Table of ContentsChapter 1.............................................................................................................................................2

Introduction.........................................................................................................................................2

1.1 Origin of the Report:..........................................................................................................................3

1.2 Purpose of the Study:........................................................................................................................4

1.3 Objectives of the Report:...................................................................................................................5

1.4 Methodology:....................................................................................................................................6

1.5 Limitations of the Report:..................................................................................................................7

Chapter Two........................................................................................................................................8

Theoretical Overview of the Banking Sectors in Bangladesh.................................................................8

2.1 Definition of Bank:.............................................................................................................................9

2.2 A Brief History of Gradual Evolution Banking System:.....................................................................10

2.2.1 The Beginning of Banking System:............................................................................................10

2.2.2 Modern Banking System :.........................................................................................................10

2.2.3 Brief history of Bank in Sub-Continent:.....................................................................................11

2.2.4 A brief history of banking system in Bangladesh:.....................................................................11

2.3 Banking system in Bangladesh:........................................................................................................12

Chapter Three....................................................................................................................................21

Theoretical Overview of money laundering........................................................................................21

3.1 What is Money Laundering?............................................................................................................22

3.2 History of Money Laundering:.........................................................................................................25

3.3 Reasons behind money laundering:.................................................................................................26

3.3.1 To show legitimacy of funds.........................................................................................................26

3.4 Stages of money laundering:...........................................................................................................27

3.5 Money laundering techniques and methods:..................................................................................31

3.5.7 Investing in legitimate business....................................................................................................32

3.6 Classification of offences under Money Laundering:.......................................................................33

Chapter 4...........................................................................................................................................36

Relationship between money laundering and banking sector.............................................................36

4.1 Money Laundering and Financial Sector:.........................................................................................37

4.2 Vulnerability of the Financial System to Money Laundering:.....................................................39

Chapter 5...........................................................................................................................................42

Money Laundering Situation in Bangladesh........................................................................................42

& Analysis of riskiness of Money Laundering......................................................................................42

5.1 Money Laundering and Terrorist Financing Risk Assessment..........................................................43

5.2 Position of Bangladesh in Bribery & Corruption Index:....................................................................46

5.3 Basel Anti-Money Laundering Index and Bangladesh’s position:.....................................................47

5.3.1 The positions of Bangladesh & South Asian countries in Basel AML Index – 2015 & 2014:.....48

5.3.2 Top Ten High Risk Countries in Basel AML Index – 2015 & 2014:.............................................50

5.3.3 Change in Bangladesh’s positon in Basel AML Index from 2012 to 2015:.................................51

5.4 “goAML” Software and its use by Bangladesh Financial Intelligence Unit :.....................................52

5.5 Recent money laundering situation & role of ACC:.........................................................................54

5.5.1 Money Laundering Enquiries conducted by ACC:.....................................................................54

5.5.2 Money Laundering Investigation conducted by ACC:...............................................................55

5.5.3 Recent Money Laundering Events investigated by ACC:...........................................................55

Chapter 6...........................................................................................................................................57

The impacts of Money Laundering......................................................................................................57

6.1 Impacts of Money Laundering on Economy of the World...............................................................58

6.2 The Impacts of Money laundering on the Developing Country like Bangladesh:.............................66

Chapter 7...........................................................................................................................................71

Preventions of Money Laundering......................................................................................................71

7.1 Anti money laundering:...................................................................................................................72

7.1.1 Reasons for combating money laundering:..............................................................................72

7.1.2 Some international framework and guidelines against money laundering:..............................73

7.1.3 European Union’s Anti Money Laundering Strategy:................................................................73

7.2 Anti money laundering (AML) in Bangladesh:..................................................................................73

7.2.2 Legal framework and guideline against money laundering in Bangladesh:..............................74

7.3 Guidance notes on the prevention of money laundering issued by Bangladesh Bank:...................74

7.3.1 Requirements under money laundering prevention act 2002:.................................................74

7.3.2 Responsibilities of Bangladesh Bank:........................................................................................75

7.3.3 Anti money laundering policy:..................................................................................................76

7.3.4 Organizational structure:..........................................................................................................76

7.4 Anti money laundering Processes:...................................................................................................79

7.4.1 Know your customer policy:.....................................................................................................79

7.4.2 Risk management policy:..........................................................................................................80

7.4.3 Transactions monitoring process:.............................................................................................81

7.4.4 Statutory obligations for reporting of suspicious transactions:................................................82

7.4.5 Self assessment process:..........................................................................................................83

7.4.6 System of independent procedures testing:.............................................................................83

7.4.7 Training and awareness:...........................................................................................................83

7.5 Penalties for money laundering offences:.......................................................................................83

7.5.1 Penalties for offence committed by a person:..........................................................................84

7.5.2 Penalties for offence committed by a company:......................................................................84

7.5.3 Penalties for offence not to retain information or not to report suspicious activity or not to provide information on demand:......................................................................................................84

7.5.4 Penalties for offence of violating freezing or attachment order:..............................................84

7.5.5 Penalties for offence of divulging, using or publishing information:.........................................84

7.5.6 Penalties for offence of obstructing or refusing to assist investigation:...................................84

7.5.7 Penalties for offence of providing false information:................................................................84

Chapter 8...........................................................................................................................................85

Case Analysis......................................................................................................................................85

8 .1 Case Study on Money Laundering through Financial Sector:..........................................................86

8.2 Money Laundering: Some Real Cases..............................................................................................87

8.2.1 Cases: World Perspectivee.................................................................................................87

8.2.2 Cases: Bangladesh Perspective.................................................................................................88

8.3 Remarkable Case of Money laundering & Embezzlement investigated by ACC:..............................90

8.4 Assessment and Commentary on Real Cases of Money Laundering:..............................................94

Recommendation...............................................................................................................................96

Conclusion.........................................................................................................................................97

Chapter 1

Introduction

1.1 Origin of the Report: This report has been prepared as a study on “Money Laundering in Bangladesh.” as a part of the fulfillment of course requirement. The report was prepared under the supervision of Mohammad Imran Hossain Lecturer of Dept. of Finance, University of Dhaka. We are very much thankful to him for assigning us with such type of practical issue that has enhanced our knowledge and experience.

1.2 Purpose of the Study:The purpose of the report is to have clear and complete overview of the money laundering situation and its effect on the national and international economy. Here we will analyze the ins and outs of Money Laundering background, process, channels and its economic loss influencing the whole economic process of a country as well as the international economy. This report also includes an aerial view of the money laundering prevention act of our country. This study will provide lots of collections of information to make the topic understandable and all its goals implement clearly to the readers.

1.3 Objectives of the Report:The main objective of the study is to present the outlook of the recent money laundering crimes that are occurring and influencing the whole economic process. Again some other objectives will be fulfilled through this study which is given below:

1. To explain the nature, definition and scope of money laundering according to the law.2. To explain and demonstrate the real scenario of current money laundering crime in

Bangladesh.3. To explain the purpose and principles underlying in the adoption of various guidelines

and legal rules against money laundering.

4. To help the readers understand the consequences of money laundering crime.5. To gather knowledge on such an important issue that is essential to be known by all the

conscious citizens.

1.4 Methodology:For smooth and accurate study everyone needs to follow some rules & regulations. The study concerned information was collected from two sources:

Primary Sources: Information was collected from primary sources in these ways: 1. By self-observation of some sites related to money laundering.

2. By talking face to face with some experienced people in this field.

3. By scrutinizing the various laws in this field.

Secondary Sources:

Data were collected from secondary sources by the following ways: 1. Different trustworthy and reliable websites worked as our prime secondary sources of data.

2. The recent articles and news related to this field.

Data analysis and interpretation: Especially data have been analyzed based on different statistical charts.

1.5 Limitations of the Report: On the way of our study, we have faced some challenges that have been termed as the limitations of this study. These are followings:

Budgeted time limitation: It was one of the main constraints that hindered to cover all aspects of the study.

Validity and Reliability: Validity and reliability of the obtained information depends on the responses from the respondents.

Data Insufficiency:

Especially there was a little lack of information about money laundering situation in Bangladesh in any of the journals or reports or websites available.

Inappropriateness and Scarcity of Evidence: Actually, Inappropriateness and Scarcity of evidence lacked our practical representation of analysis.In spite of many limitations, we have become successful in preparing the report with sufficient adornment of flawlessness.

Chapter Two

Theoretical Overview of the Banking Sectors in Bangladesh

2.1 Definition of Bank:Bank is an organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.

The term “Bank” has been defined in different ways by different economist. A few definitions are:

Now we can say that, A bank is a financial intermediate or institution which earns profit by doing business with the money of othes by means of collecting deposits from the surplus units against giving deposit/borrowing interest rate and lending funds to the deficit units against taking lending interest rate which is higher than the deposit interest rate and the difference is profit of the bank after meeting all the required expenditures and other financial obligations.

Generally, There are two types of bank

According to Walter Leaf,“A bank is a person or corporation which holds itself out to receive from the public, deposits payable on demand by cheque”

According to prof.Kinley, “A bank is an establishment which makes to individuals such advances of money as may be required and safely made, and to which individuals entrust money when not required by them for use ”

Figure 2.1 Types of Bank

2.2 A Brief History of Gradual Evolution Banking System:

2.2.1 The Beginning of Banking System: The name bank derives from the Italian word banco “desk/bench”, used during the Renaissance by Jewish Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth. as 1,800 BC in Babylon. In those days moneylenders made loans to people. In Greece and Rome banks made loans and accepted deposits. They also changed money. (In the Bible Jesus famously drove the money changers out of the temple in Jerusalem). However with the collapse of the Roman Empire trade slumped and banks temporarily vanished. However banking began to revive again in the 12th and 13th centuries in the Italian towns of Florence and Genoa. At this period Shansi bank, the first bank of world, was established.

2.2.2 Modern Banking System : Modern banks began with the Bank Charter Act of 1844. The Act split the Bank of England (which was still legally a private bank) into two departments - a banking department and an issuing department. From then on the Bank of England could only issue notes if they were backed up by gold or government securities. The Bank Charter Act also forbade new banks to issue bank notes. When banks merged they lost the right to issue bank notes. So gradually the Bank of England became the only bank in England that could issue notes. At the end of the 19th century and in the 20th century many banks merged until in the late 20th century banking in Britain was dominated by the 'big four', Barclays, Lloyds, Midland and National Westminster. At this period The bank of England, the first organized central bank, was established. Which is also known as mother of central bank.

2.2.3 Brief history of Bank in Sub-Continent:

Year Description

Bank

Central Bank

Commercial Bank

1700 The first modern bank of India, The Hindustan Bank Ltd, was established by businessmen.

1785 The Bengal Bank and The Central Bank of India were established1840 The Bank of Bombay was established1843 The Bank of Madras was established1920 The first central bank of India, Imperial Bank of India, was established1935 The first organized central bank of India, The Reserve Bank of India,

was established.Figure 2.2 Brief history of Bank in Sub-Continent

2.2.4 A brief history of banking system in Bangladesh: The banking system at independence (1971) consisted of two branch offices of the former State

Bank of Pakistan and seventeen large commercial banks, two of which were controlled by

Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen

smaller commercial banks. Virtually all banking services were concentrated in urban areas. The

newly independent government immediately designated the Dhaka branch of the State Bank of

Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for

regulating currency, controlling credit and monetary policy, and administering exchange control

and the official foreign exchange reserves. In 1972 Under Article 4 of the Nationalising law, six

new banks have been constituted with all the legal characteristics of body corporate. Each of the

new banks has common seal and perpetual succession and subject to the provision of the law

each new bank is empowred to acquire, hold and dispose of the property, to contract, and to sue

and be sued in its own name. The undertakings of existings banks specified below stand

transferred to, and vasted in, the new banks mentioned against them.

SL. No Nationalised Banks Amalgamated and renamed after nationalisation

1 I. National Bank of PakistanII. Bank of Bhawalpur Limited

III. Premier Bank Limited Sonali Bank Limited2 I. United Bank Limited

II. Union Bank LimitedJanata Bank Limited

3 I. Habib Bank LimitedII. Commerce Bank Limited

Agrani Bank Limited

4 I. Muslim Commercial Bank LimitedII. Standard Bank Limited

III. Australasia Bank Limited

Rupali Bank Limited

5 I. Eastern Mercantile Bank Limited Pubali Bank Limited

6 I. Eastern Banking Corporation Limited Uttara Bank LimitedFigure 2.3 Nationalised Banks of Bangladesh

2.3 Banking system in Bangladesh:

Bangladesh has a mixed banking system comprising nationalised, private and foreign commercial banks, specialsed banks & financial institutions and co-operative banks.The overview of the banking system of Bangladesh is given below:

2.3.1 Bangladesh Bank: Bangladesh Bank is the central bank of the country and is in charge of monetary policies of the Government and controls all commercial banks. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also Bangladesh Bank (BB) has been working as the central bank since the country’s independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government’s monetary policy and implementing it thereby.The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has ten more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal, Mymenshing.

Functions of Bangladesh Bank:Bangladesh Bank performs all the core functions of a typical monetary and financial sector regulator, and a number of other non core functions. The major functional areas include :

Formulation and implementation of monetary and credit policies. Regulation and supervision of banks and non-bank financial institutions, promotion and

development of domestic financial markets. Management of the country's international reserves.

Issuance of currency notes. Regulation and supervision of the payment system. Acting as banker to the government . Money Laundering Prevention. Collection and furnishing of credit information. Implementation of the Foreign exchange regulation Act. Managing a Deposit Insurance Scheme .

2.3.2 Commercial Bank: There are three types of commercial banks in banking system of bangladesh. These commercial banks are: Nationalised commercial banks, Private commercial banks, Foreign commercial banks.

At present Bangladesh has 56 scheduled banks in Bangladesh who operate under full control and supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. Scheduled Banks are classified into following types:

Nationalised Commercial Banks: there are  6 nationalised commercial banks  which are fully or majorly owned by the Government of Bangladesh.

Private Commercial Banks : There are 39 private commercial banks which are majorly owned by the private entities. Private commercial banks can be categorized into two groups:

Traditional Banks Islamic Banks

Figure 2.4 :Types of commercial banks in banking system in

bangladesh

Foreign Commercial

Banks

Nationalised Commercial

Banks

Private Commercial

Banks

Foreign Commercial Banks: 9 foreing commercial banks are operating in Bangladesh as the branches of the banks which are incorporated in abroad.

II.3.1 specialized banks & Financial Instiyutions: 7 specialized banks & Financial Instiyutions  are now operating which were established for specific objectives like agricultural or industrial development. These banks are also fully or majorly owned by the Government of Bangladesh.

II.3.2 Co-operative Banks & Other Co-operative Societies : There are three types of co-operative banks & other co-operative socities. These are:

• Bangladesh Samabaya Bank Limited • Co-operative Bank Limited • Co-operative Societies

Figure 2.5 Banking system in Bangladesh

Bangladesh Bank (Central bank of the bangladesh)

Commercial Banks

Nationalised Banks Private Banks

Traditional Banks Islamic Banks

Foreign Banks

Specialsed Banks & Financial Institutions

Bangladesh Developed Bank

(BDBL)

Bangladesh Krishi Bank (BKB)

Rajshahi Krishi Unnayan Bank

(RAKUB)

Grameen Bank (a micro finance

institution)

Ansar-VDP Unnayan Bank

Karmasangsthan Bank

Investment Corporation of

Bangladesh (ICB)

Co-operative Banks & Other Co-

operative Societies

Bangladesh Samabaya

Bank Limited

Central Co-operative Bank

Limited

Primary Co-operative Societies

II.4 Contribution of bank to economic development of Bangladesh

Figure 2.6 Contribution of bank to economic development of Bangladesh

Contribution of bank to economic

development of Bangladesh

1. Capital Accumulation

2. Mobilization of savings

3.Provision of Finance & Credit

4. Attaining Self Sufficiency

5. Implementation of Modern Technology

6. Development of agri-culture Sector

7. Development of Industrial Sector

8. Regional Development

9. Expansion of Market

10. Essential for Foreign Trade

11. Remove Budget deficit

12. Optimum Utilization of Resources

13. Creators and Distributors of Money

14. Monetisation of Economy

15. Fulfilment of Socio-economic Objectives

Commercial banks play an important role in the process of economic development, which is clear from the following points:

1. Capital Accumulation or Formation : Capital formation refers to the increase in the existing stock of capital goods in an economy. Banks remove the capital deficiency by encouraging saving and investment. The banks can promote capital formation in the country by moving the resources to the productive uses.

2.  Mobilization of Savings : There operates vicious circle of poverty in developing countries like Bangladesh. So, savings remain at the lowest level. Savings of people are very low due to international demonstration effect in Bangladesh. Banks are playing important role in the mobilization of saving by introducing a variety of saving schemes. Banks induce the people to earn interest through saving and it provides various facilities in a country to create a will and power to save.

3. Provision of Finance and Credit: Banks are a very important source of finance and credit for industry and trade. Credit is a pillar of development. Credit lubricates all commerce and trade. Banks become the nerve centere of all commerce and trade. Banks are instruments for developing internal as well as external trade.

4. Attaining Self Sufficiency : A major problem faced by the developing countries is burden of foreign debts and dependence on other countries. Banks provide incentive for the entrepreneurs to take risks and to use idle resources for more and better production. So, banks are helpful in attaining self-sufficiency. Banks provide loan to develop the various economic sectors. It results in reduction in imports and increase in exports. Accordingly, banks are very important to achieve the self-sufficiency.

5. Implementation of Modern Technology : Economic development without use of advanced and the most up-to-date technology is impossible. Almost in all the economic sectors backward techniques of productions are used due to poverty in third world countries like Bangladesh. Banks provide more funds to people to make it possible to use the modern techniques of production. Due to implementation of modern technology, there is increase in production level, decrease in cost and save in time.

6. Development of Agriculture Sector : All the regions and all the sectors of the economy are not equally efficient and developed in an economy. There is big need to develop the backward regions and sectors for the economic development. Rural areas and agricultural sector is still backward in Bangladesh. Banks are playing an important role in the development of rural and agriculture sector. Two special bank BKBL & RAKUB have a major role in development of rural and agriculture sector.

7. Development of Industrial Sector: Industrial sector is the backbone of their economies in rich nations. It is still backward in Bangladesh and other poor countries. Commercial banks provide different types of loans for the development of industrial sector. A special industrial development commercial banks i. e., BDBL etc. is provided its remarkable services for the development of industrial sector. Industrial development leads to agricultural development and it results in economic development.

8. Regional Development: Banks can also play an important role in achieving balanced development in different regions of the country. They transfer surplus capital from the developed regions to the less developed regions, where it is scarce and most needed. This reallocation of funds between regions will promote economic development in undeveloped areas of the country.

9. Expansion of Market: Banks help in the expansion of market. They help in the formation of sound economic infrastructure in order to raise living standards and to expand trade and commerce of an economy. Banks cause development of industrial as well as agriculture sector. Accordingly, there is expansion of market that results in economic development.

10. Essential for Foreign Trade: Foreign trade is one of the most important needs of all the countries of the world. Today international trade, without involving banks, is so  difficult. International trade is necessary for the economic development. Commercials banks are helpful in increasing international trade through following ways:

a. Provision of credit facilitiesb. Low rate of interest for the exportersc. Opening of letter of credit (L/C)d. Arrangement of foreign exchangee. Opening of foreign currency accounts

11. Remove Budget Deficits: The banks are very helpful for the government. Now a day, the government has to face the budget deficits because of increased expenditures and falling revenues. In this situation, government has to depend upon deficit financing to meet the budget deficits. To cover the gap between the expenditures and revenues, government borrows from the banks. As a result, the development process can be started through borrowed money from banks.

12. Optimum Utilization of Resources: Banks help in the just and optimum allocation of resources. Some mega projects cannot be started due to the lack of capital. Banks provide loans and remove the problem of deficiency of capital. Due to use of resources in an economy, there is increase in production, income and employment etc. Increase in these things leads to economic development.

13.  Creators and Distributors of Money: Creation of money and distribution of money are the two main objectives of commercial bank. Commercial banks move the finances toward productive uses. There are a lot of problems in the way of economic development like inflation, deflation, low investment and saving etc. All these problems are possible to remove through creation and distribution of money by commercial banks. So, fluctuation in the supply of money can attain the economic development.

14. Monetisation of Economy: An underdeveloped economy is characterised by the existence of a large non-monetised sector. The existence of this non-monetised sector is a hindrance in the economic development of the country. The banks, by opening branches in rural and backward areas can promote the process of monetisation in the economy.

15. Fulfillment of Socio-economic Objectives : In recent years, banks, particularly in developing countries, have been called upon to help achieve certain socio-economic objectives laid down by the state.

We conclude from above discussion that finance is life-blood of production and the banks are the departmental stores of finance. Banks enjoy a very typical and dominated position in the present day economic world. We conclude that economic development, without banking system, is impossible.

Chapter Three

Theoretical Overview of money laundering

3.1 What is Money Laundering?Money laundering is the process of transforming the proceeds of crime into ostensibly legitimate money or other assets. On recent days money laundering has become a sweltering issue in financial arena nationally and internationally. It is a very sophisticated and dynamic crime in recent times.

3.1.1 Definition of Money laundering according to law:

According to Money Laundering prevention Act-2009, Money Laundering means-

(i) Transfer, conversion, remitting abroad or remitting or bringing from abroad to Bangladesh proceeds or property acquired through commencement of a particular offence for the purpose of disguising the illicit origin of the proceed or property or transferring abroad of proceeds or property acquired through legal or illegal means;

(ii) Conduct or attempt to conduct a financial transaction in a manner that will not be required to report under the ACT;

(iii) Do such activities so that the illegitimate source of such proceed or property cab be disguised or attempt to do such activity or knowingly assist or conspire to perform such activities.

3.1.2 Property:

Property has been defined in section 2(Na) of the Act as follows:

Property means-

(i) Any kind of assets, whether tangible, movable or immovable; or

(ii) Cash, legal documents or instruments in any form, including electronic or digital, evidencing title to, or interest in such assets.

3.1.3 Predicate Offence:

Section 2 (Tha) of the Act also defines predicate offence

“Predicate offence” means the offences from which the proceeds derived from committing or attempt to commit the following offences:

(1) Corruption and bribery

(2) Counterfeiting currency

(3) Counterfeiting documents

(4) Extortion

(5) Fraud

(6) Forgery

(7) Illicit arm trade

(8) Illicit narcotic drugs and psychotropic substance trade

(9) Trade of stolen goods

(10) Kidnapping, illegal restraint, hostage-taking

(11) Murder, grievous bodily injury

(12) Woman and child trafficking

(13) Smuggling and trafficking of local and foreign currency

(14) Theft or robbery or piracy or sea piracy or air piracy

(15) Human trafficking

(16) Dowry

(17) Illegal trafficking of customs related crime

(18) Tax related crime

(19) Piracy of intellectual property

(20) Terrorism and terrorist financing

(21) Environmental crime

(22) Sexual exploitation

(23) Insider trade and market manipulation

(24) Organized crime

(25) Obtaining money by threatening

(26) Any other offence which Bangladesh bank declares as predicate offence with Govt. approval.

3.1.4 International definition of Money Laundering:

The U.S. Customs service, an arm of the Department of 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

transection or series of transection that assists a criminal in keeping, concealing or disposing

of proceeds derived from illegal activities.

The European union 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, the concealment or disguise of the true

nature, source, location, disposition, movement, rights with respect to, or ownership of

property, knowing that such property is derived from serious crime”

The joint Money Laundering Sterling Group (JMLSG) of the U.K defines it as “the process

whereby criminals attempts to hide and disguise the true origin and ownership of the proceeds of

their criminal activities, thereby avoiding prosecutions, conviction and confiscation of their

criminal funds”

In lay terms, money laundering is most often describes as” turning of dirty or black money into

clean or white money”. If undertaken successfully, money laundering allows criminals to

legitimize “dirty” money by mingling it with “clean” money, ultimately providing a legitimate

cover for the source of their income. Generally, the act of conversion and concealment is

considered crucial to the laundering process.

3.2 History of Money Laundering:The history of money laundering is, primarily, that of hiding money or assets from the state

either from blatant confiscation or from taxation- and, from a combination of both. And, of

course from those seeking to enforce judgment in civil cases or to follow the money that results

from other crime. It is interwoven with the history of trade and of banking.

No one can be really sure when money laundering first began. However, we can be confident

that it has been going on for several thousand years, In “Lords of the Rim” Sterling Seagrave

explains how, in China, merchants some 2000 years before Christ would hide their wealth from

rulers who would simply take it off them and banish them. In addition to hiding it, they would

move it and invest it in business in remote provinces or even outside China.

In this way the offshore industry was born, and –depending on your point of view- so was tax

evasion. And so were the principles of money laundering- to hide, move and invest wealth to

which someone else has a claim.

Over the next four millennia, the principles of money laundering have not changed. But the

mechanisms have. Parallel Banking is one of the most durable techniques, or to be more precise

suites of techniques.

Over a period of thousands of years, people have used money laundering techniques to move

money resulting from crime- but also often to hide and move it out of reach of governments-

including oppressive regimes and despotic leaders. Many minorities in countries down the ages

and around the world have taken steps to preserve wealth from rulers, both unelected and

elected, who have targeted them simply because of their beliefs or colors. It is happening even

today.

Whilst it is true that, in the USA, prohibition and a restriction on gambling made large amount

of cash for those prepared to break the embargoes the most important fact about that time was

that it is caused a dramatic increase in financial crime- in this definition, financial crime is a

crime that gives direct access to the proceeds of the offence. Sanctions busting was a financial

crime because for every offence committed, the criminal immediately received cash in his hand.

Thus it created an immediate problem over what to do with that money. Opening a cash business

was the obvious thing to do. Laundries were a suitable business, and so- goes rumor- the term

“money laundering” was invented. This may or may not be true.

Whatever the origins of the term, criminals moved into business where the cash crop was higher

– including drugs. They formed law firms, accountancy practices, bought banks, film studios,

engineering concerns, even governments. When this was originally written, in 2002, one person

was trying to buy control of a central bank.

But money laundering also was developed in order to facilitate trade. It is often said that Nigeria

is the money laundering centre of Africa and that Nigerians around the world are engaged in

large scale crime and laundering. In so far as that true, the reason for it is because the networks

that are now dominated by criminals were set up within the past twenty or so years by

international traders who were unable to operate due to exchange control measures and a system

of custom inspection that resulted in traders based in Nigeria operating their business entirely

offshore. Other countries have had- and in the case of some which have strict currency

transaction requirements still have a similar development of laundering. Money laundering

techniques are restricted only by the imagination of the criminals and there are a lot of criminals

trying to find ways to launder.

3.3 Reasons behind money laundering:Criminals mainly engage in money laundering for three reasons:

(1) To show Legitimacy of Fun

(2) Hide Sources of illicit proceeds

(3) Shield against investigation and capture

3.3.1 To show legitimacy of funds:

Money is lifeblood of any organization that engages in criminal conduct for financial gain because:

It covers operating expenses

Replenishes inventories

Purchase the service of corrupt officials to escape detection

Promotes the interests of illegal enterprise and

Pays for extravagant life style

To spend money in  this  ways,  criminals  must  make the money they derived  illegally appear legitimate.

3.3.2 Hide sources of illegal proceeds:

Criminals mainly hide the source of their money to ensure that illicit proceeds are not used to prosecute them.

3.3.3 Shield against investigation and capture:

The proceeds from crime often become the target of investigation and seizure. To shield unfair gains from suspicion and protect them from seizure, criminal must make them look legitimate.

3.4 Stages of money laundering:There is no single method of laundering money. In most of the criminal cases, the initial proceeds usually take the form of cash. For example, bribery, extortion and street level trade of drugs are almost always made with cash. This cash need to enter into financial system by some means so that it can be converted into a form which can be more easily transformed, concealed or transported.

Despite of variety of methods employed, the laundering is not a single act but a process accomplished in 3 basic stages-

Placement

Layering and

Integration

In the following there is an overview of the whole money laundering process showing the complex scenario of this process formed by various techniques:

Figure 3.1: Money laundering; a three stage process.

3.4.1 Placement:

The physical disposal of the initial proceeds derived from illegal activity. This means the movement of cash from its source. . On occasion the source can be easily disguised or misrepresented. This is followed by placing it into circulation through financial institutions, casinos, shops, bureau de change and other businesses, both local and abroad. The process of placement can be carried out through many processes including:

1. Currency Smuggling: This is the physical illegal movement of currency and monetary instruments out of a country. The various methods of transport do not leave a discernible audit trail.

2. Bank Complicity: This is when a financial institution, such as banks, is owned or controlled by unscrupulous individuals suspected of conniving with drug dealers and other organized crime groups. This makes the process easy for launderers. The complete liberalization of the financial sector without adequate checks also provides leeway for laundering.

3. Currency Exchanges: In a number of transitional economies the liberalization of foreign exchange markets provides room for currency movements and as such laundering schemes can benefit from such policies.

4. Securities Brokers: Brokers can facilitate the process of money laundering through structuring large deposits of cash in a way that disguises the original source of the funds.

Placement

Currency smugglingBank complicityCurrency exchangesSecurities brokersBlending of fundsAsset purchase

Layering

Cash converted into monetary instrumentsMaterial assets bought with cash then sold

Integration

Property dealing Front companies and false loansForeign bank complicityFalse import/Export invoices

5. Blending of Funds: The best place to hide cash is with a lot of other cash. Therefore, financial institutions may be vehicles for laundering. The alternative is to use the money from illicit activities to set up front companies. This enables the funds from illicit activities to be obscured in legal transactions.

6. Asset Purchase: The purchase of assets with cash is a classic money laundering method. The major purpose is to change the form of the proceeds from conspicuous bulk cash to some equally valuable but less conspicuous form.

3.4.2 Layering:

Separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trial and provide anonymity. The purpose of this stage is to make it more difficult to detect and uncover a laundering activity. The known methods are:

1. Cash converted into Monetary Instruments: Once the placement is successful within the financial system by way of a bank or financial institution, the proceeds can then be converted into monetary instruments. This involves the use of banker’s drafts and money orders.

2. Material assets bought with cash then sold: Assets that are bought through illicit funds can be resold locally or abroad and in such a case the assets become more difficult to trace and thus seize

3.4.3 Integration:

This is the movement of previously laundered money into the economy mainly through the banking system and thus such monies appear to be normal business earnings. This is dissimilar to layering, for in the integration process detection and identification of laundered funds is provided through informants. The known methods used are:

1. Property Dealing: The sale of property to integrate laundered money back into the economy is a common practice amongst criminals. For instance, many criminal groups use shell companies to buy property; hence proceeds from the sale would be considered legitimate.

2. Front Companies and False Loans : Front companies that are incorporated in countries with corporate secrecy laws, in which criminals lend themselves their own laundered proceeds in an apparently legitimate transaction.

3. Foreign Bank Complicity: Money laundering using known foreign banks represents a higher order of sophistication and presents a very difficult target for law enforcement. The willing assistance of the foreign banks is frequently protected against law enforcement scrutiny. This is not only through criminals, but also by banking laws and regulations of other sovereign countries.

4. False Import/Export Invoices: The use of false invoices by import/export companies has proven to be a very effective way of integrating illicit proceeds back into the economy. This involves the overvaluation of entry documents to justify the funds later deposited in domestic banks and/or the value of funds received from exports.

These three steps can be illustrated in to the following figure:

Figure 3.2: Steps of money laundering.

The table below provides some typical example of the stages of money laundering:

Placement stage Layering stage Integration stageCash paid into bank (sometimes with staff complicity or mixed with proceeds of legitimate business)

Sale or switch to other forms of investments.

Transfer of contract or switch to other forms of investments

Cash exported Money transferred to assets of legitimate financial institutions.

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

Cash used to buy high value Telegraphic transfers (often Complex web of transfers

goods, property or business assets.

using fictitious names or funds as proceeds of legitimate business)

(both domestic and international) makes tracing original source if funds virtually impossible.

Figure 3.3: Example of stages of money laundering

3.5 Money laundering techniques and methods: The money laundering techniques are complex and a salient feature of money laundering is the number of different methods used. Some of the commonly used measures are discussed below and are related with the three stages of money laundering that is placement, layering and integration.

3.5.1 Structuring/ Smurfing:

Smurfing or structuring is one of the techniques of recycling easier. This is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.

3.5.2 Cash smuggling:

Cash smuggling is one of the oldest methods used for general smuggling of currency. This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement. The bulk shipments of cash hidden in cargo are driven across the border, though it is illegal to export a bulk amount of cash. Every country has its limit of carrying cash legally across the border like United States restricts the currency to $10,000 without filing a report under International Transportation of Currency or other Monetary Instruments (CMIR). However the criminals have been known to purchase of shipping business to transfer the cash hidden in the goods.

3.5.3 Offshore accounts (Shell banks):

Offshore accounts are often used by criminals to obscure the audit trail as many different countries in the world offers strictly law for bank secrecy to attract money in their countries. In respect of this law, the country can also refuse to assist international authorities in revealing the information of customer. Many of these countries also attracts clients by selling Shell banks which means a bank which is incorporated in jurisdiction in which the bank has no physical presence and also unaffiliated with the regulated financial institution. These kinds of banks, Shell banks are generally developed in a financial haven country for providing the appearance of legitimacy. A customer only needs a false name to open an account in these kinds of bank which

provides the customer complete secrecy and protects the customer from investigation and possible prosecution and after establishing the shell bank the customer may gain advantage of “payable though” or “pass through” accounts.

3.5.4 Shell companies and trusts:

A practice quite common among criminal organizations around the world is the establishment of companies which have as their object the trade of antiques. These are fake companies and trusts that exist for no other reason than to launder money. They take in dirty money as "payment" for supposed goods or services but actually provide no goods or services; they simply create the appearance of legitimate transactions through fake invoices and balance sheets. Trusts and shell companies disguise the true owner of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner.

3.5.5 Underground banking:

Some countries in Asia have well-established, legal alternative banking systems that allow for undocumented deposits, withdrawals and transfers. These are trust-based systems, often with ancient roots, that leave no paper trail and operate outside of government control. The Criminals considers this as the safest way of laundering money and also one of the most common method used for the purpose. Basically there are two types of underground banking systems which are known as Hawala/Hundi and Chitti/Chop banking. The use of underground banking has been recognized in many countries and the reason behind the success of this technique was that this banking was based on trust and virtually there is no paper trail involved in that.

3.5.6 Gambling:

Often the activities of money laundering linked to games of chance. In most cases criminal organizations clean up the money using casinos and casinos, buying chips in large quantities in order to play, but use only a small part of them or not use them at all. The purpose of these operations is to convert the chips in money and simultaneously be issued by the gambling house a document that certifies the win. However, a more effective method consists in capture by organized control of a gambling house. In this case you just have to do is declare the dirty money as income from gaming activity

3.5.7 Investing in legitimate business:

Launderers sometimes place dirty money in otherwise legitimate businesses to clean it. They may use large businesses like brokerage firms or casinos that deal in so much money it's easy for the dirty stuff to blend in, or they may use small, cash-intensive businesses like bars, car washes, strip clubs or check-cashing stores. These businesses may be "front companies" that actually do provide a good or service but whose real purpose is to clean the launderer's money. This method typically works in one of two ways: The launderer can combine his dirty money with the

company's clean revenues. In this case, the company reports higher revenues from its legitimate business than it's really earning; or the launderer can simply hide his dirty money in the company's legitimate bank accounts in the hopes that authorities won't compare the bank balance to the company's financial statements. Examples are parking buildings, strip clubs, tanning beds, car washes and casinos.

3.5.8 Round- tripping:

Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant on this is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.

3.5.9 Bank capture:

In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.

3.5.10 Black salaries:

A company may have unregistered employees without a written contract and pay them cash salaries. Dirty money might be used to pay them.

3.6 Classification of offences under Money Laundering:The Offences under the money laundering controls has been classified into five categories that is drug distribution, white collar crimes, blue collar crimes, corruption and bribery and terrorism. These categories differ in their dimensions and are more uniformed in relation with the distribution and seriousness of the harm caused by these specific offenses to the society.

3.6.1 Drug distribution:

Most of the drug dealers deal with the common problem of regularly and frequently managing the large amount of cash. Initially the current anti-money laundering regime was developed primarily to put a control on drug trafficking.

3.6.2 White collar crimes:

This category of crime consists of various ranges of activities such as tax evasion. The different feature of these crimes is the laundering of money which is usually an integrated part of the crime itself. The case of Enron presents a more composite scheme in which the Shell

corporations in the Cayman Islands served as a laundering tool to vague the trail of fraudulent behavior and also acted as a questionable tax shelter.

3.6.3 Blue collar crimes:

The other large scale market other than the drugs for generating large amount of money which in turn generates the demand for money laundering consists of gambling and smuggling of people. However the scale of money generated by any individual operation in these areas tends to be much smaller than the drugs trafficking.

3.6.4 Corruption and Bribery:

Corruption and Bribery can be considered as a white collar crime but they are different in respect of the place of occurring, in terms of who benefits and the nature of the harm done by them which may lead to affect the quality of government services and also the credibility of the government.

3.6.5 Terrorism:

The different characteristic of terrorism is that it involves money from both, legitimately and the money generated from the criminal activities and then it converts the money into criminal use. The amount of money involved in this activities are not involved in millions but hundreds of thousands of dollar therefore the harm in enormous and unique.

Chart of Financial Abuses:

Figure:3.4 Chart of Showing the Place of Money Laundering in the Overall Classification of Money Laundering

Other Financial Crime Other Financial AbusesFinancial Sector Crime

Factors Contributing to Financial Abuses

Sale of fictitious financial instruments or insurance policiesEmbezzlement of nonfinancial institutionsTax evasionStock manipulationOther

Tax avoidanceConnected party lendingStock manipulationOther

Money laundering *

Financial fraud (e.g., check, credit card, mortgage, or insurance fraud)Tax evasionCircumvention ofExchange restrictionsOther

Poor regulatory and supervisory framework(e.g., excessive bank secrecy, lack of disclosurerules and effective fiduciary rules for investors and their agents).

Harmful tax practices

Chapter 4

Relationship between money laundering and banking sector

4.1 Money Laundering and Financial Sector:

As we have seen that transaction to avoid reporting requirements has been defined as money laundering. Let us now see who are to reports, that is, which are reporting agencies:

(a) Bank/Financial Institutions;

(b) Insurance Companies;

(c) Money changers;

(d) Companies remitting money;

(e) Any such organization declared by Bangladesh Bank.

Throughout the world, banks have become a major target of ML operations and financial crimes because they provide a variety of financial services and instruments that can be used to conceal the actual source of money. Money Launderers attempt to conceal their real identity to the bankers with their polished, articulate and disarming behaviour, convert their dirty money into white money.

Llaunderers generally use the financial system in two stages to disguise the origin of the funds. First, they place their ill-gotten money into financial system to legitimize the funds and introduce these funds in the financial system and second, after injecting the dirty money into the financial system, through a series of transactions, they distance the funds from illegal source. Therefore, the financial institutions through whom the dirty money is laundered become unwitting victims of this crime.

Money Laundering may hamper the reputation of the financial institution and may increase the operational risk of the banking firm when banking firm itself involved with the launderer or in criminal activities. Thus, without even involvement in any criminal offence, money laundering may be a cause of failure of banking (financial) sector of an economy. People may lose their confidence on the banking system. Such confidence failure towards the formal sector may increase the activities of informal financial firm. The growth of activities of the informal sector might again increase the possibility of money laundering such as credit union, hawala remittance systems etc.

Money laundering shifts the economic power to the criminals. In such a situation, criminals may use their economic power to undertake the operation of the financial firm of the country and may use the fund of the depositors to do more criminal activities. Therefore, the scarce financial resources of the developing country may be used for the criminal activates of few launderers, instead of productive investment of the economy. Such criminal activities can lead to more terrorism against humanity. Even, money laundering and terrorist financing can threaten

financial stability and economic prosperity, adding to the gravity of the underlying crimes. In the extreme scenario, money-laundering activity undermines capital formation within developing economies.

The increased use of online banking reduces the cost and time of the customers and increases the profitability of banking firm with faster banking service to the customers. The money launderers use the online transaction as a method of money laundering and therefore, reduce the confidence of the customers and the profitability of the banking firm. To combat cyber crimes regulations and technologies related to online banking needs to keep updated by the regulators and the FI’s. As a result the, both the users and the service providers might face additional cost for online transactions.

The following things in our country have made a relationship between financial institutions and money laundering. In fact, these are the following reasons for which we can blame banking sector for money laundering.

a) Modern financial systems:

Modern financial systems, in addition to facilitating legitimate commerce, also allow criminals to order the transfer of millions of dollars instantly using personal computers and satellite dishes. Because Money Laundering relies to some extent on existing financial systems and operations, the criminal’s choice of Money Laundering vehicles is limited only by his or her creativity. Money is laundered through currency exchange houses, stock brokerage houses, gold dealers, casinos, automobile dealerships, insurance companies, and trading companies. Private banking facilities, offshore banking, shell corporations, free trade zones, wire systems, and trade financing all can mask illegal activities.

b) Cash Cultures:

Bangladesh being a third world country comparatively takes a longer time to accept technological advancement. This is especially true in the case of financial sector.

Although there has been much development in the financial sector (Cheques, ATM cards, Credit cards, online banking) but still the majority of our population believe in the cash transaction when it comes to business dealings. People in Bangladesh take banking transactions as a hassle. This is due to the poor customer service, long queue, and lack of banking knowledge. In addition to that there is the fear of the given cheque being bounced back due to insufficient balance. Now if the beneficiary maintains account in a different clearing region, it might take as long as one to two weeks for the fund to be received at the designated account after going through different Clearing houses.

Hence to avoid this lengthy and complicated process (as perceived by the majority) Bangladeshis prefer business transactions to be in cash and discard paper transactions as much as possible.

This so-called cash culture is acting as a great advantage to the money launderers. As most of the business people are placing cash money over the counter from their business earnings, it is very convenient for the money launderers to mingle their dirty earnings with their legitimate funds to be put across the bank counter.

c) Private Banking Relationship:

The term private banking generally means the personal or discreet offering of a wide variety of financial services and products to the affluent market. In Bangladesh few of the multinational banks like HSBC, Standard Chartered Bank these customers are referred to as Priority Customers. These operations typically offer individual, commercial business, law firms, investment advisors, trusts, and also personal investment companies may open private banking accounts. Due diligence for private banking customers usually includes a more extensive process than retail customers. It is critical to understand the client’s source of wealth, needs, and expected transactions.

d) Electronic Banking:

This is also known as E-banking. The term possesses a wide area of operation. This could include delivery of information, products, and services by electronic means (such as telephone lines, personal computer, automated teller machine, and automated clearinghouse). Although in Bangladesh we still have a long way to go in this field, but some of the multinational banks and private local banks have already started e-banking and has a good prospect of expanding in this segment of the market and the product offers will continue to grow at a rapid pace. Few of the e-banking services include credit cards, loans, deposits, wire transfer, and bill paying services. This medium of banking is vulnerable to money laundering and terrorist financing because of its user anonymity, rapid transaction speed, and its wide geographic availability.

4.2Vulnerability of the Financial System to Money Laundering:

1) Money laundering is often thought to be associated solely 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 systems and lending do offer a vital laundering mechanism, particularly in the initial conversion from cash, it should be recognised that products and services offered by other types of financial and non-financial sector businesses are also attractive to the launderer. The sophisticated launderer often involves many other unwitting accomplices such as currency exchange houses, stock brokerage houses, gold dealers, real estate dealers, insurance companies, trading companies and others selling high value commodities and luxury goods.

2) Certain points of vulnerability 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:

Entry of cash into the financial system; Cross-border flows of cash; and Transfers within and from the financial system.

3) Financial institutions should consider the money laundering risks posed by the products and services they offer, particularly where there is no face-to-face contact with the customer, and devise their procedures with due regard to that risk.

4) Although it may not appear obvious that the products might be used for money laundering purposes, vigilance is necessary throughout the financial system to ensure that weaknesses cannot be exploited.

5) Banks and other Financial Institutions conducting relevant financial business in liquid products are clearly most vulnerable 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 quickly and easily to move their money from one product to another, mixing lawful and illicit proceeds and integrating them into the legitimate economy.

6) 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.

7) Electronic funds transfer systems increase the vulnerability by enabling the cash deposits to be switched rapidly between accounts in different names and different jurisdictions.

8) 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.

9) Some banks and non-banking financial institutions may additionally be susceptible to the attention of the more sophisticated criminal organizations and their “professional money launderers”. Such organizations, possibly under the disguise of front companies and nominees, may create large scale but false international trading activities in order to move their illicit monies from one country to another. They may create the illusion of international trade using false/inflated invoices to generate apparently legitimate international wire transfers, and may use falsified/bogus letters of credit to confuse the trail further. Many of the front companies may even approach their bankers for credit to

fund the business activity. Banks and nonbanking financial institutions offering international trade services should be on their guard for laundering by these means.

10) Investment and merchant banking businesses are less likely than banks and money changers to be at risk during the initial placement stage.

The following figure describes the money laundering and banking sector relationship:

Fig:4.1 Money Laundering through Banking Sector

From this figure, we can find that banking companies act as a catalyst in money laundering process.

Chapter 5

Money Laundering Situation in Bangladesh

& Analysis of riskiness of Money Laundering

5.1 Money Laundering and Terrorist Financing Risk AssessmentBangladesh is a founding member of the Asia Pacific Group on Money Laundering (APGML)

constituted in the form of the Financial Action Task Force (FATF) for the Asia Pacific region to

prevent money laundering and terrorist financing on a global perspective.

As a result, MLPA, 2002 was enacted in Bangladesh in 2002 as the first South Asian country. A

report prepared in compliance with international standards of preventing money laundering and

terrorist financing and on the progress of its implementation and evaluated mutually by member

countries of APGML was presented in the central conference of APGML.

According to recommendations of the mutual evaluation report, National Coordination

Committee (NCC) led by Finance Minister, was formed by the Government of Bangladesh in

2010 to provide instructions and policies on anti-money laundering and counter-terrorist

financing measures.

The ACC was entrusted with the main responsibility of identifying risks for anti-money

laundering and counter-terrorist financing measures and providing recommendations to combat

risk. Bangladesh Financial Intelligence Unit (BFIU) of Bangladesh Bank and Criminal

Investigation Department (CID) of Bangladesh Police were assigned as its assisting bodies. In

the light of the report prepared by the ACC and its two assisting bodies and the report made by

International Cooperation Review Group (ICRG) after on-site-visit, Bangladesh was recognized

as Compliance Country unanimously in a FATF-meeting held in Paris in February 2014 and

Bangladesh was excluded from the Gray List. As a process of continuing the trend of following

and implementing international standards on anti-money laundering and counter-terrorist

financing measures, the next Mutual Evaluation will be held in October 2015. Since the report on

Money Laundering and Terrorist Financing Risk Assessment is the pre-requisite of Mutual

Evaluation, the ACC, BFIU and CID as assisting bodies are entrusted with the main

responsibilities by the NCC.

A working committee led by Director General of the ACC Brigadier General (Retd.) M H

Salahuddin, was formed to serve the purpose. The working committee for conducting Money

Laundering and Terrorist Financing Risk Assessment collects offence related data and

information for last five years from various government offices, autonomous organizations and

regulatory authorities, law-enforcement agencies and intelligence agencies. These databases are

coordinated with the databases of international organizations, media, research papers and

websites of several organizations. Site visit, group discussion and stakeholder consultation are

held with the participation of people from different walks of life such as administration, law-

enforcement agencies, border guard, coast guard, public representatives, journalists, civil society,

and businessmen to prepare the report. It is noted that Bangladesh will not remain under the

observation of FATF if it becomes able to fulfil all the conditions of the Mutual Evaluation to be

held in October 2015, although Bangladesh has achieved the status of United Nations

Convention and FATF standard observing country in prevention of money laundering and

terrorist financing. Bangladesh will be financially benefited in international trade if it can fulfill

the conditions of Mutual Evaluation by providing a risk assessment report and implementing the

recommendations from FATF and APG. Then the LC confirmation charge for Bangladesh will

be 0.25- 0.05 percent in place of 1 percent against export. It would be a great reduction in the

costs and time line of financial transactions and investments with the rest of the world. As a

result, Bangladesh will be benefited financially with the flourishing of trade and commerce side

by side with this, the opportunities for foreign investment will be widened. The draft Money

Laundering and Terrorist Financing Risk Assessment was prepared in 2014. It will be reviewed

and finalized after the approval of the Commission.

Financial Action Task Force Status

Bangladesh is no longer on the FATF List of Countries that has been identified as having strategic AML deficiencies.

Latest Financial Action Task Force Statement: 14 February 2014

The FATF welcomes Bangladesh’s significant progress in improving its AML/CFT regime and notes that Bangladesh has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in October 2010. Bangladesh is therefore no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. Bangladesh will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report.

Compliance with Financial Action Task Force Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-Money Laundering and counter-terrorist financing standards in Bangladesh was undertaken by the Financial Action Task Force (FATF) in 2009. According to that Evaluation, Bangladesh was deemed Compliant for 1 and Largely Compliant for 5 of the FATF 40 + 9 Recommendations. It was partially compliant or Non-Compliant for 5 of the 6 Core Recommendations.

US Department of State Money Laundering assessment regarding Bangladesh

Bangladesh was deemed a Jurisdiction of Concern by the US Department of State 2014 International Narcotics Control Strategy Report (INCSR).

Key Findings from the report are as follows: -

Perceived Risks

While Bangladesh is not a regional financial center, its geographic location, seaports, and long porous borders with India and Burma make it a transhipment point for drugs produced in both the “golden triangle” of Southeast Asia and “golden crescent” of Central Asia. Drug trafficking, corruption, fraud, counterfeit money, and trafficking in persons are the principal sources of illicit proceeds. Bangladesh is also vulnerable to terrorism financing, including funding that flows through the Hawala/hundi system and by cash courier. The Bangladesh-based terrorist organization Jamaat ul-Mujahideen Bangladesh has publicly claimed to receive funding from Saudi Arabia. Although more work remains, Bangladesh has made important strides in preventing the potential use of its financial system to finance terrorism.

The Bangladeshi economy relies heavily on remittances, with remittances of $15316.91 million in FY-2014-15. According to the central bank, a larger share of remittances is now transmitted through the formal sector, although there remains widespread use of the underground and illegal Hawala/hundi alternative remittance system. Black market money exchanges remain popular because of the non-convertibility of the local currency and scrutiny of foreign currency transactions made through official channels. Alternative remittance systems are also used to avoid taxes and customs duties. Additional terrorism financing vulnerabilities exist, especially the use of non-governmental organizations (NGOs), charities, counterfeiting, and loosely-regulated private banks.

Sanctions: There are no international sanctions currently in force against Bangladesh.

5.2 Position of Bangladesh in Bribery & Corruption Index:

The Corruption Perceptions Index ranks countries/territories based on how corrupt a country’s public sector is perceived to be. It is a composite index, drawing on corruption-related data from expert and business surveys carried out by a variety of independent and reputable institutions.

Index Rank Score (0[highly corrupt] to 100 [clean])

Transparency International Corruption Perception Index

145 / 175 25

Control of corruption reflects perceptions of the extent to which public power is exercised for private gain. This includes both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests. Control of corruption is one of the six dimensions of the Worldwide Governance Indicators.

Index Percentile Rank

World Governance Indicator – Control of Corruption 21 %

This line graph shows the country's percentile rank on governance indicator: control of corruption. Percentile rank indicates the percentage of countries worldwide that rank lower than the indicated country, so that higher values indicate better governance score.

5.3 Basel Anti-Money Laundering Index and Bangladesh’s position: The Basel AML Index is an annual ranking assessing country risk regarding Money Laundering/terrorism financing. It focuses on Anti-Money Laundering and counter terrorist financing (AML/CTF) frameworks and other related factors such as financial/public transparency and judicial strength. This annual ranking is started to be published from 2012 and continues to be the only rating of country Money Laundering / terrorist financing risk by an independent non-profit institution.

The Basel AML Index measures the risk of money laundering and terrorist financing of countries based on publicly available sources. A total of 14 indicators that deal with AML/CFT regulations, corruption, financial standards, political disclosure and rule of law are aggregated into one overall risk score. By combining these various data sources, the overall risk score represents a holistic assessment addressing structural as well as functional elements in the AML/CFT framework. As there are no quantitative data available, the Basel AML Index does not measure the actual existence of money laundering activity or amount of illicit financial money within a country but is designed to indicate the risk level, i.e. the vulnerabilities of money laundering and terrorist financing within a country.

The Basel AML Index ranks countries based on the overall score and provides data that is useful for comparative purposes. However it should be stressed that the primary objective is not to rank countries in comparison to each other. Rather, the Basel AML Index seeks to provide an overall picture of a country’s risk level and to serve as a solid starting point for examining progress over time.

Country Map Based on Their Risk Categories on Basel Anti-Money Laundering Index - 2015

Source - index.baselgovernance.org

On the basis of survey done by Basel AML-2015, this map shows the worldwide survey countries (total 152) that are surveyed and ranked based on their scoring. Higher points indicate the top ranks and the high risk countries, which are shown with red color in the map. And lower points indicate low risk countries shown with green color. Which are in low risk or high risk that is done on the basis of point that starts from 0 to 10. The higher points indicate the higher risk and the lower points indicate the lower risk. The map provides a bird’s eye view of the whole world.

5.3.1 The positions of Bangladesh & South Asian countries in Basel AML Index – 2015 & 2014:

Basel AML Index -2015:

The positions of South Asian countries in Basel Anti-Money Laundering Index 2015 and the position of Bangladesh is shown below table:

From the above table it is clear that Bangladesh is at relatively better position than most of the South Asian countries. According to Basel AML Index 2015, Bangladesh is at 52 th position with overall risk of 6.43 which means Bangladesh lies neither in high risk nor in low risk. Only India with 79th position is at more better condition than Bangladesh. Among South-Asian countries, Afganistan is at the worst condition with 2nd position.

Basel AML Index -2014:

The positions of South Asian countries in Basel Anti-Money Laundering Index 2014 and the position of Bangladesh is shown below table:

Source - index.baselgovernance.org

From the above table it is clear that Bangladesh is not at relatively better position than most of the South Asian countries. According to Basel AML Index 2014, Bangladesh is at 57 th position with overall risk of 6.43 which means Bangladesh lies neither in high risk nor in low risk. But

most of the South-Asian countries like Pakistan, Sri Lanka and India are at more lower risk zone than Bangladesh. Though looking at the whole world’s scenario Bangladesh is neither in high risk nor in low risk, most of the South Asian zones are at more fair condition than Bangladesh. Among South-Asian countries, Afganistan is at the worst condition with 2nd position with overall risk of 8.53 out of 10.

5.3.2 Top Ten High Risk Countries in Basel AML Index – 2015 & 2014:According to the Basel AML Index of 2015 and 2014, the top high risk countries are listed in the below tables.

Basel AML Index -2015:

Source - index.baselgovernance.org

Basel AML Index -2014:

Source - index.baselgovernance.org

In both 2015 and 2014, Myanmar is marked as a high risk zone. It conveys a bad indication for Bangladesh. Because, Bangladesh has border areas with Myanmar. As Myanmar is at high risk of money laundering and terrorist financing, it’s impact will must fall in Bangladesh.

Besides, Afghanistan is at the high risk of money laundering with overall scores of 8.48 and 8.53 in 2015 and 2014 consequently. Among the South Asian countries, Afghanistan is at the top risk. It will have an negative impact on other countries of this same zone.

5.3.3 Change in Bangladesh’s positon in Basel AML Index from 2012 to 2015: In the below graph, the position of Bangladesh in Basel AML Index from 2012 to 2015 is shown:

2012 2013 2014 2015

47th54th 57th

52th

Position of Bangladesh in Basel AML Index from 2012-2015

Year

Rank

2012

2013

2014

2015

6.2 6.25 6.3 6.35 6.4 6.45

6.28

6.34

6.38

6.43

Position of Bangladesh in Basel AML Index from 2012 -2015

Overall Scores

Year

The above graphs show that in 2012 Bangladesh was in 47th position scoring 6.28 and the next year in 2013 Bangladesh achieved 54th position scoring 6.34 and in 2014 Bangladesh has taken 57th position scoring 6.38 and in the at 52th position scoring 6.45 in 2015. The score of Bangladesh is increasing gradually which is not a good sign but the ranking is better. Though it is not for the score that Bangladesh achieved but for the increased number of survey countries. It seems that the score is increasing a bit in every year.

5.4 “goAML” Software and its use by Bangladesh Financial Intelligence Unit : ‘goAML Software:

The United Nations Office on Drugs and Crime (UNODC) standard software system available for Financial Intelligence Units to counter Terrorist Financing and Money Laundering.

The Information Technology Service (ITS) of the United Nations Office on Drugs and Crime (UNODC) specializes in the development; deployment and support of software applications for use by Member States in a range of UNODC's focus areas.

goAML is a UNODC response to combat money-laundering. It is an intelligence analysis system intended to be used by the FIU (Financial Intelligence Unit). FIUs have a big role to play as they have access to financially related information that provides a base for financial investigations. An FIU is responsible for receiving, analysing and processing reports required from financial institutions or person referred to in national anti-money-laundering legislation.

Key Features of “goAML” : The key features of goAML is givne listed below:

Bangladesh Financial Intelligent Unit:

Bangladesh Financial Intelligence Unit (BFIU) is the central agency of Bangladesh responsible for analysing Suspicious Transaction Reports (STRs), Cash Transaction Reports (CTRs) & information related to money laundering (ML) /financing of terrorism (TF) received from reporting agencies & other sources and disseminating information/intelligence thereon to relevant law enforcement agencies. BFIU has been entrusted with the responsibility of exchanging information related to money laundering and terrorist financing with its foreign counterparts. The main objective of the BFIU is to establish an effective system for prevention of money laundering, combating financing of terrorism and proliferation of weapons of mass destruction.

BFIU was established in June 2002, in Bangladesh Bank (Central bank of Bangladesh) named as 'Anti Money Laundering Department'. To enforce and ensure the operational independence of FIU, Anti Money Laundering Department has been transformed as the Bangladesh Financial Intelligence Unit (BFIU) in 25 January, 2012 under the provision of Money Laundering Prevention Act, 2012 and has been bestowed with operational independence.

Use of ‘goAML’:

In Bangladesh BFIU controls the use goAML software. Three types of organization can use this software who are subject to report to BFIU or correspond / exchange their information with BFIU. They are-

Organization Type

Description Examples

Data Collection

Workflow system Data Clean up

Task Assignment

and Tracking

Ad-hoc queries and matching

Document Management

Statistical reports

Intelligence file management

system

Structured analysis

Integration and/or data acquisition

Profiling Charting and diagramming

Rule based analysis

Intelligence report writer

Reporting Entity

The organization which is subject to report to the BFIU.

Bank, Insurance Company etc

Stakeholder The organization which correspond/exchange information with BFIU

Police, CID, Election Commission, customs, passport office etc

Supervisory Body

A group of companies or organization controlled by a supervisory body which is subject to report to the BFIU

Car Dealer Association, Audit Firm, Security Exchange Commission etc

Bangladesh and “goAML” :

The flow char mentioned below show how the goAML software is deployed in Bangladesh.

5.5 Recent money laundering situation & role of ACC: The money laundering inquiries and investigation conducted by Anti Corruption Commission is discussed below:

5.5.1 Money Laundering Enquiries conducted by ACC:In 2014, the Commission gave emphasis on money laundering enquiries. A total of 226 enquires were undertaken in the year which was almost 6 and 1.5 times respectively more than those of 2012 (39 enquiries) and 2013 (180 enquiries). The table shown below gives an idea about ACC's performance in case of resolving money laundering enquiries and outcomes of these enquiries.

30 July 2012

Bangladesh signs goAML agreement

20 September 2012

goAML version 3.4 deployed in Bangladesh

6 September 2013

goAML upgraded to version 4.0 in Bangladesh

Description NumberUnresolved enquiries from the previous year 137

No. of enquiries undertaken in the year 89Total no. of enquiries 226No. of enquiries resolved 60No. of cases (FIR) lodged based on enquiries 20No. of enquiries filed for record 40

Figure: ACC’s performance of money laundering inquires in 2014

5.5.2 Money Laundering Investigation conducted by ACC:There were 171 investigations in 2014 of which 37 were newly undertaken and the remaining 134 from the previous year. The Commission completed investigations in 63 money laundering cases and submitted 50 charge-sheets on the basis of these investigations in 2014. The table shown below gives an idea about ACC's performance in case of resolving money laundering investigations and outcomes of these investigations.

Description NumberUnresolved investigations from the previous year 134

No. of investigation undertaken in the year 37Total no. of investigations 171No. of investigations resolved 63No. of charge-sheets submitted 50No. of final reports submitted 13

5.5.3 Recent Money Laundering Events investigated by ACC:

Corruption of the Bismillah Group:

The Commission took decision to enquire into the matter of corruption of Bismillah Group on

the basis of allegation. During the enquiry, the ACC formed a five-member team led by

Commission's Deputy Director, Syed Iqbal Hossain to enquire into the matter on the basis of

news published in several national dailies in this regard. After analysis of the allegation, it is

found that the alleged persons submitted forged export contract/documents for embezzlement of

huge amount of money from Bhaban Corporate Branch, Moghbazar Branch and Elephant Road

Branch of Janata Bank Limited, Dilkusha Branch of Jamuna Bank Ltd., Motijheel Branch of

Premier Bank Ltd., Motijheel Branch of Prime Bank Ltd. and from Eskaton Branch of Shahjalal

Islami Bank Ltd., through Bismillah Group and its associated companies. The concerned bank

managers including officials by violating Guidelines for Foreign Exchange Transaction 2009,

being profited or hoping to be profited, adjusted the fake/forged accommodation bills to the

effect that goods had been exported by the companies though it was not done. Later on, without

showing any objection against 'Back to Back Letter of Credit (LC)' of Bismillah Group, they

assisted directly the alleged Khaza Solaiman Anwar Chowdhury with others to misappropriate

money through corruption, fraud and forgery. The bank officials committed offences under

MLPA, 2012 by issuing FDBP against fake export bill, opening 'Back to Back LC' against Sales

Contract and disbursing 'Forced Loans' from the banks. Twelve cases (FIR) were lodged against

the alleged persons under Section 4 (2), (3) of MLPA, 2012 with several police stations after the

approval of the Commission on the basis of the enquiry report.

Amount of money embezzled and laundered:

Serial

no.

Bank’s name Branch name Funded Taka

(Crore)

Non-funded

taka (Crore)

1.

Janata Bank Ltd.

Bhaban Corporate Branch 307.38 25.53

Moghbazar Branch 177.10 1.60

Elephant Road Branch 15.34 0.00

2. Prime Bank Ltd. Motijheel Branch 265.20 61.08

3. Premier Bank Ltd. Motijheel Branch 23.22 39.31

4. Jamuna Bank Ltd. Dilkusha Branch 108.64 46.02

5. Shajalal Islami Bank Eskaton Branch 93.15 10.89

Total 990.03 184.43

In the 12 cases, total alleged persons are 53 and amount of embezzled and laundered money is

BDT 1174.46 crore. Four investigation officers of the Commission already submitted

investigation reports of the cases. Further lawful measures will be taken according to the

decision of the Commission.

Chapter 6

The impacts of Money Laundering

6.1 Impacts of Money Laundering on Economy of the World:

The money laundering impact on the economy is highly staggering in the whole world. The situations are highly noticeable. The conditions will be better understandable if we see from the core of the concern. We will summarize the classification of the different such types of effects that are done on the economy by none other than money laundering:

Figure 6.1: Effects on Economic Development

6.1.1 Brief Statistics and Core Related Ways of Money Laundering:

Depending on which international agency you ask, criminals launder anywhere between $500 billion and $1 trillion worldwide every year. The global effect is staggering in social, economic and security terms. In 1996, the aggregate size of money laundering in the world may be between 2% and 5% of the world’s gross domestic product.

On the socio-cultural end of the spectrum, successfully laundering money means that criminal activity actually does pay off. This success encourages criminals to continue their illicit schemes because they get to spend the profit with no repercussions. This means more fraud, more corporate embezzling (which means more workers losing their pensions when the corporation collapses), more drugs on the streets, more drug-related crime, law-enforcement resources stretched beyond their means and a general loss of morale on the part of legitimate business people who don't break the law and don't make nearly the profits that the criminals

The economic effects are on a broader scale. Developing countries often bear the brunt of modern money laundering because the governments are still in the process of establishing regulations for their newly privatized financial sectors. This makes them a prime target. In the 1990s, numerous banks in the developing Baltic States ended up with huge, widely rumored

Impacts on Economic

Development

Financial Sector

Real Sector

External Sector

deposits of dirty money. Bank patrons proceeded to withdraw their own clean money for fear of losing it if the banks came under investigation and lost their insurance. The banks collapsed as a result. Other major issues facing the world's economies include errors in economic policy resulting from artificially inflated financial sectors. Massive influxes of dirty cash into particular areas of the economy that are desirable to money launderers create false demand, and officials act on this new demand by adjusting economic policy. When the laundering process reaches a certain point or if law-enforcement officials start to show interest, all of that money that will suddenly disappears without any predictable economic cause and that financial sector falls apart.

Some problems on a more local scale relate to taxation and small-business competition. in tax revenue. Also, legitimate small businesses can't compete with money-laundering front businesses that can afford to sell a product for cheaper because their primary purpose is to clean money, not turn a profit. They have so much cash coming in that they might even sell a product or service below cost.

The majority of global investigations focus on two prime money-laundering industries:

Drug trafficking Terrorist organizations.

The effect of successfully cleaning drug money is clear: More drugs, more crime, and more violence. The connection between money laundering and terrorism may be a bit more complex, but it plays a crucial role in the sustainability of terrorist organizations. Most people who financially support terrorist organizations do not simply write a personal check and hand it over to a member of the terrorist group. They send the money in roundabout ways that allow them to fund terrorism while maintaining anonymity. And on the other end, terrorists do not use credit cards and checks to purchase the weapons, plane tickets and civilian assistance they need to carry out a plot. They launder the money so authorities can't trace it back to them and foil their planned attack. Interrupting the laundering process can cut off funding and resources to terrorist groups.

6.1.2 Impacts on Financial Sector:

1. Increased Crime and Corruption:

Successful money laundering helps make criminal activities profitable. Thus, to the extent that a country is viewed as a haven for money laundering, it is likely to attract criminals and promote corruption. Havens for money laundering and terrorist financing have:

a weak AML/CFT regime;

some or many types of financial institutions that are not covered by the AML/CFT framework;little, weak or selective enforcement of AML/CFT;ineffective penalties, including difficult confiscation provisions; anda limited number of predicate crimes for money laundering.

2. Undermining the Integrity of Financial Institutions and Markets:

The success of money laundering exploits has far reaching impact on the whole financial systems of many developing countries. Laundered money eventually flows into the international financial system and in the course of this process; countries that integrate into the global financial systems are exposed to the phenomenon of money laundering. Elaborating on the fact, the one-time chairman of the EFCC Nigeria, Nuhu Ridadu, stated that the amount involved in various forms of transnational economic and financial crimes especially corruption, are often so large that it affects both the integrity of domestic economies and the global financial systems40. For instance, an estimated amount of $100 billion was corruptly exported from Nigeria between mid 1980s and 1999 while more than $ 1 trillion illicit funds flowed into the United States annually through the international financial systems and this includes the proceeds from drug trafficking and other forms of economic and financial crimes. In further reference to the Nigeria financial system, between the 80s and 90s, the reputation of the financial system in the country was at its lowest at this period. This was primarily down to the damaging status of the nation’s financial system attributed to the negative impact of economic and financial crimes that were rampant at the time. During this period, most potential foreign investors were reluctant to extend their commercial ventures to the Nigeria primarily because of the aforementioned reason. Consequently, the financial institutions in the country relied overwhelmingly on the ill-gotten capital drained off by corrupt political office holders. Hence, these financial institutions were unable to endure the tests of market competition. As a result, many of these financial institutions disintegrated42, thus, exposing the instability of the country’s financial system and deemed not to investment friendly. The situation amounted to hindrance that hampered the surge of investments and economic development in the country, even to this moment.

3. Loss of Control of the National Economic Policy:

One time director of the International Monetary Fund (IMF), Michael Camdessus, once estimated the scale of money laundering as between 2% to 5% of world Gross Domestic Product (GPD)43. In his this perspective, developing countries are poised to losing control of their domestic economic policies as illicit capital accrued from money laundering activities and other economic and financial crimes are capable of dwarfing government budgets and destabilize

domestic markets44. Furthermore, an IMF working paper concludes that money laundering impacts financial behavior and macro-economic performance in different forms such as policy mistakes, due to measurement errors in national account statistics, volatility in exchange and interest rates due to unanticipated cross border transfers of funds; the threat of monetary instability due to unsound asset structures; effects on tax collection and public expenditure allocation due to misreporting of income; misallocation of resources due to distortions in asset and commodity prices; and contamination effects on legal transactions due to the perceived possibility of being associated with crime45. Thus, in some developing countries, the illicit proceeds from criminal ventures dwarf government budgets, thereby, leading to a loss of control of their economic policies. Furthermore, the exploits of money laundering and currency manoeuvring can harmfully undermine currencies and interest rates46, more predominantly, in a developing economy. This is evident in a developing country such as Nigeria.

The country relies on the acquisition of other currencies so as to fulfill her international obligations in satisfying local needs. Thus, uncurbed money laundering practice in the country adversely impinges on currencies and interest rates through reinvestment of funds where the schemes will be fairly safe from suspicion than where rates of returns are higher. As profit making is not the stimulating factor for investing the proceeds of economic crimes in any business47, it is always convenient for money launderers to move the funds around as the situation may demand. Therefore the economic insinuation is such that the unfounded movement of funds establishes inexplicable changes in monetary demand and escalate instability of international capital flows, interest and exchange rates48.This is a situation that works, in return, against sound national economic policy formation an implementation.

4. Economic Distortion and Investment Instability:

Money launderers, in their quest to disguise the source of their ill-gotten proceeds, divert the proceeds from one economic venture to another without sound economic reasons. Also, as there is no motive to generate profits, money launderers, most often, invest their illicit funds in economic and commercial ventures that do not, primarily, benefit the economy of the country where such illicit funds are situated. When making the investment decisions, money launderers apparently pay high premiums on the investments that will allow the illicit proceeds be protected from suspicion. In other words, money launderers do not necessarily pursue high profits generated investments but for investments that simply allow the recycling of their illicit proceeds even if it entails taking a low rate of return50.

Consequently, the situation rises in which there is the movement of capital from countries that produces higher rates of returns to countries with poorer economic policies and low rates of return, thereby infringing the law of economics. According to Vito Tanzi, a renowned international economist, at the domestic stage, large capital inflows or outflows artificially accentuated laundering process would adversely affect exchange rates and interest rates thereby fundamentally influencing the process of particular assets towards which the capital is invested51. With the exchange rate left to fluctuate unhampered, the inflow of vast amounts of capital into a country would lead to its appreciation and to an expansion of the country’s money base due to capital inflow therefore resulting to increasing the demand for domestic money which would be contented by the monetary authorities of the countries that are affected. According to Vito Tanzi, the inflation of the exchange rate would result to the situation in which traditional exports lose competitiveness to the imports while domestic prices rise up as a result of the pressure from the country’s monetary base. Vito Tanzi describes this economic nature as “Dutch disease” and will incite the country’s economic policy makers to “tighten its fiscal policy in order to create a budgetary surplus to use to sterilize the money effects of the capital inflows53.

Vito further declared that a country undergoing a capital outflow would have reverse effects of the above explanations54. In practical terms, the artificial inflow and outflow of capital and investments from one country to another would have weakening effects on the international financial markets due to its integrated nature55. Therefore, a distortion of this nature means that financial difficulties arising from one financial centre can easily spread to other financial markets and therefore stall economic growth and create financial instability. In this context for instance, the Nigerian economic policies in the 80s and late 90s endured serious economic distortions channeled predominantly by money laundering activities as well as other economic and financial crimes through diversion and redirection of capital from sound to low quality investments56. It was not for a while for the consequences of these criminal activities to reflect on the financial system of the country57. Major financial institutions in the country, primarily banks, collapsed midstream and were officially liquidated as a result of diversion of funds. Also, many other financial institutions endured untimely distress and in some cases, total collapse as deposits of the illicit proceeds of money laundering activities lodged in these financial institutions disappeared ceremonially and within a short period of time.

5. Undermining the Legitimate Private Sector:

One of the most serious microeconomic impacts of money laundering, particularly in many developing countries, is felt in the private sector59. Money launderers often use front companies, to fuse the proceeds of their illicit activities with legitimate funds, to hide their illicit proceeds60. With access to substantial illicit funds, these front companies are able to subsidize their products

and services at levels that are well below market rates61. In some instances, the front companies offer products at prices that are below what it costs the manufacturers to produce. Therefore, the front companies, in this instance, usually have a competitive advantage over legitimate companies or manufacturers that draw capital funds from financial markets. This makes it difficult, if not impossible, for legitimate business to compete against front companies with subsidized funding. As a consequence, the private business sectors of many developing countries are, often, overcrowded with criminal. organizations64. Clearly, the management principles of these criminal enterprises are not consistent with traditional free market principles of legitimate business, which results in further negative macroeconomic effects.

6. Risk to Government Privatization Efforts:

Seemingly, the concept of privatization in many developing countries, with the aim of promoting economic growth, attracts money launderers66. This is attributed to the 'legitimacy' that a money launderer is able to acquire by purchasing into a previous government corporation and/or by being linked to the high volume of transaction. As a result, government corporations are ideal vehicles for laundering money. Money launderers are also able to bid higher prices for these corporations, a practice that undermines fair and legitimate competition69. Legitimate buyers who believe that the bidding process has been compromised are unlikely to bid in future. In this regard, money laundering activities threaten the efforts of many developing countries to reform their economies through privatization, thereby stalling economic growth. Organized criminal organizations are capable of outbidding legitimate purchasers of state-owned enterprises71. When illicit proceeds are invested in this manner, criminals increase their potential for more criminal activities and corruption, as well as deprive the country of what should be a legitimate, market-based, taxpaying enterprise. In reference to Nigeria, over the two decades, different government administrations have embarked on structural reforms of the nation’s economic and financial systems in response to the country’s economic and financial instability. The reforms were intended to stabilize the country’s economic and financial sector. One of such reforms has been the privatization and deregulation policy. In essence, the policy permits the private business enterprises and individuals to be involved in the vital facets of the economy such as the midstream and downstream in the oil and gas, communication and energy sectors, with the goal of attaining economic and commercial growth73. In this regard, many of the state owned enterprises have been bought up by private business enterprises and individuals. However, the exploits of money launderers along with corrupt officials have threatened the effective implementation of the policy. In other words privatization exercise has been usurped by individuals and corrupt public office holders with financial ability to outbid legitimate and prospective purchasers of formerly state owned enterprises. Furthermore, while deregulation and privatization policy initiatives are often economically beneficial in term of efficiency, better services delivery, job creation and so on, the policies if not properly monitored, can also serve as a venue to accommodate and integrate illicit drug funds and ill-gotten wealth from corruption and

embezzlement of public funds. So much so that EFCC Nigeria in a report stated that the privatization exercise in Nigeria was being threatened by the involvement of funds from questionable sources.

7. Reputation Risk:

With the increasingly infiltration of money laundering activities in the economies of the developing countries along with lack of transparency and high level of corruption, developing countries having been finding it difficult to attract foreign investments which are contributory factors to economic development and financial stability. The negative damaging reputation attributed to these activities reduces legitimate international opportunities and sustainable economic growth and, on the other hand, drawing international organized criminal groups with undesirable reputations and temporary goal, therefore diminishing development and economic growth. On this basis, most developing countries characterized with high level of corruption, insecurity, economic and financial instability and social unrest, have persistently failed to attract adequate foreign investments to boost their economic and financial growth. In practice, international financial markets as well as investors only extend their ventures and investments to an economic environment perceived to be investor friendly. In this context, as a case study, Nigeria today is struggling with the huge task of providing an investor-friendly economic environment short of market manipulation, insider trading, money laundering, advance fee fraud, insecurity and other forms of corruption and financial abuse practices, in its quest to attract adequate foreign investments. The dominance of economic and financial crimes in the country has been, to a degree, liable for this lack of adequate foreign inflow of investments. In its report, the World Bank alleged that the Nigerian government misappropriated about sixty five billion Naira (N65 billion) out of the $ 458 million repatriated to Nigeria by the Swiss government. This was the money hidden in Swiss Banks by the country’s late head of state, Genera

Sani Abacha. Furthermore, The 2002 Report of the Accountant General of the Federal Republic of Nigeria on the management of the country’s finances in year 2001 was sated with copious occasions of financial irregularities, non- compliance with standard financial procedures varying from lack of audit inspection, over invoicing, non- retirement of cash advances, payment for contract not executed, double debiting, lack of receipt to back up purchases made, and release of monies without prior approval from the appropriate authority. The cumulative effect of the above development has been attributed as one of the reasons why the Financial Action Task Force (FATF), until May 2006, retained Nigeria in the list of Non- Cooperative Countries and Territories (NCCTs).

8. Loss of Revenue:

Money laundering, amongst other economic and financial crimes, is a source of reduction of government revenue. In essence, the phenomenon of money laundering, together with other economic and financial crimes, reduces government tax revenue. Maiendra Moodley in her article stated that money laundering and its predicate offences are factors that contribute to the tax gap, as these activities decrease the amount of tax collected in South Africa81. The tax gap in Africa is has been estimated to be over 40 percent82, while South Africa loses an estimated sum R30 on from tax invasion and other tax related fraud83. The South African Revenue Services (SARS), in its review in 2006, declared that that between 25 and 35 percent of all domestic businesses did not pay income tax, and that a large number of individuals were not registered as taxpayers84. These businesses and individuals would then need to launder the income that they received, and/or hoard this income to avoid being detected by. As a result, government revenue was reduced due to tax evasion, therefore impeding service delivery.

So, these are the impacts of money laundering on the financial sector. Now, the real sector will be discussed:

Impacts on Real Sector:

Money laundering distorts investment and depresses productivity.Money laundering facilitates corruption and crime at the expense of developmentMoney laundering can increase the risk of macroeconomic instabilityCriminal organizations can transform productive enterprises into sterile investments.An efficient money-laundering channel is a key "input" to crime because the financial proceeds from crime are less valuable to the criminal than are laundered fundsThe less expensive the money-laundering "input" to crime, the more "productive" the criminal element will be.

Relationship between Money Laundering, Crime and Corruption:

C

O

S

T

MC= Cost of Committing Crime

MR = Crime opportunities

Quantity of Crime

Figure: 6.2 Relationship between Money Laundering, Crime and Corruption

Illustration:

Here, we find that when the cost decreases, the quantity of crime increases where the marginal revenue and marginal cost causes an equilibrium in the point where crime opportunities and cost of committing crimes equate.

So, this is all about the impact of money laundering on real sector. Now, we are going to discuss on the impact of money laundering on external sector:

Impact on External Sector:

Money Laundering restricts capital flows facilitating illicit capital flight.Money laundering depresses foreign investment.Distorts prices and contents of the product.Worsens scarcity of capital in the developing countries like Bangladesh.Causes difficulties in policy making.Discourages the foreign economic agents to invest in the developing countries like Bangladesh.

So, these are the main impacts of money laundering on the external sector.

By scrutinizing the secondary data on the incidents and scholar’s viewpoints we have erected the points that stood to be highly considerable to be pointed out by our judgments. The impacts that have been discussed here just are the summarized version of different dispersed viewpoints on the aspect of the economy of the whole world.

6.2 The Impacts of Money laundering on the Developing Country like Bangladesh:

The impacts of money laundering on a developing country like Bangladesh is highly noticeable in the sense that it is deteriorating the economic, financial, political, emotional, habitual, environmental, banking and other transactional areas where in a word commerce prevails. The conditions as a consequence of the impacts of it are highly alarming. Under the utmost scrutiny

of the impacts of money laundering on different viewpoints, we have become successful in summarizing in key ten points which are given below:

Sl. No: The Impacts of money laundering on Bangladesh

01 Reduced intention to deposit among the common savers.

02 Damaged Reputations and International Consequences

03 Weakens Financial Institutions

04 Providence of less loans and advances in the executive areas.

05 Damaged Privatization Efforts

06 Loss of control of National Economic Policy

07 Damages policy making of the Central Bank

08 Initiates the growth of illicit way of money earnings and transference.

09 Reduces foreign investments

10 Comprised economy and private sector.

Here, the chart is narrated very briefly:

1. Reduced intention to deposit among the common savers:

Due to money laundering, the common savers always remain in doubt whether to invest their scarce resources into the bank or not. That’s why the problem that arises in the way of investment of their scarce resources causes huge impediment to a nation’s development. As a consequence the banks and other financial institutions and investment corporations get deceased in their attempts of capital formation

2. Damaged Reputations and International Consequences:

A reputation as a money laundering or terrorist financing haven, alone, could cause significant adverse consequences for development in a country. Foreign financial institutions may decide to limit their transactions with institutions from money laundering havens; subject these transactions to extra scrutiny, making them more expensive; or terminate correspondent or lending relationships altogether. Even legitimate businesses and enterprises from money laundering havens may suffer from reduced access to world markets or access at a higher cost due to extra scrutiny of their ownership, organization and control systems. Any country known for lax enforcement of AML/CFT is less likely to receive foreign private investment. For developing nations, eligibility for foreign governmental assistance is also likely to be severely

limited. Finally, the Financial Action Task Force on Money Laundering (FATF) maintains a list of countries that do not comply with AML requirements or that do not cooperate sufficiently in the fight against money laundering. Being placed on this list, known as the “non-cooperating countries and territories” (NCCT) list 2 gives public notice that the listed country does not have in place even minimum standards. Beyond the negative impacts referred to here, member countries of FATF could also impose specific counter-measures against a country that does not take action to remedy its AML/CFT deficiencies.

3. Weakens Financial Institutions:

Money laundering and terrorist financing can harm the soundness of a country’s financial sector, as well as the stability of individual financial institutions in multiple ways. The following discussion focuses on banking institutions, but the same consequences are also applicable to other types of financial institutions, such as securities firms, insurance companies, and investment management firms. The adverse consequences generally described as reputational, operational, legal and concentration risks are interrelated. Each has specific costs:

loss of profitable businessliquidity problems through withdrawal of funds,termination of correspondent banking facilities,investigation costs and fines,asset seizures,loan losses anddeclines in the stock value of financial institutions.

Reputational risk is the potential that adverse publicity regarding a bank’s business practices and associations, whether accurate or not, will cause a loss of confidence in the integrity of the institution. Customers, borrowers and depositors, as well as investors cease doing business with an institution whose reputation has been damaged by suspicions or allegations.

4. Providence of less loans and advances in the executive areas:

In the executive, commercial and public sector the tendency of the banks and financial institutions of providing loans get highly reduced when the tendency of money laundering and amount of bad debts increase. Again, many potential sectors sometimes get deprived of being advanced and sanctioned loans due to the liquidity security of the banks and financial institutions that are caused by the reasons of monetary crimes due to money laundering. Again, it causes less development of a country like Bangladesh.

5. Damaged Privatization Efforts:

Money Laundering has many negative effects on many sectors of the economy. On e of them can be termed as the headline given above. Money launderers threaten the efforts of many countries to reform their economies through privatization. These criminal organizations are capable of outbidding legitimate purchasers of former state-owned enterprises. When illicit proceeds are invested in this manner, criminals increase their potential for more criminal activities and corruption, as well as deprive the country of what should be a legitimate, market-based, taxpaying enterprise.

6. Loss of control of National Economic Policy:

Due to money laundering, one of the main obstacles that are created is loss of control of national economic policy. As money control policy is governed by the Bangladesh Bank in Bangladesh under the direction of the Government of Bangladesh, any predetermined policy changes can cause great difficulties in the circulation of money and other monetary instruments. Also many speculation businessmen can cause many troubles in the systematic running of the national economic policy. That’s how the minor or major negative influence of money laundering can cause huge loss to national economic policy.

7. Damages policy making of the Central Bank:

Money laundering causes the insolvency of any bank that is exposed to the crime of money laundering. Such situation of any bank directly or indirectly affects the central bank (Bangladesh Bank). Sometimes the bank rate, open market policy and reserve rate policy get useless in the face of financial crimes like money laundering because such risks are highly volatile and uncertain. No previous measures are taken because it’s diversifiable risk. So, measures are considered to be loss financing.

8. Initiates the growth of illicit way of money earnings and transference:

Money laundering initiates the growth of speculation business, black money, terrorist financing, smuggling, drug business and other types of illegal businesses. As all these types of illegal businesses are interrelated with money laundering, so both are positively related to each other. The growth of the single variable of money laundering can be consequence by increasing illicit way of money laundering.

9. Reduces foreign investments:

The foreign investors consider the risk and return in the context of profitability of investment comparing to other investments. As money laundering is fully uncertain, it can’t be predetermined. The previous occurrences of such accidents help the foreign investors to draw an estimate of the volatility of their investment. The frequency of money laundering definitely

discourages the foreign investors from the centre. It causes ultimately a great loss to the country and nation from not only economic but also other significant viewpoints.

10. Comprised economy and private sector:

Money launderers are known to use “front companies,” i.e., business enterprises that appear legitimate and engage in legitimate business but are, in fact, controlled by criminals. These front companies co-mingle the illicit funds with legitimate funds in order to hide the ill-gotten proceeds. Front companies’ access to illicit funds, allows them to subsidize the front company’s products and services, even at below-market prices. As a consequence, legitimate enterprises find it difficult to compete with such front companies, the sole purpose of which is to pre-serve and protect the illicit funds, not to produce a profit. By using front companies and other investments in legitimate company’s money laundering proceeds can be utilized to control whole industries or sectors of the economy of certain countries. This increases the potential for monetary and economic instability due to the misallocation of resources from artificial distortions in asset and commodity prices. It also provides a vehicle for evading taxation, thus depriving the country of revenue.

So, these are considerable the major impacts that money laundering can have on a developing country like Bangladesh. The impacts are highly devastative in the sense that it’s a completely uncertain crime depending on the economic condition’s volatility of a country and resulting in the panic creating impacts discussed above.

Chapter 7

Preventions of Money Laundering

7.1 Anti money laundering:After identifying the major role played by the money launderers in the illicit drug trade, In 1980, the government around the world started implementing laws particularly outlawing money laundering. These laws were created in large part to assist agencies around the world. The 1986 U.S. Money Laundering Control Act was one of the first such laws and was followed by similar laws in United Kingdom, France and other countries. From the outset it was clearly evident that the only domestic legislations were not enough as money laundering was a global crime. The more connected and integrated the financial system of the world becomes, the easier it is for launderers to transfer the dirty money worldwide. This created the demand of an international response for such an international crime. Therefore in 1988, the United Nation implemented the Vienna Convention against the illicit money from the drugs and that was the first multilateral agreement that particularly notify money laundering. 171 countries signed that convention and 168 countries implemented that. The domestic laws developed by these countries for money laundering acted as backbone to the global regime of money-laundering.

7.1.1 Reasons for combating money laundering:

There are several reasons for combating money laundering. These are:

Money laundering has a devastating economic, security and social consequences. Its provide fuel for drug dealers, smugglers, terrorists, illegal arms dealers, corrupt public officials and others to operate and expand their criminal networks.

These increases governments cost for law enforcement and health care expenditure.

Money  laundering  reduces  government’s  tax  revenue.  It  also  makes  government’s  t

ax collection difficult and as a result tax rate goes up.

Money laundering misleads asset and commodity prices and leads to a misallocation

of resources.

Money laundering can leads to an unsound asset structure and thus create risk of monetary

instability for banks.

One of the most serious micro economic effects of the money laundering is felt in the

private sector. Money laundering often uses front companies, for co-mingling their illicit

proceeds with legitimate funds, to hide the ill-gotten gains. Because of substantial illicit

funds, these front companies can subsidize their products and services at levels well

below market rates. This makes it difficult for legitimate business to compete against

front companies. This situation can result in the crowding out of legitimate private sector

business by criminal organizations. Another negative socioeconomic effect of money laundering is, it transfers from the

market, governments and citizens to criminals.

The social and political cost of laundered money is also serious as laundered money may be used to corrupt national institutions.

Money laundering damages the moral fabric of society and weakens collective ethical standards.

Money laundering weakens reputation of financial institution and at the same time reputation of the country.

7.1.2 Some international framework and guidelines against money laundering: Money laundering control act by USA,1986 The UN Vienna Convention against Illicit Traffic In Narcotic Drugs And Psychotropic

Substances,1998 Financial Action Task Force and Functions (FATF),1989 Blacklisting by IMF,1999

7.1.3 European Union’s Anti Money Laundering Strategy: First Anti-Money Laundering Directive,1991 The Amending Directive by EC,2001 Third Money Laundering Directive by EC,2005

7.2 Anti money laundering (AML) in Bangladesh:

Although Bangladesh has taken many steps to prevent money laundering, it continues to be a large problem within the country. On January 11, 2007, a caretaker government came to power after declaring a state of emergency. Under the new government, there has been an increase in the amount of funds laundered through the official banking system. As a response to this, fighting corruption is now one of the main goals of the caretaker government in power.

The main vulnerability for money laundering remains the use of the underground hawala or “hundi” system, used to transfer money and valuables outside of the formal banking system. The greatest use of the hundi system is to repatriate wages from expatriate Bangladeshi workers. Although banks have recently increased their speed and efficiency in making remittances, hundi remains a thriving system due to its ability to avoid taxes, customs duties and currency controls.

To battle the problems of money laundering, the government enacted the Money Laundering Prevention Act in 2002. Then, in 2007, the government enacted the UN Convention against Corruption (UNCAC). Also in 2007, the government recognized the Central Bank’s Anti-Money Laundering Department (AMLD) as the country’s official Financial Intelligence Unit (FIU). In 2008, the government promulgated the Money Laundering Prevention Ordinance (MLPO 2008) and the Anti-Terrorism Ordinance (ATO 2008). Both ordinances facilitate international cooperation in battling money laundering, including working to recover funds illegally transferred to or from foreign countries.

7.2.2 Legal framework and guideline against money laundering in Bangladesh:

Money laundering prevention Act,2002

Money laundering prevention ordinance,2008

Money laundering prevention Act,2009

Money laundering prevention Ordinance,2012

Money laundering prevention Act, 2012.

7.3 Guidance notes on the prevention of money laundering issued by Bangladesh Bank:Here are the some extract of money laundering prevention act, 2002 and guidance of Bangladesh bank describing the forms, scope, process and various punishment under money laundering crime.

7.3.1 Requirements under money laundering prevention act 2002:

The legislation specifically relating to money laundering is contained in the Money Laundering Prevention Act 2002 (Act No. 7 of 2002) the provisions of which supersedes whatever may

contain in any other Act in force in Bangladesh. So far as financial service providers are concerned, the Act:

Defines the circumstances, which constitute the offence of money laundering and provides penalties for the commission of the offence (Section 2,Tha)

Requires banks, financial institutions and other institutions engaged in financial activities to establish the identity of their customers (Section 19,Ka)

Requires banks, financial institutions and other institutions engaged in financial activities to retain correct and full information about their customers and transaction records at least for five years after termination of relationships with the customers (Section 19,Ka)

Imposes an obligation on banks, financial institutions and other institutions and their employees engaged in financial activities to make a report to the Bangladesh Bank where:

- they suspect that a money laundering offence has been or is being committed ( Section 19,Ga)

- provide customer identification and transaction records to Bangladesh Bank from time to time on demand (Section 19,Kha)

7.3.2 Responsibilities of Bangladesh Bank:

The Act gives Bangladesh Bank broad responsibility for prevention of money laundering and wide-ranging powers to take adequate measures to prevent money laundering, facilitate its detection, monitor its incidence, enforce rules and to act as the prosecuting agency for breaches of the Act. The responsibilities and powers of Bangladesh Bank are, in summary (Section 4 and 5 of the Act):

To investigate into all money laundering offences. Supervise and monitor the activities of banks, financial institutions and other institutions

engaged in financial activities. Call for reports relating to money laundering from banks, financial institutions and other

institutions engaged in financial activities, analyze such reports and take appropriate actions.

Provide training to employees of banks, financial institutions and other institutions engaged in financial activities on prevention of money laundering.

To authorize any person to enter into any premises for conducting investigations into money laundering offences.

Persons authorized by Bangladesh Bank to investigate offences can exercise the same powers as the Officer in Charge of Police Station can exercise under the Code of Criminal Procedure.

To do all other acts in attaining the objectives of the Act. The Courts will not accept any offence under the Act for trial unless a complaint is

lodged by Bangladesh Bank or any person authorized by Bangladesh Bank in this behalf.

7.3.3 Anti money laundering policy:

The most important element of a successful anti-money-laundering program is the commitment of senior management, including the chief executive officer and the board of directors, to the development and enforcement of the anti-money-laundering objectives which can deter criminals from using their facilities for money laundering, thus ensuring that they comply with their obligations under the law. As part of its anti- money laundering policy an institution should communicate clearly to all employees on an annual basis a statement from the chief executive officer that clearly sets forth its policy against money laundering and any activity which facilitates money laundering or the funding of terrorist or criminal activities.The statement of compliance policy should at a minimum include:

A statement that all employees are required to comply with applicable laws and regulations and corporate ethical standards.

A statement that all activities carried on by the financial institution must comply with applicable governing laws and regulations.

A statement that complying with rules and regulations is the responsibility of each individual in the financial institution in the normal course of their assignments. It is the responsibility of the individual to become familiar with the rules and regulations that relate to his or her assignment. Ignorance of the rules and regulations is no excuse for noncompliance.

The statement should direct staff to a compliance officer or other knowledgeable individuals when there is a question regarding compliance matters.

A statement that employees will be held accountable for carrying out their compliance responsibilities.

7.3.4 Organizational structure:

Whilst complying with rules and regulations is the responsibility of each individual in the financial institution in the normal course of their assignments, the following individuals and functions all play a vital role in the effectiveness of the Institutions AML program:

Account Officer/Relationship Manager Customer Service Officer Operations Staff Anti Money Laundering Compliance Officer (AMLCO)

Branch Manager (Unit Head) Risk Management /Credit Officer Internal Control Officer Operations & Technology Manager Controller of Branches Chief Anti Money Laundering Compliance Officer (CAMLCO) Chief Executive Officer (CEO)

The Grid below details the individual responsibilities of the above functions:-

Designation Role/ ResponsibilitiesAccount Officer/ Relationship Manager/ Staff Responsible for account opening

Perform due diligence on prospective clients prior opening an account

Be diligent regarding the identification (s) of account holder and the transactions relating to the account

Ensure all required documentation is completed satisfactorily Complete the KYC Profile for the new customer Ongoing monitoring of customer‘s KYC profile and transaction

activity Obtain documentary evidence of large cash deposits Escalate any suspicion to the Supervisor, Branch Manager and

AMLCOCustomer ServiceOfficer

Support the Account Officer in any of the above roles Perform the Account Officer roles in their absence

Operating staff Ensuring that all control points are completed prior transaction monitoring

Ongoing diligence on transaction trends for clients Update customer transaction profiles in the ledger/system

AMLCO Manages the transaction monitoring process Reports any suspicious activity to Branch Manager, and if

necessary the CAMLCO Provide AML training to Branch staff Update policy with local AML regulations and communicate to

all staff Submit Branch returns to CAMLCO on Bi-monthly basis (MIS)

Branch Manager(Unit Head

Ensures that the AML program is effective within the branch/unit First point of contact for any AML issues

Risk Management/Credit Officer/Internal ControlOfficer

Perform AML Risk Assessment for the Business Perform periodic Quality Assurance on the AML program in the

unit Communicate updates in AML laws and internal policies

Operations & TechnologyManager & controller of branches

Ensures that the required reports and systems are in place to maintain an effective AML program

Overall responsibility to ensure that the branches have an AML program in place and that it is working effectively

CAMLCO Implements and enforces Institution’s anti-money laundering policies

Reports suspicious clients to Bangladesh Bank on Institution’s behalf

Informs Controller of Branches/AMLCOs of required actions (if any)

Chief executive officer (CEO) Overall responsibility to ensure that the Business has an AML program in place and that it is working effectively

Figure 7.1: Responsibilities of the individual officials.

A sample anti money laundering organization chart is given below:

Figure 7.2: Sample of an anti money laundering organizational chart.

Chief Executive Officer

Other Direct Reports of CEO

Chief Anti Money Laundering Compliance

Officer(CAMLCO

Deputy Chief AML Compliance Officer

(DCAMLCO)

Divisional AML Compliance Officer

Regional AML Compliance Officer

Branch AML Compliance Officer

Head of Branches/Operations

Divisional heads

Regional heads

Branch managers

Operations officer

Customer service officer

A/c officer / relationship manager

7.4 Anti money laundering Processes:According to Bangladesh Bank’s guide line There are many processes and policies to prevent money laundering. These processes and policies are given below:

7.4.1 Know your customer policy:Sound Know Your Customer (KYC) procedures are critical elements in the effective management of banking risks. The bank’s primary defense against being involved in money laundering, terrorist financing and other criminal activities is to know its customers. Each Financial Institution is required to perform due diligence on all prospective clients prior to opening an account. This process is completed by fulfilling the documentation requirements (Account Application, Bank References, Source of funds and Identification for example) and also a ‘Know Your Customer’ profile which is used to record a client’s source of wealth, expected transaction activity at it’ s most basic level.7.4.1.1 Information required under KYC process:The following information is obtained from all individual applicants for opening accounts or other relationships and is independently verified by the branch itself:

True name and/or names used; Parents names; Date of birth; Current and permanent address; Details of occupation/employment and sources of wealth or income; TIN Number (is any).

According  to  the  policy  Identification  documents,  either  originals  or certified   copies, should be pre-signed and bear a photograph of the applicant, e.g-

Photograph of the Customer (to be collected compulsorily); Photograph of the Nominee and the Guardian of the Nominee (if Nominee is a Minor); National ID/Voter ID card; Current valid Passport; Valid Driving License; Certificate from any local government organization, such as Union Council Chairman,

Ward Commissioner, etc. where photograph is also attested; or Employee Photo ID Card of any multinational company or any listed company.

One or more of the following steps are taken to verify address/contact point:

Voter ID – if address matches with the address declared in the Account Opening Form; Utility Bill (Gas/Electricity/Water etc.); BTCL/PSTN Telephone Bill; House Rent/Lease Agreement; Proof of personal home/office visit by the Relationship Manager;

checking the receipt copy of Thanks Letter sent to the customer’s address.

7.4.2 Risk management policy:When opening accounts, the concerned staff/officer assess the risk that the accounts could be used for “money laundering”, and classify the accounts as either high risk or low risks.

7.4.2.1 Risk rating:The assessment is made using the KYC profile form given in Annexure A in which the following 7 risk categories are scored using a scale of 1 to 5, where scale 4-5 denotes High risks, scale 3 denotes medium risks and scale 1-2 denotes low risks:

(1) Occupation and the nature of Customer’s business

(2) Net worth/sales turnover of the customers

(3) Mode of opening the accounts

(4) Expected value of monthly transactions

(5) Expected number of monthly transactions

(6) Expected value of monthly cash transactions

(7) Expected number of monthly cash transactions

7.4.2.2 Risk assessment:The risk scoring of less than 14 indicates Low risks and more than 14 would indicate high risks. The risk assessment scores are to be documented in the KYC profile form. ( see appendices)

7.4.2.3 Judgmental risk assessment:Some time management judgmentally override this automatic risk assessment to “low risk” if they believe that there are appropriate litigant’s to the risk. This override decision is documented and approved by the Branch manager/sales & service manager and BAMLCO.

7.4.2.4 Annual update of KYC and transaction profile:KYC profile and transaction profile is updated and re-approved at least annually for “High Risk” accounts. There is no requirement for periodic updating of profiles for “Low Risks” transaction accounts.

7.4.2.5 Politically exposed persons (PEPs):According to the policy, if the customer is a politically exposed person as defined In AML CircularNo.14, then the account will atomically become a high risk account.

7.4.3 Transactions monitoring process:Transaction monitoring processes are discussed below-

7.4.3.1 Daily review of accounts:The account officer or RM or any other designated officer(s) reviews the transaction of the accounts for the previous months to identify changes or exceptions or inconsistencies with the customer’s declared Transaction profile. Such review is documented in daily account review register for future reference.

Points that are reviewed-

a. No. of monthly deposits: declared in TP vs. actual transactions

b. Maximum amount per deposits: declared in TP vs. actual transactions

c. Total monthly deposits : declared in TP vs. actual transactions

d. No. of monthly withdrawals: declared in TP vs. actual transactions

e. Maximum amount per withdrawals: declared in TP vs. actual transactions

f. Total monthly withdrawals : declared in TP vs. actual transactions

g. Geographical origin/destination (e.g. issuing bank, branch etc.).

7.4.3.2 Review of monthly exception report:If any of the above mentioned parameters exceeds a customer’s declared transaction profile (TP), then that is recorded in the Monthly Exceptions Report (Annexure F). Then that report is reviewed in the monthly meeting of the Branch AML Compliance Committee (BAMLCC).

Branch AML Compliance Committee reviews the monthly Exceptions Report in their monthly meetings. If BAMLCC thinks it is necessary than they discuss the matter with customers. If they are not satisfied with the customer clarification then the issue is reported as a Suspicious Transaction Report (Annexure H) to the branch AML Compliance Officer (BAMLCO).

7.4.3.3 Reporting of STR to AMLDBAMLCO reviews the STRs along with responses from the customers as well as Account officer/relationship officer or other concerned staff and record in writing, with reasons, in detail whether the transaction are to be viewed as connected with money laundering or not. If the reported issue does not appear to be connected with money laundering, then BAMLCO close the issue at his end after putting his comment on STR form. If the reported issue appears to be connected with money laundering, then BAMLCO send the details along with the copy of the form it immediately to Anti-money laundering division.

7.4.3.4 Maintaining secrecy:The branch monitor the transaction very cautiously so that it doesn’t create any panic among customers and no information is disclosed to any other person.

7.4.4 Statutory obligations for reporting of suspicious transactions:According Section 25(1) (Gha) of the Act, City Bank is obligate to make a report to Bangladesh Bank where a suspicion arises that a money laundering offence has been or is being committed. In this regard, all branches of City Bank ensures that,

Each relevant employee knows to which person they should report suspicions, and There is a clear reporting chain under which those suspicions will be passed without

delay to the Chief Anti Money Laundering Compliance Officer.

Once employees have reported their suspicions to the appropriate person in accordance with the proper internal reporting procedure, they have fully satisfied their statutory obligations.

7.4.4.1 How to recognize suspicious transactions:As there are unlimited types of transactions that a money launderer may use, it is difficult to define a suspicious transaction. However, in most of the cases, a suspicious transaction will be one that is inconsistent with a customer’s known, legitimate business or personal activities. Therefore, the first key to recognize that a transaction, or series of transactions, may be unusual is to know enough about the customer's business.

At the time of determining whether a customer's transaction may be suspicious, a branch considers

the following questions:

Is the size of the transaction consistent with the normal activities of the customer? Is the transaction rational in the context of the customer's business or personal activities? Has the pattern of transactions conducted by the customer changed? Where the transaction is international in nature, does the customer have any obvious

reason for conducting business with the other country involved?

Some examples of possible suspicious transactions are given in Annexure C. only provided as examples of the most basic way by which money may be laundered. However, if any of these types of transactions are identified in any account, the branch should prompt to further investigation.

7.4.5 Self assessment process:Each financial institution should establish an annual self-assessment process that will assess how effectively the financial institution's anti-money laundering procedures enable management to identify areas of risk or to assess the need for additional control mechanisms. The self-assessment should conclude with a report documenting the work performed, who performed it, how it was controlled and supervised and the resulting findings, conclusions and recommendations. The self assessment should advise management whether the internal procedures and statutory obligations of the financial institution have been properly discharged. The report should provide conclusions to three key questions:

Are anti-money laundering procedures in place?

Are anti-money laundering procedures being adhered to? Do anti-money laundering procedures comply with all policies, controls and statutory

requirements?

7.4.6 System of independent procedures testing:Testing is to be conducted at least annually by the financial institution's internal audit personnel, compliance department, and by an outside party such as the institution's external auditors. The tests include:

Interviews with employees handling transactions and interviews with their supervisors to determine their knowledge and compliance with the financial institution's anti-money laundering procedures;

a sampling of large transactions followed by a review of transaction record retention forms and suspicious transaction referral forms;

a test of the validity and reasonableness of any exemptions granted by the financial institution; and a test of the record keeping system according to the provisions of the Act.

Any deficiencies should be identified and reported to senior management together with a request for a response indicating corrective action taken or to be taken and a deadline.

7.4.7 Training and awareness:Section 23(1)(Cha) of the Ordinance requires Bangladesh Bank to provide training and arrange meetings, seminars etc. for the officers and staffs of the reporting organizations or any other organizations or institutions as Bangladesh Bank may consider necessary for the purpose of proper implementation of the ordinance.

7.5 Penalties for money laundering offences:

All offences under the Anti-Money Laundering Act-2009 are cognizable, non-compoundable and non-bail able. All penalties for commencement of the offences have prison terms and/or fines as prescribed in the Ordinance as follows:

7.5.1 Penalties for offence committed by a person:According to Section 4(2) of the Act-2009, Any person engaged in money laundering or abetting, aiding or conspiring in the commission of such offence shall be punishable with imprisonment for a term not less than 6 (Six) months and a maximum not exceeding 7 (Seven) years, and in addition to this, property involved with the offence shall be forfeited in favor of the state.

7.5.2 Penalties for offence committed by a company:If any company has been engaged in money laundering activity, either directly or indirectly, then registration of that company will be cancelled. [Section 27(2) of Act]

7.5.3 Penalties for offence not to retain information or not to report suspicious activity or not to provide information on demand:If any reporting organization fails to retain correct and full information, transaction records of customers or fails to report a suspicious activity, according to the ordinance Bangladesh Bank may impose a fine between 5 (five) to 10 (Ten) thousand. In addition according to the sub section 25(2) (ka), Bangladesh Bank may cancel the license of the company or may take necessary action to cancel the license.

7.5.4 Penalties for offence of violating freezing or attachment order:According to Section 27(1) of the Act ,If any person violates a freezing order or an attachment order, then he/she will be punishable with an imprisonment not exceeding 1 (One) year or a fine of not exceeding Taka 5 (Five) thousand, or both.

7.5.5 Penalties for offence of divulging, using or publishing information:If any person discloses any information relating to an investigation or any other related information for annoying the investigation or making adverse influence over the investigation then according to the Section 6(3) of the law, he/she will be punishable with an imprisonment not exceeding 2 (Two) years or a fine of not exceeding Taka 10 (Ten) thousand.

7.5.6 Penalties for offence of obstructing or refusing to assist investigation:If any person obstructs or refuses to assist the investigating officer engaged in any investigation or refuses to submit reports or supply information without any reasonable ground under the ordinance, then he/she will be punishable with an imprisonment not exceeding 1 (One) year or a fine of not exceeding Taka 5 (Five) thousand, or both [Section 7(2) of the Act].

7.5.7 Penalties for offence of providing false information:If any person provides false information knowingly about the sources of funds or the identity of an account holder or the beneficial owner or nominee of an account, then according to Section 8 (2) of the ordinance, he/she will be punishable with an imprisonment not exceeding 1 (One) year or a fine of not exceeding Taka 50 (Fifty) thousand, or both.

Chapter 8

Case Analysis

8 .1 Case Study on Money Laundering through Financial Sector:

8.1.1 Money Laundering through Insurance Institutions: In case of insurance institutions, money launderers disguise the origin and nature of illegal proceeds and gains obtained by buying and altering insurance policies.

Example:

Drug trafficker disguised the illegal origin and nature of his proceeds by buying an insurance policy of US$80,000 with proceeds and then selling it to cash in another company. The agent of insurance company acted as a party to this conspiracy.

8.1.2 Money Laundering through Underground Banks:

According to FATF Act-1999, underground banking systems are also referred to as alternative remittance systems. In many cases we find underground banks as the catalyst of money laundering crime.

Example:

From the beginning of 1999 to August 2004, 15 accomplices that smuggled fuel and well-known cigarette from Vietnam distributed most of the goods in the South of China, 170 million of that money into dozens of bank accounts opened in other people’s name or with fake ID cards, drew the money and gave it to a middleman who transferred the money to the accounts of 2 international trade companies via an underground bank.

8.1.3 Money Laundering through Shell Company or Front Company:

Front company established by the criminals indicates the company with legal personality, legal business activities, and legal operating income, while whose establishment is for the purpose of laundering the proceeds of crime instead of making profits.

Example:

The former Vice-Chairman of the NPC Standing Committee took advantage of his position and power, accepting bribes of more than ¥41.09 million. In this case, the criminals established a shell company in advance and then fabricated transactions and paid for the tax in the name of corporation income, through which the illicit money was legalized.

8.1.4 KYC Related Money Laundering

Money laundering can be occurred by the banking companies if these companies do not verify its customers perfectly. Here we are giving a hypothetical example that will show how money laundering can be occurred for not knowing and verifying customers.

Example:

With help of the bank authority Mr. “X” open a current account in a branch of bank without necessary particulars. He also open two Cash Credit (Hypo) i.e. CC(Hypo) account in the same branch in same manner. After sanctioning about TK- 3,50,00,000.00 loans in that CC account he transfer the total money in his current account. Within three month he received the total money in cash and closed the current account. When investigation run through there could not found any necessary particulars without some leaves of cheque even though it was not reported to the Bangladesh Bank. As a result the bank paid a penalty to the Bangladesh Bank.

8.2 Money Laundering: Some Real Cases

Money laundering is not uncommon, but some money laundering cases have met the spotlight due to the severity of the act, or the amount of money involved in the crime. Large-scale money laundering cases often involve global transactions.

Here we are going to present some of the real world cases of money laundering that have been occurred over the time. We will present the real world cases from two perspective viz, Bangladesh perspective and world perspective.

8.2.1 Cases: World Perspectivee

I. Sharif Brothers-Money Laundering Case:

Mian Nawaz Sharif and Mian Shahbaz Sharif were alleged of money laundering and used the Hudaibiya Paper Mills as cover for money laundering during the late 1990s. The Hudaibiya Paper Mills case is still pending in the National Accountability Bureau.

II. HSBC Holdings Case:

In 2012, HSBC Holdings, a London-based company, paid nearly $2 billion in fines after it was discovered that the financial institution laundered money for drug traffickers, terrorists, and other organized crime groups throughout Iran. The laundering went on for many years before the activity was detected.

III. BNP Paribas Case:

In 2014, BNP Paribas, a French bank with global headquarters in London, pled guilty to falsifying business records after it was discovered the institution violated U.S. sanctions against Cuba, Sudan, and Iran. As a result, BNP was forced to pay a fine of $8.9 billion which is the largest fine ever imposed for violating those sanctions.

IV. Bank of Credit and Commerce International Case:

In the 1980s, the Bank of Credit and Commerce International, a bank registered in Luxembourg and with offices in London, was found guilty of laundering an amount of money estimated to be in the billions for drug traffickers.

V. The Johnny Kyong case:

In 1990 Johnny Kyong was convicted of supplying heroin to the New York mafia. Apparently he moved his profits through bulk shipments of cash to Hong Kong or through a Venezuelan

company to bank accounts in Hong Kong and from there used the fie chien or Asian underground banking system to move funds to Burma and Thailand to purchase more drugs.

VI. Jimmy Hitchcock Case:

On Sept. 23, 2014, in Charlotte, North Carolina, Jimmy Hitchcock, a former NFL football player, was sentenced to 46 months in prison and two years of supervised release. Hitchock pleaded guilty in June 2013 to mortgage fraud conspiracy, bank bribery conspiracy and money laundering conspiracy. According to court documents, Hitchcock was the leader of a mortgage fraud conspiracy and engaged in a sophisticated scheme to create false documents. Hitchcock recruited a bank insider to assist in the fraud and paid her bribes to provide bogus verifications. Hitchcock is the fourth in this conspiracy to be sentenced. The others who have been sentenced as part of this conspiracy include Christopher T. Belin, Mitzi Jackson and Coley Scagliarini.

8.2.2 Cases: Bangladesh Perspective

I) Tarique Rahman Case:

There are a number of instances of Tarique’s involvement in money laundering, embezzlement, extortion and bribery. During Khaleda Zia’s rule (2001-06), Tarique was running a parallel government from Hawa Bhavan (an alternative power center during the BNP regime) along with some of his trusted lieutenants and musclemen. Taking advantage of his mother’s position he became the most powerful and corrupt person in the country through sheer muscle power. Reports appeared that Tarique was profiting from corrupt surcharges on rice, sugar, compressed natural gas and other essential commodities. Reports also appeared about his investment in Malayasia, United Arab Emirates and Saudi Arabia. BNP leader and former State Home Minister Lutfozzaman Babar worked as a mediator between Tarique and people interested to bribe him to gain favor at the cost of state coffers.

Anti Corruption Commission (ACC) of Bangladesh brought charges against Tarique and his close business partner Giasuddin Al Mamun in 2009. ACC Assistant Director Mohammad Ibrahim submitted a charge sheet in a court in Dhaka accusing the two of laundering Tk 20.41 Crore in between 2003-2007. Tarique had realized the money in foreign currencies from different organizations and companies. In exchange for the sums, he had promised to win them contracts using his clout as Prime Minister’s son. To conceal his identity while drawing the money, Tarique had used a supplementary debit card issued against his friend Mamun’s account with Citibank Singapore.

II) Khandaker Mosharraf Hossain Case:

The Anti Corruption Commission (ACC) had filed a case against the BNP leader ,Khandaker Mosharraf Hossain, in February 2014, accusing him of siphoning off Tk 90 million while serving as the health minister between 2001 and 2006. The money was allegedly parked at Lloyd's TSB Offshore Private Bank in London.

III) Lutfazzaman Babar Case:

Earlier in January 2008, Anti Corruption Commission (ACC) had filed a case against Babar on charges of accumulating wealth disproportionate to his known income. The case alleged that Babar had earned wealth worth Tk 7.05 crore, beyond his known incomes.

The commission had found that cash worth $10 lakh was deposited from a Singapore bank into Babar’s bank account at the Prime Bank’s Banani branch. The commission director said that the money was deposited in three years beginning from 2004 when he was the state minister for home affairs during the tenure of Bangladesh Nationalist Party-led government.

IV) Arafat Rahman Koko Case:

Much before the Awami League-led government came to power, the ACC sued Koko on March 17, 2009, for taking money illegally from Chinese firm China Harbour Engineering Company, German IT giant Siemens, and other sources in exchange for helping them get government contracts by utilizing his clout as the Prime Minister’s son.

Charging Koko of money laundering, the ACC case pinpointed his illegal dealings with China Harbour in relation to a Tk 351 crore contract for constructing New Mooring Container Terminal at Chittagong Port, and with Siemens in relation to a Tk 239 crore contract for equipment supply and set up of a mobile phone service named Teletalk.

Some other persons deposited additional money in Koko's two of the four Singapore bank accounts detected by ACC. Three of his accounts were with United Overseas Bank (UOB), and the other was with CIC Bank.

"The allegation that Arafat Rahman Koko illegally sent abroad 28, 84,603.15 Singaporean dollars and 9, 32,672.81 US dollars to hide his illegally earned money and his illegal source of income has been primarily proven” ACC said in the case.

It added that Koko obtained 2.58 million Singaporean dollars from China Harbour in three installments on May 6, May 31, and August 1 of 2005. Koko also received 3.03 lakh Singaporean dollars from Siemens on October 6, 2005.

These payments totaling 2.8 million Singaporean dollars were deposited in the account number 1093101397 of United Overseas Bank (UOB) for account holder ZASZ Trading and Consulting Pte Ltd with an address of 9, Changy South Street of Singapore. Koko and his Singapore based partner Lim Siew Cheng jointly owned this company.

8.3 Remarkable Case of Money laundering & Embezzlement investigated by ACC:

Case 1: The allegation of embezzlement of around Taka 35 billion by 6 companies including

Hallmark Group, a client of Sonali Bank Limited:

The ACC formed a six-member investigation team led by Commission's Deputy Director Mir

Mohammad Joynul Abedin Shibli, to make enquiry into five companies including Hallmark

Group, a client of Sonali Bank Limited, Hotel Ruposhi Bangla Branch, Dhaka on allegation of

embezzlement of Taka 35 billion by using fake LC number, loan forgery, money transaction and

laundering in the name of illusory companies. Later, another allegation was reported by

Bangladesh Bank.

Besides, another allegation was received from Managing Director and Chief Executive Officer

(CEO) of Sonali Bank Limited, Head Office, Dhaka, during the enquiry. The enquiry was made

in two stages. At the first step, the enquiry was held on only Hallmark Group and then the probe

was held on the rest of the 5 companies at the second stage.

First Stage:

The ACC lodged 11 cases (FIR) with Ramna Model Thana, DMP on 04 October, 2012 against

27 persons including Hall-Mark's Managing Director (MD) Tanvir Mahmud for embezzlement

of Taka 1568,49,34,877 (funded) under Section 406/409/420/109 of the Penal Code, Section 5

(2) of Corruption Prevention Act, 1947 and Section 4 (2) of Money Laundering Prevention Act,

2012. Charge sheets were submitted to the court after the investigation. The cases are now under

trial.

Second Stage:

(1) The ACC lodged 14 cases with Ramna Model Thana DMP against 18 persons including T &

Brothers Knit Composite Limited's Director Mohammad Tawhid Hossain for embezzlement of

BDT 322,04,90,667 (funded) under Section 406/409/420/109 of the Penal Code, Section 5 (2) of

Corruption Prevention Act, 1947 and Section 4 of MLPA, 2012. The charge sheets of the cases

were submitted to the court on 30-06-2014 after the completion of investigation. The cases are

now under trial.

(2) The ACC lodged 06 cases against 18 persons including Paragon Knit Composite Limited's

Director, Mohammad Saiful Hasan Raja for embezzlement of BDT 13,54,85,323 (funded) under

Section 406/409/420/109 of the Penal Code, Section 5 (2) of Corruption Prevention Act, 1947

and Section 4 of MLPA, 2012 along with one case for embezzlement equivalent to BDT

2,22,78,610 under same sections of the mentioned acts. The charge sheets of the cases were

submitted to the court on 22-05-2014 after the completion of investigation. The cases are now

under trial at the court.

(3) The ACC lodged 03 corruption cases (FIR) against 16 persons including Nakshee Knit

Composite Limited's Managing Director (MD) Mohammad Abdul Malek for embezzlement of

BDT 10,81,85,231 (funded) under Section 406/409/420/109 of the Penal Code, Section 5 (2) of

Corruption Prevention Act, 1947 and Section 4 of MLPA, 2012. Since the accused deposited

total BDT 13,33,92,961 including interests equivalent to BDT 2,52,07,730 to the bank, the

Commission decided to submit Final Report True (FRT) and it was accepted by the court.

(4) The Commission lodged 3 cases against 16 persons including DN Sports Limited's Managing

Director (MD) Mohammad Shafiqur Rahman for embezzlement of BDT 2,81,45,426 (funded)

under Section 406/409/420/109 of the Penal Code, Section 5 (2) of Corruption Prevention Act,

1947 and Section 4 of MLPA, 2012. The charge sheets of the cases were submitted to the court

on 22-05-2014 after the completion of investigation. The cases are now under trial at the court.

(5) Another case was lodged by the ACC against 16 persons including Khan Jahan Ali Sweater

Limited's Managing Director (MD) Mohammad Abdul Jalil Sheikh for embezzlement of BDT

1,14,75,668 (funded) under Section 406/409/420/109 of the Penal Code, Section 5 (2) of

Corruption Prevention Act, 1947 and Section 4 of MLPA, 2012. The charge sheet of the case

was submitted to the court on 22-05-2014 after the completion of investigation. The case is now

under trial at the court.

Case 2: Allegations against Destiny 2000 Ltd & Destiny Tree Plantation Ltd for fraudulent

embezzlement of money of common people through MLM system:

Two national dailies of the country published news against D2K that it embezzled billions of

taka from common people through Multi Level Marketing (MLM) system in a fraudulent way.

The Commission assigned Mr. Mozahar Ali Sardar, Deputy Director and Mr. Md. Toufiqul

Islam, Deputy Director jointly to enquire into the allegation brought against them published in

the aforesaid Daily Newspaper. Two money laundering cases (FIR) lodged with Kalabagan

Police Station, DMP, against Mr. Rafiqul Amin, MD of D2K with others having got primary

evidence of misappropriating of investors' money through transfer/transformation.

Content of 1st Case:

Mohammad Rafiqul Amin and 11 other directors with pre-motive abusing Honourable High

Court's Order and Company's Memorandum of Articles, illegally earned/collected amounting

BDT 2335,74,85,500 from the common people/investors by selling 6,18,48,630 trees and

Paulownias tree stamps of Destiny Tree Plantation Ltd. from 21/03/2006 to April 2012

committing offence under section 4(2) of MLPA, 2012 by transferring/converting BDT

2106,64,65,500 to their personal possession. It is found in the investigation that Mohammed

Rafiqul Amin and aforesaid 11 directors, in collusion with each other and ill motive, appointed

their own company D2K as marketing agent of Destiny Tree Plantation Ltd to realize their

vested interest leaving behind the interest of the common investors. By doing aforesaid act or

tempting common people with promise to give them huge profit against small amount of

investment, they collected BDT 2433,19,19,147 from 17.50 lac investors by selling 6,18,48,630

pieces of trees in different packages and deposited aforesaid amount to different bank accounts

of Destiny 2000 Ltd. by abusing the order of the Honourable High Court. It is found that, they

also transferred/converted proceeds of crime of predicate offence (Fraud) amounting BDT

2257,78,77,227 to their personal accounts and to their vested companies in the name of

commission. special commission, incentive, dividend, honorarium and in the form investment to

their nameless/structureless companies, and also laundered money by importing MLM goods

from Singapore which belongs to FIR named Mohammad Rafiqul Amin. The charge sheet of the

case was submitted to the court after comprehensive investigation accusing 19 persons including

Mohammad Rafiqul Amin. The case is now under trial at the court.

Content of 2nd Case:

Alleged Mohammad Rafiqul Amin along with other entrepreneur-directors of Destiny 2000 Ltd.

by violating Cooperative Societies Act, 2001 and Cooperative Societies Rules, 2004, and selling

Destiny Multi Purpose Co-operative Society Ltd's (DMCSL) share package, DIBC package and

INDP package to more than 8.5 lac people made quick illegal money amounting to BDT

1935,53,20,000 through MLM process. There after they with the help of managing committee of

Destiny Multipurpose Co-operative Society Ltd transferred Taka 733,31,29,643 to Destiny 2000

Limited (D2K) which incurred loss to DMPCSL for their personal interest. They

transferred/converted BDT 1178,61,23,024 to their personal accounts in the name of loan,

dividend and commission which is an offence under MLPA, 2012. 46 alleged persons, 22 as per

FIR and 24 included after investigation, committed an intentional, internal and illegal

agreements with Destiny 2000 Ltd in order to promote DMCSL's share, DIBC and INDP

package as Destiny 2000 Ltd's product fraudulently with ill motive for their self interest. They

tempted investors to invest little amount for huge profit in their interested concerned non-

profitable/ nominal/losing/ structureless companies, by creating new entities to provide false

loans, and by showing false reports of profit against unearned profit to issue dividend to them.

After collecting BDT 1901,26,25,000 from 8.5 lac investors, they collusively laundered BDT

43,87,34,855 to foreign countries in the name of leasing airplane, importing seeds and equipment

and providing security money for GSA license by neglecting the interest of the investors. Public

oriented DMCSL incurred loss amounting to BDT 1861,45,23,155 due to transfer/conversion of

the society's fund by the FIR named accused to their vested losing concerned. By doing the

aforesaid act Mohammad Rafiqul Amin and co-other accused committed laundering money

abroad in the name of commission, dividend, salary, honorarium, incentives, purchase, advance,

expenditure and loans. The charge sheet of the case was submitted to the court after

comprehensive investigation on the basis of Sections 2 (Ta) and 4(2) of MLPA, 2009 and on the

basis of Sections 2 (Fa) and 4 (2) (3) of MLPA, 2012. The case is now under trial at the court.

8.4 Assessment and Commentary on Real Cases of Money Laundering:After examining these cases, there are several conclusions that stand out:

Difficult to Tackle: Money laundering or the financial means of organized crime are extremely difficult to tackle. It’s defined almost differently in every country, the measures taken against it are different and vary from country to country.

Lack of Successful Prosecutions: Successful prosecutions are not frequent. This is partly because of the complexity of dealing with other jurisdictions, the numerous opportunities for money-laundering and the inherent advantages accruing to the launderers.

Variety Ways of Using offshore financial centres: While offshore financial centres are used to launder money from the proceeds of crime, they are also used to establish companies that can then be used to perpetrate various kinds of fraud. The offshore location of a financial institution is a critical ingredient in certain kinds of fraudulent activity, appealing to certain kinds of depositors while allowing the criminals a base from which to operate at relatively low risk.

Using Multiple Jurisdictions and Mechanisms: The more sophisticated cases tend to involve the use of multiple jurisdictions and multiple mechanisms and instruments for money-laundering. As one analyst has observed: "Once the proceeds of crime are successfully deposited in the financial system many laundering operators take the precaution of moving money, not just offshore, but through more than one tax haven and through a maze of shell companies and respectable nominees". In such cases there are real problems for investigators. Not only do they encounter various layers of secrecy and non-disclosure, but they have to face the complexities created by the multiplicity of institutions and the various jurisdictions, each of which has its own distinct set of laws and practices regarding secrecy.

Lack of Diligence:Although the offshore banking community is undergoing increasing scrutiny and more careful supervision, this is easily circumvented by bank officials and other members of the offshore financial community who are anxious to attract funds and please customers and have little inclination to exercise due diligence or to know their customers. The people who operate shell companies and corporate entities on behalf of clients do not necessarily engage in due diligence.

Complexity to Investigations: Money launderers take the proceeds of crime and move them outside the country. The difficulty is that subsequent investigations by law enforcement immediately run up against national sovereignty. It is sometime claimed that location is no longer of any importance in financial matters, but clearly it is of importance when it comes to investigations.

RecommendationSo, the recommendations should be followed by banks, financial instution, non-bank financial

instutions and government to control the money laundering are given below:

Financial institutions should develop programmes, such as internal policies, designed to

combat money laundering and terrorist financing and ensure that all subsidiaries adhere

to the recommendations to the extent the country has implemented them;

That there should be enhanced regulation, supervision and guidance offered to financial

institutions and non-financial businesses and professions, in their compliance with the

recommendations;

Financial institutions should develop programmes, such as internal policies, designed to

combat money laundering and terrorist financing and ensure that all subsidiaries adhere

to the recommendations to the extent the country has implemented them;

Banks should be discontinued and all financial institutions should report all domestic and

international currency transactions above a certain amount;

Financial and non-financial entities providing a service for the transmission of money or

value to be subject to all of the FATF(Financial Action Task Force) Recommendations;

Enhanced regulation of non-profit organisations and other entities particularly susceptible

to abuse, together with enhanced measures designed to track the physical cross-boarder

transportation of funds.

Governments should take very strict laws that help minimize Money Laundering. These

laws are usually directed at Banks, Financial Institutions and non-bank financial

institutios .

ConclusionMoney laundering is the worldwide and crucial economic problem. This has been alarming over the whole world.

So, in this report at third chapter money laundering has been captured from the basic point of view in the first and second chapter. Here, also money laundering has been attempted to be viewed with basic concepts.

In the fourth chapter we are shown the relationship between banking sectors and money

laudering. Also here many more ideas related to its respective chapters have emerged.

In fifth & sixth chapter we are shown recent condition of money laundering in Bangladesh & the

brief analysis of the acuteness of money laundering in Bangladesh perspective.

In seventh chapter of the report shows the effects and impacts of money laundering on national

and world economy. The report also trends to express the ideas how it causes ruin to the flow of

economy.

Ultimately how to control the money laundering has been described in the subsequent part. By

following these steps it is expected that “Money Laundering” which is the recent world concern

can be solved. So, the report from overall point of view is an attempt to express it to the readers

from basic viewpoint and to show its recent impacts and helping the readers to know the

controlling process. It is hoped that the report will cater to the thirst of the readers on money

laundering.