Sajid Mehmood Butt
While delivering one of the training sessions on the Anti-Money Laundering and
Counter Financing Terrorism subject, I realized that ‘basics have no more
remained basics’. Instead the audience were well aware of the topic and its
implications too; thus the need of delivering upon such a topic was way too far
better understood mutually by the staff and the superiors who scheduled the
topic of deliverance. As I begun with the literal meaning of word ‘Laundering’
as ‘Wash and Iron either cloths or linen’ connecting it with the metaphorical
money laundering which means ‘cleaning of dirty money’, I observed an unusual
spark in the audience. The process of converting illegal funds or assets into
legitimate funds or assets is the basic understanding of money laundering as
this process converts black or illegal money into white or legal money.
Basic objectives of money laundering are three; hide, move and invest. Hide; to
reflect the fact that the cash is often introduced to the economy via commercial
concerns which may knowingly or not knowingly be part of the laundering scheme,
and it is these which ultimately prove to be the interface between the criminal
activity and the financial sector. Secondly, Move; clearly explains that money
launderers use transfers, sales and purchase of assets, and change the shape and
size of the lump of money to obfuscate the trail between money and crime or
money and criminal. Lastly, Invest; the criminals spend the money in assets or
his lifestyles. To achieve these objectives, techniques employed during money
laundering could be several for instance deposit structuring or smurfing,
connected accounts, payable through accounts, loan back arrangements, Forex
Money Changers, Credit/Debit cards, Investment Banking and their Securities
Sectors, Insurance and Personal Investment Products, Companies Trading and
Business Activity, Lawyers, Accountants and other Intermediaries and misuse of
other Non-Profit Organization.
Turning the pages of history, the BSA (Bank Security Act) was established and
became one of the most important tools in the fight against Money Laundering in
1970. A decade later money laundering as a crime attracted interest in 1980s
essentially within the drug trafficking context.Financial Action Task Force (FATF)
was formed in 1989 to set up standards and promote effective implementation of
legal, regulatory and operational measures for combating money laundering,
terrorist financing and other related threats to the integrity of the
international financial system. The FATF is therefore a “policy-making body”
that works to generate the necessary political will to bring about national
legislative and regulatory reforms in these areas.Money Laundering methods have
become more creative and stringent since 1989, 1993, 1996, 2001, 2003 and most
recently in 2012.According to Jeffery Robinson, The Laundrymen “After foreign
exchange and 0il industry, the laundering of dirty money is world’s third
largest business.”Interestingly as per IMF Estimate, 2.7 percent of Global $1.6
trillion are laundered so far. Stock markets, agricultural products (as there is
no income tax and mostly the transactions are cash based), property market,
creation of bogus companies, loans, false export and import invoices,
commodities like gold, metal, diamond etc., and valuable antiques are some
popular places from where money is laundered.
FATF has three criterions of classification; White List, Grey List and Black
List. In specific, in relation to AML/CFT,as far as legal and regulatory
obligations in Pakistan are concernedfollowing Laws and Regulations has been
promulgated in Pakistan; AML Act 2010, Regulations 770(I)/2018, Guidelines on
Anti Money Laundering, Countering Financing of Terrorism, and Proliferation
Financing Issued by Securities and Exchange Commission of Pakistan in September
2018.
Combating the Finance of Terrorism (CFT) involves investigating, analyzing,
deterring and preventing sources of funding for activities intended to achieve
political, religious or ideological goals through violence and the threat of
violence against civilians. Money to fund terrorist activities move through the
global financial system via wire transfers and in and out of personal business
accounts. It can sit in the accounts of illegitimate charities and be laundered
through buying and selling securities and other commodities or purchasing and
cashing out insurance policies. Although terrorist financing is a form of Money
Laundering, it doesn’t work the way conventional money laundering works. The
money frequently starts to clean i.e. as a ‘charitable donation’ before moving
to terrorist accounts. It is highly time sensitive and requires a quick
response. Collection of membership dues, sales of publications, cultural or
social events, door to door solicitation within a community and appeal to
wealthy members of the community are the legal sources of terrorist financing
apart from illegal sources.Whereas kidnapping and extortions, smuggling, fraud
including credit card frauds, misuse of Non-profit organization and charity
funds, theft and robbery, drug trafficking and human trafficking comes under
illegal sources. Financial institutions used for the purpose go through serious
risks such as reputational risk, legal risk, operational risk (failed internal
processes, people and systems and technology) and concentration risk. Moreover,
all these risks are inter-related and they together have the potential of
causing serious threats to the financial organization in their execution.
Protection of whistleblowers is an important focus for the legal systems, as is
incentivizing whistle blowing when there are many reasons stopping employees
from doing so.
In reality, no individual has the power to stop money laundering alone. If a
country is hostile to money laundering, criminals simply look elsewhere for a
place to clean their funds. Therefore, Global Corporation is essential.
Therefore, Financial Action Task Force (FATF); an International Organization
having 37 member states, has issued “40 Recommendations” for financial
institution as standard to curb money laundering.Some of these recommendations
include; Identification and background check of depositors, report all
suspicious activities, build an internal taskforce to identify laundering clues,
financial institutions should not keep anonymous or fictitious accounts,
financial institutions should, in relation to politically exposed persons, in
addition to performing normal due diligence measures, have appropriate risk
management systems to determine whether the customer is a politically exposed
person or not. Take reasonable measures to establish the source of funds and
wealth. Obtain senior management’s approval for establishing business
relationship with such customers. Moreover, financial Institutions should
maintain, for at least seven years, all necessary records on transactions, to
enable them to comply swiftly with information. Financial institutions should
pay special attention to all complex, unusual large transactions, and all
unusual pattern of transactions, which have no apparent economic or visible
lawful purpose. If a financial institution has reasonable grounds to suspect
that funds are the proceeds of a criminal activity, it should be required,
directly or indirectly by law & regulations, to report promptly its suspicions
to the regulatory authorities.
(The author is a motivational speaker based in Rawalpindi)