Spotting the red flags/the money laundering indicators is one way to search for hidden assets. The red flags may help you sniff out money or other assets concealed in matters ranging from a high net worth divorce to a securities fraud. Financial Intelligence Units part of the Egmont Group employ red flags to search for money hidden across the globe by terrorist financiers; narco-traffickers; kleptocrats & others. As more fully set forth here, red flags include:¹
- Large-scale cash transactions.
- Atypical or uneconomical fund transfer to or from foreign jurisdiction.
- Unusual business activity or transaction.
- Large and/or rapid movements of funds.
- Unrealistic wealth compared to client profile.
- Defensive stance to questioning.
The case study below, (sanitized for privacy reasons), is also from the Egmont Group.² It is about a homicide; public corruption; fraud; & the laundering of $9.5 million dollars in “Economy F.” The money was washed through a corporate bank account; lawyers’ trust accounts; & bank accounts belonging to money mules. The Financial Intelligence Unit (“FIU”) involved in the case analyzed Suspicious Transaction Reports (“STRs”); issued orders freezing monies; etc.
ECONOMY F: A CASE STUDY
The Economy F police received a criminal complaint from a government department involving fraud and theft. The facts related to the predicate offenses indicated that staff working in the government department colluded with an external crime syndicate to assist in obtaining copies of legitimate vendor payments, which were subsequently duplicated and processed to the benefit of various accounts indirectly linked to the syndicate. The initial loss exposure amounted to approximately US$573,000. Police requested Economy F’s FIU’s assistance in blocking the accounts that received the proceeds of crime, with an additional request to identify other possible players.
The FIU interacted with the relevant accountable institutions and subsequently issued several postponement orders, resulting in US$317,000 of the initial proceeds being secured. This enabled the prosecuting authority to obtain a preservation order to secure the proceeds. These interventions were brought immediately after the police provided proof of the nexus between the criminal offense and the funds that were still available in the identified bank accounts. Upon analysis of the STRs and bank records received of the accounts, the FIU identified various other payments originating from different government departments, which were unknown to the police at that stage, amounting to US$9.5 million.
A large portion of these funds were already dissipated. The FIU was also able to identify that beneficiary names of corporate entities were cloned, to create the impression that legitimate refunds were being paid by the government departments. The FIU approached the various government departments, which were victim of the above-mentioned US$9.5 million fraud, to alert them accordingly. The FIU assisted in identifying the dates, amounts, and accounts that benefited from the additional fraud, which enabled the government departments to identify insiders within their ranks who were complicit in facilitating the fraud. By sharing the information, the government departments and the FIU were able to:
• Engage banks and have fraudulent payments reversed and prevent fraudulent payments that were already loaded to the system awaiting processing (total losses recovered and prevented from dissipation amounted to US$3.5 million)
• Identify contractors that were complicit in assisting the syndicate with remote access to the network
• Have three employees arrested and convicted of fraud, corruption, and money laundering.
The police subsequently investigated a murder case and approached the FIU for assistance, because they had seized numerous checkbooks at a murder scene. The FIU was able to link the details of the checkbooks to the beneficiary accounts of the US $9.5 million fraud case, mentioned above. On the face of it, the deceased had no link to the US $9.5 million fraud, but subsequent analysis and investigation revealed that the deceased co-opted individuals to open the accounts that received the proceeds of crime, whereafter he took complete control of the accounts and manipulated electronic fund transfer payment references to have beneficiaries disguised, including himself, under the name of a corporate entity. Subsequently, the majority of the funds were layered and “cross-fired” to various accounts, including those of attorneys’ trust accounts.
The FIU confronted one of the lawyers with these facts, was shown proof, advised about the limitations associated with the legal-professional privilege, and requested a refund of these funds to a police “financial safe-keeping account.” The repayment of US$61,000 took place within a few days after the FIU requested the refund. Other attorneys obtained proceeds via electronic fund transfers in lieu of property purchases. The relevant funds of these attorneys’ trust accounts, in the amount of US$561,000, were placed under restraint, because they were unwilling to refund the money. These funds were not intervened because the law enforcement authority was able to obtain orders preventing the transfer of immovable properties.
The prosecuting authority also obtained restraining orders over immovable property amounting to US$1.6 million and other movable property valued at US$293,000. In total, more than US$6.1 million were preserved, or placed under restraint. To date, four suspects have been convicted on charges of fraud, corruption, and money laundering. Sentences ranged from 10 years’ imprisonment to suspended sentences. Some of the accused will be witnesses in the cases involving eight additional accused.
¹Red Flags/Six Money Laundering Indicators Courtesy Of The Egmont Group, “100 Cases From The Egmont Group” at p. 172, Appendix A: Most Frequently Observed Indicators.
²Case study courtesy of: Stroligo, Klaudijo, Horst Intscher, and Susan DavisCrockwell. 2013. Suspending Suspicious Transactions. World Bank Study. Washington, DC: World Bank. doi:10.1596/978-0-8213-9917-0 License: Creative Commons Attribution CC BY 3.0
Money Laundering Illustration: Igor Zakowski/Shutterstock.com
Copyright 2015 Fred L. Abrams