How to detect money laundering

It is possible that one of the questions we money laundering prevention analysts are asked most often is: how do you know when a person is laundering money? What is their economic behaviour? In this article we are going to try to tell you some of the measures we take into account when carrying out an analysis.

We can say that this is a question to which it is not easy to give a generic answer, since - so far - there is no list with concrete and detailed indications that guarantee that certain operations are related to Money Laundering and/or Financing of Terrorism. Moreover, as in any action movie, criminals are always ahead of us, and are constantly inventing new ways to carry out their mission. 

However, there are common indicators or behaviours already identified that allow us to signal or prevent suspicious movements. Experience and training in the sector have meant that more and more measures can be put in place to make it more difficult for illicit funds to enter our financial system. 

The following are some examples of certain types of behaviour where it would be advisable to analyse their characteristics in detail. It should be mentioned that sometimes criminals use not only one of the techniques, but a combination of several of them:

Unusual behaviour of the customer: 

• If the customer is excessively nervous.
• He does not want to provide documentation on a particular transaction he is carrying out.
• Insists on paying a bonus.
• A broker, lawyer or financial advisor is acting on behalf of another person without proper documentation, such as a power of attorney.
• The customer provides unusual or suspicious identification documents or refuses to produce the originals for verification.
• The customer is unwilling to provide personal background information when opening an account.
• Customer attempts to open an account without identification, references or a complete local address.

Unusual transactions

• A student or unemployed person deposits large sums of money.
• Cash deposits contain high denomination banknotes, in instalments or by teller.
• The customer frequently exchanges high denomination banknotes for low denomination banknotes.
• Transfers are sent or received from or to different accounts from the same person.
• The price of products or services is obviously excessive or insufficient.
• A person who is not an account holder sends a transfer with funds including.
• The making of transfers to tax havens.
• A sudden increase in the customer's account activity.

Of course, we cannot forget institutions such as the Financial Action Task Force (FATF), which compiles the most recognised international standards for combating Money Laundering and Terrorist Financing, and provides recommendations with the purpose of aligning the development of anti-money laundering policies. 

In addition, it is important to always keep up to date with the economic behaviour of society. As we already know, we are in a constantly changing world, and criminal techniques are constantly adapting to any gaps presented by new circumstances.  It is undoubtedly one of the most relevant sources of information that obliged entities will use in order to set up the alerts generated in the event of risk movements, and to be able to analyse them in detail. 

The money laundering process is usually divided into three phases: placement, concealment and integration. In the following, we will define each of them by giving examples of some of the most well-known techniques in each of the phases:

• Placement: this consists of introducing the money obtained from the illicit activity into the financial system. A fairly common example at this stage is the making of constant, fractional cash deposits into bank accounts. It is much more discreet to do this in small amounts, as it does not attract as much attention as a single large deposit.
• Concealment: this is the attempt to disassociate the funds from their illicit origin by moving them between different accounts, banks and/or countries, both for individuals and legal entities. This phase is usually carried out through operations designed to conceal the origin of the illicit funds, such as shell companies, transfers between national and international bank accounts that make it difficult to analyse the traceability of the funds, money transfers to tax havens, etc.
• Integration: this is the last part of the process, in which the laundered funds already have the appearance of legal income. At this point, the launderer has this capital at his disposal to invest it in companies, loans, real estate, investment funds... or any asset that will generate future profitability.

A simple example that encompasses all three phases would be the following:

A person has obtained 40,000 euros from an illicit business such as drug trafficking. He deposits the funds in cash by means of operations of 5,000 euros in several current accounts contracted in different entities and for several days. Once he had all the funds in his account, at the doorstep of the financial system, he decided to buy premises that he would later rent.

However, as we mentioned earlier, there are more and more measures being taken by obliged entities that make this type of operation more difficult. Pressure from the authorities and awareness on the part of the sectors involved have led to progress in the detection of suspicious transactions, and failure to justify suspicious transactions can lead to disassociation from banks, insurance companies, casinos or other obliged parties. 

Silvia Monroy, Collaborator of the Economic Crime Area of Sec2Crime