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Economic Crime Institute Conference. Find the Fraudster/Money Launderer Anti Money Laundering Basics Presentation by: Christopher L. King, CFE, CAMS

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economic crime institute conference

Economic Crime Institute Conference

Find the Fraudster/Money Launderer

Anti Money Laundering Basics

Presentation by:

Christopher L. King, CFE, CAMS

My comments and opinions offered during this conference are my own and do not represent in any way those of my employer or other affiliations I have with other organizations.

21st Annual ECI Conference

session agenda
Session Agenda
  • Discuss Anti-Money Laundering (AML ) terms.
  • Review red flags of potential suspicious activity related to money laundering.
  • Summarize related laws, regulations, sanctions and penalties.
  • Identify the minimum requirements for an AML Program.
  • Discuss case studies.

21st Annual ECI Conference

what is money laundering

Money Laundering and

Terrorist Financing Overview

Placement

What is Money Laundering?

Money Laundering Overview

Money laundering is defined as the criminal practice of making funds from illegal activity appear legitimate. Money launderers attempt to do this by disguising the sources, converting cash to other forms, or moving money to places where it is less likely to attract attention.

Although money laundering is a diverse and often complex process, it generally involves three stages: placement, layering, and/or integration.

Layering

Integration

slide4

Money Laundering and

Terrorist Financing Overview

Placement

Layering

Integration

Three Money Laundering: Basic Terminology Stages of

Through these stages, funds appear to be proceeds from legal activities.

  • Placement is the introduction of unlawful proceeds into the financial system. Structuring, which is considered a type of placement activity, is any attempt to evade legal reporting requirements for cash/currency transactions conducted with a financial institution. Examples of structuring may include, but are not limited to:
    • Cashing checks for amounts just below reporting or recordkeeping thresholds.
    • Dividing large amounts of cash/currency into smaller sums that fall below reporting or recordkeeping thresholds and then depositing the funds directly into a bank account on one or more days, in any manner.

Three stages:

slide5

Money Laundering and

Terrorist Financing Overview

Placement

Layering

Integration

Three Stages of Money Laundering

Money Laundering: Basic Terminology (continued)

Through these stages, funds appear to be proceeds from legal activities.

Three stages:

  • Layering involves moving funds around in the financial system in order to conceal the origin of the funds. Examples include, but are not limited to:
    • Exchanging monetary instruments for larger or smaller amounts.
    • Wiring or transferring funds.
    • Buying or selling securities through numerous accounts.
    • Obtaining a loan in one or more financial institutions.
  • Integration is the ultimate goal of the money laundering process. In this stage, the illicit funds may appear legitimate and are often used to purchase other assets, for example:
    • Real estate or other assets
    • Securities investments
    • Cash Intensive Businesses
slide6

Money Laundering and

Terrorist Financing Overview

Placement

Layering

Integration

Case Study: Placement, Layering, and Integration

Money Laundering: Basic Terminology (continued)

The following case study details how four university students involved in an international money laundering ring, moved millions of dollars of illicit drug proceeds through financial institutions.

The initial account was opened by a NJ university student who stated that he was unemployed.

Days after establishing the account, wire transfers were received from two travel agencies, “Trav-L Bound” in Greece, and “Vizit the World” in Portugal.

Both fictitious travel agencies were created by the students as front companies to launder illicit drug proceeds.

In the following months, the account continued to receive multiple high-dollar wire transfers from Greece and Portugal.

Once the wires were received, the student transferred the funds to three other students who held accounts at other financial institutions.

Using the funds, the students wrote small-dollar checks payable to the travel agencies, purchased multiple traveler’s checks and pre-paid debit cards, and mailed them to the travel agencies.

The students also deliberately over paid their tuition/ books to receive refund checks issued by the university.

The university refund checks were then co-mingled with the wired funds.

The combined funds were used to pay for the students living expenses, luxury items, investments, and advertising to make the travel agencies look legitimate.

slide7

Money Laundering and

Terrorist Financing Overview

Case Study: Placement, Layering, and Integration

Comparison of Organized Crime to Terrorist Financing

Organized Crime

  • Motivated by profit/greed
  • Seek economic ends
  • Engage in corruption
  • Network and cell based structure
  • Requires safe-havens
  • Needs to recruit new members
  • Requires specialists
  • Group identity important
  • Threat of violence
  • Select targets that pose threat to the group
  • Avoid public attention
  • Money laundering essential operating tool
  • Terrorist Groups
  • Motivated by ideology
  • Seek political ends
  • Engage in corruption
  • Network and cell based structure
  • Requires safe-havens
  • Needs to recruit new members
  • Requires specialists
  • Group identity important
  • Threat of violence
  • Select symbolic targets
  • Seek public attention
  • Money laundering essential operating tool
slide8

Money Laundering and

Terrorist Financing Overview

Funding

Sources Used

by Terrorists

  • Examples of Unlawful Funding Sources:
    • Extortion
    • Kidnapping
    • Smuggling
    • ID Theft
    • Narcotics Trafficking
  • Fraud
  • Theft
  • Robbery

$

$

$

$

Terrorist

The Basics of Terrorist Financing

Terrorist financing is the financial support of terrorism or of those who encourage, plan, or engage in terrorism. The intent of terrorism is to intimidate people, governments, or international organizations to do, or refrain from doing, any act through the threat of violence.

  • Examples of
  • Legitimate Funding Sources:
    • Business ownership
    • Personal employment
    • Government, charitable or relief funds

Terrorist groups seek to develop and utilize legitimate and unlawful sources of funding that are relatively mobile to ensure that funds can be used to obtain material and other logistical items needed to commit terrorist acts.

slide9

Money Laundering and

Terrorist Financing Overview

Learning Check

Let’s Review

Which statement is true about money laundering?

Laundered funds are always derived from legitimate sources, such as charities.

Layering is the way money launderers withdraw funds from the financial system.

Money laundering is an economic problem only impacting financial institutions within the U.S.

Structuring is a crime that involves dividing large amounts of cash/currency into smaller sums that fall below reporting or recordkeeping thresholds and then depositing the funds directly into a bank account on one or more days, in any manner.

slide10

Money Laundering and

Terrorist Financing Overview

Learning Check

Let’s Review

From the examples below, select three schemes that could be used by money launderers to move illegal funds.

Falsifying the value or quantity of shipments

Requesting a payment to be made to a company’s head office located in the same country

Moving illicit funds between countries through wire transfers

Smuggling bulk currency out of the U.S. to evade currency reporting requirements

slide11

Detecting and Escalating Suspicious Activity

Detecting and Escalating Suspicious Activity

  • Red flags are signals of potentially unusual or suspicious transactions or other activities that should raise the level of suspicion and may call for further escalation.
  • The mere presence of a red flag is not necessarily evidence of money laundering or terrorist financing activity. However, it does indicate that further review should be performed before proceeding to determine if the activity in question has a reasonable or legitimate purpose.
  • It is important to know the customer because what might be a red flag for one customer, may be normal business for another.
  • If a reasonable explanation is not determined, the suspicious transactions or other activities should be escalated for further investigation
slide12

Detecting and Escalating Suspicious Activity

Red F

Detecting and Escalating Suspicious Activity

lags for Suspicious Activity

These examples may help to recognize money laundering schemes.

red f suspicious activity reporting sar filing triggers lags for suspicious activity
Red FSuspicious Activity Reporting (SAR) Filing Triggerslags for Suspicious Activity

A timely and accurate SAR must be filed with FinCEN when any of the following circumstances are discovered:

  • Insider abuse involving any dollar amount (regardless of whether there is a loss to the institution).
  • Violations aggregating $5,000 or more where a suspect can be identified.
  • Violations aggregating $25,000 or more regardless of a potential suspect.
  • Transactions aggregating $5,000 or more that involve potential money laundering or violations of the BSA. The Money Services Business threshold is $2,000).
  • Understand differences between 30 days and 60 day filing requirement (suspect and no suspect identified).
slide14

Laws and Penalties

USA

PATRIOT

ACT*

Money Laundering and Terrorist Financing Laws

Red F

AML Regulations

lags for Suspicious Activity

Money laundering and terrorist financing laws help safeguard the U.S. financial system from these and other illicit financial crimes.These acts provide law enforcement officials with more tools to investigate, prosecute, and penalize money launderers and terrorist financiers.

  • Financial institutions must identify the source, volume, and movement of currency and other monetary instruments deposited into financial institutions or transmitted into or out of the U.S.
  • Financial institutions must file currency transaction reports for transactions over designated thresholds. Currency transaction reports are used to identify individuals or entities conducting cash transactions and to maintain a paper trail.
  • Financial institutions must report suspicious activity that involves money laundering or other criminal activity.

Bank

Secrecy

Act

  • Enhanced the criminalization of terrorist financing.
  • Established requirements for a customer identification program.
  • Required financial institutions to have due diligence procedures, and in some cases, enhanced due diligence procedures for certain accounts.
  • Improved information sharing between financial institutions and the U.S. government.

*Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

slide15

Laws and Penalties

Red F

AML Penalties and Enforcement Actions

Federal banking agencies, securities regulators, the Department of Justice, and FinCEN can bring criminal and civil money penalties against financial institutions and individuals for violations of the Bank Secrecy Act (“BSA”).

U.S. penalties may include, but are not limited to:

  • Financial institutions can lose their charters.
  • Financial institution employees can be removed and barred from banking.
  • Individuals convicted of money laundering or terrorist financing can face up to 20 years in prison and a fine of up to $500,000 per count.
  • Property involved in money laundering or terrorist financing may be subject to forfeiture.*
  • Criminal penalties may apply for willful blindness violations, failure to implement regulations, and for structuring transactions to evade BSA reporting requirements.

*Asset forfeiture has proved to be an important tool in the fight against money laundering by removing the profits of illegal activities from criminals. In some cases, funds have been returned to the victims of fraud.

slide16

Laws and Penalties

Office of Foreign Assets Control (OFAC)

As of July 2010, the following list of countries and territories have economic sanctions and prohibitions against them:

*The sanction programs for these OFAC countries and territories target specific named entities or persons on OFAC's Specially Designated Nationals list.

slide17

Know Your Customer

Customer identification information, such as name, physical street address, date of birth, government –issued ID number.

At a minimum, the USA PATRIOT Act requires financial institutions to implement procedures for the following:

The identity of each customer to the extent reasonable and practicable , and

Maintain records of the information used to verify the customer’s identity.

Verify

Obtain

Section 326 of the USA PATRIOT Act

The Customer Identification Program (“CIP”) is intended to enable financial institutions to form a reasonable belief that they know the true identity of their customers. Financial institutions are held accountable for the effectiveness of their CIP, ongoing customer due diligence efforts, and their ability to record the steps taken to verify customers’ identities.

Click here for additional information.

summary of bsa aml program elements
Summary of BSA/AML Program Elements
  • Risk-based policies, procedures and controls reasonably designed to prevent, detect and report money laundering.
  • Periodic (formal) risk assessment, which considers geography, customer type, products, services and transactions.
  • The policies, procedures and controls noted above are designed and implemented to address the risks identified in the risk assessment. Regulatory examinations include a review of the risk assessment.
  • A Customer Identification Program (Section 326 of the USA PATRIOT Act), to ensure that the institution can reach a reasonable determination that it knows the true identity of its customer.
  • Transaction monitoring, including applicable record-keeping requirements and reporting of Suspicious Activity (and other reports required by the BSA, e.g., Currency Transaction Reports).
  • Policies, procedures and controls designed to ensure compliance with requirements of the Office of Foreign Assets Control and related laws and regulations.
  • The designation of an AML Compliance Officer.
  • An appropriate AML training program.
  • Independent testing of the program.
  • Appropriate infrastructure to allow for and facilitate escalation of important issues, supervision, consequence management, communication with law enforcement.
case studies
Case Studies
  • Note: there are three case study examples for this portion of the session.
  • Place the case studies in order, based on the number of red flags present.
  • We will discuss each of the three cases in small break-out groups.

21st Annual ECI Conference

case studies 1
Case Studies (1)
  • A wire transfer from an account in the Middle Eastern Geographic area is being sent from another bank to acustomer.

21st Annual ECI Conference

case studies 2
Case Studies (2)
  • Activity is noted on a bank account as follows:
  • Deposits

Tuesday, August 03, 2010 $10,000.00 Branch # 1Modesto CA Tuesday, August 03, 2010 $7,000.00 Branch #2Modesto CA Tuesday, August 03, 2010 $9,000.00 Branch #3Modesto CA Monday, August 09, 2010 $10,000.00 Branch #1Modesto CA Wednesday, August 11, 2010 $9,000.00 Branch #4Modesto CA Friday, August 13, 2010 $10,000.00 Branch #4Modesto CA Wednesday, August 18, 2010 $9,000.00 Branch #1Modesto CA Friday, August 20, 2010 $10,000.00 Branch #4Modesto CA

  • Withdrawals

8/04/2010 for $6,500 Branch # 5 and # 6 Sun City, AZ 8/04/2010 for $5,000 Branch #5 Sun City, AZ 8/04/2010 for $5,000 Branch #5 Sun City, AZ 8/04/2010 for $900 Branch #5 Sun City, AZ 8/04/2010 for $500 Branch #5Sun City, AZ 8/05/2010 for $4,600 Branch #5 & #6 Sun City, AZ

21st Annual ECI Conference

case studies 3
Case Studies (3)
  • A report is received that a customer brought in some currency that smelled funny. Besides the customers’ pedigree and account information, there are no additional details listed in the referral.

21st Annual ECI Conference

links to additional resources
Links to Additional Resources
  • Bank Secrecy Act Regulations
    • FFIEC/BSA Info Base
    • 31 CFR 103 BSA Reporting Requirements
  • A Selection of AML Groups/Organizations:
    • ACAMS (Association of Certified Anti-Money Laundering Specialists)
    • FATF (Financial Action Task Force)
    • FinCEN (Financial Crimes Enforcement Network)
    • OFAC (Office of Foreign Assets Control)
    • Wolfsburg Group

21st Annual ECI Conference