Case Studies on Money Laundering / Terrorist Financing

9 March 2005

The following cases have principally been drawn from the Typologies Reports published by the FATF during the period 1997 – 2004. These are available from the FATF website www.fatf-gafi.org. Additional cases published by the Egmont Group of Financial Intelligence Units can be obtained from the NCIS web-site www.ncis.gov.uk publications.

Table of contents:


Money Transfers

  • Facts

    The police arrested suspect A, the leader of an Iranian drug trafficking group, for possessing stimulants and other kinds of drugs. The subsequent investigation revealed that the suspect had remitted part of his illegal proceeds abroad.

    A total of US$450,000 was remitted via three banks to an account on behalf of suspect As older brother B at the head office of an international bank in Dubai. Transfers were made on five occasions during a two-month period in amounts ranging from US$50,000 to US$150,000.

    Another individual, suspect C, actually remitted the funds and later returned to Iran. On each occasion C took the funds in cash to the bank, exchanged them for dollars, and then had the funds transferred. Each of the transactions took about one hour to conduct, and the stated purpose for the remittances was to cover “living expenses”.

  • Results

    Suspect A was initially charged with violating provisions of the anti-narcotics trafficking law. The money transfers revealed during the investigation led to additional charges under the anti-money laundering law.

  • Lessons

    This case represents a classic example of a simple money laundering scheme and is also a good example of a case derived, not just from suspicious transaction reporting, but also as a follow-up to traditional investigative activity. TOP


Exchange transaction relates to laundered drug money and diamond smuggling

  • Facts

    A foreign exchange transaction of a European currency into US dollars for a value of almost US$177,000 was reported to the FIU of an FATF member jurisdiction (Country A). At the time of the transaction, the individual, of Asian origin, gave the exchange office an address in another FATF country (Country B). This first transaction was soon followed by four more similar transactions. After several weeks, the total had already attained US$618,000. After a break of six months, the exchange transactions resumed. Over a four-month period, the intermediary appeared with large amounts in pesetas to be converted into dollars. The total amount of the transactions described in reports to the FIU amounted to more than US$1.3mn.

    The information obtained from law enforcement demonstrated that the individual had no criminal record in Country A. Given that the case involved large amounts for which there existed no apparently legitimate economic justification, the FIU pursued the investigation. Several foreign FIUs were queried. One of them was able to provide useful information: the individual was known as a member of a group of drug traffickers who performed the same type of transactions in the country involved. Investigation of the members of this group was already in progress in this latter country. Secondly, it appeared that the address provided during the first contact with the financial institution was false. On the basis of these elements, the FIU decided to turn over the case file to the prosecutorial authority. The subsequent investigation showed that the individual had not been acting alone. For a number of years she had played a dominant role in money laundering transactions involving a total amount of around US$11.5mn.

  • Results

    The individual was arrested in the company of one of her accomplices and in possession of a large sum in US dollars. She acknowledged the retail foreign exchange transactions, as well as the illicit origin of the funds. According to her account, they were derived from illegal diamond trafficking. She was sentenced to four years in prison (two of which were suspended) and a fine of nearly US$1mn. The funds seized were confiscated, as well as the amounts exchanged; her accomplices were each sentenced to two years in prison (one of which was suspended).

  • Lessons

    This example clearly illustrates the importance of international co-operation and the exchange of information between FIUs and their foreign counterparts in the detection of money laundering transactions. It also demonstrates the necessity for financial institutions to continue sending suspicious transaction reports to the FIU, even when they do not at first seem to produce an immediate response from the authorities.TOP


Launderers recruit individuals for the use of their bank account

  • Facts

    An FIU received suspicious transaction reports from three financial institutions concerning international fund transfers. Through police investigation, it was discovered that several individuals were acting as money collectors for a cocaine trafficking organization. The job of these individuals was to identify and “recruit” professionals already established in various trades and services who might be amenable to earning some extra money by allowing their bank accounts to be used in a laundering scheme. The professionals would place cash in their accounts and then transfer the sum to accounts indicated by the money collectors.

    The professionals who became involved in this activity were active in several types of business, including travel agencies, and import/export in commodities and computers. In return for their services, they received a commission on the funds transferred through their accounts. The transfers out of the accounts were justified by fictitious invoicing that corresponded to their particular business.

  • Results

    This investigation uncovered an organization that was laundering the proceeds of cocaine trafficking believed to be worth US$ 30 million. Several members of the group were identified and tried in two countries.

  • Lessons

    This scheme illustrates how criminals put additional measures into place further to distance the money from the narcotics trafficking operation. Cash is collected from the drug dealer; the collector passes the funds to the launderer; the launderer then passes them to the recruited business professional, who then transfers the funds abroad for further processing. The money continues to move, and the trail becomes more complex. The use of professionals can establish a ‘break’ in the trail, and so thwart financial investigators. TOP


Use of bank safety deposit boxes

  • Facts

    A law enforcement investigation centred on the suspicious behaviour of a bank customer who appeared to be exchanging old, outdated banknotes for a new series of banknotes. The suspect appeared to be storing the old banknotes in one of the bank’s safety deposit boxes.

    The suspect received social security payments and had no other identifiable legitimate income.

    Further enquiries revealed that the suspect had an extensive criminal history and had recently purchased a motor vehicle with a large amount of cash and owned a number of high value real estate properties.

  • Results

    The investigation established that the suspect was involved in drug cultivation in the houses that he had purchased using the proceeds of his drug trafficking activities. The suspect was using the bank’s safety deposit facilities to store cash obtained from the sale of the illegal drugs and also to store jewellery purchased with the same proceeds.

  • Lessons

    This example illustrates that a complicated money laundering scheme is not always necessary to integrate illegal proceeds back into the circulation.TOP


Laundering through temporary bank accounts Facts

    An investigation revealed that the proceeds of a VAT evasion scheme were laundered through a series of temporary bank accounts. The launderer transferred the proceeds to a particular financial institution and requested that the funds be placed into a temporary account because he had not decided into which account to place them. A few days later, he instructed the bank to pay out the money in cash or with a bank Cheque. The transaction was not registered in the books of the launderer. Investigators also discovered that, although not a usual action, the launderer used the temporary bank account for more than one transaction. Afterwards, he asked the bank to transfer the funds to accounts (at the same bank or another), which had been opened on behalf of companies controlled by the launderer. False invoices for fictitious deliveries to these companies were used to justify the transfers.

  • Lessons

    Analysing and investigating transactions involving temporary bank accounts is very difficult. Often research must be done manually at the bank where the transactions occurred, thus there could be a delay, sometimes a significant delay, before the institution may be able to provide the information to authorities. TOP


Use of a bureau de change and bank accounts under false names

  • Facts

    A drug trafficking investigation established that cash collected from the sale of drugs was taken to a bureau de change at the border, where large sums of money in small denominations were exchanged into denominations of a foreign currency. This money was then moved in bags of cash across the border and abroad to purchase a further supply of drugs.

    Further investigation identified a scheme in which illegally obtained funds were deposited under a false name into a holding account within the bureau de change, which was controlled by the money launderer. During a search of the premises, it was also established that the bureau de change did not maintain detailed records of cash transactions.

  • Results

    Three individuals were charged with money laundering in this investigation.

  • Lessons

    Although the bureau de change had an obligation to identify customers and maintain records, it did not do so. A money laundering operation was uncovered through the police investigation; however, this example shows that, if preventive measures are not enforced, laundering activity can continue, even in supposedly regulated financial institutions.TOP


Payments structured to avoid detection

  • Facts

    Over a four year period, Mr A and his uncle operated a money remittance service known as Company S and conducted their business as an agent of a larger money remitting business that was suspected of being used to finance terrorism. Later, an investigation was initiated in relation to Company S based on a suspicious transaction report.

    The investigation showed that over the four year period, Mr As business had received over US$4 million in cash from individuals wishing to transmit money to various countries. When Mr As business received the cash from customers, it was deposited into multiple accounts at various branches of banks in country X. In order to avoid reporting requirements in place in Country X, Mr A and others always deposited the cash with the banks in sums of less than US$10,000, sometimes making multiple deposits of less than US$10,000 in a single day.

  • Results

    Mr A was charged and pleaded guilty to a conspiracy to “structure” currency transactions in order to evade the financial reporting requirements.

  • Lessons

    This case underlines the need to have mechanisms in place to monitor and link transactions (especially cash deposits) made by the same individual or entity through different branches of the same bank, or through different banks.TOP


Cross border cash

  • Facts

    Three suspicious transaction reports were received, relating to a number of transactions which were carried out at Danish banks, whereby large amounts of money were deposited into accounts and then withdrawn shortly afterwards as cash. The first report concerned an account held by customer X. Upon initial investigation, the subjects of the reports (X, Y and Z) were not known in police databases as being connected to drugs or any other criminal activity. However, further investigation showed that X had imported more than three tonnes of hashish into Denmark over a nine-year period. Y had assisted him on one occasion, whilst Z had assisted in laundering the money.

    Most of the money was transported by Z as cash from Denmark to Luxembourg where X and Z held 16 accounts at different banks, or to Spain and subsequently Gibraltar, where they held 25 accounts. The receipts from the Danish banks for the withdrawn money were used as documentation to prove the legal origin of the money when the money was deposited into banks in Gibraltar and Luxembourg. It turned out that sometimes the same receipt was used at several banks, so that more cash could be deposited as “legal” than had actually been through the Danish bank accounts.

  • Results

    X and Y were arrested, prosecuted and convicted for drug trafficking offences and received sentences of six and two years imprisonment respectively. A confiscation order for the equivalent of US$6mn was made against X. Z was convicted of drug money laundering involving US$1.3mn, and was sentenced to 21 months’ imprisonment.

  • Lessons

    Financial institutions should not accept proof of deposit to a bank account as being equivalent to proof of a legitimate origin. Carrying illegal proceeds as cash across national borders remains an important method of money laundering.TOP


Bureaux de change

  • Facts

    At the point when exchange offices became regulated, and it became subject to obligations to prevent money laundering, one bureau (“The Counter”) had been doing business in a small town near the German border for a number of years. The Counter often had a surplus of bank notes with a high denomination, and the owner (Peter) knew that these notes were not popular and so exchanged them into smaller denomination notes at a nearby bank. Prior to the new legislation taking effect, persons acting on behalf of The Counter regularly exchanged amounts in excess of the equivalent to US$ 50,000, but immediately after the legislation took effect, the transactions were reduced to amounts between US$ 15,000 and US$ 30,000 per transaction. The employees of the bank branch soon noticed the dubious nature of the exchanges did not have any sound economic reason, and the transactions were reported.

    Peter had a record with the police relating to fencing and dealing in soft drugs, and because of this he transferred the ownership of The Counter to a new owner with no police record (Andre). Andre applied to register The Counter to the Central Bank as an exchange office and was accepted on a temporary basis. The financial intelligence unit consulted various police files and established that the police had been observing this exchange office for some time. The suspect’s transactions were passed on to the crime squad in the town where The Counter has its office, and it started an investigation. A few months later, the crime squad arrested Andre, house searches are made, expensive objects and an amount equivalent to more than US$250,000 in cash were seized. The records of The Counter showed that many transactions were kept out of its official books and records. For example, over a period of thirteen months The Counter changed the equivalent of more than US$50mn at a foreign bank without registering these exchange transactions in its official books and records. The investigation showed that The Counter and its owners were working with a group of drug traffickers, who used the exchange office to launder their proceeds, and this formed a substantial part of the turnover of the business.

  • Results

    The drug traffickers were prosecuted and convicted and are now serving long prison sentences. Andre was sentenced to six years in prison for laundering the proceeds of crime and forgery. Peter moved abroad with his family. A separate legal action is still pending to take away Andre’s profits, the confiscated objects and the cash found. The Counter has been closed and its registration as an exchange office rescinded.

  • Lessons

    This case shows the need for banks and large, legitimate bureaux de change to pay attention to their business relations with smaller bureaux, particularly when supplying or exchanging currency with them.TOP


Alternative remittance systems use of retail outlets

  • Facts

    This case involved a number of overseas remittance services. Common elements of these services were that they operated from retail shops selling clothes or fabrics and arranged the transfer of money to Country A (for a fee).

    The largest remittance service among those investigated, ‘Servicio Uno’, was an incorporated company and had an annual turnover in excess of US$3.3mn. It accepted money from individual customers and also received funds from smaller remittance services locally and regionally. These smaller services channelled money through Servicio Uno because it had an extensive family-based delivery network in Country A.

    The general method used by Servicio Uno was as follows:

    Cash was received from customers and sub-agents; a proportion of these funds was deposited in a bank, and some was kept on hand.

    Funds were transferred to Country A in two ways: either by telegraphic transfer purchased with cash or cheque; or by sending money to a trading company, ‘Trans-Expedici?n SA’, in Country B. This second company did business in Country A and had associates there that owed it money. Once Trans-Expedici?n received the money in Country B from Servicio Uno, it advised its debtors in Country A to pay a specified amount direct to another remittance business, Remesas-X, in Country A.

    Twice weekly, Servicio Uno faxed a list of required deliveries to a company it owned and operated in Country A, including details of the sender, the recipient and their address, and the amount and type of currency or gold bars to be delivered. A fee of 5-10% was charged by Servicio Uno.

    There was also evidence of substantial amounts of money flowing from Country A back to Servicio Uno. A fax was sent from Country A to Servicio Uno instructing it to provide a specific amount of money to an individual in Servicio Unos country or to pay the funds into a particular bank account there. No funds were actually transferred from Country A. Instead, a method was used whereby the remittance services at either end of the operation paid off each others liability with their own assets.

  • Results

    Investigations revealed that several legitimate businesses in Servicio Uno’s country had also repatriated funds to Country A using this method. They also revealed that a previously convicted money launderer had on at least one occasion transferred US$60,000 to Country A through Servicio Uno. Additionally, one sub-agent of Servicio Uno transferred funds on behalf of two active drug traffickers.

  • Lessons

    This is a classic example of an alternative remittance system. The difficulties that an investigative agency might have if it were to detect part of the scheme would be the ability to determine the links to and from the third country. The process would be further complicated by the high volume of legitimate business using this channel to move funds, and by the indirect settlement methods sometimes employed.TOP


Alternative remittance systems laundering cash from the sale of narcotics

  • Facts

    Cash from the sale of narcotics was brought to shops and bureaux de change (controlled by a single organisation) in a town located in an overseas territory of Country P. The shops provided specially validated coupons in return for the deposits. These coupons were then used as bearer instruments that permitted the holder to obtain funds to purchase more drugs or to make investments. The controlling organisation also owned several real estate agencies.

    The laundering network converted currency from other countries through middlemen that were paid a commission for the use of their identities in the depositing of these currencies at financial institutions. An employee at one of these institutions was also involved in the scheme. Other funds processed through this system originated in the local black market in consumer goods intended for smuggling operations into the neighbouring jurisdiction.

  • Results

    The law enforcement investigation of this case brought about charges against 73 persons, and the seizure of 10 tonnes of narcotics, 11 boats and US$4.7mn in foreign currency. Suspicious transactions submitted by local financial institutions during the scheme reported transactions totalling more than US$400mn.

  • Lessons

    This scheme is yet another example of an alternative remittance scheme, but one in which coupons were issued to evidence the deposit of cash proceeds. TOP


Alternative remittance systems – supported by import/export activity

  • Facts

    A national from Country S was arrested in Country M on suspicion of unlicensed banking. The investigation revealed that this subject had been running an informal funds transfer system (hawala) for almost four years. Three other individuals who had already left country M were also identified as associates.

    Balances were settled between countries M and S through import/export transactions relating to car parts. A company exported car parts from Country M to an importer in Country S with a specific charge. The importer from country S paid 50% of the specific charge directly to the exporter in country M and the hawala operators paid the other half. In return, the importer in Country S paid 50 % of the price to the groups account in country S to settle the balance. The payment was made in local currency and at a rate advantageous to the receivers, so that the group was certain to make a given profit from the transaction.

  • Lessons

    Had the exporter’s bank been alert to the source of funds for payment of the exported goods, suspicions would have been raised that payment was being made from two different sources in respect of one transaction.TOP


Underground banking activity revealed through large turnover in small business

  • Facts

    Investigations were triggered by several reports of suspected money laundering submitted by various banks over a period of three years in respect of a national of Country N born in south Asia. Although the suspect ran a small business with an annual turnover of around US$150,000, between US$1.7mn and 3.5 mn per year flowed through his private accounts.

    Investigations revealed that the suspects business was the headquarters in Country N of an international underground bank with branches in several Central Asian and European countries and a chain of 14 branches in Country N. In addition to being used by Asian nationals to transfer small amounts to support their families back home – a traditional use of the hawala system – this illegal banking system was used to transfer considerable sums for human trafficking into Europe.

  • Result

    The suspect and the manager of one branch were arrested. A number of properties were searched throughout Country N. A forfeiture notice amounting to approximately US$350,000 was issued against the suspect and around US$140,000 in cash was confiscated in preparation for forfeiture. The suspect and the manager were sentenced for human trafficking and the accused voluntarily renounced his claim to the confiscated cash.

  • Lessons

    This is a classic case where KYC information relating to the size of the business activities of the account holder demonstrated that the legitimate business activity could not possibly generate the funds available to the owner of the business. TOP


The derivatives market: a typology

  • Facts

    In the following example of how funds could be laundered using the derivatives market, the broker must be willing to allocate genuinely losing trades to the account in which criminal proceeds are deposited. Instead of relying on misleading or false documentation, the broker allocates genuine loss-making documentation to the detriment of the ‘dirty money’ account holder.

    As an example, a broker uses two accounts, one called ‘A’ into which the client regularly deposits money which needs laundering, and one called ‘B’ which is intended to receive the laundered funds. The broker enters the trading market and ‘goes long’ (purchases) 100 derivative contracts of a commodity, trading at an offer price of $85.02, with a tick size of $25. At the same time he ‘goes short’ (sells) 100 contracts of the same commodity at the bid price of $85.00. At that moment, he has two legitimate contracts which have been cleared through the floor of the exchange.

    Later in the trading day, the contract price has altered to $84.72 bid and $84.74 offered. The broker returns to the market, closing both open positions at the prevailing prices. Now, the broker, in his own books assigns the original purchase at $85.02 and the subsequent sale at $84.72 to account A. The percentage difference between the two prices is 30 points or ticks (the difference between $84.72 and $85.02). To calculate the loss on this contract, the tick size of $25 is multiplied by the number of contracts, 100, multiplied by the price movement, 30. Thus: $25 x 100 x 30 = $75,000 (loss).

    The other trades are allocated to the B account, which following the same calculation theory results in a profit as follows: $25 x 100 x 26 = $65,000 (profit). The account containing the money to be laundered has just paid out $75,000 for the privilege of receiving a profit of $65,000 on the other side. In other words, the launderer has paid $10,000 for the privilege of successfully laundering $75,000. Such a sum is well within the premium professional launderers are prepared to pay for the privilege of cleaning up such money. As a transaction, it is perfectly lawful from the point of view of the broker. He has not taken the risk of creating false documentation, which could conceivably be discovered, and everything has been done in full sight of the market.TOP


Criminal cash proceeds placed through margin trading

  • Facts

    This case involved the theft of approximately US$384mn from a bank in country T over a ten-year period. Initial investigations revealed that the money was sent to country G and laundered through a serious of 550 bank accounts in the names of 80 companies. Much of the money was invested in the property and stock markets in Country G and ultimately used at will by the four principal thieves. At one time during the fraud, one of the thieves was reported as being the largest margin stock investor in the Country G market, with a huge turnover in stocks and shares through some of Country G companies, as well as enjoying dividends from long term investments. Initial investigations appear to indicate that the majority of funds stolen in Country T occurred towards the end of the ten-year period, when a regional economic downturn adversely affected the local property and stock markets.

  • Results

    No disclosures were ever made by stockbrokers about the dealings of these companies. Four people were charged with money laundering and warrants were issued for a number of others. TOP


Investment of fraudulent funds in the securities market

  • Facts

    A brokerage firm opened several accounts for a group of twelve linked individuals, including a non-resident account that recorded very large movements and was apparently used to centralize most of the suspected flows, totaling more than US$18mn.

    The launderers used two mechanisms:

    the accounts of some of the parties involved were credited with large sums received from counties of concern which were invested in the stocks of listed companies in Country W; and

    the accounts of the individuals concerned were credited with sums from regions of concern which were transferred to the non-resident account, the first accounts being used as screens.

    The securities buy/sell mechanism was used to filter the flows through the broker and subsequently the clearer and custodian. Once filtered, the funds were sent to locations in regions with deficient AML systems and offshore financial centres.

    Investigations revealed that the co-opted broker had been used to launder the proceeds from various forms of fraud and the manager of the brokerage firm served as a relay for the criminal organisations involved.

  • Lessons

    Transactions with countries on the NCCT list, or with those that do not have satisfactory AML standards, should be subject to additional scrutiny, particularly where there is no obvious business reason for the connection with the countries concerned.TOP


Insurance policies and real estate

  • Facts

    An insurance company informed an FIU that it had underwritten two life insurance policies with a total value of US$268,000 in the name of two European nationals. Payment was made by a Cheque drawn on the accounts of a brokerage firm in a major EU financial market and a notary in the south-eastern region of the country.

    The two policies were then put up as collateral for a mortgage valued at US$1,783,000 that was provided by a company specializing in leasing transactions. As the policyholders did not pay in their own name, the issuer contacted the brokerage firm in order to discover the exact origin of the funds deposited in its account. It was informed that the funds had been received in cash and that the parties concerned were merely occasional clients.

    The parties – two brothers – were known to a law enforcement agency through a separate investigation into the illegal import and export of classic automobiles. Moreover, two individuals with the same surname were suspected by the same agency of drug trafficking and money laundering.

  • Lessons

    This example shows the necessity for non-bank financial businesses (in this case insurance companies) to be aware of what constitutes suspicious financial activity. It also demonstrates the critical need for effective co-ordination between the information contained in suspicious transaction reports and law enforcement information.TOP


Criminal funds laundered through payment of insurance premiums

  • Facts

    Mr H, a director of company W, set up a money laundering scheme involving two companies, each established under two different legal systems. Both of the entities were to provide financial services and financial guarantees. The companies were then used to send criminally derived funds of US$1.1 million via wire transfers to the accounts of Mr H in country S. Mr H also received transfers from country C. Funds were then transferred from several current and savings accounts; through one of these transfers, funds were made available from a current account to make payments on life insurance polices. Investment in these policies was the principal laundering mechanism amounting to around US$1.2 million, representing the last step in the laundering operation.

  • Lessons

    Insurance companies should not automatically believe that funds are derived from legitimate activity merely because they are paid from an established bank account.TOP


Company front – false loans scheme

  • Facts

    The individual involved in this scheme was the finance director of a shipbuilding yard, a subsidiary company of one of the biggest companies in the country. In his capacity as finance director, he had a meeting in his office with two Russian nationals, one of whom already had business relations with the company. The finance director was asked to open two bank accounts in the name of the company, to receive two amounts of money (US$65,000 and US$100,000) from the Russians, and to deposit these sums into the bank accounts. He was promised a commission of 1-2%, which would be paid to him direct.

    The finance director agreed to this arrangement and received the money in cash in plastic bags on two occasions: the first, in his office; and the second, at a private residence. Subsequently, he was asked to sign a fictitious loan contract with the Russians on behalf of the company. According to the contract, the Russians would receive loans for the same amounts that had been deposited into the accounts opened by the finance director.

    After receiving additional instructions from the Russian, the finance director wrote a letter – using company letterhead – stating that the loans had been transferred to a company by the name of Verimer International SA and that payment should take place to this company. Verimer was registered in the Bahamas; however, the company had the same address as the finance director and a local bank account in his name. One of the Russians was an owner of Verimer; he had bought the company through a company formation agent in Moscow.

  • Results

    Investigation determined that the US$100,000 were the proceeds of a gross breach of trust committed by two or three Russian nationals in Murmansk. The second sum could never be linked to a specific crime; however, it was established that the sum did represent criminal proceeds of some sort. The finance director was sentenced to two years for money laundering.

  • Lessons

    This example illustrates the way that a legitimate business may be used as a cover for a laundering operation.TOP


Shell corporations

  • Facts

    A drug trafficker used his proceeds to purchase a property, in respect of which part was paid in cash and the remainder was obtained through a mortgage. He then sold the property to a shell corporation, which he controlled, for a nominal sum. The corporation sold the property to an innocent third party for the original purchase price. By this means the drug trafficker concealed his proceeds of crime in a shell corporation, and thereby attempted to disguise the origin of the original purchase funds.

  • Results

    The accused pleaded guilty and an order of forfeiture was granted. The property, which was part of the money laundering scheme, was disposed of by the authorities.

  • Lessons

    This case illustrates the need to trace the ownership history of a property carefully, in order to identify possible links between owners, and any suspicious transfers that may indicate attempts to co-mingle assets. There is also a need for law enforcement agencies to be familiar with the general rules and practice regarding the purchase of property in relevant jurisdictions, and the need to be aware that transfers involving nominal amounts can be easily structured in some jurisdictions.TOP


Shell companies and Corporate Service Providers

  • Facts

    During a two-year period, financial institutions in a European country made suspicious transaction reports to the relevant financial intelligence unit. The reports identified large cash deposits made to the banks, which were exchanged for bank drafts made payable to a shell corporation based and operated from an Asian jurisdiction. The reports identified transfers totally approximately US$1.6mn to an account held by the shell corporation at a financial institution in the Asian jurisdiction.

    At the same time, police had been investigating a group in that country which was involved in importing drugs. The following year, police arrested several persons in the group, including the principal, who controlled the company in the Asian jurisdiction. They were charged with conspiring to import a large amount of cannabis. A financial investigation showed that the principal had made sizeable profits, and a large percentage of this was traced and restrained. A total of approximately US$2mn was sent from the European country to the Asian jurisdiction, and subsequently transferred back to bank accounts in Europe, where it was restrained.

    Two methods were used to launder the money. The principal purchased a shell company in the Asian jurisdiction which was operated there by a secretarial company on his instruction. The shell company opened a bank account, which was used to receive cashiers’ orders and bank drafts which had been purchased for cash in the country of origin. The principal was also assisted by another person who controlled (through the same secretarial company) several companies, which were operated for both legitimate reasons and otherwise. This person laundered part of the proceeds by selling the funds on to several other jurisdictions, and used non face-to-face banking (computer instructions from the original country) to do so.

  • Results

    Seven persons including the principal were put on trial in the European country on charges of drug trafficking, and the principal and three other persons faced money laundering charges.

  • Lessons

    This example shows how attractive and easy it is for criminals (even if not part of international organised crime) to use corporate entities in other jurisdictions, and to transfer illegal proceeds through several other jurisdictions in the hope of disguising the origin of the money.

    It demonstrates the ease with which company incorporation services can be obtained, and shows that many of the companies which sell shell companies, as well as the secretarial companies which operate them, are not likely to be concerned about the purpose for which the shell company is used.

    It highlights the need for financial institutions to have a system which identifies suspicious transactions not just at the front counter, but also for non face-to-face transactions, such as occurred in this case.

    It can take some time to conduct international financial investigations and to trace the proceeds of crime transferred through several jurisdictions, and there is a consequent risk that, during the investigation, funds will be dissipated. TOP


Front companies, insurance and bureau de change

  • Facts

    An FIU received a suspicious transaction report from a life assurance company. The report referred to Mr H, born and resident in a Latin American country, as having recently taken out two single premium life insurance policies for a total amount of US$702,800. Subsequent information provided to the FIU indicated that the policies’ premiums had been paid with two personal cheques made out by a third party and drawn against a major bank. The third party, Mr K, was also resident in the same Latin American country, although he was not a national of that country. Further checks at Mr K’s bank revealed that both he and Mr H had signature authority on two business accounts, Sam Ltd and Dim Ltd.

    Examination of the accounts showed that transactions, especially in Mr K’s account, were carried out on behalf of Mr H. Thus, the account had received funds from abroad and had also been used for other financial products besides the life insurance policies. Indeed, ten cheques in US dollars, totaling US$1,054,200, drawn against American banks and issued by two bureau de change operating out of the Latin American country where the two men resided, had been deposited into Mr Ks account.

    This activity appeared to show that the funds had been used to pay the insurance premiums on Mr H’s life and to acquire stakes in investment funds (also for Mr H) amounting to another US$210,840. There were also other related transactions in the accounts of the two companies and Mr H’s personal account. Cash or cheque transactions for amounts between US$14,000 and US$70,000 were among the related transactions. In one instance, a cheque was drawn on the Sam Ltd account for US$63,300 on the day following the deposit of US$70,280 in cheques into Mr Ks account.

    Checks into the backgrounds of Mr H and Mr K revealed that Mr H was suspected of being involved in cocaine trafficking in Latin America. Mr K had some minor violations (uttering bad cheques etc.); however, he had no serious criminal background. The business activities and backgrounds of Sam Ltd and Dim Ltd were looked at. In each instance, the companies had been incorporated with a stock capital of US$36,400 in which Mr H and Mr K had a 50% interest and were joint directors. Queries made at the “Balance of Payments Office” as to foreign collection and payment, revealed a total absence of operations in the previous two financial years.

  • Results

    It appeared that Mr K was being used as the front man for Mr H’s efforts to move funds out of his country of residence. For greater security of the scheme, firms under their control, that did not perform any corporate or commercial activity, were established. Mr H received the funds deposited into Mr K’s account through the single premium insurance policies and shares in investment funds that had been paid for by that account, as well as through indirect income from the companies mentioned. In this case, the FIU believed there to be sufficient signs of money laundering and therefore passed the matter on to prosecutorial authorities.

  • Lessons

    This operation shows that payment instruments or third party involvement, having no apparent economic relationship to the transaction, are often a key indicator of suspicious activity. It is worth noting that, so as to minimise suspicion, Mr K was obviously selected based on his lack of prior criminal record and his nationality. The activities of the front companies were also conducted in such a way as to give the appearance of transactions from corporate activities. The case also highlights the potential value of suspicious transaction reporting by insurance companies.TOP


Front companies

  • Facts

    An FIU in Country B received a report of a series of suspicious transactions involving the bank accounts of a West African citizen and his businesses, which specialised in industrial fishing. These accounts were opened in banks located in Country B and consisted primarily of money changing operations. The businessman also owned several residences in his home country and in the capital region of Country B. The companies that he jointly managed all had the same address in his home country.

    The personal account of the West African businessman received a number of transfers from accounts in another European country and in his home country (over US$2 million in a two-year period). The companies’ accounts received transfers from several business entities based in Europe, ostensibly linked to fishing related activities (over US$7 million over a three-year period). The transfers out of the account (estimated at nearly US$4 million over the same period) were made to various companies whose business was (according to official records) connected with maritime activity and to other individuals.

    The FIU’s analysis showed that the income of the West African companies concerned was grossly disproportionate to reported sales. In fact, the account transactions seemed to have little to do with industrial fishing (i.e. foreign currency sales, transfers from the bank accounts of European residents, transfers between the personal account of the West African businessman and his businesses, transfers between these businesses and those of Europe-based partners).

    Furthermore, according to additional information received by the FIU, one of the business partners of the West African businessman, a co-manager of one of the companies, was suspected of being involved in several financial offences in Italy. This individual reportedly had close associations with two Italian organised crime figures, and his Italian businesses have become the target of an investigation into money laundering in that country. Still another business partner of the West African businessman appeared also to be involved in financial and fiscal offences.

  • Lessons

    Given the unusual account transactions and the lack of a clear economic purpose or connection for some of the business activities, the operations described in this example very likely constitute a money laundering scheme to conceal the illegal sources of proceeds derived from various criminal activities. This case gives further support to the need for analysis of information from a variety of sources (suspicious transaction reports, financial institutions, company registries, police records etc.) in order to gain a full picture of a complex laundering scheme. TOP


Silver and gold smuggling

  • Facts

    Cross-jurisdictional investigations permitted the detection of a silver and gold smuggling system aimed at VAT evasion and the laundering of the illicit profits of several local, regional and global criminal organisations. The banking and financial systems were used to process large-value transactions supporting the fictitious payment of precious metals supplies. The laundering was primarily undertaken through:

    Creation of a network of companies, including financial, throughout the region, with the task of “filtering” the money.

    Using criminal proceeds derived from cigarette smuggling, drug trafficking, illegal arms trafficking and the smuggling of oil products, to purchase silver and gold, which was in turn smuggled into the markets of Country J and other European countries.

    Reinvestment of the profits of the illicit trafficking of silver into smuggling activities.

    Use of false invoices in respect of the importation of precious metals which never actually reached country J.

    Use of bearer savings deposit passbooks and of false Treasury certificates of deposit to be offered as guarantees to the banks for the purchase of precious metals.

  • Result

    Fifteen suspects were arrested for criminal conspiracy aimed at money laundering and smuggling, and four suspects were charged with money laundering offences. The total amount of funds involved was US$101mn with the consequent evasion of export duties amounting to US$72mn, VAT evasion totalling US$37mn and the laundering of over US$31mn.

  • Lessons

    Enquiries should always be undertaken to ascertain the purpose and beneficial ownership of companies that are formed in offshore jurisdictions with lax corporate registration requirements. The source of the economic activity that created the funds for transfer should be established. Where the sale of precious metals is involved, checks should be made that the goods exist and that excise duty and VAT has been paid. TOP


Laundering the proceeds of fraud through the diamond market

  • Facts

    A known criminal who had benefited financially from a fraud in an overseas jurisdiction attempted to transfer US$8.2mn to a jeweller in Country A with a view to purchasing precious stones. The bankers in Country A had already submitted various suspicion reports in relation to the individual, and on this occasion the bank made a further suspicion report and took the commercial decision to freeze the account. On investigation, it was determined that the objective of purchasing the precious stones had been an attempt to launder the proceeds of the fraud.

  • Lessons

    Suspicious transactions reports will not always bring immediate results and where a series of suspicion reports has been made justifying significant concern, it may be necessary to freeze the account voluntarily, pending an investigation. Confidential discussions with the local FIU will normally confirm when a criminal who is known to the FIU is involved. TOP


Accounting firm

  • Facts
    Two alleged narcotics traffickers used an accounting firm to launder criminal proceeds generated from amphetamine sales. The “clients” of the firm would, on a regular basis, hand their accountant cash in brown envelopes or shoe boxes for which no receipt was issued. The funds were then stored in the accountant’s office until he decided how they could be introduced into the financial system and laundered. At any one time, there was between US$38,000 and US$63,000 stored in the accountants office.

    The law enforcement agency investigating the matter found that the accountant established company and trust accounts on behalf of his clients and opened personal bank accounts in the names of relatives. He then made structured deposits to those accounts with the funds received from the alleged traffickers. Additionally, he transferred approximately US$114,000 overseas – again, using structured transactions – to purchase truck parts, which were later brought back into the country and sold at a profit, and also used some of the funds to purchase properties. The accountant and three of his colleagues (who were also implicated in the scheme) reportedly laundered approximately US$633,900 and received a 10% commission for their services.

  • Results

    The accountant and his colleagues are believed to have acted from the beginning with the suspicion that the clients were involved in illegal activities. Even after obtaining further specific knowledge of his clients’ involvement in narcotics trafficking, he and his associates allegedly continued to facilitate money laundering.

  • Lessons

    This case highlights the key role that financial experts can play in the laundering of criminal proceeds. Many of the services provided (establishment of specialised accounts or business entities, making real estate investments) are potential money laundering mechanisms that may be beyond the abilities of the less sophisticated criminal. TOP


Lawyers

  • Facts

    A prominent attorney operated a money laundering network which used sixteen domestic and international financial institutions, many in offshore jurisdictions. Although the majority of his clients were law abiding citizens, a number were engaged in various types of fraud and tax evasion, and one client had committed an US$80mn insurance fraud. He charged his clients a flat fee to launder their money and to set up annuity packages to hide the laundering activity. In the event of any inquires by regulators or law enforcement officials, the attorney was prepared to give the appearance of legitimacy to any withdrawals from the “annuities”.

    One of the methods of laundering used was for him to transfer funds from a client into one of his general accounts in the Caribbean. The account was linked to the attorney in name only, and he used it to commingle various client funds, before moving portions of the funds accumulated in the general account via wire transfers to accounts in other countries in the Caribbean. When a client needed funds, they could be transferred from these accounts to a U.S. account in the attorney’s name or the clients name. The attorney indicated to his clients that they could “hide” behind the attorney-client privilege if they were ever investigated.

    Another method of laundering funds was through the use of credit cards. The attorney arranged for credit cards in false names to be issued to his clients. When funds were needed, the client could use the credit card to make cash withdrawals at any automated teller machine in the United States. Once a month the Caribbean bank would debit the attorneys account in order to satisfy the charges incurred by his clients. The attorney knew the holders of the credit cards.

  • Results

    The attorney pleaded guilty to money laundering.

  • Lessons

    Banks and their employees should be alert to “layered” wire transfers which utilise instructions such as “for further credit to”. This may occur more frequently with correspondent accounts of offshore banks. Suspicious transactions can then be identified and reported.

    Banks should follow “know your customer” procedures when issuing credit cards. In this case, the banks were issuing the credit cards to the attorney, for onward issuance to his clients.

    Investigators should be aware that in a number of countries lawyer/attorney-client privilege is not applicable if the lawyer/attorney and his client are directly involved in criminal activity, and they should consult prosecutors if such an issue arises. TOP


Lawyers, real estate

  • Facts

    A financial intelligence unit received information that a previously convicted drug trafficker had made several investments in real estate and was planning to buy a hotel. An assessment of his financial situation did not reveal any legitimate source of income, and he was subsequently arrested and charged with an offence of money laundering. Further investigation substantiated the charge that part of the invested funds were proceeds of his own drug trafficking. He was charged with substantive drug trafficking, drug money laundering and other offences.

    In the same case, the criminal’s lawyer received the equivalent of approximately US$70,000 cash from his client, placed this money in his clients bank account and later made payments and investments on the client’s instructions. He was charged with negligent money laundering in relation to these transactions. Another part of the drug proceeds was laundered by a director of an art museum in a foreign country who received US$15,000 for producing forged documents for the sale of artworks which never took place.

  • Results

    The drug trafficker was convicted of drug trafficking, sentenced to seven and a half years’ imprisonment, and a confiscation order was made for US$450,000. The lawyer was convicted and sentenced to 10 months’ imprisonment. The art museum director could not be prosecuted as there was insufficient evidence that he knew the money was the proceeds of drug trafficking, but he accepted a writ to confiscate his proceeds.

  • Lessons

    The purchase of real estate is commonly used as part of the last stage of money laundering (integration). Such a purchase offers the criminal an investment which gives the appearance of financial stability, and the purchase of a hotel offers particular advantages, as it is often a cash generating business.

    The value of a money laundering offence with a lower mensrea requirement is shown in the prosecution of the lawyer in this case. There was insufficient evidence to prove that the lawyer knew the money was illegal drug proceeds, but sufficient evidence to show that he “should have known” on the facts available to him. TOP


Terrorists collect funds from lawful sources

  • Facts

    A number of individuals known to belong to religious extremist groups established in the south-east of Country C (a FATF country) convinced wealthy foreign nationals, living for unspecified reasons in Country C, to finance the construction of a place of worship. These wealthy individuals were suspected of assisting in the concealment of part of the activities of a terrorist group.

    It was later established that S, a businessman in the building sector, had bought the building intended to house the place of worship and had renovated it using funds from one of his companies. He then transferred the ownership of this building, for a large profit, to Group Y belonging to the wealthy foreigners mentioned above. This place of worship, intended for the local community, in fact also served as a place to lodge clandestine “travelers” from extremist circles and to collect funds.

    Soon after the work was completed, it was noticed that the place of worship was receiving large donations (millions of dollars) from other wealthy foreign businessmen. Moreover, a Group Y worker was said to have convinced his employers that a “foundation” would be more suitable for collecting and using large funds without attracting the attention of the local authorities. A foundation was thus reportedly established for this purpose.

    It was also believed that part of S’s activities in heading a multipurpose international financial network (for which investments allegedly stood at US$53mn for Country C in one particular year alone) was to provide support to a terrorist network. S had made a number of trips to Afghanistan and the United States. Amongst his assets were several companies registered in Country C and elsewhere. One of these companies, located in the capital of Country C, was allegedly a platform for collecting funds. S also purchased several buildings in the south of Country C with the potential collusion of a notary and a financial institution.

    When the authorities of Country C blocked a property transaction on the basis of the foreign investment regulations, the financial institutions director stepped in to support his clients transaction and the notary presented a purchase document for the building, thus ensuring that the relevant authorisation was delivered. The company’s funds held by the bank were then transferred to another account in a bank in an NCCT jurisdiction to conceal their origin when they were ultimately used in Country C.

  • Results

    Even though a formal link was not able to be incontrovertibly established between the (more or less) legal activities of the various parties in Country C and abroad and the financing of terrorist activities carried out under the authority of a specific terrorist network, the investigators suspect that at least part of the proceeds from these activities have been used for this purpose.

  • Lessons

    The scale and complexity of the corporate and business arrangements, and the amounts involved, should not deter proper checks and monitoring. TOP


Simple transactions found to be suspect

  • Facts

    The financial intelligence unit (FIU) of Country E forwarded to the judicial authorities ten files in relation to money laundering derived from terrorism. In general, the files dealt with instances in which simple operations had been performed (retail foreign exchange operations and international transfer of funds), revealing links with other countries. Some of the customers had criminal records, particularly for trafficking in narcotics and weapons, and were linked with foreign terrorist groups.

    In one of the files submitted by the FIU in relation with terrorism, the customer was the holder of a current account and of a savings account with the reporting financial institution. Moreover, he purchased securities, and a single premium life insurance contract, in the same institution. He executed several transfers from his current account to beneficiaries in different countries. The suspicions of the bank arose from the fact that a name similar to that of the customer appeared on the consolidated list of persons and/or entities included in the UN Security Council Committee on Afghanistan (S/RES/1333(2000)) and Regulation 1354/2001 of the European Commission).

    The suspicion of the bank was strengthened by the fact that the customer had been progressively withdrawing funds he held at this bank since the end of April 2001. He successively cleared out his savings account, sold the securities he had purchased (before their maturity date), surrendered his life insurance policy and finally transferred his remaining funds to the European country where he resided. The last operation he performed occurred at the end of August 2001, that is, about two weeks before the attacks in the United States on September 11th 2001.

  • Results

    The bank has had no more contact with this customer since August 2001.

  • Lessons

    Timely identification and reporting of suspicions matters by firms is important, even if the authorities are not able to react effectively and in good time. TOP


Front for individual with suspected terrorist links revealed by suspicious transaction report

  • Facts

    The financial intelligence unit (FIU) in Country D received a suspicious transaction report from a domestic financial institution regarding an account held by an individual residing in a neighboring country. The individual managed European-based companies and had filed two loan applications on their behalf with the reporting institution. These loan applications were for several million US dollars and were ostensibly intended for the purchase of luxury hotels in Country D. The bank did not grant any of the loans.

  • Results

    The analysis by the FIU revealed that the funds for the purchase of the hotels were intended to be channeled through the accounts of the companies managed by the individual. One of the companies purchasing these hotels would then have been taken over by an individual from another country. This second person represented a group of companies whose activities focused on hotel and leisure sectors, although he appeared as the ultimate buyer of the property. On the basis of the analysis within the FIU, it appeared that the subject of the suspicious transaction report was acting as a front for the second person. The latter, as well as his family, was suspected of being linked to terrorism.

  • Lessons

    The investigation vindicated the banks decision not to grant the loans. The case shows the underlying difficulties, which are not always apparent even with satisfactory KYC, on assessing future events in relation to the intended use of the loans. It is therefore wise to access and judge if the business activity is considered to be usual, and whether it fits with the clients known profile for legitimate ventures. TOP


High account turnover indicates fraud allegedly used to finance terrorist organization

  • Facts

    A financial institution in Country B reported that an individual who allegedly earned a salary of just over US$17,000 per annum had a turnover in his account of nearly US$356,000. Investigators subsequently learned that this individual did not exist and that the account had been opened fraudulently.

    Further investigation revealed that the account was linked to a foreign charity and was used to facilitate funds collection for a terrorist organisation through a fraud scheme. In Country B, the government provides matching funds to charities, equivalent to 42% of donations received. Donations to this charity were being paid into the account under investigation, and the government matching funds were being claimed by the charity. The original donations were then returned to the donors so that effectively no donation had been given to the charity. The charity retained the matching funds. This fraud resulted in over US$1.14 million being fraudulently obtained.

  • Lessons

    This case illustrates how connected accounts may be used to finance illegal activity. It also shows the importance of robust identity verification procedures, and how monitoring accounts for unusual activity outside the expected pattern of behaviour can help to identify potential money laundering and terrorist financing. TOP


Charity used to finance terrorism

  • Facts

    One UK investigation arose as a consequence of a suspicious transaction report. A bank disclosed that an individual who allegedly was earning a salary of £12,000 per annum had a turnover in the account of £250,000. A financial investigation revealed that the individual did not exist and that the account, fraudulently obtained, was linked to a Middle East charity. A fraud was being perpetrated for the purpose of raising funds for a terrorist organisation. Donations were paid into an account and the additional charitable payment was being claimed back from the government. The donation was then returned to the donor. This fraud resulted in over £800,000 being fraudulently obtained.

  • Lessons

    Even UK charities can be used to raise funds for terrorist purposes. TOP


Correspondent banking, wire transfers facilitate transactions by shell companies

  • Facts

    Company Q, a suspected shell company registered in Country F (a FATF member country), was reportedly involved in the transportation of oil and other raw materials (metal, timber, gas). Company Q was a customer of a bank in Country G that maintained a correspondent account at a Country F bank. The Company received several wire transfers from another, rather vague company located offshore. At the request of the bank in Country F, the Country G bank asked Company Q to provide copies of a business contract that would justify the financial activity. The Country F bank submitted an STR in respect of these transactions.

  • Results

    Rather than providing the requested documents to the bank, Company Q simply closed its account.

  • Lessons

    Sometimes there is a need to look through the correspondent. Due diligence can reveal situations shown by this case that warrant reporting to the relevant authorities. TOP


Private banker helps conceal suspects illegal proceeds

  • Facts

    This example relates to a bank whose services included institutional brokering, retail brokering, private client services, global equity derivatives, securities, futures and margin lending. Clients of the bank could enter into a private client agreement, which enabled the client to perform transactions by telephone or facsimile. During the course of an investigation, difficulty was encountered in matching money coming into the suspects trust account with funds sent out of the country by a co-offender. Upon reconstructing the money trail through bank deposit and withdrawal records, it was found that the co-offender had sent an equivalent amount of funds out of the country through international telegraphic transfers but the transfer documentation did not record the co-offender as the ordering customer – who was shown as the merchant bank.

  • Results

    This provided a way to disguise the remittance of funds offshore.

  • Lessons

    Inadequate transaction records can preclude “matching up” of connected transactions that, when matched, can lead to suspicion. TOP


Failure of due diligence aids a potentially corrupt PEP

  • Facts

    In Country A, an institution was established whose chairman was also the ruler of that country. This institution was the ordering customer in a payment transaction. Both the ordering customer and the beneficiaries were established in different parts of the world. A bank in Country B was affiliated to the national bank of Country A and was charged with a large part of that countrys external payments. Neither the ordering customer nor the beneficiaries were customers of the bank in Country B. Payment was made through the bank in Country B, which acted solely as a correspondent bank for the banks of the ordering customer and the beneficiaries.

    Due to the lack of adequate due diligence on customers by the ordering institution in Country B (only the respondent has been monitored), the nature, motivation and precise purpose of the transaction can only be guessed at. These could be either legitimate (many external payments are performed through the Country A bank) or related to illegal proceeds. The precise roles of Country A’s ruler and the beneficiaries of the transactions, and the basis for the payment, were not available.

  • Results

    This lack of information means that the bank in Country B would not normally be able to determine the significance of the transactions.

  • Lessons

    The scale of laundering and the full role of some of the parties involved could not be determined. Inadequate due diligence can facilitate illegal activities. TOP