What is Money Laundering?

Money laundering is a process of passing illegally obtained money into the financial system by fraudulently showing the sources of such funds to be legal. The criminals try to disguise or conceal the origin and owner of illegal proceeds, and such funds are transferred to the legal, financial systems using various money laundering techniques.

If they deposit a large sum of illegally obtained funds at one bank, the action will trigger suspicion, and the possibility of catching hold of the criminals would be very high. So, generally, criminals deposit a small amount in multiple banks through a network of people to avoid the reporting threshold or being caught by the authorities.

Criminals first try to distance themselves from the source of illicit money, as authorities can easily spot when large transactions from unverified sources are made. So, the criminals quickly launder this money by creating multiple layers to escape the eyes of the authorities.

Money laundering, with its intensity, attracts a considerable penalty and ends up with the criminals in prison as per the AML regulations of the respective country. The government of Singapore has introduced various regulations, such as the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, Terrorism (Suppression of Financing) Act, and Precious Stones and Precious Metals (Prevention Of Money Laundering and Terrorism Financing) Act, to prevent money laundering and financing of terrorism and criminal organizations.

Different methods used by criminals to launder money

Criminals use different methods to launder money and exploit various institutions to use them as a medium to transfer money into the legal system. To combat money laundering, it is critical to understand these money laundering techniques:

Smurfing:

By this method, the transactions are broken down into smaller amounts to avoid the reporting threshold or triggering the attention of the authorities. The money is transferred to different accounts and banks through groups of people to prevent detection.

Account opening with a false name:

An account is opened in a fictitious name, through which the fictional transactions are carried out. It is done to hide the person’s original identity or the source of funds.

Partnering in crime with financial institutions:

Partners in crime from financial institutions hold back the information related to money laundering and avoid record keeping. This method uses non-functional companies or shell companies to launder money.

Foreign financial institutions:

Cross-border centers and foreign financial institutions collaborate to transfer illegally obtained money into another country’s legal system.

Exchange offices:

Exchange offices enable the conversion of currencies (in cash) using illegally obtained funds and provide a receipt for the same, creating a layer between the funds and their illegal source.

Cash smuggling:

Criminals transfer the illicit proceeds to countries where AML regulations and reporting requirements are weak and not rigidly applied to the people used as money couriers. By exploiting the legal vulnerabilities, the cash is smuggled into the legal system of other countries, where such money can be used without fear of legal repercussions.

Prize money from jackpots:

Sometimes, the jackpots or lotteries are planned to launder money. Here, the winner is pre-decided, and the award price is too high than the usual jackpots given to the criminals to display the same as originating from genuine sources.

Casinos:

This method is used by criminals to buy chips to gamble, but very little gambling is involved as opposed to the vast amount shown in gambling. The criminals then replace the chips and take cheques to be deposited in the banks. The illegal money is transferred to the casinos and later on (after the deduction of commission) is shown as earnings from gambling rather than illegally sourced funds.

Off-Shore Financial Centres:

Off-shore financial centers often become the hub for laundered money. Banks or shell companies are created in such centers, where legal entities are formed in which the source of the real owners remains dubious and unknown. The cross-border centers are established, and the process is easy to set up, as they don’t follow legal rules and regulations. So, these financial institutions become the perfect place for criminals to launder money.

Why is the prevention of money laundering important?

A massive amount of illegal money, or we call it ‘black money,’ has seeped into the legal systems across the world. As per an estimate, billions of dollars are laundered annually, and it’s high time to check on this crime.

Such money is obtained illegally through activities like drug trafficking, smuggling, etc., which ultimately increases money laundering activities and the widespread of vice-like narcotics. Usually, terrorist groups control them, which are dangerous and pose a massive security threat to the country and its citizens.

Black money is used to fund other criminal activities such as commercial fraud, human trafficking, organ trafficking, blackmail, kidnapping, etc. These activities threaten society, the country, and the entire globe. It encourages the criminals to become financially strong and exercise control over democracy and the country’s political affairs, leading to corruption and bribery. This way, the country’s financial, social and political system starts deteriorating.

Therefore, countries create Anti-Money Laundering laws to identify suspicious financial transactions and catch criminals immediately before they exploit the economy. Financial Action Task Force (‘FATF’) has issued international recommendations to control financial crimes, and various member countries are bound to follow these recommendations and implement their AML regulations.

It is vital to eradicate the organizations or firms that use illegal money to fund criminal and terrorist activities, which are a massive threat to the country’s economy and society. It destroys the social fabric of the country.

NIYEAHMA – your partner in the AML compliance journey

Global and local laws are implemented to prevent money laundering. AML Singapore is a highly committed firm providing AML consultancy services in a cost-effective manner. With core expertise in AML and a comprehensive range of services such as AML policy, control, and procedures documentation, AML software selection, AML training, AML health check, etc., we can be your reliable partners in your AML compliance journey and safeguard your business.

About the Author

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

Article Singapore

Importance of AML/CFT measures

As the world economy is growing and the entire globe is coming together as an integrated society, two vices are trying to take a toll on this society – Money Laundering and Terrorism. Money laundering has been a setback to the global financial system, pumping the illegally generated money into the economy, making it appear to have come from a legitimate source. Such funds generated from criminal activities are used again for multiplying the effect of illegal activities, such as terrorism, and impacting the security and integrity of the countries. The need of the hour is to be resilient against such evils of the society to make it a better place to live, and thus, various countries are coming up with AML/CFT measures.

AML/CFT Measures undertaken by various countries

Singapore Ministry of Law has developed a division under the name of “Anti Money Laundering / Countering Financing of Terrorism,” with whom Cash Transaction Report for suspicious transactions is furnished.

Similarly, the Australian Government has issued the Anti-Money Laundering and Counter-Terrorism Financing Act in the year 2006, which requires businesses to have a proper program in place to protect the company from financial crimes by timely identification/mitigation of these kinds of risks.

The United Arab Emirates is also one such nation amongst the list, devoted to controlling the money laundering activities and financing of terrorism or other illegal activities from there. As a part of this strategy, the UAE government has introduced the regulation “Anti-money laundering and combating the financing of terrorism and illegal organization” and issued the guidelines to enforce the law better.

Designated Non-Financial Businesses and Professions (DNFBPs)

When it comes to protecting the financial sector from such criminal exploitation, certain businesses and professions could serve as first aid to curb these. With the same thought, under UAE guidelines, class of people/businesses have been defined as Designated Non-Financial Businesses and Professions (“DNFBPs”).

They have been obligated under the law to perform the Due Diligence of their customers and risk profiling. These DNFBPs have been made responsible for reporting the transactions to the authorities, where any suspicion involving money laundering or illegal activities such as financing terrorism, drug trafficking, etc., is doubted.

It is pertinent to know the group of businesses and professions that have been identified as DNFBPs. This list includes the following:

Auditors and accountants;
Lawyers, notaries, and other legal professionals and practitioners;
Company and trust service providers;
Dealers in precious metals and stones;
Real estate agents and brokers;

If one deep dives into the lawmakers’ intent, one would understand that DNFBPs have been categorized looking at the risk involved in the business or the vulnerability of business towards the criminal activities or the one having access to the suspect’s accounts/ finance details.

If we take the example of auditors, the federal laws regulating the audit profession anyway imposes specific obligations on auditors regarding the reporting of crimes detected during auditing the accounts of clients, as they have access to the books and internal controls.

Let’s talk about precious metals and stones. The high intrinsic value of the product vis-a-viz the compact form of the same and the value appreciative nature of such items (gold, silver, diamonds, etc.) make it easy for the money launderers to exploit the sector and fund the criminal activities.

Looking at the nature of business/professions obligated with tasks under anti-money laundering and combating of financing of terrorist activity, it is apparent that the purpose is to trace back such money launderers and check the illegal or criminal activities. For this, it is important to have in place a dependable source of information about the business relationships and transactions. This is pertinent as the money launderers and the persons involved in criminal activities try to hide their identity and camouflage the proposed transactions.

Responsibilities of DNFBPs

In the context of the responsibilities shouldered on the DNFBPs, it would be treated as an offense if they do not report the suspected transactions (where they doubt the involvement of money laundering or any other criminal act) or tip-off about the transactions reported with the supervisory authorities.

For this, the regulations have suggested specific ways and means to assist the DNFBPs to comply with the guidelines and discharge their obligations of reporting the suspicious transaction in a fair method, such as:

Developing and implementing the internal controls and policies/procedures (commensurate to the size and complexity of the business) that seems to be adequate to identify the doubtful transactions and prevention of the money laundering related activities; 
Maintaining appropriate AML documentation such as “Know Your Customer” document, Customer Due Diligence practice, Risk profiling policy, etc.
Communicating such policies to the staff and imparting training thereupon; 
Monitoring and adhering to the compliance requirements under the guidelines.

Thus, the law revolves around adequate measures for identifying customers and risk assessment to evaluate the cause for concern and report the same to apt Governmental authorities for necessary proceedings against the felonious person.

About the Author

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

Article UAE

AML Defense Mechanism for Jewellers in Bahrain

AML Defense Mechanism for Jewellers

The Ministry of Industry, Commerce and Tourism has issued a guide, “AML Defence mechanism for Jewellers, Bahrain”, to help them understand their responsibilities for Prevention of Money Laundering/Terrorism Financing and enlighten them about numerous threats.

An individual is considered carrying out Money Laundering if he is involved in Directing, channelizing, possessing the proceeds of the crime, and concealing the source of Income.

We provide the following compliance services to our esteemed clients :

The stages of Money Laundering/Terrorism Financing.

Definition of money 

Instances of Money Laundering 

Identifying a potential money-launderer

Examples of Common signs’

Assessment of Risk 

Filling of Suspicious Transaction

Appointment of a Compliance officer 

Training of the Staff AML/ CFT policies and procedures

Customer Due Diligence/Enhanced Due -Diligence

Spotting a potential money-launderer 

Non-disclosure of residential address, sources of fund, etc 

Account holder in various Banks located in the same jurisdiction.  

Secretive in nature, nervous, over-explanation for a transaction, reluctant to meet in person, over-friendly 

Accompanied/watched by others 

Asking several questions about internal policies/procedures and documentation 

Asking for prompt completion of the transaction, hinting to give a bribe, etc

Indicators of Money laundering can be broadly classified as below:

Reporting mechanism 

The customer directly/indirectly tries to avoid the documentation and reporting. He has a thorough knowledge of the Money laundering Law and justifies the transaction, etc 

Identity Documents 

The individual provides forged/false documents. He is unable to produce the originals, share the telephone number. A corporate is reluctant to share Memorandum and Articles, Commercial registration certificate and other Identity documents, etc 

Cash Transactions 

There is an unusual increase in cash transactions from the customers. The Banknotes are oddly packed, dirty/musty, are a combination of different denominations, etc.

Economic purpose 

The transaction is very complicated and is not economically feasible. The transaction is not related to the customer’s normal business activities, etc 

Transactions involving other Countries 

The customer has no link to Bahrain, and the transaction is crossing many international borders. The customers are associated with High-Risk countries, etc. 

Risk-Assessment Key Points

The Risk-Assessment should be done on the following key-points

Products/services 

Delivery channels

Geographic location

New technologies 

Transaction risk, etc. 

The guide issued also discusses how a Company can file suspicions transaction report (STR), implementation of the “PROTECT” self-defence toolkit for the Jewellers, Customer Due Diligence (CDD), Enhanced due -Diligence (EDD) 

AML Defense Mechanism for Jewellers

The Ministry of Industry, Commerce and Tourism has issued a guide, “AML Defence mechanism for Jewellers, Bahrain”, to help them understand their responsibilities for Prevention of Money Laundering/Terrorism Financing and enlighten them about numerous threats.

An individual is considered carrying out Money Laundering if he is involved in Directing, channelizing, possessing the proceeds of the crime, and concealing the source of Income.

We provide the following compliance services to our esteemed clients :

The stages of Money Laundering/Terrorism Financing.

Definition of money 

Instances of Money Laundering 

Identifying a potential money-launderer

Examples of Common signs’

Assessment of Risk 

Filling of Suspicious Transaction

Appointment of a Compliance officer 

Training of the Staff AML/ CFT policies and procedures

Customer Due Diligence/Enhanced Due -Diligence

Spotting a potential money-launderer 

Non-disclosure of residential address, sources of fund, etc 

Account holder in various Banks located in the same jurisdiction.  

Secretive in nature, nervous, over-explanation for a transaction, reluctant to meet in person, over-friendly 

Accompanied/watched by others 

Asking several questions about internal policies/procedures and documentation 

Asking for prompt completion of the transaction, hinting to give a bribe, etc

Indicators of Money laundering can be broadly classified as below:

Reporting mechanism 

The customer directly/indirectly tries to avoid the documentation and reporting. He has a thorough knowledge of the Money laundering Law and justifies the transaction, etc 

Identity Documents 

The individual provides forged/false documents. He is unable to produce the originals, share the telephone number. A corporate is reluctant to share Memorandum and Articles, Commercial registration certificate and other Identity documents, etc 

Cash Transactions 

There is an unusual increase in cash transactions from the customers. The Banknotes are oddly packed, dirty/musty, are a combination of different denominations, etc.

Economic purpose 

The transaction is very complicated and is not economically feasible. The transaction is not related to the customer’s normal business activities, etc 

Transactions involving other Countries 

The customer has no link to Bahrain, and the transaction is crossing many international borders. The customers are associated with High-Risk countries, etc. 

Risk-Assessment Key Points

The Risk-Assessment should be done on the following key-points

Products/services 

Delivery channels

Geographic location

New technologies 

Transaction risk, etc. 

The guide issued also discusses how a Company can file suspicions transaction report (STR), implementation of the “PROTECT” self-defence toolkit for the Jewellers, Customer Due Diligence (CDD), Enhanced due -Diligence (EDD) 

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About the Author

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

Article Bahrain