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Banking Law & Practice

1. Functions of a central bank

The primary function of a central bank is to manage the nation's money supply (monetary policy). The basic functions of the Central Banks are: 1. Monopoly of Note-Issue: Note-issue primarily is the main function of a central bank in every country. These days, in all the countries where there is a central bank generally it has got the monopoly or the sole right of note-issue. In the beginning this was not the function of Central Bank but gradually all the central banks have acquired this function. First of all, Central Bank of England got the right of note-issue in the year 1844. In actual practice, upto the beginning of twentieth century, generally central banks were recognized as the banks of note-issue. In India, R.B.I., the central bank of India has got the right of note-issue. 2. Banker, Agent & Adviser to the Government: As banker to the government, central bank provides all those services and facilities to the government which public gets from the ordinary banks. It operates the accounts of the public enterprises. It manages government departmental undertakings and government funds and when there is a need gives loans to the government. It looks after the management of public debt. It accepts the payment of taxes from the public on behalf of the government and makes payment for the cheques issued by the government. It also undertakes transactions relating to foreign currencies on behalf of the government. 3. Custodian of Cash Reserves of Commercial Bank: Central bank is the bank of banks. This signifies that it has the same relationship with the commercial banks in the country which they have with their customers. It provides security to their cash reserves, gives them loan at the times of need, gives them advice on financial and economic matters and works as clearing house among various member banks. A definite percentage of deposits of commercial banks are kept as reserve with the central bank. This leads to centralisation of cash reserve and facilitates working of credit control. These funds are of great significance during the time of emergency. 4. Custodian of Nation's Reserves of International Currencies: Central bank is the custodian of the foreign currency obtained from various countries. This has become an important function of central bank, these days, because with its help it can stabilize the external value of the currency. This function has become highly important after the World Depression of 1929 and the establishment of the International Monetary Fund.
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Banking Law & Practice

5. Lender of the Last Resort: Central bank works as lender of the last resort for commercial banks because in the times of need it provides them financial assistance and accommodation. Whenever a commercial bank faces financial crisis, central bank as lender of the last resort comes to its rescue by advancing loans and the bank is saved from being failed. Central bank helps commercial banks by discounting their bills and securities. 6. Clearing House Function: All the commercial banks have their accounts with the central bank. Therefore, central bank settles the mutual transactions of banks and thus saves all banks contacting each other individually for setting their individual transactions, in this way; the unnecessary cash transactions between individual banks are avoided. 7. Credit Control: This is a very important function. These days, the most important function of central bank is to control the volume of credit for bringing about stability in the general price level and accomplishing various other socio-economic objectives. There are number of methods which a central bank may use for controlling the volume of credit such as bank rate, open market operations, change in reserve ratio and various selective controls. Other Functions: Besides the 7 functions explained above, central banks perform many other functions that are as follows: 1. Collection of Data: Central banks in almost all the countries collects statistical data regularly relating to economic aspects of money, credit, foreign exchange, banking etc. from time to time, committees and commission are appointed for studying various aspects relating to the aforesaid problem. 2. Central Banking in Developing Countries: The basic problem of underdeveloped countries is the problem of lack of capital formation whose main causes are lack of saving and investment. Therefore, central bank can play an important role by promoting capital formation through mobilizing saving s and encouraging investment.

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Banking Law & Practice

2. Functions of Commercial Banks Commercial banks have to perform a variety of functions which are common to both developed and developing countries. These are known as General Banking functions of the commercial banks. The modern banks perform a variety of functions. These can be broadly divided into two categories: (a) Primary functions and (b) Secondary functions. A. Primary Functions Primary banking functions of the commercial banks include: 1. Acceptance of deposits 2. Advancing loans 3. Creation of credit 4. Clearing of cheques 5. Financing foreign trade 6. Remittance of funds 1. Acceptance of Deposits: Accepting deposits is the primary function of a commercial bank mobilise savings of the household sector. Banks generally accept three types of deposits viz., (a) Current Deposits (b) Savings Deposits, and (c) Fixed Deposits. 2. Advancing Loans: The second primary function of a commercial bank is to make loans and advances to all types of persons, particularly to businessmen and entrepreneurs. Loans are made against personal security, gold and silver, stocks of goods and other assets. The most common way of lending is by: 1.Overdraft Facilities, 2. Cash Credit 3. Discounting Bills of Exchange, 4. Money at Call, 5. Term Loans, 6. Consumer Credit 7. Miscellaneous Advances. 3. Creation of Credit: A unique function of the bank is to create credit. Banks supply money to traders and manufacturers. They also create or manufacture money. Bank deposits are regarded as money. They are as good as cash. The reason is they can be used for the purchase of goods and services and also in payment of debts. When a bank grants a loan to its customer, it does not pay cash. It simply credits the account of the borrower. He can withdraw the amount whenever he wants by a cheque. In this case, bank has created a deposit without receiving cash. That is, banks are said to have created credit. Sayers says banks are not merely purveyors of money, but also in an important sense, manufacturers of money.
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Banking Law & Practice

4. Promote the Use of Cheques: The commercial banks render an important service by providing to their customers a cheap medium of exchange like cheques. It is found much more convenient to settle debts through cheques rather than through the use of cash. The cheque is the most developed type of credit instrument in the money market. 5. Financing Internal and Foreign Trade: The bank finances internal and foreign trade through discounting of exchange bills. Sometimes, the bank gives short-term loans to traders on the security of commercial papers. This discounting business greatly facilitates the movement of internal and external trade. 6. Remittance of Funds: Commercial banks, on account of their network of branches throughout the country, also provide facilities to remit funds from one place to another for their customers by issuing bank drafts, mail transfers or telegraphic transfers on nominal commission charges. As compared to the postal money orders or other instruments, bank drafts have proved to be a much cheaper mode of transferring money and has helped the business community considerably. B. Secondary Functions Secondary banking functions of the commercial banks include: 1. Agency Services 2. General Utility Services These are discussed below. 1. Agency Services: Banks also perform certain agency functions for and on behalf of their customers. The agency services are of immense value to the people at large. The various agency services rendered by banks are as follows: (a) Collection and Payment of Credit Instruments: Banks collect and pay various credit instruments like cheques, bills of exchange, promissory notes etc., on behalf of their customers. (b) Purchase and Sale of Securities: Banks purchase and sell various securities like shares, stocks, bonds, debentures on behalf of their customers. (c) Collection of Dividends on Shares: Banks collect dividends and interest on shares and debentures of their customers and credit them to their accounts.

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(d) Acts as Correspondent: Sometimes banks act as representative and correspondents of their customers. They get passports, travellers tickets and even secure air and sea passages for their customers. (e) Income-tax Consultancy: Banks may also employ income tax experts to prepare income tax returns for their customers and to help them to get refund of income tax. (f) Execution of Standing Orders: Banks execute the standing instructions of their customers for making various periodic payments. They pay subscriptions, rents, insurance premia etc., on behalf of their customers. (g) Acts as Trustee and Executor: Banks preserve the Wills of their customers and execute them after their death. 2. General Utility Services: In addition to agency services, the modern banks provide many general utility services for the community as given. (a) Locker Facility: Bank provide locker facility to their customers. The customers can keep their valuables, such as gold and silver ornaments, important documents; shares and debentures in these lockers for safe custody. (b) Travellers Cheques and Credit Cards: Banks issue travellers cheques to help their customers to travel without the fear of theft or loss of money. With this facility, the customers need not take the risk of carrying cash with them during their travels. (c) Letter of Credit: Letters of credit are issued by the banks to their customers certifying their credit worthiness. Letters of credit are very useful in foreign trade. (d) Collection of Statistics: Banks collect statistics giving important information relating to trade, commerce, industries, money and banking. They also publish valuable journals and bulletins containing articles on economic and financial matters. (e) Acting Referee: Banks may act as referees with respect to the financial standing, business reputation and respectability of customers. (f) Underwriting Securities: Banks underwrite the shares and debentures issued by the Government, public or private companies. (g) Gift Cheques: Some banks issue cheques of various denominations to be used on auspicious occasions.

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Banking Law & Practice

(h) Accepting Bills of Exchange on Behalf of Customers: Sometimes, banks accept bills of exchange, internal as well as foreign, on behalf of their customers. It enables customers to import goods. (i) Merchant Banking: Some commercial banks have opened merchant banking divisions to provide merchant banking services.

C. Fulfillment of Socio-Economic Objectives In recent years, commercial banks, particularly in developing countries, have been called upon to help achieve certain socio-economic objectives laid down by the state. For example, the nationalized banks in India have framed special innovative schemes of credit to help small agriculturists, village and cottage industries, retailers, artisans, the self employed persons through loans and advances at concessional rates of interest. Under the Differential Interest Scheme (D.I.S.) the nationalized banks in India advance loans to persons belonging to scheduled tribes, tailors, rickshaw-walas, shoe-makers at the concessional rate of 4 per cent per annum. This does not cover even the cost of the funds made available to these priority sectors. Banking is, thus, being used to subserve the national policy objectives of reducing inequalities of income and wealth, removal of poverty and elimination of unemployment in the country. Conclusion: It is clear from the above that banks help development of trade and industry in the country. They encourage habits of thrift and saving. They help capital formation in the country. They lend money to traders and manufacturers. In the modern world, banks are to be considered not merely as dealers in money but also the leaders in economic development.

3. Role of commercial banks in development of a country Introduction Commercial banks are considered not merely as dealers in money but also the leaders in economic development. They are not only the store houses of the countrys wealth but also the reservoirs of resources necessary for economic development. They play an important role in the economic development of a country. A well-developed banking system is essential for the economic development of a country. The Industrial Revolution in Europe in the 19th century would not have been possible without a sound system of commercial banking. In case of developing countries like India, the commercial banks are considered to be the backbone of the economy. Commercial banks can contribute to a countrys economic development in the following ways :

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Banking Law & Practice

Accelerating the Rate of Capital Formation: Capital formation is the most important determinant of economic development. The basic problem of a developing economy is slow rate of capital formation. Banks promote capital formation. They encourage the habit of saving among people. They mobilise idle resources for production purposes. Economic development depends upon the diversion of economic resources from consumption to capital formation. Banks help in this direction by encouraging saving and mobilising them for productive uses. Provision of Finance and Credit: Commercial banks are a very important source of finance and credit for industry and trade. Credit is a pillar of development. Credit lubricates all commerce and trade. Banks become the nerve centre of all commerce and trade. Banks are instruments for developing internal as well as external trade. Monetisation of Economy: An underdeveloped economy is characterised by the existence of a large non-monetised sector. The existence of this non-monetised sector is a hindrance in the economic development of the country. The banks, by opening branches in rural and backward areas can promote the process of monetisation (conversion of debt into money) in the economy. Innovations: Innovations are an essential prerequisite for economic development. These innovations are mostly financed by bank credit in the developed countries. But in underdeveloped countries, entrepreneurs hesitate to invest in new ventures and undertake innovations largely due to lack of funds. Facilities of bank loans enable the entrepreneurs to step up their investment on innovational activities, adopt new methods of production and increase productive capacity of the economy. Implementation of Monetary Policy: Economic development need an appropriate monetary policy. But a well-developed banking is a necessary pre-condition for the effective implementation of the monetary policy. Control and regulation of credit by the monetary authority is not possible without the active co-operation of the banking system in the country. Encouragement to Right Type of Industries: Banks generally provide financial resources to the right type of industries to secure the necessary material, machines and other inputs. In this way they influence the nature and volume of industrial production. Development of Agriculture: Underdeveloped economies are primarily agricultural economies. Majority of the population in these economies live in rural areas. Therefore, economic development in these economies requires the development of agriculture and small scale industries in rural areas. So far banks in
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Banking Law & Practice

underdeveloped countries have been paying more attention to trade and commerce and have almost neglected agriculture and industry. Banks must provide loans to agriculture for development and modernisation of agriculture. In recent years, the State Bank of India and other commercial banks are granting short term, medium-term and long-term loans to agriculture and small-scale industries. Regional Development: Banks can also play an important role in achieving balanced development in different regions of the country. They transfer surplus capital from the developed regions to the less developed regions, where it is scarce and most needed. This reallocation of funds between regions will promote economic development in underdeveloped areas of the country. Promote Industrial Development: Industrial development needs finance. In some countries, commercial banks encouraged industrial development by granting long-term loans also. Loan or credit is a pillar to development. In underdeveloped countries like India, commercial banks are granting short-term and medium-term loans to industries. They are also underwriting the issue of shares and debentures by industrial concerns. This helps industrial concerns to secure adequate capital for their establishment, expansion and modernisation. Commercial banks are also helping manufacturers to secure machinery and equipment from foreign countries under instalment system by guaranteeing deferred payments. Thus, banks promote or encourage industrial development. Promote Commercial Virtues: The businessmen are more afraid of a banker than a preacher. The businessmen should have certain business qualities like industry, forethought, honesty and punctuality. These qualities are called commercial virtues which are essential for rapid economic progress. The banker is in a better position to promote commercial virtues. Banks are called public conservators of commercial virtues. Fulfillment of Socio-economic Objectives: In recent years, commercial banks, particularly in developing countries, have been called upon to help achieve certain socio-economic objectives laid down by the state. For example, nationalised bank in India have framed special innovative schemes of credit to help small agriculturists, selfemployed persons and retailers through loans and advances at concessional rates of interest. Banking is thus used to achieve the national policy objectives of reducing inequalities of income and wealth, removal of poverty and elimination of unemployment in the country. Promote Commercial Virtues: The businessmen are more afraid of a banker than a preacher. The businessmen should have certain business qualities like industry, forethought, honesty and punctuality. These qualities are called commercial virtues which are essential for rapid economic progress. The banker is in a
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Banking Law & Practice

better position to promote commercial virtues. Banks are called public conservators of commercial virtues. Fulfillment of Socio-economic Objectives: In recent years, commercial banks, particularly in developing countries, have been called upon to help achieve certain socio-economic objectives laid down by the state. For example, nationalised bank in India have framed special innovative schemes of credit to help small agriculturists, selfemployed persons and retailers through loans and advances at concessional rates of interest. Banking is thus used to achieve the national policy objectives of reducing inequalities of income and wealth, removal of poverty and elimination of unemployment in the country. Conclusion Thus, banks in a developing country have to play a dynamic role. Economic development places heavy demand on the resources and ingenuity of the banking system. It has to respond to the multifarious economic needs of a developing country. Traditional views and methods may have to be discarded. An Institution, such as the banking system, which touches and should touch the lives of millions, has necessarily to be inspired by a larger social purpose and has to subserve national priorities and objectives. A well-developed banking system provides a firm and durable foundation for the economic development of the country. From the above discussion, undoubtedly, we can say that, commercial banks form the most important part of financial intermediaries. It accepts deposits from the general public and extends loans to the households, firms and the government. Banks form a significant part of the infrastructure essential for breaking vicious circle of poverty and promoting economic growth.

4. Collecting bank

Collecting bank means the bank which collects the cheques and bills on behalf of the customers. In other words, every crossed cheque is necessarily to be collected through any bank, which is known as Collecting bank or collecting banker. While collecting the cheques of a customer, the banker may act in the capacity of either(a) as a holder for value, or (b) as an agent of the customer. 5. Duties & Responsibilities of Collecting bank The duties and responsibilities of a collecting banker are discussed below: 1. Due care and diligence in the collection of cheque. 2. Serving notice of dishonour. 3. Agent for collection. 4. Remittance of proceeds to the customer.
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Banking Law & Practice

5. Collection of bill of exchange. 1. Due Care and Diligence in the Collection of Cheques: The collecting banker is bound to show due care and diligence in the collection of cheques presented to him.In case a cheque is entrusted with the banker for collection, he is expected to show it to the drawee banker within a reasonable time. According to Section 84 of the Negotiable Instruments Act, 1881, Whereas a cheque is not presented for payment within a reasonable time of its issue, and the drawer or person in whose account it is drawn had the right, at the time when presentment ought to have been made, as between himself and the banker, to have the cheque paid and suffers actual damage, through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of the banker to a large amount than he would have been if such cheque had been paid. In case a collecting banker does not present the cheque for collection through proper channel within a reasonable time, the customer may suffer loss. In case the collecting banker and the paying banker are in the same bank or where the collecting branch is also the drawee branch, in such a case the collecting banker should present the cheque by the next day. In case the cheque is drawn on a bank in another place,it should be presented on the day after receipt. 2. Serving Notice of Dishonour: When the cheque is dishonoured, the collecting banker is bound to give notice of the same to his customer within a reasonable time. It may be noted here, when a cheque is returned for conrmation of endorsement, notice must be sent to his customer. If he fails to give such a notice, the collecting banker will be liable to the customer for any loss that the customer may have sufferedon account of such failure. Whereas a cheque is returned by the drawee banker for conrmation of endorsement, it is not called dishonour. But in such a case, notice must be given to the customer. In the absence of such a notice, if the cheque is returned for the second time and the customer suffers a loss, the collecting banker will be liable for the loss. 3. Agent for Collection: In case a cheque is drawn on a place where the banker is not a member of the clearing-house, he may employ another banker who is a member of the clearing-house for the purpose of collecting the cheque. In such a case the banker becomes a substituted agent. According to Section 194 of the Indian Contract Act,1872, Whereas an agent, holding an express or implied authority to name another person to act in the business of the agency has accordingly named another person, such a person is a substituted agent. Such an agent shall be taken as the agent of a principal for such part of the work as is entrusted to him. 4. Remittance of Proceeds to the Customer:
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In case a collecting banker has realized the cheque, he should pay the proceeds to the customer as per his (customers) direction. Generally, the amount is credited to the account of the customer on the customers request in writing, the proceeds may be remitted to him by a demand draft. In such circumstances, if the customer gives instructions to his banker, the draft may be forwarded. By doing so, the relationship between principal and agent comes to an end and the new relationship between debtor and creditor will begin. 5. Collection of Bills of Exchange: There is no legal obligation for a banker to collect the bills of exchange for its customer. But, generally, bank gives such facility to its customers. In collection of bills, a banker should examine the title of the depositor as the statutory protection under Section 131 of the Negotiable Instruments Act, 1881.Thus, the collecting banker must examine very carefully the title of his customer towards the bill. In case a new customer comes, the banker should extend this facility to him with a trusted reference. From the above discussion, there is no doubt to say that the banker is acting as a mere agent for collection and not in the capacity of a banker. If the customer allows his banker to use the collecting money for its own purpose at present and to repay an equivalent amount on a xed date in future the contract between the banker and the customer will come to an end.

6. Characteristics of a Cheque:

1. Cheque is an instrument in writing A cheque must be in writing. It can be written in ink pen, ball point pen, typed or even printed. Oral orders are not considered as cheques. 2. Cheque contains an unconditional order Every cheque contains an unconditional order issued by the customer to his bank. It does not contains a request for payment. A cheque containing conditional orders is dishonoured by the bank. 3. Cheque is drawn by a customer on his bank A cheque is always drawn on a specific bank mentioned therein. Cheque drawn by stranger are of no meaning. Cheque book facility is made available only to account holder who are supposed to maintain certain minimum balance in the account. 4. Cheque must be signed by customer A cheque must be signed by customer (Account holder) . Unsigned cheques or signed by persons other than customers are not regarded as cheque. 5. Cheque must be payable on demand
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A cheque when presented for payment must be paid on demand. If cheque is made payable after the expiry of certain period of time then it will not be a cheque. 6. Cheque must mention exact amount to be paid Cheque must be for money only. The amount to be paid by the banker must be certain. It must be written in words and figures. 7. Payee must be certain to whom payment is made The payee of the cheque should be certain whom the payment of a cheque is to be made i.e. either real person or artificial person like joint stock company. The name of the payee must be written on the cheque or it can be made payable to bearer. 8. Cheque must be duly dated by customer of bank A cheque must be duly dated by the customer of bank. The cheque must indicate clearly the date, month and the year. A cheque is valid for a period of six months from the date of issue. 9. Cheque has 3 parties : Drawer, Drawee & Payee 1. Drawer : A drawer is a person, who draws a cheque. 2. Drawee : A drawee is a bank on whom a cheque is drawn. 3. Payee : A payee is a person in whose favour a cheque is drawn

7. Consortium Financing Consortium is a Latin word, meaning 'partnership, association or society' and derives from consors'partner', itself from con- 'together' and sors 'fate', meaning owner of means or comrade. Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and follow-up exercises, these banks have a common agreement between them, the process is somewhat similar to loan syndication. 8. Advantages of Consortium Financing:

Allows the borrower to access from a diverse group of financial institutions. Borrowers can raise funds more cheaply in the syndicated loan market than by borrowing the same amount of money through a series of bilateral loans. This cost saving increases as the amount required rises

Each bank needs to come to an understanding of the business and how its financial activities are conducted.
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Banking Law & Practice

A comfort level must be established on both sides of the transaction, which requires time and effort.

Negotiating a document with one bank can take days. To negotiate documents with four to five banks separately is a time-consuming, inefficient task.

Staggered maturities must be monitored and orchestrated. Multiple lines require an inter-creditor agreement among the banks, which takes additional time to negotiate.

Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and followup exercises, these banks have a common agreement between them, the process is somewhat similar to loan syndication.

9. Money Laundering According to Money Laundering prevention Act-2009, Money Laundering means(i) Transfer, conversion, remitting abroad or remitting or bringing from abroad to Bangladesh proceeds or property acquired through commencement of a particular offence for the purpose of disguising the illicit origin of the proceed or property or transferring abroad of proceeds or property acquired through legal or illegal means; (ii) Conduct or attempt to conduct a financial transaction in a manner that will not be required to report under the ACT; (iii) Do such activities so that the illegitimate source of such proceed or property cab be disguised or attempt to do such activity or knowingly assist or conspire to perform such activities. The definition of money laundering under U.S law is the involvement in any one transaction or series of transaction that assists a criminal in keeping, concealing or disposing of proceeds derived from illegal activities. The Joint Money Laundering Sterling Group (JMLSG) of the U.K. defines it as "the process whereby criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding prosecutions, conviction and confiscation of their criminal funds". Lastly, we can say that Money Laundering is the process whereby proceeds, reasonably believed to have been derived from criminal activity, are transported, transferred, transformed, converted or intermingled with legitimate funds for the purpose of concealing or disguising the true nature,
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source disposition, movement or ownership of these proceeds. The goal of the money laundering process is to make funds derived from, or associated with, illicit activity appear legitimate.

10. Why money laundering is done? Criminals engage in money laundering for three main reasons: First, money represents the lifeblood of the organization that engages in criminal conduct for financial gain because it covers operating expenses, replenishes inventories, purchases the services of corrupt officials to escape detection and further the interests of the illegal enterprise, and pays for an extravagant lifestyle. To spend money in these ways, criminals must make the money they derived illegally appear legitimate. Second, a trail of money from an offense to criminals can become incriminating evidence. Criminals must obscure or hide the source of their wealth or alternatively disguise ownership or control to ensure that illicit proceeds are not used to prosecute them. Third, the proceeds from crime often become the target of investigation and seizure. To shield ill- gotten gains from suspicion and protect them from seizure, criminals must conceal their existence or, alternatively, make them look legitimate.

11. Stages of Money Laundering Despite the variety of methods employed, the laundering is not a single act but a process accomplished in 3 basic stages which may comprise numerous transactions by the launderers that could alert a financial institution to criminal activity Placement - the physical disposal of the initial proceeds derived from illegal activity. It is occurred by: Cash paid into bank (sometimes with staff complicity or mixed with proceeds of legitimate business). Cash exported. Cash used to buy high value goods, property or business assets. Cash purchase of single premium life insurance or other investment.
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Layering - separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity. It is occurred by: Sale or switch to other forms of investment. Money transferred to assets of legitimate financial institutions. Telegraphic transfers (often using fictitious names or funds disguised as proceeds of legitimate business). Cash deposit in outstation branches and even overseas banking system. Integration - the provision of apparent legitimacy to wealth derived criminally. If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing as normal business funds. It is occurred by: Redemption of contract or switched to other forms of investment. False loan repayments or forged invoices used as cover for laundered money. Complex web of transfers (both domestic and international) makes tracing original source of funds virtually impossible. 12. Why we must combat money laundering? a. Money-laundering has potentially devastating economic, security and social consequences. Money laundering is a process vital to making crime worthwhile. b. Money-laundering diminishes government tax revenue and therefore indirectly harms honest taxpayers. c. Money-laundering distorts asset and commodity prices and leads to misallocation of resources. d. The social and political costs of laundered money are also serious as laundered money may be used to corrupt national institutions. Bribing of officials and governments undermines the moral fabric in society, and by weakening collective ethical standards, corrupt our democratic institutions. e. It is generally recognized that effective efforts to combat money laundering cannot be carried out without the co-operation of financial institutions, their supervisory authorities and the law enforcement agencies. f. Among its other negative socioeconomic effects, money laundering transfers economic power from the market, government, and citizens to criminals. Furthermore, the sheer magnitude of the economic power that accrues to criminals from money laundering has a corrupting effect on all elements of society.
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Legal Framework and Guidelines against money laundering


Money laundering prevention Act, 2002 Money laundering prevention ordinance,2008 Money laundering prevention Act, 2009 Money laundering prevention Ordinance, 2012 Money laundering prevention Act, 2012.

12. Requirement of bank under money laundering act

Under the money laundering prevention act, 2009, al the bank has to fulfill some requirement to comply with the policy and facilitate Bangladesh Banks initiatives to prevent money laundering. All the banks consider these four requirement as their main responsibility against preventing money laundering-

KYC requirement: According to the act, all the banks are require to retain correct and full
information of customer and their accounts that will be used to identify customers.

Record keeping: The Act also requires the banks to retain transaction records at least for 5
years after termination of relationships with their customers.

Provide information: According to the Act all the Banks have to provide customer
identification and transaction records to Bangladesh Banks on demand.

STR reporting: All the Banks have to report to Bangladesh Bank where that suspect that a
money laundering offence has been or being committed.

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