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This is the third part in our series revealing exactly what banks are looking for when they are combatting money laundering.
Transferring funds is at the heart of commerce and is the most important function performed by modern banks. Transferring funds is also at the heart of money laundering. Move dirty money through enough hands by sufficiently devious means and at some point, it magically becomes clean.
Think about this, if we can describe an activity, it is possible to write software to detect it. Banks do just that.
Bank Checks on Money Laundering Funds Transfers
You transfer funds in large, round dollar, hundred dollar, or thousand dollar amounts.
This is classic smurfing. Sudafed smurfs were buyers for meth labs who would go from drugstore to drugstore purchasing Sudafed cold medicine containing pseudoephedrine. The manufacturer then made crystal meth from the pseudoephedrine. Smurfing has expanded into money laundering. Smurfs typically deposit small amounts to many accounts. The money from those accounts is then assembled and transferred to a master account in another country. Then someone transfers the money, this time to the actual beneficiary. Dirty money often travels through several jurisdictions before arriving at the final destination.
Funds transfer activity occurs to or from a financial secrecy haven, or to or from a higher-risk geographic location without an apparent business reason or when the activity is inconsistent with the customer’s business or history.
“Higher-risk geographic locations” tend to be tiny island nations such as the Cayman Islands, Vanuatu or the British Virgin Islands. But, they are also places such as Luxembourg and Gibraltar. Banks maintain a list of risky jurisdictions. Transactions involving such jurisdictions receive extra scrutiny.
Funds transfer activity occurs to or from a financial institution located in a higher risk jurisdiction distant from the customer’s operations.
There might be a logical reason for a Florida business to be remitting to or receiving funds from the British Virgin Islands, which are close by. On the other hand, it is unlikely that they’d be doing much business with the Cook Islands in the South Pacific. Again, banks will pay extra attention to such transactions.
Your accounts receive many small, incoming transfers of funds, or receive deposits of checks and money orders. Then, almost immediately, all or most of the transfers or deposits are wired to another city or country. Usually, the transfers are in a manner inconsistent with the customer’s business or history.
Again, we see smurfing on a large scale. Drug cartels purchase chain restaurants, casinos, entertainment and sports venues in order to be able to launder money through them. These venues typically have large numbers of small transactions; ideal for throwing banks off the scent. But law enforcement has statistical data that can sniff out this sort of money laundering.
Your accounts receive large, incoming funds transfers on behalf of a foreign client, with little or no explicit reason.
Banks want to know what to expect. If you are going to be receiving a large amount of money, it is wise to tell them in advance what is going on. Ensure that they write it down so that you can avoid suspicion. You may think it is troublesome, but having the FBI knocking on your door is real trouble.
Transferring funds is unexplained, repetitive, or shows unusual patterns.
To the average person, the world seems jumbled, chancy, ad hoc. But those who pay attention see patterns. So it is with bank accounts. Observe enough bank accounts and you’ll see that 99.9% of them follow predictable patterns. If your account is in the one-tenth of one percent, the bank will examine it closely.
You receive payments or receipts with no apparent links to legitimate contracts, goods, or services.
If you run an asphalt business and suddenly receive payment in your account for a Ferrari, that may well be flagged. Receive payment for a Ferrari and a luxury condo and it will be flagged.
You send funds to the same person using different accounts or to different accounts. Or the reverse.
Well Sir Smurf-a-lot, banks figured out this channel a long time ago. It can work, but only by using multiple aliases or smurfs at many banks over a long time.
You don’t provide enough information regarding funds transfers, not only the why but also the who of related parties.
Banks detect these omissions sometimes but they fall into a gray zone. Protect yourself by being open and up front in describing both why the transaction is taking place and who the beneficiary is.