this Act take cognizance of the offence for which the accused is committed to it for
trial.
(2) Nothing contained in this section shall be deemed to affect the special powers of the
High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 (2 of
1974) and the High Court may exercise such powers including the power under clause (b)
of sub-section (1) of that section as if the reference to "Magistrate" in that section includes
also a reference to a "Special Court" designated under section 43.
1. The conversion or transfer of property, the concealment or disguising of the nature of the proceeds, the acquisition, possession or use of property, knowing that these are derived from criminal activity and participate or assist the movement of funds to make the proceeds appear legitimate is money laundering.
Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, and illegal gambling is "dirty" and needs to be "cleaned" to appear to have been derived from legal activities, so that banks and other financial institutions will deal with it without suspicion. Money can be laundered by many methods which vary in complexity and sophistication.
Money laundering involves three steps: The first involves introducing cash into the financial system by some means ("placement"); the second involves carrying out complex financial transactions to camouflage the illegal source of the cash ("layering"); and finally, acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending upon the circumstances. For example, non-cash proceeds that are already in the financial system would not need to be placed.[8]
According to the United States Treasury Department:
Money laundering is the process of making illegally-gained proceeds (i.e., "dirty money") appear legal (i.e., "clean"). Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean".
2.Money laundering involves taking criminal proceeds and disguising their illegal source in anticipation of ultimately using the criminal proceeds to perform legal and illegal activities.
Simply put, money laundering is the process of making dirty money look clean.
3. Money laundering methods
Money laundering:
The money laundering cycle can be broken down into three distinct stages; however, it is important to remember that money laundering is a single process. The stages of money laundering include the:
Placement Stage
Layering Stage
Integration Stage
The Placement Stage
The placement stage represents the initial entry of the "dirty" cash or proceeds of crime into the financial system. Generally, this stage serves two purposes: (a) it relieves the criminal of holding and guarding large amounts of bulky of cash; and (b) it places the money into the legitimate financial system. It is during the placement stage that money launderers are the most vulnerable to being caught. This is due to the fact that placing large amounts of money (cash) into the legitimate financial system may raise suspicions of officials.
The placement of the proceeds of crime can be done in a number of ways. For example, cash could be packed into a suitcase and smuggled to a country, or the launderer could use smurfs to defeat reporting threshold laws and avoid suspicion. Some other common methods include:
Loan Repayment
Repayment of loans or credit cards with illegal proceeds Gambling
Purchase of gambling chips or placing bets on sporting events
Currency Smuggling
The physical movement of illegal currency or monetary instruments over the border
Currency Exchanges
Purchasing foreign money with illegal funds through foreign currency exchanges
Blending Funds
Using a legitimate cash focused business to co-mingle dirty funds with the day's legitimate sales receipts
This environment has resulted in a situation where officials in these jurisdictions are either unwilling due to regulations, or refuse to cooperate in requests for assistance during international money laundering investigations.
To combat this and other international impediments to effective money laundering investigations, many like-minded countries have met to develop, coordinate, and share model legislation, multilateral agreements, trends & intelligence, and other information. For example, such international watchdogs as the Financial Action Task Force (FATF) evolved out of these discussions.
The Layering Stage
After placement comes the layering stage (sometimes referred to as structuring). The layering stage is the most complex and often entails the international movement of the funds. The primary purpose of this stage is to separate the illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.
During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police cooperation.
The Integration Stage
The final stage of the money laundering process is termed the integration stage. It is at the integration stage where the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.
There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money with the criminal in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, art work, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits without necessarily drawing attention to themselves
Smurfs - A popular method used to launder cash in the placement stage. This technique involves the use of many individuals (the"smurfs") who exchange illicit funds (in smaller, less conspicuous amounts) for highly liquid items such as traveller cheques, bank drafts, or deposited directly into savings accounts. These instruments are then given to the launderer who then begins the layering stage.
For example, ten smurfs could "place" $1 million into financial institutions using this technique in less than two weeks
3. Case study:
Online or Internet Banking ( Special Case study how Money laundering 3 steps Happens):: Very important
Placement — Launderers want to get their proceeds into legitimate repositories such as banks, securities or real estate, with as little trace of the source and beneficial ownership as possible. Often, cyberspace banks do not accept conventional deposits. However,cyberbanks could be organized to take custodial-like forms — holding, reconciling and transferring rights to assets held in different forms around the world. Money launderers can create their own systems shadowing traditional commercial banks in order to acceptdeposits, perhaps as warehouses for cash or otherbulk commodities. Thus, cyberspace banks have thepotential to offer highly secure, uncommonly private“placement” vehicles for money launderersLayering — Electronic mail messages, aided by encryption and cyberspace banking transfers, enablelaunderers to transfer assets around the world manytimes a day.
Integration — Once layered, cyberspace bankingtechnologies may facilitate integration in two ways.If cyberbanking permits person-to-person cash-like transfers, with no actual cash involvement, existing currency reporting regulations do not apply. Using“super smart-card” technologies, money can be movedaround the world through ATM transactions. These smart cards permit easy retrieval of the “account”balance by the use of an ATM card
5. Terrorism Financing are 3 types
A. State financing: Separate entities are created with organizational and financial support of the state
B. Legimate modes : Donations by business,individuals and charity funds
C. Private funding:by criminal activities by bank robberies, drug trafficking, kidnaps,exortion..
6. Money laundering can take several forms, although most methods can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing".
Structuring: Often known as smurfing, this is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.
• Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement
• Cash-intensive businesses: In this method, a business typically expected to receive a large proportion of its revenue as cash uses its accounts to deposit criminally derived cash. Such enterprises often operate openly and in doing so generate cash revenue from incidental legitimate business in addition to the illicit cash – in such cases the business will usually claim all cash received as legitimate earnings. Service businesses are best suited to this method, as such enterprises have little or no variable costs and/or a large ratio between revenue and variable costs, which makes it difficult to detect discrepancies between revenues and costs. Examples are parking structures, strip clubs, tanning salons, car washes, arcades, bars, restaurants, and casinos.
• Trade-based laundering: This involves under- or over-valuing invoices to disguise the movement of money. For example, the art market has been accused of being an ideal vehicle for money laundering due to several unique aspects of art such as the subjective value of artworks as well as the secrecy of auction houses about the identity of the buyer and seller.
• Shell companies and trusts: Trusts and shell companies disguise the true owners of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true owner. Sometimes referred to by the slang term rathole, though that term usually refers to a person acting as the fictitious owner rather than the business entity.
• Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant on this is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.
• Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.
• Casinos: In this method, an individual walks into a casino and buys chips with illicit cash. The individual will then play for a relatively short time. When the person cashes in the chips, they will expect to take payment in a check, or at least get a receipt so they can claim the proceeds as gambling winnings.
• Other gambling: Money is spent on gambling, preferably on high odds games. One way to minimize risk with this method is to bet on every possible outcome of some event that has many possible outcomes, so no outcome(s) have short odds, and the bettor will lose only the vigorish and will have one or more winning bets that can be shown as the source of money. The losing bets will remain hidden.
• Real estate: Someone purchases real estate with illegal proceeds and then sells the property. To outsiders, the proceeds from the sale look like legitimate income. Alternatively, the price of the property is manipulated: the seller agrees to a contract that underrepresents the value of the property, and receives criminal proceeds to make up the difference.
• Black salaries: A company may have unregistered employees without written contracts and pay them cash salaries. Dirty money might be used to pay them.
• Tax amnesties: For example, those that legalize unreported assets and cash in tax havens.
• Life insurance business: Assignment of policies to unidentified third parties and for which no plausible reasons can be ascertained.
• By using national banking services smurfing, Muiltiple tier of accounts,funnel accounts,Contra transactions,DD,cash depost and transfer fund connected accounts, front companies, legimate accounts, dormant accounts(Mostly used by terrorists) and wire transfer
• Using remittance ,prepaid cards, money changers,credit and debit cards
By using The credit card industry includes: case study
Credit card associations, such as American Express,MasterCard and Visa, which license member banks toissue bankcards, authorize merchants to accept thosecards, or bothIssuing banks, which solicit potential customers and issue the credit cards.Acquiring banks, which process transactions for merchants who accept credit cards.
Third-party processors, which contract with issuing or acquiring banks to provide transaction processing andother credit card–related services for the banks.Credit card accounts are not likely to be used in the initialplacement stage of money laundering because the industrygenerally restricts cash payments. They are more likely to be usedin the layering or integration stages.
Example
Money launderer Josh prepays his credit card using illicit funds that he has already introduced into thebanking system, creating a credit balance on his account. Josh then requests a credit refund, whichenables him to further obscure the origin of the funds, which constitutes layering. Josh then uses the illicitmoney he placed in his bank account and the creditcard refund to pay for a new kitchen that he bought.Through these steps he has integrated his illicit fundsinto the financial system.
• A money launderer could put ill-gotten funds in accounts at banksoffshore and then access these funds using credit and debitcards associated with the offshore account. Alternatively, he couldsmuggle the cash out of one country into an offshore jurisdictionwith lax regulatory oversight, place the cash in offshore banks and— again — access the illicit funds using credit or debit cards.In a 2002 Report called “Extent of Money Laundering throughCredit Cards Is Unknown,” the U.S. Government AccountabilityOffice, the Congressional watchdog of the United States, offered hypothetical money laundering scenarios using credit cards. One
example was: “[Money launderers establish a legitimate businessin the U.S. as a ‘front’ for their illicit activity. They establish a bank account with a U.S.-based bank and obtain credit cards and ATM cards under the name of the ‘front business.’ Funds from theirillicit activities are deposited into the bank account in the United States. While in another country, where their U.S.-based bank hasaffiliates, they make withdrawals from their U.S. bank account,
using credit cards and ATM cards. Money is deposited by one of their cohorts in the U.S. and is transferred to pay off the credit cardloan or even prepay the credit card. The bank’s online services make it possible to transfer funds between checking and creditcard accounts.”
• Deposit Structuring/ smurfing:Deposting monet bewlow threshold . In india 10 lakh is threshold for it
• Multiple Tier of Accounts Funds are passed through multiple accounts bt splitting them into 2 or more portions at each stage
• Funnel accounts :Bank account is opened for the purpose of dirty money to be made by several persons usually below threshold value
• Contra transactions : to show heavy turnover in accounts, some amount is transferred to one account to another followed by an equal amount transferred from recipient account to the originating account .with repeated several transactions during the day
• Connected accounts in names relatives ,associates or other persons like binami accounts
• Front companies : selling goods and providing services having large volume of business often with cash dealing
• Legimate accounts: Individuals may run number of accounts with several banks
• Dormant accounts: 1stly to keep the account and 2nd ly to ensure that undue attention was not drawn to it
• Back to back loans : a ML transfer his criminal proceeds to another country as security or guarantee for a bank loan, which is then sent back to the original country .
6.ML Global measures can be achieved by
A. Engagement of international organizations
B. UNO initiatives like Vienna convention in 1988, Political declaration in 1998 , The Palermo convention in 2003
C. International monetary fund
D. Financial intelligence units (In india 15th nov 2004 , Director EIU economic intelligence council, Headed by finance Minister)
E. Egmont group of FIUs..1995 (151 FIUs)
7. FATF:::
The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field. First issued in 1990, the FATF Recommendations were revised in 1996, 2001, 2003 and most recently in 2012 to ensure that they remain up to date and relevant, and they are intended to be of universal application.
The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally. In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.
The FATF's decision making body, the FATF Plenary, meets three times per year.
FATF HQ in Paris
FATF currently comprises 34 member jurisdictions and 12 regional organizations
FATF Recommendations. ::
Money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction are serious threats to security and the integrity of the financial system.
The FATF Standards have been revised to strengthen global safeguards and further protect the integrity of the financial system by providing governments with stronger tools to take action against financial crime. At the same time, these new standards will address new priority areas such as corruption and tax crimes.
The revision of the Recommendations aims at achieving a balance:
On the one hand, the requirements have been specifically strengthened in areas which are higher risk or where implementation could be enhanced. They have been expanded to deal with new threats such as the financing of proliferation of weapons of mass destruction, and to be clearer on transparency and tougher on corruption.
On the other, they are also better targeted – there is more flexibility for simplified measures to be applied in low risk areas. This risk-based approach will allow financial institutions and other designated sectors to apply their resources to higher risk areas.
The FATF Recommendations are the basis on which all countries should meet the shared objective of tackling money laundering, terrorist financing and the financing of proliferation. The FATF calls upon all countries to effectively implement these measures in their national systems.
FATF Recommendations 2012
A – AML/CFT POLICIES AND COORDINATION
1 - Assessing risks & applying a risk-based approach
2 - National cooperation and coordination
B – MONEY LAUNDERING AND CONFISCATION
3 - Money laundering offence
4 - Confiscation and provisional measures
C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION
5 - SRII Terrorist financing offence
6 - SRIII Targeted financial sanctions related to terrorism & terrorist financing
7 - Targeted financial sanctions related to proliferation
8 - Non-profit organisations
D – PREVENTIVE MEASURES
9 - Financial institution secrecy laws
Customer due diligence and record keeping
10 - Customer due diligence
11 - Record keeping
Additional measures for specific customers and activities
12 - Politically exposed persons
13 - Correspondent banking
14 - Money or value transfer services
15 - New technologies
16 - Wire transfers
Reliance, Controls and Financial Groups
17 - Reliance on third parties
18 - Internal controls and foreign branches and subsidiaries
19 - Higher-risk countries
Reporting of suspicious transactions
20 - Reporting of suspicious transactions
21 - Tipping-off and confidentiality
Designated non-financial Businesses and Professions (DNFBPs)
22 - DNFBPs: Customer due diligence
23 - DNFBPs: Other measures
E – TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS
24 - Transparency and beneficial ownership of legal persons
25 - Transparency and beneficial ownership of legal arrangements
F – POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES
Regulation and Supervision
26 - Regulation and supervision of financial institutions
27 - Powers of supervisors
28 - Regulation and supervision of DNFBPs
Operational and Law Enforcement
29 - Financial intelligence units
30 - Responsibilities of law enforcement and investigative authorities
31 - Powers of law enforcement and investigative authorities
32 - Cash couriers
General Requirements
33 - Statistics
34 - Guidance and feedback
Sanctions
35 - Sanctions
G – INTERNATIONAL COOPERATION
36 - International instruments
37 - Mutual legal assistance
38 - Mutual legal assistance: freezing and confiscation
39 - Extradition
40 - Other forms of international cooperation
8.FATF IX Special Recommendations on Terrorist Financing:::
Recognising the vital importance of taking action to combat the financing of terrorism, the FATF has
agreed these Recommendations, which, when combined with the FATF Forty Recommendations on
money laundering, set out the basic framework to detect, prevent and suppress the financing of
terrorism and terrorist acts.
I. Ratification and implementation of UN instruments
Each country should take immediate steps to ratify and to implement fully the 1999 United Nations
International Convention for the Suppression of the Financing of Terrorism.
Countries should also immediately implement the United Nations resolutions relating to the
prevention and suppression of the financing of terrorist acts, particularly United Nations Security
Council Resolution 1373.
II. Criminalising the financing of terrorism and associated money laundering
Each country should criminalise the financing of terrorism, terrorist acts and terrorist organisations.
Countries should ensure that such offences are designated as money laundering predicate offences.
III. Freezing and confiscating terrorist assets
Each country should implement measures to freeze without delay funds or other assets of terrorists,
those who finance terrorism and terrorist organisations in accordance with the United Nations
resolutions relating to the prevention and suppression of the financing of terrorist acts.
Each country should also adopt and implement measures, including legislative ones, which would
enable the competent authorities to seize and confiscate property that is the proceeds of, or used in, or
intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organisations.
IV. Reporting suspicious transactions related to terrorism
If financial institutions, or other businesses or entities subject to anti-money laundering obligations,
suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used for
terrorism, terrorist acts or by terrorist organisations, they should be required to report promptly their
suspicions to the competent authorities.
V. International Co-operation
Each country should afford another country, on the basis of a treaty, arrangement or other mechanism
for mutual legal assistance or information exchange, the greatest possible measure of assistance in
connection with criminal, civil enforcement, and administrative investigations, inquiries and
proceedings relating to the financing of terrorism, terrorist acts and terrorist organisations.
Countries should also take all possible measures to ensure that they do not provide safe havens for
individuals charged with the financing of terrorism, terrorist acts or terrorist organisations, and should
have procedures in place to extradite, where possible, such individuals.
VI. Alternative Remittance
Each country should take measures to ensure that persons or legal entities, including agents, that
provide a service for the transmission of money or value, including transmission through an informal
money or value transfer system or network, should be licensed or registered and subject to all the
FATF Recommendations that apply to banks and non-bank financial institutions. Each country
should ensure that persons or legal entities that carry out this service illegally are subject to
administrative, civil or criminal sanctions.
VII. Wire transfers
Countries should take measures to require financial institutions, including money remitters, to include
accurate and meaningful originator information (name, address and account number) on funds
transfers and related messages that are sent, and the information should remain with the transfer or
related message through the payment chain.
Countries should take measures to ensure that financial institutions, including money remitters,
conduct enhanced scrutiny of and monitor for suspicious activity funds transfers which do not contain
complete originator information (name, address and account number).
VIII. Non-profit organi
sations
Countries should review the adequacy of laws and regulations that relate to entities that can be abused
for the financing of terrorism. Non-profit organisations are particularly vulnerable, and countries
should ensure that they cannot be misused:
(i) by terrorist organisations posing as legitimate entities;
(ii) to exploit legitimate entities as conduits for terrorist financing, including for the purpose of
escaping asset freezing measures; and
(iii) to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to
terrorist organisations.
IX. Cash Couriers
Countries should have measures in place to detect the physical cross-border transportation of currency
and bearer negotiable instruments, including a declaration system or other disclosure obligation.
Countries should ensure that their competent authorities have the legal authority to stop or restrain
currency or bearer negotiable instruments that are suspected to be related to terrorist financing or
money laundering, or that are falsely declared or disclosed.
Countries should ensure that effective, proportionate and dissuasive sanctions are available to deal
with persons who make false declaration(s) or disclosure(s). In cases where the currency or bearer
negotiable instruments are related to terrorist financing or money laundering, countries should also
adopt measures, including legislative ones consistent with Recommendation 3 and Special
Recommendation III, which would enable the confiscation of such currency or instruments.
9.FATF Regional bodies
There are eight regional FATF-style bodies and FATF Associate
Members that have similar form and functions to those of FATF.
Many FATF member countries are also members of these bodies.
Asia/Pacific Group on Money Laundering (APG).
Caribbean Financial Action Task Force (CFATF).
Council of Europe Select Committee of Experts on
the Evaluation of Anti-Money Laundering Measures
(MONEYVAL) (formerly PC-R-EV).
Eastern and Southern Africa Anti-Money Laundering
Group (ESAAMLG).
Eurasian Group (EAG).
Financial Action Task Force of South America against
Money Laundering (GAFISUD – Grupo de Acción
Financiera de Sudamérica)
Intergovernmental Action Group against Money-
Laundering in West Africa (GIABA – Groupe
Intergouvernemental d’Action contre le Blanchiment
d’Argent en Afrique de l’Quest)
Middle East and North Africa Financial Action Task
Force (MENAFATF)
10. cuckoo smurfing.::
In 2005, FATF added a new term to the vast money laundering
lexicon – “cuckoo smurfing.
The term, mentioned in the organization’s 2005 Typologies Report,refers to a form of money laundering linked to alternativeremittance systems, in which criminal funds are transferred through the accounts of unwitting persons who are expecting genuinefunds or payments from overseas. The term cuckoo smurfing firstoriginated in investigations in the United Kingdom, where it is asignificant money laundering technique.The cuckoo is a European bird that is a parasite because it laysits eggs in the nests of other birds, which hatch them and rearthe offspring. The main difference between traditional structurerand cuckoo smurfing is that in the latter the third parties who holdthe bank accounts being used are not aware of the fact that illicitmoney is being deposited into their accounts.Cuckoo smurfing requires the work of an insider within a financialinstitution and is generally a four step process:
The first step occurs when a customer provides fundsto an alternative remitter for transfer to a beneficiary,generally in another country.
The next step involves the insider, who will provide the transaction details (beneficiary name, bank, accountnumber and amount) of the transfer to an associatein the foreign country where the beneficiary of thetransfer is located. The associate in the foreign countrywill have cash that needs to be placed into the financialsystem.
The associate in the foreign country will then depositcash into the bank account of the intended beneficiary.The beneficiary will receive the full amount of thetransfer and the associate in the foreign country will be able to place some of its cash into the financial system
The associate in the foreign country then arranges to get the funds from the alternate remitter, using oneof the methods by which alternate remitters transferfunds. In this case, the associate in the foreign countrywill have laundered the funds and will have legitimate funds to replace the criminally derived ones depositedinto the beneficiary’s account.
11. Wolfsberg Group:: 13 Banks
Banco Santander
Bank of America
Bank of Tokyo-Mitsubishi UFJ
Barclays
Citigroup
Credit Suisse
Deutsche Bank
Goldman Sachs
HSBC
J.P. Morgan Chase
Société Générale
Standard Chartered Bank
UBS
The Wolfsberg Group is an association of 13 global banks that aims to develop financial services industry standards and related products for Know Your Customer, Anti-Money Laundering and
Counter Terrorist Financing policiesThe Group first came together in 2000 at the Wolfsberg castle in
Switzerland, accompanied by representatives of Transparency International, to draft anti-money laundering guidelines for private banking that, when implemented, would mark an unprecedented
private-sector assault on the laundering of corruption proceeds. Their principles hold no force of law and carry no penalties for those who do not abide by them. The Wolfsberg Anti-Money Laundering Principles for Private Banking was published in October 2000 and was revised in May
2002. These principles recommend controls for private banking that range from the basic, such as customer identification, to enhanced due diligence, such as heightened scrutiny of individuals who “have or have had positions of public trust.” The banks that released the principles with Transparency International said that the principles would “make it harder for corrupt people to deposit their ill-gotten
gains in the world’s banking system.” The principles say banks will “endeavor to accept only those clients whose source of wealth and funds can be reasonably established to be legitimate.” They highlight the need to identify the beneficial owner of funds “for all accounts” when that person is someone other than the client, and urge private bankers to perform due diligence on “money managers and similar intermediaries” to determine that the middlemen have a “satisfactory” due diligence process for their clients or a regulatory obligation to conduct such due diligence. The principles recommend that “at least one person other than the private banker” should approve all new clients and accounts.
The principles list several situations that require further due diligence, including activities that involve:
Public officials, including individuals holding, or having held, positions of public trust, as well as their families and close associates. High-risk countries, including countries “identified by credible sources as having inadequate anti-moneylaundering standards or representing high-risk for crime and corruption.” High-risk activities, involving clients and beneficial owners whose source of wealth “emanates from activities known to be susceptible to money laundering.” The Wolfsberg principles say that banks should have written policies on the “identification of and follow-up on unusual or
suspicious activities,” and should include a definition of what is suspicious, as well as examples of such activity. They recommend a “sufficient” monitoring system that uses the private banker’s
knowledge of the types of activity that would be suspicious for particular clients. They also outline mechanisms that can be used to identify suspicious activity, including meetings, discussions and
in-country visits with clients and steps that should be taken when suspicious activity is detected.
The principles also address: Reporting to manageMent of money laundering issues. AML training.
Retention of relevant documents. Deviations from policy. Creation of an anti-money laundering department and
an AML policy.
In May 2002, the Wolfsberg Principles for Private Banking were revised. A section was added prohibiting the use of internal non-client accounts (sometimes referred to as “concentration”
accounts) to keep clients from being linked to the movement of funds on their behalf (i.e., banks should forbid the use of such internal accounts in a manner that would prevent officials from appropriately monitoring movements of client funds). The Wolfsberg Group also issued guidelines in early 2002 on “The Suppression of the Financing of Terrorism,” outlining the roles of financial institutions in the fight against money laundering and terrorism financing. The Wolfsberg recommendations include:
Providing official lists of suspected terrorists on a globally coordinated basis by relevant authorities.
Including adequate information in the lists to help institutions search customer databases efficiently.
Providing prompt feedback to institutions following circulation of the official lists. Providing information on the manner, means and
methods used by terrorists. Developing government guidelines for business sectors and activities identified as high-risk for terrorism financing. Developing uniform global formats for funds transfers
that assist in the detection of terrorism financing. The group also recommends that financial institutions be protected by a safe harbor immunity to encourage them to share information and to report to authorities. The Wolfsberg Group also committed itself to recommending enhanced due diligence for “business relationships with remittance businesses, exchange houses, casas de cambio, bureaux de
change and money transfer agents…” and committed its members to taking enhanced due diligence steps for high-risk customers or those in high-risk sectors, and activities “such as underground
banking businesses or alternative remittance systems.” In 2002, Wolfsberg issued guidelines on “Anti-Money Laundering Principles for Correspondent Banking” that outlined steps financialinstitutions should take to combat money laundering and terrorism financing through correspondent banking
12.AML/CFT legislation in Major countries
A. EUROPE a) European convention on the suppression of terrorism 1977 b)EC on laundering ,search , Seizure from crime 1993
B.US a) Bank secrecy act 1970 b)Money laundering control Act 1986 c) Anti drug abuse act 1988 d)Annuzio –Wylie AML act 1992 d)ML Suppression Act 1994 f)ML and Financial crimes strategy act 1998 G) USA PETRIOT ACT 2001
C. UK
. Terrorism Act 2000
• Anti-terrorism, Crime and Security Act 2001
• Proceeds of Crime Act 2002
• Serious Organised Crime and Police Act 2005
• Money Laundering Regulations 2007
• Money Laundering Regulation, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
• Sanctions and Anti-Money Laundering Act 2018
13.AML/CFT IN INDIA
In 2002, the Parliament of India passed an act called the Prevention of Money Laundering Act, 2002. The main objectives of this act are to prevent money-laundering as well as to provide for confiscation of property either derived from or involved in, money-laundering.
Section 12 (1) describes the obligations that banks, other financial institutions, and intermediaries have to
(a) Maintain records that detail the nature and value of transactions, whether such transactions comprise a single transaction or a series of connected transactions, and where these transactions take place within a month.
(b) Furnish information on transactions referred to in clause (a) to the Director within the time prescribed, including records of the identity of all its clients.
Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above, must be maintained for ten years after the transactions finished. It is handled by the Indian Income Tax Department.
The provisions of the Act are frequently reviewed and various amendments have been passed from time to time.[
Most money laundering activities in India are through political parties, corporate companies and the shares market. These are investigated by the Enforcement Directorate and Indian Income Tax Department.[ According to Government of India, out of the total tax arrears of ₹2,480 billion (US$37 billion) about ₹1,300 billion (US$19 billion) pertain to money laundering and securities scam cases.
Bank accountants must record all transactions over Rs. 1 million and maintain such records for 10 years. Banks must also make cash transaction reports (CTRs) and suspicious transaction reports over Rs. 1 million within 7 days of initial suspicion. They must submit their reports to the Enforcement Directorate and Income Tax Department.[
14.The Prevention of Money Laundering Act
The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005 . Director, FIU-IND and Director (Enforcement) have been conferred with exclusive and concurrent powers under relevant sections of the Act to implement the provisions of the Act.
The PMLA and rules notified thereunder impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information to FIU-IND. PMLA defines money laundering offence and provides for the freezing, seizure and confiscation of the proceeds of crime.
PMLA 2002 Overview::
Section 1 - Short title, extent and commencement
Section 2 - Definitions
Section 3 - Offence of Money-Laundering
Section 4 - Punishment for Money Laundering
Section 12 - Obligations-Reporting Entity to maintain records
Section 12A - Obligations-Access to information
Section 13 - Powers of the Director
Section 14 - No civil proceedings
Section 15 - Powers to prescribe procedure
Section 26 - Appellate Tribunal
Section 39 - Right of Appellant
Section 40 - Deemed to be Public Servants
Section 41 - Restriction on Civil Courts
Section 42 - Appeal to High Court
Section 44 - Offences triable by Special Courts
Section 48 - Authorities under the Act
Section 49 - Appointment of Authorities and Other Officers
Section 50 - Summons, production of documents etc.
Section 54 - Other authorities empowered and required to assist
Section 56 - Agreements with foreign countries
Section 66 - Disclosure of information
Section 69 - Recovery of fines
Section 75 - Power to remove difficulties
15.FIU –IND
Overview of FIU-IND
Financial Intelligence Unit – India (FIU-IND) was set by the Government of India vide O.M. dated 18th November 2004 as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions. FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes. FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
Functions of FIU-IND::
The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them and, as appropriate, disseminate valuable financial information to intelligence/enforcement agencies and regulatory authorities . The functions of FIU-IND are:
Collection of Information: Act as the central reception point for receiving Cash Transaction reports (CTRs), Cross Border Wire Transfer Reports (CBWTRs), Reports on Purchase or Sale of Immovable Property (IPRs) and Suspicious Transaction Reports (STRs) from various reporting entities.
Analysis of Information: Analyze received information in order to uncover patterns of transactions suggesting suspicion of money laundering and related crimes.
Sharing of Information:Share information with national intelligence/law enforcement agencies, national regulatory authorities and foreign Financial Intelligence Units.
Act as Central Repository:Establish and maintain national data base on cash transactions and suspicious transactions on the basis of reports received from reporting entities.
Coordination:Coordinate and strengthen collection and sharing of financial intelligence through an effective national, regional and global network to combat money laundering and related crimes.
Research and Analysis:Monitor and identify strategic key areas on money laundering trends, typologies and developments.
Organization Strength of FIU-IND
FIU-IND is a multi disciplinary body with a sanctioned strength of 74 personnel. These are being inducted from different organizations namely Central Board of Direct Taxes (CBDT), Central Board of Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), Department of Legal Affairs and Intelligence agencies
Financial Intelligence Unit – India (FIU-IND)
Financial Intelligence Unit – India (FIU-IND) was set by the Government of India in 2004 as
the central national agency responsible for receiving, processing, analyzing and disseminating
information relating to suspect financial transactions. FIU-IND is also responsible for
coordinating and strengthening efforts of national and international intelligence, investigation
and enforcement agencies in pursuing the global efforts against money laundering and related
crimes. FIU-IND is an independent body reporting directly to the Economic Intelligence
Council (EIC) headed by the Finance Minister.
Functions of FIU-IND
The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them
and, as appropriate, disseminate valuable financial information to intelligence/enforcement
agencies and regulatory authorities . The functions of FIU-IND are:
Collection of Information: Act as the central reception point for receiving Cash
Transaction reports (CTRs) and Suspicious Transaction Reports (STRs) from various
reporting entities.
Analysis of Information: Analyze received information in order to uncover patterns
of transactions suggesting suspicion of money laundering and related crimes.
Sharing of Information: Share information with national intelligence/law
enforcement agencies, national regulatory authorities and foreign Financial
Intelligence Units.
Act as Central Repository: Establish and maintain national data base on cash
transactions and suspicious transactions on the basis of reports received from
reporting entities.
Coordination: Coordinate and strengthen collection and sharing of financial
intelligence through an effective national, regional and global network to combat
money laundering and related crimes.
Research and Analysis: Monitor and identify strategic key areas on money
laundering trends, typologies and developments.
Organisational Set-up
FIU-IND is a multi disciplinary body headed by a Director. Personnel in this Unit are being
inducted from different organizations namely Central Board of Direct Taxes (CBDT), Central
Board of Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange
Board of India (SEBI), Department of Legal Affairs and Intelligence agencies.
Authorities at FIU-IND
According to Section 48 of the Prevention of Money Laundering Act, 2002
there shall be the following classes of authorities for the purposes of this Act, namely:-
(a) Director or Additional Director or Joint Director,
(b) Deputy Director,
(c) Assistant Director, and
(d) such other class of officers as may be appointed for the purposes of this Act.
Appointment of Authorities
As per Section 49 of the Prevention of Money Laundering Act, 2002:
(1) The Central Government may appoint such persons as it thinks fit to be authorities for the
purposes of this Act.
(2) Without prejudice to the provisions of sub-section (1), the Central Government may
authorise the Director or an Additional Director or a Joint Director or a Deputy Director or an
Assistant Director appointed under that sub-section to appoint other authorities below the
rank of an Assistant Director.
(3) Subject to such conditions and limitations as the Central Government may impose, an
authority may exercise the powers and discharge the duties conferred or imposed on it under
this Act.
Director and officers subordinate to him deemed to be public servants
Section 40 of the Prevention of Money Laundering Act, 2002 declares the Chairperson,
Members and other officers and employees of the Appellate Tribunal, the Adjudicating
Authority, Director and the officers subordinate to him shall be deemed to be public servants
within the meaning of section 21 of the Indian Penal Code, 1860 (45 of 1860).
Powers of the Director
Section 13 of the Prevention of Money Laundering Act, 2002 confers following powers on
the Director to ensure compliance:
(1) The Director may, either of his own motion or on an application made by any authority,
officer or person, call for records referred to in sub-section (1) of section 12 and may make
such inquiry or cause such inquiry to be made, as he thinks fit.
(2) If the Director, in the course of any inquiry, finds that a banking company, financial
institution or an intermediary or any of its officers has failed to comply with the provisions
contained in section 12, then, without prejudice to any other action that may be taken under
any other provisions of this Act, he may, by an order, levy a fine on such banking company
or financial institution or intermediary which shall not be less than ten thousand rupees but
may extend to one lakh rupees for each failure.
(3) The Director shall forward a copy of the order passed under sub-section (2) to every
banking company, financial institution or intermediary or person who is a party to the
proceedings under that sub-section.
Powers of authorities regarding summons, production of documents and to give
evidence:
Section 50 of the Prevention of Money Laundering Act, 2002 confers following powers of
summons, production of documents and to give evidence etc.:
(1) The Director shall, for the purposes of section 13, have the same powers as are vested in a
civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect
of the following matters, namely:-
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company,
financial institution or a company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed
(2) The Director, Additional Director, Joint Director, Deputy Director or Assistant Director
shall have power to summon any person whose attendance he considers necessary whether to
give evidence or to produce any records during the course of any investigation or proceeding
under this Act.
(3) All the persons so summoned shall be bound to attend in person or through authorised
agents, as such officer may direct, and shall be bound to state the truth upon any subject
which they are examined or make statements, and produce such documents as may be
required.
(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 (45 of
1860).
(5) Subject to any rules made in this behalf by the Central Government, any officer referred
to in sub-section (2) may impound and retain in his custody for such period, as he thinks fit,
any records produced before him in any proceedings under this Act:
Provided that an Assistant Director or a Deputy Director shall not -
(a) impound any records without recording his reasons for so doing; or
(b) retain in his custody any such records for a period exceeding three months, without
obtaining the prior approval of the Director.
Assistance from other authorities for enforcement of the Act
Section 54 of the Prevention of Money Laundering Act, 2002 empowers and requires various
authorities to assist in the enforcement of the act. The following officers are empowered and
required to assist the authorities in the enforcement of this Act, namely:-
(a) officers of the Customs and Central Excise Departments;
(b) officers appointed under sub-section (1) of section 5 of the Narcotic Drugs and
Psychotropic Substances Act, 1985 (61 of 1985);
(c) income-tax authorities under sub-section (1) of section 117 of the Income-tax Act, 1961
(43 of 1961);
(d) officers of the stock exchange recognised under section 4 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
(e) officers of the Reserve Bank of India constituted under sub-section (1) of section 3 of
the Reserve Bank of India Act, 1934 (2 of 1934);
(f) officers of Police;
(g) officers of enforcement appointed under sub-section (1) of section 36 of the Foreign
Exchange Management Act, 1973 (40 of 1999);
(h) officers of the Securities and Exchange Board of India established under section 3 of the
Securities and Exchange Board of India Act, 1992 (15 of 1992);
(i) officers of any other body corporate constituted or established under a Central Act or a
State Act;
(j) such other officers of the Central Government, State Government, local authorities or
banking companies as the Central Government may, by notification, specify, in this behalf.
Agreements with foreign countries
Section 56 of the Prevention of Money Laundering Act, 2002 provides for agreements with
foreign countries to facilitate exchange of information with them:
(1) The Central Government may enter into an agreement with the Government of any
country outside India for-
(a) enforcing the provisions of this Act;
(b) exchange of information for the prevention of any offence under this Act or under the
corresponding law in force in that country or investigation of cases relating to any offence
under this Act.
and may, by notification in the Official Gazette, make such provisions as may be necessary
for implementing the agreement.
(2) The Central Government may, by notification in the Official Gazette, direct that the
application of this Chapter in relation to a contracting State with which reciprocal
arrangements have been made, shall be subject to such conditions, exceptions or
qualifications as are specified in the said notification.
Disclosure of information
Section 66 of the Prevention of Money Laundering Act, 2002 provides for disclosure of
information to other officers, authority or body:
The Director or any other authority specified by him by a general or special order in this
behalf may furnish or cause to be furnished to-
(i) any officer, authority or body performing any functions under any law relating to
imposition of any tax, duty or cess or to dealings in foreign exchange, or prevention of illicit
traffic in the narcotic drugs and psychotropic substances under the Narcotic Drugs and
Psychotropic Substances Act, 1985 (61 of 1985); or
(ii) such other officer, authority or body performing functions under any other law as the
Central Government may, if in its opinion it is necessary so to do in the public interest,
specify by notification in the Official Gazette in this behalf, any information received or
obtained by such Director or any other authority, specified by him in the performance of
their functions under this Act, as may, in the opinion of the Director or the other authority so
specified by him, be necessary for the purpose of the officer, authority or body specified in
clause (i) or clause (ii) to perform his or its functions under that law.
Recovery of fines
Section 69 of the Prevention of Money Laundering Act, 2002 refers to recovery of fines.
Where any fine imposed on any person under section 13 or section 63 is not paid within six
months from the day of imposition of fine, the Director or any other officer authorised by him
in this behalf may proceed to recover the amount from the said person in the same manner as
prescribed in Schedule 11 of the Income-tax Act, 1961 (43 of 1961) for the recovery of
arrears and he or any officer authorised by him in this behalf shall have all the powers of the
Tax Recovery Officer mentioned in the said Schedule for the said purpose.
The new network, called FINnet (Financial Intelligence Network), is a technology-based
secure platform for bringing together investigative and enforcement agencies to collect,
analyse and disseminate valuable financial information for combating money laundering and
related crimes.
Restriction on Civil Court Jurisdiction
Section 41 of the Prevention of Money Laundering Act, 2002 says that no civil court shall
have jurisdiction to entertain any suit or proceeding in respect of any matter which the
Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this
Act to determine and no injunction shall be granted by any court or other authority in respect
of any action taken or to be taken in pursuance of any power conferred by or under this Act."
Appeal to Appellate Tribunal
Section 26 of the Prevention of Money Laundering Act, 2002 deals with appeal to Appellate
Tribunal.
(1) Save as otherwise provided in sub-section (3), the Director or any person aggrieved by an
order made by the Adjudicating Authority under this Act, may prefer an appeal to the
Appellate Tribunal.
(2) Any banking company, financial institution or intermediary aggrieved by any order of the
Director made under sub-section (2) of section 13, may prefer an appeal to the Appellate
Tribunal.
(3) Every appeal preferred under sub-section (1) or sub-section (2) shall be filed within a
period of forty-five days from the date on which a copy of the order made by the
Adjudicating Authority or Director is received and it shall be in such form and be
accompanied by such fee as may be prescribed:
Provided that the Appellate Tribunal may, after giving an opportunity of being heard,
entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that
there was sufficient cause for not filing it within that period.
(4) On receipt of an appeal under sub-section (1), or sub-section (2), the Appellate Tribunal
may, after giving the parties to the appeal an opportunity of being heard, pass such orders
thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made
Right of Appellant
Section 39 of the Prevention of Money Laundering Act, 2002 provides for the right of the
appellant.
(1) A person preferring an appeal to the Appellate Tribunal under this Act may either appear
in person or take the assistance of an authorised representative of his choice to present his
case before the Appellate Tribunal.
Explanation - For the purposes of this sub-section, the expression "authorized
representative" shall have the same meaning as assigned to it under sub-section (2) of
section 288 of the Income Tax Act, 1961.
(2) The Central Government or the Director may authorise one or more authorised
representatives or any of its officers to act as presenting officers and every person so
authorised may present the case with respect to any appeal before the Appellate Tribunal.
Appeal to High Court
Section 42 of the Prevention of Money Laundering Act, 2002 provides for appeal to High
Court:
“Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal
to the High Court within sixty days from the date of communication of the decision or order
of the Appellate Tribunal to him on any question of law or fact arising out of such order:
Provided that the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be filed within a
further period not exceeding sixty days.
Explanation.-For the purposes of this section, "High Court" means-
(i) the High Court within the jurisdiction of which the aggrieved party ordinarily resides or
carries on business or personally works for gain; and
(ii) where the Central Government is the aggrieved party, the High Court within the
jurisdiction of which the respondent, or in a case where there are more than one respondent,
any of the respondents, ordinarily resides or carries on business or personally works for gain.
Offences which can be seen by Special Courts
Section 44 of the Prevention of Money Laundering Act, 2002 provides for trial by Special
Courts:
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of
1974),-
a. the schedule offence and the offence punishable under section 4 shall be tried only by the
Special Court constituted for the area in which the offence has been committed;
Provided that the Special Court , trying a schedule offence before the commencement of this
Act, shall continue to try such scheduled offence, or
b. a Special Court may, upon a complaint made by an authority authorised in this behalf
under this Act take cognizance of the offence for which the accused is committed to it for
trial.
(2) Nothing contained in this section shall be deemed to affect the special powers of the
High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 (2 of
1974) and the High Court may exercise such powers including the power under clause (b)
of sub-section (1) of that section as if the reference to "Magistrate" in that section includes
also a reference to a "Special Court" designated under section 43.
