Money Laundering

legitimacion de capitalesMoney Laundering is the process of hiding or disguising the existence, illegal source, movement, destination or illegal use of goods or funds generated from illegal activities to make them appear as legitimate.

Overall, it involves the placement of funds in the financial system, the structuring of transactions to disguise the origin, ownership and location of the money, and the integration of said money into the society in the form of goods that appear to be lawful.

The Venezuelan Superintendence of Banks’ National Financial Intelligence Unit, attached to the Ministry of the People’s Power for Finance, is the main regulating agency in this matter, and the Organic Law against Organized Crime contemplates money laundering as a crime.

Characteristics of Money Laundering:

  • It’s a financial crime.
  • It’s based on permanent fictions.
  • It’s a set of complex and uncommon operations
  • It’s a transnational crime.
  • It takes advantage of the financial system’s vulnerabilities and technological advances.

Stages of Money Laundering

Placement: The first and most vulnerable stage of Money Laundering is the placement stage. The objective in this stage is to place the illegal funds in the financial system without alarming financial institutions or law enforcement agencies.

Concealment/Processing, Stratification or Transformation: The second stage in the Money-Laundering process is concealment or processing, which includes moving the money throughout the financial system, often in complex series of transactions in order to generate confusion and complicate the tracking.

Integration: The final objective of the Money-Laundering process is integration. Once the funds have been placed and concealed in the financial system, the integration step is used to make the money appear as legal by integrating it into the economic circuit through transactions of purchase and sale of assets and luxury items, among other things.

Money Laundering worldwide is an US$800 billion to US$2 trillion-a year industry, according to international figures released in the XIV Hemispheric Congress for the Prevention of Money Laundering and the Fight Against Terrorism Financing held in Panama on August 25, 2010.

A Venezuelan expert who attended the congress explained that in Latin America Money Launderers prefer banks while in Asia they use currency exchange centers, in Europe they make use of accountants and commercial spaces, and Africans use diamonds.

“We are loosing the battle against organized crime” in the region, warned the specialist, who expressed it should be a challenge to maintain preventive measures against money laundering.

He also said that, besides the traditional sources of money laundering such as drug trafficking and arms smuggling, there were other sources of illegal capital such as frauds, unlawful enrichment and corporate crimes.

Warning signs

Warning signs can be identified when we are acquainted with the different money-laundering methods. Money-laundering method refers to the whole operation carried out by criminals, from executing an illegal activity, to filtering money through a financial institution, to the end of the operation with the expected results, giving legal appearance to unlawfully obtained assets or funds.

There are a few general and particular warning signs in all financial institutions, depending on the risk and business they handle.

Warning signs related to the client’s profile

  • Operations that are incongruent with the client’s economic capacity.
  • Isolated or linked operations that fall out of the client’s predictable or pre-defined profile.
  • Unexpectedly, with no apparent foundations, someone appears as the owner of important businesses.
  • Clients offer to pay significant commissions with no legal or logical justifications.
  • Change of owners and the new-owner history is not consistent with the nature of the client’s business or the new owners refuse to provide personal or financial information.
  • Use of night deposits for large amounts of cash when the client’s activity doesn’t imply the reception of cash.
  • Clients with retail businesses who cash checks to third parties and do not deposit cash against the checks deposited or consigned. This could indicate the client has another source of income.
  • Accounts with a large volume of check deposits, money orders, transfers and other negotiable instruments, when the accountholder’s business does not justify such activity.
  • Accounts with large cash transactions for businesses that usually don’t handle large amounts of cash.
  • Several deposits the same day in different offices of the same bank, an unusual behavior for the specific client.
  • Electronic transfers with no apparent commercial reason or consistency with the client’s usual business transactions.
  • Reception of several small transfers or checks or money orders or postal money order sent to other cities when such an activity is not consistent with the client’s usual business transactions.
  • Clients whose financial statements indicate significantly different results compared to other companies in the same sector or similar businesses.

Warning sings related to the operations.

  • Accounts with physical mail addresses offshore for correspondence and bank statements, PO boxes or setup to pick up their bank statements in a bank office.
  • Loans backed up with securities (certificates of deposit and other securities).
  • Clients who constantly visit their safe deposit boxes just before making cash deposits for smaller amounts than those stipulated to generate warning reports.
  • Constant deposits of large amounts of cash wrapped in paper bands from other banks.
  • Cash deposits with dirty or moldy bills.
  • Sudden full payment of large loans (pre-payments) with no apparent justification of such payment or the origin of the funds.
  • Purchase of cashier checks, money orders, etc., with large amounts of cash.
  • Loan applications by off-shore companies or to ensure liability loans from off-shore banks.
  • Purchase of cashier checks, money orders or traveler checks in large amounts and for sums below the minimum required to generate warning reports.
  • Significant changes in money wire patterns between correspondent banks.
  • Significant transactions with large bills in activities that are not related with the bank’s location.
  • Increases in the amount of cash handled without the corresponding increment in the number of transactions reported.
  • Large increases in the use of small bills and the corresponding decrease in the use of large bills without generating transaction reports.
  • Fractioned operations to evade warning report norms and regulations.
  • Frequent operations on behalf of a third party with no apparent justification (I.e. Deposits for significant amounts of money made by attorneys in fact or third parties).
  • When a person who’s not a regular client deposits funds in different offices or correspondent offshore banks to be collected locally or to be sent to other countries.
  • Operations through companies domiciled in “tax havens” or in regions or countries rated as “non-cooperative”.
  • There is a significant change in the currency exchange transactions between correspondent banks or exaggeratedly large transactions between as small bank and a large bank.
  • Companies financed with loans granted by offshore institutions.
  • Debits on accounts to make transfers through financial institutions in high-risk countries.
  • Transfers offshore are made through instruments from multiple financial institutions.
  • Deposits and withdrawals from corporate or entrepreneurial accounts done mainly in cash instead of checks.
  • Cash purchases of large amounts in money orders, postal orders, achier checks or other negotiable instruments.
  • A single cash deposit with many bills of the same denomination.
  • Frequent change of small bills for large bills and vice versa.
  • Non-significant deposits with a large number of checks, while daily operation withdrawals are unusual.
  • Sudden and inconsistent changes in transactions or money–handling patterns.
  • Accounts showing several deposits below the limit amount.

Warning signs related to clients’ information

  • Request to being included in the list of exceptions from cash transaction warning reports for no justified reason.
  • Companies that refuse to provide complete information such as its main business activity, bank references, names of employees and directors, location, etc.
  • Refusing to provide information to qualify to receive loans or other financial benefits.
  • Hoping to open an account or request a financial service without references, an address, identification (passport, Id, etc.) or refusing to provide other kinds of information required by the institution to offer such services.
  • Clients with unusual or abnormal ID cards the institution can not verify.
  • Clients with disconnected telephones or whose phone numbers do not match the information initially provided.
  • Applications that do not include work reference letters.
  • Clients who do not include work reference letters of previous or current jobs but usually perform large operations.
  • Clients refusing to provide information about their business activity or refusing to provide financial statements.
  • Clients who usually ask the bank to increase their limits of exception from warning reports.
  • People who refuse to provide the necessary information for the mandatory registry of cash transactions or refuse to continue with the transaction once they have been informed that such registry needs to be filled-out.
  • People who put pressure on bank employees to avoid filling out forms that imply the registration of information or a transaction report.

Warning signs related to international operations

  • Frequent transfers from and to offshore institutions.
  • Deposits in several accounts, usually below the transfer warning report limits, to then be consolidated in a master account and be transferred offshore.
  • Instructions from a client to transfer funds offshore with the product of transfers received from other sources for similar amounts.
  • Deposits or withdrawals of large amounts of money by transfers made through countries of which economic activity does not justify the amounts or frequency of such transfers.
  • Transfers or deposits in offshore accounts without previous currency exchange operations.
  • Reception of transfers and immediate acquisition of monetary instruments on behalf of third parties.

Warning signs related to employees

  • Employees with lifestyles that do not match their salaries.
  • Employees who refuse to taking vacations.
  • Employees who refuse to accept changes or promotions that could prevent them from performing the same activities.
  • Employees who usually stay in the office longer than the closing time or visit the office outside business hours.
  • Employees involved in frequent and unjustified absences.
  • Employees who usually report cash register differences and give insufficient or inappropriate explanations.
  • Employees who keep co-workers from assisting specific clients.

The fight against money laundering involves all sectors of the economy. The financial sector has the biggest responsibility as it receives and channels a large part of the economy’s cash flow, which makes it easy for unlawfully obtained moneys to get confused with legal resources.

As this is a problem that affects all sectors of the economy, we must adopt especial measures to prevent money-laundering in order to support the actions of law enforcement agencies.

Sources: Nestor Hugo Duarte Carrillo – Money Laundering. Latin American Federation of Banks (FELABAN).



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