Anti-Money Laundering and Combating the Financing in Terrorism: Laws, Circulars and their Application in Banking Operation

1.    Introduction:

“Effective anti-money laundering and combating the financing of terrorism regimes are essential to protect the integrity of markets and of the global financial framework as they help mitigate the factors that facilitate financial abuse.”¹

Money laundering is the process by which the true origin of illegally obtained money is concealed with a view to legitimizing them. Money laundering is recognized as a crime because it involves in many national and international crimes like terrorism, drug trafficking and human trafficking etc. For the same, sometimes, 'Money laundering' and 'terrorist financing' are used collaterally.² In the recent past it has become one of the most concerning issues in the financial arena of the world and financial intelligences around the world have become more conscious of combating money laundering to prevent international organized crimes and terrorism. In the process, Bangladesh has addressed 'money laundering' by different laws and regulations with a view to eradicating the root of such loathsome crime.

This write-up focuses on analyzing the laws, regulations and circulars formulated in Bangladesh to prevent money laundering and financing in terrorism. It also contains the loopholes in existing laws and recommendations to strengthen the existing anti-money laundering policy to combat these crimes.

 2. Definition of 'Money Laundering':

Money laundering is a way to conceal illegally obtained funds with a view to giving them effect like legalized money. In simple language, 'money laundering' refers to the process of converting “dirty” money to “clean” money.³ It works by transferring money in elaborate and complicated financial transactions so that the original party to the transaction, known as the launderer cannot be traced and anyone who seeks the same may be disguised.⁴ And, at the end of the convoluted scheme, the funds ultimately return back to the launderer. However, 'money laundering' is the process by which criminal proceeds are "cleaned" so that their illegal origins are hidden.⁵ These criminal proceeds may include human trafficking, drug trafficking, market manipulation, fraud, tax evasion and terrorist financing etc. Terrorist financing is relevant to money laundering in the sense that terrorist activities are financed and sponsored by funds obtained through money laundering.

The most exhaustive definition of 'money laundering adopted by United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 known as (the Vienna Convention) and the United Nations Convention against Transnational Organized Crime,2000 popularly known as (the Palermo Convention) outlines following three aspects:Firstly,conversion or transfer of property, knowing that such property is derived from any offence, e.g.,drug trafficking...for the purpose of concealing or disguising the illicit nature origin of the property. Secondly, concealing or disguising the true nature, source, location, disposition etc. with respect to any property knowing that such property is derived from an offence or offences. Thirdly, acquisition, possession or use of such property.

The Financial Action Task Force (FATF)⁶ defines 'money laundering as: “the processing of criminal proceeds to disguise their illegal origin in order to legitimize the ill-gotten gains of crime.”

In national level the words 'money laundering' is defined in the Money Laundering Prevention Act, 2012 in the following words⁷:

“Money laundering”means-

(i) Knowingly moving, converting, or transferring proceeds of crime or property involved in an offence for the following purposes:-

(1) concealing or disguising the illicit nature, source, location, ownership or control of the proceeds of crime; or Money laundering Prevention Act

(2) assisting any person involved in the commission of the predicate offence to evade the legal consequences of such offence;

(ii) smuggling money or property earned through legal or illegal means to a foreign country;

(iii) knowingly transferring or remitting the proceeds of crime to a foreign country or  remitting or bringing them into Bangladesh from a foreign country with the intention of hiding or disguising its illegal source; or

(iv) concluding or attempting to conclude financial transactions in such a manner so as to reporting requirement under this Act may be avoided;

(v) converting or moving or transferring property with the intention to instigate or assist for committing a predicate offence;

(vi) acquiring, possessing or using any property, knowing that such property is the proceeds of a predicate offence;

(vii) performing such activities so as to the illegal source of the proceeds of crime may be concealed or disguised;

(viii) participating in, associating with, conspiring, attempting, abetting, instigate or counsel to commit any offences mentioned above;

'Predicate offence', referred to mean money laundering in the above section, is defined in the same Act as

“the offences mentioned below, by committing which within or outside the country, the money or property derived from is laundered or attempt to be laundered namely:-

(3) corruption and bribery;(2) counterfeiting currency;(3) counterfeiting deeds and documents;(4) extortion;(5) fraud;(6) forgery;(7) illegal trade of firearms;(8) illegal trade in narcotic drugs, psychotropic substances and substances causing intoxication; (9) illegal trade in stolen and other goods; (10) kidnapping, illegal restrain and hostage taking; (11) murder, grievous physical injury; (12) trafficking of women and children; (13) black marketing; (14) smuggling of domestic and foreign currency;(15) theft or robbery or dacoity or piracy or hijacking of aircraft; (16) human trafficking; (17)dowry; (18) smuggling and offences related to customs and excise duties;(19) tax related offences;(20) infringement of intellectual property rights; (21) terrorism or financing in terrorist activities; (22) adulteration or the manufacture of goods through infringement of title; (23) offences relating to the environment; (24) sexual exploitation; (25) insider trading and market manipulation using price sensitive information relating to the capital market in share transactions before it is published for general information to take advantage of the market and attempting to manipulate the market for personal or institutional gain; (26) organized crime, and participation in organized criminal groups; (27) racketeering; and (28) any other offence declared as predicate offence by Bangladesh Bank, with the approval of the Government, by notification in the official Gazette, for the purpose of this Act.”⁸

3. Stages of Money Laundering:

Following three stages'⁹ are commonly used to indicate the process of 'money laundering':

3.1. Placement: Placement is the first stage of money laundering. At this stage, the 'dirty money' that came from illegal activities is entered into a legitimate financial system. An example of placement can be placing the funds in a bank account to begin the cleaning process.

3.2. Layering: The second stage of money laundering is the movement of money in order to mix it with legitimate funds and hide the dirty money's illegal source. Commonly, a money launder will go about layering by transferring funds both domestically and internationally through various bank accounts. Additionally, a money launder may also conduct layering by buying and reselling assets such as properties and other high-value goods.

3.3. Integration: In the third and final stage, after completing the above stage, the money is considered 'clean'. Therefore, the money returns to the money launder from a legitimate source like clean investment.

4. National and International Initiatives to Combat Money laundering:

4.1. International Initiatives:

In response about money laundering and terrorist events, the international group has acted on money fronts. Bangladesh also has to follow these rules to maintain sustainable financial stability. This phase discusses the various worldwide firms which are considered because the global typical setters. It describes the documents and instruments which have been developed for anti-cash laundering (AML) and combating the financing the terrorism (CFT) functions.

4.1.1. The United Nations:

The United Nations (UN) was the first international organization to undertake significant action to fight against money laundering, the UN actively operates a program to fight money laundering; the Global Program against Money Laundering, which is headquartered in Vienna, Austria, is part of the UN Office of Drugs and Crime (UNODC). The UN Security Council has the authority to bind all member countries through a Security Council Resolution, regardless of other actions on the part of an individual country.

4.1.2. The Palermo Convention:

The UN adopted the International Convention against Transnational Organized Crime (2000), named after the city in which it was signed as Palermo Convention. The Palermo Convention specifically obligates each ratifying country to:

criminalize money laundering and include all serious crimes as predicate offenses of money laundering, whether committed in or outside of the country, and permit the required criminal knowledge or intent to be inferred from objective facts as well as  establish regulatory regimes to deter and detect all forms of money laundering, including customer identification, record-keeping and reporting of suspicious transactions;

4.1.3. International Convention for the Suppression of the Financing of Terrorism:

The UN adopted the International Convention for the Suppression of the Financing of Terrorism (1999). The convention came into force on April 10, 2002, with 132 countries signing the convention and 112 countries ratifying it.

The convention requires ratifying states to criminalize terrorism, terrorist organizations and terrorist acts. Under the convention, it is unlawful for any person to provide or collect funds with the (1) intent that the funds be used for, or (2) knowledge that the funds be used to, carry out any of the acts of terrorism defined in the other specified conventions that are annexed to this convention.

4.1.4. Security Council Resolution 1373:

As per Chapter VII of the UN Charter, is binding upon all UN member countries. On September 28, 2001, the UN Security Council adopted Resolution 1373,which obligates countries to criminalize actions to finance terrorism. It further obligates countries to:

deny all forms of support for terrorist groups; suppress the provision of safe  haven or support for terrorist, including freeing funds or assets of persons, organizations or entities involved in terrorist acts; prohibit active or passive assistance to terrorists; and co-operate with other countries in criminal investigations and sharing information about planned terrorist acts.

4.1.5. The Counter-Terrorism Committee:

The UN Security Council adopted a resolution (Resolution 1373) that resolution obligated all member countries to take specific actions to combat terrorism. The resolution, which is binding upon all member countries, also established the Counter Terrorism Committee (CTC) to monitor the performance of the member countries in building a global capacity against terrorism. Resolution 1373 calls upon all countries to submit a report to the CTC on the steps taken to implement the resolutions measures and report regularly on progress. In this regard, the CTC has asked each country to perform a self-assessment of its existing legislation and mechanism to combat terrorism in relation to the requirements of Resolution 1373.

4.1.6. Global Program against Money Laundering:

The UN Global Program against Money Laundering (GPML) is within the UN Office of Drugs and Crime (UNODC). The GPML is a research and assistance project with the goal of increasing the effectiveness of international action against money laundering by offering technical expertise, training and advice to member countries upon request.

4.1.7. The Financial Action Task Force:

The Financial Action Task Force on Money Laundering (FATF), formed by G-7 countries in 1989, is an intergovernmental body whose purpose is to develop and promote an international response to combat money laundering. In October, 2001, FATF expanded its mission to include combating the financing of terrorism. FATF is a policy-making body, which brings together legal, financial and law enforcement experts to achieve national legislation and regulatory AML and CFT reforms. Currently, its membership consists of 35 countries and territories and two regional organizations. There are also 31 associate members or observers of FATF (mostly international and regional organizations) that participate in its work.

4.2. National Initiatives, Laws and Circulars:

In line with international efforts, Bangladesh has also taken many initiatives to prevent money laundering and combating financing of terrorism on the country.

4.2.1. Founding Member of APG:

Bangladesh is a founding member of Asia Pacific Group on Money Laundering (APG) and has been participating annual plenary meeting since 1997. Bangladesh has formally endorsed by the APG Membership out-of-session in September 2014 as the Co-Chair for 2018-2020. Bangladesh hosted the 13th APG Typologies Workshop in 2010 and APG Annual Meeting of 2016.

4.2.2. The Money Laundering Prevention Act, 2002:

Bangladesh was the first country in south Asia to enact the Money Laundering Prevention Act, 2002, as a part of advice of the G7 based Financial Action Task Force (FATF).

4.2.3. The Money Laundering Prevention Ordinance, 2008:

To address the shortcomings of the MLPA, 2002 and to meet the international standards Bangladesh enacted Money Laundering Prevention Ordinance (MLPO) in 2008 which was replaced by the Money Laundering Prevention Act,2009.

4.2.4. The Money Laundering Prevention Act, 2009:

To address the deficiencies identified in the Mutual Evaluation Report(MER), Bangladesh has again enacted Money Laundering Prevention Act in February,2012 repealing MLPA, 2009.

4.2.5. The Money Laundering Prevention Act, 2012:

Again the Money laundering Prevention Act, 2012 was enacted repealing the Money laundering Act, 2009 and the Money laundering ordinance, 2012. It was amended in 2015.Section 4 of the Money Laundering Prevention Act, 2012 provides punishment for money laundering. Under section 9(1), the offence of money laundering shall be considered as the scheduled offences under the Anti-Corruption Commission Act, 2004. The offence of money laundering shall be tried by a special judge appointed under the Criminal Law (Amendments) Act, 1958. Accordingly, Sessions Judge or an Additional Sessions Judge or a Joint Sessions Judge may be appointed as special judge.¹⁰ But cognizance shall not be taken under this Act by any court except with approval of the Anti-Corruption Commission.¹¹

4.2.6. Establishment of the Bangladesh Financial Intelligence Unit (BFIU)(Section 24):¹²

(1) In order to exercise the power and perform the duties vested in Bangladesh Bank under section 23 of this Act, there shall be a separate unit to be called the Bangladesh Financial Intelligence Unit (BFIU) within Bangladesh Bank.

(2) For the purposes of this Act, the governmental, semi-governmental, autonomous organizations or any other relevant institutions or organizations shall, upon any request or spontaneously, provide the Bangladesh Financial Intelligence Unit with the information preserved or gathered by them Money laundering Prevention Act

(3)The Bangladesh Financial Intelligence Unit may, if necessary, spontaneously provide other law enforcement agencies with the information relating to money laundering and terrorist financing.

(4) The Bangladesh Financial Intelligence Unit shall provide with information relating to money laundering or terrorist financing or any suspicious transactions to the Financial Intelligence Unit of another country on the basis of any contract or agreement entered into with provisions of this Act and may ask for any such information that country under the from any other country.

(5) The Bangladesh Financial Intelligence Unit may also provide with such information to the Financial Intelligence Units of other countries spontaneously where there is no such contract or agreement under sub-section (4).

4.2.7. The Money Laundering Prevention Rules, 2013: Money Laundering Prevention Rules, 2013 has been framed for effective implementation of the Money Laundering Prevention Act, 2012 which was repealed by the Money Laundering Prevention Rules, 2019.

4.2.8. The Money Laundering Prevention Rules,2019:

By this rule investigating power of money laundering cases empowered to the National Board of Revenue (NBR), Anti-Corruption Commission (ACC), Criminal investigation Department (CID), and other entities like the Custom Intelligence and Investigation Directorate (CIID),Department of Narcotics Control (DNC), Department of Environment (DoE) and Security and Exchange Commission(SEC).

4.2.9. Anti-Terrorism Act and Rules:

Bangladesh also enacted Anti-Terrorism Ordinance (ATO) in 2008 to combat terrorism and terrorist financing. Subsequently, ATO, 2008 has repealed by Anti-Terrorism Act (ATA), 2009 with the approval of the parliament. To address the gap identified in the Mutual Evaluation Report (MER) of Bangladesh that is adopted in 2009 by APG, some provisions of ATA 2009 have been amended in 2012 and 2013. Anti-Terrorism Rules, 2013 has also been promulgated to make the role and responsibilities of related agencies clear specially to provide specific guidance on the implementation procedure of the provisions of the UNSCRs.

4.2.10. Anti-Money Laundering Department:

Anti-Money Laundering Department (AMLD) was established in Bangladesh Bank in June, 2002 which worked as the FIU of Bangladesh. It was the authority for receiving, analysing and disseminating Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs) 3.5 Bangladesh Financial Intelligence Units as per the provision of MLPA, 2012 Bangladesh Financial Intelligence Unit (BFIU) has been established abolishing AMLD as a national central agency to receive, analyse and disseminate STRs/SARs, CTRs and complaints. BFIU has been entrusted with the responsibility of exchanging information related to ML & TF with its foreign counterparts. The main objective of BFIU is to establish an effective system for prevention of AML, CFT & CPF and it has been bestowed with operational independence. BFIU has also achieved the membership of Egmont Group in July, 2013. BFIU has continued its effort to develop its IT infrastructure which is necessary for efficient and effective functioning of the unit. In this regard, it has procured go AML software for online reporting and software based analysis of CTRs and STRs. It also has established MIS to preserve and update all the information and to generate necessary reports using the MIS. To provide guidance for effective implementation of AML & CFT regime, a National Coordination Committee headed by the Honourable Finance Minister and a Working Committee headed by the Secretary of Bank and Financial Institutions Division of Ministry of Finance were formed consisting representatives from all concerned Ministries, Agencies and regulatory authorities.

4.2.11.National Strategy for Preventing ML,TF & PF:

National Strategy for Preventing Money Laundering and Combating Financing of Terrorism, 2011-2013 was adopted by the NCC in April 2011. Bangladesh has completed all the action items under the 12(twelve) strategies during that time. A high level committee headed by the Head of BFIU and Deputy Governor of Bangladesh Bank has formulated the National Strategy for Preventing Money Laundering and Combating Financing of Terrorism 2015-2017 which has been approved by the National Coordination Committee (NCC) on ML & TF. The strategy identifies the particular action plan for all the Ministries, Division and Agency to develop an effective AML & CFT system in Bangladesh.

4.2.12. Memorandum of Understanding (MOU) Between ACC and BFIU:

Anti-Corruption Commission (ACC) and the Bangladesh Financial Intelligence Unit (BFIU) has signed a Memorandum of Understanding (MoU) on 4 May, 2014 with a view to increasing the scope of cooperation for dealing with money laundering and other financial crimes. The ACC and the BFIU have jointly undertaken various initiatives to fight against money laundering and other financial crimes.

5. Current Situation of Money Laundering in Bangladesh:

In spite of taking aforesaid preventive measures, the growth in money laundering has become a serious threat to Bangladesh's rising economy, hindering economic good governance and social justice.¹³ According to Global Financial Institute (GFI) - a Washington-based think tank - $61.6 billion was siphoned out of Bangladesh between 2005 and 2014. In 2015 alone, about $5.9 billion was laundered out of the country. The GFI reveals that on an average, $7.53 billion is laundered each year and accordingly from 2016 to 2020, around USD 37.65 billion has been laundered.¹⁴Similarly, Transparency International Bangladesh(TIB) reported this year that some USD 3.1 billion or Tk 26,400 crore is being illegally remitted from Bangladesh every year. Though it is lower in comparison to the GFI's estimates between 2008 and 2017, even this amount would have deprived the government exchequer of about Tk 120 billion as revenue each year, which is significant.

In 2002, Bangladesh became the first country in South Asia to promulgate the Money Laundering Prevention Act in line with the recommendations from the Financial Action Task Force (FATF), an intergovernmental organization which combats money laundering. But experts have criticized the government's effort to implement the recommendations. Among those that are unconvinced with the government's work is the Asia/Pacific Group on Money Laundering, the global body that ranks countries. In 2016, the organization even warned the government that Bangladesh was in danger of being branded as a "risky" country when it comes to money laundering and terror financing.”15.

6. Flaws in Existing Anti-money Laundering Laws in Bangladesh:

The Anti-Corruption Commission (ACC) is investigating allegations of money laundering against private individuals without jurisdiction. On the other hand, the Criminal Investigation Department (CID) and the police are filing charge sheets against individuals in money laundering cases. The two organizations are conducting separate investigations into the same allegation of money laundering against the same person. It has created a dilemma in the pre-proceeding stage of money laundering cases.  Money laundering cannot be prevented as there is no effective measure on the part of any organization. In addition, analysts have questioned whether war between multiple organizations on the same issue is ensuring the benefits of traffickers.

7. Recommendations:

1.      Customer due diligence should be taken into consideration.

2.      Financial institutions should be required to maintain the record of transaction of last 5 years.

3.      Financial institutions should report promptly its suspicions to the financial intelligence unit (FIU).

4.      Reporting organizations should maintain complete and correct information with regard to the identity of its customers during the operation of their accounts.

5.      Central Compliance Unit should be established.

6.      Financial institutions subject to laws should establish and maintain an effective AML program.

7.      Each financial institution must develop, administer, and maintain its own AML/CFT policy that ensures and monitors compliance with the laws.

8.Conclusion:

Anti-money laundering organizational arrangements, laws, regulations and related agencies are now more active to prevent money laundering in both national and international level. But, these preventive measures sometimes fail because international criminals are now very organized in this respect. Specially, in Bangladesh money laundering situation is gradually going out of reach due to lack of coordination among the concern groups. Some flaws in existing anti-money laundering laws and policies described above are also responsible for the same. Last but not the least, considering the financial loss of our nation due to money laundering; we have to be pro-active to get rid of this course.

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