Effectiveness of AML Policies in Preventionof Money Laundering Quantitative Research InManagement ExecutiveSummary: – A Research has been carried out formeasuring the effectiveness of Anti Money Laundering Policies for prevention ofmoney laundering. This research is done focusing global economy but the dataare collected from companies operating in Indian and American economy.
Entireworld is facing the issue of money laundering nowadays and some countries haveformed strict rules and regulation for prevention of money laundering but stillthere are many countries who are badly controlled by money launderers. Terrorfunding, black money, false account, smuggling, drug dealing etc. are theaftereffect of money laundering. There are several other ways of moneylaundering and these are sometimes in such a large scale that they manipulatethe entire economic system of a country. Some countries Syria, Iran,Afghanistan etc. are badly affected from terror activities and could not ableto fight alone with them hence many other countries are helping them out to getthis issue of money laundering resolved. There is huge amount of funds involvedin the money laundering.
According to a study conducted by UNODC for moneylaundering and they found that in the year 2009 and they estimated that totalcriminal proceed was 3.6% of global economy and out of which 2.7% in beinglaundered.
There are several policies implemented by governments to preventmoney laundering but the they are unable to stop it completely because it’s abroad process and cannot be controlled overnight. We are studying theeffectiveness of these policies for prevention and see how much successful theyare. Introduction:- Thepurpose of the study is concerned about the effectiveness of Anti MoneyLaundering Policies. The research work will attempt toexamine the money laundering activities and the usefulness of prevention anddetection techniques by Government and companies. Hence the main purpose ofthis study is to evaluate the effectiveness of Anti Money Laundering policies.
There are several agencies andorganizations involved in Anti Money Laundering policy making, implementationand supervision such as: -· FinancialAction Task Force· InternationalMonetary Fund · WorldBank· UnitedNations of Office on Drugs and Crime etc. Meaning: – Money laundering refersto a financial transaction scheme that aims to conceal the identity, source,and destination of illicitly-obtained money.Source – LegalInformation Institute (LII). https://www.law.cornell.
edu/wex/money_laundering”MoneyLaundering is any action taken to conceal, arrange, use or possess the proceedsof any criminal conduct” (Serious Organized Crime Agency, UK)Insimple term if we see the money laundering terminology, we can understand it inour own language. Any activity related to money or finance committed againstpolicies and procedures of the governing body. Here the purpose of moneylaundering is considered as fraudulent, illegal or of criminal conduct. Aperson obtaining money through such illegal manner for conducting anyfraudulent or criminal conduct himself become a criminal.
Overview andBackground: -Moneylaundering refers to exchanging assets or money that were come up criminallyfor different assets or money that are ‘clean’. It is not necessary that cleanassets or money have a direct link with any criminal activity. Money launderingalso includes money that’s used to fund terrorist activities and to supportmany other criminal activities.Moneylaundering is a global issue and it is very difficult to measure its impact onany economy because it is something that it is unidentifiable by the actiononly. We can’t understand by the action only. It is victimless crime and ittakes place behind everyone’s eyes but its unidentifiable until it happens.Moneylaundering was growing worldwide over many years hence, G-7 (Canada, France,Germany, Italy, Japan, United Kingdom, and United States) summit establishedFinancial Action Task Force (FATF) in Paris in 1989.
Its primary role was to createan international responsibility to this increasing problem. Since then this organizationhas been playing an important role in fighting with money laundering. It worksclosely with other international bodies like OECD (Organisation for EconomicCo-operation and Development), UNSC (United Nations Security Council) etc. thatdevelops and regulates Anti-Money Laundering (AML) policies worldwide. FATFmembers have 29 countries and jurisdiction includes major financial centers inAsia, North and South America, Europe- as well as the European Commission andThe Gulf Co-Operation Council. There are still many countries like Iran, NorthKorea, Myanmar etc. are non-co-operative with FATF for fighting with moneylaundering issues.
ResearchFocus: -Themain focus of this study is to evaluate the effectiveness of anti-moneylaundering policies implemented by governing bodies. Few past cases of moneylaundering will be examined in this study and will focus on any loophole orarears of weakness in the policies and some suggestions from my point of view.I will keep my opinion and my opinion would be concerned to my study only.
Research Problem: -Inthis study I will be focusing on the issues related to money laundering.Instead of strict government rules and regulations there are large number ofcases related to money laundering occurs and creates problem to innocent peopleand government of the particular locality or country. Huge amount of fund misusesand because of that development and growth of any economy affected and loss ofpeople’s faith from the government arise. Big terror activities occur and becauseof this economic growth largely affected. Literature Review: -Thereare three stages involved in money laundering; placement, layering andintegration.
Placement – · CurrencySmuggling· Bank Complicity· Currency Exchanges· Security Brokers· Blending of Funds· Asset Purchase Layering – · Cash converted into MonetaryInstruments· Material assets bought withcash then sold Integration –· Property Dealing· Front Companies and FalseLoans· Foreign Bank Complicity· False Import/Export Invoices AML Policy inIndia: -FinancialIntelligence Unit – India (FIU – IND) is an independent body to report directlyto the Economic Intelligence Council headed by the Finance Minister. FIU-IND isa central agency of a Government of India, that receives financial informationpursuant to country’s anti-money laundering laws and analyze and process informationand forward those to appropriate national and international bodies like FATFand OCED, to support anti-money laundering efforts. There are many other authoritiesin India like Securities and Exchange Board of India (SEBI), Reserve Bank ofIndia (RBI), Insurance Regulatory & Development Authority of India (IRDA),Directorate of Enforcement, Central Bureau of Investigation – EconomicsOffences Wing, Income Tax Department etc.
are involved in the implementationand enforcement of the anti-money laundering laws. For banks and other financialinstitutions, RBI is the authority to implement and regulate for anti – money launderingguidelines. SEBI is also a regulatory body for some other financial institutionworking is security market. Income Tax Department is also authorized to takesteps to prevent the offence of money laundering.
They can impose taxes onundisclosed foreign income and assets on Indian residents. This has beenfurther enlarged or expanded by passing law of the Black Money (UndisclosedForeign Income and Assets) and Imposition of Tax Act, 2015.Thereare several other rules in effect in Indian market related to money launderingsuch as: -ThePrevention of Money Laundering Act, 2002 as amended up to 2012Preventionof Money-laundering (Maintenance of Records) Rules, 2005 as amended up to 2013TheBlack Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,2015.
ForeignExchange Management Act, 1999.BenamiTransactions (Prohibition) Act, 1988 (Amended in 2015).Anti-Money Laundering/CounterFinancing of Terrorism (AML/CFT) –Guidelines for General Insurers, 2013. ResearchMethodology: – Researchhas been done on the basis of quantitative data collected from 23 employeesworking in banking and financial sectors of India and United States. Aquestionnaire has been forwarded to 60 people, out of them 23 has responded tothat and forwarded back after filling up.
To measure the effectiveness, I willfocus on the policies implemented by regulatory authorities for prevention ofthat. Moreover,will be focusing on the past cases of Money Laundering and measure ofpreventions taken by responsible authorities, data will be taken fromgovernment websites, company websites, reports and financial statement tosupplement the research. Analysis: -Aquestionnaire prepared for analyzing the effectiveness of AML policies in bankingand other financial sector for prevention of money laundering.Question 1.What is your company’s regulatory status?Askedthis question to all the 23 respondents and as per their answers it is foundthat out of 23, 5 respondents were from banks and rest 18 were from the other financialinstitutions.
Question 2. Does your companydo the background verification of every new employees they recruit? Many of the money launderingactivities are done with the help of corrupt staff of the company. If theemployees are wise towards their work and not supporting to any illegalactivity then, it is practically not possible to any launderer to finish theillegal task. Hence, it is important for the staff to explain if they are notfrom any illegal background.
Asked this question to 23 respondentsand found that out of 23 respondents 15 respondents responded positively i.e.they said yes, their company does background verification of new recruits beforehiring them and 8 responded negatively. That means there is still loophole thatsome financial institutions are not taking proper steps to prevent moneylaundering. Question 3.
Doesyour company have an employee training program to teach employees about MoneyLaundering/Terrorist financing and to assist them in identifying/reportingsuspicious activities?Reasonfor asking this question is to identify that if the employees are aware ofidentifying suspicious activities or not, if not whether their company providethem any kind of training for that or not. If employees are aware of suchscenario that they can identify such kind of suspicious activities then itwould be easier for preventing that kind of money laundering activities.Askedthis question to 23 respondents and out of 23 respondents, 11 respondents said Yes,their company have an employee training program to teach employees about MoneyLaundering/Terrorist financing and to assist them in identifying/reportingsuspicious activities but 12 respondents said No as their company doesn’t havesuch kind of training program. The results show that companies are still nottaking their part for the prevention of such kind of activities.
Companies shouldtake their part in strengthening these kinds of measures by the responsibleauthorities. Question 4. How often do yourcompany train their employees on AML?Policies,rules and regulations are being changed frequently to keep updated with thedatabase with the activities and strengthen the measures of the government. So,the reason for asking this question is to make sure if they are aware about thechanges and make them updated accordingly. Out of total 23 respondents, 11 respondentssaid that they are being trained half yearly and 7 respondents said that theyare trained yearly, 2 respondents said that they are trained once and rest 3were not trained.
Accordingto the responses received many of them updated at least once in a year but,still there are some gap which needs to be filled and for that extensive amountof efforts are required and companies should take the responsibility to do so. Question 5. Are your seniormanagement and directors are also given the training on AML?Companiesmanagement and senior management must be aware about the rules and regulationsand recent amendments in the policies so the AML training must be given to themas well to keep them updated.Outof 23 respondents 18 responded positively which means that most of the seniormanagement are aware of the risk of money laundering, which is a good sign of policyeffectiveness because if the companies senior management are effective and havegood awareness about the impact then they may effectively influence theirsubordinates to follow the policy and keep the awareness about the cause andeffects of money laundering and AML policies. Question 6.
Does yourinstitution have an established audit and compliance review function to testthe adequacy of your Anti-Money Laundering/Terrorist Financing policies andprograms?Asrules regulations are frequently updated so there should be a team or a groupof individuals who can review policies and able to demonstrate them to other memberof staff effectively and efficiently. Because policies, rules and regulationsare very critical and understanding them in same way are extremely important.Outof 23 respondents, 14 respondents answered as yes to their question and 9respondents answer was no, it means companies need to implement or set aparticular team or hire a group of individuals who can thoroughly review newlyimplemented policies and explain them to the other member of staff to implementit effectively. Question 7. Does your financialinstitution communicate new AML related laws, or changes to existing AMLrelated policies or practices to relevant employees?If thereis any policy changes or updates in thee policies are available then, it needsto be communicated to the employees of the companies because if they areavailable to the policy changes then they can effectively follow the rules andprocedures. Then it is the company’s responsibility to communicate any amendmentsto its employees.
Outof 23 respondents 18 said yes that their company communicate any changes in AMLrelated laws and 5 said no to this question. It is good scenario but companiesneed to implement changes and communicate them to its employees., Question 8. “Has yourcompany implemented processes for the identification of those customers onwhose behalf it maintains or operates accounts or conducts transactions?”It isnecessary for the companies to keep record of the customers on whose behalfthey maintain their accounts and does transactions. The reason being if theyare unaware of such customers activity then they may transact amount whichleads to money laundering or any illegal activities. Outof 23 respondents, 19 respondents responded positively to this question.
Companiesare doing good in this perspective but there are some companies who still need toimplement this effectively to avoid any loophole in AML policies. Question 9. Do your company haveprocedures to establish a record for each new customer noting their respectiveidentification documents and ‘Know Your Customer’ information?As perpolicy, every company must record its customers details to avoid any problemsrelated to identity theft etc. It is mandatory for every company to do so. As perthe responses received from the respondents, every company keep record of thecustomer to avoid the misuse of identity theft. That is good sign of it and maybe effective step to prevent money laundering.