753 money laundering international experiences and recommendations for viet nam,khoá luận tốt nghiệp

Supervisor Student : Dinh Thi Thanh Long, MSc : Do Tuan Anh Class : K19KDQTD STATE BANK OF VIETNAM Course : 2016 - 2020 Student Code MINISTRY OF EDUCATION AND TRAINING : 19A4050008 BANKING ACADEMY FACULTY OF INTERNATIONAL BUSINESS GRADUATION THESIS Money Laundering: International experiences and recommendations for Viet Nam Supervisor Student Major : Dinh Thi Thanh Long, MSc : Do Tuan Anh : International Business STATE BANK OF VIETNAM Code MINISTRY OF EDUCATION AND TRAINING : 734.01.20 BANKING ACADEMY FACULTY OF INTERNATIONAL BUSINESS GRADUATION THESIS Money Laundering: International experiences and recommendations for Viet Nam Hà Nội, May 2020 Hà Nội, May 2020 i AUTHOR’S DECLARATION I hereby declare that the thesis paper entitled “Money Laundering: International experiences and recommendations for Viet Nam” submitted to the Faculty of International Business of Banking Academy, is a copy of my original article under the counsel of Mrs Dinh Thi Thanh Long, MSc ii ACKNOWLEDGMENT First and foremost, I would like to express my profound appreciation to my supervisor Mrs Dinh Thi Thanh Long, MSc for all the instructions and supports she gave me during my thesis writing process I would also like to show a deep appreciation to all the teachers, and lecturers at Banking Academy for providing me with the necessary tools and resources to perform research Moreover, I am extremely grateful to my family, who have been by my side throughout process iii Table of Contents Author’s declaration i Acknowledgment ii Table of Contents iii Abstract v List of tables, figures vi List of acronyms viii INTRODUCTION 1.Rationale for the study Objectives of the study Scope of the study Methodology of the study .2 Structure of the study CHAPTER LITERATURE REVIEW 1.1.Money laundering 1.1.1 Definitions 1.1.2 Characteristics 1.1.3 Instruments 1.1.4 Impacts 11 1.2.Anti-money laundering .13 1.2.1 Definitions 13 1.2.2 Instruments 13 SUMMARY OF CHAPTER 17 CHAPTER OVERVIEW OF MONEY LAUNDERING AND ANTI-MONEY LAUNDERING 19 2.1 Money laundering 19 2.1.1 Definition: Structuring and transaction laundering 19 2.1.2 .Sources of money laundering iv 2.2.1 .Definition and characteristics 25 2.2.2 International instruments 26 2.2.3 Inland instruments 28 Summary of Chapter 30 CHAPTER ANTI-MONEY LAUNDERING: CASE STUDY 31 3.1 An overview of money laundering in the world 31 3.2 Anti-money laundering: Case study 31 3.2.1 Anti-money laundering in Italy 31 3.2.2 Anti-money laundering in Afghanistan 38 SUMMARY OF CHAPTER 44 CHAPTER 4: RECOMMENDATIONS FOR ANTI-MONEY LAUNDERING IN VIETNAM 45 4.1 Facts and figures of money laundering in Vietnam 45 4.2 Instruments of anti - money laundering in Vietnam 51 4.3 Recommendations for improving anti-money laundering activities in Vietnam 56 4.3.1 Recommendations for the officials 56 4.3.2 Recommendations for SBV 57 4.3.3 Recommendations for commercial banks 59 4.3.4 Recommendations for non-bank institutions 59 SUMMARY OF CHAPTER 60 CONCLUSION 61 vi v LIST OFABSTRACT TABLES, FIGURES In recent years, efforts to launder money and sponsor terrorism are increasing rapidly in response to intensified anti-money laundering measures The international community is witnessing the use of increasingly sophisticated methods to move illegal funds across the global financial system and recognize the need to strengthen multilateral cooperation in the fight against this kind of criminal activity International transactions are an important component of an economy, and with its development, many economies have prospered Moreover, the simplicity and convenience of this tool also make international trade more convenient Overseas trade is now accessible by any individual However, with the rising popularity of readily available international payment tools, many problems follow, such as unreasonable currency exchange rates, more credit risks, and especially money laundering Since this term was introduced, money laundering activities have had a negative impact on businesses in particular and the economy as a whole Money laundering changes the supply and demand of money, bringing more risk of holding dirty money to the banks and create Number an unfriendly business environment Therefore, for this project, I will identify some Name Table 1.1 Examples of the money laundering process Table 3.1 Estimation of Hawala Flows in and out of Afghanistan (2004 2005) Table 4.1 Number of cases brought to prosecution and trial in Vietnam Table 4.2 Summary of typical cases from 2010 to 2013 Table 4.3 Banks’ anti-money laundering software Page 4 Figure 1.1 The process of money laundering Figure 2.1 An example of the process of structuring Figure 2.2 An example of the process of transaction laundering Figure 3.1 Correlation Matrix of GNP, GDP, total amount of bank deposit and total number of crimes in Italy during 1980 - 1990 Figure 3.2 Regression output of bank deposits, economy indexes and criminal activities Figure 3.3 Criminal rate in Italy from 1995 - 2005 Figure 3.4 Correlation Matrix of GNP, GDP, total amount of bank deposit and total number of crimes in Italy during 1995 - 2005 Figure 3.5 Afghanistan’s industry distribution Figure 3.6 The process of Hawala remittance system 3 Figure 3.2 Figure 4.1 Afghanistan’s Corruption Perception Index 2005 - 2019 Basel AML Index 2019 and 2018 vii 4 Figure 4.2 Vietnam AML Index from 2015 to 2019 Figure 4.3 Vietnam’s Corruption index from 2010 - 2019 Figure 4.1 Basel AML Index 2019 (left) and 2018 (right) (Source: BASEL) 51 Figure 4.2 VietNam Basel AML Index from 2015 to 2019 (Source: BASEL) According to the chart, money laundering in Vietnam is on the rise We ranked at a low point of 37 in 2015, decreased to 47 in 2016 Thereafter, it increased dramatically, peaking at nearly the top of the chart The evaluation from the Basel council makes us question our anti-money laundering programs 4.2 Instruments of anti - money laundering in Vietnam In Vietnam, money laundering is specified in the Law on Money Laundering Prevention (effective from January 1, 2013) Decree 116/2013/ND-CP of October 4, 2013, gives details on the implementation of several articles in the Law on Money Laundering Prevention Circular No.35/2013/TT-NHNN dated 31/12/2013 of the State Bank of Vietnam guides the implementation of some money laundering prevention activities In general, in most laws related to money laundering, this process is often described as the procedure by which money obtained by criminal 52 offenses are separated from the offenses that created them and make them appear to have a legal origin If done efficiently and successfully, it will be difficult and even impossible to trace the money back to its source According to the Law on money-laundering prevention and decree no 116, the reporting subjects must implement customer identification for first time customers, irregular transactions of great value, suspicious transactions or parties involved, have doubts about the accuracy or completeness of customer identification The content of customer identification includes full name, birth date, nationality, occupation, telephone number, ID card or passport, address of permanent residence and current residence The beneficiary information is determined based on the actual owner of the account, the individual has the right to dominate the legal entity, owners of private enterprises To complement, the law on money-laundering prevention and decree no 116 requires the reporting agents to issue internal regulations on prevention of money laundering with the following contents: customer acceptance policies according to risk level; approval level based on customer request; have processes and procedures to identify customers; reporting transactions of great values; suspicious transactions, transactions related to money laundering to finance terrorism, transactions related to criminal activities, transactions related to criminals, terrorist organizations and terrorist financing according to United Nations Security Council resolutions, blacklist, warning list; applying temporary measures and handling principles to deferred suspicious transactions Currently, the reporting agents in banks must make types of reports on prevention of money laundering including reports of high-value transactions, reports of suspicious transactions and reports of money laundering behavior to terrorist aid The report on large value transactions is made in case the customer of the reporting 53 of acts of money laundering shall be made when the reporting agent finds that the organization or individual conducting a blacklisted transaction or when there are grounds to believe that another entity acts involving money laundering offenses to finance terrorism The reporting subjects must report and send the reports to the State Bank of Vietnam, especially for reports on acts of money laundering for terrorism financing, they must send additional to the Ministry of Public Security The reporting of high-value transactions is made in the form of electronic file transfer daily based on the date of the transactions In Vietnam, the Anti-Money Laundering Department (AMLD) of the State Bank of Vietnam is the Vietnam Financial Intelligence Unit AMLD's ability to exchange information with similar FIUs around the world could also be beneficial in detecting and investigating cash transportation and other financial crimes Forty recommendations are proposed for global application, regardless of national size or type of economy and stage of economic development For that reason, standards are also flexible and can be implemented based on the actual risks that exist in the country in which they are applied These recommendations have been revised periodically and now include provisions on countering terrorist financing The recommendations have been adopted by more than 130 countries and formed an international standard against money laundering FATF cannot enforce its regulations Instead, the organization relies on a peer-to-peer evaluation system called "mutual assessment" Each country is assessed by some other country and the results of the evaluation are published If a country does not meet the standards, it may be required to participate in the remediation process If the country does not make adequate progress in the remedial process thereafter, it can be included in a publicly-publicized list of countries that not meet the standards for money-laundering prevention At the strongest response level, FATF can call upon its members to take "countermeasures" with countries that not fully implement the standards These “countermeasures” are not punitive or 54 55 prevention mechanisms Tableand 4.3 those Banks’ that anti-money are subject laundering to countermeasures software often pay higher costs and have less access to the international financial system, foreign investment decreased and increased capital bleeding While FATF standards are set to be globally applicable, there are some other organizations that set standards to be more specific These standards fully comply with FATF standards but are intended to be implemented within a specific business or geographic area For example, the Wolfsberg Group is an association of 11 global banks, which aims to develop customer service financial standards related to AML / CFT (Anti-money laundering and terrorist financing) Some examples of its standards can be found in the fields of private banking, commercial finance, and correspondent banking The Basel Committee on Banking Supervision is another international organization that sets industry-specific standards for AML / CFT To comply with international practices on the prevention of money laundering, the Government has promulgated legal provisions related to money laundering such as the Customs Law 2014 January 1, 2015; Law on the Prevention of money laundering passed January 1, 2013; documents related to the Law on Prevention of money laundering Currently, most banks have realized the importance of information technology Bank in the prevention and have invested significantly in the Softwareof money laundering Year Agribank Tombeller 2ÕĨ2 BIDV 3i Infotech 2011 Vietcombank Tombeller 2013 Eximbank EastNets 2011 Techcombank 3i Infotech 2011 Sacombank GTone 2011 VIB 3i Infotech 2011 (Source: Giang, 2015) However, the installation cost of such anti-money laundering software is quite significant for commercial banks of medium and small scale It is reported to cost around $2 million to install such software As mentioned in the case study of Italy, to have a complete anti-money laundering procedure, it is necessary to balance its effectiveness and an increase in operating cost In general, money laundering prevention activities in Vietnam are very active The prevention of money laundering has contributed to ensuring the safety of banking activities in particular and ensuring social security in general with the great efforts of the officials The last issue I wants to mention is the relationship between corruption and money laundering As noted in the case study of Afghanistan, money laundering and corruption are positively correlated According to D Chaikin and J.Sharman (2009), 56 corruption and money laundering have a symbiotic relationship, so to effectively negate money laundering effective anti-corruption policies must be in effect Figure 4.3 Vietnam’s Corruption index from 2010 - 2019 (Source: TransparencyInternational) Looking at the chart, we can see that corruption in Vietnam is declining however, the number of 37 points out of 100 is not proud Vietnam is still ranked as one of the most corrupt countries in Asia according to Transparency International Comparing Vietnam to Singapore - the country with the highest CPI in South East Asia, it can be seen that we are not doing well in this task, they have an extremely high CPI score of 85/100 in 2019 And again, when corruption is high, the chances for money laundering will be high 4.3 Recommendations for improving anti-money laundering activities in Vietnam 4.3.1 Recommendations for the officials Firstly, perfecting the legal basis and handling violations related to the 57 prevention and combat to bring be practical and gradually meet international standards on prevention of money laundering Besides, in the legal documents on investment, trade, customs it is necessary to supplement the provisions on the prevention of money laundering to ensure the prevention and combat of money laundering are implemented synchronously and effectively On the other hand, the Foreign Exchange Ordinance was issued in 2005 with more openly regulations on foreign currency transactions a lot of loopholes for money laundering criminals to take advantage of the transfer of "dirty foreign currencies" into the country or abroad Therefore, in the coming time, it is necessary to supplement the provisions of the Foreign Exchange Ordinance with targeted anti-money laundering goals to limit the ability of criminals to launder money Secondly, there is a need to improve the situation of corruption in Vietnam To reduce corruption, there is a need for greater transparency in information such as donations and government spending Stimulating people's contributions to government activities From there, create mutual trust between the people and the government Thirdly, the role of police and high-tech police needs to be emphasize They should invest more in developing their Financial Intelligent Unit (FIU), because such unit will strengthen the relationship between banks and government agencies With the development of the 4.0 era, the irony is that many people are concerned about the lack of information publicity Therefore, the role of BI and intelligent organizations is extremely important 4.3.2 Recommendations for SBV Firstly, promote propaganda about the prevention of money laundering The State Bank should propagate so that people understand the reporting of commercial banks as well as the performance of banking operations Besides, SBV should offer training courses on prevention and combat of money laundering for commercial bank 58 customers about prevention and combat of money laundering that the bank is implementing, to avoid unnecessary misunderstandings from customers Secondly, continue to invest in the information technology system on the prevention of money laundering The purpose of this task is to connect information sharing with ministries and agencies; enhance information safety and security; coordinating with the maintenance unit to upgrade the data receiving software and data integration software system; strengthening the processing capacity of the system; standardize the internal information processing business process and for information provision and sharing organizations Next, strengthen the inspection, examination, and supervision on activities of money laundering prevention SBV acts as a management agency in moneylaundering prevention and combat should strengthen the inspection, examination, and supervision of money laundering prevention activities at commercial banks Strictly handle cases of non-compliance with the provisions of the law on the prevention of money laundering The banking inspection and supervision agency should issue a regulation on supervision and incorporate criteria for compliance with regulations on the prevention of money laundering into the set of criteria for evaluating and rating commercial banks In general, the Department of Anti-Money Laundering, in particular, should be proactive in inspecting and supervising commercial banks Thereby offering effective measures by requiring credit institutions to strictly implement regulations on the prevention of money laundering Finally, regularly organizing seminars on the prevention of money laundering with commercial banks It is not only an opportunity for the Anti-Money Laundering Department to receive feedback from commercial banks in the implementation but also an opportunity for commercial banks to exchange experiences on money laundering prevention Thereby, restricting the acts of taking advantage of the commercial banking system to perform money laundering acts 59 4.3.3 Recommendations for commercial banks The establishment of a department specialized in the prevention of money laundering is necessary This specialized unit will be responsible for developing, monitoring the implementation of internal processes, performing analysis work synthesizing all information about suspicious transactions and reporting to the Department of Anti-Money Laundering Commercial banks need to make efforts to identify customers, both old and new customers, and potential customers who need to use their organization's products and services They also need to strictly follow the internal process of the prevention of money laundering There should be a policy to ensure that all officials and employees are well aware of the internal policies and procedures of the unit Banks should have effective programs and plans on moneylaundering prevention and control to ensure that all employees in the organization are equipped with basic knowledge about money laundering prevention, combating and employees of several ministries Relevant departments must be equipped with specialized knowledge and professional skills on the prevention of money laundering 4.3.4 Recommendations for non-bank institutions Although non-bank organizations are not bound or controlled by money laundering prevention laws such as BSA or as severe sanctions as banks They are still under the supervision of related organizations such as FinCEN, OFAC, etc Because they are organizations that not have financial strength like banks, each fine can cause severe consequences even bankruptcy Non-banks and even banks should consider new approach and new technologies such as neural network, AI, 60 SUMMARY OF CHAPTER This paragraph gives suggestions based on the findings of two cases related to Italy and Afghanistan in chapter The suggestions are given with the support of actual data and then in the order of large to small organizations Starting with the State Bank of Vietnam, commercial banks and end with non-financial institutions Hopefully this chapter will lay the foundation for future research 61 CONCLUSION Money laundering has always been a problem for many countries around the world and it is a matter of great concern to the international community Along with the development of business activities, liberalization, globalization and science and technology, especially in the field of information technology, methods of money laundering methods are increasingly diverse, sophisticated and complex Money laundering activities have negative effects covering many areas of economic, social, political, security, national defense of all countries; in particular, money laundering activity loses control of economic policies, weakens the private sector, manipulates the financial system, harms the macro economy, and distorts foreign trade Without a stable financial market and for the development of money laundering, the country is not a reliable partner and cannot fully participate in the world financial market In order to prevent criminals from taking advantage of the banking system to conduct money laundering, countries often implement anti-money laundering methods by issuing laws and regulations related to prevention and combat of money laundering However, for a law to be effectively implemented, it is necessary to have a combination of supplementary factors including increased operating costs and correlation with corruption, as mentioned in the research section Vietnam has been and will continue to emphasize the importance of importance to anti-money laundering activities through banks In fact, Vietnam has made remarkable initial moves and successes in money laundering prevention Challenges and shortcomings in anti-money laundering activities are still many and increasingly heavy tasks along with the new integration context This study is only one of a few studies in relation to anti-money laundering regulations and of course, it has unavoidable limitations Firstly, the suggestions are based entirely on personal opinions and have not been tested in practice For a more 62 complete picture, large-scale studies are needed The second drawback of this study is that some of the data included in this article is relatively old, but it's the only data that can be obtained from public sources In spite of the above two major limitations, I hope that the information from this study will be somewhat useful for managers and professionals or even future studies which will take a deeper look into this situation The recommendations the author makes in this thesis are suggestive only from the current research results and theoretical basis For these recommendations to come into life, pilot experiments are needed However, the 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Chapter 2: Overview of Money Laundering and Anti -Money Laundering Chapter 3: Overview of Money Laundering in the World Chapter 4: Recommendations for Anti -Money Laundering in Vietnam CHAPTER LITERATURE... of money laundering • Cite some international experiences on this issue and draw out some lessons • Introduce suggestions of anti - money laundering for Vietnam • Cite some international experiences. .. of money laundering stemming from illegal activities 19 CHAPTER OVERVIEW OF MONEY LAUNDERING AND ANTI -MONEY LAUNDERING 2.1 Money laundering 2.1.1 Definition: Structuring and transaction laundering