Guest Author - Consuelo Herrera, CAMS, CFE
The 911 Attacks, Eliot Spitzer, and Judge Gross have a common dot. Money laundering and financing of terrorism. Those involved in the devastating 911 attacks were further linked to financial transactions that should have raised red flags and triggered investigations. The awareness created as a result of the measures implemented after September 2001, caused the scandal in which Eliot Spitzer became involved. A series of transactions out of his normal pattern triggered red flags that conveyed in a Suspicious Activity Report filed, which in turn led to uncovering Spitzer links with a ring of prostitution and schemes of corruption. He went from being a smart and well-respected citizen to a shameful set of events that at least represented a lesson learned for many. The transactions in his bank accounts reflected normal transactions: payroll deposits, bill payments, etc. This pattern was abruptly broken when he requested money orders and wire transactions, each one of them under the $10,000 threshold. The reaching point was the minute where Spitzer requested the bank officers not to disclose his name.
Money laundering, as defined by the Federal Financial Institutions Examinations Council in its BSA/AML Examination Manual, is the criminal practice of processing ill-gotten gains, or “dirty” money, through a series of transactions; as a result, the funds are clean and obtain the appearance of legality. Money laundering generally does not involve currency at every stage of the laundering process.
Money laundering basically involves three independent steps:
1, Placement: This is the first and most vulnerable stage of laundering money. The goal is to introduce unlawful proceeds into de financial system without attracting the attention of financial institutions or law enforcement. Placement techniques include structuring currency deposits to evade reporting requirements or commingling currency deposits of legal and illegal enterprises. For example, making three deposits of $2,200, $1,900, and $5,700
2. Layering: Involves moving funds around the financial system. The purpose is to create confusion and eliminate the paper trial. Examples are: wire transfers for different amounts, several accounts in different financial institutions, etc.
3. Integration: In this stage the ultimate of money laundering is accomplished. This stage is used to create the appearance of legality through additional transactions. For example, real estate transactions, trusts, and other assets. The purpose is to have an alibi for the source of these funds.
No even judges whose role is to impart justice are except of falling into the trap that money laundering represents. Here is the sequence of events that, according to the Federal Bureau of Investigation, FBI, took place in a money laundering and corruption scheme that involved a US Judge.
o Judge GROSS met an undercover FBI agent posing as a trafficker in stolen jewelry
o Several meetings
o Judge Gross and his friend agreed that they would launder money and sell stolen jewelry provided by the undercover agent.
o GROSS subsequently introduced the undercover agent to Freeport restaurateur
o Owner joined the scheme ŕagreed to launder the stolen jewelry proceeds and also agreed to produce phony invoices to make it appear that the proceeds were the product of catering parties held Café by the Sea.
o Laundered approximately $130,000 in cash for the undercover agent and kept between fifteen and twenty percent for themselves.
o GROSS and GRUTTADAURIA each sold or agreed to sell more than $280,000 worth of purportedly stolen jewelry provided to them by the undercover agent
(Source: Federal Bureau of Investigation, FBI)
The whole world has been shaken by the impact of money laundering and terrorist financing transactions. Terrorist financing transactions involves both unlawful and legitimate sources. Unlawful activities include extortion, kidnapping, and narcotics trafficking. Improper use of not for profit organizations is pervasive as well.
Follow the money is the key. Financial transactions reveal more than just the economic situation of an organization. Forensic accountants connect the dots.