Money Laundering and Terrorist Financing

Money laundering is the act of making ‘dirty’ money look ‘clean’. Money launderers hide the illegal origin of their income by performing financial transactions until the funds ultimately appear as legitimate assets.

Anti-money laundering laws often include terrorist financing-the funding of activities intended to cause harm to people and damage to properties. Techniques for money laundering and terrorist financing are the same; the main difference is that financing for terrorism can actually come from legitimate sources. 

Stages of Money Laundering

There are three stages of money laundering.

Placement

This is the initial stage when illicit proceeds of crime enter the financial system. At this stage, money launderers are most vulnerable as they are closely linked to the assets. Examples of placement strategies are exchanging foreign currencies, depositing money to bank accounts, and buying real estate properties.

Layering

Funds are channeled through multiple transactions, possibly in different jurisdictions to further distance them from their original source and ownership. At this stage, money may be transferred to different countries, placed in different and complex investment vehicles, or distributed in multiple bank accounts.

Integration

The funds re-enter the economy appearing as normal returns of legitimate businesses which criminals can freely spend without without raising suspicions from authorities.

AML/CTF Compliance Framework

AML/CTF Compliance Framework

A compliance framework encompass all necessary measures that organizations must implement to meet regulatory requirements. In Canada, FINTRAC prescribes a five-pillar approach to establishing these frameworks.

  1. Designated Compliance Officers have the ultimate responsibility for execution and monitoring of compliance programs, for reporting obligations to the FIU and for apprising senior management and executives and board of directors on a regular basis. They must have proper authority, autonomy and resources to discharge these functions effectively.
  2. Reporting entities must have written policies that define the expectations of the compliance programs such as Code of Conduct or Policy Statements as well as procedures that provide guidance, governance, structure and detailed operational processes for implementing compliance measures.
  3. Reporting entities must apply a risk-based approach to managing money laundering and terrorist financing risks that they are exposed to. The risk-based approach involves allocating efforts and resources according to the level of risks. Simply put, it means spend time, money and resources to the riskiest products or services.
  4. All employees must have regular compliance training that are suitable to their roles and responsibilities.
  5. The compliance framework must be continuously reviewed, assessed and monitored by an independent party on a regular basis and any deficiencies must be addressed with corrective measures.

Risk Based Approach

Establish a risk based approach using six steps:

Correspondent Banking

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