Report On Business Law

Submitted to,
Mr. Mohammad Badruzzaman Bhuiyan Lecturer and course instructor Department of Tourism and Hospitality Management Faculty of Business Studies University of Dhaka

Submitted by,
Department of Tourism Management Faculty of Business Studies University of Dhaka

GYPSY"

and

Hospitality

Date: May 13, 2010 Department of Tourism and Hospitality Management Faculty of Business Studies University of Dhaka

Topic

Money Laundering & Terrorist Finance

Group profile

GYPSY
Serial no.

Name
S. M. Mehedi Hasan Md. Mizanur Rahman Abdullah all Masum Irin Sultana Salma Nasrin

Roll
001
009 023 036 057

Designat ion
Leader
Member Member Member Member

1. 2. 3. 4. 5.

Abstract

Money laundering is the process of disguising proceeds from criminal activities so that they would seem to be generated by a legitimate business. Although nobody knows with certainty just how big laundering turnover is, estimates range from the conservative $100 billion annually to as much as $1,000 billion a year. Dirty money often comes from drugs, but it is also generated by such activities as organized crime and white collar crime. Laundering has three phases: placement, layering and integration. Placement is the stage when the dirty money is entered into financial institutions. Layering is the phase characterized by the transfer and transformation of funds to obscure their original source. Integration is the phase when the money becomes a bona-fide asset or is transformed into cleaner and more usable money. Accountants have an important role to play in detecting money laundering in their organizations.

Introduction

Money laundering constitutes a significant threat to the safety of our communities, the integrity of our financial institutions, and our national security. In order to effectively address this serious threat, the best efforts to apply and coordinate all of the available resources of the federal government, along with those of state and local authorities, as well as our foreign counterparts, must be used. The United States Department of Justice is fully committed to using the money laundering and asset forfeiture statutes to the fullest extent possible. They will be used to identify, investigate, and prosecute those who launder the illegal proceeds of terrorists, drug traffickers, fraud perpetrators, organized crime organizations, and other criminals, and to seize and forfeit their ill-gotten assets. In recent years, crime has become increasingly international in scope, and the financial aspects o crime have become more complex. This is due to the rapid advances in technology and the globalization of the financial services industry. Modern financial systems permit criminals to transfer millions of dollars instantly though personal computers and satellite dishes. Money is laundered through currency exchange houses, stock brokerage houses, gold dealers, casinos, automobile dealerships, insurance companies, trading companies, and other sophisticated systems. Private banking facilities, offshore banking, shell corporations, free trade zones, wire systems, and trade financing all have the ability to mask illegal activities. The criminal's choice of money laundering vehicles is limited only by his or her creativity. Ultimately, this laundered money flows into global financial systems where it can undermine national economies and currencies. Organized criminal groups transcend national borders and extend their influence to areas of the world far-removed from their countries of origin. The gradual erosion of border controls in the countries of Europe not only contributes to the free flow of trade and commerce, but also increases the threat of trans border financial crimes. This internationalization of crime makes the sharing, collating, and analysis of information, among and within governments, essential. Organized criminals are motivated by one thing profit. Greed drives the criminal. Huge sums of money are generated through drug trafficking, arms smuggling, white collar crime, human trafficking, terrorism, and corruption. The end result is that organized crime moves billions of illegally-gained dollars into our nations legitimate financial systems. The success of organized crime is based upon its ability to launder money. The challenges facing law enforcement in this environment make it necessary for investigators and prosecutors to have all the legal and regulatory tools, as well as international legal assistance mechanisms available to them, to keep up with, and ahead of, those who launder the proceeds of crime. To effectively combat such criminal activity, law enforcement must have then means that are at least as sophisticated, if not more so, than the criminals. The money laundering statutes Congress provided, both in the Bank Secrecy Act and the Criminal Code, are major weapons in the war against the laundering of drug trafficking proceeds and other serious crimes. These weapons gut the economic base that these criminals need to operate and

stop them from continuing business as usual, which is integral to the fight against terrorism. It also prevents replacement of members who have been incarcerated. Another tangential benefit is the deterrence of crime. Greed is one of the primary reasons for criminal activity. Asset forfeiture removes this incentive by denying criminals the assets illegally acquired. Not only will they go to jail, but they will not realize any economic gain from the crime. Investigating and prosecuting money laundering and forfeiting criminal assets can be a long, arduous, and complex process. It is critical to bear in mind, however, that it is more than a bloodless exercise in accounting. When the crime of money laundering is fought, organized crime is fought. The fight against money laundering accomplishes the following goals, among many others.

Literature Review

The fears over money laundering and terrorist financing are an overreaction to an otherwise smaller problem affecting the lives of very poor people. These regulations governing remittances can be avoided. ~Dilip Ratha

It boils the blood and chills the spine to see a sitting judge in the midst of a mob-directed money-laundering conspiracy. ~ Mark Mershon

The fact that Congress wasn't aware that the FBI has used some 30,000 national security letters over the past few years is an indication that not enough oversight has been done. The money-laundering sections of the Patriot Act require scores of businesses to track the transactions of their customers and report to the government. It's an aspect of the Patriot Act that doesn't get much attention, but it should. This has huge implications for people's privacy. ~ Tim Lynch Money laundering is a very sophisticated crime and we must be equally sophisticated, ... an essential front in the war on narcotics. ~ Janet Reno

This is a sad, sordid tale of money laundering involving Pinochet accounts at multiple financial institutions using alias names, offshore accounts and close associates, ~ Norm Coleman

We followed the money around the globe and into the hands of major Colombian drug traffickers, ... We've shown the black market peso exchange for what it is -- the largest known drug-money laundering mechanism in the Western Hemisphere. ~ Karen Tandy The term of "money laundering" itself does not derive, as is often said, from the story that Al Capone used laundromats to hide ill-gotten gains. It was Meyer Lansky that perfected money laundering's older brother, "capital flight", transferring his funds to Switzerland and other offshore places. The first reference to the term "money laundering" itself actually appears during the Watergate scandal. US President Richard Nixon's "Committee to Re-Elect The President" moved illegal campaign contributions to Mexico, then brought the money back through a company in Miami. It was Britain's Guardian newspaper that coined the term, referring to the process as "laundering." ~Wikipedia The Online Etymology Dictionary also states that "money laundering" only came into popular use around the time of Watergate, though it does also say that the first recorded use was in 1961. ~Online Etymology Dictionary

Objectives
Objectives of preparing the report are to know about the theory of money laundering and terrorist finance in various perspectives. and the consequences of money laundering and terrorist finance on economy and society and existing laws for preventing money laundering and its bad effects in various countries including Bangladesh, India and the USA. Also our objectives are to know about what necessary steps we can take to get our economy more protective against money laundering and terrorist finance.

Methodology
We have used secondary data here. We have collected a lot of information from various books written by scholars. We have studied a lot about the topic. We have categorized the topic In sections and also collected related acts existing in various countries and compared all. Last of all we have identified some recommendations which can make us more protective against money laundering and terrorist finance.

What is money laundering?

Money laundering is the process through which criminals conceal the true existence, illegal source, or illegal application of income, and then disguise that income to make it appear legitimate. The most common form of money laundering that credit institutions will encounter on a day-to-day basis, takes the form of accumulated cash transactions which will be deposited in the banking system or exchanged for other assets (monetary assets). These simple transactions may just be one part of the sophisticated web of complex transactions which are set out and illustrated in paragraph 1.3. Nevertheless, the basic fact remains that the earliest key stage for the detection of money laundering activities is where the cash first enters the financial system.

Reasons to combat money laundering

In the last decade, there has been a growing recognition that it is essential in the fight against crime, to prevent criminals, whenever possible, from making the proceeds of their criminal activities legitimate by converting "dirty" funds into "clean" ones. According to the Aruban Penal Code and State Ordinance on the Criminalization of Money Laundering, money laundering is a crime and any form of cooperation with money laundering is also a crime. Because criminals usually hide the origin of the money, there is a risk that this criminal money will penetrate the financial system unnoticed. This can undermine the integrity and the working of the financial system and affect the good name of the credit institutions and its officials. Besides that, criminals can get control over the "upperworld" by investing in companies and controlling them. The requirement to launder the proceeds of criminal activity through the financial system is vital to the success of criminal operations.

Those involved have to exploit the facilities of the world's financial systems. The free movement of capital has enhanced the ease with which criminal money can be laundered and has also complicated the tracing process. There are several methods of money laundering. These methods can be simple or complex. In the following paragraphs, we will briefly elaborate on the five phases of money laundering. In most paragraphs recommendations are given to deter the use of the financial system for illegal activities. We should note, however, that the role of the CBA is to review the guidelines introduced by the management of the credit institutions, and to evaluate if these comply with the legal requirements (including these directives) and are adequate to protect the credit institution from being used for illegal activities. However, it is the management of the credit institution which is primarily responsible for having adequate anti-money laundering procedures and internal controls in place.

Money laundering in Bangladesh perspective

Bangladesh enacted legislation aimed at controlling and preventing money laundering. Money laundering is a criminal offense in Bangladesh and can result in imprisonment for up to seven years, in addition to financial penalties. The Bank of Bangladesh is responsible for investigating suspected cases and presenting them to the courts, as well as applying for orders freezing or seizing assets of accused money launderers. This article offers an overview of Bangladesh Money Laundering law. In 2002, Bangladesh enacted the Money Laundering Prevention Act ("MLPA"), which applies to all forms of money laundering. MLPA appointed the central bank of Bangladesh (the Bangladesh Bank) as the entity responsible for overseeing financial institutions and ensuring that customer activities are adequately monitored and that suspicious acts are identified. Also, the law establishes a special court to hear

money laundering cases called the "Money Laundering Court." This is a special court within the existing Courts of Sessions and therefore the Civil and Criminal Procedure Codes apply to action before it . Under the MLPA, money laundering is a non-bailable crime. A conviction for money laundering can result in imprisonment from a minimum of six months to a maximum of seven years, along with a fine of up to double the amount involved in the crime. The Bangladesh Bank can also request that a Bangladeshi court seizes or freezes assets belonging to a defendant accused of money laundering.

How does Bangladesh laundering?

law

define

the

crime

of

money

The MLPA defines money laundering as the direct or indirect acquisition of property by illegal means as well as the transfer, conversion, or concealment of any property in an illegal manner. The MLPA requires financial institutions to accurately identify suspicious customers, to report suspicious transactions to the Bangladesh Bank, and to preserve customer information while an account is open and for five years after it is closed. Every bank is required to maintain an AntiMoney Laundering Compliance Unit. The MLPA allows the Bangladesh Bank to fine financial institutions for failure to retain or report required data on suspicious transactions.

What are some of the criticisms of the definition of money laundering set forth in the MLPA?
A Under the MLPA, the definition of money laundering includes all earnings or acquired property obtained through illegal means. This definition has been criticized as so broad that offenses such as theft, robbery, cheating, and forgery can also qualify as acts of money

laundering.

What are some of the inconsistencies in the application of the MLPA?

The MLPA applies to acts involving the illegal transfer, change of nature, and concealment of property, acquired or earned through legal or illegal means. This provision was intended to criminalize the transfer of money by an unauthorized channel known as Hundi. However, such informal channels are used primarily by Bangladeshi wage earners living abroad, and not by traditional money launderers, a reality that can lead to the misapplication of the MLPA. Additionally, certain regulators such as the Bangladeshi Securities and Exchange Commission, which maintains financial information through annual business reports, do not have responsibilities under the MLPA to report potentially unlawful transactions, a loophole that can hamper Bangladeshi governments enforcement efforts. Finally, the MLPA is focused on banks and financial institutions and does not address other trade-based money laundering such as property developers, high value dealers of jewelry and car dealers, who can also be used as conduits of money laundering.

LAWS AND REGULATIONS

One of the most important consequences of international discussions regarding the combat against money laundering, has been the formation of the so-called `Financial Action Task Force on Money Laundering ("FATF") in 19891. In 1990 the FATF issued forty recommendations to prevent, detect and combat money laundering. In November 1992, members of the Caribbean FATF (CFATF) officially declared to implement these recommendations in their own countries. In the Declaration of Kingston on Money Laundering of November 1992, the CFATF accepted besides the FATF recommendations, nineteen "own" recommendations, more specific to the situation in the Caribbean countries.

Other major consequences of these international discussions, were the composing of two international treaties regarding anti-money laundering, the United Nations Convention against Illicit Traffic Narcotic Drugs and Psychotropic Substances (1988) (the so called "Vienna Convention") and the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (1990) (the so called "Strasbourg Convention"). The Aruban Government is taking and has already taken the necessary steps to implement the (C)FATF recommendations and these treaties. Meanwhile these treaties have been ratified by Aruba. Also, in Aruba a "local FATF" has been formed with representatives of various (government) agencies and institutions, including the CBA. This Aruban FATF has been entrusted with coordinating the implementation of the FATF and CFATF recommendations. It also closely follows (inter)national developments in (the prevention of) money laundering and maintains regular contacts with involved regulatory or law enforcement agencies, both nationally and internationally.

Many jurisdictions adopt a list of specific predicate crimes for money laundering prosecutions as a "self launderer".

Bangladesh
In Bangladesh, this issue has been dealt with by the Prevention of Money Laundering Act, 2002 (Act No. VII of 2002). In terms of section 2 (tha), "Money Laundering means (a) Properties acquired or earned directly or indirectly through illegal means; (b) Illegal transfer, conversion, concealment of location or assistance in the above act of the properties acquired or earned directly of indirectly through legal or illegal means." In this Act, Properties means movable or immovable properties of any nature and description.

Canada
The battle against money laundering is directly related to the war against drugs and drug criminals. The United Nations Commission on Narcotic Drugs estimates the annual volume of drug trafficking is close to $500 billion. Of that amount, about 70% is laundered. In Canada,

the RCMP estimates that the drug trade has the ability to reach more than US$3 billion at the wholesale level which translates to about US$13 billion at street level for the criminals. Canada's war against drug abuse includes implementing laws, but they focus mainly on prevention, education, treatment, and rehabilitation. Canada has also increased guidelines for testing, law enforcement and research. The National Initiative to Combat Money Laundering, with the involvement of the Solicitor General of Canada, the RCMP, Justice Canada, Canada Customs and Revenue Agency, and, Citizenship and Immigration, began operation in 1998.

India
The Prevention of Money-Laundering Act, 2004 came into effect on 1 July 2005. Section 3 of the Act makes the offense of money-laundering cover those persons or entities who directly or indirectly attempt to indulge or knowingly assist or knowingly are party or are actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property, such person or entity shall be guilty of offense of money-laundering. Section 4 of the Act prescribes punishment for money-laundering with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees and for the offences mentioned [elsewhere] the punishment shall be up to ten years. Section 12 (1) prescribes the obligations on banks, financial institutions and intermediaries (a) to maintain records detailing the nature and value of transactions which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, and where such series of transactions take place within a month; (b) to furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed and to (c) verify and maintain the records of the identity of all its clients. Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above, must be maintained for ten years after the transactions finished. recent activity in money laundering in India is through political parties corporate companies and share market.

United Kingdom
The United Kingdom has an "all-crimes" regime. Money laundering legislation in the UK is governed by four Acts of primary legislation:

The Terrorism Act 2000[2] The Anti-Terrorist Crime & Security Act 2001[3] The Proceeds of Crime Act 2002[4] Serious Organised Crime and Police Act 2005[5]

Secondary regulation is provided by the Money Laundering Regulations 2003.[6] and 2007[7] Professional guidance (which is submitted to and approved by the UK Treasury) is provided by industry groups including the Joint Money Laundering Steering Group.[8] and the Law Society[9] In the UK "money laundering" does not necessarily involve money (relating to assets of any kind, both tangible and intangible, and to the avoidance of a liability), also not necessarily passing on the assets: a thief's possession himself is included. There is no lower limit to what has to be reported a suspicious transaction involving 1 penny must be reported. Technically, everyone, not just financial services employees or firms, is required to report, and get consent for, his own involvement in crime or suspicious activities involving money or assets of any kind. A thief who steals a vest from a clothes store commits, as well as common theft, a money laundering offense: because he has possession of an asset derived from crime. He is technically required to seek consent from law enforcement for his continued possession of the vest if he is to avoid risk of prosecution for money laundering. Under the UK law, it is a money laundering offense when a person enters into, or becomes concerned in, an arrangement which facilitates by whatever mean the acquisition, retention, use, or control of criminal property by another person. This has concerned lawyers and other professional advisers who act for clients charged with these offences, since they are brought under the same law themselves.

Because the UK legislation is wide-ranging, the Serious Organized Crime Agency receives many SARs; in 2005 nearly 200,000. The number of SARs appears to be growing by almost 50% each year.[ The UK legislation was relaxed slightly in 2005 to allow banks and financial institutions to proceed with low value transactions involving suspected criminal property without requiring specific consent for every transaction, but the reporting of all transactions is still required.

Bureaux de change
All UK Bureaux de change are registered with HMRC using form MLR100, which issues a trading licence for each location. MLR8 is also applied to each outlet making AML checks a requirement. Checks can be carried out by HMRC on all MSB's, however this tends to be conducted only against money transmitters.

United States
In US law reasonably accepting cash" means the business must regularly perform services that on average are less than $500 each. It is assumed that above that amount most people pay with a check, a credit card, or another (traceable) payment method. The company should actually function on a legitimate level. In the hairstyler example, it is perfectly reasonable for a lot of the business to involve mostly labour (dyes and machine oil and so forth being relatively small concerns), and for most transactions to be settled in cash. But it is unreasonable for all of the business to work without parts and just on cash. So the legitimate business will generate a legitimate (if low) level of parts use, and enough traceable transactions to mask the illegitimate ones. Anti-money laundering (AML/CFT)[ laws typically have other offences such as "tipping off (warning)", "willful blindness", "not reporting suspicious activity", "conscious facilitation of a money launderer", "assisting a terrorist financier with moving terrorist financing". The Bank Secrecy Act of 1970 requires banks to report cash transactions of $10,000.01 or more. The Money Laundering Control Act of 1986 further defined money laundering as a federal crime. The USA PATRIOT Act of 2001 expanded the scope of prior laws to more types of

financial institutions, and added a focus on terrorist financing, specifying that financial institutions take specific actions to "know your customer" (KYC). In the United States, Federal law provides: "Whoever ... knowing[ly] ... conducts or attempts to conduct ... a financial transaction which in fact involves the proceeds of specified unlawful activity ... with the intent to promote the carrying on of specified unlawful activity ... shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both. While money laundering typically involves the flow of "dirty money" (criminal proceeds) into a clean bank account or negotiable instrument, terrorist financing frequently involves the reverse flow: apparently clean funds converted to "dirty" purposes. A hawala may launder drug proceeds and help fund a terrorist, netting the incoming and outgoing funds with only occasional small net settlement transactions.

Consequences of Money Laundering

Money laundering is the criminal's way of trying to ensure that, in the end, crime pays. It is necessitated by the requirement that criminals -be they drug traffickers, organized criminals, terrorists, arms traffickers, blackmailers, or credit card swindlers -- disguise the origin of their criminal money so they can avoid detection and the risk of prosecution when they use it. Money laundering is critical to the effective operation of virtually every form of transnational and organized crime. Anti-money-laundering efforts, which are designed to prevent or limit the ability of criminals to use their ill-gotten gains, are both a critical and effective component of anti-crime programs. Money laundering generally involves a series of multiple transactions used to disguise the source of financial assets so that those assets

may be used without compromising the criminals who are seeking to use them. These transactions typically fall into three stages: (1) placement -- the process of placing unlawful proceeds into financial institutions through deposits, wire transfers, or other means; (2) layering -- the process of separating the proceeds of criminal activity from their origin through the use of layers of complex financial transactions; and (2) Integration -- the process of using an apparently legitimate transaction to disguise illicit proceeds. Through these processes, a criminal tries to transform the monetary proceeds derived from illicit activities into funds with an apparently legal source. Money laundering has potentially devastating economic, security, and social consequences. It provides the fuel for drug dealers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. Crime has become increasingly international in scope, and the financial aspects of crime have become more complex due to rapid advances in technology and the globalization of the financial services industry. Modern financial systems, in addition to facilitating legitimate commerce, also allow criminals to order the transfer of millions of dollars instantly using personal computers and satellite dishes. Because money laundering relies to some extent on existing financial systems and operations, the criminal's choice of money laundering vehicles is limited only by his or her creativity. Money is laundered through currency exchange houses, stock brokerage houses, gold dealers, casinos, automobile dealerships, insurance companies, and trading companies. Private banking facilities, offshore banking, shell corporations, free trade zones, wire systems, and trade financing all can mask illegal activities. In doing so, criminals manipulate financial systems in the United States and abroad. Unchecked, money laundering can erode the integrity of a nation's financial institutions. Due to the high integration of capital markets, money laundering can also adversely affect currencies and interest rates. Ultimately, laundered money flows into global financial systems, where it can undermine national economies and currencies. Money laundering is thus not only a law enforcement problem; it poses a serious national and international security threat as well. Exposed Emerging Markets Money laundering is a problem not only in the world's major financial markets and offshore centers, but also

for emerging markets. Indeed, any country integrated into the international financial system is at risk. As emerging markets open their economies and financial sectors, they become increasingly viable targets for money laundering activity. Increased efforts by authorities in the major financial markets and in many offshore financial centers to combat this activity provide further incentive for launderers to shift activities to emerging markets. There is evidence, for example, of increasing cross-border cash shipments to markets with loose arrangements for detecting and recording the placement of cash in the financial system and of growing investment by organized crime groups in real estate and businesses in emerging markets. Unfortunately, the negative impacts of money laundering tend to be magnified in emerging markets. A closer examination of some of these negative impacts in both the micro- and macroeconomic realms helps explain why money laundering is such a complex threat, especially in emerging markets.The Economic Effects of Money Laundering Undermining the Legitimate Private Sector: One of the most serious microeconomic effects of money laundering is felt in the private sector. Money launderers often use front companies, which comingle the proceeds of illicit activity with legitimate funds, to hide the ill-gotten gains. In the United States, for example, organized crime has used pizza parlors to mask proceeds from heroin trafficking. These front companies have access to substantial illicit funds, allowing them to subsidize front company products and services at levels well below market rates. In some cases, front companies are able to offer products at prices below what it costs the manufacturer to produce. Thus, front companies have a competitive advantage over legitimate firms that draw capital funds from financial markets. This makes it difficult, if not impossible, for legitimate business to compete against front companies with subsidized funding, a situation that can result in the crowding out of private sector business by criminal organizations. Clearly, the management principles of these criminal enterprises are not consistent with traditional free market principles of legitimate business, which results in further negative macroeconomic effects. Undermining the Integrity of Financial Markets: Financial institutions that rely on the proceeds of crime have additional challenges in adequately managing their assets, liabilities and operations. For example, large sums of laundered money may arrive at a financial institution but then disappear suddenly, without notice, through wire transfers in response to non-market factors, such as law enforcement operations. This can result in liquidity problems and runs on banks.

Indeed, criminal activity has been associated with a number of bank failures around the globe, including the failure of the first Internet bank, the European Union Bank. Furthermore, some financial crises of the 1990s -- such as the fraud, money laundering and bribery scandal at BCCI and the 1995 collapse of Barings Bank as a risky derivatives scheme carried out by a trader at a subsidiary unit unraveled had significant criminal or fraud components. Loss of Control of Economic Policy: Michel Camdessus, the former managing director of the International Money Fund, has estimated that the magnitude of money laundering is between 2 and 5 percent of world gross domestic product, or at least $600,000 million. In some emerging market countries, these illicit proceeds may dwarf government budgets, resulting in a loss of control of economic policy by governments. Indeed, in some cases, the sheer magnitude of the accumulated asset base of laundered proceeds can be used to corner markets -- or even small economies. Money laundering can also adversely affect currencies and interest rates as launderers reinvest funds where their schemes are less likely to be detected, rather than where rates of return are higher. And money laundering can increase the threat of monetary instability due to the misallocation of resources from artificial distortions in asset and commodity prices. In short, money laundering and financial crime may result in inexplicable changes in money demand and increased volatility of international capital flows, interest, and exchange rates. The unpredictable nature of money laundering, coupled with the attendant loss of policy control, may make sound economic policy difficult to achieve. Economic Distortion and Instability: Money launderers are not interested in profit generation from their investments but rather in protecting their proceeds. Thus they "invest" their funds in activities that are not necessarily economically beneficial to the country where the funds are located. Furthermore, to the extent that money laundering and financial crime redirect funds from sound investments to low-quality investments that hide their proceeds, economic growth can suffer. In some countries, for example, entire industries, such as construction and hotels, have been financed not because of actual demand, but because of the short-term interests of money launderers. When these industries no longer suit the money launderers, they abandon them, causing a collapse of these sectors and immense damage to economies that could ill afford these losses. Loss of Revenue: Money laundering diminishes government tax revenue and therefore indirectly harms honest taxpayers. It also makes government tax collection more difficult. This loss of revenue generally means higher tax rates than would normally be the case if

the untaxed proceeds of crime were legitimate. Risks to Privatization Efforts: Money laundering threatens the efforts of many states to introduce reforms into their economies through privatization. Criminal organizations have the financial wherewithal to outbid legitimate purchasers for formerly state-owned enterprises. Furthermore, while privatization initiatives are often economically beneficial, they can also serve as a vehicle to launder funds. In the past, criminals have been able to purchase marinas, resorts, casinos, and banks to hide their illicit proceeds and further their criminal activities. Reputation Risk: Nations cannot afford to have their reputations and financial institutions tarnished by an association with money laundering, especially in today's global economy. Confidence in markets and in the signaling role of profits is eroded by money laundering and financial crimes such as the laundering of criminal proceeds, widespread financial fraud, insider trading of securities, and embezzlement. The negative reputation that results from these activities diminishes legitimate global opportunities and sustainable growth while attracting international criminal organizations with undesirable reputations and short-term goals. This can result in diminished development and economic growth. Furthermore, once a country's financial reputation is damaged, reviving it is very difficult and requires significant government resources to rectify a problem that could be prevented with proper anti-money-laundering controls. Social Costs There are significant social costs and risks associated with money laundering. Money laundering is a process vital to making crime worthwhile. It allows drug traffickers, smugglers, and other criminals to expand their operations. This drives up the cost of government due to the need for increased law enforcement and health care expenditures (for example, for treatment of drug addicts) to combat the serious consequences that result. Among its other negative socioeconomic effects, money laundering transfers economic power from the market, government, and citizens to criminals. In short, itturns the old adage that crime doesn't pay on its head. Furthermore, the sheer magnitude of the economic power that accrues to criminals from money laundering has a corrupting effect on all elements of society. In extreme cases, it can lead to the virtual takeover of legitimate government. Overall, money laundering presents the world community with a complex and dynamic challenge. Indeed, the global nature of money laundering requires global standards and international cooperation if we are to reduce the ability of criminals to launder their proceeds and carry out their criminal activities.

Scope of the criminal offence of money laundering

1. Countries should criminalise money laundering on the basis of the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 (the Vienna Convention) and the United Nations Convention against Transnational Organized Crime, 2000 (the Palermo Convention). Countries should apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences. Predicate offences may be described by reference to all offences, or to a threshold linked either to a category of serious offences or to the penalty of imprisonment applicable to the predicate offence (threshold approach), or to a list of predicate offences, or a combination of these approaches. Where countries apply a threshold approach, predicate offences should at a minimum comprise all offences that fall within the category of serious offences under their national law or should include offences which are punishable by a maximum penalty of more than one years imprisonment or for those countries that have a minimum threshold for offences in their legal system, predicate offences should comprise all offences, which are punished by a minimum penalty of more than six months imprisonment. Whichever approach is adopted, each country should at a minimum include a range of offences within eof the Predicate offences for money laundering should extend to conduct that occurred in another country, which constitutes an offence in that country, and which would have constituted a predicate offence had it occurred domestically. Countries may provide that the only prerequisite is that the conduct would have constituted a predicate offence had it occurred domestically. Countries may provide that the offence of money laundering does not apply to persons who committed the predicate offence, where this is required by fundamental principles of their domestic law.

2. Countries should ensure that:

a) The intent and knowledge required to prove the offence of money laundering is consistent with the standards set forth in the Vienna and Palermo Conventions, including the concept that such mental state may be inferred from objective factual circumstances. b) Criminal liability, and, where that is not possible, civil or administrative liability, should apply to legal persons. This should not preclude parallel criminal, civil or administrative proceedings with respect to legal persons in countries in which such forms of liability are available. Legal persons should be subject to effective, proportionate and dissuasive sanctions. Such measures should be without prejudice to the criminal liability of individuals

3.

Provisional measures and confiscation

Countries should adopt measures similar to those set forth in the Vienna and Palermo Conventions, including legislative measures, to enable their competent authorities to confiscate property laundered, proceeds from money laundering or predicate offences, instrumentalities used in or intended for use in the commission of these offences, or property of corresponding value, without prejudicing the rights of bona fide third parties. Such measures should include the authority to: (a) identify, trace and evaluate property which is subject to confiscation; (b) carry out provisional measures, such as freezing and seizing, to prevent any dealing, transfer or disposal of such property; (c) take steps that will prevent or void actions that prejudice the States ability to recover property that is subject to confiscation; and (d) take any appropriate investigative measures. Countries may consider adopting measures that allow such proceeds or instrumentalities to be confiscated without requiring a criminal conviction, or which require an offender to demonstrate the lawful origin of the property alleged to be liable to confiscation, to the extent that such a requirement is consistent with the principles of their domestic law.

4. Countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations 5. Financial institutions should pay special attention to any money laundering threats that may arise from new or developing technologies that might favour anonymity, and take measures, if needed, to prevent their use in money laundering schemes. In particular, financial institutions should have policies and procedures in place to address any specific risks associated with non- face to face business relationships or transactions. 6 . Countries may permit financial institutions to rely on intermediaries or other third parties to perform elements (a) (c) of the CDD process or to introduce business, provided that the criteria set out below are met. Where such reliance is permitted, the ultimate responsibility for customer identification and verification remains with the financial institution relying on the third party. 7. Financial institutions should pay special attention to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help competent authorities and auditors. 8. If a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, directly by law or regulation, to report promptly its suspicions to the financial intelligence unit (FIU).

9. Countries should ensure that effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, are available to deal with natural or legal persons covered by these Recommendations that fail to comply with anti-money laundering or terrorist financing requirements. 10. Countries should not approve the establishment or accept the continued operation of shellbanks. Financial institutions should refuse

to enter into, or continue, a correspondent banking relationship with shell banks. Financial institutions should also guard against establishing relations with respondent foreign financial institutions that permit their accounts to be used by shell banks. 11. Countries should consider applying the FATF Recommendations to businesses and professions, other than designated non-financial businesses and professions, that pose a money laundering or terrorist financing risk. Countries should further encourage the development of modern and secure techniques of money management that are less vulnerable to money laundering. 12. Financial institutions should give special attention to business relationships and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply the FATF Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help competent authorities. Where such a country continues not to apply or insufficiently applies the FATF Recommendations, countries should be able to apply appropriate countermeasures 13. Financial institutions should ensure that the principles applicable to financial institutions, which are mentioned above are also applied to branches and majority owned subsidiaries located abroad, especially in countries which do not or insufficiently apply the FATF Recommendations, to the extent that local applicable laws and regulations permit. When local applicable laws and regulations prohibit this implementation, competent authorities in the country of the parent institution should be informed by the financial institutions that they cannot apply the FATF Recommendations.

14 .The competent authorities should establish guidelines, and provide feedback which will assist financial institutions and designated nonfinancial businesses and professions in applying national measures t combat money laundering and terrorist financing, and in particular, in detecting and reporting suspicious transactions.

15. Countries should establish a FIU that serves as a national center for the receiving (and, as permitted, requesting), analysis and dissemination of STR and other information regarding potential money laundering or terrorist financing. The FIU should have access, directly or indirectly, on a timely basis to the financial, administrative and law enforcement information that it requires to properly undertake its functions, including the analysis of STR. 16 .Countries should ensure that designated law enforcement authorities have responsibility for money laundering and terrorist financing investigations. Countries are encouraged to support and develop, as far as possible, special investigative techniques suitable for the investigation of money laundering, such as controlled delivery, undercover operations and other relevant techniques. Countries are also encouraged to use other effective mechanisms such as the use of permanent or temporary groups specialised in asset investigation, and co-operative nvestigations with appropriate competent authorities in other countries. 17. When conducting investigations of money laundering and underlying predicate offences, competent authorities should be able to obtain documents and information for use in those investigations, and in prosecutions and related actions. This should include powers to use compulsory measures for the production of records held by financial institutions and other persons, for the search of persons and premises, and for the seizure and obtaining of evidence 18. Supervisors should have adequate powers to monitor and ensure compliance by financial institutions with requirements to combat money laundering and terrorist financing, including the authority to conduct inspections. They should be authorised to compel production of any information from financial institutions that is relevant to monitoring such compliance, and to impose adequate administrative sanctions for failure to comply with such requirements. 19 .Countries should provide their competent authorities involved in combating money laundering and terrorist financing with adequate financial, human and technical resources. Countries should have in place processes to ensure that the staff of those authorities are of high integrity 20 . Countries should ensure that their competent authorities provide

the widest possible range of international co-operation to their foreign counterparts. There should be clear and effective gateways to facilitate the prompt and constructive exchange directly between counterparts, either spontaneously or upon request, of information relating to both money laundering and the underlying predicate offences. Exchanges should be permitted without unduly restrictive conditions. In particular: a) Competent authorities should not refuse a request for assistance on the sole ground that The request is also considered to involve fiscal matters. b) Countries should not invoke laws that require financial institutions to maintain secrecy Or confidentiality as a ground for refusing to provide cooperation. c) Competent authorities should be able to conduct inquiries; and where possible, Investigations; on behalf of foreign counterparts. Where the ability to obtain information sought by a foreign competent authority is not within the mandate of its counterpart, countries are also encouraged to permit a prompt and constructive exchange of information with non-counterparts. Co-operation with foreign authorities other than counterparts could occur directly or indirectly. When uncertain about the appropriate avenue to follow, competent authorities should first contact their foreign counterparts for assistance. Countries should establish controls and safeguards to ensure that information exchanged by competent authorities is used only
in an authorized manner, consistent with their obligations concerning privacy and data protection.

Terrorist finance
There is probably nothing which can damage the reputation of a financial institution more than the suggestion that it has been used as a conduit to provide funds which have been used to finance a terrorist

act. Even if the institution is an innocent participant, the very link of its name to death and carnage can be damaging. So the institution needs as much help as possible to identify and exclude known terrorists from their business but also to stand some chance of identifying the criminals who are already inside. Although key Western governments had some form of anti-terrorism legislation already, the terrorist attacks in New York and Washington in 2001 provided the incentive for more robust and wide ranging laws to counter the financing of terrorism (CFT). National legislation and international cooperation is needed to target those who finance terrorist networks, be they charities, businesses, individuals, or even states which provide finance and sanctuary to terrorists. Key pieces of legislation have included the UK Terrorism Act and the USA Patriot Act, and the Financial Action Task Force has included specific Recommendations and guidance on terrorist financing. There is a subtle but very important difference between terrorist financing and money laundering activities. Money Laundering is the term used to describe the use of the financial system by criminals to hide the source of funds gained from illegal activity such as drug trafficking, bribery, extortion, embezzlement, theft or other criminal activity, as the criminals try to make their ill-gotten gains appear genuine In effect, Money Laundering is about turning dirty money into clean money. Terrorist Financing can be the opposite of this clean money (often in legitimate donations to charities) misdirected by account holders to their criminal colleagues in what appear to be legitimate activities (again, often charities but it can be any form of institution). And it need only take a small amount of money to launch such an attack, so defenses need to be strong. But there are two aspects in which a financial institution can protect itself from both risks strong Know Your Customer processes and strong transaction checking processes. Know Your customer describes the means by which the identity, background and other aspects of potential customers can be checked, so that known and suspected terrorists can be excluded. Legislation and regulation require firms to obtain evidence of identity of a customer at take-on and to keep a record of that evidence for as long as there is a relationship with a

customer. Legislation and regulation also require a firm to keep up to date its knowledge of a customer throughout the life of the relationship, so that changes in the customer's activity can be assessed and dealt with all with the principal aim of preventing Money Laundering and Terrorist Financing. Having robust processes is all the more important when a business is looking for new clients in emerging markets, where legislation and regulation may not yet be as strong as in more developed financial markets.

Conclusion
Finally we can say Money laundering means Illegal transactions made in order to project the proceeds of crime as legally obtained. Persons, who earn illegal money, try to hide their source of earning by conducting a number of transactions. Such transactions separate the source of earning from its proceeds. It becomes difficult for the law enforcing agencies to trace the source of earning. The transactions normally take place in the following manners: (a) Dirty money being inserted into the financial system by putting that into bank account, purchasing property, making payment of loan etc; (2) Separating the money from its illegal source e.g. drug trafficking,

smuggling etc. by conducting frequent transactions e.g. by transferring it to another bank account, selling property purchased with such money and putting it into bank account elsewhere etc; (3) Stop making transactions or transfers when the original source of earning is no more visible. Money laundering can take place in different institutions. Banks, financial institutions, stock brokers, insurances, law firms, tax firms, accounting firms, audit services, real property transactions through property development companies, high value dealers etc. can be used as channels for converting black money into white.

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