Money Laundering Risk in Banking Industry

An Overview of EXIM Bank Ltd:

The EXIM Bank of Bangladesh Limited is an “Islamic Shariah based commercial Bank”, which is committed to provide high quality financial services to contribute to the growth of G.D.P. (Gross Domestic Product) of the country through stimulating trade & commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, Poverty alleviation, raising standard of living of the limited income group and over all socio-economic development of the country.

The Bank offers full range of Personal, Corporate, International Trade, Foreign Exchange, Lease Finance and Capital Market Services. EXIM Bank Limited is the preferred choice in banking for its friendly and personalized services, cutting edge technology, tailored solutions for business needs, global reach in trade and commerce and high yield on investments, assuring Excellence in Banking Services.

Logo of EXIM Bank

Historical Background:

EXIM Bank Limited was established in 1999 under the leadership of Late Mr. Shahjahan Kabir, founder chairman who had a long dream of floating a commercial bank which would contribute to the socio-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the founder chairman to materialize his dream. Indeed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard working and talent entrepreneurship. Among them, Mr. Nazrul Islam Mazumder became the honorable chairman after the demise of the honorable founder chairman. This bank starts functioning from 3rd August, 1999 with Mr. Alamgir Kabir, FCA as the advisor and Mr. Mohammad Liakotullah as the Managing Director. Both of them have long experience in the financial sector of our country. By their pragmatic decision and management directives in the operational activities, this bank has earned a secured and distinctive position in the banking industry in terms of performance, growth, and excellent management. The authorized capital and paid up capital of the bank  are  Tk.1000.0 0millionand Tk313.87 million respectively. The bank has migrated all of its conventional banking operation into Shariah based Islami banking since July/2004. Of its very beginning, EXIM Bank Bangladesh limited was known as BEXIM Bank, which stands for Bangladesh Export Import Bank Limited. But for some legal constraints the bank renamed as EXIM Bank Ltd., which stands for Export Import Bank Of Bangladesh Limited.

Vision:

The gist of EXIM bank vision is „Together Towards Tomorrow’. Export Import Bank of Bangladesh Limbed believes in togetherness with its customers, in its March or the road to growth and progress with services. To achieve the desired goal, there will be pursuit of excellence at all stages with a climate of continuous improvement, because, in EXIM Bank, they believe, the line of excellence is never ending. Bank’s strategic plans and networking will strengthen its competitive edge over others in rapidly changing competitive environments. Their personalized qualities services to the customers with the 4 trend of constant improvement will be cornerstone to achieve their operational success.

Mission:

The bank has checked out the following corporate objectives in order to ensure smooth achievement of its goals

• To be the most caring and customer friendly and service oriented bank.
• To create a technology base most efficient banking environment for its customers
• To ensure ethics and transparency in ail levels
• To ensure sustainable growth and establish full value of the honorable shareholders

Above all, to add effective contribution to the national economy.

Eventually the bank also emphasize on:

• Provide high quality financial services in export and import trade
• Providing efficient customer service
• Maintaining corporate and business ethics
• Being trusted repository of customers‟ money and their financial adviser.
• Making its products superior and rewarding to the customers
• Display team spirit and professionalism
• Sound Capital Base
• Enhancement of shareholders wealth5
• Fulfilling its social commitments by expanding its charitable and humanitarian activities.
  (Annual report of EXIM Bank Ltd 2010)

Key Functions of EXIM Bank Ltd:

Like other commercial banks EXIM bank performs all traditional banking business including introduction of a wide range of caving and credit products, retail banking and ancillary service with the support of modern technology and professional management, but the EXIM Bank Bangladesh Limited emphasizes its function in export and import trade handing and financing of export oriented industries will enhance wealth, quotes more employment opportunities helps formation of capital and reduces in balance in the balance of payment in the country.

Social Commitment:

The purpose of the banking business is, obviously, to earn profit, but the promoters and the equity holders of EXIM bank are aware of their commitment to the society to which they belong. A chunk of the profit is kept aside and/or spent for socio-economic development through trustee and in patronization of art; culture and sports of the country and the bank want to make a substantive contribution to the society where we operate, to the extent of our separable resources.

Product and Services:

The bank serves all types of modern, progressive and dynamic business as well as banking services to the customers of all strata of the society. During the short span of time, the bank has been highly recognized and praised by the business community, from small entrepreneurs to large traders and industrial conglomerates and emerged as the fastest growing among the third generation banks in respect of business and profitability. Export Import Bank of Bangladesh Limited successfully marketed its products designed to fulfill the needs of various socio-economic strata. Attractive features of the products have given 6 a distinctive image among the private banks. The bank has been making continuous endeavor to offer new products and services. As a commercial bank, they provide all traditional banking services.

Deposit Products:

1. Al-Wadia Current Deposit
2. Mudaraba Savings Deposit
3. Mudaraba Short Term Deposit
4. Mudaraba Term Deposit

• One Month
• Two Months
• Three Months
• Six Months
• Twelve Months
• Twenty Four Months
• Thirty Six Months

1. Foreign Currency Deposit
2. Mudaraba Savings Scheme

• Monthly Savings Scheme(Money Grower)
• Monthly Income Scheme(Steady Money)
• More than Double the deposit in 6 years (Super Savings)
• More than triple the Deposit in 10 years (Multiplus Savings)
• Mudaraba Hajj Deposit

Investment Products:

1. Corporate Finance
2. Industrial Finance
3. Project Finance
4. Syndicate Investment
5. Mode of Investment

• Murabaha
• Bai Muazzal
• Izara Bil Baia
• Wazirat Bil Wakala
• Quard
• Local Documentary Bill Purchased
• Foreign Documentary Bill Purchased

Plastic Card Products

• VISA Islamic Card

Remittance:

• From UK through Exim Exchange Company (UK) Ltd.
• Cilenco Fast Cash.
• Western Union Money Transfer.
• ELDDORADO Money Transfer

L/C (Import & Export) Products EXIM Bank is posed to extend L/C facilities to its importers / exporters through establishment of correspondent relations and Nostro Accounts with leading banks all over the world.

Other Products

Grameen Phoney Bill Deposit

• Weaknass
• Threat
• Opportunity
• Strength

Electricity Bill Deposit

SWOT Analysis of EXIM Bank

Strength

Strong employee bonding and belongingness

EXIM bank employees are one of the major assets of the company. The employees of EXIM bank have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards EXIM bank. The strong culture of EXIM bank is the main reason behind this strength.

Young Enthusiastic Workforce

The selection and recruitment of EXIM bank emphasizes on having the skilled graduates and postgraduates who have little or no previous work experience. The logic behind is that EXIM bank wants to avoid the problem of „garbage in and garbage out‟. This type young and fresh workforce stimulates the whole working environment of EXIM bank.

Empowered Work Force

The human resource of EXIM bank is extremely well thought and perfectly managed. As from the very first, the top management believed in empowered employees, where they refused to put their finger in every part of the pie. This empowered environment makes EXIM bank a better place for the employees. The employees are not suffocated with authority but are able to grow as the organization matures.

Weaknesses

Moderate operating span

EXIM bank has a moderate operating span in Bangladesh. It has only 44 full service branches in Bangladesh situated only at Dhaka, Chittagong, Khulna, Rajshahi and Sylhet. Various geographic segments are currently not availing the services of EXIM bank due to inconvenient branch location or absence of neighborhood branches.

Absence of strong marketing activities

EXIM bank currently don‟t have any strong marketing activities through mass media e.g. Television. TV ads play a vital role in awareness building. EXIM bank has no such TV ad campaign.

 Lack of customer confidence

As EXIM bank is fairly new to the banking industry of Bangladesh average customers lack the confidence in EXIM bank. This is all due to the strong and aggressive performance by the Islami Bank of Bangladesh Ltd.

Lack of Financial Product

The bank falls far behind when the innovative and new schemes are considered. It has not been involved in the tug of war between the competitors to the accounts and strengthens the existing customer base. This stands out to be the major incompetence and weakness of the banks.

Opportunities

Countrywide network

The ultimate goal of EXIM bank is to expand its operations to whole Bangladesh and outside of Bangladesh. Nurturing this type of vision and mission and to act as required, will not only increase EXIM bank profitability but also will secure its existence in the long run.

Credit Cards

This is one of the most popular and emerging products in Bangladesh, which offers customers total financial mobility. Various other banks and institutions are currently offering this product. EXIM bank has introduced its own international Islamic Visa card. In future they have the opportunity to introduce other cards and facility.

Electronic Banking

The world today has become a global village because of advancement in the technologies, especially in communication sector. More emphasis is now given to avail the modern technologies to better the performances. EXIM Bank can utilize the electronic banking opportunity to ensure on line banking 24 hours a day. This would give a competitive edge over others.

Micro Financing

Because of the need for micro financing in the market, there are lot of opportunities in this regard. Other banks have already initiated, now the time has arrived when the EXIM Bank must realize it and take on step to cater an ongoing demand.

Threats

Upcoming Banks

The upcoming private local and multinational bank poses a serious threat to the existing banking networks of EXIM bank. It is expected that in the next few years more commercial banks will emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against and win the battle of banks.

 Moderate Levels of Customer Satisfaction

EXIM bank should continuously improve its customer service strategies and the overall service quality needs to win the customer satisfaction undoubtedly.

Customers Complaints

There exists no regular and specific system of the removal of customer complaints. Now a day a need for total customer satisfaction is emerging and in their demanding consequences customer’s complaints are ignored.

I have been assigned as an intern at EXIM Bank Ltd., Rajuk Avenue Branch, for 3 months to fulfill my academic requirement of Bachelors of Business Administration. The duration of my Internship program was from 2nd May, 2011 to 31st July, 2011. First two weeks of my intern I worked in the General Banking Department. In the GB I have learn how to open bank accounts, how to issue pay orders and how to receive the checks and send it for clearing. Then I was sent to the Foreign Exchange Department. It was my core department. In my Internship report I have focused more on Foreign Exchange Department as I have worked & learned more from there. There are three sections under Foreign Exchange Department, which are-Export section, Import section and Foreign Remittance section. I was assigned to work in Export section as an Intern. I have worked in the reporting department of export section as an intern. I had to do all the activities related to reporting during my whole internship period. I have regularly checked and updated different register books related to export like Export register, FDBC register and FDBP register. I also updated files against particular FDBC and FDBP numbers, checked and stored the documents and uncovered discrepancies. I could do entry all the data of duplicate and triplicate copy of EXP form. I also learned to report the export details of EXIM Bank Ltd., Rajuk Branch to Head Office. During my intern period, I have learned to list export documents with related Letter of Credit and could provide acceptance, payment, realization or discrepancy against them.

Specific Responsibilities of My Job

Export Department

My main responsibility as an intern was to assist the officers of export sections-Mr. Ashraful Alam (Senior Officer of Rajuk Avenue Branch,EXIM Bank Ltd.) and Mr.Md. Moshiur Rahman – Management Trainee Officer of Rajuk Avenue Branch,EXIM Bank Ltd.) who deal with export procedures. In order to assist them, I have done a lot of jobs:

• Check out EXP form correctly.
• Fill the blanks of EXP form where necessary.
• Maintain records of realized payments for each organization party/clients.
• Update EXP register, FDBC register, and FDBP register.
• Checking & sort listing of documents and uncover discrepancy.
• Reporting to Head Office about export details.

General Banking

Apart from export department I also assist Mr. Md. Belal Hossian Tuhin (MTO), to issue pay orders and Mrs. Hosna Ara Begum (Senior Officer) for opening the accounts in the general banking department for some time. In this department my job responsibilities are-

• Maintain the account opening register
• Fill up the account opening form correctly
• Attested the Photocopies
• Sent the check requisition form every day
• Issuing the pay orders
• Balancing the pay order books
• Judge the checks at a glance
• Receive the checks and classify it either for same day clearing or normal clearing.

Different Aspects of Job Performance

Job performance depends on many factors like job responsibility, working condition, knowledge and expertise on the work activities; job satisfaction etc. The specific responsibilities of my job were not so tough to do, but too much work loads affect the job performance a lot. The working environment at this branch of EXIM Bank was very friendly, which helped me to consider myself as a part of my jobs with greater satisfaction.

Sometimes the job seems much boring. I could perform well due to the cordial assistance from all of the employees and staffs of this branch.

A Brief of EXIM Bank Ltd Rajuk Avennue Branch

Among fifty-nine branches of EXIM Bank Ltd., Rajuk Avenue branch is one of the most reputed and respected branches in all aspects. From the very beginning, this branch is contributing a lot to the bank. A brief of EXIM Bank Ltd. Rajuk Avenue branch is given below: Manager: Mr. Zoshim Udddin Bhuiyan,Senior Vice President & Manager Assistant-Manager: Mr.Tariqul Islam Choudhury,Vice President. Investment in charge: Shanti Kumer Roy, Assistant Vice President Foreign Exchange in Charge: Mr. Muhammad Yunus Ali, Assistant Vice President. Cash in charge: Mr. Kamrul Hasan, Executive Officer General Banking in Charge: Mr.Md. Maksudul Hoq, Principal Officer Total Number of employees:  Departments: EXIM Bank,Rajuk Avenue branch has three main departments. These are:

• General Banking Department
• Investment Department &
• Foreign Exchange Department

Observations:

* All the works are done through the software TEMENOS T24 which is the world renowned Core Banking Software.
* Though all the works are done by the software the bank have to maintain the hand written registers for audit and other official purposes.
* All the works need special attention specially the clearing, issuance of pay orders and the foreign exchange activities. If there is any mistake in issuing the pay orders, one senior officer has to authorize it.
* If the cheque has been represented 3 times and returned, it was instructed not to receive anymore.
* The environment of the bank is so friendly that‟s why everyone can enjoy their work very much.

Recommendations:

* As the bank implemented the latest software the employees need more training to assist with the software.
* The IT Department must work more fast when the problem occur so that they can start their work on time to serve the customers.
* The customers must fill the KYC (Know Your Customer), TP (Transaction Profile) form properly.
* All the forms are not updated yet. It requires some more time to update.
* The account opening forms must be filled up properly whether the customer is known or unknown.
* All the required papers must be taken and attested properly.

Origin of the Report

This report is an Internship Report prepared as a requirement for the completion of the BBA program of the School of Business, BRAC University. The primary goal of internship is to provide a job exposure to the students and an opportunity for translation of theoretical conception in real life situation. Students are placed in enterprises, organizations, research institutions as well as development projects. The program covers a period of 12 weeks of organizational attachment and 2 to 3 weeks of report finalization work.

After the completion of four-year academic BBA program, I was placed in EXIM Bank Ltd. Rajuk Avenue Branch in Dhaka for the internship program. The duration of my organizational attachment was, by policy 12 weeks, starting from May 02, 2011. As a requirement for the completion of the program I needed to submit this report, which would
include an overview of the organization, I was attached with and an elaboration of the project, I was supposed to conduct during the internship period.

Basically based on secondary data and information the report is made. The process and findings of the study is mainly demonstrating my capacity for some creative and original approach to solving practical problems in today‟s business. My area of specialization is Finance & Accounting and the area for this study is especially The EXIM Bank Limited, Rajuk Branch, Dhaka.

Objective of Report

There are two identified objectives of the study. This are Primary Objectives:
General objective is to gain the practical knowledge on the range of activities, policies associated with banking sector, internal & external influential factors for the product & procedures of the bank. This report will also give the opportunity to relate our theoretical understanding with actual scenario & state my findings & recommendations. 18

Secondary Objectives:
Specific objective is to gather information from possible sources and analyze the selected scopes sited below regarding the selected company

To give a brief overview of EXIM Bank Ltd. and the functions and servicesoffered by the bank.
To identify the implements and the way of implementing the Money Laundering Prevention Act in Bangladesh.
To identify initiatives to manage Money Laundering risk in the banking Industry of Bangladesh. State a guideline for banks to implement and prevent Money Laundering in the banking sector and in economy.
To identify the rules and policies that is followed by the EXIM Bank to prevent money laundering.

Scope of Study

Broadly, this study has covered one branch of a local bank working in Bangladesh about Anti Money Laundering efforts. This study has been conducted at the EXIM Bank, Rajuk Avenue Branch at Dhaka.

A Brief History of Money Laundering
US gangster boss AI Capone was the initiator of Money Laundering. He earned a huge amount of money through drug trafficking. Later he was arrested for tax evasion and stayed in the Libian prison. During 1920s he had some laundry firms those maintained accounts with banks. With legal money he also put his illegally earned money in the bank to make his illegal money legal. From then this term “Money Laundering” come into being.

It was also heard that Gangsters sometimes used their illegally earned notes to make soil and later those unusable notes were put into the US Federal Reserve, in return, they get cash certificates which was easily convertible in the banks. So the term Money Laundering was justified from then.

Though this process of making dirty money clean, started long before but this term was used in US newspapers in 1970s. In 1980s US mafia used pizza shop and jewelry parlor to laundry their illegal money through banks. The main grounds of using this kind of business were- they are very liquid in nature so no one can identify the actual income
through this business.

In 2000 politically exposed persons also join in this group to make black money white so that they can use it freely. In 2001 terrorist financing – although only one aspect of Money Laundering, has become a critical concern following the events of 11 September, 2001.

The term “Money Laundering” is said to originate from Mafia ownership of Laundromats in the United States. There Gangsters were earning huge cash from extortion, prostitution, gambling and bootleg liquor. They needed to show a legitimate source for these monies.

The Act of “Money Laundering” was not invented until the Prohibition era in the United States, but many techniques were developed and refined then. Many methods were devised to disguise the origins of money generated by the sale of illegal alcoholic beverages. Following Al Capone’s 1931 conviction for tax evasion, mobster Meyer21 Lansky transferred funds from home to accounts overseas. After the 1934 Swiss Banking Act which created the principle of bank secrecy, Meyer Lansky bought a Swiss bank where he would transfer his illegal funds through a complex system of shell companies and offshore accounts.

The term “Money Laundering” itself does not derive, as it often said from the story that Al Capone used Laundromats to hide ill-gotten gains. It was Meyer Lansky who perfected Money Laundering’s older brother “capital flight”, transferring his funds to Switzerland and other offshore places. The first reference to the term “Money Laundering” itself actually appears during the Watergate scandal (1973). US President Richard Nixon’s “Committee to Re-elect the President” moved illegal campaign contributions to Mexico, then brought the money back through a company in Miami. It was Britain’s Guardian newspaper that coined the term, referring to the process as “Laundering.” (Money Laundering- A Brief History by Billy Steel)

Laws in Money Laundering
Until the 1980s only a handful of jurisdiction had criminalized in Money Laundering but it became mandatory to protect the financial stability of a concerned country and the world economy as a whole. As a result in last ten years we have seen an increase in the inaction of laws and regulations. As we shall see that Money Laundering can have detrimental effects on the social and economic fabric of a nation. The United States were the first to enact anti-Money Laundering laws. Any transaction over $10,000 was being subject to mandatory and heavy examination. This resulted in disguised deposits by the launderers. But even with such laws many financial institutions helped these launderers and then large fines were imposed on these financial institutions by the Federal Court to prevent Money Laundering.

During late 1980s there was a growing concern about Money Laundering‟s threat to the international banking system and then initiatives taken to curtail this massive criminal 22 activity. The body that has most successfully coordinated international anti-moneylaundering initiatives is the Financial Action Task Force on Money Laundering
(FATF).The G-7 Nations (USA, Canada, Britain, Germany, Japan, Italy & France) implemented the Financial Action Task Force in 1989 and the FATF is now the major driving force promoting action against Money Laundering. The FATF put forward 40 recommendations which have now become standards against which anti-Money Laundering regimes are measured. This policy making task force was assigned responsibility for examining Money Laundering techniques and trends, reviewing prior national and international action and determining additional Anti-Money Laundering measures.

Today this comprehensive set of measures is the leading international Anti-Money Laundering standard. The 40 Recommendations cover the criminal justice system and law enforcement, the financial system and its regulation and international cooperation. The recommendations set out principles for action and allow countries flexibility in implementing these principles in accord with their particular circumstances and laws. Many countries have made a political commitment to combat Money Laundering by implementing the recommendations even though they are not binding agreements. The actual 40 recommendations are beyond the scope of this report. So I will just provide a summary which is understandable by all. The 40 recommendations are attached in the appendix.

Summary of 40 Recommendations
Criminalizing the laundering of the proceeds of serious crimes and enacting measures to seize the proceeds of crime.
Requiring financial institutions to identify all clients, including any beneficial owners of property, and to keep appropriate records.
Ensuring adequate systems for the control and supervision of financial institutions.23
Establishing international treaties or agreements to pass national legislation that will allow countries to provide prompt and effective international cooperation at all levels.
Requiring financial institutions to report suspicious transactions to the competent national authorities and to implement a comprehensive range of internal control measures.

Definition of Money Laundering
The simplest definition of “Money Laundering” is that – Money Laundering is the process of converting cash, or other property that is derived from illegal activity, so as to give it the appearance of having been obtained from a legitimate source. Generally, the act of conversion and concealment is considered crucial to the laundering process. It is important here to identify various illegal activities before actually going into a deep analysis. Cash or Valuables that are derived or are proceeds of illegal activity include, drug production and selling, smuggling, theft, blackmail, bribes, terrorism, tax evasion and any other crime committed that results in financial gains.

Reasons of Money Laundering 

Criminals engage in Money Laundering for three main reasons:
First, money is the lifeblood of the organization that engages in criminal conduct for financial gain. Because it covers operating expenses, replenishes inventories, purchases the services of corrupt officials to escape detection and further the interests of the illegal enterprise and pays for an extravagant lifestyle. To spend money in these ways, criminals must make the money they derived illegally appear legitimate.

Second, a trail of money from an offense to criminals can become incriminating evidence. Criminals must obscure or hide the source of their wealth or alternatively disguise ownership or control to ensure that illicit proceeds are not used to prosecute them. Third, the proceeds from crime often become the target of investigation and seizure. To
shield ill- gotten gains from suspicion and protect them from seizure, criminals must conceal their existence or, alternatively, make them look legitimate.

The Cycle Of Money Laundering

Before going into the cycle of Money Laundering it is important to identify the ingredients and tools required to clean dirty money so that the cycle becomes much clearer.

Money Laundering Tools And Equipment

The first obvious ingredient is the proceeds mainly in the form of cash derived from illegal sources.
Employees who are prepared to process the dirty money contrary to laws and regulations.
Computers to process electronic fund transfers through the anonymity of the internet.
Regulatory body that are either corrupt, ineffective or lacking the statutory powers.
The love for money therefore seems to be the root of all evils. Now-a-days it is possible to transfer large volumes of cash around using wire transfers providing the temptations to commit more illegal activities and the proceeds from those being laundered.
Actual Money Laundering generally takes place through a cycle of transactions, also known as the stages of Money Laundering. There are three different stages that a money launderer generally has to go through to make his illegally earned assets look legitimate.
Speaking from the launderer‟s point of view, all of these stages need to be gone through with a great degree of caution. The stages of Money Laundering are placement, layering and integration.

Stages in Money Laundering
Placement Stage
This is the initial stage of Money Laundering where the funds from illegal activities are introduced into the financial system. This is known as placement. Simply the funds are in majority raw cash and the launderer wishes to „place‟ the funds into the financial system mainly through the help of numbered bank account and if possible in different banks. The main intention here is to get the dirty money across the counter. This stage usually involves:

Depositing the cash at a bank that is mingled with clean funds from legitimate business sources to avoid suspicion. Then converting the cash to:
* Purchase money market instruments, securities or fixed deposits. In the context of Bangladesh maybe Sanchya Patras are purchased.
* Readily recoverable debt Breaking up one large amount of cash deposit into many smaller ones that can be
deposited over the counter without raising suspicion from the teller‟s end, a process known as surfing.
Purchasing high value goods for personal use.

Layering Stage
The purpose of this stage is to make it more difficult to detect and uncover a laundering activity. It is meant to make the trailing of illegal proceeds difficult for the law enforcement agencies. Usually this is achieved by a wide variety of methods according to the opportunity given to, and the ingenuity of the criminals and their advisors. Usually the
stage involves:

Channel the fund through purchase or sale of investment instruments.
Wire the fund through a series of accounts at various banks across the globe or across jurisdiction.
Use of cash deposits as collateral security in support of legitimate transactions.
Resale of purchased goods/assets and the proceeds moved elsewhere.
The idea of layering is to move the money around and thus disguise its illegal origins as far as possible. This process of layering is mainly prevalent and more profound in countries where the jurisdictions do not cooperate with anti-Money Laundering investigations or compliance is not given due diligence. The financial institutions all over the world have been prompted to be aware of this stage.

Costs To Our Society

Money Laundering mainly comprises of funds acquired through criminal activity, such as sale of narcotics, terrorism, evasion of tax, drug trafficking, theft or burglary, smuggling,criminal deception, illegal gambling, prostitution, book making, black mailing, extortion, loan sharking, and any other offenses mentioned by the law. Directly or indirectly these crimes affect everyone. For instance a drug addict on an average commits more than two
hundred crimes a year. With even a small increase of the addict population, due to the increase in drug trafficking, the chance of each individual being victimized is increasing immensely. Hence the social and law enforcement cost of these crimes are very high, even if these crimes are committed within the country or overseas. Therefore if it is left
unchecked the consequences can be severe. Organized crimes can penetrate into the financial institutions and acquire control of a large stake of the economy through investment. It can also encourage practices such as offering bribes to public or government servants, which is already prevalent here in Bangladesh. Among its other negative socioeconomic effects, Money Laundering transfers economic power from the market, government, and citizens to criminals. In short, it turns the old proverb that crime doesn’t pay on its head. Furthermore, the pure degree of the economic power that accrues to criminals from Money Laundering has a corrupting effect on all elements of society. In extreme cases, it can lead to the virtual take-over of legitimate government.
Overall, Money Laundering presents the world community with a complex and dynamic challenge. Indeed, the global nature of Money Laundering requires global standards and international cooperation if we have to reduce the ability of criminals to launder their proceeds and carry out their criminal activities. The influence of criminal organizations on the politics and economy can weaken the social fabric, collective ethical standards, and ultimately the democratic system of a country. In short Money Laundering enables criminal activity to continue and if it is already prevalent in the economy then temptations to make more money.

Exposure of Emerging Markets

Money Laundering is a problem not only in the world’s major financial markets and offshore centers, but also for emerging markets. Indeed, any country integrated into the international financial system is at risk. As emerging markets open their economies and financial sectors, they become increasingly viable targets for Money Laundering activity.

Increased efforts by authorities in the major financial markets and in many offshore financial centers to combat this activity provide further incentive for launderers to shift activities to emerging markets. There is always a presence of significant cross-border cash shipments to markets with loose arrangements for detecting and recording the placement of cash in the financial system and of growing investment by organized crime groups in real estate and businesses in emerging markets. Unfortunately, the negative impacts of Money Laundering tend to be magnified in emerging markets.

A closer examination of some of these negative impacts in both the micro- and macroeconomic realms helps explain why Money Laundering is such a complex threat, especially in emerging markets.

Threat to the Economy
As the developed nations are becoming more and more cautious of the ways of Money Laundering, the launderers are also trying to find innovative ways to serve their purpose. For this reason, countries with growing and developing economies are day by day becoming number one targets of such activities. This is only due to the lack of regulatory control in almost all sectors of the developing and underdeveloped nations. Like the damaged reputation of a financial institution, there are damaging effects to an economy, which can be caused by Money Laundering. If the launderers can penetrate into the economy, then the commercial and financial sectors are bound to be under the
influence of organized crime. The situation in Bangladesh is quite similar to that.

Effect on Unemployment

Money Laundering has an unavoidable and inevitable connection with the underworld and the situation in Bangladesh is worsening every day. Criminal and illegal activities are increasing in every aspect of life here. With a steady rise in drug trafficking (to speak the least) the addict population of our country is increasing even as we speak. And generally speaking most of this addict group does not add any value to our country, rather others have to work and support them. In short if these groups of the population do not work and merely dependent, by the way which is increasing in number, then, these underworld activities are helping to increase the rate of unemployment in our country.

Effect on Economic Development
The negative economic effects of Money Laundering on economic development are difficult to quantify. It is clear that such activity damages the financial sector institutions that are critical to economic growth. It reduces productivity in the economy‟s real sector by diverting resources and encouraging crime and corruption, which slow economic growth, and can distort the economy‟s external sector (international trade and capital flows) to the detriment of long-term economic development.

Undermining the Private Sector

One of the most serious microeconomic effects of Money Laundering is felt in the private sector. Money launderers often use front companies, which co-mingle the proceeds of illicit activity with legitimate funds, to hide the ill-gotten gains. For example, organized crime may use pizza parlors, music shops (selling DVDs, VCDs or music CDs) or
stationery outlets to mask proceeds from illegal activities. These front companies have access to substantial illicit funds, allowing them to subsidize front company products and services at levels well below market rates. In some cases, front companies are able to offer products at prices below what it costs the manufacturer to produce. Thus, front companies have a competitive advantage over legitimate firms that draw capital funds from financial markets. This makes it difficult, if not impossible, for legitimate business to compete against front companies with subsidized funding, a situation that can result in the crowding out of private sector business by criminal organizations.

Furthermore as a result of this undermining in the private sector Money Laundering threatens the efforts of many states to introduce reforms into their economies through privatization. Criminal organizations have the financial wherewithal to outbid legitimate purchasers for formerly state-owned enterprises. Furthermore, while privatization
initiatives are often economically beneficial, they can also serve as a vehicle to launder funds. In the past, criminals have been able to purchase marinas, resorts, casinos, and banks to hide their illicit proceeds and further their criminal activities.

Lastly, the management principles of these criminal enterprises are not consistent with traditional free market principles of legitimate business, which results in further negative macroeconomic effects.

Threat to the Financial Institutions

It is quite inevitable that the very presence of financial institutions such as banks, nonbank financial institutions (NBFIs) are critical to economic growth in developing countries  and even more so for Bangladesh. Such institutions allow for the concentration of capital resources from domestic savings, and perhaps even funds from abroad, and the efficient allocation of such resources to investment projects that generate sustained economic development.

Money Laundering impairs the development of these important financial institutions for two reasons:

First, it erodes financial institutions themselves. Within these institutions, there is often a correlation between Money Laundering and fraudulent activities undertaken by employees. At higher volumes of Money Laundering activity, entire financial institutions in developing countries are vulnerable to corruption by criminal elements seeking to gain further influence over their Money Laundering channels.

Second, particularly in developing countries, customer trust is fundamental to the growth of sound financial institutions, and the perceived risk to depositors and investors from institutional fraud and corruption is an
obstacle to such trust.

By contrast, beyond protecting such institutions from the negative effects of Money Laundering itself, the adoption of anti Money Laundering policies by government financial supervisors and regulators, as well as by banks, NBFIs, and equity markets themselves, reinforce the other good governance practices that are important to the development of these economically critical institutions.

Reputation Risk
Nations cannot afford to have their reputations and financial institutions tarnished by an association with Money Laundering, especially in today’s global economy. Confidence in markets and in the signaling role of profits is eroded by Money Laundering and financial crimes such as the laundering of criminal proceeds, widespread financial fraud, insider trading of securities, and embezzlement. The negative reputation that results from these activities diminishes legitimate global opportunities and sustainable growth while attracting international criminal organizations with undesirable reputations and short-term goals. This can result in diminished development and economic growth.

Furthermore, once a country’s financial reputation is damaged, reviving it is very difficult and requires significant government resources to rectify a problem that could be prevented with proper anti-money-laundering controls. Money Laundering has a corrosive effect on a country’s economy, government, and social well-being and given the technological advantages to money launderers now employ, a high level of international cooperation is necessary to keep them in check. It is quite clear that Money Laundering has potentially devastating economic, security, and social consequences. It provides the fuel for drug dealers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. Crime has become increasingly international in scope, and the financial aspects of crime have become more complex due to rapid advances in technology and the globalization of the financial services industry.

Modern financial systems, in addition to facilitating legitimate commerce, also allow criminals to order the transfer of millions of dollars instantly using personal computers and satellite dishes. Because Money Laundering relies to some extent on existing financial systems and operations, the criminal’s choice of Money Laundering vehicles is limited only by his or her creativity. Money is laundered through currency exchange houses, stock brokerage houses, gold dealers, casinos, automobile dealerships, insurance companies, and trading companies. Private banking facilities, offshore banking, shell corporations, free trade zones, wire systems, and trade financing all can mask illegal activities.

Money Laundering can erode the integrity of a nation’s financial institutions. Due to the high integration of capital markets, Money Laundering can also adversely affect currencies and interest rates. Ultimately, laundered money flows into global financial systems, where it can undermine national economies and currencies. Money Laundering is thus not only a law enforcement problem; it poses a serious national and international security threat as well.

In short, Money Laundering and financial crime may result in inexplicable changes in money demand and increased volatility of international capital flows, interest, and exchange rates. The unpredictable nature of Money Laundering, coupled with the attendant loss of policy control, may make sound economic policy difficult to achieve.37

Cash Cultures

Bangladesh being a third world country comparatively takes a longer time to accept technological advancement. This is especially true in the case of financial sector.
Although there has been much development in the financial sector (Cheques, ATM cards, Credit cards, online banking) but still the majority of our population believe in the cash transaction when it comes to business dealings. People in Bangladesh take banking transactions as a hassle. This is due to the poor customer service, long queue, and lack of banking knowledge. In addition to that there is the fear of the given cheque being bounced back due to insufficient balance. Now if the beneficiary maintains account in a different clearing region, it might take as long as one to two weeks for the fund to be received at the designated account after going through different Clearing houses.

Hence to avoid this lengthy and complicated process (as perceived by the majority) Bangladeshis prefer business transactions to be in cash and discard paper transactions as much as possible. This so-called cash culture is acting as a great advantage to the money launderers. As most of the business people are placing cash money over the counter from their business earnings, it is very convenient for the money launderers to mingle their dirty earnings with their legitimate funds to be put across the bank counter.

Private Banking Relationship
The term private banking generally means the personal or discreet offering of a wide variety of financial services and products to the affluent market. In Bangladesh few of the multinational banks like HSBC, Standard Chartered Bank these customers are referred to as Priority Customers. These operations typically offer individual, commercial business, law firms, investment advisors, trusts, and also personal investment companies may open private banking accounts. Due diligence for private banking customers usually includes a more extensive process than retail customers. It is critical to understand the client‟s source of wealth, needs, and expected transactions.

Electronic Banking

This is also known as E-banking. The term possesses a wide area of operation. This could include delivery of information, products, and services by electronic means (such as telephone lines, personal computer, automated teller machine, and automated clearinghouse). Although in Bangladesh we still have a long way to go in this field, but
some of the multinational banks and private local banks have already started e-banking and has a good prospect of expanding in this segment of the market and the product offers will continue to grow at a rapid pace. Few of the e-banking services include credit cards, loans, deposits, wire transfer, and bill paying services. This medium of banking is vulnerable to Money Laundering and terrorist financing because of its user anonymity, rapid transaction speed, and its wide geographic availability.

Roles that Financial Initiations Must Play

According to the requirements of Anti-Money Laundering Circular financial institutions
must have, A written anti-Money Laundering program that sets forth KYC policies and
procedures. The designation of Anti-Money Laundering Compliance Officers. Record keeping and reporting practices. Monitoring procedures to detect and report suspicious activity. Establishes a system of internal controls to assure ongoing compliance.

Customer identification: Know Your Customer (KYC)

The KYC program is a major requirement while complying with regulations regarding Money Laundering which simply involves the process where the bank or any other financial institution gets a chance to know their clients.

Reporting unusual or suspicious transactions
Account or customer activity should be monitored for significant changes. The key is to look for changes inconsistent with the legitimate normal business of the customer.

Senior management commitment Towards AML
The senior managers of financial institution are also responsible greatly to train each of the employees on the area of Money Laundering and it consequences. They should focus 50 on preparing a comprehensive, board-approved compliance program according to rules and regulations set out by the central bank (BB). Not only the preparation is necessary but also full implementation of the board-approved compliance program is mandatory.
Reporting to senior management on compliance efforts, audit results, compliance deficiencies, and corrective action is the next step towards successful anti-Money Laundering practice. Finally managers should establish conditions of employment that require compliance with regulations.
Thus it is understandable that bank staffs have a personal legal obligation under law to disclose suspicious transactions or they may personally be liable for failure to report suspicions through their Bank‟s internal reporting process. A question may arise to why such compliance is highly emphasized. The answer is simple and is laid out in the following points:

i. First, failure to comply damages public relations with negative consequences to corporate relations. As a result there will be significant loss of public trust and the financial institution/s in concern will be looked with a different eye.
ii. Secondly, negligence or total failure to comply results in financial losses which is obvious. Firstly this occurs due to a loss in the market share as clients or customer would move away. Secondly failing to comply institution/s will end paying huge fines which is twice the amount of money laundered.
iii. Legal ramifications are the third reason why compliance is given top priority. Failing to comply could cause loss of license, fines (as already mentioned), imprisonment of senior executives and civil suits by customer.
Therefore the each employee is individually responsible for compliance. Ignorance of laws, regulations or institution‟s own policies cannot be an excuse for failure to comply.

Each individual is responsible for:
Understanding and maintaining high ethical standards, including the standards and policies of the institution they work for.
Understanding and complying with local rules and regulations that apply to the job.
Consulting with managers, compliance officers and legal counsel as and where appropriate when they have questions regarding compliance or concerns of compliance failures or violations.
It is imperative at this point to fall back for a brief review on what was discussed at the very beginning of the project part, i.e., what is Money Laundering and why Money Laundering is done.

ML Risk for EXIM Bank:
The financial transactions in Bangladesh are still associated to a Cash Culture based society. Payments through cheques, credit cards etc. are still not being treated as a reliable mode of payments to businessmen due to some misappropriation by dishonest parties. Furthermore, the clearing and collection process of cheques take relatively much more time due to the manual process, as automated system is not yet available in Bangladesh as a whole. The unavailability of global and local networks of banks, fear of wage earners in going to banks, delay and changes in Banking channel etc. have impact on Hundi Business, which is on the contrary appreciated by some of the wage earners for remitting money. But as this money does not reflect our official reserve, this unregulated cross
border flow has tremendous effect on our national economy in terms of trade imbalance, inflation, devaluation of currency etc. There are some trends of „Under and Over invoicing‟ in Trade Finance in the market. Besides, customers are in general very reluctant and sometimes even not cooperative in providing adequate KYC information. Above all, for the high level of corruption in the country, the risk of ML persists in Bangladesh
significantly. However, the strict control monitored by the Bangladesh Bank through its Guidelines for Foreign Exchange Transactions play a vital role in preventing ML across border, in addition to the ML Act provisions. With the rapid growth in PFS (Personal Financial Services) and CMB (Commercial banking) Business, the emphasis will remain in strict implementation of „KYC‟ discipline and close monitoring of the existing Special Categories of Clients (SCC) to ensure a high quality of client base for the Bank.

Cash Transaction Report (CTR)

Every month EXIM Bank, Rajuk Avenue Branch has to send a report to the Central Compliance Unit, Head Office, which is known as Cash Transaction Report (CTR). In this report, every cash transaction of this branch has to be reported to the Central Compliance Unit, Head Office by using FIU reporting System Software provided by B angladesh Bank.
Finally the Head Office sends the report to Anti-Money Laundering Department of Bangladesh Bank.

Suspicious Transaction Report (STR)

It is another type of report which has to be sent to the BB. The transactions which amounts started from 7, 00,001, are suspicious in nature to the bank authority, has to be reported to the BB immediately through the Central Compliance Unit, Head Office. The BB then verifies and judges the source of the transaction whether legal or illegal. If Bangladesh Bank founds anything illegal, it takes necessary steps against the party.
The overall administrative and legislative efficiency and consistent continuity of such environment in the financial sector is a pre-requisite to execute the Money Laundering Prevention Act smoothly. The Government must be sincere and should believe the policy, which must not be distorted frequently. Autonomy of judicial body may ensure
appropriate environment.

HUNDI must be stopped at any cost. To ensure thatAdequate number of branches or exchanges should be set at both in overseas and in Bangladesh. Bank charges on remittances should be reduced and bank procedures must be made simplified so that workers earning wage in overseas can easily remit fund to their dear ones in remote areas who without any fear can also go to the branch and have their money without hassle. The damaging affect of HUNDI on national economy to be advertised by media and Bangladesh Bank.

Businessmen and bankers must be careful and honest who deals with export-import transactions, so that country does not suffer for under and over invoicing.

Customers must be told to avoid cash culture. Banks can play a positive and controlling role in this regard by advising customers about the risk of carrying physical cash, risk of undocumented transaction, negative impact on customer service for counting and waiting for huge cash. Similarly all banks should try to establish online banking among their branches throughout the country and set up Automated Teller Machines (ATMs), plastic cards, E-business, etc. gradually. All banks should make some arrangement to make the collection system speedy.

As all proceeds generated from any type of crime or illegal activities are dirty money and comes under jurisdiction; it is not possible only by Bangladesh Bank and its schedule banks to fight against Money Laundering. It is clear that crime is primary and proceeds are secondary, hence Government i.e., law enforcing authorities must stop the crime first and punish them within a shortest possible time. To ensure the transparency and integrity of these agencies are a pre-requisite for the control mechanism in banks to prevent ML. Government pay scale must be made at par with the Cost of Living index and simultaneously these Government agencies to be made
accountable to people.

The ML prevention Act must be revised time to time to be in the track of changing global phenomenon by taking feedback from bankers, customers and lawyers etc.

Bangladesh Bank Anti – Money Laundering Department must be well equipped as soon as possible in terms of training, resources, segregation of work and adequate authority. Officials of Bangladesh Bank AML must be sent to overseas for standard and sophisticated training so that they can train other banks and investigate properly.

All local banks must immediately take appropriate measures by setting separate Compliance Unit to prepare Anti- ML Policy for their banks, establish appropriate KYC principals and train their staff to recognize suspicious transaction. Local banks may seek assistance from other banks who are expert in this case.

Government must not take contradictory policy especially in Finance, Commerce, Taxation, Trade and law enforcing sectors to foil the complications which may cause the delay and ineffective decision by the court.

Merely making a law won‟t assure 100% implementation. Advertisement is necessary to create general awareness among all people at all levels. Movement against Money Laundering is not inferior to any other social problem like child labor, drug abuse, etc. The national Dailies, Radio, Television should run appropriate campaign for mass
people. Government more precisely Bangladesh Bank must take initiative as the central bank of our country immediately.

Despite the several drawbacks and impediments in the way of execution of Money Laundering prevention Act, there are some efforts already taken, which illuminates some light for hope. The senior management of Bangladesh Bank, especially the Governor and Deputy Governors have taken the Money Laundering responsibility seriously. They have formed central and regional Task Forces immediately of enactment of the law and then they formed a separate department. The Governor has formed four special focus groups one of which is on Money Laundering prevention. The task of the focus group is to prepare a guideline for all banks incorporating the best practices on prevention of Money Laundering. It is really a good signal for us that we have got a written Anti-Money Laundering Act in our country. EXIM Bank is always concern about this issue and took it a serious issue to hinder the Money Laundering. But it becomes more and more cautious and as this reason it took a project in 2005 to update all of its customer information within the year of 2010. And it also arranges seminars and other programs regarding this issue to disseminate awareness among banks and customers. EXIM Bank also takes part in different training programs to train other local banks to be informed and keep updated. They also take the feedback of their activities once a week and it does more than the Act implies. They also give training to their staffs about the issue. To combat Money Laundering, EXIM Bank is always sincere and it takes all necessary steps time to time.