Anti Money Laundering

-BY RAAGHUL KRISHNA

 Index
S.No. Topic
1 Money Laundering
2 Anti-Money Laundering
3 Steps against Money Laundering
4 Money Laundering in UAE
5 Terrorism Financing
6 Money Laundering vs Terrorism Financing
7 Smurfing and Structuring
8 Conclusion
Money Laundering
 W H AT I S M O N E Y L AU N D E R I N G
 P RO C ES S
 PLACEMENT
 L AY E R I N G
 I N T EG R AT I O N
 What is Money Laundering?

What is it?
Money Laundering is the process of converting money
from illegal sources to display as if it is legal money. In
layman terms, it is converting black money to white.
Challenge?
The challenge in money laundering is concealing the
source of income and injecting the income into the
economy without raising unwanted suspicion of law
enforcement agencies.
 Money Laundering Process
Money can be laundered by many methods which vary in
complexity and sophistication.
Money laundering involves three steps:
1. The first involves introducing cash into the financial
system by some means ("placement")
2. The second involves carrying out complex financial
transactions to camouflage the illegal source of the
cash ("layering")
3. Third, acquiring wealth generated from the
transactions of the illicit funds ("integration").
 Placement

1. Currency Smuggling – Move currency out of a country illegally

2. Bank Complicity – FI’s owned by individuals engaged in illegal activities
3. Currency Exchanges – Liberal Forex markets promote currency movement and money laundering
4. Securities Brokers – Brokers can structure large deposits by disguising the source of funds
5. Blending of Funds – The cash is blended along with larger pools of cash (Eg: Financial Institutions)
6. Asset Purchase – The purchase of assets with cash is a classic money laundering method.
 Currency Smuggling Bank Complicity Currency Exchange
Placement
Methods

Securities Broker Blending of funds Asset Purchase

 Layering

1. Cash converted into Monetary Instruments –

Proceeds is converted into monetary instruments
like Banker’s Draft and Money orders

2. Material assets bought with cash then sold –

Assets are bought and sold repetitively so that
the source of funds become hard to trace
 Integration
1. Property Dealing – The property purchased using illicit
money is sold to make the source look legitimate
2. Front Companies and False Loans – Front companies that
are incorporated in which criminals lend themselves their
own laundered proceeds in an apparently legitimate
transaction.
3. Foreign Bank Complicity – Money laundering using foreign
banks is harder to trace. This involves support of foreign
banks as well as legislations towards money laundering.
4. False Import/Export Invoices – Exports are overvalued and
imports and undervalued to show that net cash inflow has
been much higher that what has actually been received.
Anti Money Laundering
 WHAT IS AML?
 WHY AML?
 Anti-Money Laundering

What is it? Anti money laundering (AML) refers to a

set of procedures, laws, and regulations designed to
stop the practice of generating income through
illegal actions.
Illegal actions include: Market manipulation, trade
of illegal goods, corruption of public funds and tax
evasion, as well as the activities that aim to conceal
these deeds.
 Why AML?

The IMF has estimated that about 2-5% of global

GDP has been generated by illegal activities. This
gives Money Laundering the capacity to destabilize
the world economy easily.

Also, money laundering encourages people to

engage in criminal activities. This causes a problem
to the legislations’ criminal justice systems.

Spoils Investment environment and causes

damage to capital market
Steps Against Money Laundering
 STEPS AGAINST MONEY LAUNDERING
 WHISTLEBLOWERS
 NAME SCREENING
 RED FLAGS
 Steps against Money Laundering
AML Policy: Clear AML policy and AML officer who is aware about compliance procedures
Know Your Customer(KYC): Due diligence on identity of clients, trading partners and everyone
involved in moving cash.
Relationships: Identify real beneficiaries of a deal and business relationships between parties
Accounting and Cash Handling: Effective accounting and cash handling controls to prevent
money laundering within the company
Transaction Limits: Prohibit use of Cash beyond certain transaction limits
Source of funds: Expert staff should scrutinize source of funds or devise source disclosure
policy
 Whistleblower

Who is a Whistleblower?

A whistleblower is a person who exposes an organization’s information or activities which are deemed to be illegal or
unethical with respect to the company’s policies, laws of the land and public interest.

Whistleblowers are of 2 types:

1. Internal Whistleblowers report the wrongdoing to higher authorities like Head of HR or CEO who are within the
company.

2. External Whistleblowers report the wrongdoing to external organizations like media, government, police, etc.
 Name Screening

Name Screening is the process in which the bank verifies

whether the name of its current or potential customers are
in any Blacklist or Regulatory List.

This is part of the Customer Due Diligence(CDD) process in

which the bank has to verify customer identity and assess
customer risk.

Bank should also have Enhanced Due Diligence(EDD) for

customers who pose high risk from Money Laundering.
 Red Flags
What is a Red Flag?
A red flag is a tool used in the AML process to separately identify
the transactions that might indicate suspicious behavior.
A few of the red flags which indicate suspicious behavior are:
1. Unusual activity on an account
2. Purchase of Assets in CASH, or through OPAQUE business
structures
3. Cash Deposits/Transactions involving huge amounts
4. Large or frequent transfers to foreign countries, especially
those with weaker AML Compliance
Red Flag Transactions High Value Transactions Complying with AML regulations

Transparent Transactions

Opaque Businesses

Cash Purchase of
Assets

Unusual Transactions Usual Transactions

Money Laundering in UAE
 AMLSCU
 CASES OF MONEY LAUNDERING
 AMLSCU
Purpose: The Anti-Money Laundering Suspicious Cases Unit (AMLSCU) of

the UAE Central Bank investigates all reports about suspicious activities

received from financial institutions.

Authority: Follow up on reports received, Gather evidence, Share

information with relevant law enforcement authority

Freezing of Assets: It has authority to freeze assets for a period not

exceeding 7 days till it gains evidence and reaches a conclusion

 Cases of Money Laundering Attempts
Abu Dhabi Scam
The Abu Dhabi Police reported the arrest of 43 people in connection with a car scam worth Dh1.3 billion,
which affected more than 3,700 people.
The three people who were managing the scam hoped to make sizeable returns from selling cars on credit.
The suspects lured customers to buy cars from them and later they would encourage them to sell the cars
through them at a higher price, offering them huge returns.
They issued post-dated cheques to the investors. People who joined initially got the promised profit, which
encouraged others to join the scheme that was marketed for a few years.
The police said a total of Dh53 million in cash was seized from the residences of the gang members and from
car showrooms they owned. Another Dh100m in their bank accounts was frozen.
The police said 423 vehicles were also seized from 16 showrooms and 3,700 cheques were confiscated.
Non-Existent Wallet

 A man swindled thousands of people by promising them high returns of up to 30 per cent for
investing money in an unlicensed investment portfolio.
 Initially, it was believed that the number of people cheated were 2,500, however as the case
progressed the number of victims rose to 8,000.
 Investigations revealed that the accused and his brothers conned people out of their money with
the help of some brokers and intermediaries. Over 5,000 dud cheques and several receipt vouchers
were also issued by the accused.
 The assets of the accused, including 33 cars, have been confiscated upon court ruling.
Terrorism Financing
 Terrorism Financing

Terrorism financing refers to activities that

provide financing or financial support to individual
terrorists or terrorist organizations.

A government that maintains a list of terrorist

organizations normally will also pass laws to
prevent money laundering being used to finance
those organizations.
Money Laundering vs Terrorism Financing
Money Laundering vs Terrorist Financing
MONEY LAUNDERING TERRORIST FINANCING

Definition: Converting money from illegal Definition: Providing financial support to

sources to display as if it legal. terrorist individuals or organizations
Purpose: Converting Black to White Purpose: Financing terrorism
Source: Illegal Activities Source: Laundered money
Usage: Mainly for legal purchases Usage: Terrorist Activities or illegal activities
Smurfing and Structuring
 Smurfs
AED 20000
AED 20000 AED 20000
AED 20000

Who is a Smurf? A smurf is a money launderer who

AED 20000
tries to avoid being red flagged by breaking
transactions of high value and routing it through
AED 100000
different persons as smaller value transactions.
 Example of Smurfing
New York London
Owes $10500 from criminal activities- Illegal Funds
Criminal Criminal

Pays $10500 Pays $10500

Bank Cuckoo Smurfing Bank

Pays $10500 Pays $10500

Merchant
Merchant Owes $10500 from trading activities- Legal Funds
Structuring
$ 50000
Structuring means breaking a
big transaction into numerous
small transactions so that it
stays within the red flag limit.
T1 T2 T3 T4 T5
$10000 $10000 $10000 $10000 $10000

* T= Transactions
Conclusion
 Conclusion
Money Laundering techniques and outlets are growing with rapid technology advancement. Lack of AML
compliance in many countries has caused a lot of loopholes for money launders to exploit.
It is important for organizations like FATF to come up with more policies to ensure that all countries comply
with the AML requirements.
In order to prevent Money Laundering and Terrorist Financing, the governments should introduce AML
compliance procedures in innovative areas. Financial Intelligence Units will be an effective tool in this
process.
Areas such as customer background and customer relationships should be given more importance through
KYC and other procedures.
As in case of UAE, there are effective laws coming up in order to prevent Money Laundering. Also, the
government along with the Central Bank is putting efforts in Combating terrorism financing through
Financial Intelligence Units like AMLSCU.