| > | | | | appealing to both money launderers and to |
| Normal 0 false false false | | | | customers who find AML obligations |
| MicrosoftInternetExplorer4 | | | | uncomfortable. |
| st1\:*{behavior:url(#ieooui) } /* Style Definitions * | | | | Financial institutions generally have decades of |
| table.MsoNormalTable {mso-style-name:"Table | | | | experience implementing AML programs and |
| Normal"; mso-tstyle-rowband-size:0; | | | | ensuring compliance. But many Middle Eastern |
| mso-tstyle-colband-size:0; mso-style-noshow:yes; | | | | financial institutions are adopting corporate cultures |
| mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in | | | | that weaken AML and anti-terrorist financing |
| 5.4pt; mso-para-margin:0in; | | | | efforts, or continue doing business in ways that |
| mso-para-margin-bottom:.0001pt; | | | | can undermine global AML compliance efforts. |
| mso-pagination:widow-orphan; font-size:10.0pt; | | | | One of the biggest problems for AML initiatives in |
| font-family:"Times New Roman"; | | | | the Middle East is cultural customs that accept |
| mso-ansi-language:#0400; | | | | deference to customers and anonymity. Accounts |
| mso-fareast-language:#0400; | | | | lacking full identification details or with misleading |
| mso-bidi-language:#0400;} | | | | information are not unusual in the region. |
| Normal 0 false false false | | | | Verification of customer information is often |
| MicrosoftInternetExplorer4 | | | | difficult, if not impossible. |
| st1\:*{behavior:url(#ieooui) } /* Style Definitions * | | | | Know your customer is an element lacking |
| table.MsoNormalTable {mso-style-name:"Table | | | | at many Middle Eastern financial institutions which |
| Normal"; mso-tstyle-rowband-size:0; | | | | follow local traditions of accommodating |
| mso-tstyle-colband-size:0; mso-style-noshow:yes; | | | | customers’ requests. Gathering customer |
| mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in | | | | information is generally a sensitive issue, as |
| 5.4pt; mso-para-margin:0in; | | | | customers may view banks’ requests for |
| mso-para-margin-bottom:.0001pt; | | | | additional information as intrusive or offensive. For |
| mso-pagination:widow-orphan; font-size:10.0pt; | | | | example, it can be difficult for a bank to refuse to |
| font-family:"Times New Roman"; | | | | enter into or to exit a relationship with a politically |
| mso-ansi-language:#0400; | | | | connected person. Doing so could mean trouble |
| mso-fareast-language:#0400; | | | | for the staffer involved. |
| mso-bidi-language:#0400;} Cleaning Dirty | | | | Lack of adequate information has a significant |
| Money | | | | impact on other aspects of AML programs, such |
| Money laundering is a process that takes illicit or | | | | as transaction monitoring and the bank’s |
| dirty money generated from illegal activities | | | | ability to apply a risk-based approach to its |
| and puts it through a cycle of transactions so that | | | | clientele base. Bank officials frequently claim that |
| it comes out at the end as apparently legal or | | | | they do not want to offend customers and lose |
| clean. In general, the money is generated | | | | business to a less law-abiding competitor. |
| from a range of criminal activities, such as drug | | | | One region-specific challenge is that it can be very |
| trafficking, murder for hire, theft, robbery, | | | | difficult to perform a check against a sanctions |
| embezzlement and fraud. The process conceals | | | | lists based on a customer's name due to the |
| the true source, ownership or use of funds. | | | | multiple available spellings of names used in the |
| The term money laundering derives from | | | | region. |
| the fact that gangsters in the 1920s commingled | | | | Financial institutions often have a formal program |
| the proceeds of their illegal operations with the | | | | in place to test the effectiveness of their AML |
| basically untraceable proceeds from coin laundries | | | | systems and controls. However, the quality of |
| operated by the ring, thus making the funds | | | | some of this testing can be questionable. Internal |
| appear as if they been derived legitimately. | | | | auditors commonly carry out this independent |
| Although the term may have started in the 20th | | | | testing, but a major concern is whether internal |
| century, the practice of disguising unlawful | | | | auditors have sufficient experience and knowledge |
| proceeds traces its roots back to the dawn of | | | | to perform this testing efficiently. Moreover, |
| banking itself. For example, when the Roman | | | | reviews often take place infrequently and some |
| Catholic Church in medieval times banned lending | | | | time after the event. |
| money at interest, financiers developed methods | | | | Challenges at the National LevelThe governments |
| to get around this restriction. | | | | in the Middle East are taking steps towards |
| Criminal organizations have three objectives for | | | | enforcing AML/counter-terrorism financing laws, |
| laundering the proceeds of their illegal activity. | | | | regulations and guidelines. However, there are |
| These are: | | | | several deficiencies in the legal and financial |
| - To pay expenses related to their illegal activity. | | | | systems which need to be addressed: |
| - To invest their proceeds in the criminal cycle and | | | | - Although money laundering is a criminal offense, |
| boost illegal activity. | | | | terrorist financing is not specifically prohibited in |
| - Eventually, to enjoy the profits of their criminal | | | | some countries. |
| activity. | | | | - There is often an overreliance on suspicious |
| Today, money laundering represents an estimated | | | | transaction reporting to generate money |
| 2 percent to 5 percent of the world’s | | | | laundering investigations |
| gross domestic product. Estimates of money | | | | - A large informal cash economy exists, and |
| laundering worldwide range from $800 billion to | | | | many financial transactions do not enter the |
| $1.6 trillion; 47 percent of the launderers use | | | | banking system. |
| banks to clean dirty money. While some | | | | - Cash reporting requirements are not consistently |
| observers have challenged the accuracy of these | | | | enforced and some countries do not have |
| numbers, this problem is one of huge proportions | | | | currency reporting requirements for individuals |
| even after several years of strong lobbying by | | | | leaving the country. |
| the inter-governmental Financial Action Task Force | | | | - Financial intelligence units have been created in |
| (FATF) to assure that banks and non-bank | | | | accordance with international standards, but some |
| financial institutions adopt the FATF's Forty | | | | of them lack adequate organization, expertise and |
| Recommendations on combating money | | | | independence. |
| laundering. | | | | - There are deficiencies in monitoring the |
| Three Stages of Money Laundering | | | | operations of local charities abroad. |
| The money-laundering process comprises three | | | | - The presence of underground banking (Hawala) |
| main stages: | | | | presents a potential means for laundering funds |
| 1. Placement is the physical disposal of bulk cash | | | | - It is difficult to find a balance between the |
| proceeds derived from illegal activity. | | | | privacy of individuals’ rights versus the |
| 2. Layering is separating the illicit proceeds from | | | | need to protect society against criminals and |
| their source by creating complex layers of | | | | terrorists. |
| financial transactions. Layering confuses the audit | | | | Recommendations for Improvement: |
| trail and provides anonymity. | | | | - Implement a nationwide awareness campaign |
| 3. Integration is re-injecting of the laundered | | | | about the risk of money laundering and terrorism |
| money back into the legal economy in such a | | | | financing. Such campaigns must be able to send a |
| way that funds re-enter the financial system as | | | | strong, convincing message to the public at large |
| legitimate business proceeds. | | | | that financial institutions are implementing "know |
| Is Terrorist Financing Similar to Money Laundering? | | | | your customer programs with the objective |
| Terrorism financing is the process of reverse | | | | of safeguarding the country and soundness of the |
| laundering, but tends to use smaller amounts than | | | | financial system from terrorists or criminals. |
| is the case with money laundering. This process | | | | - Improve the efficiency and independence of |
| uses funds raised from legitimate sources such as | | | | financial intelligence units and encourage them to |
| personal donations and profits from businesses | | | | provide feedback on suspicious transaction |
| and charitable organizations, as well as from | | | | reports to reporting institutions as well as sharing |
| criminal sources. Terrorists use the same money | | | | information with foreign financial intelligence units. |
| laundering techniques to evade authorities' | | | | - Improve enforcement of cross-border currency |
| attention and protect the identity of their | | | | controls, specifically allowing for seizure of |
| sponsors and the ultimate beneficiaries of the | | | | suspicious cross-border currency transfers. |
| funds. | | | | - Empower law enforcement and customs |
| Challenges in the Middle East | | | | authorities to examine and investigate trade-based |
| Fighting money laundering is not easy for any | | | | money laundering, informal value transfer |
| financial institution. In the Middle East, cultural | | | | systems and customs fraud. They should take |
| customs, terrorism and smuggling make the | | | | the initiative and proactively generate leads and |
| detection of doubtful cash transfers particularly | | | | investigations and be able to follow the financial |
| challenging. That is why banks and other financial | | | | trails wherever they lead. |
| institutions must be more alert in monitoring | | | | - Update AML laws against terrorism specifically to |
| customer activities and knowing their customers. | | | | address the threat of terrorism financing, including |
| In order to implement a robust | | | | asset identification, seizure and forfeiture. |
| anti-money-laundering (AML) program in a financial | | | | - Encourage countries to ratify the UN Convention |
| institution, senior management must support it | | | | against Transnational Organized Crime; UN |
| and empower employees to ask uncomfortable | | | | International Convention for the Suppression of |
| questions; set up proper controls and strictly | | | | the Financing of Terrorism; and UN Convention |
| enforce them in order to detect suspicious | | | | against Corruption. |
| transactions or activities; and make timely reports | | | | - Strengthen charity oversight, especially in |
| to financial intelligence units about suspicious | | | | overseas operations. |
| activities. | | | | - Implement and enforce a uniform cash |
| In some Middle Eastern countries, these obligations | | | | declaration policy for inbound and outbound |
| are often perceived as conflicting with customer | | | | travelers. |
| relationships and cultural customs. For example, a | | | | More needs to be done to combat both money |
| bank employee who fails to discharge AML | | | | laundering and terrorism financing. While |
| compliance responsibilities whether wittingly or | | | | governments and financial institutions in the region |
| to avoid asking a customer uncomfortable | | | | have taken effective and advanced steps, the |
| questions can negatively impact efforts at | | | | political and cultural environment in the region will |
| other institutions by not demonstrating a unified | | | | continue to present challenges. |
| front and by making that institution more | | | | |