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INTERNSHIP REPORT ON BANKING SYSTEM PRACTICE BY AL-ARAFAH ISLAMI BANK LIMITED AND AN INTRODUCATION TO MONEY LAUNDERING

STUDY ON AL-ARAFAH ISLAMI BANK LIMITED O.R.NIZAM ROAD BRANCH CHITTAGONG


Prepared by: Md. Kamrul Hasan Matric No- R062010 Program- RMBA
(This report has been prepared for the partial fulfillment of the degree of Masters of Business Administration)

Supervised by: Md. Jonead Kabir Lecturer, Department of Business Administration

Submission Date: 23rd August, 2008

Signature Supervisor

Department of Business Administration Faculty of Administration Science

International Islamic University Chittagong


23rd August, 2008 The Dean Faculty of Administration Science International Islamic University Chittagong

Subject: Submission of Internship Report Dear Sir It is my pleasure to submit my Internship Report on Banking System Practice by Al-Arafah Islami Bank and an introduction to Money Laundering as a part of MBA (Finance & Banking). I tried my best to gather relevant information for constructing a complete repot as outlined. The preparation of this report enables me to great extent to complete my theoretical knowledge with practical analysis. I would like to express my profound gratitude for your kind and mind for reading my report. Thank you, very much for your heartiest co-operation.

Sincerely Yours

Md. Kamrul Hasan Matric No-R06210 Program- RMBA

Acknowledgement:
It is high time for me to express my deepest gratitude and humble submission to the Almighty Allah (SWT) for giving me chance to study in IIUC and to my internship in, but for whose support I would not be able to complete a huge task of preparing this internship report within scheduled time. Internship report is on essential part of MBA program as one can gather knowledge within the period of there months by observing and doing the daily works of chosen organization. In this regard my internship has been arranged at Al-Arafah Islami Bank Ltd O.R.Nizam Road Branch Chittagong I am grateful to my supervisor Mr. Md. Jonaed Kabir Lecture of DBA, IIUC FOR this cordial supervision and support to prepare this report. I am also grateful to Mr. Mohammed Hossain SPO of Al-Arafah Islami Bank Ltd O.R.Nizam Road Branch, who gives the chance to do my interne on his branch. I express my deepest gratitude and respect to the officials of Al-Arafah Islami Bank Ltd O.R.Nizam Road Branch who helped me a lot during my internship period.

Content
Chapter-1 Objectives of the study Methodology of the study Scope of the study Limitation Executive Summary Chapter-2 Overview of Al-Arafah Islami Bank Ltd Company Profile Vision & Mission of AIBL Objectives of AIBL Functional area of AIBL Historical Background of AIBL SOWT analysis of AIBL Banking service of AIBL Chapter-3 General Banking introduction Customer service Account section Function Statement prepared by account section Types of Account Al-Wadia current A/c Mudaraba Short Notice deposit A/c Mudaraba trem deposit A/c Clearing Section Local Remittance Section Demand Draft Pay order Telegraphic Transfer Other service Section 6 7 8 9 10 11 12 13 14 14 15 16 17 18 19 20 21 22 23 24 24 24 25 25 25 27 28 29 31 32 34
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Chapter-4 Performance evaluation of the AIBL AIBL at a glance Profit & Loss of AIBL International Trade of AIBL Investment Growth of AIBL Dividend Payment percent of AIBL Deposit Mix of AIBL Chapter-5 Definition of Money Laundering (ML) Reason of ML Impact of ML Affect of ML in Business/ economic development Stage of ML Symptom of ML Penalties of ML Chapter-6 Finding Recommendation Suggestion for Money Laundering Conclusion 36 37 38 39 40 42 43 45 46 48 49 51 52 53 56 58 59 60 61 62

Chapter 1

Executive summary Objective of the study Methodology of the study Scope of the study Limitation of the study

Objective of the study

The main objectives of the study are given below:

1. To know about the banking system of Al-Arafah Islami Bank Ltd.

2. To develop working skills.


3. To know bout the different scheme, policy, procedures of AIBL. 4. To know bout credit facilities, limitation of AIBL. 5. Identify the limitations of the Bank.

6. Identify the different problems of the different division s.


7. To observe the overall environmental situation of the bank. 8. To know about money laundering.

9. Effect of money laundering. 10.Identification or symptom of ML. 11.To recommend how to solve the problem. 12.Prevention way of money laundering.

Methodology of the study:


The methodology of the can be discussed under the major heads: 1. Organization & development of the report: The report is organized & development under a mixture of both descriptive an analytical frame work. 2. Data sources :the data sources used to prepare this report delineated as follows: A. Primary sources: Practical deskwork. Face to face conversation with the officers and executives. Face to face conversation with the client.

B. Secondary sources:

Annual report of Al-Arafah

Islami Bank Ltd.

Bank statements. Brochures of bank. Annual circular on money laundering.


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Guide line for foreign exchange transaction by BB.

Scope of the study:

n modern life there have no alternative way to develop the national economy with out bank . Bank is not only a financial institution but also life blood of the national growth. a banking institution is essential in a modern society . It plays a key role in the economic development of a country and forms the core of the money market in an advanced country .in recent age the banking sector over the world has been undergoing a lot of change due to deregulation, technological innovation, globalization etc. Bangladesh banking sector is lagging for behind in adopting these changes. To succeed well in these changing environments, not only development of appropriate infrastructure is necessary but also infusion of professionalism in to banking service is essential. Commercial banks play a significant role to meet up the needs of the society such as capital formulation, large scale production industrialization, growth of trade etc. Carry the foreign remittances of wage earners and other fund for the country. AIBL is and unconditional land specialized financial institution that performs most of the standard banking services and investment activities on the basis of profit and loss sharing system confirming to the principle of Islamic shariah .A IBL bank does not pay interest to depositors. Instead depositors participate in the profitability of the bank. In this century bank is and essential part of every business commercial welfare activities .but this is also using by criminals for illegal monetary activities. in this case money laundering is commonly used a term .Financial institutions ,government need to aware about the term money laundering for protect illegality and ensure social and economic welfare.

Limitations of the study:


Objective of the practical orientation program is to have practical exposure for the student .My tenure was for one month only , which was some how not sufficient after working hole day in the office it was very much difficult , if not impossible to study again theoretical aspect of banking . There is also having some limitations: 1. Required information and data are not well furnished by the central accounts departments of BB. 2. Lack of depth of knowledge and analytical ability for writing such report. 3. The bank confidentially keeps the data. 4. The data and information related with the topic was not easily available. 5. Supply of more practical and contemporary data is another out coming. 6. The study was not done very successfully due to inexperience. 7. Time constraints. 8. This suffers from a narrow data range for analysis. 9. The data seems insufficient may be suffering from take of reliability to some extent. 10.Communication gap between the related officials and me.

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Executive summary:
Al Arafah Islamic bank Ltd is one of the promising banks practicing Islamic banking system in Bangladesh. It has started its activities from 28th August 1995. It is operating al most al kind of common banking activities. Its operating system is free from the interest. It is operating activities by the shariah guideline. Now this report I have discussed about the existing banking system practice by the Al Arafah Islamic bank ltd. here I have discussed about different department like deposit foreign exchange , remittance, advances etc of AIBBL O.R.Nizam road branch . In this report I have also discussed about the money laundering .here I have focused on the reasons of ML, Social and economical impact of ML, Symptom or which raise the suspicion of ML. From the case study of AIBL I have identified some problem of the bank and according to that I have provided some suggestion .here I have also discussed role and preventing activities can take by various financial institution.

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Chapter 2
Overview of AIBL

Profile Vision and Mission of the AIBL Objective of AIBL Functional area of AIBL Historical background of AIBL SOWT analysis of AIBL O.R.Nizam Branch Banking Services of AIBL O.R.Nizam Branch

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Vision and Mission of the AIBL:


Vision:
To be pioneer in Islami Banking in Bangladesh and contribute significantly to the growth of the national economy.

Mission:
Achieving the satisfaction of Almighty Allah both here & hereafter Proliferation of Shariah Based Banking Practices. Quality financial services adopting the latest technology. Fast and efficient customer service. Maintaining high standard of business ethics. Balanced growth. Steady & competitive return on shareholders equity. Innovative banking at a competitive price. Attract and retain quality human resources. Extending competitive compensation packages to the employees. Firm commitment to the growth of national economy. Involving more in Micro and SME financing.

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Overview of Al-Arafah Islami Bank Limited:


The prime objective of Al-Arafah Islami Bank is to serve the people for attainment of their economic goal and success in life here and hereafter. AlArafah Islami Bank stands not only for material well being but also for ethical development of its customers. Company Profile: Company Name: Al-Arafah Islami Bank Limited Legal Form: A public limited company incorporated in Bangladesh on 18 June under the company act 1994. Incorporated on: June 18, 1995 Started operation on: September 27, 19995 Paid up capital: Tk.115.23 Crore No. of Director: 23 Managing Director: M.A. Samad Sheikh Registered Office : Al-Arafah Islami Bank Limited 36, Dilkusha commercial Area Dhaka- 1000, Bangladesh Web.http//www. Al-Arafah bank .com Type of Banking: Islamic Bankers / Based on Islamic shariah

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Objectives of AIBL
Form time immemorial Banks principally did the function of moneylenders or Mohajans but the function and scope of modern banking are now-a-days very wide and different. They accept deposits and lend money like their ancestors, nevertheless, their role as catalytic agent of economic development encompassing wide range of services is very important. Business commerce and industries in modern times cannot go without banks. There are people interested to abide by the injunctions of religion in all sphere of life including economic activities. Human being is value oriented And social science is not value neutral. Al arafah islami bank believes in moral and material development simultaneously. Interest or Usury has not been appreciated and accepted by the tawrat of Prophet Moses, the Bible of Prophet Jesus and the Quran of Hazarat Muhammad (SM). Effort are there to do banking without interest Al Arafa islami bank limited avoids interest in all its transactions and provides all available modern banking services to its client and want to contribute in both moral and material development of human being. No sustainable material well being is possible without spiritual development of mankind. Only material well being should not be the objective of development. Socio economic justice and brotherhood can be implemented better in a God-fearing society. Other objective of Al Arafah Islami Bank include: To establish interest-free and welfare oriented banking system. To help in poverty alleviation and employment generation. To contribute in sustainable economic growth. To establish the relationship between bank and customer as partnership Basis.

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Functional Area of AIBL:

Export and Import Function Retail Banking Industrial financing trade financing Syndicated Loan Project financing Hire purchase Lease financing Online service Automated Accounting Integrated System Signature Verification Any Branch Banking ATM Services (to be implemented ) POS Services ( to be implemented ) Other Delivery Channel Services (to be

implemented)

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Historical Background of the AIBL:


The Bank started its operation on June 18,1995 as a commercial Bank in the name and Style of Al Arafa Islami Bank Limited. The prime objective of Al Arafa Islami Bank is to serve the people for attainment of their economic goal and success in life here and Hereafter. AIBL faced a several setbacks in respect of business. With active initiative taken by the member of the board and the management team, the company could overcome the problem and get it converted into a full-fledged commercial.

Problem on 2001 after obtaining license from Bangladesh Bank as Al Arafa Islami Bank Ltd. The Authorized capital of the Bank was fixed at TK .100 Million and paid up capital at TK .100.12 Million of which 20.50 Million was subscribed by the sponsors at that time. At present the Bank is operating through 46 Branches of the country.

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SOWT Analysis of the Al-Arafah Islami Bank:


Cooperation with each other . Fewer default loan . Strength Membership with SWIFT. Good banker-customer relationship. Energetic work force. Reluctance to add campaign. Some inexpert and laggard assistant officers . Existing manual vouchers. Shortage of Branch. Lack of consumer credit scheme. Entrance of new private Banks. Not enough Efficient administration. Weak in marketing. Huge business area. Introducing ATM card. Opportunity Growth sales volume. Introducing any branch banking through online. Different services of FCBS (ex: Phone Banking ) Different classic services of Foreign Banks. Threats Entrance of new PC Banks. Political unrest.

Weakness

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Banking Services of Al- Arafah Islamic Bank Limited O.R.Nizamg Rood, Chittagong:
Cash Account General Banking Remittance Clearing House Customer Services Musharaka (equity participation on the basis of sharing profit and loss) Mudaraba (sharing of profit and loss in business where one of the partner provides expertise and management and other partner provides capital remaining inactive) Murabaha (buying and selling of commodities goods etc. with profit) Bai-Muajjal (credit sale with profit) Ijara(leasing for rent ) Hire purchase or Shirkatul Melk) Bi-Salam (purchasing of agricultural products while in production and providing advance money to the producers) Istisna (purchasing of industrial products while in production and providing advance money to the producers) Quard Import Foreign Exchange Export Remittance

Investment Department

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Chapter 3

General Banking

Introduction Customer service Account Section Clearing Section Local Remittance Section Other Service Section

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Introduction:

eneral Banking is designed to provide financial service to the general people. General Banking sector includes customer services department.

Customer service department provides various client services to their clients. Account opening and closing, travel related services, reply client quarries about different department and control & documentation of client file. Requirement is the major function of this department. Customer service department is the most important department in the Al Arafah Islami Bank Ltd, because at first, customers are wants to know various information from the customer service department. Since bank is financial organization, so as a part of service organization this department should satisfy to their client with the best service. Banking goodwill will be effected if customer service department cannot satisfy to their client properly. For this reason customer service department should take care of every client. More over customer service department is playing a vital role in banking services.

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Customer service:
Al Arafah Islami Bank Limited O.R. Nizam Road Branch gives all shorts of service to their customer by five departments. These departments are very essential part of banking activities to render various services to their clients. These departments helps bank to perform its banking activities in systematically, actively and efficiently. The operations of the banks are clearly distributed among the department in order to avoid the haphazard situation in maintaining banking system. Since bank is a service oriented financial organization, ever department of bank plays an important role in rendering banking service to the client. AIBL, GEC Branch has several department and sections for rendering different customer services. These departments are:

Deposit Department Accounts Department Cash Department Remittance Department Advance Department Foreign exchange Department

A. Deposit Department: Deposit Department is an important department of bank. Account opening activities are accomplished under this department. Banker and customer relationship creates by opening an account in bank. Any person who intends to get banking services has to open an account in the bank. B. Account Department: Accounts department supplies all numerical data and information of the bank credit section current deposit staff payments total assets and liabilities various income and expenditure are shown in the statement in the statement prepared by the accounts department.

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C. Cash Department: Cash amount is the main source of all banking activities. For that every day bank has to remain certain amount in cash in accordance with the rules and regulation of Bangladesh Bank. D. Advance Department: Bank offers loans to businessman, industrialist and other in consideration of its interest. Bank gives by profit or loss sharing ratio in accordance with the terms and condition. AIBL is an Islamic shariah base bank. So it follows the rules of shariah. E. Foreign Exchange Department: International trade and foreign exchange constituted the major business activity conducted by the bank. Foreign exchange department offers full range of trade finance service, namely issue, advising and confirmation of documentary credit, arranging forward exchange cover, pre shipment finance negotiation and purchase of export bills discounting of bills exchange and collection of bill etc. F. Remittance Department: There are many ways though which one can remit money from one place to another the ways are pay order PO Demand Draft DD Telegraphic Transfer TT and Security Deposit Receipt SDR Among the ways PO and SDR issued in case of remittance with in the city where DD TT are issued incase of remittance outside the city but with in the country

Account Section:
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Accounts department is the most important department in the AL-Arafah Islami Bank Ltd as it supplies all numerical data and information of the bank. Credit section current deposit. Staff Payments, Total assets and Liabilities various income and expenditure are shown in the statement in the statement prepared by the accounts department.

Functions:
1. To prepared and maintain daily input journal proof sheet and validation report 2. To prepare flash report daily liquidity position 3. Other miscellaneous work of the department 4. Daily statement of affairs 5. Test agreed is another arrangement maintained for control purpose. Test control agreed is most important for bank internal control 6. To prepare in chime and expenses statement 7. To maintain trial balance and financial accounts system 8. To maintain and prepare maturity balance sheet 9. Daily posting of voucher issued by all departments 10.To prepare clearing difference Statements Prepared by Accounts Section: 1. 2. 3. 4. 5. 6. Sector wise balance position Maturity balance sheet Foreign currency statement Branch trail balance Liquidity position Income expenses statement

Types of accounts:

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Al Arafah Islamic Bank Limited collects deposits from people by various accounts. Ti collects deposit the accounts are divided four categories. These are Al-Wadia current A/C
Mudaraba Short Notice Deposit A/C

Mudaraba Term Deposit

Al-Wadia current A/C:


Al Arafah Islami Bank Ltd operates the Al Wadia current A/C according to the principles of Al Wadia, which are based on Islamic Shariah. It is promised to hard over the deposited money to clients of the bank when they desire to withdraw on the others hand bank take the permission from the clients to invest the deposited money The depositors do not get profit from the account and not need to bear any loss which from this account.

Mudaraba Short Notice Deposit A/C:


It is one kind of current A/C. Before withdrawing the deposit depositor must inform the bank but the account holders have to have fixed amount of deposit for withdrawing the depositor will get profit in daily basis.

Mudaraba Term Deposit:


It is a kind of fixed deposit. On the basis of tine duration its profit rate varies on various deposits. If one wants to withdrawn its deposit amount before maturity then he will get profit which is given Mudaraba Savings deposit. According to this deposit there is various deposit scheme are available such as:

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Millionaire Scheme: Savings helps capital formation. Millionaire scheme has been introduced with a view to encourage saving habit amount the people. Under this scheme depositing monthly installment of only TK. 1150.00 for 20 years/ TK. 2170 for 15 years/ TK. 4600 for 10years/TK. 9950for 6 years one can cash on maturity a sum of TK 100000000.

Double the Money Scheme:


Banks van play leading role in mobilizing internal savings. Savings helps capital formation which leads nation to economic progress and prosperity this scheme has been introduced to provide an opportunity to people for safe deposits. Under this scheme within 8 years your money will be doubled.

Monthly Deposit Scheme: Under this scheme through monthly installment the depositor can cash profitable and attractive amount of the end of affixed period. The scheme will help fixed income people to implement their future income plan this scheme requires a depositor to deposit 60 monthly installment of TK 500 and earn a total sum of TK 38000 approx at the end of 5 years and 120 month installment of TK 500 each to earn a total sum, of TK 71250 at the end of 8 years and 120 month installment of TK 500 each a total amount of 100000 at the end of 10 years.

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Hajj Scheme
There are many religious minded people who fail to perform Holy Hajj due to indecision. Under the above scheme they will e able to perform Holy Hajj by depositing slab wise amount per month.

Clearing Section:
In the clearing department the work is to clear the Cheque and pay order through Bangladesh Bank or Central Bank that are submitted for cash collection Everyday clearing house takes a place in Bangladesh Bank once in the morning called morning house (1st house) another in the evening called return house (2nd house). In the house all the banks representative sit together and change their money receive instrument of the particular banks to clear the paper and transfer the money to their particular accounts.

Types of clearing:
There are two types of clearing: Inward clearing: The Cheque or instruments of Al Arafah Islami Bank Ltd that are submitted to other banks for collections of money of bills are called inward clearing. Outward Clearing: The Cheque or instruments of other banks that are submitted to the Al Arafah Islami Bank Ltd for collection is called outward clearing.

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Clearing House:
A place that provides an arrangement by which various representative of each clearing bank assemble there each business day to day exchange local Cheque. Draft bill of exchange etc that are received by them for collection from their customers its objects are to settle balance between the banks of a city, town or a region with a minimum of inconvenience and labor. Before the establishment of clearing house the bank had to send their bill buy clerks to other banks for getting cash against those Cheques obviously this was a laborious and time consuming process and waste full procedure. Besides it was risky to carry cash from one bank to another and it also invalid lot of daily under the auspices of the modern clearing house transaction involving of taka are settle easily with in a matter of an hour or so. Under the clearing system reciprocal claims of one bank against others are offset and only the net balance or difference between receipts and payments are settled by drawing on the account of the debtor bank maintained with central bank in Bangladesh Bank organized the clearinghouse.

Local Remittance Section:


The major function of commercial Banks is mobilization of fund other then these banks provide ancillary services to its clients. Clients need to remit money from one place to another for their business or purposes. Banks fulfill this need of customers by means of remittance service. Money can be remitted domestically or internationally which knew as local remittance and foreign remittance.

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There are three ways of transferring fund domestically. The modes of transferring funds are:

Demand Draft DD Pay Order PO Telegraphic Transfer

Demand Draft DD: This is an instrument through which customers money is remitted to another person firm organization in outstation in outstation outside the clearing house area from a branch of one bank to an outstation branch of the some bank or to a branch of another bank with prior arrangement between those banks with the issuing branch. This an order instrument in which the issuing branch gives instruction to the payee drawee branch to pay certain amount of money to the order of certain person firm organization. The DD may be open without crossing or crossed. An open DD can be over the counter to the payee endorsee by the payee drawee branch against proper identification of the payee. The crossed DD is paid through the payees account only. Procedures of issuing: 1. Obtain Demand drafts application from duly filled in and signed by the form purchaser applicant 2. Receive the amount is case transfer with prescribed commission and postage amount 3. Issue the DD duly filled in and signed by the authorized signatories 4. insert test number (here applicable)
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5. Enter the DD issue register 6. Issue advice to the payee branch (IBCA) Issuing Voucher of DD: Cash /partys A/C AIBL G/A (concerned branch) Income A/C (Other commission on remittance) DD application forms treat as a credit voucher. DD issued branch has to prepare AIBL inter branch transaction credit advice ) and then after advice send to the responding blanch. Dr. Cr Cr

On Receipt of Advice: AIBL G/A S/Assets on Bills payable DD AIBL send by DD issuing branch is treated as debit voucher. Procedure of Payment: 1. Examine gentility of the DD amount verify signature test series on bye no etc. 2. Enter in the DD payable register 3. Verify with the IBCA/Test etc. 4. Pass necessary vouchers Payment vouching of DD Dr (DD issuing branch) Cr

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AIBL G/A A/C DD payable A/C DD payable A/C Parts A/C Charges of DD Commission Telex charge

Dr Cr Cr Cr

@ 0.15% Minimum TK. 25 AT actual Minimum TK 50

Pay Order: A Pay order is a written under issued by a branch of bank to pay a certain sum of money to a specific person or a bank. It may be said as to be a bankers Cheque as it is issued by a bank and payable by itself. Procedures for issuing: Obtain PO application from duly filed in and signed by the purchaser/ application. Receive the amount in cash/ transfer with commission amount Issue P/O Enter in P. O register

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Issuing Vouchers of P.O: Cash or party A/C P. O Income A/C debited in respective partys A/C Procedures for payment: a. Examine gentility of the pay order. b. Enter in P O register gives contra entry c. Debit found of far payment Charges of P O: Amount Charge: 1. Up to TK 1,00000 2. TK 1000000 to 5000000 3. Above TK 500000 Telegraphic Transfer : This is a mode of transfer remittance of customers money from a branch of one bank to another branch of the same bank or to a branch of another bank with prior arrangement between that banks with the TT issuing branch through telegraphic message The issuing used to send the message of such remittance to the Drawee/ payee branch through telegram adding certain code number or test number on the basis of test key apparatus developed by the concern bank for its different branches. The payee / Drawee branch on receipt of the message decodes the test a message and being fully satisfied pay the amount by crediting the payees account (if account is maintained with the payee TK 25 TK 60 TK 100 Dr Cr Cr

If the payment order issued against a Cheque of party A/C then Cheque will be

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branch). Now days the messages are passed through telephone /FAX/E-mail etc. Recently the communication system has developed to a great extent. Procedure of issuing: a. Obtain TT application form duly filled in and signed by the purchaser/ applicant with the false account particulars of the beneficiary. b. Receive the amount in cash /transfer with prescribed commission postage telephone / telex etc. charge c. Prepare TT message inserting test number d. Enter in TT issue register (code number). e. Issue advice to the payee branch (IBCA) Vouchers of Issuing TT : a. Note the TT message and verify the test number and vouchers of issuing TT: Partys A/C AIBL G/A (Concerned branch) Income A/c(Commission, Telex) Procedure for Paymen: Note the TT message and verty the test number and infirm if TT serial no/confirm is ok/etc. b. If ok enter into TT Payable register c.Pass necessary vouchers for payment. Dr Cr Cr

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Vouchers of TT Payable: AIBL G/A Partys A/C TT Payable A/C TT Payable A/C Charges of TT : Commission Telex charge Other Service Section: Lockers and dispatch:
A) Lockers : Lockers are a safe custody of a bank for the clients .

Dr Cr Dr Cr.

@G. 15 Minimum TK 25 At actual Minimum TK 50

There are three types of lockers in the bank. Lockers operation: Lockers always operated jointly One of them is banker and another is customer.
a) Rent: Lockers are allotted on yearly basis, for large size locker

the rent is TK.300 and for medium size the rent is TK.1200 and small size rent is TK.1000 only.

b) Requirement:

1. A locker holder must have a bank A/C i.e. MSD A/C. 2. A locker holder should him important and reliable customer. 3. Fill up an application form for a lockers as an SS card. 4. One copy of PP size photograph that is introduced by a previous locker holder or A/C holder.

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c) key Deposit: A locker holder paid key deposit, which is refundable now key deposit is amount of TK. 500 in our branch. B) Dispatch: Dispatch is very important for a bank. Out ward correspondence depends on outward on outward dispatch. There are two types of dispatch Inward Dispatch: All the letters received by the dispatch department and delivered manager of section wise authorized officer to opened and marked to the concerned department in charge. Outward Dispatch: Outward dispatch is very important for a bank. Before the letters delivered they are duly stamped and entries in the outward dispatch register.

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Chapter 4
Performance Evaluation of the AIBL:
Performance at a glance

Profit & Loss of AIBL Investment Growth of AIBL


International Trade of AIBL Dividend Payment Percent of AIBL

Deposit Mix 2007 of AIBL Deposit Growth of AIBL

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AIBL AT A GLANCE
Particulars Authorized Capital Paid up Capital Reserve Fund Share holder Equity Deposit Investment Import Export Total Income Total Expenditure Profit before Tax & Provision Profit after Tax & Provision Tax Total Assets Fixed Assets EPS Dividend 2004 1000.00 586.96 488.96 957.26 10108.28 8150.16 9337.49 3639.34 1120.85 771.96 348.89 154.76 157.00 12874.61 195.17 26.36 15.50% 2005 1000.00 677.94 542.22 1220.16 11643.66 11474.41 12631.60 4932.90 1452.68 904.48 548.20 262.90 215.10 15336.89 209.00 38.78 26% 2006 2500.00 854.94 835.98 1690.18 16775.33 17423.19 18821.40 9142.70 2172.48 1202.71 969.77 470.02 385.45 21368.16 215.10 55.02 35% 2007 2500.00 1153.18 1091.95 2037.50 23009.13 22906.37 27042.72 12714.91 2955.61 2199.43 756.18 347.31 235.53 30182.32 334.48 30.12 20%

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Comment: The Total Profit of the bank was TK.347.31 million at 31st December 2007 as
against TK.470.02 million at 31st December recording decline of 33.40% of which TK.122.71 million. The present is to increase the profit through having low cost of ensure a better spread with an average return on investment.

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Comment: International Trade is one of Major Activities conducted by the bank. At the end of 2007, the total amount of foreign trade (export, import, and Remittance) was 41601.58 million taka showing a growth of 41.93%. The total export revenue of the bank was 9142.70 million taka in 2006, which has increased by 39.07% to 12714.91 million taka in 2000.

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Comment: The investment of the bank stood at TK. 22906.37 million as on 31st December 2007 as against .TK. 17423.19 million in the previous year showing an increase by 31.47%. The investment portfolio of the bank is well diversified and covers a board spectrum of business and industries

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Comment: AL-Arafah Islami Bank was established as a public limited company on 18 June 1995. The inaugural ceremony took place on 27 September 1995. The authorized capital of the bank is TK.2500.00 million and paid up capital is TK.1153.18 million ason31.12.2007.Renowned Islamic Scholars and pious businessman of the country are the sponsors of the bank. 100% of paid up capital is being owned by local shareholders.

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Comment: The bank has been paying dividend every year since 1998 just after conversion of a public Limited company. The Board of Directors of the is pleased to recommend 20% stock dividend in the year 2007.

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Comment: The total deposit of the bank was TK. 23009.13 million at 31st December 2007 as against TK. 16775.33 million at 31st December 2006 recording growth of 37.16% of which TK. 685.50 million was bank deposit and general deposit was 22,323.63 million taka. The present strategy is to increase the deposit base through maintaining competitive profit rates and having low cost of funds to ensure a better spread with an average return on investment.

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Comment: The total deposit of the bank was TK. 23009.13 million at 31st December 2007 as against TK. 16775.33 million at 31st December 2006 recording growth of 37.16% of which TK. 685.50 million was bank deposit and general deposit was 22,323.63 million taka. The present strategy is to increase the deposit base through maintaining competitive profit rates and having low cost of funds to ensure a better spread with an average return on investment.

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Chapter -5

Money Laundering

Definition of Money Laundering Reasons of Money Laundering Affect of Money Laundering in Business / economic development Stages of Money Laundering Symptom of Money Laundering Penalties for Money Laundering

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Definition of Money Laundering:


A definition of what institutes the offence of money laundering under Bangladesh law is set out in Section-2 (Tha) of the prevention of Money Laundering Act 2002 (Act No. 7 of 2002) Which is reads as follows: Money Laundering means: (Au) Properties acquired or earned directly or indirectly through illegal means; (Au) Illegal transfer, conversion concealment of location or assistance in the above act of the properties acquired or earned directly or indirectly legal or illegal means; Properties has been defined in section 2(Da) of the Act as Properties means movable or immovable Properties of any nature and description. The U.S customs Service, an arm of the Department of the Treasury, provides a lengthy definition of money laundering as the process whereby proceeds, reasonably believed to have been derived from criminal activity, are transported, transferred, transformed, converted or intermingled with legitimate funds for the purpose of concealing or disguising the true nature, source disposition, movement or ownership of these proceeds. The goal of the money laundering process is to make funds derived from, or associated with, illicit activity appear legitimate. Another definition of Money laundering under U.S. law is, the involvement in any one transaction or series of transactions that assists a criminal in keeping, concealing or disposing of proceeds derived from illegal activities. The EU defines it as the conversion or transfer of property knowing that such property is derived from serious crime, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in committing such an offence or offences to evade the legal consequences of his action, and the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to or ownership of property, knowing that such property derived from serious crime.

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A concise working definition was adopted by Interpol General Secretariat Assembly in 1995, which defines money laundering as: Any Act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate source. The joint Money Laundering Sterling Group (JMLSG) of the U.K. defines it as the process whereby criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding prosecutions, conviction and confiscation of criminal funds. In lay terms Money Laundering is most often described as the turning of dirty or black money into clean or white money. If undertaken successfully, money laundering criminals to legitimate dirty money by mingling it with clean money, ultimately providing a legitimate cover for the source of their income. Generally, the act of conversion concealment is considered crucial to the laundering process.

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Reasons of Money Laundering:


Criminals engage in money laundering form three main reasons: First, Money represents the lifeblood of the organization that engages in criminal conduct for financial gain because it covers operating expenses, replenishes inventories purchases the services of corrupt officials to escape detections and further the interests of the illegal enterprise, and pays for an extravagant lifestyle. To spend money in these ways, criminals must make the money they derived illegally appear legitimate. Second, a trial of money from an offence to criminals can become in criminating evidence. Criminals must obscure or hide the source of their wealth or alternatively disguise the ownership or control to ensure that illicit proceeds are not used to prosecute them. Third, the proceeds from crime often become the target of investigations and seizure. To shied ill-gotten suspicion and protect them from seizure, criminals must conceal their existence or alternatively make them look legitimate.

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Impact of money Laundering:


Money Laundering has potentially devastating economic, security and social consequences. Money laundering is a process vital to making crime worthwhile. It provides the fuel for drug dealers, smugglers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. This drives up the cost of government due to the need for increased law enforcement and health care expenditures (for example, for treatment of drug addicts) to combat the serious consequences that result. Crime has become increasingly international in scope, and the financial aspects of crime have become more complex due to rapid advances in technology and the globalization of the financial service industry. Impact of Tax and Revenue: Money Laundering diminishes government tax revenue and therefore indirectly harms honest taxpayers. It also makes government tax collection more difficult. This loss of revenue generally means higher tax rates than would normally be case if the untaxed proceeds of crime were legitimate. We also pay more taxes for public works expenditures inflated by corruption. And those of us who pay taxes pay more because of those who evade taxes. Impact of Market price: Money Laundering distorts asset and commodity prices and leads to misallocation of resources. For financial institutions it can lead to an unstable liability base and to unsound asset structures thereby creating risks of monetary instability and even systemic. The loss of credibility and investor confidence that such crises can bring has the potential of destabilizing financial systems, particularly in smaller economics. Impact on Private sector: One of the most serious microeconomic effects of money laundering is felt in the private sector. Money Launderers often use front companies, which comingle the proceeds of illicit activity with legitimate funds, to hide the illgotten gains. These front companies have access to substantial illicit funds, allowing them to subsidize front company products and services at levels well below market rates. This makes it difficult, if impossible, for legitimate business to complete against front companies with subsidized funding, a situations that can result in the crowding out of private sector business by criminal organizations.

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Impact on Global Economy: No one knows exactly how much dirty money flows through the worlds financial system every year, but the amounts involved are undoubtedly huge. The international Money has estimated that the magnitude of money laundering is between 2 and 5 % of world gross domestic product, or a least USD 800 billion to USD1.5 trillion. In some countries, these illicit proceeds dwarf government budgets, resulting in a loss of control of economic policy by governments. Indeed, in some cases, the sheer magnitude of the accumulated asset base of laundered proceeds can be used to corner markets- or even small economies. Impact on national economy: Among its other negative socioeconomic effects, money laundering transfers economic power from the market, government, and citizens to criminals. Furthermore, the sheer magnitude of the economic power that accrues to criminals from money laundering has a corrupting effect on all elements of society. Impact on society; The social and political costs of laundered money are also serious as laundered money may be used to corrupt national institutions. Bribing of officials and governments undermines the moral fabric in society, and by weakening collective ethical standards, corrupts our democratic institutions. When money laundering goes unchecked, it encourages the underlying criminal activity from which such money is generated.

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Impact of financial Institutions: Nationals cannot afford to have their reputations and financial institutions tarnished by an association with money laundering especially in todays global economy. Money laundering erodes confidence in financial institutions and the underlying criminal activity-fraud, counterfeiting, narcotics trafficking and corruptionweaken the reputation and standing of any financial institution. Actions by banks to prevent money laundering are not only a regulatory requirement, but also an act of self interest. A bank tainted by money laundering accusations from regulators, law enforcement agencies, or the press risk likely prosecution, the loss of their good market reputation, and damaging the reputation of the country. It is very difficult and requires significant resources to rectify a problem that could be prevented with proper anti money laundering controls. It is generally recognized that effective efforts to combat money laundering cannot be carried out without the cooperation of financial institutions, their supervisory authorities and the law enforcement agencies. Accordingly, in order to address the concerns and obligations of these three parties, these guidance Notes were drawn up.

Affect Of Money Laundering in business/ economic development:


Damages market integrity Deters foreign investment Diminish Gov. Tax revenue. Contaminates the Industry. Uneven playing field for honest business. Risks for financial institutions. Distorts assets and commodity prices and leads to misallocation of resource. Makes crime a profitable enterprise.

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Stages of Money Laundering:


Three basic stages on money laundering are: Placement: The physical disposal of the initial proceeds derived from illegal activity. Layering: Separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity. Integration: The provision of apparent legitimacy to wealth derived criminally. If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing as normal business funds. Placement stage Cash paid into bank (sometimes with staff complicity or mixed with proceeds of legitimate business.) Cash exported. Cash used o buy high value goods, property or business assets. Cash purchase of single premium life insurance or other investment Layering stage Integration stage Sale or switch to other Redemption of contract forms of investment. or switch to other forms of investment. Money transferred to assets of legitimate False loan repayments financial institutions. or forged invoices used as cover for laundered Telegraphic transfers money. (often using fictitious names or funds Complex web of disguised as proceeds of transfers (both domestic legitimate business.) and international) makes tracing original Cash deposited in source of funds virtually outstation branches and impossible. even overseas banking system Resale of goods/ assets.

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Symptom of money laundering:


The following is a list of circumstances, which might give rise to a suspicion of money laundering. The list is not exhaustive and whether or not they are suspicious depends on the background and details. He example are as under: Money Laundering using Cash Transactions: a) Unusually large cash deposits made by an individual or business whose ostensible business activities would normally be generated by Cheque and other instruments. b) Substantial increases in cash deposits of any individual or business without apparent cause, especially if such deposits are subsequently transferred within a short period out of the account and/or to a destination not normally associated with the customer. c) Customers who deposit cash by means of numerous credit slips so that the total of each deposit is unremarkable, but the total of all the credits is significant. d) Company accounts where the transactions, both deposits and withdrawals, are denominated in cash rather than forms of debit and credit normally associated with commercial operations (e.g. Cheque, casher orders, demand drafts etc.) e) Customers who constantly paying or deposits cash to cover requests for demand draft, money transfer or others negotiable instruments. f) Customers who seek to exchange large quantities of law denomination notes for those of higher denomination. g) Frequent exchange of cash into other currencies. h) Customers whose deposits contain counterfeit notes, or forged instruments. i) Customers transferring large sum of money to or form overseas locations with instructions for payment in cash. j) Purchase or sale of foreign currencies in substantial amounts using cash settlement, deposit the customer having an account with the institution.

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Money Laundering Using Bank Accounts:


1. Customers who wish to maintain a number of trustee or customers accounts which do not appear consistent with the type of business, including transactions which involve nominees. 2. Customers who have numerous account and paying amount of cash to each of them where the total of credits is a large amount. 3. Any individual or business whose account shows virtually no normal personal banking or business related activities, but is used to receive or disburse large sums which have no obvious purpose or relationship to the account holder and/or his business (e.g. a substantial increase in turnover on an account.) 4. Reluctance to provide normal information when opening an account, providing minimal fictitious or conflicting information, or information which is difficult or expensive to verify. 5. Customers who appear to have accounts with several financial institutions within the same locality, especially when there is a regular consolidation process of funds from such other accounts prior to a request for onward transmission of the funds. 6. Matching of debits with credit paid in by cash on the same or previous day. 7. Paying in large third party Cheque endorsed in favor of the customer. 8. Large cash withdrawals from a previously dormant or inactive account, or from an account which has just a large credit from abroad. 9. Business representatives avoiding contract with the branch. 10.Customers who decline to provide information which normally would make them eligible for credit or other valuable banking services. 11.Insufficient use of normal banking facilities (e.g. avoidance of high interest rate facilities for large balance.) 12.Large numbers of individual making payments into the same accounts without an educate explanation. Money Laundering Using Investment Related transactions 1. Purchase of government securities, where this does not appear appropriate given the customers apparent standing. 2. Requests by Customers for investment management services (either foreign currency or government securities ) where the source of the funds is unclear or inconsistent with the customers apparent standing. 3. Large or unusual settlements of securities in cash form.

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4. Purchase or selling securities with no discernible purpose or in unusual circumstances. Money Laundering by Off-shore Activity 1. Customers introduced by an overseas branch, affiliate or other bank in known drug producing or drug trafficking countries. 2. Use of letters of credit and other methods of trade finance to move money between countries where such trade is not consistent with the customers usual business. 3. Customers who make regular and large payments, including wire transfer transactions, that cannot be clearly identified as bona fide transactions to, or receive regular and large payments from, known drug producing or drug trafficking, countries or countries which are commonly associated with terrorist activity or which are tax havens. 4. Building up of large balances not consistent with the known turnover of the customers business and subsequent transfer to accounts held overseas. 5. Unexplained electronic fund transfers by a customer on an in and out basis or without passing through an account. 6. Frequent requests for travelers, Cheque, Foreign currency, drafts or other negotiable instruments. 7. Frequent paying in of travelers Cheque or foreign currency drafts particularly if originating from overseas. 8. Numerous were transfers received in a account but where each transfer is below the transaction size reporting requirement in the remitting country.

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Money Laundering by Secured and Unsecured Lending


1. Customers who repay problem loans unexpectedly. 2. Requests to borrow against assets held by the financial institution or a third party, where the origin of the assets is not known or the assets are inconsistent with the customers standing. 3. Request to provide or arrange finance where the source of the customers financial contribution to a deal is unclear, particularly where property is involved.

Penalties for Money laundering:


All offences under the act are non-bail able and the penalties for the commission of the offences all have prison terms and/or fines as prescribed in the act as follows: The offence of money Laundering is punishable by terms of a minimum imprisonment for six months and a maximum of up to seven years plus a fine amounting to double the money laundered (See Section 13 of the Act). The punishment for violation of seizure Orders is a minimum imprisonment for one year or a fine of at least Taka ten thousand or both (See Section 14 of the Act). The punishment for violation of Freezing Orders is a minimum imprisonment for one year or a fine of at least Taka five thousand or both (See Section 15 of the Act). The offence of divulging information by informing i.e. tipping off the person who is the subject of a suspicion, or any third party is pounishable by a minimum imprisonment for one year or a fine of at least Taka ten thousand or both (See Section 14 of the Act). The offence of obstructing investigation or failure to assist any enquiry officer in connection with an investigation into money laundering is punishable by a minimum imprisonment for one year or a fine of at least Taka ten thousand or both (See Section 17 of the Act).

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If any bank, financial institution and other institutions engaged in financial activities fail to retain customer identification and transaction records or fail to furnish required information as per the Act, Bangladesh Bank will report such failure to the licensing authority can take proper action for such negligence and failure (See section 19 (3) of the Act). Bangladesh Bank is empowered to impose fines of not less than Taka ten thousand and not more than Taka one lac on any bank, financial institution and other institutions engaged in financial activities for the failure or negligence to retain customer identification and transaction records or fail to furnish required information to Bangladesh Bank (See section 19 (4) of the Act). If any Company Partnership Firm, Society or Association violates any provisions of the Act it will be deemed that every owner, partner directors, employees and officers have individually violated such provisions.

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Chapter 6

Finding Recommendation Suggestion for Money Laundering Conclusion

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Finding
During my internship period at Al- Arafah Islami Bank limited I have observed the system following by the bank. By observing the system I have identified some problem of Al- Arafah Islami Bank limited .The finding are as follows: Less attractive remuneration package and motivation for the employees. Very few initiatives have taken to it known among public through advertisement. Lengthy procedure in handling simple general banking transaction such as issuing of T.T, D.D,P.O, There is no online banking system in the Al- Arafah Islami Bank limited There are many illiterate clients in AIBL. Communication or dealing with customer is enough poor Has not enough strong marketing policy. Promotional activities are poor. Employees of AIBL are not getting enough training facility. There is no customer care section. There is no Islamic banking facility Customer are not enough satisfied by its service Information cell are not enough equipped (i.e. Booklet brochure of services ) Though AIBL using banking software but it is not integrated with all departments Insufficient presence of modern communication equipment Application of modern technology such as computerization is not sufficient. There is no investment section Shortage of officers

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Recommendation:
Recommendation for Al-Arafah Islami Bank limited. Though conducting this study I have acquired some practical knowledge about banking system and other relevant matters. Now I would like to provide some recommendation, which maybe helpful to promote the performance of Al-Arafah Islami Bank limited. As per earnest observation some suggestions for improvement of the situation are given below:
1. Need to offer more incentive to depositors Al-Arafah Islami Bank

limited. 2. Increase the branch to reach the depositors all over the country 3. Deeply more efficient marketing force. 4. Training facility should be in crease in order to increase the capability of the employee. 5. Need more attention to the customer 6. Information cell need to improve more by equipping related material 7. Atomization /computerization should introduce all over the system. 8. Interior decoration needs more improvisation 9. Established a smartness of the customer service department needs to improve. 10. Proper training system should e conducted at regular interval for the junior level officer. 11. Online banking is very much in todays modern world. I highly recommended launching of such service

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Suggestion for Money Laundering:


In order to prevent money maundering, attention should be given following things to be considered besides law enforcing: 1. Only banking system will not achieve expected success. Its necessary to build up economic infrastructures which are helpful for the development of the country. 2. Strong determination should be taken and fruitful measures should be taken to remove corruption from country. For this accountability and transference will ensure and as a result liability will be increase. 3. Everything required for the development of banking system should be done and qualified person should be given duties. In this regard honesty, competencies, sincerity and responsibility should be under consideration. 4. The bad effect of money Laundering should be published through newspaper, radio and other world service. Besides immigrants should be encouraged to send money through legal way. Foreign embassies can play a positive role in this case. 5. The distance of foreign exchange should be reduced. Many people dont want to send money through banking channel for high remittance charge fixed by foreign banks. 6. The advantage of online banking system should be extended and its fruitfulness should be sent to peoples. The distance of bank in town and villages should be lessened and the quality of the service should be developed. 7. In order to prevent money laundering mutual co-operation between governments of different countries can play a significant role. Moreover, International Monitory fund (IMF) can take appropriate measures in this case. 8. Foreign aid to the government sanction money, loan etc. should be used appropriately in appropriate fields. This should be a system for different non-government organizations, foreign agencies for their activities and liabilities.

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After all the aspects of money laundering is worldwide and with it powerful, shrewd and dishonest persons are involved in this Act. So these steps are not taken by only central bank and other commercial banks. Actually a combined efforts and sincerity of people in different occupations such as police income tax authority, customs, BDR and civil society is needed and moreover wit the help of responsible and powerful authority of the government and international agency and all the chief of the government can bring expected success.

Conclusion:
In Conclusion, I can say that this types of are very essential for a MBA student to take preparation to meet the global competition in the real life business. By this program I have learned about practical banking practice. I have also tried to learn about the theoretical emersion of money laundering.

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Bibliography

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Reference taken from:

Various report and statement supplied by AlARAFAH ISLAMI BANK LIMITTED Annual report of AIBL Various Booklet and brochure of AIBL and Islamic bank ltd Bank and company act 1991 by Md ommar chy and syeed javed Shaleuddin. Guidelines for foreign exchange transaction (vl 1&2) published by Bangladesh Bank. Bank and Finance by Nasiruddin ahmed Annual circular on Money laundering by BB Web site http: //www.AlArafah Bank .com

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