Anti-Money Laundering in a Nutshell : 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. 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 Anti–Money Laundering in a Nutshell : Awareness and Compliance for Financial Personnel and Business Managers , 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 gain rich insights winnowed from the author's experiences as a New York State and federal investigator. What you’ll learn US federal and international AML laws The AML measures and program that financial institutions must have in place to control money laundering, such as KYC, CIP, and AML/CFT risk assessment The practical steps that personnel at every level from the teller window to the C-suite must know to ensure institutional compliance with AML regulations, such as filling out SARs and CTRs Who this book is for Under federal acts such as the Bank Secrecy Act of 1970, the Money Laundering Suppression Act of 1994, and the Intelligence Reform and Terrorism Prevention Act of 2004, every financial institution in the United States must have an anti–money laundering program in place that includes annual training of all relevant employees. This short book is an educational text or supplemental reader for such training by anti–money laundering compliance officers, examiners, agents, and consultants. Table of Contents Chapter 1. What is Money Laundering? Chapter 2. Methods of Money Laundering Chapter 3. Federal Regulations Chapter 4. Building a Quality AML Program for Financial Institutions Chapter 5. Know Your Customer and Customer Identification Program Chapter 6. A SAR Is Born Chapter 7. Money Laundering for Law Enforcement Chapter 8. International Standards Chapter 9. FRAML Glossary Appendix A: Red Flags Appendix B: Code of Federal Regulations Title 31 Section 103.18 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 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 __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. 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 __Anti–Money Laundering in a Nutshell**:** Awareness and Compliance for Financial Personnel and Business Managers__, 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 gain rich insights winnowed from the author's experiences as a New York State and federal investigator. What you’ll learn* US federal and international AML laws * The AML measures and program that financial institutions must have in place to control money laundering, such as KYC, CIP, and AML/CFT risk assessment * The practical steps that personnel at every level from the teller window to the C-suite must know to ensure institutional compliance with AML regulations, such as filling out SARs and CTRs Who this book is for Under federal acts such as the Bank Secrecy Act of 1970, the Money Laundering Suppression Act of 1994, and the Intelligence Reform and Terrorism Prevention Act of 2004, every financial institution in the United States must have an anti–money laundering program in place that includes annual training of all relevant employees. This short book is an educational text or supplemental reader for such training by anti–money laundering compliance officers, examiners, agents, and consultants. Table of Contents Chapter 1. What is Money Laundering? Chapter 2. Methods of Money Laundering Chapter 3. Federal Regulations Chapter 4. Building a Quality AML Program for Financial Institutions Chapter 5. Know Your Customer and Customer Identification Program Chapter 6. A SAR Is Born Chapter 7. Money Laundering for Law Enforcement Chapter 8. International Standards Chapter 9. FRAML Glossary Appendix A: Red Flags Appendix B: Code of Federal Regulations Title 31 Section 103.18 Front Matter....Pages i-xiv What Is Money Laundering?....Pages 1-13 Methods of Money Laundering....Pages 15-35 Federal Regulations....Pages 37-47 Building a Quality AML Program....Pages 49-67 Know Your Customer and Customer Identification Program....Pages 69-100 A SAR Is Born....Pages 101-114 Tips for Law Enforcement and Financial Crimes Investigators....Pages 115-135 International Standards....Pages 137-150 Fraud and Anti-money Laundering....Pages 151-158 Money-Laundering Red Flags....Pages 159-169 Code of Federal Regulations Title 31 Section 103.18....Pages 171-173 Glossary....Pages 175-180 Back Matter....Pages 181-186