Review of BSA/Structuring/Money Laundering Violation on SAR Forms

Money laundering is the movement of illicit funds for the purpose of concealing the true source, ownership or use of the funds. Through money laundering, the monetary proceeds derived from criminal activity are transformed into funds with an apparently legal source. Money laundering provides the fuel for drug dealers, terrorists, arms dealers and other criminals to operate and expand their enterprises. We know that criminals manipulate financial systems in the United States and abroad to further a wide range of illicit activities.

Money laundering is a well-thought out process accomplished in three stages:

Placement: Requires physically moving and placing the funds into financial institutions or the retail economy. Depositing structured amounts of cash into the banking sector, and smuggling currency across international borders for further deposit, are common methods for Placement.
Layering: Once the illicit funds have entered the financial system, multiple and sometimes complex financial transactions are conducted to further conceal their illegal nature, and to make it difficult to identify the source of the funds or eliminate an audit trail. Purchasing monetary instruments (traveler?s checks, banks drafts, money orders, letters of credit, securities, bonds, etc.) with other monetary instruments, transferring funds between accounts, and using wire transfers facilitate Layering.
Integration: The illicit funds re-enter the economy disguised as legitimate business earnings (securities, businesses, real estate). Unnecessary loans may be obtained to disguise illicit funds as the proceeds of business loans.

Almost 50% of the depository institution Suspicious Activity Reports filed to date lists Bank Secrecy Act/Structuring/Money Laundering as the suspected violation. In most cases, cash deposits or exchanges represent the Placement phase. Some of the more typical activities found in the Placement phase include:

Cash deposits of less than $10,000 begin immediately after the accounts are established and are made frequently, often daily;
Cash deposits of less than $10,000 begin suddenly after limited or no account activity;
Multiple cash deposits of less than $10,000 are made at a single branch location but with different tellers;
Multiple cash deposits of less than $10,000 are made on a single banking day at different branches;
Customer is accompanied by other individuals who each deposit cash of less than $10,000 into the same account but with different tellers;
Cash deposits are immediately followed by wire transfers out of the account; or
Cash deposits are followed almost immediately by withdrawals and/or checks or other monetary instruments drawn against the account for the same or similar amounts.

Cash deposits or withdrawals at dollar values of $10,000 or less or at multiple teller windows on a single banking day, at multiple branch locations or by multiple individuals into a single account on a single banking day may be indicative of structuring transactions.

Other issues that could cause suspicion at the Placement phase include:

Cash deposits that are inconsistent with the nature of the business;
Customer refuses to explain the source of the funds, or cancels the transaction when questioned about it;
A business with a pattern of frequently opening and closing accounts, which receives high-levels of cash deposits that are immediately wire transferred out of the accounts;
Cash purchase of sequentially numbered traveler?s checks or money orders made in a structured amount of less than $10,000. When returned for payment, payee information of the traveler?s checks or money orders is omitted or unclear;
Electronic Benefit Transfer food stamp credits to an account followed immediately by structured cash withdrawals;
Cash purchases of cashier?s checks or other monetary instruments such as money orders in amounts under $3,000;
Purchase of a large insurance policy with a cash premium under $10,000, followed by cancellation and refund by check; or
Loan balance reduced by multiple cash payments.

Monetary instruments, with their easy portability and negotiability, afford money launderers opportunities for layers and layers of transactions to conceal illegal funds. Various characteristics may indicate money laundering, whether the instrument is a cashier?s check, money order, foreign bank draft, or traveler?s check. Samples of activity that could take place during the Layering phase include:

Purchase of sequentially numbered traveler?s checks or money orders using checks drawn on a personal or commercial bank account, cashier?s checks, or other monetary instruments, possibly in structured amounts of less than $10,000. When returned for payment, payee information on the traveler?s checks or money orders is omitted or unclear;
Multiple wire transfers to multiple beneficiaries by a single individual at multiple branch or store locations;
Multiple wire transfers to a single beneficiary conducted within minutes of each other by groups of individuals at a single remitter location;
High dollar cash deposits followed by checks drawn against the account in similar amounts or slightly higher than the cash deposits, made payable to vendors, businesses, utilities, etc.;
Cash deposits immediately followed by transfers to other accounts either within the same institution or at other domestic or foreign financial institutions. Transfers are accomplished by checks written off one account and deposited to another account or by electronic or online banking transfers between accounts;
Frequent wire transfer activities to offshore locations that are not commensurate with the nature of the business or occupation of the account holder;
Funds wired from one country to another, which are used for multiple investments, and then constantly moved to evade detection and to take advantage of foreign secrecy protections;
Deposits of refund checks from canceled insurance policies;
Cashier?s checks exchanged for other cashier?s checks in larger amounts, adding additional cash or instruments to make up the difference;
Sending false import/export invoices overvaluing goods to move money from one company and country to another;
Large, even-dollar wire transfers sent to offshore locations that are not commensurate with the nature of the business or occupation of the account holder; or
Wire transfer activity by order of a company incorporated in the United States originating from its account with a foreign bank, routed through the foreign bank?s correspondent account with a domestic financial institution, to a single beneficiary in yet another foreign country. Research into the ?by order of company? fails to identify corporate location, officers or directors.

The final step in money laundering is the re-introduction of the laundered funds to the economy. Examples of the Integration phase are:

Purchases of multiple certificates of deposit, on which the account holder routinely rolls over the principal each 30, 60 or 90 days and requests disbursement, by check, of only the interest on the certificates. Also, certificates of deposit purchased with illicit funds may be used as collateral for loans.
Deposited funds used to purchase real estate, vehicles, or other property. Subsequently, those items are used as collateral for loans, creating what appear to be clean loan proceeds. Often, the loans are paid back prior to maturity with large payments of other money obtained through criminal acts. The property is then used as collateral for other laundering schemes.
Loans secured from financial institutions with payoff dates in the far future for what appears to be legitimate business purposes, followed by the cash payoff of the principal within the first six-months of the loan period.
Co-mingling of illicit currency with legitimate business receipts; for example, drug proceeds deposited into the account of an otherwise legitimate business and thus made to appear as normal business proceeds.

Financial institutions also are reminded that if they discover any suspicious activity within their institution that they know, suspect, or have reason to suspect involves the laundering of illicit funds at any phase of the money laundering process, and the dollar amount involved aggregates to their minimum reporting threshold, they should file a Suspicious Activity Report in accordance with the Suspicious Activity Report regulations. Check the appropriate violations boxes on the Suspicious Activity Report form39 and completely and sufficiently describe the suspicious activity in the Suspicious Activity Report narrative.

The final step in money laundering is the re-introduction of the laundered funds to the economy. Examples of the Integration phase are:

Purchases of multiple certificates of deposit, on which the account holder routinely rolls over the principal each 30, 60 or 90 days and requests disbursement, by check, of only the interest on the certificates. Also, certificates of deposit purchased with illicit funds may be used as collateral for loans.
Deposited funds used to purchase real estate, vehicles, or other property. Subsequently, those items are used as collateral for loans, creating what appear to be clean loan proceeds. Often, the loans are paid back prior to maturity with large payments of other money obtained through criminal acts. The property is then used as collateral for other laundering schemes.
Loans secured from financial institutions with payoff dates in the far future for what appears to be legitimate business purposes, followed by the cash payoff of the principal within the first six-months of the loan period.
Co-mingling of illicit currency with legitimate business receipts; for example, drug proceeds deposited into the account of an otherwise legitimate business and thus made to appear as normal business proceeds.
Selling property previously purchased by a shell company set up by the criminal.
Creating offshore, anonymous companies, which lend laundered money back to the criminal, resulting in large deposits into bank accounts in the United States.

Other examples of money laundering may be found in previously published FinCEN Advisories, SAR Bulletins, and editions of the Suspicious Activity Reports ? Trends, Tips & Issues, all which may be found on the FinCEN website, www.fincen.gov. Also, some Bank Secrecy Act Examination Manuals issued by the federal financial regulatory authorities include lists of potential suspicious activity indicative of money laundering. For example, refer to Section 1001.0 of the Federal Reserve Board?s Bank Secrecy Act Examination Manual (September 1997), www.federalreserve.gov/boarddocs/supmanual; pages 12-18 and 34-39 of the Office of the Comptroller of the Currency?s Bank Secrecy Act/Anti-Money Laundering Comptroller?s Handbook (September 2000), www.occ.treas.gov/handbook/ compliance.htm as well as pages 18-21 in their booklet, Money Laundering: A Banker?s Guide to Avoiding Problems; or Attachment 18.1 of Chapter 18 in the National Credit Union Administration?s Examiner?s Guide, www.ncua.gov/ref/ examiners_guide/. The other regulatory authorities (Federal Deposit Insurance Corporation, Office of Thrift Supervision, United States Securities and Exchange Corporation, and the Internal Revenue Service) may also provide guidance to you.

It is important to note that the preceding examples are patterns that may indicate money-laundering activities. There may be legitimate business reasons for these transactions. However, any of the above patterns merits further investigation by the financial institution.

Financial institutions also are reminded that if they discover any suspicious activity within their institution that they know, suspect, or have reason to suspect involves the laundering of illicit funds at any phase of the money laundering process, and the dollar amount involved aggregates to their minimum reporting threshold, they should file a Suspicious Activity Report in accordance with the Suspicious Activity Report regulations. Check the appropriate violations boxes on the Suspicious Activity Report form39 and completely and sufficiently describe the suspicious activity in the Suspicious Activity Report narrative.40

FinCEN is always interested in hearing from financial institutions about the value and meaning of information conveyed in The SAR Activity Review ? Trends, Tips & Issues and By the Numbers. As mentioned in the Introduction, many topics addressed in this issue resulted from requests for information submitted from financial institutions after the publication of Issue 6. Please, when you have concluded reading all the information contained in Issue 7, take a few moments to complete and return the Feedback form found on the next page. As the Introduction states, the continuing exchange of information is critical to improve the suspicious activity reporting system. Your help is vital in this effort.

39 For Bank Secrecy Act/Structuring/ Money laundering, mark Box 35a on the depository institution Suspicious Activity Report form (TD F 90-22.47); Box 28a for money laundering and Box 28b for structuring on the Suspicious Activity Report by Money Services Business form (TD F 90-22.56); Box 30l on the Suspicious Activity Report by the Securities and Futures Industries form (FinCEN Form 101); and Box 26h for money laundering and box 26j for structuring on the Suspicious Activity Report by Casinos and Card Clubs form (FinCEN Form 102).
40 Refer to the Suspicious Activity Reporting Guidance Package for financial institutions for instructions on completing the Suspicious Activity Report narrative at http://www.fincen.gov/narrativeguidance_webintro.pdf. Additional guidance is provided to Casinos at http://www.fincen.gov/casinosarguidancefinal1203.pdf.

Excerpted from SAR Activity Review Issue 7, page 53