CALM-Module-1.

Slide 1 – What is Money Laundering:

Welcome to the course on anti money laundering and combating terrorism financing. Money
laundering and terrorist financing ranks amongst the top concerns of governments, regulators and
enforcement agencies worldwide. It is for this reason that there is a lot of focus in various
organizations, especially financial services institutions and certain professions and nonfinancial
business entities. This is the introduction to the course and sets your basic understanding. You will
be able to understand what money laundering is along with its nuances through definitions by
various global agencies and also as per Indian laws. We will discuss the history of money
laundering. Is money laundering a domestic issue or does it concern the world at large? These days
we use terrorist financing in the same breath as money laundering. 1s What is the relationship
between the two? We will understand the enormity of the problem so that we truly appreciate why
this is such a big concern for all to focus. 4s

This is the precourse knowledge check. Choose the option that you think is correct. 2s

Slide 5 – What is Money Laundering:

Every day we hear and see about money laundering. We also hear about other terms used
synonymously like black money, havala, second account, parallel economy, etc. Other than many of
the other vernacular equivalents, usually the money involved is crores of rupees or millions of
dollars. These are not just in India, but world over assets of India individuals and corporates frozen
promoters and directors of corporates implicated and even imprisoned. We also hear about very
senior politicians and bureaucrats being called out and even imprisoned. Think through some of the
high profile cases that you may have read about in the past. 4s

Slide 6 – Definitions of Money Laundering:

What is money laundering? This definition is imperative for us to understand and perceives its
importance these days as to why the regulators and enforcement agencies focus on this lot more than
ever before. It will enable us to look around and see what acts could constitute money laundering
and even why people do what they do. To understand this, we will look at the way money laundering
is defined by some of the organizations involved in this area. Financial Action Task Force, popularly
known as FATF, is an intergovernmental agency that serves as a watchdog against money
laundering and terrorism financing. FATF defines money laundering as the process of criminal
proceeds to disguise their illegal origin. This is a very simple definition yet brings out the very
purpose why it is affected. Disguising the illegal origin means that the launderer seeks to legitimize
the funds illegally generated. 1s International Monetary Fund, more popularly known as IMF, goes
to define money laundering as the processing of assets generated by criminal activity to obscure the
link between the funds and their illegal origins. The focus here is again the disguising the funds as a
source of criminal activity. Ofac. The Office of Foreign Assets, its control of the US. Department of
the treasury, defines money laundering as those financial transactions in which criminals, including
terrorist organizations, attempt to disguise the proceeds, sources, or nature of their illicit activities.
This definition brings terrorism financing into the family of money laundering. The process not only
seeks to disguise the illegal proceeds, but also the sources and nature of the illegal activities. Also,
you can see the additional focus on terrorism financing too, showing that both money laundering and
terrorism financing having lots of similarity. Association of Certified Antimoney Laundering
Specialists, one of the leading training and certification agencies in antimoney laundering, defines
money laundering as the process of concealing or disguising the existence, source, movement,
destination or illegal application of illicitly derived property or funds to make them appear
legitimate. Here you can note that the process is not just disguising the source of funds or the
underlying criminal activity, but the entire process. From these definitions of money laundering, we
understand that it relates to the process of disguising or legitimizing the ill gotten wealth from
criminal activity and distancing the act of crime to the originator. You will, as you go through the
various lessons, appreciate that the process is not as easy as the definition. 1s The classic catchup
going on between the launderer and the regulators and enforcement agencies amplifies the need
specialized understanding by all those who may be able to help prevent or highlight such instances
for necessary action by the enforcement agencies. 3s

Slide 7 - Definition - Palermo Convention:

Money laundering was for long associated with as a process attributed to drug drug loads to disguise
and legitimize the earnings from drug trafficking. It was seen more as a localized and domestic issue
that was addressed by various jurisdictions independently towards the later part of 1980s. The larger
and global ramifications of this process came to the fore, leading to the formation of FATF in the
year 1989. The United Nations Convention against Transnational Organized Crime in the year 2000
gave a more detailed account of money laundering by attempting to make it comprehensive. The
definition talks not only of the attempt to convert or transfer the property to disguise the proceeds of
crime, but also implicated those who were complicit in this effort. It also included the knowledge of
dealing with any activity relating to proceeds of crime nature, source, location, disposition,
movement or ownership of all rights with respect to property. Knowing that such property is the
proceeds of crime. The net was cast wider when the act of money laundering included any activity of
acquisition, possession or use of such property, knowing at the time of receipt that such a property is
the proceeds of crime. By this definition, offenders not only included the launderer, but also anyone
remotely associated with the process, even merely having the knowledge about the criminal
antecedents of the transactions. 5s

Slide 8 - Definition - PMLA, 2002:

While we went through the views of global organizations, it is important to know about how our
Indian laws view money laundering. The Prevention of Money Laundering Act was passed in the
year 2002 and it approached the definition differently. The perspective was from the person
committing the offense and what acts done by him. All here could be held guilty of money
laundering. Let us read the definition whosoever directly or indirectly attempts to indulge or
knowingly assists or knowingly is a party or is actually involved in any process or activity connected
with the proceeds of crime, including its concealment, possession, acquisition or use and projecting
or claiming it as untainted property, shall be guilty of offense of money laundering. The definition is
so detailed as to covers anyone or any act even remotely associated with the proceeds of crime look
at the actions directly or indirectly attempts to indulge, meaning that the act need not be successful,
knowingly, assists, knowingly is a party or actually involved. From the individual offender
perspective, any act remotely associated with the process of money laundering will be considered as
offense of money laundering. Similarly, any act concealment possession, acquisition usage and
projecting or even claiming it as untainted property is an offense of money laundering. Here again,
every conceivable act connected with money laundering could attract the provisions of PMLA. We
can see from the various discussions the definition as per Prevention of Money Laundering Act 2002
of India is very comprehensive and ensures anyone or any act associated with the process of money
laundering guilty. Even mere knowledge of the act is good enough to attract the provisions of
PMLA. It is in this background that everyone working, at least at the regulated intermediaries, must
be aware of what money laundering is all about so that they can act appropriately and help keep
themselves and their organization from any potential legal issues. 4s

Slide 9 - History of Money Laundering:

Now that we have understood what money laundering is let us look back and see. What is the history
of money laundering? From the read of the definitions, it seems fairly recent however cliche it may
sound may be as old as money itself at least quite the way we see the current typologies. The
Chinese merchants reportedly concealed their wealth from the rulers. Suing Confiscation in his book
Lords of the Rim stunning Seagrave goes on to explain how the Chinese merchants moved their
funds away and invested outside their territories back home in India. Kotila, the renowned scholar
and minister of King Chandragupta during the second century B. C has elaborated on various types
of financial crimes and punishment to be handed down ranging from censure and reprimand to
capital punishment. In a very interesting read of the translation of Altashastra by Al Shamsasastri
brings out the deep insights of what we call predicate offense. With all its nuances the way we know
it today there have been instances where excessive taxation have led to evasion on the one side and
even revolt on the other. In the ancient days coming to the recent days the word laundering is
attributed to the drug traffickers using laundromats as front business to launder the proceeds from
drug peddling with the legitimate business earned from the cash intensive laundromats. 1s The word
money laundering looks so apt the extent of inflows became too unwieldy for it to be reasonably
generated from laundering the clothes al Capone, the drug lord was sentenced to less intensive tax
evasion and not the rigorous crime of drug peddling it is attributed to. His accountant Maya Lansky
devised ways to conceal the money and stumbled on the numbered accounts of Swiss banks,
amongst other typologies. The Watergate scandal that brought down the Richard Nixon government
in 1973 saw the word laundering in newsprint and media for the first time avoiding disclosure of
political contributions ahead of his elections. This was a shift from the traditional understanding that
money laundering had to do with concealment of funds from drug trafficking which took until late
1980s to be seen as an international crime threatening the world at large as a much larger economic
crime. While money laundering was seen as an economic offense until the turn of the millennium it
took the infamous 911 attack which brought out the use of money laundering techniques to finance
terrorism. This largely is the brief history of money laundering and terrorism financing the way we
know it today. 4s

Slide 10 - Terrorism Financing:

In the previous slide, we touched upon how the 911 attack that shook the world brought about the
terrorist financing angle to money laundering. Terrorist financing is the financing of terrorist acts
and of terrorists and terrorist organizations. Similar approach and methodology used in money
laundering are used by the terrorist organization to fund their criminal activities. While the
approaches for money laundering and terrorist financing are similar, their objectives are in sharp
conflict. Money laundering aims to cleanse the illicit origin of a given amount of money which we
have gone through in detail. The purpose of any AML law is to prevent criminals from enjoying the
benefits of predicate crimes. However, terrorist financing instead works the other way around. It
aims to dirty the clean money. Simply stated, it is the rivers of money laundering to channelize even
the clean money from legitimate sources into terrorist activities by concealing the purpose. Money
laundering is a criminal activity that benefits the launderer who is the originator of the process of
concealing ill gotten wealth. 1s But terrorist financing may include legitimate funds to be
camouflaged for illegal activities, and the beneficiary is not the originator. Later in this course, we
have a dedicated session on terrorist financing to get into the details. The main purpose of money
launderers is to conceal the origin of the proceeds of crime, while terrorists generally seek to hide
the funded activity. 7s

Slide 11 – How BIG is the Problem:

How big is the problem of money laundering that the governments and regulators world over are
trying hard to address? This man? Is it possible to quantify the amount involved to appreciate the
seriousness of the issue that we are trying to address? United Nations Office on Drugs and Crime, in
a study conducted in 2009, estimated the amounts involved in money laundering and terrorist
financing to be at 2.7% of the GDP, or $1.7 trillion on a global GDP of $63 trillion. 1s Assuming the
same rate of 2.7% on a GDP of $85 trillion, the amount of money laundered could be in the vicinity
of $2.3 trillion. An earlier study conducted by International Monetary Fund pegged it at a range of
2% to 5% of GDP. Global GDP is at $85 trillion, translates the amount involved to a staggering over
$2 trillion at the minimum. Comparing the numbers with GDP of various economies at 5%, money
laundering would be the fifth largest economy, just behind United States, China, Japan and Germany
and ahead of India. Taking a conservative 3% of the GDP, it would rank 10th largest economy. One
will be quite disheartened to know that all the economies of the bottom 150 countries put together
will be less than amounts involved in money laundering each year. 6s

Slide 12 – How BIG is the Problem:

Visualization makes us appreciate facts better. Here is another attempt to visualize the magnitude of
money laundering taking a much lower amount at 2 trillion U. S. Dollars and converting them into
$1 bills would weigh over 2.2 million tons. It would take over 88,018 wheel trailer he carrying 25
tons to move these. If we were to stack up to trillion $1 bills would measure over 135,000 miles in
height this would reach more than half the way from the earth to the moon. If one were to form a
money line by placing the $1 bills in a straight line it would cover twice the distance from earth to
the sun. If one were to place them side by side what is called a money carpet and shown alongside it
would be over 20,000 km² over half the size of state of Kela in India or the total area of Israel. The
purpose of this visualization is for us to gaze the impact of money laundering to the economies and
to the organized that we all are a part of. It helps underscore the importance and the need to fight.
This man is called money laundering and terrorist financing. 8s

We have come to the end of lesson on what is money Laundering? You will now be familiar with
what money laundering is and the various perspectives as defined by international agencies.
Terrorist financing is not the same as money laundering, though the same typologies are used by
criminals to launder ill gotten money. The history of money laundering shows us that the manus has
been practiced for ages and is not a recent origin. Hope you are now able to appreciate the
magnitude of the problem of money laundering. Before you proceed to the next session, please
attempt the knowledge check to validate your level of understanding of the concepts you may wish
to review yet another time if you need further clarifications on any of the topics. 27s
This brings us to the end of yet another session in our learning of antimoney laundering and
combating of terrorist financing as part of the Certified Antimoney Laundering Manager offered by
National Institute of securities Markets. The purpose of this comprehensive course is to provide an
overall understanding of this important and evolving area of risk, which is a major focus area of
regulators and enforcement agencies world over. Go over the concepts yet again if you need to
refresh with each session. Your understanding of the subject will get better and be well equipped to
handle the money laundering threats in your organization.