The comprehensive efforts by government, law enforcement, and businesses to detect, report, investigate, prosecute, and prevent money laundering activities.
US government legislation that was created in 1970 to prevent financial businesses from being used as tools by criminals to hide or transfer money derived from their illegal activity. This includes requiring financial institutions to report cash transactions in excess of $10,000 (daily aggregate amount, or 12-month aggregate amount for related transactions) and to provide documentation on suspicious activity; it also mandates the disclosure of foreign bank accounts and the reporting of the transportation of currency exceeding $10,000 across US borders.
A form that financial businesses are required to file under US law, with the Internal Revenue Service, when any currency transaction or series of transactions totalling more than $10,000 is made in any one day by any person or made on behalf of another person; or when a series of related transactions (such as instalment payments) totals more than $10,000 within a 12-month period. This report is required by the BSA and is not a confidential document.
In Anti Money Laundering terms, due diligence includes a know-your-customer (KYC) process to verify the identity of the client (client identification program (CIP)), screening names against lists of known parties, determination of risk,and monitoring of transactions.
A bureau of the US Department of the Treasury that collects and analyzes information about financial
transactions in order to combat money laundering, terrorist financing, and other financial crimes. Integration The last of the three stages of money laundering where ‘clean’ funds are placed back into the economy to create the perception of legitimacy. This can be done through the purchase of cars, businesses, real estate, or other assets.
Refers to the concept of verifying your customer’s identity and understanding their expected transactions.
Is a type of KYC program. Layering The second of the three stages of money laundering that involves moving funds around in an attempt to camouflage the source and ownership of the funds.
The attempt to conceal or disguise the nature, location, source, ownership, or control of illegally obtained money. Through money laundering, the criminal attempts to transform monetary proceeds derived from criminal activity into funds with an apparently legal source (turning ‘dirty’ money into ‘clean’ money). If illegally obtained money is successfully laundered, criminals maintain control over their illegally obtained funds that they’ve introduced into legitimate financial systems. Money laundering is not limited to cash. Money laundering can be done through any type of financial transaction, including, but not limited to, funds transfers, money orders, checks, debit cards, prepaid products such as stored value cards and other forms of prepaid access, and credit card transactions. AML laws apply to any funds derived from illegal activities, such as funds held by human smugglers, drug traffickers, terrorists, organized crime, tax evaders, and other groups and individuals seeking to transfer, spend, and/or invest money derived from any type of crime.
Placement The first of the three stages of money laundering that allows the introduction of illegal proceeds into the financial system. This is the riskiest step in the ‘laundering’ cycle for criminals, as it’s the most vulnerable to detection. Many criminals are familiar with the dollar thresholds that trigger record-keeping and reporting, so they attempt to work around the requirements to remain anonymous.
An individual who has occupied a prominent public position, or someone who is closely related to such a person. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position of influence.
A red flag is an indicator that illegal or improper conduct may be taking, or may be about to take, place. For example, suspicious activity that could indicate money laundering or terrorist financing.
A provision in the laws requiring suspicious activity reporting that provides protection from civil liability for anyone involved in preparing and filing the report, as long as the report was filed in good faith. Note, not to be confused with the EU-US data protection safe harbor scheme (which has now been replaced by the EU-US Privacy Shield scheme); this is a different use of the term.
A highly confidential form required by the Bank Secrecy Act, used to report suspicious activity and known or suspected violations of law. It is used by law enforcement for investigations of money laundering,
Revealing that a person may be reported or has been reported on a SAR carries severe federal penalties. Terrorist Financing The processing of funds to sponsor or facilitate terrorist activity. Terrorists and terrorist organizations derive income from a variety of sources, often combining both lawful and unlawful funding. The terrorist financier will want to disguise the illegal end of the funds, while trying to maximize the revenues for the organization sponsored.
The need to camouflage the source of the funds means that terrorist financing has certain similarities with traditional money laundering, namely the use of the three stages to place, layer, and integrate the funds in the international financial system. The crucial difference between traditional money laundering and terrorist financing, both of which involve concealing or disguising the nature, location, source, ownership, or control of money, is that traditional money laundering is focused on converting illegally obtained funds, while terrorist financing is focused on using funds (whether or not illegally obtained or involving proceeds of criminal conduct) to facilitate criminal activity.
Although the motivation differs between traditional money launderers and terrorist financiers, the actual methods used to fund terrorist operations can be the same as or similar to methods used by other criminals to launder funds. Policies, procedures, and controls identified for AML typically apply to counter-terrorist financing (CTF).
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001. An act of Congress that was signed into law in 2001 after the September 11th attacks, and instituted changes to a broad range of laws. For financial institutions, it strengthened existing US measures and added new laws to prevent, detect, and prosecute money laundering and terrorist financing.
The practice of intentionally looking the other way in the face of “red flags” or other circumstances that should prompt a reasonable person to question the activity. Courts have held that an individual cannot avoid liability by intentionally remaining ignorant of facts that they should have ascertained.
This content is an extract from the Anti Money laundering program.