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By ALLAN KOAY

WE HEAR of money-laundering cases almost every day, but what does the term “money-laundering” really mean?

According to www.countermoneylaundering.com , “money-laundering is the process by which criminals create the illusion that the money they are spending is actually theirs to spend.”

The term “money laundering” is believed to have arisen out of the creative enterprise of American gangsters who had to hide the money they had made from prohibited activities such as the import and sale of alcohol and gambling. They formed legitimate businesses, one of which was laundry services, through which to funnel the dirty money. Hence, “money-laundering”.

[Yet[ the principles of money-laundering, according to the website, have been around for thousands of years. Chinese merchants in the past hid their wealth which would otherwise be taken away by their rulers. Today, money-launderers move money made from criminal activities so that the law doesn’t confiscate it.

In the current global climate under the threat of terrorism, the tracing of dirty money has acquired more importance.

Hong Kong recently enacted an anti-terrorism law that requires banks and financial institutions to report suspicious transactions in order to stop the funding of terrorist activities.

In Malaysia, new legislation such as the Anti-Money Laundering Act was [brought into force] on Jan 15 last year, which, according to Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz, is to “contribute to the development of our financial infrastructure and ensure its continued stability.” With this, police recently announced an Anti-Money Laundering Department will be set up to deal with cases under the Act.

The Anti Money Laundering Network Ltd (www.antimoneylaundering.net ), which offers services and information to counter-money laundering professionals, recently set up its Malaysian subsidiary, AML Net, which produces a range of compliance and research products for the financial services community here.

When asked what exactly counter-money laundering measures are, Nigel Morris-Cotterill, chairman of the Anti Money Laundering Network group, who is based in Kuala Lumpur to head AML Net’s product development, pointed out that knowledgeable and alert staff is what would most assist a bank in reducing the incidence of money-laundering. He said that technology hasn’t reached the point where it can solve the problem.

“Simple transaction-monitoring that operates on a series of rules can provide a guide to what transactions should be more closely looked at,” said Morris-Cotterill. But he said transaction-monitoring has its own set of problems, such as the difficulty of setting and formulating the rules.

“You cannot say, quite simply, this transaction exceeds this amount of money, therefore I must report it,” said Morris-Cotterill. “It should be, ‘Is this transaction suspicious for this particular customer, at this particular time, in using this particular branch, in using this particular method of payment?’

“Already you can see there is a series of things overlaid, one on the other.

“If you’re going to identify a transaction with reference to a particular customer, that means you’ve got to be able to learn about that customer, constantly modulate the rules that apply to that customer. Otherwise, you just get generics.”

He added that at Anti Money Laundering Network, they decided look at the person instead of the money. “We were looking at this because after Sept 11, a lot of people in the United States were being denied access to banking services.”

He said in Britain, a bank asked a monitoring company to run transactions against a set list of criteria, but only people within a particular postcode. When the company looked where the postcode was, it was a very densely Muslim-populated area. The company refused to do it because it was racially-motivated.

“So can we look at this without finding out where people live?” he said. “Can we not look at their nationality, religion or race? So we didn’t want to look at their names. We look at the psychology of the person at the time they’re opening the account, or at the time when they want to change the way they deal with the bank. The bank is able to ask a series of questions which indicates how the person relates to the bank.”

Morris-Cotterill went on to answer other questions about money laundering.

What exactly constitutes money-laundering? I know that basically it’s making dirty money look legal.

That’s a very important point that many so-called experts do not get. An awful lot of people who claim to be experts actually don’t understand that very important distinction. They say it’s “cleaning dirty money”; it's not. Dirty money never gets cleaned; it might only look clean.

One of the problems that people come across is that if they receive dirty money in the ordinary course of their businesses, and they know or suspect it’s dirty money, not only will that money get them into trouble, it taints all the other money that they have. It taints any asset they purchase with money that is already tainted. So its tentacles reach out. You can put a small drop of dirty money into somebody’s bank account and it will contaminate the whole bank account and everything they buy thereafter.

From the layman’s point of view, the biggest problem for them is that if they receive dirty money, and it can be proved that they knew or should have known they received dirty money, then anything they bought and anything they give away could be tainted and could be reclaimed, the state could take possession of it.

Is the burden of proof on the person with the money?

This depends on which jurisdiction you’re talking about. Also on the particular type of action being brought. In most countries, the action, if you say someone is laundering money, is the normal criminal burden of proof.

The burden shifts in some cases where the money is proved to be in their hands, and they might then have to prove where it came from. But that is normally in connection with trying to confiscate that money. It’s not normally in connection with trying to prove they are money-launderers.

When it’s to do with confiscation, we will expect to see that there is a civil burden of proof . The burden of proof in a criminal case is very different, to prove someone guilty of a criminal offence. The burden of proof in a civil case is a balance of probabilities: who is more likely to be right.

In Malaysia, there’s a very unusual provision, which is that even if someone is acquitted, the prosecution can still say to the court, “But we think that the money is still the proceeds of a crime, even though we didn’t prove that they knowingly had possession of the money.”

In the case of fraudulent claims, insurance and others, is that money-laundering as well?

When you receive the proceeds of your own fraud, you’re a fraudster. When you dissipate those in some way to try to hide them, then you’re a money-launderer.

So if I were to hit you now and steal your wallet, I’m a thief. If I find RM50,000 in your wallet, what am I going to do?

If someone finds that I have the money, they might get suspicious. So I have to find some way of moving it away from me and then bringing it back with an excuse, at some point in the future. That’s money-laundering.

What if the money-launderer gave part of the criminal proceeds to someone as a gift?

If the person receiving the gift has any cause for suspicion, then they would be a money-launderer. On the other hand, if they had no reason for suspicion, they may not be a money-launderer.

There is always a point where the judge may say, “But you should have known. You closed your eyes to the obvious. You know your boyfriend doesn’t have a job. And you know he’s driving a BMW 7 series. And here he is giving you a gold-and-diamond-encrusted handbag. Where is he getting the money from? You know it can’t be legal.” A girlfriend in that position could be a money-launderer.

How long has AML Net been in Malaysia?

We opened this office in July (last year), just as we were getting our MSC status . We’ve been specialising solely in (counter-money-laundering) since 1994 . We’ve been advising businesses and firms on setting up counter-money-laundering systems. And those are the systems that the law says they must have. But the law doesn’t say what the systems must be. So we fill in the gaps and set out how the banks should be looking to set up these systems.

No one can ever imagine that it’s possible to make any organisation safe against money-laundering. It’s just not possible. We adopt an attitude that says “Let’s provide a system which provides the best protection that can be devised without making it impossible to do business.”

So there is no fail-safe system but only the “best possible”?

There is no “best”; there is only “different.” We have a very different approach on the consulting level. I look at it from the compliance point of view, rather than saying “This is what the law says. Let’s just comply with the law.” What I’m looking to do is say “OK, we know what the law says, but the law probably doesn’t go far enough if you want to make your organisation as effective in counter-money-laundering measures as you should.”

So, being a money-launderer is a very bad thing for a bank; the banks don’t want that reputation. So even if the law says you must do X, if we can make a system which does two X’s which will help protect the bank, then so much the better.

What are the regulations like in Malaysia?

At the moment, they are still in development. There are some in place and there are some to come. It would not be right to give a view on where we are because we’re not finished. The Malaysian law is, for the most part, an exceptionally good law. It has some extremely strong measures which some other countries could learn from.

I've been called many things over time - usually by people who wanted to make me feel inferior. Generally, it hasn't worked: either they are telling the truth, in which case it has no impact or they are lying in which case they are beneath contempt and merely trying to make themselves look important at my expense. But of late, one word has been applied to me more than once: I am, apparently, a contrarian. Actually, I'm not - but if calling me that makes you feel better, go ahead. But you are wrong.

You know the old joke - you know when you are travelling too much when you refer to cities by their airport codes?

Well, yes, that's exactly what I'm reduced to. Having just got home to Kuala Lumpur after KUL, CAN, HRB and return (delayed a day because the otherwise excellent China Southern cancelled one of my flights and gave me a key-ring to make up for it), I'm now setting up the schedules for the final (so far as I know) legs of my seminar tour.

When the Commonwealth Bank of Australia (CBA) story first appeared, I instructed World Money Laundering Report that we should not become involved in what would inevitably become a frenzy of speculation and ill-informed comment as consultants (of which I am, obviously, one) and media outlets vied to benefit their own profile, and to get website visits, while the story was hot. I wrote what amounted to a placeholder article .

Hello,

It's been a long while since I did a personal newsletter to my 20,000 plus contacts. A lot's been happening that isn't work related and one of the things that got shoved aside has been this monthly note.

Let's get started...

Some people might argue that I'm a Luddite but nothing could be further from the truth. I have long been an early adopter of new technology. What I am not is a follower of fashion. And after a few days with what may be the worst car Mercedes have ever made, I'm even more convinced we need to stop the constant revision of things just so someone can put a "new" sticker on it.

I could go on for hours, days even, about how easy it is to use various techniques to manipulate the thoughts of a person who is targeted as a vehicle for financial crime. Hell, I do go on for hours, days even, about it when people pay me to present seminars that show them how their companies can avoid being a victim of such offences. But some of the most fun lessons are found when I, me, the one who knows, understands and communicates this stuff, falls victim...

As readers of my Tropical City Discs column will know, my family moved around a lot when I was young.

I decided that I'd celebrate that - with a seminar tour taking in some of the places that formed me...

You can find full details of the seminar at www.financialcrimeforum.com. Below: something about the places I'll visit on the tour.

The seminars take in London, Birmingham, Chesterfield, Preston and Stockton on Tees.

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