Anti-Money Laundering in a Nutshell (2nd Edition): Awareness and Compliance for Financial Personnel and Business Managers

Anti–Money Laundering in a Nutshell is a concise, accessible, and practical guide to compliance with anti–money laundering law for financial professionals, corporate investigators, business managers, and all personnel of financial institutions who are required, under penalty of hefty fines, to get anti–money laundering training. This new edition of Anti-Money Laundering will update the topics discussed, and introduce the changes and updates including information on the AMLA Act of 2020, new EU standards and directives, anti-money laundering on digital currencies and more. Money laundering is endemic. As much as 5 percent of global GDP ($3.6 trillion) is laundered by criminals each year. It’s no wonder that every financial institution in the United States―including banks, credit card companies, insurers, securities brokerages, private funds, and money service businesses―must comply with complex examination, training, and reporting requirements mandated by a welter of federal anti–money laundering (AML) laws. Ignorance of crime is no excuse before the law. Financial institutions and businesses that unknowingly serve as conduits for money laundering are no less liable to prosecution and fines than those that condone or abet it. In this book Kevin Sullivan draws on a distinguished career as an AML agent and consultant to teach personnel in financial institutions what money laundering is, who does it, how they do it, how to prevent it, how to detect it, and how to report it in compliance with federal law. He traces the dynamic interplay among employees, regulatory examiners, compliance officers, fraud and forensic accountants and technologists, criminal investigators, and prosecutors in following up on reports, catching launderers, and protecting the integrity and reputations of financial institutions and businesses. In particular, corporate investigators will will gain rich insights winnowed from the author's experiences as a NY State and federal investigator. Table of Contents 5 About the Author 12 Acknowledgments 13 Introduction 14 Chapter 1: What Is Money Laundering? 16 Turning “Bad” Money into “Legitimate” Money 17 Money Laundering All Around Us 20 How Money Is Laundered 22 Why AML Efforts Are Important 24 The Three Stages of Money Laundering 25 Placement 25 Layering 28 Why Layering Works 29 Integration 30 Putting It All Together for a Payday 30 Case Study 31 Who Launders Money 33 Summary 34 Chapter 2: Methods of Money Laundering 35 Structuring 36 Bulk Cash Smuggling 37 Money Service Business (MSB) 39 Regulations Involving Money Service Businesses 40 Money Orders 41 Wire Transfers 42 How a Wire Works 44 Trade-Based Money Laundering (TBML) 46 Over- and Under-Invoicing of Goods 47 Black Market Peso Exchange 48 Underground Banking System (Hawala) 50 Red-Flag Indicators of Trade-Based Money Laundering (TBML) 51 Correspondent Banking 52 Online Banking 53 Cyber Banks 53 Smart Cards 54 Prepaid Cards 54 Credit Cards 56 ATMs 57 Cash-Intensive Business 60 Autos 61 Real Estate 62 Price Manipulation 62 Real Estate Shell Game 63 Gold 63 Diamonds 64 Insurance 64 Casinos 64 Summary 66 Chapter 3: Federal Regulations 68 1970: Bank Secrecy Act 69 What Constitutes a Financial Institution 69 Currency Transaction Report 71 Currency Transaction Exemptions 72 Why a CTR Is Important to Law Enforcement 72 United States to World Comparison: Currency Transaction Reporting 73 Form 8300 73 1986: Money Laundering Control Act 74 1990: FinCEN 75 1992: Annunzio-Wylie Act 75 1994: Money Laundering Suppression Act 76 1998: Money Laundering and Financial Crimes Strategy Act 76 2001: USA PATRIOT Act 77 Office of Foreign Assets and Control 81 Foreign Account Tax Compliance Act 82 The Anti-Money Laundering Act (AMLA) of 2020 83 Summary 84 Chapter 4: International Standards 86 Various Organizations That Create Guidelines 87 The Financial Action Task Force 87 Basel Committee on Banking Supervision 90 Wolfsberg 92 Egmont 94 European Union 95 International Monetary Fund 97 Transparency International 98 Economic Sanctions 99 USA PATRIOT Act 102 Section 311 103 Section 312 104 Section 313 104 Section 319 105 Summary 105 Chapter 5: Building a Quality AML Program for Financial Institutions 107 Recommended Elements of a Quality AML Program 111 The Five Pillars 113 Internal Policies and Procedures 113 Designated Compliance Officer 116 Independent Audit Function 118 Training 119 Customer Due Diligence 122 Risk Management 123 Conducting Due Diligence 128 Customer Risk 128 Product and Service Risk 130 Geographic Risk 131 Ultimate Beneficial Ownership 132 Common Program Deficiencies 135 Summary 137 Chapter 6: Know Your Customer and Customer Identification Program 139 Elements of a KYC Program 141 Customer Identification 141 Basic Customer Due Diligence 144 Beware Shell Companies 146 Identifying Customers Online 147 Monitoring Transactions 148 The Diligences 150 Start with a Checklist 151 Beware of “Voo-Due” Diligence 158 When to Perform Due Diligence or Enhanced Due Diligence 159 Perform Risk-Based Due Diligence 160 Sources of Intelligence 166 Let’s Fill In Some of the Blanks 167 Other Special Considerations 172 Transaction Monitoring 172 Correspondent Banking: Know Your Correspondents 173 Politically Exposed Persons 175 Summary 177 Chapter 7: A SAR Is Born 178 The Back Story 180 Getting to Suspicious 181 Hidden Value of SARs 183 30/60/90 Rule 183 Completing the SAR 184 A fundamentally good SAR narrative should contain the following: 185 There are some common mistakes that should be recognized: 188 Here is additional SAR completion information: 189 Why Financial Institutions Need to File 191 What Happens After You File 192 Law Enforcement Contact 193 Suspicious Activity Report Statistics 195 Summary 196 Chapter 8: Tips for Law Enforcement and Financial Crimes Investigators 198 The “You Must Be an Accountant Theory” 200 What Do Bankers Do 202 What Regulators Do 203 Who Are the Regulators? 205 Getting in Touch with Regulators 206 SAR Power 207 Other Information Financial Institutions May Provide 210 The following is the information available from FinCEN: 210 The following is information available from a financial institution: 213 Developing the Investigative Mind 214 Use Your Instincts 218 Tips for Developing the Investigative Mind 219 How I Got Here 222 Summary 227 Chapter 9: Fraud and Anti-Money Laundering 229 Merging the Fraud and AML Units 231 Law Enforcement’s Role 234 A Suggestion for Dealing with Your Own Personnel 237 Types of Fraud 238 Summary 239 Chapter 10: Beyond the Basic Predicate Crimes 240 The Wildlife Trade 240 Cryptocurrencies 242 Human Smuggling/Trafficking 244 Possible indicators for financial institutions are 246 Arts and Antiquities 247 Geographical Targeting Orders (GTOs): A Tool for Combating Money Laundering 250 Red Flags 251 Summary 251 Chapter 11: What Could Possibly Go Wrong? 252 If You Think Compliance Is Expensive, Try Non-compliance 253 Inside the White-Collar Criminal Mind 254 Last Words 263 Appendix A: Money Laundering Red Flags 264 Potentially Suspicious Activity That May Indicate Terrorist Financing 279 Appendix B: Code of Federal Regulations Title 31 Section 1020.320 282 § 1020.320 (formerly 103.18) Reports by banks of suspicious transactions. 282 Glossary 286 Index 294