Anti Money Laundering and

Combating Terrorist Financing

How to Comply with AMLCTF laws without
compromising the business objective of the bank?

Presented by: RCMD

March 2016
Topics to be discussed
Definitionn & concept of ML,
TF, AML and Combating
Terrorist Financing
Origination and Devt of ML &
TF
Methods used
Red Flags
National AMLCTF
requirements and various types
of risks
Real Cases
What is Money Laundering?
Money Laundering is the process of converting
illegitimately obtained proceeds into seemingly
legitimately obtained proceeds by concealing or
disguising the true,
Nature and source
Location
Ownership
of illicitly obtained proceed.
Seemingly
Illicit Fund ML Method Legitimate
Fund
DIAGRAMMATICAL ILLUSTRATION
OF STEPS OF ML
STAGES OF ML
Placement
The initial injection of the illegal fund into the financial
institutions
Layering
After injecting the illicit fund into the financial system, laundering
the funds usually involves creates multiple layers of transactions
that further separate the funds their illegal source.
The products & services provided by banks are highly used in the
layering stages. Some of them include, local and wire transfer,
import services, export services, loans and advancesetc.
Integration
Injecting the illegal funds into the legitimate economy
The purpose of the integration is to allow the criminal to use the
funds without raising suspicion that might trigger investigation and
prosecution
Origination and Development of ML
The word ML is popularly said to originate from US
Mafias using ownership of laundries to hide the
illicit fund they generated i.e.
The originated illicit fund is from drug & human trafficking,
extortion, prostitution, tax evasion, contraband, theft/fraud,
counterfeiting, robbery/ burglary..etc.
They buy and open as many laundering business as possible
They mingle the cash they generate from the illicit fund with
the cash they generate from the laundering business.
.continued
They report the illicit fund as
if it was generated from the
laundering business.
Al Capone of USA is taken to
be the 1st known organized
criminal whove disguised
illegally obtained money
through a series of
businesses.
 What's is
Terrorism?
Terrorist Act
Terrorist Act according to .
.whether occurring in Ethiopia or elsewhere,
intended to cause death or serious bodily injury to a
civilian, or to any other person not taking an active
part in the hostilities in a situation of armed conflict,
when the purpose of such act, by its nature or context,
is to intimidate the population, or to compel
government or an international organization to do or
to abstain from doing any act
Terrorism and Few Examples
Terrorist Attack
Kenya Embassy, Westgate Mall, University
and many more attack by Al-Shabab
New York Trade Center attack by Al
Qaida
Madrid Metro attack by Al Qaida
London Bus attack by Al Qaida
Nigeria Boko Haram attack on Markets
and schools
Addis Ababa many hotel attacks by
Islamic Court and local Terrorist Groups
Stages of Terrorism Financing
Stages of TF explained
1 : Acquisition Funds are initially gathered from
contributors. Contributors at this stage may or may not
know that the final purpose of the funds is for terrorist
activity.
2: Aggregations -Smaller amount of funds are then
channeled to larger ones. This is done by moving them to
one or few financial institutions.
3: Transmission to Terrorist Organizations The funds
aggregated are moved into a central terrorist organization
and location
4: Transmission to operational cells The funds are
transferred into the individuals or groups that carries out
the terrorist activities
5: Conversion Funds are used to purchase the necessary
materials to carry out the terrorist activities.
Terrorism Financing
It is an act of providing a person
Funds by any means (directly or indirectly)
Deliberately and knowingly that the funds will be used
in full or in part
To carry out a terrorist act
By a terrorist
By a terrorist organization
ML and TF , International
Standards
What does Money Laundering and Terrorist Financing
have in common?
TF also use ML Methods to;
Raise Terrorist Funds
Conceal identity and source of fund
Transfer funds from A to B

AML and CFT measures are internationally accepted

as the all for the creation of FATF and other country
specific countries are susceptible to ML Crime and
Terrorism, leading laws, proclamations, etc like
Patriot ACT
 Establish AML/CTF Compliance Framework (Policy
and program formulation, designate CO, allocate
resource, on-going training)
Establish KYC to all its customers evidence based.
CDD and Enhanced CDD application
Monitoring Red Flags and Reporting
Cash Transaction Report => ETB 300 or $15,000 all Cash
and Wire Transn
Suspicious Transaction Report

BIB: >1,000 CTR Every Week

Methods and indicators of
suspicious transactions
The requirement (FATF Recommendation 20,
AML/CFT Proclamation 17)
If a bank suspects or has reasonable grounds to suspect
that funds are the proceeds of
Criminal activity
Related to terrorism financing
they shall submit STR report to the Ethiopian Financial
Intelligence center stating their suspicion.
continued
Indicators are signals that tells bank
managers/employees the customer or the transaction
he/she is conducting/ed may be linked with crime or
criminal activity or proceeds of crime.
Knowing the methods and indicators enable bank
managers and employees to identify and report
suspicious transactions
Red Flags..
General indicators:
1. Refusal or reluctance to proceed with a transaction, or
abruptly withdrawing a transaction,
2. Customer refusal or reluctance to provide information or
identification,

3. Customer Shows uncommon curiosity about internal

processes, controls, policies .
4. The customer makes inquires that avoid reporting requirements
1. Structured or recurring, non-reportable transactions (just
under the limit);
2. Multiple third parties conducting separate, but related,
non-reportable transactions.
Continue
5. Significant increases in the number or
amount of transactions,
6. Transactions which are not consistent with
the customers business or income level,
7. Transactions by non-account holders.
8. Transaction from Geographically risky spots
9. Reference to persons and entities under
Terrorist Watch List.
10. Import & Export
Under & over invoicing
..continued
11. Cash/deposit collateral for credit facility requested.
12. Ownership disguise : use of other
persons(families, close associatesetc) and also
wife/husband, sons, daughters, family members,
employees, close friends..etc
13. NGOs that mobilizes considerable amount of
money but little spending to actual NGO work
(specially for identifying TF)
14. Transfers from/to places where extremism is a
concern
15. Names matching with sanction terrorist lists.
Real Cases
I. A person runs a legitimate business with an estimated
annual turnover of USD 150,000.
II. His account however showed an annual turnover b/n
USD 1.7 3.5 million.
III. The Bank that reported the account as suspicious
transaction as the income is abnormally high for the type
of business.
IV. Investigations reveled that the real business is human
smuggling is into Europe and the proceeds represents
payments for human smuggling.
Similarities and differences
between TF & ML
Intention of Source of fund Volume of
involvement fund

TF Ideological/ Legitimate/ Small

political illegitimate contribution

ML Profit illegitimate large

AML/CFT law, regulations &
Directives
International standard National sources
setter The Ethiopian Parliament
Financial Action Task Prevention and suppression of
Force money laundering and the
FATF financing of terrorism
recommendations. proclamation no. 780/2014
EFIC DIRECTIVE
AML/CFT directive/01/2014
 ...continued
Objective of the law As part of the
To ensure the integrity of international financial
the Ethiopian financial system, to protect the
system i.e. (to ensure Ethiopian Financial
that the financial system system from Reputation
is not used by criminals /legal/financial costs
to launder money and
finance terrorism)
...continued
To combat and deter
To combat and terrorism.
deter crime To establish a platform of
Ethiopias cooperation
and illicit with other countries to
activity combat ML & TF.
 parties(institutions) covered by
the AML/CFT law
Financial institutions Designated non financial
Banks business and professions
Insurance company Real estate agents and
Micro Finance Brokers
institution Dealers in precious
Postal Saving stones and metals
Money Transfer Lawyers, notaries and
institutions independent legal
professionals
Independent
accountants
Risks banks may face for non-
compliance with the national
AML/CFT Requirements
1. Legal and Regulatory
risk (warning, financial
Penalty,
imprisonmentetc
2. Reputational Loss
Riskcontinued
1. Legal Risk

The National bank of

Ethiopia
The Ethiopian
Financial Intelligence
center
The court
Riskcontinued
The National Bank of
Ethiopia
Written warning
Order to comply with
specific instructions
and/or to provide regular
reports
10,000 to 100,000 fine
Riskcontinued
Barring individuals from
employment.
Limiting the powers of
directors/ managers/
controlling owners
Suspending or revoking
license
The Ethiopian court
Financial Institutions(Non
compliance to the
provisions of the
proclamation).
3 to 5 years in prison
Fine 5000 to 10,000
Temporarily (maximum 5
yrs) or permanently
banning natural persons
..continued
Failing to comply include in the Enhanced/Simplified CDD
following issues
Record keeping
Risk Assessment
Customer Due diligence
Internal prevention
New products and services
program
Political exposed persons Providing information
Foreign/correspondent STR and CTR
banking
Postponing of transactions
Keeping Anonymous
Accounts Failing to comply with
Wire transfer freezing, confiscation and
seizure orders
.continued
Financial institutions
(falsifying, concealing or
destroying documents).
5 to 10 years in prison
Fine 5000 to 10,000
Riskscontinued
1. Money contributions is
collected in Afghanistan and
2. Reputational Risk deposited in an Afghanistan
9/11 Terrorist attack Bank
2. The Afghanistan bank
transferred the amount into a
bank account in Ethiopia
3. The money then transferred to
a Citibank account in New
York
4. The persons withdraw the
amount and utilized the
money to conduct the
terrorism activity
continued
2. Reputational Risk..cont 1. Closing of our accounts
2. Unnecessary screening
Failing from of our transactions
implementing standard therefore delay
AML/CFT requirements 3. Loss of trust among the
expose the bank correspondent banks
4. Significant financial
cost
5. Bad image for the
country
Powers, duties and functions
The proclamations gives 1. THE ETHIOPIAN
powers mainly to 2 FINANCIAL
institutions to ensure INTELLIGENCE
effective compliance CENTER
with the proclamation 2. THE NATIONAL
BANK OF ETHIOPIA
RESPONSIBILITY OF District and
Branch Managers
Adequately Identify their
customers whether regular
or occasional customers.
Ensure that customer
Identification is a culture
of the Branch.
As much as possible,
Ensure that the various
documents received in
account opening are
genuine (This refers to post
checking after the account
is opened for the customer
at least on sample basis) .
Report Cash Transaction
exceeding Birr 200,000, and
or USD 10,000 or its
equivalent in other foreign
currency.
Conduct Customer Due
Diligence and Report
Suspicious transaction
related with Money
Laundering & Terrorism
Financing
Keep Records.