money laundering basics and impact
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Money Laundering Basic Fundamentals /
How It Directly Impacts You
Presented by:
Paul Freeman, CPA, CAMS
About Mr Freeman• Financial Professional since 1980• Quickly entered the corporate world and was
running divisions before age 30• Spent 10+ yrs as Mgmt Consultant fixing
businesses throughout North America• 2005: Joined Key’s AML Dept• 2006: Became CAMS certified & began teaching
others• 2007: Joined ACAMS Education Task Force (still a
member); wrote for CAMS exam• 2009: Freelance AML Investigator & Educator
What is Money Laundering?
• Conversion or transfer of funds or property
• Conceal or disguise the true nature, location, disposition, movement or ownership
• Acquisition, possession or use of such property
• Knowing at receipt, it was illicit ***
“Willful Blindness”
• If a basic view of the facts / circumstances surrounding funds could lead you to believe they are illicit, then you KNEW they were illegal
• Enables LE to assert (& often prevail) that one had the equivalent of Knowledge
• Hogan’s Heroes - Sgt Schultz “I know nothing!”
3 Stages of Money Laundering
• Placement – Introduction of the ill-gotten gains to the financial system
• Layering – Moving around of the funds in order to disguise origin and ownership
• Integration – Ultimate end usage, now appearing to be “clean” funds
Structuring
• The act of breaking a deposit down into smaller ones, or otherwise altering it, to avoid currency reporting requirements.
• It is a crime in and of itself. No need for a predicate crime.
• Pulling cash back out of a deposit is a slam-dunk SAR.
• Sometimes smurfs are employed
Smurfing
• Using a series of usually unwitting accomplices to make smaller deposits into a number of accounts – each one staying under the reporting threshold.
• Name does come from the mindless little blue creatures from Saturday morning cartoons
Refining
• Exchanging smaller denomination bills into larger ones
• The $20 is the common denomination used on the street in drug dealing.
• Exchanging for $100s reduces volume by a factor of 5
How bad is the problem?
• 2007 photo showing $207 million seized in Mexico ($205.6 was in US currency)
Currency Transaction Reporting (CTR)
• Originated in 1970 with the Bank Secrecy Act
• All cash transactions, in or out, in excess of $10,000 requires a report to be filed with the government.
• This includes cash exchanges as well.
The CTR
• Name, address, identification, date and amount of transaction, accountholder and conductor (if different).
• In ’07, over 15,200,000 were filed (FIs)
• Generally, database mined only
The $10,000 Question
• By a show of hands, how many of you have, at one time or another, advised someone (client or not) to keep cash transactions under $10,000?
• Yes, my hand is up as well.• We have all then suggested someone
commit a crime.• WHY?
Suspicious Activity Report (SAR)
• Name, address, SSN, DOB, other ID (D/L, passport…), phone numbers, occupation, etc for each person, accounts and amounts involved.
• Plus a narrative. This explains entire relationship with the FI. May list ALL accounts, all other signers, when accts opened / closed.
Suspicious Activity Report (SAR)
• Explain when transaction(s) took place and why suspicious
• Does not have to PROVE anything. Only that a reasonable person would find the activity suspicious.
• In ’07, nearly 650,000 were filed (FIs)
• Virtually all of these are read
IRS Form 8300
• Filed by persons engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash (or equivalent) in one transaction or multiple related transactions within a twelve month period.
Equivalents
• Form 8300 is to include transactions involving cash equivalents, which encompasses:– Foreign Currency– Cashier’s Checks– Bank Drafts– Money Orders– Traveler’s Checks
Casinos & Gaming
• Buying large quantities of chips with cash, gambling very little, then requesting from the cashier a check, a wire, or the money being put on account
• Setting up private table poker games
• Sponsoring professional poker players
• Buying winning lottery tickets
Money Services Businesses
Primarily
• Check cashiers
• Sellers of Money Orders (*)
• Money exchangers
• Money remitters (*)
(*) normally have large agent networks
Trade Price Manipulation
• The most efficient and economical means to move money cross-border
• Only the import / export documentation that is filed with the government can expose the launderer to additional charges
• In normal business, pricing discrepancies need to be handled in the civil system
• As the parties on each end are complicit, there will be no civil action
Selling Something for Nothing
• US co. buys 200 Rolex watches @ $5000 ea– $1,000,000
• Sells watches to South American co. for $5 ea– $1,000
• SA co. sells watches locally for =$5000 ea
• Effectively the US co has sent $1 million to SA and the only cost to SA co is $1000 plus time and effort to sell watches
Selling Nothing for Something
• US co. buys 4000 gold pens @ $0.25 ea– $1,000
• Sells pens to South American co. for $250 ea– $1,000,000
• Who cares what the SA co. did with the pens?• Effectively the US co has received $1 million
from SA and the only cost was $1000• Again, both parties are complicit
Hawalas & Other IVTS
• Informal Value Transfer Systems• Pre-date banking by many centuries• Hawalas generally Middle Eastern / SW Asia• Other regions go by other names• Advantages over banks
– Quicker & less expensive
– No records
– Extend into regions banks are not found
Jewelry & Precious Metals
• Attractive for several reasons
• High value / little weight or size
• No ownership trail
• Can be used to facilitate cross border movement of funds
Art & Antiques
• Valuation is subjective
• Can employ like trade price manipulation– Can sell an original as a copy– Can sell garbage as high end art
• Loose ownership records
• Fairly easy cross-border tool
• With integration, hide value in plain sight
Other High End Goods
• Cars
• Boats
• Planes
• Often, the drug dealers will then use these in the transportation of drugs or cash
Down-Trade
• Drug dealer exchanges his high-end luxury car for:– Multiple low-end vehicles– Balance in a check from the dealer
• May even conspire with dealer and take balance in multiple checks (under $10k)
Black Market Peso Exchange
• Still a favorite of the cartels• Nearly impossible for financial institutions
to detect• Key: corrupt money dealer!• Unwitting accomplices include
– General Electric– Bell Helicopter– Phillip Morris
Cuckoo Smurfing
• Similar to the BMPE
• Corrupt middleman
• Recipients have no knowledge they received dirty money
Real Estate• Used in all three stages• Placement
– Purchase property for cash– All renovations paid in cash
• Layering – buying and selling in a controlled group to disguise ownership/ blur the trail
• Integration– Live in the house– Turn it into rental property– Sell it; get apparent clean funds
Insurance
• Primarily life insurance & annuities
• Up front, lump sum purchase
• Early redemption / cooling off period cancellation
Stocks & Securities• Normally only in layering & integration stages• Bearer shares – no ownership records• International nature – fast paced transactions• Competitive environment can lead to lax due
diligence• Common use of accounts in nominee form• Securities can be used in Pump-and-Dump
schemes
Money Mules• Currently one of the hottest fraud / laundering
schemes• Recruited using “work-at-home” ads or e-mails• Receive checks or deposits to own acct• Keep 10% commission – forward the balance
overseas using Western Union, Sigue, etc• Original funds often prove to be bad• Guess who is responsible for funds forwarded?• They face jail time for laundering – victim v
accomplice
Questions?
Thank you for your time.
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