Moneylaundering.com
Weekly Alert (Revised Edition)
Friday, Apr. 27, 2001In this issue:
Latest News
* Professors conclude that criminal proceeds seek refuge in international trade when nations tighten laundering laws
* Securities firms found to be virtually exempt from regulatory supervision on anti-laundering controls
* Several sources of money laundering control guidance exist for private bankers
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Attention Moneylaundering.com members:
Latest news (Revised Edition)
Professors conclude that criminal proceeds seek refuge in international trade when nations tighten laundering laws
Two Florida University, Drs. John Zdanowicz and Simon Pak, have reached a startling conclusion. They have found that when money laundering laws focusing on financial institutions are strengthened, launderers veer their dirty money away from the financial system and into international trade where the eyes of governments and bankers are not focused.
The two professors, who created sophisticated software that analyzes more than 50 million transactions each year from data they buy from the U.S. Commerce Department, drew this conclusion by examining trade between the U.S. and Switzerland.
They reviewed trade before and after implementation of the new Swiss laundering law in early 1998, which some say is the world�s toughest. Before it took effect, $370 million per month moved between the countries at grossly abnormal trade prices. After the law�s effective date, this figure grew to $776 million per month, an increase of 110%.
Zdanowicz and Pak looked at other variables that might explain the Swiss pricing, such as inflation, interest rates, foreign exchange and currency values, and concluded that no factor, other than the new law, could explain it.
Whether it's diamonds exported from Russia to the United States at 78 cents per carat or 6-volt batteries exported to Haiti from the U.S. at $5,236 each or rocket/grenade launchers exported from the U.S. to Venezuela at $59.50 each, the research provides compelling evidence that grossly abnormal prices in international trade point to money laundering.
Zdanowicz and Pak say there are two ways to move money for illegal purposes out of one country and into another: undervalued exports and overvalued imports.
The two Miami-based experts have been probing trade data for international money flow aberrations since 1990. Their work first came to light in an article in Money Laundering Alert in 1992.
http://www.moneylaundering.com/Tradesample.htm for a sampling of how dirty money could move in international trade.
Check out:
(The lead story in the May issue of Money Laundering Alert reports on the latest Zdanowicz-Pak findings. The full text of the article is now available on Money Laundering Alert On-Line.)
Securities firms found to be virtually exempt from regulatory supervision on anti-laundering controls
In a classic case of bureaucratic lethargy and finger pointing, hundreds of bank-captive broker-dealers are operating without regulatory supervision on compliance with the suspicious activity reporting regulations they must follow as bank affiliates. Freestanding securities dealers are in a worse position because, unlike captives, they have no regulatory duty to report suspicious activity although some file voluntarily.
This unsettling information surfaced thanks to a new report by the General Accounting Office, Oversight of Suspicious Activity Reporting at Bank-Affiliated Broker-Dealers. U.S. Senator Carl Levin (D. Mi.), of the Senate Permanent Subcommittee on Investigations, who requested the report, said it is �an unfortunate step backwards in the fight against money laundering.�
The GAO says the 1999 Gramm-Leach-Bliley Act terminated regulatory supervision of suspicious activity reporting by captive broker-dealers by requiring agencies, including the Securities and Exchange Commission and the banking agencies, to supervise entities within their functional areas and, in general, to avoid other areas except in narrow cases where an institution�s well-being is at stake.
(Money Laundering Alert�s May issue provides in-depth coverage of this development including the entire history of how the securities industry has escaped the anti-laundering regulations that banks have faced for about 15 years.)
Stay informed, visit http://www.moneylaundering.com/news.htm
Several sources of money laundering control guidance exist for private bankersBecause private bankers are constantly faced with money laundering challenges and seek guidance to control money laundering. Here are some of the sources of guidance Money Laundering Alert suggests:
* In January, the Basel Committee on Banking Supervision, in Switzerland, which was formed by the Group of Ten nations in 1975 and consists of officials of bank supervisory agencies and central banks of major financial centers such as the U.S., U.K., Germany, the Netherlands and Switzerland, issued a paper called Customer Due Diligence for Banks, which outlined these �essential elements� of a Know Your Customer policy:
1. Banks should develop customer acceptance policies and procedures describing the customer�s background, country of origin, business activities, and other risk indicators, and develop clear and concise descriptions of who is an acceptable customer
2. Private banking accounts should �under no circumstances� be allowed to escape KYC policies
3. Banks should make every effort to know the identity of corporations that operate accounts and, when professional intermediaries are involved, verify the exact relationship between the owners and intermediary, wherever the law permits
4. Banks should use standard identification procedures when dealing with �non-face-to-face� customers and never agree to open an account for persons who are adamant about anonymity
5. Bank-wide employee training should be provided that explains the importance of the KYC policies, refresher courses on basic and new requirements and
6. Internal auditors or compliance officials should regularly monitor staff performance and adherence to KYC procedures
7. Continued monitoring of high-risk accounts by compliance personnel should lead to a greater understanding of �normal activities� of the customers and enable the updating of identification papers and detection of suspicious transaction patterns
8. Bank regulators should ensure that bank staff follows KYC procedures, review customer files and a sampling of accounts, and emphasize that they will take the �appropriate action� against officers who fail to follow KYC procedures.
Other guidelines available
The Wolfsberg Anti-Money Laundering Principles, issued in 2000 by a consortium of 11 multinational banks, set forth minimum standards for private banking controls. The Wolfsberg guidance closely follows the Know Your Customer regulations that were proposed in 1998, and later withdrawn, by the Federal Reserve.
Know Your Customer guidelines are also found in the Financial Action Task Force�s decade-old 40 Recommendations, which espouse far-reaching customer identification procedures that apply to customers represented by intermediaries. that says a well-designed and fully implemented KYC program is one of the best protections a bank can have against money laundering and other financial crimes.
(Websites for these organizations can be located through the Links page on Money Laundering Alert�s website at www.moneylaundering.com/links.htm )
Money Laundering Alert : New Edition
The May 2001 edition of Money Laundering Alert contains coverage of:
- Foreign trade detected as refuge for launderers dodging tougher laws
- GAO bares another loophole in laundering scrutiny of broker-dealers
- When laundering charges surface, battles commence on several fronts
- Correspondent bank accounts get microscopic attention at one big bank
- Florida toughens laws, police response to combat laundering hub image
- Risky business of money laundering is still booming, MLA conferees told
- Offshore debit card use gaining as tool for moving money
- Florida uses money laundering law to crack large mortgage-drug ring
- Many sources give anti-money laundering guidance for private banking
- Mexican bankers convicted in Mexico for role in U.S. Casablanca case
- U.K.�s FSA sets example of what may come later this year
- A sampling of how dirty money could move in international trade
For sample articles, visit www.moneylaundering.com
MLA-OL subscribers, read these important articles and stay informed, visit
http://www.complianceconnect.com/MLAthismonth.htm
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