Perception of Money Laundering in Mauritian Population
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Money laundering is the world's third largest industry (Jeffrey Robinson (1995)) and may occur almost anywhere in the world. Given the nature of this phenomenon, money laundering has gained in significant proportion. Be they drug traffickers, terrorists, arm traffickers, blackmailers or credit card swindlers, all criminals demand for money laundering. This criminal activity erodes profits of all financial institutions, increases corruption and fuel social injustice.
Money laundering has thus serious social and economic consequences that need to be fought against. Many international authorities have made considerable efforts to set up appropriate AML counter measures. Likewise, Mauritius in preserving its reputation has enacted the FIAMLA (2002) and has enforced the FIU to avoid the country being a vehicle of illegal fund. However, money launderers are always a step forward than any law enforcement agencies and organisations.
This has been compounded with globalisation and sophisticated technologies. The aim of this dissertation is to assess the perception of money laundering among the Mauritian population. The result from the question-based data collection method used supported that the population do believe in a money laundering economy in the country. However, few of them do know all matters concerning this crime and therefore, more awareness must be drawn. There is still a long way to go for its elimination but things are being done to improve the effectiveness of its combat.
Money laundering exists for centuries but since the 11th September 2001 events, combating money laundering and terrorist financing has became more important. Countries realised it is urgent to combat this sophisticated criminal activity. Money laundering is the process of disguising illegal profits derived from illicit activities without compromising the criminals for them to enjoy from their proceeds without the authorities being able to detect the activities that produced them. Increasing awareness is being drawn for people realise that money laundering fuels crime. Money laundering erodes the economy of one's country and as mentioned by Quirk (1997) its impacts are more measurable than its figure.
Money laundering affects individuals, businesses and countries, thus of global concern. 25 years ago, the international community has done much effort to combat this evil. In many countries, efforts made starts bearing its fruits and are now taking importance in many jurisdictions. In fact, if one country does not take action to combat money laundering, it may find itself lagging behind since it will be difficult for it to trade with the rest of the complying world. The latter may fear to trade with a non-complying country due to this element of non-combating money laundering. In effect, the non-complying country's economic growth may be far behind as compared to complying countries. Low corruption affects growth positively (Mauro's (1995)).
However, despite the setting up of international instruments and laws to restrain this crime, its evil activities still exits and are even increasing in most cases. With new advanced technologies compounded with globalisation, it is easier for sophisticated launderers to continuously look for opportunities available worldwide in laundering their proceeds.
Although, Briscoe (1999) said that Mauritius is not considered as having a significant money laundering problem, since the island has a developing local drug consumption problem and a vibrant growing offshore financial services sector, it is clear that opportunities exist. Thus, following other countries initiations, Mauritius has set up the necessary infrastructures to combat money laundering and prevent terrorist financing. Actually, to protect itself and to maintain a good reputation, it has promulgated, among others, the FIAMLA (2002) which criminalises money laundering and its offenders. Drug trafficking, terrorist activities and financial crime are examples of illicit activities.
The main aim of this study is to assess the perception of money laundering among the Mauritian population. While reviewing the literature, it was noticed that for Mauritius the only local survey done was by the FIU in 2006. This was published in its annual report 2006 and was helpful for this study. Additionally, references from other studies, journals and literatures done on this topic were used.
- Benefits of the study
- provide a general idea on the perception of money laundering among the Mauritian population,
- provide an overview about any research done on this topic,
- provide an insight whether the population is aware about the laws and institutions combating money laundering in Mauritius.
- Chapters Outlines
Chapter 1 - Introduction
This chapter provides a brief introduction of the study including a short definition and its benefits.
Chapter 2 -Literature review
The definition, the process and techniques used to launder ill-gotten money, the importance of combating money laundering, the international actions took and reports done internationally and locally are provided in this chapter.
Chapter 3 - Methodology
This chapter explains the methodology used to collect the data necessary for this study.
Chapter 4 - Analysis
It provides an analysis of the data collected, the interpretation of the results and the hypothesis testing done.
Chapter 5 - Conclusion
This entails the concluding notes of this dissertation and suggests some recommendations.
Chapter 2: Literature Review
Money laundering has been with us for centuries (Graham (2003)). As Lloyd (1997) said, its origins can be traced since the 1930's, when notable gangsters like Meyer Lansky and Al Capone were prevailing. Their exploits founded money laundering methods still in practice today. Since then, it has gained in proportion and is almost impossible to measure its exact global amount.
KPMG (2004) reported that internationally about US$500 billion to $1 trillion is being laundered and it is estimated that annually, in the U.S and in London, about US$100 billion and £1.8-£2 billion is been laundered respectively. Moreover, IMF estimates that money laundering is about US$500 billion. Nevertheless, Quirk (1997) said that its impacts are more measurable than its figure.
Thus, such illegal activities are increasing and have dangerous effects on a country's financial services sector, thus, being an issue of both national and international security. Quirk (1997), Barrett (1997), Paradise (1998), Masciandaro, and Portolano (2003) mentioned that money laundering threatens the economic and financial systems of countries.
Money laundering is the process by which criminals try to mask the true origin of ill-gotten money into the stream of lawful commerce and finance. If undertaken successfully, beneficiaries will enjoy and maintain control over their proceeds and ultimately be provided with legitimate cover for the source of their income - authorities being unable to detect the activities that produced them.
Illegal profits have to be laundered because the money trail is proof of crimes, thus, vulnerable to seizure. AllDridge (2003) said that clean money is worth more than dirty money.
Hinterseer (2002) stated that money laundering is criminal finance as it corrupts markets, shifts an unfair economic burden in the legal economy, weakens the universal stability of the international financial markets and raises numerous civil liberty related issues.
In Mauritius, the Government enacted the FIAMLA (2002) which gives explicit powers to gather, analyse and disseminate information to the FIU.
Section 3: Money Laundering
(1) Any person who -
(a) engages in a transaction that involves property which is, or in whole or in part directly or indirectly represents, the proceeds of any crime; or
(b)receives, is in possession of, conceals, disguises, transfers, converts, disposes of, removes from or brings into Mauritius any property which is, or in whole or in part directly or indirectly represents, the proceeds of any crime,
where he suspects or has reasonable grounds for suspecting that the property is derived or realized, in whole or in part, directly or indirectly from any crime, shall commit an offence.
2.2 Process of Money Laundering
Peltman (1997) has shown that money laundering has three stages. They may occur as separate and distinct stages or as an overlapping phase. Their usage will depend on the criminals' accessible laundering mechanisms and requirements.
Figure 1: A Typical Money Laundering Scheme
Placement is where most efforts are focused to combat money laundering. This involves the breaking up of large deposits into minute deposits for currency transaction reporting avoidance. This involves single or multiple transactions using one or more bank deposits or the purchasing of investments.
Michael et al (2002) find that placement is the most risky stage for detection - It is where the huge illegal cash profits are presented personally to a financial establishment. This can pose an enormous problem as dealing with cash in bulk and in regularity is difficult.
Steel (1998) found that layering stage is the most complex stage and the most international in nature. Graham (2003) said that layering relies on the negotiation of paper, electronic or digital records through a series of transactions which will make it difficult, if not impossible the reconstruction of paper trail detailing previous cash movements.
Integration follows a successful layering process and is the final stage according to Schneider (1994). Moreover, for Graham (2003), transactions can no longer be linked to criminal cash and the secrecy of the source of funding is guaranteed. The criminal cash in the legitimate economy appears as money naturally originated from legal transactions.
Araujo and Moreira (2005), Masciandaro (1999) stated that it is expected when cleaning has been done the money is ready to get back into the formal economy, thus, providing funds for investment or consumption.
2.3 Techniques of Money Laundering
Briscoe (1999) stated that money laundering is not considered as a significant problem in Mauritius and that the country is not a major narcotics production or trans-shipment centre. Nevertheless, since the island has a developing domestic drug consumption problem and a vibrant growing offshore financial services sector, it is clear that opportunities exist.
Results obtained by Mauro, (1995), (1997), Leite and Weidmann, (1999), Alesina and Weder, (2002), Damania, Fredriksson and Muthukumara, (2003) from the World Bank's Governance Indicators and Transparency International's Corruption Perception Index (CPI) indicate that corruption indexes is now a very profitable source of research.
Similar to money laundering has no frontier, money launderers have unlimited originality to launder their money. Hence, launderers will seek where the weakest link in the chain is, targeting the weakest point of defenses and where detection is less likely to arise. Masciandaro (2001) said that financial industries are the major concern of money laundering fighters since money actually needs to pass through them. Money laundering techniques are very long, sophisticated and difficult to determine precisely. Some of them are summarised below.
2.3.1 Banking Services
Considering their activities, banks represent a natural and logical vehicle for launderers. Graham, Bell & Elliott (2003) stated that cash deposits, basic banking services and wire transfer facilities are the core means of money laundering. The wealthier launderers will look for specialist private bank services and investment houses that offer wealth management services.
Following the Basel Committee statement (1988), Johnson and Lim (2002) stated that financial institutions including banks may be willingly or unconsciously be used as intermediaries for money laundering since they remain an important mechanism for its disposal. Mascaindaro (1995) strengthen this theory by stating that money laundering occurs either by passively using bank agents or by actively using criminal banks.
In contrast, Quirk (1997) empirically observed a shift in money laundering techniques and concluded that launderers are going away from the banking system. Bauer and Peter (2002) mentioned that banks are actively combating money laundering and these initiatives may well be a model for international cooperation.
2.3.2 Money Services Businesses
Graham, Bell & Elliott (2003) stated that criminals use ‘bureau de change' to convert cash to other currencies or consolidated smaller amounts. Usage of remittance services or giro houses enables criminals to transfer cash between jurisdictions. Duyne's empirical findings show that in both Bosphorus case and Mozart case, money launderers involved an extensive network of currency exchange offices.
2.3.3 Lawyers, Accountants and other Intermediaries
Graham, Bell & Elliott (2003) found that launderers usually use professionals to set up corporate and trustees to act as nominee shareholders or directors. These are of growing international concern. The client's account provides the launderer a hidden vehicle for depositing funds into the banking system. In selling their personal investment products, professionals provide useful means for money laundering.
Johnson and Lim (2002) found that money launderers use more non-bank financial institutions and non-financial business like lawyers for money laundering. Their evidence supported that a weakening of the bank/illegal economy relationship, implies a lesser participation of the banking sector for laundering money.
2.3.4 Non-Financial Sector Services
Graham, Bell & Elliott (2003) also found that casinos, metal dealers and other high valuable goods sellers are money laundering techniques. These are done especially in cash purchase or substantial cash deposits.
- Distinguishing dirty money from legitimate gambling profits or losses will be quite difficult if the dirty money is changed into casino chips and then back into cash.
- Lloyd (1997) stated that whatever be the form of the jewelry, its value remains constant. Thus, a single piece of gold can be changed various times to disguise its origins without any significant change in its value.
2.3.5 Alternative Remitting Systems
As per Graham, Bell & Elliott (2003), popular within some ethnic groups, Hawala or hundi are alternative remittance systems used to transfer funds abroad. These systems function outside the regulated banking sector. Graham, Bell and Elliot (2003) added that it is believed that the Al-Quaeda terrorist organisation have used the hawala for the financing of 11 September 2001 event.
2.3.6 Exploitation of Internet Banking Services
Exploitation of banking services and the use of developments in the internet are techniques used for laundering money. Actually, some banks dispense their clients of all contacts, thus no control over transactions exists. Example, the Fortis Bank in Luxembourg, offers complete e-banking services.
2.3.7 Use of Correspondent Banks
Several international trustworthy banks have been involved in money laundering due to insufficient controls. Examples:
- Russian banking (Rawlinson,1996; Burlingame, 1997)
- Banco Ambrosiano (Cornwell, 1983)
- BCCI (Adams and Franz, 1992)
- Banque Crédit Lyonnais: case of Parretti and Fiorini (d'Aubert, 1993)
2.4 Importance of Combating Money Laundering
Over the last 25 years, the international community has made considerable efforts to combat money laundering. Countries realise that if they allow money laundering or fail in adapting correctly the AML procedures and the KYC principles, they run the risk of civil and criminal liability, reputation and regulatory risks. Moreover, Lasco (1997) mention that if governments are reluctant to accept the universal application of money laundering countermeasures, then its ills associated will damage the society. Bauer (2002) and Peter (2002) stated that in some countries like USA, the KYC principle has not been established firmly in legislation as it is under some European rules.
Some intermediaries view money laundering regulations and laws as an annoying obstacle for trading. For example, it was feared that recent efforts in the Channel Islands for strict laws would decrease business volumes, but finally, the Channel Islands attracted more businesses.
The Commonwealth Model of Best Practice for Combating Money Laundering in the Financial Sector suggests four principle reasons for money laundering (Graham, Bell & Elliott (2003)).
- Failure to prevent money laundering allows criminals enjoying their proceeds, making crimes especially attractive. It also permits criminal organisations to finance other criminal activities, which eventually increase the level of crime.
- Unchecked use of the financial system has potential powers to weaken individual financial institutions, and finally the reliability of the whole financial sector. Moreover, it has adverse macro-economic effects affecting exchange rates during large capital flows and thus distorts resource allocation.
- Unchecked laundering may create contempt for the law hence, declining the confidence public has in the legal and financial system, resulting finally in a rise in economic crime.
- Money laundering eases corruption. Eventually, accumulation of economic and financial powers by immoral politicians or criminal organisations may undermine the country.
Below are some summarised reasons why AML laws are required.
2.4.1 Unfair Competition
Money launderers often use their proceeds to finance certain companies. This allows them to undercut innocent rivals and force them out of the market. Therefore, if left unchecked, money laundering may unfairly affect the pricing mechanism of the market system and create unnecessary distortion. Quirk (1997) studied that crime highly explains differences among the industrial countries; a 10% raise in crime leads to a 10% reduction in currency demand and a 6% reduction in overall money demand.
2.4.2 One crime generates further crimes
Money laundering allows criminals to take full advantage of their crimes if not properly tracked down. This makes such criminal activities more attractive, resulting in its rise. Thus, one crime generates other crimes. Masciandaro (1998) stated that banks in regions of higher criminality have greater association with money laundering than banks in region of low criminality. From his hypothesis, Masciandaro (1998) proved that ‘the positive association observed between the banking sector and the illegal economy allows an assumption of an increase in laundered funds when illegal activities increase'. Moreover, Masciandaro (1998) results showed that money laundering is a multiplier of criminal activities by providing criminals with cleaned money for reinvestment in their illicit activities. Masciandaro (1999) results also showed that there is an inverse relationship between the degree of diffusion of money laundering activities and the effectiveness of AML regulation in a given economy.
2.4.3 Corruption and Growth
With large amount of money involved, money laundering has direct effects on economic crimes. Once corruption infiltrates the system, the whole machinery is affected and functions improperly. Public confidence in some fundamental institutions may be at risk and this can only promote crimes. Obviously, a corrupt society has no great hope for prosperity. Empirical results confirmed Mauro's (1995) findings that low corruption affects growth positively. Mauro (1995) himself followed Barro (1991), and Levine and Renelt (1992) specifications which assess investment and growth responses to corruption. Quirk (1996) empirical evidence showed for the period 1983-90, significant reductionsin annual GDP growth rates and increase in money laundering are related.
2.4.4 Social Cost
Quirk (1996) found that money laundering has important social costs when it facilitates crimes and corruptions within both the developing and developed countries. The International Narcotics Control Strategy (1998) confirmed that money laundering has devastating social costs and threatens the national security and McDowell and Novis (1998) added that money laundering erodes the confidences in markets. Additionally, Alweendo Tom K (2005) stated that crime and criminal activities work towards eroding these very basic individual rights.
2.5 Criminalising Money Laundering
"The key to making an impact in money laundering is to get all of the countries of the world to enact and enforce the same laws dealing with money laundering so the criminals have nowhere to go", Interpol expert Brown (1998).
With new technologies, it is easier for sophisticated launderers to continuously look for opportunities available worldwide. The loopholes in other jurisdictions can frustrate efforts made by one jurisdiction to combat money laundering. Therefore, it is of global concern since no country's financial system is protected from it. Quirk (1997) stated that money laundering has a considerable negative impact on the macro-economy, therefore it is urgent to adopt AML measures.
2.5.1 International Actions
The international community are more aware of the dangers of money laundering, and many governments and jurisdictions have committed themselves to take international actions to combat money laundering. These began in 1988.
188.8.131.52 Basel Committee
This statement they adopted in December 1988 outlined the following initiatives and policies that suggest financial services to implement.
- need for compliance with legal laws and guidelines,
- cooperation with national law enforcement authorities,
- implementation of record-keeping and transaction recording,
- staff training,
- KYC approach.
2.5.2 Vienna Convention
Ashe and Reid, (1998) stated that the Vienna Convention established in December 1988 was the first treaty of global reach criminalising money laundering which creates an obligation for signatory states to criminalise such evil. It also includes the production, management and financing of trafficking operations as well as facilitating the commission of drug trafficking offences including money laundering.
2.5.3 United Nation (UN)
184.108.40.206 Global Programme against Money Laundering
Through the GPML, the UN helps its member states with legal advice and assisting them in drafting appropriate legislation and establishing the necessary administrative structure to combat money laundering. The strategies include:
- provision of technical assistance to developing countries,
- organisation of training workshops,
- provision of training materials,
- transferring of expertise between jurisdictions,
- conduction of research,
- analysis and gathering of data.
For its first operating year, the Program aided 20 countries and introduced a global comprehensive database on national money laundering legislation and the International Money Laundering Information Network on the Internet.
2.5.4 Financial Action Task Force
FATF with its 34 members is an inter-governmental body which develops and promotes national and international policies to combat money laundering and terrorist financing. Established in 1989, FATF is a “policy-making body” that works to generate the necessary political willingness to bring about legislative and regulatory reforms.
In 1990, it published 40 + 9 recommendations providing a comprehensive framework to fight money laundering. These were revised in 1996 and 2003 to ensure that they remain up-to-date and relevant to the money laundering growing menace. In 1995, the International Narcotic Control Board advised all governments to implement these 40 recommendations.
220.127.116.11 FATF Responsibilities:
- examination of money laundering techniques and trends,
- reviewing of action which had already been taken at a national or international level,
- setting out of measures that need to be taken to combat money laundering,
- evaluating countries in respect of their AML measures.
Therefore, where weaknesses are found, countries are recommended to remedy the shortcomings the soonest. Failing, they are threatened of being blacklisted as non-cooperative jurisdictions. Naming and shaming them, FATF achieves its objectives of bringing countries to adopt appropriate AML measures.
18.104.22.168 The 40 Recommendations
Recommendations 1-2: Scope of the criminal offence of money laundering
Recommendation 3: Provisional measures and confiscation
These are to be taken by financial and non-financial businesses and Professionals to prevent money laundering and terrorist financing
- Recommendations 4-12: Customer due diligence and record-keeping
- Recommendations 13-16: Reporting of suspicious transactions and compliance
- Recommendations 17-20: Other measure to deter money laundering and terrorist financing
- Recommendations 21-22: Measures to be taken with respect to countries that do not or insufficiently comply with FATF Recommendations
- Recommendations 23-25: Regulations and Supervision
Institutional and other measures necessary in systems for combating money laundering and terrorist financing
- Recommendations 26-32: Competent authorities, their powers and resources
- Recommendations 33-34: Transparency of legal persons and arrangements
- Recommendation 35: International Co-operation
- Recommendations 36-39: Mutual legal assistance and extradition
- Recommendation 40: Other forms of co-operation
FATF Annual Report 1996-97 added that earnings of offences like fraud and smuggling are also gaining importance. Moreover, commenting on the FATF Annual Reports from 1994, Johnson and Lim (2002) states that AML measures that some governments took, help in minimising money laundering and that with the imposition and enforcement of AML legislation, it will be harder for money launderers to clean their proceeds. Hence, preliminary evidence puts forwards that governments' attitudes are important in either restricting or encouraging money laundering.
However, Quirk (1997) mentioned that some governments could not implement the FATF “40 Recommendations” as this would go against the IMF's advice for liberalising financial markets.
2.5.5 International Monetary Fund
The IMF has expertise in conducting financial sector assessments, providing technical assistance in the financial sector, and exercising surveillance over members' economic systems, which is particularly helpful in evaluating country compliance with the international AML/CFT standards and in developing programs helping them address identified shortcomings.
After the 11th September 2001 events, IMF continued to broaden and deepen its engagement in the global fight against money laundering and terrorist financing. March 2004 viewed an important moment. The IMF Executive Board agreed to make AML/CFT assessments and technical assistance a regular part of its work and to expand this work to cover the full scope of FATF 40 recommendations.
Other international actions combating money laundering are the Egmont Group, the OECD, the EAG, the Asia-Pacific Group on Anti-Money Laundering and the E.U Directive.
2.5.6 KPMG report on Global Anti-Money Laundering Survey (2004)
Aim: Whether the increasing globalisation of banking groups and of international regulatory cooperation resulted in an increase in consistency in the AML approach
Methodology: The field research was done from 1st March 2004 to 26th March 2004 and 209 banks based in 41 countries responded. Consensus Research was charged by KPMG to conduct a telephone survey of banks across the main sectors. These banks were the 1,000 best global banks and local banks from seven regions as shown in figure 2 below.
Figure 2: Analysis of Respondents by Region
The figures 3 & 4 below are a detailed analysis of the respondents by region and country and an analysis of the respondents by industry.
Figure 3: Analysis of Respondents Region by country
Figure 4: Analysis of Respondents by Industry
- high degree of commitment from the banking sector in the AML cause and provide opportunity for banks worldwide to assess and benchmark their own practices with those of their regional and international peer group.
- most respondents believed that the current AML burden is acceptable
- they were keen to work with regulators and law enforcements for the system to work more successfully.
2.6 In Mauritius
2.6.1 Financial Intelligence and Anti-Money Laundering Act (2002)
The FIAMLA (2002) criminalises money laundering and is the legislation of AML. It provides for the establishment and management of a FIU and a Board to supervise its activities and provides for money laundering offences, reporting of suspicious transactions, gateways for exchange of financial intelligence information and exchange of mutual assistance with overseas bodies, all in relation to money laundering.
FIAMLA (2002) under section 8 imposes high criminal penalty for money laundering offences. Any person who commits any money laundering offence shall, on conviction, be liable to a fine not exceeding 2 millions rupees and to penal servitude for a term not exceeding 10 years. Moreover, any property belonging to or in the procession or under the control of any person who is convicted of an offence of money laundering shall be deemed, unless the contrary is proved, to be derived from a crime and the Court may, in addition to any penalty imposed, order that the property be forfeited.
It is worth noting that FATF experts concluded that although Mauritius has a regulatory regime for the financial service sector both locally and internationally, certain troubling characteristics were found. These concern the identity of the administrators and the real beneficial owners of offshore companies. However, the law on economic crime and anti-money laundering adopted on 13th June 2000 which has been taken on board in the FIAMLA (2002) has reinforced the existing legislation with regards to prevention and fight money laundering.
2.6.2 Prevention of Corruption Act (2002)
The corruption component of the Economic Crime and Anti-Money Laundering Act (2000) was taken on board in the POCA (2002) which provides for the investigation of money laundering offences to be undertaken by an ICAC. Created under this Act, the prevention and punishment of corruption and fraud.
2.6.3 Independent Commission Against Corruption (ICAC)
The ICAC is powerful in investigation and enforcement in the field of money laundering and terrorist financing. It investigates into any matter involving money laundering or suspicious transaction referred to it by the FIU. Furthermore, it institutes criminal proceedings and collaborate with international enforcement agencies.
2.6.4 Financial Intelligence Unit
“to provide leadership in financial intelligence in Mauritius in the region in order to combat financial crime, money laundering and terrorist financing by providing high quality, accurate, comprehensive and timely financial intelligence.”, is the mission statement of the FIU Mauritius.
On the 18th April 2006, during the third National Seminar on the theme of “Working Together to Fight Money Laundering and Terrorist Financing” organised by the FIU, the Honourable R. Sithanen, Deputy Prime Minister and Minister of Finance and Economic Development said that the island is not perceived as a haven for fraudsters and money launderers.
22.214.171.124 National Survey on Money Laundering and Terrorist Financing
Between January and March 2006, the FIU carried out a National Survey on money laundering and terrorist financing which was designed and conducted under the supervision of the Assistant Director, and realised by the FIU staffs, with some assistance from ICAC and 19 temporary staffs who were trained on AML/CFT issues and survey techniques.
4049 responded to that survey. The purpose was to assess the risk, extent and trends in money laundering/terrorist financing in the country.
- help the institution carrying out its functions in a more proactive manner,
- assist supervisory and investigatory authorities to better protect the financial system from any abuse,
- address any problem revealed by the survey,
- learn any lessons for continuous development and improvement on AML/CFT.
- there is better awareness of the legislation, regulations and role of the FIU among the financial sector reporting organisations,
- good progress has been made in combating of money laundering and terrorist financing
- more time are being devoted in ensuring that company policies and procedures provide appropriate safeguards since senior managers within the regulated sector recognise the risks associated with money laundering and terrorist financing,
- with the AML/CFT legislation, there is no negative competition among the providers of financial services, and
- the three main issues below required more attention.
- If both regulated and non-regulated stakeholders groups are more aware of the AML legislation, the role of the FIU about AML/CFT action would have stronger potential impact,
- in improving the reporting quality, reducing the burden on organisation and helping to get greater “buy in” from stakeholders, there must be a developing capacity within all regulated sectors for the assessment of KYC principles and customer relation programs,
- if the existing regulation to cover the legal profession, accountants, estate agents and the gaming and betting sectors were further extended, this would tighten control over high-risk parts of the economy, thus be consistent with international best practice.
Areas of effective framework to prevent and detect money laundering and terrorist financing had been highlighted and areas to address the displacement factor and avoiding an excessive burden on some sectors have to be handled in the right balance.
- 75% Mauritian believe in the existence of an underground money laundering economy,
- 74% believe that money laundering is a problem in the country,
- main crime for money laundering purpose are the proceeds of drug related offences and corruption,
- 60% to 70% responded that gaming sectors were the most exposed to money laundering.
Chapter 3: Methodology
This chapter describes the methodology used for this study. Consequently, appropriate data have been collected for the analysis of the research objectives.
3.1 Survey Objectives
The main purpose of the survey is to examine the perception of money laundering among the Mauritian population. Thus, it assesses their knowledge about the money laundering process and the different institutions and laws which combat it and the protection mechanism associated to it.
3.2 Research Design
Ghauri et al (1995) mentioned that a research design is the overall plan for relating the conceptual research problem to relevant empirical research. Hence, it should be effective in producing the desired information within the constraints.
3.3 Types of Data
Data collection is composed of two types of data; the primary data (field data) and the secondary data (desk data) which were used in the project.
3.3.1 Secondary data
Recommendation is that all research should start with secondary sources relevant to the research objectives. Churchill (1987) added that secondary data should not be by-pass but rather should be the data to begin with. Only when it is exhausted or show diminishing returns then proceed with primary data.
Secondary data includes both raw data and published summaries done for other research. The secondary data used in this study were mainly:
- FIAMLA 2002,
- Textbooks and published materials related to the research objectives,
- FIU Annual Report 2006. Confirming with the Central Statistical Office Bureau (CSO), the FIU was the only institution which done a survey on money laundering.
- Save in resources; more specifically time and cost since data had already been collected,
- Better quality data than that obtained on your own, thus more reliable,
- Can lead to unforeseen or unexpected new discoveries when reanalysing the data,
- Data is permanent.
- Data collected may not fit exactly your project since they are usually collected for general purposes,
- Obtaining data may be difficult and costly,
- Not objective since documents used may represent the interpretation of the person conducting them,
- Data may be obsolete,
- There may be weaknesses in the level of control and quality of the data collected.
3.3.2 Primary Data
Primary data are data collected relevant to the study and to the research objectives. Some methods are observations and interviews.
Since the only survey done on money laundering in Mauritius are kept internal, the only way of collecting data was to conduct a primary data collection; questionnaire-base held to the Mauritian population.
Questionnaire is the widely used technique in data collection and has many types as shown below. Collecting data from a large sample size was made easier since each respondent was asked same set of questions.
Types of questionnaire
Figure 5: Types of Questionnaire
- Easy and quick for respondents to complete them,
- Standardised questions are quantifiable and comparable,
- Designed to fulfill the requirements of the project.
- Time consuming in meeting the people, talking to them and explaining them the purpose, for them to be volunteer to complete it,
- Costly in terms of print-outs, phone calls and internet connection,
- Quite a tedious exercise,
- Possibility of wrong interpretation and ambiguity of questions if not well explained.
3.5 Questionnaire Design and Layout
Necessary efforts should be made for designing a good questionnaire. Factors like question content and length, questions sequences and wording of the questions should be considered. Thus, care has been taken for each question to be relevant and straight forward for a correct data collection. Also the questions were formulated to ensure that they were interpreted in the same way. A copy of the questionnaire is found in the appendix.
3.6 Pilot Testing
The first draft was handed to my first project supervisor whereby additional definitions were to be added before making the final draft. After his approval of the final draft, a pilot testing was done on members of the family and friends before its administration. They were made useful since the study was targeting the general population.
3.7 Questionnaire Administration
The On-Line questionnaire, Delivery and Collection Questionnaires, Face-to-Face Questionnaire and Telephone Questionnaire were all used to spread the cost of copies to be made. The Face-to-Face Questionnaire and Telephone Questionnaire are almost similar since it will be the interviewer who will jot down the interviewees' answers. This proved to be an efficient method since there was a high response rate. Moreover, the first impressions of the interviewees were noted and if needed, further explanations were given immediately.
3.8 Population and Sample
The population consists of subjects eligible, accessible and available for studies who can answers the questions.
Sample survey and census survey are the two approaches in conducting a survey. In a census survey, the entire population is used as a sample, helping to eliminate sampling error, whereas sample survey, only a proportion of the population is taken as sample and this must be representative of the population. A sample survey was conducted for the study. 100 persons from all categories composed of 50% male and 50% female were put into contribution.
From the population census made by the CSO on Housing Census in July 2000, the population size and sex ratio is as follows.
3.9 Data Analysis and Presentation
After all data collected, the questionnaires were prepared for the analysis. The program SPSS 15.0 has been used for the analysis and Microsoft Excel was used for the sketching of bar charts and pie charts. Besides some hypothesis testing were carried out to evaluate the link between different variables from the research.
- Response Rate
3.11 Survey Limitations
Distribution of the questionnaires was quite easy since it was targeting the general population. Therefore it was believed that in order to facilitate distribution and to reduce cost, better mailed the questionnaires. Moreover, some copies were distributed in the neighbourhood and to the corner shop. However, after some days, since there was any response, phone calls were made. This was a good decision as within about four hours, about 20 questionnaires were filled. Furthermore, initiatives were done to go in companies for ex-colleagues to fill in the questionnaires.
It can be believed that it is easier to collect information on-line but experience proved that few of them were returned back. Although more time and costs have to be devoted, it is better to collect the data through phone calls and/or face-to-face questionnaires. There is a better interaction with the interviewees when further explanations were given. Moreover, feedbacks received from the respondents are constructive.
3.12 Data Types Classification
Nominal, ordinal, interval and ratio are the four types of variables. Distinguishing between these is critical since several statistical tools may only be used for specific data.
3.12.1 Nominal Variables
It is when values are assigned to categories without particular order. Its assignment is arbitrary and holds no particular meaning or order to them. These are yes/no type questions like question 1, 2 and 7 in the questionnaire.
3.12.2 Ordinal Variables
Values assigned categorically for them to be related to each other logically; ascending or descending, is called ordinal variables. Questions 2 and 6 are examples.
3.12.3 Interval Variables
This takes place when the values assigned are ordered like for ordinal variables. However, the intervals or distances between the categories are equally spaced.
For instance, “please rate the importance of the following attributes…” according to the scale
Where, 1 = not at all important, 2 = not important, 3 = important and 4 = very important.
3.12.4 Ratio Variables
These have characteristics of interval variables but additionally, they have an absolute zero point. It arises for questions whose responses are numeric in nature. These are used as the coding values themselves.
- “What is your age in years? _________ Years”.
If the response is 21 years old, then the value of 21 is assigned to that person's age.
3.13 Different types of statistics for different types of data
Depending on the type of variables you assigned to your data, different types of descriptive and inferential statistics will be used. Descriptive statistics describe the sample you have in hand and inferential statistics are used to make inferences or generalisation about the bigger population sample. Since the questionnaire combined only ordinal and nominal types of variables, only chi-square test was derived as inferential statistics.
Table 3: Different types of statistics for different types of data
3.14 Hypothesis Testing
- Hypothesis 1: Relationship between the region of respondents and hearing of money laundering.
- Hypothesis 2: Relationship between age group and hearing of money laundering
- Hypothesis 3: Relationship between gender and awareness of the different stages of the money laundering process.
- Hypothesis 4: Relationship between level of education and Awareness of institutions and laws combating money laundering in Mauritius.
- Hypothesis 5: Relationship between Level of Education and Why do you think people still launder money - unconscious about laws.
- Hypothesis 6: Relationship between occupation and awareness of institutions and laws combating money laundering in Mauritius.
4.1 Response Rate
The questionnaires were first mailed and distributed on hard copy format to everybody willing to fill it in. However, from the 50 questionnaires mailed, only 10 were returned. From the 80 copies of the questionnaires handled over to respondents, 68 were completed and returned and from the 28 phone calls done, each was answered. Therefore, the response rate from mails was 20%, while that for hand-over questionnaires and phone calls were 85% and 100% respectively.
4.2 Questions Analysis
4.2.1 Situation of respondents
It was planned to question 50 men and 50 women but finally, there were 106 respondents. Thus, the population rate targeted was reached by near decimals; 49.1% and 50.9% respectively as shown by table 4.
Tables 5 - 9 in appendix 2 show the frequencies of the population. Most of them are from 21-30 years old, residing in the urban region, with the level of education varying from SC to degreeholders, most employed and with a working experience not exceeding 5 years.
4.2.2 Money Laundering Issue in Mauritius
Figure 6: % where they heard about Money Laundering
Figure 7: % where they heard about Money Laundering
The survey revealed that 98 respondents have heard of money laundering mostly through the media as shown in figure 6 & 7 above. Within the 8 who checked the ‘other' box, they heard about it mainly during tuitions.
The analysis revealed that 98.1% do believe that there is a market for money laundering in Mauritius which they rated between important and very important; 35.8% and 34.0% respectively.
126.96.36.199 Awareness of the Money laundering process
Figure 8: Awareness of the different stages of the Money Laundering process
Their knowledge of its process does vary. 52.8%, 49.1% and 39.6% checked ‘Yes' for placement, layering and integration respectively. These show that their knowledge is averaged even a clear and respective simple definition was given.
It has been noticed that when the questions were asked either face-to-face or by phone with their clear and simple respective definitions, explanations given and examples, the terms were made clearer to the respondents than when it was asked before. Thus, having spent more time with the respondents have somewhat avoid biased answers.
Although with all these details supplied, their degrees of awareness are highly rated ‘Not aware at all' for all the three terms; 44.3% for placement, 46.2% for layering and 52.8% for integration.
Ho: Placement Stage follows a normal distribution.
H1: Placement Stage does not follow a normal distribution.
Ho: Layering Stage follows a normal distribution.
H1: Layering Stage does not follow a normal distribution.
Ho: Integration Stage follows a normal distribution.
H1: Integration Stage does not follow a normal distribution.
From tables 24-26, according to both Kolmogorov-Smimov and Shapiro-Wilk, the degree of awareness of all stages does no follow a normal distribution since P < 0.05. Therefore, non-parametric tests need to be used for further testing.
188.8.131.52 Awareness of the Institutions and Laws
What was interesting in the analysis is that the population does not know all the institutions and laws combating money laundering in Mauritius. Poor of the sample population do know the existence of the FIU and the FIAMLA 2002.
As can be seen above, 79.2% answered “some of them' and this was mostly ICAC and Police. This result is more supported in tables where respondents were asked to rate their degree of awareness for these institutions and laws mentioned in the questionnaire.
Ho: Awareness of laws and institutions follow a normal distribution.
H1: Awareness of laws and institutions do not follow a normal distribution.
Table 28, according to both Kolmogorov-Smimov and Shapiro-Wilk, awareness of the institutions and laws combating money laundering in Mauritius does no follow a normal distribution since P < 0.05. Therefore, non-parametric tests need to be used for further testing.
For the FIU, the institution having motto to combat money laundering, only 8.5% of the sample population is aware of it. Some of them do hear about it in the newspaper, in tuitions or in conversations but quite few of them do really know about its role. Thus, it can be deduced that the FIU is very unpopular among the Mauritian population.
Ho: Degree of awareness of FIU follows a normal distribution.
H1: Degree of awareness of FIU does not follow a normal distribution.
Table 30 - degree of awareness of FIU shows that both Kolmogorov-Smimov and Shapiro-Wilk do no follow a normal distribution since P < 0.05. Therefore, non-parametric tests need to be used for further testing.
This situation is more flagrant for the laws criminalising money laundering. 74.5% is not aware of the FAIMLA and the POCA laws. Those who are aware about these laws learned it mostly in tuition or courses.
Ho: Degree of awareness of FIAMLA follows a normal distribution.
H1: Degree of awareness of FIAMLA does not follow a normal distribution.
Ho: Degree of awareness of POCA follows a normal distribution.
H1: Degree of awareness of POCA does not follow a normal distribution.
Tables 33 & 34 - degree of awareness of FIAMLA & POCA respectively show that both Kolmogorov-Smimov and Shapiro-Wilk do no follow a normal distribution since P < 0.05. Hence, non-parametric tests need to be used for further testing.
As shown in tables 35 & 36 above, the most well known institutions for respondents among the population sample are the ICAC and the Police. In December, there was the annual ICAC week. It can be believed that with this and also all the cases of frauds taken as media events that are why the population is more aware of the ICAC than the FIU and the other laws criminalising money laundering. As for the police division, everybody is aware of its existence.
Ho: Degree of awareness of ICAC follows a normal distribution.
H1: Degree of awareness of ICAC does not follow a normal distribution.
Ho: Degree of awareness of Police follows a normal distribution.
H1: Degree of awareness of Police does not follow a normal distribution.
Tables 37 & 38 - degree of awareness of ICAC & POLICE respectively show that both Kolmogorov-Smimov and Shapiro-Wilk do no follow a normal distribution since P < 0.05. Therefore, non-parametric tests need to be used for further testing.
184.108.40.206 Awareness of the sanctions
This survey revealed that even though 61.3 % are not aware about the sanctions concerning money laundering, following their logical thinking they concluded that there are both fine and imprisonment if found guilty of such crime. Those that are more laws conscious do mention that there is also seizure of properties. Table 41 above, shown that 78.3% do think that penalty should be more severe.
220.127.116.11 Reasons for Money Laundering
Figure 9: Why do you think people still launder money?
Figure 10: Why do you think people still launder money?
Figures 9 &10 and tables 33-38 in appendix 5, shows that the three first reasons why people do lauder money are mainly that they are greedy of more money (78.3%), for easy money (71.7%) and for a better standard of living (57.5%).
Ho: Unconscious about laws follows a normal distribution.
H1: Unconscious about laws does not follow a normal distribution.
Table 48 shows that both Kolmogorov-Smirnov and Shapiro-Wilk do not follow a normal distribution since < 0.05, therefore non-parametric tests need to be used for further analysis.
18.104.22.168 Reporting nature of Money Laundering
About the reporting of money laundering, results shown that 51.9% would report the offense but it must be taken into consideration that 6 did not reply and 2 did not know if ever they would report or not; all depending on the situation and relationship they have with the offenders. It was noticed that during the survey respondents largely hesitate and took more time in answering this question. This is because it is a thorny question.
Table 50 above shows that if ever people are aware of the anonymous nature of reporting, they will be less reluctant in reporting the case. This may suggest that because people are unaware of this anonymous nature this is why they are afraid to do so. But since there is that characteristic of anonymous, they feel protected and may feel safe in reporting money laundering.
As a result, while promoting the purpose of AML and all its relevant facts, this anonymous nature issue can encourage people in reporting money laundering. However, still part of the population is doubtful about that said anonymous nature of reporting.
Figure 11: Preferred ways of reporting
As can be seen in figure 11 and supported by the tables 41- 44 in appendix 6, the most preferred way of reporting money laundering cases is letters, following by phone calls. Reporting by going to the institution directly and doing it online have mostly the same “No” frequencies; 79.5% and 78.3% respectively. So this can deduce that few will report directly to the institution.
Figure 12: Why would you think people would report a money launderer?
Figure 13: Why would you think people would report a money launderer?
The tendency why they would report money laundering is for ethical beliefs with 46.2%, following by for good citizenship 42.5%.
Figure 14: Why would you think people would NOT report a money launderer?
Figure 15: Why would you think people would NOT report a money launderer?
Afraid of reprisals is the main reason why people do not report case of money laundering. This shown that the population feels insecure if they are to report money laundering even if there is the anonymous element. However, 77 would report money laundering if they were aware of its anonymous nature.
The questions of their fears are:
- “What will happen if the laundering gang does learn I was the one who report them?”
- “Shall my family and I be protected and what kind of protection shall we receive?”
- “Is the police force effective enough to protect us?”
The second reason is that they do not care about others affairs and 40.6% would not report if they have affection for the person. Not being aware of any institution combating money laundering (30.2%) and afraid of gossips (27.4%) are the last two factors why reporting will not be done.
4.3.1 Awareness of Money Laundering Process
Most respondents surveyed do only know the definition as it is presented to them or as they interpret them. But, in fact, its deep definition is not clearly set in their mind. As such, more precise definitions must be given for them to really understand the basic of the terms. However, was it done without any definitions, explanations and/or examples, it could be imagined that results would have been lower and results of ‘not aware at all' would have been even higher. Thus, more lights should be shed on the different stages of the money laundering during presentation for the population to be aware and really understand such terms.
Moreover, hypothesis 3 below revealed that men are more aware of the placement and integration stages than women are. It can be deduced that since men have a higher sense of risk taking than women, they will have more guts to actually go ahead in money laundering. Thus, being more interested, they will learn all the stages for a successful money laundering. It is to be imagined that in our society it is said that men are the one who bring money in the family, they will thus be the one who will be more tempted in money laundering if ever the situation is presented to them. These reasons can explain why men are more aware of the placement and integration stages than women are.
4.3.2 Institutions and laws combating Money Laundering
The FIU, very few of the population are aware of its existence and its duties in the country. It was also quite astonishing that while explaining this institution to the respondents , their facial expression was mostly “what is that?” or something like “oh this do really exist in our country?” So why is the FIU unpopular among the population? The answer is that its work is not really exposed but rather shared with other FIUs of other countries.
In fact, it is among its duties, as per Section 10(2) of the FIAMLA, to exchange information with overseas FIUs and comparable bodies. Thus, even not well-known to the population, the FIU is a major component for Mauritius in combating money laundering and terrorist financing and also in conducting research to identify the causes and consequences of money laundering and terrorist financing in the country. Sometimes however, conferences are done for the presentation of their work and the institution as well, as it was done in January 2007 at the University of Mauritius (UoM).
Same case is for the FIAMLA and the POCA. Very few are aware of these laws combating money laundering in Mauritius. Those who know about them study them during courses at tertiary level. However, this unawareness shifters when talking of the ICAC and the Police. The population knows the ICAC since each money laundering and corruption case is usually turned into a media event.
Furthermore, hypothesis 4 and 6 below show that there is a relationship between the levels of education of the respondents and their awareness of the institutions and laws combating money laundering and same regarding the respondent's occupation. These deduced that as someone going towards higher education, thus a better job, learns to know about the different institutions and laws combating money laundering. Were he/she not to follow further education, he/she would probably fall into the other group of people less aware of the institutions and laws criminalising money laundering.
It has also been noticed that most students questioned answered “some of them”; ICAC and Police. Hence, in the help of combating money laundering, it is advisable to target this sample of the population since they are the one who will be leaders of tomorrow. Were they to launderer money, will the country not fall? Awareness of institutions and laws, effects, sanctions and others can be done through conferences, open days and other activities. These may encourage youngsters to help combating money laundering with future results decrease in this evil activity and more people aware of these institutions and laws combating money laundering.
Section 8 of the FIAMLA states that any persons who commits money laundering or dealing with its proceeding, shall on conviction, be liable to a fine not exceeding 2 million rupees and to a penal servitude of not more than 10 years. In addition, any property belonging to, or in the possession or under the control of the offender shall be seized.
Respondents think that such penalty should be more severe as money laundering is an ongoing crime that can affect the economy of a country. As such, this offence and its offenders should be highly penalised. Moreover, even after having paid their penalty, the launderers will still has money left since illicit profits are much more than the fine itself.
Thus, they will still have money left to continue that illegal businesses and enjoy from the proceeds. For the respondents, for this evil activity to stop and not to affect the economy, penalties should be even more severe and the head-thinkers of such criminal organisations must also be sanctioned even if they are high caliber personalities as proved in the Air Mauritius case.
Greedy of more money, for easy money and for a better standard of living are the main reasons as to why people think money laundering exists. In an economy of high inflation and low purchasing power, the rate of corruptions is quite high and thus, same for money laundering. Hence, we can deduce that these reasons checked are more or less feasible. With a high inflation rate and low purchasing power in Mauritius, money laundering can be an easier way of gaining money.
However, it is not to be disregarded that most money laundering leaders are not low or medium income earners but rather are high caliber persons with an important position in a prestigious firms. Since they have a higher position in the firm, it will be easier for them to launder money. Thus, money laundering for them is not for a better standard of living but for even more money.
The Air Mauritius case highly taken into a media event is a good example. Robert Rivalland and Derek Taylor, two former executives of Rogers, both were accused of conspiracy with a view to making a fraud of 85 millions rupees to the detriment of Air Mauritius and Sir Harry Tirvengadum former Chairman - General Manager of Air Mauritius who it himself made reimburse his various expenses.
Moreover, the hypothesis 5 below shows that there is no relationship between the levels of educ
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