Anti-Money Laundering in a Nutshell (eBook)

Kevin Sullivan is the director of the Anti–Money Laundering (AML) Training Academy, which provides AML, BSA, and compliance training, AML consulting, and AML independent reviews. He was the New York State money laundering investigations coordinator of the Immigration and Customs Enforcement (ICE) El Dorado Federal Task Force (NY/NJ HIFCA) in Manhattan. Sullivan’s responsibilities included case reverse-engineering, SAR review and analysis, and special projects developing intelligence on emerging money-laundering threats, trends, and patterns. He was first exposed to money laundering while a New York State Police investigator on an undercover narcotics detail. He was subsequently detailed to a money laundering and financial crimes unit of the FBI White Collar Crimes Task Force. Sullivan was a lead instructor for ICE’s Operation Cornerstone, which assisted financial institutions with their AML and BSA compliance programs and provided a liaison between private financial institutions and law enforcement. Sullivan holds a master’s degree in economic crime management from Utica College of Syracuse University and a certificate in executive management from Cornell University. He is a Certified Anti–Money Laundering Specialist, a founding member and past president of the NY Chapter of the Association of Certified Anti–Money Laundering Specialists (ACAMS), the Chairman of the ACAMS Education Task Force, and a member of the Association of Certified Fraud Experts. He is an adjunct professor at Utica College, an ACAMS instructor, a frequent speaker on AML at seminars, conferences, and webinars, and an expert commentator on money laundering in national magazines and television.

Contents 3
About the Author 189
Acknowledgments 190
Introduction 4
Chapter 1: What Is Money Laundering? 6
Turning “Bad” Money into “Legitimate” Money 7
Money Laundering All Around Us 9
How Money Is Laundered 10
Why AML Efforts Are Important 11
The Three Stages of Money Laundering 11
Placement 12
Layering 13
Why Layering Works 14
Integration 15
Putting It All Together for a Payday 15
Who Launders Money 16
Summary 18
Chapter 2: Methods of Money Laundering 19
Structuring 20
Bulk Cash Smuggling 21
Gold 21
Money Service Businesses 22
Money Orders 22
Money Service Business 23
Regulations Involving Money Service Businesses 23
Wire Transfers 23
How a Wire Works 25
Casinos 26
Trade-Based Money Laundering 27
Over- and Under-Invoicing of Goods 28
Black Market Peso Exchange 29
Underground Banking System (Hawala) 29
Cyber Banking 31
Smart Cards 31
Internet 31
ATMs 32
Prepaid Cards 34
Autos 35
Correspondent Banking 36
Credit Cards 36
Real Estate 36
Cash-Intense Business 37
Insurance 38
Digital Currencies 38
Summary 39
Chapter 3: Federal Regulations 40
1970: Bank Secrecy Act 41
What Constitutes a Financial Institution 41
Currency Transaction Report 41
Currency Transaction Exemptions 42
Why a CTR Is Important to Law Enforcement 42
United States to World Comparison: Currency Transaction Reporting 43
Form 8300 43
1986: Money Laundering Control Act 43
1990: FinCEN 44
1992: Annunzio-Wylie Act 44
1994: Money Laundering Suppression Act 45
1998: Money Laundering and Financial Crimes Strategy Act 45
2001: USA PATRIOT Act 46
Office of Foreign Assets and Control 49
Foreign Account Tax Compliance Act 49
Summary 50
Chapter 4: Building a Quality AML Program 51
Recommended Elements of a Quality AML Program 54
The Four Pillars 55
Internal Policies and Procedures 55
Designated Compliance Officer 57
Independent Audit Function 59
Training 60
Risk Management 61
Conducting Due Diligence 65
Customer Risk 65
Product and Service Risk 66
Geographic Risk 67
Common Program Deficiencies 67
Summary 69
Chapter 5: Know Your Customer and Customer Identification Program 70
Elements of a KYC Program 72
Customer Identification 72
Basic Customer Due Diligence 74
Beware Shell Companies 75
Identifying Customers Online 76
Monitor Transactions 76
The Diligences 77
Start with a Checklist 79
Beware of “Voo-Due” Diligence 83
When to Perform Due Diligence or Enhanced Due Diligence 84
The Investigative Mind-Set 85
Trust Your Gut 86
Perform Risk-Based Due Diligence 88
Sources of Intelligence 92
Other Special Considerations 97
Transaction Monitoring 97
Correspondent Banking - Know Your ­Correspondents 98
Politically Exposed Persons 99
Summary 100
Chapter 6: A SAR Is Born 102
The Back Story 103
Getting to Suspicious 104
Hidden Value of SARs 105
30/60/90 Rule 106
Completing the SAR 106
Why Financial Institutions Need to File 111
What Happens After You File 111
Law Enforcement Contact 112
Suspicious Activity Report Statistics 113
Summary 115
Chapter 7: Tips for Law Enforcement and Financial Crimes Investigators 116
The “You Must Be An Accountant Theory” 117
What Do Bankers Do 119
What Regulators Do 119
Who Are the Regulators? 121
Getting in Touch with Regulators 121
SAR Power 122
Other Information Financial Institutions May Provide 124
Developing the Investigative Mind 127
Use Your Instincts 129
Tips for Developing the Investigative Mind 130
How I Got Here 132
Summary 135
Chapter 8: International Standards 137
Various Organizations That Create Guidelines 138
The Financial Action Task Force 138
Basel Committee on Banking Supervision 140
Wolfsberg 141
Egmont 142
European Union 143
International Monetary Fund 144
Transparency International 145
Economic Sanctions 145
USA PATRIOT ACT 148
Section 311 148
Section 312 149
Section 313 149
Section 319 149
Summary 150
Chapter 9: Fraud and Anti-money Laundering 151
Merging the Fraud and AML Units 153
Law Enforcement’s Role 154
A Suggestion for Dealing with Your Own Personnel 157
Types of Fraud 157
Summary 158
Appendix A: Money-Laundering Red Flags 159
Appendix B: Code of Federal Regulations Title 31 Section 103.18 170
Glossary 173
Index 179