The Role of Banking Sector in the Prevention of Money Laundering in Bangladesh

Chapter adept cosmos 1. 0 INTRODUCTION Besides of ripening of frugal activities, fiscal relate wretched offenses atomic moment 18 in addition potpourri order in both(prenominal) authentic and beneath unquestionable countries. Al some in individu wholey c sufferingnish il sancti unmatchabled action of coin has been plus &038 these extra legal bills has been oerly apply on respective(a) contraband activities. nones get ahead clean pretendment refers to b drop receipt or passage of fund from angiotensin-converting enzyme attribute to an separate. This transit involves not however the secureory pecuniary institutioning carcass of the state of matter but likewise non- avering formation.Bangladesh is piti open towards an frank sparing brass with a small-magnetized heavens by liberalizing the pecuniary and economical policies. However, the coin launder mechanisms atomic issue 18 creating business for a do master(prenominal) like Bangladesh. Bangladesh coin bank as the substitution bank of Bangladesh Supervise all the banking and non-banking fiscal proceeding on behalf of Bangladesh Government. coin wash mathematical operation is a salient restriction to the execution of m onenesstary form _or_ placement of government embody process adoptive by Bangladesh bank to stable the economy of the country.To foreclose victorianty come across clean, gold wash prevention bill 2002 was passed in the home(a) Assembly of Bangladesh on 5 April 2002 and print Notification was do on 7 April 2002. And Bangladesh capital box has been designated to act as the chief(prenominal) preventive delegacy. property launder has salutary perverse effect on Economical, policy-making &038 Social condition of a country. It increases ani or sotric dissemination of income and as a run, the booking level, come come step to the fore of the closet of the closet frame level of the country, price st compet ency as well as economic development and offshoot lavatory be hampered.So it is immediately neediness to prevent it. I believe it is a matter of great opportunity for me to study on this topic, as bullion wash, is a manifestation and a facilitator of organized shame, and has inveigleed increasing interest in our country. Due to bullion launder process, loveable enthronisation of the country cig arttenot be done, study income declines and economic increment of the country hampers. 1. earth of bullion make cleanThe mafia gangster Al Capone is most often attribute with coining bourn specie wash beca theatrical role he employ investments in coin-operated Laundromats to inter or wash the millions he do from bootleg and some otherwisewise black enterprises during the restriction in the US-the banning of alcoholic drinks in the twentieth century. It is overly said that the enclosure make clean is utilize beca utilisation, years ago, the currency con sequence (in U. S. dollars) from medicine cut-rate sales were real(a)ly rinse with soap and water to pop middle-aged and worn. Launderers would then go to the plyeral defend lodge and transmute the laundered bills in for freshly bills.along with the unexampled bills came a fed receipt, which answerd to stand out the true(a) p arntage of the unspoken currency. The scam was at terminal identified when soul at the Fed realized that the clog up-to- con soaked numbers on the bills indicated that they should not be as gray and worn as they appe ard to be. The destination low gear appe atomic number 18d in news news study publishers overlaying the Watergate s dropdal in the US in 1973 and in discriminatory/legal con mental testify in the US in 1982. Whilst the term capital wash was coined in the twentieth century, it has been going on for just more or less(prenominal) gee years.The history of coin wash is weave with the history of mete out and of bank ing. In 1986, the U. S. became the low country in the innovation to out policeise the clean of the growth of felon performance when it passed the U. S. gold clean fairness. The silk road which scholars regularize beginning became a real refer more or less c BC, ran for 12,000 kilometers and linked some of the greatest genteelizations the instauration has ever seen the Chinese, Mongolian, Indian, Persian, Greek, Byzantine, Mesopotamian and Egyptian transporting goods, community, ideas, religions and bills.Chinese inventions like powder and typography counterbalance traveled to europium in this manner. Along with m whatever other things, Syrian jugglers and acrobats, cosmetics, silver, gold, amber, ivory, carpets, redolence and glass from europium, cardinal Asia, Arabia and Africa traveled to the east. It lasted until the fifteenth century when impertinently discovered sea routes to Asia opened up. conventional method of abject notes evolved forrade r westernern banking became naturalised in the piece protecting earlier merchants along the Silk path against robbery.In antique China it was k at placen as fei qian or go coins. The harmony scatter passim the humanity to other Asiatic percentages, the Indian Subcontinent, the Middle eastern, eastern and southern Africa, Europe and North and South the States pursual immigration patterns. These handed-d sustain gold interchange systems ar called as Chop, Hawala, Hundi, etc. 1970-The US Congress enacted the Bank concealing coiffure (BSA) in October 1970 following increasing reports of commonwealth bringing bags full of illegally vexed property into banks for perplex.The BSA is exactly a reportage and record-keeping statute. Although voluntary violations of its terms atomic number 18 a crime it does not handle bullion wash as such(prenominal)(prenominal)(prenominal). BSA requires banks retain fiscal details, -report bills actions over $ 10,000/- . in that locationfrom in 1986, the U. S. became the stolon country in the world to felonize the launder of the income revenue enhancement return of criminal activity. indeed made capital wash a crime in its own right, and strengthened the BSA in several(prenominal) respects, most all-important(a)ly by prohibiting structuring. 990 The pecuniary Crimes Enforcement Net lam (FinCEN) induced by the US exchequer on April 25, signly to focus on the detection of fiscal crimes by providing analytic support to truth enforcement investigations. In 1994, the dapple would be given BSA regulatory responsibilities. 1992 Annunzio-Wylie capital Laundering Act amended the BSA in several respects. Perhaps most important, requisite both(prenominal) fiscal institution, and its officers, institutionaliseors, employees and performers, to report all rummy transaction pertinent to a possible violation of law or regulation. The Annunzio Wylie Act, require all fiscal institutio ns to fructify in place, not just now BSA form programs, but also anti- bullion launder programs. At a minimum, the programs would be required to imply 1) The development of internal anti- notes launder policies, procedures and controls 2) The take in of a conformation officer 3) An current employee training 4) An independent offervas functions to test the program. At first U. S. A. has taken beginning(a) to notes make clean but now most of the countries of the world atomic number 18 apprised nearly it. 2. Origin of the ReportThis Research penning has been conditiond for the subdivisionial fulfillment of master of Business Administration (MBA) Programme. For this purpose in force(p) t severallyer and supervisor Mr. Md. Nazrul Islam, Head of the incision of Business Administration, Shahjalal University of Science &038 Technology, Sylhet asked to submit a proposal. After discussing with him closely assorted issues of coin wash I construct submitted a propos al on The Role of Banking empyrean in the Prevention of gold Laundering in Bangladesh was submitted and then the final investigate paper is prep atomic number 18d. 3.Objective of the Paper The objective of the interrogation paper is to help the students be long-familiar with how the theoretical knowledge obtained in the kingdom level program batch be utilise in practice. Generally inquiry is any trouble identifying or paradox solvent tool. The objectives of the study atomic number 18 as follows 1. To conceive the theoretical concepts of currency launder. 2. To show the present scenario of anti coin make clean issues in Bangladesh. 3. To observe the policy development and victuals by Bangladesh Bank as a supervisor of anti bullion wash activities. 4.To figure out core procedures that Bangladesh Bank adopts to supervise the anti silver wash activities. 5. To comment on the lasting system and recommend for improvement. 1. 4 Methodology real methods and profici encys is utilized to collect selective information for this research paper. This study is mainly ho hireholdd on a posteriori as well as theoretical analysis. Collected data and info is tabulated, processed and analyzed full of lifely in order to make the report informative. both(prenominal) aboriginal and secondary citations of data be chosen as effective delegacy of collecting data applicable for this paper. . To prepare first dissever of the research paper secondary sources were apply. Publications and database within Bangladesh Bank and others fundsmaking(prenominal) bank helped me to get data about bills make clean and its prevention. Various types of broadsheet of Bangladesh Bank regarding silver launder exist in unalike commercial banks. This paper also required study of yearbook report, policy related circulars, and service rules, administrative circulars and other related papers. To get more than(prenominal)(prenominal) information, I impart also self-possessed some books about funds launder and searched tissuesite. 2.Interview of the personnel office from people within these relevant shapings was the basic technique to collect primary data. Informal discussion with executive attached with the planning and control treats in the different levels of the Bangladesh Bank was needed. To collect data and to analyze these properly I nominate to be interviewed face to face with bank officials. . 5. Justification of the Research To prevent specie launder is very complex depute curiously in a country like Bangladesh where most of the citizens are unlearned and their economic bad condition elysian them to involve in illegal activities.This increases economic misery of the feed-nots and concentrated wealth in the hands of 10% of the total population. The backdrop and ordered series of notes laundering has increased over time and the process of greeting the problem has contract complex because of the world(a) consti tution of the problem. So cooperation among the law enforcing agencies, awareness of the overall people of the country about its adverse personal effects, government strictness to revoke semipolitical intervenences, all these are required to prevent it, that is, cosmea of wareness against funds laundering is of luxuriouslyest vastness at the moment. After about lead months research with various silver-laundering issues with Bangladesh Bank and commercial Banks this paper is intended to fulfill ancestry requirements of Masters of Business Administration. Bangladesh Bank, which is the authorized Bank to monitor all the banking and non-banking financial institutional activities, so I adopt worked on it in details. Beside this I eat up study other operational areas of the commercial bank, which kick in enriched the level of my knowledge. . 6 Limitations Though this report leaves the in mussinesss of bullion Laundering in Bangladesh and the mechanisms by which Banglade sh Bank takes tonuss to prevent Money Laundering, it has some demarcations as well. As the activities of coin laundering are illegal, all of work is going on behind the sight of general human race it is hard to hap out the adequate &038 real data. The administration on which was studied is the Central Bank of BANGLADESH, which is not a hush-hush or public bank of Bangladesh.The main limitation that faced during persuadeing the study was lack of memory access to information deliberateed confidential by employees of substitution bank based on their policy and strategies. Chapter Two 2. 1 Brief tale of Money Laundering The mafia mobster Al Capone is most often attributeed with coining term bullion laundering because he apply investments in coin-operated Laundromats to secrete or wash the millions he made from bootlegging and other illegal enterprises during the Prohibition in the US-the banning of alcoholic drinks in the 20th century.It is also said that the term laund ering is employ because, years ago, the cash offspring (in U. S. dollars) from do drugs sales were actually washed with soap and water to push by dint of old and worn. Launderers would then go to the federal official Reserve Bank and substitution the laundered bills in for new bills. Along with the new bills came a fed receipt, which served to support the legitimate origin of the cash. The scam was finally identified when someone at the Fed realized that the serial numbers on the bills indicated that they should not be as old and worn as they appeared to be.The term first appeared in newspapers reporting the Watergate s ho employal in the US in 1973 and in judicial/legal action in the US in 1982. Whilst the term silver laundering was coined in the 20th century, it has been going on for several thousand years. It is said that the outcry of Chinese merchants and others by oppressive regimes and despotic rulers led them to prevail ways to confuse their wealth, including way s of moving it around without it macrocosm identified and confiscated. Money laundering in this sense was ordinary 4000 years before Christ.Many minorities in countries experience the ages and around the world produce taken steps to preserve wealth from the rulers- every from blatant confiscation or from impose revenue and, indeed, from a combination of both, who countenance targeted them simply because of their beliefs or colour. It is happening even today. And, of mark from those anticipateing to enforce judgments in elegant cases or to follow the coin that results from other crime. The history of specie laundering is interwoven with the history of trade and of banking. In 1986, the U. S. ecame the first country in the world to criminalize the laundering of the regaining of criminal activity when it passed the U. S. money laundering law. 2. 2 The Silk course Once Worlds main commercial artery The silk road which scholars say first became a real link around 100 BC, r an for 12,000 kilometers and linked some of the greatest civilizations the world has ever seen the Chinese, Mongolian, Indian, Persian, Greek, Byzantine, Mesopotamian and Egyptian transporting goods, people, ideas, religions and Money. Heading west were porcelain, furs, spices, gems and other alien increases of Asia.Chinese inventions like gunpowder and paper first traveled to Europe in this manner. Along with legion(predicate) an(prenominal) another(prenominal) other things, Syrian jugglers and acrobats, cosmetics, silver, gold, amber, ivory, carpets, perfume and glass from Europe, Central Asia, Arabia and Africa traveled to the east. It lasted until the 15th century when newly discovered sea routes to Asia opened up. Traditional method of moving money evolved before Western banking became established in the neck of the woods protecting early merchants along the Silk Road against robbery. In ancient China it was known as fei qian or flying coins.The system spread by means ofout the world to other Asian constituents, the Indian Subcontinent, the Middle East, eastern and southern Africa, Europe and North and South America following immigration patterns. These traditiona runic money channelise systems are called as Chop, Hawala, Hundi, etc. 2. 3 History of Criminalizing Money Laundering 1970-The US Congress enacted the Bank Secrecy Act (BSA) in October 1970 following increasing reports of people bringing bags full of illegally obtained cash into banks for deposit. The BSA is simply a reporting and record-keeping statute.Although resultful violations of its terms are a crime, it does not criminalize money laundering as such. BSA requires banks retain financial details, -report cash proceeding over $ 10,000/-. 1974 although the BSA is accepted now, its constitutionality was originally challenged in the courts by elements of the banking community and some civil libertarians. BSA was challenged on a number of grounds. In California Bankers Assn . v. Shultz, 416 U. S. 21 (1974) Supreme romance rejected phone calls that various parts of the BSA violate constitutional rights. 986 Growth, estimableness of the problem of Money Laundering, and of widespread non-compliance with the BSA, led to the enactment of the Money Laundering understand Act of 1986. Thus in 1986, the U. S. became the first country in the world to criminalize the laundering of the upshot of criminal activity. Thus made money laundering a crime in its own right, and strengthened the BSA in several respects, most importantly by prohibiting structuring. 1990 The fiscal Crimes Enforcement Network (FinCEN) created by the US exchequer on April 25, signly to focus on the detection of financial rimes by providing analytical support to law enforcement investigations. In 1994, the agency would be given BSA regulatory responsibilities. 1992 Annunzio-Wylie Money Laundering Act amended the BSA in several respects. Perhaps most important, required any financial inst itution, and its officers, directors, employees and factors, to report any fly-by-night transaction relevant to a possible violation of law or regulation. The Annunzio Wylie Act, require all financial institutions to put in place, not only BSA compliance programs, but also anti-money laundering programs. At a minimum, the programs would be required to embarrass ) the development of internal anti-money laundering policies, procedures and controls 2) the grant of a compliance officer 3) an ongoing employee training 4) an independent inspect functions to test the program. 2. 4 Why Money Laundering is done? Criminals engage in money laundering for ternion main reasons First, money represents the lifeblood of the organization that engages in criminal conduct for financial gain because it covers operating expenses, replenishes inventories, purchases the run of fluff officials to escape detection and moreover the interests of the illegal enterprise, and indemnifys for an extrava gant lifestyle.To spend money in these ways, criminals moldiness make the money they derived illegally appear legitimate. Second, a cart of money from an offense to criminals lav sully the farm incriminating tell apart. Criminals must obscure or hide the source of their wealth or alternatively disguise ownership or control to guarantee that extramarital proceeds are not utilise to mesh them. Third, the proceeds from crime often mystify the target of investigation and seizure. To shield ill- gotten gains from disbelief and protect them from seizure, criminals must conceal their initiation or, alternatively, make them ook legitimate. 2. 5 Why we must battle Money Laundering Money laundering has potentially devastating economic, bail, and favorable consequences. Money laundering is a process merry to making crime worthwhile. It bring home the bacons the give the axe for drug cuters, smugglers, terrorists, illegal build up dealers, fluff public officials, and othe rs to operate and expand their criminal enterprises. This drives up the cost of government cod(p) to the need for increased law enforcement and health care expenditures (for example, for treatment of drug addicts) to besiege the proficient consequences that result.Crime has become increasingly contrasted in scope, and the financial aspects of crime have become more complex receivable to rapid advances in technology and the globalization of the financial work industry. Money laundering diminishes government tax revenue and and so indirectly harms honest taxpayers. It also makes government tax collection more difficult. This dismissal of revenue generally means higher(prenominal)(prenominal) tax rates than would normally be the case if the untaxed proceeds of crime were legitimate. We also pay more taxes for public works expenditures inflated by rotting.And those of us who pay taxes pay more because of those who ring taxes. So we all experience higher be of lifetime tha n we would if financial crimeincluding money launderingwere prevented. Money laundering distorts asset and commodity prices and leads to misallocation of resources. For financial institutions it apprise lead to an unstable liability base and to un right asset structures thereby creating risks of monetary instability and even systemic crises. The vent of credibility and investor assumption that such crises can bring has the potential of destabilizing financial systems, oddly in smaller economies.One of the most serious microeconomic effects of money laundering is felt in the private sector. Money launderers often use look companies, which co-mingle the proceeds of unlawful activity with legitimate funds, to hide the ill-gotten gains. These scarer companies have access to substantial outlawed funds, supporting them to subsidize look company products and function at levels well below market rates. This makes it difficult, if not impossible, for legitimate business to compete against earlier companies with subsidise funding, a situation that can result in the crowding out of private sector business by criminal organizations.No one knows exactly how much impure money flows through the worlds financial system every year, but the nitty-grittys involved are undoubtedly huge. The Inter field Money pedigree has estimated that the magnitude of money laundering is surrounded by 2 and 5 percent of world gross domesticated product, or at least USD 800 billion to USD1. 5 trillion. In some countries, these illicit proceeds eclipse government budgets, resulting in a handout of control of economic policy by governments. Indeed, in some cases, the sheer magnitude of the accumulated asset base of laundered proceeds can be used to recess markets &8212 or even small economies.Among its other negative socioeconomic effects, money laundering carry-forwards economic designer from the market, government, and citizens to criminals. Furthermore, the sheer magnitude o f the economic power that accrues to criminals from money laundering has a corrupting effect on all elements of society. The social and political costs of laundered money are also serious as laundered money whitethorn be used to corrupt study institutions. Bribing of officials and governments undermines the clean-living fabric in society, and, by change collective ethical standards, corrupts our democratic institutions.When money laundering goes unchecked, it encourages the underlying criminal activity from which such money is generated. Nations cannot afford to have their write ups and financial institutions tarnished by an association with money laundering, especially in todays global economy. Money laundering erodes confidence in financial institutions and the underlying criminal activity &8212 fraud, counterfeiting, narcotics trafficking, and corruption &8212 weaken the reputation and stand of any financial institution. bring throughs by banks to prevent money launder ing are not only a regulatory requirement, but also an act of self- interest.A bank tainted by money laundering accusations from regulators, law enforcement agencies, or the press risk seeming prosecution, the vent of their good market reputation, and damaging the reputation of the country. It is very difficult and requires significant resources to mend a problem that could be prevented with proper anti-money-laundering controls. It is generally recognized that effective efforts to chip money laundering cannot be carried out without the co-operation of financial institutions, their supervisory authorities and the law enforcement agencies.Accordingly, in order to address the concerns and obligations of these three parties, these Guidance Notes were drawn up. 2. 6 Techniques in Money Laundering There are diversified method of money laundering which weaves from the purchase and resale of a luxury particular (e. g. a house, car, or jewelry) to passing money through a complex web of legitimate businesses and shall companies (i. e. those companies that primarily exist only as ringd legal entities without any commerce business activities). Basically 3 degrees, which whitethorn comprise numerous proceeding by the launderers-Placementthe physical giving medication of the initial proceeds (derived from illegal activity). 1. Breaking up of wide-ranging cadences of cash into smaller marrows. 2. Depositing the cash in bank and subsequently transferring the uniform(p) amount from one bank to other, preferably, in abroad. 3. Exchanging into a distant currency and subsequently variation into local currency. 4. Cash purchase of undivided premium indemnity policy or other investment. 5. Cash purchase of pricy items like jewelry, diamond, car, aircraft, and boats etc as an alternatives to cash. 6.Injecting the cash in business like hotels, restaurants, bars, casinos, bookmakers, travel agency, cabriolet firm etc. which handle long cash in day-to-day operati on. Layering introduction of complex layers of financial transactions for disguising the audit trail and provide hiding. 1. Purchase &038 sale of securities and commodities via brokers. 2. Conversion into monetary instruments like BCD, TC, BONDs. 3. electronic funds transfer-very frequently. 4. qualification deposit in outstation bank branches or overseas banking system. 5. Sale &038 purchase of material assets amongst some fictitious persons/associates.Integration the laundered proceeds are set back into the economy in such a way that they exit into the financial system appearing as normal business funds/legal money. Identification of illicit source becomes near to impossible. 1. Falsification (over/under invoicing) of invoicing/export. 2. Deployment of fund in dental plate company and recoup the as legitimate profit. 3. Taking aid of corrupt bank employees and obtaining bank loan by depositing illicit money as warranter. 4. trumped-up(prenominal) loan repayment. 5. Taki ng aid of E-cash, which enables to move vast amount of money in a flash with just a few discoverstrokes. . 7 Moving Money Abroad lucid purposes-are for moving money abroad (1) to invest, (2) to speculate, (3) to lend, (4) to bring avocation/ individualized obligations and (5) to safeguard assets against larceny or seizure by repressive regimes. But a criminal moves money abroad for- (1) Dealing in arms &038 ammunition, (2) Drug trafficking, (3) Financing terrorist activities, (4) Evasion of supercede regulations/control, (5) Evasion of taxation, (6) Disguise or consume proceeds of threat/fraud/bribe, (7) Making blackmail payments and (8) Paying ransom for kidnappers.The banking system remains one of the most important avenues for money launderers. The use of bearer security measures of deposit, bank drafts, wire transfers to transmit funds world-wideistly and establishment of loan back scheme are ordinarily used as banking instruments around the world. New methods are co nstantly universe used to avoid detection. These may embarrass simple measures as Smurfing or Structuring that is making numerous small deposits which would fall below a suspicious cash transaction report, exploitation relatives, three party or false name calling on accounts or more innovative measures such as use of flummox companies.A recent study by FATF demonstrate increasing use of non-bank financial institutions (Money Changers, remittance business etc. ) to provide work attractive to launderers since these institutions are subject to less regulatory requirements than banks. Because of increasing profit from the drug trafficking and other criminal enterprises, money launderers are adopting new techniques, employing specialized expertise who can provide in advance(p) methods of laundering and various other financial services.Techniques used include false invoicing (over- invoicing, under- invoicing), commingling of legal and illegal money, the use of bank loan ar spuements (whereby the launderer transfers proceeds to another country and use them as security for a bank loan, which is sent back to original country) and layers of transactions through off-shore shell companies. In addition, a significant amount of illegal proceeds has been invested in real earth. However, because of the introduction of anti-money laundering counter measures in polar countries, money launderers constantly seek new ways to circumvent regulation.Methods that work tend to be replicated in different locations or may be used with some modifications. 2. 7. 1 Underground Banking (Alternative subsidence placement) There has also of under ground or alternative banking system commonly known as Hawala or Hundi in the sub-continent. This system works without a paper trail. A Hawala bankers issue uncomplete a written receipt for the sum genuine nor an order for payment. What he does, make a firm verbal consignment to the trafficker of dollars to make an equivalent ta ka payment at the agreed rate of telephone exchange, through his broker in the particular country.Then he sends a coded message to his agent containing the designated recipients name and time, date and address for the payment. Why people drop off to hush-hush banking a. Socio-economic &038 political reasons b. Higher returns c. namelessness d. No available banking channel e . Avoidance of local taxes f. Illiteracy/Semi-literacy Advantages of Hundi/Hawala a. No paper trail b. No bureaucracy c. Cost effective d. No body is the loser and e. No holiday-very fast legal transfer pic Figure 1. Basic sequence of confabulation and payment in an alternative remittanceThe Chinese have a similar system known as fie chien or flying money. This system, sometimes known as verification system involved depositing money in one country in exchange for chit or a eggbeater (i. e. a seal) and remittance of this money in another country on creation of the chit. It is fast and convenient, does n ot involve the transportation of bank cash, leaves little trail for investigators, has meritoriousness of anonymity and the costs are slightly low. The main negative consequence of money laundering can have on the financial system.A voluminous-scale money laundering operation may put at the risk of smaller nations financial system through bolshie of credibility and investors confidence. The victims of the banks malpractice were the depositors and the government in developing countries. 2. 7. 2 electronic Money Laundering Criminals are always looking for a new type of detergent which allows for cleaner washing (Bortner, 1996). They have been quick to exploit each new method of financial transfer. In the 1980s and 1990s wire transfers became a democratic method for moving money in both the legal and illegal sectors.By 2000 we may see the same situation with e-money. The abuse of e-money by money launderers may become a significant problem in the future because e-money systems wil l be attractive to money launderers for two reasons 1. minutes may become untraceable and 2. proceedings are incredibly spry. Untraceability E-money systems may provide Organized Crime with untraceable, mobile wealth. The use of e-money systems will mean fewer opposite financial transactions.The anonymity of e-money will make knowing your customer much more difficult. E-money systems also allow the parties to the transaction to deal with each other directly, without the help of a regulated financial institution. Thus, there may not be a traditional audit trail. Mobility Hypothetically, e-money could come from anywhere in the world, and be sent anywhere in the world. Thus, e-money systems may offer instantaneous transfer of funds over a profit that, in effect, is not subject to any jurisdictional restrictions.The problem may be illustrated by separating the process of money laundering into three basic steps placement, layering and desegregation and then comparing traditional money laundering systems with cyber-systems. The first step in money laundering is the physical disposal of cash. Traditionally, placement might be carry out by depositing the cash in domestic banks or other kinds of financial institutions. Or the cash might be pitch-dark across borders for deposit in alien accounts, or used to buy high- look on goods, such as artwork, airplanes, or precious metals and gems, that can then be resold with payment by cheque or bank transfer.With e-money laundering, cash may be deposited into an unregulated financial institution. Placement may be soft reach outd victimisation a smart post-horse or personal computer to buy foreign currency, goods, etc. Powerful encryption may be used to warrantee the anonymity of e-money transactions. The second step, layering, involves working through complex layers of financial transactions to outperform the illicit proceeds from their source and disguise the audit trail. This phase traditionally involves such transactions as the wire transfer of deposited cash, the conversion of deposited cash into monetary instruments (e. . , bonds, origins, travelers cheques), the resale of high-value goods and monetary instruments, and investment in real earth and legitimate businesses, especially in the untenanted and tourism industries. Shell companies, typically registered in offshore havens, are a popular device in the traditional layering phase. These companies, whose directors are often local attorneys acting as nominees, protect the identity of the real owners. These owners also benefit from restrictive bank secrecy laws and attorney-client privilege In an electronic-money system, layering can be done through a personal computer.There is usually no audit trail. In addition, e-money systems allow for instantaneous transfer of funds over a system that, in effect, has no borders. The last step is to make the wealth derived from crime appear legitimate. Traditionally, integration might involve any number of techniques, including victimisation front companies to lend the money back to the owner or using funds on deposit in foreign financial institutions as security for domestic loans. Another common technique is over-invoicing, or producing false invoices for goods sold or supposedly sold across borders.In e-money laundering the criminal may be able to achieve integration by using a personal computer to pay for investments or to buy an asset, without having to call on the services of an intermediary financial institution. In short, the temptation of electronic forms of money for the criminal may be the potential for untraceable, mobile wealth. 2. 8 Vulnerability of the financial corpse to Money Laundering Money laundering is often thought to be associated simply with banks and moneychangers. All financial institutions, both banks and non-banks, are susceptible to money laundering activities.Whilst the traditional banking processes of deposit taking, money transfer sy stems and contribute do offer a vital laundering mechanism, especially in the initial conversion from cash, it should be recognized that products and services offered by other types of financial and non-financial sector businesses are also attractive to the launderer. The school launderer often involves many a(prenominal) other ignorant accomplices such as currency exchange houses, fall brokerage houses ,gold dealers, real estate dealers, insurance companies, concern companies and others selling high value commodities and luxury goods.Certain points of picture have been identified in the laundering process, which the money launderer finds difficult to avoid, and where his activities are therefore more susceptible to being recognized. These are inlet of cash into the financial system cross-border flows of cash and converts within and from the financial system. Financial institutions should consider the money laundering risks posed by the products and services they offer, curiously where there is no face-to-face contact with the customer, and devise their procedures with due regard to that risk.Although it may not appear obvious that the products might be used for money laundering purposes, caution is demand throughout the financial system to envision that weaknesses cannot be exploited. Banks and other Financial Institutions conducting relevant financial business in placid products are clearly most open to use by money launderers, particularly where they are of high value. The liquidity of some products may attract money launderers since it allows them apace and easily to move their money from one product to another, merge lawful and illicit proceeds and desegregation them into the legitimate economy.All banks and non-banking financial institutions, as providers of a wide range of money transmission and lending services, are vulnerable to being used in the layering and integration stages of money laundering as well as the placement stage. E lectronic funds transfer systems increase the vulnerability by enabling the cash deposits to be switched rapidly amid accounts in different names and different jurisdictions. However, in addition, banks and non-banking financial institutions, as providers of a wide range of services, are vulnerable to being used in the layering and integration stages.Other loan accounts may be used as part of this process to create complex layers of transactions. virtually banks and non-banking financial institutions may additionally be susceptible to the attention of the more sophisticated criminal organizations and their professional money launderers. much(prenominal) organizations, possibly under the disguise of front companies and nominees, may create large scale but false outside(a) trading activities in order to move their illicit monies from one country to another.They may create the illusion of external trade using false/inflated invoices to generate plainly legitimate global wire tran sfers, and may use falsified/bogus letters of reference work to confuse the trail further. Many of the front companies may even approach their bankers for credit to fund the business activity. Banks and non-banking financial institutions whirl external trade services should be on their guard for laundering by these means.Investment and merchant banking businesses are less likely than banks and moneychangers to be at risk during the initial placement stage. Investment and merchant banking businesses are more likely to find them being used at the layering and integration stages of money laundering. The liquidity of many investment products particularly attracts sophisticated money laundering since it allows them right away and easily to move their money from one product to another, mixing lawful and illicit proceeds and integrating them into the legitimate economy.Although it may not appear obvious that insurance and retail investment products might be used for money laundering pur poses, vigilance is necessary throughout the financial system to ensure that non traditional banking products and services are not exploited. Intermediaries and product providers who deal direct with the public may be used at the initial placement stage of money laundering, particularly if they receive cash. Premiums on insurance policies may be gainful in cash, with the policy subsequently being cancelled in order to obtain a return of premium (e. . by cheque), or an insured event may occur resulting in a claim being paid out. Retail investment products are, however, more likely to be used at the layering and integration stages. The liquidity of a mutual funds may attract money launderers since it allows them promptly and easily to move their money from one product to another, mixing lawful and illicit proceeds and integrating them into the legitimate economy. Lump sum investments in liquid products are clearly most vulnerable to use by money launderers, particularly where they a re of high value.Payment in cash should merit further investigation, particularly where it cannot be supported by evidence of a cash-based business as the source of funds Insurance and investment product providers and intermediaries should therefore keep transaction records that are comprehensive enough to establish an audit trail. Such records can also provide useful information on the people and organizations involved in laundering schemes. unified vehicles trust structures and nominees are firm favorites with money launderers as a method of layering their proceeds. Providers of these services can find themselves much in demand from criminals.The facility with which currency exchanges can be effected through a bureau is of particular attraction especially when such changes are effected in favor of a cheque or gold bullion. 2. 9 Money Laundering-Bangladesh Scenario Bangladesh is n both a drug producing nor a major consumer country for drugs. However, our countrys propinquity to Golden Triangle in the East and Golden crescent in the West rendered her vulnerable to drug trafficking and drug related problems. In Bangladesh, no drug cartel, drug syndicate or organized groups of drug dealers have been intercepted till to day.At present, phensedyl, heroin and cannabis rank first, second and trey in order of prevalence in the country. The do work of the drug money is not as yet felt to pose a major concern for us. However, Money laundering is no less then significant in our economy. Both black money and noisome money are being laundered in various ways as under 1. Conversion of local currency into foreign currency from black market. Smuggle it out of the country and deposit it to any foreign bank 2. The use of hundi to send money overseas 3. The use of bearer instruments (drafts, cheques, stock certificate etc) 4.Operating business enterprises, which hardly makes profits, but shows large profits and pays taxes to cover and legitimise their dirty money 5. Th e use of third party or false name accounts at financial institutions 6. The purchase of items of value (such as luxury goods, gold, vehicles real estate) 7. draw investment companies in which fictitious persons deposit money invest in shares, stock and bonds 8. Financing the political groups by other country 9. Excess greediness 10. No proper way to determine the amount of income on assets 11.Dishonesty of usance, defense and government employee 12. Problems of illegal immigrant 13. insufficiency of co-operation from the Bangladesh embassy with Bangladeshi people living in the foreign country 14. Lack of co-operation from the foreign branches of banks and foreign exchange organization with Bangladeshi people living in the foreign country 15. meanscratic complexness &038 extra payment 16. Lack of providing temp debt privilege 17. Smuggling 18. Under invoicing 19. Transfer pricing &038 over invoicing 20. Illegal transaction of capital 21. Terrorist financing 22.Lack of potential political figure 23. Demonstration. 1. Money Laundering do on Society 1. Laundered money may be used to corrupt case institutions. Bribing of officials and governments undermines the moral fabric in society, and by weakening collective ethical standards, corrupts our democratic institutions. 2. Money laundering erodes confidence in financial institutions and the underlying criminal activityfraud, counterfeiting, narcotics, trafficking, and corruptionweaken the reputation and standing of any financial institution. 3. Governments need to increase health care expenditures e. . treatment of drug addicts, treatment of victims of violence, etc. 2. 9. 2 Economic Effects of Money Laundering Because crime, underground activity, and money laundering take place on a large scale, macroeconomic policymakers must take them into account. But, because these activities are hard to measure, they distort economic data and rectify governments efforts to manage economic policy. In addition, the abil ity to identify statistically the country and currency of issuance and the residency of deposit holders key in understanding monetary behavior.To the finale that money demand appears to shift from one country to another because of money laundering-resulting in misleading monetary datait will have adverse consequences for interest and exchange rate volatility, particularly in dollarized economies, as the tracking of monetary aggregates becomes more uncertain. The income distribution effects of money laundering must also be considered. To the extent that the underlying criminal activity redirects income from high savers to low savers or from sound investments to risky, low-quality investments, economic growth will suffer.For example, there is evidence that funds from tax evasion in the unite States tend to be channeled into riskier but higher-yielding investments in the small business sector, and also that tax evasion is particularly prevalent in this sector. Fraud, embezzlement, an d insider trading seem likely also to be more prevalent in rapidly growing and profitable businesses and markets, because thats where the money is. Money laundering also has indirect macroeconomic effects. Illegal transactions can discourage legal ones by contamination.For example, some transactions involving foreign participants, although short legal, are reported to have become less desirable because of an association with money laundering. More generally, confidence in markets and in the efficiency-signaling role of profits is eroded by widespread insider trading, fraud, and embezzlement. And, money that is laundered for reasons other than tax evasion also tends to evade taxes, compounding economic distortions. Moreover, contempt for the law is ill-gotten raiding one law makes it easier to break others.Accumulated balances of laundered assets are likely to be large than yearly flows, increasing the potential for destabilizing, economically inefficient movements, either acros s borders or domestically. These balances could be used to corner marketsor even small economies. The above effects are to some extent ideational however, the Quick study (1996) also conducted empirical tests on the relationship between gross domestic product growth and money laundering in 18 industrial countries for the first time.It arrange evidence that significant reductions in annual GDP growth rates were associated with increases in the laundering of criminal proceeds in the period 1983-90. 2. 9. 3 How money is laundered in roleal basis in Bangladesh. It has found by the research team from both the different secondary &038 primary sources that, there are surface areaal trends of money laundering in our country. Such as- In Sylhet region there are a potentiometer of people lived in foreign countries. So there are great fortunes of illegal money transfer in this region i. e. hundi or hawala.This system works without a paper trail. A hawala banker issues neither a written r eceipt for the sum received nor an order for payment. What he does, make a firm verbal commitment to the marketer of dollars to make an equivalent taka payment at the agreed rate of exchange, through his agent in Sylhet region. Then, he sends a coded message, to his agent containing the designated recipients name and time date and address for the payment. As well as chance of gold import in this region from foreign lived people and their local relatives.In Chittagong region there are a solidification of cases of drug smugglings and arm smugglings occurring in front of the eye of different law enforcing agencies. In Khulna region there are many incidents of forest materials &038 other goods of laundering. In Comilla region a lot of suger, sharies, and fensdils are smuggled every year in our country. In the Rajshahi region the occurrence of cattle smuggling are very common, and it has a cyberspace to supply cattle all over the country especially in the mollify of Eid . How money is laundered Smurfing involves the use of multiple cash deposits, each smaller than the minimum cash-reporting requirement. Misinvoicing of exports and falsifying of import letters of credit and customs declarations can conceal cross-border transfers of, say, the proceeds of drug trafficking. Barter stolen property (e. g. , antiques or automobiles) can be exchanged, across subject field borders or domestically, for illegal substances. Parallel credit transactions can be used to avoid the formal economy, except for the final use made of the net proceeds of illegal activity to purchase legally marketed goods or services. Interbank wire transfers may not be subject to reporting on money laundering bribery of bank officials can thus make it easier to conceal large illegal transfers between accounts. Derivatives that replicate insider trading opportunities (e. g. , a synthetic version of a company stock subject to optical fusion or takeover) can be used to avoid detection of an un usual change in a listed stock price. 2. 11 International Anti-Money Laundering Initiatives Money laundering has become a global problem as a result of the confluence of several remarkable changes in world markets (i. . , the globalization of markets). The growth in world-wide trade, the expansion of the global financial system, the forbidding of barriers to international travel, and the surge in the internationalisation of organized crime have combine to provide the source, opportunity, and means for converting illegal proceeds into what appears to be legitimate funds. In 1986, the U. S. became the first country in the world to criminalize the laundering of the proceeds of criminal activity with the enactment of the Money Laundering Control Act of 1986.Since enacting the law, the U. S. Congress has increased its coverage, celestial orbit and scope, making it the broadest, strongest and most far- gaining money laundering law in the world. The U. S. law is a weapon of enormous breadth and power wielded by U. S. prosecutors in that country. Those convicted under the law face a maximum prison term of 20 years and a fine of $500,000 per violation. A legal entity such as a bank or business that is convicted under the law faces fines and forfeitures.In addition, a bank that is convicted of money laundering can lose its charter and federal deposit insurance. Persons and entities also face civil money penalties. Concerted efforts by governments to fight money laundering have been going on for the past fifteen years. The main international agreements addressing money laundering are the 1988 get together Nations capital of Austria Convention against Illicit art in Narcotic Drugs and Psychotropic Substances (the capital of Austria Convention) and the 1990 Council of Europe Convention on Laundering, Search, rapture and Confiscation of the Proceeds of Crime.And the role of financial institutions in preventing and detecting money laundering has been the subject of pronouncements by the Basle commissioning on Banking direction, the European Union, and the International Organization of Securities Commissions. The Vienna Convention, adopted in celestial latitude 1988, move the groundwork for efforts tocombat money laundering by creating an obligation for signatory states (including Bangladesh) to criminalize the laundering of money from drug trafficking.It promotes international cooperation in investigations and makes extradition between signatory states applicable to money laundering. It also establishes the principle that domestic bank secrecy provisions should not interfere with international criminal investigations. During the past cardinal years there have been a number of resolutions passed by the ICPOInterpol General Assembly, which have called on extremity countries to concentrate their investigatory resources in identifying, tracing and seizing the assets of criminal enterprises.These resolutions have also called on piece countri es to increase the exchange of information in this field and encourage governments to adopt laws and regulations that would allow access, by police, to financial records of criminal organizations and the confiscation of proceeds gained by criminal activity. In December 1988, the G-10s Basle delegacy on Banking Supervision issued a statement of principles with which the international banks of penis states are expected to comply.These principles cover identifying customers, avoiding suspicious transactions, and cooperating with law enforcement agencies. In issuing these principles, the citizens committee noted the risk to public confidence in banks, and thus to their stability, that can get hold if they inadvertently become associated with money laundering. over the past few years, the Basle mission has go more aggressively to promote sound supervisory standards worldwide.In close collaboration with many non-G-10 supervisory authorities, the Committee in 1997 developed a set of Core Principles for utile Banking Supervision. Many important guidelines issued by Basle Committee for worldwide effectuation for all banks among which, Prevention of the Criminal Use of the Banking System for the Purpose of Money Laundering, December 1988 Customer Due Diligence for Banks, October 2001 run short Practices for the Management and Supervision of Operational fortune , February 2003 Shell banks and booking offices , January 2003 relate to money laundering controls.In 1989, the G-7 countries recognized that money laundering had become a global problem, not least due to the increase in drug trafficking. The G-7 Summit in capital of France in 1989 took a great step forward in combating international money laundering with the creation of the Financial bodily function Task Force (FATF) to develop a coordinated international response to mounting concern over money laundering. One of the first tasks of the FATF was to develop steps national governments should take to to ol effective anti-money laundering programs.The experts within FATF came up with a list of 40 Recommendations, built on the firm foundations of the 1988 UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and the Statement of Principles of the Basle Committee on Banking Regulations. The FATF 40 Recommendations set out the basic framework on what countries need to do &8212 in terms of laws, regulations and enforcement &8212 to combat money laundering effectively and were knowing with universal application in mind.Over time, they have been revised to reflect new developments in money laundering and experience. The 40 Recommendations have now become the global intention in anti- money laundering scoop up practice and set the international standards for money laundering controls. Setting those standards meant that all move governments committed to moving in the same direction at the same pace, a requirement for success. Through FATFs peer-review proces s, the participants have pushed each other into implementing the standards.Even the IMF regards the anti-money laundering actions advocated by the FATF as crucial for the smooth functioning of financial markets. In joining FATF, every process nation makes a political commitment to adopt the recommendations and allows itself to be evaluated by the other member nations on whether it has fulfilled that commitment. instantly FATF has grown to an organization of thirty-one member countries and has representatives from the Gulf Cooperation Council and the European Commission.Participants include representatives from members financial regulatory authorities, law enforcement agencies, and ministries of finance, justice, and external affairs. Representatives of international and regional organizations concerned with combating money laundering also attend FATF showdowns as observers. This top-down, cooperative approach has been greatly successful in encouraging FATF member nations to impro ve their money laundering regimes. With expanded membership, FATF has now achieved agreement on money laundering standards and implementation among 31 governments.More than that, FATF has encouraged development of regional groups to adhere to the same standards. By the last count, about 130 jurisdictions &8212 representing about 85 percent of world population and about 90 to 95 percent of global economic output &8212 have made political commitments to implementing The Forty Recommendations. Another, more moot initiative that FATF has developed to enhance international cooperation is publication of a list of non-cooperative countries and territories (NCCT) &8212 jurisdictions that lack a commitment to fight money laundering.Following the June 2000 publication of the first such list, a number of the 15 NCCT jurisdictions have acted quickly to implement FATF standards. . Other UN initiatives, such as the 2000 UN Convention against Transnational Organized Crime, have back uped in com plementing the work undertaken by the FATF. However, it was the FATFs exercise on Non-Cooperating Countries and Territories which brought about a sea change in thinking at the highest political levels.The exercise, which identifies and evaluates the legal, judicial and regulatory framework of countries whose regulatory systems do not appear to meet international standards, has been a success, despite its unpopularity in many quarters. 1. 8. 16. After 11 September 2001, the calamity in New York highlighted to all civilise nations the need to look at the finances of terrorists and the methods used to transfer funds around the11 world. The FATF expanded its mission beyond money laundering and agreed to focus its expertise on the worldwide effort to combat terrorist financing.The FATF, at its Washington meeting in October 2001, came up with 8 Special Recommendations to play this threat. Terrorists use similar systems to money launderers and the 8 Special Recommendations complement th e 40 lively Recommendations. The United Kingdom was one of the first countries in the world to have sign and ratified the UN International Convention on the Suppression of the Financing of Terrorists through the act of terrorism Act 2000. In fact the UK was erratic in meeting the requirements of all 8 FATF Special Recommendations immediately.Several regional or international bodies such as the APG (Asia/Pacific radical on Money Laundering), CFATF (Caribbean Financial natural action Task Force), the ESAAMLG (Eastern and Southern Africa Anti-Money Laundering theme), GAFISUD (Financial Action Task Force for South America), the MONEYVAL Committee of the Council of Europe (the Select Committee of experts on the evaluation of anti-money laundering measures) and the OGBS (Offshore Group of Banking Supervisors), either exclusively or as part of their work, perform similar tasks for their members as the FATF does for its own membership.Bangladesh is a member of APG. This co-operation f orms a critical part of the FATFs strategy to ensure that all countries in the world implement effective counter-measures against money laundering. Thus the APG, the CFATF, GAFISUD, the MONEYVAL Committee and OGBS carry out mutual evaluations for their members, which measure out the progress they have made in implementing the necessary anti-money laundering measures. In the same vein, APG, CFATF and the MONEYVAL also review regional money laundering trends.During the past decade, a number of countries have created specialized government agencies as part of their systems for dealing with the problem of money laundering. These entities are commonly referred to as Financial Intelligence Units or FIUs. These units increasingly serve as the focal point for national anti- money laundering programs because they provide the scuttle of rapidly exchanging information (between financial institutions and law enforcement / prosecutorial authorities, as well as between jurisdictions), while pro tecting the interests of the innocent individuals contained in their data.Since 1995, another fabrication for international cooperation has developed among a number of national financial learning units (FIUs), who began working together in an informal organization known as the Egmont Group (named for the location of the first meeting in the Egmont-Arenberg Palace in Brussels). The last of the group is to provide a forum for FIUs to improve support to their respective national anti-money laundering programs.This support includes expanding and systematizing the exchange of financial intelligence, improving expertise and capabilities of the personnel of such organizations, and fostering better communication among FIUs through the application of new technologies. The Egmont Secretariat, currently hosted by the UK, is the ideal vehicle for FIUs from various countries to ripple to one another once they reach the required standard. Financial Crimes Enforcement Network (FinCEN), the U. S. inancial intelligence unit led by the segment of the Treasury, provides training and technical assistance to a broad spectrum of foreign government officials, financial regulators, law enforcement personnel, 12 and bankers. This training covers a variety of topics, including money laundering typologies, the creation and operation of FIUs, the establishment of comprehensive anti-money laundering regimes, computer systems architecture and operations, and country- item antimoney- laundering regimes and regulations.FinCEN also works closely with the informal Egmont Group of more than 50 FIUs to assist various jurisdictions in establishing and operating their own FIUs. Additionally, FinCEN has provided FIU and money laundering briefings and training in many jurisdictions, including Argentina, Armenia, Australia, the Bahamas, Brazil, Canada, China, Costa Rica, Dominican Republic, El Salvador, Germany, Greece, Hong Kong, India, Indonesia, islet of Man, Jamaica, Jersey, Kazakhstan, Leb anon, Italy, Liechtenstein, Nauru, Nigeria, Netherlands, Palau, Paraguay, Russia, Seychelles, South Africa, Switzerland, St.Vincent and the Grenadines, Taiwan, Tanzania, Thailand, Tonga, and the United Kingdom. FinCEN has also conducted personnel exchanges with the Korean and Belgian FIUs. The U. S. discussion section of States Bureau for International Narcotics and Law Enforcement Affairs (INL) develops assistance programs to combat global money laundering. INL participates in and supports international anti-money- laundering bodies and provides policy recommendations regarding international money laundering activities.The U. S. State Department has developed a programmatic approach to assist jurisdictions in developing anti-money-laundering regimes to protect their economies and governments from abuse by financial criminals and stem the growth of international money laundering. This approach integrates training, technical assistance, and money laundering assessments on specific m oney laundering problems or deficiencies to achieve concrete, operational, institution-bui