INTERNSHIP REPORTON

“BANKING SYSTEM PRACTICE BY AL-ARAFAH ISLAMI BANK

LIMITED AND AN INTRODUCATION TO MONEY LAUNDERING’

STUDY ON AL-ARAFAH ISLAMI BANK LIMITED O.R.NIZAM ROAD BRANCH CHITTAGONG

Prepared by:Md. Kamrul Hasan

Matric No- R062010Program- RMBA

(This report has been prepared for the partial fulfillment of the degree of Masters of Business Administration)

Supervised by:Md. Jonead Kabir

Lecturer, Department of Business Administration

Submission Date: 23rd August, 2008

Signature Supervisor

Department of Business Administration Faculty of Administration Science International Islamic University Chittagong

23rd August, 2008

The Dean Faculty of Administration ScienceInternational Islamic University Chittagong

Subject: Submission of Internship Report

Dear Sir

It is my pleasure to submit my Internship Report on “Banking System” Practice by Al-Arafah Islami Bank and an introduction to “Money Laundering” as a part of MBA (Finance & Banking).

I tried my best to gather relevant information for constructing a complete repot as outlined. The preparation of this report enables me to great extent to complete my theoretical knowledge with practical analysis. I would like to express my profound gratitude for your kind and mind for reading my report.

Thank you, very much for your heartiest co-operation.

Sincerely Yours

Md. Kamrul Hasan Matric No-R06210 Program- RMBA

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Acknowledgement:

It is high time for me to express my deepest gratitude and humble submission

to the Almighty Allah (SWT) for giving me chance to study in IIUC and to my

internship in, but for whose support I would not be able to complete a huge

task of preparing this internship report within scheduled time.

Internship report is on essential part of MBA program as one can gather

knowledge within the period of there months by observing and doing the daily

works of chosen organization. In this regard my internship has been arranged

at Al-Arafah Islami Bank Ltd O.R.Nizam Road Branch Chittagong

I am grateful to my supervisor Mr. Md. Jonaed Kabir Lecture of DBA, IIUC

FOR this cordial supervision and support to prepare this report.

I am also grateful to Mr. Mohammed Hossain SPO of Al-Arafah Islami Bank Ltd O.R.Nizam Road Branch, who gives the chance to do my interne on his branch.

I express my deepest gratitude and respect to the officials of Al-Arafah Islami

Bank Ltd O.R.Nizam Road Branch who helped me a lot during my internship

period.

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Content

Chapter-1 6 Objectives of the study 7 Methodology of the study 8 Scope of the study 9 Limitation 10 Executive Summary 11

Chapter-2 12 Overview of Al-Arafah Islami Bank Ltd 13 Company Profile 14 Vision & Mission of AIBL 14 Objectives of AIBL 15 Functional area of AIBL 16 Historical Background of AIBL 17 SOWT analysis of AIBL 18 Banking service of AIBL 19

Chapter-3 20 General Banking introduction 21 Customer service 22 Account section 23 Function 24 Statement prepared by account section 24 Types of Account 24 Al-Wadia current A/c 25 Mudaraba Short Notice deposit A/c 25 Mudaraba trem deposit A/c 25 Clearing Section 27 Local Remittance Section 28 Demand Draft 29 Pay order 31 Telegraphic Transfer 32 Other service Section 34

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Chapter-4

Performance evaluation of the AIBL 36

AIBL at a glance 37

Profit & Loss of AIBL 38

International Trade of AIBL 39

Investment Growth of AIBL 40

Dividend Payment percent of AIBL 42

Deposit Mix of AIBL 43

Chapter-5 45

Definition of Money Laundering (ML) 46

Reason of ML 48

Impact of ML 49

Affect of ML in Business/ economic development 51

Stage of ML 52

Symptom of ML 53

Penalties of ML 56

Chapter-6 58

Finding 59

Recommendation 60

Suggestion for Money Laundering 61

Conclusion 62

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Chapter 1

Executive summary

Objective of the study

Methodology of the study

Scope of the study

Limitation of the study

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Objective of the study

The main objectives of the study are given below:

1. To know about the banking system of Al-Arafah Islami Bank Ltd.

2. To develop working skills.

3. To know bout the different scheme, policy, procedures of AIBL.

4. To know bout credit facilities, limitation of AIBL.

5. Identify the limitations of the Bank.

6. Identify the different problems of the different division s.

7. To observe the overall environmental situation of the bank.

8. To know about money laundering.

9. Effect of money laundering.

10.Identification or symptom of ML.

11.To recommend how to solve the problem.

12.Prevention way of money laundering.

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Methodology of the study:

The methodology of the can be discussed under the major heads:

1. Organization & development of the report: The report is organized &

development under a mixture of both descriptive an analytical frame

work.

2. Data sources :the data sources used to prepare this report delineated

as follows:

A. Primary sources:

Practical deskwork.

Face to face conversation with the officers and executives.

Face to face conversation with the client.

B. Secondary sources:

Annual report of Al-Arafah Islami Bank Ltd.

Bank statements.

Brochures of bank.

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Annual circular on money laundering.

Guide line for foreign exchange transaction by BB.

Scope of the study:

n modern life there have no alternative way to develop the national economy with out bank . Bank is not only a financial institution but also life blood of the national growth. a banking institution is essential in a

modern society . It plays a key role in the economic development of a country and forms the core of the money market in an advanced country .in recent age the banking sector over the world has been undergoing a lot of change due to deregulation, technological innovation, globalization etc. Bangladesh banking sector is lagging for behind in adopting these changes. To succeed well in these changing environments, not only development of appropriate infrastructure is necessary but also infusion of professionalism in to banking service is essential.

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Commercial banks play a significant role to meet up the needs of the society such as capital formulation, large – scale production industrialization, growth of trade etc. Carry the foreign remittances of wage earners and other fund for the country. AIBL is and unconditional land specialized financial institution that performs most of the standard banking services and investment activities on the basis of profit and loss sharing system confirming to the principle of Islamic shariah .A IBL bank does not pay interest to depositors. Instead depositors participate in the profitability of the bank.

In this century bank is and essential part of every business commercial welfare activities .but this is also using by criminals for illegal monetary activities. in this case “ money laundering” is commonly used a term .Financial institutions ,government need to aware about the term “ money laundering” for protect illegality and ensure social and economic welfare.

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Limitations of the study:

Objective of the practical orientation program is to have practical exposure for

the student .My tenure was for one month only , which was some how not

sufficient after working hole day in the office it was very much difficult , if not

impossible to study again theoretical aspect of banking . There is also having

some limitations:

1. Required information and data are not well furnished by the central

accounts departments of BB.

2. Lack of depth of knowledge and analytical ability for writing such

report.

3. The bank confidentially keeps the data.

4. The data and information related with the topic was not easily available.

5. Supply of more practical and contemporary data is another out coming.

6. The study was not done very successfully due to inexperience.

7. Time constraints.

8. This suffers from a narrow data range for analysis.

9. The data seems insufficient may be suffering from take of reliability to

some extent.

10.Communication gap between the related officials and me.

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Executive summary:

Al –Arafah Islamic bank Ltd is one of the promising banks practicing Islamic

banking system in Bangladesh. It has started its activities from 28th

August 1995. It is operating al most al kind of common banking activities.

Its operating system is free from the interest. It is operating activities by the

shariah guideline.

Now this report I have discussed about the existing banking system practice by

the Al –Arafah Islamic bank ltd. here I have discussed about different

department like deposit foreign exchange , remittance, advances etc of AIBBL

O.R.Nizam road branch .

In this report I have also discussed about the money laundering .here I have

focused on the reasons of ML, Social and economical impact of ML, Symptom

or which raise the suspicion of ML.

From the case study of AIBL I have identified some problem of the bank and

according to that I have provided some suggestion .here I have also discussed

role and preventing activities can take by various financial institution.

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Chapter 2

Overview of AIBL

Profile

Vision and Mission of the AIBL

Objective of AIBL

Functional area of AIBL

Historical background of AIBL

SOWT analysis of AIBL O.R.Nizam

Branch

Banking Services of AIBL

O.R.Nizam Branch

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Vision and Mission of the AIBL:

Vision:

To be pioneer in Islami Banking in Bangladesh and contribute significantly to the growth of the national economy.

Mission:

Achieving the satisfaction of Almighty Allah both here & hereafter

Proliferation of Shariah Based Banking Practices.

Quality financial services adopting the latest technology.

Fast and efficient customer service.

Maintaining high standard of business ethics.

Balanced growth.

Steady & competitive return on shareholders equity.

Innovative banking at a competitive price.

Attract and retain quality human resources.

Extending competitive compensation packages to the employees.

Firm commitment to the growth of national economy.

Involving more in Micro and SME financing.

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Overview of Al-Arafah Islami Bank Limited:

The prime objective of Al-Arafah Islami Bank is to serve the people for

attainment of their economic goal and success in life here and hereafter. Al-

Arafah Islami Bank stands not only for material well being but also for ethical

development of its customers.

Company Profile: Company Name: Al-Arafah Islami Bank Limited

Legal Form: A public limited company incorporated in Bangladesh on 18

June under the company act 1994.

Incorporated on: June 18, 1995

Started operation on: September 27, 19995

Paid up capital: Tk.115.23 Crore

No. of Director: 23

Managing Director: M.A. Samad Sheikh

Registered Office :

Al-Arafah Islami Bank Limited 36, Dilkusha commercial Area Dhaka- 1000, Bangladesh Web.http//www. Al-Arafah bank .com Type of Banking: Islamic Bankers / Based on Islamic shariah

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Objectives of AIBL

Form time immemorial Banks principally did the function of moneylenders or “ Mohajans” but the function and scope of modern banking are now-a-days very wide and different. They accept deposits and lend money like their ancestors, nevertheless, their role as catalytic agent of economic development encompassing wide range of services is very important. Business commerce and industries in modern times cannot go without banks. There are people interested to abide by the injunctions of religion in all sphere of life including economic activities. Human being is value oriented

And social science is not value neutral. Al arafah islami bank believes in moral and material development simultaneously. Interest or Usury has not been appreciated and accepted by the tawrat of Prophet Moses, the Bible of Prophet Jesus and the Quran of Hazarat Muhammad (SM). Effort are there to do banking without interest Al Arafa islami bank limited avoids interest in all its transactions and provides all available modern banking services to its client and want to contribute in both moral and material development of human being. No sustainable material well being is possible without spiritual development of mankind. Only material well being should not be the objective of development. Socio economic justice and brotherhood can be implemented better in a God-fearing society.

Other objective of Al Arafah Islami Bank include:

To establish interest-free and welfare oriented banking system. To help in poverty alleviation and employment generation. To contribute in sustainable economic growth. To establish the relationship between bank and customer as

partnership Basis.

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Functional Area of AIBL:

Export and Import Function

Retail Banking

Industrial financing trade financing

Syndicated Loan

Project financing

Hire purchase

Lease financing

Online service

Automated Accounting

Integrated System

Signature Verification

Any Branch Banking

ATM Services (to be implemented )

POS Services ( to be implemented )

Other Delivery Channel Services (to be implemented)

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Historical Background of the AIBL:

The Bank started its operation on June 18,1995 as a commercial Bank in the name and

Style of Al Arafa Islami Bank Limited. The prime objective of Al Arafa Islami Bank is to

serve the people for attainment of their economic goal and success in life here and

Hereafter. AIBL faced a several setbacks in respect of business. With active initiative taken

by the member of the board and the management team, the company could overcome the

problem and get it converted into a full-fledged commercial.

Problem on 2001 after obtaining license from Bangladesh Bank as Al Arafa Islami Bank

Ltd. The Authorized capital of the Bank was fixed at TK .100 Million and paid up capital at

TK .100.12 Million of which 20.50 Million was subscribed by the sponsors at that time. At

present the Bank is operating through 46 Branches of the country.

.

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SOWT Analysis of the Al-Arafah Islami Bank :

Strength

Cooperation with each other .

Fewer default loan .

Membership with SWIFT.

Good banker-customer relationship.

Energetic work force.

Weakness

Reluctance to add campaign.

Some inexpert and laggard assistant officers .Existing manual vouchers.

Shortage of Branch.

Lack of consumer credit scheme.

Entrance of new private Banks.

Not enough Efficient administration.Weak in marketing.

Opportunity

Huge business area.

Introducing ATM card.

Growth sales volume.

Introducing any branch banking through online.

Threats

Different services of FCB’S (ex: Phone Banking )

Different classic services of Foreign Banks.

Entrance of new PC Banks.

Political unrest.

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Banking Services of Al- Arafah Islamic Bank Limited O.R.Nizamg Rood, Chittagong:

General Banking

Cash

Account

Remittance

Clearing House

Customer Services

Investment Department

Musharaka (equity participation on the basis of sharing profit and loss)

Mudaraba (sharing of profit and loss in business where one of the partner provides expertise and management and other partner provides capital remaining inactive)

Murabaha (buying and selling of commodities goods etc. with profit)Bai-Muajjal (credit sale with profit)

Ijara(leasing for rent )

Hire purchase or Shirkatul Melk)

Bi-Salam (purchasing of agricultural products while in production and providing advance money to the producers)

Istisna (purchasing of industrial products while in production and providing advance money to the producers)

Quard

Foreign Exchange

Import

Export

Remittance

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Chapter 3

General Banking

Introduction

Customer service

Account Section

Clearing Section

Local Remittance Section

Other Service Section

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Introduction:

eneral Banking is designed to provide financial service to the general

people. General Banking sector includes customer services department.

Customer service department provides various client services to their clients.

Account opening and closing, travel related services, reply client quarries

about different department and control & documentation of client file.

Requirement is the major function of this department. Customer service

department is the most important department in the Al Arafah Islami Bank

Ltd, because at first, customers are wants to know various information from

the customer service department. Since bank is financial organization, so as a

part of service organization this department should satisfy to their client with

the best service. Banking goodwill will be effected if customer service

department cannot satisfy to their client properly. For this reason customer

service department should take care of every client. More over customer

service department is playing a vital role in banking services.

G

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Customer service:

Al Arafah Islami Bank Limited O.R. Nizam Road Branch gives all shorts of service to their customer by five departments. These departments are very essential part of banking activities to render various services to their clients. These departments helps bank to perform its banking activities in systematically, actively and efficiently. The operations of the banks are clearly distributed among the department in order to avoid the haphazard situation in maintaining banking system. Since bank is a service oriented financial organization, ever department of bank plays an important role in rendering banking service to the client. AIBL, GEC Branch has several department and sections for rendering different customer services.

These departments are:

Deposit Department Accounts Department Cash Department Remittance Department Advance Department Foreign exchange Department

A. Deposit Department:

Deposit Department is an important department of bank. Account opening activities are accomplished under this department. Banker and customer relationship creates by opening an account in bank. Any person who intends to get banking services has to open an account in the bank.

B. Account Department:

Accounts department supplies all numerical data and information of the bank credit section current deposit staff payments total assets and liabilities various income and expenditure are shown in the statement in the statement prepared by the accounts department.

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C. Cash Department:

Cash amount is the main source of all banking activities. For that every day

bank has to remain certain amount in cash in accordance with the rules and

regulation of Bangladesh Bank.

D. Advance Department:

Bank offers loans to businessman, industrialist and other in consideration

of its interest. Bank gives by profit or loss sharing ratio in accordance

with the terms and condition. AIBL is an Islamic shariah base bank. So it

follows the rules of shariah.

E. Foreign Exchange Department:

International trade and foreign exchange constituted the major business

activity conducted by the bank. Foreign exchange department offers full

range of trade finance service, namely issue, advising and confirmation of

documentary credit, arranging forward exchange cover, pre shipment

finance negotiation and purchase of export bills discounting of bills

exchange and collection of bill etc.

F. Remittance Department:

There are many ways though which one can remit money from one place

to another the ways are pay order PO Demand Draft DD Telegraphic

Transfer TT and Security Deposit Receipt SDR Among the ways PO and

SDR issued in case of remittance with in the city where DD TT are issued

incase of remittance outside the city but with in the country

Account Section:

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Accounts department is the most important department in the AL-Arafah

Islami Bank Ltd as it supplies all numerical data and information of the bank.

Credit section current deposit. Staff Payments, Total assets and Liabilities

various income and expenditure are shown in the statement in the statement

prepared by the accounts department.

Functions:

1. To prepared and maintain daily input journal proof sheet and validation report

2. To prepare flash report daily liquidity position3. Other miscellaneous work of the department 4. Daily statement of affairs 5. Test agreed is another arrangement maintained for control purpose. Test

control agreed is most important for bank internal control 6. To prepare in chime and expenses statement7. To maintain trial balance and financial accounts system 8. To maintain and prepare maturity balance sheet 9. Daily posting of voucher issued by all departments 10.To prepare clearing difference

Statements Prepared by Accounts Section:

1. Sector wise balance position 2. Maturity balance sheet 3. Foreign currency statement 4. Branch trail balance 5. Liquidity position6. Income expenses statement

Types of accounts:

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Al Arafah Islamic Bank Limited collects deposits from people by

various accounts. Ti collects deposit the accounts are divided four

categories. These are

Al-Wadia current A/C

Mudaraba Short Notice Deposit A/C

Mudaraba Term Deposit

Al-Wadia current A/C:

Al Arafah Islami Bank Ltd operates the Al Wadia current A/C according to the

principles of Al Wadia, which are based on Islamic Shariah. It is promised to

hard over the deposited money to clients of the bank when they desire to

withdraw on the others hand bank take the permission from the clients to

invest the deposited money The depositors do not get profit from the

account and not need to bear any loss which from this account.

Mudaraba Short Notice Deposit A/C:

It is one kind of current A/C. Before withdrawing the deposit depositor must

inform the bank but the account holders have to have fixed amount of deposit

for withdrawing the depositor will get profit in daily basis.

Mudaraba Term Deposit:

It is a kind of fixed deposit. On the basis of tine duration its profit rate varies

on various deposits. If one wants to withdrawn its deposit amount before

maturity then he will get profit which is given Mudaraba Savings deposit.

According to this deposit there is various deposit scheme are available such as:

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Millionaire Scheme:

Savings helps capital formation. Millionaire scheme has been introduced with

a view to encourage saving habit amount the people. Under this scheme

depositing monthly installment of only TK. 1150.00 for 20 years/ TK. 2170 for

15 years/ TK. 4600 for 10years/TK. 9950for 6 years one can cash on maturity

a sum of TK 100000000.

Double the Money Scheme:

Banks van play leading role in mobilizing internal savings. Savings helps

capital formation which leads nation to economic progress and prosperity this

scheme has been introduced to provide an opportunity to people for safe

deposits. Under this scheme within 8 years your money will be doubled.

Monthly Deposit Scheme:

Under this scheme through monthly installment the depositor can cash

profitable and attractive amount of the end of affixed period. The scheme will

help fixed income people to implement their future income plan this scheme

requires a depositor to deposit 60 monthly installment of TK 500 and earn a

total sum of TK 38000 approx at the end of 5 years and 120 month installment

of TK 500 each to earn a total sum, of TK 71250 at the end of 8 years and 120

month installment of TK 500 each a total amount of 100000 at the end of 10

years.

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Hajj Scheme

There are many religious minded people who fail to perform Holy Hajj due to

indecision.

Under the above scheme they will e able to perform Holy Hajj by depositing

slab wise amount per month.

Clearing Section:

In the clearing department the work is to clear the Cheque and pay order

through Bangladesh Bank or Central Bank that are submitted for cash

collection Everyday clearing house takes a place in Bangladesh Bank once in

the morning called morning house (1st house) another in the evening called

return house (2nd house). In the house all the banks representative sit together

and change their money receive instrument of the particular banks to clear the

paper and transfer the money to their particular accounts.

Types of clearing:

There are two types of clearing:

Inward clearing:

The Cheque or instruments of Al Arafah Islami Bank Ltd that are submitted to

other banks for collections of money of bills are called inward clearing.

Outward Clearing:

The Cheque or instruments of other banks that are submitted to the Al Arafah

Islami Bank Ltd for collection is called outward clearing.

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Clearing House:

A place that provides an arrangement by which various representative of each

clearing bank assemble there each business day to day exchange local Cheque.

Draft bill of exchange etc that are received by them for collection from their

customers its objects are to settle balance between the banks of a city, town or

a region with a minimum of inconvenience and labor. Before the

establishment of clearing house the bank had to send their bill buy clerks to

other banks for getting cash against those Cheques obviously this was a

laborious and time consuming process and waste full procedure.

Besides it was risky to carry cash from one bank to another and it also invalid

lot of daily under the auspices of the modern clearing house transaction

involving of taka are settle easily with in a matter of an hour or so. Under the

clearing system reciprocal claims of one bank against others are offset and

only the net balance or difference between receipts and payments are settled by

drawing on the account of the debtor bank maintained with central bank in

Bangladesh Bank organized the clearinghouse.

Local Remittance Section:The major function of commercial Banks is mobilization of fund other then

these banks provide ancillary services to its clients. Clients need to remit

money from one place to another for their business or purposes. Banks fulfill

this need of customers by means of remittance service. Money can be remitted

domestically or internationally which knew as local remittance and foreign

remittance.

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There are three ways of transferring fund domestically. The modes of

transferring funds are:

Demand Draft DD

Pay Order PO

Telegraphic Transfer

Demand Draft DD:

This is an instrument through which customers’ money is remitted to another

person firm organization in outstation in outstation outside the clearing house

area from a branch of one bank to an outstation branch of the some bank or to

a branch of another bank with prior arrangement between those banks with the

issuing branch.

This an order instrument in which the issuing branch gives instruction to the

payee drawee branch to pay certain amount of money to the order of certain

person firm organization.

The DD may be open without crossing or crossed. An open DD can be over

the counter to the payee endorsee by the payee drawee branch against proper

identification of the payee. The crossed DD is paid through the payees account

only.

Procedures of issuing:

1. Obtain Demand drafts application from duly filled in and signed by the

form purchaser applicant

2. Receive the amount is case transfer with prescribed commission and

postage amount

3. Issue the DD duly filled in and signed by the authorized signatories

4. insert test number (here applicable)

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5. Enter the DD issue register

6. Issue advice to the payee branch (IBCA)

Issuing Voucher of DD:

Cash /party’s A/C Dr.

AIBL G/A (concerned branch) Cr

Income A/C Cr

(Other commission on remittance)

DD application forms treat as a credit voucher. DD issued branch has to

prepare AIBL inter branch transaction credit advice ) and then after advice

send to the responding blanch.

On Receipt of Advice:

AIBL G/A Dr (DD issuing

branch)

S/Assets on Bills payable DD Cr

AIBL send by DD issuing branch is treated as debit voucher.

Procedure of Payment:

1. Examine gentility of the DD amount verify signature test series on bye

no etc.

2. Enter in the DD payable register

3. Verify with the IBCA/Test etc.

4. Pass necessary vouchers

Payment vouching of DD

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AIBL G/A A/C Dr

DD payable A/C Cr

DD payable A/C Cr

Part’s A/C Cr

Charges of DD

Commission @ 0.15% Minimum TK. 25

Telex charge AT actual Minimum TK 50

Pay Order:

A Pay order is a written under issued by a branch of bank to pay a certain sum

of money to a specific person or a bank. It may be said as to be a banker’s

Cheque as it is issued by a bank and payable by itself.

Procedures for issuing:

Obtain PO application from duly filed in and signed by the purchaser/

application.

Receive the amount in cash/ transfer with commission amount

Issue P/O

Enter in P. O register

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Issuing Vouchers of P.O:

Cash or party A/C Dr

P. O Cr

Income A/C Cr

If the payment order issued against a Cheque of party A/C then Cheque will be

debited in respective party’s A/C

Procedures for payment:

a. Examine gentility of the pay order.

b. Enter in P O register gives contra entry

c. Debit found of far payment

Charges of P O:

Amount Charge:

1. Up to TK 1,00000 TK 25 2. TK 1000000 to 5000000 TK 60 3. Above TK 500000 TK 100

Telegraphic Transfer :

This is a mode of transfer remittance of customers money from a branch of one

bank to another branch of the same bank or to a branch of another bank with

prior arrangement between that banks with the TT issuing branch through

telegraphic message The issuing used to send the message of such remittance

to the Drawee/ payee branch through telegram adding certain code number or

test number on the basis of test key apparatus developed by the concern bank

for its different branches. The payee / Drawee branch on receipt of the

message decodes the test a message and being fully satisfied pay the amount

by crediting the payees account (if account is maintained with the payee

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branch). Now days the messages are passed through telephone /FAX/E-mail

etc. Recently the communication system has developed to a great extent.

Procedure of issuing:

a. Obtain TT application form duly filled in and signed by the purchaser/

applicant with the false account particulars of the beneficiary.

b. Receive the amount in cash /transfer with prescribed commission

postage telephone / telex etc. charge

c. Prepare TT message inserting test number

d. Enter in TT issue register (code number).

e. Issue advice to the payee branch (IBCA)

Vouchers of Issuing TT :

a. Note the TT message and verify the test number and vouchers of issuing TT:

Partys A/C Dr

AIBL G/A (Concerned branch) Cr

Income A/c(Commission, Telex) Cr

Procedure for Paymen:

Note the TT message and verty the test number and infirm if TT serial

no/confirm is ok/etc.

b. If ok enter into TT Payable register

c.Pass necessary vouchers for payment.

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Vouchers of TT Payable:

AIBL G/A Dr

Party’s A/C Cr

TT Payable A/C Dr

TT Payable A/C Cr.

Charges of TT :

Commission @G. 15 Minimum TK 25Telex charge At actual Minimum TK 50

Other Service Section:

Lockers and dispatch:

A) Lockers : Lockers are a safe custody of a bank for the clients . There are three types of lockers in the bank.

Lockers operation: Lockers always operated jointly One of them is banker and another is customer.

a) Rent: Lockers are allotted on yearly basis, for large size locker the rent is TK.300 and for medium size the rent is TK.1200 and small size rent is TK.1000 only.

b) Requirement:

1. A locker holder must have a bank A/C i.e. MSD A/C.2. A locker holder should him important and reliable

customer.3. Fill up an application form for a lockers as an SS card.4. One copy of PP size photograph that is introduced by a

previous locker holder or A/C holder.

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c) key Deposit: A locker holder paid key deposit, which is refundable now key deposit is amount of TK. 500 in our branch.

B) Dispatch: Dispatch is very important for a bank. Out ward correspondence depends on outward on outward dispatch. There are two types of dispatch

Inward Dispatch:

All the letters received by the dispatch department and delivered manager of section wise authorized officer to opened and marked to the concerned department in charge.

Outward Dispatch:

Outward dispatch is very important for a bank. Before the letters delivered they are duly stamped and entries in the outward dispatch register.

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Chapter 4

Performance Evaluation of the AIBL:

Performance at a glance

Profit & Loss of AIBL

Investment Growth of AIBL

International Trade of AIBL

Dividend Payment Percent of AIBL

Deposit Mix 2007 of AIBL

Deposit Growth of AIBL

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AIBL AT A GLANCE

Particulars 2004 2005 2006 2007Authorized Capital 1000.00 1000.00 2500.00 2500.00Paid up Capital 586.96 677.94 854.94 1153.18Reserve Fund 488.96 542.22 835.98 1091.95Share holder Equity 957.26 1220.16 1690.18 2037.50Deposit 10108.28 11643.66 16775.33 23009.13Investment 8150.16 11474.41 17423.19 22906.37Import 9337.49 12631.60 18821.40 27042.72Export 3639.34 4932.90 9142.70 12714.91Total Income 1120.85 1452.68 2172.48 2955.61Total Expenditure 771.96 904.48 1202.71 2199.43Profit before Tax & Provision

348.89 548.20 969.77 756.18

Profit after Tax & Provision

154.76 262.90 470.02 347.31

Tax 157.00 215.10 385.45 235.53Total Assets 12874.61 15336.89 21368.16 30182.32Fixed Assets 195.17 209.00 215.10 334.48EPS 26.36 38.78 55.02 30.12Dividend 15.50% 26% 35% 20%

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Comment: The Total Profit of the bank was TK.347.31 million at 31st December 2007 as

against TK.470.02 million at 31st December recording decline of 33.40% of which

TK.122.71 million. The present is to increase the profit through having low cost of ensure a

better spread with an average return on investment.

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Comment: International Trade is one of Major Activities conducted by the

bank. At the end of 2007, the total amount of foreign trade (export, import, and

Remittance) was 41601.58 million taka showing a growth of 41.93%. The total

export revenue of the bank was 9142.70 million taka in 2006, which has

increased by 39.07% to 12714.91 million taka in 2000.

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Comment: The investment of the bank stood at TK. 22906.37 million as on

31st December 2007 as against .TK. 17423.19 million in the previous year

showing an increase by 31.47%. The investment portfolio of the bank is well

diversified and covers a board spectrum of business and industries

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Comment: AL-Arafah Islami Bank was established as a public limited

company on 18 June 1995. The inaugural ceremony took place on 27

September 1995. The authorized capital of the bank is TK.2500.00 million and

paid up capital is TK.1153.18 million ason31.12.2007.Renowned Islamic

Scholars and pious businessman of the country are the sponsors of the bank.

100% of paid up capital is being owned by local shareholders.

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Comment: The bank has been paying dividend every year since 1998 just

after conversion of a public Limited company. The Board of Directors of the is

pleased to recommend 20% stock dividend in the year 2007.

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Comment: The total deposit of the bank was TK. 23009.13 million at 31st December

2007 as against TK. 16775.33 million at 31st December 2006 recording growth of

37.16% of which TK. 685.50 million was bank deposit and general deposit was

22,323.63 million taka. The present strategy is to increase the deposit base through

maintaining competitive profit rates and having low cost of funds to ensure a better

spread with an average return on investment.

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Comment: The total deposit of the bank was TK. 23009.13 million at 31st December

2007 as against TK. 16775.33 million at 31st December 2006 recording growth of

37.16% of which TK. 685.50 million was bank deposit and general deposit was

22,323.63 million taka. The present strategy is to increase the deposit base through

maintaining competitive profit rates and having low cost of funds to ensure a better

spread with an average return on investment.

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Chapter -5

Money Laundering

Definition of Money Laundering

Reasons of Money Laundering

Affect of Money Laundering in Business /

economic development

Stages of Money Laundering

Symptom of Money Laundering

Penalties for Money Laundering

Definition of Money Laundering:

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A definition of what institutes the offence of money laundering under Bangladesh law is set out in Section-2 (Tha) of the prevention of Money Laundering Act 2002 (Act No. 7 of 2002) Which is reads as follows: “Money Laundering means:

(Au) Properties acquired or earned directly or indirectly through illegal means;

(Au) Illegal transfer, conversion concealment of location or assistance in the above act of the properties acquired or earned directly or indirectly legal or illegal means;Properties has been defined in section 2(Da) of the Act as ‘Properties means movable or immovable Properties of any nature and description.The U.S customs Service, an arm of the Department of the Treasury, provides a lengthy definition of money laundering as “the process whereby proceeds, reasonably believed to have been derived from criminal activity, are transported, transferred, transformed, converted or intermingled with legitimate funds for the purpose of concealing or disguising the true nature, source disposition, movement or ownership of these proceeds. The goal of the money – laundering process is to make funds derived from, or associated with, illicit activity appear legitimate.”

Another definition of Money laundering under U.S. law is, “…the involvement in any one transaction or series of transactions that assists a criminal in keeping, concealing or disposing of proceeds derived from illegal activities.”

The EU defines it as “ the conversion or transfer of property knowing that such property is derived from serious crime, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in committing such an offence or offences to evade the legal consequences of his action, and the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to or ownership of property, knowing that such property derived from serious crime.

A concise working definition was adopted by Interpol General Secretariat Assembly in 1995, which defines money laundering as: “Any Act or attempted

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act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate source.”

The joint Money Laundering Sterling Group (JMLSG) of the U.K. defines it as “the process whereby criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding prosecutions, conviction and confiscation of criminal funds.

In lay terms Money Laundering is most often described as the “turning of dirty or black money into clean or white money.” If undertaken successfully, money laundering criminals to legitimate “dirty” money by mingling it with “clean” money, ultimately providing a legitimate cover for the source of their income. Generally, the act of conversion concealment is considered crucial to the laundering process.

Reasons of Money Laundering:

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Criminals engage in money laundering form three 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 services of corrupt officials to escape

detections and further the interests of the illegal enterprise, and pays for an

extravagant lifestyle. To spend money in these ways, criminals must make the

money they derived illegally appear legitimate.

Second, a trial of money from an offence to criminals can become in

criminating evidence. Criminals must obscure or hide the source of their

wealth or alternatively disguise the ownership or control to ensure that illicit

proceeds are not used to prosecute them.

Third, the proceeds from crime often become the target of investigations and

seizure. To shied ill-gotten suspicion and protect them from seizure, criminals

must conceal their existence or alternatively make them look legitimate.

Impact of money Laundering:

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Money Laundering has potentially devastating economic, security and social consequences. Money laundering is a process vital to making crime worthwhile. It provides the fuel for drug dealers, smugglers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. This drives up the cost of government due to the need for increased law enforcement and health care expenditures (for example, for treatment of drug addicts) to combat the serious consequences that result. Crime has become increasingly international in scope, and the financial aspects of crime have become more complex due to rapid advances in technology and the globalization of the financial service industry.

Impact of Tax and Revenue:

Money Laundering diminishes government tax revenue and therefore indirectly harms honest taxpayers. It also makes government tax collection more difficult. This loss of revenue generally means higher tax rates than would normally be case if the untaxed proceeds of crime were legitimate. We also pay more taxes for public works expenditures inflated by corruption. And those of us who pay taxes pay more because of those who evade taxes.

Impact of Market price:

Money Laundering distorts asset and commodity prices and leads to misallocation of resources. For financial institutions it can lead to an unstable liability base and to unsound asset structures thereby creating risks of monetary instability and even systemic. The loss of credibility and investor confidence that such crises can bring has the potential of destabilizing financial systems, particularly in smaller economics.

Impact on Private sector:

One of the most serious microeconomic effects of money laundering is felt in the private sector. Money Launderers often use front companies, which co-mingle the proceeds of illicit activity with legitimate funds, to hide the ill-gotten gains. These front companies have access to substantial illicit funds, allowing them to subsidize front company products and services at levels well below market rates. This makes it difficult, if impossible, for legitimate business to complete against front companies with subsidized funding, a situations that can result in the crowding out of private sector business by criminal organizations.

Impact on Global Economy:

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No one knows exactly how much “dirty” money flows through the world’s financial system every year, but the amounts involved are undoubtedly huge. The international Money has estimated that the magnitude of money laundering is between 2 and 5 % of world gross domestic product, or a least USD 800 billion to USD1.5 trillion. In some countries, these illicit proceeds dwarf government budgets, resulting in a loss 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 corner markets- or even small economies.

Impact on national economy:

Among its other negative socioeconomic effects, money laundering transfers economic power from the market, government, and citizens to criminals. Furthermore, the sheer magnitude of the economic power that accrues to criminals from money laundering has a corrupting effect on all elements of society.

Impact on society;

The social and political costs of laundered money are also serious as laundered money may be used to corrupt national institutions. Bribing of officials and governments undermines the moral fabric in society, and by weakening collective ethical standards, corrupts our democratic institutions. When money laundering goes unchecked, it encourages the underlying criminal activity from which such money is generated.

Impact of financial Institutions:

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Nationals cannot afford to have their reputations and financial institutions tarnished by an association with money laundering especially in today’s global economy. Money laundering erodes confidence in financial institutions and the underlying criminal activity-fraud, counterfeiting, narcotics trafficking and corruption—weaken the reputation and standing of any financial institution. Actions by banks to prevent money laundering 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 likely prosecution, the loss of their good market reputation, and damaging the reputation of the country. It is very difficult and requires significant resources to rectify a problem that could be prevented with proper anti money laundering controls.

It is generally recognized that effective efforts to combat money laundering cannot be carried out without the cooperation 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.

Affect Of Money Laundering in business/ economic development: Damages market integrity Deters foreign investment Diminish Gov. Tax revenue. Contaminates the Industry. Uneven playing field for honest business. Risks for financial institutions. Distorts assets and commodity prices and leads to misallocation of

resource. Makes crime a profitable enterprise.

Stages of Money Laundering:

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Three basic stages on money laundering are:

Placement: The physical disposal of the initial proceeds derived from illegal activity.

Layering: Separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity.

Integration: The provision of apparent legitimacy to wealth derived criminally. If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing as normal business funds. Placement stage Layering stage Integration stageCash paid into bank (sometimes with staff complicity or mixed with proceeds of legitimate business.)

Cash exported.

Cash used o buy high value goods, property or business assets.

Cash purchase of single premium life insurance or other investment

Sale or switch to other forms of investment.

Money transferred to assets of legitimate financial institutions.

Telegraphic transfers (often using fictitious names or funds disguised as proceeds of legitimate business.)

Cash deposited in outstation branches and even overseas banking systemResale of goods/ assets.

Redemption of contract or switch to other forms of investment.

False loan repayments or forged invoices used as cover for laundered money.

Complex web of transfers (both domestic and international) makes tracing original source of funds virtually impossible.

Symptom of money laundering:

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The following is a list of circumstances, which might give rise to a suspicion of money laundering. The list is not exhaustive and whether or not they are suspicious depends on the background and details. He example are as under:

Money Laundering using Cash Transactions:

a) Unusually large cash deposits made by an individual or business whose ostensible business activities would normally be generated by Cheque and other instruments.

b) Substantial increases in cash deposits of any individual or business without apparent cause, especially if such deposits are subsequently transferred within a short period out of the account and/or to a destination not normally associated with the customer.

c) Customers who deposit cash by means of numerous credit slips so that the total of each deposit is unremarkable, but the total of all the credits is significant.

d) Company accounts where the transactions, both deposits and withdrawals, are denominated in cash rather than forms of debit and credit normally associated with commercial operations (e.g. Cheque, casher orders, demand drafts etc.)

e) Customers who constantly paying or deposits cash to cover requests for demand draft, money transfer or others negotiable instruments.

f) Customers who seek to exchange large quantities of law denomination notes for those of higher denomination.

g) Frequent exchange of cash into other currencies.h) Customers whose deposits contain counterfeit notes, or forged

instruments.i) Customers transferring large sum of money to or form overseas

locations with instructions for payment in cash.j) Purchase or sale of foreign currencies in substantial amounts using cash

settlement, deposit the customer having an account with the institution.

Money Laundering Using Bank Accounts:

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1. Customers who wish to maintain a number of trustee or customers accounts which do not appear consistent with the type of business, including transactions which involve nominees.

2. Customers who have numerous account and paying amount of cash to each of them where the total of credits is a large amount.

3. Any individual or business whose account shows virtually no normal personal banking or business related activities, but is used to receive or disburse large sums which have no obvious purpose or relationship to the account holder and/or his business (e.g. a substantial increase in turnover on an account.)

4. Reluctance to provide normal information when opening an account, providing minimal fictitious or conflicting information, or information which is difficult or expensive to verify.

5. Customers who appear to have accounts with several financial institutions within the same locality, especially when there is a regular consolidation process of funds from such other accounts prior to a request for onward transmission of the funds.

6. Matching of debits with credit paid in by cash on the same or previous day.

7. Paying in large third party Cheque endorsed in favor of the customer.8. Large cash withdrawals from a previously dormant or inactive account,

or from an account which has just a large credit from abroad.9. Business representatives avoiding contract with the branch.10.Customers who decline to provide information which normally would

make them eligible for credit or other valuable banking services.11.Insufficient use of normal banking facilities (e.g. avoidance of high

interest rate facilities for large balance.)12.Large numbers of individual making payments into the same accounts

without an educate explanation.

Money Laundering Using Investment Related transactions

1. Purchase of government securities, where this does not appear appropriate given the customer’s apparent standing.

2. Requests by Customers for investment management services (either foreign currency or government securities ) where the source of the funds is unclear or inconsistent with the customers apparent standing.

3. Large or unusual settlements of securities in cash form.4. Purchase or selling securities with no discernible purpose or in unusual

circumstances.

Money Laundering by Off-shore Activity

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1. Customers introduced by an overseas branch, affiliate or other bank in known drug producing or drug trafficking countries.

2. Use of letters of credit and other methods of trade finance to move money between countries where such trade is not consistent with the customer’s usual business.

3. Customers who make regular and large payments, including wire transfer transactions, that cannot be clearly identified as bona fide transactions to, or receive regular and large payments from, known drug producing or drug trafficking, countries or countries which are commonly associated with terrorist activity or which are tax havens.

4. Building up of large balances not consistent with the known turnover of the customers business and subsequent transfer to accounts held overseas.

5. Unexplained electronic fund transfers by a customer on an in and out basis or without passing through an account.

6. Frequent requests for travelers, Cheque, Foreign currency, drafts or other negotiable instruments.

7. Frequent paying in of travelers Cheque or foreign currency drafts particularly if originating from overseas.

8. Numerous were transfers received in a account but where each transfer is below the transaction size reporting requirement in the remitting country.

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Money Laundering by Secured and Unsecured Lending

1. Customers who repay problem loans unexpectedly.2. Requests to borrow against assets held by the financial institution or a

third party, where the origin of the assets is not known or the assets are inconsistent with the customer’s standing.

3. Request to provide or arrange finance where the source of the customer’s financial contribution to a deal is unclear, particularly where property is involved.

Penalties for Money laundering:

All offences under the act are non-bail able and the penalties for the commission of the offences all have prison terms and/or fines as prescribed in the act as follows:

The offence of money Laundering is punishable by terms of a minimum imprisonment for six months and a maximum of up to seven years plus a fine amounting to double the money laundered (See Section 13 of the Act). The punishment for violation of seizure Orders is a minimum imprisonment for one year or a fine of at least Taka ten thousand or both (See Section 14 of the Act).

The punishment for violation of Freezing Orders is a minimum imprisonment for one year or a fine of at least Taka five thousand or both (See Section 15 of the Act).

The offence of divulging information by informing i.e. tipping off the person who is the subject of a suspicion, or any third party is pounishable by a minimum imprisonment for one year or a fine of at least Taka ten thousand or both (See Section 14 of the Act).

The offence of obstructing investigation or failure to assist any enquiry officer in connection with an investigation into money laundering is punishable by a minimum imprisonment for one year or a fine of at least Taka ten thousand or both (See Section 17 of the Act).

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If any bank, financial institution and other institutions engaged in financial

activities fail to retain customer identification and transaction records or fail to

furnish required information as per the Act, Bangladesh Bank will report such

failure to the licensing authority can take proper action for such negligence and

failure (See section 19 (3) of the Act).

Bangladesh Bank is empowered to impose fines of not less than Taka ten

thousand and not more than Taka one lac on any bank, financial institution and

other institutions engaged in financial activities for the failure or negligence to

retain customer identification and transaction records or fail to furnish required

information to Bangladesh Bank (See section 19 (4) of the Act).

If any Company Partnership Firm, Society or Association violates any

provisions of the Act it will be deemed that every owner, partner directors,

employees and officers have individually violated such provisions.

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Chapter 6

Finding Recommendation Suggestion for Money Laundering Conclusion

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Finding

During my internship period at Al- Arafah Islami Bank limited I have observed the system following by the bank. By observing the system I have identified some problem of Al- Arafah Islami Bank limited .The finding are as follows:

Less attractive remuneration package and motivation for the employees. Very few initiatives have taken to it known among public through

advertisement. Lengthy procedure in handling simple general banking transaction such

as issuing of T.T, D.D,P.O, There is no online banking system in the Al- Arafah Islami Bank limited There are many illiterate clients in AIBL. Communication or dealing with customer is enough poor Has not enough strong marketing policy. Promotional activities are poor. Employees of AIBL are not getting enough training facility. There is no customer care section. There is no Islamic banking facility Customer are not enough satisfied by its service Information cell are not enough equipped (i.e. Booklet brochure of

services ) Though AIBL using banking software but it is not integrated with all

departments Insufficient presence of modern communication equipment Application of modern technology such as computerization is not

sufficient. There is no investment section Shortage of officers

Recommendation:

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Recommendation for Al-Arafah Islami Bank limited.

Though conducting this study I have acquired some practical knowledge about banking system and other relevant matters. Now I would like to provide some recommendation, which maybe helpful to promote the performance of Al-Arafah Islami Bank limited. As per earnest observation some suggestions for improvement of the situation are given below:

1. Need to offer more incentive to depositors Al-Arafah Islami Bank limited.

2. Increase the branch to reach the depositors all over the country 3. Deeply more efficient marketing force.4. Training facility should be in crease in order to increase the

capability of the employee.5. Need more attention to the customer 6. Information cell need to improve more by equipping related

material 7. Atomization /computerization should introduce all over the system. 8. Interior decoration needs more improvisation 9. Established a smartness of the customer service department needs to

improve.10. Proper training system should e conducted at regular interval for the

junior level officer.11.Online banking is very much in todays modern world. I highly

recommended launching of such service

Suggestion for Money Laundering:

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In order to prevent money maundering, attention should be given following things to be considered besides law enforcing:

1. Only banking system will not achieve expected success. It’s necessary to build up economic infrastructures which are helpful for the development of the country.

2. Strong determination should be taken and fruitful measures should be taken to remove corruption from country. For this accountability and transference will ensure and as a result liability will be increase.

3. Everything required for the development of banking system should be done and qualified person should be given duties. In this regard honesty, competencies, sincerity and responsibility should be under consideration.

4. The bad effect of money Laundering should be published through newspaper, radio and other world service. Besides immigrants should be encouraged to send money through legal way. Foreign embassies can play a positive role in this case.

5. The distance of foreign exchange should be reduced. Many people don’t want to send money through banking channel for high remittance charge fixed by foreign banks.

6. The advantage of online banking system should be extended and its fruitfulness should be sent to peoples. The distance of bank in town and villages should be lessened and the quality of the service should be developed.

7. In order to prevent money laundering mutual co-operation between governments of different countries can play a significant role. Moreover, International Monitory fund (IMF) can take appropriate measures in this case.

8. Foreign aid to the government sanction money, loan etc. should be used appropriately in appropriate fields. This should be a system for different non-government organizations, foreign agencies for their activities and liabilities.

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After all the aspects of money laundering is worldwide and with it powerful, shrewd and dishonest persons are involved in this Act. So these steps are not taken by only central bank and other commercial banks. Actually a combined efforts and sincerity of people in different occupations such as police income tax authority, customs, BDR and civil society is needed and moreover wit the help of responsible and powerful authority of the government and international agency and all the chief of the government can bring expected success.

Conclusion:

In Conclusion, I can say that this types of are very essential for a MBA student to take preparation to meet the global competition in the real life business. By this program I have learned about practical banking practice. I have also tried to learn about the theoretical emersion of money laundering.

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Bibliography

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Reference taken from:

Various report and statement supplied by Al–ARAFAH ISLAMI

BANK LIMITTED

Annual report of AIBL

Various Booklet and brochure of AIBL and Islamic bank ltd

Bank and company act 1991 by Md ommar chy and syeed javed

Shaleuddin.

Guidelines for foreign exchange transaction (vl 1&2) published by

Bangladesh Bank.

‘Bank and Finance “by Nasiruddin ahmed

Annual circular on Money laundering by BB

Web site –http: //www.Al–Arafah Bank .com

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