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How to Investigate Money Laundering in a Bank

Money laundering in a bank - intelligence & risk solutions

There are many new entrants into the Anti-Money Laundering sector that have little to no investigative experience. That’s natural in any sector. Below are some tips on how to investigate and progress an investigation into Money Laundering or Terrorist Financing within a bank. And the factors that will impact it. What needs to be considered with every investigation is the proportionality of it. It may just be a case of reviewing transactions or going the extra mile due to the value of transactions. That comes with experience and an understanding of the risk a customer or series of transactions places on an organisation. Read How to investigate Money Laundering to get some insight.

Investigations into Money Laundering by an Institution.

Common investigation initiators include:

  • Regulatory recommendations or findings
  • Transaction monitoring rules designed to detect potentially suspicious activity
  • Referrals from customer facing employees
  • Information from hotlines
  • Negative media information
  • Receipt of governmental subpoena or search warrant
  • Whistleblowers

Money Laundering Transaction Monitoring Rules

The below transactions are from an account. Let’s see what the transaction monitoring rule does.

RULE: Incoming aggregated cash deposits more than $20,000 and outgoing wire transfers more than $20,000 within ten days on individual accounts.

14/09/2023Cheque deposit Lantana Inc.BVI$5500
15/09/2023Cash Deposit$8000
16/09/2023ATM withdrawal$200
17/09/2023Cash Deposit$9000
18/09/2023Cash Deposit$8500
19/09/2023ATM Withdrawal$500
20/09/2023ATM Withdrawal$300
21/09/2023Cheque Deposit Lantana Inc BVI$5500
22/09/2023Wire Out Lantana Ltd Panama($11000)
23/09/2023Wire Out Lantana Ltd Singapore($24000)

These triggered the rule.

Cash Deposits equal $25,500 in less than ten days

Wire out on the 23rd equals $24000

Transaction Monitoring Rules – What did not trigger?

14/09/2023Cheque deposit Lantana Inc.BVI$5500
15/09/2023Cash Deposit$8000
16/09/2023ATM withdrawal$200
17/09/2023Cash Deposit$9000
18/09/2023Cash Deposit$8500
19/09/2023ATM Withdrawal$500
20/09/2023ATM Withdrawal$300
21/09/2023Cheque Deposit Lantana Inc BVI$5500
22/09/2023Wire Out Lantana Ltd Panama($11000)
23/09/2023Wire Out Lantana Ltd Singapore($24000)

These did not trigger

Cheque deposits only $11,000

Wire out less than $20,000

What should be investigated for money laundering?

14/09/2023Cheque deposit Lantana Inc.BVI$5500
15/09/2023Cash Deposit$8000
16/09/2023ATM withdrawal$200
17/09/2023Cash Deposit$9000
18/09/2023Cash Deposit$8500
19/09/2023ATM Withdrawal$500
20/09/2023ATM Withdrawal$300
21/09/2023Cheque Deposit Lantana Inc BVI$5500
22/09/2023Wire Out Lantana Ltd Panama($11000)
23/09/2023Wire Out Lantana Ltd Singapore($24000)

The wire out to Lantana Ltd in Panama. It looks like the two cheque deposits are being aggregated into the payment to Panama. The $24,000 payment to Lantana in Singapore also needs investigating. The fact the payments are going to jurisdictions that have secretive business registrations and low tax plus the similarity in name raises suspicions enough to ask questions.

Money Laundering Referral from Customer-Facing Employees

  • Financial Institutions may maintain an internal communication system to report activities identified by customer facing employees.
  • Referrals would be completed by the employee and sent to the compliance investigations unit. Examples include:
    • Internal Form
    • Internal Email
    • Internal database
    • Observed activity, behaviour relevant to determining suspicious activity
    • Executed transactions may be identified by transaction monitoring rules but not the observed activity.

Internal whistleblowing hotlines

  • May be used for compliance, ethics or whistleblowing
  • Permit employees of financial institutions to report various activities
    • Employee fraud
    • Violations of code of conduct
    • Theft of company property
    • Inappropriate Gifts
    • Required to maintain policies and procedures
    • Prohibition from making retaliation against the person reporting
    • May permit anonymous reporting
    • Investigation may include compliance, legal, corporate security or human resources

Anti-Money Laundering Negative or Adverse Media

  • Investigations can be instigated by information obtained in the public domain, such as:
    • Information about a financial institutes customer
    • How a product is being used, or misused, in the market
    • Geographic location adverse media or risk assessment
    • Money laundering or terrorist event
  • Negative media should be considered in the STR process (Suspicious Transaction Reporting)

Receipt of Governmental Subpoena or Search Warrant for Money Laundering

  • Subpoena or Warrant
    • Compulsory legal process issued by a court to compel the appearance of awitness at ajudicial proceeding sometimes requiring the witness to bring specific documents.
  • Search Warrant
    • A grant of permission from a court for a law enforcement agency to search certain designated premises and to seize specific categories of items or documents.
    • Generally, the requesting agency is required to establish that probable cause exists in the US (suspicion in the UK), to believe that evidence of a crime will be located.
    • The warrant is based on information contained in an affidavit submitted to the court by a law enforcement officer.

Legal and Anti-Money Laundering Obligations

  • Financial Institutions maintain two independent obligations
    • To fulfill the obligations of the subpoena or warrant; and
    • Determine whether the activity of its customer identified in the subpoena or warrant requires the filing of a STR.

Summons and Subpoenas – What the organisation should do

  • If the FI is served with a summons or subpoena compelling the production of documents, senior management and/or counsel should review it.
  • If there are no grounds for contesting the summons/subpoena the institution should comply on a timely and complete basis. Failure to do so can result in adverse action and penalties for the institution.
  • Under no circumstances should any customer be ‘tipped off’.
  • If the government asks the bank to keep certain accounts open, such a request shopld be obtained in writing under proper letterhead and authority from the government agency.

What staff should do immediately.

  • Inform the FI counsel
  • Review the warrant to understand its scope
  • Ask for and obtain a copy of the warrant
  • Ask for a copy of the affidavit/laying of information document that supports the search warrant. The agents are not obliged to provide a copy of the affidavit, but, if an institute is allowed to see the affidavit, the institute can learn more about the purpose of the investigation.
  • Remain present while the agents record an inventory of the items they seize.
  • Make copies of any records taken by the agents.
  • Ask for acopy of law enforcements inventory of what has been seized.
  • Write down the names and agency affiliations
  • Attorney-client records. Suggest, as an alternative, that the documents be given to the court for safe-keeping.

Order to freeze an account.

If the law enforcement agency or a prosecutor obtains a court order to freeze an account or to prevent funds from being withdrawn or moved, the institution should obtain a copy of the order and should comply with it. Generally, the order is obtained based on a sworn affidavit/laying of information. Ask to see the affidavit because it provides clues about why a customer’s information is being requested. Whether authorities are obliged to provide the affidavit depends on laws and regulations in the jurisdiction in question.

Conducting the Money Laundering Investigation

In the course of conducting an effective and efficient investigation, consider the following steps:

  • Review internal records
  • Review external information related to subjects of the investigation
  • Review adverse media
  • Review business registrations
  • Review links to other businesses and accountants/law firms
  • Review links to business registration agents
  • Review large purchases through real estate, brokers, high net purchase retailers
  • review publically available movement of tracking databases
  • COnduct open source intelligence searches
  • Conduct trade based inquiries
  • Review fraud databases
  • Cross match and merge account data, telephone numbers, emails, Ip addresses, digital footprints
  • Consult with internal witnesses
  • Contact the business line responsible for the account relationship
  • Generate a written report recording relevant findings
  • Follow the money trail
  • Maintain an investigative mindset, following the evidence
  • Include digital data searches for digital footprints
  • Include basic CCTV inquiries for ATM/counter transactions
  • Consider facial recognition if your institute has it
  • Share and request data relating to transactions and customers with partner agencies and institutes
  • For more help, ask us!

Review internal and external Information

  • Review internal records covering the timeframe of the suspected activity, including time before and after. Examples:
    • Signature cards
    • Account statements
    • Deposit tickets, cheques and withdrawal items
    • Credit and debit memorandums
    • Records on loans, cashier cheques, certified cheques, travellers cheques and money orders
    • Request further information from other agencies/institutes
    • Liaise with partners

Using the Internet when Conducting Money Laundering Investigations

  • Start with metasearch (search tool that sends requests to several other search engines and aggregates the results into a single list)
  • Tips on search engines
    • Use multiple search engines
    • Use local (foregin) search engines when searching in a foreign country
    • Ideally you should be employing an Open Source company or software. The internet has many search options, not least in different languages. Unless you are very proficient in search you should employ experts. You WILL miss critical evidence/intelligence otherwise.
    • Search social media accounts.
    • Employ a system that does all of this with AI capabilities.

STR decision making process

  • Decision whether or not to file a STR/SAR often involves weighing the aggravating and mitigating factors arising from the research conducted during the investigative process
  • The final decision should be documented and supported by the factors that were used to make the determination
    • File report to Financial Intelligence Unit
    • Comply with STR timelines

Quality Assurance

  • Financial Institutes are required to file timely and complete STR/SARs and the quality of STRs can be an indication of the quality of the institutes AML/CTR program. For this reason managers should dip sample and provide feedback on STR/SAR submissions.
  • QA review helps to ensure STR filings are internally consistent, the right decisions are being made and high priority matters are identified and escalated to leadership.
  • The institute should have a clear direction for its staff, in policy, that indicates what, when, how and why to escalate an investigation. Guidance to staff is critical.

Quality Assurance Impacts Investigations

  • TCF National Bank
    • 2013 it consented to $10 million civil penalty for AML program violations
    • Quality of investigation process cited in consent order – failing to manage SARs.

Closing the account based on its internal investigation, the institution should make an independent determination as to whether to close the account.

Consider – The legal basis for closing an account – The institutions policies and procedures for closing an account. How serious is the underlying conduct? If the conduct is serious and rises to the level where the account would ordinarily be closed, then consider closing the account. If Law enforcement requests the institution to keep the account open, request it in writing. In addition, the institution should determine whether or not to file a STR.

Law Enforcement Money Laundering Investigations versus Bank Examination

In the US and several other jurisdictions, the banking regulatory agencies do not need subpoenas or warrants. Their authority to conduct examinations includes the ability to insepct all books and records or a regulated institution.

Law Enforcement Investigations

  • WHEN: law enforcement investigations can be triggered by STRs, tips from sources and information from other cases.
  • WHAT: The agency can request information from an institute in order to obtain evidence.
  • HOW: Requests for information cam come in several forms; subpoenas, search warrants etc
  • WHY: The documents and testimony are designed to allow the agency to investigate suspicious transactions, develop evidence and put together a case for prosecution.

Steps Law Enforcement Agencies take in a Money Laundering Investigation.

  • Follow the money – Identify the unlawful offence (predicate offence)
  • Document the underlying activity and transactions, flow of funds through bank accounts
  • Review databases (FIU databases, commercial databases)
  • Review public records (court records, corporate filings, newspapers, open source)
  • Review licensing and registration files
  • Analyse the financial transactions and account activity of the target
  • Review STRs/SARs
  • In cross border cases, seek international assistance through MLAT or other (Mutual Legal Assistance Treaty)

Decision to Prosecute a Financial Institution

When considering whether, or to what extent, to bring a case against an FI involving Money Laundering related activity, prosecutors will examine:

  • Does the institution have a cooperative culture
  • Are their any previous transgressions
  • Did the institute discover and report voluntarily
  • Does the institute have a comprehensive and effective AML program
  • Did the institute take timely and effective remedial action
  • Are their civil remedies that can serve as punishment
  • Will deterring wrongdoing be served by punishment

Responding to a Law Enforcement Investigation

  • Respond quickly and completely to all requests
  • If a request is overly broad/unduly intrusive, the institute can attempt to narrow the request or can even seek to contest the request in court. Typically, the most effective strategy is to cooperate with investigators and prosecutors
  • NEVER ignore, defer, or otherwise put aside or delay responding to a law enforcement inquiry or request for documents.
  • Obtain Counsel
  • Create a centralised control policy. To ensure requests are responded to on a complete and timely basis and to establish a complete record of what is provided.
  • Keeping a centralised record will assist with regard to the institute’s own internal investigation.
  • The Fi needs to ensure that appropriate senior management is informed
  • Someone should be designated as being responsible for responding to all law enforcement requests
  • If the inquiry appears to be focused on the institution and not just an account or customer, then the board of directors should be kept appraised aswell.
  • Information about an investigation should not be provided to any employees, officers or directors of the institution who might be a subject of the investigation.

Legal Counsel

Upon notification of a law enforcement investigation, especially one directed at the institution, consideration should be given to the retention of qualified and experienced legal counsel.

  • Guides the institution through the inquiry
  • Contests requests that are considered improper
  • Assists in negotiating settlements if necessary

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