Progress Report On Anti-Money Laundering

The American Bankers Association and the American Bar Association recently held their 14th annual Money Laundering Enforcement Seminar. This year, the agenda gave detailed attention to the efforts to investigate and stop terrorism as well as the more traditional money laundering issues.

A panel of government experts brought the audience up to date on the use of CTRs, SARs, and what investigators are finding. Notable at this conference was the high level of praise from government investigators who use the data reported on CTRs and SARs for the financial institutions that prepare and file the reports. Information reported by banks and other financial institutions has enabled law enforcement to investigate and identify terrorists with a high rate of success.

What's Happening at FinCEN
Mike DeLuca gave the ABA Money Laundering Conference an update on FinCEN activities and developments in the money laundering world. Just in case anyone thinks that financial institutions are the only entities complying with CTR and SAR requirements, DeLuca told the audience that MSBs have filed about 18,000 SARs. They have been using the bank form until the MSB form is final. About one third of these reports identify structuring as the suspected criminal activity.

Reports to FinCEN also indicate that problems with identity theft are exploding. This is a particularly problematic area for consumers. Given the reports to FinCEN, financial institutions could serve their customers by providing information about prevention of identity theft and how to correct problems if identity theft occurs.

Another common crime reported is credit card or debit card fraud. Credit card convenience checks are a significant part of this problem. One of the common uses made of a stolen identity is obtaining credit cards.

What The Terrorists Did
Investigations since September, 2001, have revealed practices and patterns that are typical of the way in which terrorists behaved in financial institutions and managed accounts or used their funds. Looking for these patterns should be part of your anti-money laundering program.

The terrorists followed many of the traditional patterns of money laundering, but with a few new twists. For example, terrorists' funds were usually wired into the United States rather than out. The funds were intended for use in the U.S. rather than being moved back to the source country.

When funds were wired into accounts or deposited through other means, the funds did not stay in the account for long. The account-holders often made substantial withdrawals within a few days of receiving the wire or making the deposit Accounts were often opened with cash or cash equivalents in amounts between $3,000 and $5,000. Many of the accounts were opened with money orders and similar cash equivalents. Very few, if any, generated large currency transaction reporting.

The account openers produced foreign government's passports or visas as identification. They also didn't waste much time. In most cases, the terrorists opened their bank accounts within a month of arriving in the U.S. They got right down to business.

Another interesting observation was that the hijackers tended to open accounts in groups. While one individual might be the designated account owner, or conduct the in-person transaction with the bank, usually three or four other individuals would be on the account. It was not unusual for these individuals to share the same address and/or the same telephone number. When more than one individual was on the account, each one had a debit or ATM card. The debit cards were sometimes used by individuals who were not on the account.

Once the account was opened, the terrorists had very little personal contact with the financial institution. Most of the transactions were conducted by wiring funds in, withdrawing funds at ATMs, using debit cards and, less often, using checks. When withdrawals were made from ATMs, it was not unusual for more than one hijacker to be present. Often, withdrawal or debit transactions took place in a short span of time or even sequentially at the same ATM.

Spending patterns were also revealing. The hijackers did not tend to follow what we would routinely think of as consistent spending patterns. For example, the hijackers always purchased first class air tickets. This was the case for their planning exercises and routine travel as well as the selected tickets on September 11, 2001. In stark contrast to the comfort in which they traveled, they tended to stay in cheap hotels.

Their account transactions did not follow expected spending patterns for normal living expenses such as food, rent, and utilities. Expenditures that are usually paid for by check or charge were not apparent from the account records.

Filling Out The SAR
The SAR is a valuable tool for law enforcement - if SARs are filled out correctly. Knowing how law enforcement investigators use SARs is useful for understanding how to prepare SARs. There are lots of boxes to check and data to enter such as names, addresses, and identifying information.

The key to the SAR, however, is not the boxes that are easy to check or fill out. The key to the SAR is the narrative. And this is where most errors and shortcomings occur. De Luca described the narrative as "the most important information" on the SAR.Investigators look at the narratives on SARs. When searching the database of SARs, they look for key words. It is therefore important to use common and expected words in describing a situation. Include in your narrative the words that a searcher is likely to look for when pursuing the issue.

Dennis Lormel, Section Chief of the FBI's Financial Crimes Section, stated that the quality of SARs plays a direct role in the success of investigations. He has a number of data mining projects using SARs. FBI investigations include tracking inactive or not-issued Social Security Numbers and false IDs.

Should We File?
De Luca got lots of questions about whether to file SARs for certain types of crimes. His response could be summarized as when in doubt, file. Specifically, he recommended filing when the suspected crime involves state law. He explained that investigators don't usually distinguish between state and federal law when investigating cases. Those refinements are made when and if cases go to court.

Lormel said that the FBI uses SARs to track everyone involved in possible illegal activity. Particularly with charitable organizations, they use data to track funds "back to the donor and forward to the strike team."

DeLuca also urged the audience to file on all "Nigerian" scams, even though they may be commonplace. This area is also growing rapidly and the more information investigators have, the more able they will be to take action.

Keep Moving
The panel wrapped up with an amusing and thought-provoking presentation by Jouke van der Zee, Principal Advisor of Syfact International B.V. Van der Zee merged his experience in information technology tools for anti-money laundering with his academic background in biology to make the point that prevention must evolve along with the criminal developments. Money laundering and related crimes are moving targets representing constant change. Preventative efforts must move along with these targets in order to be effective. As in biology, the organisms that fail to adapt become extinct.

Criminals, like invasive bacteria, will look for the weakest points to infect. Van der Zee observed that small banks should watch what large banks are doing and take similar steps to prevent the infection from moving to them. It was a compelling argument for compliance and law enforcement networking.

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