Risk Management Manual of Examination Policies - FDIC

BANK FRAUD AND INSIDER ABUSE Section 9.1
verifications. The names of these offshore "shell"
institutions are often similar to those of major legitimate
financial institutions which are listed in international
banking directories. There have been many instances of
fraud involving obligations of offshore institutions,
including certificates of deposit, letters of credit, drafts,
commitments, etc. In some cases, these obligations have
been purchased for a fraction of their face value for the
sole purpose of defrauding legitimate institutions and other
businesses.
Offshore companies, including financial institutions, are
frequently established for the purpose of hiding the true
identity of the principals, laundering money, inflating
financial statements and issuing false documents to secure
loans. Loans to offshore companies and loans secured by
obligations of offshore institutions must be viewed with
extreme caution.
Warning Signs
1. Loans made on the strength of a borrower's financial
statement when the statement reflects major
investments in and income from businesses
incorporated in bank secrecy haven countries such
as Panama, Cayman Islands, Netherlands Antilles,
Montserrat and others.
2. Loans to companies domiciled in bank secrecy
haven countries.
3. Loans secured by obligations of offshore
institutions.
4. Transactions involving an offshore "shell"
institution whose name may be very similar to the
name of a major legitimate institution.
5. Frequent wire transfers of funds to and from bank
secrecy haven countries such as Panama, Cayman
Islands, Netherlands Antilles, Montserrat and
others.
6. Offers of multi-million dollar deposits at below
market rates from a confidential source to be sent
from an offshore institution or somehow guaranteed
by an offshore institution through a letter, telex, or
other "official" communication.
7. Offshore companies are used to disguise the true
identity of borrowers or guarantors.
8. No independent verification of the financial strength
of the offshore institution is available from any
source.
9. In order to make an offshore bank transaction
appear legitimate, innocent third parties are brought
into the scheme, unaware of its fraudulent nature.
Suggested Action
Offshore transactions should be closely examined to
determine the legitimacy of the entities involved.
Suspicious wire transfers to and from offshore institutions
should be reviewed to determine the source and disposition
of the funds. Obligations issued by questionable offshore
institutions should not be accepted at face value unless the
value can be substantiated through independent sources.
WIRE TRANSFERS
Potential Problems
Wire transfer fraud is often possible because of a
breakdown in internal controls and/or system security
measures at the financial institution. Transactions may be
introduced by unauthorized persons who have obtained the
proper procedures from an unsuspecting employee.
Transactions may be altered in processing and posted to
the wrong account, posted in the wrong amount or posted
to the correct beneficiary but wrong account. Wire
transfers are a popular form of laundering money,
providing an easy way of sending funds to and from bank
secrecy haven countries.
Warning Signs
1. Lack of separation between authority to initiate a
wire transfer and authority to approve a wire
transfer.
2. Indications of frequent overrides of established
approval authority and other internal controls.
3. Intentional circumvention of approval authority by
splitting transactions.
4. Wire transfers to and from bank secrecy haven
countries.
5. Frequent or large wire transfers for persons who
have no account relationship with the institution.
6. Large or frequent wire transfers against uncollected
funds.
DSC Risk Management Manual of Examination Policies 9.1-13 Bank Fraud and Insider Abuse (4-98)
Federal Deposit Insurance Corporation