The Role of Monitoring Islamic banks to Control Money Laundering
Crimes from the Viewpoint of Employees in the Central Bank of Jordan
ALI ABDEL FATTAH HAMDAN ZYADAT
Department of Economics, Faculty of Business, Al-Balqa Applied University,
JORDAN
Abstract: - The present study aimed to examine the role of monitoring Islamic banks in fighting against money
laundering crimes from the perspective of the employees working at the Central Bank of Jordan. The
researcher adopted a descriptive analytical approach. The sample consists of 60 employees who were chosen
from the Central Bank of Jordan. Questionnaire forms were passed via email to those employees to fill. All the
forms were filled and retrieved. It was found that the reality of monitoring money laundering crimes in Islamic
banks by central bank of Jordan is moderate. It was found that there is a positive statistically significant impact
of monitoring Islamic banks on control money laundering crimes from the viewpoint of employees in the
central bank of Jordan. The researcher recommends activating the role of the Central Bank of Jordan in fighting
against money laundering crimes
Key-Words: - Islamic Banks, Money Laundering Crimes
Received: May 9, 2021. Revised: December 5, 2021. Accepted: January 8, 2022. Published: January 10, 2022.
1 Introduction
The banking system is one of the pillars of the
financial system in countries, and it is necessary to
monitor the management of the money in banks on
its various objectives and operations in the market.
The phenomenon of money laundering is considered
one of the distorting elements of this system, and a
general framework of standards and conditions must
be developed for banks to adhere to them
accurately, and usually it is done by the central
banks of the countries.
The methods of Islamic financing are governed by
Sharia provisions. The phenomenon of Islamic
financing for small projects is still modern. Despite
its recent events, it has witnessed rapid growth in
the past three decades and extends at the present
time to more than 75 countries, and of these projects
there are 292 banks, whether fully Islamic or
institutions that have branches for Islamic
transactions [7]
The Islamic financing methods are based on
feasibility studies from the economic point of view,
and on the basis of halal in terms of Sharia. These
methods do not transfer between financing
institutions and taking adequate guarantees that
secure their funds [2]
Islamic banks have been facing many risks such as:
liquidity risks states [17]. They have been playing a
significant role in developing states [16]. The
establishment of specialized lending institutions,
such as: Islamic banks in most countries of the
world came as a response to avoiding some
categories of dealing with traditional commercial
banks, in an attempt to contribute to the economic
development process, while focusing their credit
activity in the field of short-term loans, to obtain a
quick profit [4].
Islamic financial products have been increasing
recently. The demand on them has been increasing
too in the Islamic financial market [13]
The researcher believes that Islamic banks may be
among the financial institutions targeted for money
laundering operations, especially as they carry out
extensive investment and commercial operations
within the policy of Islamic banks in murabahah,
leasing and others. This makes it vulnerable to risks
like other commercial banks
Money laundering crimes are amongst the
dangerous crimes of the digital economy era, and
they are the real challenge facing financial and
business institutions. It is also a test of the ability of
legal rules to achieve the effectiveness of
confronting criminal activities and combating their
patterns. Money laundering is also considered a
subsequent crime for criminal activities that
achieved unlawful financial returns, so it was
necessary to impose legitimacy on the criminal
proceeds, which are known as dirty money, in order
to allow them to be used easily and easily, as their
crimes generate large amounts of money such as
drug trafficking, arms smuggling, financial
corruption activities, embezzlement and others
(Rasheed and Abdel Qader, etc.) 2016).
Money laundering is an organized international
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Ali Abdel Fattah Hamdan Zyadat
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crime whereby a person or financial or non-financial
institutions and organizations conduct a series of
successive financial operations on illegal funds that
resulted from committing a crime punishable by
law, with the help of intermediaries as a front for
dealing, taking advantage of financial and
administrative corruption and the secrecy of bank
accounts in order to secure the outcome of their
money. The dirty scrutiny and security prosecution
[1]
Among the factors and causes that have led to the
exacerbation and growth of the crime of money
laundering, the phenomenon of globalization, the
increase in the volume of electronic commerce and
rapid financial transactions, global economic
openness, the great technological progress in the
field of transactions, bank transfers, information and
communications, the weakness of the banking and
information system, the lack of legal systems to
reduce this crime and weak supervision of banks [8]
The crime of money laundering is considered one of
the crimes of the times that requires concerted
efforts to face its dangers, and since the banking
system is the most important channel for the
disposal of the proceeds of illegal crimes that money
launderers resort to, it (banks and financial
institutions) has a set of obligations stemming from
the core of banking work to reduce From crime and
arresting criminals by tracking illegal money
(Woznon, 2016)
In 2018, the Central Bank of Jordan issued
supervisory principles. Those principles aim at
enabling banks to avoid the risks associated
with money laundering and terrorist financing
operations, which banks and financial
institutions subject to its control may be
exposed to, represented by the legal,
operational, financial, reputation and other risks
in the event that these institutions do not
comply with the laws and instructions in force
issued by the Central Bank of Jordan or the
existence of Weaknesses in the control and
internal control systems of these banks and
financial institutions. This policy includes the
general framework for the principles of control
that the Central Bank of Jordan adopts
according to the risk-based approach, which
includes relying on quantitative and other
qualitative data and using statistical models
[14].
2 Statement of the Problem
Islamic banks differ from commercial banks in
several aspects. Those aspects are related to the
financing formulas that are adopted in Islamic
banks, such as murabahah, leasing and others.
In yen, commercial banks depend on the
interest rate as a main source of profit
generation. Accordingly, the difference between
commercial and Islamic banks may have an
effect on the preference for using it in illegal
operations, for example money laundering, and
here we have this problem to answer it.
Therefore; the problem of this study is: What is
the role of monitoring Islamic banks to control
money laundering crimes from the viewpoint of
employees in the central bank of Jordan?
3 The Study’s Objectives and
Questions
This study aimed to examine the role of monitoring
Islamic banks to control money laundering crimes
from the viewpoint of employees in the central bank
of Jordanthrough answers following questions:
Q.1: What is the role of monitoring Islamic banks
by central bank of Jordan and control money
laundering crimes?
Q.2: What is the impact of monitoring
Islamic banks on control money laundering
crimes from the viewpoint of employees in the
central bank of Jordan?
4 The Study’s Significance
The importance of the study is that it is trying to
find an answer to the question about the impact of
monitoring Islamic banks on control money
laundering crimesespecially Islamic banks may
differ radically in their operations with commercial
banks, so it is useful to study the link between these
variables.
5 Definition of Terms
The study’s terms are defined below:
Islamic Banks: The financial institutions that carry
out Islamic financing formulas.
Money Laundering Crimes: “is the illegal process
of concealing the origins of money obtained
illegally by passing it through a complex sequence
of banking transfers or commercial transactions”
[11].
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6 The Study’s Limitations
The present study was conducted in related to
Islamic banks in Jordanfrom the viewpoint of
employees in the central bank of Jordan.
7 Literature Review
Obada and Melhem [10] researched the economic
importance of Islamic banking finance in Jordan, by
measuring its impact on savings and investment,
unemployment, inflation and GDP, during the
period 2001-2016, and regression analysis was
relied upon to measure this effect, and among the
most important findings of its findings. It was found
that there isn’t any statistically significant impact
for financing in the Arab Islamic Bank on both
inflation, GDP and unemployment, while there is a
statistically significant effect of Jordan Islamic Bank
financing for the general trade, construction and
housing sectors on inflation. It was found that there
isn’t any significant effect of financing in The
Jordanian Islamic Bank is concerned with
unemployment and the gross domestic product. It
was found that the largest part of financing in
Jordanian Islamic banks is directed to the
construction and housing sector, followed by the
general trade sector.
Masadeh & Al Hassan [9] explored the extent of the
response of operating banks in Jordan to the anti-
money laundering and terrorist financing
instructions issued by the Central Bank of Jordan.
The study reported a high response by operating
banks in Jordan to the instructions of anti-money
laundering and terrorist financing issued by the
Central Bank of Jordan, and the high level of
implementing the instructions of fighting money
laundering and terrorist financing in the banks
operating in Jordan. In addition, the results reveal
that there is an effective cooperation by the
competent governmental authorities in the fight
against money laundering and terrorist financing
with the operating banks in Jordan.
Sharrett & Zaghlami [13] shows the importance of
the Islamic Banking Financing, its evolution, its role
in financing different economic sectors, and its
contribution to the development in Malaysia.
Furthermore, it indicates the financing mechanisms
and the investment tools constituting the Islamic
Banking Financing. Finally, it concludes that the
effect of the Islamic Banking Financing on the
Malaysian GDP is positive and statistically
significant, and that the Islamic Banking Financing
is important in interpreting the Gross Domestic
Product in the Malaysian economy.
Zanon [15] discusses the role of banks and financial
institutions in combating the crime of money
laundering. The study showed that the national
legislation showed that the obligations are within
the laws and regulations governing the work of
banks and financial institutions in light of the
conclusions reached by the international group
through numerous international agreements and
treaties. These obligations are divided into two
parts: the first section is the duty of caution and
caution, and from that is the rule of Know Your
Customer, record-keeping and strengthening
internal control systems, and the second part, which
is the duty of exploration, stipulates the necessity to
report crimes in the event of a suspicion of money
laundering and limitation. Banking secrecy as one of
the ancient traditions of the practice of banking to
combat crime and limit its repercussions nationally
and internationally.
Rashid and Abdel Qader [12] analyzed the
phenomenon of money laundering. The study
showed that money laundering is a procedure aimed
at concealing and transferring ownership of funds
obtained from illegal activities and introducing them
into the economic cycle in order to appear as clean
money and from legitimate assets, i.e. concealing
the link between the criminal and the crime. The
study also showed that at the level of Iraq, the
competition between banks to attract customers in
order to raise the rates of profits for banks led to
encouraging some bank employees and their owners
to cover up financial and banking operations of
illegal sources (financial or terrorist corruption) and
the secrecy of accounts. All this works on the
collapse of economic and national security.
Al-Fawwaz et al [3] explored the effect of Islamic
finance in the Jordanian Islamic bank on some
macroeconomic variables during the period (2001-
2011). They used the regression method to test the
hypotheses. They found that there is a positive
statistically significant relationship of Islamic
banking finance on the output They found that hat
there is a negative statistically significant
relationship between Islamic finance and the rate of
inflation, which means that Islamic finance
enhances the production of goods and services in the
economic field, which leads to a decrease in the
general price level. Finally, the study recommends
the need to pay attention to the role of Islamic
finance, to derive new Islamic financial instruments,
and to promote the study of Islamic financial
engineering in institutes and colleges in universities.
Entitled: "Islamic banks and their role in social and
economic development",
Badi [5] examined the role of internal control for
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banks to combat money laundering through
problems represented in the solutions and obstacles
facing internal control in banks, employees
’knowledge of laws and regulations that combat and
control money laundering operations. The study
reached conclusions that confirm the correctness of
the hypotheses, including the shortcomings and
ambiguities in the definition of money laundering,
money laundering operations affect the political,
economic and social aspects, money laundering
operations limit banking secrecy, the prohibition of
Islamic law for money laundering, and all the
methods leading to it because it is malicious gains.
Judges (2010) discuss the most common and current
means of money laundering in the banking
institutions in Jordan, the study reported that the
money laundering operations are crimes that cross
national borders, but international cooperation and
coordination between States to combat money
laundering was not the required level, which met the
recommendation of the need to activate international
cooperation with regard to combating money-
laundering operations, and make maximum use of
experiences of some developed countries that have
achieved impressive results in the face of
moneylaundering operations
El-Ajiz [6] aimed at identifying the procedures
applied in banks operating in the Gaza Strip to
control and combat money laundering operations.
The study concluded that there is a commitment on
the part of the banks operating in the Gaza Strip to
refuse to open an account for a customer or to enter
into any banking transaction in the event that they
do not fulfill the procedures for identifying him, and
that the banks apply preventive measures to combat
money laundering in a good way, and it has also
concluded that there is a decrease in the budget.
The literature review in this article indicates that
most of the studies focused on the role of oversight
in reducing and confronting money laundering
operations that take place across the world in
different ways and from different sources of funds
related to crime, terrorism and others.
8 Methodology
The researcher adopted a descriptive analytical
approach in order to achieve study objectives. The
population of the study consists from all employees
of central bank of Jordan.
Sample: The sample consists of 60 employee’s
works in the central bank of Jordan. Questionnaire
forms were passed to those employees via email to
fill. All the forms were filled and retrieved.
The Study’s Instrument
The study’s questionnaire was developed based on
the fact of monitoring Islamic banks by central bank
of Jordan. The statements set to measure the role of
monitoring Islamic banks to control money
laundering crimes from the viewpoint of employees
in the central bank of Jordan. The rating categories
in the latter questionnaire are: never, sometimes,
neutral, often and always. The scores represented by
these categories are: 1, 2, 3, 4 and 5 respectively.
Validity of the Scale
The researcher passed the questionnaire to several
experts in order to evaluate and all remarks was
taken into consideration.
Reliability of the Scale
The reliability of the questionnaire was measured
through calculating the Cronbach alpha coefficient
value. The value of Cronbach alpha was 0.79 which
is accepted.
The Study’s Variables
The study’s variables are listed below:
The independent variables: monitoring Islamic
banks.
The dependent variable: control money laundering
crimes.
Methods & Statistical Analysis
The SPSS program was used for analyzing the
collected data. Several methods were used to
analyze data statistically such as frequencies and
percentages and linear regression.
9 Results and Discussion
First Question
Q.1: What is the role of monitoring Islamic
banks by central bank of Jordan and control
money laundering crimes?
Table 1 shows the means and standard deviations of
sample answer about the reality of monitoring
Islamic banks by central bank of Jordan.
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Table 1. Means and Standard Deviations of monitoring Islamic banks by central bank of Jordan
No
Statements
M
Rank
Degree
3
The central bank plays an important
role in monitoring all banks
3.17
1
Moderate
5
The Islamic bank does not
differentiate between Islamic and
commercial banks
3.15
2
Moderate
6
Instructions and procedures apply to
all banks
3.08
3
Moderate
4
There are no problems in monitoring
Islamic banks
3.05
4
Moderate
1
Islamic banks respond carefully to
the instructions of the Central Bank
3.02
5
Moderate
2
It is in the interest of Islamic banks to
have a supervisory body such as the
Central Bank
3.00
6
Moderate
Total
3.09
Moderate
Based on table 1, the reality of monitoring Islamic
banks by central bank of Jordan from the viewpoint
of employees in the central bank of Jordan which is
moderate. That is because the overall mean is 3.09
with high degree from study sample viewpoint. The
overall standard deviation is 1.118.
Accordingly, it can be said that there is great
importance for the work of the central bank in
monitoring banks in general, and Islamic banks in
particular. Islamic banks can be used for money
laundering, just as commercial banks can.
Table 2. Means and Standard Deviations of control money laundering crimes of Islamic banks in Jordan
No
Statements
M
Rank
Degree
9
There is a role for the central bank in
reducing money laundering
operations in Islamic banks
3.33
1
Moderate
11
Islamic banks are not isolated from
money laundering operations
3.28
2
Moderate
7
Islamic banks are vulnerable to being
exploited for money laundering
operations
3.25
3
Moderate
8
Central bank measures contribute to
detecting money laundering
operations
3.24
4
Moderate
12
Money laundering operations are
very complex in Islamic and
commercial banks
3.21
5
Moderate
10
Islamic banks understand central
bank operations to counter money
laundering
3.18
6
Moderate
Total
3.25
Moderate
It has been shown that central banks do not differentiate monitoring between all banks, so their
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ultimate goal is to protect the state from financial
shocks, in addition to preserving financial and
monetary stability in Jordan.
Table 2 shows the means and standard deviations of
sample answer about the reality of control money
laundering crimes of Islamic banks in Jordan.
Based on Table 2, the reality of control money
laundering crimes of Islamic banks in Jordan is
positive from the perspective of the employees
working at the aforementioned central bank is high.
That is because the overall mean is 3.25 with high
degree from study sample viewpoint. The overall
standard deviation is 0.984.
Table 3. Model Summary
Mode
l
R
R Square
Adjusted
R Square
Std. Error of the
Estimate
1
.451(a)
.449
.432
228.89859
a Predictors: (Constant), Monitoring
Table 4. Regression
Model
Unstandardized
Coefficients
Standardized
Coefficients
t
Sig.
B
Stdrror
Beta
1
(Constant)
1098.112
365.114
2.810
.000
Monitoring
.786
.065
.451
19.063
.000
a. dependent Variable: Laundering Crimes
The risk of money laundering in Islamic banks
appears here, as is the case in commercial banks.
The central bank’s role in curbing money laundering
crimes in Islamic banks becomes evident here.
Second Question
Q.2: What is the impact of monitoring Islamic
banks on control money laundering crimes from
the viewpoint of employees in the central bank of
Jordan?
To measure the relationship between monitoring
Islamic banks and control money laundering crimes
from the viewpoint of employees in the central
bankof Jordan, a simple regression analysis was
performed as shown in Tables No(3, 4).
The results in table No. 3 and table No. 4 indicate
that there is a positive statistically significant impact
of monitoring Islamic banks on control money
laundering crimes from the viewpoint of employees
in the central bank of Jordan. The results also show
that the coefficient of correlation between the two
variables reached (0.451), and the determination
coefficient reached (0.449). That indicates that the
monitoring Islamic banks determine the value about
of (45%) in control money laundering crimes from
the viewpoint of employees in the central bank of
Jordan.
These results show that the Central Bank’s
monitoring of Islamic banks plays a major role in
preventing money laundering crimes, due to the
high relationship between monitoring and reducing
money laundering in the banking system.
10 Conclusion
It was found that the reality of monitoring money
laundering crimes in Islamic banks by central bank
of Jordan is moderate. It was found that there is a
positive statistically significant impact for
monitoring Islamic banks on control money
laundering crimes from the viewpoint of employees
in the central bank of Jordan.
11 Recommendations
The researcher recommends the following:
Activating the role of the Central Bank of Jordan in
fighting against money laundering crimes.
Conducting more studies on the factors that help
protect Islamic banks from money laundering
crimes.
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Ali Abdel Fattah Hamdan Zyadat
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