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ANTI-MONEY LAUNDERING POLICIES. EFFECTIVE OR NOT? By Fawole Tolulope Aramide
INDEPENDENT
CORRUPT PRACTICES AND OTHER RELATED OFFENCES COMMISSION CDS GROUP, OYO STATE.
PRESENTED
BY: FAWOLE TOLULOPE ARAMIDE
STATE
CODE: OY/13C/1366
TITLE:
ANTI-MONEY LAUNDERING POLICIES. EFFECTIVE OR NOT?
DATE:
3RD SEPTEMBER 2014
ANTI-MONEY LAUNDERING
POLICIES: EFFECTIVE OR NOT?
Money
laundering,
according to Wikipedia, “is the process whereby the proceeds of crime are
transformed into ostensibly legitimate money or other assets.” In other words,
the process by which money derived from criminal activities is converted into
funds or assets which appear to have a legitimate origin. It involves taking
criminal proceeds and disguising their illegal sources in anticipation of
ultimately using the criminal proceeds to perform legal and illegal activities.
In a manual, issued by the CBN in 2009, money laundering was defined as the
process whereby criminals attempt to conceal the illegal origin and/or
illegitimate ownership of property and assets that are the fruits or proceeds
of their criminal activities. In 1996, it was estimated by the IMF that two
to five percent of the world’s Gross Domestic Product involves laundered money.
In value, about $590 billion to $1.5 trillion is laundered worldwide
annually.
Money Laundering Activities- Predicate offence.
Money laundering predicate offence
is the underlying criminal activity that generates proceeds which when
laundered, results in the offence of money laundering. These crimes include:
kidnapping, smuggling, embezzlement and fraud, robbery, drug trafficking, insider
trading, illegal gambling, tax evasion, prostitution etc. Money obtained from
these crimes is "dirty". It needs to be cleaned (laundered) to appear
to have derived from non-criminal activities so that banks and other financial
institutions will deal with it without suspicion. Money can be laundered by
many methods, which vary in complexity and sophistication. Placing 'dirty'
money in a service company, where it is layered with legitimate income, and
then integrated into the flow of money is a common form of money laundering.
It involves three steps: the first step involves introducing
cash into the financial system by some means ("placement"); the
second involves carrying out complex financial transactions to camouflage the
illegal source ("layering"); and the final step entails acquiring
wealth generated from the transactions of the illicit funds
("integration"). Some of these steps may be omitted, depending on the
circumstances; for example, non-cash proceeds that are already in the financial
system would have no need for placement.
Methods of Money Laundering.
Money laundering takes several different forms, although
most methods can be categorized into one of a few types. These include
"bank methods, smurfing [also known as structuring], currency exchanges,
and double-invoicing.
Structuring: Often known as smurfing,
this is a method of placement whereby cash is broken into smaller deposits of
money, used to defeat suspicion of money laundering and to avoid anti-money
laundering reporting requirements. A sub-component of this is to use smaller
amounts of cash to purchase bearer instruments, such as money orders, and then
ultimately deposit those, again in small amounts.
Bulk
cash smuggling:
This involves physically smuggling cash to another jurisdiction and depositing
it in a financial institution, such as an offshore bank with greater bank
secrecy or less rigorous money laundering enforcement.
Bank
capture: Money
launderers or criminals buy a controlling interest in a bank, preferably in a
jurisdiction with weak money laundering controls, and then move money through
the bank without scrutiny.
Casinos: In this method, an individual
walks into a casino with cash and buys chips, plays for a while, and then
cashes in the chips, taking payment in a check, or just getting a receipt,
claiming it as gambling winning.
Fictitious loans: An individual could claim
money was loaned to him and have false documents created to back him up.
This removes any suspicion regarding how they came about the supposedly
large amount of money in the first place.
Real
estate: Someone
purchases real estate with illegal proceeds and then sells the property. To
outsiders, the proceeds from the sale look like legitimate income.
Alternatively, the price of the property is manipulated: the seller agrees to a
contract that under represents the value of the property, and receives criminal
proceeds to make up the difference.
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.
A
goal of money laundering is to be able to use the dirty money for private
consumption. If unable to use it openly, the traditional way to keep the
dirty money near is hiding it as cash at home or other places.
Notable Cases.
1.
Institute
for the Works of Religion: Italian authorities investigated suspected money
laundering transactions amounting to US$218 million made by the IOR to
several Italian banks.
2.
Nauru:
US$70 billion of Russian capital flight laundered through unregulated
Nauru offshore shell banks, late 1990s
3.
Sani
Abacha: US$2–5 billion of government assets laundered through banks in the
UK, Luxembourg, Jersey (Channel Islands), and Switzerland, by the president of
Nigeria.
4.
Standard
Chartered: paid $330 million in fines for money-laundering hundreds of billions
of dollars for Iran. The money-laundering took place in the 2000s and occurred
for "nearly a decade to hide 60,000 transactions worth $250 billion"
Enforcement
Anti-money laundering (AML) is a term mainly used in the
financial and legal industries to describe the legal controls that require
financial institutions and other regulated entities to prevent, detect, and
report money laundering activities. Anti-money laundering guidelines came into
prominence globally as a result of the formation of the Financial Action Task
Force (FATF) and the promulgation of an international framework of anti-money
laundering standards. These standards began to have more relevance in 2000 and
2001, after FATF began a process to publicly identify countries that were
deficient in their anti-money laundering laws and international cooperation.
An effective AML program requires a jurisdiction to have
criminalized money laundering, given the relevant regulators and police the
powers and tools to investigate; be able to share information with other
countries as appropriate; and require financial institutions to identify their
customers, establish risk-based controls, keep records, and report suspicious
activities.
Criminalizing money laundering
The
elements of the crime of money laundering are set forth in the United Nations Convention Against Illicit Narcotic Drugs and Psychotrophic Substances and Convention Against Transnational Crime. It is defined as knowingly engaging in a
financial transaction with the proceeds of a crime for the purpose of
concealing or disguising the illicit origin of the property from governments.
Global Organizations working against money laundering
The FATF
(Financial Action Task Force) is an intergovernmental body, formed in 1989 by
the G7 countries, whose purpose is to develop and promote an international
response to combat money laundering. The FATF Secretariat is housed in Paris at
the headquarters of the OECD
(Organization for Economic Cooperation and Development). In October
2001, FATF expanded its mission to include combating the financing of
terrorism. FATF is a policy-making body that brings together legal, financial,
and law enforcement experts to achieve national legislation and regulatory AML
and CFT reforms. As of 2014 its membership consists of 36 countries and
territories and two regional organizations. Nigeria is not a member country.
However, FATF works in collaboration with a number of international bodies and
organizations including the Intergovernmental Action Group against Money
Laundering in West Africa. FATF
has developed 40 recommendations on money laundering and 9 special
recommendations regarding terrorist financing. FATF assesses each member
country against these recommendations in published reports. Countries seen as
not being sufficiently compliant with such recommendations are subjected to
financial sanctions.
FATF’s
three primary functions with regard to money laundering are:
1.
Monitoring members’ progress in
implementing anti-money laundering measures.
2.
Reviewing and reporting on
laundering trends, techniques, and countermeasures.
3.
Promoting the adoption and
implementation of FATF anti-money laundering standards globally.
Local laws
put in place to prevent money laundering.
Money Laundering Prohibition Act,2011.(As amended)
In 2013, the CBN issued a circular to banks and other financial
institutions titled: Amendment
of anti money laundering/combating the Financing of Terrorism (AML/CFT)
regulation,2009 (As amended) to align with Money Laundering (prohibition)
Act(MLPA), 2011(As amended), Terrorism (Prevention) Act(TPA), 2011(As amended)
and the Revised FATF 40 recommendations(2012).
The
role of financial institutions
While
banks operating in the same country generally have to follow the same AML laws
and regulations, financial institutions all structure their AML efforts
slightly differently. Today, most financial institutions globally, and many
non-financial institutions, are required to identify and report transactions of
a suspicious nature to the financial intelligence unit in the respective
country. For example, a bank must verify a customer's identity and, if
necessary, monitor transactions for suspicious activity. This is often termed
as "know your customer". This means knowing the identity of the
customer and understanding the kinds of transactions in which the customer is
likely to engage. By knowing one's customers, financial institutions can often
identify unusual or suspicious behavior, termed anomalies, which may be an indication
of money laundering.
Bank
employees, such as tellers and customer account representatives, are trained in
anti-money laundering and are instructed to report activities that they deem
suspicious. The CBN has mandated financial institutions to report all cash
transactions in any currency above a threshold of N1,000,000 for individuals and N5,000,000 for
corporate bodies.
Financial
institutions are required to report certain suspicious transactions to the NFIU(Nigeria
Financial Intelligence Unit) not later than 72 hours after their discovery or
become liable to a fine of N1,000,000 for each day during which the offence continues.
Additionally, certain anti-money laundering
software filters customer data, classifies it according to level of suspicion,
and inspects it for anomalies. Such anomalies include any sudden and
substantial increase in funds, a large withdrawal, or moving money to a bank
secrecy jurisdiction. Smaller transactions that meet certain criteria may also
be flagged as suspicious. For example, structuring can lead to flagged
transactions. The software also flags names on government
"blacklists" and transactions that involve countries hostile to the
host nation. Once the software has mined data and flagged suspect transactions,
it alerts bank management, who must then determine whether to file a report
with the government.
Effective or not?
Despite
the efforts made to tackle money laundering, there has been a rise in the cases
money laundering and other financial crimes in Nigeria and the world at large.
According to a publication in punch newspaper, operatives of the EFCC and
Nigerian Customs Service arrested the son of Jigawa State Governor, Aminu
Lamido at Malllam Aminu Kano International Airport Kano, for allegedly
declaring only $10,000 instead of the $50,000 he had on him.
In a
recent report, an international non-governmental organization, the Global
Financial Integrity, stated that on the list of developing countries that lost
$5.86 trillion through money laundering between 2001 and 2010 Nigeria occupied
the seventh position with an illicit financial outflow of $129 billion.
Some high
profile corruption cases have remained inconclusive. The Aigboje
Aig-Imoukhuede-led Presidential Committee on Verification and Reconciliation of
Fuel Subsidy Payments reported that about 197 subsidy transactions worth N232
billion in 2011 illegitimate. As usual, a few people are going through the
symbolic prosecution while the public officials that approved the transactions
remain untouchable. The country is in the throes of anarchy occasioned by
terrorism, kidnapping and armed robbery because of the ease with which part of
laundered money is used to import illegal arms and ammunition.
Conclusion: The fight against money laundering
is a tough one. There is no doubt that all efforts to curb it have almost
proved insufficient. However, it can be overcome if it is battled with a strong
will by all those on whom the responsibility lies and those who have the
political power to curtail it.
References:
AML/CFT Training & Compliance Procedure Manual Slides,
First Academy,2014.
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