Examination Techniques Part One Money Laundered in Banks James Wright Office of Technical Assistance...
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Transcript of Examination Techniques Part One Money Laundered in Banks James Wright Office of Technical Assistance...
Examination TechniquesExamination TechniquesPart One Money Laundered in Part One Money Laundered in
BanksBanks
James WrightJames Wright
Office of Technical AssistanceOffice of Technical Assistance
US TreasuryUS Treasury
BanksBanks
Provide to the money launderer multiple Provide to the money launderer multiple services for placement, layering and services for placement, layering and integrationintegration
The Money Laundering ProcessThe Money Laundering Process
PlacementPlacement
LayeringLayering
IntegrationIntegration
PlacementPlacement
The initial movement of The initial movement of criminally derived currency or criminally derived currency or
other proceeds of crime, to other proceeds of crime, to initially change it’s form or initially change it’s form or
location to places beyond the location to places beyond the reach of law enforcement.reach of law enforcement.
Forms of PlacementForms of Placement Depositing into Depositing into accounts via tellers, accounts via tellers, ATMs, or night ATMs, or night depositsdeposits
Changing currency to Changing currency to cashiers checks or cashiers checks or other negotiable other negotiable instrumentsinstruments
Exchanging small bills Exchanging small bills for large billsfor large bills
smuggling or shipping smuggling or shipping out side the countyout side the county
Layering Layering The process of separating the proceeds of criminal The process of separating the proceeds of criminal
activity from their origin.. Disguising the origin through activity from their origin.. Disguising the origin through the movement of funds trough accounts and financial the movement of funds trough accounts and financial
institutions. The use of layers of complex financial institutions. The use of layers of complex financial transactions; loans, letters of credit, investments and transactions; loans, letters of credit, investments and
insuranceinsurance
IntegrationIntegration
The process of using an apparent legitimate transaction to The process of using an apparent legitimate transaction to disguise the illicit proceeds allowing the laundering of funds to disguise the illicit proceeds allowing the laundering of funds to be disbursed back to the criminal. Funds often are used for be disbursed back to the criminal. Funds often are used for payment for operations, spending on luxury goods or payment for operations, spending on luxury goods or investments in businesses.investments in businesses.
Bank Risk AreasBank Risk Areas
wire transferlending
investing
private banking
internationalcorrespondence
trade financing
Safe deposit
insuranceleasing
foreignexchange
sale ofmonetary instruments
deposit
Internet and credit cards
High Risk CountriesHigh Risk Countries
Countries in which the production or Countries in which the production or transportation of illegal drugs may be taking transportation of illegal drugs may be taking placeplace
Bank Secrecy HavensBank Secrecy Havens
Countries identified in FinCEN advisoriesCountries identified in FinCEN advisories
Money laundering countries and jurisdictions Money laundering countries and jurisdictions identified in the US Department of State’s identified in the US Department of State’s annual International Narcotics Control annual International Narcotics Control Strategy Strategy
Depositing Laundered Funds Depositing Laundered Funds Use of third parties (SMURFS)Use of third parties (SMURFS)
Deposits under reporting requirementsDeposits under reporting requirements
Deposits from front businessesDeposits from front businesses
Suspicious Signs in BanksSuspicious Signs in Banks
Increase in cash shipments without Increase in cash shipments without increase in number of accountsincrease in number of accounts
Cash on hand usually exceeds bond limitsCash on hand usually exceeds bond limits
Large turnover in large bills in excess of Large turnover in large bills in excess of small billssmall bills
Suspicious Signs in BankSuspicious Signs in Bank
Cash shipments which appear large in Cash shipments which appear large in comparison to dollar volume of currency comparison to dollar volume of currency transaction reportstransaction reports
Large volume of cash deposits from Large volume of cash deposits from business that are not normally cash business that are not normally cash intensiveintensive
Branches that have far more cash (volume Branches that have far more cash (volume and or value) than usual compared with and or value) than usual compared with other branchesother branches
Suspicious Sale of Monetary Suspicious Sale of Monetary InstrumentsInstruments
When large volume of cashiers checks, When large volume of cashiers checks, money orders or travelers checks are sold money orders or travelers checks are sold for cash.for cash.
When purchases of instruments are When purchases of instruments are unusual for the customer’s type of unusual for the customer’s type of business.business.
Suspicious Currency Suspicious Currency ExchangeExchange
Large volume of currency exchange for Large volume of currency exchange for cashcash
When the need for foreign currency is not When the need for foreign currency is not in keeping with business needsin keeping with business needs
Safe DepositSafe Deposit
Frequent trips to safe deposit prior to Frequent trips to safe deposit prior to movement of funds out of the bankmovement of funds out of the bank
Customer refuse insuranceCustomer refuse insurance
Customer provides little informationCustomer provides little information
Third party pick ups and deliveryThird party pick ups and delivery
Use of parcels, envelopes etc.Use of parcels, envelopes etc.
OffshoreOffshore
Funds are wired to:Funds are wired to:– Europe, US and to bank secrecy countries Europe, US and to bank secrecy countries
– shell corporationsshell corporations
– Back to criminalsBack to criminals
Wire TransferWire Transfer
Launderers wire funds:Launderers wire funds:
form bank to bankform bank to bank
from bank to shell companies overseasfrom bank to shell companies overseas
from shell companies to banks from shell companies to banks
from banks back to criminalsfrom banks back to criminals
International Correspondent International Correspondent AccountsAccounts
Banks enter into agreement with larger Banks enter into agreement with larger international banks to process and international banks to process and complete transactionscomplete transactions
Launderers set up correspondent Launderers set up correspondent accounts in order to transfer money from accounts in order to transfer money from bank to bank and country to countrybank to bank and country to country
International Correspondent International Correspondent AccountsAccounts
ProblemsProblems– Banks don't conduct sufficient due diligence Banks don't conduct sufficient due diligence
review of their foreign bank clients, review of their foreign bank clients, management finance and reputationmanagement finance and reputation
– clients are allowing other foreign banks to use clients are allowing other foreign banks to use their U.S. accountstheir U.S. accounts
Private BankingPrivate Banking
Offers money launderers full line of bank Offers money launderers full line of bank servicesservices
More privacy and more confidentialityMore privacy and more confidentiality
Less bank scrutinyLess bank scrutiny
A high risk because a large amount of A high risk because a large amount of money is managedmoney is managed
TrustsTrustsTrust departments create fiduciary Trust departments create fiduciary relationship in which bank maintains little relationship in which bank maintains little controlcontrol
Trustee must follow customers directionsTrustee must follow customers directions
Through trusts, launderers can create Through trusts, launderers can create Private Investment Companies(PIC)s ideal Private Investment Companies(PIC)s ideal for laundering moneyfor laundering money
Payable Through AccountPayable Through Account
Payable through accounts also known as Payable through accounts also known as pass through or pass by accounts are pass through or pass by accounts are marketed to foreign banks wanting to offer marketed to foreign banks wanting to offer their customers access to another their customers access to another countries banking system.countries banking system.
Payable Through AccountsPayable Through Accounts
Foreign banks provide checks to sub Foreign banks provide checks to sub account holders to draw on foreign banks account holders to draw on foreign banks accounts at US or other country banks.accounts at US or other country banks.
Thereby providing anonymity.Thereby providing anonymity.
LendingLending
Launderers often:Launderers often:
use cash or certificates of deposits as use cash or certificates of deposits as collateral for loanscollateral for loans
Payoff loans earlyPayoff loans early
Default and leave collateralDefault and leave collateral
Donot use proceeds for loan purposeDonot use proceeds for loan purpose
(This often involves bank collusion)(This often involves bank collusion)
LendingLending
Possible money laundered loans are:Possible money laundered loans are:
Request to borrower against assets held by Request to borrower against assets held by the bank or a third party, where the origin of the bank or a third party, where the origin of the assets is known or the assets are the assets is known or the assets are inconsistent with the customer’s standing.inconsistent with the customer’s standing.
Loans made on the strength of a borrower’s Loans made on the strength of a borrower’s financial statement which reflects major financial statement which reflects major investment in and income from businesses investment in and income from businesses incorporated in bank secrecy haven countriesincorporated in bank secrecy haven countries
Suspicious LendingSuspicious Lending
Request for loans to offshore commercial Request for loans to offshore commercial companies, or loans secured by obligations companies, or loans secured by obligations of offshore banksof offshore banks
Loan proceeds are unexpectedly channeled Loan proceeds are unexpectedly channeled offshoreoffshore
Third parties, unknown to the bank, who Third parties, unknown to the bank, who provide collateral without any discernable, provide collateral without any discernable, plausible reason and have no close plausible reason and have no close relationship with the customerrelationship with the customer
Letters of CreditLetters of Credit
Launderers use:Launderers use:
bogus letters of creditbogus letters of credit
Letters of credit for bogus servicesLetters of credit for bogus services
Letters of credit for over invoicingLetters of credit for over invoicing
Letters of credit for under invoicingLetters of credit for under invoicing
Discount brokerage, Securities Discount brokerage, Securities and Investmentand Investment
Larger or unusual settlements of security Larger or unusual settlements of security with no discernable purpose or in with no discernable purpose or in circumstances which appear unusualcircumstances which appear unusual
Purchasing of securities to be held by the Purchasing of securities to be held by the bank in safe custody, where this does not bank in safe custody, where this does not appear appropriate given the customers appear appropriate given the customers apparent standing.apparent standing.
SecuritiesSecuritiesRequest by Customer for investment Request by Customer for investment management services(either foreign currency or management services(either foreign currency or securities) where the source of the funds is securities) where the source of the funds is unclear or not consistent with the customer’s unclear or not consistent with the customer’s apparent standingapparent standing
Larger or usual settlements of securities in cash Larger or usual settlements of securities in cash formform
Buying and selling of a security with no Buying and selling of a security with no discernable purpose or in circumstances which discernable purpose or in circumstances which appear unusualappear unusual
SecuritiesSecurities
Derivatives trading using two accounts Derivatives trading using two accounts which take from one account and pass the which take from one account and pass the proceeds to second accountproceeds to second account
InsuranceInsuranceLaunderers purchase for quick turnaroundLaunderers purchase for quick turnaround
Arrange payment to a third partyArrange payment to a third party
Cancel policies earlyCancel policies early
Make fraudulent Insurance claimsMake fraudulent Insurance claims
Take out policies unrelated to businessTake out policies unrelated to business
Assign policies to apparent unrelated Assign policies to apparent unrelated partiesparties
Bank InvolvementBank Involvement
Examiners and bank management must Examiners and bank management must be aware of this extremely sensitive area.be aware of this extremely sensitive area.
Nevertheless, there have been numerous Nevertheless, there have been numerous successful cases against staff, and a successful cases against staff, and a review of money laundering cases brought review of money laundering cases brought by the authorities in a number of countries by the authorities in a number of countries suggest strongly, that staff are involved suggest strongly, that staff are involved either passively or activelyeither passively or actively
Bank Employees and AgentsBank Employees and Agents
Lavish lifestyle which cannot be supported Lavish lifestyle which cannot be supported by an employees salaryby an employees salary
Absence of conformity with recognized Absence of conformity with recognized systems and controls, particularly in systems and controls, particularly in private bankingprivate banking
Reluctance to take a vacationReluctance to take a vacation
Lavish LifestyleLavish Lifestyle
Appearance that doesn't fit the normAppearance that doesn't fit the norm
designer clothes, expensive watches, designer clothes, expensive watches, expensive automobilesexpensive automobiles
ButBut
Could be innocent because employee may Could be innocent because employee may benefit from second job,benefit from second job,– Inheritance, lottery or rich spouseInheritance, lottery or rich spouse
Systems and ControlsSystems and Controls
Particular staff having a history of failing to Particular staff having a history of failing to obtain necessary approvals, or over-riding obtain necessary approvals, or over-riding controls and authority levelscontrols and authority levels
For example is three evidence of staff For example is three evidence of staff exaggerating the credentials of a exaggerating the credentials of a prospective customer, inflating a prospective customer, inflating a customers financial ability or resources?customers financial ability or resources?
New Money Laundering New Money Laundering SchemesSchemes
Each Year the Financial Action Task ForceEach Year the Financial Action Task Force
Shares information on new money Shares information on new money Laundering schemes.Laundering schemes.
New schemes include:New schemes include:– internet banking, trustinternet banking, trust– growth in the use of professional service growth in the use of professional service
providers such as accountants, solicitors, providers such as accountants, solicitors, company formation agents associated with more company formation agents associated with more complex money laundering.complex money laundering.
Multiple entitiesMultiple entities
brokers dealers, funds managers, marketsbrokers dealers, funds managers, markets
For example introducing broker and For example introducing broker and clearing broker clearing broker
Markets vs. regulatorsMarkets vs. regulators
Approach is same as bankingApproach is same as banking
Regulations and inspectionsRegulations and inspections
Compliance program for entitiesCompliance program for entities
Layering and Integration phaseLayering and Integration phase
Most entities don’t deal in cashMost entities don’t deal in cash– Use bank transfersUse bank transfers
Cash sometimes usedCash sometimes used– Loosely regulated countriesLoosely regulated countries– in margin accountsin margin accounts
Securities Commission InspectionsSecurities Commission Inspections
Money laundering inspections conducted Money laundering inspections conducted in concert with inspections for violations of in concert with inspections for violations of regulations or fraudregulations or fraud
Usually small inspection forceUsually small inspection force
Focus on high risk often based on Focus on high risk often based on complainscomplains
Risk AreasRisk Areas
Account openingAccount opening
Cash handlingCash handling
Wire transfer operationsWire transfer operations
Margin accountsMargin accounts
Advantages for money launderersAdvantages for money launderers
Launder moneyLaunder money
Make a profitMake a profit
Commit other securities fraudCommit other securities fraud
Money laundering examplesMoney laundering examples
Purchase of securities for short period of Purchase of securities for short period of time with no discernable purpose. Selling time with no discernable purpose. Selling outout
Wash trades match buys and sells in Wash trades match buys and sells in particular securitiesparticular securities
Transactions involving penny stocks, Transactions involving penny stocks, Regulation S stocks and bearer bondsRegulation S stocks and bearer bonds
Product Distribution makes for Product Distribution makes for difficult regulation and compliancedifficult regulation and compliance
Direct marketingDirect marketing
IntermediariesIntermediaries– IndependentsIndependents– Associated with companiesAssociated with companies
Risk AreasRisk Areas
Customer identification and salesCustomer identification and sales
Pay out on policiesPay out on policies
ExamplesExamples
Purchase of insurancePurchase of insurance– Life insurance and annuitiesLife insurance and annuities– Some business casualty insuranceSome business casualty insurance
– Purchase of Insurance Companies and Purchase of Insurance Companies and Reinsurance CompaniesReinsurance Companies