3.
0 MONEY LAUNDERING
3.1 INTRODUCTION
Money is the main reason for a person engages with any type of criminal activity and doing
the illegal action. Money laundering is one of the methods of criminal activity involving money
and many people commit these crimes without worrying about the laws of the country if they
are not successful.
Money laundering is an illegal act that involving the transfer of money earned from the
criminal activity to a legitimate channel. The money laundering occurs when a person
disguises his or her source and nature from unlawful activity. The main objectives of money
laundering is to put their funds in the financial system without raising suspicion and
transferring it so that it is difficult to identify their sources and ultimately transfer the funds
back into the financial and business system until they appear valid.
The ability to detect money laundering is very effective in identifying criminals as well as
illegal activities from which money is obtained in many ways. Nowadays, these activities are
so widespread and dangerous to the country that the activities of the criminals are not
detected and they use very effective means of concealing the money. This will damage the
reputation of the country and the government.
3.2 STAGES OF MONEY LAUNDERING
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Placement Stage
Placement is the initial entry of the illegal cash of crime into the financial system. It is the
process of moving dirty money into a legitimate economy and away from its true source.
Then, the source is hidden from view or obscured. The money launderers can transfers
money to abroad which is very far from geographical sources. During the placement stage,
the money launderers are easier to caught. This is because money launderers place the
large sums of money in the financial institutions at one time.
Layering Stage
This stage is the hardest process. Layering involves making money difficult to detect and
keeping it away from the source. This level is done with various money transactions. This
process will be more effective if money laundering transfers the money to various countries.
The money launderers also can divide the investment into advanced financial markets or
overseas markets; constantly moving the money to avoid detection; exploit the loophole or
conflict of law.
Integration Stage
The stage of integration is when money laundering successfully puts money into the
economy. After place the money as cash and layered at many of financial institutions, the
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criminal now can use the money for any purpose. The most common way to integrate money
into the economy is to buy real estate or property. The money will look very legitimate, so
money laundering will receive their money from legitimate sources, such as wages. If the
money laundering process is successful, it is very difficult to detect.
3.3 CAUSES OF MONEY LAUNDERING
Lack of transparency
An organization that has poor practice and value causes money laundering. By failing to
instill a culture of accountability and transparency, employers fail their duties to members of
staff. Potential to promote criminal practices. Negative work culture could be a result of
numerous things, including failing compliance measures and toxic relationships. Besides, if
the business is struggling, an employee may look to launder money to make some of it back.
Lack of good governance
Good governance indicators include accountability, rule of law, avoidance of corruption and
strong regulation. If any of these fail, money laundering is more likely to occur. If employees
or politicians promote values contrary to good governance, more people around them will
likely launder money. Containing a spread of corruption and money laundering is very tough
and can become unmanageable.
Poor monitoring systems
Employees are much more likely to launder money if the chances of escaping punishment
are high. Therefore, failing to implement compliance measures can promote financial crime,
as it gives people an incentive to do wrong. Monitoring refers to things like due diligence and
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collecting data that allows for transaction logging. Compliance laws say that risk
assessments can be controlled by diligence and monitoring systems.
3.4 MONEY LAUNDERING SCHEMES
The Casino Scheme
The casino scheme works by channel money through gaming. The money will be converted
to casino chips, which are used in the games and then converting it into cashback. Money
being laundered in a different nation than the launderer’s nation of origin. The casino makes
it difficult for law enforcement as either country able to gather evidence to reveal proof of
money laundering.
The Cash Business Scheme
The cash business scheme is a classic scheme for laundering in large amounts of physical
cash. This scheme involved a simple transaction but it is quite risky compared to other
schemes. Especially in international operations which require strict customs clearance.
There are many business who prefer handling most of their transactions in cash. Using this
scheme, illicit can be used in the transaction at a fast or slow pace.
Smurfing Scheme
Smurfing refers to the practice of breaking up a transaction by distributing smaller
transactions of a large amount of money below the reporting threshold. Smurfing is used to
benefit the currency reporting requirements that banks are required to observe in different
countries. The contribution of small amounts of money that come from many partners is less
likely to trigger an automatic report.
Foreign Investment Scheme
Foreign investment scheme is popular where countries encourage to invest in a variety of
business. However, there is only a little power to account for how the money been used in
the investment was accumulated. Using foreign investment schemes, it is typical that most of
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the cases involved in illicit activities. The launderer will transfer the cash to a foreign investor,
then later returns it by investing in the launderer’s business.
Life Insurance Policies Scheme
This technique is where illegal moneylenders buy a single premium life insurance policy for
their money laundering. The illegal launderers will hold the policy for a certain period of time,
then reduce its value to a clean check from the insurance company. In more complex
schemes, the illegal launderers may use the policy value directly or use it as collateral for a
loan to a third party from financial institution.
3.5 EFFECTS OR CONSEQUENCES OF MONEY LAUNDERING
Effect on business
If the financial institution allows money laundering activities, it shows that the institution has
committed the crime. Not only financial and banking institutions, large organizations and
companies are also making money laundering at their companies. This has a negative
impact on financial institutions and companies. This will undermine the integrity of the
community's financial institutions and the government of the country. For a business, it will
damage the reputation of the company. This business also loses the trust of their customers
and will affect the decline in the company's revenue.
Effect on economic
The private sectors having the most serious economics effect from the money laundering.
Money laundering often uses well-known companies, combining the results of illegal
activities with legitimate funds, to hide illicit profits. In some cases, the company may offer
products at a price below the manufacturer's price. Therefore, front companies have a
competitive advantage over law firms drawing capital from the financial markets. This makes
it difficult, if not impossible, for legitimate businesses to compete with front-line companies, a
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situation that could result in private sector outsourcing by criminal organizations. This will
results in further negative macroeconomic effects. This also effect the reduction in the annual
GDP growth rates and also increases in the money laundering cases in the country.
Effect on society
Money laundering also affects society. Money laundering is an important process for crime to
be profitable. This allows drug dealers, smugglers, and other criminals to expand their
operations. This raises the government's expense due to the need for increased spending on
law enforcement and health care to combat the serious consequences. Among its negative
socio-economic consequences, money laundering diverts economic power from markets,
governments, and the people to criminals. Further, the enormous economic power that arises
from criminals as a result of money laundering has a devastating effect on all elements of
society.
3.6 ANTI-MONEY LAUNDERING, ANTI-TERRORISM FINANCING AND PROCEEDS OF
UNLAWFUL ACTIVITIES ACT 2001
The Anti Money Laundering, Anti Terrorism Financing and Proceeds of Unlawful Activities Act
(the AMLATFA) is a Malaysia statute that was announced in gazetted on 5 July 2001 and
come into force on 15 January 2002. The Act provides for the offense of money laundering
and terrorism financing and the measures to be undertaken for the prevention of money
laundering and terrorism financing offense. (Act 1467, 2002)
The AMLATFA implemented by Bank Negara Malaysia (BNM) to specify wide-ranging
investigation powers to be enforce including for the law enforcement agencies and Public
Prosecutor. Power to freeze and seize properties that are involved or suspected to be
involved in money laundering or terrorism financing offense. The AMLATFA also provide the
power of the court to forfeit properties that derived from serious crimes.
Money Laundering
Section 4 of AMLATFA define money laundering as the act of a person who - (a) engages,
directly or indirectly, in a transaction that involves proceeds of any unlawful activity, (b)
acquires, receives, possesses, disguises, transfers, converts, exchanges, carries, disposes,
uses, removes from or brings into Malaysia proceeds or any unlawful activity ; or (c)
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conceals, disguises or impedes the establishment of the true, origin, location, movement,
disposition, title of rights with respect to, or ownership of, proceeds of any unlawful activity.
Terrorism Financing
Terrorism financing is the act of providing financial support from legitimate or illegitimate
source used by terrorist organisation to carry out terrorist acts which will benefit any terrorist
or terrorist organisation. Section 130B of the Penal Code defines the terms terrorism
financing that an act or threat of action within or beyond Malaysia. The section define (i) it as
the act done or threat made with the intention of advancing a political, religious or ideological
causes; and (ii) act or threat is intended or may reasonably be regarded as being intended to
intimidate the public or a section of it; or influence or compel any government.
Unlawful Activities
Unlawful activities is a behavior that is not authorized by law which constitutes a
crime.Proceeds of an unlawful activity means any property, or any economic advantage or
economic gain from such property,within or outside Malaysia. The term unlawful activities
can be described as - (i) any activities which constitutes any serious offence or any foreign
serious offence ; or (ii) an activity of such nature, or occurs in such circumstances, that it
results in or leads to the commission of any serious offence or any foreign serious offence.
3.7 REAL CASES OF MONEY LAUNDERING
1 Malaysia Development Berhad Scandal
1 Malaysia Development Berhad (1MDB) is a government-owned company intended to
promote long term economic development in Malaysia by forging global partnerships and
promoting foreign investment. This legal case is still ongoing political scandal in Malaysia.
On July 2015, 1MDB fund that came under investigation for alleged impropriety after reports
emerged that investigators traced some RM 2.67 billion wired into the former Prime Minister
Najib Razak’ AmIslamic Bank accounts. Najib Razak who founded and chaired 1MDB, has
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been charged with 42 counts of corruption and money laundering charges. Najib Razak also
has been charged of abusing his position for gratification and criminal breach of trust. The
charges were under Section 23 (1) and 24 (1) of the Malaysian Anti-Corruption Commission
(MACC) Act 20019 and under Section 4 (1) (a) of the Anti-Money Laundering and Anti-
Terrorism Financing Act 2001 (AMLATFA).
MSGB Berhad Illegal Deposit Taking
Three company directors of MSGB Berhad were suspected for illegal deposit taking and
money laundering under section 137(1) Financial Services Act 2013 (FSA) and section 4(1)
the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act
2001 (AMLATFA). National Revenue Recovery Enforcement Team of the Attorney General’s
Chamber (NRRET), Royal Malaysia Police (RMP) and Companies Commission of Malaysia
were involved in raiding operation. The result from joint raiding operation cause freezing of
54 bank accounts and seizure of cash comprising Ringgit Malaysia and foreign currencies
amounting more than RM 700,000. The directors were pleaded guilty to the charges for
accepting money from depositors without valid license and involvement in money laundering
activities. On 23 August 2019, four directors of MGSB Berhad were jailed and their company
was fined RM 5 million. The directors were sentenced to imprisonment and also fined under
FSA and AMLA.
HSBC Bank USA Scandal
In 2012, multinational HSBC Bank was penalized of $1.92 billion by the United States for
violating laws that designed to prevent money laundering and other illegal financial activity.
HSBC Bank had set up offshore accounts for drug cartels and suspected criminals in Jersey.
HSBC banking executives admitted to allow $881 million in proceeds from the sale of illegal
drugs. Inadequate anti-money laundering controls were principally at fault. This scandal
shows low quality of ML controls, HSBC exposed the United States to Mexican drug money,
suspicious travelers cheques, bearer share corporations and also rogue jurisdictions. There
was evidence found that HSBC making transfer for Saudi banks which tied to terrorist
groups. HSBC provides correspondent banking services such as fund transfers and currency
exchanges, which were the source of illicit flows in weak AML controls. These case violate
the Bank Secrecy Act, Trading with the Enemy Act and other AML statutes.
3.8 CONCLUSION
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Money laundering activities consider as a major crime in any country which causes a
negative impact on the economy. The advancement in technology causes the increase in
money laundering activities as it reduces the chances of detection to a minimum. Effective
money laundering activities regulation will increase the awareness of how can financial
institution manage their anti money laundering activities. Financial institutions should know
the potential negative consequences of money laundering activities on the economy of a
country. Implementation of controlling mechanism and internal control procedures are critical
in minimizing the money laundering activities.
REFERENCES
1. Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act
2001
2. Bernama. (2020, March 2). Najib’s 1MDB trial to resume on 10 March. Retrieved from
https://www.thestar.com.my/news/nation/2020/03/02/najib039s-1mdb-trial-to-resume-on-
march-10
3. Bernama. (2019, August 23). 4 directors jailed, fined for illegal deposit taking, money
laundering. Retrieved from
https://www.freemalaysiatoday.com/category/nation/2019/08/23/four-directors-jailed-fined-
for-illegal-deposit-taking-money-laundering/
4. Viswanatha, A., & Wolf, B. (2012, December 11). HSBC to pay $1.9 billion U.S fine in money
laundering case. Retrieved from https://www.reuters.com/article/us-hsbc-probe/hsbc-to-pay-1-
9-billion-u-s-fine-in-money-laundering-case-idUSBRE8BA05M20121211
5. Langdon, S. (2019, July 5). What is money laundering? Retrieved from
https://www.moneytaskforce.com/money/what-is-money-laundering/
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