Money Laundering

&
Terrorist Financing
Abdur Rauf Shaikh
Master of Sociology (Pak)
Master of Transnational Crime Prevention (MTCP) - Australia
Certified Anti-Money Laundering Specialist (CAMS) - USA

Federal Investigation Agency (FIA)
Outlines
Banks & other Depository Institutions

o Electronic Funds Transfer (EFT)

oSmurfing/Structuring

o Corresponding Banking

o Private Banking

o Bank Complicity


Methods
of
Money Laundering
Methods of ML
ML is an evolving activity, so
continuously monitored

Dirty money moves through:
offshore entities
wire transfers
trusts
hawala / hundi
securities dealers
car dealers
correspondent accounts etc
Dirty money, like water finds the route of
least resistance

Methods of ML
Strict AML policies for the banking sector

Significant shift in laundering activity from
the traditional banking sector to the non-
bank financial sector and to non-financial
businesses and professions

Not only banks, but also non-bank financial
institutions and non-financial businesses
have become attractive avenues for
introducing illicit gains into regular financial
channels
Wire / Electronic Funds Transfer
Funds transfer by electronic means-
an electronic terminal, telephone,
computer, automated teller machine
(ATM) or magnetic tape

Funds transfer can happen within a
country or across borders

Trillions of dollars go through the
worlds wires each day

Wire / Electronic Funds Transfer

Primary tool at all stages of laundering
specially in layering operations

Funds transfer into several different
banks, into several jurisdictions to blur
the trail to the source of funds

Transfers can be made from a large
number of bank A/cs into which deposits
have been made by smurfing to a
principal collecting account, often located
abroad in an offshore financial centre
Electronic Funds Transfer (EFT)
The goal of launderers is to move the funds from
one account to another, from one bank to
another, from one jurisdiction to another, to
avoid tracing the origin of funds by law
enforcement agencies / tax authorities

The money launderer will do the following to avoid
detection:

varying the amounts sent

keeping them relatively small if possible
where possible will use reputable organizations
throughout the process
Indicators of EFT
Funds transfers that occur to or from a
financial secrecy haven, or to or from a high-
risk geographic location without an apparent
business reason

When the activity is inconsistent with the
customers business or history

Large, incoming funds transfers are received
on behalf of a foreign client, with little or no
explicit reason

Funds transfers are sent or received from the
same person to or from different accounts


Structuring / Smurfing
Breaking down large cash
deposits into amount below the
reporting threshold (CTR)

PKR-2.5 Million is reporting threshold in
Pakistan

Couriers (Smurfs) used to make
the deposits in several banks or to
buy cashiers cheques in small
denominations

Structuring
The most commonly known ML method

The individuals engaged in structuring are
runners (smurfs), hired by the launderers

They go from bank to bank depositing cash
and purchasing monetary instruments in
amounts under the reporting threshold

Smurfing can be done in many settings or
industries, including the banking, money
remittance and casino sectors

Structuring / Smurfing






Structuring / Smurfing
A customer breaks a large
transaction into two or more
smaller ones.

A large transaction is broken
into two or more smaller
transactions conducted by two
or more people.
Account Structuring / Smurfing
An account smurfer, works for a Forex
broker, opens numerous bank accounts in
different banks as well as abroad

Accounts are opened in real and fictitious
names

Sometimes the account smurfers use
identification documents of dead persons

With funds supplied by the money brokers, the
account smurfer opens the accounts with
inconspicuous amounts, usually in the low
four-figures
Account Structuring / Smurfing
Once the accounts are opened, the account
smurfer signs the newly-issued checks in
blank, leaving the payee, date and amount
lines blank.

Money Brokers takes the cheques in his
possession.

An account smurfer may open many accounts.

The availability of hundreds of these accounts
leaves open the possibility that tens of millions
of dollars could be passing through them each
year
Correspondent Banking
Provision of banking services by one bank
(the correspondent bank) to another bank
(the respondent bank)

Banks can undertake international financial
transactions for themselves and for their
customers in jurisdictions where they have
no physical presence


The Bank of New York (BONY) scandal,
1999 exposed ML through Russian
correspondent accounts at BONY
Private Banking
Provides highly personalized and
confidential products and services to well-
heeled clients at fees that are often based
on assets under management.

Private banking often operates semi-
autonomously from other parts of a bank
and caters to wealthy customers who seek
confidentiality and personalized service.

Raul Salinas, the brother of former Mexican
President was handled by private
bankers employed by Citibank in Mexico
City, New York, London and Geneva.
Bank Complicity
A criminally co-opted bank
employee might facilitate ML

Insider can pose great ML threat

Financial institution employee can
be coerced / bribed not to file
Suspicious Transaction Report
(STR) or Currency Transaction
Reports (CTR)
Bank Complicity

Banks should identify and anticipate
trouble before it costs time, money and
reputation,.

Banks should develop programs to
closely monitor the people working
inside their own four walls.

Knowing your employee, or potentially
the enemy within, is crucial to a
banks security
Bank Complicity
In 2000, Lucy Edwards, a former
vice president of BONYs Eastern
European Division, and her
husband, Peter Berlin, pleaded guilty
in New York federal court to ML
conspiracy linked to their facilitating the movement
of hundreds of millions of dollars of dubious origin
from Russia through corporate accounts Berlin had
opened at the bank

Background screening of prospective and current
employees, especially for criminal history, is
essential for banks
Questions