Aml basics

Editor's Notes

• #3: Money laundering is the processes by which criminals conceal the origin, possession, and control of the proceeds of criminal behaviour by making such profits appear to have been derived from legitimate sources (Cassara, 2016; Christensen, 2011; Olatunde Julius & Lauwo, 2012).
• #4: There are three primary methods of money laundering. The misuse of the international financial system (both formal and alternate), the physical movement of cash (cash smuggling) and the abuse of trade transactions and their financing (APG, 2012).
• #5: The misuse of business transactions and their funding include activites such as over/under invoicing of goods, multiple invoicing of goods, over/under shipments of goods and false description of goods. These activities are combined with cash inflow based payment, third party payment, segmental modes of payment and alternative remittance payment (APG, 2012).
• #6: The misuse of the international financial system involves three independent steps as reported in the Background Intelligence Brief Money Laundering, 2005 by Molander et al., (1998) as cited by Moustafa et al.,. ((2015): Placement: It is the first stage in the money laundering process, and it is a process for transferring the proceeds from illegal activities into the financial institutions or converting cash into instruments. Layering: It is a process in which a launderer may conduct a series of financial transactions to distance the proceeds from illegal source. Integration: It is the final stage in the laundering process; illicit funds are integrated with monies from legitimate commercial activities as they enter the mainstream economy. The integration of illicit monies into a legal economy is tough to detect unless an audit trail had been established during the previous stages (Moustafa, Abd El-Megied, Sobh, & Shafea, 2015).
• #7: Terrorism is the use or threat of action with a political motivation, which involves serious violence against a person, serious damage to property and grave danger to the health and safety of the public. Alternatively going by the international convension, Article 2 of the 1999 International Convention for the suppression of terrorist Bombings provides a definition. The Article states that a person commits an offence within the meaning of the Convention if they cause damage to public or government property intending to cause death or serious bodily injury and results in significant economic loss, which arguably amount to political motivation (Grozdanova, 2014).
• #8: Terrorism financing is intentionally collecting or providing funds to support a act or acts of terrorism. Terrorist organizations raise funding from legitimate sources, including the abuse of charitable entities or legitimate businesses or self-financing by the terrorists themselves. Terrorists also derive funding from a variety of criminal activities ranging in scale and sophistication from low-level crime to systematic fraud or narcotics smuggling, or from state sponsors and events in failed states and other safe havens.
• #9: Proliferation is the production, storage, transmission, trade and use of weapons of mass destruction. The spread of nuclear weapons and other weapons of mass destruction (WMD), and their delivery systems could have incalculable consequences for global stability and prosperity. During the next decade, proliferation will be most acute in some of the world’s most volatile regions. Financing of these operations is illegal and notifiable. Financial institutions have a responsibility to enforce sanctions imposed by the UN, the US and their allies.
• #10: The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard ((FATF), 2012). The 25 recommendations that concern the operations of financial institutions are listed below. The rest of the 48 are concern with regulation and enforcement ((FATF), 2012). International Statrndards on compacting money laundering and the financing of terrorism & proliferation. The FATF Recommendations, published in February 2012 and updated June 2016, these are: 1. Assessing risks & applying a risk-based approach 2.National cooperation and coordination 3. Money Laundering offence 4.Seizure and provision measure 5. Terrorist financing ofference 6 Targeted financial sactions related to terrorism & terrorism fiinancing 7.Targeted financial sactions related to proliferations 8. Non-profit organizations 9. Financial institutions secrecy laws 10. Customer due diligince 11. Record keeping 12. Politically exposed persons The measures to be taken are as follows: Imposes specific CDD obligations, either through law of Identifying the customer and verifying tthrough independent source documents, data or information customer’s identity using reliable, Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows whco the beneficial owner is. For legal persons and arrangements, this should include financial institutions understanding the ownership and control structure of the customer natural persons, legal persons or legal arrangements. Understanding and, as appropriate, obtaining information on the purpose and intended nature of the business relationship. (d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business, and risk profile, including, where necessary, the source of funds. 13. Correspondence banking 14. money or value transfer 15. New technologies 16.Wire transfers 17. Reliance on third parties 18.Internal controls, foreign branches, and subsidiaries 19. High risk countries 20. Reporting sucspicious activities 21 Tipping-off and confidentiality 22. Desginated non-financial business and professions (DNFBPs): Customer Due Diligence (CDD) The measures to be taken are as follows: (a) imposes specific CDD obligations, either through law or Identifying the customer and verifying that independent source documents, data or information of customer’s identity using reliable, (b) Identifying the beneficial owner, and taking reasonable measures to check the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is. For legal persons and arrangements, this should include financial institutions understanding the ownership and control structure of the customer. (c) Understanding and, as appropriate, obtaining information on the purpose and intended nature of the business relationship. (d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business, and risk profile, including, where necessary, the source of funds. 23. DNFBPs: Other measures 24. Transparency and beneficial ownership of legal persons 25. Transparency and legal ownership of legal arranements  
• #12: Know your customer in new and persisting relationships. Understand the legal arrangements, know the ultimate beneficial ownership of any relationships. Continouslly monitor relationships against the known facts and ask questions. Report to FinCEN
• #13: Financial institutions play a key role in the detection, prevention and control of criminal intention to hide the origin, possession and control of proceeds of crime The continuous monitoring of both prospective and persisting relationships ensure the integrity and security of the financial system Timely detection and reporting to FinCEN ensure that Law enforcement has the necessary information to maintain security