(AML)/Combating Financing

of Terrorism (CFT)
Measures: Critical Role of
Banks
Dilli Ram Neupane
Attorney-at-law
Certified Anti Money Laundering Specialist (CAMS)
Assistant Director
Nepal Rastra Bank

Overview
Background Considerations
Going after criminal vs. Going after criminal

money
Global Money Laundering Scenario
What is Money Laundering
What is Financing of Terrorism?
Nepalese AML/CFT Regime
AML/CFT Obligation of Nepalese Banks

Background
Considerations
Why does one commit crime?
corruption, smuggling, bribery, tax evasion,

robbery, theft, drug trafficking, human

trafficking, arms trade, insider trading,
securities fraud, banking fraud and offences,
etc ?

What is the relation between crime and

money?
Is crime possible without money?
Does crime pay?

Background
Considerations
What happens if general populace believes

that crime pays?

What is financial integrity?
How can financial integrity be achieved ?

What is Financial Transparency ?

Is it possible for government to know the
financial and economic transaction of every
citizen?

Going after criminal vs.

Going
after
Criminal
Money
Going after criminal was the traditional
approach of crime control.
New approach of crime control includes going
after criminal as well as going after criminal
money.
Going after criminal demands government to
act more.
Going after money also demands private
sector to act.

Global Money Laundering

Scenario
Criminal money amounts to 3.6% of global GDP
and 2.7 % (or USD 1.6 trillion) gets laundered
through financial system (UNODC Report, October,
2011)
Estimates of illicit money for developing countries
is twice the global estimates. This estimates
excludes tax evasion.
Tax evasion is found to have occupied almost 50%
of the illicit money around the world.
If proceeds of tax evasion is to be included, the
estimates will be double.

Vulnerabilities of BFIs
Given the magnitude of illicit

financial flows, BFIs are vulnerable to

ML/TF. It is because the money comes
to BFIs.
BFIs are highly likely to be vehicle for
and victim of ML/TF and other
underlying offences.

ML/TF Risk To Banks

a. Legal Risks
b. Compliance/Regulatory Risks
c. Reputation Risks
d. Concentration Risks

What is Money
Laundering
Money laundering is the

process by which
illegally obtained funds are given the
appearance of having been legitimately
obtained.

What is Money
Laundering?
It is a process to clean 'dirty' money in
order to disguise its criminal origin.
Acquiring, using, possessing of illegal
money
Concealing or disguising the illicit origin of
property, or assisting any person involved
in the offence for evading legal
consequences of offender.

Source of Dirty Money

Illegal drugs trade
Illegal arms trade
Sex trade
Human trafficking
Corruption
Fraud
Forgery
Theft

Extortion
Smuggling
Revenue related
crimes
Organized crimes
Other criminal
activities

Stages of Money
Laundering

Placement
The initial entry of dirty money into the

financial system.
The goal is to place the funds into the financial
system unnoticed or to physically transport the cash
outside of the country.
Methods
Structuring and Smurfing (breaking high value
transactions into many small value transactions that
may involve numerous accounts of the same person
or various persons.)
Cuckoo smurfing
Taking loans and making accelerated loan repayment.
Purchase of valuable assets or commodities

Layering
A series of financial transactions that

resemble legitimate financial transactions.

Designed to make tracing the funds as
difficult as possible

Layering
creating multiple layers of transactions to

distance the illegal funds from their illegal

sources.
Purpose of layering is to obscure or to make it
difficult to trace the origin of the funds.
Examples
Multiple transfers of money.
Repeat invoicing for the same transaction.
Re-sale of assets originally purchased in cash
(illicit funds) for cheque or electronic bank
transfer.

Integration
Funds return assimilated into the economy to

create appearance of legality

Distinguishing between licit and illicit funds is
extremely difficult at this stage

Consequences of ML
Undermines financial systems
Expands crime
Criminalizes society
Reduces revenue and control
Reduces transparency
Brings instability and unpredictability
Detracts investments (foreign/domestic)
Destabilizes the exchange rate
Increases abuse of forex

Terrorism Financing
Providing or collecting funds with the

intention that they should be used or in the

knowledge that they are to or intended to
be used, in whole or in part, in order to
carry out a terrorist act, or by a terrorist or
a terrorist organization

Nepalese AML/CFT
Regime
Asset (Money) Laundering Prevention Act,
2008 and Rules thereof, 2009
FIU Directives (Industry specific)
Directive No. 19 of the Unified Directives of
NRB.

Nepalese AML/CFT
Regime
Institutional Framework
a)Reporting Institutions (including Banks)
b)Financial Intelligence Unit (FIU) (housed within

Central Bank)
c)Technical Committee
d)Department of Money Laundering
Investigation
e)Coordination Committee

FIU
A central, national agency responsible for

receiving (and, as permitted, requesting),

analyzing and disseminating to the competent
authorities, disclosure of financial information
concerning suspected proceeds of crime, or
required by national legislation or regulation,
in order to counter money laundering.
Egmont Group Definition (1996)

Core Functions of FIU

1. Receiving Transaction Reports (STRs and

other information)
2. Analyzing Reports (Adds value to the
reported transaction , Changes information
into intelligence)
3. Disseminating Reports to law enforcement
agencies.

Who must Report to FIU

a. Financial Institutions

Banks
Insurance Companies
Securities Companies

b. Designated Nonfinancial Business and

Professions (DNFBPs)

Casinos
Real Estate Agent

Who must report

Dealers

in precious stones and

metals
Lawyers
Notaries
Accountants
Trust and Company Service
providers
Others

What is to be reported
Suspicious Transaction Reports (STRs)
Terrorism Financing related Transaction

Reports.
Transaction above a Specified Limit
Cross Border Transportation of Currency and
Bearer Negotiable Instruments (BNI)

FIU Information Flow

Critical Role of Banks for

prevention of ML/TF and
Customer Due Diligence
other
Crimes
Simplified CDD

Enhanced

CDD

Reporting:
Threshold Transactions
Suspicious Transactions

Critical Role of Banks for

prevention of ML/TF and
Risk Assessment
other
Crimes
Risk of customer
Risk of Product
Criteria for risk assessment

Compliance Management
Compliance officer
Internal compliance management

Critical Role of Banks for

prevention of ML/TF and
Measures on Politically Exposed Persons (PEPs)
other
Crimes
Domestic PEPS
International PEPS
Foreign PEPS

Measures on Cross Border Correspondent

Banking
Special Monitoring Issues:
Transaction from countries with low AML/CFT

compliance
Large, complex and unusual transactions

Critical Role of Banks for

prevention of ML/TF and
Measures on Wire Transfer
other Crimes
Measures on Non-face to face transaction and

new technology
Compliance Management and Internal control
Training

Independent Audit
Awareness and Training
When to train
How to train
Who to train
What to train on

Record Keeping
Length of record

Thank
You