21st Annual ECI Conference

Report
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
• 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
Money Laundering and
Terrorist Financing Overview
Money Laundering Overview
What is Money Laundering?
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.
Placement
Layering
Integration
Money Laundering and
Terrorist Financing Overview
Three Money Laundering: Basic Terminology Stages of
Through these stages, funds appear to be proceeds from legal activities.
Three stages:
Placement
Layering
Integration
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.
Money Laundering and
Terrorist Financing Overview
Three
Stages of
Money
Laundering
Money
Laundering:
Basic
Terminology
(continued)
Through these stages, funds appear to be proceeds from legal activities.
Three stages:
Placement
Layering
Integration
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
Money Laundering and
Terrorist Financing Overview
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.
Placement
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.
Layering
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.
Integration
The university refund
checks were then comingled 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.
Money Laundering and
Terrorist Financing Overview
Case
Study:ofPlacement,
and Integration
Comparison
Organized Layering,
Crime to Terrorist
Financing
Organized Crime
Terrorist Groups
•
•
•
•
•
•
•
•
•
•
•
•
•
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
•
•
•
•
•
•
•
•
•
•
•
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
Money Laundering and
Terrorist Financing Overview
The BasicsTerrorist
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
Funding
Sources
Used
by
Terrorists
Examples of Unlawful
Funding Sources:
• Extortion
• Fraud
• Kidnapping
• Theft
• Smuggling
• Robbery
• ID Theft
• Narcotics Trafficking
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.
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.
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.
Smuggling
bulk currency
out of the U.S.
to evade
currency
reporting
requirements
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
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
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.
Examples of Potentially
Suspicious Activities
Examples of Potentially
Suspicious Transactions
• Activity inconsistent with
customer’s business
• Automated Clearing
House (“ACH”)
• Customer provides
insufficient or suspicious
information
• Excessive Cash
• Efforts to avoid reporting
or recordkeeping
requirements
• Irregular Lending activity
• Other suspicious activity
• Funds Transfers
• Shell Company
• Trade Finance
Red F
Suspicious Activity Reporting (SAR) Filing Triggers
lags 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).
Laws and Penalties
Red F
Money Laundering
AML
and
Regulations
Terrorist Financing Laws
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.
Bank
Secrecy
Act
USA
PATRIOT
ACT*
• 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.
• 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
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.
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:
• Balkans*
• Belarus*
• Burma
• Cote d’lvoire
(Ivory Coast*)
• Cuba
• Democratic
Republic of
the Congo*
• Iran
• Iraq*
• Liberia*
• North Korea
• Somalia
• Sudan
• Syria
• Zimbabwe*
*The sanction programs for these OFAC countries and territories target
specific named entities or persons on OFAC's Specially Designated
Nationals list.
Know Your Customer
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.
At a minimum,
the USA
PATRIOT Act
requires
financial
institutions to
implement
procedures for
the following:
Obtain
Customer identification information, such as name, physical
street address, date of birth, government –issued ID
number.
Verify
The identity of each customer to the extent reasonable and
practicable , and
Maintain records of the information used to verify the
customer’s identity.
Click here for additional
information.
Summary of BSA/AML Program Elements
•
•
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•
•
•
•
•
•
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
•
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)
•
A wire transfer from an account in the Middle Eastern Geographic area is
being sent from another bank to a customer.
21st Annual ECI Conference
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)
•
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
• 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

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