Protecting Against Corruption and Economic Crimes :
Financial Institution Campaign against Money Laundering
By; Asst.Prof.Dr.Anusorn Tamajai
A TYPICAL MONEY LAUNERING SCHEME
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Protecting Against Corruption and Economic Crimes :
Financial Institution Campaign against Money Laundering
Focus on :
• Financial institution campaign against money
laundering
 Globalization and rapid economic liberalization in countries with low levels of
transparency and good governance lead to increased money laundering, financial
crimes and corruption activities.
 Thailand and ASEAN started to open their markets and economies 30 years
ago. These countries and their financial sectors have been considered more
vulnerable to potential abuse by organized crime groups due to inadequate legal
and institutional safeguards.
 Since the 1980s, with the ever-growing seriousness of money-laundering
activities, the international community has paid proper attention to money
laundering.
 Anti-money laundering laws have been developed and are being updated.
New institutions that specialize in the fight against money laundering and
corruption are developing.
A combination of financial liberalization and quantitative easing has caused
volatility in capital flows. We need to understand the problems associated with
the absorption of capital inflows. The impact of capital flows is a complex issue
that has been analyzed from different perspectives. We need to understand
more about capital flow volatility so we can develop better measures and
policies to manage it. The recent increase in capital flow volatility in Thailand and
Asian emerging countries has generated difficulties for policy makers and
business sectors alike. The capital inflows and outflows themselves generate
significant turbulence in emerging market economies, affecting asset prices,
investment, consumption, saving, exchange rates and the financial sector.
The Economic Theory of Crime
The economic theory of crime (including corruption and money laundering)
hypothesizes that criminals respond consistently to incentives, i.e., the
opportunities (cost and benefits) available to them in legitimate and
illegitimate activities. Crime rates are negatively associated with opportunity
costs of crime and with the probability and severity of punishment, while
positively associated with gains from criminal behavior, as predicted by the
economic theory.
The economic theoretical prediction based on a recursive model for the
economics of crime consists of two equations: the supply-of-crime equation
and the arrest-rate equation. The results of many regression analyses of
variations in the crime rate across provinces in Thailand are generally
consistent with theoretical predictions. So we can conclude that economic
theory is powerful in explaining criminal behavior.
Capital flows, increasing financial volatility and
money-laundering activities
From mid-2012 to mid-2013, most Asian countries including Thailand
experienced short-term speculative capital inflows, regional currency
appreciation, and rising financial asset prices, especially in their stock markets.
The US Federal Reserve Bank Quantitative Easing 3 (QE3) measure played a key
role in these economic and financial phenomena.
After the signal of QE3 tapering by Fed Chairman Ben Bernanke and some key
members of the bank’s Federal Open Market Committee, the financial markets
reversed their previous direction.
Since May 21, 2013, stock markets have declined sharply; the Thai baht has
depreciated rapidly; and financial volatility has increased along with financial and
economic fluctuation.
With the exception of the Asian economic crisis in 1997 and 1998, Asian
developing countries have generally achieved high economic growth rates during
the past three decades, mainly from the high and rising investment rates and
prudential management of economic policies. Foreign capital inflows have played
an important role in financing investment in these countries. Private capital
flows, although beneficial in net terms, pose two types of challenges. First, a
large surplus leads to economic overheating and the associated problems of the
appreciation of the real exchange rate. Second, sharp reversals in capital flows
can be potentially disruptive.
The role of capital inflows in Asian economies and Thailand had some
common characteristics during 1980-1998 and 2009-2013. Short-term capital
inflows from 2009 to the first half of 2013 changed into capital outflows. This
sharp reversal of capital flows caused volatility and financial and economic
disruption.
 The surge in capital inflows began as early as 1988 in Thailand, 1989 in Malaysia
and the Philippines, and 1990 in Indonesia. In the mid-1980s, Indonesia, Malaysia
and Thailand had undergone successful structural adjustment programs to set the
foundation for this influx of capital.
 Generally, the more liberalized environment resulted in a greater degree of
capital mobility.
 The capital inflow phenomenon, and the associated need to efficiently
intermediate large amounts of foreign capital and address potential macroeconomic
overheating, were the direct products of this transition between the polar
opposites of financially integrated regimes. East Asian countries were at the
forefront of a worldwide movement toward increased financial integration (see
World Bank 1997). In terms of Chenery, Robinson and Syrquin’s (1986) topology of
growth, East Asian economies look more like those of industrialized than developing
countries since they derive nearly half of their output growth from TFP growth
rather than from accumulation (Table 1).
Principles of anti-money laundering and its operations
1. Confidentiality, Legality and Prudence. Bank and financial institutions must abide
by the relevant rules and regulations and refrain from disclosing any information on
anti-money laundering activities. Financial institutions must abide by legal and
prudential regulations to fulfill their obligations and to fight against money
laundering.
2. Financial institutions must cooperate with administrative enforcement
departments, judicial departments and taxation authorities to fight money
laundering in line with laws and regulations.
Customer identification and large-value
suspicious transaction report system
 Suspicious transactions refer to those transactions of an abnormal amount,
frequency, source and direction. A suspicious transactions reporting system and
customer identification are important countermeasures against money laundering by
banks and other financial institutions. The account information and transaction
record-keeping system is also an important measure, which has been required since
1990 in the Financial Action Task Force (FATF) recommendations. The purpose of the
system is twofold. Judicial departments need records of financial transactions in their
investigation of money laundering and must use the records as evidence. In addition,
collection analysis and reporting of large-value and suspicious transactions need to
be monitored continually, given the growing sophistication of money laundering.
Anti-money laundering via mobile money market
 Ensuring appropriate regulation of anti-money laundering via mobile money
markets is crucial. All regulations need to be consistent with FATF standards.
International standard-setting bodies – such as the FATF – are working to
understand the complexities of the different business models and to formulate
appropriate responses to more detailed questions regarding the application of
these standards to low-value, low-risk m-money transactions.
Key Points
Policy guidance in AML/CFT for policy makers:
•Impose AML/CFT obligations on nonbank providers of financial services.
•Promote regulations that balance financial inclusion with financial integrity.
•Impose AML/CFT obligations on retail outlets.
•Promote a clear and effective supervisory regime for m-money providers.
•Define an enforceable sanctioning regime for m-money.
•Provide AML/CFT training to supervisors.
Guidelines for m-money providers:
• Develop internal solutions to monitor money-laundering/terrorist-financing
(ML/TF) transactions.
•Require retail outlets to report their suspicious transactions.
•Ensure that appropriate rules are followed regarding information to be
reported.
Recommendations for the FATF:
• Provide further guidance to identify low-risk transactions and customers.
•Issue a risk-based guidance report on m-money.
10 MOST HIGHEST RISK COUNTRIES
Country
IRAN
AFGHANISTAN
CAMBODIA
TAJIKISTAN
GUINEA-BISSAU
IRAQ
MALI
SWAZILAND
MOZAMBIQUE
MYANMAR
Overall scores
8.56
8.53
8.39
8.34
8.25
8.22
8.06
7.92
7.92
7.89
Rank
1
2
3
4
5
6
7
8
9
10
10 LOWEST RISK COUNTRIES
Country
JAMAICA
MALTA
POLAND
BELGIUM
NEW ZEALAND
BULGARIA
LITHUANIA
SLOVENIA
ESTONIA
FINLAND
Overall scores
3.98
3.97
3.95
3.91
3.83
3.83
3.64
3.38
3.27
2.51
Rank
153
154
155
156
157
158
159
160
161
162
MONEY CAUDER IN ASEAN
Country
LAOS
VIETNAM
THAILAND
PHILIPPINES
INDONESIA
BRUNEI
MALAYSIA
SINGAPORE
Union of Myanmar
Kingdom of Cambodia
Overall scores
Rank
7.45
6.76
6.53
6.39
6.25
5.84
5.41
4.96
NA
NA
19
38
49
56
64
82
102
127