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Money Laundering and Terrorist Financing: A Guide for Financial Service Providers

A recent report has highlighted the complexity of money laundering and terrorist financing schemes, which have become increasingly sophisticated in their efforts to evade detection. In this guide, we will examine the key vulnerabilities in the laundering process and provide guidance on how financial service providers (FSPs) can identify and mitigate these risks.

Vulnerabilities in Money Laundering

Experts have identified several points of vulnerability in the money laundering process that FSPs must be aware of:

• The entry of cash into the financial system
• Cross-border flows of cash
• Acquisition of financial assets
• Transfers within and from the financial system
• Incorporation of companies
• Establishment of financial vehicles, such as ostensible pooled investment funds or merchant and barter companies

Terrorist Financing: A Growing Concern

Terrorist financing is a growing concern globally, with terrorist groups seeking to raise and launder funds for their activities. According to the Terrorism Act (2018 Revision), terrorism is defined as any action intended to compel a government or international organisation to do or abstain from doing any act for the purpose of advancing a political, religious, racial, or ideological cause.

FSPs must be aware that terrorist groups may use legitimate sources of funding, such as charities and non-profit organisations, to raise funds for their activities. Additionally, underground banking systems, such as hawala, have been used to move terrorist-related funds.

Obligations Under International Sanctions

FSPs are required to comply with international sanctions orders and designations related to terrorist financing and proliferation financing. This includes:

• Filing suspicious activity reports
• Freezing funds
• Informing the Governor as required under relevant Acts or orders

Proliferation Financing: A Threat to National Security

Proliferation financing refers to the act of providing funds or financial services that are used for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical, radiological or biological weapons and their means of delivery.

FSPs must be aware of the risks associated with proliferation financing and take steps to prevent their financial services from being used for these illegal activities.

Conclusion

In conclusion, money laundering and terrorist financing are complex and evolving threats that require FSPs to be vigilant in identifying and mitigating risks. By understanding the vulnerabilities in the laundering process and complying with international sanctions and obligations, FSPs can play a critical role in preventing these illegal activities from taking place.