Money Laundering and Your Bank Accounts – Part VI – Loans

photo by Drew Hays,
This is the sixth part in our series revealing exactly what banks are looking for when they are combatting money laundering.

Laundering Money Through Lending Activity

Money launderers course massive sums through loans and investments. Bank authorities must perform significant due diligence to detect money laundering in these cases. To top that off, some governments try to discourage detection of such money laundering activities through legislation and regulation.

A borrower secures loans using pledged assets held by third parties unrelated to the borrower.

Launderers clean dirty money by pledging an asset purchased with dirty money to secure a clean loan. Sometimes, they course the funds through several banks, several shell companies, and one or two straw men. The bank may ask many questions to prevent any money laundering. The borrower must answer those questions convincingly.

A borrower secures a loan by using readily marketable assets, such as securities. If a third party owns the assets then the transaction is especially suspicious.

Borrowers don’t usually pledge easily marketable assets to get cash. The borrower can sell such assets with less difficulty than taking out a loan. If a borrower does not, he needs to be able to explain why. He will need to provide a convincing reason.

A borrower defaults on a loan that is secured by easily marketable assets.

The borrower probably took out the loan in order to default on it. Launderers create these schemes as a way to convert somewhat clean assets and create clean money.

Loans are made for or are paid on behalf of, a third party with no reasonable explanation.

“Reasonable explanation” generally requires significant documentary support. Absent that support, someone is going to be sitting in front of an investigator trying to answer questions.

The borrower purchases a certificate of deposit using an unknown source of funds in order to secure a loan.

When funds are provided via currency or multiple monetary instruments the source of the security is even more suspicious.
Banks may permit the borrower to partially or fully secure a loan by purchasing a CD issued by the bank. However, banks that do so must thoroughly vet the source of the funds. If they don’t, regulators will suspect them of colluding in money laundering.

Banks make loans that lack a legitimate business purpose

Or they may provide the bank with significant fees for assuming little or no risk, or tend to obscure the movement of funds (e.g., loans made to a borrower and immediately sold to an entity related to the borrower) will be suspected of colluding to launder money.
In other words, they are loans that don’t make sense from both the borrower’s and lender’s point of view unless criminal activity is involved.

Money Laundering and Your Bank Accounts – Part V – Suspicious Activity

mental laundering - starkness
photo by Jace Grandinetti

Suspicious Activity: Any Activity Inconsistent with Your Business

This is the fifth part in our series revealing exactly what banks are looking for when they are combatting money laundering.
Money launderers sometimes try to fool banks by providing convincing evidence of their honesty when they open their account. Then when the account is running, they change their operations into money laundering mode.

A business’s pattern of currency transaction patterns shows a sudden change inconsistent with its normal activities.

For example, you operate an import-export business that receives £100,000 spread among ten customers. Then, over the course of a few months, you ramp up the deposits to £300,000 spread among several hundred customers. This is a clear change in the way you do business and would elicit an investigation. The bank would also find it suspicious if suddenly one customer paid you an unusually large amount.

Money Laundering by depositing a large volume of cashier’s checks, money orders, or funds transfers deposited into or purchased through, your account when the nature of your business would not appear to justify such activity.

This is an extension of the previous pattern but extends to domestic business and physical payments are also important.

Money Laundering through a retail business with dramatically different currency deposits from similar businesses in the same area.

Perhaps a drug gang purchases a restaurant to launder money. Similar restaurants in the neighborhood receive practically all of their payments through credit and debit cards. On the other hand, the gang’s restaurant’s receipts are almost all cash. This discrepancy will alert the bank inspectors. Because they inspect the banks, they are aware of the activity of all the banks in the neighborhood. Furthermore, this activity will alert bank software that keeps track of patterns for similar businesses, local and national.

Clients effect unusual fund transfers among related accounts or among accounts that involve the same or related principals.

The owner of either a retail business and a cheque-cashing service does not ask for currency when depositing checks. He may have another source of currency.
Retail businesses in the 21st century frequently need to request currency because of a large number of credit card and debit card transactions. And, of course, a cheque cashing business that had no requirement for cash would be odd, indeed. If they don’t require currency from time to time, this is an item to be investigated.

Goods or services purchased by a business do not match the customer’s stated line of business.

A client layers transactions to launder money. For example, a fast-food restaurant assembles payments from street-corner drug dealers. Then the restaurant pays invoices for car parts to a gang-owned auto parts dealer. The dealer assembles the payments from several restaurants and passes them up the chain to a diamond wholesaler. A fast-food restaurant buying auto parts? An auto parts retailer buying diamonds? The bank sees these transactions and checks for money laundering.
A client pays for goods or services with checks, money orders, or bank drafts not drawn from the account of the entity that made the purchase.
Businesses should never pay on behalf of other businesses or individuals. Third-party transactions can mask illegal payments. Accountants will discourage such payments. Banks will suspect them.

Money Laundering and Your Bank Accounts – Part IV – Automated Clearing House (ACH)

dirty money needs laundering
image by Vitaly via

This is the fourth part in our series revealing exactly what banks are looking for when they combat money laundering.

Automated Clearing House Transactions – Policing Money Laundering

“Automated Clearing House” or ACH refers to all clearing houses, not only to the U.S. one with that name. GIRO, NETS, ACH, CHAPS, EFT, BACS, PEACH, SDD and others are all automated clearing houses. Launderers attempt to route transactions through them to bypass some anti-money laundering safeguards.


The rapid rise of financial technology (Fintech) third party quasi-banks has created new openings for money laundering. PayPal was one of the earliest Internet Fintech companies but many have followed in its wake. Fintech quasi-banks carve up the banking product into pieces. Each fintech company provides one or two services, adding to the burden of regulators. Ayden, LendingClub, Addepar, Commonbond, Kabbage, Transferwise, etc. are a few of the many third party fintechs. Fintechs are generally on the up-and-up but it is reasonable to assume that some are designed as money laundries and are even capitalized by dirty money.

Non-customers launder money by using large-value, ACH transactions through third-party service providers (TPSP) that don’t perform effective due diligence.

Regulators don’t control TPSPs as rigorously as banks. So money launderers can move money into the banking system without the usual controls. ACH systems must flag such transactions. Regulators are looking at the TPSP environment now. Even so, they only look at deposits, checks payment, and money lending.

TPSPs violate ACH network rules, or generate illegal transactions, or process manipulated or fraudulent transactions on behalf of their customers in order to facilitate money laundering.

Regulators should close down TPSPs after catching them breaking the law, but often they don’t. Usually, regulators don’t consider the transgressions to be bad enough to put them out of business and may impose lesser penalties. Bank regulators will look for regular patterns of abuse by TPSPs. When they find an abusive TPSP, they will punish banks that have done business with it. But that takes time. Meanwhile, money launderers and their crooked clients continue to operate.

Layers of TPSPs that appear to be unnecessary are involved in transactions in order to launder money.

Always and everywhere, officials use complexity to facilitate fraud or theft. Complex tax codes such as that of the U.S. are examples of regulations designed with malicious intent. Complex financial deals are often designed to defraud. Regulators find such fraud hard to detect if they were designed with care. Launderers use TPSP layers to facilitate much of the money laundering outside the main banking system.

Clients initiate an unusually high level of transactions over the Internet or by telephone.

This is simply smurfing by another means and is as easy to track as any other kind of smurfing. Banks will usually detect this in the twenty-first century, and if they don’t, their regulators will.

NACHA information requests indicate potential concerns with the bank’s usage of the ACH system… i.e. they may suspect money laundering.

NACHA doesn’t communicate directly with end users of the US ACH. That is important for you to know because fake NACHA emails are a goldmine for phishing attacks. However, NACHA does have a set of rules and the ability to fine members who do not obey them. Furthermore, banks can alert NACHA of suspicious transactions they see. Third party software such as that provided by NICE•Actimize can automatically detect the misuse of ACH transactions. Those are reported to NACHA and bank regulators.

Can Money Launderers penetrate the system?

Yes. Many people try to game the system and succeed. It is clear that in many governments themselves are anxious to leave some channels available to move dirty money with little friction. Power and money laundering go hand-in-hand.

How do money launderers work in the 21st century?

In one scheme, criminals route debt obligations across multiple borders to clean dirty money. For example, X takes out a loan for a million dollars from a peer-to-peer fintech lender in the U.S. He deposits the loan in his U.S. account. He then funds the repayment of the loan from a Bank of Cyprus account using a UK peer-to-peer fintech fund offset service. Money crossed no borders under this scheme. On the other hand, the launderer moved a million dollars from his Russian-controlled Cyprus account into the U.S. When he repays in amounts of around $5,400 per month they will be thought to be normal payments for a thirty-year loan. Only the structure of the transaction would give a clue as to what was going on and given the separation in location and time, no alarms will sound.

We will discuss other schemes later in this series.

Money Laundering and your Bank Accounts – Part III – Funds Transfers

image by Vitaly via

This is the third part in our series revealing exactly what banks are looking for when they are combatting money laundering.
Transferring funds is at the heart of commerce and is the most important function performed by modern banks. Transferring funds is also at the heart of money laundering. Move dirty money through enough hands by sufficiently devious means and at some point, it magically becomes clean.
Think about this, if we can describe an activity, it is possible to write software to detect it. Banks do just that.

Bank Checks on Money Laundering Funds Transfers

You transfer funds in large, round dollar, hundred dollar, or thousand dollar amounts.

This is classic smurfing. Sudafed smurfs were buyers for meth labs who would go from drugstore to drugstore purchasing Sudafed cold medicine containing pseudoephedrine. The manufacturer then made crystal meth from the pseudoephedrine. Smurfing has expanded into money laundering. Smurfs typically deposit small amounts to many accounts. The money from those accounts is then assembled and transferred to a master account in another country. Then someone transfers the money, this time to the actual beneficiary. Dirty money often travels through several jurisdictions before arriving at the final destination.

Funds transfer activity occurs to or from a financial secrecy haven, or to or from a higher-risk geographic location without an apparent business reason or when the activity is inconsistent with the customer’s business or history.

“Higher-risk geographic locations” tend to be tiny island nations such as the Cayman Islands, Vanuatu or the British Virgin Islands. But, they are also places such as Luxembourg and Gibraltar. Banks maintain a list of risky jurisdictions. Transactions involving such jurisdictions receive extra scrutiny.

Funds transfer activity occurs to or from a financial institution located in a higher risk jurisdiction distant from the customer’s operations.

There might be a logical reason for a Florida business to be remitting to or receiving funds from the British Virgin Islands, which are close by. On the other hand, it is unlikely that they’d be doing much business with the Cook Islands in the South Pacific. Again, banks will pay extra attention to such transactions.

Your accounts receive many small, incoming transfers of funds, or receive deposits of checks and money orders. Then, almost immediately, all or most of the transfers or deposits are wired to another city or country. Usually, the transfers are in a manner inconsistent with the customer’s business or history.

Again, we see smurfing on a large scale. Drug cartels purchase chain restaurants, casinos, entertainment and sports venues in order to be able to launder money through them. These venues typically have large numbers of small transactions; ideal for throwing banks off the scent. But law enforcement has statistical data that can sniff out this sort of money laundering.

Your accounts receive large, incoming funds transfers on behalf of a foreign client, with little or no explicit reason.

Banks want to know what to expect. If you are going to be receiving a large amount of money, it is wise to tell them in advance what is going on. Ensure that they write it down so that you can avoid suspicion. You may think it is troublesome, but having the FBI knocking on your door is real trouble.

Transferring funds is unexplained, repetitive, or shows unusual patterns.

To the average person, the world seems jumbled, chancy, ad hoc. But those who pay attention see patterns. So it is with bank accounts. Observe enough bank accounts and you’ll see that 99.9% of them follow predictable patterns. If your account is in the one-tenth of one percent, the bank will examine it closely.

You receive payments or receipts with no apparent links to legitimate contracts, goods, or services.

If you run an asphalt business and suddenly receive payment in your account for a Ferrari, that may well be flagged. Receive payment for a Ferrari and a luxury condo and it will be flagged.

You send funds to the same person using different accounts or to different accounts. Or the reverse.

Well Sir Smurf-a-lot, banks figured out this channel a long time ago. It can work, but only by using multiple aliases or smurfs at many banks over a long time.

You don’t provide enough information regarding funds transfers, not only the why but also the who of related parties.

Banks detect these omissions sometimes but they fall into a gray zone. Protect yourself by being open and up front in describing both why the transaction is taking place and who the beneficiary is.

Money Laundering and Your Bank Accounts – Part II – Avoiding Scrutiny

image by Andrew Gook

This is a continuation of our series on money laundering and bank accounts. We hope to help you avoid making yourself look guilty during the normal course of business. Keeping things above board is the surest path to a sound sleep.

Guilty Until Proven Innocent

When interacting with the banking system you have no assumption of innocence working on your behalf. With over a trillion dollars having already been laundered and billions more being laundered every year, monetary authorities are nervous. Furthermore, only 0.2% of the money laundered is caught. Every citizen pays the cost for this in higher taxes and higher prices.
Know what the cop on the beat is looking for and you can stay above reproach. Sometimes this may seem troublesome, but in the long run, your life will be easier.

Common Efforts to Avoid Reporting or Recordkeeping Requirements

You try to persuade a bank employee not to file required reports or maintain required records for your bank accounts.

This is a high-speed train to prison. Don’t even think about it.

You are reluctant to provide information needed to file a mandatory report, to have the report filed, or to proceed with a transaction after being informed that the report must be filed.

Reluctance looks like guilt. Know in advance everything that is required of you. If the workload is too great or the information too sensitive, don’t open an account.

You hesitate to furnish identification when purchasing negotiable instruments in recordable amounts.

Negotiable instruments are cumbersome, but in sufficiently large quantities can be useful to money launderers, especially if they are smurfing. (Doing many small transactions to avoid alerting authorities.) Banks know this. Bank examiners know this. Never, ever hesitate to show your identification.

You ask to be exempted from reporting or record-keeping requirements for your bank deposits.

When it comes to money, criminals don’t want perfect records. Sloppy/missing records are the hallmark of criminal intent. Keep perfect records and give the banks what they ask for and be happy to do so.

You often use the automated teller machine to make several bank deposits below a specified threshold.

Banks look for multiple small transactions (“structured transactions”) which are used to get around the $10,000 limit. Using an ATM or multiple ATMs won’t hide the structured deposits. Make deposits to different accounts and in different amounts and collect them ultimately in one account and you’ll set off an alarm. Don’t bother to try.

You deposit funds into several bank accounts, usually in amounts of less than $3,000.Then you consolidate them into a master account and transfer them outside the country.

Bad move. If you send the money to or through a suspicious location you may hear a knock on your door. This is just one small step more complicated than the earlier approach. They will notice.

You access a safe deposit box after completing a transaction involving a large withdrawal of currency or accesses a safe deposit box before making currency deposits structured at or just under $10,000, to evade the bothersome CTR filing requirements.

The bank tracks everything you do with its computers. You can’t fool them with something this simple. Why try?

Money Laundering and Your Bank Accounts – Part I – Hiding Information

money laundering machine
Businesses and individuals don’t know what banks are looking for when deciding to open an account; it used to be so easy!  Anti-money-laundering and terrorist financing detection regulations are the problems.

Over the next few blogs, we will alert you to a number of things that legitimate banks must check. If you want to avoid difficulties, don’t stray into any of these areas.

The first customers that regulators look for are those who provide insufficient or spurious information. When such situations arise, the money laundering alarms will ring and the bank will take significant actions to resolve the situation; usually not to your benefit.

Identification Problems

The customer uses unusual or suspicious identification documents that cannot be readily verified.
His chances of opening an account are almost nil at any bank that he can actually trust with his money if they don’t believe his identity is real.

When the customer first opens the account he gives a taxpayer ID and then later provides a different sort of taxpayer ID. For example, in the U.S. he provides an individual taxpayer identification number after earlier providing a Social Security number.

The customer uses different identification numbers with variations of his or her name.
The customer may not know this, but banks design their software to detect such frauds.

A business won’t provide complete information about the nature and purpose of its business, anticipated account activity, prior banking relationships, the names of its officers and directors, or information regarding its place of business.
Of course, a customer who conceals facts sets off money laundering alarms.


The phone company says that customer’s home or business telephone is not in service.
Why would someone opening a legitimate bank account provide a bad phone number? In fact, banks don’t believe they would; they’re probably money laundering or terrorists.

Suspicious Activity

The customer’s background differs from that which would be expected on the basis of his or her business activities.
If someone leaves his job in one field to start a business in another field may have this problem. He will need to give a convincing reason for accepting this.

The customer makes frequent or large transactions and has no record of past or present employment experience.

The customer is a trust, shell company, or Private Investment Company and is reluctant to provide information on controlling parties and underlying beneficiaries. In such cases, beneficial owners may hire nominee incorporation services to establish shell companies and open bank accounts for those shell companies while shielding the owner’s identity.
Anonymous intermediaries are one of the most common problems banks have with prospective accounts. Unsurprisingly, bank regulators don’t trust them and proper jurisdictions provide one way or another for revealing the beneficial owners of the account. Banks must know their customers and anonymous intermediaries prevent that.

You must beware of over a hundred other things that banks may use to impair your account. Deal with the professionals at Hilda Loe Associates to maximize your chances of opening a bank account.