Perception of Money Laundering in Mauritian Population

wisdom of Money launder in Mauritian PopulationAbstractMoney wash is the worlds third largest indus effort (Jeffrey Robinson (1995)) and may occur al most(prenominal) anywhere in the world. Given the nature of this phenomenon, bullion wash has gained in significant counterweight. Be they drug traffickers, terrorists, arm traffickers, blackmailers or credit card swindlers, all barbarouss demand for coin clean. This criminal activity erodes profits of all financial institutions, increases pervertion and fuel social injustice.Money wash has thus serious social and economic consequences that need to be fought against. Many world(prenominal) governing shake up made considerable efforts to set up appropriate AML counter beatniks. Likewise, Mauritius in preserving its reputation has enacted the FIAMLA (2002) and has en delineated the FIU to revoke the landed estate being a vehicle of illegal fund. However, notes launderers atomic number 18 always a touchstone forward t han any law enforcement agencies and organisations.This has been compounded with globalisation and sophisticated technologies. The aim of this harangue is to evaluate the acquaintance of funds clean among the Mauritian commonwealth. The result from the question- found data collection method used supported that the population do believe in a gold wash economy in the country. However, few of them do know all matters tie ining this crime and therefore, more aw beness must be drawn. There is still a long way to go for its elimination but things are being make to improve the forcefulness of its fleck.Chapter 1IntroductionBackgroundMoney clean exists for centuries but since the 11th family line 2001 events, beleaguering coin wash and terrorist pay has became more important. Countries realised it is urgent to combat this sophisticated criminal activity. Money wash is the wait on of disguising illegal profits derived from extramarital activities without compromising the cr iminals for them to taste from their return without the authorities being able to learn the activities that produced them. Increasing awareness is being drawn for people realise that funds clean fuels crime. Money clean erodes the economy of ones country and as mentioned by Quirk (1997) its impacts are more measurable than its figure.Money make clean affects individuals, businesses and countries, thus of global concern. 25 years ago, the inter matter community has done much effort to combat this evil. In many an(prenominal) countries, efforts made starts bearing its fruits and are now taking importance in many jurisdictions. In fact, if one country does not take action to combat money wash, it may define itself lagging behind since it ordain be difficult for it to trade with the rest of the complying world. The latter may caution to trade with a non-complying country due to this element of non-combating money launder. In effect, the non-complying countrys economic issue may be far behind as compared to complying countries. Low corruption affects growth positively (Mauros (1995)).However, despite the picture up of international instruments and laws to restrain this crime, its evil activities still exits and are even increasing in most cases. With new advanced technologies compounded with globalisation, it is easier for sophisticated launderers to continuously look for opportunities forthcoming worldwide in wash their proceeds.Although, Briscoe (1999) said that Mauritius is not considered as having a significant money laundering problem, since the island has a developing local anaesthetic drug consumption problem and a vibrant growing offshore financial serve sphere, it is uncontaminating that opportunities exist. Thus, pursual other countries initiations, Mauritius has set up the necessary infrastructures to combat money laundering and prevent terrorist financing. Actually, to hold dear itself and to maintain a good reputation, it has promul gated, among others, the FIAMLA (2002) which criminalises money laundering and its offenders. Drug trafficking, terrorist activities and financial crime are examples of illicit activities.The main aim of this study is to assess the perception of money laundering among the Mauritian population. While canvassing the literature, it was go back that for Mauritius the only local survey done was by the FIU in 2006. This was published in its annual history 2006 and was helpful for this study. Additionally, references from other studies, journals and literatures done on this topic were used.Benefits of the studyprovide a general persuasion on the perception of money laundering among the Mauritian population,provide an overview about any research done on this topic,provide an insight whether the population is aware about the laws and institutions combating money laundering in Mauritius.Chapters OutlinesChapter 1 IntroductionThis chapter provides a brief introduction of the study includ ing a short definition and its benefits.Chapter 2 -Literature reviewThe definition, the process and techniques used to launder ill-gotten money, the importance of combating money laundering, the international actions took and reports done internationally and topically are provided in this chapter.Chapter 3 MethodologyThis chapter explains the methodology used to collect the data necessary for this study.Chapter 4 AnalysisIt provides an abridgment of the data collected, the interpretation of the results and the hypothesis testing done.Chapter 5 ConclusionThis entails the concluding notes of this dissertation and suggests approximately(a) recommendations.Chapter 2 Literature ReviewMoney laundering has been with us for centuries (Graham (2003)). As Lloyd (1997) said, its origins can be traced since the 1930s, when notable gangsters like Meyer Lansky and Al Capone were prevailing. Their exploits seted money laundering methods still in practice today. Since then, it has gained in p roportion and is almost impossible to measure its exact global amount.KPMG (2004) reported that internationally about US$ euchre one thousand million to $1 trillion is being laundered and it is estimated that annually, in the U.S and in London, about US$100 billion and 1.8-2 billion is been laundered respectively. Moreover, IMF estimates that money laundering is about US$500 billion. Nevertheless, Quirk (1997) said that its impacts are more measurable than its figure.Thus, such illegal activities are increasing and have dangerous cause on a countrys financial services sector, thus, being an issue of both national and international protection. Quirk (1997), Barrett (1997), paradise (1998), Masciandaro, and Portolano (2003) mentioned that money laundering threatens the economic and financial system of ruless of countries.2.1 DefinitionMoney laundering is the process by which criminals try to mask the true origin of ill-gotten money into the stream of lawful commerce and finance. If undertaken successfully, beneficiaries will enjoy and maintain control over their proceeds and ultimately be provided with legitimate cover for the source of their income authorities being unable to detect the activities that produced them.Illegal profits have to be laundered because the money trail is substantiation of crimes, thus, vulnerable to seizure. AllDridge (2003) said that clean money is worth more than dirty money.Hinterseer (2002) stated that money laundering is criminal finance as it corrupts marketplaces, shifts an unfair economic burden in the legal economy, weakens the universal joint perceptual constancy of the international financial markets and raises numerous civil liberty related issues.In Mauritius, the Government enacted the FIAMLA (2002) which gives explicit powers to gather, fail and disseminate information to the FIU.Section 3 Money Laundering(1) Any person who (a) engages in a performance that involves topographic point which is, or in whole or in go directly or indirectly represents, the proceeds of any crime or(b)receives, is in possession of, conceals, disguises, bump offs, converts, disposes of, removes from or brings into Mauritius any property which is, or in whole or in part directly or indirectly represents, the proceeds of any crime,where he suspects or has reasonable grounds for suspecting that the property is derived or realized, in whole or in part, directly or indirectly from any crime, shall commit an offence.2.2 Process of Money LaunderingPeltman (1997) has shown that money laundering has three arcdegrees. They may occur as separate and distinct stages or as an imbrication phase. Their usage will depend on the criminals accessible laundering mechanisms and requirements. act 1 A typical Money Laundering SchemePlacementPlacement is where most efforts are focused to combat money laundering. This involves the breaking up of large deposits into minute deposits for currency transaction reporting avoidance. Th is involves single or ninefold proceedings using one or more bank deposits or the purchasing of investments.Michael et al (2002) find that placement is the most risky stage for detection It is where the huge illegal property profits are presented personally to a financial establishment. This can pose an enormous problem as dealing with capital in bulk and in regularity is difficult.LayeringSteel (1998) found that layering stage is the most complex stage and the most international in nature. Graham (2003) said that layering relies on the negotiation of cover, electronic or digital records through a series of transactions which will make it difficult, if not impossible the reconstruction of paper trail detailing previous cash movements.2.2.3 IntegrationIntegration follows a successful layering process and is the last(a) stage according to Schneider (1994). Moreover, for Graham (2003), transactions can no longer be mergeed to criminal cash and the secrecy of the source of fundi ng is guaranteed. The criminal cash in the legitimate economy appears as money naturally originated from legal transactions.Araujo and Moreira (2005), Masciandaro (1999) stated that it is expected when cleaning has been done the money is ready to hold fast back into the formal economy, thus, providing funds for investment or consumption.2.3 Techniques of Money LaunderingBriscoe (1999) stated that money laundering is not considered as a significant problem in Mauritius and that the country is not a study narcotics production or trans-shipment centre. Nevertheless, since the island has a developing domestic drug consumption problem and a vibrant growing offshore financial services sector, it is clear that opportunities exist.Results obtained by Mauro, (1995), (1997), Leite and Weidmann, (1999), Alesina and Weder, (2002), Damania, Fredriksson and Muthukumara, (2003) from the World Banks Governance Indicators and Transparency multinationals subversion Perception Index (CPI) indicat e that corruption indexes is now a very profitable source of research. mistakable to money laundering has no frontier, money launderers have unlimited originality to launder their money. Hence, launderers will seek where the weakest link in the chain is, targeting the weakest point of defenses and where detection is less likely to arise. Masciandaro (2001) said that financial industries are the major concern of money laundering fighters since money actually needs to pass through them. Money laundering techniques are very long, sophisticated and difficult to determine precisely. Some of them are summarised below.2.3.1 Banking ServicesConsidering their activities, banks represent a natural and logical vehicle for launderers. Graham, gong Elliott (2003) stated that cash deposits, basic banking services and wire reposition facilities are the core authority of money laundering. The wealthier launderers will look for specialist private bank services and investment houses that offer we alth management services.Following the Basel Committee statement (1988), Johnson and Lim (2002) stated that financial institutions including banks may be willingly or unconsciously be used as intermediaries for money laundering since they catch ones breath an important mechanism for its disposal. Mascaindaro (1995) strengthen this theory by stating that money laundering occurs either by passively using bank agents or by actively using criminal banks.In contrast, Quirk (1997) through empirical observation observed a shift in money laundering techniques and concluded that launderers are going past from the banking system. Bauer and Peter (2002) mentioned that banks are actively combating money laundering and these initiatives may well be a poser for international cooperation.2.3.2 Money Services BusinessesGraham, Bell Elliott (2003) stated that criminals use bureau de change to convert cash to other currencies or consolidated smaller amounts. Usage of remittance services or giro h ouses enables criminals to delight cash in the midst of jurisdictions. Duynes empirical findings show that in both Bosphorus case and Mozart case, money launderers come to an all-embracing network of currency exchange offices.2.3.3 Lawyers, Accountants and other IntermediariesGraham, Bell Elliott (2003) found that launderers usually use professionals to set up corporate and trustees to act as nominee shareholders or directors. These are of growing international concern. The clients account provides the launderer a hidden vehicle for depositing funds into the banking system. In selling their personal investment products, professionals provide useful means for money laundering.Johnson and Lim (2002) found that money launderers use more non-bank financial institutions and non-financial business like lawyers for money laundering. Their recite supported that a weakening of the bank/illegal economy relationship, implies a lesser participation of the banking sector for laundering mon ey.2.3.4 Non-Financial Sector ServicesGraham, Bell Elliott (2003) besides found that casinos, metal dealers and other high invaluable goods sellers are money laundering techniques. These are done especially in cash purchase or substantial cash deposits.Distinguishing dirty money from legitimate gambling profits or losses will be quite difficult if the dirty money is changed into casino chips and then back into cash.Lloyd (1997) stated that whatsoever be the form of the jewelry, its value remains constant. Thus, a single piece of gold can be changed various times to disguise its origins without any significant change in its value.2.3.5 Alternative Remitting SystemsAs per Graham, Bell Elliott (2003), popular within some ethnic groups, Hawala or hundi are alternative remittance systems used to transfer funds abroad. These systems function outside the regulated banking sector. Graham, Bell and Elliot (2003) added that it is believed that the Al-Quaeda terrorist organisation have u sed the hawala for the financing of 11 September 2001 event.2.3.6 Exploitation of Internet Banking ServicesExploitation of banking services and the use of developments in the internet are techniques used for laundering money. Actually, some banks dispense their clients of all contacts, thus no control over transactions exists. Example, the Fortis Bank in Luxembourg, offers complete e-banking services.2.3.7 Use of Correspondent BanksSeveral international trustworthy banks have been involved in money laundering due to insufficient controls. ExamplesRussian banking (Rawlinson,1996 Burlingame, 1997)Banco Ambrosiano (Cornwell, 1983)BCCI (Adams and Franz, 1992)Banque Crdit Lyonnais case of Parretti and Fiorini (dAubert, 1993)2.4 wideness of Combating Money LaunderingOver the last 25 years, the international community has made considerable efforts to combat money laundering. Countries realise that if they allow money laundering or fail in adapting correctly the AML procedures and the KYC principles, they make the risk of civil and criminal liability, reputation and regulatory risks. Moreover, Lasco (1997) mention that if governments are reluctant to accept the universal application of money laundering countermeasures, then its ills associated will damage the society. Bauer (2002) and Peter (2002) stated that in some countries like USA, the KYC principle has not been established firmly in lawmaking as it is under some European rules.Some intermediaries view money laundering regulations and laws as an annoying obstacle for trading. For example, it was feared that recent efforts in the Channel Islands for strict laws would decrease business volumes, but finally, the Channel Islands attracted more businesses.The Commonwealth Model of trump Practice for Combating Money Laundering in the Financial Sector suggests four principle reasons for money laundering (Graham, Bell Elliott (2003)).Failure to prevent money laundering allows criminals enjoying their proceeds, makin g crimes especially attractive. It similarly permits criminal organisations to finance other criminal activities, which eventually increase the level of crime.Unchecked use of the financial system has potential difference powers to weaken individual financial institutions, and finally the reliability of the whole financial sector. Moreover, it has adverse macro-economic effects affect exchange rates during large capital flows and thus distorts resource allocation.Unchecked laundering may pee-pee contempt for the law hence, declining the confidence public has in the legal and financial system, resulting finally in a rise in economic crime.Money laundering eases corruption. Eventually, accumulation of economic and financial powers by shameful politicians or criminal organisations may undermine the country.Below are some summarised reasons why AML laws are required.2.4.1 foul CompetitionMoney launderers often use their proceeds to finance certain companies. This allows them to un dercut innocent rivals and force them out of the market. Therefore, if left unchecked, money laundering may unfairly affect the pricing mechanism of the market system and create unnecessary distortion. Quirk (1997) studied that crime highly explains differences among the industrial countries a 10% raise in crime leads to a 10% reduction in currency demand and a 6% reduction in overall money demand.2.4.2 One crime generates further crimesMoney laundering allows criminals to take full advantage of their crimes if not properly tracked down. This makes such criminal activities more attractive, resulting in its rise. Thus, one crime generates other crimes. Masciandaro (1998) stated that banks in regions of higher criminality have greater familiarity with money laundering than banks in region of low criminality. From his hypothesis, Masciandaro (1998) proved that the positive association observed between the banking sector and the illegal economy allows an assumption of an increase in la undered funds when illegal activities increase. Moreover, Masciandaro (1998) results showed that money laundering is a multiplier of criminal activities by providing criminals with cleaned money for reinvestment in their illicit activities. Masciandaro (1999) results also showed that there is an rearward relationship between the degree of diffusion of money laundering activities and the effectiveness of AML regulation in a given economy.2.4.3 Corruption and GrowthWith large amount of money involved, money laundering has direct effects on economic crimes. Once corruption infiltrates the system, the whole machinery is affected and functions improperly. Public confidence in some fundamental institutions may be at risk and this can only promote crimes. Obviously, a corrupt society has no great hope for prosperity. Empirical results confirmed Mauros (1995) findings that low corruption affects growth positively. Mauro (1995) himself followed Barro (1991), and Levine and Renelt (1992) spe cifications which assess investment and growth responses to corruption. Quirk (1996) empirical evidence showed for the period 1983-90, significant reductionsin annual GDP growth rates and increase in money laundering are related.2.4.4 Social CostQuirk (1996) found that money laundering has important social costs when it facilitates crimes and corruptions within both the developing and developed countries. The International Narcotics Control Strategy (1998) confirmed that money laundering has devastating social costs and threatens the national security and McDowell and Novis (1998) added that money laundering erodes the confidences in markets. Additionally, Alweendo Tom K (2005) stated that crime and criminal activities work towards eating away these very basic individual rights.2.5 Criminalising Money LaunderingThe key to making an impact in money laundering is to get all of the countries of the world to enact and enforce the same laws dealing with money laundering so the criminals have nowhere to go, Interpol expert Brown (1998).With new technologies, it is easier for sophisticated launderers to continuously look for opportunities available worldwide. The loopholes in other jurisdictions can frustrate efforts made by one jurisdiction to combat money laundering. Therefore, it is of global concern since no countrys financial system is protected from it. Quirk (1997) stated that money laundering has a considerable negative impact on the macro-economy, therefore it is urgent to adopt AML measures.2.5.1 International ActionsThe international community are more aware of the dangers of money laundering, and many governments and jurisdictions have committed themselves to take international actions to combat money laundering. These began in 1988.2.5.1.1 Basel CommitteeThis statement they adoptive in December 1988 outlined the following initiatives and policies that suggest financial services to use.need for compliance with legal laws and guidelines,cooperation with n ational law enforcement authorities,implementation of record-keeping and transaction recording,staff training,KYC approach.2.5.2 Vienna ConventionAshe and Reid, (1998) stated that the Vienna Convention established in December 1988 was the root treaty of global reach criminalising money laundering which creates an obligation for signatory states to criminalise such evil. It also includes the production, management and financing of trafficking operations as well as facilitating the commission of drug trafficking offences including money laundering.2.5.3 joined Nation (UN)2.5.3.1 Global Programme against Money LaunderingThrough the GPML, the UN helps its member states with legal advice and assisting them in drafting appropriate legislation and establishing the necessary administrative structure to combat money laundering. The strategies includeprovision of technical foul helper to developing countries,organisation of training workshops,provision of training materials,transferring of expertise between jurisdictions,conduction of research,analysis and gathering of data.For its first operating year, the Program aided 20 countries and introduced a global all-round(prenominal) database on national money laundering legislation and the International Money Laundering Information Network on the Internet.2.5.4 Financial Action Task ForceFATF with its 34 members is an inter-governmental body which develops and promotes national and international policies to combat money laundering and terrorist financing. Established in 1989, FATF is a policy-making body that works to generate the necessary political willingness to bring about legislative and regulatory reforms.In 1990, it published 40 + 9 recommendations providing a comprehensive framework to fight money laundering. These were revised in 1996 and 2003 to ensure that they remain up-to-date and relevant to the money laundering growing menace. In 1995, the International Narcotic Control Board advised all governments to im plement these 40 recommendations.2.5.4.1 FATF Responsibilitiesexamination of money laundering techniques and trends,reviewing of action which had already been taken at a national or international level,setting out of measures that need to be taken to combat money laundering,evaluating countries in respect of their AML measures.Therefore, where weaknesses are found, countries are recommended to remedy the shortcomings the soonest. Failing, they are threatened of being blacklisted as non-cooperative jurisdictions. Naming and shaming them, FATF achieves its objectives of deliverance countries to adopt appropriate AML measures.2.5.4.2 The 40 testimonialsRecommendations 1-2 Scope of the criminal offence of money launderingRecommendation 3 Provisional measures and confiscationThese are to be taken by financial and non-financial businesses and Professionals to prevent money laundering and terrorist financingRecommendations 4-12 Customer due diligence and record-keepingRecommendations 13- 16 Reporting of amusing transactions and complianceRecommendations 17-20 Other measure to deter money laundering and terrorist financingRecommendations 21-22 Measures to be taken with respect to countries that do not or insufficiently comply with FATF RecommendationsRecommendations 23-25 Regulations and SupervisionInstitutional and other measures necessary in systems for combating money laundering and terrorist financingRecommendations 26-32 Competent authorities, their powers and resourcesRecommendations 33-34 Transparency of legal persons and arrangementsRecommendation 35 International Co-operationRecommendations 36-39 Mutual legal assistance and extraditionRecommendation 40 Other forms of co-operationFATF Annual Report 1996-97 added that earnings of offences like fraud and smuggling are also gaining importance. Moreover, commenting on the FATF Annual Reports from 1994, Johnson and Lim (2002) states that AML measures that some governments took, help in minimising money laundering and that with the imposition and enforcement of AML legislation, it will be harder for money launderers to clean their proceeds. Hence, preliminary evidence puts forwards that governments attitudes are important in either limiting or encouraging money laundering.However, Quirk (1997) mentioned that some governments could not implement the FATF 40 Recommendations as this would go against the IMFs advice for liberalising financial markets.2.5.5 International Monetary FundThe IMF has expertise in conducting financial sector assessments, providing technical assistance in the financial sector, and exercising surveillance over members economic systems, which is particularly helpful in evaluating country compliance with the international AML/CFT standards and in developing programs helping them address identified shortcomings.After the 11th September 2001 events, IMF continued to broaden and deepen its engagement in the global fight against money laundering and terrorist financing. knock against 2004 viewed an important moment. The IMF Executive Board agreed to make AML/CFT assessments and technical assistance a regular part of its work and to expand this work to cover the full scope of FATF 40 recommendations.Other international actions combating money laundering are the Egmont Group, the OECD, the EAG, the Asia-Pacific Group on Anti-Money Laundering and the E.U Directive.2.5.6 KPMG report on Global Anti-Money Laundering position (2004)Aim Whether the increasing globalisation of banking groups and of international regulatory cooperation resulted in an increase in consistency in the AML approachMethodology The field research was done from 1st March 2004 to 26th March 2004 and 209 banks based in 41 countries responded. Consensus Research was charged by KPMG to conduct a telephone survey of banks across the main sectors. These banks were the 1,000 best global banks and local banks from seven regions as shown in figure 2 below.Figure 2 Analysis of Respondents by sh areThe figures 3 4 below are a critical analysis of the respondents by region and country and an analysis of the respondents by industry.Figure 3 Analysis of Respondents Region by countryFigure 4 Analysis of Respondents by IndustryResultshigh degree of cargo from the banking sector in the AML cause and provide opportunity for banks worldwide to assess and benchmark their own practices with those of their regional and international peer group.most respondents believed that the current AML burden is acceptablethey were keen to work with regulators and law enforcements for the system to work more successfully.2.6 In Mauritius2.6.1 Financial Intelligence and Anti-Money Laundering Act (2002)The FIAMLA (2002) criminalises money laundering and is the legislation of AML. It provides for the establishment and management of a FIU and a Board to supervise its activities and provides for money laundering offences, reporting of suspicious transactions, gateways for exchange of financial intel ligence information and exchange of mutual assistance with overseas bodies, all in relation to money laundering.FIAMLA (2002) under section 8 imposes high criminal penalty for money laundering offences. Any person who commits any money laundering offence shall, on conviction, be liable to a fine not exceeding 2 millions rupees and to penal servitude for a term not exceeding 10 years. Moreover, any property belonging to or in the procession or under the control of any person who is convicted of an offence of money laundering shall be deemed, unless the contrary is proved, to be derived from a crime and the tribunal may, in addition to any penalty imposed, order that the property be forfeited.It is worth noting that FATF experts concluded that although Mauritius has a regulatory regime for the financial service sector both locally and internationally, certain troubling characteristics were found. These concern the identity of the administrators and the real beneficial owners of offsh ore companies. However, the law on economic crime and anti-money laundering adopted on 13th June 2000 which has been taken on board in the FIAMLA (2002) has reinforced the existing legislation with regards to legal profession and fight money laundering.2.6.2 Prevention of Corruption Act (2002)The corruption component of the Economic Crime and Anti-Money Laundering Act (2000) was taken on board in the POCA (2002) which provides for the investigation of money laundering offences t