Introduction to Activities of Combating Money Laundering and Financing of Terrorism

An act of laundering money (money laundering) is determined in the international convention (United Nations Convention against Transnational Organized Crime, Palermo, 2000) as below:

  • (i) The conversion or transfer of property, knowing that such property is the proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offence to evade the legal consequences of his or her action;
  • (ii) The concealment or disguise of the true nature, source, location, disposition, movement or ownership of or rights with respect to property, knowing that such property is the proceeds of crime;
  • (iii) The acquisition, possession or use of property, knowing, at the time of receipt, that such property is the proceeds of crime;
  • (iv) Participation in, association with or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counseling the commission of any of the offences established in accordance with this article.

Pursuant to the 1661 of Criminal Code of Mongolia (Approved in 24th of December 2009), Money laundering is determined as mentioned below:

  • 166.1 Knowingly received, kept, transferred or converted the tangible assets, the intangible assets or the proceeds obtained from committing a less grave, a grave or an exceptionally grave crime other than stipulated in Article 166 of this Law for the purpose of disguising, concealing the illegal source or of helping any person to evade legal consequences of his or her action, shall be punishable a fine in the amount of 51 to 250 national minimum salary or by imprisonment up to 5 years.
  • 166.2 The same crime committed repeatedly, by a group or using his or her job position and gained a large amount of income shall be punishable by imprisonment for a term of more than 5 to 10 years with confiscation of property.
  • 166.3 The same crime committed by an organized group, by a gang or gained an exceptionally large amount of income shall be punishable by imprisonment for a term of more than 10 to 15 years with confiscation of property.

According to a survey conducted in 1996 by International Monetary Fund, dirty money ranged between USD 590 billion and USD 1.5 trillion is laundered worldwide each year. The lower figure is almost equal to the gross domestic product of Spain. All the incidences of money laundering are not detected because this is not the real amount of laundered money, could be much more in reality.

Regarding this issue, the United Nations has adopted several conventions and resolutions. United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988) and Palermo Convention Against Transnational Organized Crime (2000) have called upon its member states to take complex measures against money laundering. And with regard to combating terrorism and financing of terrorism, the United Nations adopted Convention Combating Against Financing of Terrorism in 1999 and resolution 1267 and resolution 1373 etc. These resolutions have been calling UN Member States for such measures to confiscate property of terrorist organization and person and to freeze transactions made on behalf of them. Our country ratified these conventions and resolutions and thus we are responsible to combat money laundering and financing of terrorism before the international community.

The term money laundering is widely used at the international level. Money laundering term is used to impose additional punishment for those who committed predicate offence for the person’s acts of concealment, disguise and transfer of the proceeds of crime. Also, even a person did not participate in the predicate offence it should be considered a crime if such person participates in the concealment, disguise and transfer of the proceeds of crime knowing they are unlawful. Aim of combating money laundering is not to impose additional punishment, but to limit the conducting of an activity that may support the guilty person. Its importance is to prevent from committing money laundering offence and getting involved or participate in such offence.

There are a number of incidences of detecting predicate offences using the advantages of anti money laundering framework (access to bank information, knowing the customer, reporting suspicious transactions, public advertising in order to prevent etc.)
Moreover, the framework is broadly used for imposing responsibility to banking and financial institutions for supporting money laundering activities.

Money laundering offence is typically has three stages including placement, layering and integration. During the placement stage, the illegal funds or assets are needed to be removed into somewhere. For instance, a guilty person may place cash by depositing into bank accounts that are opened on behalf of other person in unnoticeable small amount, or buying securities, cheques, shares, houses and buildings. In the second stage, the cash is placed into circulation in order to conceal the origin and give appearance of the income that having been legitimately obtained. For example, selling the securities, traveller’s cheques or transferring the fund as it is engaged in foreign trade to the countries that have no anti-money laundering framework. After that, in the third stage, the person gets cash back into his or her account that has achieved the appearance of legitimacy or has become difficult to trace the origin.

Since the methods and types of money laundering are identical to the financing of terrorism, these two kinds of offences are tightly connected. But they are committed separately in nature. For instance, money laundering is aimed to be appeared as legitimate, while the financing of terrorism is intended to spend the legitimate income for illegal activities.

It is the undisputed truth that money laundering has significant negative economic and social effects. Illegal money flows out of a country suddenly as it flowed into the country suddenly, once it reached its purpose. Furthermore, the reputation of bank and financial institutions may be damaged, foreign countries may take measures such as foreign transactions conducted by banks and financial institutions might be delayed and checked and even refuse to co-operate with them. If the illegal money is domestic, it may cause sharp growth in bribes and corruption, eliminate fair competition and drive the entities conducting fair business out of the market and create monopoly. The risk of prevalence of money laundering is high in the countries with low developed combating money laundering and financing of terrorism system.

It is clear that a country with small economy like our country has a huge need for investment and money. At the same time, banks are more interested in creating the accumulation and support the investment, although some have an opinion for a long time that there is no need of interest and exploration of sources of revenue and assets, and the nature of business. But this condition may threaten the reliability and stability of financial system in the end.

The organization that integrates the international efforts and sets international standards is the Organization for countering international financial crime - FATF (Financial Action Task Force). The organization is established by “G8” in 1989 and the organization is responsible for implementing the United Nations Conventions and Resolutions and integrating the international efforts. Our country has become the member of its close affiliate that is responsible for region- The Asia/Pacific Group on Money Laundering (APG) in 2004.

FATF adopted The 40 +9 Recommendations in which determined the essential requirements and standards for combating money laundering and terrorism financing. Also the member countries conduct mutual evaluations of whether the countries meet the international standards respectively. Furthermore, it explores the new approaches in money laundering and terrorism financing and introduces them to member countries and warns the members about taking measures against the new approaches.

The 40+9 Recommendations require that countries should criminalize the acts of money laundering and financing of terrorism. And the recommendations set out the measures to build a system with complex measures to investigate, create the legal environment for suspending and confiscating the illegal transaction and proceeds, establish professional and central organization, ensure the application of preventing measures from ML/FT by the banks and financial institutions, informing to competent authority about suspicious transaction etc.

FATF member countries enlist the countries to the special black (NCCT) list that ignoring and not implementing the standards. FATF calls upon to establish any financial and economical relations with the countries listed in NCCT list.

The foundation of combating money laundering and terrorism financing was founded through the approval of Parliament of Mongolia on the “Law on Combating money laundering and financing of terrorism” in July 8, 2006. Pursuant to this law, Financial Information Unit was established within the structure of Bank of Mongolia in November 29, 2006 whose function will be to implement the laws on Combating money laundering and financing of terrorism.

The law on Combating money laundering and financing of terrorism covers very broad framework including banks, financial institutions, insurance companies, licensed security market entities, natural persons or legal persons conducting pawnbroker activities, savings and credit cooperatives and natural or legal persons conducting foreign currency exchange activities etc. These legal entities should report to the Financial Information Unit about any transactions that they suspect of money laundering or financing of terrorism or any cash transactions of 20 million togrogs (or equivalent foreign currency) or above.

Having a good framework for combating money laundering and terrorism financing and Financial Information Unit in Mongolia, it shall be prevented from the damage to reputation of our financial institutions and can protect the fair businessmen.