Money laundering

What is money laundering?

Money laundering is one of those crimes we hear about but may not know exactly what the crime entails. It is an economic crime, and a white collar crime – a crime committed for financial gain. Other types of white collar crimes are embezzlement, securities fraud and corporate fraud.

Do you watch the popular TV series, Breaking Bad? If yes, then you know how Jesse and Walt work at cleaning the money they make from selling methamphetamine.

Money laundering is the process of taking cash earned in illegal activities such as drug trafficking, and making the cash appear to be money earned from a legal business activity. Money from the illegal activity is considered dirty and the process of making it look like it is earned from a legitimate business activity to make it look clean, is what is called money laundering. Illegally acquired money must be laundered so that the criminal owners can use it without question from law enforcers.

How is money laundered?

There are three processes involved in money laundering. They are: Placement, Layering and Integration.

Placement is when the money obtained illegally is introduced to a financial system. This can be done in ways such as putting the money in suitcase and travelling with it abroad to change it into foreign currency or gambling. Layering involves concealing the dirty money through a series of complex transactions and accountancy gymnastics. Integration is the final stage of cleaning dirty money and making it look like it is money earned in legitimate ways. This is often done by investing the money in property, art work, and jewellery.

One of the commonest ways of laundering money is by investing the money in a cash based business (usually referred to a front) such as real estate development or a restaurant and then, inflating the proceeds from the business. In the series, Breaking Bad, the meth dealer launders the money through car-wash businesses.

Smurfing is another way criminals use to launder their money. Smurfing is done by breaking down a transaction of a large amount of money into smaller transactions whose value law enforcers may not be interested in. The alleged value from smaller transactions is then deposited into several bank accounts for transfer in the near future.

Anti-money laundering

Anti-money laundering refers to the laws and regulations in place to stop the generation of money through illegal practices and the attempt at making the money look like it is earned from a legitimate business.

In Kenya, there is the Proceeds of crime and anti-money laundering Act, 2009 (the Act). The Act was recently revised, in 2015. Money laundering is defined as an offence under sections 3, 4 and 7 of the Act. Under section 4, it is illegal for any person to acquire; use; or have possession of property which at the time of acquisition, use, or possession of such property, he or she knows or ought reasonably to have known that it is or forms part of the proceeds of a crime committed by him or by another person.

Section 7 says that a person who, knowingly transports, transmits, transfers or receives or attempts to transport, transmit, transfer or receive a monetary instrument or anything of value to another person, with intent to commit an offence, commits an offence.

A person who contravenes sections 3, 4 and 7 is liable upon conviction to imprisonment for a term not exceeding fourteen years, or a fine not exceeding five million shillings or the amount of the value of the property involved in the offence, whichever is the higher, or to both the fine and imprisonment; and if the person is a body corporate, to a fine not exceeding twenty-five million shillings, or the amount of the value of the property involved in the offence, whichever is the higher

The Act, under section 21 establishes the Financial Reporting Centre (FRC) whose objective is to assist in the identification of the proceeds of crime, to combat money laundering and the financing of terrorism.

The FRC’s functions include receiving, analyzing and interpreting reports of usual or suspicious transactions made by reporting institutions; analyzing information disclosed to it the Prevention of Terrorism Act, 2012; and analyzing any other information disclosed to it and obtained by it in terms of the Act.

Under the Act, a reporting institution is a financial institution and designated non-financial business and profession. Reporting institutions also have a duty to play in the fight against money laundering and it is provided for under part IV of the Act

If the Director of the FRC has reasonable grounds to suspect that a transaction involves proceeds of crime, money laundering or financing of terrorism, he or she must send such information to the appropriate law enforcement authorities, any intelligence agency, or any other appropriate supervisory body for further handling.

In the execution of the FRC’s duties, and with the authority of the Director of the FRC, an inspector from the FRC may enter the premises of any reporting institution during ordinary business hours to inspect any documents kept pursuant to the requirements of the Act, and ask any question relating to such documents, make notes and take copies of the whole or any part of such documents and to send to the appropriate law enforcement authorities any information derived from an inspection carried out

If such inspection gives the Director reasonable grounds to suspect that a transaction or activity involves proceeds of crime, money laundering or the financing of terrorism; the Director may instruct any reporting institution to provide it with such other or additional information or documents to enable the centre to properly carry out its functions; or may take such steps as may be appropriate to facilitate any investigation undertaken or to be undertaken by the FRC including providing documents and other relevant information.

The FRC is also obligated to create and maintain a database of all reports of suspicious transactions, related Government information and such other materials as the Director may from time to determine to be relevant to the work of the FRC; and may provide information relating to the commission of an offence to any foreign financial intelligence unit or appropriate foreign law enforcement authority, subject to any conditions as may be considered appropriate by the Director;

The FRC is also empowered to enter into any agreement or arrangement, in writing, with a foreign financial intelligence unit which the Director considers necessary or desirable for the discharge or performance of the functions of the Centre as long as the Director is satisfied, on a case by case basis, that the foreign financial intelligence unit has given appropriate undertakings for protecting the confidentiality of anything communicated to it; and for controlling the use that will be made of such information.

It is the duty of the FRC in liaison with reporting institutions to put anti- money laundering policies in place.

Considerable progress has been done by the FRC. Though there haven’t been any prosecutions under the Act for us to test the efficacy of the law in place, it is a good place to start.

There are also fears about the use of mobile money transfer platforms being used to launder money. The reality of these fears is not conclusive, but it is probable.

But why fight money laundering?

Money laundering causes an unstable economy. A stable economy is regulated by the forces of demand and supply. But where there is money from illegal activities being fronted as money from a legitimate trade, prices are inflated. This causes an increase in prices of certain commodities, especially in markets such as those of property where criminals like to launder their money.  The high prices create a fallacy of an unaffordable market thus making it difficult for people to acquire goods or services from the affected market.

Inflation and high costs of living, a poor standard of living and income inequality are all pointers to the possibility of there being money laundering activities in the country.

Conclusion and recommendations

The common man cannot do much to prevent money laundering. It is a white collar crime whose intricacies may not be understood by the common man. It is however every individual’s duty to report any transaction which he may suspect involves proceeds from an illegal business.

More so, banking institutions and revenue collection bodies together with law enforcement bodies in every country should do more to fight the vice. Many banks require a customer to provide information about the money they expect to receive in their bank accounts and tax bodies require individuals to disclose all sources of their income.

So, the next time you go to a bank and you are asked to disclose the source of the money in your bank account, do not take offence.

BY SAMALI BITALA

This article appears in our digital law newsletter, The Deuteronomy Vol 3, Issue 4 of March 24th 2017

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