UNDERSTANDING MONEY LAUNDERING

Transcription

1 UNDERSTANDING MONEY LAUNDERING

2 Preface In light of the international concerns growing on money laundering and the financing of terrorist activities, many countries have taken rigorous measures to curb money of this nature. Many organizations and union bodies have been seeking solutions on the dirty money being freely moved in the international financial system. Since the terrorist attacks in New York on Sept 11/2001, new regulations and laws have been passed. The United Nations, the FATF (Financial Action Task Force, an intergovernmental body), European Union and many other major bodies have taken a serious view and have revised the framework of combating money laundering and financing of terrorism to make it easy to detect proceedings derived from criminal activities or funds that are or will be used for illegal acts. Singapore, as a developed nation and as a financial centre is no different in its stand against money laundering activities. With Singapore, relying much on foreign investment and as a country for tourism and hosting of international conventions, it cannot afford to be lax on the loopholes in the Financial System where it can be exploited by individuals or groups wanting to launder money or finance any illegal activities. The Monetary authority of Singapore has thus implemented very stringent guidelines to banks and other financial institutions to combat money laundering and to counter the financing of terrorism and the government of Singapore has passed new laws to administer more transparency in the country s financial system. Arcade Plaza Traders while being proud of being a part of Singapore s financial system and offering Foreign Money exchange and International Money transfer services to local customers and foreigners is legally and morally obliged to support the efforts of the Monetary Authority of Singapore. In carrying out operations in accordance with the specifics outlined, the company hopes this AML/CFT Booklet which is created solely by the company, will be a simple guide to customers on understanding on the basics of Money laundering and how it is carried out. The booklet gives examples on the criminal activities, stages and the main reasons behind the successful legitimization of illegal funds. The book further goes to talk about the measures taken to combat money laundering. In addition a brief outlook on how terrorist organizations can also use money laundering strategies to gain financial benefit to fund their illegal activities is also outlined. Lastly a short summary is given on the operational guidelines by the Monetary Authority of Singapore to licensees, followed by the legislative framework on Money Laundering and its supporting activities.

3 1. UNDERSTANDING MONEY LAUNDERING. A. What is Money-Laundering? i. Definition. There are many definitions of Money-Laundering but it is basically the process of legitimizing the proceedings (cash) from criminal activities. Who is involved in money laundering activities? Usually individuals or a group who get involved in criminal activities and derive proceedings (cash) from that said activities want to find ways to legitimize the most commonly referred black money. i How is money laundered generally? Most of the time, to legitimize or to wash the black money, criminals often attempt to flow the money back into the financial system. These are usually in the forms of bank-ins, buying of money orders, bank drafts, or other financial instruments and international money transfers. iv. What are the various types of criminal activities? There are a lot of criminal activities in which criminals get proceedings from and below are some of the examples: Drug trafficking; Human trafficking; Sexual exploitation including children; Illegal arms sales; Illegal trafficking in stolen and other goods; Bribery and corruption; Fraud Counterfeiting currency; Kidnapping; Murder and theft and Insider trading and market manipulation.

4 B. The Process of Money-Laundering. i. Step 1: Placement The placement is the first and initial stage of money laundering. The launderer hoping to legitimize his illegal or black money tries to get the funds into a bank or a financial institution. This is usually and preferably carried out in a country or territory where there are weak or ineffective anti-money laundering measures where detection of funds is of low risk for the launderer. What are the most common ways for Placement? Deposit cash into one or more bank accounts in broken up amounts in several branches in one financial institution or different financial institutions. Purchase money orders, bank drafts and other financial instruments. Commingle the funds with legitimate ones. Exchange the funds into foreign currencies through a private foreign exchange dealer. Exchange large denominations for smaller ones. Cash purchase of a security or a form of an insurance contract. Step 2: Layering The layering is the second stage to the money laundering process. In this stage the funds have already entered the financial system and at this point the funds, securities or insurance contracts are converted or moved to other institutions, thus further segregating the funds from the criminal activities. In layering the launderer might chose an offshore financial centre, a large regional business centre or a world banking centre or a place which offers adequate financial and business infrastructure. How does the launderer further segregate his funds from its illegal origin? Purchase other securities, insurance contracts or other easily transferable investment instruments and then sold yet through another institution. Transfer through cheque, money order or bearer bond. Wire or remit the funds to various accounts and jurisdictions and disguise the transfer as a payment for goods or services. i Step 3: Integration The final and last stage in money laundering is integrating the funds into the legitimate economy. This involves: Purchase of assets, properties and luxury goods.

5 C. In Short Money from Criminal Activities. Placement Placing the funds in a low risk country where funds are least likely to be detected either by bank-ins or buying of financial instruments. Layering Layering the funds so that originality of funds are disguised and made difficult to be traced by further purchase and sales of investment instruments etc in a country where there is stable financial infrastructure. Integration To be able to get hold of the funds and flow it back into the economy, purchase of properties or luxury items are made.

6 D. Other Points in Money Laundering i. Non-Cooperative Countries & Territories. (NCCT) Non-Cooperative Countries & Territories implies to countries or territories that may not be willing or accommodating to the recommendations drawn up by the FATF to combat money laundering. While reviewing each country, FATF placed countries on the NCCT list as a warning to other members in the body. As of 13 th October 2005, there are two countries currently placed on the NCCT list. 1 Myanmar. Nigeria. Politically Exposed Person (PEP) The term "politically exposed persons" ("PEP") applies to persons who perform important public functions for a state. The following are examples: Heads of state, government and cabinet ministers; Influential functionaries in nationalized industries and government administration; Senior judges; Senior party functionaries; Senior and/or influential officials, functionaries and military leaders and people with similar functions in international or supranational organizations; Members of ruling royal families; Senior and/or influential representatives of religious organizations (if these functions are connected with political, judicial, military or administrative responsibilities) 2 When a person is one of the above and he involves in money laundering activities, then it would be often very difficult to track his funds because of his political influence. Furthermore the person can also use close relations or associates to launder the money on his behalf. It is why therefore FATF has recommended establishing the background information of all customers. 1 FATF, NCCT FAQ, Current NCCT list, 2 Wolfsberg AML Principles,

7 E. Measures to Combat Money Laundering i. What is the FATF and its role in anti money-laundering? The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. The Task Force is therefore a "policymaking body" which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. The FATF has published Recommendations in order to meet this objective. The work of the FATF focuses on three principal areas: Setting standards for national anti-money laundering and counter terrorist financing programmes; Evaluating the degree to which countries have implemented measures that meet those standards; Identifying and studying money laundering and terrorist financing methods and trends. 3 What are the 40 recommendations? The 40 recommendations were originally drawn up in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money. By 1996, these recommendations were revised to reflect evolving money laundering typologies and were endorsed by more than 130 countries and are the international anti-money laundering standard. To deal with the issue of terrorism, the FATF expanded its mandate and created the Nine Special Recommendations and these were complementary to the Forty Recommendations. 3 FATF, Homepage,

8 F. Terrorism & Money Laundering i. International concern for Terrorism Terrorism had always been an agenda for UN and the concern led the organization to place the International Convention for the suppression of the Financing of Terrorism (1999), which provides the way to prosecute individuals or groups who collect funds to harm national interests. After the September 11 attacks in New York, countries became very concerned on the financial capabilities of terrorists who may make use of it for terrorist activities. The techniques used to launder money are more or less the same as those used to conceal the sources of and uses for terrorist financing. Measures to combat Terrorism Financing. The FATF has recommended that each country criminalize the financing of terrorism, terrorist acts and terrorist organizations and designate such offences as money-laundering predicate offences. Thus, came the special nine recommendations along with the original 40 recommendations to constitute the basic framework for preventing, detecting and suppressing both money-laundering and terrorist financing. i Similarity & difference between money laundering & Terrorism Financing Basically money laundering can also be a means for individuals and groups wanting to carry out acts of terror affecting a population or compelling a government to do or not to do a certain act. In financing of terrorism, the funds may arise from: Legitimate sources Criminal acts. Through the same process of money laundering, the funds may be disguised and distributed for terrorist activities. One major difference between money laundering and terrorism financing is that: Funds used for money laundering arises from a criminal act and ends as a legitimate fund whereas terrorism financing can be from legitimate source and in the end is used for terrorist (criminal) activities.

9 2. Operational Measures & Guidelines. The Monetary Authority of Singapore has issued guidelines by which money changing and remittance licensees should operate in light of the anti-money laundering measures. Below are some main points. i. Know your customer: Licensees shall obtain satisfactory evidence of the customer s true identity, and have effective procedures for verifying the bona fides of new customers. Compliance with laws: Licensees shall ensure that business is conducted in conformity with high ethical standards, that laws and regulations are adhered to, and that service is not provided where there is good reason to suppose that transactions are associated with money laundering activities. i Co-operation with law enforcement agencies: Within legal constraints relating to customer confidentiality, Licensees shall cooperate fully with law enforcement agencies. This includes taking appropriate measures allowed by law if there are reasonable grounds for suspecting money laundering. Disclosure of information by Licensees for the purposes of the Act (suspicious transaction reports) shall be made to the Head, Suspicious Transactions Reporting Office, Commercial Affairs Department (STRO). To facilitate the process, Licensees shall, if applicable, identify a single point in their organisation (usually an officer of the Licensee) to which staff are instructed to report suspected moneylaundering transactions promptly. iv. Policies, procedures and training: Each Licensee shall adopt policies that are consistent with the principles set out in this Notice, and ensure that its staff, wherever located, are informed of these policies and adequately trained in matters covered by this Notice. Attention should be given to staff training in matters covered by this Notice.

10 3. SUMMARY OF KEY PROVISIONS OF THE ACT 1. Money laundering offences: It is an offence for Licensees to: i. Enter into or otherwise be concerned in an arrangement knowing or having reasonable grounds to believe that by that arrangement: a) It will facilitate the retention or control of benefits of drug trafficking or criminal conduct by/on behalf of; or b) the benefits of drug trafficking or criminal conduct are used to secure funds or acquire property (by way of investment or otherwise) for, another person (whom the licensee knows or has reasonable grounds to believe has been/is involved in, or has benefited from, drug trafficking or criminal conduct); i Conceal or disguise; or convert, transfer, or remove from the jurisdiction, any property which, in whole or in part, directly or indirectly, represents another person s benefits of drug trafficking or criminal conduct (for the purpose of assisting any person to avoid prosecution for a drug trafficking offence, foreign drug trafficking offence, serious offence or foreign serious offence or the enforcement of a confiscation order issued under the Act); or Acquire any property for no or inadequate consideration, knowing, or having reasonable grounds to believe, that the property, in whole or in part, directly or indirectly, represents another person s benefits of drug trafficking or criminal conduct. Offences under this paragraph are punishable by a fine not exceeding $200,000, or imprisonment for a term not exceeding 7 years, or both. 2. Disclosure of Suspicious Transactions Licensees shall disclose suspicious transactions to an authorised officer when they know or have reasonable grounds to suspect that any property: i. In whole or in part, directly or indirectly, represents proceeds of drug trafficking or criminal conduct; or Was used/will be used in connection with drug trafficking or criminal conduct. Failure to disclose such knowledge, suspicion, or other related information amounts to an offence which is punishable by a fine not exceeding $10, Tipping Off It is an offence for Licensees, knowing or having reasonable grounds to suspect that an investigation under the Act is taking/to take place, to make a disclosure which is likely to prejudice such investigation. This is a tipping off offence punishable by a fine not exceeding $30,000, or imprisonment for a term not exceeding 3 years, or both.

11 4. Failure to co -operate with law enforcement agencies The following acts constitute an offence under the Act: i. contravening a production order issued by the Court under the Act without reasonable excuse; providing material known to be false or misleading in purported compliance with a production order, without: i iv. a) indicating that the material is false or misleading, and how it is false or misleading; or b) providing correct information which is in the Licensees possession or can reasonably be acquired by them; Hindering or obstructing an authorised officer in the execution of a search warrant issued under the Act; or Obstructing or hindering any authorised officer in the discharge of his duty under the Act. Offences under paragraphs (i) to (iii) are punishable by a fine not exceeding $10,000, or imprisonment for a term not exceeding 2 years, or both. The offence under paragraph (iv) is punishable by a fine not exceeding $2,000, or imprisonment for a term not exceeding 6 months, or both.