There are two main risks connected with illegal acts of bank clients: money laundering and financing of terrorism (ML/FT). Money laundering is a criminal process of concealing illegal origin of money which were gained with dishonest means in order to make them legitimate. Terrorist financing can involve legitimate and illegitimate sources, which are supposed to support committing or attempting to commit a terrorist act.

Combating with ML/FT is a crucial issue for the banking sector. It makes a lot of tangible and intangible harm to third parties, individuals and the whole society.

A few methods how criminals make use of banking services and how should banks react and prevent are presented below.

 

Method name

Method description

Bank prevention examples

Using Electronic Transfers of Funds

A transfer of illegal funds initiated by electronic means (i.e. ATM, mobile phone). In order not to be detected criminals vary the amount sent, keep them small and try to use reputable entities.

Monitoring the movement of funds (unusual patterns, payments with no link with existing contracts etc.)

Using Payable Through Accounts

PTA is an arrangement where the customer of respondent bank is allowed to conduct his own transaction through the bank’s correspondent account, without clearing through the respondent bank.  Using PTA gives criminals chance to control funds in foreign country bank.

Strict requirements for clients who can use PTA.

Supervision to follow the legitimacy of transactions.

 

 

Structuring

The criminals hire “runners” who purchase monetary instruments in amounts which are under the limit which is reported.

Identification of “runners”.

Suspicious transaction reports.

Proper documentation.

Cuckoo Smurfing

Transferring the money through the accounts of people who expect genuine payments from overseas. Account holders are not aware that they receive laundering money.

Monitoring of unusual cash deposits.

Identify depositors who pay into third party accounts.

Using E-Purses&Pre Paid Cards

Those instruments can be purchased and provided with money by one person and be used by another. They are attractive for criminals because of their exchangeability and anonymity.

Limitations of functions and capacity of cards (like maximum value or turnover limits).

Payment technologies should be linked to financial institutions and bank accounts.

 

Finally, in order to detect and combat ML/FT crimes, banks should be provided with sound Know Your Customer and Customer Due Diligence Programme.

Summery by Beata Lewicka

Read more: Raza S., A Banker’s role in Prevention of Money Laundering and Terrorist Financing, “Journal of The Institute of Bankers Pakistan”, Volume 83, Issue 1, January-March 2016, pp 7-9. http://ibp.org.pk/pdfs/files/jan-march-2016.pdf