Know Your Customer, Protect Yourself: Anti-Money Laundering Investigations

May 2014

IN THIS ISSUE

— Identifying Thieves in the Den: Increased Enforcement of AML Regulations
— Warning Signs of Money Laundering

GREETINGS!

Welcome to the May 2014 edition of our newsletter! In this issue, we’ll examine the reasons for increased scrutiny of anti-money laundering practices, and explore how your company can be better protected.

IDENTIFYING THIEVES IN THE DEN: INCREASED ENFORCEMENT OF AML REGULATIONS

As the economy has become increasingly globalized in the last few decades, the opportunities for fraud have grown with the opportunities for commerce. While traditional banking institutions have long been aware of the need for robust investigation of potential and existing customers, as rules concerning who could act as a banking institution became more liberal, the newly admitted players had to catch up. As brokerage firms joined their supposedly more staid banking cousins in providing more traditional financial services, new opportunities arose for fraudsters to exploit the nascent marketplace’s evolving controls.

While money laundering evokes popular images of mafiosi and drug cartels, it can often be used simply to evade taxation, or even as a device to hide assets in marital disputes. Certain brokerage firms have been investigated by the U.S. Securities and Exchange Commission, for example, when a client transferred funds to a holding company that was simply a shell operation. Others have used such accounts to hide proceeds from other schemes, such as a jeweler who attempted to keep his cash payment for goods from being taxed.

WARNING SIGNS OF MONEY LAUNDERING

Whether your client is a newer entrant into the banking sector of a long-established institution, certain red flags exist of which it is best to be aware. If a customer opens multiple accounts within a short time frame, either at the same institution or multiple institutions, this may be an indicator that the groundwork is being laid for fraud. Similarly, if a customer provides questionable identification (such as a driver’s license having a different amount of digits than those legitimately issued in a state), or has a record of employment or business that is inconsistent with the frequency or amounts of deposits made, illicit activity may be underway.

The best prevention for financial institutions is a multi-faceted investigative approach of public records research (to verify claims made and establish a financial profile of the customer), obtaining a credit report and, where possible, conducting interviews with the customer’s former employers, roommates, and other references, both provided by the customer and identified via research. Know your customer, and you will better know the risk to your business that can accompany its rewards.