How can money be laundered in the Banking sector?

The most observed stages of money laundering were placement and layering and the most common techniques for money laundering were structuring and smurfing. Structuring normally involves multiple cash deposits or withdrawals at amounts below the reporting threshold and smurfing is defined as multiple deposits of cash, and/or low-value monetary instruments purchased from various banks or money services businesses by various individuals.

Methods include:

  • Use of wire transfers to electronically transfer funds between financial institutions and often to another jurisdiction in order to avoid confiscation.
  • Deposits containing counterfeit notes or forged instruments.
  • Deposit of cash by means of numerous credit slips so that the total of each deposit is unremarkable, but the total of all the credits is significant.
  • Use of a number of trustee or client accounts which aren’t consistent with the type of business, including transactions which involve nominees.

Identifying suspicious transactions for Financial Institutions:

  1. Providing Loans:
    1. Customer pays off loan before allotted time, especially with lump-sum payments.
    2. Customer suddenly repays a problem loan unexpectedly.
    3. Customer’s employment documentation lacks important details that would make it difficult for you to contact or locate the employer.
    4. Customer has loans to or from offshore companies that are outside the ordinary course of business.
    5. Customer offers you large dollar deposits or some other form of incentive in return for favorable treatment on loan request.
    6. Customer asks to borrow against assets held by a third party.
    7. Loan Transactions are entered into in situations where the client had significant assets and the loan transaction does not make economic sense.
    8. Customer seems unconcerned with terms of credit or cost associated with completion of a loan transaction.
  2. Personal Transactions:
    1. Customer appears to have accounts with several financial institutions in one geographical area or in the same country for no apparent reason.
    2. Customer has no employment history but makes frequent large transactions or maintains a large account balance.
    3. Customer runs large credit card balances.
    4. Customer has numerous accounts and deposits cash into each of them with the total credits being a large amount.
    5. Customer deposits large endorsed cheques in the name of third- parties.
    6. Customer frequently makes deposits to the account of another person who is not an employer or family member.
    7. Customer frequently exchanges foreign currencies.
    8. Customer frequently makes large cash deposits and withdrawals via ATM.
    9. Many un-related individuals make payments to one account without rational explanation.
    10. Customer has frequent deposits identified as proceeds of asset sales but assets cannot be substantiated.
    11. Customer acquires significant assets and liquidates them quickly with no explanation.
    12. Customer admits or makes statements about involvement in criminal activities, or is known in society to be involved in criminal activities.
    13. Customer presents confusing details about the transaction.
    14. Customer does not want correspondence sent to home address.
    15. Customer repeatedly uses an address but frequently changes the names involved.
    16. Customer is accompanied and watched.
    17. Customer is nervous, not in keeping with transaction.
    18. Customer insists that a transaction be done quickly.
    19. Customer offers you money; gratuities or unusual favors form the provision of services that may appear unusual or suspicious.
    20. Customer attempts to convince employee not to complete any documentation required for the transaction.
    21. Customer shows uncommon curiosity about internal systems, controls and policies.
    22. Customer makes inquires that would indicate a desire to avoid reporting.
    23. Customer has unusual knowledge of the law in relation to suspicious transaction reporting.
    24. Customer seems very conversant with money laundering or terrorist activity financing issues.
    25. Employee is aware that the customer is the subject of a money laundering or terrorist financing investigation.
  3. Identity Documents:
    1. Customer provides doubtful or vague information.
    2. Customer provides seemingly false identification or identification that appears to be counterfeit, altered or inaccurate.
    3. Customer refuses to produce personal identification documents.
    4. Customer only provides copies of personal identification documents.
    5. Customer wants to establish identity using something other than his or her personal identification documents
    6. Customer’s supporting documentation lacks important details such as a phone number (s) and reference towards proof of residence.
    7. All identification documents presented appear new or have recent issue dates.
  4. Cash Transactions:
    1. Customer starts conducting frequent cash transactions in large amounts when this has not been a normal activity for the customer in the past.
    2. Customer frequently exchanges small bills for large ones.
    3. Customer presents notes that are packed or wrapped in a way that is uncommon.
    4. Customer deposits musty, smelly or extremely dirty bills.
    5. Customer consistently makes cash transactions that are just under the reporting threshold amount, in an apparent attempt to avoid the reporting threshold.
    6. Customer conducts a transaction for an amount that is unusual compared to amounts of past transactions.
    7. Customer frequently purchases traveller’s cheques, foreign currency drafts or other negotiable instruments with cash when this appears to be outside of normal activity for the customer.
    8. Customer asks you to hold or transmit large sums of money or other assets when this type of activity is unusual for the customer.
    9. Shared addresses for individuals involved in cash transactions, particularly when the address is also from the same community.
  5. Transactions involving Accounts:
    1. Opening accounts when the customer’s address is outside the local service area.
    2. Opening accounts in other people’s names.
    3. Attempting to open or operating accounts under a false name.
    4. Accounts with a large number of small cash deposits and small number of large cash withdrawals.
    5. Funds are deposited into several accounts, consolidated into one and transferred outside the country.
    6. Customer frequently uses many deposit locations outside of the home branch location.
    7. Multiple transactions are carried out on the same day at the same branch but with an apparent attempt to use different tellers.
    8. Establishment of multiple accounts, some of which appear to remain dormant for extended periods.
    9. Account that was reactivated from inactive or dormant status suddenly sees significant activity.
    10. Reactivated dormant account containing a minimal sum suddenly receives a deposit or series of deposits followed by frequent cash withdrawals until the transferred sum has been removed.
    11. Deposit and/or withdrawals of multiple monetary instruments, particularly if the instruments are sequentially numbered.
    12. Multiple personal and business accounts are used to collect and then funnel funds to a small number of foreign beneficiaries, particularly when they are in locations of concern, such as countries known or suspected to facilitate money laundering activities.
  6. Corporate & Business Departments:
    1. Accounts are used to receive or disburse large sums but show virtually no normal business-related activities.
    2. Accounts have a large volume of deposits in bank drafts, cashier’s cheques, money orders or electronic funds transfers, which is inconsistent with the client’s business.
    3. Accounts have deposits in combinations of cash and monetary instruments not normally associated with business activities.
    4. Business does not want to provide complete information regarding its activities.
    5. Financial statements of the business differ noticeably from those of similar businesses.
    6. Customer purchases cashier’s cheques and money orders with large amounts of cash.
    7. Customer deposits Large cash and cheques from third parties (not associated with the business), via ATM.
    8. Customer makes a large volume of seemingly unrelated deposits to several accounts and frequently transfers a major portion of the balances to a single account at the same bank or another institution.
    9. Customer makes a large volume of cash deposits and withdrawals from a business that is not normally cash-intensive.
    10. Customer consistently makes immediate large withdrawals from an account that has just received a large and unexpected credit from abroad.
    11. Customer makes a single and substantial cash deposit composed of many large bills.
    12. There is a substantial increase in deposits of cash or negotiable instruments by a company offering professional advisory services, especially if the deposits are promptly transferred.
    13. There is a sudden change in cash transactions or patterns.
    14. Customer wishes to have credit and debit cards sent to international or domestic destinations other than his or her place of business.
    15. Small, one-location business makes deposits on the same day at different branches across a broad geographic area that does not appear practical for the business.
    16. There is marked increase in transaction volume on an account with significant changes in an account balance that is inconsistent with or not in keeping with normal business practices of the client’s account.
    17. Unexplained transactions are repeated between personal and commercial accounts.
    18. Account has close connections with other business or personal accounts without any apparent reason for the connection.
    19. A large number of incoming and outgoing wire transfers take place for which there appears to be no logical business or other economic purposes, particularly when this is through or from locations of concern, such as countries known or suspected to facilitate money laundering activities.
  7. Transactions outside the country:
    1. Client and other parties to the transaction have no apparent ties to the country where you are located.
    2. Transaction crosses many international lines.
    3. Use of a credit card issued by a foreign bank by a client that does not live and work in the country of issue.
    4. Transactions involving countries deemed by the FATF as requiring enhanced surveillance.
    5. Foreign currency exchanges that are associated with subsequent wire transfers to locations of concern, such as countries known or suspected to facilitate money laundering activities.
    6. Deposits followed within a short time by wire transfer of funds to or through locations of concern.
    7. Transaction involves a country known for highly secretive banking and corporate law.
    8. Transaction involves a country where illicit drug production or exporting may be prevalent, or where there is no effective anti-money-laundering system.
    9. Transaction involves a country known or suspected to facilitate money laundering activities.