Concerning The Principle Of Good Faith And Its Realization

When it comes to people who engage in illegal activities, investigators will tell you, follow the money and you'll find the crime. Criminals are just like everyone else-they want a safe place to stash their cash. Because large currency transactions are sometimes indicative of illegal activity, institutions are required to file Currency Transaction Report (CTR) forms under certain conditions."Financial institutions are where people move money. That's why the government made us the watchdogs," explains Wendy B Parker, vice president, operations compliance/security officer for Bank of Utah (Ogden, Utah). Drug traffickers and organized crime often move large amounts of cash through the banking system, as do white-collar criminals, such as tax evaders. The Bank Secrecy Act (BSA) requires financial institutions and some other businesses to report cash transactions of more than$10,000 using CTR. The agencies that use CTR data have the ability to cross-reference information received from other financial institutions and businesses. Investigators use this data to track.Since money laundering is the processing of the criminal proceeds to conceal their illegal origin, the objective of the launderer is to disguise the illicit origin of the substantial profits generated by the criminal activity so that such profits can be used as if they were derived from a legitimate source.It appears to be accepted that there are three phases or stages in the laundering process. The first is the placement, where cash enters the financial system. This is the choke point or the nerve center of the procedure, where the launderer is more vulnerable and the attempt to launder can easily be identified. The second stage is the layering where the money is involved in a number of transactions so that the tracing of the origin of the money is lost. Finally the third stage is integration, where money is mixed with lawful funds or integrated back into the economy, with the appearance of legitimacy. The thrust of this report is on the important first stage. In order to facilitate better quality and reliable suspicious transaction reports banks and other financial institutions should know their customers. Unfortunately, quite a lot of people are not honest. The net result could be a bad debt or fraud. More importantly being involved with criminals puts their reputation at risk. The customer tells the banks who they are. It would be necessary to obtain evidence of identity-reliable circumstantial-hearsay.Public confidence in banks, and hence their stability, can be undermined by adverse publicity as a result of inadvertent association by banks with criminals. In addition, banks may lay themselves open to direct losses from fraud, either through negligence in screening undesirable customers or where the integrity of their own officers has been undermined through association with criminals. For these reasons the members of the Basle Committee consider that banking supervisors have a general role to encourage ethical standards of professional conduct among banks and other financial institutions.Banks and other financial institutions may unwittingly be used as intermediaries for the transfer or deposit of money derived from criminal activity. The intention behind such transactions is often to hide the beneficial ownership of funds. The use of the financial system in this way is of direct concern to police and other law enforcement agencies; it is also a matter of concern to banking supervisors and banks'managements, since public confidence in banks may be undermined through their association with criminals. This Statement of Principles is intended to outline some basic policies and procedures that banks'managements should ensure are in place within their institutions with a view to assisting in the suppression of money-laundering through the banking system, national and international. The Statement thus sets out to reinforce existing best practices among banks and, specifically, to encourage vigilance against criminal use of the payments system, implementation by banks of effective preventive safeguards and cooperation with law enforcement agencies.Effective knowledge of banking corporations'customers, including an understanding of the business they conducts with or via the banking corporation, is essential in preventing the banking system from being used for money laundering and in the proper conduct of banking business. A banking corporation's involvement in money laundering is likely to tarnish its reputation and undermine the public's confidence in it and in the whole banking system. Without undertaking a thorough examination of a customer's identity, a banking corporation may well be exposed to reputational, operational, legal and other risks. Appropriate know-your-customer (KYC) procedures help to protect a bank's reputation and the integrity of the banking system by reducing the risk of the banking corporation becoming a vehicle for or a victim of financial crime and suffering consequential damage. An adequate KYC policy is therefore essential not only in the battle against money laundering but also in the maintenance of the stability and credibility of the banking system.The objective of an STR system is to facilitate the detection of illicit proceeds of crime as it enters the financial system via the financial institutions, i.e. at the placement stage of the money laundering process. This is the "choke point" where money laundering is most vulnerable. It is important therefore that a legal checks and balance system is put in place to:(I) legally recognize the STR system domestically in compliance with the FATF recommendations; (II) exert obligatory compliance by financial institutions to the STR provisions; (III) sanction non-compliance by financial institutions of the legal STR obligations; and (IV) safeguard the integrity of the financial system.This requires a methodical and practical approach to the form of STR relevant to suit a given situation in each jurisdiction. For instance, the form of STR expected from a financial institution would vary from a law or accountant firm due to the nature of the transactions peculiar to them. In this report we propose to examine the STR of financial institutions and briefly the FIU of Japan and a comparative glimpse of Hong Kong and the United States as well.