Transcript Slide 1

18-1
18-2
18
Organized Crime,
Counterterrorism, and Antimoney Laundering
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
18-3
Criminal and Terrorist
Organizations and Money
 This
chapter discusses criminal and terrorist organizations
and the one thing they have in common: money.
 Challenges to forensic accountants are in several areas:
 Working
with law enforcement in analyzing financial records
relating to criminal and terrorist organizations.
 Working with law enforcement in tracing financial transactions
through financial and banking systems.
 Working with law enforcement in developing and managing
data-mining systems designed to help identify criminal and
terrorist activities.
 Working with client compliance programs intended to help in
identifying and avoiding money-laundering problems.
18-4
International Crime-Fighting
Efforts
 United
Nations Convention against Transnational
Organized Crime and its Protocols (the Convention).
Signed by nearly 150 countries including the United States,
the Convention deals with the major issues relating to
organized crime such as money laundering, corruption, and
obstruction of justice.
 The European Law Enforcement Organization (Europol)
 The FBI’s organized crime section contains three units
 La
Cosa Nostra/Italian Organized Crime/Labor
Racketeering Unit
 Eurasian Organized Crime (EOC) Unit
 The Asian/African Criminal Enterprise Unit
18-5
The La Cosa Nostra (LCN)
 The
La Cosa Nostra (LCN)
 Originated
in Italy, in the U.S., it developed into 5 families run
by a series of bosses
 LCN
Activities
 Drug
trafficking, murder, assault, gambling, extortion, loansharking, labor racketeering, money laundering, arson,
gasoline bootlegging, infiltration of legitimate businesses,
stock market manipulation, and various other illegal frauds
and schemes.
18-6
Labor Racketeering
 The
FBI defines labor racketeering as the domination,
manipulation, and control of a labor movement that affects
related businesses and industries.
 The domination of labor unions has traditionally been one
of LCN’s fundamental sources of power and profit.
 A primary goal of labor racketeering has been to control
labor health, welfare, and pension funds.
 The FBI focuses its labor racketeering investigations in the
major industrialized U.S. cites that traditionally have had
strong union bases.
 The main legal tool used by the FBI has been the
Racketeer Influenced and Corrupt Organization (RICO)
statute.
18-7
Gambling
 Gambling
has always been a mainstay of LCN.
 One type of illegal gambling traditionally controlled by LCN
is the numbers game. Bets are placed with bookies.
 Loan-sharking is closely related to gambling because
compulsive gamblers frequently overextend themselves
and need to borrow money to cover their gabling debts.
 Mafia
loan-sharks lend money at sky-high rates of interest.
The “vig” is added to the loan every week at the rate of about
three to five points.
 Fast-money loans: borrow $500 on Monday and pay back
$900 on Friday.
18-8
Life in LCN and its
Organizational Structure
A
newcomer is introduced to others in the organization as
“a friend,”
 In time, the newcomer can become an associate member,
 Only a small percentage of associates ever become made
men.
 When an associate accepts an invitation to become a made
man, he enters the organization through a ritual ceremony
that includes taking the omerta.
 The newly made man is called a soldier. There are two
levels of soldiers, picciotto, and sgarrista.
18-9
Money Flows in the LCN
 The
sgarrista runs his own rackets but kicks up a high
percentage of his profits to his immediate boss, the capo.
 The capo takes whatever percentage he likes, but his cut is
generally in the 50 to 70 percent range.
 The money flows from the capo to the family boss, who
has absolute authority in the organization. The capo
normally gives the boss anywhere from 10 to 40 percent of
the money he receives from soldiers.
 LCN members frequently place all their legal assets (e.g.,
automobiles, houses, and bank accounts) in others’ names.
 All financial dealings are strictly in cash.
18-10
Legal Investigations and LCN
 The
FBI uses a wide array of legal statutes and
investigatory methods in combating organized crime. Title
18, United States Code, Section 1961 (Racketeer
Influenced Corrupt Organizations).
 A primary investigative tool that has met with great success
has included covert monitoring, including the use of wire
taps, bugs, and other listening devices.
18-11
Russian Organized Crime
(ROC)
 The
Eurasian Organized Crime (EOC) groups are
sometimes called the Russian mafia, the Red mafia, and
Russian organized crime (ROC).
 Most prevalent ROC crimes in the U.S.: health care fraud,
auto insurance fraud, securities and investment fraud,
money laundering, drug trafficking, extortion, auto theft, and
interstate transportation of stolen property.
 ROC activities in the area of computer crime have become
especially well known. Some examples follow:
 Grafix Softech F.A. raid
 Credit card thefts
 Denial of service attacks
18-12
Asian/African Organized Crime
 The
FBI participates in various working groups as part of its
effort to combat Asian organized crime (AOC).
 In
the U.S., the AOC concentrates on large cities.
 Some AOC enterprises are very sophisticated with multilingual
members and those with advanced skills in banking and
money laundering.
 Traditionally, few AOC groups have been hierarchically
organized.
 Crimes are local (loan-sharking, gambling, and prostitution)
and also international (alien smuggling, drug trafficking,
counterfeiting computer and clothing products, and
international money laundering).
18-13
Check Fraud and Asian
Organized Crime
 AOC
has been heavily involved in check fraud. The typical
scheme involves the following persons:
 Leader
Well educated, frequently with a college degree
 Procurer In charge of stealing legitimate checks
 Counterfeiter Expert in producing fake or duplicate payroll
checks, money orders, credit cards, bank checks, currency
and identification cards.
 The information broker Collects personal information on
possible targets of impersonation.
 Check passer This person specializes in negotiating stolen
or counterfeit checks. The groups often negotiate only a small
percentage of the checks they steal and sell the rest on the
black market.
18-14
Terrorism
 Islamic
 Much
Background and Influence
of today’s worldwide terrorism has its roots in a radical
interpretation the Islamic religion.
 The teaching that Islam is under attack is of great theological
significance.
 Because Islamic terrorists’ beliefs are deeply rooted in their
religion, there is no room for compromise. They will accept
nothing less than Islamic theocracy for the entire world.
 The rise of the radical jihad in recent decades traces back to
the Afghan War of the 1980s.
 In time, the Western European countries became a magnet
that drew Islamic radicals from a wide variety of countries.
18-15
The European Legal System
and Terrorists
 Some
of the legal hurdles that have hindered prosecuting
terrorism in Europe
 Evidence
Gathering Problems
 Terrorism not Clearly Defined
 Inability to Stop Plots in Progress
 Transnational Investigation Bureaucracy
 Inability to Deport Terrorists
18-16
The European Terrorist Profile:
Recruiting Process
 Muslims
A
Converted to Jihad
large number of European Muslims have not integrated into
society.
 Much of the recruiting takes place in prisons.
 Recruiting often takes place in mosques.
 The recruiting process usually begins in small groups and
progresses to one-on-one.
 After recruits are fully developed in jihadism, the recruiter may
assign them to a terrorist cell, or to training camps, or to one
of the foreign wars where Islamists are fighting secular states.
 Nonmuslim recruits are especially desirable.
 Lone wolves and families also exist.
18-17
Operation of Terrorist Cells
 Spiritual
leadership Most terrorist cells are guided by
spiritual leaders who sometimes issue fatwas (religious
pronouncements) giving the cell members the green light to
kill innocent Muslims and non-Muslims.
 Logistics support Includes making false documents,
providing transportation across borders, making contacts,
and identifying safe houses.
 Weapons experts Some cell members are sent to
specialized training camps where they acquire bombmaking and other military-type skills.
 Financial support Some cells, especially those with
dedicated terror missions, are financed by handlers who
receive money from a wide variety of sources.
18-18
Usama bin Laden and the
Globalization of Jihad
 Usama
bin Laden (UBL) built a substantial military
operation and related financial backing during the Soviet
occupation of Afghanistan.
 After the war, he continued to operate his international
training camps in support of jihad groups from various parts
of the world. In 1988, he helped create the al Qaeda
terrorist group, and soon thereafter became its undisputed
leader.
 In February 1998, he and five others, signed the world
Islamic Front statement, which included a call for Muslims
everywhere to kill Americans.
18-19
al Qaeda Funding
 UBL
financed the war against the Soviets in Afghanistan
through the golden chain.
 Money in the golden chain was funneled through a core
group of financial facilitators with good international
contacts, especially in Saudi Arabia.
 Some of the money raised by the financial facilitators was
diverted from donations collected in mosques and
elsewhere known as zakat.
 After 9/11, the United States and other countries placed
great pressure on al Qaeda financial networks by arresting
and capturing key financial facilitators, freezing funds, and
prosecuting members of some charitable organizations.
18-20
Money Laundering
 Money
laundering involves practices that hide the
connection between the sources of funds and their ultimate
use.
 Whereas the money-laundering process in organized crime
begins with dirty money and ends with clean money, the
reverse is often true with terrorism.
 Terrorist organizations are increasingly becoming criminal
syndicates that raise money through the broad spectrum of
illegal activities that include everything from petty street
crime to extortion, human smuggling, and drug trafficking.
These activities generate large amounts of money that
cannot simply be deposited into bank accounts without
drawing the attention of the authorities.
18-21
The Three-Step MoneyLaundering Process
 In
the placement phase, the money launderer introduces
illegally obtained profits into the financial system. The main
objective of this phase is to get the money into the financial
system in a way that cannot be traced to its illegal source.
 In the layering phase, the money launderer uses
complicated sets of transactions to move the money around
the financial system and further distance it from its original
illegal source. The main objective is to thoroughly destroy
any audit trail that could trace the money back to its original
placement in the financial system.
 In the integration phase, the launderer moves the money
a final time into accounts under his legal control to make it
appear to come from a legitimate source.
18-22
Placement Methods
 Smurfing
(the most common approach)
 Cash smuggling
 Negotiable instruments
 Cash exchange for negotiable goods
 ATM deposits
 Cash-value insurance policies
 Corporate bank accounts
 Buy a bank
 Buy a banker
18-23
Layering Methods
 Informal
Value Transfer System (IVTS)
 For
example, they are called the hawala in Afghanistan,
Pakistan, and the Middle East; the hundi in India; he fe ch’ien
in China; the phoe kuan in Thailand; and the black market
peso exchange in South America.
 Tax
Havens and Off-Shore Banks
 Bank Secrecy Laws
 Off-Shore Trusts
 Shell Corporations
 Walking Accounts
 Buy a Bank
 Financial Intermediaries
18-24
Integration Methods
 Off-Shore
Debit and Credit
 Off-Shore Consulting and Directors Fees
 Corporate Loans
 Gambling
 Real Estate Flips
 Under-the-Table Cash Deals
 Stock Purchases
 Legitimate Businesses
 Sham Import Transactions
18-25
Antimoney Laundering
Organizations and Laws: FATF
 The
Financial Action Task Force (FATF)
 Composed
of G8 countries
 Issued many recommendations for countries to follow
 FATF
Publications
 FATF
standards
 FATF reports on noncooperating countries and territories
 FATF money-laundering trends and techniques
18-26
Financial Crimes Enforcement
Network and the BSA
Financial Crimes Enforcement Network (FinCEN) is
organized under the U.S. Department of Treasury to oversee
and implement policies to prevent and detect money
laundering.
 FinCEN’s primary enforcement tool is its application of the
Bank Secrecy Act (BSA).
 The BSA requires recordkeeping and reporting by banks and
other financial institutions. FinCEN also provides intelligence
reports to law enforcement agencies.
 FinCEN requires banks and other financial institutions to file
currency transaction reports (CTRs) for cash transactions of
more than $10,000 and suspicious activity reports (SARs) for
transactions that could be related to money laundering.

18-27
BSA Direct
 CTR
and SAR reports, along with other data, are then
made available to authorized organizations through the
BSA Direct.
18-28
Money Laundering Laws and
Penalties
 BSA
is one of a group of U.S. antimoney-laundering acts.
 Money Laundering Penalties
 In
the United States, penalties for money laundering are
harsh. The statutes permit prison sentences of up to 20 years
per money-laundering transaction. Fines may be as large as
$500,000 per money-laundering transaction or twice the
amount of the transaction, and any funds linked to such
transactions may be subject of seizure and forfeiture.
18-29
BSA-Related Reporting
Requirements
 The
Code of Federal Regulations (CFR) requires 3 things
from financial institutions: internal compliance programs,
reporting, and recordkeeping.
 Reporting Requirements
 IRS
Form 4789, Currency Transaction Report (CTR)
 U.S. Customs Form 4790, Report of International
Transportation of Currency or Monetary Instruments (CMIR)
 Department of the Treasury Form 90-22.1, Report of Foreign
Bank and Financial Accounts (FBAR)
 Treasury Department Form 90-22.47 and OCC Form 8010-9,
8010-1, Suspicious Activity Report (SAR)
 “Designation of Exempt Person” Form TDF 90-22.53
18-30
BSA-Related Recordkeeping
Requirements
 Regulated
institutions are required to maintain a wide
variety of records relating to the sale of monetary
instruments (such as money orders, cashier’s checks, and
travel checks) whose amounts are in the aggregate
between $3,000 and $10,000. Detailed records of many
fund transfers that are $3,000 or more must also be kept.
18-31
Suspicious Activity Reporting
Requirements
 Suspicious
activity reports must be filed for the following:
 Insider
abuse involving any amount.
 Violations of federal law aggregating $5,000 or more when a
suspect can be identified.
 Violations of federal law 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.
 Any transaction that has no business or apparent lawful
purpose or is not the type of transaction in which the particular
customer would normally be expected to engage.
 Related
regulations require banks to know their customers
in order to be able to identify suspicious transactions.
18-32
Red Flags That Trigger SARs
 Activity
inconsistent with the customer’s business.
 Acts that appear oriented to avoid reporting or
recordkeeping requirements.
 Fund (wire) transfers without apparent good reasons.
 Insufficient or suspicious information provided by customer.
 Bank employee activities, such as lavish lifestyles.
 Unusual bank-to-bank transactions.
 Other suspicious customer activity such as depositing an
unusual number of large bills, deposits of musty or dirty
bills, deposits by couriers rather than in person, and so on.
 Certain types of customers and transactions in high-risk
areas should be given special scrutiny.