PLACEMENT TECHNIQUES OF
MONEY LAUNDERING
Whether it is hundreds of thousands or millions of dollars that
the criminal has to hide, government regulations which require the
reporting of large cash transactions force them to either stockpile
the cash generated, then spend it in dribs and drabs, or be creative
in legitimizing and accounting for it so they can purchase huge mansions
and luxury yachts without concern.
Smurfing
If the criminal only needs to move a few million dollars a year,
the simplest way to launder cash without detection is "smurfing "— having
people deposit random amounts of less than $10,000 into variously
named accounts at many different banks. They will also buy bank drafts
from various financial institutions to circumvent thresholds for
transaction reporting. Then a middleman can ship the compact negotiables
for deposit elsewhere. Due diligence rarely catches this activity.
Laundering of accounts held by relatives or friends is also popular.
One smalltime drug trafficker had his wholesalers deposit money
into his account using the "Interac" bank tellers. He then
withdrew the money to purchase money orders in U.S. funds which he
sent out of the country both to purchase more drugs and for safekeeping.
This first hurdle is bypassed by customers paying
by certified cheque, money order or credit card as opposed to the
more prominent use of cash in drug sales.
A currency structuring charge stems from attempts to make bank transactions
in such a way as to evade notice by the federal government, which
requires banks to report transactions of more than $10,000.
Shipping Money Abroad
Sometimes they have to resort to shipping the money
abroad in bulk cash then arrange to get it back. Someone might
smuggle cash to Mexico, deposit it in a United States dollar account,
draw out a draft, mail or carry it back into the U.S., deposit
or cash it in a bank, with no requirement for the bank to report
the transaction.
Sometimes less bulky items are purchased domestically
such as diamonds, gold or even precious stamps and other collectibles.
The criterion is that they be of high value in relation to bulk,
making them physically easy to smuggle as well as relatively easy
to reconvert into cash at the point of destination.
Commonly, the proceeds will be wire transferred to accounts back
in the U.S.. Enforcement officials believe that as much as $10 billion
in Mexican bank drafts is laundered through such schemes each year
in Panama alone.
The currency of choice for illegal transactions is
the U.S. dollar, which circulates widely outside of the borders
of the United States. Indeed, of the $400 billion in U.S. currency
in circulation, $300 billion is in circulation outside the United
States.
Placement Through Banks
Banks and other financial institutions may unwittingly be used as
intermediaries for the transfer or deposit of money derived from
criminal activity.
One drug smuggler is believed to have laundered approximately $100
million (US) a year over a six year period through deposits into
a branch of a Canadian bank located in Nassau, Bahamas. Several accounts
would be used, all of them in the name of Nassau-registered corporations.
The money was then wired to the bank's Cayman Islands branch and
into the account of a company. From there the money was wired back
to the U.S. into the bank's New York City branch. It would then be
dispersed among numerous corporations owned by the individual in
the U.S.
Suspicious activity may include:
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use
of Letters of Credit and other methods to move money between
countries where such trade is inconsistent with the customer's
usual business; |
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customers
who make regular payments or receive wire transactions from
countries which are tax havens; |
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frequent
requests or use of travelers cheques, foreign currency drafts
or other negotiable instruments; |
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reluctance
to provide normal information or providing minimal or fictitious
information that is difficult or expensive for the financial
institution to verify when applying to open an account; |
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using
accounts with several financial institutions then consolidating
them prior to onward transmission of the funds; |
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greater
or unusual use of safe deposit facilities; |
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companies'
representatives avoiding contact with the branch; and |
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requests
to borrow against assets held by the financial institution
or a third party, where the origin of the assets is unknown
or the assets are inconsistent with the customer's standing. |
Use of "Pass Through" or "Payable Through" Accounts
for Placement
Financial institutions must take care in opening accounts for
foreign deposit-taking institutions because a foreign bank may
open a chequing account to enable their clients, which the domestic
bank may not have sufficient knowledge of, to conduct financial
transactions in Canada.
Placement Using Electronic Wire Transfers
Criminals are making extensive use of the electronic payment and
message systems for wire transfers. Modern financial systems permit
criminals to transfer instantly millions of dollars though personal
computers and satellite dishes. The rapid movement of funds between
accounts in different jurisdictions increases the complexity of
investigating and tracing the source of funds especially when non-customers
and non-correspondent banks transfer to equally unknown third parties.
Placement Using Insurance Products
A particular area where the life insurance industry is vulnerable
is the single premium product so they must now keep the client
application form for every purchase of an immediate or deferred
annuity and any insurance policy for which the client will pay
$10,000 or more.
An individual who was convicted of stealing over $100,000 from
two charitable organizations was discovered to be the owner of
a fully paid annuity policy having a value of $140,000.
Unusual signs include:
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a
request by a client to purchase an insurance product where
the source of the funds to purchase the product is inconsistent
with the customers financial standing or is a third party
cheque; |
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a
client who does not wish to know about the performance of
an investment but is concerned only about the early cancellation
provisions of a particular product. |
Placement Using Investment Related Transactions
Every person engaged in the "business of dealing in securities" must
keep appropriate client data and records. Unusual activity includes
requests by customers for investment management services (either
foreign currency or securities) where the source of the funds is
inconsistent with the customer's apparent standing, large or unusual
settlements of securities in cash form and buying and selling a
security with no discernible purpose.
Placement Through Collusion of Financial Institution Employees
and Agents
Suspicious indications include changes in employee characteristics
such as lavish life styles or performance, remarkable or unexpected
increase in business volume of selling products for cash; consistently
high levels of single premium insurance business far in excess
of any average company expectation.
Placement Using Non-Bank Financial Services
There is a growing trend of money launderers moving away from
the banking sector to the non-bank financial institution sector
where the use of currency exchange houses and wire transfer companies
to dispose of criminal proceeds remain among the most often cited
threats.
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