Good Education on Money Laundering

No, not as a HOWTO guide! :-)

Someone posted a link to this US Treasury document which provides information for banks in monitoring money laundering. I’ve quoted a few tips the Treasury offers to banks that should give some kind of indication why it’s going to be difficult for any eWallet or pre-paid debit card to survive for too long without throwing off some red flags.

A business is reluctant, when establishing a new account, to provide complete information about the nature and purpose of its business, anticipated account activity, prior banking relationships, names of its officers and directors, or information on its business location.

Wire transfer activity to/from a financial secrecy haven, or high-risk geographic location without an apparent business reason, or when it is inconsistent with the customer’s business or history.

Many small, incoming wire transfers of funds received, or deposits made using checks and money orders. Almost immediately, all or most are wired to another city or country in a manner inconsistent with the customer’s business or history.

Wire activity that is unexplained, repetitive, or shows unusual patterns.

Payments or receipts with no apparent links to legitimate contracts, goods, or services.

A large volume of cashier’s checks, money orders, and/or wire transfers deposited into, or purchased through, an account when the nature of the account holder’s business would not appear to justify such activity.

A customer who purchases a number of cashier’s checks, money orders, or traveler’s checks for large amounts under a specified threshold.

Suspicious movements of funds from one bank into another, then back into the first bank: 1) purchasing cashier’s checks from bank A; 2) opening up a checking account at bank B; 3) depositing the cashier’s checks into a checking account at bank B; and, 4) wire transferring the funds from the checking account at bank B into an account at bank A.

And in case you wonder how serious this is taken by the banks, here’s the Treasury’s direction on running a bank’s internal money laundering identification program:

Establish an Effective Suspicious Activity Monitoring and Reporting Process

An effective BSA compliance program includes controls and measures to identify and report suspicious transactions promptly. Financial institutions must employ appropriate customer due diligence to effectively evaluate transactions and conclude whether to file a suspicious activity report (SAR).

Banks must file SARs within prescribed timeframes. SARs must be filed following the discovery of transactions aggregating $5,000 or more that involve potential money laundering or violations of the BSA if the bank knows, suspects, or has reason to suspect that the transaction:

• Involves funds from illegal activities or is conducted to hide illicit funds or assets in a plan to violate or evade any law or regulation or to avoid transaction reporting requirements under federal law.

• Is designed to evade any of the BSA regulations.

• Has no business or apparent lawful purpose or is not the sort in which the customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining available facts, including the background and transaction purpose.
The bank’s board of directors must be notified of SAR filings, and such filings and information contained therein must remain confidential, unless properly requested by law enforcement.

Financial institutions are protected from liability to customers for disclosures of possible violations of law under safe harbor provisions. Additionally, the safe harbor covers all reports (including supporting SAR documentation) of suspected or known criminal violations and suspicious activities to law enforcement and the financial institution’s supervisory authority.

There are more than 200 predicate crimes for money laundering. These include funds that support terrorist activity, profits from illegal drug sales, and structuring of transactions to avoid record keeping and reporting requirements. A bank does not have to conduct an investigation to determine if funds were derived illegally. Instead, banks must report suspicious activity. Law enforcement will determine if a predicate crime associated with the funds has been violated.

And for those thinking that all of these overseas methods are going to be able to get around US monitoring:

High-Risk Products and Services

Wire Transfer/International Correspondent Banking -Money launderers have become more creative in their use of wire transfer systems, particularly relating to correspondent bank accounts. Correspondent accounts are accounts banks maintain with each other to facilitate transactions for themselves and their customers. Although these accounts were developed and are used primarily for legitimate purposes, international correspondent bank accounts may pose increased risk of illicit activities. The Minority Staff of the U.S. Senate Permanent Subcommittee on Investigations issued a report on February 5, 2001, entitled “Correspondent Banking and Money Laundering.” The report summarizes a year-long investigation into correspondent banking and its use as a tool for laundering money. The investigation found that U.S. banks through international correspondent accounts could become conduits for dirty money flowing into the American financial system.

Bankers must exercise due diligence in determining risks associated with each of their foreign correspondent accounts. Factors to consider include account purpose, location of the foreign bank, nature of the banking license, the correspondent’s money laundering detection and prevention controls, and the extent of bank regulation and supervision in the foreign country. The USA PATRIOT Act also requires the maintenance of certain records for foreign correspondent accounts, mandates enhanced due diligence for select accounts, and precludes maintaining correspondent accounts for “shell” banks.

Private Banking Relationships – Private banking has many definitions, but generally is considered the personal or discreet offering of a wide variety of financial services and products to the affluent market. These operations typically offer all-inclusive personalized services. Individuals, commercial businesses, law firms, investment advisors, trusts, and personal investment companies may open private banking accounts. Due diligence for private banking clients usually includes a more extensive process than for retail customers, including confirming references and/or conducting background checks. It is critical to understand a client’s source of wealth, needs, and expected transactions. The private banking client’s expected level and type of transactions should be documented. Private banking relationships can be complex and systems to monitor and report suspicious activity should be designed to reasonably evaluate the client’s total activities.

Senior foreign public officials are often private banking clients. In January 2001, “Guidance on Enhanced Scrutiny for Transactions that May Involve the Proceeds of Foreign Official Corruption” was issued by the Department of Treasury, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Department of State. The guidance contains suggested procedures for account opening and monitoring for persons known to be senior foreign political figures, their immediate family members and their close associates. It also contains a list of questionable or suspicious activities that may warrant enhanced scrutiny of transactions involving such persons. In addition, the USA PATRIOT Act requires enhanced due diligence and scrutiny for private banking accounts requested or maintained by senior foreign political figures, their immediate family members, and their close associates. U.S. financial institutions should apply these principles and requirements to private banking activities and accounts.

Electronic Banking – Electronic banking is a broad term encompassing delivery of information, products, and services by electronic means (such as telephone lines, personal computers, automated teller machines, and automated clearing houses). This product offering continues to grow at a rapid pace. Although the extent of services varies, typical Internet bank services include credit cards, loans, deposits, wire transfers, and bill-paying services. Electronic banking is vulnerable to money laundering and terrorist financing because of its user anonymity, rapid transaction speed, and its wide geographic availability.

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