A Research Of Money Laundering, Its Causes, Effects, And Possible Solutions

Introduction

Money laundering occurs in almost every country in the world, and a single scheme typically involves transferring money through several countries in order to obscure its origins. A great requirement remains for concerned authorities to play a vital role in tackling money laundering which is considered to be one of the greatest risks to society. The purpose of this study is to investigate the impacts of money laundering on BML customer satisfaction. The emerging trend of money laundering being a financing mediator for terrorist activities creates a much bigger need for concerned authorities to focus on identifying strategies and methodologies to mitigate the risks.

Bank of Maldives (BML) is one of the leading financial institution in Maldives. BML is a full-service bank engaged across the complete spectrum of personal, business and corporate financial services. BML is focused in touching the lives of almost every citizen and business in Maldives through their extensive network of branches, agents, relationship managers and online banking facilities. This focus creates a great responsibility which BML takes extremely seriously. BML plays a pivotal role as an engine of growth and a partner for success for thousands of individuals, families and businesses. BML’s aim is to actively participate in community development and to create long-term value for our shareholders. BML’s business is built on a clear and compelling strategy focused on 3 strategic pillars of Customer Service, Support for Business and Financial Inclusion. BML’s strategic foundations is People Excellence and Robust Risk Management. As the largest bank in Maldives, BML is focused on being a professionally managed, customer-oriented organization which follows international best practices. These key priorities and focuses of BML raises the need of a research being in place to investigate the impact of money laundering on BML customer satisfaction, since the impact not being investigated promotes opportunities for BML to lose its customers. Moreover, the impacts have a probability of causing economic impacts to the entire Maldives.

Problem Statements

A report of Maldivian Democratic Party (2019) highlights that the organization has found overwhelming evidence that senior government of Maldives were engaged in launder of USD 1. 5 billion. Evidences were based on the forensic review and analysis of 80,890 text messages. According to Maldivian Democratic Party (2019), the money launderings undertaken in Maldives included flying planes full of cash in USD 60 million tranches to be deposited in accounts at Bank of Maldives under an admitted “cover story”—namely, to invest in the Maldives. As the Maldivian Democratic Party (2019), report states, “The term of ‘cover story’ indicates a clear intention to conceal the true purpose of the funds.

Banks are traditionally measured as pillars of economic prosperity. Nobanee and Ellili (2017) asserts that a best banking system will be able to ensure good production in all sectors of the economy. Since, money laundering involves the process of providing legitimate appearance to the illegally gained revenue, money laundering has the tradition of eroding the financial institutions and weakening the financial sectors’ role in economic growth. It has the habit of facilitating corruption, crime and other illegal activities at the expense of countries development and can increase the risk of macroeconomic instability. According to Nobanee and Ellili (2017) banks and other financial institutions are at the forefront of the battle against the money launderers. Putting forward the impacts of money laundering, Nobanee and Ellili (2017) asserts that the negative economic effects of money laundering on economic development are difficult to quantify. According to Nobanee and Ellili (2017) international society expects every bank to perform customer identification and due diligence as it is the important control measure in preventing criminals from entering into the legitimate economy. The cost involved in combating money laundering and terrorist financing transactions are increasing largely on yearly basis however unable to eradicate them. Nobanee and Ellili (2017) study on practices of banks reveals that the involvement of banks in money laundering or the failure of banks in catering to the acts of money laundering results in lowering the customer’s satisfaction. Banks losing its customer results in further financial loss to bank.

Research Objectives

This research aims towards achieving the following research objectives.

1. To explore the customers view on why money laundering occurs in bank.
2. To explore the key reasons that creates customer dissatisfaction due to money laundering.
3. To explore customers view on how to solve the money laundering issues.

Research Questions

1. Why money laundering may occur in bank?
2. How does customer gets dissatisfied due to money laundering.
3. How to solve the money laundering issues in bank.

Limitations of the research

This research will represent its findings only in relation to Bank of Maldives customers. Therefore, findings of this research may not represent the case of impacts to customers who belongs to another bank in Maldives.

Literature Review

Factor behind Money Laundering

Money laundering is undertaken by individuals. Therefore, it is important to understand the behavior of humans to understand the reasons behind their money laundering actions.

In research, human behavior is a complex interplay of three components: actions, cognitions and emotions. An action denotes everything that can be observed, either with bare eyes or measured by physiological sensors. Bryn Farnsworth (2017) asserts that behavioral actions can take place on various time scales, ranging from muscular activation to sweat gland activity, food consumption, or sleep. Cognitions describe thoughts and mental images that a human carries with him/her, and they can be both verbal and nonverbal. Cognitions comprise skills and knowledge like for example knowing how to use tools in a meaningful manner without getting hurt.

Bryn Farnsworth (2017) highlights that an emotion is any relatively brief conscious experience characterized by intense mental activity, and a feeling that is not characterized as resulting from either reasoning or knowledge. This usually exists on a scale, from positive (pleasurable) to negative (unpleasant).

According to Bryn Farnsworth (2017) actions, cognitions and emotions do not run independently of each other – their proper interaction enables humans to perceive the world around them for example listening to inner wishes and responding appropriately to people in their surroundings. However, Bryn Farnsworth (2017) highlights that it is hard to tell what exactly is cause and effect. Nevertheless, Bryn Farnsworth (2017) also highlights that the sequence of cause and effect might be reversed.

Giving a depth explanation, Bryn Farnsworth (2017) asserts that humans are active consumers of sensory impressions. Humans actively move their body to achieve cognitive goals and desires, or to get into positive (or out of negative) emotional states. Bryn Farnsworth (2017) highlights this as the process where cognition and emotion cannot be observed directly, they certainly drive the execution of observable action. For example, through moving the body to achieve cognitive goals and desires, or to get into positive (or out of negative) emotional states.

Similarly, Farnsworth (2017) asserts that the cognitions are specific to time and situations. According to Bryn Farnsworth (2017) new information that a human experience is adapted, merged and integrated into their existing cognitive mindset. This allows them to flexibly adapt to and predict how events in the current environment may be influenced by their actions. Whenever they decide to carry out an action, they accomplish the decision in a timely, environment- and situation-appropriate manner.

Bryn Farnsworth (2017) guides that we need to consider how human behaviors are acquired. According to Bryn Farnsworth (2017) learning denotes any acquisition process of new skills and knowledge, preferences, attitudes and evaluations, social rules and normative considerations.

These statements of Bryn Farnsworth (2017) reveals that, an individual’s action to perform money laundering depends on what their knowledge, experience, skills and also depends on the overall environment and what they learn and experience from this environment.

Money Laundering has caused several impacts to the economic growth of Australia. Bajada (2017) investigated the pull and push factors related to money laundering in Australia. According to the author key reasons behind the money laundering was due to the failures seen Australia’s legislative and regulatory environment. Key laws required to cater the money laundering lack in giving powers to investigate the cases. Due to the lack in governors not being able to investigate the cases has further promoted chances for senior government officials to get engaged in money laundering activities. Similar case was identified in Barrett and Zirker (2016) research on New Zealand. According to Barrett and Zirker (2016) case study, New Zealand has long enjoyed an international reputation as a largely corruption-free country. Thus, several issues, particularly those involving the transparency of some governmental actions over the past few years which included money laundering actions from government officials, have raised questions about what might constitute longer-term risks that creates economic damages to the entire country (Barrett and Zirker, 2016).

Similar as the Asian region, money laundering has been a key issue in Europe. Alexander (2016) book on Money laundering in the EU highlights that internet provides a new and undetectable method of money laundering, also known as cyberlaundering. Internet is used by launders as a messaging system. According to Alexander (2016), to move money, banks move information by whatever messaging system available such as internet. Alexander (2016) highlights Internet as a simply updated check system much more efficient, cheaper, and more secure means of moving financial information. Highlighting the key reason behind internet as a mediator of money laundering, the FATF has pointed out that identifying customers is the primary problem arising from Internet usage, and that problem is just the same in any relationship conducted at a distance (Alexander, 2016).

Stewartn (2018) highlights that Banks have been engaged in money laundering for the purpose of increasing their revenues. Furthermore, these Banks are being supported by government officials on their illegal activities. According to Stewart (2018) in such scenarios Banks have rejected the acceptance of Government of financial instruments. According to Stewart (2018) rejecting the enforcement of anti-money laundering policies in Banks are key factors that reveals the involvement of Banks in money laundering. Stewartn (2018) identified factors behind money laundering also aligns with Barrett and Zirker (2016) and Bajada (2017) investigations. Unethical behaviors of senior government officials have been a major problem to mitigate the money laundering issues.

Factors behind Customer Dissatisfaction

Customer Satisfaction (CSAT) Theory is a commonly used key performance indicator that tracks how satisfied customers are with an organization's products or services (Hom, 2013). It’s a psychological state that is measured by the customer’s expectations (Hom, 2013). By knowing what those expectations are, organizations can dramatically increase their customer’s loyalty to its brand (Hom, 2013).

According to CSAT expectations are beliefs (likelihood or probability) that a product and or service (containing certain attributes, features or characteristics) will produce certain outcomes (benefits or values) given certain anticipated levels of performance based on previous affective, cognitive, and behavioral experiences (Hom, 2013). According to Hom (2013) in CSAT expectations are often related to satisfaction and can be measured as:

1. Importance: Value of the product/service fulfilling the expectation.
2. Overall Affect-Satisfaction Expectations: Like/dislike of the product/service.
3. Fulfillment of Expectation: The expected level of performance versus the desired expectations. This is “predictive fulfillment” and is a respondent-specific index of the performance level necessary to satisfy.
4. Expected Value from Use: Satisfaction is often determined by the frequency of use. If a product/service is not used as often as expected, the result may not be as satisfying as anticipated. For example, a motorcycle that sits in the garage, an unused year subscription to the local fitness center, or a little-used season pass to a ski resort would produce more dissatisfaction with the decision to purchase, than with the actual product/service.

To sum-up, CSAT reveals that lack in fulfilling the service as per customer’s expectation has the chance of promoting customer dissatisfaction in any organization.

Belás and Gabčová (2014) highlights that the customer satisfaction should be perceived as the basis of the financial performance of a bank. It is probable that satisfied customers will continue purchasing its products or even recommend this bank to other potential clients. According to Belás and Gabčová (2014) the satisfaction of bank customers presents an important area of building long-term relationships with the client, which significantly determines the financial performance of banks through successful business. Belás and Gabčová (2014) study focused on investigating the situation in the banking sector in the Czech Republic and Slovakia. The aim of author’s investigation was to measure the customer satisfaction, its development in time, and to determine the main satisfaction and dissatisfaction attributes. Moreover, to compare the findings based on the situation of Czech Republic and Slovakia. Through statistical measures, Belás and Gabčová (2014) found that most important reason for customer dissatisfaction was the long-term high prices of products and services given by banks. However, Belás and Gabčová (2014) study found that inappropriate behavior of employees in banks impact the overall view of customers towards the bank. Loyalty of both employees and the overall bank towards customers was identified as a major factor associated with the customer satisfaction.

Zeleke (2015) highlights that the most important factor to consider in satisfying the bank customers is valuing customer opinions. In order to cultivate a base of loyal customers, Banks need to listen to and value their customer’s opinions. If a customer comes to bank with a complaint, banks require putting their best interests before own interests. Even if the organization don’t think the organization was wrong. Solving the issues or valuing what a customer’s gives as an opinion satisfies the customers and also helps in getting more customers through the customers.

According to Dwivedi (2016) managing customer relationships has been the major factor affecting the business across all industries. Dwivedi (2016) highlights that the recent technological developments offer the potential to dramatically improve such management. Technology helps in delivering information about customers, at a detailed and individual level, to those handling the interrelationship. Performing such operations giving the customer a better service, and the organization gets a satisfied with loyal customer (Dwivedi, 2016). Making appropriate efforts to figure out the true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business, and reasonableness of operations in the account in relation to the customer’s business helps the banks to manage their risks prudently (Dwivedi, 2016). Such approach prevents banks being used, intentionally or unintentionally by criminal elements for money laundering (Dwivedi, 2016).