A credit crunch (also known as a credit squeeze or credit crisis) is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates. In such situations, the relationship between credit availability and interest rates has implicitly changed, such that either credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability (i.e. credit rationing occurs). Many times, a credit crunch is accompanied by a flight to quality by lenders and investors, as they seek less risky investments (often at the expense of small to medium size enterprises).
Search
20 October, 2021
cheque and bill of exchange
Cheque: A ‘Cheque’ is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand (NI Act - Section – 6)
A cheque is an instrument in writing containing an unconditional order, signed by the maker (Drawer) , directing the Bank (Drawee) to pay on demand or at a fixed or determinable future time, a certain sum of money only to, or to the order of, a certain person (Payee) or to the bearer of the instrument
There are three parties: Drawer, Drawee, and Payee.
Drawer: Means who draws (who makes or writes the cheque, mainly the A/C holder) Drawee: The bank (who pays the money)
Payee: To whom the amount will be paid
Essential characteristics of Cheque:
1. It must be writing on specified form
2. it must bear date
3. the drawer, drawee and payee must be certain
4. the amount should be certain
5. it must be signed by the drawer (maker)
6. it is payable on demand
7. it should be drawn on banker
Bill of Exchange: A bill of exchange, is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. (Negotiable Instruments Act, 1881 S.5)
Parties: Drawer, Drawee, acceptor, payee, indorser, indorsee, holder, drawee in case of need, acceptor for honor.
Essential characteristics of bill of exchange:
1. It must be writing with date
2. it must be signed by the drawer (maker)
3. the drawer, drawee and payee must be certain
4. the amount should be certain
5. it should be properly stamped
6. it must contain unconditional order
7. the order should be pay only money
Bankers lien and banker’s right of set off
Lien: Lien is the right of bank to possess goods or a security until an investment due is paid. The owner of the property, who grants the lien, is referred to as the lienor and the person who has the benefit of the lien is referred to as the lienee. There are two types of lien:
1) The general lien which means to retain any property belonging to the other for any lawful payment and
2) It is relating to retain those goods, which are the subject matter of contract of particular lien.
Right of set off: It is the right of the bank in respect to a contractual relation to appropriate and adjust the amount payable between two different accounts of the same party.
It is not unusual for a customer to have a current account, a savings account and a credit card account -
all with the same bank. When an overdraft facility on a current account runs out and the customer fails to pay the amount owed, the firm takes money from the customer’s savings account to reduce or clear the debt.
Or, if a customer fails to make credit card or mortgage payments, bank may use available funds from that customer’s current or savings account to make the missing payments, thereby helping the customer to avoid extra interest or charges.
Bank has a right, but not a duty, to look at a customer’s overall position and to ‘combine’ the acc ounts held by that customer. This is sometimes called a right of ‘set off’ or a right to ‘combine’ accounts. A bank has this as a general right, whether or not it mentions the right in the account terms.
Money market and capital market
legal mortgage and equitable mortgage
Legal:
(a) Mortgage by demise:
In a mortgage by demise, the mortgagee (the lender) becomes the owner of the mortgaged property until the loan is repaid or other mortgage obligation fulfilled in full, a process known as "redemption". This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.
(b) Mortgage by Legal Charge:
In a mortgage by legal charge or technically "a charge by deed expressed to be by way of legal mortgage", the debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, such as a right to take possession of the property or sell it.
02. Equitable Mortgage:
Equitable mortgages don't fit the criteria for a legal mortgage, but are considered mortgages under equity (in the interests of justice) because money was lent and security was promised. This could arise because of procedural or paperwork issues. Based on this definition, there are numerous situations which could lead to an equitable mortgage. In equitable mortgage the lender is secured by taking possession of all the original title documents of the property and by borrowers signing a Memorandum of Deposit of Title Deed (MODTD). This document is an undertaking by the borrower that he/she has deposited the title documents with the bank with his own wish and will, in order to secure the financing obtained from the bank.
An equitable mortgage can arise in two different ways - either as a legal mortgage which was never
perfected by conveying the underlying assets, or by specifically creating a mortgage as an equitable mortgage. A mortgage over equitable rights (such as a beneficiary's interests under a trust) will necessarily exist in equity only in any event.
Suspicious Transaction Report (STR) / Suspicious Activity Report (SAR)
Generally, STR/SAR means a formatted report of suspicious transactions/ activities where there is a reasonable ground to believe that funds are the proceeds of crime or may be linked to money laundering or terrorist financing, insider trading & market manipulation related activity or the transactions do not seem to be usual. Such unusual activities or transactions must be reported to competent authorities. Herein the competent authority refers to Bangladesh Financial Intelligence Unit (BFIU) as per MLPA, 2012 and ATA, 2009 (including amendment of 2012).
Section 2(z) of Money laundering Prevention Act, 2012 defines Suspicious Transaction as follows: “Suspicious Transaction” means such transactions – That deviates from usual transactions; With regards to any transaction there is ground to suspect that (1) the property is the proceeds of an offence, (2) the financing of terrorist activities, a terrorist group or an individual terrorist' Any transaction or attempted transaction that are delineated in the instructions issued by Bangladesh bank from time to time for the purpose of this Act.
Section 2(16) of ATA, 2009 (including amendment of 2012) defines Suspicious Transaction as follows: “Suspicious Transaction” means such transaction – (i) which is different from usual transactions; (ii) which invokes presumption that - (a) it is the proceeds of an offence, (b) it finances to terrorist activities, a terrorist group or an individual terrorist; (iii) which is any other transactions or an attempt for transactions delineated in the instructions issued by the Bangladesh Bank from time to time for the purposes of this Act;
Importance of STR/SAR
As discussed above, STR/SAR is very crucial for the safety and soundness of the CMI. The CMI should submit STR/SAR considering the followings:
- It is a legal requirement in Bangladesh;
- It helps protect the reputation of CMI;
- It helps to protect CMI from unfounded allegations of assisting criminals, including terrorists;
- It helps the authorities to investigate financial crimes related to money laundering, terrorist financing.
How to identify a suspicious transaction
Transactions, whether completed or attempted, may give rise to reasonable grounds to suspect that they are related to money laundering or terrorist financing, insider trading & market manipulation related activity regardless of the sum of money involved. There is no monetary threshold for making a report on a suspicious transaction. A suspicious transaction may involve several factors that may on their own seem insignificant, but together may raise suspicion that the transaction is related to the commission or attempted commission of a money laundering offence, a terrorist financing offence, insider trading & market manipulation related offence. As a general guide, a transaction may be connected to money laundering or terrorist financing when it (or a group of transactions) raises questions or gives rise to discomfort, apprehension or mistrust.
The context in which the transaction occurs or is attempted is a significant factor in assessing suspicion. This will vary from business to business and from one client to another. Evaluation of transactions should be done in terms of what seems appropriate and is within normal practices of CMI business, and based on CMI's knowledge of their client. The fact that transactions do not appear to be in keeping with normal industry practices may be a relevant factor for determining whether there are reasonable grounds to suspect that the transactions are related to money laundering or terrorist financing, insider trading & market manipulation related activity. An assessment of suspicion should be based on a reasonable evaluation of relevant factors, including the knowledge of the client’s business, financial history, background and behavior. It should be remembered that behavior is suspicious, not people. Also, it could be the consideration of many factors—not just one factor— that will lead to a conclusion that there are reasonable grounds to suspect that a transaction is related to the commission or attempted commission of a money laundering or terrorist financing, insider trading & market manipulation related offences.
Any transaction seems to be suspicious in terms of the nature, activity, volume, complexity etc., or significantly mismatch with client's declared information. It also depends on the prudence of concern official of CMI. If s/he does not get satisfactory answer for any unusual or suspicion, it should be reported and/or recorded. Important note is that suspicion may not arise only at the time of transaction but also may be arised at the time of completing KYC and attempted transaction.
Suspicion Indicators
The following are examples of common indicators that may point to a suspicious transaction, whether completed or attempted as explained below:
· Client provides false information or information that seems unreliable.
· Client offers money, gratuities or unusual favors for the provision of services that may appear unusual or suspicious.
· It is observed that a client is the subject of a money laundering, terrorist financing, and insider trading or market manipulation related investigation.
· It is known from a reliable source (that can include media or other open sources), that a client is suspected of being involved in illegal activity.
· A client name listed under UN or Local sanctions list.
· A new or prospective client is known to you as having a questionable legal reputation or criminal background.
· Transaction involves a suspected shell entity (that is, a corporation that has no assets, operations or other reason to exist).
· Client attempts to convince employee not to complete necessary documentation required for the transaction/CDD process.
· Client makes inquiries that would indicate a desire to avoid reporting.
· Client has unusual knowledge of the law in relation to suspicious transaction reporting.
· Client is quick to volunteer that funds are “clean” or “not being laundered.”
· Client appears to be collaborating with others to avoid record keeping,
· Client identification or reporting thresholds.
· Client provides doubtful or vague information.
· Client produces seemingly false identification or identification that appears to be counterfeited, altered or inaccurate.
· Client refuses to produce personal identification documents.
· Client only submits copies of personal identification documents.
· Client wants to establish identity using something other than his or her personal identification documents.
· Client’s supporting documentation lacks important details such as a phone number.
· Client inordinately delays presenting corporate documents.
· All identification presented is foreign or cannot be checked for some reason.
· All identification documents presented appear new or have recent issue dates.
· Client presents different identification documents at different times.
· Client alters the transaction after being asked for identity documents.
· Client presents different identification documents each time a transaction is conducted.
· Accounts that have been inactive suddenly experience large investments that are inconsistent with the normal investment practice of the Client or his/her financial ability.
· Any dealing with a third party when the identity of the beneficiary or counterparty is undisclosed.
· Client attempts to purchase investments with cash.
· Client admits or makes statements about involvement in criminal activities.
· Client does not want correspondence sent to home address.
· Client appears to have accounts with several financial institutions in one area for no apparent reason.
· Client repeatedly uses an address but frequently changes the names involved.
· Client shows uncommon curiosity about internal systems, controls and
Policies
· Client presents confusing details about the transaction or knows few details about its purpose.
· Client appears to informally record large volume transactions, using unconventional bookkeeping methods or “off-the-record” books.
· Client over justifies or explains the transaction.
· Client is secretive and reluctant to meet in person.
· Client is nervous, not in keeping with the transaction.
· Client is involved in transactions that are suspicious but seems blind to being involved in money laundering activities.
· Client’s home or business telephone number has been disconnected or there is no such number when an attempt is made to contact Client shortly after opening account.
· Normal attempts to verify the background of a new or prospective Client are difficult.
· Client appears to be acting on behalf of a third party, but does not tell you.
Client insists that a transaction be done quickly.
· Inconsistencies appear in the Client’s presentation of the transaction.
The transaction does not appear to make sense or is out of keeping with usual or expected activity for the Client.
· Client appears to have recently established a series of new relationships with different financial entities.
· Client attempts to develop close rapport with staff.
· Client uses aliases and a variety of similar but different addresses.
· Client spells his or her name differently from one transaction to another.
· Client uses a post office box or General Delivery address, or other type of mail drop address, instead of a street address when this is not the norm for that area.
· Client uses securities or futures brokerage firm as a place to hold funds that are not being used in trading of securities or futures for an extended period of time and such activity is inconsistent with the normal investment practice of the Client or their financial ability.
· Client wishes monies received through the sale of shares to be deposited into a bank account rather than a trading or brokerage account which is inconsistent with the normal practice of the Client.
· Client frequently makes large investments in stocks, bonds, investment trusts or other securities in cash or by cheque within a short time period, inconsistent with the normal practice of the Client.
· Client makes large or unusual settlements of securities in cash
· The entry of matching buying and selling of particular securities or futures contracts (called match trading), creating the illusion of trading.
· Transfers of funds or securities between accounts not known to be related to the Client.
· Several Clients open accounts within a short period of time to trade the same stock.
· Client is an institutional trader that trades large blocks of low priced securities on behalf of an unidentified party.
· Unrelated Clients redirect funds toward the same account.
· Trades conducted by entities that you know have been named or sanctioned by regulators in the past for irregular or inappropriate trading activity.
· Transaction of very large size which may manipulate stock price.
· All principals of Client are located outside of Bangladesh.
· Client attempts to purchase investments with instruments in the name of a third party.
· Payments made by way of third party cheques are payable to, or endorsed over to, the Client.
· Transactions made by employees, or that you know are made by a relative of your employee, to benefit unknown parties.
· Third-party purchases of shares in other names (i.e., nominee accounts).
· Transactions in which Clients make settlements with cheques drawn by or remittances from, third parties.
· Unusually large amounts of securities or stock certificates in the names of individuals other than the Client.
· Client maintains bank accounts and custodian or brokerage accounts at offshore banking centers with no explanation by Client as to the purpose for such relationships.
· Proposed transactions are to be funded by international wire payments, particularly if from countries where there is no effective anti-money laundering system.
Predicate Offence
Predicate Offence means the offences mentioned bellow by committing which within or outside the country , the money or property are derived from is laundered or attempt to be laundered namely:-
2. Counterfeiting currency.
3. Counterfeiting deeds and documents.
4. Extortion.
5. Fraud.
6. Forgery.
7. Illegal trade of firearms.
8. Illegal trade of narcotic drugs, psychotropic substances and substances causing intoxication.
9. Illegal trade in stolen and other goods
10. Kidnaping illegal restrain and hostage taking.11. Murder grievous physical injury
12. Trafficking of women and childre
13. Black marketing
14. Smuggling of domestic and foreign currency
15. Theft or robbery or dacoity or piracy or hijacking of aircraft.
16. Human trafficking
17. Dowry
18. Smuggling offences related to customs and excise duties
19. Tax related offences
20. Infringement of intellectual property rights
21. Terrorism or financing in terrorist activities
22. Adulteration or the manufacture of goods through infringement of tile.
23. Offences related to environment
24. Sexual exploitation
25. Organized crime and participation in organized criminal groups
26. Racketeering
27. Any other offences declared as predicate offences by Bangladesh bank with the approval of Bangladesh Government by notification in the official Gazette for the purpose of this act.
What is Money Laundering
Money
laundering can be defined in a number of ways. But the fundamental concept of
Money laundering is the process by which proceeds from a criminal activity are
disguised to conceal their illicit origins. Most countries subscribe to the
definition adopted by the United Nations Convention against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances (the Vienna Convention, 1988) and
the United Nations Convention against Transnational Organized Crime (the
Palermo Convention, 2000). The definition of money laundering as per the above
UN Convention is as follows:
·
The conversion or transfer of property,
knowing that such property is derived from any offense, e.g. drug trafficking,
or offenses or from an act of participation in such offense or offenses, for
the purpose of concealing or disguising the illicit origin of the property or
of assisting any person who is involved in the commission of such an offense or
offenses to evade the legal consequences of his actions;
·
The concealing or disguising of the true
nature, source, location, disposition, movement, rights with respect to, or
ownership of property, knowing that such property is derived from an offense or
offenses or from an act of participation in such an offense or offenses, and;
·
The acquisition, possession or use of
property, knowing at the time of receipt that such property was derived from an
offense or offenses or from an act of participation in such offense or
offenses.
The
Financial Action Task Force on Money Laundering (FATF), which is recognized as
the international standard setter for anti-money laundering (AML) efforts,
defines the term “money laundering” succinctly as “the processing of criminal
proceeds to disguise their illegal origin in order to legitimize the ill-gotten
gains of crime.
”
According to the Section 2 of the Money Laundering Prevention Act, 2012 -
“Money Laundering” means –
(i) knowingly move, convert, or transfer
proceeds of crime or property involved in an offence for the following
purposes:
(1)
concealing or disguising the illicit origin/nature, source, location, ownership
or control of the proceeds of crime; or
(2) assist any person for evading the legal
consequences of his or her action who is involved in the commission of the
predicate offence;
(iii)
knowingly transfer or remit the proceeds of crime into or out of Bangladesh
with the intention of hiding or disguising its illegal source;
(iv) conclude or attempt to conclude financial
transactions in such a manner as to avoid reporting requirement under this
Ordinance.
(v) convert or movement or transfer property
with the intention to instigate or assist the carrying out of a predicate
offence;
(vi)
acquire, possess or use property, knowing that such property is the proceeds of
a predicate offence;
or
(vii) perform such activities so that illegal source of the proceeds of crime
may be concealed or disguised; or
(viii) participate in, associate with,
conspire to commit, attempt to commit or abet, instigate or counsel to commit
any offences mentioned above.