Money Laundering
If It Appears Too Good To be True…We Call This Money Laundering
Financial Services Professionals should be keenly aware of increase activity in money Laundering in these economic times. The U.S. economy has been in recession since December 2007, according to a new report from the National Bureau of Economic Research. “The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007,” The Wall Street Journal reports. “The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.”
As it become increasing difficult to acquire new clients and business slows…do not become complacent in your due diligence process when accepting funds and opening new accounts for clients and prospects. Beware of money laundering. Do not become an partner in crime unintentionally.
Stages of Money Laundering
Placement: This is where it begins folks! In this step, the launderer inserts the dirty money into a legitimate financial institution. This is often in the form of cash bank deposits. This is the riskiest stage of the laundering process because large amounts of cash are pretty conspicuous. By the way, banks are required to report high-value transactions.
Layering: The plot thickens…Layering involves sending the money through various financial transactions to change its form and make it difficult to follow. Layering may consist of several bank-to-bank transfers, wire transfers between different accounts in different names in different countries, making deposits and withdrawals to continually vary the amount of money in the accounts, changing the money's currency, and purchasing high-value items such as boats, houses and diamonds to change the form of the money. This step is mission critical and the most complex step in any laundering scheme. However without this step, we can’t make the original dirty money hard to trace.
Integration: At the integration stage, the money re-enters the mainstream economy in a legitimate looking form…as white as driven snow. It appears to come from an legal transaction. This may involve a final bank transfer into the account of a local business in which the launderer is “investing” in exchange for a cut of the profits, the sale of a yacht bought during the layering stage or the purchase of a $10 million screwdriver from a company owned by the launderer. At this point, the criminal can use the money without getting caught. Please note that it is very difficult to catch a money launderer during the integration stage if there is no documentation during the previous stages.
13 Red Flags
To be sure there are many red flags applicable across businesses and industry. Lets narrow our focus to the Financial Services Industry.
- Client or prospect reluctant to reveal information about business activities.
- Client or prospect having a difficult time describing their business activities or displaying poor business knowledge about their business industry.
- Client or prospect furnishing unusual or non-standard business documents.
- Client or prospect that wants to engage in transactions that lack business sense or apparent investment strategy.
- Client or prospect that wants to engage in transactions that are so inconsistent with their goals that you see red lights flashing all over the place.
- Client or prospect engaging in cash transactions structured to be under the $10,000 FinCEN reporting limit. Take a look at several FinCEN Case Examples
- Client or prospect that wants to or is currently engage in multiple transfer of funds/wire transfers to countries that are considered uncooperative by the Financial Action Task Force on Money Laundering - FATF and the Financial Crimes Enforcement Network - FinCEN
- Client or prospect has multiple accounts under a single name or multiple names. Within these accounts, the client/prospect executes a large number of inter-account or third party transfers.
- Client or prospect that exhibits a lack of concern regarding risks, amount of commissions you may earn and other transaction costs.
- Client or prospect that attempts to make large deposits frequently.
- Client or prospect insists on dealing in cash or cash equivalents.
- Client or prospect that has a large number of wire transfers to unrelated third parties inconsistent with the customers business.
- Client or prospect with an intense concern about your firm’s or company’s compliance procedure…particularly with government reporting.
Financiall Service Professionals should remain vigilant. Do not become complacent in your due diligence process when accepting funds and opening new accounts for clients and prospects. Beware of money laundering. Do not become an partner in crime unintentionally. Protect your practice. Protect the reputation and integrity of our profession.
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