Prakash Kandel (AML Expert)
Money Laundering is the growing issue for preventing the nation from financial crime. Most of the crime has the nexus with the money. People think of earning money either from legal way or from illicit method in order to fulfill their self-interest. Developing and least developed countries are facing hard time executing the AML/CFT legislation. It is because of structural deficiency, weak willingness of country, delaying in technology adoption, less focus on international best practice, unable to defeat policy corruption, knowledge and insufficient human capital.
Till date regulatory concern is mainly felt on private, public and personal transaction. Regulatory body pressurize the reporting entities for finding suspicious transaction. Similarly, reporting entities have gradually grown up to tackle the AML/CFT risk. However, the reporting entities are not causes of money laundering. It is effect from where launder transaction is being first initiated.
Beginning Of Corruption & Money Laundering
Nation accumulates the money from various taxation policies. There is huge amount of money in government treasury. Thus, such large amount of money comes out from government expenditure account. Lack of efficient monitoring mechanism and signatories of government body hiding money laundering activities has created huge obstacle in minimizing such activities. When reporting entity request KYC of signatories of government account operators, they often show unwillingness. However, every year transparency international corruption report reveals that corruption figure of Nepal is uncontrollable. Hence, there is no doubt that the source of big money transaction has been from government transaction.
Government pays money for procurement of service from service providers, suppliers and contractors. During the initiation of procurement, there is provision of contingency bill. That contingency amount is unspoken amount ever enjoyed by government personals. Unless, the contingency amount would not transfer into beneficial owner account of respective signatories, the rest bill would not be disbursed. It is common practice found in development office of the government. Basically, the office related with physical infrastructure carrying the responsibility of development and other similar development office has made connection of respective comptroller office from where payment to agencies is out.
Similarly, in case of social security amount that is distributed from local level in quarterly basis, there is high probability of corruption. At the time of distribution, large volume of withdrawal cheque is submitted to bank. Whereas there is no provision to withdraw more than 1 million rupees cash in one time. When bank restrict it, they receive pressure from the local level. There is no effective monitoring as to how much amount is distributed to beneficiaries. There is chance to fraud and payment paper has been made even though beneficiaries not alive.
How Money Laundering Occurs?
That illicit money goes to capital market via banking channel. Where, the beneficial owner is able to provide KYC to reporting entities i.e, bank and stock broker office. Such beneficial owners are holding cash intensive business which is why their source can be easily shown in KYC details. Beneficial owner invest that money in stock market and also use it to purchase the land and building. In this way the source might be slightly wiped out. And the mission of corruption has been success.
Another way of money laundering occurs during the election period. When election period is declared, large amount is transferred to election office. The account operator and election team make withdrawal cheque amount beyond the limit for cash payment to deploy election staffs and other activities. Even though, knowing the rule and regulation, they are interested to handle huge cash and easily make convenient environment for corruption. Therefore, if we all are not responsible to fight against ML from our role it could not be materialized.
How To Combat Money Laundering Activities?
For combat with such event, FAFT (Financial Action Task Force) recommendation no. 6 has mentioned Politically Exposed Person (PEP) and their associates should be enforced to adapt enhanced customer due diligence (ECDD) in addition to normal. Likewise it has big concern about accountant and lawyer and mentioned them in high risk. In this category, the reporting entity should also follow ECDD guidelines.
However, in practice it is difficult to have prescribed detail from such type of customer or government employees. They feel themselves are elite and honorable person. Since, they are policy maker which means government itself is unlikely to provide their detail. It hurdles reporting and none of the senior management intervenes to reject such customer it is usual practice of reporting entity. When government itself does not follow the AML/CFT provision in entire wings, the objective of combating with ML would never be materialized.
If reporting entities restrict or prohibit such customers, their business might be switched to others competitors. No one can lose the business or client or parties. The market competition is not fair because of inadequate capability of regulatory body.
Moreover, the chance of ML begins while the procurement start and contract is awarded. When huge amount of payment is out from government body, every entities or connection party’s link should actively follow the movement of money and have knowledge regarding ML system. They should know where the payment amount has gone. It should be major responsibility of government body to acquire information regarding prospective beneficial owner.
Likewise, government employees should give their KYC information to reporting entities. Unwillingness to provide KYC information would not supportive to combat with AML/CFT goal and corruption alleviation of nation would be only slogan.