Money Laundering in the United States of America and Tools to Fight It

Bank Secrecy Act

According to the United States’ first anti-money laundering and counter-terrorism financing (AML/CFT) act – the Bank Secrecy Act (BSA), US financial institutions/banks are obliged to cooperate with the US government in order to fight against money laundering and terrorist financing. In line with the BSA, American banks should keep a Currency Transaction Report for all transactions which are over 10,000 dollars; and follow the BSA's rules in order to avoid fines. Besides the Currency Transaction Report the BSA includes Suspicious Activity Report (for transaction which involves money laundering or terrorist financing), Foreign Bank and Financial Account Report (for customers who holds 10,000 dollars or more in their foreign bank accounts) and Form 8300 (for transaction which is over 10,000 dollars and related with travel companies, art galleries, etc.) (Bank Secrecy Act, Anti-Money Laundering, and Office of Foreign Assets Control, n.d.).

Taking into consideration that the BSA penalty ranges approximately between 10,000 - 200,000 dollars, UBS Financial Services paid a fine of 14.5 million dollars for violating the BSA act and for not having met the strictures of the Anti-Money Laundering process in place during 2004-2017.As a result, the UBSFS failed to detect suspicious money laundering activities. (Hudak, 2018) It is worth mentioning that, in 2001 the BSA amended (over 50 amendments) by the legislation entitled, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA Patriot Act).

USA Patriot Act

The Act was signed on October 26, 2001 by US President George Walker Bush after the World Trade Center terrorist attacks. The Act permitted countries and federal agencies (police officers, FBI agents etc) to cooperate in order to fight against international and domestic terror attacks and money laundering, and to allow federal agencies to make an investigation without a warrant if needed. Moreover, as a result of the Act, fines for crimes increased and penalties applied to more crimes. As per the Act all financial institutions obligate to provide anti-money laundering trainings to their employees, have money laundering and audit/compliance departments, report all suspicious accounts and potential money laundering. The Act's other goal is to stop shell companies operating in the US due to the fact that it is hard to identify the real ownership of them and that they have high money laundering risk. It has the power to punish and detect attacks and crimes which occur in the US and outside of the US.ACAMS (2016).

The Financial Crimes Enforcement Network (FinCen)

The main goal of the US FinCen, which was created in 2001 by the USA Patriot Act, is to investigate, fight against money laundering and financial crime and punish criminals who are responsible for that. In order to combat financial crimes, it cooperates with financial institutions, law agencies and analysis SARs (U.S. Department of the Treasury, 2007).

According to FinCen, banks must identify and verify their clients; and corporate customers should meet Customer Due Diligence requirements. By following CDD rules, financial institutions must perform ongoing monitoring of transaction, keep customers information updated and follow the risk based approach (however some banks such as Wachovia Bank was fined (143M dollars) for not following the requested CDD and BSA/AML requirements). (ACAMS 2016).

Money Laundering Scandals

Former laundryman and an American banking attorney Kenneth Rijock who also served in Vietnam is currently helping financial institutions, the government and law enforcement to catch money launderers and to detect money laundering loopholes in the banking systems and regulations. According to Rijock, his life totally changed after the divorce. He decided to move in with his Latino friend, however he wasn't aware how this decision would affect his lifecycle. After hanging out together with his flatmate, who was a drug trafficker, Rijock also started to get involved in this 'business'. As a banking attorney he started to help launderers to laundry their illicit money in an effective way so that they wouldn't be caught; and he was helping them to deposit their illegal money in tax havens. However, he wasn't successful always, and especially when his laundryman customer had been caught by the police, and decided to give Kenneth's name to them in order to make his sentence shorter than it should be. Predictably, this resulted in Rijock’s arrest and his sentencing to four years. During his time in jail, he helped federal agents with a Swiss money laundering investigation, thanks to which the government was able to detect a huge amount of illicit money which had belonged to Rijock’s customers.

As Kenneth mentioned, laundering in nineties was much easier than now since he was able to deposit six million dollars cash into banks without triggering any detailed investigation, however nowadays in order to deposit over ten thousand dollars you need to fill required forms. Taking into consideration his experience and knowledge it was very clear to US government that they could get a lot of help from Rijock in order to improve their anti-money laundering regulation; and the law enforcement decided to hire him as a financial crime consultant. Currently he works in World Check and everyday writes several articles where bankers can read the information regarding criminals, politically exposed persons and their relatives, and negative or positive news regarding companies. He also gives lectures in financial institutions all over the world in order to help future bankers to understand the money laundering process and to realize its importance. Rijock’s main goal is to detect as many laundering crimes as possible. (Burnell, 2007).

Mexican Cartel and One of the Biggest American Banks

It is no surprise that sometimes banks fail to identify their real customers and the source of their funds. As an example we can mention Wachovia Bank (Miami office) which failed to follow anti-money laundering procedures in spite of being one of the largest US banks. The way how investigation began is quite interesting – it all started after a plane which was carrying drugs (the jet contained tons of cocaine which were worth more than 90 million dollars), and which belonged to the Sinaloa cartel, was intercepted by the Mexican police. As uncovered by the investigation, the cartel had been laundering its money through the mentioned bank and successfully bought the plane for use in their drug trafficking business.. It was announced that the cartel had laundered more than 300 billion dollars through Wachovia Bank.

The bank did not pay enough attention to those transactions in round amounts which had originated from Mexico several times during one day even though the bank’s employee and former officer of the drug squad, Martin Woods, informed the management about his suspicion regarding these transactions. Although Martin’s investigation ended up with his reassignment, he still co-operated with the DEA and informed them about these suspicious transactions. According to Woods, the bank’s biggest mistake was not having had proper Know Your Customer procedure which led them to fail to identify and verify their clients – as a result the bank failed to spot over 370 billion dollars of illicit money over the period 2004 - 2007 which had been transferred from Mexico. Of course the bank admitted that it had broken the Banking Secrecy Act and anti-money laundering requirements by laundering Mexican drug cartel’s money; as a consequence, it ended up paying a fine of over 200 million dollars. That said, no one was prosecuted in the Wachovia money laundering scandal since the bank had paid the penalty in the required time period. Today the bank is part of Wells Fargo & Company and in 2008, and it ceased cooperating with foreign exchanges (Vulliamy, 2011).

Conclusion

All banks have anti-money laundering procedures however as we can see from the examples that they are not always following it. Even the biggest well-known American banks had been fined for breaking Bank Secrecy Act or other regulations/acts. Of course it not so easy to detect the suspicious customers or transactions, however having professional and qualified anti money laundering analysts and fraud teams help banks to make it as easy as possible - as a result nowadays banks are catching and stopping money frauds. Banks constantly are upgrading and improving their detection systems and gathering more detailed information regarding their customers. Moreover they are also doing periodical anti money laundering checks on their clients. In line with banks, regulators are also updating their rules and requirements based on the suspicious activity reports which they are receiving from the banks. Majority of money laundering scandals were initiated from the suspicious activity reports which were reported by banks to regulators. Although banks and regulators improving requirements, regulations and systems criminals and launderers are still finding the ways to laundry their illicit money and use banks in that process. As we can see money laundering was, is, and will always be a very dynamic process; especially since criminals will always look for loopholes in the banking system. In response, banks will always do their best to be one step ahead of criminals. Let's hope that banks will be those who continue to win out over such practices; and that the future belongs to them.