Money Laundering PDF

MONEY LAUNDERING OVERVIEW are derived, moved or utilized, will unravel their scheme and usually lead to legal consequences For financial criminals, money laundering is...

MONEY LAUNDERING OVERVIEW are derived, moved or utilized, will unravel their scheme and usually lead to legal consequences For financial criminals, money laundering is in most countries. an indispensable, ever-present element of all financial crimes. It can occur at the beginning, In effect, the detection of the movement of middle or end of a crime, but it always happens. money from the pockets of victims into the No financial crime, such as fraud, corruption, tax pockets of the financial criminal is the most evasion, violations of sanctions laws or others, certain way to prove the method and actors may be committed without acts of money behind most financial crimes. laundering at some stage in the offense. Money laundering, broadly defined, is the Money laundering is a crime that has existed process of concealing the existence, source or since the first time a person improperly or application of income, or the disguising of its unlawfully took something of value from source to give it the appearance of legitimacy. someone else. Financial criminals know that Efforts to detect and prevent money launder- the detection of their illicit activity, or the ing typically revolve around understanding the manner by which the proceeds of the activity source and origins of funds. © 2024 Association of Certified Financial Crime Specialists 15 CHAPTER 3: Money Laundering In other words, money laundering is the act In 1986, the United States was the first nation to of deception in the control, management or enact a law that classified money laundering, movement of money or other assets that have or the “laundering of monetary instruments,” as been derived by illegal means, or that came a crime. It was prompted to act, largely, by the from legitimate sources but are being moved realization that international drug trafficking to another location to finance or perpetrate an organizations were earning billions of dollars illegal act. and using financial institutions and other legit- imate businesses to hide, move and disguise Although it has been practiced for millennia, their massive wealth. At the same time, it recog- money laundering took a long time to obtain nized the negative effects of the involvement of formal designation as a crime, and even longer criminal organizations in financial institutions for money laundering laws to evolve into potent and other legitimate businesses as customers weapons against financial and other profit-mo- and owners, together with their corrupting tivated crime. influence in government operations. THE FINANCIAL ACTION TASK FORCE The Financial Action Task Force, or FATF, was formed in 1989 by the world’s largest and most economically powerful nations, the G-7 group of countries, which at the time were Canada, France, Germany, Italy, Japan, United Kingdom and United States. Since its inception, the Financial Action Task Force has evolved into the principal standard-setter of global anti-money laundering norms and policies adopted by nations, financial institutions and other organizations. FATF was assigned to examine money laundering techniques and trends, assess the policy and enforcement action already undertaken at a national or international level, and set out measures still needed to combat money laundering. The first formal action of the FATF in early 1990 was to promulgate the “40 Recommendations,” a set of recommended conduct for government agencies, financial institutions and other organizations in combating money laundering around the world. In 2001, the development of standards in the fight against terrorism financing was added to the mission of the FATF. In October 2001, the FATF issued the Eight Special Recommen- dations to deal with the issue of terrorism financing. The continued evolution of money laundering techniques led the FATF to revise the FATF standards comprehensively in June 2003. In February 2012, the Recommendations underwent their most significant revamping in almost a decade, with the release of the revised 40 Recommendations that merged the Special Recommendations back into the other standards. Since then, FATF has published regular updates to the recommendations, refining them and keeping pace with changes in the international landscape. © 2024 Association of Certified Financial Crime Specialists 16 CHAPTER 3: Money Laundering Today, nearly every country has enacted money In a sanctions violation, a corporation that wants to laundering laws with widely varying characteristics. continue doing business with a sanctioned country However, in general, they are all designed to serve routes the money involved in a prohibited transac- as a deterrent to financial and other criminals tion through a third party that does not reside in, by criminalizing their relationships with financial or have direct relationships with, the sanctioned institutions and other legitimate businesses, country. That is money laundering as well. reducing their wealth and increasing the risk for financial institutions and other businesses that In fact, any attempt or conduct designed to knowingly do business with them. hide and conceal the source, movement, control or ownership of money illegally derived is an act of money laundering. Similarly, a process MONEY LAUNDERING METHODS that involves the movement of money derived through legitimate means, but which is intended In one simple example, to carry out a Ponzi or destined to be used to commit a crime, such scheme, the promoter must disguise the funds as in the above example of the corrupt foreign he is paying to the initial victims of the scheme official, is also money laundering under the laws as their “investment earnings” when they truly of many nations, including the United States. represent funds received from later victims. That is money laundering. The Financial Action Task Force (FATF) is an intergovernmental organization formed in Another example is a scheme in which a 1989 designed to establish global standards company draws funds from its account in its on money laundering controls. It is based in home country and transports the funds across Paris. Long ago, the FATF developed a working national borders so that they may be given, definition of money laundering involving funds through an intermediary or “bagman,” to a that originated in illegal activity: public official in another country. The purpose of the illegal payment is to influence the official 1. The conversion or transfer of property, acts of the public official. The movement of knowing that such property is derived those funds is money laundering. from a criminal offense, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offense or offenses to evade the legal consequences of his actions; 2. The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership or property, knowing that such property is derived from a criminal offense; 3. The acquisition, possession or use of property knowing at the time of receipt that such An image of Charles Ponzi taken in August 1920. That property was derived from a criminal offense year, Ponzi launched the investment fraud scheme that would later come to bear his name. or from an act of participation in such offense. © 2024 Association of Certified Financial Crime Specialists 17 CHAPTER 3: Money Laundering Placement Structured deposits, or deposits of cash in Funds Enter Financial financial institutions in amounts below a System Often Cash jurisdiction’s currency reporting threshold Evade Reporting Smurfing, or using cash couriers to make many (usually small) cash deposits in various financial accounts Utilizing front companies, especially Integration Solidify Appearance Layering cash-intensive businesses like bars and Obscure the Source of of Legitimacy Funds certain retail stores Large Purchases or Complex Transactions Investments Reinvest in Business Often Cross-border Exchanging cash for commodities and assets such as precious metals, precious stones, or high-value luxury goods Changing currency into other financial THE THREE STAGES OF instruments like cashier’s or traveler’s checks MONEY LAUNDERING Utilizing “gatekeepers,” either complicit or unwitting, like attorneys or wealth One of the widely accepted precepts of money managers to accept cash or move funds laundering is that it is a process with three through their accounts major stages. While not every act of money laundering necessarily executes each of these Using complicit or corrupted financial three steps, it is still a viable investigation institutions such as banks, broker-dealers methodology. or MSBs that knowingly participate in a criminal scheme 1. PLACEMENT Purchasing digital currencies in cash via direct contact with the sellers or online Broadly, placement represents the initial entry sites that facilitate such transactions of funds into the financial system. In many scenarios this is the physical movement of the In instances where criminals are dealing in cash proceeds of a financial or other crime into large quantities of cash, such as narcotics a financial institution, such as a bank, money trafficking, placement can reduce the risks services business or securities broker-dealer. and logistical difficulties of storing and moving The primary goal of placement is to gain access large volumes of currency. to the financial system, while distancing funds or assets from their illicit source and origin. Placement is typically viewed as the stage in which launderers are most vulnerable to detec- As the first step in the money laundering process, tion. Injecting large amounts of funds into the placement is often conducted in cash, but does financial system can lead to scrutiny from finan- not need to be. It can take advantage of tradi- cial institutions and initiate reporting to law tional or non-traditional financial institutions, as enforcement or regulatory agencies. Several well as a wide range of non-financial entities. examples of placement, such as structuring and bulk cash smuggling, will be discussed in Some common placement methods include: more detail later in the chapter. © 2024 Association of Certified Financial Crime Specialists 18 CHAPTER 3: Money Laundering With the rise of peer-to-peer transaction capabil- 2. LAYERING ities, as well as cryptocurrency, some criminal funds may find their way into the financial system Layering, the second stage, separates criminal without a cash placement phase. In such cases, proceeds from their source and origin through legitimately earned income may be directly used layers of transactions. This means separating to pay for illicit goods and services. Traditional the criminal proceeds and their source by the detection efforts focused on cash placement will creation of layers of financial transactions that need to be supplemented with new methods. disguise their flow and reduce their ability to be THE RUSSIAN LAUNDROMAT First revealed by journalists with the Organized Crime and Corruption Reporting Project (OCCRP), the “Russian Laundromat” was a name given to a complex money laundering scheme that moved an estimated $20.8 billion in suspicious funds from Russia through banks in Moldova and Latvia, and from there to financial institutions and businesses around the world. The scheme was reportedly orchestrated by a group of Russian businessmen, some with criminal pasts and most with ties to the Russian government. The arrangement had all the hallmarks of a complex money laundering scheme, utilizing weak points in the company formation processes, legal system and financial systems around the globe. It illustrates the ingenuity of sophisticated financial criminals. In simplified terms, the Laundromat functioned like this: The perpetrators behind the Laundromat formed a web of shell companies in Russia and transferred funds to accounts at Russian banks held in the names of these companies. The scheme’s organizers also created a group of 21 shell companies in the UK, Cyprus and New Zealand, under the names of fake directors and shareholders The next steps relied on exploiting the legal system in Moldova. Organizers would create a fake “promissory note,” or document indicating that one of the Russian shell companies owed money to one of the shells in the UK, New Zealand or Cyprus. Judges in Moldova would issue an order requiring the Russian company to pay the debt. This created a seemingly legitimate business rationale to move the funds from Russian banks. About $8 billion was transferred to Moldindconbank in Moldova, to an account supposedly controlled by the court, and another roughly $13 billion to Trasta Komercbanka in Latvia. As Latvia is a part of the European Union, the funds now appeared less risky and likely to questioned by other financial institutions. The money was transferred from these banks to accounts held at institutions all over the world. The Russian Laundromat was unveiled in 2016 and has prompted investigations in several countries, including the UK, Moldova and Russia. Three officials of Moldova’s central bank, along with 15 judges, have been arrested in the case. © 2024 Association of Certified Financial Crime Specialists 19 CHAPTER 3: Money Laundering traced. It often involves multiple participants and entities, like shell corporations and cross- border transactions. The more complex and numerous the layers constructed by the financial or other criminal, the more difficult it is to uncover the location of the funds, establish their susceptibility to recovery, and pin the crime on the perpetrator. Electronic fund transfers are probably the most important layering method that money launder- ers use. Millions of transfers are sent annually worldwide because they provide the advantag- commodities, to conceal the source of funds, or es of speed, distance and increased anonymity. purchase securities and transfer them between entities the launderer controls. A good understanding of the layering process helps collect evidence that can be used to Other layering techniques can include: prove the concealment and knowledge of the perpetrator. Converting deposited funds into multiple different financial instruments or Financial criminals also utilize complex asset commodities, such as precious metals or movement among entities a launderer controls. stones Perpetrators of a laundering scheme can create Transferring ownership of accounts, assets multiple shell corporations, trusts, offshore or properties between entities or persons accounts or even legitimate businesses, and controlled by the criminal shift assets between them. These layering techniques typically rely on corporate struc- Blending illicit proceeds into accounts with tures and vehicles set up to disguise a money the legitimate proceeds of a business launderer’s ownership of multiple accounts and entities. These include shell corporations, From the perspective of the money launderer, the trusts and offshore accounts. more layers involved and the greater the complex- ity, the better. Adding layers makes it increasingly A good understanding of the layering process difficult to trace funds to perpetrator. helps collect evidence that can be used to prove the concealment and knowledge of the perpe- 3. INTEGRATION trator. Clearly, as in the case described above, a Integration puts laundered proceeds into the savvy financial criminal will not make an inves- legitimate economy to appear legitimately tigator’s life easy. derived. This is the final stage in the money laundering process. Once the layering process Another viable method of layering leverages is complete, the criminal who is laundering the securities and financial instruments. A money illicit proceeds must make them look legitimate. launderer might make multiple trades in Detecting integration can require complex and securities, such as stocks, bonds, options and resource-intensive investigative techniques, © 2024 Association of Certified Financial Crime Specialists 20 CHAPTER 3: Money Laundering such as forensic accounting, informants and role in integration, with or without their knowl- undercover operations. edge. Launderers can use consultants and other third parties to make financial transac- Competently done, integration makes it very tions on their behalf, such as purchasing assets difficult to distinguish between legitimate and or making investments. They can also set up illegitimate funds. Front or shell companies, real fictitious consultancies to funnel money back estate transactions, bearer shares, trusts, limited to themselves or their associates. liability companies, international business companies, nominee ownership, corrupt bank In general, the use of secrecy havens, coupled employees or collaborative international trade with one or more of these tactics, allows the partners are popular methods of integration financial criminal and money launderer to used by shrewd money launderers. conceal beneficial ownership from corporate records, utilize nominee officers, managers and There are many methods of integration, but they corporate directors as fronts, and distort the commonly revolve around real estate and asset business lifespan of the offshore entities that investments. The purchase of, or investment in, were purchased or established for use in the actual or fictitious assets is one avenue to integrate money laundering activities. More on secrecy funds. As an example, a launderer could arrange to havens will be discussed in later chapters. buy a property from an associate for an inflated price. Laundered funds thus enter into the financial Regardless of the stage or technique used, system as legitimate profit from a property sale. money laundering has serious economic and social effects on society. Among them Trade-based money laundering is a popular are the fostering of public corruption, unfair integration method to launder funds across competition with legitimate businesses, and a borders. This involves using false or over-in- weakening of financial institutions. voiced import/export transactions. Trade-based laundering will be covered in more detail later in this chapter. MONEY LAUNDERING INDICATORS Other integration techniques can include: It is always advisable to visit the websites of appropriate government agencies in one’s Purchasing or investing in legitimate country to view the indicators, recommended businesses using laundered proceeds. training topics, suggested best practices and Making investments in securities with other vital information that can serve financial laundered funds. crime officers, including AML specialists. The websites of many of these agencies and the Business arrangements between entities umbrella organizations under which they have controlled by financial criminals, such as banded together, such as the FATF and the zero-interest loans made between shell Egmont Group, are contained in the Referenc- companies, purported repayment of es section of this Manual. debts between companies, false invoicing schemes and more. Searching open-source information is a vital element of financial crime due diligence, inves- Lawyers, accountants and intermediaries, such tigations, historical reviews and analyses in all as company formation agents, can also play a © 2024 Association of Certified Financial Crime Specialists 21 CHAPTER 3: Money Laundering situations, especially where terrorist financing or money laundering may be in play. One of the pioneers in building public and private sector defenses against money laundering was Australia. It was one of the earliest countries to establish a Financial Intelligence Unit (FIU), which is called Austrac. This respected agency, which has been in the forefront of the world Australian Transaction Reports and effort against financial crime and its component, Analysis Centre (AUSTRAC) money laundering, since 1990, published what it called the following “non-exhaustive” listing of AUSTRAC oversees the compliance of money laundering indicators in 2009. Australian businesses, defined as ‘report- ing entities,’ with their requirements Austrac recommended that financial institu- under the Anti-Money Laundering and tions and other business organizations should Counter-Terrorism Financing Act 2006 include these indicators in their training and the Financial Transaction Reports programs, but warned that: “Money launderers Act 1988. and terrorism financiers will continuously look for new techniques to obscure the origins of These requirements include imple- illicit funds to give the appearance of legitima- menting programs for identifying cy to their activities. (Anti-Money Laundering and monitoring customers and for and Counter Terrorist Financing) officers should managing the risks of money launder- continually review their products, services and ing and terrorism financing; reporting individual customers to ensure their internal suspicious matters, threshold transac- AML/CTF systems and training remain effective.” tions and international funds transfer instructions; and submitting an annual There are more than 70 indicators of potential compliance report. money laundering that have been identified by Austrac. We have grouped them below for clarity: In its intelligence role, AUSTRAC provides financial information to state, territory ACCOUNT PROFILE INDICATORS and Australian law enforcement, security, social justice and revenue agencies, and Same home address provided for funds certain international counterparts. transfers by different people Income inconsistent with customer profile The intelligence provided has been analyzed by highly qualified AUSTRAC Use of false identification documentation personnel who use sophisticated tools (to conduct transactions, etc.) to identify information that can assist Use of variations when spelling names/ AUSTRAC’s partner agencies to investi- addresses gate and prosecute criminal and terrorist Value of funds transfers inconsistent with enterprises in Australia and overseas. customer profile © 2024 Association of Certified Financial Crime Specialists 22 CHAPTER 3: Money Laundering Unusual customer behavior Structuring of gambling purchases, Use of multiple accounts for deposits payouts and withdrawals Unusual pattern of phone betting transactions ACCOUNT ACTIVITY INDICATORS BUSINESS ACCOUNT INDICATORS Account activity inconsistent with customer profile Company account used for personal use Account operated by someone other than Business activity inconsistent with business the owner profile Common bank accounts identify and link Use of false company “superannuates,” facilitators and organizers Use of false invoices Large number of accounts held by customer with the same institution TRANSFER, DEPOSIT AND Numerous large deposits via ATMs WITHDRAWAL PATTERN INDICATORS Purchase of bank checks Frequent cash deposits made over a short Purchase of bank drafts by third parties period of time Numerous loan applications for less than (a Frequent check deposits specific dollar figure) Large cash deposits Same or similar methods used to acquire Large cash transactions conducted over a more than one bank loan short period of time Transactions inconsistent with customer Large cash withdrawals with a bank check profile Multiple funds transfers below a specific Use of student accounts after their dollar figure departure from the country Outgoing transfer with corresponding Significant cash withdrawals from incoming funds transfer — appears to be a superannuation accounts ‘u-turn’ transaction or ‘round tripping’ Unusual bank account activity into and out Purchase of travelers checks with cash of superannuation account(s) Withdrawing all, or nearly all, funds from an Use of inactive account account within a short period of time Structuring of funds transfers or transactions GAMBLING INDICATORS Similar transactions conducted over a short Betting accounts with large deposits but period of time with minimal betting activity Use of stored value cards Cash withdrawals from betting accounts in checks and vouchers INTERNATIONAL ACTIVITY INDICATORS Client is a known frequent gambler and/or Funds transferred to overseas account but high roller at a casino then withdrawn in (the country) Large funds transfers after gambling activity © 2024 Association of Certified Financial Crime Specialists 23 CHAPTER 3: Money Laundering Funds transfers to numerous offshore MULTIPLE TRANSACTION RED FLAGS jurisdictions with no business rationale Multiple funds transfers conducted from Departure from (the country) shortly after the same location making funds transfers Multiple funds transfers involving a Funds transfers involving a tax haven high-risk drug country Multiple deposits made to same overseas Multiple funds transfers to common account by different people beneficiaries Large international funds transfers Multiple geographical locations used to Use of multiple remittance service conduct transfers providers to transfer funds to common Multiple low-value funds transfers overseas beneficiaries Multiple transactions occurring on the same Use of multiple remitters in the same day from different geographical locations geographical location Multiple transactions occurring on the Use of international credit card same day to the same beneficiary INDICATORS INVOLVING Multiple transactions on the same day REAL PROPERTY INDICATORS LINKED TO Client purchases or sells real estate above FINANCIAL TRANSACTIONS or below the market value while apparently unconcerned about the economic The use of funds by the non-profit disadvantages of the transaction organization is not consistent with the purpose for which it was established Low-value property purchased with improvements paid for in cash before The transaction is not economically re-selling justified considering the account holder’s business or profession Purchase of high-value assets (e.g., real estate, luxury vehicles) A series of complicated transfers of funds from one person to another as a means to THIRD PARTY ACTIVITY INDICATORS hide the source and intended use of the funds Transactions which are inconsistent with Use of third parties to conduct international the account’s normal activity funds transfers Deposits were structured below the Use of third parties to conduct transactions reporting requirements to avoid detection Use of third party accounts Multiple cash deposits and withdrawals Use of family member accounts with suspicious references Use of gatekeepers (e.g., accountant) Frequent domestic and international ATM Third parties used to open bank accounts activity No business rationale or economic justification for the transaction © 2024 Association of Certified Financial Crime Specialists 24 CHAPTER 3: Money Laundering Unusual cash activity in foreign bank accounts Multiple cash deposits in small amounts in an account followed by a large wire transfer to another country Use of multiple foreign bank accounts PEER-TO-PEER TRANSACTION INDICATORS Red flag patterns similar to unusual cash transactions Multiple senders to one customer 1:1 in-out ratio of funds transfers multiple correspondent accounts around the One customer sends to many recipients world, which allows them to conduct internation- al financial transactions for themselves and their customers where they have no physical presence. FINANCIAL INSTITUTION MONEY Large global banks often act as correspondents LAUNDERING METHODS AND for many other banks worldwide. These so-called respondent banks receive various services VEHICLES through their correspondent accounts, including wire transfers, foreign exchange services, cash Money laundering may be conducted through management, check clearing and other services. virtually every type of entity, vehicle or institution, including offshore entities, wire transfers, trusts, Correspondent banking relationships often force Hawala, securities dealers, car dealers, corre- a financial institution to execute the transactions spondent accounts, or wherever the criminal for customers of another bank. Thus, the corre- proceeds find the point of least resistance. spondent bank provides services for customers However, financial institutions are a particularly which it has not fully identified or about whom it important vehicle to criminals for the disposal has no adequate knowledge of. Correspondent and movement of criminal proceeds. They have accounts are also known for the large sums that vulnerable operations, customers and relations are involved in the transactions, thus raising the that can serve money launderers well. stakes of the host correspondent bank. Following is a partial listing of some of the It is a best practice for a financial institution to vulnerabilities: identify the true owners of a foreign bank that seeks to establish a correspondent account and CORRESPONDENT to examine deeply the account activity that is BANKING ACCOUNTS contemplated for the account to protect against money laundering. A correspondent account This is a bank service by which a bank in other must also guard against the possibility that a geographic locations, often called the ‘respon- third bank may be “nested” in the correspon- dent bank,’ is allowed to establish an account at dent account, conducting improper or illegal the correspondent bank through which it may transactions with that access. conduct specific transactions. Many banks have © 2024 Association of Certified Financial Crime Specialists 25 CHAPTER 3: Money Laundering It is also a best practice to prohibit the PAYABLE-THROUGH ACCOUNTS establishment of correspondent accounts for foreign shell banks that have no physical Sometimes, a correspondent bank allows the presence and are virtual shams that exist only customers of a foreign bank to conduct trans- for the convenience of money launderers and actions for themselves through accounts called other criminal interests. payable-through accounts. These types of relationships are fraught with dangers for the THE EGMONT GROUP OF FINANCIAL INTELLIGENCE UNITS The Egmont Group of Financial Intelligence Units is an informal international gathering of financial intelligence units (FIUs). The Group, formed in 1995, took its name from the palace in Brussels where the meeting took place. The Egmont Group defined an FIU as a central, national agency responsible for receiving (and, as permitted, requesting), analyzing and disseminating to the competent authorities’ disclosures of financial information: (i) concerning suspected proceeds of crime and poten- tial financing of terrorism, or (ii) required by national legislation or regulation, in order to counter money laundering and terrorism financing. The goal of the Egmont Group is to provide a forum for FIUs around the world to improve cooperation in the fight against money laundering and financing of terrorism and to foster the implementation of domestic programs in this field. The Egmont Group provides support to member FIUs in the following ways: Expanding and systematizing international cooperation in the reciprocal exchange of information; Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges to improve the expertise and capabilities of personnel employed by FIUs; Fostering better and secure communication among FIUs through the application of technology, such as the Egmont Secure Web (ESW); The ESW is an electronic communication system that allows encrypted sharing among members of financial intelligence. It permits members to communicate via secure e-mail, requesting and sharing case information as well as posting and assessing information on typologies, analytical tools, and technological developments. Fostering increased coordination and support among the operational divisions of member FIUs; Promoting the operational autonomy of FIUs; Promoting the establishment of FIUs in conjunction with jurisdictions with an AML/CFT program in place, or in areas with a program in the early stages of development. © 2024 Association of Certified Financial Crime Specialists 26 CHAPTER 3: Money Laundering correspondent account for various reasons. For PRIVATE BANKING example, the local bank may lack knowledge about the foreign bank’s customers and the Private banking is a banking service for wealthy nature of their transactions. There is also the individuals that provides personalized and often possibility that the foreign bank may be allowing confidential services. It is a lucrative, compet- transactions by its customers that are prohibit- itive and worldwide industry that has played ed under local law or that the correspondent a role in many major money laundering cases bank normally does not allow to be conducted. in recent years. Private banking fees are often based on the size of “assets under manage- CONCENTRATION ACCOUNTS ment” that the customer has deposited with the financial institution. Concentration accounts are internal accounts established to facilitate the processing and ONLINE OR INTERNET BANKING settlement of multiple or individual customer transactions within the bank, usually on the same These accounts often offer funds transfers, cash day. These accounts are also known as special-use, management, bill payment, loans and invest- omnibus, settlement, suspense, intraday, sweep ment services. The FATF warns that Internet or or collection accounts. Concentration accounts telephone banking creates distance between are frequently used to facilitate transactions for banker and client and lessens the physical contact private banking, trust and custody accounts, on which traditional client identification rests. funds transfers and international affiliates. These services make it more difficult to detect money laundering because, in some circumstanc- SAR Filing by Institution Type FinCEN — 2021 3000000 2,829,102 2500000 2000000 1500000 1000000 569,984 539,262 500000 81,122 810 20,862 10,358 1,850 2,842 3,366 0 Card Club State Licensed Tribal Depository Housing Insurance Loan or Money Services Other Securities/Futures Casino Authorized Institution Government Company Finance Business (MSB) Casino Sponsored Company © 2024 Association of Certified Financial Crime Specialists 27 CHAPTER 3: Money Laundering es, normal monitoring cannot be conducted. realm. Money launderers can purchase insur- Online banking, by eliminating personal contact ance policies and then later redeem them and between the institution and the customer, makes request the funds be deposited into a bank it more difficult to know who controls an account. account. Insurance policies with certain charac- teristics are much more attractive to launderers MONEY TRANSMITTERS than others, including transferable policies and those with a cash surrender value. These businesses transfer funds for customers by receiving cash from their clients which is Also, contracts for annuities may allow the benefi- transferred to designated beneficiaries, often ciary, who could be a financial criminal, to exchange in other countries. More details on money illicit funds for an income stream. Payments from transmitters will be provided in Chapter 11, annuities are usually made monthly. Compliance Programs and Controls. CASINOS SECURITIES BROKER-DEALERS Casinos generate and receive substantial cash Broker-dealers, in general, facilitate the and are vulnerable to money laundering via purchase and sale of securities for individual facilities they offer to their customers to manage and corporate members of the public for whom and dispose of money. Inserting illicit funds into they maintain accounts. They are subject to a gambling operation and then cashing out the significant money laundering risks. funds as gambling proceeds is a popular method to launder funds, due to the relative anonymity of many gambling venues and the ability to conceal NON-FINANCIAL INSTITUTION sudden spikes in income as winnings. MONEY LAUNDERING VEHICLES In many jurisdictions, casinos are required to As stated above, there are few instrumentalities, file transaction reports, as well as undertake entities, organizations or individuals that do not customer identification procedures, for bets or pose a risk of being used for money laundering proceeds over a certain threshold — the same activities; financial institutions are not the only as other financial institutions. avenue for money laundering. The following list and brief explanations highlight some of the more important persons, entities and instruments that should receive scrutiny, particularly by financial institutions that are asked to open an account relationship, or commercial entities that are liable under global anti-corruption rules and regulations. INSURANCE Life insurance and annuities contain the highest money laundering risk in the insurance © 2024 Association of Certified Financial Crime Specialists 28 CHAPTER 3: Money Laundering DEALERS IN PRECIOUS Officials of international organizations — This METALS, JEWELRY AND ART includes non-governmental organizations like the Red Cross and global sporting Precious metals, jewelry and art have great bodies like FIFA, among others money laundering vulnerabilities because of Close associates can include business the way they are traded and bought and sold. partners, individuals connected through a Money launderers value them in their trade charity or non-profit venture, or even social because of their high intrinsic value, convert- connections like an official’s long-time friends ibility and potential anonymity in transfers. Not every government employee or official POLITICALLY-EXPOSED PERSONS is necessarily a PEP — the FATF’s definition For years, corruption of public officials has been only includes government officials in “promi- a primary concern of many nations and inter- nent positions.” Some countries consider only national bodies, including some of the principal officials in “prominent positions” to be PEPs, players in formulating global standards on money while others cast a wider net that includes less laundering. They recognize that public corrup- senior roles. Likewise, whether or not domestic tion is a principal facilitator of financial crime and officials are considered to be PEPs will vary a destabilizing element to nations, contributing country by country. to poverty, reduced social services, and poorer Some institutions have developed their own fiscal health. For these reasons, public officials internal lists of roles and responsibilities that or Politically-Exposed Persons (PEPs), are now a qualify as “prominent positions.” This practice focus of public and private sector efforts in the can prove useful when screening customers for control of money laundering. their PEP status, as required in customer due Exactly who is considered a PEP can vary diligence programs. Chapter 11 on Compliance based on the laws and regulations of differ- Programs will feature more on this topic. ent jurisdictions. Most use some variation on Apart from that, various nations, particularly the the definition provided by the FATF in its 40 United States with its Foreign Corrupt Practic- Recommendations. es Act (FCPA), the United Kingdom with its UK Foreign government officials, such as Bribery Act and Canada with its Corruption heads of state, legislators, judicial or of Foreign Public Officials Act (CFPOA), have military officials, officials in political parties, enacted legislation with substantial extraterri- or other more senior appointed officials torial reach. Often, that reach is augmented by the simultaneous enforcement of the money Officials at state-owned enterprises, such as a laundering and other laws in a particular case. government-controlled oil company executive or administrator of a state-run health system These anti-corruption laws, which are Domestic government officials such addressed in the chapter on global anti-cor- as heads of state, legislators, judicial or ruption, place greater compliance pressure on military officials, officials in political parties, banks and other financial institutions that are or other more senior appointed officials the primary focus of money laundering laws and regulations. Not only may these businesses © 2024 Association of Certified Financial Crime Specialists 29 CHAPTER 3: Money Laundering THE ROLE OF LAWYERS, THE ODEBRECHT ACCOUNTANTS, AUDITORS, CORRUPTION SCANDAL NOTARIES AND OTHER In March 2014, federal law enforcement GATEKEEPERS agents in Brazil were pursuing an investi- gation into an alleged money laundering The global financial system is not composed of ring when they uncovered a much wider banks and other financial institutions alone. A network of corruption and financial crime. wide range of facilitators — professionals who move funds for clients, help manage assets or The probe, later dubbed “Operation interact with financial institutions, provide tax Car Wash,” would expose an enormous advice, purchase real estate, or form trusts and bribery scheme involving two of Latin legal entities — can help open the door to the America’s largest companies, the Brazil- wider financial system. ian state-owned oil company Petrobras and construction firm Odebrecht. Like financial institutions, they, too, are vulnera- ble to being exploited in money laundering and Odebrecht was revealed to have made financial crime schemes. These professionals are over $800 million in corrupt payments often referred to as “gatekeepers” because they to government officials to win contracts can provide “access (knowingly or unwittingly) and secure business in twelve countries. to various functions that might help a criminal Dozens of high-level political figures, with funds to move or conceal, per the FATF. including the former presidents of Brazil, Peru and Colombia, were investigated for Types of professions considered to be taking funds connected to Odebrecht. gatekeepers can vary somewhat by jurisdiction — professions can have different abilities, roles The sweeping case ultimately led to a and limitations in different countries. record-setting $3.5 billion penalty on Odebrecht and its petrochemical unit, For examples, notaries in many countries with Braskem S.A from the US Department civil law systems — such as Latin American of Justice and enforcement agencies in countries and most European countries — can Brazil and Switzerland. help clients form companies, create trusts, draft contracts and provide many other legal It is considered one of the largest services. In other countries, such as the US and corruption scandals in history. It is also a UK, notaries play a much more limited role, glaring example of the potential money primarily acting as witnesses when important laundering threat presented by political- documents are signed. ly-exposed persons, or PEPs. Recognizing the roles and abilities that differ- ent types of gatekeepers possess in your be involved directly in a Foreign Corrupt Prac- jurisdiction will help you better identify and tices Act violation, they may also be implicated, assess their risks. knowingly or through “willful blindness,” in facilitating the foreign corrupt payment. © 2024 Association of Certified Financial Crime Specialists 30 CHAPTER 3: Money Laundering REGULATORY FRAMEWORKS ASSESSING THE RISKS FOR GATEKEEPERS OF GATEKEEPERS Gatekeepers are generally considered a The FATF and certain other international medium to high risk by banks and other finan- standard-setting bodies recommend that cial institutions that might hold accounts or jurisdictions impose AML/CTF regulations on conduct transactions with these professions. gatekeeper roles. Certain services provided by gatekeepers are riskier than others, and the types of functions In 2003, the FATF recommended that a gatekeeper offers, along with the geographic gatekeepers be considered Designated reach and the customers served, will signifi- Non-Financial Businesses and Professions cantly impact the gatekeeper’s AML risk. (DNFBPs), which would make them subject to compliance with the regulatory framework laid A 2013 report on gatekeeper risks by the FATF out in the 40 Recommendations. assessed SAR/STR filings made by attorneys and other gatekeepers. It found the most common This would generally mean that gatekeepers services that came up in SAR/STR reports filed are expected to implement AML compliance by gatekeepers: control using a risk-based approach, similar to requirements for financial institutions. This Real estate transactions includes the following: Formation of trusts Implementing customer identification Formation of companies, and mergers and measures acquisitions of existing companies Conducting due diligence on clients and Trust and company services — i.e., acting as transactions for AML and financial crime risks a trustee or corporate agent Reporting on suspicious transactions or client activity to their jurisdiction’s financial Along with the nature of services, the way a intelligence unit gatekeeper interacts with clients impacts the risk. Some factors that increase risk include the Maintaining records in the case they are following: needed for regulatory compliance or law enforcement investigations. Interfacing with domestic or international politically-exposed persons (PEPs) and Not every country has adopted this regulato- other high-net-worth clients ry framework for gatekeepers. In many Latin American, Asian and European countries, most Taking on the role as third parties to gatekeeper professions are subject to AML financial transactions compliance regulations. In the US and Canada, Being a nexus to high-risk countries lawyers and other legal professionals have no Working with cash-intensive businesses government-mandated regulations, only volun- tary standards put forth by industry groups. In summary, gatekeepers that provide higher- risk services (such as real estate transactions) to higher-risk clients (such as international PEPs) © 2024 Association of Certified Financial Crime Specialists 31 CHAPTER 3: Money Laundering should obviously be considered higher risk for as gold, precious stones or vehicles. Real estate money laundering and financial crime. is also a common target for asset conversion schemes. We will focus on vehicles and real By the same token, some gatekeepers would be property here; precious metals and art are considered lower risk if they only deal with certain discussed elsewhere in this chapter. types of clients and provide certain low-risk services. If a gatekeeper does not generally provide REAL ESTATE services that facilitate transactions, hold assets or create or manage legal entities, only has domestic Real estate has served as a vehicle to launder clients, and/or interacts with their clients face-to- criminal proceeds and disguise beneficial owners face, then they would generally be considered since the earliest days of the money laundering era lower-risk than other types of gatekeepers. in the 1980s. Criminal proceeds can be funneled to real estate transactions through contract deposits, One final factor that can impact gatekeeper down payments, mortgages, trust accounts and risk is “professional secrecy.” In many countries, in the construction process. Offshore corporations, some gatekeeper roles, such as attorneys, have whose true ownership is nebulous at best, often traditionally enjoyed a high level of secrecy in serve as the owners of record of real estate. Escrow their dealings with clients. In some countries, funds maintained in escrow accounts that are this secrecy is legally mandated. One example purportedly destined for legitimate expenses in a of “professional secrecy” is the attorney-client real estate transaction may actually be something privilege in jurisdictions, such as the US. else. Escrow accounts are vulnerable to money laundering because of the many transactions that are conducted through them by the various REAL PROPERTY AND parties that are involved in the transaction, includ- MONEY LAUNDERING ing attorneys, title insurance agents, inspectors, bank mortgage officers, appraisers and others. Also known as asset conversion and typically done during the integration phase of money VEHICLES laundering, this is the purchase of goods — Many money laundering cases worldwide have typically high-value and portable items such involved businesses that sell or trade various types of vehicles, including automobiles, boats, airplanes and motorcycles. These businesses confront many money-laundering risks, including the receipt of cash, transactions with the proceeds of illegal activity, the layering of transactions with the proceeds of financial and other crime, the payment of vehicles by third parties and more, MONEY LAUNDERING STRATEGIES As discussed in the introductory chapters, finan- cial crime schemes are incredibly varied and diverse, and limited only by the creativity of the © 2024 Association of Certified Financial Crime Specialists 32 CHAPTER 3: Money Laundering financial criminal. So, too, are strategies to launder businesses. This method is also widely used for criminal proceeds. As money laundering can legitimate purposes in many countries, includ- be conducted through virtually any transaction ing Colombia. A more thorough description of involving the exchange of assets or other objects BMPE, as it is commonly known, is available in of value, it would be impossible to fully outline all Chapter 10, Money and Commodities Flow. money laundering strategies here. PREPAID CARDS AND E-CASH There are, however, methods that remain consistently and globally popular with money Smart cards are an ever-present money launderers, and several are briefly outlined here. laundering threat because they store value in Many of these are described in more detail in electronic form that serves as the equivalent other chapters of the manual. Where that is the of currency. Some countries allow prepaid, or case, the chapter is given. “smart” cards, to carry unlimited value, while others place monetary limits on them. More INTERNATIONAL TRADE on prepaid cards, virtual currencies and other evolving payment systems can be found in PRICE MANIPULATION Chapter 10, Money and Commodities Flow. For more than 20 years, well-respected academic studies have shown that the over-pricing or SMURFING under-pricing of imports and exports in inter- Smurfing, which is sometimes called structur- national trade facilitates money laundering, and ing, is a well-known money laundering method other financial crimes, including fraud, corruption that is considered a crime in most countries. and tax evasion. This is commonly called “trade- Smurfing involves dividing illegal proceeds based money laundering,” and remains a popular between multiple persons, known as “smurfs,” method to conceal illicit proceeds and move them who then make multiple deposits into many across international borders. Commodities that are separate accounts, often at different institu- to be shipped may be falsely priced in the shipping tions, to avoid reporting thresholds. documents as higher or lower to accommodate the direction in which the money launderer wishes These smaller deposits can then be transferred to move the money. To provide the trade transac- and consolidated into a single account. Smurfing tion with an air of legitimacy, the money launderers can be difficult to detect because there is may choose to use a financial institution to obtain frequently no apparent connection between trade financing and the documentation that goes the various accounts and deposits involved. with it. A more thorough examination of trade- based money laundering can be found in Chapter STRUCTURING 10, Money and Commodities Flow. Structuring is a close companion to smurfing. BLACK MARKET PESO Structuring involves splitting up funds into multiple EXCHANGE (BMPE) deposits below certain thresholds to avoid trigger- ing reporting requirements. Most jurisdictions In simple terms, this is a process by which have imposed regulations requiring many types of money derived from illegal activity in one financial institutions to report transactions above a country is purchased by peso brokers, who sell certain amount. In the US, for example, institutions currency or monetary instruments to legitimate © 2024 Association of Certified Financial Crime Specialists 33 CHAPTER 3: Money Laundering are required to file a Currency Transaction Report jurisdiction, typically bulk cash smuggling takes (CTR) for deposits above $10,000. Structuring of place across national or jurisdictional bound- deposits aims to avoid this reporting requirement aries. Many jurisdictions have laws prohibiting and escape detection of federal authorities. bulk cash smuggling, as it can violate reporting requirements for cross-border currency trans- In many jurisdictions, structuring is illegal in actions above a certain threshold. and of itself, and institutions are required to monitor for patterns of deposits that indicate In one example of a typical bulk cash smuggling structuring is taking place. operation, money from the sale of narcotics is collected and sorted in a central location. Smaller BULK CASH SMUGGLING bills are exchanged into larger bills, which are then packed for transport. Once prepared, the cash can Criminal operations, such as narcotics or human be moved across the border in a variety of ways. It trafficking, often generate large amounts may be carried across in multiple small shipments of hard currency. In order for this cash to be by cash mules crossing illegally or legally, hidden concealed, placed within the financial system in personal luggage or vehicles. It may be packed or utilized by a financial institution, it often in with consumer, industrial or agricultural goods must be smuggled into another jurisdiction. and shipped commercially. Sophisticated criminal This is referred to as bulk cash smuggling. gangs may use surveillance and intelligence-gath- ering operations to help cash shipments move While the term is sometimes used to describe across the border successfully. the movement of large amounts of cash within a $3 Million in US Currency Seized by Law Enforcement in the US City of San Diego as Part of an Effort Targeting Bulk Cash Smuggling. SOURCE: US Customs and Border Protection © 2024 Association of Certified Financial Crime Specialists 34 CHAPTER 3: Money Laundering Regardless of the methods, bulk cash smuggling with legitimately-derived proceeds. Often, the operations can involve financial institutions in business is complicit in the laundering scheme, multiple jurisdictions at several steps during or is wholly owned or created by the launderer. the process, either to obtain high-denomina- tion currency in exchange for smaller bills or to LENDING ultimately place the smuggled cash. The border Loans extended by a financial institution for any between the US and Mexico is a prominent purpose, including real estate financing, business location for smuggling operations conducted by loans and other extensions of credit, have their Mexican drug cartels. Consequently, US enforce- own money laundering vulnerabilities about ment agencies have assembled the following list which financial institutions and other business- of red flags for bulk cash smuggling to help finan- es should be aware. Due diligence procedures cial institutions spot the activity: following internal risk-based approaches should An increase in the sale of large be applied to the parties involved in a loan, denomination notes from a financial including the ultimate beneficiaries, as well as institution in one jurisdiction to another to the use and application of the loan proceeds. institution in a bordering jurisdiction Financial institutions and others that extend credit should be particularly alert to the money Large volumes of small denomination notes laundering possibilities that arise from the collat- being sent by currency exchange houses eral that is provided by the borrower for the loan. in one jurisdiction to their accounts at a financial institution in another jurisdiction, Money launderers also make loans among or sold by the exchange directly to an complicit entities, usually combined with other institution in another jurisdiction mechanisms like offshore accounts, legitimate Large volumes of small denomination businesses and shell corporations, loans and notes being exchanged for large financing arrangements. This can allow launder- denomination notes at an institution ers to integrate large amounts of funds. In one example, a launderer could set up a shell corpo- CASH-INTENSIVE BUSINESSES ration and a legitimate business. The launderer can then make a loan to the legitimate business By the nature of their business models, certain from the shell corporation, using illicit funds. business organizations pose greater money laundering challenges than others for the simple Launderers may also attempt to take advantage reason that they principally operate in currency. of complex lending products such as syndicated Since the principal attractiveness of currency lending. In syndicate deals, a borrower hopes to to money launderers is that it leaves no trail, obtain a large loan for a project requiring more businesses that operate in cash, such as restau- capital than a single lender would want to under- rants, privately owned ATMs, vending machine write. A financial institution may then become a companies, retail stores and casinos merit special “lead lender” and find other financial institutions to scrutiny for money laundering activity and should lend a portion of the total. As an example, a money be considered high risk by financial institutions. launderer could use an intermediary to request a loan for a large project such as building a new Another scheme prevalent in cash-intensive casino. Ten lenders might participate in the deal, businesses is blending. This involves using each lending one million Euro via the lead lender a legitimate business to mingle illicit funds © 2024 Association of Certified Financial Crime Specialists 35 CHAPTER 3: Money Laundering or an agent. Once the project is funded, the money There are many legitimate reasons to form a shell launderer can use illicit funds to repay the loans, company. In some instances, shell companies and the illicit organization ends up with a casino in can make it easier to invest overseas, help shield the end-another useful vehicle for laundering. a company from liability, or transfer profits to reduce taxes in a way that is completely legal. STRUCTURES THAT HIDE However, many characteristics of shell compa- BENEFICIAL OWNERSHIP nies also make them highly attractive to financial criminals. Typically, they are easy and inexpen- Beneficial ownership is a key concept in the sive to incorporate, and, in many jurisdictions, financial crime field. In simple terms, a benefi- they can be established anonymously through cial owner is someone who ultimately controls attorneys and third parties called “company and enjoys the benefits of an asset without formation agents.” In some jurisdictions, shell being the nominal owner of that asset. A person companies can be formed online through or group can be the beneficial owner of a finan- company formation agents and with little to no cial account, security, physical property or nearly information collected on the beneficial owners any other asset. A more complete discussion of behind the shell company, for less than $1,000. beneficial ownership, especially as it relates to financial accounts, can be found in Chapter 11, Most importantly, shell companies are an anony- Compliance Programs and Controls. mous, or at least concealed, vehicle to access the international financial system. To further Beneficial ownership of assets and accounts obscure ownership, many financial criminals allows financial criminals to control illicit funds, will operate through layers of shell companies, assets or property while obscuring the crimi- which can make it very difficult to trace funds nal’s connection to them and distancing the or assets back to the ultimate owner. proceeds from their source. Most sophisticated financial crime schemes will take advantage Consequently, shell companies have become a of one or more mechanisms and structures fixture of financial crime schemes of all varieties. to conceal the perpetrator’s beneficial owner- Almost any sophisticated money laundering, fraud ship of criminal proceeds. Several of the more or corruption operation involves at least one shell common ones are described below. company at some point the process. Historically, certain nations and jurisdictions have become SHELL COMPANIES popular locations to form shell companies. There is often an overlap between these jurisdictions Shell companies have no physical presence, and those labeled as “secrecy havens.” normally have concealed owners, and sometimes project the image of being a solid, Discerning beneficial owners behind shell corpo- normal business with funds that are legitimate. rations can be very difficult when conducting due For the most part, they are companies that exist diligence or investigations. One potential source only on paper. They can hold bank accounts and of information is the corporate registry for a given conduct financial transactions while providing jurisdiction, many of which are accessible online. no signs that they are a shell. Shell companies The information that can be obtained from such usually conduct no business themselves. registries varies substantially between jurisdictions, but it can include details such as the company © 2024 Association of Certified Financial Crime Specialists 36 CHAPTER 3: Money Laundering name, the name of the company formation transferred, while leaving another person or agent, company directors or board members, and entity as the real owner. Nominee accounts are sometimes a physical address for the company. common among securities broker-dealers, who can hold securities for their customers and trade While this information may not be particu- them much more easily. Like all the structures larly revealing in and of itself, it can provide listed here, nominees can be used for legitimate leads that can be useful for discovering the purposes. A nominee’s ability to conduct trans- company’s true owner. A 2012 survey of law actions at a distance from the owner of assets, enforcement agencies in the European Union, however, makes nominees a useful avenue for example, found that company directors and for money laundering, particularly in the later shareholders were some of the most useful stages like layering and integration. leads for unearthing beneficial owners behind shell companies in criminal investigations. FRONTS SHELF COMPANIES In general terms, a front is a company or organi- zation that is established and controlled by A similar concept to a shell company, the shelf another company or entity but that gives the company is a corporation that has no activity or impression it is not affiliated or connected to the business. The name refers to how these compa- entity controlling it. In the financial crime context, nies are formed and then left to “age,” or are fronts are often seemingly legitimate businesses “put on a shelf.” Some shelf companies may be with a physical presence and actual operations, completely inactive for years before being sold but whose primary purpose is to launder criminal off to a buyer. proceeds. An example is a restaurant formed by an organized crime ring that, while open for regular There are a number of reasons why buyers may business hours and serving customers, mainly want to purchase a shelf company, and some exists to take in money from narcotics trafficking. are completely legitimate. In many jurisdictions, it is simply easier to purchase a pre-existing TRUSTS company than to set up a new one. Trusts are legal entities created by a “settlor” to In other cases, a businessperson may have manage property for a beneficiary. The settlor an easier time gaining interest from inves- transfers property that he owns to the trust. This tors, securing loans or winning government property is managed by a trustee according to contracts with a company that appears to have the terms described in the trust. Trusts can be been in business for several years. However, misused for hiding money and hiding the identity those same qualities of apparent legitimacy of the true beneficiary. Trusts are convenient and longevity are what make a shelf corpora- vehicles for money laundering and usually permit tion appealing to financial criminals. payments to beneficiaries that could disguise money laundering. Usually, the payments need NOMINEES not be explained or justified. The trustees are often lawyers who hold the assets in trust for others. A nominee is a person, company or entity into whose name assets, securities or property is © 2024 Association of Certified Financial Crime Specialists 37 CHAPTER 3: Money Laundering BEARER BONDS AND SECURITIES paid to charities under their control, as will be discussed further in later chapters. Terrorist These are convenient tools of money launderers organizations will also use charitable operations because they belong to the person who carries as covert fundraising operations to gather funds them, thus the name “bearer.” Bearer shares from supporters overseas. Many of the same red are transferred by a physical delivery from one flags of money laundering discussed previously person to another. also apply, such as in these examples: HAWALA AND INFORMAL Charities and nonprofits that conduct wire VALUE TRANSFER SYSTEMS transfers to countries where they have no operation Hawala and other underground banking proce- dures are often called informal value transfer Charities and nonprofits that operate in systems (IVTS). They are most popular with persons high-risk countries from Africa and Asia and involve the transfer of Charities and nonprofits with a vague value outside the regular banking system. These description of their purpose and services informal value transfer systems have existed for Charities and nonprofits that have no obvious centuries and facilitate the secure movement of physical presence or operate from a P.O. Box funds. Persons who wish to send funds to relatives would both be potential money launderers. in another country place funds with a hawala banker. For a fee, the banker arranges for the funds CORPORATE REGISTRIES to be available from another “banker” in another country. Later, the bankers settle their transactions. Corporate registries collect and store informa- Hawala is attractive to money launderers because tion pertaining to corporations and other legal they leave a slight audit trail and the identities of entities created within a given jurisdiction. the customers who receive the funds are known They are typically maintained by a government only by the “bankers.” More information about agency or department. Depending on the juris- ITVS will be provided in Chapter 10. diction, there may be a single registry for an entire nation, or multiple registries for different CHARITIES AND NONPROFITS states, regions or cities. Charities and other nonprofit organizations can As storehouses for corporate information, regis- also serve as money laundering vehicles. They tries serve several functions. They record the have access to significant funding sources, often creation or incorporation of a new legal entity, have a presence worldwide, and, in some juris- collect information on that entity as required dictions, are subject to little regulation. Moreover, by the laws and regulations of their jurisdiction, “donors” can often make contributions to chari- and typically make certain information about ties anonymously, providing a convenient vehicle legal entities available publicly. Registries exist to launder funds or move money across borders. to identify entities for tax purposes and allow other companies and financial institutions to In recent years, charities and nonprofit organi- collect information on the corporations and zations have emerged as a significant risk for legal entities they are doing business with. terrorist financing, as well as corruption. Corrupt officials will sometimes request that bribes be © 2024 Association of Certified Financial Crime Specialists 38 CHAPTER 3: Money Laundering Due to the widespread presence of corporations, both legitimate and illegitimate, in financial Commonly Available from Corporate crime schemes, corporate registries are key Registries: sources of information in investigations, enforce- ment actions and due diligence. As mentioned, The name and type of the legal entity however, the quality and type of information Date of the company formation, that can be obtained from corporate registries and date when the company was varies substantially between jurisdictions. dissolved, if no longer in existence In 2011, the World Bank conducted a global Articles of incorporation and other study of corporate registries to determine the company formation documents, information on legal entities could be found. such as bylaws The full report, based partly on that study, is A physical address of the titled “The Puppet Masters.” It is a useful corporation, or address of the resource for all financial crime professionals company formation agent and can be found here: https://star.worldbank. Name and address of a registered org/publications/puppet-masters. agent for the company One very significant piece of information was