Wednesday, October 31, 2012

Preparing for the Professorial Lecture

Just a day before the professorial lecture, the committee members have been working very hard to ensure that the event will be a success.
Getting the hall ready; confirming guest attendance; ensuring that there will be enough foods for everyone; communicating with publisher for book delivery etc etc; the committee members have been kept busy all day today. The rehearsal went as scheduled, and it is now my responsiblity to deliver the lecture to the audience. Thank you Dr Megawati for suggesting the catchy title "Stolen Fruit is the Sweetest ... or the Bitterest...?. Thank you all for your commitment

Tuesday, October 23, 2012

Non Profit Organisations Sector

Whilst no one doubts that the work of Non Profit Organisations (NPOs) is important, it is worthwhile to pay attention to the Mutual Evaluation Report produced and published by the Asia Pacific Group of Anti-Money Laundering (APG) which is related to NPOs.
Basically, the APG Mutual Evaluation Report specifies that “the use of charities and NPOs continues to be the leading source of funds for money laundering and terrorism financing”. The NPOs feature a number of vulnerabilities that money launders and terrorist organisations can use. They are: 1. NPOs enjoy public trust. 2. NPOs have access to considerable sources of funds. 3. NPOs are often cash–intensive. 4. Some NPOs have a global presence that provides a framework for national and international operations and financial transactions, often within or near areas that are most exposed to terrorist activity. 5. NPOs may often be subject to little or no governmental oversight (registration, record keeping, reporting and monitoring, check of background of beneficial owners, employees, management). 6. Governmental bodies may have insufficient resources to effectively oversee the sector. 7. NPOs may have limited resources or capacity to withstand demanding regulatory requirements.
Some of the negative economic effects of money laundering and terrorism financing include firstly, they undermine the integrity and soundness of the NPO sector that is critical to economic growth. Secondly, they reduce productivity in the economy's real sector by diverting resources. Thirdly, they distort the economy's international trade and capital flows to the detriment of long-term economic development and finally, the NPO sector can inadvertently become part of the criminal network encouraging criminal activity. Future research may include developing governance framework for NPOs.

Wednesday, October 17, 2012

Cost Effectiveness Model for CFT Regime

Ideally, an effective AML-CFT Compliance Programmes must be designed to address both the "costs" and "effectiveness" elements of the programmes. Cost effectiveness model may include evaluating the following: 1. the risks specifically posed by the products and services that one's business offers; 2. the type of customers that that business attracts; 3. the methods in which the products are delivered; 4. the geographies linked to the underlying transactions; 5. the vulnerabilities that the business poses to the risk of facilitating money laundering or terrorism financing; 6. the compliance programme to include details of the policies, systems and controls to manage and monitor the risks presented. 6. these controls to include the means for detecting suspicious transactions and frequency of customer due diligence. By applying a risk based approach, one can determine if a business is overcommitting resourcing to areas of low to medium risk.

Sunday, October 14, 2012

Assessing Cost of Fraud

This is an excerpt from the ACFE Website: According to the recent ACFE's Report to the Nations on Occupational Fraud & Abuse, the typical organization loses 5% of its revenues to fraud each year. Applied to the estimated 2011 Gross World Product, this figure translates to a potential projected global fraud loss of more than $3.5 trillion. Other key findings include: (1) The median loss caused by the occupational fraud cases in our study was $140,000. More than one-fifth of these cases caused losses of at least $1 million. (2) The frauds reported will normally take a median of 18 months before being detected. (3) In 81% of cases, the fraudster displayed one or more behavioral red flags that are often associated with fraudulent conduct. Living beyond means (36% of cases), financial difficulties (27%), unusually close association with vendors or customers (19%) and excessive control issues (18%) were the most commonly observed behavioral warning signs. (4) Occupational fraud is more likely to be detected by a tip than by any other method. The majority of tips reporting fraud come from employees of the victim organization.

Saturday, October 13, 2012

AML-CFT: Cost of Compliance

The Cost of Compliance for AML-CFT regime may differ from one institution to another institution. There are nevertheless some common costs incurred by a country that are not directly "absorbed" by a reporting institution. Example of costs incurred to establish AML-CFT legislation include items such as administrative costs, fees paid to experts, exposure drafts and various parlimentary readings and discussions. For financial institutions, costs could further be classified as "Prompted responses" and "Unprompted responses". Costs under the category of prompted responses include Training/professional development; Staff recruitment; Staff salaries; Monitoring software establishment; Software recurrent and External consultancy. Meanwhile, unprompted responses include Record keeping; monitoring; reporting; purchase of equipment or hardware; admin costs and customer relations. It is worth noting that reporting institutions are institutions that have been identified by the "AML-CFT Competent Authority - in Malaysia, this is Bank Negara Malaysia or BNM" who are expected to facilitate BNM by submitting "suspicious transaction reports or STR". Beside financial institutions, other reporting institutions are legal firms; accounting & auditing firms; company secretaries; casino; gem or metal dealers; money changers.

Friday, October 12, 2012

AML-CFT Fraud Risk Indicators

The Financial Action Task Force (FATF) is an inter governmental body set up in 1989 by various countries' jurisdiction with the aim of setting up standards and to promote effective implementation of legal, regulatory and operational measures to combat money laundering, terrorism financing and other related threats to the integrity of international financial system. The FATF developed several recommendations that are recognized as the international standards to combat money laundering and terrorism financing.
For financial institutions for example, FATF put forward the following recommendations to isolate high risk customers and high risk transactions. They include: (1) Policy and/or procedures for customer due diligence (R.5); (2) Policy and/or procedures for enhanced due diligence for politically exposed persons (R.6); (3) Policy and/or procedures for non-face to face business relationships (R.8); (4) Policy and/or procedures for anti-money laundering & counter terrorist financing programs (R.15); (5) Policy and/or procedures for countries that do not apply or insufficiently apply the FATF Recommendations (R.21); (6) Identify unusual and report suspicious transactions (R. 11 & 13) and (7) Consider identifying and reporting large currency transactions (R.19). Failure to comply to these recommendations constitute AML-CFT fraud risk indicators. The FATF have issued various recoomendations that covers various sectors and industries. Future research could look at indicators for various sectors and assess their effectiveness.

Thursday, October 11, 2012

AML/CFT Training & Competency Framework

Gupta (2011) proposes a “competency framework” for human resources and professionals. Indeed, this framework is deemed suitable to be adapted when training AML-CFT professions - investigators, compliance officers, lawyers, accountants, auditors and company secretaries. According to Gupta, an effective competency framework for professionals should encompass at least eight dimensions. First, the competency training should focus on the real life requirements of the profession. Second, the competency training should integrate skills, attitudes, knowledge and experience to enable auditors to perform their tasks effectively.
Therefore, their sense of responsibility to ensure reasonable assurance against material misstatements should outweigh “mere compliance” with the standard. Third, the proficiency level of the professionals' expected competency should be objectively defined. Fourth, the organizations where the professionals are attached should provide sufficient flexibility to allow them to build their own competency. Fifth, the contents of competency training should be continuously updated to reflect latest requirements. Sixth, competency should be repeatedly demonstrated to achieve the objectives of the stipulated standard related to AML-CFT. Seventh, competency should be assessed by performance in real life situations against well-defined criteria. Finally, competency should be developed using various strategies at organizational and individual levels. Future research could propose competency framework for specific AML-CFT professionals.

Wednesday, October 10, 2012

Research Topics Related to Money Laundering

Research interest in the area of Money Laundering is a fairly new phenomenon. Though money laundering activities have started many years ago, research in this kind of financial crime is very limited. Money laundering is the process or activity undertaken by money launderers (or fraudsters) to conceal the sources of "dirty money" that are obtained from illicit means. Just like the concept of a laundery machine that is used to clean dirty linens, the dirty money (which is illegal)is put through various mechanisms so as to the ligitimise its existence. Once ligitimized, the "clean money" can be used as normal instrument for business transactions. In Malaysia, money laundering crimes involved those classified as predicate offences under the Anti-Money Laundering and Counter Financing of Terrorism Act 2001 (AMLATFA 2001). Among the predicate offences include: illegal gambling, illegal deposit taking, sale of illegal drug, criminal breach of trust, fraud, drug trafficking, embezzlement, racketeering, tax evasion and human traficking. For research purposes, there remains a gap in the following areas: (1) Developing AML/CFT Training & Competency Framework for AML-CFT Investigators (2) AML-CFT Fraud Risk Indicators (3) Training & Competency Framework for AML-CFT Professionals (4) Cost of AML-CFT Compliance (5) Assessing Cost of AML-CFT Fraud (6) Cost Effectiveness Model for CFT Regime (7) AML-CFT in Non Profit Organizations (8) Tax Evasion (9) AML-CFT Awareness Among Designated Non Financial Business & Professionals (DNFBP) Upcoming entries will discuss each of the above proposed research topics