Combating Money Laundering and Terrorist Financing in Bangladesh - Crime Essay Example

Money Laundering and Financing of Terrorism in Bangladesh Muhammad Ashikur Rahman Introduction Bangladesh has arguably not yet been a safe haven for money launderers, nor a pivot for terrorist financing as there is still absence of phenomena that typically make a country attractive to money launderers - Combating Money Laundering and Terrorist Financing in Bangladesh introduction.

Stable economy and political system, modern financial institutions, lack of effective law to deal organized crime, lenient sentencing, and a country’s location close to a major consuming or producing country are some matters that lure criminals and terrorists into a particular country for the purpose of money laundering and financing of terrorism. But this is not to say the land is entirely rid of these grave concerns as the presence of some phenomena is still worth drawing attention.

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This existence and absence of phenomena makes a situation of money laundering and financing of terrorism prevalent in different forms in Bangladesh like many other countries. Since it is very hard to trace each penny being laundered and on top of that Bangladesh is still playing layman role on these, the total situation is potentially getting worse than ever before. The purpose of this paper is to show the various forms and means of money laundering and financing of terrorism and the initiatives Bangladesh’s government has taken so far on the issues from a critical perspective.

Bangladesh is bounded by India to the west, the north and the north-east, by Myanmar to the south-east. The surrounding regions recently witness significant rise of terrorism by many fundamentalist and guerrilla groups commonly known as ULFA of Asham, NSCN of Nagaland, KNU of Myanmar, and a little far away Taliban in Pakistan and Afghanistan. Recently killed Al Qaeda’s chief Osama Bin Laden in Pakistan makes it easy to figure out that the region has been a breeding ground for terrorist organizations.

Inside Bangladesh there are also few terrorist organizations trying to expand movement but strong resistance by the government does not let them operate so violently, at least not yet. The main sources of income of these organizations are drugs and arms trafficking, human trafficking, charities, business companies etc. In 2010 ten trucks sieged in Bangladesh loaded fully with heavy arms, mortar shells, ammos, missiles which was widely believed to be a consignment of ULFA in India may be taken as an example of the criminal activities making profits for their operations.

Terrorists seek money for operations to support a particular ideology which is different from that of criminals seeking money for enrichment, greed, and power. To manage operations they are to move, repatriate and convert money using financial systems of a country convenient to them. And this is the point where they are vulnerable to get trapped. However, stopping terrorist financing is practically impossible but disrupting it is achievable whereas dismantling it is a long-term project. Money Laundering and Financing of Terrorism; Theoretical Framework

Money Laundering Money laundering may be defined as any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legal sources. In other words money laundering is a process whereby the proceeds of crime are put through a series of transactions in order to conceal the criminal origins and give them the appearance of being legitimate. Money laundering is the mechanism used to move funds and disguise source. It is not the principal criminality but with an exception.

The exception represents a person who is a professional money launderer. But still the investigator needs to demonstrate that the money laundered is from a predicate offence such as drug trafficking to accuse the person. However, there are categories of activity defined by the international laws that make up the criminal offence of money laundering. These categories include: * The conversion or transfer of property to disguise illicit origin; * The concealment or disguise of true nature, location, disposition, and movement of property * Conspiracy, attempts, aiding, abetting for such activity

The above categories of activities have lately been frequent in Bangladesh in some criminal groups including business people, government high-officials, politicians who are reluctant to show up with their property for the purpose of evading tax in general and concealing the source of proceeds in particular. But lax policies and indulgence of the government let the money launderers escape from being punished. Consequently, the social, political, and economic structure of the country embrace grave tolls and international reputation is seriously affected.

The greatest concern of money laundering lies in its potentiality to undermine the integrity of financial institutions which is detrimental for the total economy of the state. Process of Money Laundering The process of money laundering consists of placement, layering, and integration stages. The first stage consisting of introducing the funds gained from criminal activities into the banking and financial system is called placement.

This stage has become more and more edgy with threats due to amplified attention now given to these movements of cash by law enforcement, and the widespread requirement of the banks to report suspicious transactions. Layering stage consists of laying the funds that have entered the financial system through a series of financial operations, the purpose of which is to deceive potential investigators and to give these funds the look of having a legitimate origin. This is the money-laundering stage that most often uses offshore mechanisms.

Numerous comings and goings between financial havens and the launderers’ banks, interrupted by false invoices, false loans, or other devices, ultimately mislead investigators regarding the origin of the money. The final stage of money-laundering consists of restoring the funds into the legal economy with the condition of having a legitimate origin. Once the money laundered gets legal shape, it is spent trough consumption of luxury items since the primary aim of profitable criminal activity is to deplete the ill-gotten funds.

Moreover, investments in capital market, real estate and other businesses make the funds mingled into the economy. The mechanisms of money laundering are finite and do not change frequently. New mechanisms of money laundering are hard to unearth and only created as a result of changes in any of three areas e. g. change in technology, change in financial instruments, and change in law. However, the combinations of mechanisms of money laundering are infinite and only limited by launderers’ imagination and time. Financing of Terrorism

United Nations defines financing of terrorism as a process whereby any person, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out: a) An act which constitutes and offence within the scope of and as defined in one of the treaties listed in the convention on the Suppression of the Financing of Terrorism; or b) Any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate an organization to do or to abstain from doing any act. It seems to many that financing of terrorism originate mostly from illegal activities like organized crime including predicate offences, though in practice it’s not the case.

Study shows that most global terrorist financing do not come from illegal sources. Only a very small proportion of global illicit financial transactions, estimated at up to US$ 1. 5 trillion annually, finds its way to terrorists. The question is then what are the main sources of terrorist financing? Sponsors, both state and individual, finance a large portion of funds to the terrorist organizations. Wealthy individuals and some states including Iran, Iraq, Israel, Libya, Pakistan, Syria, and Saudi Arabia support terrorist groups like Al Qaeda, Zionist Movement, Lashkar-e-Tayyiba, etc. Terror networks often use compromised or complicit charities and businesses to support their objectives.

For example, some groups have links to charity branches in high-risk areas and/or under-developed parts of the world where the welfare provision available from the state is limited or non-existent. (FATF, 2008) Production and sale of counterfeit goods and commercial enterprises are other ways of making funds for the terrorist groups. For example, World Trade Centre bombing 1993 was partially financed by sale of counterfeit T-shirts. Al Qaeda’s Financial Structure To take a closer look at the various sources of terrorist financing, Al Qaeda’s financial structure may be taken as a sample. A. Criminal Activities: * Money Laundering * Narcotics * Arms Trafficking * Extortion B. Commodities: * Gum Arabic * Honey * Dates C. Charities: * Blessed Relief * International Islamic Relief Organization D.

Companies: * Al Taqwa Management * Taba Investments * Ariana Afgan Airlines * Wadi-al-Aqiq * Bin Laden International (UNODC Participants Book, 2011) Taking this structure as an example of integrating funds from different sources, it is easily apprehensible that how strong the financial capacity of terrorist groups and how difficult a task this is for law enforcers and investigators to trace and freeze their funds. Therefore to combat terrorist financing, employing anti-money laundering methods developed in 1980s is the only effective way as the perpetrators transfer money using different methods of money laundering which are quite identifiable.

Methods of Transferring Terrorists Funds Terrorist organizations use different methods to transfer funds to the targeted place and person. Some of these are: * Unregulated money transfer systems such as Informal Money or Value Transfer Systems (IMVT) and Hawala, Hundi, Fei Chien, Black Market Dollar Exchange * The Internet * Commodity trading * Cash * Diamonds * Gold (mainly through Dubai), and other precious metals * Front end loaded credit cards * The Islamic banking system * Currency smuggling * The global banking system, particularly through unregulated offshore centers. Perpetrators are usually confined within these methods of transferring funds.

But unregulated money transfer systems that represent the process of money laundering are the most popular form of sending money to the target individual or organization. From this point one can easily link terrorist financing with money laundering. In the next section the connection between money laundering and terrorist financing has been produced. The Links between Money laundering and Terrorism Money laundering and the financing of terrorism may be seen as distinct activities. The laundering of criminal funds aims at giving a legal appearance to dirty money, whereas the laundering of terrorist funds aims at obscuring assets of a legal origin (such as public funding or so-called charities).

This distinction is useless, however, since the objective of public policies is not to address the issue of the processing of illegal funds, but the funds themselves and the organizations behind them. In this regard, criminal assets and terrorist assets represent the same threats to financial systems and public institutions, and it is clear that the strategies designed to fight criminals when they channel their funds through financial systems may apply with the same success in combating terrorist financing cases. (Thony, 2000) In the case of money laundering, the funds are always of illicit origin, whereas in the case of terrorist financing, funds can originate from both legal and illicit sources.

The primary goal of individuals or entities involved in the financing of terrorism is therefore not necessarily to conceal the sources of the money but to conceal both the funding activity and the nature of the funded activity. Similar methods are used for both money laundering and the financing of terrorism. In both cases, the actor makes an illegitimate use of the financial sector. Besides, shadowy ties often unite organized crime and terrorism. In many cases a sort of objective alliance forms between criminal and terrorists groups, served by their convergent interests: criminal organizations benefit from the ability of terrorist and guerrilla organizations to do damage, while the latter in turn benefit from the financing that criminal activities can obtain for them.

The strange similarity between the geography of terrorism movements and other guerrillas and the geography of large-scale drug trafficking is self-explanatory: the Revolutionary Armed Forces of Colombia (FARC) are to be found in coca producing areas, whilst the African civil wars are taking place in areas where precious stones and other natural riches are extracted; the soldiers of Al-Qaeda in Afghanistan and the Khun Sa rebels in Myanmar provoke their armed actions in the world’s largest opium-producing areas. Cambodia, Chechnya, the Balkans, and Sri Lanka are equally interesting areas for studying the manner in which ideology can become the front for organized crime, or the manner in which organized crime can come to the aid of terrorist causes. (Thony, 2000) International Pressure to Have Effective AML/CFT Procedures

Governments in many countries have enacted legislation to criminalize money laundering and terrorist financing, and have legal and regulatory processes in place to enable those engaged in these activities to be identified and prosecuted. Financial Action Task Force (FATF) have issued Forty Recommendations on Money Laundering aimed at setting minimum standards for action in different countries, to ensure that AML efforts are consistent internationally. FATF have also issued Nine Special Recommendations on Terrorist Financing, with the same broad objective as regards CFT. The special recommendations are: 1. Ratification and Implementations of UN Instruments 2.

Criminalizing the Financing of Terrorism and Associated Money Laundering 3. Freezing and Confiscating Terrorist Assets 4. Reporting Suspicious Transactions Related to Terrorism 5. International Cooperation 6. Alternative Remittance 7. Wire Transfer 8. Non-profit Organizations 9. Cash Couriers The United Nations and the EU have sanctions in place to deny a range of named individuals and organizations, as well as nationals from certain countries, access to the financial services sector. In the UK, HM Treasury issues sanctions notices whenever a new name is added to the list, or when any details are amended. National Legal and Regulatory Framework

Considering the threats of both terrorist financing and money laundering to the financial systems, public interests and safety; the government of Bangladesh has paid serious attention on the issues to make changes in the existing laws and regulations. The 2002 Money Laundering Prevention Act (MLPA) laid the original foundation of Bangladesh’s anti-money laundering (AML) framework. However, the government sought to expand the regime and the Money Laundering Prevention Ordinance (MLPO) was introduced in April 2008. In February 2009 it was reissued as an act of parliament by the new government. In June 2008 the government also enacted the Anti-Terrorism Ordinance which criminalized terrorist financing for the first time. Similarly, this was reissued as an act in early 2009.

Lately the government promulgated a new Money Laundering Prevention Ordinance, 2012 incorporating laws to prevent stock market manipulation, and a provision that says documents provided by foreign governments will be admissible in court for strengthening efforts to bring back money drained off abroad. A good number of amendments are brought in the new ordinance including the issues of anti-money laundering and terrorist financing in the existing Extradition Act, endorsing Mutual Legal Assistance Act and ratifying the UN Convention against Transnational Organized Crime (Palermo Convention). Now that the government amends the law it will be easy for Bangladesh to become the member of the Egmont Group of Financial Intelligence Units – an informal international gathering of all the financial intelligence units (FIUs) of the world in prevention of money laundering and terrorist financing.

This initiative of Bangladesh government followed warnings of international anti-money laundering organizations particularly United Nations opining that country’s laws to fight the increasing scale of money laundering and terrorism financing are ‘unsatisfactory’. The legislation related to money laundering and terrorist financing is contained in the Money Laundering Prevention Act, 2012 and the Anti-terrorism (Amendment) Act, 2012, the provisions of which scrap Money Laundering Prevention Act 2009 and whatever may contain in any other Act in force in Bangladesh. As far as financial service providers are concerned, the Acts: * define the circumstances, which constitute the offence of money laundering/terrorist financing and provides penalties for the commission of the offence, * require banks, financial institutions and other institutions engaged in financial activities to establish the identity of heir customers, * requires bank, financial institutions and other institutions engaged in financial activities to retain correct and full information used to identify their customers and transaction records at least for five years after termination of relationships with the customers, * Empower Bangladesh Bank to impose punishment depending on the scale of criminality, * Make provision of establishing Bangladesh Financial Intelligence Unit (BFIU), a separate unit operating under Bangladesh Bank, and * impose an obligation on banks, financial institutions and other institutions engaged in financial activities and their employees to make a report to the Bangladesh Bank where: they suspect that a money laundering offence has been or is being committed- provide customer identification and transaction records to Bangladesh Bank from time to time on demand. Shortcomings of the National Efforts on AML/CFT In order to comply with the international initiatives to combat money laundering and terrorist financing the government of Bangladesh has formulated some laws and regulations as mentioned earlier. But these measures most often encounter implementation snag. The concerned institutions responsible for taking actions against any form of money laundering and terrorist financing often do not have sufficient and expert human resources which is widely believed to be one of the most critical drawbacks of the government’s effort against money laundering and financing of terrorism.

Politicization is another trend seen in the implementation of laws convicting opposition party members or non-partisan offenders while providing asylum for the partisan criminals. This trend makes it easy for the respective party men to drain money toward many oversees financial institutions in every regime. Following termination of the regime most of the criminals hit the heaven and go unpunished whereas cases remain unresolved. It is the Central Bank (BB) which has an Anti-money laundering department regulating money laundering issues along with financing of terrorism and the Criminal Investigation Department (CID) of Bangladesh Police investigates the issues.

It appears not promising for the Central Bank to thoroughly take care of these alarming problems as the Bank lags behind in terms of capacitating the process and most importantly experiences severe crisis of technical personnel. On the other hand, CID acutely lacking modern detective technology with skilled investigators is found incapable of investigating money laundering and terrorist financing suits against any individual or organization. There are other institutions working on the issues though, but they seem to be in relaxed mood hoping that the issues could not immediately cause devastating effect on the national security as well as the entire economy.

Institutional incapacity is represented by inadequate human resources, lack of training, and other logistic supports. Moreover, the process of record keeping, the most important tool for investigation, is not digitized in all Banks and Financial Institutions. As it goes in the manual way, the bureaucracy persistently shows its feature resulting in any operations getting done at late night or even unfinished. Ironically, the Act requires involved institutions for investigation to accomplish jobs by three months for certain cases which is, according to the investigators, practically impossible. Previously it was seen that government asked people for black money to launder with the condition of investing a certain amount off the total amount laundered.

This sort of practice may attract criminals to whiten their money of illicit origin with the potential risk of being drained to terrorists. The Way Out An independent and trained task force recruited from the institutions working to leash the momentum of money being laundered and funded for terrorist operations should be the highest priority in an attempt to tackle down the practice of money laundering and terrorist financing in Bangladesh. Training is particularly necessary for the investigators who need to understand the sophisticated techniques of transferring money used by launderers and criminals. A comprehensive policy guideline is paramount for enabling institutions involved.

Creating coordination among the institutions involved is rather necessary with a view to avoiding complicacy and procrastination and thereby smoothing the actions against money laundering and financing of terrorism. Financial institutions and money launderers are susceptible to each other. Launderers are more susceptible than financial institutions as they must place their money into the financial system to fulfill their goal and doing so they may get caught in the scanner of the latter. However, negligence for tracing illegal money or money with legal origin being transferred for terrorism objective can eventually make the launderers gainer. Therefore, financial institutions have something to do for combating money laundering and terrorist financing that include the following: In complying with the requirements of the Act, financial institutions should at all times pay particular attention to the fundamental principle of good business practice – ‘know your customer’. Having a sound knowledge of a customer’s business and pattern of financial transactions and commitments is one of the best methods by which financial institutions and their staff can recognize attempts of money laundering and terrorist financing. The adoption of procedures by which Banks and other Financial Institutions “know their customer” is not only a principle of good business but is also an essential tool to avoid involvement in money laundering. Institutions and intermediaries must keep transaction records that are comprehensive enough to establish an audit trail. Such records can also provide useful information about the people and organizations involved in laundering schemes. * Every institution engaged in financial activities or trade gravitating criminals and terrorists for transferring money needs to have an active investigation and monitoring cell making sure that business is running without the penetration of dirty money into it. For this purpose the cell may publish reports demonstrating the statistics of targeted activities and accordingly more severe actions, if needed, might be taken. Conclusion

Financial globalization has brought about both opportunity and threat for many countries including Bangladesh. For example, millions of People of Bangladesh working oversees remit their money through financial channels contributing to the national economy. At the same time abusing these legal channels a group is draining black money to the financial systems and to the terrorist groups leaving the country at high risk of financial chaos and security debacle. But it is by no means possible for any country to seal these channels in an attempt to stop money laundering and terrorist financing. What a country can do is to keep it eyes open to interrupt such commission.

On the other end, the trend of terrorism has taken a new turn after the events of 9/11. Terrorists now understand how hard it is to carry out operations as global fight against terrorism has been strengthened more than ever before. But nevertheless, in recent years terrorist activity is escalating in terms of frequency, scale, geographical reach and types of targets. It is as because money speaks. Being guaranteed for more money still terrorists are motivated to take any risk. Though terrorism is not all about making money, rather it is about establishing a particular ideology or taking control of something valuable to the terrorists; yet it needs money to organize entourages and to undertake operations.

Therefore, resisting the flow of money may be an outstanding technique to disrupt this threat to humanity a great deal. Considering the risk of money laundering and terrorist financing Bangladesh is encountering, the government needs to take some urgent and pragmatic measures. Implementing the existing laws and reinvigorating the institutions involved, the country could reduce risk and defend both financial systems and security of the national economy.

Reference BANGLADESH BANK (2010), Guidance Notes on Prevention of Money Laundering Financial Action Task force (FATF) 2008, Terrorist Financing GUIDANCE FOR THE UK FINANCIAL SECTOR, PART I; (Amended: November 2009), Prevention of Money Laundering/Combating terrorist financing JAMUNA BANK LIMITED (2009), Guidelines on Anti-money Laundering & Combating the Financing of Terrorism Kutubi, Shawgat S. (2011), Combating Money-Laundering by the Financial Institutions: An Analysis of Challenges and Efforts in Bangladesh, World Journal of Social Sciences Vol. 1. No. 2. May 2011 Pp. 36 – 51 THONY, Jean-Francois (2000), Money Laundering and Terrorism Financing: An Overview THONY, Jean-Francois (1997), Processing Financial information in Money Laundering Matters: the Financial Information Units, European Journal of Crime, Criminal Law and Criminal Justice UNODC Participants Book (2011), Training on Anti-money Laundering and Criminalizing of Terrorism in Bangladesh

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