Recently, the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury provided guidance and information
to financial institutions that will allow them to better comply with their obligations to file suspicious activity reports
(SARs) and implement their anti-money laundering compliance programs. In addition, a multi-national group of banking and other
regulators has released its annual list of countries and territories that fail to cooperate sufficiently in the international
fight against money laundering. Both of these developments warrant the attention of our banking and financial services clients.
From 2000 to 2001, there was an increase in excess of 30% in total SAR filings (from about 120,000 to 157,000). FinCEN's analysis
of SARs uncovered the following trends:
Identity Theft: FinCEN noted an alarming increase in the occurrence of identity theft, often involving attempts to open a bank account or
secure an automobile loan in the name of the victim.
Use by Shell Corporations of Correspondent Bank Accounts:Analysis of SAR data revealed the continued use by money launderers of shell corporations, primarily ones incorporated or
registered to do business in Delaware, Nevada, Oregon, Utah, and Wyoming. The Shell corporations typically had accounts at
offshore banks and exploited the banks' correspondent banking relationships with U.S. banks. These corporations then exploited
these correspondent banking accounts for inappropriate purposes. The report notes that egregious cases have led U.S. banks
to terminate certain correspondent banking relationships. Money Transmitter Activity: SARs continue to reveal that money transmitter
businesses are being used for illegal activity.
Prepaid Telephone Cards: SAR data show that the sale of pre-paid telephone cards may be a mechanism for money laundering activity, in particular,
by businesses selling pre-paid telephone cards in New York, New Jersey, Texas, California, and Florida.
Concentration in California: Analysis of SARs showed a disproportionate concentration of SARs filed by financial institutions in California (23.75% of
all SARs filed between April 1996 and December 2000), nearly twice as many as the next state, New York (12.75%).
Also very recently, the Financial Action Task Force on Money Laundering (FATF), a multi-national group of banking and other
regulators, released its list of countries and territories that are "non-cooperative" in the international fight against money
laundering. FATF took the following actions:
Newly Non-Cooperative Countries Identified. FATF added six new jurisdictions to the list of non-cooperative countries and territories (NCCTs): Egypt, Guatemala, Hungary,
Indonesia, Myanmar (Burma), and Nigeria. In response, FinCEN will be assessing further appropriate guidance for financial
institutions with respect to these six countries.
Countries Removed from List of NCCTs. FATF removed four jurisdictions from the list of NCCTs after these jurisdictions enacted legal reforms: the Bahamas, the
Cayman Islands, Liechtenstein, and Panama. In response, FinCEN issued advisories that these four countries now have counter-money
laundering regimes that generally comply with international standards.
Insufficient Progress Noted. FATF maintained the following jurisdictions on the list of NCCTs, despite some progress in enacting legal reforms and addressing
previously identified deficiencies: Cook Islands, Dominica, Israel, Lebanon, Marshall Islands, Niue, St. Kitts and Nevis,
and St. Vincent and the Grenadines.
Some Countries Exhibit Wholesale Failure to Join Fight Against Money Laundering. FATF maintained the following jurisdictions on the list of NCCTs, noting their continued failure to make progress in enacting
legal reforms and to address previously identified deficiencies: Nauru, Philippines, and Russia.
Implications of Recent Guidance for Anti-Money Laundering Compliance
Identity Theft and Pretext Calling: Banking regulators have advised banks to employ, as part of their obligations under the Gramm-Leach-Bliley Act, a variety
of measures to reduce the risk of identity theft, including: (1) verifying personal information of potential customers; (2)
verifying the legitimacy of change of address requests; and (3) limiting telephone disclosures. Also, FinCEN now asks that
SAR narratives specifically include information about whether suspicious activity is believed to be the result of identity
theft or pretext calling.
Shell Corporations: Be on the lookout for, among other things: (1) complicated mazes or structures for initiating unusual financial transactions;
(2) repetitive wire transfer patterns; and (3) lack of evidence of legitimate business activity.
Money Transmitter Activity: Be on the lookout for the following activity in accounts held by money transmitter businesses: (1) multiple deposits and
few withdrawals; (2) deposits from ambiguous sources; and (3) sudden influxes of funds.
Prepaid Telephone Cards: Be on the lookout for the following activity in accounts maintained by businesses offering prepaid telephone cards: unusual
wire transfers and cashiers' check activity, unexpected check cashing activity, structured deposits and withdrawals amounting
to large sums over a brief period of time, and transactions that are inconsistent with normal business activity. Entities
offering prepaid telephone cards often offer other services such as check cashing, money orders, beepers, cellular telephones,
fax services, and travel tickets. NCCTs: Financial institutions should note the countries and territories that have been added,
removed, or maintained on FATF's list of jurisdictions that are non-cooperative in the international fight against money laundering,
and should continue to follow FinCEN advisories with respect to these countries.
Recent regulatory and enforcement actions relating to obligations under the Bank Secrecy Act confirm that the stakes in implementing
anti-money laundering and compliance programs remain high for financial institutions.
The SAR Activity Review: Tips, Trends & Issues, Issue 2 (dated June 2001) is available online.
FinCEN's SAR Bulletin regarding Phone Card Business (dated June 2001) is available on FinCEN's website.
An example of recent guidance regarding identity theft and pretext calling is available on the Office of the Comptroller of the Currency's website.
FATF's Review to Identify Non-Cooperative Countries or Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering
Measures (dated June 22, 2001) is available on FATF's website.
FinCEN advisories regarding NCCTs are available on FinCEN's website.
