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.

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