2007 National Money Laundering Strategy
FinCen, the Financial Crimes Enforcement Network, recently released their first ever report on the National Money Laundering Strategy.The 112-page report, compiled jointly by the US Departments of Treasury, Homeland Security and Justice, focused on the priority threats and vulnerabilities to money laundering, as identified in an assessment conducted last year.
According to the report, there are nine priorities for the government and private sector in combating money laundering:
- Continue to safeguard the banking system through section 312 and 326 of the Patriot Act
- Enhance financial transparency in money services businesses
- Stem the flow of illicit bulk cash out of the United States
- Attack trade-based money laundering at home and abroad
- Promote transparency in the beneficial ownership of legal entities
- Examine AML regulatory oversight and enforcement at casinos
- Implement and enforce AML regulations for the insurance industry
- Support global anti-money laundering capacity building and enforcement efforts
- Improve how we measure our progress
The bulk of the details comes in the 75-page “Appendix A”, which breaks down the threat assessment by types of business and transactions.
On the banking side, the report notes the difficulty in verifying customer identification. For retail accounts, the move to online banking and away from face-to-face interactions creates new opportunities for fraud and identity theft. Another vulnerability for banks comes in the use of correspondent and “payable through” accounts for funds from overseas. Identification of Politically Exposed Persons (“PEPs”) to identify funds from corrupt government officials or prominent citizens under Section 312 of the Patriot Act continues to be a major concern for bank compliance. More challenging (and so far without much guidance from the regulators) is how to identify the beneficial ownership, when most corporate registries (including US Secretary of State offices) do not require such information to be filed.
An increased focus is being placed on the heretofore largely unregulated Money Services Businesses (MSB). MSBs include currency dealers; check cashers; issuers and sellers of traveler’s checks, money orders or prepaid stored value cards; and money transmitters. While banks have begun to instill processes for compliance, money launderers are turning to MSBs, casinos and other outlets.
Another segment gaining increased scrutiny is the insurance industry. As traditional insurers have shifted their business from life and health to that of underwriting annuities, they too become targets for money launderers. Annuities, cashing in of life insurance policies or borrowing against such policies are all easy ways to exchange dirty money for clean. Adding to the challenge of implementing AML procedures is that the sale of policies and financial vehicles is often by independent agents, not employees of the insurers themselves. According to the report, “In one case, federal law enforcement agencies discovered Colombian drug cartels were using drug proceeds to buy life insurance policies, which were subsequently liquidated with the cash value transferred to an offshore jurisdiction.”
Despite the fact that the surrender value of a life insurance policy is much lower than the amount invested, “from the drug traffickers’ perspective, the liquidation penalty is, in effect, a cost of doing business”.
Five years after the passage of the Patriot Act, banks and other financial institutions are still grappling with how to deal with its operational impact, along with changes to FSA regulations and the Bank Secrecy Act. With these new provisions, it’s clear that these challenges are now confronting insurance companies, casinos and money services businesses.
The full report is available for download here.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.