Joseph Hall

BSA data essential to money laundering, other investigations

November 13, 2017

The basics of money laundering remain the same, but criminals are constantly evolving their techniques, Secret Service Special Agent Joseph Hall said Monday at the CUNA/National Association of State Credit Union Supervisors Bank Secrecy Act (BSA) Conference. During his talk, Hall laid out the money laundering process, and outlined a few common methods used by criminals and how BSA compliance is extremely helpful in investigations.

“BSA data is a major help to us when we conduct an investigation, whether it’s money laundering or fraud, whatever the case may be,” Hall said. “To be able to access those documents can give us the information we need to be able to determine if we’re going to be able to prosecute a criminal.

Money laundering is the process by which criminals may place, layer an integrate illicit funds through the economy in order to make them appear to be from legitimate sources.

According to Hill, the “placing” state is the most vulnerable to detection, and that’s where credit unions and other financial institutions can be especially helpful. Criminals may structure deposits a certain way to avoid detection, particularly when it comes to large amounts of illicit cash, such as a number of deposits just below the $10,000 currency transaction report threshold.

Placement mechanisms include:

  • Purchases of money orders, checks and other negotiable instruments;
  • Despots in bank accounts;
  • Wire transfer purchases; and
  • Loading of prepaid cards.

While the above are all mostly standard transactions, the “layering” stage involves the criminals trying to move the proceeds away from the illicit source. This involves attempts to create complex paper trails, such as moving funds to different institutions, and change techniques (use of wires, commodities, other instruments) by which the money moves.

The final “integration” stage involves the criminal retrieving the money in a manner designed to avoid attention, the money being “clean” and integrated into the financial system.

These integration methods include: loans, gifts, false invoicing, purchase of luxury items and/or commodities.

Hall also noted that the advent of crypto-currencies such as Bitcoin provide bad actors the opportunity to anonymously launder money and purchase goods with low transaction costs.

He noted one real-estate scam investigation he participated in, and as they were building their case against the suspect, they looked at BSA data. That data showed that the suspect was using his ill-gotten gains in casinos, and helped them build a stronger case.

An ever-growing part of money laundering is trade-based money laundering, used by illegal organizations such as drug smugglers or fraud rings, to move funds through the financial system disguised as legitimate trade.

Funnel accounts are a popular technique in trade-based money laundering, which consists of:

  • An individual, colluding with a criminal organization, opening an account with an institution that can readily receive cash deposits in multiple states;
  • Multiple individuals will then deposit the organization’s cash proceeds across different branches or institutions. These deposits are kept below $10,000 to avoid additional identification and recordkeeping requirements;
  • An intermediary then initiates wire transfers from the funnel accounts to a U.S. or foreign-based business for the purchase of goods that are then shipped to foreign countries for sale;
  • Finally, the purchased goods are sold and the proceeds are transferred back to the criminal organization.

Funnel account red flags include:

  • Multiple cash deposits of less than $10,000 by unidentified persons at branches outside of the geographic region where the account is domiciled, or where the business operates in the case of a business account;
  • Individuals opening accounts or making deposits have no detailed knowledge about the stated business activity of the account;
  • Out-of-state account debits and deposits do not appear to be related to the stated business of the account holder;
  • Check appear to have different handwriting on the payee and amount lines than the signature. This may indicate checks are pre-signed and handed over by a criminal organization; and
  • Wire transfers or checks issued from a funnel account are deposited or cleared through the U.S. correspondent account of a Mexican bank.