Transcript Money Laundering

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Money laundering defined
Money laundering red flags
Anti Money Laundering legislation
Protecting your organization now & in the
future
Money laundering through history
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Money is “laundered” whenever ownership is
concealed. Funds appear to originate from
somewhere other than their true origins.
Money ‘cleaned’ or ‘laundered’ obscures the
original criminal or other funding source.
Used by criminal, terrorist & other
organizations to legitimize funds and/or
obscure origin.
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Is an integral part of organized crime
Can negatively impact economies:
◦ Increases in money laundering have been shown to
correlate with reductions in GDP
◦ Illicit activity impacts legitimate business and
economic growth
 legitimate business competing with “subsidized” crime
◦ Potential impacts to social, political and ethical
components of society, and ultimately democracy
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Placement – Deposit criminal proceeds into
legitimate organizations: e.g., bank account
Layering – Create complex layer of financial
transactions to obscure the audit trail
Integration – Proceeds legitimatized and
funds placed back into the legitimate
economy
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Proceeds converted through many small,
anonymous transactions/deposits, into bank
accounts or negotiable/redeemable/saleable
instruments
Bank account usually in corporate name
Corporation is a “front” as legitimate appearance
conceals the criminal activities that generate the
proceeds
Small cash deposits are repeatedly made into the
bank by a series of individuals
Amounts always below threshold reporting limits
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Proceeds are converted by purchasing
legitimate assets, like property
Assets are sold to a third party
May be sold and resold several times, to
obscure origins and appear more legitimate
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Laundered proceeds are injected into a
legitimate business that has high cash sales
(casinos, restaurants, etc.)
Proceeds are ultimately “cleaned” as they lose
their criminal origins
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Organized Crime
◦ Gangs circumvent rules by paying cash for leases
on luxury vehicles (UN, Red Scorpions etc)
 Deposits paid in cash
 Car leasing not covered/avoids civil forfeiture
◦ Somali pirates – ransom money received used to
buy real estate in big cities
 Property values doubled in Mombasa & Nairobi, Kenya
–location/stability (Kenya vs. Somalia), no money
laundering laws) terrorists safe haven
 Kidnappings proceeds est’d > $150 mn year,
surveillance inadequate for Indian Ocean/Gulf of Aden
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Mobile banking
◦ Popular in Kenya & other developing countries
where there is a lack of financial institutions and
heavy cell phone use. Mobile banking in Kenya not
covered by the Banking Act.
◦ Safaricom’s M-Pesa payment system allows
transfers of approx $500/transaction, $1K per day,
asks users to produce basic identification
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Conflict Diamonds
Omega Diamond Company
◦ On trial in Belgium for $2-3 B tax fraud and
diamond laundering
◦ 2nd largest diamond company in Antwerp market
◦ Diamond origins concealed - whistleblower
◦ Angolan diamonds laundered through Dubai
◦ Brokered by daughter of Angola’s president
◦ Transfer pricing in tax free zone
◦ Dubai new diamond centre
◦ Global Witness – Kimberly Accord
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Argentina – President Cristina Fernandez
financial crisis – allowing “repatriation” of
funds back into Argentina “no questions
asked”. 140 bn. May attract Mexican drug
cartels, who have expanded into S America
Guinea – up & coming laundering centre
luxury resort developments funded w/drug
money
No financial intelligence agency, Customs
corruption
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Drug traffickers, smugglers, illegal arms
dealers, human trafficking, corruption
Canada:
◦ Most common source: drug trafficking
◦ laundered money destinations: real estate and
banks
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Address
◦ Doesn’t want correspondence to home address
◦ Same address but changing/multiple client names
◦ Phone is disconnected/doesn’t exist
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Person
◦ Accompanied by someone else
◦ Has little/no knowledge of own accounts or
transaction
◦ Appears to be acting on behalf of another
◦ Nervous and/or in a hurry
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Knowledge of Reporting
◦ Conversant in AML and law, more than regular
client
◦ Quick to volunteer that funds are “clean” or not
being laundered
◦ Client appears to be structuring transactions to
avoid thresholds or client identification
◦ Client appears to be collaborating with others
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Identity documents
◦ Client gives vague or doubtful information
◦ Identification looks counterfeit, forged or altered
◦ Client refuses to provide identification, or provides
only copies
◦ Client wants to establish identity using something
other than own identification documents
◦ Supporting documentation lacks details such as a
phone number
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Identity documents
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Documents appear new/have recent issue dates
Identification is foreign and/or cannot be verified
Client provides documents at different times
Client alters transaction after being asked for
identity documents
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Other
◦ Has accounts with several financial institutions for
no apparent reason
◦ Conducts transactions at different physical
locations to avoid detection
◦ Appears to informally record transactions, uses
unconventional bookkeeping methods, or keeps
things “off the books”
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Account Transactions
Activity (inactive account suddenly active)
Unrelated clients direct funds to same account
Cash transactions
Purchases with money orders, travellers’ cheques,
3rd party cheques, bank drafts or other bank
instruments
◦ Transactions just under $10K reporting threshold
◦ Transfers to seemingly unrelated accounts
◦ Large dollar transactions
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Applies to banks, credit union, trust and loan
company, securities dealers, casinos, dealers
in precious metals and stones, life insurance
companies, brokers, agents, money services
businesses, foreign exchange dealers, real
estate dealers/developers, accountants and
accounting firm.
Aka “Reporting Entities.”
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AML Training in Canada
The Proceeds of Crime (Money Laundering) and
Terrorist Financing Act (PCMLTFA) requires that
all Canadian financial institutions implement
training programs to combat illicit financial
activity within the country.
The Office of the Superintendent of Financial
Institutions (OSFI) is an independent agency of
the Government of Canada reporting to the
Minister of Finance. It is the primary regulator of
federally-regulated banks, insurance companies,
and pension plans in Canada.
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Proceeds of Crime (Money Laundering) and
Terrorist Financing Act
◦ Obligation to report suspicious transactions to
FINTRAC
 Penalties $2M and/or 5 years imprisonment for failure
to report
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Report suspicious transactions to FINTRAC
within 30 days – www.fintrac-canafe.gc.ca
◦ Take reasonable steps to ID individual, unless this
would tip off individual
◦ Keep records
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Report directly to law enforcement
Money services businesses required to be
registered with FINTRAC
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Don’t accept cash
Develop a risk matrix specific to your
business – probability and magnitude
Adopt best practises of businesses similar to
yours
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Framework required under AML legislation
Appoint Chief Anti-Money Laundering Officer
Assess & document money laundering & terrorist
financing risk facing your business, and
measures to mitigate that risk
Develop & implement written compliance policies
and procedures, approved by a senior officer
Develop & maintain training for staff and agents
Institute independent effectiveness review at
least every two years
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Collect/verify information about their identity.
Gain a more complete understanding of your client and their
activities by conducting in-depth analysis (enhanced due
diligence).
Take reasonable measures to determine if your client is a
politically exposed foreign person (PEFP) or dealing on behalf of
a third party.
Keep client records for the prescribed period, in a way that can
be quickly accessed to demonstrate compliance, or to assist law
enforcement.
Report transactions/information to FINTRAC within legislated
timeframes including:
Suspicious transactions
Terrorist property
Prescribed financial transactions
i.
Large cash transactions
ii.
Incoming and outgoing electronic funds transfers (EFT)
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Advancements in communications and
transportation make money transfers/wires
instantaneous
Multiple jurisdictions – some with bank
secrecy laws: Lebanon etc.
Interconnected world trade creates
complexity and the ability to conceal
transactions
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As long as taxation and tithing has existed,
so has underground income & tax evasion.
Money Laundering is an outcome of this
In existence under various names since
ancient times.
China 2000 BCE – merchant taxation by rulers
drove them underground
13th century – Pirates plundering international
trade routes needed a way to legitimize their
money without attracting suspiscion
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…or gold, or diamonds
AML laws made other methods more popular
Cash or near-cash
Currency
Gold
Diamonds
High value, concealable & highly liquid items
Negotiable instruments
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Meyer Lansky, “the Mob’s accountant”,
◦ pioneer of modern money laundering using shell
and holding companies
◦ Swiss numbered account after Capone’s tax evasion
conviction
◦ Bought his own Swiss offshore bank
◦ Died in 1983, estate of $37K, but FBI suspects
>$300M in hidden bank accounts
◦ “Didn’t own money – owned people”
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Diamonds financed terrorist/rebel activities in
Africa
Diamonds used to circumvent AML monetary
reporting
Global Witness implemented Kimberly Accord,
recently withdrew citing lack of rigor,
transparency
Kimberly Accord essentially a certification
document that can be easily faked
Lack of follow-up, enforcement & funding
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Diamonds thought to be untraceable to origin
Fingerprinting now possible to determine
source (host) rock, but time-consuming and
inconvenient
Difficult to prove if no inventory or record to
match suspect diamonds to
Diamonds are high-value, liquid and easy to
conceal – likelihood of detection low
Al Qaeda favours diamonds after increased
scrutiny after 9/11
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Originated in India, used in South Asia
Is a legitimate means of money movement,
also favoured by criminals
Hawalador is the “broker” or operator
Outside of normal banking system
White Hawala: Shadow banking used by
immigrants to remit funds, businesses to
avoid fees, circumvent currency controls
Black Hawala: used by criminals & terrorists
to hide/launder funds
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Payment
Instructions
Code
Hawalador A
Sender
Hawalador B
Payment Confirmed
Recipient
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One Way Stream:
 Sender provides money in cash
 Hawalador in country A remits to Hawalador
in country B via bank accounts
 Hawalador B collects and remits funds to
Beneficiary
 Hawalador family or other trusted network
 Success of business depends on ongoing
trust
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Two Way Stream:
 Sender provides money in cash
 Hawalador in country A contacts his
counterpart in country B, instructs him to give
money to the beneficiary
 Hawaladors periodically net accounts
 Netting may include overstated invoices,
loans or physical movement of money
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Used in Middle East & India for centuries
Ancient and efficient method of
exchange/settlement
Considered by users to be trustworthy, paperless
and lucrative method to move money
Hawalador’s success depends on trust
No paper trail, accounts kept in code =
untraceable
Used for legal and illegal means; especially
popular in black market
Used by Al Qaeda, Hezbollah
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Al Qaeda – prior to 9/11 but mostly to
facilitate operations on the ground
Tamil Tigers, Sri Lanka
Hamas
Hezbollah
Bin Laden’s wealth converted into diamonds and to a
lesser extent, gold
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Popular today because
Still cultural resistance or barriers to banks,
esp. among poor, illiterate, semi-literate
Circumvent currency controls or expensive fx
conversion
Repatriation of immigrant income
Anonymous
Quick and easy & cheaper transaction costs
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No audit or paper trail
Not subject to regulatory reporting
Very difficult to detect
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AML Compliance Government Links
◦ Stats Canada Juristat Bulletin on Money Laundering
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AML Compliance
CSIS- Canadian Security Intelligence Service
DFAIT – Foreign Affairs and International Trade Canada
FATF – Financial Action Task Force
FINTRAC – Financial Transactions & Reports Analysis
Centre of Canada
◦ OSFI – Office of the Superintendent of Financial
Institutions
◦ RCMP – Royal Canadian Mounted Police
◦ SPMD – Seized Property Management Directorate (re
Proceeds of Crime legislation)
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Colleen Cross is the author of
Exit Strategy – Book #1 in the
Katerina Carter Fraud Thriller
Series
Blood diamond laundering
Financial statement fraud
Embezzlement
Available at Amazon, Kobo and
all other book retailers
Find out more at
www.ColleenCross.com
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