Issues in money laundering Featured

8:00pm EDT September 25, 2008

Do the names Second Life, Club Penguin and Zwinktopia mean anything to you? These “virtual worlds” may seem like harmless places on the Internet that provide simple entertainment, but in reality, they are increasingly serving as money laundering hubs for criminals all around the globe.

“These are legitimate sites and legitimate business is conducted over these sites. However, if you do business with a launderer — who you thought was a legitimate customer — you’re involved even if you didn’t know it,” cautions Theresa Mack, CPA, CAMS (Certified Anti Money Laundering Specialist ) senior manager, investigations, for Cendrowski Corporate Advisors LLC. “Virtual banks are another high-risk area. Anonymity may be convenient, but you incur greater risk when you don’t do business face-to-face.”

Smart Business asked Mack about other emerging issues in money laundering.

What’s a simple definition of money laundering?

The conversion or transfer of property, knowing it is derived from a criminal offense, for the purpose of concealing or disguising its illicit origin, or of assisting any person who is involved in the commission of the crime to evade the legal consequences of his or her actions. Willful blindness is considered having knowledge in the U.S. courts.

Has it become more prevalent today?

The International Monetary Fund estimates the aggregate size of money laundering in the world could be between 2 and 5 percent of the world’s gross domestic product. Money launderers are always looking for new ways to launder their ill-gotten funds. Economies and countries with growing and developing economies but inadequate controls are especially vulnerable.

Why do companies need to be educated about this topic?

If you do business with a customer/client who is involved with money laundering, you are at risk of being involved in a money laundering investigation. If you are buying a company, money laundering could overstate sales or have a direct impact on the expenses. Crimes like this can infiltrate financial institutions, entwine businesses and acquire control of large sectors of the economy through investment, or bribes to businesses, public officials and governments. Money laundering can weaken the social fabric and ultimately decay the institutions of our society. In countries moving to democratic systems, this criminal influence can undermine the transition. Fundamentally, money laundering is linked to the underlying criminal activity. Willful blindness of entities/people who allow money laundering or turn a blind eye to it are often found to have knowledge in the eyes of the U.S. courts, hence criminal prosecution, jail time and hefty fines are the consequence of not being educated on this subject matter.

What are some of the newer things criminals are doing to launder money?

 

  1. Prepaid cards are currently the most significant money laundering threat. There is an estimated $30 billion in payments going to Latin America from the U.S. each year alone. These are branded by AMEX, MasterCard, or Visa and operate like traditional credit or debit cards. These cards facilitate the cross-border movement of funds without a declaration requirement. The funds can be loaded anywhere in the world, there often is no maximum load limit, they can be used at ATMs, no bank account is needed and they can be activated online.

     

     

  2. As mentioned above, virtual worlds on the Internet are high-threat areas. At sites like Second Life, users can buy and sell with money that can be ‘purchased.’ Activity is constant and unmonitored for the most part. Law enforcement has taken note as are these sites who are increasing their monitoring of the transactions.

     

     

  3. ATM businesses that are also issuing agents of money orders are using their independent ATMs in these stores with illicitly derived cash and allowing launders to use the ATM instead of using a bank ATM.

     

     

  4. Money services businesses. The USA PATRIOT Act of 2001 enhanced law enforcement organizations’ ability to combat money laundering through these businesses by amending federal statutes making it a crime to operate an unlicensed money service business under 18 USC Sect. 1960. Individual states have their own laws regarding licensure. Enforcement is trying to keep up.

     

How can a company protect itself?

Do proper due diligence on everyone you do business with. If you have any suspicions about a transaction involving a company or individual, protect yourself by anonymously filing a Suspicious Activity Report (SAR), and keep a copy for your own records should you ever be approached about the activity. You can download a SAR at the Financial Crimes Enforcement Network Web site at www.fincen.gov. SARs can only be used by law enforcement for intelligence gathering and cannot be entered into a court of law.

THERESA MACK, CPA, CAMS, former Special Agent of the FBI, is senior manager, investigations, with Cendrowski Corporate Advisors LLC. Reach her at (866) 717-1607 or cs@cendsel.com.