MONEY LAUNDERING & TERRORISM FINANCING: AN OVERVIEW & CHALLENGES

By

INSP. MOHD NOOR FIRDAUZ BIN ABDULLAH

AMLA INVESTIGATING OFFICER

SPECIAL TASK FORCE ROYAL MALAYSIA POLICE

SCOPE OF CONTENTS
MONEY LAUNDERING TERRORISM FINANCING THE LAW TRENDS, MO & TYPOLOGIES RMP IN ACTION CASE STUDY

CHALLENGES
Q&A

MONEY LAUNDERING

PROCESS OF MONEY LAUNDERING

Process used to move, conceal and legitimize

proceeds of crime.

Purpose: to render it almost impossible for

evidence to be obtained which allow a court to establish the derivation of the money (Rider, 1992).

Dirty money - through a cycle of transactions or

washed, turned legal and clean money

PROCESSES OF MONEY LAUNDERING

The process - not necessarily harmful or abusive per se. Rider (2006) - Simply keeping wealth secret may not be

intolerable in either a legal or moral sense, and it might even be prudent and beneficial in certain circumstances.

However, ML process will undoubtedly involve resort to

transactions, real or imagined, which will be designed to confuse the onlooker and confound the inquirer.

STAGES OF MONEY LAUNDERING

Stages of Money Laundering:
(Placement) Moving the money from the scene of the

crime: (a) To a remote location; and/or (b) Ideally to a bank account anonymously. (Layering) Disguising the trail leading from (a) to (b). (Integration) Making the cash available to the criminals. In fact, money laundering techniques vary in their degree of sophistication depending on the purpose.

MONEY LAUNDERING SCHEMES

The money laundering schemes:

can be more complex or more basic; involve any number of intermediaries; and utilize both traditional and non-traditional payment systems, offshore financial centre (OFCs) and overseas companies, non-financial sectors and international trade system. (FATF 2006) Money Laundering is often a highly complex process, rather than a single act.

MONEY LAUNDERING STRATEGY

ML strategy adopted depends on factors including: Type / location crime was committed; Quantity of assets; Structure / level of criminal syndicate; Amount of fear and intimidation a criminal enterprise can generate; Educational, professional and business background of the criminal; Availability of technology; and Cost of hiring of financial experts in developing and implementing money laundering schemes.

CAUSE AND EFFECT (RECOGNITION!!!)

Money laundering - worlds third largest industry after

international oil trade and foreign exchange (Robinson, 1995).

The International Monetary Fund (IMF) estimated the

size of money laundering worldwide to be between US$600 million and US$1.5 trillion, which is about 2-5 per cent of the worlds GDP (Camdessus, 1998).

TERRORISM FINANCING

One man willing to throw his life away is enough to terrorize thousands." (Wu Ch'i)

BADAR

TERRORISM
DEFINITION Act of violent, to cause destructions to life, property, nature etc "The unlawful use of - or threatened use of force or violence against individuals or property to coerce or intimidate governments or societies, often to achieve political, religious, or ideological objectives.

TERRORISM FINANCING
DEFINITION:
Terrorism Financing is the act to providing

financial support, either through legitimate or illegitimate source, to terrorists or terrorist organizations to enable them to carry out terrorist acts.

LEGAL DEFINITION
Section 3(1) of the AMLATFA 2001 defines a terrorism financing offence as any offence under section 130N, 130O, 130P or 130Q of Penal Code.

Essentially, financing of terrorism includes: providing or collecting property for carrying out an act of terrorism; providing services for terrorism purposes; arranging for retention or control of terrorist property; or dealing with terrorist property.

GROUPS IDENTIFIED BY USA/UN: (South East Asia)

al Qaeda, Jemaah Islamiah, Communist Party of the Philippines / New Peoples

Army; Cambodian Freedom Fighters; Moro Islamic Liberation Front (MILF); Pattani United Liberation Organization (PULO); Aceh Freedom Movement (GAM); The Mujahidin Council of Indonesia and its affiliates, Laskar Jihad and Laskar Jundullah; and Kumpulan Mujahidin Malaysia (KMM).

CRIMINAL ACTIVITIES OF TERRORIST GROUPS

Narcotics smuggling;

Commodity smuggling;
Goods smuggling; Firearm smuggling,

Trafficking in persons;
Extortion; Kidnapping, intellectual property theft,

counterfeiting, fraud, credit theft and armed robbery.

ATTACK OF WTC, NEW YORK @11 SEPT 01

ANOTHER VIEW OF THE ATTACKS

18

GONE!!!!!!

20

BALI BOMBING
21

On 12 October 2002 three bombs were detonated

in Kuta, Bali that claimed 202 lives. 88 Australians were among the dead, the largest peace-time loss of civilian life in the country's history.

COST OF THE BOMBING

Chemicals Vehicles Motorcycles Accom & Food Laptop

Rp 21,575,000.00 Rp 40,655,000.00 Rp 22,000,000.00 Rp 40,137,500.00 Rp 14,000,000.00

Travel
Phones Other

Rp 9,500,000.00
Rp 10,007,000.00 Rp 3,000,000.00

TOTAL

Rp 160,874,500.00

**Rp 255,000,000 to Rp 290,000,000 available for the bombing was identified by Financial Task Force.

COMPARISON OF ML & TF
Whereas. money laundering is solely based on proceeds derived from unlawful activities (IllGotten Gains). Then, financing of terrorism, the focus is on the determination or use of funds, which may have been derived from legitimate sources

THE LAW: ANTI-MONEY LAUNDERING AND ANTITERRORISM FINANCING ACT 2001

HISTORY OF ML IN MALAYSIA
Before 2002, provisions under money

laundering based on sec. 410 415 Penal Code.

January 2002, a specific law on money

laundering called ANTI MONEY LAUNDERING ACT 2001 (AMLA) came into force.

HISTORY OF ML IN MALAYSIA
6 JUNE 2001 PASSED BY PARLIAMENT 5 JULY 2001 GAZZETTED 15 JAN 2002 CAME INTO FORCE 9 MAC 2007 AMENDED TERRORISM FINANCING PROVISIONS CAME INTO FORCE AMLATFA 2001 ANTI-MONEY LAUNDERING AND ANTI-TERRORISM FINANCING ACT 2001

Gazette orders
P.U(B) 15.

ANTI-MONEY LAUNDERING ACT 2001 APPOINTMENT OF DATE OF COMING INTO OPERATION

IN exercise of the powers conferred by subsection 1(2) of the AntiMoney Laundering Act 2001 [Act 613], the Minister appoints 15 January 2002 as the date on which the Act comes into operation.

Dated 26 December 2001

[BNM/JUU/;PN(U)2246/II]

DR.MAHATHIR BIN MOHAMAD Minister of Finance

OBJECTIVES OF AMLATFA 2001

AN ACT TO PROVIDE FOR:

-

the offence of Money Laundering / Terrorism Financing; the measures to be taken for prevention of Money Laundering / Terrorism Financing; and forfeiture of property derived from, or involved in, Money Laundering / Terrorism Financing.

ARRANGEMENT OF SECTIONS
8 PARTS 93 SECTIONS PRELIMINARY MONEY LAUNDERING OFFENCES FINANCIAL INTELLIGENCE REPORTING OBLIGATIONS INVESTIGATION FREEZING, SEIZURE AND FORFEITURE TERRORISM FINANCING MISCELLANEOUS

APPLICATION OF THE ACT

THE ACT SHALL APPLY TO:
- ANY SERIOUS OFFENCE, FOREIGN SERIOUS OFFENCE OR UNLAWFUL ACTIVITY WHETHER COMMITTED BEFORE OR AFTER THE COMMENCEMENT DATE;
-

ANY PROPERTY, WHETHER IT IS SITUATED IN OR OUTSIDE MALAYSIA

NOT APPLICABLE: - AGAINST A PERSON FOR A SERIOUS OFFENCE IN RESPECT OF WHICH HE HAS BEEN CONVICTED BY A COURT BEFORE THE COMMENCEMENT DATE.

TRENDS, TECHNIQUES & MODUS OPERANDI

CRIMES TREND

TRADITIONAL CRIMES

SYNDICATED CRIMES

TRANS BORDER CRIMES ( GLOBAL )

TREND 70s
In the 70s, commercial crime were confined to simple cheating and simple forgery committed by individuals.

Cases reported not that many.

TREND 80s
Financial crime beginning to emerge, i.e - BBMB Finance (Hong Kong) case - Cases involving cooperative societies, - Insurance frauds

TREND 90s

The 90s saw the individual white collar criminal becoming more organized and systematic in his criminal activities.

Mergers of efforts and resources with new structures and M.O.

With an hierarchy to ensure its continuity, these white collar crime syndicates are slowly but surely extending across national and international borders.

TREND- New Millenium

The new millennium has created big challenges to enforcement agencies whereby the M.O. has revolutionalised and become more sophisticated in tendem with the advent of technology,

Evolution of transnational crime in a globalised world:- Crime committed through internet; - Cyber terrorism; - Money laundering; - Hacking skills being combined with criminal intent (Syndicates); and - Economic sabotage.

WHY DOES A CRIMINAL LAUNDER MONEY?

To remove or distance the illegal proceeds - difficult to

detect and prosecute the perpetrator;

To prevent the illegal proceeds from being confiscated;

To enable the criminal to enjoy the benefits of the

illegal proceeds without being detected; AND

To reinvest the criminal proceeds into future criminal

activity or in legitimate business.

MONEY LAUNDERING TECHNIQUES

1. Bank deposits 2. Loan back 3. Gambling Fronts 4. False invoicing 5. Foreign business / stock, real estates 6. Direct investments 7. Travels agents 8. Money exchange houses 9. Currency smuggling 10. Charitable clubs, societies 11. Corporate applicants 12. Insurance purchasing of insurance policy 13. Credit card usage 14. Criminal Banking

1. Bank Deposit:
Individual applicants / suitcase of cash Opening of fresh account with huge sum of cash derived from illegitimate sources. Verification of identity of applicants Opening of account using false identity (addicts, vagabond, dead person etc ). Clients accounts in legal firm e.g. Fictitious sales & purchase agreement of properties.

Transactions undertaken for non account holder (occasional customers) eg: dormant account with sudden transaction of huge amount of money (change in transaction pattern);
Wire transfer eg: multiple transactions of money domestically / internationally; Correspondent accounts eg: opening of multiple accounts belonging to various companies of the same person corresponding to each other to close the money trail.

2. Loan Back
use stashed money as collateral in foreign bank for legitimate loan.

3. Gambling Fronts
Casino : changing cash into cash chips and cashing out as winning.
Deposit money into gambling accounts : launderers make huge deposit into gambling accounts and casino locally & internationally and latter receive payouts as winnings. Make out cheques to third party payees : account holder (launderer) in casino instruct casino to make payment to third party who declares as winning. Deposit cheques in securities firms: Launderer make payment to third party securities account. It legitimize the money and receive pay back from third party as profits or loans.

4. False Invoicing
selling goods or services artificially. Invoices are created for non existing business transactions.

5. Foreign Business / Stock, Real Estates

Claiming illegal proceeds as profits from successful foreign business or real estate transaction. Launderer derives ill-gotten gains from foreign illegal activities. Money channel back to homeland as legitimate profit.

6. Direct Investment
Buy over failing businesses: Launderers buy over failing businesses and create fictitious transaction i. e. boutiques, car accessories, high end restaurant, stationary shops. Shell companies: creating multiple companies that does fictitious business transactions amongst them. These multiple companies belongs to the same person.

7. Travel Agents
Setting of travel agencies locally and overseas, profiteering through inflated number of inbound / outbound tourist.

8. Money Exchange House

Non physical movement of money between two (2) destinations through tourists or individuals, known as alternative remittance system (ARS) which operates outside of traditional banking or financial channel. (HAWALA System)

9. Currency Smuggling
Smuggling of hard cash by way of carrying themselves or by Couriers.

10. Charitable Clubs / Societies

Setting up of so called charitable clubs or societies locally or abroad to use as a vehicle to move the money.

11. Corporate Applicant

Usage of company accounts as vehicle to acquire properties e.g. buying of luxury properties under companys name.

12.

Insurance Purchasing of insurance policy

Purchase of high premium policy and paying in advance the premiums. Surrender the policy before maturity to receive refund of balance premiums.

13.

Credit Card Usage

To disguise launderers expenditure by using supplementary card or corporate issuance.

14.

Criminal Banking
A much more serious obstacle to curb money laundering is where an entire bank or key sections of it, is either captured by criminals or the bank is in search of profit openly approaches money launderers.

RMP IN ACTION

LEGAL FRAMEWORK OF ANTI-MONEY LAUNDERING IMPLEMENTATION APPROACH

Supervisory and Regulatory Authorities

Minister of Finance

Enforcement Agencies

Reporting Institutions

FIU

Foreign FIUs

Adopts a non-integrated approach that provides for multi-agency implementation by the Financial Intelligence Unit (FIU) in Bank Negara Malaysia, the regulatory and supervisory authorities of reporting institutions as well as law enforcement agencies.

ENFORCEMENT AGENCIES:
Royal Malaysia Police (PDRM) Bank Negara Malaysia (BNM) Malaysia Anti-Corruption Commission (MACC) Attorney-General Chambers (AGC) Companies Commissions of Malaysia (SSM) Inland Revenue Board (LHDN) Labuan Financial Services Authority (Labuan FSA) Ministry of Finance (MOF) Ministry of Home (KDN) Ministry of Foreign Affairs Domestic Trade and Consumers Affairs Ministry (KPDNKK) Royal Malaysian Customs (KDRM) Securities Commission (SC) Ministry of Housing and Local Government

RMP IN ACTION
Like other enforcement agencies, the Malaysian police

force has also established AMLA units to track the underworlds money trail.

Federal Commercial Crimes Department has gone

through a major expansion program, inclusive of established the Anti-Money Laundering Investigation Division in year 2005.

In March 2009. a new department called SPECIAL TASK

FORCE (OPERATION / COUNTER TERRORISM) was established. Core business handling of Terrorists, Money Laundering & Terrorism Financing.

RMP IN ACTION SOLUTIONS???

Best ways to counter money laundering

creating legislative solutions that are capable of improving the fight against organized crime.

Two types of solution:

Legislative measures; New laws aimed directly and exclusively at eliminating organized crime.

RMP IN ACTION SOLUTIONS???

Member of organized crime have two goals:

Power and Money.

To be efficient, new legislation - undermined their power

and impoverish them while reducing the cost of police investigations and legal procedures.

Various intermediate measures aimed at reaching

criminals, facilitating seizures, and confiscation of proceeds of criminal activities, and improving the administration of justice need to be implemented.

RMP IN ACTION SOLUTIONS!!!

Pre-emptive measures by RMP to combat Money Laundering:

Strengthen international cooperation on information exchange and law enforcement relating to money laundering (Interpol / KAB); Proper mechanism for handling STR; Limited human resources involved labor intensive / time consuming work of investigating suspected violations should be increased; In-depth focus on new technologies and increases in counter measures to combat money laundering; Training program to facilitate the investigation of up-rising money laundering cases; and To improve and updating its investigation manuals.

RMP IN ACTION SOLUTIONS!!!

The ROYAL MALAYSIA POLICE (RMP) were

becoming more confident that they had an adequate response to the global issues of Money Laundering.

Since 2008 till middle of 2011, RMP were

reporting a significant rise in the number of cases investigated under AMLATFA 2001, a total of 260 cases.

CASE STUDY

CASE STUDY
The AMLATFA 2001 was finally tested in April 2004 when the Malaysian Sessions Court allowed an application by the prosecution to jointly prosecute a woman doctor on eight charges of money laundering. Dr Hamimah Idruss, 62 made history to become the first person in the country to be charged for money laundering under the act.

INVENT-Q JAYA (IQJ)

OFFENCE SUSPECT : : SEC. 4(1)(a) AMLATFA 2001 DR SADEQ FARIS CEO IQJ

FACTS OF THE CASE: MALAYSIA GOVERNMENT THROUGH MOF INVESTED INTO A BUSINESS AT MSC TO PURCHASE EIGHT HIGH-TECH PATENTS FROM A COMPANY; REVEO INC. IN USA. THE (8) TECHNOLOGIES ARE; 1) METAL-AIR TECHNOLOGY 2) 3D STEREOSCOPIC IMAGING TECH. 3) CLC BASE SWITCHABLE WINDOWS (LUXVU) 4) CLC SECURITY PIGMENT 5) CLC - BASED MULTILAYERED OPTICAL STORAGE 6) OXYGEN GENERATION AND REMOVAL (PUROGEN) 7) LIGHT TRACKING AND ATTENUATION (GLARE BLOCKING) 8) WATER DESALINATION

AS THE INVESTIGATION CONDUCTED REVEALED THE EIGHT TECHNOLOGIES THAT CLAIMED TO BE A HIGH-TECH PRODUCT ARE NOT-VIABLE. PAYMENT BEEN PAID BY MOF TO ROVEO (USA) LTD., FRAZER NASH, AND REVEO BANGALORE. ACTIONS: SEIZURE OF RM 56 MILLION (CASH); SEIZURE OF IQJ (BUSINESS); SEIZURE OF FURNITURES AND HOUSE HOLDS AMOUNTING TO RM 2 MILLION.

STATUS OF INVESTIGATION PAPER:

(2) WARRANTS OF ARREST AGAINST DR SADEQ CEO OF IQJ WAS ISSUED.

METHOD USED:
1. Bank Deposit - Upon receiving a total sum of RM 247 million from Malaysia Government, suspect wire-transferred those funds to 3 foreign bank accounts in USA through several transactions. - Then, Suspect, channeled back RM 120 million to IQJs bank account in Malaysia. - Through IQJs account, suspect uses part of the money to acquire assets and properties such as luxury cars, high end furniture etc.

2.

Investment: - RM 80 million had been used to purchase and installed nanotech laboratory for research and development purposes in two factory owned by IQJ in MSC Cyberjaya and Kota Kemuning Industrial Park.

3.

Corporate Account - Suspect uses IQJs account to rent a luxurious condo and purchased several furniture but subsequently claimed that the money used were part of the investment expenditures.

PRINCE OMAR YUSOF

OFFENCE SUSPECT : : SEC. 4(1)(a) AMLATFA 2001 PRINCE OMAR YUSUF

FACTS OF THE CASE: SUSPECT COMMITTED CRIMINAL BREACH OF TRUST. ILL-GOTTEN GAIN OF RM 5.5 MILLION HAD BEEN USED BY SUSPECT TO PURCHASE LUXURY CARS INCLUDING LAMBORGHINI, MASSERATI AND TOYOTA ALPHARD BESIDES A SPEED BOAT (SILVER BIRD). SUSPECT ABSCONDED. FORFEITURE OF PROPERTY AMOUNTING TO RM 1.5 MILLION. CASE SOLVED.

METHOD USED: 1. Bank Deposit - A total sum of RM 5.5 million had been credited to a company in Malaysia owned by suspect and his companion from Indonesia. - Suspect, then, forged his share-partners signature and issued out several cheques amounting to RM 5.5 million made payable to one of his company in Malaysia. - Upon received those money, suspect uses the money to acquire assets and properties such as luxury cars, high end furniture etc.

MBB GOMBAK
OFFENCE SUSPECTS : : SEC. 4(1)(a) AMLATFA 2001 MBB FINANCIAL EXECUTIVE

FACTS OF THE CASE: SUSPECTS TRANSFERRED RM 4 MILLION FROM UNCLAIMED ACCOUNT. SUSPECT BELIEVED TO COMMIT MONEY LAUNDERING ACTIVITIES BY PURCHASING ASSETS AND PROPERTIES, AND SPENDING HOLIDAY VACATION FROM HIS ILLEGAL PROCEEDS.

CONVICTED AND SENTENCED TO JAIL FOR A DURATION OF 11 YEARS AND FINES RM 900,000.00++. CASE SOLVED.

METHOD USED: 1. Bank Deposit - A total sum of RM 4 million from an unclaimed account had been withdrawn by suspect and credited into his own account in MBB.

- Suspect, then, upon obtained such ill-gotten gained, uses those money to purchase two cars, one apartment and some luxurious furniture. - Too, suspect uses part of the money for spending a holiday vacation in Europe and performed Umrah.

GET-RICH SCHEME
OFFENCE SUSPECTS : : SEC. 4(1)(a) AMLATFA 2001 XXXSTAR SDN BHD

FACTS OF THE CASE: SUSPECTS INVENTED ONE INVESTMENT SCHEME FAMILY, FRIENDS, AND STAR SCHEME AMOUNTING TO RM 14,000.00, RM 25,000.00 AND RM 41,000.00 RESPECTIVELY.

INVESTMENT WAS PAID THROUGH PERSONAL LOAN GRANTED FROM VARIOUS BANK BSN, BANK RAKYAT, CIMB, RHB, MBSM, (AL RAJHI???) ETC. NEW MEMBERS ARE PERSUADED OR EVEN FORCED TO SIGN UP FOR SUCH LOAN WITH OR WITHOUT THEIR KNOWLEDGE / CONSENT.
ONCE LOAN APPROVED AND CREDITED INTO MEMBERS ACCOUNT, SUSPECTS ACCOMPANIED MEMBER TO WITHDRAW MONEY TO PAY INVESTMENT SCHEME

METHOD USED: 1. Bank Deposit - A total sum of RM 15 - 20 million believed to be invested into such scheme that credited into suspects account XXXSTAR SDN BHD in various bank.

- Suspect, then, upon received such ill-gotten gained, uses those money to purchase luxurious cars, houses, apartment and etc for their own benefits. - With those luxurious cars and facilities, used as attractive baits to persuade more members to join that scheme.

CHALLENGES: MOVING BACKWARD OR MOVING FORWARD

HOW MONEY BEEN LAUNDERED ?

What did he do with that money? is the fundamental question which needs to be asked by investigators in respect of acquisitive crime. This is because, Firstly, evidence necessary to ground money laundering charges against the defendant; Secondly, evidence may be necessary to obtain a confiscation order against him or a recovery order against his property.

CURRENT STATE OF ART

Existing anti-money laundering legislation is mostly

backward looking. Focus on the proceed of crimes that have been committed; Engaging in convoluted transactions, commingling with other funds, converting into cash, or putting it in third party names.
Emphasis on the past on looking backwards to see

source of money and how criminal is trying to disguise that source.

SO, WHATS THE PROBLEM

What about criminals who are using CLEAN

MONEY or money from unknown source to commit crimes in the futures???

Are they capable of using the same laundering

techniques??? - money is moved in and out of different accounts to finance new criminal operations and enterprise

THE REAL PROBLEM!!!

For instance, financing of terrorism:

Attacks of 911 were financed with cash & wire transfer from abroad.
Money from Money Changer in UAE Correspondence Account at New York Money credited to Hijackers Account in Florida

Money may have had a legitimate origin or perfectly clean funds. If focus only on source of money moving through financial channels, this will be completely missed

WHATS NEW
A new form of money laundering involves not

the proceeds of past crimes, but money intended to be used to commit crimes in the future;

REVERSE MONEY LAUNDERING

Process of conducting financial transactions with clean money for the purpose of concealing or disguising the future use of that money to commit a criminal act.

CONCLUSION

MALAYSIAS INITIATIVES
Malaysia

is not a regional centre for money laundering. However, its formal and informal financial sectors are vulnerable to abuse by money launderer in general. relatively relaxed customs inspection at ports of entry and FTZs; uneven enforcement of intellectual property rights; and offshore financial services centre serve to increase its vulnerability.

MALAYSIAS INITIATIVES
To circumvent this, Malaysia has been progressively

constructing a comprehensive AML regime, beginning with the establishment of the NCC in 2000; Drafting of the AMLA, which came into effect in January 2002 along with the establishment of the FIU; Admitted as a member of the Egmont Group of FIUs in July 2003; The Mutual Assistance in Criminal Matters Bill was passed in April 2002; Amendments were made to the AMLA - AMLATFA that came into force in 2007; and The SEARCCT was in turn opened in August 2003.

MALAYSIAS INITIATIVES
With these initiatives, Malaysia continues to make a

broad and sustained effort to combat money laundering and terrorist financing flows within its borders; reducing money laundering;

Malaysia has been praised for its concerted efforts in

Asia Pacific Group (APG) on Money Laundering and the

International Monetary Fund have viewed Malaysias AML initiatives as positive and proactive (MIA, 2004, October).

QA

QUESTIONS / DISCUSSIONS ????

Insp. Mohd Noor Firdauz Bin Abdullah AMLA Investigating Officer Special Task Force (Operation / Counter Terrorism) Bukit Aman Email: firdauz@rmp.gov.my Tel: 017-3334454

THANK YOU