AML/CTF BasicsUnderstanding Ant-Money Laundering and Counter-Terrorism Financing

(AML /CFT)David F Amakobe

13 December 2016

Money LaunderingThe processes by which criminals conceal:

The Origin, The Possession, and The Control

of the proceeds of criminal behavior (Cassara, 2016; Christensen, 2011; Olatunde Julius & Lauwo, 2012).

Methods of Money Laundering

The misuse of the international financial system (both formal and alternate),

The physical movement of cash (cash smuggling)

The abuse of trade transactions and their financing (APG, 2012).

Trade Based Money LaunderingThe misuse of business and their funding

include: Over/under invoicing of goods, Multiple invoicing of goods, Over/under shipments of goods and False description of goods.

Above activities may be combined with Cash inflow based payment, Third party payment, Segmental modes of payment and Alternative remittance payment (APG,

2012).

Banking Based Money LaunderingThe misuse of the international financial system involves three independent steps: Placement: 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 (Moustafa, Abd El-Megied, Sobh, & Shafea, 2015)

TerrorismThe 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.

Article 2 of the 1999 International Convention for the suppression of terrorist Bombings states that a person commits an offence within the meaning of the Convention if they cause

Damage to public or government property intending Death or Serious bodily injury Significant economic loss, (Grozdanova, 2014).

Terrorism FinancingIntentional collection or provision of funds to support an act or acts of terrorism. Terrorist organizations raise funding from legitimate sources, including

The abuse of charitable entities 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,

State sponsors Events in failed states and other safe havens.

Proliferation of Weapons of Mass Destruction (WMD)Proliferation is the

production, storage, transmission, trade and Use or threat of use

of weapons of mass destruction, whose spread and their delivery systems could have incalculable consequences for global stability and prosperity. 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.

Financial Action Task Force (FATF)

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 recognized as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard ((FATF), 2012).

Financial Crimes Enforcement Network

The mission of the FinCEN is To safeguard the financial system from illicit use and

Combat money laundering Promote national security through

The collection, analysis, and Dissemination of financial intelligence for strategic use by financial authorities

Financial Institutions AML/CTFKnow Your Customer (KYC)

CDD Enhanced CDD for PEPs Correspondence banking Natural and Legal persons, legal arrangements and Ultimate beneficial ownership

Continuously monitor new and persisting relationships

Currency activity reports, Funds transfer reports, Monetary instrument sales reports, Larger item reports, Significant balance change reports, ATM transaction reports, and Nonsufficient funds (NSF) reports

Report to FINCEN Suspicious Activity Report SAR Bank Secrecy Act Currency Transaction Report (BCTR)

SummaryFinancial 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

References (FATF), F. A. T. F. (2012). INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING

AND THE FINANCING OF TERRORISM & PROLIFERATION. Retrieved from February 2012: www.fatf-gafi.org/recommendations.html

APG. (2012). APG Typology Report on Trade Based Money Laundering. Retrieved from http://www.apgml.org/documents/default.aspx?pcPage=10

Cassara, J. A. (2016). Trade-based money laundering: the next frontier in international money laundering enforcement. Hoboken, New Jersey: John Wiley & Sons.

Christensen, J. (2011). The looting continues tax havens and corruption. Critical Perspectives on International Business, 7(2), 177-196. doi:http://dx.doi.org/10.1108/17422041111128249

Grozdanova, R. (2014). 'Terrorism' - Too Elusive a Term for an International Legal Definition? Netherlands International Law Review, 61(3), 305-334. doi:http://dx.doi.org/10.1017/S0165070X14001351

Moustafa, T. H., Abd El-Megied, M. Z., Sobh, T. S., & Shafea, K. M. (2015). Anti money laundering using a two-phase system. Journal of Money Laundering Control, 18(3), 304-329.

Olatunde Julius, O., & Lauwo, S. (2012). The role of offshore financial centres in elite money laundering practices: evidence from Nigeria. Journal of Money Laundering Control, 15(3), 336-361. doi:http://dx.doi.org/10.1108/13685201211238070