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1. Outline what is meant by a risk-based approach to anti money laundering/counter financing of terrorism. Explain the benefits of a risk-based approach.

2. Soo Yee and Li Fong are married to each other and both work for a large regulated financial services organisation in Malaysia. Li Fong is employed in the firm’s finance division and Soo Yee in the audit division.Over a period of time Li Fong has been committing a significant fraud against the firm by diverting funds from an internal suspense account into a joint current account held in his name together with Soo Yee. Soo Yee has been ensuring that the audit function does not look into these activities.Soo Yee and Li Fong earn relatively modest salaries but for some time now, they have been using the proceeds of the fraud to fund lavish lifestyles that include expensive holidays, new cars, a new flat and the purchase of a range of luxury goods.Using the law in Malaysia, evaluate the potential money laundering offences committed by Soo Yee and Li Fong. Ensure you consider the elements of the offence(s) including the wrongful act(s) (actus reus) and guilty state of mind (mens rea) required.

Introduction: Challenges faced by financial institutions in the Middle East

In the present day situations, while there are numerous risks and challenges that are faced by the financial institutions, more likely those which belong to the Middle East countries are much exposed towards the terrorist financing, money laundering etc. And that calls for the much necessity for adoption of the preventive measures that can be adopted and implemented by these financial entities so as to be able to mitigate these risks.

For the purpose of combatting with these kinds of financial crime an international inter-governmental body, The Financial Action Task Force (FATF) develops and also promotes for the policies that would be able to protect for the financial systems across the globe against crimes like that of terrorist financing and money laundering. The recommendations that are brought about by the FATF are recognized as the global counter- terrorist financing/ anti-money laundering standards.

In the present task, the enhanced emphasis will be laid on the understanding of the  risk-based approach to anti money laundering/counter financing of terrorism and will also consider for the benefits of the approach. Moreover, the latter part of the task will emphasize on the laws that are adopted in Malaysia regarding the evaluation of the money laundering offences that was committed by Soo Yee and Li Fong as per the mentioned case study.

In the present context, it is much crucial to have a clear understanding of the fact of money laundering. Money laundering refers to the process that involves illegal transformation of certain inputs into some sort of legitimate outputs. The sums that are gained by the committing such kind of crimes like that of theft, drug trafficking, and fraud are presented in a manner that they pretend to be the result that is accrued after the input of honest hard labor and are usually transformed into the either real estate, luxury goods, some legitimate like bank accounts etc. With that even the criminals can continue performing the crimes and even then exist within the society in a manner as if they have actually not committed any sort of crime (Bello and Harvey, 2017).

In such a situation, the risk-based approach implies that the distinct state, authorities, or even the nations must have an understanding regarding the risks that are associated with the terrorist financing/ money laundering to which they are actually exposed to. Henceforth, they could apply for the requisite anti money laundering (AML) and the counter terrorist financing (CFT) measures in such a manner that could be sufficient for them to ensure the fact that they have mitigated such risks that are associated with such activities (Gelb, 2016). The set of measures that were formulated by the FATF in context of this anti money laundering and counter terrorist financing was based basically on the understanding of the money laundering and terrorist financing risks that were mentioned in the Recommendations that were made in the year 2003. In the year 2012, these recommendations were revised and since then, the risk-based approach has become much essential to be implemented in a.n effective manner effective (Ullrich, 2018). According to the new recommendations that are made by the FATF, the risk-based approach is that foundational requirement that have the capability to ensure that all the other recommendations made by the body are effectively implemented within the distinct nations. With that the risk-based for anti money laundering and counter terrorist financing is no more an optional but more like a prerequisite that needs to be adopted for the effective compliance with all the other specific requirements (King, 2018).

The Role of Financial Action Task Force (FATF) in Combating Financial Crimes


Thus, while considering for the risk-based approach, then that will comprise of the relevant identification, understanding, and assessment of the risks and finally the consequent and relevant application of the of AML/CFT principles and measures that can ensure for the fact that thereafter there is effective mitigation of the risks that are associated with such kind of activities. As per the recommendations that are made by the FATF, the risk-based approach that is adopted for the mitigation of the money laundering and terrorist financing activities must be applied by the means of following several distinct steps.

Thus, considering for the process of risk-based approach for the anti money laundering/ counter terrorist financing, that must encompass the below mentioned:

  1. Assessment of the risk regarding the distinct clients and business activities.
  2. The effective mitigation of the risks by the means of adoption and implementation of the effective measures and controls tailored in response to the risks that are identified.
  3. Having an up-to-date client identification and business relationship data with relevant accordance to the level of risk that is assessed for the business organization.
  4. Keeping an effective and ongoing monitoring of the business relationships and the transactions in accordance with the level of risks that is assessed for a specific business organization.

However, it is very much vital to keep the fact in mind that the assessment and the mitigation of the activities like that of the money laundering and terrorist financing is not a static or a one-time matter (Henning and Hauman, 2017). Over the time, as and when the new products or any sort of new threats enters within the business context, such sort of risks must be identified and paid the requisite attention for the effective mitigation of the same. Also, the the risk-based approach must also be updated and re-evaluated whenever there is a change within the factors that are associated with the risks (Iken and Agudelo, 2017).

The cycle that is represented by the schematic diagram that is given below provides for the cycle associated with the six steps of the risk-based approach.

The importance that is associated with the adoption of this risk-based approach is that it ensures the measures for the mitigation of the risks associated with the activities like that of money laundering and terrorist financing and there after allows the distinct business entities/ organizations to operate in a reasonable manner and provide for the effective business judgements with respect to the clients and the customers associated with the businesses (Gelb, 2016). This will in turn ensure for the fact the business organizations can effectively focus on the real crime reductions also adopt for the flexibilities that are associated with relation to the risks that are evolving for the organizations (Bello and Harvey, 2017).

The nation of Malaysia has been very much vigorous and active regarding the legal development of the money laundering prosecution and requires the proof for both the actus reus and mens rea of the actual offence. In bringing about the fact that the property that has been associated with such a kind of crime or some sort of illegal activities, requires for certain considerations to be applied to the field of work, like where the circumstances were such that indulged for the money laundering and the type of the money laundering (Nazri, et al. 2016).

Risk-Based Approach to Anti Money Laundering and Counter Financing of Terrorism

Considering for the Malaysian law, the money laundering in this nation is a severe crime and also brings about the negative implications regarding the functioning of the entire Malaysia government. In the present case, Soo Yee and Li Fong are a married couple who serve in a large regulated financial services organisation that operates within Malaysia. Over a specific time period this couple has been indulged in a significant fraud against the organization they are working for and contribute towards the diversion of the funds of the organization from an internal suspense account to a current joint account that is held together by the couple. Soo Yee being employed in audit division of the organization ensures that the audit functions of the entity does not consider for those fraud activities that are performed by the couple. By using the  funds raised from these fraud activities, the couple affords for the lavish lifestyle including making the purchase of new car, flat, and other luxurious commodities and also on the expensive vacations.

Like many other nations across the entire globe, Malaysia have also taken distinct measures regarding the adoption of the distinct relevant laws against the commitment of money laundering so as to be effectively able to fight against this kind of fraud  (Rahman, 2016). This nation recognizes for the fact that it is very much crucial and vital to have a coordinated effort at the national level so as to ensure for the fact that the activities like that of money laundering can be eradicated from the base level. Apart from abiding with the global aspirations that are prevailing in reference to the context of money laundering, the Malaysian Government introduced for Anti-Money Laundering Act, 2001 also known as AMLA and came into effect on 15th January, 2002. This act was again amended in the year 2003 and was renamed to be Anti-Money Laundering and Anti-Terrorism Financing Act, 2001. Under this act, the Central Bank of Malaysia and Bank Negara Malaysia (BNM) have been appointed for combatting the distinct activities associated with money laundering (Aurasu and Abdul Rahman, 2018). The section 20 of AMLA mentions that ‘the provisions of this part shall have effect notwithstanding any obligation as to secrecy or other restriction on the disclosure of information imposed by any written law or otherwise’(Hamin, et al. 2015). Thus this henceforth ensures for the fact that this act is more like the measure that is being used by the government of Malaysia to be able to effectively fightback the circumstances of financial fraudulent like that of the money laundering.

Steps involved in the Risk-Based Approach


Under the section 4 of this AMLA it is clearly mentioned that any act associated with money laundering may lead to five years imprisonment or a RM5.0 million fine or even both. As far as the enforcement of AMLA is concerned the Attorney-General Chambers of Malaysia have found about 21 money laundering cases. Out of them the defendants of two cases of the year 2005 and 2007 were held convicted and the 19 remaining cases are still held at the distinct stages of prosecution. In total, all these cases involved for the 738 charges related to that of money laundering offences and approximated for an amount of RM262.1 million.

Apart from that, the legislation additionally provides for the fact that there may be seizure, freezing, and even forfeiture of the properties that are found to be derived from the funds of money laundering and the terrorist financing activities (Aurasu and Rahman, 2016). So , in this case if the fraud financial deeds of the couple, Soo Yee and Li Fong are proved then the property of the couple bought with this funding from money laundering must be ceased and also the couple must be additionally punished in the very manner that is mentioned within the distinct sections of the AMLA and also must be terminated from their current designations that they are holding within the organization (Hamin, et al. 2015). But for the same to happen in the relevant manner, the bank where the account is opened by the couple must implement for the adequate anti-money laundering measures so that they can guard effectively such kind of illegal cash flow from the entire transactions that are being made within the banks.

However, while this kind of circumstances do prevail within any nation, then it is solely not the responsibility of the law enforcement agencies and that of the government to take the effective and efficient care for the prevention of such activities, but it is equally the private sectors and the associated organizations that also must make equal participation so as to bring about the mitigation of such activities.

Conclusion

Thus we can find that upon the effective application of the risk-based approach for providing the guard against the activities like that of the money laundering and terrorist financing the law enforcement agencies will have much aid regarding the identification and control of such kind of financial fraud activities that are prevailing in the various parts across the entire globe. In context of the couple that is mentioned to perform the money laundering activity within the organization they are working for must take the strict actions so that this kind of illegal activities could be avoided in the near future.

Reference List

Bello, A.U. and Harvey, J., 2017. From a risk-based to an uncertainty-based approach to anti-money laundering compliance. Security Journal, 30(1), pp.24-38.

Gelb, A., 2016. Balancing Financial Integrity with Financial Inclusion: The Risk-Based Approach to «Know Your Customer». CGD Policy Paper, 74, pp.1-24.

Henning, J. and Hauman, M., 2017. Fortifying a risk-based approach in the South African AML/CFT process. Journal of Financial Crime, 24(4), pp.520-528.

Iken, J.G. and Agudelo, A., 2017. Managing correspondent banking ML/TF risks: Recent regulatory developments on the risk-based approach model. Journal of Financial Compliance, 1(3), pp.255-266.

King, C., 2018. Anti-Money Laundering: An Overview. In The Palgrave Handbook of Criminal and Terrorism Financing Law(pp. 15-31). Palgrave Macmillan, Cham.

Ullrich, C., 2018. A risk-based approach towards infringement prevention on the internet: adopting the anti-money laundering framework to online platforms. International Journal of Law and Information Technology, 26(3), pp.226-251.

Aurasu, A. and Abdul Rahman, A., 2018. Forfeiture of criminal proceeds under anti-money laundering laws: A comparative analysis between Malaysia and United Kingdom (UK). Journal of Money Laundering Control, 21(1), pp.104-111.

Rahman, A.A., 2016. Anti-money laundering law: a new legal regime to combat financial crime in Malaysia?. Journal of Financial Crime, 23(3), pp.533-541.

Nazri, S.N.F.S.M., Zolkaflil, S. and Omar, N., 2016. The Effectiveness of the Law Enforcement Agencies in Investigating Money Laundering Cases: An Evaluation of Mutual Evaluation Report of Malaysia and Australia.

Hamin, Z., Omar, N., Rosli, W.R.W. and Kamaruddin, S., 2015. Reporting Obligation of Lawyers under the AML/ATF Law in Malaysia. Procedia-Social and Behavioral Sciences, 170, pp.409-414.

Aurasu, A. and Rahman, A.A., 2016. Money laundering and civil forfeiture regime: Malaysian experience. Journal of Money Laundering Control, 19(4), pp.337-345.

Hamin, Z., Omar, N., Rosli, W.W. and Razak, M.A., 2015, February. Recent development in the AML/CFT law in Malaysia. In Interdisciplinary Behavior and Social Sciences: Proceedings of the 3rd International Congress on Interdisciplinary Behavior and Social Science 2014 (ICIBSoS 2014), 1–2 November 2014, Bali, Indonesia (p. 43).

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