Protecting your Business against Money Laundering

Money laundering is a dangerous offence can land you in jail for many years. As they say in court, ignorance is no excuse; all business people should be alert so as to protect their businesses against illegal schemes such as money laundering. Money laundering happens in stages so the moment you note one take necessary action.

The Fraud: The money laundering process involves these three basic steps that, in banking parlance, are known as:

  • Placement — physically placing illegal cash in banks or purchasing goods with it . . . such as art, precious metals, real estate, gems or jewelry and so forth.
  • Layering — the act of separating the proceeds from their criminal origins through complex moves such as wire transfers; conversion of cash to financial instruments; sale of high value goods such as art, precious metals, etc.; and real estate investments. And offshore shell companies are a common layering tool as well. Shells obscure the beneficial owners through restrictive offshore bank secrecy laws, not to mention attorney-client privilege.
  • Integration — making the wealth derived from the illicit proceeds appear legitimate. Using funds on deposit in foreign financial institutions as security for domestic loans is a favorite technique. Another ploy is over-billing or producing false invoices for goods allegedly sold across borders.

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As organizations expand their branches all over the world, they also put themselves at risk of being used as centers for financial crimes. So how can organizations ensure that they expand and avoid foul criminals? They should first of all know where their vulnerabilities are.

Where do the vulnerabilities lie?

A 2013 thematic review considered how banks in the UK were managing financial crime risks in their trade finance business. A number of the key findings can certainly be applied to wider industries, too. The review found that, generally, effective controls had been developed to ensure that firms were not dealing with sanctioned individuals and entities. However, weaknesses were identified, including:

  • An inconsistent approach to risk assessment.
  • A lack of clear policies and procedures for dealing with certain money laundering risks.
  • A lack of clear consideration of potential money laundering risks in processing of specific transactions.
  • Failure to produce sufficient management information on financial crime risks, making it difficult for senior management to perform an effective oversight role.
  • Insufficient financial crime training for relevant staff, leading to a failure to make appropriate enquiries or to escalate potentially suspicious transactions.

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It is important to know the telltale signs of money laundering in your business so that you will be able to alert the authorities. One of the signs is getting stories that have no answers in them.

Some Signs of Money Laundering…

The primary contract person does not appear to be the beneficial owners but appears to be acting as a nominee… when questions are asked about the fund – you get stories but no answers.  These front men have more stories than there are gains of sand on the beaches of the world.  Some are so good at answering the question – that they can say nothing for hours and have you agreeing with them – and you have no idea why.

The use of many different entities and transaction architectures that escapes understanding.  It is the “Clown Car” of finance.  We have seen the routine of a zillion clowns coming out of one car at a circus.  It is the same thing in finance.  The clown car and all of the antics of the clowns serves to distract the viewer that it is the same number of clowns sneaking back into the car only to come out again from another door.

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