Economic and Financial

Committee
Combating money laundering and terrorism
financing in the 21st century.

Prepared by:
Kian Mehta, Vanshika Punjabi & Shlok Chandak
Under the guidance of:
Kartik Bhatia, Shivaditya Pandit, Khushi Vedmehta & Syd Dhawan
18th June 2023

Study Guide ECOFIN 1

Introduction to the Committee 3

Introduction to the Agenda 3

An Introduction to Money Laundering 3

How is Money Laundered? 3

An Introduction to Terrorist Financing 4

How is Terrorism Financing Done? 5

Electronic Money Laundering 5

Relation Between Money Laundering & Terrorism Financing 6

Past Solutions 7

Recent Developments 8

Organisations 8

Events 9

Questions A Resolution Must Answer 9

Bibliography 10

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Introduction to the Committee
The Economic and Financial Committee (ECOFIN) is one of the six main
committees of the United Nations General Assembly. With its primary focus on
economic and financial matters, ECOFIN plays a vital role in addressing global
economic challenges, promoting sustainable development, and fostering
international cooperation.

The committee tackles pressing issues such as poverty eradication,

inequality, sustainable development goals, international trade, public finance,
and financial regulation. It aims to promote inclusive and equitable economic
systems that benefit all nations, especially those facing significant
development challenges.

Introduction to the Agenda

An Introduction to Money Laundering:

Money laundering is defined as the process of hiding the source of money

obtained from illegal sources and converting it to a clean source. This money is
obtained through illegal means such as sex trafficking, drug trade, extortion,
counterfeiting and it seems to have legitimate origins. Money laundering poses
significant risks to the global economy, enabling the financing of criminal
activities and undermining the integrity of financial institutions. Effective
measures and international cooperation are essential in combating this
pervasive and harmful practice.

With the advent of online banking and cryptocurrencies, the efficacy of

this process has only been enhanced. Across the world, an assortment of
Anti-Money Laundering/Combating the Finance of Terrorism (AML/CTF) rules
have been implemented which vary between countries but have the same
central goal.

How is Money Laundered?

Money laundering involves a series of steps designed to make illegally

obtained funds appear legitimate and distance them from their illicit origins.

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Here is a brief overview of the typical steps involved in the money laundering
process:

1. Placement: The first step is to introduce the illicit funds into the financial
system. This can be done by depositing cash into bank accounts,
purchasing assets, or using money transfer services. The goal is to place
the illegal funds into the legitimate economy without arousing suspicion.
Placements can be done by methods like smurfing and blending funds.

2. Layering: Once the funds are in the financial system, the next step is to
create complex layers of transactions to mask their origin and to make it
difficult to track.. This involves moving the funds through a series of
accounts and financial transactions, often across different jurisdictions.
Multiple transfers, conversions, and purchases are conducted to make it
difficult to trace the original source of the funds.

3. Integration: In this phase, the laundered funds are integrated back into
the legitimate economy, appearing as legitimate assets or income. This
can involve investing the funds in businesses, real estate, or other
assets. The aim is to make the illicit funds indistinguishable from
legitimate ones, making it challenging for authorities to detect them.

Throughout these steps, money launderers employ various techniques to

further obscure the paper trail, such as using shell companies, offshore
accounts, and complex financial transactions. They may also employ
professional intermediaries, such as lawyers or accountants, to provide an
appearance of legitimacy and expertise. It is important to note that these steps
are general and can vary in complexity and methodology depending on the
specific circumstances and sophistication of the money laundering operation.

An Introduction to Terrorist Financing:

Terrorism financing refers to the act of providing financial support to

terrorist organisations with the aim of supporting their activities. These funds
are then used to sustain terrorist operations, including recruitment and training
of members, purchasing of weapons, equipment, and supplies, paying salaries,
funding propaganda and other campaigns and logistics such as renting safe
houses and transportation costs. These funds come from a variety of sources,
both legal and illegal.

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Some common methods of terrorism financing include:

● Direct or indirect state sponsorship

● Donations and charity (known or unknown)
● Criminal activities, such as drug trafficking, extortion and protection
money, kidnapping, smuggling, money laundering (the connection
between the two is explained in more detail later), etc.
● Hawala system (explained in more detail later)
● Front organisations
● Legitimate businesses

How is Terrorism Financing Done?

Similar to money laundering, there are three stages in terrorism

financing:

1. Fundraising: The first stage involves the acquisition of funds to finance

terrorist activities through the previously mentioned methods. The
methods used in this stage can vary depending on factors such as the
geopolitical landscape in the region and the needs of the terrorist entity
itself.

2. Money transfer: Once the funds are acquired, the next stage is the
movement or transfer of the money to its intended recipient(s). It is in
this stage that the interrelation between money laundering and terrorism
financing can be fully observed.

3. Utilisation of funds: The third and final stage involves the actual use of
the funds to engage in terrorist operations.

Usually, money goes through these stages in a cycle, to continually sustain the
activities of the terrorist entity over a large span of time.

Electronic Money Laundering:

The Internet has put a new spin on old crime. The rapid rise of online banking
institutions, anonymous online payment options and peer to peer transfers,
have made detection of illegal transfer of money even more difficult.

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Furthermore, the use of proxy servers and anonymizing software makes
integration almost impossible to detect.

The very nature of cryptocurrencies being decentralised and unregulated

further promotes money laundering.

Money can also be laundered through online auctions and sales, online
gambling and virtual gaming sites. Here, the illegally obtained money is
substituted for online currencies and then converted to untraceable, ‘clean
money’ upon cashing out. These sites often need little to no verification,
making it easier for criminals in today’s day and age.

Relation Between Money Laundering & Terrorism Financing:

Money laundering and terrorism financing are deeply intertwined.

Terrorist groups use various money laundering techniques to hide the origin of
their funds and avoid detection by authorities. In this way, money earned from
illicit activities such as drug trafficking, smuggling, extortion, theft, etc. can be
used without raising suspicion. Money laundering by terrorist groups involves
various activities that obscure the source of their funding. Through money
laundering, terrorist organisations can obtain the funds necessary for
recruitment, training, logistics and execution of operations, purchasing
weapons and equipment and more.

The hawala system, an informal value transfer system, plays a significant

role in terrorism financing. It operates outside formal banking channels, relying
on a network of agents who facilitate the transfer of funds without a physical
movement of money. This system provides anonymity and deniability, making it
challenging for authorities to track and disrupt financial flows. Other methods
of terrorism financing include the use of off-shore bank accounts, shell
companies and wire transfers. Often, terrorist entities exploit cross-border
trade to manipulate loopholes, weak regulatory frameworks, invoices,
overstating or understating the value of goods, and engaging in false
transactions. This technique involves misrepresenting the nature, quantity, or
value of goods traded, thus enabling the movement of illicit funds across
borders while appearing legitimate.

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 There are multiple terrorist organisations that use money laundering as a
source of financing. These include huge organisations including the Real IRA,
FARC and Boko Haram:
1. The Real IRA is an Irish paramilitary terrorist group. They get their main
finance from fuel operations and selling diesel and road fuel. It also
transports alcohol and cigarettes from China and Eastern Europe.

2. The FARC (Revolutionary Armed Forces of Colombia—People’s Army)

primarily source their revenue from cocaine and illegal drug trafficking
heavily exported to the United states and Europe. It also implements
kidnapping, illegal mining and tax.

3. Boko Haram is an Islamic extremist group of the People of Sunnah and

often gets funding from bank robberies and kidnappings.

Past Solutions
In 1989 during the G7 summit, the Financial Action Task Force was
launched in order to curb this growing menace. Since then, several initiatives
have been undertaken to prevent this. A few of them are as follows:

1. Regulatory Frameworks: Governments all over the globe have imposed

and strengthened laws and regulations to create a legal framework for
combating money laundering and terrorism financing. These frameworks
typically require financial institutions to implement customer due
diligence measures, report suspicious transactions, and maintain records
of transactions.

2. Know Your Customer (KYC) Requirements: Financial institutions are

required to verify the identity of their customers and assess the risk
associated with their transactions. KYC procedures help identify
suspicious activities and prevent the use of anonymous or false identities
for illicit purposes.

3. Transaction Monitoring and Reporting: Authorities are required to

monitor customer transactions for unusual patterns or activities. If
suspicious transactions are identified, they must be reported to the
relevant authorities, such as intelligence units, who further scrutinise
reports and take necessary action.

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 4. International Cooperation and Information Sharing: Governments and
international organisations such as the UN and ECOFIN collaborate to
exchange information and intelligence on money laundering and
terrorism financing. This cooperation helps identify threats and cross
border flows of money that may pose any risk to international security or
economic stability.

Recent Developments
Organisations:

Various organisations have been established in the 21st century with the
aim of preventing money laundering and countering terrorism financing.
Mentioned below are a few of the most prominent:

● Financial Action Task Force (FATF): The FATF is an intergovernmental

organisation that sets international standards, develops policies, and
promotes effective implementation of measures to combat money
laundering. Although it wasn’t established in the 21st century, the FATF is
actively preventing money laundering and countering terrorism funding
to this day. Following the September 11 terrorist attacks, its mandate was
expanded to include terrorism financing.

● Various networks of financial intelligence units (FIUs) have been

established with the aim of promoting cooperation and information
sharing to improve the detection and prevention of money laundering
and terrorism financing. For example, the Egmont Group and the Gulf
Cooperation Council FIUs.

● International Monetary Fund (IMF): The IMF is a UN agency. Although its

main goal is sustainable growth and prosperity, it is also deeply involved
in AML/CFT efforts, such as policy making and counter-proliferation
financing.

● Various individual banks (such as the World Bank), and networks of

banks (such as the Wolfsberg Group) are working to strengthen
AML/CFT frameworks, offering well-respected best practices and
guidelines to financial institutions worldwide.

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 ● United Nations (UN): The UN and its various entities have taken actions
in the past to combat money laundering and the funding of terrorist
activities. UNCCT is a UN body dedicated solely to counter-terrorism,
including terrorism financing. UNODC, meanwhile, is also involved in the
prevention of money laundering and terrorism financing.

Events:

● The Wachovia Bank scandal in 2008 was one of the biggest money
laundering events in history. It was found that the bank allowed drug
cartels in Mexico to smuggle 390 billion dollars through the bank’s
branches.

● The BCCI- bank of credit and commerce international, falsified

transactions and laundered money up to 23 billion US dollar. They
allegedly used a number of sophisticated techniques like shell
companies, privacy havens and bribery to avoid scrutiny and raise
suspicions. As a result, the bank was closed.

● Westpac avoided multiple legislations of the AML and Counter-Terrorism

Act 2006. Reporting estimated amounts of approximately $11 billion, the
banks’ ignorance of the legislation led to the punishments.This was
connected to paedophile rings in Southeast Asia with severe reprimands.
With many network transactions tied, this settlement was taken to the
government for investigation, leading to $1.3 billion in fines.

Questions A Resolution Must Answer

The resolution is one of the most important parts of a Model UN. It
summarises two days of debate and constructive solutions. Here are a few
important questions a resolution must address:

● First and foremost, the resolution of the committee must strive for robust
and implementable solutions that take into account the involvement of
interested parties and organisations. We strongly urge the delegates to
make note of their foreign policies and bloc situation since the aim of our
committee is to come to a constructive consensus about this problem.

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 ● The resolution must include general methods to combat money
laundering and the implementation of these steps and strategies. Any
new policies that were introduced during the course of committee should
be included in the resolution. It must also briefly address how terrorist
organisations in their countries are financed, and how to tackle these
identified methods.

● The committee must include solutions to combat online money

laundering in today's day and age and come up with the framework of
AML/CTF policies for their country. Questions such as the following must
be answered:

1. How can the role of FIUs be strengthened to detect and prevent

illicit financial activities?

2. What strategies could be implemented to address and detect

newly emerging trends and strengthen legal frameworks?

3. What are some methods to improve collaboration between law

enforcement agencies, financial institutions, and other relevant
parties?

4. What steps should be taken to improve international information

sharing and cooperation?

Bibliography
● https://www.unodc.org/unodc/en/money-laundering/overview.html
● https://www.unodc.org/unodc/en/terrorism/news-and-events/terrorist-fi
nancing.html
● https://www.imf.org/en/About/Factsheets/IMF-at-a-Glance
● https://www.imf.org/external/np/leg/amlcft/eng/aml1.htm
● https://www.fatf-gafi.org/en/the-fatf/history-of-the-fatf.html
● https://amlcft.bnm.gov.my/what-is-terrorism-financing
● https://q5id.com/blog/the-4-most-notorious-money-laundering-incident
s-of-all-time

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