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AML: The response to money laundering


Last week we saw how government decided to pass up a US$50 billion loan due to allegations of money laundering on the part of the would-be lender.

We defined money laundering as the process of making criminal assets appear legitimate, and saw that the assets may not necessarily be in the form of money but could be anything of value.

We saw that sometimes the assets are not proceeds of crime, but could be intended for use in future crime. Drugs, corruption, organised crime, fraud, terrorism and civil war were identified as the main drivers of money laundering.

We concluded by discussing the three-stage cycle of placement, layering and integration, through which criminal assets are typically laundered.

Having familiarised oneself with the concept of money laundering and appreciate its negative impact on the well-being of the financial sector, one would naturally want to know how money laundering should be combated.

Anti-Money Laundering (AML) is a term mainly used in the financial services sector to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities.

Today, most financial institutions – and many non-financial institutions – are required to identify and report transactions of a suspicious nature to the financial intelligence unit in their respective country.

Zimbabwe’s financial intelligence unit is called the Financial Intelligence Inspectorate and Evaluation Unit (FIIE).

Every bank is required to perform due diligence by verifying a customer’s identity and monitoring transactions for suspicious activity.

Anti-money laundering guidelines came into prominence globally after the September 11, 2001 (the so-called 9/11) attacks in America, which saw the subsequent enactment of the USA PATRIOT (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) Act.

In Zimbabwe the Bank Use Promotion and Suppression of Money Laundering Act (Chapter 24:24) of 2004 is the primary piece of legislation governing the conduct of financial institutions and their employees in relation to money laundering.

It is a useful exercise for bankers to familiarise themselves with the provisions of this Act.
Why combat money laundering?

Naturally, preventing criminals from legitimising proceeds of crime is one of the many ways in which crime can be fought but critically, the long-term success of the financial sector depends on the ability to sustainably attract and retain deposits earned through legitimate means.

Proceeds of crime are invariably transient or “hot” in nature and harnessing clean, long-dated funds should be a key consideration for banks, especially given the current mismatch between short-dated liabilities (deposits) and long-dated assets (loans).

Money laundering has deleterious effects on the reputation of market players and institutions that wittingly or unwittingly become involved in money laundering schemes risk prosecution and the loss of their good image, which ultimately has a negative impact on the image of Zimbabwe as a safe and reliable financial jurisdiction.

According to John Howell, author of The Prevention of Money Laundering and Terrosist Financing: “The banking system is especially vulnerable to attempts at money laundering because of the opportunities offered if its protective barriers can be breached. Once launderers are accepted into the system, criminal and terrorist funds, especially cash, can be moved quickly from place to place in different sizes, currencies and financial instruments.”

KYC (Know Your Customer), in terms of both initial identification and ongoing awareness of their transaction patterns, is therefore central to the integrity of the banking system.

The key role of banks in the prevention, detection and reporting of money laundering is underpinned by Michael Chertoff who is quoted in the same book saying: “Banks are our first line of defence against money launderers, drug dealers and even terrorists who would attempt to abuse our financial institutions. Banks that disregard their duty to conduct adequate due diligence and report suspicious financial activities allow themselves to be exploited for criminal activities.”

Money laundering may seem relatively harmless but the offences associated with it are far from being “victimless” crimes.

One of the reasons why money laundering can go undetected for years is that it often takes refuge in legitimate-looking businesses.

Genuine business is the best cover for illegal assets and additionally money launderers know how to hide in the crowd, posing as legitimate businesspeople to fool others into doing their dirty work for them.

Those wanting to appreciate the extent to which crime can become so embedded in daily life will want to watch American Gangster, the movie. Through ingenuity and a strict business ethic, Frank Lucas (Denzel Washington) manages to rule the inner-city drug trade, flooding the streets with a purer product called Blue Magic at a better price than his competitors.

He outplays all of the leading crime syndicates and becomes not only one of the city’s foremost corrupters, but part of its circle of civic superstars famous for numerous but low-profile charitable deeds.

His life seems, as described by the police officer who is out to nail him, “unpretentious, orderly and legitimate”.

“The most important thing in business is honesty, integrity, hard work and family,” he coolly says to his brothers in one of the scenes of the engaging movie.

The five brothers each run one of the simple “front” businesses, namely dry-cleaning, custom furniture retailing, hardware store, a tyre shop and a body shop, which are in effect the collection and distribution points for Lucas’ drugs and money.

Of course, it’s only a movie, but we all know how well art tends to imitate life, right? Or is it life imitating art?

Omen N. Muza is a banker and Managing Director of TFC Capital (Zimbabwe) (Pvt) Ltd. He writes in his personal capacity. Feedback: omen.muza@gmail.com

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