I like to cover the 3 stages of $ laundering during training. This year I would like to provide an example that would cover all three stages, i.e. a little story. It makes it more clear for the attendees and more interesting. Does anyone have one they would like to share or a link to one/ Thanks!

Nothing works better than stories from your own bank or local area. Check newspaper articles for money laundering stories. Talk to your regulator about cases they have seen or investigated.

Look back at your SAR's and see if there is anything that would be interesting or amusing.

I can give you some examples, but nothing is better than a local story.

If you use your own SARs as a resource, don't reveal that a SAR was filed in your training session.

That's true John. I generally change some information to make it more generic. More of a "This is the type of activity we review and present to the SAR committee" type of discussion. I never reveal if a SAR was filed.

I have also found that the regulators are more than happy to discuss situations with bankers. I have gotten some good stories from our state bankers association seminars where the regulators have talked.

1) Account holder (loacl drug lord) has multiple indviduals smurf cash funds into the 2-3 accounts held by the same customer, across Bank 1's branches 1-2 days out of the week. This continues for a number of weeks. (PLACEMENT)

2) A few days after each smurf deposits the cash, the funds are wired in round dollar amounts to a common account at another institution, called Bank 2. (LAYERING)

3) To further blur the trail, the funds are further wired
to yet a third bank (LAYERING)Bank 3

4) At Bank 3, the funds are now used to open a CD (LAYERING) which is further used to collateralize a large consumer loan (LAYERING but Approaching Integration)

5. The loan is paid off well ahead of schedule, and the CD is closed out early as well, with a nice crisp clean bank check issued to our savvy money launderer. The launderer now redeposits the check at Bank 1, and uses the funds to purchase a 2007 Maserati (INTEGRATION)

1 of millions of techniques.

[quote=AMLFella]1) Account holder (loacl drug lord)

That is hysterical.

Trees:

In addition to the 3 stages of ML, you may also want to use some examples of terrorist finance.

Actually, structuring (the smurfing part of the example) deposits is both placement and layering.

Another Example, but More Leaning to Terror Finance Than Conventional Money Laundering

1. Cash deposits are made at Bank 1 from a personal customer into his/her personal account. (This customer also holds an account for a local cigarette distributorhip). The cash deposit volumes and amounts are not consistent with the personal account expectations, and you further notice that the business account for the cigarette distributorship has been low on volume of cash deposits and amounts. (PLACEMENT)

2. This goes on for a few weeks, when one day the funds in the personal account are then transferred via internal wire to the cigarette distributorship account (1st LAYER)

3. The funds in the Cigarette Distibutorship account are wired to a bank in Europe. The wire appears to be a 202 to intermediary Bank of Brussels with the beneficiary bank field stating State Bank of Pakistan (but the free format text field states "For further credit to account #1234567) (LAYERING)
NOTE: You want to inquire of wire personnel why they sent a 202 rather than a 101 for a bank customer
3. Funds are credited to unidentified beneficiary (except for account #) at State Bank of Pakistan.
NOTE: If this was in fact terror finance, the integration would take place somewhere in Pakistan, probably funding a GT or SDGT. HOWEVER, if this is an unconventional money laundering scheme, the funds may be withdrawn and used in Pakistan for purchase of drugs that will find their way back to the U.S. or Europe. Take your pick for training!!!

Yeah, sometimes the lines are not so clear between the phases. Same with layering and integration.

Leave out the frill on the 202 vs 103 wire type. The bank determines the wire message type, not the originating customer.

Yet, in lookback investigations, we have found numerous cases of bank customers sending 202s rather than 103s. What gives them away is the free format text field. They often do this to save money,(since 202s are usually cheaper) but even if they are up to something nefarious, they would still need either complicity or a control weakness to enact such.

Unless the bank customer is a SWIFT member it *can't* send a 202 vs. a 103. The bank has to do it for them. If they could have it done just by requesting it, then you're right it's either a control weakness or complicity.

Wow. Thanks folks. I intend to use both examples, with some fine tuning. We are a community bank and don't offer swifts, etc. We've only had one example that hit the papers in the last couple years-a structuring scheme to avoid taxes. Its fund to bring that to the classes as so often ,esp. with a community bank, people tend to think most of the things we hear about can happen here, at least to any degree. Great stuff!

No prob, Trees. I have a few others, including the use of monetary instruments. If you'd like more, just PM me.

Here are a couple of others Trees:

Scenario 1

1. Deposits of currency are recieved in Bank 1, and these are wrapped up in currency straps already stamped by other FI's. (PlACEMENT)

2. These sit in an account for a few days, until the funds are debited from the account to purchase monetary instruments.
(LAYER)

3. The monetary instruments are presented in consecutive order for encashment at Bank #2 (INTEGRATION)

Scenario 2

1. Frequent cash deposits are made to an account at Bank 1. (PLACEMENT).

2. At a near-term future date, the funds are wired to an offshore account (LAYERING)

3. Customer comes to Bank 2 and requests a loan, and collateralizes the loan with funds from the offshore account (2nd LAYER)

4. The loan is disbursed to a 3rd party (can be either a 3rd LAYER or INTEGRATION).

Obviously, the factors here to consider are the offshore location and the 3rd party payment.

Another one that goes back a few years:
Customer, a farm implement dealer, makes a series of uncharacteristic deposits. Customer is not attempting to launder money, but customer's customer (we'll call him "Juan Valdez") is.

Juan has purchased one or more top-of-the-line tractors using a combination of currency (placement), monetary instruments (churning), etc. After purchase, Juan ships tractors to Columbia (churning). Upon arrival in Colombia, Juan's tractors are sold for cash (integration.)

Other examples could be used if there are laundering through international shipments under letters of credit. Imagine ordering and paying for 1,000 fine writing instruments at $100 each (think Mont Blanc). A letter of credit is obtained for $100K for the purchase of those pens. The goods come in (remember with letters of credit, banks deal in documents, not goods) and pass customs without a search.

The box has 1,000 Bic pens - the letter of credit is paid and the customer just got $100K out of the country.

Richard, this is the first I have heard of the term "churning". Is it the equivalent of layering?

Thanks

SB, excellent examples. I find trade finance to be somewhat difficult to graps at times, as the whole LC to BA process can be confusing. Can you provide a couple of more examples of trade finance-related money laundering?

another method is tranferring the L/C to another beneficiary after it has been advised.
and
significantly amending the terms of the L/C after it has been advised.
and
use of shell companies
and
excessive agent commissions.
Just a couple that come to mind.

Barbarian, can you utilize the first factor, amending the terms of the L/C, in short but quick scenario? If you can, include what control weaknesses would expose the bank to this.
Thanks

1. Really simple example (and one I've seen)

The original L/C described a shipment of automobiles from the US to China, payment on presentation of invoice, and ship's bill of lading, and customs certificate.

After advising the L/C; one party sends a 707 deleting the requirement for presentation of the bill of lading and customs certificate.

Now payment is made simply on presentation of an invoice.

2. Somewhat more florid example (and what you're afraid will happen)

Initial L/C specifies an amount of calcium chloride 94 pct min. powder, technical grade delivered to the port of Philadelphia from Tunis.

After advising, there are a series of 707 messages:
1. changes destination to Cartagena, Colombia
2. changes origin to Russia from Tunis
3. changes calcium chloride to spherical aluminum powder, 55 micrometers, and aluminum content greater than 99%

After all the changes, you have a transaction that bears no resemblance to the one you originally advised.

Weak review of L/C's by the bank, untrained personnel, lack of an automated system to track L/C's, lack of systematic scanning...

Yes, they are interchangeable and both have been used for decades. I like this term better because it invokes the imagery of a washing machine hard at work.