Money Laundering and Your Bank Accounts – Part VII – Unusual Activities

Banks Solve the Money Laundering Puzzle.
This is the seventh part in our series that reveals exactly what banks are looking for when they are combatting money laundering.

Bank-to-Bank Transactions

The size and frequency of currency deposits increases rapidly with no corresponding increase in noncurrency deposits.

You know if you expect to see an uptick in your currency deposits. If you do, pay a visit to your banker and explain to her what is happening. That will forestall any unnecessary problems.

A bank is unable to track the true account holder of correspondent or concentration account transactions.

You may have an account that receives deposits from several other banks. For example, for sales made in multiple countries plus deposits from a credit card bank. If the bank thinks you aren’t the actual account owner, then they are obligated to take action. They will report it to the appropriate authorities.

The turnover in large-denomination bills is significant and appears uncharacteristic, given the bank’s location.

There is a global effort to reduce the number of large currency bills in circulation because of their anonymity. Your account will be flagged if you process many of these through your account where this is unusual.

Changes in currency-shipment patterns between correspondent banks are significant.

Transactions between correspondent banks are tracked so that if an employee manages to bypass internal controls, she will be caught. There are several triggers to be aware of:

  1. Large volumes of small denomination bills are sold to U.S. banks. (This is a trigger in the EuroZone as well. In that case, triggering currencies are USD, GBP and EUR.)
  2. Multiple wire transfer instructions from foreign nonbank institutions requiring the bank to transfer funds to entities for which there seems to be no reasonable business purpose.
  3. Customers exchange large volumes of USD or Euros for larger denominations. This facilitates physical cross-border shipment of currency.
  4. Deposits of Euros or US Dollars by a foreign non-bank entity that subsequently transfers the funds via wire to foreign non-bank entities.

Even legitimate businesses risk losing access to their funds temporarily or permanently as well as prompting an investigation of the principals if they engage in any of these activities.

Money Laundering and Your Bank Accounts – Part VI – Loans

photo by Drew Hays,
This is the sixth part in our series revealing exactly what banks are looking for when they are combatting money laundering.

Laundering Money Through Lending Activity

Money launderers course massive sums through loans and investments. Bank authorities must perform significant due diligence to detect money laundering in these cases. To top that off, some governments try to discourage detection of such money laundering activities through legislation and regulation.

A borrower secures loans using pledged assets held by third parties unrelated to the borrower.

Launderers clean dirty money by pledging an asset purchased with dirty money to secure a clean loan. Sometimes, they course the funds through several banks, several shell companies, and one or two straw men. The bank may ask many questions to prevent any money laundering. The borrower must answer those questions convincingly.

A borrower secures a loan by using readily marketable assets, such as securities. If a third party owns the assets then the transaction is especially suspicious.

Borrowers don’t usually pledge easily marketable assets to get cash. The borrower can sell such assets with less difficulty than taking out a loan. If a borrower does not, he needs to be able to explain why. He will need to provide a convincing reason.

A borrower defaults on a loan that is secured by easily marketable assets.

The borrower probably took out the loan in order to default on it. Launderers create these schemes as a way to convert somewhat clean assets and create clean money.

Loans are made for or are paid on behalf of, a third party with no reasonable explanation.

The borrower purchases a certificate of deposit using an unknown source of funds in order to secure a loan. When funds are provided via currency or multiple monetary instruments the source of the security is even more suspicious.

Banks may permit the borrower to partially or fully secure a loan by purchasing a CD issued by the bank. However, banks that do so must thoroughly vet the source of the funds. If they don’t, regulators will suspect them of colluding in money laundering.

Banks that make loans that lack a legitimate business purpose, provide the bank with significant fees for assuming little or no risk, or tend to obscure the movement of funds (e.g., loans made to a borrower and immediately sold to an entity related to the borrower) will be suspected of colluding to launder money.