Risk Management Manual of Examination Policies - FDIC

BANK SECRECY ACT, ANTI-MONEY LAUNDERING,
AND OFFICE OF FOREIGN ASSETS CONTROL
Furthermore, the use of false identities to conduct these
transactions is common; banking officers should be vigilant
in looking for false identification documents. In an attempt
to conceal their activities, money launderers will often
resort to “smurfing” activities to get illicit funds into a
financial institution. “Smurfing” is the process of using
several individuals to deposit illicit cash proceeds into
many accounts at one or several financial institutions in a
single day.
Furthermore, cash can be exchanged for traveler’s checks,
food stamps, or other monetary instruments, which can
then also be deposited into financial institutions.
Placement can also be done by purchasing goods or
services, such as a travel/vacation package, insurance
policies, jewelry, or other “high-ticket” items. These
goods and services can then be returned to the place of
purchase in exchange for a refund check, which can then
be deposited at a financial institution with less likelihood
of detection as being suspicious. Smuggling cash out of a
country and depositing that cash into a foreign financial
institution is also a form of placement. Illegally-obtained
funds can also be funneled into a legitimate business as
cash receipts and deposited without detection. This type of
activity actually combines placement with the other two
stages of money laundering, layering and integration,
discussed below.
Layering
The second stage of money laundering is typically layering.
This stage is the process of moving and manipulating funds
to confuse their sources as well as complicating or partially
eliminating the paper trail. Layering may involve moving
funds in various forms through multiple accounts at
numerous financial institutions, both domestic and
international, in a complex series of transactions.
Examples of layering transactions include:
• Transferring funds by check or monetary instrument;
• Exchanging cashier’s checks and other monetary
instruments for other cashier’s checks, larger or
smaller, possibly adding additional cash or other
monetary instruments in the process;
• Performing intrabank transfers between accounts
owned or controlled by common individuals (for
example, telephone transfers);
• Performing wire transfers to accounts under various
customer and business names at other financial
institutions;
• Transferring funds outside and possibly back into the
U.S. by various means such as wire transfers,
particularly through “secrecy haven” countries;
Section 8.1
• Obtaining certificate of deposit (CD) secured loans
and depositing the loan disbursement check into an
account (when the loan is defaulted on, there is no loss
to the bank); and
• Depositing a refund check from a canceled vacation
package or insurance policy.
Layering transactions may become very complex and
involve several of these methods to hide the trail of funds.
Integration
The third stage of money laundering is integration, which
typically follows the layering stage. However, as
mentioned in the discussion of the placement stage,
integration can be accomplished simultaneously with the
placement of funds. After the funds have been placed into
the financial system and insulated through the layering
process, the integration phase is used to create the
appearance of legality through additional transactions such
as loans, or real estate deals. These transactions provide
the criminal with a plausible explanation as to where the
funds came from to purchase assets and shield the criminal
from any type of recorded connection to the funds.
During the integration stage, the funds are returned in a
usable format to the criminal source. This process can be
achieved through various schemes, such as:
• Inflating business receipts,
• Overvaluing and undervaluing invoices,
• Creating false invoices and shipping documents,
• Establishing foreign trust accounts,
• Establishing a front company or phony charitable
organization, and
• Using gold bullion schemes.
These schemes are just a few examples of the integration
stage; the possibilities are not limited.
Money Laundering Red Flags
Some activities and transactions that are presented to a
financial institution should raise the level of concern
regarding the possibility of potential money laundering
activity. Evidence of these “red flags” in an institution’s
accounts and transactions should prompt the institution,
and examiners reviewing such activity, to consider the
possibility of illicit activities. While these red flags are not
evidence of illegal activity, these common indicators
should be part of an expanded review of suspicious
activities.
General
DSC Risk Management Manual of Examination Policies 8.1-39 Bank Secrecy Act (12-04)
Federal Deposit Insurance Corporation