ANTI- MONEY LAUNDERING

Running Head: ANTI- MONEY LAUNDERING
Anti- Money Laundering

ANTI- MONEY LAUNDERING 1
Contents
Answer a..........................................................................................................................................2
Answer b..........................................................................................................................................3
Answer c..........................................................................................................................................5
Answer d..........................................................................................................................................6
Bibliography....................................................................................................................................9

ANTI- MONEY LAUNDERING 2
Answer a
Money laundering can be defined as the process with the help of which the control and original
ownership of the proceeds from criminal conduct are disguised by the criminals by way of
making such proceeds seem to have resulted from an authentic source. The cycle of money
laundering can be broken down into three distinct stages which comprise of the placement,
layering and integration.
The Placement Stage- This stage is highlights the first entrance of the proceeds of crime or ‘dirty
cash’ into the financial system. Basically, two purposes are served by this stage: (i) the criminals
are relived from possessing and protecting big cash amounts, and (ii) the money is placed into
the legitimate financial system. The placement stage is very risky because at this stage the
susceptibility of the money launderers to get caught is very high. A number of ways can be
utilized for the purpose of placing the proceeds of crime and some of the common methods
include currency smuggling, gambling, loan repayment, currency exchanges, etc.1 The limitation
of this stage provides that the modern day crimes make the use of sources through which the
cash is not required to be placed into the financial system such as bribe payments by wire
transfer and proceeds of insider dealing.
The Layering Stage- This is the next stage which is often named as structuring. This stage is
regarded to be the most challenging stage and involves the worldwide movement of funds. The
main motive behind this stage is to detach the illegitimate money from its source. This task is
performed with the help of sophisticated layering of the financial transactions that can be
concealed from the audit trail. During this stage, the funds are moved by the money launderers
electronically from one country to other and then divided into investments placed in overseas
markets and advanced financial options2. Moreover, such funds are constantly moved for
escaping detection along with exploiting the loopholes of legislation3. However, the limitations
1 Dionysios S. Demetis. Technology and Anti-money Laundering: A Systems Theory and Risk-
based Approach (UK: Edward Elgar Publishing 2010), 12.
2 Colin King et. al., The Palgrave Handbook of Criminal and Terrorism Financing Law (Cham:
Springer, 2018) 168.
3 Doug Hopton. Money laundering: A concise guide for all business (Gower, 2016), 6.

ANTI- MONEY LAUNDERING 3
of this type of analysis provides for the failure in considering the dangers of passive relationships
where such kinds of transactional somersaults are not conducted by the criminal proceeds.
The Integration Stage- In this stage, the money returns back to the criminal from legitimate
sources. After placing and layering of the cash, it is fully included into the financial system and
therefore, can be utilized for meeting any purpose. The basic aim of this stage is to return the
money back money launderer in a way such that it appears to result from a legitimate source and
do not draw the attention of the authorities. However, this stage does not have any basis because
this stage is inseparable from the laundering activity which precedes it.
The basic problem with the model is that it frames money laundering too narrowly and creates a
mental picture that it encourages the possibility that brokerage or banking relationship in which
placement, layering or integration activity will be above suspicion, however it can even be toxic.
Answer b
Financial Action Task Force (FATF) is an inter- governmental body which works with the basic
motive to formulate and endorse guidelines at national and international levels, to fight with
money laundering and terrorist financing. It is therefore often regarded as the ‘policy making
body’ which performs the task of producing the needed political will for the purpose of bringing
about regulatory reforms and national legislative in specified areas. Mutual evaluations of its
members are conducted by FATF regarding their implementation of the FATF
Recommendations on an ongoing basis. This can also be regarded as peer reviews in which the
members of various countries are responsible for assessing another country. In- depth description
along with analysis of the system of the country is provided by the mutual evaluation report for
the purpose of preventing criminal abuse of the financial system along with further strengthening
its system with the help of focused recommendations to the country4.
Strictness is followed in the mutual evaluations and a country is regarded as deemed complaint
only in cases where it can prove this to other members. In simple words, there is an obligation on
4 “Mutual Evaluations.” FATF. Last modified. Last modified January 10, 2019. http://www.fatf-
gafi.org/publications/mutualevaluations/more/more-about-mutual-evaluations.html?
hf=10&b=0&s=desc(fatf_releasedate)

ANTI- MONEY LAUNDERING 4
part of the assessed country for demonstrating that it is capable of protecting the financial system
from abuse with the help of an effective framework. Technical compliance and effectiveness are
the two basic components of mutual evaluations. A period of 18 months is required for
completing the mutual evaluation process5.
The first stage of the process is assessor training where regular training is organized by FATF for
training experienced national experts in FATF Assessment Methodology and FATF
Recommendations. Next stage is of country training where training for the assessed country is
organized by FATF in order to aware them regarding what they are required to provide and
demonstrate during the process. The third stage is related to the selection of assessors where the
members of the assessment team are selected by FATF from the pool of trained assessors with
different language and legal background. The fourth stage of the process is for technical
compliance where information is provided by the country regarding its laws and regulations.
This information is then analyzed by the assessors by checking whether all the laws and
regulations as needed by FATF Recommendations are in place. The next stage is of preliminary
scoping where the assessors will determine the focus area of the on- site visit. The elements
which are considered in this stage include the type of economy, political stability, the rule of law
etc. for combating the money laundering and financing of terrorism. In the next stage, the
assessors travel for the on- site visit to other country. The country is required to provide the
information regarding the effectiveness of its system in specific areas covered under FATF
Methodology. Then the mutual evaluation report is financed by the assessors in the report
drafting stage with the findings of technical compliance and effectiveness assessment. In the next
stage, draft report is presented by the assessors to FATF Plenary at the meeting6. After the
Plenary approval, the report is reviewed by all the countries within the FATF Global Network for
consistency and technical quality before publishing it on the website. In the last stage, the
shortcoming identified in the report is addressed by the countries and they are subject to post-
assessment monitoring.
5 Anja P Jakobi. "Global networks against crime: Using the Financial Action Task Force as a
model?." International Journal 70, no. 3 (2015): 391.
6 Gilligan, George Peter. "Overview: Markets, offshore sovereignty and onshore legitimacy."
In Global Financial Crime (Routledge, 2017), 17.

ANTI- MONEY LAUNDERING 5
Answer c
Terrorist financing is the process of providing financial support or finance to non-state actors or
terrorists. Financial support is required by the terrorists for the purpose of carrying out their
activities and achievement of their goals7. The three main methods which are utilized by the
terrorist for the purpose of moving money or transferring value involve the usage of financial
system, movement of money physically (such as cash couriers) and through the international
trade system.
Financial System- the products and services available in the financial sector serve as the vehicle
for moving funds that support acts of terrorism and terrorists organizations8. A cover is provided
to the terrorists by the formal financial institutions when it is combined with offshore corporate
entities and therefore allows them to conduct their transactions and launder the crime proceeds.
Money and value transfer mechanisms are also used by the terrorists by transferring money to a
person at another financial institution by the utilization of wire transfer. The advances in the
payment system technology are also creating characteristics which may appear to be attractive to
money launderer or potential terrorist9.
The International Trade System- The international trade system is a matter of large number of
vulnerabilities and risks which can be exploited by the terrorist financiers and criminal
organizations. This, in turn, provides an opportunity to the terrorist organizations for transferring
value and goods with the help of legitimate trade flows. The technique used for laundering finds
involves issuing greater number of invoices for the same international trade transaction. Through
this, the terrorist financier or the money launderer is capable of justifying the multiple payments
for the same delivery or shipment of goods and services10.
7 Michael Freeman. "Sources of Terrorist Financing: Theory and Typology." In Financing
Terrorism (UK: Routledge, 2016), 17.
8 Marek Kordík and Lucia Kurilovská. "Protection of the national financial system from the
money laundering and terrorism financing." Entrepreneurship and Sustainability Issues 5, no. 2
(2017): 243.
9 Hamed Tofangsaz. "Rethinking terrorist financing; where does all this lead?." Journal of Money
Laundering Control 18, no. 1 (2015): 112.
10 Donato Masciandaro. Global financial crime: terrorism, money laundering and offshore
centres (Taylor & Francis, 2017), 10.

ANTI- MONEY LAUNDERING 6
Physical Movement of Money- Through this, the terrorists are not required to encounter
AML/CFT safeguards of financial institutions. For simple transfers, direct flight routings are
used and for indirect flight routings, changes in currencies and multiple cash couriers are used.
The counter- terrorist operations provided that cash couriers are responsible for transferring
funds to various countries within South and Middle East Asia. These couriers perform the
function of moving the funds which are generated and kept outside the financial system for the
purpose of avoiding the risk of detection. This method of moving money is regarded as
expensive as compared to the wire transfer. After the tightening of due diligence practices by
legitimate financial institutions, it has merged as an attractive method of moving funds without
leaving an audit trail11.
Answer d
The duty of confidentiality provides that the legal professionals are legally and professionally
obliged for keeping the confidentiality of the affairs if the clients along with ensuring the same in
case of their staff12. The overriding of this obligation of confidence is possible in case of
exceptional circumstances. Proceeds of Crime Act 2002 provide Section 327, 328 and 329 for
three principle money laundering offences which are punishable for a maximum period of 14
years imprisonment and / or fine13.
Section 327 provides that an offence is committed if the proceeds of crime are converted,
concealed, disguised or transferred from the jurisdiction property by a person. Moreover, Section
328 provides for the commitment of an offence when an arrangement is entered into by an
individual which is known or suspected to facilitate another person in the purchase, holding,
using or controlling of criminal property. Furthermore, Section 329 provides for the commitment
11 Tim Parkman and Gill Peeling. Countering Terrorist Finance: A Training Handbook for
Financial Services (Routledge, 2017), 49.
12 “Are there any exceptions to the rule of confidentiality?”. CILEX. Last modified. Last
modified January 10, 2019.
https://www.cilex.org.uk/membership/practice_advice/confidentiality/rule_of_confidentiality
13 John Madinger. Money laundering: A guide for criminal investigators (CRC Press, 2016), 20.

ANTI- MONEY LAUNDERING 7
of offence when a property is acquired, possessed or used by an individual which is known or
suspected to represent the crime proceeds.
The requirements of Anti- Money Laundering obligations impose an obligation for reporting any
knowledge or suspicion of criminal activity that may arise during the course of professional work
to the concerned national authorities. They are obliged to make the production of such report
regarding the party without any reference to them or without obtaining their consent. This is due
to the fact that it is also an offence to tip- off any party and prejudicing any investigation by the
authorities. This also involves third parties which are suspected of money laundering. There are
certain cases in which the professional authorities are also obliged to cease acting for the party or
temporary or permanent basis without providing any reason for it.
The conflict may arise among the duty of confidentiality and the obligation of reporting
information and doubt of money laundering and results in the creation of a number of
difficulties. If such knowledge or suspicion is not reported, it may make the professional
criminally liable for money laundering along with liable for not reporting the suspicion. The
money laundering legislation has provided the KYC obligation which increases the possibility of
such accessory liability. In case if it is disclosed then it may be qualified as the authorized
disclosure thereby providing the defense for any probable money laundering offences14.
Similar facts were discussed in the case Bowman v Fels where the question of confidentiality
arose among the client and solicitor. The court provided that the ordinary conduct of litigation by
legal professionals was not intended to be covered under Section 327. Even in case, if Section
328 applied to the ordinary conduct of legal proceedings, it doesn’t override the implied duty of
the solicitor or legal professional privilege of not to disclose the information gained from
documents in open court15. This means that there is a duty of confidentiality which should be
maintained with client and the defense of this case can be given except for the exceptions given
in Tournier v National Provincial and Union Bank of England.
14 “Confidentiality and disclosure – an introduction”. Lawyers Defense Group. Last modified
January 10, 2019. http://www.lawyersdefencegroup.org.uk/confidentiality/
15 Zaiton Hamin. "Recent changes to the AML/CFT law in Malaysia." Journal of Money
Laundering Control 20, no. 1 (2017): 5.

ANTI- MONEY LAUNDERING 8

ANTI- MONEY LAUNDERING 9
Bibliography
“Are there any exceptions to the rule of confidentiality?”. CILEX. Last modified. Last modified
January 10, 2019. https://www.cilex.org.uk/membership/practice_advice/confidentiality/
rule_of_confidentiality
“Confidentiality and disclosure – an introduction”. Lawyers Defense Group. Last modified
January 10, 2019. http://www.lawyersdefencegroup.org.uk/confidentiality/
“Mutual Evaluations.” FATF. Last modified. Last modified January 10, 2019. http://www.fatf-
gafi.org/publications/mutualevaluations/more/more-about-mutual-evaluations.html?
hf=10&b=0&s=desc(fatf_releasedate)
Demetis, Dionysios S. Technology and Anti-money Laundering: A Systems Theory and Risk-
based Approach. UK: Edward Elgar Publishing, 2010.
Freeman, Michael. "Sources of Terrorist Financing: Theory and Typology." In Financing
Terrorism. UK: Routledge, 2016.
Gilligan, George Peter. "Overview: Markets, offshore sovereignty and onshore legitimacy."
In Global Financial Crime. Routledge, 2017.
Hamin, Zaiton. "Recent changes to the AML/CFT law in Malaysia." Journal of Money
Laundering Control 20, no. 1 (2017): 5-14.
Hopton, Doug. Money laundering: A concise guide for all business. Gower, 2016.
Jakobi, Anja P. "Global networks against crime: Using the Financial Action Task Force as a
model?." International Journal 70, no. 3 (2015): 391-407.
King, Colin, Clive Walker, Jimmy Gurulé. The Palgrave Handbook of Criminal and Terrorism
Financing Law. Cham: Springer, 2018.
Kordík, Marek, and Lucia Kurilovská. "Protection of the national financial system from the
money laundering and terrorism financing." Entrepreneurship and Sustainability Issues 5, no. 2
(2017): 243-262.

ANTI- MONEY LAUNDERING 10
Madinger, John. Money laundering: A guide for criminal investigators. CRC Press, 2016.
Masciandaro, Donato, ed. Global financial crime: terrorism, money laundering and offshore
centres. Taylor & Francis, 2017.
Parkman, Tim, and Gill Peeling. Countering Terrorist Finance: A Training Handbook for
Financial Services. Routledge, 2017.
Tofangsaz, Hamed. "Rethinking terrorist financing; where does all this lead?." Journal of Money
Laundering Control 18, no. 1 (2015): 112-130.