FINA 2006 UNIT 1 INTRO TO SOURCES OF LAW

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FINA 2006 UNIT 1 INTRO TO SOURCES OF LAW AND THE ADMINISTRATION
OF JUSTICE AND ML
INTRO TO SOURCES OF LAW AND THE ADMINISTRATION OF JUSTICE
Law – Classifications of Law (Civil and Criminal) – Sources of Law –
Statutes affecting Banking – Branches of Law (Common Law and Equity)
Law may be defined as a rule of human conduct, imposed upon and enforced among
the members of a particular state/jurisdiction. Laws exist because social order is
needed to ensure that people in society can live and work together.
Law may be classified in different ways. The four main divisions are:
a) Criminal and Civil Law
b) Substantive and Procedural Law
c) Public Law and Private Law
d) Municipal and Public International Law
CRIMINAL LAW is that part of the law which categorises wrongdoings as offences
against the State (e. g. the State of Grenada), not necessarily violating any private
right, and punishable by the State.
CIVIL LAW is concerned with the rights and duties of the individual towards each
other. It includes the following:
a) The Law of Contract, that branch of the law which determines whether a
promise is legally enforceable and what are its legal consequences.
b) The Law of Tort. A Tort is a civil wrong, for which the remedy is a Common
Law action for unliquidated (i.e. unspecified or unascertained) damages and
which is not exclusively the breach of a contract or breach of trust or other
merely equitable obligation.
c) The Law of Property is that part of the law which determines the nature and
the extent of the rights which people may enjoy over land and other property
– e. g., the rights of “ownership” of land or rights under a lease.
d) The Law of Succession is that part of the law which determine who will inherit
property upon the death of the former owner.
e) Family Law is that branch of the law which defines the rights, duties, and
status of husband and wife, parent and child and other members of a
household.
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The main difference between Criminal and Civil Law is that in Civil Law the legal
action is commenced by the private citizen against another citizen or group of
citizens, whereas Criminal Law is enforced for and behalf of or in the name of the
State. Civil Law is sometimes called Private Law as opposed to Public Law.
PUBLIC LAW encompasses (i) Constitutional Law and (ii) Administrative Law and
Criminal Law.
i. Constitutional Law is the rules which regulate the structure of the main
organs of government and their relationship to each other, and determines
their main functions. The Constitution is the supreme law of every jurisdiction
and other laws are subordinate to it.
ii. Administrative Law is that body of legal principles which concerns the rights
and duties arising from the impact upon the individual of the actual
functioning of the executive instruments of government.
iii. Criminal Law (described above)
SUBSTANTIVE LAW is that body of rules of law in the previously mentioned
branches which regulate the rights, duties and liabilities among citizens and
governments.
PROCEDURAL LAW lays down the rules governing the way in which a right is
enforced under civil law or a crime prosecuted under the criminal law. Procedural
Law governs the steps in the progress of the civil legal action or criminal prosecution.
MUNICIPAL OR NATIONAL LAW is the law which is operative within a State. One
breach of it is Private International Law which determines which national law
governs a case in which there is a foreign element.
PUBLIC INTERNATIONAL LAW is that body of rules of law which govern the
relationships between States, particularly rules of war. An example of public
international law is the Law of the Sea.
Adapted from Barker, D. L. A. and Padfield, G. (2007.) Law Made Simple. Oxford,
UK: Elsevier.
Statutes affecting Banking – Commercial/Financial/Business Law
Financial Institutions are regulated because of their importance in the financial
system. Regulations forces banks to reduce and mitigate their risks. Furthermore,
“Poorly regulated financial institutions have the potential to undermine the stability
of the financial system, harm consumers and can damage the prospects for the
economy. That’s why strong financial regulation is important – to put rules in place
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to stop things from going wrong, and to safeguard the wider financial system and
protect consumers if they do go wrong.”
Source: Anonymous. (n.d.) https://www.centralbank.ie/consumerhub/explainers/what-is-financial-regulation-and-why-does-it-matter
INTRO TO ML
FATF – ML – Compliance Function – Main Duties of MLRO –
Responsibilities of the Board – CDD – KYC and KYE – Employee
Training and Awareness – Record Keeping – Correspondent Banking
Relationships
Money Laundering (ML) is the criminal act of processing dirty money through a
series of transactions – to clean the money – to make the money appear to originate
from legal/legitimate sources/activities. There are three steps in Money Laundering:
Placement – The aim of Placement is to introduce dirty money or ill-gotten gains
into the financial system without the financial institution or law enforcement
noticing. Techniques used in Placement include structuring currency deposits into
accounts below reporting requirements or mixing currency deposits from legal and
illegal sources. For example, if banks must report all deposits exceeding US$10,000,
then someone wishing to deposit money without being noticed will deposit $3000,
$3000, and $4000 – this is a type of structuring – in the hope that the bank does not
notice/report the series of deposits.
Layering – This involves moving money around the financial system usually via a
series of complex transactions to create confusion and complicate the paper trail.
Examples include exchanging money instruments for larger or smaller amounts,
wiring or transferring money to and through several accounts in one or more
financial institutions.
Integration – The aim of Money Laundering is integration. Once the money is in the
financial system and insulated through the layering stage, the integration stage is
where the appearance of legality is created through additional transactions. These
transactions block or separate the criminal from a recorded connection to the dirty
money by creating a plausible origin for the source of the dirty money. Examples
include purchase/sale of real estate, investments in securities, foreign investment in
trusts or other assets.
Terrorist Financing
Terrorism is a crime designed to intimidate a population or force a government or
international organization to do or not do something because of a threat of violence.
Terrorism requires an effective financial infrastructure. Terrorist groups develop
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sources of money that are relatively mobile to ensure that money is always available
to purchase material and other logistical items needed for Terrorist activity.
Therefore, Money Laundering is usually a vital element of Terrorist Financing.
Generally, terrorists finance their activities via legitimate and illegitimate means.
Illegal methods include extortion, kidnapping and drug trafficking. Other methods
include smuggling, fraud, theft, robbery, identity theft, use of conflict diamonds and
improper use of charitable or relief funds.
Legal sources include charitable donations, foreign government sponsors, business
ownership and personal employment.
The motivation of money laundering may be different from Terrorist Financing but
the methods used to fund Terrorism can be the same or similar to those used to
launder money.
Source: FFIEC BSA/AML Examination Manual 2014
Please refer to the Text, The Legal Environment of Financial Services Provider Part 1,
Chapters 1 and 2.
The next Unit is about the legal foundations of the Bank and Customer Relationship.
This relationship is based on contract law and the law of agency.